UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| | x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended December 31, 2019
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| | For the fiscal year ended December 31, 2018 |
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| | ¨☐ | 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
CBS CORPORATIONViacomCBSInc.
(Exact name of registrant as specified in its charter)
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DELAWARE
Delaware | | 04-2949533 |
(State or other jurisdiction of incorporation or organization) | | 04-2949533
(I.R.S. Employer Identification Number) No.) |
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51 W. 52nd Street
| 1515 Broadway | |
| New York, NY 10019 | New York | 10036 | |
(212) 258-6000
(Address, including zip code, and telephone numbers, including
(212) 975-4321
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbols | | Name of Each Exchange on Which Registered | |
| Class A Common Stock, $0.001 par value | VIACA | | New YorkThe Nasdaq Stock ExchangeMarket LLC | |
| Class B Common Stock, $0.001 par value | VIAC | | New YorkThe Nasdaq Stock ExchangeMarket LLC | |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant was required to submit such files). Yes x☒ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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.
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Large accelerated filerx | ☒ | | Accelerated filero | ☐ | | Non-accelerated filero | ☐ | | Smaller reporting companyo | ☐ | | Emerging growth companyo | ☐ |
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 29, 2018,28, 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 $0.001 par value (“Class A Common Stock”), held by non-affiliates was approximately $430,735,007$243,415,727 (based upon the closing price of $56.49$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 $18,367,556,649$16,424,348,923 (based upon the closing price of $56.22$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 $18,798,291,656.$16,667,764,650.
As of February 13, 2019, 25,293,97214, 2020, 52,268,438 shares of Class A Common Stock and 347,676,011561,471,552 shares of Class B Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of CBS Corporation’sViacomCBS Inc.’s Notice of 20192020 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 (Part III).
CBS CORPORATIONVIACOMCBS INC.
TABLE OF CONTENTS
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PART I
CBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the “Company” or “CBS Corp.”OVERVIEW
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:
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| • | ENTERTAINMENT: TheTV Entertainment. Our TV Entertainment segment is composedcreates 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 the CBS Television Network®™ Television Network;, CBS Television Studios®; CBS Global Distribution Group™(composed of CBS Studios International™ and, CBS Television Distribution™); Network 10™;Distribution®, CBS Interactive®; , CBS Sports Network®, the Company’s cable network focused on college athleticsCBS Television Stations™ and other sports; CBS Films®; and the Company’s direct-to-consumer digitalCBS-branded streaming services CBS All Access®, and CBSN®, among others.
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| • | Cable Networks. Our CBS Sports HQCable 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® ET Liveand 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™ (“VCNI”); international broadcast networks, Network 10®, Channel 5®and Telefe10 All Access®; and Pluto TV™, a leading free streaming TV platform in the United States (“U.S.”). |
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| • | CABLE NETWORKS: The Cable NetworksFilmed Entertainment. Our Filmed Entertainment segment is composed of Showtime Networks, which operates the Company’s premium subscription program services Showtimedevelops, produces, finances, acquires and distributes films, television programming and other entertainment content in various markets and media worldwide primarily through Paramount Pictures®, Paramount PlayersThe Movie Channel™, Paramount Animation® and FlixParamount Television Studios®™, and a direct-to-consumer digital streaming subscription offering; and Smithsonian Networks™, a venture between Showtime Networks and Smithsonian Institution, which operates Smithsonian Channel™, a basic cable program service, and Smithsonian Channel Plus™, a direct-to-consumer digital streaming subscription service..
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| • | PUBLISHING: The Publishing. Our Publishing segment is composed ofpublishes and distributes Simon & Schuster which publishes and distributes consumer books underdomestically and internationally and includes imprints such as Simon & Schuster®, Pocket Books®, Scribner®™, GalleryAtria Books® and AtriaGallery Books®.
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LOCAL MEDIA: The Local Media segment is composed of CBS Television Stations, the Company’s 29 owned broadcast television stations; and CBS Local Digital Media™, which operates local Websites including content from the Company’s television stations.
For the year ended December 31, 2018,2019, contributions to the Company’sour consolidated revenues from itsour segments were as follows: TV Entertainment 70% 43%, Cable Networks 15% 45%, Publishing 6%Filmed Entertainment 10% and Local Media 13%Publishing 3%. The Company generated approximately 17% of its total revenues from international regions in 2018. For the year ended December 31, 2018, approximately 44% and 11% of total international revenues of approximately $2.54 billion were generated in Europe and Canada, respectively.
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 operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television stations, direct-to-consumer digital streaming services and other 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 affiliate and subscription fee, licensing and advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company plans to increase its investment in premium content to enhance its opportunities for revenue growth, which include exhibiting the Company’s content on its direct-to-consumer digital streaming services; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”), including cable, direct broadcast satellite (“DBS”), telephone company, and other distributors, as well as third-party live television digital streaming offerings (“virtual MVPDs”), for authorizing the MVPDs’ and virtual MVPDs’ carriage of the Company’s owned television stations (also known as “retransmission fees”) and cable networks, and securing compensation from television stations affiliated with the CBS Television Network (“station affiliation fees,” also known as “reverse compensation”). The Company also seeks to grow its advertising revenues by monetizing all content viewership as industry measurements evolve to reflect viewers’ changing habits.
The Company competes with many different entities and media in various markets worldwide. In addition to competition in each of its businesses, the Company competes for opportunities in the entertainment business with other diversified entertainment companies such as The Walt Disney Company, NBCUniversal Media, LLC, Twenty-First Century Fox, Inc. and the WarnerMedia segment of AT&T Inc., formerly Time Warner Inc.
During the fourth quarter of 2018, the Company began presenting CBS Sports Network in the Entertainment segment to reflect changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Results for all periods presented have been reclassified to conform to this presentation. Also during the fourth quarter of 2018, in connection with recent management changes, the Company implemented changes to its programming strategy, primarily at CBS Films, which will shift its focus from theatrical films to developing content for the Company’s direct-to-consumer digital streaming services.Nasdaq Stock Market LLC.
As of February 13,December 31, 2019, National Amusements, Inc. (“NAI”), a closely held corporation that owns and operates approximately 950 movie screens in the U.S., the United Kingdom (“U.K.”UK”) and South America and manages 4additional movie screens in South America, directly or indirectly owned approximately 79.8%79.4% of the Company’sour voting Class A Common Stock, and approximately 10.5%10.2% of the Company’sour Class A Common Stock and Class B Common Stock on a combined basis. Owners of the Class A Common Stock are entitled to one vote per share. The 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.
The Company wasWe were organized inas a Delaware corporation in 1986. The Company’sOur principal offices are located at 51 W. 52nd Street,1515 Broadway, New York, New York 10019. Its10036. Our telephone number is (212) 975-4321258-6000 and our website is www.viacbs.com. Information included on or accessible through our website is not intended to be incorporated into this Annual Report on Form 10‑K. On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the surviving company (the “Merger”), pursuant to an Agreement and Plan of Merger dated as of August 13, 2019, as amended on October 16, 2019 (the “Merger Agreement”). At the effective time of the Merger, we changed our
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.
CBS CORP. BUSINESS SEGMENTSTV ENTERTAINMENT
Overview
Our TV Entertainment (70% of the Company’s consolidated revenues in 2018, and 68% of the Company’s consolidated revenues in each of 2017 and 2016, and 55%, 54% and 53% of the Company’s total segment operating income in 2018, 2017 and 2016, respectively)
The Entertainment segment consists of the CBS Television Network;Network, our domestic broadcast network; CBS Television Studios and CBS GlobalTelevision Distribution, Group (composed of CBS Studios International and CBS Television Distribution), the Company’sour television production and syndication operations; Network 10, the Company’s commercial broadcast network in Australia; CBS Interactive, the Company’sour online content networksservices for information and entertainment; our CBS-branded streaming services CBS All Access, CBSN, CBS Sports HQ® and ET Live®; CBS Sports Network,, the Company’s our cable network focused on college athletics and other sports; and CBS Films; and the Company’s direct-to-consumer digital streaming services CBS All Access, CBSN, CBS Sports HQ, ET Live and 10 All Access.Television Stations, our 29 owned broadcast television stations.
Television Network.Our TV Entertainment segment’s revenues are generated primarily from advertising sales, the licensing and distribution of its content and affiliate revenues comprised of station affiliation fees, retransmission fees and subscription fees, as further described below. In 2019, our TV Entertainment segment advertising revenues, content licensing revenues and affiliate revenues were approximately 50%, 26% and 21%, respectively, of total revenues for this segment. Our TV Entertainment segment generated 43%, 41% and 39% of our consolidated revenues in 2019, 2018 and 2017, respectively.
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. Overall advertising revenue for the network is also impacted by audience ratings for its programming and market conditions, including demand in the scatter advertising market, in which advertisers purchase the remaining advertising spots closer to the broadcast of the related programming. The Company offers dynamic advertising insertions forstations affiliated with the CBS Television Network’s on-demand programming, which allows the Company to change advertisements at any time within such programming and offer advertisers greater audience reach. The Company is focused on developing advanced advertising products
that enable advertisers to target specific audience segments. 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 2018,2019, the CBS Television Network broadcast the Tony Awards®, the Kennedy Center Honors and the Grammy Awards®. The CompanyCBS won 2021 awards at the 4546th Annual Daytime Emmy® Awards in April 2018. 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, for which the Company extended its broadcast rights in October 2018 through 2030; certain games fromChampionship; 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 2018,2019, 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 February 2019.2019 and our next Super Bowl broadcast will be in February 2021.
CBS Television Network content also is exhibited via the internet,Internet, including through CBS.com™, CBSSports.com® and related software applications (“apps”); the Company’s direct-to-consumerour streaming services, such as CBSN,the Company’slive digital streaming advertiser-supported news network available 24 hours a day, seven days a week, CBSN New York and CBS All Access,, the Company’s digital streaming subscription service which includes a commercial-free option for on-demand content;are further described below; and virtual MVPDs, such as DIRECTV NOW,AT&T TV Now, Hulu with Live TV and YouTube TV.CBS All Accessoffersbothcurrent and library programming as well as original series, such as The Good Fight, Star Trek: Discovery, No Activity, Strange Angel and Tell Me a Story and the new upcoming The Twilight Zone series and CBSN’s live and original reporting. All NFL games broadcast by the CBS Television Network are streamed on CBS All Access platforms under the Company’s multi-year deal with the NFL. Digital streaming services that provide video content, including from broadcast and/or cable channels, streamed via the internet to users who are not required to have a subscription to an MVPD (such as virtual MVPDs and direct-to-consumer services) are known as over-the-top or “OTT” services. Digital streaming services that do not require payment to a third party are known as “direct-to-consumer” services, such as CBS All Access. 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.
The CW, a broadcast network and the Company’sour 50/50 joint venture with Warner Bros. Entertainment, airs programming, including Charmed, Dynasty, Supergirl and The 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.
Television Production and Syndication.
CBS Television Studios and CBS GlobalTelevision Distribution Group 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-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” 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, FBI (CBS), Seal Team (CBS), NCIS (CBS), Bull (CBS), Magnum P.I.Evil (CBS), Madam Secretary (CBS), Criminal Minds (CBS), Charmed (The CW) 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, No Activity, Strange AngelWhy Women Kill and Tell Me a Story for streaming on CBS All AccessStar Trek: Picard. The CompanyWe also distributesdistribute syndicated and other programming internationally.
The Company continues to monetize its content through digital media. It enters into and renews numerous multi-year licensing agreements for distribution of certain of its programming to various services reaching countries throughout the world, particularly the U.S., Canada and in Europe. These services include digital streaming on subscription or advertiser-supported video-on-demand services, including services by Amazon, Bell Media, Hotstar, Netflix, Stan Entertainment and Telefonica; virtual MVPDs, including DIRECTV NOW, Hulu with Live TV and YouTube TV; and digital downloading on various electronic sell-through services owned by Amazon, Apple, Google and Microsoft, among others.
Fees for television programming licensed for syndication and digital streaming are recorded as revenues at the beginning of the license period in which the programs are made available for exhibition, which, among other reasons, may cause substantial fluctuations in the Entertainment segment’s operating results. Unrecognized revenues attributable to such license agreements were $1.08 billion and $670 million at December 31, 2018 and December 31, 2017, respectively.
In November 2017, the Company acquired Ten Network Holdings Limited, one of three major 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, a direct-to-consumer digital streaming subscription service in Australia, which the Company launched in December 2018, featuring programming from the Company and Network 10. Network 10 principally derives revenue from the sale of advertising for its network broadcasts and related digital services.
The Company also has interests in domestic and international joint ventures. The Company owns a 50% interest in a joint venture with Lionsgate, which owns and operates the entertainment cable network Pop®. The Company owns a 49% interest in a joint venture with a subsidiary of AMC Networks Inc., which owns and operates channels in the U.K. and Ireland, including CBS Justice™, CBS Drama™, CBS Reality™ and Horror Channel™. The Company also owns a 30% interest in a joint venture with another subsidiary of AMC Networks, which owns and operates cable and satellite channels in Europe, the Middle East and Africa broadcasting CBS programming and branded as CBS Justice, CBS Reality and CBS Europa™.
CBS Interactive.CBS Interactive is one of the leading global publishers of premium content on the internet,Internet, delivering this content via Webweb properties, mobile properties and CBS apps on mobile, as well as internet-connectedInternet-connected television and other device platform apps. CBS Interactive is ranked among the top internetInternet properties in the world according to comScore Media Metrix. CBS Interactive’s leading brands including CNET®, CBS.com™, CBS All Access, CBSSports.com, CBS Sports HQ, 247Sports®, GameSpot®, MaxPreps®, ET Live, TVGuide.com™, CBSNews.com™, CBSN, ZDNet®, Last.fm®, and MetroLyrics.com®, among others, serve targeted audiences with text, video, audio, and mobile content spanning technology, entertainment, sports, news, business, gaming and music categories. In addition to its U.S.-based business, which reached approximately 165 million U.S. unique monthly visitors during December 2018 according to comScore Media Metrix, January 2019, CBS Interactive operates in Asia, Australia and Europe.
CBS Interactive generates revenue principally from the sale of advertising and sponsorships, in addition to subscription fees, derived from subscriptions, license fees search and commerce partners, e-commerce activities, 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.activities.
CBS Interactive owns and operates 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; 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; GameSpot, a leading gaming information digital property providing video game reviews and previews, news, eSports, Webcasts, videos, and game downloads; 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.
CBS Interactive also operates CBS.com,, the online destination for CBS Television Network programming. Further extending the CBS.com experience, the Company offerswe offer a CBS app for on-demand streaming of various programs from the Company’sour current network and library programming to users 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.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 features; Max Preps; 247Sports; Scout;features, and BoxingScene®. Further extending the CBSSports.com experience, the Company offers ana related app for on-demand viewing of certain sports events broadcast on CBS as well as scores, news, standings and other sports information.information; Max Preps; and 247Sports.
CBS Interactive also owns and operates other digital properties, including: CNET, one of the preeminent digital properties for technology and consumer electronics information;CNET en Espanol®; TVGuide Digital™; GameSpot®; Last.fm®; and MetroLyrics.com®.
Under CBS Interactive, Viacom 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 sale of advertising on such services, respectively. The services are offered to customers through mobile and connected devices and third-party platforms. The below-described services are operated under CBS Interactive in collaboration with our other businesses.
CBS All Access, the Company’s direct-to-consumer 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, No ActivityStar Trek: Picard,Strange Angel Why Women Kill andTell Me a Story and the new upcoming The Twilight Zone series; and CBSN’sCBSN’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. All NFL games broadcast by the CBS Television Network as well as other CBS Television Network programming are streamed on 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 the CBS appapps in the U.S. and Canada. In April 2018, the Company launched A version of CBS All 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.. CBS Interactive also operates
CBSN is a direct-to-consumer digital streaming live, advertiser-supported news network available 24 hours a day, seven days a week. In December 2018, the Company launched week (“24/7”). Local versions of CBSN New York, a direct-to-consumer digital streaming live, advertiser-supportedcomplement CBSN and stream local news network available 24 hours a day, seven days a week that complements CBSN and streams news events from the Company’sour owned television stations in major markets, including New York. 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 Interactive also operates CBS Sports HQ is a direct-to-consumer digital streaming live, advertiser-supported sports news and highlights service available 24 hours a day, seven days a week, which launched in February 2018; 24/7; and ET Live, is a direct-to-consumer digital streaming advertiser-supported service based on the Entertainment Tonight brand covering entertainment stories and trends available 24 hours a day, seven days a week, which launched in October 2018; and 24/7.
10 All Access, a direct-to-consumer digital streaming subscription service in Australia, which launched in December 2018, featuring programming from the Company and Network 10. Through the CBS Audience 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.
CBS Sports Network. 
CBS Sports Network is a 24 hours a day, seven days a week24/7 cable program service that provides a diverse slate of sports and related content, with a strong focus on college sports. CBS Sports Network derives revenue from carriage fees from MVPDs and virtual MVPDs and advertising sales. The network televises over 700 live professional, amateur and collegiate events
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) 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. 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 to Showtime Championship Boxing. CBS Sports Network produces weekday simulcasts of the radio shows The Morning Show with Boomer and Gio, Tiki and Tierney and 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. The network derives its revenues from subscription fees and the sale of advertising. CBS Sports Network has secured carriage arrangements with MVPDs and virtual MVPDs, including Hulu with Live TV, DIRECTV NOW and YouTube TV.
CBS Films. During the fourth quarter of 2018, in connection with recent management changes, the Company implemented changes to its programming strategy, primarily at CBS Films, which will shift its focus from theatrical films to developing content for the Company’s direct-to-consumer digital streaming services. During 2019, CBS Films plans to complete production of its remaining theatrical films. CBS Films’ theatrical releases in 2018 were At Eternity’s Gate, Hell Fest and Winchester.
Entertainment Competition.
Television Network. The broadcast television environment is highly competitive. The principal methods of competition in broadcast television are the development and acquisition of popular programming and the development of audience interest through programming and promotion, in order to sell advertising at profitable rates. Broadcast networks like CBS compete for audience, advertising revenues and programming with other broadcast networks, such as ABC, FOX, NBC, The CW and MyNetworkTV, independent television stations, cable program services, as well as other media, including OTT services, such as Netflix and Hulu, DVDs and Blu-ray Discs, print and the internet. In addition, the CBS Television Network competes with the other broadcast networks to secure affiliations with independently owned television stations in markets across the country which are necessary to ensure the effective distribution of network programming to a nationwide audience.
Television Production and Syndication. As a producer and distributor of programming, the Company competes with studios, television production groups, and independent producers and syndicators, such as Disney, Fox, NBCUniversal, Sony and Warner Bros., as well as additional entrants with substantial resources, such as Amazon, Apple and Netflix, to produce and sell programming both domestically and internationally. The Company also competes to obtain creative talent and story properties which are essential to the success of all of the Company’s entertainment businesses. In addition, the consumer has many options for entertainment other than television
programming, including video games, sports, travel, outdoor recreation, the internet, and other cultural and computer-related activities.
CBS Interactive. CBS Interactive competes with a variety of online properties for users, advertisers, and partners, including the following: general purpose portals, such as AOL, MSN and Yahoo!; search engines such as Google, Yahoo! and Bing; online comparison shopping and retail properties, including Amazon.com; vertical content sites in the categories that CBS Interactive’s brands serve, such as technology, gaming, music, news, business, food, entertainment and lifestyle-focused digital properties; other content sites and apps, such as ESPN.com, HBO GO, Hulu and Netflix, as well as major television broadcast company digital properties, including digital streaming services and apps; and platforms such as blogs, podcasts and video properties. CBS Interactive also competes for users and advertisers with diversified media companies that provide both online and offline content, including magazines, cable television, network television, radio and newspapers.
CBS Sports Network. CBS Sports Network principally competes with cable programming services, including other sports-oriented cable programming services, for distribution and license fee revenue among MVPDs and virtual MVPDs, as well as for viewership and advertising revenue. The effects of consolidation among MVPDs and consumer pricing sensitivity have made it more difficult for niche channels to secure broad distribution in mainstream programming packages. In addition, the largest cable providers have created sports tiers for sports programming services which have not, in many cases, achieved significant subscriber penetration or acceptance. CBS Sports Network continues its repositioning to be included in programming packages with more subscribers. Re-alignment of college athletic conferences and their member institutions may adversely impact CBS Sports Network’s programming arrangements. CBS Sports Network also competes with cable programming services generally, including other sports programming services, such as ESPN, FOX Sports Networks and NBC Sports Network, in acquiring the television and multimedia rights to sporting events, resulting in increased rights fees and increased production expenses.
CBS Films. CBS Films competes for audience acceptance with programming produced and/or distributed by digital program services, including Amazon, Apple and Netflix, and numerous films produced and/or distributed by various studios and independent producers, including Paramount Pictures Corporation, Walt Disney Studios Motion Pictures, Warner Bros. Entertainment Inc., Lions Gate Entertainment, STX Entertainment, Metro-Goldwyn-Mayer Studios Inc. and Lakeshore Entertainment Group.
Cable Networks (15%, 17% and 15% of the Company’s consolidated revenues in 2018, 2017 and 2016, respectively, and 30%, 35% and 33% of the Company’s total segment operating income in 2018, 2017 and 2016, respectively)
The Cable Networks segment is composed of Showtime Networks, which operates the Company’s premium subscription program services and a direct-to-consumer digital streaming subscription offering; and Smithsonian Networks, a venture with Smithsonian Institution, which operates Smithsonian Channel and a direct-to-consumer digital streaming subscription service.
Showtime Networks. Showtime Networks owns and operates three commercial-free, premium subscription program services in the U.S.: Showtime, offering original series, recently released theatrical feature films, documentaries, boxing and other sports-related programming, and special events; The Movie Channel, offering recently released theatrical feature films and related programming; and Flix, offering theatrical feature films primarily from the last several decades; and a direct-to-consumer digital streaming subscription offering of the Showtime service. At December 31, 2018, subscriptions to Showtime (including its direct-to-consumer digital streaming subscription offering) totaled approximately 27 million in the U.S., certain U.S. territories and Bermuda.
The Showtime direct-to-consumer digital streaming subscription offering 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 on multiple digital platforms, including Apple, Android and Roku devices, as part of a Spotify package available to college students, and as an add-on subscription to Amazon Prime, DIRECTV NOW, Hulu, Sling TV and YouTube TV. Showtime Networks also makes Showtime Anytime®, an authenticated version of Showtime, available at showtimeanytime.com™and, via certain
internet-connected devices, through a Showtime Anytime app, free of charge to Showtime subscribers as part of their Showtime subscription through participating distributors. Showtime Anytime enables Showtime subscribers to view on-demand programming as well as the live telecast of the east and west coast feeds of Showtime.Versions of Showtime, The Movie Channel and Flix are also available on-demand, enabling traditional television subscribers to watch individual programs at their convenience. Showtime Networks additionally operates the Website SHO.com™,which promotes Showtime, The Movie Channel and Flix programming, and provides information and entertainment and other services.
Showtime Networks derives revenue principally from the license of its program services to numerous MVPDs, with a substantial portion of such revenue coming from three of the largest such distributors. The costs of acquiring exhibition rights to programming and producing original series are the principal expenses of Showtime Networks. Showtime Networks enters into commitments to acquire rights, with an emphasis on acquiring exclusive rights for Showtime and The Movie Channel, from motion picture studios and other distributors typically covering the U.S. and Bermuda for varying durations. Showtime Networks’ original series telecast in 2018 included Homeland, Ray Donovan, Billions, The Affair, The Chi, Kidding, Who is America?, Our Cartoon President and Shameless, among others. In 2018, Showtime Networks also telecast limited series Escape at Dannemora and Patrick Melrose, documentary series, including The Circus: Inside the Wildest Political Show on Earth, The Fourth Estate, The Trade and Enemies: The President, Justice & The FBI, and various sports-related programs and documentary series, including Inside the NFL and Shut Up and Dribble. Showtime Networks also produces and/or provides special events on a pay-per-view basis, including the Tyson Fury vs. Deontay Wilder pay-per-view boxing match in December 2018, which was available for purchase by both Showtime subscribers and non-subscribers through the Showtime app and third-party distributors.
Showtime Networks has entered into and may from time to time enter into co-financing, co-production and/or distribution arrangements with other parties to reduce the net cost to Showtime Networks for its original programming. In addition, Showtime Networks derives revenue by licensing rights it retains in certain of its original programming. The Company enters into licensing arrangements with television networks, digital platforms, including Amazon and Netflix, and/or other media companies for the exhibition of certain Showtime original programming domestically and in various international territories. For example, the Company has output agreements, including with Bell Media Inc. for Canada, with Sky-affiliated entities for Austria, Germany, Ireland, Italy and the U.K., with Moviestar + for Spain, with Canal + Group for France, with Fox Networks Group Asia for Southeast Asia, and with Hotstar’s streaming service for India.
Showtime Networks also owns a majority of and manages Smithsonian Networks, a venture with Smithsonian Institution, which operates Smithsonian Channel, a basic cable service in the U.S., featuring programs of a cultural, historical, scientific and educational nature. Smithsonian Networks makes Smithsonian Channel content available via MVPDs and virtual MVPDs in the U.S. and licenses Smithsonian Channel content outside of the U.S., including in connection with Smithsonian Channel in Canada, in which Smithsonian Networks owns a minority interest. Smithsonian Networks also operates the Website SmithsonianChannel.com™ and various apps, which promote Smithsonian Channel programming and provide information and entertainment services. Smithsonian Networks also operates Smithsonian Channel Plus, a direct-to-consumer digital streaming subscription service, which launched in December 2018, that allows subscribers to view on-demand programming, including 4K Ultra HD series and documentaries.
Cable Networks Competition.
Showtime Networks. Showtime Networks primarily competes with other providers of premium subscription program services in the U.S., including Home Box Office, Inc. and Starz, LLC. Competition among these premium subscription program services in the U.S. is dependent on: (i) the production, acquisition and packaging of original series and other original programming and the acquisition and packaging of an adequate number of recently released theatrical motion pictures; and (ii) the offering of prices, marketing and advertising support and other incentives to distributors for carriage so as to favorably position and package Showtime Networks’ premium subscription program services to subscribers. In addition, Showtime Networks competes with digital subscription programming services, such as Amazon, Hulu and Netflix, for original programming, theatrical motion pictures and viewership. Showtime
Networks also competes for programming, distribution and/or audiences with basic cable program services, broadcast television and other media, including video games and other internet apps.
Smithsonian Networks competes for programming, distribution and/or audiences with non‑fiction and other basic cable program services, including Discovery Channel, National Geographic Channel and History, as well as with broadcast television and other media.
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.
Publishing (6% of the Company’s consolidated revenues in each of 2018, 2017 and 2016, and 5%, 5% and 4% of the Company’s total segment operating income in 2018, 2017 and 2016, respectively)
The Publishing segment consists of Simon & Schuster, which publishes and distributes consumer books in the U.S. and internationally.
Simon & Schuster 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, Pocket Books, Scribner, Atria Books, Gallery Books, and Adams Media®. Simon & Schuster’s major children’s imprints include Simon Pulse®, Aladdin®, Atheneum Books for Young Readers®, Margaret K. McElderry Books™, Saga Press™,Salaam Reads® and Simon & Schuster Books For Young Readers™. Simon & Schuster also develops special imprints and publishes titles based on the products of certain CBS 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 & Schuster also delivers content and promotes its products on its own Websites, social media, and general internet sites as well as those dedicated to individual titles. Its created assets include online videos showcasing Simon & Schuster authors and new releases on AOL, YouTube, Amazon, Bio.com, MSN.com, Google Newsstand, iTunes, SimonandSchuster.com and other sites. International publishing includes the international distribution of English-language titles through Simon & Schuster UK, Simon & Schuster Canada, Simon & Schuster Australia, Simon & Schuster India and other distributors, as well as the publication of locally originated titles by its international companies.
In 2018, Simon & Schuster had 206 New York Times bestsellers in hardcover, paperback, audio and electronic formats, collectively, including 28 New York Times #1 bestsellers. Best-selling titles in 2018 included Fear: Trump in the White House by Bob Woodward, The Outsider by Stephen King and Whiskey in a Teacup by Reese Witherspoon. Best-selling children’s titles include Queen of Air and Darkness by Cassandra Clare, Dork Diaries #13 by Rachel Renée Russell and To All the Boys I’ve Loved Before by Jenny Han. Simon & Schuster Digital™, through SimonandSchuster.com, publishes original content, builds reader communities and promotes and sells Simon & Schuster’s books over the internet.
The consumer publishing marketplace is subject to increased periods of demand in the summer months and during the end-of-year holiday season. Major new title releases represent a significant portion of Simon & Schuster’s sales throughout the year. Simon & Schuster’s top two accounts drive a significant portion of its annual revenue. Consumer print books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Company is subject to global trends and local economic conditions. In 2018, the sale of digital content represented approximately 23% of Simon & Schuster’s revenues. The Company expects that digital content will continue to represent a significant portion of Simon & Schuster revenues in the coming years.
Publishing Competition. The consumer publishing business is highly competitive and has been affected over the years by consolidation trends and electronic distribution methods and models. Mass merchandisers and on‑line retailers are significant factors in the industry contributing to the general trend toward consolidation in the retail channel. 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 the Company’s books. In addition, unfavorable economic conditions and competition may adversely affect book retailers’ operations, including distribution of the Company’s books. The Company must compete with other larger publishers, such as Penguin Random House, Hachette and HarperCollins, for the rights to works by authors and sales to retailers and customers. Competition is particularly strong for well‑known authors and public personalities. In addition, technological changes have made it increasingly possible for authors to self‑publish and have led to the development of new digital distribution models in which the Company’s books must compete with the availability of both a larger volume of books as well as non-book content.
Local Media (13%, 12% and 14% of the Company’s consolidated revenues in 2018, 2017 and 2016, respectively, and 20%, 17% and 21% of the Company’s total segment operating income in 2018, 2017 and 2016, respectively)
The Local Media segment is composed of CBS Television Stations the Company’sgroup consists of our 29 owned broadcast television stations, all of which operate under licenses granted by the Federal Communications Commission (“FCC”) pursuant to the Communications Act of 1934, as amended (the “Communications Act”). The licenses are renewable every eight years. The Company’sCBS Television Stations Group principally derives revenue from the sale of advertising on our television stations and fees for authorizing the MVPDs’ and vMVPDs’ carriage of our television stations, which are also known as retransmission fees.
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 #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.
The CBS Television Stations group principally derives its revenues from the sale of advertising time on its television stations. In addition, the CBS Television Stations group receives retransmission fees from MVPDs for authorizing the MVPDs’ carriage of the Company’s owned television stations. The Company also has agreements for the digital streaming of the Company’s owned television stations on virtual MVPDs, including DIRECTV NOW, Hulu with Live TV and YouTube TV. The Company’s direct-to-consumer digital streaming subscription service, CBS All Access, offers an extensive on-demand selection of both current programming and library, original series as well as the ability to stream linearstreamed live programming from local CBS Television Stations and most CBS television station affiliates. CBS All Access is available at CBS.com and through the CBS app on multiple digital platforms. In December 2018, the Company launched Local versions of CBSN New York, a direct-to-consumer digital streaming live, advertiser-supportedoffer streamed local news network available 24 hours a day, seven days a week that complements CBSN and streams news events from the Company’sour owned television stations in New York. The Company’scertain local markets. Our television stations have local websites which promote the stations’ programming. We also have aagreements for the streaming of our owned television stations on virtual MVPDs. Our owned stations broadcast free, advertiser-supported digital presence onchannels using available broadcast spectrum, including local CBS local Websites which are operated by CBS Local Digital Media. The local Websites and related apps promote the Company’s stations’syndicated programming, as well as provide live and on-demand news, traffic, weather, entertainment and sports information, among other services for their local communities. The local Websites principally derive revenues from the sale of advertising. The “Television Stations and CBS Local Websites” table below includes information with respect to these properties within U.S. television markets. CBS Television Stations and Weigel Broadcasting own and operate through an approximately 50/50 joint venture Start TV™, a national entertainment program service featuring classic television content movies and original programming focused on female audiences, for local television stations’ digital sub-channels, which utilize a local television station's available broadcast spectrum to provide a companion to that station's primary channel.is an approximately 50/50 joint venture with Weigel Broadcasting, and Dabl featuring lifestyle programming.
Local Media Competition. Television stations compete for programming, on‑air talent, audiences and advertising revenues with other stations and cable networks in their respective coverage areas and, in some cases, with respect to programming, with other station groups, and, in the case of advertising revenues, with other local and national media. The owned and operated television stations’ competitive position is largely influenced by the quality of the syndicated programs and local news programs in time periods not programmed by the network; the strength of the CBS Television Network programming and, in particular, the viewership of the CBS Television Network in the time period immediately prior to the late evening news; and in some cases, by the quality of the broadcast signal. The Company’s television stations face increasing competition from technologies such as digital audio and visual content, which create new ways for audiences to consume content of their choosing while avoiding traditional commercial
advertising. The Company’s television stations’Television Stations, Local Websites face competition for advertisers and visitors from other digital sources of local content.CBSN Streaming Services
Television Stations and CBS Local Websites
The following table sets forth information regarding the Company’sour owned television stations and related local Websites,websites and CBSN streaming services, as of February 13, 2019,18, 2020, within U.S. television markets:
|
| | | | | |
Television Market and Market Rank(1) | |
Stations | Type | Network Affiliation |
Type
|
Network Affiliation
|
CBS Local WebsitesCBSN Streaming Services(2)
|
| 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 (#8)(#6) | | 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 (#10) | | WUPA-TV | UHF | The CW | atlanta.cbslocal.com |
| | | | | | |
Tampa-St. Petersburg, FL (#11)(#12) | | WTOG-TV | UHF | The CW | tampa.cbslocal.com |
| | | | | | |
| Seattle-Tacoma, WA (#13) | | KSTW-TV | 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 | |
| | | | | | |
Baltimore, MD (#26)Indianapolis, IN (#25) | | WJZ‑TVWBXI-CA(4) | VHFUHF | CBSIndependent | baltimore.cbslocal.com |
| | | | | | |
Indianapolis, IN (#28)Baltimore, MD (#26) | | WBXI-CA(4)
WJZ‑TV | UHFVHF | IndependentCBS | baltimore.cbslocal.com |
| | | | | | |
| |
| (1) | Television market (DMA) rankings based on Nielsen Media Research Local Market Universe Estimates, September 2018.2019. |
| |
| (2) | The Company’sOur television stations’ Websites, which are operated bywebsites and the CBS Local Digital Media Group,local versions of CBSN feature and promote the stations’ programming and provide news, traffic, weather, entertainment and sports information, among other services for their local communities. |
| |
| (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. |
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
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.
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.
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
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.
REGULATION
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
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
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
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
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
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:
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| • | 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. |
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.
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 subject to and/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 summaries below should be read in conjunction withchange, as are the texts of the statutes, rulesprotections that those laws and regulations described herein.afford us. The descriptions dodiscussion below describes certain, but not describe all, present and proposed statutes, ruleslaws and regulations affecting the Company’sour businesses.
Intellectual Property and Privacy
Laws affecting intellectual property are of significant importance to the Company. (See “Intellectual Property” on page I-15 for more information on the Company’s brands).
Unauthorized Distribution of Copyrighted ContentFCC and Piracy. Unauthorized distribution, reproduction, exhibition or other exploitation of copyrighted material in television programming, motion pictures, video clips and books, such as through unauthorized stored copies and livestreaming, internet downloads, file “sharing” and peer-to-peer services, is a threat to copyright owners’ ability to protect and exploit their property. The Company’s digital delivery services and commercial arrangements with digital content providers help reduce the risks associated with unauthorized access to its content. The Company is also engaged in enforcement and other activities to protect its intellectual property and participates in various litigation, public relations programs and legislative activity. These business strategies and enforcement efforts are dependent upon laws and practices that protect the rights of creators and authorized distributors of content.
Laws and Content. The Company derives revenues from the creation and exploitation of creative content, for which the copyright law, including in the U.S. and other laws in other jurisdictions, grants certain exclusive rights, including to reproduce, publicly perform and distribute such content. The scope and duration of the protection afforded to the Company’s intellectual property depends on the type of property and the laws and regulations of the relevant jurisdiction.Any changes to copyright laws or related regulations that enable the Company to control the distribution of its content, including through court decisions, which diminish the scope of a copyright owner’s exclusive rights could impact the Company. Proposed legal amendments, such as to the law governing territorial exclusivity of the distribution of content in Europe, could adversely impact the Company’s ability to control and distribute its content.
Privacy. The U.S. and international laws and regulations governing the collection, use and transfer of consumer information are complex and rapidly evolving, particularly as they relate to the Company’s interactive businesses. The Company monitors and considers these laws and regulations in the design and operation of its Websites, digital content services and legal and regulatory compliance programs. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to business practices, financial penalties for noncompliance, or otherwise harm the Company's business. For example, the European Union’s (“EU”) General Data ProtectionSimilar Regulation (“GDPR”) went into effect in May 2018 and applies to activities conducted from the Company's establishments in the EU or related to products and services that the Company offers to EU users. The GDPR creates new data protection compliance obligations and significantly increases financial penalties for noncompliance. Compliance with evolving U.S. and international consumer privacy and data protection laws requires additional resources and efforts by the Company.
Broadcasting
General. Television broadcasting isBroadcast television and certain aspects of cable programming are subject to the jurisdiction of the FCC pursuant to the Communications Act. The Communications Act empowers the FCC, among other actions, to issue, renew, revoke and modify broadcasting licenses; penalize broadcasters for airing indecent or profane content; regulate the airing of emergency alerting and the use of emergency alerting tones by broadcasters or cable channels; require video programming to be accessible to persons with disabilities; determine stations’ frequencies, locations and operating power; regulate some of the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act and other laws, including requirements affecting the content of broadcasts; and impose penalties for violation of its regulations, including monetary forfeitures, short-term renewal of licenses and, in egregious cases, license revocation or denial of license renewals.
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.
IndecencyWe provide below a brief summary of certain laws and Profanity 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. Broadcasters risk violating the prohibition against broadcasting indecent or profane material because the vagueness of the FCC’s indecency/profanity definition makes it difficult to apply, particularly with respect to spontaneous, live programming. The FCC’s maximum forfeiture penalty per station for broadcasting indecent or profane programming is approximately $407,000 per indecent or profane utterance, with a maximum forfeiture exposure of approximately $3.76 million for any continuing violation arising from a single act or failure to act. The Company has been involved in litigation and, from time to time, has received and may receive in the future letters of inquiry from the FCC prompted by complaints alleging that certain programming on its broadcast stations included indecent or profane material.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 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 control 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. 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.
Below are descriptions of broadcast ownership rules that are subject to current FCC review.rules. The FCC is reviewing its local television ownership and dual network rules through its most recent quadrennial review that commenced in November 2018 and is separately reviewing its television national audience reach rule. The FCC had relaxed certain of these rules in 2017, but in November 2019, a federal appellate court vacated that 2017 action and ordered the FCC to conduct further proceedings.
Local Television Ownership. Under theThe 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 as of the date an application for approval of an acquisition is filed with the FCC. A party may also own two television stations in the same DMA if the broadcast service contours of the stations do not overlap. 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, convenience and necessity. “Satellite” television stations that simply rebroadcast the programming of a “parent” television station are exempt from the local television ownership rule if located in the same DMA as the “parent” station. Low power television stations, which are authorized by the FCC to operate at significantly lower power levels than full-service stations, are exempt from FCC ownership rules.share.
Dual Network Rule. The dual network rule prohibits any of the four major networks, ABC, CBS, FOX and NBC, from combining.combining or being under common control.
Television National Audience Reach Limitation. Under the national television ownership rule, one party may not own television stations that reach more than 39% of all U.S. television households. In April 2017, thehouseholds, although under current FCC reinstated the UHF discount, which was subsequently upheld by a federal court of appeals, 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
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.
Attribution of Ownership.Cross-ownership restrictions Under the FCC’s attribution. FCC “cross-ownership” rules reinstated as a direct or indirect purchaser of various types of securities of an entity which holds FCC licenses, such as the Company, could violate the foregoing FCC ownership regulations or policies if that purchaser owned or acquired an “attributable” interest in other media properties. Under the FCC’s rules, an “attributable” interest for purposes of the FCC’s broadcast ownership rules generally includes: equity and debt interests which combined exceed 33%result of a licensee’s total assets, ifdecision by a federal appellate court (a) prohibit common ownership of one or more broadcast stations (whether radio or television) and a daily newspaper in the interest holder supplies more than 15%same DMA, and (b) limit the number of the licensee’s total weekly programming, or has an attributable same-market media interest, whetherradio and television radio, cable or newspaper; a 5% or greater direct or indirect voting stock interest, including certain interests held in trust, unless the holder is a qualified passive investor, in which case the threshold is a 20% or greater voting stock interest; any equity interestbroadcast stations that may be commonly owned in a limited liability companygiven DMA. We do not currently own cognizable interests in any daily newspapers or a partnership, including a limited partnership, unless the interest holder is properly “insulated” from management activities; and any position as an officer or director of a licensee or of its direct or indirect parent. The FCC is reviewing its single majority voting stockholder attribution exemption, which renders as non‑attributable voting interests up to 49% in a licensee controlled by a single majority voting stockholder. Because NAI holds an attributable interest in both the Company and Viacom Inc., the business of each company is attributable to the other for certain FCC purposes, which may have the effect of limiting and affecting the activities, strategic business alternatives and business terms available to the Company. (See Item 1A. “Risk Factors-The businesses of the Company and Viacom Inc. will be attributable to the other company for certain regulatory purposes, which may limit business opportunities”).radio broadcast stations.
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. Since 2006, the Company has implemented a systematic process of seeking monetary consideration for its retransmission consent.
Similarly, federal legislation and FCC rules govern the retransmission of broadcast television stations by DBS operators. DBScable system operators, are requireddirect broadcast satellite operators, and other MVPDs. Pursuant to these regulations, we have elected to negotiate with MVPDs for the right to carry the signals of all localour broadcast television broadcast stations requesting carriage in local markets in which the DBS operator carries at least one signal pursuant to the statutory local-to-local compulsory copyright license. Every three years, each television station in such markets must elect “must carry” or “retransmission consent” status, in a manner similar to that described above with respect to cable systems. The Company’s owned and operated television stations are being transmitted into their local markets by the two major DBS operators pursuant to retransmission consent agreements.
Children’s Television Programming. FCC rules require television stations Federal law requires that broadcasters and MVPDs negotiate in good faith for retransmission consent. Some MVPDs have sought changes to broadcast on their main program stream three hours per week of educational and informational programming (“E/I programming”) designed for children 16 years of age and younger. FCC rules also impose E/I programming requirements on each additional digital multicast program stream transmitted by television stations, with the requirement increasing in proportion to the additional hours of free programming offered on multicast channels. These rules alsofederal law that would eliminate or otherwise limit the display during children’s programmingability of internet addressesbroadcasters to obtain fair compensation for the grant of Websites that contain or link to commercial material or that use program characters to sell products. Regulations also limit the amount and content of commercial matter that may be shown on television stations during programming designed for children 12 years of age and younger. The FCC is considering relaxing certain of the E/I programming rules.retransmission consent.
Program Access. Under the Communications Act, vertically integrated cable programmers (more fully described below) are generally prohibited from offering different prices, terms or conditions for programming to competing MVPDs unless the differential is justified by certain permissible factors set forth in the FCC’s regulations. The FCC also assesses the competitive impact of exclusive distribution arrangements between vertically integrated cable programmers and cable operators on a complaint-based process, using a case-by-case review. A cable programmer is considered to be vertically integrated under the FCC’s program access attribution rules if it owns or is owned in whole or in part by either a cable operator or a telephone company that provides video programming directly to subscribers.
The Company’s wholly owned program services are not currently subject to the program access rules. The Company’s flexibility to negotiate the most favorable terms available for carriage of these services and its ability to offer cable operators exclusive programming could be adversely affected if it were to become subject to the program access rules. Because the Company and Viacom Inc. are under common control by NAI, Viacom Inc.’s businesses could be attributable to the Company for purposes of the FCC’s program access rules. (See Item 1A. “Risk Factors-The businesses of the Company and Viacom Inc. will be attributable to the other company for certain regulatory purposes, which may limit business opportunities”).
National Broadband Plan/Post-Auction Repack. In 2017, the FCC concluded a series of voluntary auctions to repurpose certain spectrum then utilized by broadcast television stations for use by wireless broadband services. The FCC has mandated that certain television stations that are continuing to operate subsequent to these auctions must change their channels as the FCC “repacks” the remaining spectrum dedicated to broadcast television use. Congress provided that the FCC will assist television stations in retaining their current coverage areas and established a fund to at least partially reimburse broadcasters for reasonable relocation expenses relating to the spectrum-repacking. Certain broadcast television stations, including some of those owned by the Company,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 rules to permit television broadcasters to voluntarily broadcast using the “Next Generation” broadcast television transmission standard developed by the Advanced Television Systems Committee, Inc., also called “ATSC 3.0.” Those full-service television stations using the new standard are subject to certain requirements, including the obligation 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 upgrade.upgrades. In addition, consumers may be required to obtain new television sets or other equipment that are capable of receiving ATSC 3.0 broadcasts. The Company isWe 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 the Company’sour 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
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.
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 2018 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 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
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
The Company creates, owns, distributesWe create, own and exploits under licenses itsdistribute intellectual property worldwide. It is the Company’sour practice to protect its products, including its television and motion picture products,our films, programs, content, brands, formats, characters, games, publications and other original and acquired works, and audiovisual works made for digital exploitation.ancillary goods and services. The following brands, logos, trade names, trademarks and related trademark families are amongthe most significant of those strongly identified with the product lines they represent and are significant assets of the Company: ViacomCBS™, CBS®, CBS Entertainment™, CBS News Viacom®, CBS Sports AwesomenessTV®, CBSSports.com BET®, CBS All Access®, CBS Entertainment™, CBS Interactive®, CBS News®, CBS Sports®, CBSN®, Channel 5CBSN Local™,® CBS Sports HQ(UK), CMT®, CNET COLORS®, Comedy Central®, Flix®, MTV®, MTV Films®, Network 10®, Nickelodeon®, Nick at Nite®, Nickelodeon Movies™, Nick Jr.®, Paramount Animation®, Paramount Network®, Paramount Pictures®, Paramount Players™, Paramount Television Studios™, Pluto TV™, Pop TV™, Showtime®, Showtime Anytime Simon & Schuster®, Smithsonian Channel™, Telefe® (Argentina), The Movie Channel®, Flix TV Land®, CBS Films VH1®, Network 10™, 10™, 10 Bold™, 10 Peach™, 10 Play™, 10 Daily™, 10 All Access™, CBS Audience Network™, TV.com™, Last.fm VidCon®, MetroLyrics WhoSay®, CSI:®, NCIS®, Entertainment Tonight®, ET Live™, Star Trek®, Simon & Schuster®, CBS Sports Network®, CBS Interactive®, CBS Local Digital Media™ and other domestic and international program services and digital properties and all the call letters for the Company’sour stations. As a result, domestic and foreign laws protecting intellectual property rights are important to the Company and the Company actively enforces its intellectual property rights against infringements.
EMPLOYEES
AtAs of December 31, 2018, the Company2019, we employed approximately 12,77023,990 full-time and part-time salaried employees worldwide, and had approximately 3,9604,580 additional project-based staff.
FINANCIAL INFORMATION ABOUT SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS
Financial andstaff on our payroll. We also use many other information by segment and relating to foreign and domestic operations for eachtemporary employees in the ordinary course of the last three years ended December 31 is set forth in Note 15 to the Consolidated Financial Statements.our business.
AVAILABLE INFORMATION
CBS Corp. makes available free of charge on its Website, www.cbscorporation.com (Investors section), its Annual ReportWe file annual, quarterly and current reports, proxy and information statements and other information with the SEC. Our annual reports on Form 10-K, Quarterly Reportsquarterly reports on Form 10-Q, Current Reportscurrent reports on Form 8-K and any amendments to thosesuch reports filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such material is made1934, as amended, will be available through the Company’s Websitefree of charge on our website at www.viacbs.com (under “Investors”) as soon as reasonably practicable after such material is electronicallythe reports are filed with or furnished to the Securities and Exchange Commission.SEC. These documents are also available on the SEC’s Websitewebsite at www.sec.gov.
Item 1A. Risk Factors.www.sec.gov.
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 actual results, performance or achievements of the Company to be different from any future results, performance or achievements expressed or implied by these statements. More information about theseto differ. 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 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.
RISK FACTORS
For an enterprise as large and complex as the Company, a
Item 1A. Risk Factors.
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, technological, regulatory or other factors that could have material adverse effects on the Company’s future results. Pastour business, financial performance may not be a reliable indicatorcondition or results of future performance and historical trends should not be used to anticipate results or trends in future periods. The following discussion of risk factors should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the consolidated financial statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.operations.
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 Company’s success and profitability are dependent upon audience acceptance of its content,ways in which is difficult to predict.
Television and other content production and distribution are inherently risky businesses because the revenues derived from the production and distribution of suchconsumers view content, and the licensing of rightstechnology and business models in our industry continue to the associated intellectual property, depend primarily upon their acceptance by the public, which is difficult to predict. The commercial success of a program also depends upon the qualityevolve rapidly, and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all 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 viewership onnew distribution platforms, or devices, such as tablets, smart phones and other mobile devices, that is not being fully measured, could have an impact on the Company’s program ratings and advertising revenues. For example, while C-7, a current television industry sales metric, measures live, in-home, 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, as well as out-of-home viewingincreased competition from new entrants and onlineemerging technologies, have added to the complexity of maintaining predictable revenue streams.
Technological advancements have driven changes in consumer behavior and mobile viewership, are excluded from currentempowered consumers to 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 evolution of consumer preferences towards digital services and other subscription services, and the substantial increase in availability of programming without advertising or adequate methodologies for audience viewership measures. Also, consumer viewership of OTT services continuesmeasurement, may continue to grow and is under measured. Low ratings can lead to lower pricing and advertising spending. For example, there can be no assurance that any replacement programming on the Company’s television stations will generate the same level of revenues or profitability as previous programming. In addition, the success of the Company’s cable networks and Simon & Schuster is similarly dependent on audience acceptance of its programming and publications, respectively. Low public acceptance of the Company’s content, including its programming and publications, will have an adverse effect on the Company’sour business, financial condition or 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 $8.98 billion as of December 31, 2018, primarily included $6.62 billion for sports programming rights, $1.71 billion relating to the production and licensing of television and film programming, and $660 million for talent contracts, with $889 million of these amounts payable in and after 2024. A shortfall, now or in the future, in the expected popularity of the programming the Company expects to distribute or the sports events for which the Company has acquired rights, could lead to decreased profitability or losses for a significant period of time.
A decline in advertising expenditures could cause the Company’s revenues and operating results to decline significantly in any given period or in specific markets.
The Company derives substantial revenues from the sale of advertising on its broadcast and basic cable networks, television stations, syndicated programming, and digital properties. A decline in the economic prospects of advertisers, the economy in general or the economy of any individual geographic market, particularly a major market, such as Los Angeles, New York or Chicago, in which the Company owns and operates sizeable businesses, could alter current or prospective advertisers’ spending priorities. Natural and other disasters, acts of terrorism, political uncertainty or hostilities could lead to a reduction in advertising expenditures as a result of disrupted programming and services, uninterrupted news coverage and economic uncertainty. Advertising expenditures may also be affected by increasing competition for the leisure time of audiences. In addition, advertising expenditures by companies in certain sectors of the economy, including the automotive, financial and pharmaceutical segments, represent a significant portion of the Company’s advertising revenues. Any political, economic, social or technological change resulting in a reduction in these sectors’ advertising expenditures may adversely affect the Company’s revenue. Advertisers’ willingness to purchase advertising from the Company may also be affected by a decline in audience ratings for 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 and new technologies, which allow consumers to live stream and time shift programming, make and store digital copies and skip or fast-forward through advertisements. 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 Company
as traditional advertising methods. Any reduction in advertising expenditures could have an adverse effect on the Company’s revenues and results of operations.
The Company must respond to rapid changes in technology, content creation, services, standards and changes in consumer behavior in order to remain competitive.
Video, telecommunications and data services technologies used in the entertainment industry are changing rapidly as are the digital publishing and distribution models for books. Advances in technologies or alternative methods of product delivery or storage could reduce subscription or advertiser-supported viewership of the Company’s programming and have a negative effect on the Company’s revenues and profitability. Examples of the foregoing include the convergence of television telecasts and digital delivery of programming to televisions and other devices, video-on-demand platforms, tablets, new video and electronic book formats, user-generated content sites, unauthorized digital distribution of video content including via streaming and downloading, simultaneous live streaming of telecast content which allows users to consume content on demand and in remote locations while avoiding traditional commercial advertisements or subscription payments and “cloud-based” DVR storage. Further, these
In addition, consumers are increasingly using time-shifting and otheradvertising-blocking technologies drive changes in consumer behavior that could affect the attractiveness of the Company’s offerings to advertisers and adversely affect its revenues, including devices that allow users to view television programs on a time-delayed basis and technologies, such as DVRs, that enable users to fast-forward or skipcircumvent advertisements, such as DVRs, or increase the sharing of subscription content and reduce the demand for electronic sell-through, DVD and Blu-ray Discdisc products. The Company’sSubstantial use of these technologies could impact the attractiveness of our programming to advertisers, adversely affecting our advertising revenue. Our business also may be adversely affected by the 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 deliver unauthorized copies of copyrighted content, including those emanating from other countries in various languages.
MoreIn response to perceived consumer demand, distributors of programming and program services are continuing to develop alternative offerings for consumers, including “skinny bundles,” smaller, often customizable programming packages delivered at lower costs than traditional offerings; SVOD and other subscription services; ad-supported FVOD services developed by television and video programming options, including via digital streaming services and platforms, increase competition for viewers. In addition, competitors targeting programming to narrowly defined audiences may gain an advantage over the Company for advertising and subscription revenues. Television manufacturers, cable providers and others are developingothers; and offering technology to enable viewers to locate digital copies oforiginal programming from the internet to viewhosted on television monitors or other devices, which could diminish viewership of the Company’s programming.mobile and social media platforms. Also, the impact of technological changes on MVPDs may adversely affect the Company’sour cable networks’ ability to grow revenue. In order to respond toIf these developments, the Company implements changes to its business models and strategies from time to time. There can be no assurance that the Company’s direct-to-consumer digital streaming business models willalternative offerings continue to successfully respondgain traction and our 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 changesexperience a decline in technologiesviewership and consumer preferences. Anticipating and timely adaptingultimately demand for our programming, which could lead to changes in technology and content consumption and exploiting new sources of revenue from these changes could affect the Company’slower revenues. These changing distribution models may also impact our ability to continuenegotiate carriage deals on terms favorable to increase its revenues.
Increased programming and content costs may adversely affect the Company’s profits.
The Company produces and acquires programming and other content and incurs costs with respect to its content, including for all types of creative talent, such as actors, authors, writers and producers, composers and publishers of music, as well as for marketing and distribution. The Company plans to increase its investment in content and related marketing and distribution, including for its direct-to-consumer digital streaming services. An increase in any of these costs and increased competition from large entertainment companies and additional entrants with substantial resources for the production, acquisition and distribution of new content, including Amazon, Apple, Hulu and Netflix, may lead to decreased profitability. As competition for popular content is intense, the Company may have to increase expenditures for talent and intellectual property rights. In addition, changes in content consumption as well as the increasing number of available digital and other program, entertainment and news services increase the risks associated with the success of all types of content. There can be no assurance that the Company will recoup its investments in programming and related costs. These factors could haveus, thereby having an adverse effect on the Company’sour business, financial condition or results of operations.
In order to respond to these developments, we regularly consider and from time to time implement changes to our business models and strategies to remain competitive, and there can be no assurance that we will successfully anticipate or respond to these developments, that we will not experience disruption as we respond to such developments, or that the business models we develop will be as profitable as our current business models.
I-18
PiracyOur advertising revenues have been and may continue to be adversely impacted by changes in consumers’ content viewership, deficiencies in audience measurement and advertising market conditions
We derive substantial revenues from the sale of advertising on a variety of platforms, and a decline in advertising revenues could have a significant adverse effect on our business, financial condition or results of operations in any given period.
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 Internet. Consumers are also using new technologies that allow customers to live stream and time shift programming, make and store digital copies and skip or fast-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 us as traditional advertising methods.
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 Company’sadvertising 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 our business, financial condition or results of operations.
Our success depends on our ability to maintain attractive brands andour reputation, and to offer popular programming and other content
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
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 quality and attractiveness of competing entertainment content and the availability of alternative forms of entertainment and leisure time activities, including digital piracy,online, mobile and other offerings. Audience tastes change frequently and it is a challenge to anticipate what offerings will be successful at any point in time. We invest substantial capital in creating and promoting our content, including in the production of original content on our networks, in our films, in our television production business and in our publications, before learning the extent to which it will garner critical success and popularity with consumers.
In our Cable Networks and TV Entertainment businesses, the popularity of our brands and programming has a significant impact on the revenues we are able to generate from advertising, affiliate fees, content licensing, consumer products and other licensing activities, and our ability to expand our presence internationally depends, in part, on our ability to successfully predict and adapt to changing consumer tastes and preferences outside the U.S. In addition, the success of our Publishing business is similarly dependent on audience acceptance of its publications. In our Filmed Entertainment business, the theatrical performance of a film affects not only the theatrical revenues we receive but also revenues from other distribution outlets, such as TVOD and SVOD, television, home entertainment and licensed consumer products. Additionally, a shortfall, now or in the future, in the expected popularity of our programming that we expect to distribute or the sports events for which we have acquired rights, could lead to decreased profitability or losses for a significant period of time. Significant negative claims or publicity regarding the Company or its operations, products, management, employees, practices, business partners and culture may decrease revenue received fromdamage our brands or reputation, even if such claims are untrue. A lack of popularity of our offerings or damage to our reputation could have an adverse effect on our business, financial condition or results of operations in a particular period or over a longer term.
Increased costs for programming, films and other rights, and judgments we make on the exploitationpotential performance of the Company’sour 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 adversely affect its businesseswe invest significant resources in our brands, in part with the aim of developing higher quality and profitability.
Piracyquantity of programming, books and other copyrighted material is prevalent in many parts of the world and is made easier by the availability of digital copies of content, which facilitates the creation, transmission and sharing of high quality unauthorized copies of the Company’s content. Technological advances, which facilitate the streaming of programming via the internet to television screens and other devices, may increase piracy. The proliferation of unauthorized access to content, including through unauthorized live streaming, streaming boxes and apps programmed to seek pirated copies of content, the unauthorized premature release oforiginal content, and unauthorized account sharing of subscription program services, has an adverse effect on the Company’s businesses and profitability because these unauthorized actions reduce the revenue that the Company potentially could receive from the legitimate sale and distribution of its products and services. Increases in piracy would have an adverse effect on the Company’s businesses and profitability. Also, while legal protections exist, piracy and technological tools with which to carry it out continue to escalate, evolve and present challenges for enforcement. The Company enforces its rights against entities that illegally secure and exhibit its content, including streaming the Company’s content without obtaining the consent of or paying compensation to the Company. Failure of legal and technological protections to evolve and enable enhanced enforcement efforts to combat piracy could make it more difficult for the Company to adequately protect its intellectual property, which could negatively impact its value and further increase the Company’s enforcement costs.
Failure by the Company to obtain, create and retain the rights related to popular programming could adversely affect the Company’s revenues.
The Company’s revenues from its television, cable networks and digital services businesses are partially dependent on the Company’s continued ability to anticipate and adapt to changes in consumer tastes and behavior on a timely basis. Moreover, the Company deriveswe 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 Young 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 commitmentsWe also license various music rights from the major record companies, music publishers and competesperforming rights organizations.
Our investments in original and acquired programming are significant and involve complex negotiations with other buyers to acquire rights to certain programming for Showtime, The Movie Channelnumerous third parties, and Flix from motion picture producers and other suppliers for varying durations. The Company competes for compelling source material for andrapid changes in consumer behavior have increased the talent necessary to producerisk associated with the success of all kinds of programming. In addition, competitionCompetition 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.
The Company’s businesses operate in highly competitive and consolidating industries.
The Company competes with other media companies for high quality content to achieve large audiences and to generate advertising and subscription revenue. The Company also competes for distribution on various MVPDs and third-party digital platforms. The Company’s ability to attract audiences and advertisers and obtain favorable distribution depends in part on its ability to provide popular programming and books and adapt to new technologies and distribution platforms. The consolidation of advertising agencies, distributors, content providers, printers and television service providers also has increased their negotiating leverage and intensified competition for audiences, advertising revenue, print production and distribution. In addition, 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 the Company’s publications and for the attention of consumers online. Competition for audiences and advertisingaffected.
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 a result of the accelerated recognition of the expense and/or write-down of the value of the asset. Similarly, if we determine it is no longer advantageous for us to air a program on our broadcast or cable networks, we would accelerate our amortization of the program costs.
These factors could have an adverse effect on our business, financial condition or results of operations.
The loss 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 industries that are highly competitive and swiftly consolidating
We depend on the popularity of our content and other offerings, our appeal to advertisers and widespread distribution of our content. We compete with other media companies to attract creative talent and produce high quality content, and for distribution on a variety of third-party platforms to draw large audiences. Competition for talent, content, audiences, service providers, production infrastructure, advertising and distribution is intense and comes from:from broadcast television stations and networks;networks, cable television systems and networks; motion picture studios;networks (including our own), streaming service distributors, the internet;Internet and social media platforms, film studios and independent film producers and distributors, consumer products companies and other entertainment outlets and platforms, as well as from search engines, program guides and “second screen” applications and non-traditional programming services, including increases in the number of direct-to-consumer services; technological innovations in content distribution; terrestrial and satellite radio and portable devices; local, regional and national newspapers; direct mail; andsuch as streaming offerings. Additionally, other communications and advertising media that operate in these markets. Other television stations or cable networks may change their formats or programming, a new station or new network may adopt a format to compete directly with the Company’sour stations or networks, or stations or networks might engage in aggressive promotional campaigns. Further, competition from additional entrants into the market for development and production of original programming and streaming services, such as Amazon, Apple, Facebook, Hulu, Netflix and YouTube, and major entertainment companies, continues to increase. In book publishing, competition among electronic and print book retailers could decrease the prices for new releases and the outlets available for book sales. Moreover, the growing use of self-publishing technologies by authors increases competition and could result in decreased use of traditional publishing services.
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
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 the Company’s earnings and cash flow. 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.
TheBecause we derive a significant portion of our revenues from a limited number of distributors, the loss of affiliation and distribution agreements, or retransmission agreements or renewalsrenewal on less favorable terms or adverse interpretations could materially adversely affect the Company’shave a significant adverse effect on our business, financial condition or results of operations.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 loss of existing packaging, positioning, pricing or other marketing opportunities and the loss of carriage on cable and satellite programming tiers or the failure to renew our agreements with any distributor, or renew or modify them on favorable terms, could reduce the distribution of our 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 and virtual 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 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 digital streaming services, could adversely affect the terms of the Company’sour 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’sour programming and become widely accepted in lieu of traditional program packages, the Companywe could experience a decline in affiliate and subscription revenues.
Cyber attacksSimilarly, our revenues are dependent on the compliance of major distributors with the terms of our affiliation or distribution agreements. As these agreements have grown in complexity, the number of disputes regarding the interpretation, and even validity, of the agreements has grown, resulting in greater uncertainty and, from time to time, litigation with respect to our rights and obligations. For example, some of our distribution agreements contain “most favored nation” (“MFN”) clauses, which provide that if we enter into an agreement with a distributor and such agreement includes specified terms that are more favorable than those held by a distributor holding an MFN right, we must offer some of those terms to the distributor holding the MFN right. These clauses are generally complex and may lead to disagreement over their interpretation and application. Disagreements with a distributor on the interpretation or validity of an agreement could adversely impact our revenues from both affiliate fees and advertising, as well as our relationship with that distributor.
These factors could have an adverse effect on our business, financial condition or results of operations.
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 eventsbenefits 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 Company’sresults 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 significantly larger and more 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 Merger may not be realized, including, among others, the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame or at all. Further, additional unanticipated costs may be incurred in the 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 the 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
investments, unidentified issues not discovered in our due diligence that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities and a failure to successfully further develop an acquired business or technology. Because new investments are inherently risky, and the anticipated 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 operations.
Service disruptions or failures of, or cybersecurity attacks upon, our or our service providers’ networks, information systems orand other technologies could result in the breachdisclosure of proprietaryconfidential or confidentialvaluable business or personal information, could disrupt the Company’s business, harm itsdisruption of our businesses, damage to our brands and reputation, legal exposure and expose the Company to regulatory enforcement and litigation.financial losses
Network andNetworks, cloud services, information systems and other technologies, including technology systems used in connection with the production and distribution of the Company’sour programming, films and other content by us or our third-party providers (“Systems”), are critical to our business activities, and shutdowns or service disruptions of, and cybersecurity 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 viruses, worms, malware, ransomware and other destructive or disruptive software; denial of service attacks and other bad acts; human error; and power outages, natural disasters, extreme weather, terrorist attacks or other similar 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 Companystability and efficiency of our Systems may not be sufficient to avoid shutdowns, disruptions and attacks. Significant events could result in a disruption of our operations and reduction of our revenues, the loss of or damage to the integrity of data used by management to make decisions and operate our businesses, viewer or advertiser dissatisfaction or a loss of viewers or advertisers, and damage to our reputation or brands.
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 result in a disruption of our operations and reduction of our revenues, adversely impact the experience 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 or 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 confidential 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 importantnot recognized until launched, we may be unable to the Company’s business activities. Despite the Company’santicipate these techniques, implement adequate security measures or remediate any intrusion on a timely or effective basis. Moreover, the development and disaster recovery planning, networkmaintenance 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
business partners, and information systems-related events,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 as process breakdowns, employeeSystems or partner error, cyber attacks or other activities,to comply with regulatory requirements. We could also be subject to actions by regulatory authorities and power outages, terrorism, natural or other disasters, could resultclaims asserted in a disruption or degradation of the Company’s services and operations, damage to equipment and data, and dissatisfaction or loss of viewers, customers or advertisers.private litigation. The Company manages, stores, and otherwise processes proprietary information and sensitive or confidential datacosts relating to its operations. The Company may experience breaches or other compromise of the information technology systems it uses for these purposes, as criminal or other actors may be able to penetrate the Company’s network security and misappropriate or compromise the Company’s business information, including intellectual property, financial, personal or other confidential information, or that of third parties, create system disruptions or cause shutdowns. Further, hardware and operating system software and applications that the Company produces or procures from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of such systems. The costs to address the foregoing security problems and security vulnerabilities before or after a cyber incidentany data breach could be significant. Remediation effortsmaterial, and we may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers that may impede the Company’s operations. Breaches of the Company’s security measures and the unapproved dissemination of proprietary information or sensitive or confidential data about the Company or its customers or other third parties could exposehave adequate insurance coverage to compensate us for any losses associated with such affected parties to a risk of loss or misuse of this information, result in regulatory enforcement, litigation and potential liability for the Company, damage the Company’s brands and reputation, or otherwise harm the Company’s business. Further, the Company relies in certain limited capacities on third-party data management providers and other vendors whose possible security problems and security vulnerabilities may have similar effects on the Company. events.
The Company isEach 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 user and other personal data. The Company’s ability to execute transactionsIn the EU, for example, the GDPR mandates data protection compliance obligations and to possessauthorizes significant fines for noncompliance, requiring significant compliance resources and useefforts 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 dataregulations intended specifically to protect the interests of children and the privacy of minors online, including COPPA in conducting its business may require the Company to notify regulatorsU.S. and customers, employees, or other individuals of a data security breach, includingthe GDPR in the EU, underand we have been required to limit some functionality on our websites and apps as a result of these regulations. Such regulations also restrict the GDPR,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 took effect in May 2018. The Companycould affect advertising demand and pricing. We will continue to incur expensesexpend resources to comply with mandatorydata protection and privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations, butwhich may be inconsistent with one another, and despite such efforts we may face regulatory and other legal actions in the eventactions. See “Regulation and Protection of a data breachour Intellectual Property—Certain Other Regulations Affecting Our Business—Global Data Protection Laws and Children’s Privacy Laws.”
Each of these factors could have an adverse effect on our reputation, business, financial condition or perceived or actual non-compliance with such requirements.results of operations.
The Company’s operatingfailure, 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 are subject to seasonal variationsof operations
We use satellite systems, fiber and other factors.methods to transmit our programs and program services to broadcast television and cable television operators and other distributors 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 Company’s business has experiencedsuccess 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 expectedparticularly prevalent in many parts of the world that either lack effective laws and technical protection measures similar to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences, on people’s viewing, reading, attendance and listening habits. Typically, the Company’s revenue from advertising increasesthose existing in the first and fourth quarters, Simon & Schuster generates an increased portion of its revenues in the second half of the year and license fees for television programming are dependent on the commencement of a license period, mix, number and availability of the Company’s television programming, which may cause operating results to increase or decrease during a period and create non-comparable results relative to the corresponding period in the prior year. In addition, the Company’s advertising revenues benefit when the Company broadcasts the Super Bowl and NCAA Division I Men’s Basketball Tournament National Semifinals and Championship and, in even-numbered years, benefit from advertising placed by candidates for political offices. The effects of such seasonality make it difficult to estimate future operating results based on the previous results of any specific quarter and may adversely affect the Company’s operating results.
Economic conditions may adversely affect the Company’s businesses and customers.
The U.S. and other countries where the Company operates experience slowdowns and volatilities in their economies from time to time. A downturn could lead to lower consumer and business spending for the Company’s products and services, particularly if customers, including advertisers, subscribers, licensees, retailers and other consumers of the Company’s 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 adequateEurope or historical levels to finance their ongoing business and operations and may face insolvency, all of which could impair their ability to make timely payments and continue operations, including distribution of the Company’s
content.lack effective enforcement of such measures, or both. Such foreign copyright theft often creates a supply of pirated content for major markets as well. The Company is unableinterpretation of copyright, trademark and other intellectual property laws as applied to predictour content, and our infringement-detection and enforcement efforts, remain in flux, and some methods of enforcement have encountered political opposition. The failure to appropriately enforce and/or the durationweakening of existing intellectual property laws could make it more difficult for us to adequately protect our intellectual property and severity of weakened economic conditions and such conditions and resultant effects could adversely impact the Company’s businesses, operating results, and financial condition.thus negatively affect its value.
VolatilityContent theft is made easier by the wide availability of higher bandwidth and weaknessreduced storage costs, as well as tools that undermine encryption and other security features and enable infringers to cloak their identities online. We and our numerous production and distribution partners operate various technology systems in capital markets may adversely affect credit availabilityconnection with the production and related financing costsdistribution of our programming and films, and intentional or unintentional acts could result in unauthorized access to our content. The continuing proliferation of digital formats and technologies heightens this risk. The unauthorized distribution and consumption of our content through a wide array of platforms and devices remain problematic and an ever-present challenge, as Internet-connected televisions, set-top boxes and mobile devices are ubiquitous and many can support illegal re-transmission platforms, illicit video-on-demand/streaming services and pre-loaded hardware, providing more accessible, versatile and legitimate-looking environments for consuming pirated film and television content. Unauthorized access to our content could result in the Company.premature release of films, television programs or other content as well as a reduction in legitimate audiences, which would likely have significant adverse effects on the value of the affected content and our ability to monetize our content.
BankCopyright theft has an adverse effect on our business because it reduces the revenue that we are able to receive from the legitimate sale and capital markets can experience periodsdistribution of volatilityour content, undermines lawful distribution channels, reduces the public’s and disruption. If the disruption in these markets is prolonged, the Company’ssome affiliate partners’ perceived value of our content and inhibits our ability to refinance,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 affect our profitability and may not be successful in preventing harm to our business and may have an adverse effect on our business, financial condition or results of operations.
Political and economic conditions in a variety of markets around the world could have an adverse effect on our business, financial condition or results of operations
Our businesses operate and have 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 Argentinian peso, the British pound and the related costEuro, among others) has increased. Such fluctuations could have an adverse effect on our business, financial condition or results of refinancing, some or all of its debt could be adversely affected. Although the Company can currently access the bankoperations, and capital markets, there is no assurance that suchdownward trending currencies will rebound or that stable currencies will remain stable in any period.
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.
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 credit ratings agencies. These factors,EU, including the tighteningUK, any of credit markets,these effects of Brexit and a trade deal, and others we cannot anticipate, could have an adverse effect on our business, financial condition or a decrease in the Company’s debt ratings, could adversely affect the Company’s ability to obtain cost-effective financing.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 communicationsU.S. or foreign laws or other regulations may have an adverse effect on the Company’s business.our business, financial condition or results of operations
Our program services, filmed entertainment and online, mobile and app properties are subject to a variety of laws and regulations, both in the U.S. and/or in the foreign jurisdictions in which we or our partners operate, including relating to 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
obtain the most favorable terms available for itsour content could be adversely affected should such an extension be enacted into law. 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 subscription video on demandSVOD 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 enforcement or modification of FCC indecency and other program content rules against the broadcast and cable industries could have an adverse effect on the Company’sour businesses and results of operations.operations
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. Broadcasting indecent material could result in fines per station of a maximum of approximately $407,000$415,000 per 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.
The failure
We could be subject to material liabilities as a result of adoption of or destructionchanges in tax laws, regulations and administrative practices, interpretations and policies
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 and 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 our 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 satellitesadditional charges to our income tax provision in any given period and transmitter facilities on which the Company depends to distribute its programming could materiallymay adversely affect the Company’s businessesour effective income tax rate or cash payments and may therefore adversely affect our business, financial condition or results of operations.
The Company uses satellite systemsVolatility 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 transmit its broadcastrefinance, and cable networksthe 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 such markets will continue to affiliates. The distributionbe 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 credit facilities include uplinks, communications satellites and downlinks. Transmissions may be disrupted asbased 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 volatility in the markets and interest rates. These factors, including the tightening of local disasterscredit markets, or a decrease 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 writers, 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 multi-employer trade association that, along with and on behalf of hundreds of member companies including extreme weatherParamount 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 impair on-ground uplinksarise 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 renewal, which could increase our costs. Depending on its duration, any lockout, labor dispute, strike or downlinks, or as a result of an impairment of a satellite. Currently, there are 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 mannerwork 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.
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 stations 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.any specific quarter.
The CompanyWe could suffer losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and programming.programming
The Company testsWe test goodwill and indefinite-lived intangible assets, including FCC licenses, for impairment during the fourth quarter of each yearon an annual basis and between annual tests if events or circumstances require an interim impairment assessment. ACertain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in advertising markets, a decrease in audience acceptance of our programming or films, a shift by advertisers to competing advertising platforms and/or changes in consumer behavior could result in a downward revision in the estimated fair value of a reporting unit or intangible assets, including FCC licenses, which could result in a non-cash impairment charge. Also, any significant shortfall, now or in the future, in the expected popularity of the Company’s programming could lead to a downward revision in the fair value of such assets. Any such impairment charge for goodwill, intangible assets and/or programming could have a material adverse effect on the Company’sour reported net earnings.
Dividends and dividend rates cannot be guaranteed.
The Company’s Board of Directors assesses relevant factors when considering the declaration of a dividend on the Company’s common stock. The Company cannot guarantee that it will continue to declare dividends, including at the same or similar rates.
The loss of key personnel, including talent, could adversely affect the Company’s business and revenues.
The Company’s business depends upon the continued efforts, abilities and expertise of the Company’s corporate and divisional executive officers and various creative talent and entertainment personalities. The Company believes that the loss of its executive officers could have a material adverse effect on the Company, including the impairment of the Company’s ability to execute its business strategy. The Company employs or contracts with highly regarded
directors, actors, producers, authors and other talent who are important to attracting and retaining audiences and achieving the success of the Company’s programming, television stations, books and other content. There can be no assurance that these individuals will remain with or be drawn to the Company or will retain their current appeal. If the Company fails to retain or attract entertainment personalities, authors and talent or they lose their current appeal, the Company’s revenues could be adversely affected.
The Company’sOur liabilities related to discontinued operations and former businesses could adversely impact itsour financial condition.conditions
The Company hasWe have both recognized and potential liabilities and costs related to discontinued operations and former businesses, certain of which are unrelated to the media business, including leases, guarantees, environmental liabilities, liabilities related to the pensions and medical expenses of retirees, asbestos liabilities, contractual disputes and other pending and threatened litigation. The CompanyWe cannot be assured that its reservesour accruals for these matters are sufficient to cover these liabilities in their entirety or any one of these liabilities when it becomes due or at what point any of these liabilities may come due. Therefore, there can be no assurances that these liabilities will not have a material adverse effect on the Company’sour financial position, operating performance or cash flow.
The Company could be adversely affected by strikesRisks Relating to NAI’s Voting Control of ViacomCBS and other union activity.
The Company, its suppliers and business partners engage the services of writers, directors, actors and other talent, trade employees, players in sports leagues and others who are subject to collective bargaining agreements. If the Company, its suppliers or business partners are unable to renew expiring collective bargaining agreements, it is possible that the affected unions or others could take action in the form of strikes or work stoppages. Such actions, higher costs in connection with these agreements or a significant labor dispute could adversely affect the Company’s television, cable networks and interactive businesses by disrupting the Company’s ability to provide scheduled services and programming or by causing delays in the production of the Company’s programming. Depending on its duration, any lockout, strike or work stoppage could have an adverse effect on the Company’s revenues, cash flows and/or operating income and/or their timing.
Fluctuations in foreign exchange rates and political and economic risks associated with the Company’s international businesses could harm the Company’s financial condition or results of operations.
The Company’s businesses operate and have customers worldwide. Certain of the Company’s revenues are earned and expenses are incurred in foreign currencies. The value of these currencies fluctuates relative to the U.S. dollar. As a result, the Company is exposed to exchange rate fluctuations, which could have an adverse effect on its results of operations. Other inherent risks of doing business in international markets include changes in the economic environment, potentially adverse tax developments, export restrictions, exchange controls, tariffs and other trade and sanctions barriers, longer payment cycles, and changes in privacy and data protection laws. The Company may incur substantial expense as a result of the imposition of new restrictions or changes in the existing economic environment in the regions where it does business. For example, the ongoing “Brexit” processes to withdraw the U.K. from the EU, which is expected to occur in 2019, may adversely affect economic and market conditions in the U.K. and other regions where the Company conducts business and could contribute to volatility in foreign exchange markets. In addition, acts of terrorism or other hostilities, or other future financial, political, economic or other uncertainties, could lead to a reduction in advertising expenditures, which could materially adversely affect the Company’s business, financial condition or results of operations.
Changes in tax laws, regulations and administrative practices, interpretations and policies may result in material tax liabilities.
The Company is subject to income taxes in both the U.S. and numerous foreign jurisdictions. Changes in tax laws, regulations and administrative practices, interpretations and policies in the territories where the Company’s businesses operate may result in material tax liabilities. The Company’s tax returns are routinely audited by tax authorities and tax-related litigation or settlements may occur resulting in the assessment of additional taxes. The enactment of the federal tax legislation in December 2017 (the “Tax Reform Act”) may expose the Company to tax
risks as a result of the ongoing issuance of interpretive guidance by the U.S. government as to how provisions of the Tax Reform Act are to be applied, which may differ from the Company’s current interpretations. The aforementioned risks may adversely affect the Company’s effective income tax rate or cash tax payments, which may adversely affect the Company’s business, financial condition or results of operations.Pledged Shares
NAI, through its voting control of the Company, isViacomCBS, will be in a position to control actions that require stockholder approval.approval
NAI, through its direct and indirect ownership of the Company’s votingour Class A Common Stock, has voting control of the Company.ViacomCBS. At February 13,December 31, 2019, NAI directly or indirectly owned approximately 79.8%79.4% of the Company’sshares of our Class A Common Stock outstanding, and approximately 10.2% of the shares of our Class A Common Stock and approximately 10.5% 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.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 director Ms. Shari Redstone. No member of the Company’sour management is a trustee of the SMR Trust.
Subject to the terms of the settlement and release agreement entered intoGovernance Agreement dated as of August 13, 2019, which is incorporated by the Company and NAI, among others,reference as an exhibit in this Annual Report on September 9, 2018,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 the Company’sViacomCBS’ bylaws, the election or removal of directors and transactions involving a change of control. For example, the Company’s Amended and Restated BylawsViacomCBS 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 of the Company then entitled to vote generally in an election of directors, voting together as a single class, is required for theour stockholders of the Company to amend, alter, change, repeal or adopt any bylaws of the Company;our bylaws;
any or all of theour directors of the Company may be removed from office at any time prior to the expiration of the director’shis 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 stock of the Companyour 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 of the Company 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, otherViacomCBS stockholders who may have different interests are unable to affect the outcome of any such corporate actions 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 shares of the Company’s common stockViacomCBS Common Stock, some of which are pledged to lenders, could adversely affect the stock price.price
At February 13,December 31, 2019, NAI directly or indirectly owned approximately 79.8%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 10.5% 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 non-votingour Class A Common Stock and our Class B Common Stock owned directly or indirectly by NAI. The
At December 31, 2019, the aggregate number of shares
of non-voting Class Bour Common Stock pledged by NAI to its lenders representsrepresented approximately 4.8%4.1% of the Company’s total outstanding shares of our Class A Common Stock and our Class B Common Stock, outstanding. on a combined basis. At December 31, 2019, the amount of our Class A Common Stock that NAI directly or indirectly owned and that was not pledged by NAI to its lenders represented approximately 64.0% of the total outstanding shares of our Class A Common Stock.
If there is a default on NAI’s debt obligations and the lenders foreclose on the collateral,pledged shares, the lenders may not effect a transfer, sale or disposition of any pledged shares of our Class A Common Stock, unless NAI and its affiliates beneficially own 50% or less of our Class A Common Stock then outstanding or such shares have first been converted into our Class B Common Stock could be sold, whichStock. A sale of the pledged shares could adversely affect the Company’sour Common Stock share price. ThereIn addition, there can be no assurance that NAI or its subsidiaries at some future time NAI will not sell or pledge additional shares of the Company’s stock,our Common Stock, which could adversely affect the Company’sour Common Stock share price.
Many factors may cause the stock price of the Company’s Class A Common Stock and Class B Common Stock to fluctuate.
The stock price of Class A Common Stock and Class B Common Stock may fluctuate significantly as a result of many factors. These factors, some or all of which 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. In addition, the stock market has experienced volatility that often has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading prices of the Company’s common stock, regardless of the Company’s actual operating performance.
The businesses of the Company and Viacom Inc. will be attributable to the other company for certain regulatory purposes, which may limit business opportunities.
So long as the Company and Viacom Inc. are under common control, each company’s businesses, as well as the businesses of any other commonly controlled company, will be attributable to the other company for purposes of certain rules and regulations of the FCC, U.S. and non-U.S. antitrust rules and regulations and certain rules regarding political campaign contributions in the U.S., among others potentially. The businesses of one company will continue to be attributable to the other company for certain FCC and other purposes even after the two companies cease to be commonly controlled, if the two companies share common officers, directors, or attributable stockholders. As a result, the businesses and conduct of Viacom Inc. may have the effect of limiting and affecting the activities, strategic business alternatives 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”).
In connection with the Separation, each company will rely on the other company’s performance under various agreements between the companies.
In connection with the Separation, the Company and Viacom Inc. entered into various agreements, including a Separation Agreement dated December 19, 2005, a Tax Matters Agreement dated December 30, 2005, which are filed as exhibits to this report, and certain related party arrangements pursuant to which the Company and Viacom Inc. will provide services and products to each other from and after the Separation. The Separation Agreement sets forth the allocation of assets, liabilities, rights and obligations of the Company and Viacom Inc. following the Separation, and includes indemnification obligations for such liabilities and obligations. In addition, pursuant to the Tax Matters Agreement, certain income tax liabilities and related responsibilities are allocated between, and indemnification obligations are assumed by, each of the Company and Viacom Inc. Each company will rely on the other to satisfy its performance and payment obligations under these agreements. Certain of the liabilities to be assumed or indemnified by the Company or Viacom Inc. under these agreements are legal or contractual liabilities of the other company. If Viacom Inc. were to breach or be unable to satisfy its material obligations under these agreements, including a failure to satisfy its indemnification obligations, the Company could suffer operational difficulties or significant losses.
NAI and any common director may face actual or potential conflicts of interest.
NAI has voting control of each of the Company and Viacom Inc. Mr. Sumner M. Redstone, the controlling stockholder through the SMR Trust, chairman of the board of directors and chief executive officer of NAI, serves as Chairman Emeritus of the Company and Chairman Emeritus of Viacom Inc. Ms. Shari Redstone, the president and a director of NAI, serves as Vice Chair of the Board of Directors of each of the Company and Viacom Inc. This ownership overlap and this common director could create, or appear to create, potential conflicts of interest when the Company’s and Viacom Inc.’s directors and controlling stockholder face decisions that could have different implications for the Company and Viacom Inc. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between the Company and Viacom Inc. regarding the terms of the agreements governing the Separation and the relationship between the Company and Viacom Inc. thereafter. These agreements include the Separation Agreement, the Tax Matters Agreementand any commercial agreements between the parties or their affiliates. On occasion, the Company and Viacom Inc. may compete with each other in various commercial enterprises. Potential conflicts of interest could 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 that 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. Furthermore, CBS Corp.’s certificate of incorporation provides that neither the Company nor Viacom Inc. has any duty to refrain from engaging in the same or similar activities or lines of business as the other corporation, doing business with any potential or actual customer or supplier of the other corporation, or employing or soliciting for employment any officer or employee of the other corporation, and that no officer or director of either corporation shall be liable to the other corporation or the other corporation’s stockholders for breach of any fiduciary duty by reason of any such activities of the Company or Viacom Inc., as the case may be. These provisions create the possibility that a corporate opportunity of one of such companies may be used for the benefit of the other company. If any such opportunity is directed to Viacom Inc., rather than the Company, the Company may be materially adversely affected.
Item 1B. Unresolved Staff Comments.
None.Not applicable.
Item 2. Properties.
The Company maintains itsOur principal physical properties are described below. In addition, we own and lease office, studio, production and warehouse space and broadcast, antenna and satellite transmission facilities throughout the U.S. and around the world for our businesses. We consider our properties adequate for our present needs.
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 offices for the Company and certain of our operating divisions. The lease runs through 2031, with two renewal options based on market rates at the time of renewal for ten years each.
We also own a building at 51 West 52nd Street, New York, New York where it owns a building containing approximately 900,000892,000 square feet of space, 831,000space. Of the 855,000 square feet of which is office space. The Company occupiesspace in the building, we occupy approximately 275,000270,000 square feet of the office space and leaseslease the balance to third parties. The Company ownsWe have retained a real estate brokerage firm to explore a possible sale of this property.
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
We own studio facilities at the CBS Studio Center at 4024 Radford Avenue, Studio City, California, located on approximately 40 acres. On January 31, 2019, the Company sold the studio facilities known as
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 technical space at Television City, located at 7800 Beverly Boulevard, Los Angeles, California under 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.
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 space to third parties. Network 10 leases approximately 100,000 square feet of space in the suburbs of Sydney, Australia at 1 Saunders Street, Pyrmont, New South Wales, Australia, under a lease which expires in December 2023. The Company 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.2034.
Item 3. Legal Proceedings.
General. On an ongoing basis,The information set forth under the Company vigorously defends itselfcaption “Legal Matters” in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state, local and international authorities (collectively, “litigation’’). Litigation may be brought against the Company without merit, is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the below-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows. Under the separation agreement between the Company and Viacom Inc., the Company and Viacom Inc. have agreed to defend and indemnify the other in certain litigation in which the Company and/or Viacom Inc. is named.
Investigation-Related Matters. As announced on August 1, 2018, the Company’s Board of Directors (“Board”) retained two law firms to conduct a full investigation of the allegations in recent press reports about the Company’s former Chairman of the Board, President and Chief Executive Officer, Mr. Leslie Moonves, CBS News and cultural issues at all levels of the Company. On December 17, 2018, the Board announced the completion of the investigation, certain findings of the investigation and the Board’s determination, discussed below, with respectNote 19 to the termination of Mr. Moonves’s employment. The Company has 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 has also requested information about these matters. The Company may receive additional related regulatory and investigative inquiries from these and other entities in the future. The Company is 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 the Company, certain current and former senior executives and members of the Board. The consolidated action is stated to be on behalf of purchasers of the Company’s 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.
Separation Agreement. On September 9, 2018, the Company entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Leslie Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of the Company. Pursuant to the Separation Agreement, the Company is contributing the aggregate amount of $20 million toward various charitable organizations that support the #MeToo movement and equality for women in the workplace, which organizations were mutually agreed by the Company and Mr. Moonves. The Company has recorded the contribution of $20 million in “Restructuring and other corporate matters” on the Consolidated Statements of Operations for the year ended December 31, 2018. In October 2018, the Company contributed $120 million to a grantor trust. On December 17, 2018, the 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’s employment for cause under his employment agreement with the Company. Any dispute related to the Board’s determination is subject to binding arbitration as set forth in the Separation Agreement. On January 16, 2019, Mr. Moonves notified the Company of his election to demand binding arbitration with respect to this matter and the related Board investigation. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. The Company is currently unable to determine the
outcome of the arbitration and the amount, if any, that may be awarded thereunder and, accordingly, no accrual for this matter has been made in the Company’s consolidated financial statements.
Claims Relatedstatements in “Item 8. Financial Statements and Supplementary Data – Notes to Former Businesses: Asbestos. The CompanyConsolidated Financial Statements” is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure causedincorporated herein 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 is 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’s products is the basis of a claim. Claims against the Company in which a product has been identified most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines.
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 does not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2018, the Company had pending approximately 31,570 asbestos claims, as compared with approximately 31,660 as of December 31, 2017 and 33,610 as of December 31, 2016. During 2018, the Company received approximately 3,290 new claims and closed or moved to an inactive docket approximately 3,380 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has 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’s total costs for the years 2018 and 2017 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $45 million and $57 million, respectively. The Company’s 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 Company are non-cancer claims. The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities. This belief 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 predict 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.
Other. The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to historical and predecessor operations of the Company. In addition, the Company from time to time receives personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operations of the Company and its predecessors.reference.
Item 4. Mine Safety Disclosures.
Not applicable.
EXECUTIVE OFFICERSOUR BOARD OF THE COMPANYDIRECTORS
Set forth below is certain information concerning the executive officers of the CompanyViacomCBS’ directors as of February 13, 2019.18, 2020 are as follows:
|
| | |
| 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
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
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
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.
OUR EXECUTIVE OFFICERS
ViacomCBS’ executive officers as of February 18, 2020 are as follows:
|
| | |
| Name | | Age | | TitlePosition |
Joseph R. IannielloRobert M. Bakish | | 51 | 56 | President and Acting Chief Executive Officer, Director |
Jonathan H. AnschellChrista A. D’Alimonte | | 50 | 51 | Executive Vice President, Deputy General Counsel and Secretary |
Richard M. JonesKatherine Gill-Charest | | 53 | | Executive Vice President and General Tax Counsel |
Lawrence Liding | | 50 | 55 | Executive Vice President, Controller and Chief Accounting Officer |
| Richard M. Jones | 54 | Executive Vice President, General Tax Counsel and Chief Veteran Officer |
| Doretha (DeDe) Lea | 55 | Executive Vice President, Global Public Policy and Government Relations |
| Julia Phelps | 42 | Executive Vice President, Chief Communications and Corporate Marketing Officer |
| Nancy Phillips | 52 | Executive Vice President, Chief People Officer |
| Christina Spade | | 49 | 50 | Executive Vice President, Chief Financial Officer |
Lawrence P. Tu | | 64 | | Senior Executive Vice President and Chief Legal Officer |
| | | | |
None of the executive officers of the Company is related to any other executive officer or director by blood, marriage or adoption.
See “Our Board of Directors” for Mr. IannielloBakish’s biography.
Christa A. D’Alimonte has been our Executive Vice President, General Counsel and Acting Chief Executive Officer of the CompanySecretary since September 2018.December 2019. Prior to that, Mr. Iannielloshe served as Chief Operating Officer of the Company since June 2013 and as Executive Vice President, General Counsel and Chief Financial OfficerSecretary of the Company since August 2009. Previously, heViacom beginning in 2017, having previously served as Deputy Chief Financial Officer of the Company since November 2008, as Senior Vice President, Chief Development Officer and Treasurer of the Company since September 2007, as Senior Vice President, Finance and Treasurer of the Company since January 1, 2006, as Senior Vice President and Treasurer of Former Viacom since July 2005 and as Vice President, Corporate Development of Former Viacom from 2000 to 2005.
Mr. Anschell has been Executive Vice President, Deputy General Counsel and Assistant Secretary of Viacom beginning in 2012. Prior to joining Viacom, Ms. D’Alimonte was a partner of Shearman & Sterling LLP, where she was Deputy Practice Group Leader of the Company since January 1, 2016. Mr. Anschell also serves asFirm’s Global Mergers & Acquisitions group. She first joined Shearman & Sterling in 1993 and became a partner in 2001.
Katherine Gill-Charesthas been our Executive Vice President, Controller and General CounselChief Accounting Officer since December 2019. Prior to that, she served as Senior Vice President, Controller and Chief Accounting Officer of CBS BroadcastingViacom beginning in 2010, having previously served as Senior Vice President, Deputy Controller of Viacom during 2010 and Vice President, Controller beginning in 2007. Prior to that, Ms. Gill-Charest was the Chief Accounting Officer of WPP Group from 2001 to 2007 and was the Vice President and Worldwide Controller of Young & Rubicam Inc., a position he has from 1998 to 2000. Ms. Gill-Charest also held since joiningroles in financial reporting and accounting policy at Time Warner Inc. from 1991 to 1998 and at NYNEX Corporation from 1988 to 1991 and served in the Company in 2004. Mr. Anschell previously was a partner with the law firm, White O’Connor Curry in Los Angeles, California.audit practice of Price Waterhouse for two years.
Mr.Richard M. Jones has been our Executive Vice President, and General Tax Counsel and Chief Veteran Officer since August 2014. Previously,Prior to that, he served as Senior Vice President and General Tax Counsel of the Company since January 1,CBS Corporation beginning in 2006 and for FormerViacom since Decemberbeginning in 2005. Prior to that, he served as Vice President of Tax, Assistant Treasurer and Tax Counsel for NBC Universal, Inc. sincebeginning in 2003 and he served 13 years with Ernst & Young in its media & entertainment and transaction advisory services practices. Mr. Jones also serves as the Company’s Chief Veteran Officer and served honorably as a non-commissioned officer in the U.S. Army’s 75th Ranger Regiment and 10th Mountain Division.
Mr. LidingDoretha (DeDe) Lea has been our Executive Vice President, ControllerGlobal Public Policy and Government Relations since December 2019. Prior to that, she served as Executive Vice President, Global Government Affairs of Viacom beginning in 2013, having previously served as Executive Vice President, Government Relations of Former Viacom beginning in 2005. Prior to that, she was Senior Vice President, Government Relations of Former Viacom beginning earlier in 2005. Prior to that, she served as Vice President of Government Affairs at Belo Corp. from 2004 to 2005 and as Vice President, Government Affairs of Former Viacom from 1997 to 2004.
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 as Vice President, Assistant Controller since January 1, 2006. Prior to that, Mr. Liding joined FormerCommunications for Viacom
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. Effective February 20, 2019, Mr. LidingDeVries Public Relations, a New York-based communications agency.
Nancy Phillips has been appointedour Executive Vice President, Chief People Officer since December 2019. Prior to a newly created rolethat, she served as headExecutive Vice President and Chief Human Resources Officer of the Company’s operationsNielsen Holdings PLC beginning in China.
Effective February 20, 2019, Mr. David Byrnes has been appointed2017, having served as Executive Vice President and Chief Human Resources Officer of Broadcom Corporation from 2014 to succeed Mr. Liding2016. From 2010 to serve as the Company’s2014, Ms. Phillips was Senior Vice President, ControllerHuman Resources for the Imaging and Chief Accounting Officer. Prior to such appointment, Mr. Byrnes, age 48,Printing Group at Hewlett-Packard Company, and previously served as the Company’s Senior Vice President, Internal Audit since 2015 and as Senior Vice President, Finance, CBS Information Solutions & Technology since 2014. Previously, Mr. ByrnesHuman Resources, Enterprise Services. From 2008 to 2010, Ms. Phillips served as Executive Vice President Financeand Chief Human Resources Officer at Simon & Schuster since 2009 and as Vice President, Corporate Development of the Company since 2008.Fifth Third Bancorp. Prior to that, Mr. Byrnes served fiveMs. Phillips spent 11 years at Automatic Data Processing, Inc. inGeneral Electric Company, holding various financial positions, including divisional Chief Financial Officer and Vice President of Financial Reporting and Policy, and served 11 years with KPMG LLP in its audit practice.human resources positions. Ms. Phillips practiced law from 1993 to 1997.
Ms.Christina Spade has been our Executive Vice President, Chief Financial Officer of the Company since October 2018. Previously,Prior to that, she served as Executive Vice President, Chief Financial Officer and Strategy for Showtime Networks Inc. (“Showtime”) sincebeginning in 2013. Prior to that,Previously, Ms. Spade served as Senior Vice President, Affiliate Finance and Business Operations for Showtime sincebeginning in 2003. Prior to joining Showtime in 1997, Ms. Spade was an Audit Manager with PricewaterhouseCoopers LLP in its Entertainment, Media and Communications practice.
Mr. Tu has been Senior Executive Vice President and Chief Legal Officer of the Company since January 1, 2014. Previously, Mr. Tu served as Senior Vice President, General Counsel and Secretary of Dell Inc. since July 2004. Prior to that, Mr. Tu served as Executive Vice President and General Counsel of NBC Universal since 2001. He previously was a partner with the law firm, O’Melveny & Myers LLP, and also served five years as managing partner of the firm’s Hong Kong office. Mr. Tu’s prior experience also includes serving as General Counsel Asia-Pacific for Goldman Sachs, attorney for the U.S. State Department, and law clerk for U.S. Supreme Court Justice Thurgood Marshall.
Part II
|
| |
| Item 5. | Market for CBS Corporation’sViacomCBS Inc.’s Common Equity, Related Stockholder Matters and Purchases of Equity Securities. |
CBS Corporation (the “Company” or “CBS Corp.”)Our voting Class A Common Stock and CBS Corporation non-voting Class B Common Stock are listed and traded on the New YorkNasdaq Stock ExchangeMarket LLC under the symbols “CBS.A”“VIACA” and “CBS”“VIAC”, respectively.
On December 19, 2019, we declared a quarterly cash dividend of $.24 per share on our 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 Companyyears 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.
On February 12, 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, 2019. The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2018 and 2017, resulting in total annual dividends of $274 million, or $.72 per share, for 2018 and $289 million, or $.72 per share, for 2017. 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, 2018.2019.
|
| | | | | | | | | | | | | | | | | | | |
| (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, 2018 - October 31, 2018 | | .7 |
| | | $ | 55.62 |
| | | .7 |
| | | | $ | 2,521 |
| |
| November 1, 2018 - November 30, 2018 | | .1 |
| | | $ | 57.48 |
| | | .1 |
| | | | $ | 2,515 |
| |
| December 1, 2018 - December 31, 2018 | | 1.3 |
| | | $ | 43.59 |
| | | 1.3 |
| | | | $ | 2,457 |
| |
| Total | | 2.1 |
| | | | | | 2.1 |
| | | | $ | 2,457 |
| |
|
| | | | | | | | | | | | | | | | | | | |
| (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 13, 2019,14, 2020, there were approximately 1,3682,227 record holders of CBS Corp.our Class A Common Stock and approximately 18,51631,784 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, 20132014 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, 2018.
Total Cumulative Stockholder Return
For Five-Year Period Ended December 31, 20182019
|
| | | | | | |
| December 31, | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
| CBS Corp. Class A Common Stock | $100 | $89 | $84 | $105 | $98 | $73 |
| CBS Corp. Class B Common Stock | $100 | $88 | $75 | $103 | $97 | $73 |
| S&P 500 | $100 | $114 | $115 | $129 | $157 | $150 |
Peer Group (a) | $100 | $120 | $113 | $126 | $134 | $148 |
|
| | | | | | |
| 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. (“Time Warner”21st Century Fox”). In June 2018, Time Warner was acquired by AT&T Inc. and as a result, following the peer groupspin-off of Fox Corporation from 21st Century Fox. The performance graph reflects the conversionperformance of Time Warner common21st Century Fox stock to AT&T Inc. common stock as ofthrough the date of the merger.such transactions.
|
| |
| Item 6. | Selected Financial Data. |
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
(In millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, (a) (b) |
| | 2018 (c) (d) | | 2017 (e) (f) (g) | | 2016 (e) (f) | | 2015 (e) (h) | | 2014 (e) (i) |
| Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 13,166 |
| | $ | 12,671 |
| | $ | 12,519 |
|
| Operating income | $ | 2,768 |
| | $ | 2,861 |
| | $ | 2,902 |
| | $ | 2,684 |
| | $ | 2,631 |
|
| Net earnings from continuing operations | $ | 1,960 |
| | $ | 1,309 |
| | $ | 1,552 |
| | $ | 1,554 |
| | $ | 1,151 |
|
Net earnings (loss) from discontinued operations, net of tax | $ | — |
| | $ | (952 | ) | | $ | (291 | ) | | $ | (141 | ) | | $ | 1,808 |
|
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,261 |
| | $ | 1,413 |
| | $ | 2,959 |
|
| | | | | | | | | | |
| Basic net earnings (loss) per common share: | | | | | | | | | |
| Net earnings from continuing operations | $ | 5.20 |
| | $ | 3.26 |
| | $ | 3.50 |
| | $ | 3.21 |
| | $ | 2.09 |
|
Net earnings (loss) from discontinued operations | $ | — |
| | $ | (2.37 | ) | | $ | (.66 | ) | | $ | (.29 | ) | | $ | 3.29 |
|
| Net earnings | $ | 5.20 |
| | $ | .89 |
| | $ | 2.84 |
| | $ | 2.92 |
| | $ | 5.38 |
|
| | | | | | | | | | |
| Diluted net earnings (loss) per common share: | | | | | | | | | |
| Net earnings from continuing operations | $ | 5.14 |
| | $ | 3.22 |
| | $ | 3.46 |
| | $ | 3.18 |
| | $ | 2.05 |
|
Net earnings (loss) from discontinued operations | $ | — |
| | $ | (2.34 | ) | | $ | (.65 | ) | | $ | (.29 | ) | | $ | 3.22 |
|
| Net earnings | $ | 5.14 |
| | $ | .88 |
| | $ | 2.81 |
| | $ | 2.89 |
| | $ | 5.27 |
|
| | | | | | | | | | |
| Dividends per common share | $ | .72 |
| | $ | .72 |
| | $ | .66 |
| | $ | .60 |
| | $ | .54 |
|
| | | | | | | | | | |
| At Year End: | | | | | | | | | |
| Total assets: | | | | | | | | | |
| Continuing operations | $ | 21,847 |
| | $ | 20,830 |
| | $ | 19,642 |
| | $ | 18,695 |
| | $ | 18,372 |
|
| Discontinued operations | 12 |
| | 13 |
| | 4,596 |
| | 5,070 |
| | 5,563 |
|
| Total assets | $ | 21,859 |
| | $ | 20,843 |
| | $ | 24,238 |
| | $ | 23,765 |
| | $ | 23,935 |
|
| Total debt: | | | | | | | | | |
| Continuing operations | $ | 10,152 |
| | $ | 10,162 |
| | $ | 9,375 |
| | $ | 8,448 |
| | $ | 7,112 |
|
| Discontinued operations | — |
| | — |
| | 1,345 |
| | — |
| | — |
|
| Total debt | $ | 10,152 |
| | $ | 10,162 |
| | $ | 10,720 |
| | $ | 8,448 |
| | $ | 7,112 |
|
| Total Stockholders’ Equity | $ | 2,804 |
| | $ | 1,978 |
| | $ | 3,689 |
| | $ | 5,563 |
| | $ | 6,970 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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) During the first quarter of 2018,On December 4, 2019, Viacom Inc. (“Viacom”) merged with and into CBS Corporation (“CBS”), with CBS continuing as the surviving company (the “Company” or “CBS Corp.”“Merger”) adopted amended Financial Accounting Standards Board guidance. 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 presentationsale of EPIX of $285 million ($189 million, net periodicof tax); a pension settlement charge of $352 million ($237 million, net of tax); and postretirement benefit cost (“discrete tax benefits of $321 million.
(f) Results for 2016 included costs for restructuring and other corporate matters of $286 million ($182 million, net benefit cost”). Asof tax) and a result, the componentspension settlement charge of $211 million ($130 million, net benefit costof tax).
(g) Results for 2015 included programming charges of $578 million ($383 million, net of tax); costs for restructuring and other than the service cost component are presented in the statementcorporate matters of operations below the subtotal$287 million ($186 million, net of operating income. All prior periods have been recast to conform to this presentation.tax); and a gain on sale of assets of $139 million ($131 million, net of tax).
(b)(h) On November 16, 2017, the Companywe 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.
(c) During 2018, the Company recorded expenses of $128 million primarily for professional fees related to legal proceedings, recent investigations at the Company and the evaluation of a potential combination with Viacom Inc.
(d) During 2018, the Company reversed a valuation allowance of $140 million relating to capital loss carryforwards that will be utilized in connection with the sale of CBS Television City, which is classified as held for sale on the Consolidated Balance Sheets.
(e) For 2017, net loss from discontinued operations, net of tax, includes a loss on the split-off of CBS Radio of $105 million, or $.26 per diluted share, and a market value adjustment of $980 million, or $2.41 per diluted share, recorded prior to the split-off to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications Corp. (“Entercom”). Included in net loss from discontinued operations, net of tax, are noncash impairment charges of $444 million ($427 million, net of tax), or $.95 per diluted share, in 2016, and $484 million ($297 million, net of tax), or $.61 per diluted share, in 2015, in each case to reduce the carrying value of CBS Radio’s intangible assets. For 2014, net earnings from discontinued operations, net of tax, included a gain on the disposal of Outdoor Americas Inc. of $1.56 billion, or $2.78 per diluted share.
(f) In 2017, the Company recorded a pension settlement charge of $352 million ($237 million, net of tax), or $.58 per diluted share, and in 2016, the Company recorded a pension settlement charge of $211 million ($130 million, net of tax), or $.29 per diluted share.
(g) In 2017, the Company recorded a provisional charge of $129 million, or $.32 per diluted share, resulting from the enactment of federal tax legislation in December 2017.
(h) In 2015, the Company recorded gains from the sales of internet businesses in China of $139 million ($131 million, net of tax), or $.27 per diluted share.
(i) In 2014, in connection with the early redemption of $1.07 billion of its debt, the Company recorded a pretax loss on early extinguishment of debt of $352 million ($219 million, net of tax), or $.39 per diluted share.
|
| |
| 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
ViacomCBS is a leading global media and entertainment company that creates content and experiences for audiences worldwide.
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 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
Management’s Discussion and Analysis of
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 Nasdaq and began trading under the ticker symbols VIACA and VIAC, respectively.
The Merger is being 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). The net assets of Viacom have been combined with those of CBS at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented.
Operational Highlights 2019 vs. 2018
|
| | | | | | | | | | | | | | | |
| 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-6 - II-8 and II-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 2019, revenues increased 2% to $27.81 billion from $27.25 billion in 2018, driven by CBS’ broadcast of Super Bowl LIII in 2019, growth from our streaming services, which include CBS All Access, Pluto TVand the Showtime streaming subscription offering (“Showtime OTT”), and higher content licensing revenues driven by the production of programming for third parties. These increases were partially offset by lower theatrical revenues, primarily due to the difficult comparison against Mission: Impossible - Fallout in 2018, and lower political advertising sales as a result of the 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)
- II-8 for details of the items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.
We generated operating cash flow of $1.23 billion in 2019 compared with $3.46 billion in 2018. Free cash flow was $877 million for 2019 compared with $3.11 billion for 2018. These decreases primarily reflected the aforementioned increased investment in content, higher payments for income taxes and payments of $132 million in 2019 for costs related to the Merger. In addition, operating cash flow and free cash flow included payments for restructuring activities of $234 million in 2019 and $219 million in 2018. Free cash flow is a non-GAAP financial measure. See “Free Cash Flow” on pages II-33 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with GAAP, to free cash flow.
OverviewReconciliation of Non-GAAP Measures
Business OverviewResults for the years ended December 31, 2019, 2018 and Strategy2017 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 adjusted diluted EPS from continuing operations (together, the “adjusted measures”) exclude the impact of these items and are measures of performance not calculated in accordance with GAAP. We use these measures to, among other things, evaluate our operating performance. These measures are among the primary measures used by management for planning and forecasting of future periods, and they are important indicators of our operational strength and business performance. In addition, we use Adjusted OIBDA to, among other things, value prospective acquisitions. We believe these measures are relevant and useful for investors because they allow investors to view performance in a manner similar to the method used by our management; provide a clearer perspective on our underlying performance; and make it easier for investors, analysts and peers to compare our operating performance to other companies in our industry and to compare our year-over-year results.
Because the adjusted measures are measures of performance not calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings from continuing operations before income taxes, 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 adjusted measures to their most directly comparable financial measures in accordance with GAAP.
|
| | | | | | | | | | | |
| 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.
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, 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) Reflects severance and exit costs relating to restructuring activities and costs incurred in connection with the Merger, legal proceedings involving the Company operates businesses which spanand other corporate matters.
(b) Reflects a charge to reduce the mediacarrying value of our international broadcast licenses in Australia to their fair value.
(c) Programming charges principally reflect accelerated amortization associated with changes in the expected monetization of certain programs, and entertainment industries, includingdecisions to cease airing, alter future airing patterns or not renew certain programs, in connection with management changes implemented as a result of the Merger.
(d) Reflects a gain on the sale of the CBS Television Network, cable networks, content productionCity property and distribution, television stations, direct-to-consumer digital streaming servicessound stage operation (“CBS Television City”).
(e) Reflects a gain on marketable securities of $113 million; gains of $22 million on the sale and other internet-based businesses,acquisition of joint ventures; and consumer publishing. The Company’s principal strategy isan impairment charge of $50 million to create and acquire premium content that is widely accepted by audiences and generate affiliate and subscription fee, licensing and advertising revenueswrite-down an investment to its fair value.
(f) Primarily reflects a deferred tax benefit of $768 million resulting from the distributiontransfer of this content on multiple media platforms and to various geographic locations. The Company plans to increase its investmentintangible assets between our subsidiaries in premium content to enhance its opportunities for revenue growth, which include exhibiting the Company’s content on its direct-to-consumer digital streaming services; expanding the distributionconnection with a reorganization of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”), third-party live television digital streaming offerings (“virtual MVPDs”), and television stations affiliated with the CBS Television Network. The Company also seeks to grow its advertising revenues by monetizing 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 incremental revenues across allour international operations; tax benefits of the Company’s main revenue streams.
Corporate Matters
In August 2018, the Company’s Board of Directors (the “Board”) retained two law firms to conduct a full investigation of allegations$44 million realized in recent press reports about the Company’s former Chairman of the Board, President and Chief Executive Officer, Mr. Leslie Moonves, CBS News and cultural issues at all levels of the Company. In September 2018, Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to a separation and settlement agreement and releases, and the Company appointed its then Chief Operating Officer, Mr. Joseph R. Ianniello, as President and Acting Chief Executive Officer of the Company. The Board is conducting a search for a permanent Chief Executive Officer and Mr. Ianniello is a candidate in this search. On December 17, 2018, the Board announced the completion of the investigation and certain findings of the investigation. Also during 2018, the Company was involved in legal proceedings with its controlling shareholder, National Amusements, Inc., among others, which concluded with the dismissal of all claims pursuant to a settlement and release agreement. Pursuant to this agreement, on September 9, 2018, seven members of the Board resigned and the Board appointed six new members to the Board. On September 23, 2018, two directors who had served as members of the Board prior to September 9, 2018 resigned to pursue other interests, and, on October 21, 2018, another director resigned for health-related reasons. In addition, in early 2018, a potential combination with Viacom Inc. was evaluated by a special committee established by the Board. The uncertainties arising from leadership changes at the Company may have an adverse effect on the Company’s business. In connection with the aforementioned matters,preparation of the Company incurred expenses2018 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 (the “Tax Reform Act”); and a tax benefit of $128$39 million in 2018. See “Legal Matters” for certain related information.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)
Operational Highlights 2018 vs. 2017
|
| | | | | | | | | | | | | | | |
| Consolidated results of operations | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| GAAP: | | | | | | | | |
| Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 822 |
| | 6 | % | |
| Operating income | $ | 2,768 |
| | $ | 2,861 |
| | $ | (93 | ) | | (3 | )% | |
| Net earnings from continuing operations | $ | 1,960 |
| | $ | 1,309 |
| | $ | 651 |
| | 50 | % | |
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,603 |
|
| n/m |
| |
| Diluted EPS from continuing operations | $ | 5.14 |
| | $ | 3.22 |
| | $ | 1.92 |
| | 60 | % | |
| Diluted EPS | $ | 5.14 |
| | $ | .88 |
| | $ | 4.26 |
| | n/m |
| |
| Net cash flow provided by operating activities | $ | 1,426 |
| | $ | 887 |
| | $ | 539 |
| | 61 | % | |
| | | | | | | | | |
Non-GAAP: (a) | | | | | | | | |
| Adjusted operating income | $ | 3,048 |
| | $ | 2,905 |
| | $ | 143 |
| | 5 | % | |
| Adjusted net earnings from continuing operations | $ | 1,979 |
| | $ | 1,705 |
| | $ | 274 |
| | 16 | % | |
| Adjusted net earnings | $ | 1,979 |
| | $ | 1,791 |
| | $ | 188 |
| | 10 | % | |
| Adjusted diluted EPS from continuing operations | $ | 5.19 |
| | $ | 4.19 |
| | $ | 1.00 |
| | 24 | % | |
| Adjusted diluted EPS | $ | 5.19 |
| | $ | 4.40 |
| | $ | .79 |
| | 18 | % | |
| Adjusted free cash flow | $ | 1,260 |
| | $ | 989 |
| | $ | 271 |
| | 27 | % | |
n/m - not meaningful |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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) See pages II-8, II-9, II-35Primarily reflects severance and II-36 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 2018, revenues reached an all-time high of $14.51 billion, an increase of 6% from 2017, driven by growth across each of the Company’s main revenue streams. Advertising revenues grew 8%, driven by record political advertising sales from the 2018 midterm elections and the Company’s acquisition of Network 10 in the fourth quarter of 2017. These increases were partially offset by the absence of the National Semifinals and National Championship games of the NCAA Division I Men’s Basketball Championship (“NCAA Tournament”) and five Thursday Night Football games, which were broadcast by the CBS Television Network in 2017. During 2018, the Company experienced strong demand for CBS Television Network advertising. Underlying CBS Television Network advertising revenues in 2018 were comparable with 2017, as higher pricing and higher ratings for Sunday National Football League (“NFL”) games were offset by lower ratings for the Company’s primetime programming. Affiliate and subscription fees increased 7%, driven by 62% growth from the Company’s direct-to-consumer digital streaming services, CBS All Access and Showtime, and higher station affiliation fees and retransmission revenues, including from virtual MVPDs. These increases were partially offset by Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event in 2017, which reduced the affiliate and subscription fee comparison by eight percentage points. Content licensing and distribution revenues were up 3%, mainly from higher international licensing and the adoption of a new revenue recognition standard in 2018. This new standard resulted in revenues from the distribution of third-party content now being recognized based on the gross amount of consideration received from the customer, with an offsetting increase to participation expenses (see “Adoption of New Revenue Standard”). These increases were partially offset by lower domestic licensing compared with 2017.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating income decreased 3% from 2017. This comparison was impacted by several discrete items, including restructuring charges,exit costs relating to corporate mattersrestructuring activities as well as professional fees related to legal proceedings, cost transformation initiatives, investigations at our Company and the evaluation of potential merger activity.
(b) Reflects programming charges resulting from changes in the Company’sto our programming strategy, primarilyincluding at CBS Films. Adjusted operating income increased 5%, primarily reflectingFilms and our 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 fair value; and a gain of $16 million on the revenue growth, which was partially offset by an increased investmentsale of a 1% equity interest in content, includingViacom18 to our joint venture partner.
(d) Primarily reflects a higher numbernet discrete tax benefit of premium series produced for$80 million related to the Company’s direct-to-consumer digital streaming services, as well as for distribution onTax Reform Act and other platforms. Net earnings for 2018 were $1.96 billion, or $5.14 per diluted share, compared with $357tax law changes; a net tax benefit of $71 million or $.88 per diluted share, for 2017. The net earnings comparison was impactedrelating to a tax accounting method change granted by the following discrete items:Internal Revenue Service (“IRS”); and the reversal of a valuation allowance of $140 million relating to capital loss carryforwards that were utilized in 2018, charges in 2017 resulting from a pension settlement andconnection with the enactment of federal tax legislation in December 2017 (the “Tax Reform Act”); and, in discontinued operations for 2017, a net loss from the split-offsale of CBS Radio Inc. (“CBS Radio”) andTelevision 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 noncash charge to adjust the carrying valuestrategy for certain of CBS Radio. (See Note 17 to the consolidated financial statements.) Adjusted diluted earnings per share (“EPS”) increased 18% to $5.19 for 2018, driven by the higher adjusted operating income and a lower effective income tax rate in 2018, which resulted from the Tax Reform Act,our flagship brands, as well as lower weighted average shares outstanding. Adjusted operating income and adjusted diluted EPS are non-GAAP financial measures. See pages II-8 and II-9 for detailsstrategic initiatives at Paramount.
(b) Reflects a gain of the discrete items excluded from financial results, and reconciliations of adjusted results$127 million, with $11 million attributable to the most directly comparable financial measuresnoncontrolling interest, on the sale of broadcast spectrum in accordanceconnection with GAAP.the FCC’s broadcast spectrum auction and a net gain of $19 million relating to the disposition of property and equipment.
The Company generated operating cash flow from continuing operations(d) Primarily reflects a tax benefit of $1.43 billion in 2018 compared with $793$279 million in 2017, which included discretionary pension contributionsreflecting the recognition of $600 millionforeign tax credits on the distribution of securities to prefund the Company’s qualified pension plans. Adjusted free cash flow was $1.26 billion for 2018 compared with $989 million for 2017. These increases primarily reflected lower cash payments for income taxes and growth in affiliate and subscription fees, which were partially offset by the aforementioned increased investment in content. Adjusted free cash flow is a non-GAAP financial measure. See “Free Cash Flow and Adjusted Free Cash Flow” on pages II-35 and II-36 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with GAAP, to adjusted free cash flow.
Share Repurchases
The following is a summary of the Company’s purchases of its Class B Common Stock during the year ended December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Total Number of Shares (in millions) | | Average Price Per Share | | Dollar Value of Shares Repurchased | | Remaining Authorization |
| Share repurchase program | | 11.5 |
| | | | $ | 52.06 |
| | | | $ | 600 |
| | | | $ | 2,457 |
| |
Dividends
|
| | | | | | | | | | | | | | | | |
| | | | | | | Increase/(Decrease) | |
| Year Ended December 31, | | 2018 | | 2017 | | $ | | % | |
| Dividends per share | | $ | .72 |
| | $ | .72 |
| | $ | — |
| | — | % | |
| Total dividends | | $ | 274 |
| | $ | 289 |
| | $ | (15 | ) | | (5 | )% | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
AdoptionConsolidated Results of New Revenue StandardOperations—2019 vs. 2018
DuringRevenues
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 first quartersale of 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606 (“ASC 606”)advertising spots on the recognitionCBS 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 national semifinals and championship game of the NCAA Division I Men’s Basketball Tournament (“NCAA Tournament”), as well as higher revenues from AMS, which primarily resulted in two changesincludes Pluto TV. These increases were partially offset by lower political advertising sales at our owned television stations, as a result of the benefit to the Company’s revenue recognition policies.
Revenues from Distribution Arrangements
Revenueslast year from the Company’s distribution2018 midterm elections. International advertising revenues decreased 14%, reflecting the unfavorable impact of third-party content are now recognized basedforeign 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 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, which include content licensing and distribution revenues andtotal advertising revenues were recognized atcomparison and 9-percentage points on the net amount retainedinternational 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 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 Broadcasting System, Inc. (“Turner”). In 2020, the advertising revenue comparison will be negatively affected by the Company afterbenefit in 2019 from CBS’ broadcasts of the paymentSuper Bowl and the national semifinals and championship game of fees to the third party. ForNCAA 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, ended December 31, 2018, revenues and operating expenses relating to such distribution arrangements were each $279 million higher under ASC 606 than the amounts that would have been reported under previous accounting guidance, with no impact to operating income.
Revenues from the Renewal of Licensing Agreements
Revenues associated with the renewalU.S. Presidential election.
Affiliate
Affiliate revenues are principally comprised of an existing license agreement are now recognized atfees received from multichannel video programming distributors (“MVPDs”) and virtual MVPDs for carriage of our cable networks (“cable affiliate fees”), fees received from television stations affiliated with the beginningCBS Television Network (“station affiliation fees”); fees for authorizing the MVPDs’ and virtual MVPDs’ carriage of our owned television stations (“retransmission fees”); and subscription fees for our streaming services. For 2019, the renewal period. Under previous accounting guidance, these3% increase in affiliate revenues were recognized upon the execution of such renewal. Content licensingreflects 20% growth in station affiliation fees and distribution revenue comparisons will continue to be impactedretransmission fees, driven by fluctuations resulting from the timing of when Company-owned television series are made available for multiyear licensing agreements. Therefore, this change is not expected to have a material impact on the trend of the Company’s financial results. Additionally, historically, on an annual basis, revenues fromcontractual increases and contract renewals executed each year have approximated revenues associated with renewal periods that began in the same year.
The Company applied the modified retrospective method of adoptionMVPDs and therefore, prior periods continue to be presented under previous accounting guidance. The following table presents the Company’s revenues, operating income, net earnings from continuing operations, and diluted EPS from continuing operations,virtual MVPDs, as well as 45% growth from our streaming services, including CBS All Accessand Showtime OTT, driven by subscriber growth. These increases were partially offset by 5% lower cable affiliate fees, mainly resulting from subscriber declines. Domestic affiliate revenues increased 4%, while international affiliate revenues decreased 6% from the corresponding year-over-year comparisons, as if results for the year ended December 31, 2017 were recognized under ASC 606. These amounts are non-GAAP financial measures and are reconciled below to the most directly comparable financial measures in accordance with GAAP. The Company believes that presenting its financial results for 2017 under ASC 606 is relevant and useful for investors because it allows investors to view results for 2017 on a basis consistent with the 2018 presentation, and makes it easier to compare the Company’s year-over-year results. If revenues were recognized under ASC 606 for 2017, the year-over-year comparisons to 2018 for operating income, net earnings from continuing operations and diluted EPS from continuing operations would have been similar to the comparisons on a reported basis.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | | | 2017 | | 2018 Reported vs. |
| | | 2018 Reported | | Reported | | ASC 606 Adjustments | | Under ASC 606 | | 2017 Reported | | 2017 Under ASC 606 | |
| Revenues | | $ | 14,514 |
| | $ | 13,692 |
| | | $ | 239 |
| | | $ | 13,931 |
| | | 6 | % | | | 4 | % | |
| | | | | | | | | | | | | | | | | | |
| Operating income | | $ | 2,768 |
| | $ | 2,861 |
| | | $ | (5 | ) | | | $ | 2,856 |
| | | (3 | )% | | | (3 | )% | |
| | | | | | | | | | | | | | | | | | |
Net earnings from continuing operations | | $ | 1,960 |
| | $ | 1,309 |
| | | $ | (4 | ) | | | $ | 1,305 |
| | | 50 | % | | | 50 | % | |
| | | | | | | | | | | | | | | | | | |
Diluted EPS from continuing operations | | $ | 5.14 |
| | $ | 3.22 |
| | | $ | (.01 | ) | | | $ | 3.21 |
| | | 60 | % | | | 60 | % | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Reconciliation of Non-GAAP Measures
Results for the years ended December 31, 2018 and 2017 included discrete items that were not part of the normal course of operations. The following tables present non-GAAP financial measures, which exclude the impact of these discrete items, reconciled to the most directly comparable financial measures in accordance with GAAP. The Company believes that presenting its financial results adjusted for the impact of discrete items is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by the Company’s management and provides a clearer perspective on the underlying performance of the Company.
|
| | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| Operating income | $ | 2,768 |
| | $ | 2,861 |
|
| Discrete items: | | | |
| Restructuring charges | 67 |
| | 63 |
|
| Corporate matters | 128 |
| | — |
|
| Programming charges | 85 |
| | — |
|
Other operating items, net (a) | — |
| | (19 | ) |
| Adjusted operating income | $ | 3,048 |
| | $ | 2,905 |
|
|
| | | | | | | | | | | | | | | | |
| | Net Earnings from Continuing Operations | | Diluted EPS from Continuing Operations (f) | |
| Year Ended December 31, | 2018 | | 2017 | | 2018 | | 2017 | |
| Reported (GAAP) | $ | 1,960 |
| | $ | 1,309 |
| | $ | 5.14 |
| | $ | 3.22 |
| |
| Discrete items: | | | | | | | | |
Restructuring charges (net of a tax benefit of $17 million in 2018 and $24 million in 2017) | 50 |
|
| 39 |
| | .13 |
| | .10 |
| |
Corporate matters (net of a tax benefit of $29 million) | 99 |
| | — |
| | .26 |
| | — |
| |
Programming charges (net of a tax benefit of $21 million) | 64 |
| | — |
| | .17 |
| | — |
| |
Other operating items, net (net of a tax benefit of $4 million) (a) | — |
|
| (23 | ) | | — |
| | (.06 | ) | |
Loss on early extinguishment of debt (net of a tax benefit of $18 million) | — |
|
| 31 |
| | — |
| | .08 |
| |
Pension settlement charge (net of a tax benefit of $115 million) | — |
|
| 237 |
| | — |
| | .58 |
| |
Write-down of investment (net of a tax benefit of $3 million) (b) | — |
|
| 5 |
| | — |
| | .01 |
| |
Tax law changes (c) | (54 | ) |
| 129 |
| | (.14 | ) | | .32 |
| |
Other tax items (d) | (140 | ) |
| (22 | ) | | (.37 | ) | | (.05 | ) | |
| Adjusted (Non-GAAP) | $ | 1,979 |
| | $ | 1,705 |
| | $ | 5.19 |
| | $ | 4.19 |
| |
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, | 2018 | | 2017 | | 2018 | | 2017 | |
| Reported (GAAP) | $ | 1,960 |
| | $ | 357 |
| | $ | 5.14 |
| | $ | .88 |
| |
| Discrete items: | | | | | | | | |
Restructuring charges (net of a tax benefit of $17 million in 2018 and $24 million in 2017) | 50 |
| | 39 |
| | .13 |
| | .10 |
| |
Corporate matters (net of a tax benefit of $29 million) | 99 |
| | — |
| | .26 |
| | — |
| |
Programming charges (net of a tax benefit of $21 million) | 64 |
| | — |
| | .17 |
| | — |
| |
Other operating items, net (net of a tax benefit of $4 million) (a) | — |
| | (23 | ) | | — |
| | (.06 | ) | |
Loss on early extinguishment of debt (net of a tax benefit of $18 million) | — |
| | 31 |
| | — |
| | .08 |
| |
Pension settlement charge (net of a tax benefit of $115 million) | — |
| | 237 |
| | — |
| | .58 |
| |
Write-down of investment (net of a tax benefit of $3 million) (b) | — |
| | 5 |
| | — |
| | .01 |
| |
Tax law changes (c) | (54 | ) | | 129 |
| | (.14 | ) | | .32 |
| |
Other tax items (d) | (140 | ) | | (22 | ) | | (.37 | ) | | (.05 | ) | |
Discontinued operations items (e) | — |
| | 1,038 |
| | — |
| | 2.55 |
| |
| Adjusted (Non-GAAP) | $ | 1,979 |
| | $ | 1,791 |
| | $ | 5.19 |
| | $ | 4.40 |
| |
(a) Includes a net gain relating to the disposition of property and equipment.
(b) Reflects the write-down of an investment to its fair value.
(c) For 2018, reflects a net tax benefit associated with changes in tax law and for 2017, reflects a provisional charge resulting from the enactment of the Tax Reform Act in December 2017.
(d) For 2018, reflects the reversal of a valuation allowance relating to capital loss carryforwards that will be utilized in connection with the sale of CBS Television City in the first quarter of 2019. For 2017, primarily reflects a tax benefit from the resolution of certain state income tax matters.
(e) Reflects a loss on the split-off of CBS Radio of $105 million, or $.26 per diluted share; a market value adjustment of $980 million, or $2.41 per diluted share, recorded prior to the split-off to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications Corp. (“Entercom”); adjustments to the loss on disposal of the Company’s Outdoor advertising business; restructuring charges at CBS Radio of $7 million ($4 million, net of tax); and a tax benefit of $45 million from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business.
(f) Amounts may not sum as a result of rounding.
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 | $ | 6,195 |
| | | 43 | % | | | $ | 5,753 |
| | | 42 | % | | | $ | 442 |
| | 8 | % | |
| Content licensing and distribution | 4,081 |
| | | 28 |
| | | 3,952 |
| | | 29 |
| | | 129 |
| | 3 |
| |
| Affiliate and subscription fees | 4,003 |
| | | 27 |
| | | 3,758 |
| | | 27 |
| | | 245 |
| | 7 |
| |
| Other | 235 |
| | | 2 |
| | | 229 |
| | | 2 |
| | | 6 |
| | 3 |
| |
| Total Revenues | $ | 14,514 |
| | | 100 | % | | | $ | 13,692 |
| | | 100 | % | | | $ | 822 |
| | 6 | % | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Advertising
For 2018, the 8% increase in advertising revenues wasyear driven by the Company’s acquisitionunfavorable impact of Network 10 in the fourth quarterforeign exchange rate changes. Foreign exchange rate changes had an unfavorable impact of 2017 and record political advertising sales in 2018 associated with the U.S. midterm elections. Underlying CBS Television Network advertising revenues for 2018 were comparable with 2017, as higher pricing and higher ratings for Sunday NFL games were offset by lower ratings for the Company’s primetime programming.
Advertising revenues for 2018 also benefited from higher revenues from the distribution of third-party content, resulting from such revenues now being recognized at the gross amount of consideration received from the customer, with an offsetting increase to operating expenses, as a result of the adoption of a new revenue recognition standard (see “Adoption of New Revenue Standard”). Under previous guidance such distribution revenues were recognized at the net amount retained by the Company after the payment of fees to the third party. These increases were partially offset by the absence of the broadcast of five Thursday Night Football games and the National Semifinals and National Championship games of the NCAA Tournament, which were broadcast1-percentage point on the CBS Television Network in 2017. The National Semifinalstotal affiliate revenues comparison and National Championship games 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 Broadcasting System, Inc. (“Turner”).
In 2019, advertising revenues will benefit from the CBS Television Network’s broadcast of the Super Bowl, which airs6-percentage points on the CBS Television Network on a rotating basis with other networks through 2022 under the current contract with the NFL, and the National Semifinals and National Championship games of the NCAA Tournament. However, the advertising revenue comparison in 2019 will be negatively affected by the benefit in 2018 from record political advertising sales. The CBS Television Network’s upfront advertising sales (“Upfront”) for the 2018/2019 television broadcast season, which runs from the middle of September 2018 through the middle of September 2019, resulted in pricing and volume increases compared with the prior broadcast season, which are expected to benefit the Company’s advertisinginternational affiliate revenues during the 2018/2019 broadcast season. (See page I-2 for a description of the Upfront market.) However, overall advertising revenues for the Company will be dependent on ratings for its programming and market conditions, including demand in the scatter advertising market, in which advertisers purchase the remaining advertising spots closer to the broadcast of the related programming.comparison.
Content Licensing and Distribution
Content licensing and distribution revenues are principally comprised of fees from the licensing of exhibition rights for our internally-produced television programming;and film programming to television stations, cable networks, and subscription video-on-demand (“SVOD”) and free video-on-demand 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 transactional video-on-demand (“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; and revenues from the publishing and distribution of consumer books.programming. For 2018,2019, content licensing and distribution revenues increased 3%5%, benefiting fromprimarily reflecting higher revenues from the distributiondomestic licensing of third-partyour content, resulting from such revenues 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 (see “Adoption of New Revenue Standard”). Under previous guidance such distribution revenues were recognized at the net amount retaineddriven by the Company afterproduction of programming for third parties and the paymentlicensing of feesprogramming to the third party. Content licensing and distribution revenues also reflected growthSVOD providers. These increases were partially offset by a decline in international licensing offset by lower domestic licensing, mainly resulting from several large sales in 2017, including NCIS: New Orleans, Madam Secretary and titlesrevenues.
Revenues from the CSI franchise.
Content licensing and distribution revenue comparisons are impacted by fluctuations resulting from the timing of the availability of Company-owned television series for multiyear licensing agreements. Television license fee revenuesexhibition rights are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition. Unrecognized revenues attributable to signed license agreementsexhibition, and therefore, content licensing revenue comparisons are impacted by fluctuations resulting from the timing of the availability of our programming for produced programming that is not yet available for exhibition were $1.08 billion at December 31, 2018 and $670 million at December 31, 2017,
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
which increased to $1.33 billion on January 1, 2018 upon the adoption of ASC 606. At December 31, 2018, the Company had approximately 800 episodes of scripted original programming that had not yet been made available in the secondary domestic marketplace (See page II-59 for a description of the secondary marketplace).
Total outstanding receivables attributable to revenues recognized under licensing agreements were $3.57 billion at December 31, 2018, $4.06 billion at December 31, 2017 and $3.45 billion at January 1, 2018. At December 31, 2018, the total amount due from these receivables was $1.96 billion in 2019, $771 million in 2020, $430 million in 2021, $236 million in 2022, and $181 million in 2023 and thereafter.
Affiliate and Subscription FeesTheatrical
Affiliate and subscription feesTheatrical revenues are principally comprised of the worldwide theatrical distribution of films through audience ticket sales. For 2019, theatrical revenues received from MVPDs and virtual MVPDs for carriagedecreased 26%, principally reflecting a difficult comparison against the prior year, as a result of the Company’s cable networks (“cable affiliate fees”)2018 releases of Mission: Impossible - Fallout and A Quiet Place. Theatrical revenues in 2019 benefited from the releases of Rocketman, Gemini Man and Dora and the Lost City of Gold, as well as fees received from television stations affiliated with the CBS Television Network (“station affiliation fees”); fees for authorizing the MVPDs’ and virtual MVPDs’ carriagecontinued success of the Company’s owned television stations (“retransmission fees”); subscription fees for2018 release, Bumblebee. Domestic theatrical revenues decreased 31% and international theatrical revenues decreased 23%.
Theatrical revenues may be affected by many factors, including domestic and international audience response, the Company’s direct-to-consumer digital streaming services;number, timing and mix of releases and competitive offerings in any given period, consumer tastes and consumption habits and overall economic conditions, including discretionary spending. Revenues from theatrical film releases tend to be cyclical with increases during the summer.
Publishing
Publishing revenues received forare principally comprised of the domestic and international publishing and distribution of pay-per-view boxing events.consumer books in printed, digital and audio formats. For 2018, the 7% increase in affiliate and subscription fees reflects 22% growth in station affiliation and retransmission fees and 62% growth from the Company’s direct-to-consumer digital streaming services, 2019, publishing revenues decreased 1%CBS All Access, and Showtime. These increasesdriven by lower print book sales, which were partially offset by Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event in 2017, which reduced the comparison by eight percentage points.
Over the next two years, agreements with MVPDs and virtual MVPDs, representing approximately 85% of the Company’s total subscribers to these services, and agreements with station affiliates representing approximately 60% of the Company’s total subscribers under its station affiliation agreements, will come up for renewal. Historically, renewals of these agreements have resulted in increases in the rates received by the Company and therefore, the Company expects to benefithigher sales from these renewals over the next few years. In addition, the Company’s existing agreements with station affiliates, MVPDs and virtual MVPDs include annual contractual increases. Together, these factors are expected to result in continued growth in affiliate and subscription fees over the next several years.digital audio books.
Other
Other revenues are principally comprised of revenues from the rental of production facilities and ancillary digital revenues.
International Revenues
For 2018, international revenues increased 26% primarily driven by the Company’s acquisition of Network 10 in the fourth quarter of 2017. The Company generated approximately 17% and 15% of its total revenues from international regionssearch 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 sale of CBS Television City in 2018 and 2017, respectively.January 2019.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | % of | | | | % of | |
| Year Ended December 31, | | 2018 | | International | | 2017 | | International | |
| United Kingdom | | $ | 328 |
| | | 13 | % | | | $ | 300 |
| | | 15 | % | | |
| Other Europe | | 794 |
| | | 31 |
| | | 735 |
| | | 37 |
| | |
| Canada | | 268 |
| | | 11 |
| | | 279 |
| | | 14 |
| | |
| Asia | | 179 |
| | | 7 |
| | | 210 |
| | | 10 |
| | |
| Australia | | 574 |
| | | 23 |
| | | 166 |
| | | 8 |
| | |
| Other | | 392 |
| | | 15 |
| | | 327 |
| | | 16 |
| | |
| Total International Revenues | | $ | 2,535 |
| | | 100 | % | | | $ | 2,017 |
| | | 100 | % | | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating Expenses
| | | | | | % of | | | | % of | | | | | | % of | | | | % of | | | |
| Operating Expenses by Type | | | Operating | | | | Operating | | Increase/(Decrease) | | | | Operating | | | | Operating | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | Expenses | | 2017 | | Expenses | | $ | | % | | 2019 | | Expenses | | 2018 | | Expenses | | $ | | % | |
| Production | | $ | 6,797 |
| | 39 | % | | $ | 6,483 |
| | 41 | % | | $ | 314 |
| | 5 | % | |
| Programming | $ | 2,858 |
| | | 32 | % | | | $ | 3,156 |
| | | 37 | % | | | $ | (298 | ) | | (9 | )% | | 4,287 |
| | 25 |
| | 3,965 |
| | 25 |
| | 322 |
| | 8 |
| |
| Production | 3,402 |
| | 37 |
| | 2,873 |
| | 34 |
| | 529 |
| | 18 |
| | |
Participation, distribution and royalty | 1,368 |
| | 15 |
| | 1,050 |
| | 13 |
| | 318 |
| | 30 |
| | 3,369 |
| | 20 |
| | 3,295 |
| | 21 |
| | 74 |
| | 2 |
| |
| Programming charges | | 589 |
| | 3 |
| | 162 |
| | 1 |
| | 427 |
| | n/m |
| |
| Other | 1,483 |
| | 16 |
| | 1,359 |
| | 16 |
| | 124 |
| | 9 |
| | 2,181 |
| | 13 |
| | 2,012 |
| | 12 |
| | 169 |
| | 8 |
| |
| Total Operating Expenses | $ | 9,111 |
| | | 100 | % | | | $ | 8,438 |
| | 100 | % | | $ | 673 |
| | 8 | % | | $ | 17,223 |
| | | 100 | % | | | $ | 15,917 |
| | 100 | % | | $ | 1,306 |
| | 8 | % | |
n/m - not meaningful
Production
Production expenses reflect the amortization of direct costs of internally-produced television and theatrical film content as well as other television production costs, including on-air talent. For 2019, the 5% increase in production expenses reflected an increased investment in content, 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 production costs associated with the increase in content 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 andnetworks, 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 publishing content and other distribution expenses incurred with respect to film and television content, such as print and advertising. For 2019, the 2%increase in participation, distribution and royalty costs was driven by higher participation costs associated with the increase in content licensing revenues.
Programming Charges
During 2019, in connection with the Merger, we implemented management changes across the organization. In connection with these changes, we performed an evaluation of our programming portfolio across all of our businesses, including an assessment of the optimal use of our programming in the marketplace, which resulted in the identification of 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 expected monetization of 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 use of certain programming.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Other
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 9%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 primarily 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 Semifinalsnational semifinals and National Championship gameschampionship 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 waswe acquired in the fourth quarter of 2017.
Production
Production expenses reflect the amortization of direct costs of internally-developed television2017, and theatrical film content as well as other television production costs, including on-air talent. For 2018, the 18% increase in production expenses reflected an increased investment in content, including a 17% increase in the number of series producedprogramming for distribution on multiple platforms, and the acquisition of Network 10 in the fourth quarter of 2017.our cable networks.
During the fourth quarter of 2018, in connection with recent management changes, the Company implemented changes to its programming strategy, primarily at CBS Films, which will shift its focus from theatrical films to developing content for the Company’s direct-to-consumer digital streaming services. As a result, the Company recorded programming charges of $85 million in 2018.
Participation, Distribution and Royalty
Participation, distribution and royalty costs primarily include participation and residual expenses for television programming, royalty costs for Publishing content and other distribution expenses incurred with respect to television content, such as print and advertising. For 2018, the 30%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 from the Company’sunder certain distribution of third-party content nowarrangements 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 the Companyus after the payment of fees to the third party. This change resulted in an increase to both revenues and participation expenses of $279 million for 2018, with no impact to the Company’s operating income.
Other
Other operating expenses primarily include compensation and costs associated with book sales, including printing and warehousing. For 2018, the 9% increase in other operating expenses mainly reflected higher costs associated with growth in the Company’s direct-to-consumer digital streaming services and expenses of Network 10, which was acquired in the fourth quarter of 2017.
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
| | | | | | % of | | | | % of | | Increase/(Decrease) | | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | Revenues | | 2017 | | Revenues | | $ | | % | | 2018 | | 2017 | | $ | | % | |
Selling, general and administrative expenses | $ | 2,217 |
| | | 15 | % | | | $ | 2,126 |
| | | 16 | % | | | $ | 91 |
| | 4 | % | | $ | 5,206 |
| | $ | 5,156 |
| | $ | 50 |
| | 1 | % | |
Selling, general and administrative (“SG&A”) expenses include expenses incurred for selling and marketing costs, occupancy and back office support. The 4%For 2018, the 1% increase in SG&A expenses primarily reflected the Company’s acquisition of Network 10 in the fourth quarter of 2017 and higher advertising and marketing costs, associated with an increased number of original programs, includingmainly for the Company’s direct-to-consumer digital streaming services.
Depreciation and Amortization
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Depreciation and amortization | $ | 223 |
| | $ | 223 |
| | $ | — |
| | — | % | |
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Depreciation and amortization | $ | 433 |
| | $ | 443 |
| | $ | (10 | ) | | (2 | )% | |
Restructuring and Other Corporate Matters
During the year ended December 31, 2018 in a continued effort to reduce its cost structure, the Company initiatedand 2017, we recorded costs for restructuring plans across several of its businesses, primarily for the reorganization and closure of certain business operations. As a result, the Company recorded restructuring charges of $67 million, reflecting $57 million of severance costs and $10 million of costs associated with exiting contractual obligations and other related costs. These restructuring activities are expected to reduce the Company’s annual cost structure by approximately $70 million.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, 2017, the Company2018, we recorded restructuring charges of $63$310 million reflecting $54resulting from cost transformation initiatives to improve margins, as well as restructuring-related costs of $52 million, comprised of severance costs and $9 million of costs associated with exiting contractual obligations and other related costs. During the year ended December 31, 2016, the Company recorded restructuring charges of $30 million, reflecting $19 million of severance costs and $11 million of costs associated with exiting contractual obligations and other related costs.
As of December 31, 2018, the cumulative settlements for the 2018, 2017, and 2016 restructuring charges were $88 million, of which $74 million was for severance costs and $14 million related to costs associated with exiting contractual obligations and other related costs.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | 2018 | | 2018 | | Balance at |
| | December 31, 2017 | | Charges | | Settlements | | December 31, 2018 |
| Entertainment | | $ | 45 |
| | | $ | 27 |
| | | $ | (38 | ) | | | | $ | 34 |
| |
| Cable Networks | | 1 |
| | | — |
| | | (1 | ) | | | | — |
| |
| Publishing | | 3 |
| | | 1 |
| | | (2 | ) | | | | 2 |
| |
| Local Media | | 14 |
| | | 18 |
| | | (9 | ) | | | | 23 |
| |
| Corporate | | 3 |
| | | 21 |
| | | (11 | ) | | | | 13 |
| |
| Total | | $ | 66 |
| | | $ | 67 |
| | | $ | (61 | ) | | | | $ | 72 |
| |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | 2017 | | 2017 | | Balance at |
| | December 31, 2016 | | Charges | | Settlements | | December 31, 2017 |
| Entertainment | | $ | 17 |
| | | $ | 44 |
| | | $ | (16 | ) | | | | $ | 45 |
| |
| Cable Networks | | 4 |
| | | — |
| | | (3 | ) | | | | 1 |
| |
| Publishing | | 1 |
| | | 5 |
| | | (3 | ) | | | | 3 |
| |
| Local Media | | 6 |
| | | 12 |
| | | (4 | ) | | | | 14 |
| |
| Corporate | | 2 |
| | | 2 |
| | | (1 | ) | | | | 3 |
| |
| Total | | $ | 30 |
| | | $ | 63 |
| | | $ | (27 | ) | | | | $ | 66 |
| |
party professional services associated with such initiatives. In addition, in 2018 the Companywe recorded expenses of $128 million primarily for professional fees related to legal proceedings, recent investigations at theour Company (see “Legal Matters”) and the evaluation of a potential combination with Viacom Inc.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 February 2019,2017, we completed the Company initiatedsale of broadcast spectrum in connection with the FCC’s broadcast spectrum auction. The sale resulted in a restructuring plan under which severance payments will be provided to certain eligible employees who voluntarily elect to participate. As a result, the Company expects to record a restructuring charge in the first quarterpre-tax gain of 2019. The amount of this charge and the associated future savings will be based$127 million on the numberConsolidated Statement of eligible employees who electOperations, with $11 million attributable to participatethe noncontrolling interest. In addition, in the restructuring plan and therefore cannot currently be determined.
Other Operating Items, Net
For 2017 other operating items, net reflectedwe recorded a net gain of $19 million relating to the disposition of property and equipment.
Interest Expense and Interest Income
| | | | | | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | | 2018 | | 2017 | | $ | | % | |
| Interest expense | $ | (467 | ) | | $ | (457 | ) | | $ | 10 |
| | 2 | % | | $ | (1,030 | ) | | $ | (1,088 | ) | | $ | (58 | ) | | (5 | )% | |
| Interest income | $ | 57 |
| | $ | 64 |
| | $ | (7 | ) | | (11 | )% | | $ | 79 |
| | $ | 87 |
| | $ | (8 | ) | | (9 | )% | |
The following table presents the Company’sour outstanding debt balances, excluding capitalfinance leases, and the weighted average interest rate as of December 31, 2018 and 2017:
| | | | | | Weighted Average | | | | Weighted Average | | | | Weighted Average | | | | Weighted Average | |
| At December 31, | 2018 | | Interest Rate | | 2017 | | Interest Rate | | 2018 | | Interest Rate | | 2017 | | Interest Rate | |
| Total long-term debt | $ | 9,435 |
| | 4.26 | % | | | $ | 9,426 |
| | | 4.26 | % | | $ | 18,370 |
| | 4.64 | % | | | $ | 19,466 |
| | | 4.67 | % | |
| Commercial paper | $ | 674 |
| | 3.02 | % | | $ | 679 |
| | 1.88 | % | | $ | 674 |
| | 3.02 | % | | $ | 779 |
| | 1.91 | % | |
LossGain (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 2017,2018, the lossgain on early extinguishment of debt of $49$18 million reflected a pretax lossthe pre-tax gain associated with the Company’s redemption of $800 millionsenior 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 its long-term debt.a pre-tax loss on the early extinguishment of debt of $38 million.
Pension Settlement ChargesGain on Sale of EPIX
During 2017, the Company purchased a group annuity contract under which an insurance company permanently assumed the Company’s 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’s outstanding pension benefit obligation
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
was reduced by approximately $800 million, which represented approximately 20% of the total obligations of the Company’s qualified pension plans. In connection with this transaction, the Company recorded a settlement charge of $352 million in 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Company made discretionary contributions totaling $600 million to prefund its qualified pension plans.
Other Items, Net
The following table presents the components of Other items, net.
|
| | | | | | | |
| Year Ended December 31, | 2018 | | 2017 |
| Pension and postretirement benefit costs | $ | (63 | ) |
| $ | (86 | ) |
| Foreign exchange (losses) gains | (3 | ) |
| 2 |
|
| Net loss from investments | (3 | ) |
| (4 | ) |
| Other items, net | $ | (69 | ) | | $ | (88 | ) |
Provision for Income Taxes
The provision for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies.
|
| | | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 | | Increase/(Decrease) |
Provision for income taxes before discrete items (a) | $ | 469 |
| | $ | 560 |
| | | (16 | )% | |
Impact of tax law changes (b) | (54 | ) | | 129 |
| | | | |
Reversal of valuation allowance (c) | (140 | ) | | — |
| | | | |
Excess tax benefits from stock-based compensation (d) | (1 | ) | | (44 | ) | | | | |
| Other discrete items | (1 | ) | | (12 | ) | | | | |
| Provision for income taxes | $ | 273 |
| | $ | 633 |
| | | (57 | )% | |
| Effective income tax rate | 11.9 | % | | 32.0 | % | | | | |
(a) The lower tax provision for the year ended December 31, 2018 primarily reflects a reduction in the federal corporate income tax rate from 35% to 21% as a result of the Tax Reform Act.
(b) During the third quarter of 2018, in connection with the preparation of its 2017 federal tax return, the Company elected to utilize a federal tax law provision that was retroactively renewed in 2018. This tax law provision allowed the Company to immediately expense certain qualified production costs on its 2017 tax return. As a result, during the third quarter of 2018, the Company established a deferred tax liability associated with this deduction at the 2017 federal tax rate of 35%, and concurrently recorded a net tax benefit of $69 million, primarily reflecting the re-measurement of this deferred tax liability at the reduced federal corporate tax rate of 21% under the Tax Reform Act. This benefit was partially offset by a charge of $15 million to adjust the provisional amount of transition tax on cumulative foreign earnings and profits that resulted from the enactment of the Tax Reform Act. (See Note 13 to the consolidated financial statements.) 2017 reflects the impact of the enactment of the Tax Reform Act in December 2017. As a result of this tax law, the Company recorded a net provisional charge of $129 million for the year ended December 31, 2017, reflecting an estimated tax impact of $407 million on the Company’s historical accumulated foreign earnings and profits, partially offset by an estimated benefit of $278 million to adjust the Company’s deferred income tax balances as a result of the reduction in the federal corporate income tax rate from 35% to 21%.
(c) Reflects the reversal of a valuation allowance relating to capital loss carryforwards that will be utilized in connection withwe completed the sale of CBS Television Cityour 49.76% interest in the first quarterEPIX, resulting in a pre-tax gain of 2019.
(d) Reflects the difference between the tax benefit from stock-based compensation expense and the deduction on the tax return associated with the exercise of stock options and vesting of RSUs. This difference occurs because stock-based compensation expense is recorded based on the grant-date fair value of the award, whereas the tax deduction is based on the fair value on the date the stock option is exercised or the RSU vests.$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 permanently assumed our obligation to pay and administer pension benefits to certain 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, our outstanding pension benefit obligation was reduced by approximately $800 million. In connection with this transaction, we recorded a settlement charge of $352 million in 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, we made discretionary contributions totaling $600 million to prefund our qualified pension plans.
Other Items, Net
The following table presents the components 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 2019,2018, the Company’s annualprovision for income taxes was $617 million, reflecting an effective income tax rate is expected to be approximately 21% before any potentialof 15.0%. The provision for income taxes for 2018 included discrete items includingsuch 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 impacts from stock-based compensation.benefit of $80 million relating to the Tax Reform Act and other tax law changes; and a tax benefit of $71 million relating to a tax accounting method change granted by the Internal Revenue Service. For 2017, the provision for income taxes was $804 million, reflecting an effective income tax rate of 19.5%. The provision for income taxes for 2017 included discrete items such as a tax benefit of $279 million reflecting the recognition of foreign tax credits on the distribution of securities to the U.S.
Equity in LossEarnings (Loss) of Investee Companies, Net of Tax
The following table presents equity in earnings (loss) of investee companies for the Company’s domestic and international equityour equity-method investments.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Domestic | $ | (77 | ) | | $ | (61 | ) | | $ | (16 | ) | | (26 | )% | |
| International | 2 |
| | 2 |
| | — |
| | — |
| |
| Tax benefit | 19 |
| | 22 |
| | (3 | ) | | (14 | ) | |
| Equity in loss of investee companies, net of tax | $ | (56 | ) | | $ | (37 | ) | | $ | (19 | ) | | (51 | )% | |
|
| | | | | | | | | | | | | | |
| | | | | | 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
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Net earnings from continuing operations | $ | 1,960 |
| | $ | 1,309 |
| | $ | 651 |
| | 50 | % | |
| Diluted EPS from continuing operations | $ | 5.14 |
| | $ | 3.22 |
| | $ | 1.92 |
| | 60 | % | |
|
| | | | | | | | | | | | | | | |
| | | | | | 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 2018, the 5% increase in net earnings from continuing operations of 50%attributable to ViacomCBS was primarily driven by the lower effective income tax rate in 2018, and a pension settlement charge of $352 million ($237 million, net of tax) in 2017.partially offset by lower operating income. Diluted EPS from continuing operations attributable to ViacomCBS grew 60%9%, reflecting the higher earnings and lower weighted average shares outstanding.outstanding as a result of share repurchases and the shares retired as a result of the split-off of CBS Radio Inc. (“CBS Radio) during the fourth quarter of 2017.
Net Loss from Discontinued Operations, Net of Tax
On November 16, 2017, the Companywe completed the split-off of CBS Radio through an exchange offer, in which the Companywe accepted 17.9 million shares of CBS Corp. Class B Common Stock from itsour stockholders in exchange for the 101.4 million shares of CBS Radio common stock that itwe 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.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 year ended December 31, 2018 was not material to our consolidated financial statements.
| | | 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 | 444 |
| | (1 | ) | | 443 |
| 444 |
| | (8 | ) | | 436 |
|
| Market value adjustment | 980 |
| (a) | | — |
| | 980 |
| 980 |
| (a) | | — |
| | 980 |
|
| Restructuring charges | 7 |
| | — |
| | 7 |
| 7 |
| | — |
| | 7 |
|
| Total costs and expenses | 1,795 |
| | (1 | ) | | 1,794 |
| 1,795 |
| | (8 | ) | | 1,787 |
|
| Operating income (loss) | (777 | ) | | 1 |
| | (776 | ) | (777 | ) | | 8 |
| | (769 | ) |
| Interest expense | (70 | ) | | — |
| | (70 | ) | (70 | ) | | — |
| | (70 | ) |
| Other items, net | (2 | ) | | — |
| | (2 | ) | (2 | ) | | — |
| | (2 | ) |
| Earnings (loss) from discontinued operations | (849 | ) | | 1 |
| | (848 | ) | (849 | ) | | 8 |
| | (841 | ) |
| Income tax benefit (provision) | (55 | ) | | 45 |
| (b) | | (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 |
| (c) | | (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 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, the Companywe 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) ReflectsPrimarily 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 the Company’sour outdoor advertising businesses, primarily from a decrease to the guarantee liability associated with the 2013 disposal of the Company’sour outdoor advertising business in Europe.
Net Earnings Attributable to ViacomCBS and Diluted EPS Attributable to ViacomCBS
|
| | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,603 |
| | n/m | |
| Diluted EPS | $ | 5.14 |
| | $ | .88 |
| | $ | 4.26 |
| | n/m | |
n/m - not meaningful |
| | | | | | | | | | | | | | | |
| | | | | | 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 | % | |
Consolidated Results of Operations— 2017 vs. 2016
Revenues
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 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)
AdvertisingSegments
For 2017,We operate in the 9% decrease in advertising revenues primarily reflects the benefitfollowing four segments:
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 2016 from CBS’s broadcastthird parties both domestically and internationally. TV Entertainment consists of the Super Bowl, which is broadcast on the CBS Television Network, on a rotating basis with other networks. The decline also reflects the benefit in 2016CBS Television Studios, CBS Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Stations and CBS-branded streaming services CBS All Access and CBSN, among others. TV Entertainment’s revenues are generated primarily from political advertising sales, during the 2016 Presidential election cycle. Underlying CBS Television Network advertising revenues declined 2% in 2017, mainly as a result of lower ratings for the Company’s programming, which was partially offset by higher pricing.
Content Licensing and Distribution
For 2017, the 8%increase in content licensing and distribution revenues reflected growth in both internationalof its content, and domestic licensing sales. The increase in domestic licensing sales was primarily driven by sales ofaffiliate revenues.
CABLE NETWORKS: Our NCIS: New Orleans, Madam SecretaryCable Networks segment creates and several titlesacquires 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 from 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 of film and television product to television and digital platforms and other ancillary activities.
PUBLISHING: Our CSI Publishingfranchise. Internationally, segment publishes and distributes Simon & Schuster consumer books domestically and internationally and includes imprints such as Simon & Schuster, Scribner, Atria Books and Gallery Books.Publishing generates revenues from the Company benefited from strong demand for its content during 2017, reflecting additional titles available for sale as a resultpublishing and distribution of the Company’s increased investmentconsumer books in internally-produced series.print, digital and audio formats.
AffiliateWe present operating income (loss) excluding depreciation and Subscription Fees
For 2017,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 26% increaseprimary measure of profit and loss for our operating segments in affiliateaccordance 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 subscription fees reflects revenuesto 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 Showtime Networks’ distributionour segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management. Stock-based compensation is included as a component of our consolidated Adjusted OIBDA. The reconciliation of Adjusted OIBDA to our consolidated net earnings is presented in Note 17 to the Floyd Mayweather/Conor McGregor pay-per-view boxing event, which contributed nine points of the growth. Underlying affiliate and subscription fee revenues increased 17%, led by 27% growth in station affiliation fees and retransmission fees, and 98% growth from digital initiatives, including the Company’s owned streaming subscription services, CBS All Access and the Showtime direct-to-consumer digital streaming subscription offering, and virtual MVPDs.consolidated financial statements.
International Revenues
For 2017, international revenues increased 9% primarily as a result of higher television licensing sales. The Company generated approximately 15% and 14% of its total revenues from international regions in 2017 and 2016, respectively.
|
| | | | | | | | | | | | | | | | | | | |
| | | | | % 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 | % | | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating ExpensesSegment Results of Operations - 2019 vs. 2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | % of Total | | | | % of Total | | | |
| Operating Expenses by Type | | | Operating | | | | Operating | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | Expense | | 2016 | | Expense | | $ | | % | |
| 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 | % | |
Programming
For 2017, the 7% increase in programming expenses was driven by costs associated with Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event; CBS’s broadcast of the National Semifinals and National Championship games of the NCAA Tournament, and an increased investment in cable programming. Costs in 2016 associated with CBS’s broadcast of Super Bowl 50 partially offset these increases.
Production
For 2017, the 8% increase in production expenses reflected an increased investment in internally-developed television series and higher costs associated with the increase in television licensing revenues.
Participation, Distribution and Royalty
For 2017, the 1% decrease in participation, distribution and royalty costs was primarily driven by the mix of titles sold under television licensing arrangements.
Other
For 2017, the 5% increase in other operating expenses mainly reflected higher compensation costs associated with the Company’s growth initiatives and increased costs resulting from a higher volume of book sales.
Selling, General and Administrative Expenses |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | % 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 | % | |
| | | | | | % of | | | | % of | | Increase/(Decrease) | | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | Revenues | | 2016 | | Revenues | | $ | | % | | 2019 | | 2018 | | $ | | % | |
Selling, general and administrative expenses | $ | 2,126 |
| | | 16 | % | | | $ | 2,054 |
| | | 16 | % | | | $ | 72 |
| | 4 | % | | |
| 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 | )% | |
For 2017, the 4% increase in SG&A expenses primarily reflected higher advertising and marketing costs, mainly to support the Company’s growth initiatives.
Depreciation and Amortizationn/m - not meaningful
| | | | | | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | | 2019 | | 2018 | | $ | | % | |
| Depreciation and amortization | $ | 223 |
| | $ | 225 |
| | $ | (2 | ) | | (1 | )% | | |
| 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 | % | |
Management’s DiscussionTV Entertainment(CBS Television Network, CBS Television Studios, CBS Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Stations and Analysis of
Results of OperationsCBS-branded streaming services CBS All Access and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Restructuring and Other Corporate Matters
During the year ended December 31, 2017, the Company recorded restructuring charges of $63 million, reflecting $54 million of severance costs and $9 million of costs associated with exiting contractual obligations and other related costs.
During the year ended December 31, 2016, the Company recorded restructuring charges of $30 million, reflecting $19 million of severance costs and $11 million of costs associated with exiting contractual obligations and other related costs.
In 2016, the Company incurred professional fees of $8 million associated with merger and acquisition-related activities.
Other Operating Items, Net
For 2017, other operating items, net reflected a net gain relating to the disposition 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.
Interest Expense and Interest IncomeCBSN, among others)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Interest expense | $ | (457 | ) | | $ | (411 | ) | | $ | 46 |
| | 11 | % | |
| Interest income | $ | 64 |
| | $ | 32 |
| | $ | 32 |
| | 100 | % | |
The following table presents the Company’s outstanding debt balances, excluding capital leases and discontinued operations debt, and the weighted average interest rate as of December 31, 2017 and 2016:
|
| | | | | | | | | | | | | | | | | | |
| | | | 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 | % | | |
Loss on Early Extinguishment of Debt
For 2017, the loss on early extinguishment of debt of $49 million reflected a pretax loss associated with the Company’s redemption of $800 million of its long-term debt.
Pension Settlement Charges
During 2017, the Company purchased a group annuity contract under which an insurance company permanently assumed the Company’s 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’s outstanding pension benefit obligation was reduced by approximately $800 million, which represented approximately 20% of the total obligations of the Company’s qualified pension plans. In connection with this transaction, the Company recorded a settlement charge of $352 million in 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Company made discretionary contributions totaling $600 million to prefund its qualified pension plans. |
| | | | | | | | | | | | | | | |
| | | | | | 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)
During 2016,Revenues
For 2019, the Company offered eligible former employees who had not yet initiated pension benefit payments the option to make a one-time election to receive the present value of their pension benefits as a lump-sum distribution or to commence an immediate monthly annuity benefit. As a result, the Company paid a total of $518 million of lump-sum distributions8% increase in 2016 using its pension plan assets, which represented 12%TV Entertainment revenues reflects growth across each of the total obligationssegment’s main revenue streams.
Advertising
The 4%increase in advertising revenues was driven by 11% growth in CBS Network advertising, principally reflecting CBS’ broadcasts of its qualified pension plans. Accordingly,Super Bowl LIII and the Company recorded a settlement charge of $211 million reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan.
Other Items, Net
The following table presents the components of Other items, net.
|
| | | | | | | |
| Year Ended December 31, | 2017 | | 2016 |
| Pension and postretirement benefit costs | $ | (86 | ) | | $ | (70 | ) |
| Foreign exchange gains (losses) | 2 |
| | (12 | ) |
| Net loss from investments | (4 | ) | | — |
|
| Other items, net | $ | (88 | ) | | $ | (82 | ) |
Provision for Income Taxes
The provision for income taxes represents federal, statenational semifinals and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies.
|
| | | | | | | | | | | | |
| Year Ended December 31, | 2017 | | 2016 | | Increase/(Decrease) |
| Provision for income taxes before discrete items | $ | 560 |
| | $ | 681 |
| | | (18 | )% | |
Impact of tax law changes (a) | 129 |
| | — |
| | | | |
Excess tax benefits from stock-based compensation (b) | (44 | ) | | — |
| | | | |
Other discrete items (c) | (12 | ) | | (53 | ) | | | | |
| Provision for income taxes | $ | 633 |
| | $ | 628 |
| | | 1 | % | |
| Effective income tax rate | 32.0 | % | | 28.2 | % | | | | |
(a) Reflects the impactchampionship game of the enactment of the Tax Reform Act in December 2017. As a result of this tax law, the Company recorded a net provisional charge of $129 million for the year ended December 31, 2017, reflecting an estimated tax impact of $407 million on the Company’s historical accumulated foreign earnings and profits,NCAA Tournament, partially offset by an estimatedthe 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 $278 million to adjustSuper Bowl LIII. The Super Bowl is broadcast on the Company’s deferred income tax balancesCBS 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 a 20% increase in station affiliation fees and retransmission revenues as well as subscriber growth at CBS All Access.
Content Licensing
Content licensing increased 5%, driven by higher revenues from the reductionproduction 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 the federal corporate income tax rate from 35% to 21%.
(b) Reflects excess tax benefitscontent and higher costs associated with the exercisegrowth and expansion of stock optionsour streaming services, partially offset by higher revenues.
Comparability in 2020 will be negatively affected by the benefit in 2019 from CBS’ broadcasts of Super Bowl LIII and vestingthe national semifinals and championship game of RSUs. During the first quarter of 2017, the Company adopted FASB guidance which requires that the difference between the taxNCAA Tournament. Results in 2020 will benefit from stock-based compensation expense andhigher political advertising revenues, mainly in the deduction on the tax return be recognized within the income tax provision on the statement of operations. Previously, such difference was recognized in stockholders’ equity on the balance sheet. This difference occurs because stock-based compensation expense is determined based on the grant-date fair valuesecond half of the award, whereas the tax deduction is based on the fair value on the date the stock option is exercised or the RSU vests. This guidance requires the income statement classification to be applied prospectively, and therefore, excess tax benefits for prior periods remain classified in stockholders’ equity.
(c) For the year, ended December 31, 2017, primarily reflects tax benefits from the resolution of certain state income tax matters. For the year ended December 31, 2016, primarily reflects a one-time tax benefit of $47 million associated with a multiyear adjustment to a tax deduction, which was approved by the IRS during the third quarter of 2016.U.S. Presidential election.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in earnings (loss) of investee companies for the Company’s domesticCable 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 international equity investments.Pluto TV)
|
| | | | | | | | | | | | | | | |
| | | | | | 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 | % | |
For 2016, equity in loss of investee companies, net of tax included $10 million for the write-down of an international television joint venture to its fair value. |
| | | | | | | | | | | | | | | |
| | | | | | 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 | )% | |
Net EarningsRevenues
For 2019, Cable Networks revenues decreased 2% from Continuing Operations and Diluted EPSthe prior year, reflecting an unfavorable impact from Continuing Operations
|
| | | | | | | | | | | | | | | |
| | | | | | 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 | )% | |
For 2017, the decreases in net earnings from continuing operations and diluted EPS from continuing operationsforeign exchange rate changes of 16% and 7%, respectively, were driven by pension settlement charges of $352 million ($237 million, net of tax) in 20172-percentage points. Domestic revenues remained substantially flat compared with $211 million ($130 million, net of tax)the prior year as higher advertising revenues were offset by a decline in 2016; a provisional charge of $129 million from the enactment of the Tax Reform Act in December 2017; and a charge of $49 million ($31 million, net of tax) from the early extinguishment of debt. Diluted EPS from continuing operations benefited from lower weighted average shares outstandingaffiliate 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 Company’s share repurchasesprior 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 shares retiredinclusion 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 declines in traditional MVPD subscribers at our basic and premium 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 content licensing revenues, which includes the unfavorable impact of foreign exchange rate changes of 1-percentage point, was the result of increased revenues from the split-offproduction of CBS Radio duringprogramming for third parties, including The Real World and Bellator mixed martial arts events. These increases were partially offset by lower secondary market revenue, driven by the fourth quarterrenewal of 2017.a significant domestic licensing agreement for the Showtime original series, Dexter, in 2018.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net Loss from Discontinued Operations, Net of TaxAdjusted OIBDA
The following tables set forth details of net earnings (loss) from discontinued operations for the years ended December 31, 2017Adjusted OIBDA decreased 19%, driven by lower revenues as well as increased investment in content and 2016.higher advertising and promotion expenses.
Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios)
|
| | | | | | | | | | | | | |
| 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 |
| | | (1 | ) | | | 443 |
|
| Market value adjustment | 980 |
| (a) | | — |
| | | 980 |
|
| Restructuring charges | 7 |
| | | — |
| | | 7 |
|
| Total costs and expenses | 1,795 |
| | | (1 | ) | | | 1,794 |
|
| Operating income (loss) | (777 | ) | | | 1 |
| | | (776 | ) |
| Interest expense | (70 | ) | | | — |
| | | (70 | ) |
| Other items, net | (2 | ) | | | — |
| | | (2 | ) |
| Earnings (loss) from discontinued operations | (849 | ) | | | 1 |
| | | (848 | ) |
| Income tax benefit (provision) | (55 | ) | | | 45 |
| (b) | | (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 |
| (c) | | (94 | ) |
| Net earnings (loss) from discontinued operations, net of tax | $ | (1,009 | ) | | | $ | 57 |
| | | $ | (952 | ) |
|
| | | | | | | | | | | | | | | |
| | | | | | 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 |
| |
(a) During 2017, priorn/m - not meaningful
Revenues
For 2019, the 1% increase in Filmed Entertainment revenues reflects growth in licensing revenues, partially offset by lower theatrical revenues. Foreign exchange rate changes had a 1-percentage point unfavorable impact on the revenue comparison.
Theatrical
The 26% decrease in theatrical revenues principally reflects a difficult comparison 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 valueprior year, as a result of the transaction with Entercom was determined based on Entercom’s stock price at2018 releases of Mission: Impossible - Fallout and A Quiet Place. Theatrical revenues in 2019 benefited from the closingreleases of Rocketman, Gemini Man and Dora and the Lost City of Gold, as well as the continued success of the transaction and therefore, the Company recorded2018 release, Bumblebee. Foreign exchange rate changes had a market value adjustment of $980 million1-percentage point unfavorable impact on theatrical revenues.
Home Entertainment
The 1% increase in 2017 to adjust the carrying value of CBS Radio to the value indicatedhome entertainment revenues was driven by the stock valuationnumber and mix of Entercom.
(b) Reflects a tax benefittitles in release. Significant 2019 releases included Bumblebee, Rocketman, Instant Family, and Pet Sematary, while 2018 benefited from the resolutionreleases 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 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 9% increase in other revenues was driven by 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
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 was partially offset by costs associated with future film releases and higher 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 tax matterfilm, 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, | 2019 |
| 2018 |
| $ | | % | |
| Revenues | $ | 814 |
| | $ | 825 |
| | $ | (11 | ) | | (1 | )% | |
| | | | | | | | | |
| Adjusted OIBDA | $ | 143 |
| | $ | 153 |
| | $ | (10 | ) | | (7 | )% | |
Revenues
For 2019, the 1% decrease in a foreign jurisdiction relating to a previously disposed business that was accountedrevenues primarily reflects lower print book sales, partially offset by 15% growth in digital audio sales. Bestselling titles for as a discontinued operation.
(c) Reflects adjustments to the loss on disposal of the Company’s outdoor advertising businesses, primarily from a decrease to the guarantee liability associated with the 2013 disposal of the Company’s outdoor advertising business in Europe.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
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, 2016 | CBS Radio | | Other (b) | | Total |
| Revenues | $ | 1,220 |
| | | $ | — |
| | | $ | 1,220 |
|
| Costs and expenses: | | | | | | | |
| Operating | 397 |
| | | — |
| | | 397 |
|
| Selling, general and administrative | 496 |
| | | — |
| | | 496 |
|
| Depreciation and amortization | 26 |
| | | — |
| | | 26 |
|
| Restructuring charges | 8 |
| | | — |
| | | 8 |
|
| Impairment charge | 444 |
| (a) | | — |
| | | 444 |
|
| Total costs and expenses | 1,371 |
| | | — |
| | | 1,371 |
|
| Operating loss | (151 | ) | | | — |
| | | (151 | ) |
| Interest expense | (17 | ) | | | — |
| | | (17 | ) |
| Other items, net | 1 |
| | | — |
| | | 1 |
|
| Loss from discontinued operations | (167 | ) | | | — |
| | | (167 | ) |
| Income tax provision | (88 | ) | | | (36 | ) | | | (124 | ) |
| Net loss from discontinued operations, net of tax | $ | (255 | ) | | | $ | (36 | ) | | | $ | (291 | ) |
(a) Reflects a pretax noncash impairment charge of $444 million ($427 million, net of tax) to reduce the carrying value of CBS Radio’s goodwill and FCC licenses in 11 radio markets to their fair value.
(b) Reflects a charge 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.
Net Earnings and Diluted EPS
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Net earnings | $ | 357 |
| | $ | 1,261 |
| | $ | (904 | ) | | (72 | )% | |
| Diluted EPS | $ | .88 |
| | $ | 2.81 |
| | $ | (1.93 | ) | | (69 | )% | |
Segments
CBS Corp. operates in the following four segments:
ENTERTAINMENT: The Entertainment segment consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, Network 10, CBS Interactive, CBS Sports Network, and CBS Films as well as the Company’s digital streaming services CBS All Access and CBSN. Entertainment’s revenues are generated primarily from advertising sales, the licensing and distribution of its content, and affiliate and subscription fees. The Entertainment segment contributed 70% to consolidated revenues in 2018 and 68% to consolidated revenues in each of the years 2017 and 2016, and 55%, 54%, and 53% to total segment operating income in 2018, 2017, and 2016, respectively.
CABLE NETWORKS: The Cable Networks segment consists of Showtime Networks and its digital subscription streaming offering,and Smithsonian Networks. Cable Networks’ revenues are generated primarily from affiliate and subscription fees and the licensing and distribution of its content. The Cable Networks segment contributed 15%, 17%, and 15% to consolidated revenues in 2018, 2017, and 2016, respectively, and 30%, 35%, and 33% to total segment operating income in 2018, 2017, and 2016, respectively.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
PUBLISHING: The Publishing segment consists of Simon & Schuster’s consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books. Publishing generates revenues from the distribution of consumer books in print, digital and audio formats. The Publishing segment contributed 6% to consolidated revenues in each of the years 2018, 2017, and 2016, and 5% to total segment operating income in each of the years 2018 and 2017 and 4% to total segment operating income in 2016.
LOCAL MEDIA: The Local Media segment consists of CBS Television Stations and CBS Local Digital Media, with revenues generated primarily from advertising sales and retransmission fees. The Local Media segment contributed 13%, 12%, and 14% to consolidated revenues in 2018, 2017, and 2016, respectively, and 20%, 17%, and 21% to total segment operating income in 2018, 2017, and 2016, respectively.
During the fourth quarter of 2018, the Company began presenting CBS Sports Network in the Entertainment segment, to reflect changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Results for all periods presented have been reclassified to conform to this presentation.
The Company presents operating income (loss) excluding costs for restructuring and other corporate matters, programming charges and other operating items, net, each where applicable (“Segment Operating Income”), as the primary measure of profit and loss for its operating segments in accordance with FASB guidance for segment reporting. The Company believes the presentation of Segment Operating Income is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company’s management and enhances their ability to understand the Company’s operating performance. The reconciliation of Segment Operating Income to the Company’s consolidated net earnings is presented in Note 15 to the consolidated financial statements.
|
| | | | | | | | | | | | | | | |
| | | | | | 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 | )% | |
Segment Results of Operations - 2018 vs. 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | % of Total | | | | % of Total | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | Revenues | | 2017 | | Revenues | | $ | | % | |
| Entertainment | $ | 10,178 |
| | | 70 | % | | | $ | 9,306 |
| | | 68 | % | | | $ | 872 |
| | 9 | % | |
| Cable Networks | 2,204 |
| | | 15 |
| | | 2,355 |
| | | 17 |
| | | (151 | ) | | (6 | ) | |
| Publishing | 825 |
| | | 6 |
| | | 830 |
| | | 6 |
| | | (5 | ) | | (1 | ) | |
| Local Media | 1,830 |
| | | 13 |
| | | 1,668 |
| | | 12 |
| | | 162 |
| | 10 |
| |
| Corporate/Eliminations | (523 | ) | | | (4 | ) | | | (467 | ) | | | (3 | ) | | | (56 | ) | | (12 | ) | |
| Total Revenues | $ | 14,514 |
| | | 100 | % | | | $ | 13,692 |
| | | 100 | % | | | $ | 822 |
| | 6 | % | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | % of Total | | | | % of Total | | | |
| | | | Segment | | | | Segment | | | |
| | | | Operating | | | | Operating | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | Income | | 2017 | | Income | | $ | | % | |
| Segment Operating Income (Loss): | | | | | | | | | | | | | | | | |
| Entertainment | $ | 1,675 |
| | | 55 | % | | | $ | 1,578 |
| | | 54 | % | | | $ | 97 |
| | 6 | % | |
| Cable Networks | 915 |
| | | 30 |
| | | 999 |
| | | 35 |
| | | (84 | ) | | (8 | ) | |
| Publishing | 144 |
| | | 5 |
| | | 136 |
| | | 5 |
| | | 8 |
| | 6 |
| |
| Local Media | 609 |
| | | 20 |
| | | 497 |
| | | 17 |
| | | 112 |
| | 23 |
| |
| Corporate | (295 | ) | | | (10 | ) | | | (305 | ) | | | (11 | ) | | | 10 |
| | 3 |
| |
| Total Segment Operating Income | 3,048 |
| | | 100 | % | | | 2,905 |
| | | 100 | % | | | 143 |
| | 5 |
| |
| Restructuring charges | (67 | ) | | | | | | (63 | ) | | | | | | (4 | ) | | n/m |
| |
| Corporate matters | (128 | ) | | | | | | — |
| | | | | | (128 | ) | | n/m |
| |
| Programming charges | (85 | ) | | | | | | — |
| | | | | | (85 | ) | | n/m |
| |
| Other operating items, net | — |
| | | | | | 19 |
| | | | | | (19 | ) | | n/m |
| |
| Total Operating Income | $ | 2,768 |
| | | | | | $ | 2,861 |
| | | | | | $ | (93 | ) | | (3 | )% | |
n/m - not meaningful
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Depreciation and Amortization: | | | | | | | | |
| Entertainment | $ | 125 |
| | $ | 118 |
| | $ | 7 |
| | 6 | % | |
| Cable Networks | 18 |
| | 20 |
| | (2 | ) | | (10 | ) | |
| Publishing | 6 |
| | 6 |
| | — |
| | — |
| |
| Local Media | 43 |
| | 45 |
| | (2 | ) | | (4 | ) | |
| Corporate | 31 |
| | 34 |
| | (3 | ) | | (9 | ) | |
| Total Depreciation and Amortization | $ | 223 |
| | $ | 223 |
| | $ | — |
| | — | % | |
TV Entertainment (CBS Television Network, CBS Television Studios, CBS GlobalTelevision Distribution, Group, Network 10, CBS Interactive, CBS Sports Network, CBS Television Stations and CBS-branded streaming services CBS Films)All Access and CBSN, among others)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Revenues | $ | 10,178 |
| | $ | 9,306 |
| | $ | 872 |
| | 9 | % | |
| Segment Operating Income | $ | 1,675 |
| | $ | 1,578 |
| | $ | 97 |
| | 6 | % | |
| Segment Operating Income as a % of revenues | 16 | % | | 17 | % | |
|
| | | |
| Restructuring charges | $ | 27 |
| | $ | 44 |
| | $ | (17 | ) | | n/m |
| |
| Depreciation and amortization | $ | 125 |
| | $ | 118 |
| | $ | 7 |
| | 6 | % | |
| Capital expenditures | $ | 93 |
| | $ | 102 |
| | $ | (9 | ) | | (9 | )% | |
|
| | | | | | | | | | | | | | | |
| | | | | | 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 | % | |
n/m - not meaningful
Revenues
For 2018, the 9%6% increase in TV Entertainmentrevenues mainly reflected 29%reflects growth in affiliate and subscription fee revenues, primarily as a resultacross each of higher station affiliation fees and growth from the Company’s direct-to-consumer streaming service, segment’s main revenue streams.
Advertising
CBS All Access. Also contributing to theThe 1% increase was 7% growth in advertising revenues was driven by record political advertising sales associated with the acquisition of Network 10 in the fourth quarter of 2017,2018 midterm elections, partially offset by the absence of Thursday Night Football and the National Semifinalsnational semifinals and National Championship gameschampionship game of the NCAA Tournament, which were broadcast on theby CBS Television Network in 2017. Underlying CBS Television NetworkTV Entertainment advertising revenues for 2018 were comparable with the prior year. Entertainment revenues also benefited from the adoption of a new revenue recognition standard in the first quarter of 2018, under which resulted in higher revenues fromfor certain distribution arrangements with an offsetting increase to operating expenses. (See Note 16 toare recognized based on the consolidated financial statements.) Content licensing and distribution revenues increased 3%, primarily reflecting this new standard and higher international licensing, partially offset by lowergross amount of consideration
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
domestic licensing, mainlyreceived from the customer, with an offsetting increase to participation expense. 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.
Affiliate
Affiliate revenues grew 24% as a result of several large salesa 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 includingincluded the licensing of NCIS: New Orleans, Madam Secretary and titles from the CSI franchise.
Adjusted OIBDA
Operating incomeAdjusted OIBDA increased 6%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. For 2018 and 2017, restructuring charges primarily reflected severance costs and costs associated with exiting contractual obligations and other related costs.
Results in 2019 will benefit from the CBS Television Network’s broadcast of the Super Bowl, which airs on the CBS Television Network on a rotating basis with other networks through 2022 under the current contract, and the broadcast of the National Semifinals and National Championship games of the NCAA Tournament, which are broadcast on the CBS Television Network every other year through 2032 under the current agreement with the NCAA and Turner. Results are also expected to benefit from continued growth in affiliate and subscription fee revenues, driven by the renewal of several of the Company’s agreements with MVPDs and its television station affiliates, as well as annual contractual increases on multiyear agreements. Revenue comparisons will also be affected by fluctuations resulting from the timing of multiyear licensing agreements for television series. Television license fee revenues are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition. In addition, the Company plans to increase its investment in content in 2019, including increasing the number of series on CBS All Access in order to drive long-term subscriber growth. This will increase costs for the Entertainment segment in 2019 compared with 2018.
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 Smithsonian Networks)Telefe)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Revenues | $ | 2,204 |
| | $ | 2,355 |
| | $ | (151 | ) | | (6 | )% | |
| Segment Operating Income | $ | 915 |
| | $ | 999 |
| | $ | (84 | ) | | (8 | )% | |
| Segment Operating Income as a % of revenues | 42 | % | | 42 | % | | | | | |
| Depreciation and amortization | $ | 18 |
| | $ | 20 |
| | $ | (2 | ) | | (10 | )% | |
| Capital expenditures | $ | 20 |
| | $ | 16 |
| | $ | 4 |
| | 25 | % | |
|
| | | | | | | | | | | | | | | |
| | | | | | 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 6% decrease2% increase in Cable Networks revenues was driven by Showtime Networks’ distribution15% growth in international revenues, reflecting growth across each of the Floyd Mayweather/Conor McGregor pay-per-view boxing event in 2017, which impacted the comparison by 12 percentage points. Underlying results reflected growth from the Showtime direct-to-consumer digital streaming subscription offering and higher licensing sales of Showtime original series. As of December 31, 2018, subscriptions totaled approximately 27 million for Showtime, including its direct-to-consumer digital streaming subscription offering, and 32 million for Smithsonian Networks.
Operating incomesegment’s revenue streams. Domestic revenues decreased 8%2%, driven by an increased investment in programming,lower affiliate revenues and advertising revenues, partially offset by growthincreased content licensing revenues. International revenues included a 3-percentage point unfavorable impact from the Showtime direct-to-consumer digital streaming subscription offering.foreign exchange rate changes.
Revenue comparisonsAdvertising
Advertising revenues increased 4%, driven by 26% higher international revenues as a result of the acquisition of Network 10 in 2019 will be affectedthe fourth quarter of 2017, partially offset by fluctuations resultingan unfavorable impact from the timingforeign exchange rate changes of availability of television series for multiyear licensing agreements. In addition, the Company plans to increase its investment5-percentage points. Domestic advertising revenues decreased 4%, principally reflecting lower linear impressions, partially offset by higher pricing and growth in content in 2019 in order to drive long-term subscriber growth on its direct-to-consumer digital streaming services. This will increase costs for the Cable Networks segment in 2019 compared to 2018.revenues from AMS.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Affiliate
PublishingThe 3% decrease in affiliate revenues was the result of a 4% decrease in domestic revenues, reflecting the benefit to 2017 from Showtime Networks’ (Simon & Schusterdistribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event and declines in traditional MVPD subscribers at our basic cable networks. Growth from Showtime OTT and contractual rate increases partially offset the decline. As of December 31, 2018, Showtime)subscriptions, including Showtime OTT, totaled approximately 27 million. International affiliate revenues increased 6%, driven by the acquisition of Network 10, as well as subscriber growth and new channel launches. International affiliate revenues included a 1-percentage point unfavorable impact of foreign exchange rate changes.
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 revenue growth and lower expenses resulting from cost transformation initiatives.
Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 |
| 2017 |
| $ | | % | |
| Revenues | $ | 825 |
| | $ | 830 |
| | $ | (5 | ) | | (1 | )% | |
| Segment Operating Income | $ | 144 |
| | $ | 136 |
| | $ | 8 |
| | 6 | % | |
| Segment Operating Income as a % of revenues | 17 | % | | 16 | % | | | | | |
| Restructuring charges | $ | 1 |
| | $ | 5 |
| | $ | (4 | ) | | n/m |
| |
| Depreciation and amortization | $ | 6 |
| | $ | 6 |
| | $ | — |
| | — | % | |
| Capital expenditures | $ | 7 |
| | $ | 5 |
| | $ | 2 |
| | 40 | % | |
|
| | | | | | | | | | | | | | | |
| | | | | | 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 | % | |
n/m
Revenues
For 2018, Filmed Entertainment revenues decreased 4% reflecting lower home entertainment revenues, partially offset by increases in theatrical and licensing revenues.
Theatrical
Theatrical revenues increased 4%, principally reflecting the 2018 release of Mission: Impossible - not meaningfulFallout. 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
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 6%5% increase increase in operating incomeAdjusted OIBDA mainly reflects lower production costs. For 2018 and 2017, restructuring charges primarily reflected severance costs.
Local Media(CBS Television Stations and CBS Local Digital Media)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 |
| 2017 |
| $ | | % | |
| Revenues | $ | 1,830 |
| | $ | 1,668 |
| | $ | 162 |
| | 10 | % | |
| Segment Operating Income | $ | 609 |
| | $ | 497 |
| | $ | 112 |
| | 23 | % | |
| Segment Operating Income as a % of revenues | 33 | % | | 30 | % | | | | | |
| Restructuring charges | $ | 18 |
| | $ | 12 |
| | $ | 6 |
| | n/m |
| |
| Depreciation and amortization | $ | 43 |
| | $ | 45 |
| | $ | (2 | ) | | (4 | )% | |
| Capital expenditures | $ | 27 |
| | $ | 32 |
| | $ | (5 | ) | | (16 | )% | |
n/m - not meaningful
For 2018, the 10% increase in revenues reflected higher advertising revenues, driven by record political advertising sales associated with the 2018 midterm elections, and 13% growth in retransmission and subscription fees.
The increase in operating income of 23% primarily reflected the higher revenues. For 2018, restructuring charges reflected severance costs, primarily associated with centralizing certain functions across markets, and costs associated with exiting contractual obligations and other related costs. For 2017, restructuring charges reflected severance costs and costs associated with exiting contractual obligations and other related costs.
In 2019, revenues will benefit from CBS’s broadcast of Super Bowl LIII and continued growth in retransmission revenues, driven by the renewal of several of the Company’s agreements with MVPDs and annual contractual increases on multiyear agreements with MVPDs. However, the revenue comparison will be negatively affected by the benefit in 2018 from record political advertising sales associated with the 2018 midterm elections.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Corporate
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2018 | | 2017 | | $ | | % | |
| Segment Operating Loss | $ | (295 | ) | | $ | (305 | ) | | $ | 10 |
| | 3 | % | |
| Restructuring charges | $ | 21 |
| | $ | 2 |
| | $ | 19 |
| | n/m |
| |
| Depreciation and amortization | $ | 31 |
| | $ | 34 |
| | $ | (3 | ) | | (9 | )% | |
| Capital expenditures | $ | 18 |
| | $ | 30 |
| | $ | (12 | ) | | (40 | )% | |
n/m - not meaningful
Corporate expenses include general corporate overhead, unallocated shared company expenses, and intercompany eliminations. For 2018, corporate expenses decreased 3%, primarily reflecting lower compensation costs resulting from changes in senior management. Restructuring charges in 2018and 2017 primarily reflected severance and other related costs.
Segment Results of Operations - 2017 vs. 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | % of Total | | | | % of Total | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | Revenues | | 2016 | | Revenues | | $ | | % | |
| Entertainment | $ | 9,306 |
| | | 68 | % | | | $ | 9,020 |
| | | 68 | % | | | $ | 286 |
| | 3 | % | |
| Cable Networks | 2,355 |
| | | 17 |
| | | 2,015 |
| | | 15 |
| | | 340 |
| | 17 |
| |
| Publishing | 830 |
| | | 6 |
| | | 767 |
| | | 6 |
| | | 63 |
| | 8 |
| |
| Local Media | 1,668 |
| | | 12 |
| | | 1,779 |
| | | 14 |
| | | (111 | ) | | (6 | ) | |
| Corporate/Eliminations | (467 | ) | | | (3 | ) | | | (415 | ) | | | (3 | ) | | | (52 | ) | | (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 | $ | 1,578 |
| | | 54 | % | | | $ | 1,539 |
| | | 53 | % | | | $ | 39 |
| | 3 | % | |
| Cable Networks | 999 |
| | | 35 |
| | | 959 |
| | | 33 |
| | | 40 |
| | 4 |
| |
| Publishing | 136 |
| | | 5 |
| | | 122 |
| | | 4 |
| | | 14 |
| | 11 |
| |
| Local Media | 497 |
| | | 17 |
| | | 622 |
| | | 21 |
| | | (125 | ) | | (20 | ) | |
| Corporate | (305 | ) | | | (11 | ) | | | (311 | ) | | | (11 | ) | | | 6 |
| | 2 |
| |
| Total Segment Operating Income | 2,905 |
| | | 100 | % | | | 2,931 |
| | | 100 | % | | | (26 | ) | | (1 | ) | |
| Restructuring charges | (63 | ) | | | | | | (30 | ) | | | | | | (33 | ) | | n/m |
| |
| Corporate matters | — |
| | | | | | (8 | ) | | | | | | 8 |
| | n/m |
| |
| Other operating items, net | 19 |
| | | | | | 9 |
| | | | | | 10 |
| | n/m |
| |
| Total Operating Income | $ | 2,861 |
| | | | | | $ | 2,902 |
| | | | | | $ | (41 | ) | | (1 | )% | |
n/m - not meaningful
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Depreciation and Amortization: | | | | | | | | |
| Entertainment | $ | 118 |
| | $ | 120 |
| | $ | (2 | ) | | (2 | )% | |
| Cable Networks | 20 |
| | 20 |
| | — |
| | — |
| |
| 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)
Entertainment(CBS Television Network, CBS Television Studios, CBS Global Distribution Group, Network 10, CBS Interactive, CBS Sports Network, and CBS Films)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Revenues | $ | 9,306 |
| | $ | 9,020 |
| | $ | 286 |
| | 3 | % | |
| Segment Operating Income | $ | 1,578 |
| | $ | 1,539 |
| | $ | 39 |
| | 3 | % | |
| Segment Operating Income as a % of revenues | 17 | % | | 17 | % | | | | | |
| Restructuring charges | $ | 44 |
| | $ | 16 |
| | $ | 28 |
| | n/m |
| |
| Depreciation and amortization | $ | 118 |
| | $ | 120 |
| | $ | (2 | ) | | (2 | )% | |
| Capital expenditures | $ | 102 |
| | $ | 102 |
| | $ | — |
| | — | % | |
n/m - not meaningful
For 2017, the 3% increase in revenues was led by growth in affiliate and subscription fees and content licensing and distribution revenues. Affiliate and subscription fees grew 32% as a result of higher station affiliation fees and growth from CBS All Access. Content licensing and distribution revenues increased 10%, driven by the domestic licensing sales of NCIS: New Orleans, Madam Secretary and titles from the CSI franchise, and higher international licensing sales resulting from strong demand for the Company’s content internationally, due in part to increased investment in internally-produced series. These increases were partially offset by lower advertising revenues, mainly as a result of the benefit to 2016 from CBS’s broadcast of Super Bowl 50.
The increase in operating income of 3% was driven by the higher revenues, partially offset by an increased investment in programming, as well as other costs associated with the Company’s growth initiatives. For 2017 and 2016, restructuring charges primarily reflected severance costs and costs associated with exiting contractual obligations and other related costs.
Cable Networks(Showtime Networks and Smithsonian Networks)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Revenues | $ | 2,355 |
| | $ | 2,015 |
| | $ | 340 |
| | 17 | % | |
| Segment Operating Income | $ | 999 |
| | $ | 959 |
| | $ | 40 |
| | 4 | % | |
| Segment Operating Income as a % of revenues | 42 | % | | 48 | % | | | | | |
| Restructuring charges | $ | — |
| | $ | 4 |
| | $ | (4 | ) | | n/m |
| |
| Depreciation and amortization | $ | 20 |
| | $ | 20 |
| | $ | — |
| | — | % | |
| Capital expenditures | $ | 16 |
| | $ | 15 |
| | $ | 1 |
| | 7 | % | |
n/m - not meaningful
For 2017, the 17% increase in revenues was driven by Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event, which contributed 13 percentage points to the revenue growth. The increase also reflected growth from the Showtime direct-to-consumer digital streaming subscription offering and higher international licensing sales of Showtime content. These increases were partially offset by lower domestic licensing sales, primarily as a result of sales of several titles, including Penny Dreadful, in 2016. As of December 31, 2017, subscriptions totaled approximately 25 million for Showtime, including the direct-to-consumer digital streaming subscription offering, and 30 million for Smithsonian Networks.
Operating income increased 4% driven by the revenue growth, which was significantly offset by higher costs associated with the pay-per-view boxing event and an increased investment in programming. Restructuring charges in 2016 primarily reflected severance costs.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Publishing (Simon & Schuster)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 |
| 2016 |
| $ | | % | |
| Revenues | $ | 830 |
| | $ | 767 |
| | $ | 63 |
| | 8 | % | |
| Segment Operating Income | $ | 136 |
| | $ | 122 |
| | $ | 14 |
| | 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 | )% | |
n/m - not meaningful
For 2017, the 8% increase in revenues reflects higher print book sales and 39% growth in digital audio sales. Bestselling titles for 2018 included What Happened by Hillary Rodham Clinton, Leonardo da Vinci by Walter Isaacson and Sleeping Beauties by Stephen King and Owen King.
The 11%increase in operating income reflects the revenue growth. For 2017and 2016, restructuring charges primarily reflected severance costs.
Local Media(CBS Television Stations and CBS Local Digital Media)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 |
| 2016 |
| $ | | % | |
| Revenues | $ | 1,668 |
| | $ | 1,779 |
| | $ | (111 | ) | | (6 | )% | |
| Segment Operating Income | $ | 497 |
| | $ | 622 |
| | $ | (125 | ) | | (20 | )% | |
| Segment Operating Income as a % of revenues | 30 | % | | 35 | % | | | | | |
| Restructuring charges | $ | 12 |
| | $ | 6 |
| | $ | 6 |
| | n/m |
| |
| Depreciation and amortization | $ | 45 |
| | $ | 44 |
| | $ | 1 |
| | 2 | % | |
| Capital expenditures | $ | 32 |
| | $ | 37 |
| | $ | (5 | ) | | (14 | )% | |
n/m - not meaningful
For 2017, the 6% decrease in revenues was driven by lower advertising revenues, primarily reflecting the benefit to 2016 from political advertising sales during the 2016 Presidential election cycle and CBS’s broadcast of Super Bowl 50. This decrease was partially offset by growth in retransmission fees.
The decreasein operating income of 20% primarily reflected a decline in high-margin political advertising sales. For 2017 and 2016, restructuring charges reflected severance costs and costs associated with exiting contractual obligations and other related costs.
Corporate
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| Year Ended December 31, | 2017 | | 2016 | | $ | | % | |
| Segment Operating Loss | $ | (305 | ) | | $ | (311 | ) | | $ | 6 |
| | 2 | % | |
| Restructuring charges | $ | 2 |
| | $ | 3 |
| | $ | (1 | ) | | n/m |
| |
| Depreciation and amortization | $ | 34 |
| | $ | 35 |
| | $ | (1 | ) | | (3 | )% | |
| Capital expenditures | $ | 30 |
| | $ | 33 |
| | $ | (3 | ) | | (9 | )% | |
n/m - not meaningful
Corporate expenses include general corporate overhead, unallocated shared company expenses, and intercompany eliminations. Restructuring charges in 2017 and 2016 primarily reflected severance costs.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Financial Position
The balance sheet at December 31, 2018 is presented under ASC 606, the new revenue recognition standard adopted on January 1, 2018, while December 31, 2017 is presented under previous accounting guidance. See Note 16 to the consolidated financial statements for the amount by which each balance sheet line item at December 31, 2018 was impacted by the adoption of ASC 606.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | $ | 322 |
| | $ | 285 |
| | $ | 37 |
| | 13 | % | |
Receivables, net (a) | 4,041 |
| | 3,697 |
| | 344 |
| | 9 |
| |
Programming and other inventory (b) | 1,988 |
| | 1,828 |
| | 160 |
| | 9 |
| |
| Prepaid income taxes | 27 |
| | 78 |
| | (51 | ) | | (65 | ) | |
| All other current assets, net | 374 |
| | 385 |
| | (11 | ) | | (3 | ) | |
| Total current assets | $ | 6,752 |
| | $ | 6,273 |
| | $ | 479 |
| | 8 | % | |
(a) The increase primarily relates to the reclassification of the sales returns reserve to “Other current liabilities” as a result of the adoption of ASC 606 and higher receivables from television licensing arrangements.
(b) The increase primarily reflects the payment of sports program rights in advance of the broadcast of the related sporting events.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
Programming and other inventory (a) | $ | 3,883 |
| | $ | 2,881 |
| | $ | 1,002 |
| | 35 | % | |
(a) The increase primarily reflects higher investment in programming.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 |
| 2017 | | $ | | % | |
Other assets (a) | $ | 2,424 |
| | $ | 2,852 |
| | $ | (428 | ) | | (15 | )% | |
(a) The decrease reflects lower noncurrent receivables from television licensing arrangements primarily as a result of the adoption of ASC 606 partially offset by restricted cash of $120 million held in a grantor trust related to the separation and settlement agreement between the Company and the former Chairman of the Board, President and Chief Executive Officer of the Company. (See Note 18 to the consolidated financial statements.) As of December 31, 2018, total outstanding receivables from television licensing arrangements, including both current and noncurrent, were $3.57 billion versus $4.06 billion at December 31, 2017 and $3.45 billion at January 1, 2018 upon the adoption of ASC 606. At December 31, 2018, the total amount due from these receivables was $1.96 billion in 2019, $771 million in 2020, $430 million in 2021, $236 million in 2022, and $181 million in 2023 and thereafter.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
Assets held for sale (a) | $ | 33 |
| | $ | 34 |
| | $ | (1 | ) | | (3 | )% | |
(a) Assets held for sale at December 31, 2018 and 2017 include the CBS Television City property and sound stage operation which was sold in January 2019. (See Note 2 to the consolidated financial statements.)
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
| Current liabilities: | | | | | | | | |
| Accounts payable | $ | 201 |
| | $ | 231 |
| | $ | (30 | ) | | (13 | )% | |
Accrued expenses (a) | 522 |
| | 454 |
| | 68 |
| | 15 |
| |
Participants’ share and royalties payable (b) | 1,177 |
| | 986 |
| | 191 |
| | 19 |
| |
Accrued programming and production costs (c) | 704 |
| | 497 |
| | 207 |
| | 42 |
| |
| Commercial paper | 674 |
| | 679 |
| | (5 | ) | | (1 | ) | |
All other current liabilities, net (d) | 1,295 |
| | 1,125 |
| | 170 |
| | 15 |
| |
| Current liabilities | $ | 4,573 |
| | $ | 3,972 |
| | $ | 601 |
| | 15 | % | |
(a) The increase primarily reflects accruals for charitable contributions and professional fees associated with corporate matters.
(b) The increase primarily reflects the timing of payments.
(c) The increase primarily reflects increased production of television programming.
(d) The increase primarily reflects the reclassification of the sales returns reserve to “Other current liabilities” as a result of the adoption of ASC 606.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
Participants’ share and royalties payable (a) | $ | 1,159 |
| | $ | 1,424 |
| | $ | (265 | ) | | (19 | )% | |
(a) The decrease primarily reflects lower participation and residual liabilities as a result of the adoption of ASC 606, and the timing of payments.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 |
| 2017 | | $ | | % | |
Pension and postretirement benefit obligations (a) | $ | 1,388 |
| | $ | 1,328 |
| | $ | 60 |
| | 5 | % | |
(a) The increase primarily reflects the recognition of interest and service cost, partially offset by contributions to the Company’s non-qualified pension and other postretirement benefits plans to satisfy benefit payments due under these plans.
|
| | | | | | | | | | | | | | | |
| | | | | | Increase/(Decrease) | |
| At December 31, | 2018 | | 2017 | | $ | | % | |
Other liabilities (a) | $ | 2,071 |
| | $ | 2,197 |
| | $ | (126 | ) | | (6 | )% | |
(a) The decrease primarily relates to the reduction to a tax liability established during 2017 resulting from the enactment of the Tax Reform Act. This liability reflects the estimated tax on the Company’s historical accumulated foreign earnings and profits, which is payable to the IRS over eight years. The reduction relates to the application of a 2017 federal tax overpayment toward the liability.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Cash Flows
The changes in cash, cash equivalents and restricted cash were as follows:
| | | | | | | | Increase/ (Decrease) | | | | Increase/ (Decrease) | | | | | Increase/ (Decrease) | | | | Increase/ (Decrease) |
| Year Ended December 31, | 2018 |
| 2017 |
| 2018 vs. 2017 | | 2016 | | 2017 vs. 2016 | 2019 |
| 2018 |
| 2019 vs. 2018 | | 2017 | | 2018 vs. 2017 |
| Cash provided by operating activities from: | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | $ | 1,425 |
| | $ | 793 |
| | $ | 632 |
| | $ | 1,454 |
| | $ | (661 | ) | | $ | 1,230 |
| | $ | 3,463 |
| | $ | (2,233 | ) | | $ | 2,345 |
| | $ | 1,118 |
| |
| Discontinued operations | 1 |
| | 94 |
| | (93 | ) | | 231 |
| | (137 | ) | | — |
| | 1 |
| | (1 | ) | | 94 |
| | (93 | ) | |
| Cash provided by operating activities | 1,426 |
| | 887 |
| | 539 |
| | 1,685 |
| | (798 | ) | | 1,230 |
| | 3,464 |
| | (2,234 | ) | | 2,439 |
| | 1,025 |
| |
| Cash used for investing activities from: | | | | | | | | | | | |
| Cash (used for) provided by investing activities from: | | | | | | | | | | | |
| Continuing operations | (325 | ) | | (523 | ) | | 198 |
| | (334 | ) | | (189 | ) | | (153 | ) | | (588 | ) | | 435 |
| | 150 |
| | (738 | ) | |
| Discontinued operations | (23 | ) | | (24 | ) | | 1 |
| | (6 | ) | | (18 | ) | | (2 | ) | | (23 | ) | | 21 |
| | (24 | ) | | 1 |
| |
| Cash used for investing activities | (348 | ) | | (547 | ) | | 199 |
| | (340 | ) | | (207 | ) | | |
| Cash (used for) provided by investing activities | | (155 | ) | | (611 | ) | | 456 |
| | 126 |
| | (737 | ) | |
| Cash used for financing activities | (921 | ) | | (677 | ) | | (244 | ) | | (1,046 | ) | | 369 |
| | (1,216 | ) | | (2,531 | ) | | 1,315 |
| | (3,009 | ) | | 478 |
| |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 157 |
| | $ | (337 | ) | | $ | 494 |
| | $ | 299 |
| | $ | (636 | ) | | |
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,revenues, which were partially offset by an increased investment in internally-produced programming, including a higher number of series produced for distribution on multiple platforms.television and film programming. Operating cash flow for 2017 also included discretionary pension contributions of $600 million to prefund the Company’sour qualified pension plans.
The decrease in cash provided by operating activities from continuing operations for 2017 compared with 2016 was driven by the aforementioned discretionary pension contributions; a decline in advertising revenues including from the benefit in 2016 from CBS’s broadcast of Super Bowl 50; and an increased investment in programming. These decreases were partially offset by higher affiliate and subscription fee revenues.
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.
Cash paidThe increase in cash payments for income taxes for 2019 compared to 2018 was primarily due to a payment in 2019 as a result of guidance issued by the years endedUnited States government in January 2019 relating to the transition tax on cumulative foreign earnings and profits that resulted from the enactment of federal tax legislation in December 31,2017. In addition, cash taxes for 2018 2017 and 2016 was as follows:benefited from the application of a federal income tax overpayment carryforward from 2017.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
| Cash taxes included in operating activities from continuing operations | $ | 16 |
| | $ | 365 |
| | $ | 390 |
|
Less: Excess tax benefits from the exercise of stock options and vesting of restricted stock units, included in financing activities | — |
| | — |
| | 17 |
|
| Cash paid for income taxes from continuing operations | $ | 16 |
| | $ | 365 |
| | $ | 373 |
|
Cash paidThe decrease in cash payments for income taxes infor 2018 benefitedcompared to 2017 reflects the benefit from a federal income tax overpayment, of $484 million in 2017, which included the impact from the retroactive renewal of a federal tax law. Cash paid for income taxes from continuing operations for 2017 and 2016 benefited from the application of prior year federal income tax overpayments of $32 million and $90 million, respectively.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Investing Activities
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
Investments in and advances to investee companies (a) | $ | (124 | ) | | $ | (110 | ) | | $ | (81 | ) |
Capital expenditures (b) | (165 | ) | | (185 | ) | | (196 | ) |
Acquisitions (including acquired television library), net of cash acquired (c) | (31 | ) | | (270 | ) | | (92 | ) |
| Proceeds from dispositions | — |
| | 11 |
| | 20 |
|
| All other investing activities from continuing operations, net | (5 | ) | | 31 |
| | 15 |
|
| Cash flow used for investing activities from continuing operations | (325 | ) | | (523 | ) | | (334 | ) |
| Cash flow used for investing activities from discontinued operations | (23 | ) | | (24 | ) | | (6 | ) |
| Cash flow used for investing activities | $ | (348 | ) | | $ | (547 | ) | | $ | (340 | ) |
|
| | | | | | | | | | | |
| Year Ended December 31, | 2019 |
| 2018 |
| 2017 |
Investments (a) | $ | (171 | ) | | $ | (161 | ) | | $ | (128 | ) |
| Capital expenditures | (353 | ) | | (352 | ) | | (356 | ) |
Acquisitions, net of cash acquired (b) | (399 | ) | | (118 | ) | | (289 | ) |
Proceeds from dispositions (c) | 756 |
| | 39 |
| | 892 |
|
| Other investing activities from continuing operations | 14 |
| | 4 |
| | 31 |
|
Cash flow (used for) provided by investing activities from continuing operations | (153 | ) | | (588 | ) | | 150 |
|
| Cash flow used for investing activities from discontinued operations | (2 | ) | | (23 | ) | | (24 | ) |
| Cash flow (used for) provided by investing activities | $ | (155 | ) | | $ | (611 | ) | | $ | 126 |
|
(a) MainlyPrimarily includes the Company’sour investment in The CW as well as its other domestic and international television joint ventures.CW.
(b) Capital expenditures for 2019 are anticipated to be approximately $200 million.
(c) 2018 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.company, and VidCon LLC, a host of conferences dedicated to online video. 2017 primarily reflects the acquisition of Network 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 business and a publishing business.
Financing Activities
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| (Repayments of) proceeds from short-term debt borrowings, net | $ | (5 | ) | | $ | 229 |
| | $ | 450 |
|
| Proceeds from issuance of senior notes | — |
| | 1,773 |
| | 684 |
|
| Repayment of senior notes and debentures | — |
| | (1,244 | ) | | (199 | ) |
| Repurchase of CBS Corp. Class B Common Stock | (586 | ) | | (1,111 | ) | | (2,997 | ) |
| Proceeds from debt borrowings of CBS Radio | — |
| | 40 |
| | 1,452 |
|
| Repayment of debt borrowings of CBS Radio | — |
| | (43 | ) | | (110 | ) |
| Dividends | (276 | ) | | (296 | ) | | (288 | ) |
Payment of payroll taxes in lieu of issuing shares for
stock-based compensation | (59 | ) | | (89 | ) | | (58 | ) |
| Proceeds from exercise of stock options | 27 |
| | 91 |
| | 21 |
|
| All other financing activities, net | (22 | ) | | (27 | ) | | (1 | ) |
| Cash flow used for financing activities | $ | (921 | ) | | $ | (677 | ) | | $ | (1,046 | ) |
Free Cash Flow and Adjusted Free Cash Flow
Free cash flow and adjusted free cash flow are non-GAAP financial measures. Free cash flowCBS Television City. 2017 primarily reflects the Company’s net cash flow provided by (used for) operating activities before operating cash flow from discontinued operations,sale of our 49.76% interest in EPIX and less capital expenditures; and adjusted free cash flow reflects the Company’s net cash flow provided by (used for) operating activities before operating cash flow from discontinued operations and discretionary contributions to prefundsale of broadcast spectrum in connection with the Company’s pension plans, and less capital expenditures. The Company’s calculations of free cash flow and adjusted free cash flow include capital expenditures because investment in capital expenditures is a use of cash that is directly related to the Company’s operations. Adjusted 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’s net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.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, | 2019 | | 2018 | | 2017 |
| Proceeds from (repayments of) short-term debt borrowings, net | $ | 25 |
| | $ | (5 | ) | | $ | 229 |
|
| Proceeds from issuance of senior notes | 492 |
| | — |
| | 3,157 |
|
| Repayment of notes and debentures | (910 | ) | | (1,102 | ) | | (4,729 | ) |
| Dividends | (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 | (56 | ) | | (67 | ) | | (103 | ) |
| Proceeds from exercise of stock options | 15 |
| | 29 |
| | 263 |
|
| Other financing activities | (130 | ) | | (201 | ) | | (99 | ) |
| Cash flow used for financing activities | $ | (1,216 | ) | | $ | (2,531 | ) | | $ | (3,009 | ) |
Free Cash Flow
Free cash flow is a non-GAAP financial measure. Free cash flow reflects our net cash flow provided by (used for) operating activities before operating cash flow from discontinued operations, and less capital expenditures. Our calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash that is directly related to our operations. Our net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.
Management believes free cash flow and adjusted free cash flow provideprovides 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 and adjusted free cash flow areis a significant measuresmeasure 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 and adjusted 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 and adjusted free cash flow areis among several components of incentive compensation targets for certain management personnel. In addition, free cash flow and adjusted free cash flow areis a primary measuresmeasure 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 and adjusted free cash flow areis not measuresa measure calculated in accordance with GAAP, free cash flow and adjusted 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, and adjusted free cash flow, as the Company calculates them,we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow and adjusted free cash flow as measuresa measure of liquidity havehas certain limitations, dodoes not necessarily represent funds available for discretionary use and areis not necessarily measuresa measure of the Company’sour ability to fund itsour cash needs. When comparing free cash flow and adjusted free cash flow to 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 in free cash flow or adjusted free cash flow.
The following table presents a reconciliation of the Company’sour net cash flow provided by operating activities to free cash flow and adjusted free cash flow.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Net cash flow provided by operating activities | $ | 1,426 |
| | $ | 887 |
| | $ | 1,685 |
|
| Capital expenditures | (165 | ) | | (185 | ) | | (196 | ) |
| Less: Operating cash flow from discontinued operations | 1 |
| | 94 |
| | 231 |
|
| Free cash flow | 1,260 |
| | 608 |
| | 1,258 |
|
| Less: Discretionary pension plan contributions, net of tax of $219 million | — |
| | (381 | ) | | — |
|
| Adjusted free cash flow | $ | 1,260 |
| | $ | 989 |
| | $ | 1,258 |
|
|
| | | | | | | | | | | |
| 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 |
|
Dividends
For the years ended December 31, 2018, 2017 and 2016, the Company declared total per share dividends of $.72, $.72, and $.66, respectively, which resulted in total annual dividends of $274 million, $289 million and $294 million, respectively.
On January 31, 2019, the Company announced a quarterly cash dividend of $.18 per share on its Class A and Class B Common Stock, payable on April 1, 2019.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (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.
On February 12, 2020, ViacomCBS declared a quarterly cash dividend of $.24 per share on its Class A and Class B Common Stock, payable on April 1, 2020.
Share Repurchase Program
During 2018, the CompanyDecember 2019, we repurchased 11.51.2 million shares of CBS Corp.ViacomCBS Class B Common Stock under itsour share repurchase program for $600$50 million, at an average cost of $52.06$40.78 per share. At December 31, 2018, $2.462019, $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, | 2018 | | 2017 | 2019 | | 2018 |
| Commercial paper | $ | 674 |
| | $ | 679 |
| $ | 699 |
| | $ | 674 |
|
| Senior debt (2.30%-7.875% due 2019-2045) | 9,435 |
| | 9,426 |
| 16,690 |
| | 17,086 |
|
| Obligations under capital leases | 43 |
| | 57 |
| |
| Junior debt (5.875%-6.250% due 2057) | | 1,286 |
| | 1,284 |
|
| Obligations under finance leases | | 44 |
| | 69 |
|
Total debt (a) | 10,152 |
| | 10,162 |
| 18,719 |
| | 19,113 |
|
| Less commercial paper | 674 |
| | 679 |
| 699 |
| | 674 |
|
| Less current portion of long-term debt | 13 |
| | 19 |
| 18 |
| | 339 |
|
| Total long-term debt, net of current portion | $ | 9,465 |
| | $ | 9,464 |
| $ | 18,002 |
| | $ | 18,100 |
|
| |
| (a) | At December 31, 20182019 and 2017,2018, the senior and junior subordinated debt balances included (i) a net unamortized discount of $58$412 million and $65$422 million, respectively, (ii) unamortized deferred financing costs of $43$92 million and $47$98 million, respectively, and (iii) a decrease in the carrying value of the debt relating to previously settled fair value hedges of $5$6 million and $3$5 million, respectively. The face value of the Company’sour total debt was $10.26$19.23 billion at December 31, 20182019 and $10.28$19.64 billion at December 31, 2017.2018. |
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, the Companywe issued $1.80$3.10 billion of senior notes and used the net proceeds for the redemptionjunior subordinated debentures. Also during 2017, we redeemed and repayment of $1.20repaid $4.67 billion of senior notes, of which $800 million$4.27 billion was redeemed prior to maturity, resulting in a pre-tax loss on early extinguishment of debt of $49 million ($31 million, net of tax). The remaining proceeds were used for general corporate purposes, including discretionary contributions to the Company’s qualified pension plans and the repayment of short-term borrowings, including commercial paper.
At December 31, 2018, the Company classified $600 million of debt maturing in August 2019 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.
At December 31, 2018, the Company’s scheduled maturities of long-term debt at face value, excluding capital leases, were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2024 and |
| | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter |
| Long-term debt | | $ | 600 |
| | | $ | — |
| | | $ | 300 |
| | | $ | 700 |
| | | $ | 1,033 |
| | $ | 6,907 |
|
Commercial Paper
The Company had outstanding commercial paper borrowings under its $2.50 billion commercial paper program of $674 million and $679 million at December 31, 2018 and 2017, respectively, each with maturities of less than 90 days. The weighted average interest rate for these borrowings was 3.02% and 1.88% at December 31, 2018 and 2017, respectively.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
redeemed prior to maturity, resulting in a pre-tax loss on early extinguishment of debt of $38 million ($21 million, net of tax).
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 debentures received a 50% equity credit by Standard & Poor’s Rating Services and Fitch Ratings Inc., and a 25% equity credit by Moody’s Investors Service, Inc.
The interest rate payable on our 2.25% senior notes due February 2022 and 3.45% senior notes due October 2026, collectively the “Senior Notes”, will be subject to adjustment from time to time if Moody’s Investors Services, Inc. or S&P Global Ratings downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the Senior Notes. The interest rate on these Senior Notes would increase by 0.25% upon each credit agency downgrade up to a maximum of 2.00%, and would similarly be decreased for subsequent upgrades. At December 31, 2019, the outstanding principal amount of our 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 well as certain optional redemption provisions for our junior debentures.
We had outstanding commercial paper borrowings under our $2.50 billion commercial paper program of $699 million and $674 million at December 31, 2019 and 2018, respectively, each with maturities of less than 90 days. The weighted average interest rate for these borrowings was 2.07% and 3.02% at December 31, 2019 and 2018, respectively.
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, 2018, 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.
The Credit Facility requires the Company to maintain a maximumour 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 4.5xOperations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
quarters following a qualified acquisition) at the end of each quarter, as further described in the Credit Facility. Atto be applied retrospectively from December 31, 2018, the Company’s2019. The Consolidated Leverage Ratio was approximately 3.1x.
The ConsolidatedTotal Leverage Ratio reflects the ratio of the Company’s indebtedness from continuing operations, adjusted to exclude certain capital lease obligations,our Consolidated Indebtedness at the end of a quarter, to the Company’sour Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facilitytwelve-month period. We met this covenant as operating income plus interest income and before depreciation, amortization and certain other noncash items.
The Credit Facility is used for general corporate purposes. Atof December 31, 2018, the Company had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion.2019.
Liquidity and Capital Resources
The Company continually projectsWe project anticipated cash requirements for itsour operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. The Company’sOur operating needs include, among other items, commitments for sports programming rights, television and film programming, talent contracts, operating leases, interest payments, income taxes payments and pension funding obligations. The Company’sOur investing and financing spending includes capital expenditures, investments and acquisitions, share repurchases, dividends and principal payments on itsour outstanding indebtedness. The Company believes
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, 2018, and access to capital markets are sufficient to fund itsour operating, investing and financing requirements for the next twelve months.
The Company’sOur funding for short-term and long-term obligations will come primarily from cash flows from operating activities. Any additional cash funding requirements are financed with short-term borrowings, including commercial paper, and long-term debt. To the extent that commercial paper is not available to us, the Company, the existing Credit Facility provides sufficient capacity to satisfy short-term borrowing needs. The CompanyWe routinely assesses itsassess our capital structure and opportunistically entersenter into transactions to lower itsour interest expense, which could result in a charge from the early extinguishment of debt.
Funding for the Company’sour long-term debt obligations due over the next five years of $2.63$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, 2018, the Company2019, we had $2.46$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, 2018,2019, 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 |
| | | | | | | | | | 2024 and |
|
|
|
|
|
|
| and | 2025 and |
| | Total | | 2019 | | 2020-2021 | | 2022-2023 | | Thereafter | Total |
| 2020 |
| 2021-2022 |
| 2023-2024 |
| Thereafter |
| Off-Balance Sheet Arrangements | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming and talent commitments (a) | $ | 8,982 |
| | $ | 2,270 |
| | $ | 3,819 |
| | $ | 2,004 |
| | $ | 889 |
| $ | 10,355 |
|
| $ | 3,003 |
|
| $ | 5,350 |
|
| $ | 1,159 |
|
| $ | 843 |
|
Purchase obligations (b) | 795 |
| | 285 |
| | 418 |
| | 34 |
| | 58 |
| 1,517 |
|
| 609 |
|
| 744 |
|
| 82 |
|
| 82 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| On-Balance Sheet Arrangements | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (c) | 1,101 |
| | 174 |
| | 251 |
| | 211 |
| | 465 |
| 2,709 |
|
| 371 |
|
| 648 |
|
| 456 |
|
| 1,234 |
|
Long-term debt obligations (d) | 9,540 |
| | 600 |
| | 300 |
| | 1,733 |
| | 6,907 |
| 18,486 |
|
| — |
|
| 2,345 |
|
| 3,557 |
|
| 12,584 |
|
Interest commitments on long-term debt (e) | 4,716 |
| | 401 |
| | 773 |
| | 695 |
| | 2,847 |
| 13,046 |
|
| 868 |
|
| 1,627 |
|
| 1,418 |
|
| 9,133 |
|
Capital lease obligations (including interest) (f) | 47 |
| | 13 |
| | 23 |
| | 9 |
| | 2 |
| |
Finance leases (including interest) (f) | | 47 |
|
| 21 |
|
| 23 |
|
| 2 |
|
| 1 |
|
Other long-term contractual obligations (g) | 1,469 |
| | — |
| | 929 |
| | 311 |
| | 229 |
| 2,076 |
|
| — |
|
| 1,479 |
|
| 412 |
|
| 185 |
|
| Total | $ | 26,650 |
| | $ | 3,743 |
| | $ | 6,513 |
| | $ | 4,997 |
| | $ | 11,397 |
| $ | 48,236 |
|
| $ | 4,872 |
|
| $ | 12,216 |
|
| $ | 7,086 |
|
| $ | 24,062 |
|
(a) ProgrammingOur programming and talent commitments of the Company primarily include $6.62$5.39 billion for sports programming rights, $1.71$3.80 billion relating to the production and licensing of television and film programming, and $660 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 $266 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 2019, the Company expects2020, we expect to make contributions of approximately $60$70 million to itsour non-qualified pension plans to satisfy the benefit payments due under these plans. Also in 2019, the Company expects2020, we expect to contribute approximately $48$43 million to itsour other postretirement benefit plans to satisfy the Company’sour portion of benefit payments due under these plans.
Guarantees
The Company hasLetters of Credit and Surety Bonds. We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At December 31, 2018,2019, the outstanding letters of credit and surety bonds approximated $100$136 million and were not recorded on the Consolidated Balance Sheet.
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.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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.
The Company considersWe consider the following accounting policies to be the most critical as they are important to the Company’sour financial condition and results of operations, and require significant judgment and estimates on the part of management in itstheir application. The risks and uncertainties involved in applying our critical accounting policies are provided below. Unless otherwise noted, we applied our critical accounting policies and estimation methods consistently in all material respects and for all periods presented, and have discussed such policies with our Audit Committee. For a summary of the Company’sour significant accounting policies, see the accompanying notes to the consolidated financial statements.
ProgrammingRevenue Recognition
Revenue is recognized when control of a good or service is transferred to a customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Significant judgments used in 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
Accounting forCosts incurred to produce television programs and feature films are capitalized and amortized over the Company’sprojected life of each television production costs requires management’s judgment as it relatesprogram or feature film based on the ratio of current period revenues to estimated remaining total estimated revenues to be earned (“Ultimate Revenues”). Management’s judgment is required in estimating Ultimate Revenues and the costs to be incurred throughout the life of each television program.program or feature film. These estimates are used to determine the amortization of capitalized production costs, expensing of participation costs, and any necessary net realizable value adjustmentsimpairments to capitalized 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.
Ultimate revenue estimates for internally produced television programming, and theThe estimated economic benefit for acquired programming, which includes television series, feature filmsincluding revenue projections for multi-year sports programming, are periodically reviewed and sports, are updated regularly based on information available asthroughout the television program or film progresses through its life cycle or contractual term. Overestimating Ultimate Revenues for internally produced programming or aA failure to adjust for a downward revision in the estimated economic benefit to be generated from acquired programming could result in the understatement of the amortization of capitalized production or programming costs or future net realizable value adjustments and/adjustments.
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
The Company performs aWe perform fair value-based impairment testtests of goodwill and intangible assets with indefinite lives, comprised primarily of television FCC licenses in the U.S. and international broadcast licenses annually during the fourth quarterin Australia, on an annual basis and also between annual tests if an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value.
Management’s DiscussionTelevision FCC Licenses and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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, 2018 the Company2019, we had 14 television markets with FCC license book values. For international broadcast licenses the Company considersin Australia, we consider all of itsour broadcast licenses within athe country to be a single unit of accounting because the international broadcast licenses at this level representrepresents their highest and best use. At December 31, 2018, the Company had international broadcast licenses in Australia.
Goodwill is tested for impairment at the reporting unit level. During the fourth quarter of 2018, the Company began including CBS Sports Network within the Television reporting unit, which is a component of the Entertainment operating segment, reflecting changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. Prior to this change, CBS Sports Network was a standalone reporting unit and a component of the Cable Networks operating segment. At December 31, 2018, the Company had seven reporting units with goodwill balances, each one level below their respective operating segments, except for the Cable Networks reporting unit and the Publishing reporting unit, which are each the same as their respective operating segments because these operating segments each have only one component.
Television FCC Licenses and International Broadcast Licenses-For itsour annual impairment test, the Company performswe perform qualitative assessments for each U.S. television market or country that management estimates the FCC licenses or international broadcast licenses havewe estimate has an aggregate fair value of FCC licenses that significantly exceed their respective carrying values. In selecting markets or internationalvalues, and for our Australian broadcast licenses for a qualitative assessment,when we estimate that the Company also considersaggregate fair value significantly exceeds the carrying value. Additionally, we consider the duration of time since a quantitative test was performed. For the 20182019 annual impairment test, the Companywe performed qualitative assessments for all 14 of itsour U.S. television markets. For each of these markets, the Companymarket, we weighed the relative impact of market-specific and macroeconomic factors. The market-specific factors considered include recent projections by geographic market from both independent and internal sources for revenue and operating costs, as well as market share and capital expenditures. The CompanyWe also considered the macroeconomic impact on discount rates and growth rates, as well as the impact from recent tax law changes.changes that were enacted since the most recent quantitative tests were performed on these markets. 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 the FCC licenses in each of these television markets are less than their respective carrying values. Therefore, performing the quantitative impairment test was unnecessary.
For 2018, the Company performed a quantitative impairment test for international broadcast licenses. A quantitative impairment test compares theof broadcast licenses calculates an estimated fair value of the licenses with their carrying value. The estimated fair value 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 revenues in the relevant 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 revenues in the subject market are 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 and long-term industry projections. The discount rate is determined based on the risk of achieving the projected cash flows, including the risk applicable to the industry and the market as
For 2019, we performed a whole.quantitative impairment test for our Australian broadcast licenses. The discount rate and perpetual nominal growth rate used for international broadcast licenses for 2018 were 11% and 0.5%, respectively. The Company concludedimpairment test indicated that the estimated fair value of internationalthe broadcast licenses was lower than the carrying value, which werewas the result of a sustained decline in the advertising marketplace in Australia. Accordingly, we recorded at fair value inan impairment charge during the fourth quarter of 2019 of $20 million, which is included within “Depreciation and amortization” on the Consolidated Statements of Operations.
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 we own and operate 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 our current assumptions and judgments. Various factors may contribute to a future decline in an advertising marketplace including declines in economic conditions;
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
2017 when the Company acquired Network 10, continues to approximate the carrying value and therefore no impairment charge was required.
The estimated fair values of the FCC licenses and international broadcast licenses are highly dependent on the assumptions of future economic conditions in the individual geographic markets in which the Company owns and operates 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 the advertising marketplace in Australia could result in a downward revision to the Company’s current assumptions and judgments. Various factors may contribute to a future decline in an advertising marketplace including declines in economic conditions; an other-than-temporary decrease in spending by advertisers in certain industries that have historically represented a significant portion of television advertising revenues in that market; a shift by advertisers to competing advertising platforms; changes in consumer behavior; and/or a change in population size. A 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.
Goodwill-Goodwill—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 six reporting units with goodwill balances, which were determined based on the post-Merger reporting structure. For itsthe 2019 annual impairment test, the Company performsreporting units tested were those in place prior to the Merger, which closed after the testing dates. We tested two reporting units for impairment as of August 31 and eight reporting units as of October 31.
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 20182019 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 recent 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.
For 2018,As of the Companyclosing date of the Merger on December 4, 2019, we performed qualitative assessments on the pre-Merger reporting units that were to be combined as a result of the new reporting structure, as well as the post-Merger reporting units that resulted from this combination. Based on these assessments, we concluded that there were no changes to the conclusions reached in our annual impairment test.
A quantitative goodwill impairment test, for the CBS Sports Network reporting unit prior to the inclusion of this business in the CBS Television 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 2018, 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 2018 was 2.0%. The discount rate, which for 2018 was 8.5%, is determined based on the risk of achieving the projected cash flows, including the risk applicable to the industry and the market as a whole.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the 2018 annual impairment test the Company concluded that the estimated fair value of the CBS Sports Network reporting unit, which at December 31, 2018 had a goodwill balance of $261 million, exceeded its carrying value by 16% and therefore no impairment charge was required. An increase to the discount rate of 83 basis points, or a decrease to the perpetual nominal growth rate of 135 basis points, assuming no changes to other factors, would cause the fair value of the CBS Sports Network reporting unit to fall below its carrying value.
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.
Reserves and Legal Matters
Estimates of reserves and liabilities related to legal issues and discontinued businesses, including asbestos and environmental matters, require significant judgments by management. The CompanyWe continually evaluatesevaluate 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)
liabilities as events and circumstances may impact the estimate of our liabilities. While management believeswe believe that the current reservesour liabilities for matters related to our predecessor operations, of the Company, including environmental and asbestos, are adequate to cover our liabilities, there can be no assurance that circumstances will not change in future periods. 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.claims, as well as consultation with a third party firm on trends that may impact our future asbestos liability.
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, 2018,2019, the unrecognized actuarial losses included in accumulated other comprehensive income increased from the prior year-end due primarily to a decrease in the unfavorablediscount rate, partially offset by the favorable performance of pension plan assets, partially offset by the impact from an increase in the discount rate and the amortization of actuarial losses.assets. A 25 basis point change in the discount rate would result in an estimated change to the projected benefit obligation of approximately $92$137 million and would not have a material impact on 20192020 pension expense. A decrease in the expected rate of return on plan assets would increase pension expense. The estimated impact of a 25 basis point change in the expected rate of return on plan assets is a change of approximately $6$8 million to 20192020 pension expense.
Income Taxes
The Company isWe are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes.taxes and evaluating our income tax positions. When recording an interim worldwide provision for income taxes, an estimated effective tax rate for the year is applied to interim operating results. In the event there is a significant or unusual item recognized in the quarterly operating results, the tax attributable to that item is separately calculated and recorded in the same quarter. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the financial statement carrying amounts and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. We evaluate the realizability of deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
A number of years may elapse before a tax return containing tax matters
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 $266$384 million at December 31, 20182019 is properly recorded pursuant to the recognition and measurement provisions of FASB guidance for uncertainty in income taxes.
During 2017, as a result
Management’s Discussion and Analysis of the enactment
Results of the Tax Reform Act on December 22, 2017, the Company recorded a provisional charge of $407 million for the estimated tax impact on the Company’s historical accumulated foreign earningsOperations and profits. This amount was based on the Company’s initial estimate. During 2018, the Company completed its analysis of the provisional amounts and recorded a charge of $15 million to adjust the estimated transition tax on cumulative foreign earnings and profits. In January 2019, the U.S. government issued guidance relating to the transition tax. The Company is currently evaluating the impact of this guidance, which will be recordedFinancial Condition (Continued)
(Tabular dollars in the Company’s consolidated financial statements in the first quarter of 2019. In addition, future guidance issued by federal and state authorities regarding the Tax Reform Act could have an impact on the Company’s consolidated financial statements.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 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 separation agreement betweenMerger. 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 CompanyMerger (the “Demand”). On October 10, 2019, we offered to produce certain categories of documents properly within the scope of a books and Viacom Inc.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 CompanyCBS 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. have agreedStockholders 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 and indemnify the otheragainst 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 certain litigation in which the Company and/or Viacom Inc. is named.our consolidated financial statements.
Investigation-Related Matters. As announced on August 1, 2018, the Company’sCBS Board of Directors (“(the “CBS Board”) retained two law firms to conduct a full investigation of the allegations in recent press reports about the Company’sCBS’ former Chairman of the Board, President and Chief Executive Officer, Mr. Leslie Moonves, CBS News and cultural issues at all levels of the Company.CBS. On December 17, 2018, the CBS Board announced the completion of theits investigation, certain findings of the investigation and the CBS Board’s determination, discussed below, with respect to the termination of Mr. Moonves’sMoonves’ employment. The Company hasWe 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 hasand the United States Securities and Exchange Commission have also requested information about these matters. The Companymatters, 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. The Company isWe 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 the
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Company,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 the Company’sCBS 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, the CompanyCBS entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Leslie Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of the Company. Pursuant to the Separation Agreement, the Company is contributing the aggregate amount of $20 million toward various charitable organizations that support the #MeToo movement and equality for women in the workplace, which organizations were mutually agreed by the Company and Mr. Moonves. The Company has recorded the contribution of $20 million in “Restructuring and other corporate matters” on the Consolidated Statements of Operations for the year ended December 31, 2018.CBS. In October 2018, the Companywe contributed $120 million to a grantor trust.trust pursuant to the Separation Agreement. On December 17, 2018, the CBS 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’sMoonves’ employment for cause under his employment agreement with the Company.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 notified the Company of his election to demandcommenced a binding arbitration proceeding with respect to this matter and the related CBS Board investigation.investigation, which proceeding is ongoing. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. The Company isWe are currently unable to determine the outcome of the arbitration and the amount, if any, that may be awarded thereunder and, accordingly, no accrual for this matter has been made for this matter in the Company’sour 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 most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines.turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company doesWe do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2018, the Company2019, we had pending approximately 31,57030,950 asbestos claims, as compared with approximately 31,570 as of December 31, 2018 and 31,660 as of December 31, 2017 and 33,610 as of December 31, 2016.2017. During 2018, the Company2019, we received approximately 3,2903,460 new claims and closed or moved to an inactive docket approximately 3,3804,080 claims. The Company reportsWe report claims as closed when it becomeswe become aware that
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 20182019 and 20172018 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $58 million and $45 million, and $57 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 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. 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 fromFrom 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
The Company isWe are exposed to fluctuations in foreign currency exchange rates and interest rates and usesuse derivative financial instruments to manage this exposure. In accordance with itsour policy, the Company doeswe do not use derivative instruments unless there is an underlying exposure and, therefore, the Company doeswe do not hold or enter into derivative financial instruments for speculative trading purposes.
Foreign Exchange Risk
The Company conductsWe conduct business in various countries outside the U.S., resulting in exposure to movements in foreign exchange rates when translating from the foreign local currency to the U.S. dollar. In order to hedge anticipated cash flows in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar, foreign currency forward contracts, for periods generally up to 24 months, are used. Additionally, the Company designateswe designate forward contracts used to hedge committed and forecasted foreign currency transactions, including future production costs and programming obligations, as cash flow hedges. Gains or losses on the effective portion of designated cash flow hedges are initially recorded in other comprehensive income (loss) and reclassified to the statement of operations when the hedged item is recognized. Additionally, the Company enterswe enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows. The change in fair value of the non-designated contracts is included in “Other items, net” in the Consolidated Statements of Operations. The Company managesWe manage the use of foreign exchange derivatives centrally.
At December 31, 20182019 and 2017,2018, the notional amount of all foreign currency contracts was $325$1.44 billion and $995 million, respectively. For 2019, $833 million related to future production costs and $410$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
The Company did not have anyInterest on commercial paper borrowings is exposed to risk related to movements in short-term interest rates. A 100 basis point change to the weighted average interest rate swapson commercial paper borrowings in 2019 would increase or decrease interest expense by approximately $7 million. In addition, interest rates on future long-term debt issuances are exposed to risk related to movements in long-term interest rates. Interest rate hedges may be used to modify both of these exposures at our discretion. There were no interest rate hedges outstanding at December 31, 20182019 or December 31, 20172018 but in the future we may use derivatives to manage itsour exposure to interest rates.
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
The CompanyWe continually monitors itsmonitor our positions with, and credit quality of, the financial institutions that are counterparties to itsour financial instruments. The Company isWe are exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company doeswe do not anticipate nonperformance by the counterparties.
The Company’sOur receivables do not represent significant concentrations of credit risk at December 31, 20182019 or 2017,2018, due to the wide variety of customers, markets and geographic areas to which the Company’sour products and services are sold.
Related Parties
For a discussion of related parties, see Note 6 to the consolidated financial statements.
Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted
See Note 1 to the consolidated financial statements.
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Information required by this item is presented in “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition—Market Risk.”
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| 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:
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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, 20182019 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, 2018.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20182019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
|
| | | |
| | | CBS CORPORATIONVIACOMCBS INC. |
| | | | |
| | | By: | /s/ Joseph R. IannielloRobert M. Bakish |
| | | | Joseph R. IannielloRobert M. Bakish
President and Acting Chief Chief Executive Officer |
| | | | |
| | | By: | /s/ Christina Spade |
| | | | Christina Spade Executive Vice President, Chief Financial Officer |
| | | | |
| �� | | By: | /s/ Lawrence LidingKatherine Gill-Charest |
| | | | Lawrence LidingKatherine Gill-Charest
Executive Vice President, Controller and Chief Accounting Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
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, 20182019 and 2017,2018, 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, 2018,2019, 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, 2018,2019, 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, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182019 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, 2018,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
ChangeChanges in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customersleases in 2019 and the manner in which it accounts for net periodic pension and postretirement benefit costrevenues 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) 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 15, 201920, 2020
We have served as the Company’s or its predecessor’s auditor since 1970.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 13,166 |
| $ | 27,812 |
| | $ | 27,250 |
| | $ | 26,535 |
|
| Costs and expenses: | | | | | | | | | | |
| Operating | 9,111 |
| | 8,438 |
| | 7,956 |
| 17,223 |
| | 15,917 |
| | 15,483 |
|
| Selling, general and administrative | 2,217 |
| | 2,126 |
| | 2,054 |
| 5,647 |
| | 5,206 |
| | 5,156 |
|
| Depreciation and amortization | 223 |
| | 223 |
| | 225 |
| 443 |
| | 433 |
| | 443 |
|
| Restructuring and other corporate matters (Note 4) | 195 |
| | 63 |
| | 38 |
| |
| Other operating items, net | — |
| | (19 | ) | | (9 | ) | |
| Restructuring and other corporate matters | | 775 |
| | 490 |
| | 258 |
|
| Total costs and expenses | 11,746 |
| | 10,831 |
| | 10,264 |
| 24,088 |
| | 22,046 |
| | 21,340 |
|
| Gain on sale of assets | | 549 |
| | — |
| | 146 |
|
| Operating income | 2,768 |
| | 2,861 |
| | 2,902 |
| 4,273 |
| | 5,204 |
| | 5,341 |
|
| Interest expense | (467 | ) | | (457 | ) | | (411 | ) | (962 | ) | | (1,030 | ) | | (1,088 | ) |
| Interest income | 57 |
| | 64 |
| | 32 |
| 66 |
| | 79 |
| | 87 |
|
| Loss on early extinguishment of debt | — |
| | (49 | ) | | — |
| |
| Pension settlement charges (Note 14) | — |
| | (352 | ) | | (211 | ) | |
| 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 | (69 | ) | | (88 | ) | | (82 | ) | (145 | ) | | (124 | ) | | (115 | ) |
Earnings from continuing operations before income taxes and equity in loss of investee companies | 2,289 |
| | 1,979 |
| | 2,230 |
| |
| Provision for income taxes | (273 | ) | | (633 | ) | | (628 | ) | |
| Equity in loss of investee companies, net of tax | (56 | ) | | (37 | ) | | (50 | ) | |
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 | 1,960 |
| | 1,309 |
| | 1,552 |
| 3,301 |
| | 3,460 |
| | 3,320 |
|
| Net loss from discontinued operations, net of tax (Note 17) | — |
| | (952 | ) | | (291 | ) | |
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,261 |
| |
| 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 | $ | 5.20 |
| | $ | 3.26 |
| | $ | 3.50 |
| $ | 3,270 |
| | $ | 3,423 |
| | $ | 3,268 |
|
| Net loss from discontinued operations | $ | — |
| | $ | (2.37 | ) | | $ | (.66 | ) | |
| 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 | $ | 5.20 |
| | $ | .89 |
| | $ | 2.84 |
| $ | 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 | $ | 5.14 |
| | $ | 3.22 |
| | $ | 3.46 |
| $ | 5.30 |
| | $ | 5.51 |
| | $ | 5.05 |
|
| Net loss from discontinued operations | $ | — |
| | $ | (2.34 | ) | | $ | (.65 | ) | |
| Net earnings (loss) from discontinued operations | | $ | .06 |
| | $ | .05 |
| | $ | (1.46 | ) |
| Net earnings | $ | 5.14 |
| | $ | .88 |
| | $ | 2.81 |
| $ | 5.36 |
| | $ | 5.56 |
| | $ | 3.59 |
|
| | | | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | | |
| Basic | 377 |
| | 401 |
| | 444 |
| 615 |
| | 617 |
| | 640 |
|
| Diluted | 381 |
| | 407 |
| | 448 |
| 617 |
| | 621 |
| | 647 |
|
See notes to consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,261 |
|
| Other comprehensive income (loss), net of tax: | | | | | |
| Cumulative translation adjustments | (26 | ) | | 8 |
| | (1 | ) |
| Net actuarial gain (loss) and prior service costs (Note 14) | (87 | ) | | 97 |
| | 4 |
|
| Total other comprehensive income (loss), net of tax | (113 | ) | | 105 |
| | 3 |
|
| Total comprehensive income | $ | 1,847 |
| | $ | 462 |
| | $ | 1,264 |
|
|
| | | | | | | | | | | |
| | 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
|
| | | | | | | | | |
| | | At December 31, | |
| | | 2018 | | 2017 | |
| ASSETS | | | | | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 322 |
| | $ | 285 |
| |
| Receivables, less allowances of $41 (2018) and $49 (2017) | | 4,041 |
| | 3,697 |
| |
| Programming and other inventory (Note 5) | | 1,988 |
| | 1,828 |
| |
| Prepaid income taxes | | 27 |
| | 78 |
| |
| Prepaid expenses | | 149 |
| | 194 |
| |
| Other current assets | | 225 |
| | 191 |
| |
| Total current assets | | 6,752 |
| | 6,273 |
| |
| Property and equipment | | 2,926 |
| | 2,947 |
| |
| Less accumulated depreciation and amortization | | 1,717 |
| | 1,701 |
| |
| Net property and equipment (Note 2) | | 1,209 |
| | 1,246 |
| |
| Programming and other inventory (Note 5) | | 3,883 |
| | 2,881 |
| |
| Goodwill (Note 3) | | 4,920 |
| | 4,891 |
| |
| Intangible assets (Note 3) | | 2,638 |
| | 2,666 |
| |
| Other assets | | 2,424 |
| | 2,852 |
| |
| Assets held for sale (Note 2) | | 33 |
| | 34 |
| |
| Total Assets | | $ | 21,859 |
| | $ | 20,843 |
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| Current Liabilities: | | | | | |
| Accounts payable | | $ | 201 |
| | $ | 231 |
| |
| Accrued expenses | | 522 |
| | 454 |
| |
| Accrued compensation | | 346 |
| | 343 |
| |
| Participants’ share and royalties payable | | 1,177 |
| | 986 |
| |
| Accrued programming and production costs | | 704 |
| | 497 |
| |
| Deferred revenues | | 222 |
| | 219 |
| |
| Commercial paper (Note 8) | | 674 |
| | 679 |
| |
| Current portion of long-term debt (Note 8) | | 13 |
| | 19 |
| |
| Other current liabilities | | 714 |
| | 544 |
| |
| Total current liabilities | | 4,573 |
| | 3,972 |
| |
| Long-term debt (Note 8) | | 9,465 |
| | 9,464 |
| |
| Participants’ share and royalties payable | | 1,159 |
| | 1,424 |
| |
| Pension and postretirement benefit obligations (Note 14) | | 1,388 |
| | 1,328 |
| |
| Deferred income tax liabilities, net (Note 13) | | 399 |
| | 480 |
| |
| Other liabilities | | 2,071 |
| | 2,197 |
| |
| | | | | | |
| Commitments and contingencies (Note 18) | |
|
| |
|
| |
| | | | | | |
| Stockholders’ Equity: | | | | | |
Class A Common Stock, par value $.001 per share; 375 shares authorized; 35 (2018) and 38 (2017) shares issued | | — |
| | — |
| |
Class B Common Stock, par value $.001 per share; 5,000 shares authorized; 838 (2018) and 834 (2017) shares issued | | 1 |
| | 1 |
| |
| Additional paid-in capital | | 43,637 |
| | 43,797 |
| |
| Accumulated deficit | | (17,201 | ) | | (18,900 | ) | |
| Accumulated other comprehensive loss (Note 11) | | (775 | ) | | (662 | ) | |
| | | 25,662 |
| | 24,236 |
| |
| Less treasury stock, at cost; 500 (2018) and 489 (2017) Class B Shares | | 22,858 |
| | 22,258 |
| |
| Total Stockholders’ Equity | | 2,804 |
| | 1,978 |
| |
Total Liabilities and Stockholders’ Equity | | $ | 21,859 |
| | $ | 20,843 |
| |
|
| | | | | | | | | |
| | | 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| | | | | Year Ended December 31, | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 | | 2019 | | 2018 | | 2017 |
| Operating Activities: | | | | | | | | | | | | |
| Net earnings | | $ | 1,960 |
| | $ | 357 |
| | $ | 1,261 |
| |
| Less: Net loss from discontinued operations, net of tax | | — |
| | (952 | ) | | (291 | ) | |
| 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 | | 1,960 |
| | 1,309 |
| | 1,552 |
| | 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 |
| | 223 |
| | 225 |
| | 443 |
| | 433 |
| | 443 |
|
| Deferred tax provision (benefit) | | 44 |
| | (188 | ) | | 144 |
| |
| Television programming and feature film cost amortization | | | 12,554 |
| | 11,595 |
| | 10,911 |
|
| Deferred tax (benefit) provision | | | (769 | ) | | 58 |
| | (367 | ) |
| Stock-based compensation | | 146 |
| | 179 |
| | 165 |
| | 291 |
| | 191 |
| | 232 |
|
| Redemption of debt | | — |
| | 42 |
| | — |
| |
| Net loss (gain) on disposition and write-down of assets | | 1 |
| | (9 | ) | | (18 | ) | |
| 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 | | 58 |
| | 38 |
| | 53 |
| | 58 |
| | 54 |
| | 15 |
|
| Change in assets and liabilities, net of investing and financing activities | | | | | | | |
| (Increase) decrease in receivables | | (254 | ) | | (268 | ) | | 36 |
| |
| Change in assets and liabilities | | | | | | | |
| Increase in receivables | | | (256 | ) | | (368 | ) | | (147 | ) |
| Increase in inventory and related program and participation liabilities, net | | (830 | ) | | (728 | ) | | (765 | ) | | (14,215 | ) | | (12,185 | ) | | (11,544 | ) |
| Decrease (increase) in other assets | | 15 |
| | (52 | ) | | (85 | ) | |
| Decrease in accounts payable and accrued expenses | | (94 | ) | | (30 | ) | | (16 | ) | |
| (Decrease) increase in pension and postretirement benefit obligations | | (47 | ) | | (238 | ) | | 205 |
| |
| 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 | | 213 |
| | 456 |
| | 94 |
| | 160 |
| | 398 |
| | 345 |
|
| (Decrease) increase in deferred revenue | | (20 | ) | | 54 |
| | (137 | ) | |
| Other, net | | 10 |
| | 5 |
| | 1 |
| | (39 | ) | | (11 | ) | | 1 |
|
| Net cash flow provided by operating activities from continuing operations | | 1,425 |
| | 793 |
| | 1,454 |
| | 1,230 |
| | 3,463 |
| | 2,345 |
|
| Net cash flow provided by operating activities from discontinued operations | | 1 |
| | 94 |
| | 231 |
| | — |
| | 1 |
| | 94 |
|
| Net cash flow provided by operating activities | | 1,426 |
| | 887 |
| | 1,685 |
| | 1,230 |
| | 3,464 |
| | 2,439 |
|
| Investing Activities: | | | | | | | | | | | | |
| Investments in and advances to investee companies | | (124 | ) | | (110 | ) | | (81 | ) | |
| Investments | | | (171 | ) | | (161 | ) | | (128 | ) |
| Capital expenditures | | (165 | ) | | (185 | ) | | (196 | ) | | (353 | ) | | (352 | ) | | (356 | ) |
| Acquisitions (including acquired television library), net of cash acquired | | (31 | ) | | (270 | ) | | (92 | ) | |
| Proceeds from sale of investments | | — |
| | 10 |
| | — |
| |
| Acquisitions, net of cash acquired | | | (399 | ) | | (118 | ) | | (289 | ) |
| Proceeds from dispositions | | — |
| | 11 |
| | 20 |
| | 756 |
| | 39 |
| | 892 |
|
| Other investing activities | | (5 | ) | | 21 |
| | 15 |
| | 14 |
| | 4 |
| | 31 |
|
| Net cash flow used for investing activities from continuing operations | | (325 | ) | | (523 | ) | | (334 | ) | |
| Net cash flow (used for) provided by investing activities from continuing operations | | | (153 | ) | | (588 | ) | | 150 |
|
| Net cash flow used for investing activities from discontinued operations | | (23 | ) | | (24 | ) | | (6 | ) | | (2 | ) | | (23 | ) | | (24 | ) |
| Net cash flow used for investing activities | | (348 | ) | | (547 | ) | | (340 | ) | |
| Net cash flow (used for) provided by investing activities | | | (155 | ) | | (611 | ) | | 126 |
|
| Financing Activities: | | | | | | | | | | | | |
| (Repayments of) proceeds from short-term debt borrowings, net | | (5 | ) | | 229 |
| | 450 |
| |
| Proceeds from (repayments of) short-term debt borrowings, net | | | 25 |
| | (5 | ) | | 229 |
|
| Proceeds from issuance of senior notes | | — |
| | 1,773 |
| | 684 |
| | 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 | | (16 | ) | | (18 | ) | | (18 | ) | |
| Repayment of notes and debentures | | | (910 | ) | | (1,102 | ) | | (4,729 | ) |
| Dividends | | (276 | ) | | (296 | ) | | (288 | ) | | (595 | ) | | (599 | ) | | (616 | ) |
| Purchase of Company common stock | | (586 | ) | | (1,111 | ) | | (2,997 | ) | | (57 | ) | | (586 | ) | | (1,111 | ) |
| Payment of payroll taxes in lieu of issuing shares for stock-based compensation | | (59 | ) | | (89 | ) | | (58 | ) | | (56 | ) | | (67 | ) | | (103 | ) |
| Proceeds from exercise of stock options | | 27 |
| | 91 |
| | 21 |
| | 15 |
| | 29 |
| | 263 |
|
| Excess tax benefit from stock-based compensation | | — |
| | — |
| | 17 |
| |
| Other financing activities | | (6 | ) | | (9 | ) | | — |
| | (130 | ) | | (201 | ) | | (99 | ) |
| Net cash flow used for financing activities | | (921 | ) | | (677 | ) | | (1,046 | ) | | (1,216 | ) | | (2,531 | ) | | (3,009 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | 157 |
| | (337 | ) | | 299 |
| |
Cash and cash equivalents at beginning of year (includes $24 (2017) and $6 (2016) of discontinued operations cash) | | 285 |
| | 622 |
| | 323 |
| |
Cash, cash equivalents and restricted cash at end of year (includes $120 (2018) of restricted cash and $24 (2016) of discontinued operations cash) | | $ | 442 |
| | $ | 285 |
| | $ | 622 |
| |
| 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Class A Common Stock: | | | | | | | | | | | |
| Balance, beginning of year | 38 |
| | $ | — |
| | 38 |
| | $ | — |
| | 38 |
| | $ | — |
|
| Conversion of A shares into B shares | (3 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance, end of year | 35 |
| | — |
| | 38 |
| | — |
| | 38 |
| | — |
|
| Class B Common Stock: | | | | | | | | | | | |
| Balance, beginning of year | 834 |
| | 1 |
| | 829 |
| | 1 |
| | 826 |
| | 1 |
|
| Conversion of A shares into B shares | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Restricted stock unit vests | 1 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
|
| Exercise of stock options | 1 |
| | — |
| | 3 |
| | — |
| | 1 |
| | — |
|
| Retirement of treasury stock | (1 | ) | | — |
| | (1 | ) | | — |
| | (1 | ) | | — |
|
| Balance, end of year | 838 |
| | 1 |
| | 834 |
| | 1 |
| | 829 |
| | 1 |
|
| Additional Paid-In Capital: | | | | | | | | | | | |
| Balance, beginning of year |
| | 43,797 |
| |
| | 43,913 |
| | | | 44,055 |
|
| Stock-based compensation | | | 146 |
| | | | 181 |
| | | | 177 |
|
Tax benefit related to employee stock-based transactions | | | — |
| | | | — |
| | | | 12 |
|
| Exercise of stock options | | | 27 |
| | | | 92 |
| | | | 21 |
|
| Retirement of treasury stock | | | (59 | ) | | | | (89 | ) | | | | (58 | ) |
| Dividends | | | (274 | ) | | | | (289 | ) | | | | (294 | ) |
| Decrease in noncontrolling interest | | | — |
| | | | (11 | ) | | | | — |
|
| Balance, end of year |
| | 43,637 |
| |
| | 43,797 |
| |
| | 43,913 |
|
| Accumulated Deficit: | | | | | | | | | | | |
| Balance, beginning of year |
| | (18,900 | ) | |
| | (19,257 | ) | |
| | (20,518 | ) |
| Net earnings | | | 1,960 |
| | | | 357 |
| | | | 1,261 |
|
| Adoption of new accounting standard (Note 16) | | | (261 | ) | | | | — |
| | | | — |
|
| Balance, end of year |
| | (17,201 | ) | |
| | (18,900 | ) | |
| | (19,257 | ) |
| Accumulated Other Comprehensive Loss: | | | | | | | | | | | |
| Balance, beginning of year | | | (662 | ) | | | | (767 | ) | | | | (770 | ) |
| Other comprehensive income (loss) | | | (113 | ) | | | | 105 |
| | | | 3 |
|
| Balance, end of year | | | (775 | ) | | | | (662 | ) | | | | (767 | ) |
| Treasury Stock, at cost: | | | | | | | | | | | |
| Balance beginning of year | 489 |
| | (22,258 | ) | | 455 |
| | (20,201 | ) | | 401 |
| | (17,205 | ) |
| Class B Common Stock purchased | 11 |
| | (600 | ) | | 16 |
| | (1,050 | ) | | 54 |
| | (2,997 | ) |
| CBS Radio Split-Off | — |
| | — |
| | 18 |
| | (1,007 | ) | | — |
| | — |
|
Shares paid for tax withholding for stock-based compensation | 1 |
| | (59 | ) | | 1 |
| | (89 | ) | | 1 |
| | (58 | ) |
| Issuance of stock for deferred compensation | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
| Retirement of treasury stock | (1 | ) | | 59 |
| | (1 | ) | | 89 |
| | (1 | ) | | 58 |
|
| Balance, end of year | 500 |
| | (22,858 | ) | | 489 |
| | (22,258 | ) | | 455 |
| | (20,201 | ) |
| Total Stockholders’ Equity |
| | $ | 2,804 |
| |
| | $ | 1,978 |
| |
| | $ | 3,689 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
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, and CBS Global Distribution Group; Network 10; CBS Interactive; CBS Sports Network and CBS Films;), Cable Networks (Showtime Networks and Smithsonian Networks), Publishing (Simon & Schuster) and Local Media (CBS Television Stations and CBS Local Digital Media). During the fourth quarter of 2018, the Company began presenting CBS Sports Network in the Entertainment segment, to reflect changes in management structureat their historical carrying amounts and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Resultscompanies have been presented on a combined basis for all periods presented have been reclassifiedin 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 conform to this presentation.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—On November 16, 2017, the Companywe completed the disposition of CBS Radio Inc. (“CBS Radio”) through a split-off. CBS Radio has been presented as a discontinued operation in the Company’sour consolidated financial
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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statements (See(see Note 17)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—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, that do not have a readily determinable fair value, are measured at cost less impairment, if any, and adjusted for observable price changes. Ifentity is recorded in “Equity in earnings (loss) of investee companies, net of tax” on the fair value is readily determinable, the investment is measured at fair value. Intercompany transactions have been eliminated. Amounts attributable to noncontrolling interests are immaterial for all periods presented.
Reclassifications-Certain amounts reported for prior years have been reclassified to conform to the current year’s presentation.Consolidated Statements of Operations.
Use of 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, the 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 vary 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—Cash and cash equivalents consist of cash on hand and highly liquid investments with maturities of three months or less at the date of purchase, including money market funds, commercial paper and bank time deposits. IncludedAt 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 Company’s Consolidated Balance Sheet at December 31, 2018 is restricted cash of $120 million. Restricted cash consists of amounts held in a grantor trust related to the separation and settlement agreement between the Company and the former Chairman of the Board, President and Chief Executive Officer of the Company (See Note 18). Sheets.
CBS CORPORATION AND SUBSIDIARIES
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(Tabular dollars in millions, except per share amounts)
Programming Inventory—The Company acquiresWe 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. The costs incurred in acquiring and producing programs are capitalized and amortized over the license period or projected useful life of the programming. Program rights and the related liabilities are recorded at the gross amount of the liabilities when the license period has begun, the cost of the program is determinable, and the program is accepted and availableWe also produce programming for airing.third parties.
Television production costsInternally-Produced Programming—Costs incurred to produce television programs and feature films (which include direct production costs, production overhead, acquisition costs and acquisitiondevelopment costs) are stated atcapitalized 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 lowerapplicable title’s life cycle based upon the ratio of unamortized cost or net realizable value. The Company then estimatescurrent 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 costs to be incurred throughout the lifeaccrual of each television program.residuals and participations. For television programming, Ultimate Revenue estimates for remaining total lifetime revenues 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. Accordingly, televisionTelevision programming costs and participation costs incurred in excess of the amount of revenue contracted for each episode in the initial marketsuch amounts are expensed as incurred on an episode by episode basis. Estimates for alladditional secondary market revenues such as domestic and foreign syndication basic cable, digital streaming,and home entertainment and merchandising are included in the estimated lifetime revenues of such television programming 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
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of future firm commitments to sell and the past performance of similar television programs. Television programming costs incurred subsequent to the establishment of the secondary market are initially capitalized and amortized, and estimated liabilities for participations are accrued, based on the proportion that current period revenues bear to the estimated remaining total lifetime revenues.
TheFor 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. Prior to the release of feature films, we estimate Ultimate Revenues based on the historical performance of similar content and pre-release market research (including test market screenings), as well as factors relating to the specific film, including the expected number of theaters and markets in which the original content will be released, the genre of the original content and the past box office performance of the lead actors and actresses. 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. For acquired film libraries, our estimate of Ultimate Revenues is for a period within 20 years from the date of acquisition.
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.
Lifetime revenue estimates for internally produced television programming, and theThe estimated economic benefit for acquired programming, including revenue projections for multi-year sports programming, are periodically reviewed. Adjustments, if any, will result in changes to amortization rates and could result in future net realizable value adjustments and/or estimated accruals for participation expense.adjustments.
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.
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Property and 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 improvements | Shorter of lease term or useful life |
Equipment and other (including capitalfinance leases) | 3 to 20 years |
Costs associated with repairs and maintenance of property and equipment are expensed as incurred.
Impairment of Long-Lived 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 to their net carrying value. If the carrying value is not recoverable, the amount of impairment loss,charge, if any, will beis measured by the difference between the net carrying value and the estimated fair value of the asset.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Impairment of Investments—Investments over which we have a significant influence, without a controlling interest, are reviewedaccounted for impairment on a quarterly basis by comparing theirunder the equity method. Investments for which we have no significant influence are measured at fair value to their respective carrying amounts. The Company determineswhere a readily determinable fair value exists. Investments that do not have a readily determinable fair value are measured at cost less impairment, if any, and adjusted for observable price changes. Gains and losses resulting from changes in the fair value of public companyequity investments by referenceare recorded in the Consolidated Statements of Operations. Prior to theirthe adoption of new Financial Accounting Standards Board (“FASB”) guidance in 2018, we recorded unrealized gains and losses on publicly traded stock price. With respect to private companyequity investments in other comprehensive income. We monitor our investments for impairment and reduce the Company makes its estimate of fair value by considering recent investee equity transactions, discounted cash flow analyses, recent operating results, estimates based on comparable public company operating cash flow multiples and, in certain situations, balance sheet liquidation values. The amount of impairment loss, if any, will be measured by the difference between the net carrying amount and the market value or estimated fair value of the investment.investment if we determine that an impairment charge is required based on qualitative and quantitative information. Our investments are included in “Other assets” on the Consolidated Balance Sheets.
Goodwill and Intangible Assets—Goodwill is allocated to various reporting units, which are at 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 international 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 losscharge is recognized (See(see Note 3)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
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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, program rights obligations, 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 there isa 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 primarily generated by the TV Entertainment and Local Media segments.
Content Licensing and Distribution Revenues—Content licensing and distribution revenues are generated from the licensing of internally-produced television programming, fees from the distribution of third-party programming, and the publishing and distribution of consumer books.
Program Licensing and Distribution
For licenses of internally-produced television programming, each individual episode delivered represents a separate performance obligation and revenues are recognized when the episode is made available to the licensee for exhibition and the license period has begun. For license agreements containing multiple deliverables, revenues are allocated based on the relative standalone selling price of each episode of a television series, which is based on licenses for comparable series within the marketplace. Agreements to license programming are often long term, with collection terms ranging from one to fiveCable Networks years.segments.
The Company also distributes programs on behalf of third parties. In such arrangements, the Company generally obtains control of the program before selling it to the customer. Therefore, revenues from such distribution arrangements, which include both content licensing and advertising revenues, are recognized based on the gross
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amount of consideration received from the customer, with a participation expense recognized for the fees paid to the third-party producer.
Substantially all of the Company’s program licensing and distributionAffiliate Revenues—Affiliate revenues are generated by the Entertainment segment, with the remainder generated by the Cable Networks segment.
Publishing
Publishing revenues are recognized when merchandise is shipped or electronically delivered to the consumer. Consumer print books are generally sold with a right of return. The Company records a returns reserve and corresponding decrease in revenue at the time of sale based upon historical trends. For publishing revenues, payments are due shortly after shipment or electronic delivery.
Affiliate and Subscription Fees—A majority of the Company’s affiliate and subscription fees are generated by the Cable Networks segment andprimarily consist of fees received from multichannel video programming distributors (“MVPDs”) and third-party live television digital streaming offerings (“virtual MVPDs”) for carriage of the Company’sour cable networks (“cable affiliate fees”) and subscriptiontelevision stations (“retransmission fees”); fees for the Showtime direct-to-consumer digital streaming subscription offering. The Entertainment segment generates affiliate and subscription fees primarily from television stations affiliated with the CBS Television Network (“station affiliation fees”); and subscribers to subscription fees for our digital streaming subscription offerings, including CBS All Access, its ownedthe Showtime streaming subscription service. In addition, the Local Media segment generates retransmission fees from MVPDsoffering (“Showtime OTT”) and virtual MVPDs for carriage of the Company’s television stations.BET+. Costs incurred for advertising, marketing and marketingother services provided to the Companyus by cable, satellite and other distributors that are in exchange for a distinct service are recorded in selling, general and administrativeas expenses. If a distinct service is not received, such costs are recorded as a reduction to revenues.
The performance obligation for the Company’sour affiliate agreements is a license to the Company’sour 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 demandvideo-on-demand viewing. Affiliate and subscription feesrevenues are recognized over the term of the agreement as the Companywe satisfy our performance obligation by continuously provides itsproviding our customer with the right to use itsour programming. For agreements that provide for a variable fee, revenues are determined each month based on an agreed upon contractual rate applied to the number of subscribers to theour customer’s service. For agreements that provide for a fixed fee, which primarily include agreements with television stations affiliated with the CBS Television Network (“network affiliates”), revenues are recognized based on the relative fair value of the content provided over the term of the agreement,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 the Company’sour programming. For affiliate and subscription fee 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.
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(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 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.
Reserves for accounts receivable are estimated based on historical bad debt experience, the aging of accounts receivable, industry trends and economic indicators, as well as recent payment history for specific customers. Our allowance for doubtful accounts was $86 million at both December 31, 2019 and 2018. The provision for doubtful accounts charged to expense was $26 million in each of the years 2019 and 2018, and $31 million in 2017.
Noncurrent Accounts Receivables—Included in “Other assets” on the Company’s Consolidated Balance Sheets are noncurrent accounts receivables of $1.55$2.11 billion and $1.84 billion at December 31, 2019 and 2018, and $2.12 billion at December 31, 2017, which decreased to $1.59 billion on January 1, 2018 upon the adoption of new revenue recognition guidance.respectively. Noncurrent accounts receivables primarily relate 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.
Deferred Revenues—Deferred revenues primarily consist of cash received related to advertising arrangements and the licensing of television programming for which the revenues have not yet been earned. Advertising revenues that have been deferred are recognized when the required audience rating or impressions are delivered and revenues deferred under licensing arrangements are recognized when the content is made available to the customer and the license period has begun.
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Total deferredContract Liabilities—A contract liability is recorded when consideration is received from a customer prior to fully satisfying a performance obligation in a contract. Our contract liabilities primarily consist of cash received related to advertising arrangements for which the required audience rating or impressions have not been delivered; consumer products arrangements with minimum guarantees; and television licensing arrangements under which the content has not yet been made available to the customer. These contract liabilities will be recognized as revenues including both currentwhen control of the related product or service is transferred to the customer.
Contract liabilities are included in “Deferred revenues” and noncurrent,“Other liabilities” on the Consolidated Balance Sheets and were $274$910 million and $284$745 million at December 31, 20182019 and January 1,December 31, 2018, respectively. The change in deferred revenuecontract liabilities for the year ended December 31, 20182019 primarily reflects $201 million of revenues recognized that were included in deferred revenues at January 1, 2018, offset by cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period.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, 2018,2019, unrecognized revenuerevenues attributable to unsatisfied performance obligations under the Company’sour long-term contracts was $3.45$7.72 billion, of which $2.02$4.27 billion is expected to be recognized for 2019, $806 million forin 2020, $445 million for$1.93 billion in 2021, $1.04 billion in 2022, and $175$478 million thereafter. These amounts only include contracts subject to a guaranteed fixed amount or the guaranteed minimum under variable contracts.contracts, primarily consisting of television and film licensing contracts and affiliate arrangements that are subject to a fixed or guaranteed minimum fee. Such amounts change on a regular basis as the Company renewswe renew existing agreements or entersenter into new agreements. Unrecognized revenues under contract disclosed above do not include (i) contracts with an original expected term of one year or less, mainly consisting of the Company’sour advertising contracts (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage, mainly consisting of affiliate and subscription fee agreements and (iii) long-term licensing agreements for multiple programs for which the Company’sour right to invoice corresponds with the value of the programs provided to the customer.
Performance Obligations Satisfied in Previous Periods—Under certain licensing arrangements, the amount and timing of our revenue recognition is determined based on our licensees’ subsequent sale to its end customers. As a result, under such arrangements, 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 such performance obligations satisfied, or partially satisfied, in a prior period.
Collaborative 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.
For episodicWe also enter into collaborative arrangements with other studios to jointly finance and distribute film and television programming, under which each partner is responsible for distribution of the program in specific territories or distribution windows. Under these arrangements, co-production costs are initially capitalized as programming inventory and amortized over the television series’ estimated economic life.life of the program. In such arrangements where the Company haswe have distribution rights, all proceeds generated from such distribution are recorded as revenues and any participation profits due to third party collaborators are recorded as operatingparticipation expenses. In co-production arrangements where third party collaborators have distribution rights, the Company’sour net participating profits are recorded as revenues.
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Amounts attributable to transactions arising from collaborative arrangements between participants were not material to the Company’s consolidated financial statements for any 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 presented.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 $448 million$1.70 billion in 2019, $1.41 billion in 2018 $426 millionand $1.58 billion in 2017 and $373 million in 2016.
Other Operating Items, Net—Other operating items, net for 2017 reflects a net gain relating to the disposal of property and equipment and for 2016 includes a gain from the sales of businesses and a multiyear, retroactive impact of a new operating tax.2017.
Interest—Costs associated with the refinancing or issuance of debt, as well as debt discounts or premiums, are recorded as interest over the term of itsthe related debt. The CompanyWe may enter into interest rate exchange agreements; the amount to be paid or received under such agreements is accrued and recognized over the life of the agreementsagreement as an adjustment to interest expense.
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Income 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 assetsAssets 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.
Other Items, net—“Other items, net” primarily consists of pension and postretirement benefit costs, other than service costs, and foreign exchange gains and losses.
Provision for Doubtful Accounts—The provision for doubtful accounts is estimated based on historical bad debt experience, the aging of accounts receivable, industry trends and economic indicators, as well as recent payment history for specific customers.The provision for doubtful accounts charged to expense was $5 million, in each of the years 2018 and 2017, and $12 million in 2016.
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 619 million stock options for the year ended December 31, 2018 and 4 million stock optionsRSUs for each of the years ended December 31, 20172019 and 2016.2018 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, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| (in millions) | | | | | | | | | | |
| Weighted average shares for basic EPS | 377 |
| | 401 |
| | 444 |
| 615 |
| | 617 |
| | 640 |
|
| Dilutive effect of shares issuable under stock-based compensation plans | 4 |
| | 6 |
| | 4 |
| 2 |
| | 4 |
| | 7 |
|
| Weighted average shares for diluted EPS | 381 |
| | 407 |
| | 448 |
| 617 |
| | 621 |
| | 647 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Stock-based Compensation-CompensationThe Company measures—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
Revenue from Contracts with CustomersLeases
During the first quarter of 2018, the Company2019, we adopted Financial Accounting Standards Board (“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 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. The Company applied the modified retrospective method of adoption with the cumulative effect of the initial adoption of $261 million reflected as an adjustment to the opening balance of accumulated deficit as of January 1, 2018. Prior periods continue to be presented under previous accounting guidance (See Note 16).
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
During the first quarter of 2018, the Company adopted FASB amended guidance on the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”). This guidance requires the Company to present the service cost component of net benefit cost in the same line items on the statement of operations as other compensation costs of the related employees. All of the other components of net benefit cost are presented in the statement of operations separately from the service cost component and below the subtotal of operating income. As a result of the adoption of this guidance, the Company presented $63 million of net benefit costs in “Other items, net” on the Consolidated Statement of Operations for 2018 representing the components of net benefit cost other than service cost. This guidance is required to be applied retrospectively and therefore, the Company reclassified net benefit costs of $438 million and $281 million, including pension settlement charges, below operating income for 2017 and 2016, respectively, on the Consolidated Statements of Operations (See Note 14). All related amounts presented herein have been recast to conform to this presentation.
Stock Compensation: Scope of Modification Accounting
During the first quarter of 2018, the Company adopted FASB amended guidance on the accounting for stock-based compensationleases, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification.supersedes previous lease guidance. Under this guidance, modification accounting is required only if the fair value, the vesting conditions, or the classificationfor all leases with terms in excess of the award as equity or liability changes as a result of the change in the terms or conditions of a share-based payment award. The adoption of this guidance did not have an impactone year, we recognize on the Company’s consolidated financial statements.
Clarifying the Definition of a Business
During the first quarter of 2018, the Company adopted FASB amended guidance on the accounting for business combinations which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.our
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Intra-Entity Transfers of Assets Other than Inventory
Duringbalance sheet a lease liability and a right-of-use asset representing our right to use the first quarter of 2018,underlying asset for the Company adopted FASB amendedlease term. The new guidance onretains a distinction between finance leases and operating leases and the accounting for income taxes, which eliminates the exception in existing guidance that defersclassification 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 tax effectsmodified retrospective method of intra-entity asset transfers other than inventory untiladoption and therefore, results for reporting periods beginning after January 1, 2019 are presented under the transferred asset is sold to a third party. Under thisnew guidance an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The adoption of thiswhile prior periods have not been adjusted. This guidance did not have an impact on the Company’s consolidated financial statements.
Consolidated Statement of Cash Flows: Restricted Cash
During 2018,Operations. See Note 9 for the Company adopted FASB amendedimpact of this guidance on the presentationConsolidated Balance Sheet and additional information.
Reclassification of restricted cashCertain 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 statementfederal income tax rate from 35% to 21%. The remeasurement was recognized in net earnings and as a result, the income tax effects of cash flows. Thethe 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, requires companieswe elected to include restricted cashreclassify the stranded tax effects of $230 million relating to our pension and restricted cash equivalents in their cash and cash equivalents balance in the statements of cash flows.postretirement benefit obligations from AOCI to retained earnings. This guidance also requires a reconciliation of the total of cash, cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flowsentities to disclose their accounting policy for releasing stranded tax effects unrelated to the related balance sheet line items. This guidance is required to be applied retrospectively; however, it did not have an impact onTax Reform Act from AOCI. For pension and postretirement benefit plans, we release stranded tax effects from AOCI when the Company’s consolidated financial statements for prior years.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 evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.
Improvements to Accounting for Costs of Films and License Agreements for Program Materials
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 Standard
In November 2018, the FASB issued guidance to clarify that certain transactions between parties to collaborative arrangements should be accounted for in accordance with FASB revenue guidance when the counterparty is a customer. This guidance also prohibits the presentation of collaborative arrangements as revenues from contracts with customers if the counterparty is not a customer. This guidance, which is required to be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, is not expected to have ana material impact on the Company’s consolidated 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 the 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. The Company isWe are currently evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.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. The Company isWe 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, with early adoption permitted.2020.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Changes to the Disclosure Requirements for Fair Value MeasurementsFinancial Instruments
In August 2018,June 2016, the 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 eliminates, adds and modifies certain disclosure requirementswill replace the current “incurred loss” model that will generally result in the earlier recognition of allowances for fair value measurements.losses. This guidance which is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, is not expected to have an impact on the Company’s consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued amended guidance that permits an entity to reclassify the income tax effects of federal tax legislation enacted in December 2017 (the “Tax Reform Act”) on items within accumulated other comprehensive income to retained earnings. The Company is2019. We are currently evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted.
Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued amended guidance for hedge accounting, which expands the eligibility of hedging strategies that qualify for hedge accounting, modifies the recognition and presentation of hedges in the financial statements, and changes how companies assess hedge effectiveness. In addition, this guidance amends and expands disclosure requirements. This guidance, which is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, is not expected to have a material impact on the Company’s consolidated financial statements.
Leases
In February 2016, the FASB issued new guidance on the accounting for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, including operating leases, the Company will be required to recognize on its balance sheet a lease liability and a right-of-use asset representing its 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. This guidance is effective for the Company in the first quarter of 2019. The Company will apply the modified retrospective method of adoption as of January 1, 2019 and comparative periods will continue to be presented under existing lease guidance. The Company is still in the process of evaluating the impact of this guidance, including reviewing its lease portfolio as well as implementing new lease accounting software for administering its leases under the new guidance and therefore the estimated impact on the Company’s Consolidated Balance Sheet cannot currently be determined. This change is not expected to have a material impact on the Company’s Consolidated Statement of Operations.
2) PROPERTY AND EQUIPMENT
| | | At December 31, | 2018 | | 2017 | 2019 | | 2018 |
| Land | $ | 189 |
| | $ | 189 |
| $ | 439 |
| | $ | 439 |
|
| Buildings | 795 |
| | 729 |
| 1,263 |
| | 1,242 |
|
Capital leases (a) | 144 |
| | 162 |
| |
Finance leases (a) | | 195 |
| | 335 |
|
| Equipment and other | 1,798 |
| | 1,867 |
| 4,096 |
| | 3,899 |
|
| | 2,926 |
| | 2,947 |
| 5,993 |
| | 5,915 |
|
| Less accumulated depreciation and amortization | 1,717 |
| | 1,701 |
| 3,908 |
| | 3,836 |
|
| Net property and equipment | $ | 1,209 |
| | $ | 1,246 |
| $ | 2,085 |
| | $ | 2,079 |
|
(a) Accumulated amortization of capitalfinance leases was $106$160 million and $112$279 million at December 31, 20182019 and 2017,2018, respectively.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Depreciation expense, including capitalized lease amortization (a) | $ | 205 |
| | $ | 203 |
| | $ | 205 |
| |
Depreciation expense, including amortization of finance leases (a) | | $ | 366 |
| | $ | 382 |
| | $ | 395 |
|
(a) Amortization expense related to capitalfinance leases was $18$23 million, $16$28 million and $17$32 million in 2019, 2018 2017, and 2016,2017, respectively.
In JanuaryDuring 2019, the Companywe completed the sale of itsour CBS Television City property and sound stage operation (“CBS Television City”) for $750 million. The Company hasWe 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. The Company expects to recordIncluded on the Consolidated Balance Sheet at December 31, 2019 is a liability of approximately $130$124 million, reflecting the present value of the estimated amount payable under the guarantee obligation. This transaction is expected to resultresulted in a pre-tax gain of approximately $540$549 million ($386 million, net of tax), which includesincluded a reduction for the guarantee obligation. CBS Television City has beenwas classified as held for sale on the Consolidated Balance Sheets.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
The Company performsWe perform a fair value-based impairment test of goodwill and intangible assets with indefinite lives, comprised primarily of television FCC licenses in the U.S. and international broadcast licenses annually during the fourth quarterin Australia, on an annual basis, and also between annual tests if an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit or an indefinite-lived intangible asset below its carrying value.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except 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, 2018, the Company2019, we had 14 television markets with FCC license book values. For international broadcast licenses the Company considersin Australia, we consider all of its broadcastour licenses within athe country to be a single unit of accounting because the international broadcast licenses at this level representrepresents their highest and best use. At December 31, 2018, the Company had international broadcast licenses in Australia.
Goodwill is tested for impairment at the reporting unit level. During the fourth quarter of 2018, the Company began including CBS Sports Network within the Television reporting unit,level, which is a component of the Entertainmentan operating segment, reflecting changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. Prior to this change, CBS Sports Network was a standalone reporting unit and a component of the Cable Networks operating segment.or one level below. At December 31, 2018, the Company2019, we had seven6 reporting units with goodwill balances, each one level below their respective operating segments, except forwhich were determined based on the Cable Networkspost-Merger reporting unit and the Publishing reporting unit, which are each the same as their respective operating segments because these operating segments each have only one component.structure.
For itsour annual impairment test, the Company performswe perform qualitative assessments for the reporting units, U.S. television markets with FCC licenses, and internationalAustralian broadcast licenses that management estimates have fair values that significantly exceed their respective carrying values. In selecting reporting units, markets, and broadcast licenses for a qualitative assessment, the Companymaking this determination, we also considersconsider the duration of time since a quantitative test was performed. For the 20182019 annual impairment test, the Companywe performed qualitative assessments for seven reporting unitsall of our U.S. television markets and all of its 14 U.S. television markets.ourreporting 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.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
For 2018,As of the Companyclosing date of the Merger on December 4, 2019, we performed qualitative assessments on the pre-Merger reporting units that were to be combined as a quantitativeresult of the new reporting structure, as well as the post-Merger reporting units that resulted from this combination. Based on these assessments, we concluded that there were no changes to the conclusions reached in our annual impairment test for international broadcast licenses. test.
A quantitative impairment test compares theof broadcast licenses calculates an estimated fair value of the licenses with their carrying value. The estimated fair value 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 revenues in the relevant 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 revenues in the subject market are 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 and long-term industry projections. The discount rate is determined based on the risk of achieving the projected cash flows, including the risk applicable to the industry and the market as
For 2019, we performed a whole.quantitative impairment test for our Australian broadcast licenses. The discount rate and perpetual nominal growth rate used for international broadcast licenses for 2018 were 11% and 0.5%, respectively. The Company concluded that the estimated fair value of international broadcast licenses, which were recorded at fair value in the fourth quarter of 2017 when the Company acquired Ten Network Holdings Limited (“Network 10”), continues to approximate the carrying value and therefore no impairment charge was required.
For 2018, the Company performed a quantitative goodwill impairment test for the CBS Sports Network reporting unit prior to the inclusion of this business in the CBS Television reporting unit. The quantitative goodwill impairment test examines whether the carrying value 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”) 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 2018, 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 2018 was 2.0%. The discount rate, which for 2018was8.5%, is determined based on the risk of achieving the projected cash flows, including the risk applicable to the industry and the market as a whole.
For the 2018 annual impairment test, the Company concludedindicated that the estimated fair value of the CBS Sports Network reporting unit exceeded itsbroadcast licenses was lower than the carrying value, and therefore nowhich was the result of a sustained decline in the advertising marketplace in Australia. Accordingly, we recorded an impairment charge was required.
Transactions
Duringduring the fourth quarter of 2017, the Company completed the acquisition2019 of Network 10, one of three major commercial broadcast networks in Australia, for approximately $124$20 million, which is netincluded within “Depreciation and amortization” on the Consolidated Statements of cash acquired. The assets acquired primarily consist of broadcast licenses, net operating loss carryforwardsOperations, and working capital.recorded in our Cable Networks segment.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following tables present the changes in the book value of goodwill by segment for the years ended December 31, 20182019 and 2017. During the fourth quarter of 2018, the Company began presenting CBS Sports Network, which was previously included in the Cable Networks segment, in the Entertainment segment. As a result, goodwill of $261 million associated with CBS Sports Network has been reclassified from Cable Networks to Entertainment for all periods presented.2018.
| | | | | Balance at | | | | | | Balance at | | Balance at | | Acquisitions / | | Foreign | | Balance at |
| | | December 31, 2017 | | Acquisitions | | Dispositions | | December 31, 2018 | | December 31, 2018 | | (Dispositions) | | Currency | | December 31, 2019 |
| Entertainment: | | | | | | | | | | |
| TV Entertainment: | | | | | | | | | | |
| Goodwill | | $ | 9,584 |
| | $ | 27 |
| (a) | | $ | — |
| | $ | 9,611 |
| | | $ | 17,618 |
| | $ | (3 | ) | | $ | — |
| | $ | 17,615 |
| |
| Accumulated impairment losses | | (6,294 | ) | | — |
| | — |
| | (6,294 | ) | | | (13,354 | ) | | — |
| | — |
| | (13,354 | ) | |
| Goodwill, net of impairment | | 3,290 |
| | 27 |
| | — |
| | 3,317 |
| | | 4,264 |
| | (3 | ) | | — |
| | 4,261 |
| |
| Cable Networks: | | | | | | | | | | | | | | | | | | |
| Goodwill | | 219 |
| | 2 |
| | — |
| | 221 |
| | | 10,234 |
| | 451 |
| (a) | | 6 |
| | 10,691 |
| |
| Accumulated impairment losses | | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| |
| Goodwill, net of impairment | | 219 |
| | 2 |
| | — |
| | 221 |
| | | 10,234 |
| | 451 |
| | 6 |
| | 10,691 |
| |
| Publishing: | | | | | | | | | | |
| Filmed Entertainment: | | | | | | | | | | |
| Goodwill | | 435 |
| | — |
| | — |
| | 435 |
| | | 1,593 |
| | — |
| | — |
| | 1,593 |
| |
| Accumulated impairment losses | | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | — |
| |
| Goodwill, net of impairment | | 435 |
| | — |
| | — |
| | 435 |
| | | 1,593 |
| | — |
| | — |
| | 1,593 |
| |
| Local Media: | | | | | | | | | | |
| Publishing: | | | | | | | | | | |
| Goodwill | | 8,007 |
| | — |
| | — |
| | 8,007 |
| | | 435 |
| | — |
| | — |
| | 435 |
| |
| Accumulated impairment losses | | (7,060 | ) | | — |
| | — |
| | (7,060 | ) | | | — |
| | — |
| | — |
| | — |
| |
| Goodwill, net of impairment | | 947 |
| | — |
| | — |
| | 947 |
| | | 435 |
| | — |
| | — |
| | 435 |
| |
| Total: | | | | | | | | | | | | | | | | | | |
| Goodwill | | 18,245 |
| | 29 |
| | — |
| | 18,274 |
| | | 29,880 |
| | 448 |
| | 6 |
| | 30,334 |
| |
| Accumulated impairment losses | | (13,354 | ) | | — |
| | — |
| | (13,354 | ) | | | (13,354 | ) | | — |
| | — |
| | (13,354 | ) | |
| Goodwill, net of impairment | | $ | 4,891 |
| | $ | 29 |
| | $ | — |
| | $ | 4,920 |
| | | $ | 16,526 |
| | $ | 448 |
| | $ | 6 |
| | $ | 16,980 |
| |
(a) AmountPrimarily reflects the acquisitionacquisitions of a digital entertainment media company.Pluto Inc. and Pop TV.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
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:
|
| | | | | | | | | | | |
| | | | 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 |
|
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Amortization expense was as follows:
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2019 | | 2018 | | 2017 |
Amortization expense (a) | | $ | 77 |
| | | | $ | 51 |
| | | | $ | 48 |
| |
(a) For 2019, amortization expense includes an impairment charge of $20 million, which reduced the carrying value of broadcast licenses in Australia to their fair value.
We expect our aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 2020 through 2024, to be as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
| Future amortization expense | | $ | 64 |
| | | | $ | 55 |
| | | | $ | 52 |
| | | | $ | 47 |
| | | | $ | 39 |
| |
5) RESTRUCTURING, PROGRAMMING CHARGES AND OTHER CORPORATE MATTERS
During the years ended December 31, 2019, 2018 and 2017, we recorded restructuring charges, merger-related costs, programming charges and costs for other corporate matters as follows:
|
| | | | | | | | | | | |
| 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 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; 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.
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 such 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 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.
The following is a rollforward of our restructuring liability, which is recorded in “Other current liabilities” and “Other liabilities” in the Consolidated 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 2021.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Balance at | | | | | | | Balance at |
| | | December 31, 2016 | | Acquisitions | | | Dispositions | | December 31, 2017 |
| Entertainment: | | | | | | | | | | | | | |
| Goodwill | | | $ | 9,561 |
| | | $ | 23 |
| (a) | | $ | — |
| | | $ | 9,584 |
| |
| Accumulated impairment losses | | | (6,294 | ) | | | — |
| | | — |
| | | (6,294 | ) | |
| Goodwill, net of impairment | | | 3,267 |
| | | 23 |
| | | — |
| | | 3,290 |
| |
| Cable Networks: | | | | | | | | | | | | | |
| Goodwill | | | 219 |
| | | — |
| | | — |
| | | 219 |
| |
| Accumulated impairment losses | | | — |
| | | — |
| | | — |
| | | — |
| |
| Goodwill, net of impairment | | | 219 |
| | | — |
| | | — |
| | | 219 |
| |
| 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 |
| |
(a) Amount reflects the acquisitions of a television production business and a digital sports publishing business.
(b) Amount relates to the acquisition of a publishing business in the fourth quarter of 2016.
The Company’s intangible assets were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| |
|
| | | | | | | | | | | |
| | | | Accumulated | | |
| At December 31, 2018 | Gross | | Amortization | | Net |
| Intangible assets subject to amortization: | | | | | |
| Trade names | $ | 189 |
| | $ | (58 | ) | | $ | 131 |
|
| Other intangible assets | 49 |
| | (28 | ) | | 21 |
|
| Total intangible assets subject to amortization | 238 |
| | (86 | ) | | 152 |
|
| FCC licenses | 2,441 |
| | — |
| | 2,441 |
|
| International broadcast licenses | 45 |
| | — |
| | 45 |
|
| Total intangible assets | $ | 2,724 |
| | $ | (86 | ) | | $ | 2,638 |
|
|
| | | | | | | | | | | |
| | | | Accumulated | | |
| At December 31, 2017 | Gross | | Amortization | | Net |
| Intangible assets subject to amortization: | | | | | |
| 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 | 53 |
| | — |
| | 53 |
|
| Total intangible assets | $ | 2,818 |
| | $ | (152 | ) | | $ | 2,666 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
| |
Amortization(a)Excludes 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 commercial dispute and $17 million associated with legal proceedings involving the Company (see Note 19) and other corporate matters.
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.
Programming Charges
During 2019, in connection with the Merger, we implemented management changes across the organization. In connection with these changes, we performed an evaluation of our programming portfolio across all of our businesses, including an assessment of the optimal use of our programming in the marketplace, which resulted in the identification of 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 expected monetization of certain programs, and decisions to cease airing, alter future airing patterns or not renew certain programs.
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 digital streaming services, as follows:well as at our Cable Networks segment where we ceased the use of certain programming.
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Amortization expense | | $ | 18 |
| | | | $ | 20 |
| | | | $ | 20 |
| |
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 2019 through 2023, to be as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Future amortization expense | | $ | 15 |
| | | | $ | 15 |
| | | | $ | 14 |
| | | | $ | 12 |
| | | | $ | 10 |
| |
4) RESTRUCTURING, PROGRAMMING CHARGES AND OTHER CORPORATE MATTERS
During the year ended December 31, 2018, in a continued effort to reduce its cost structure, the Company initiated restructuring plans across several of its businesses, primarily for the reorganization and closure of certain business operations. As a result, the Company recorded restructuring charges of $67 million, reflecting $57 million of severance costs and $10 million of costs associated with exiting contractual obligations and other related costs. During the year ended December 31, 2017, the Company recorded restructuring charges of $63 million, reflecting $54 million of severance costs and $9 million of costs associated with exiting contractual obligations and other related costs. During the year ended December 31, 2016, the Company recorded restructuring charges of $30 million, reflecting $19 million of severance costs and $11 million of costs associated with exiting contractual obligations and other related costs. As of December 31, 2018, the cumulative settlements for the 2018, 2017, and 2016 restructuring charges were $88 million, of which $74 million was for severance costs and $14 million related to costs associated with exiting contractual obligations and other related costs. The Company expects to substantially utilize its restructuring reserves by the end of 2019.
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | 2018 | | 2018 | | Balance at |
| | December 31, 2017 | | Charges | | Settlements | | December 31, 2018 |
| Entertainment | | $ | 45 |
| | | $ | 27 |
|
| | $ | (38 | ) | | | | $ | 34 |
| |
| Cable Networks | | 1 |
| | | — |
| | | (1 | ) | | | | — |
| |
| Publishing | | 3 |
| | | 1 |
| | | (2 | ) | | | | 2 |
| |
| Local Media | | 14 |
| | | 18 |
|
| | (9 | ) | | | | 23 |
| |
| Corporate | | 3 |
| | | 21 |
|
| | (11 | ) | | | | 13 |
| |
| Total | | $ | 66 |
| | | $ | 67 |
| | | $ | (61 | ) | | | | $ | 72 |
| |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Balance at | | 2017 | | 2017 | | Balance at |
| | December 31, 2016 | | Charges | | Settlements | | December 31, 2017 |
| Entertainment | | $ | 17 |
| | | $ | 44 |
| | | $ | (16 | ) | | | | $ | 45 |
| |
| Cable Networks | | 4 |
| | | — |
| | | (3 | ) | | | | 1 |
| |
| Publishing | | 1 |
| | | 5 |
| | | (3 | ) | | | | 3 |
| |
| Local Media | | 6 |
| | | 12 |
| | | (4 | ) | | | | 14 |
| |
| Corporate | | 2 |
| | | 2 |
| | | (1 | ) | | | | 3 |
| |
| Total | | $ | 30 |
| | | $ | 63 |
| |
| $ | (27 | ) | | | | $ | 66 |
| |
In 2018, the Company recorded expenses of $128 million primarily for professional fees related to legal proceedings, recent investigations at the Company (see Note 18) and the evaluation of a potential combination with Viacom Inc.
In 2016, the Company incurred professional fees of $8 million associated with merger and acquisition-related activities.
During the fourth quarter of 2018, in connection with recent management changes, the Company implemented changes to its programming strategy, primarily at CBS Films, which will shift its focus from theatrical films to developing content for the Company’s direct-to-consumer digital streaming services. As a result, the Company
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
recorded programming charges of $85 million infor 2019, 2018, which areand 2017 were included inwithin “Operating expenses” onin the Consolidated StatementStatements of Operations.
In February 2019, the Company initiated a restructuring plan under which severance payments will be provided to certain eligible employees who voluntarily elect to participate. As a result, the Company expects to record a restructuring charge in the first quarter of 2019. The amount of this charge and the associated future savings will be based on the number of eligible employees who elect to participate in the restructuring plan and therefore cannot currently be determined.
5) PROGRAMMING AND OTHER INVENTORY
|
| | | | | | | |
| At December 31, | 2018 | | 2017 |
| Acquired program rights | $ | 2,400 |
| | $ | 2,234 |
|
| Acquired television library | 99 |
| | 99 |
|
| Internally produced programming: | | | |
| Released | 2,477 |
| | 1,780 |
|
| In process and other | 839 |
| | 543 |
|
| Publishing, primarily finished goods | 56 |
| | 53 |
|
| Total programming and other inventory | 5,871 |
| | 4,709 |
|
| Less current portion | 1,988 |
| | 1,828 |
|
| Total noncurrent programming and other inventory | $ | 3,883 |
| | $ | 2,881 |
|
The Company expects to amortize approximately $1.1 billion of its released internally produced programming during the year ended December 31, 2019. In addition, while it is difficult to determine the precise timing of the amortization of the remaining released internally produced programming, the Company estimates that substantially all of the December 31, 2018 balance will be amortized over the next three years.
6) RELATED PARTIES
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.prior to the Merger. At February 13,December 31, 2019, NAI directly or indirectly owned approximately 79.8%79.4% of CBS Corp.’sour voting Class A Common Stock and owned approximately 10.5%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 director Ms. Shari 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 the Companyus, NAI and NAI, among others, with respect to legal proceedings involving these parties, the Companywe 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.
Viacom Inc.Other Related Parties. As partIn the ordinary course of itsbusiness, we are involved in transactions with our equity-method investees, primarily for the licensing of television and film programming. The following table presents the amounts recorded in our consolidated financial statements related to 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, the Company licenses its television content, leases production facilities and sells advertising spots to various subsidiaries of Viacom Inc. Viacom Inc. also distributes certainwe are involved in transactions with other related parties that have not been material in any of the Company’speriods 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 programsservice in the home entertainment market.U.S., for $324 million, net of cash acquired. The Company’s total revenues frompurchase 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
these transactions were $88 million, $145 million and $120 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The Company leases production facilities, licenses feature films and purchases advertising spots from various subsidiaries of Viacom Inc. The total amounts for these transactions were $30 million, $21 million and $24 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The following table presentssummarizes our allocation of the amounts due from Viacom Inc. inpurchase price as of the normal course of business as reflected on the Company’s Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at December 31, 2018 and 2017.acquisition date for Pluto TV.
|
| | | | | | | |
| At December 31, | 2018 | | 2017 |
| Receivables | $ | 38 |
| | $ | 93 |
|
| Other assets (Receivables, noncurrent) | 23 |
| | 11 |
|
| Total amounts due from Viacom Inc. | $ | 61 |
| | $ | 104 |
|
|
| | | | | |
| | 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 |
| |
Other Related PartiesThe goodwill, which is not deductible for tax purposes, reflects the Company-specific synergies arising from the acquisition and is included in the Cable Networks The Company has equity interests in two domestic television networkssegment. Intangible assets consist of distribution relationships, developed technology and several international joint ventures for television channels, from which the Company earns revenues primarily by selling its television programming. Total revenues earned from sales to these joint ventures were $110 million, $99 million and $112 million for the years ended December 31, 2018, 2017 and 2016, respectively. Total amounts due from these joint ventures were $34 million and $27 million at December 31, 2018 and 2017, respectively.trade names, all with useful lives of five years.
The Company,operating results of Pluto TV from the date of acquisition through the normal course of business, is involved in transactions with other related parties that haveDecember 31, 2019 were not been material in any of the periods presented.to our consolidated financial statements.
Other Acquisitions
7) INVESTMENTSIn 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 a 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 Company’soperating 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 consist 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 Consolidated Balance Sheets.
Investments over which the Company haswe have 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. Such investments include the Company’sour 50% interestsinterest in the broadcast network, The CW, and the entertainment cable network, Pop. In addition, the Company hasas well as interests in several international television joint ventures including a 49% interest in a joint venture with a subsidiary of AMC Networks Inc., which owns and operates channels in the United Kingdom and Ireland, including CBS branded channels; and a 30% interest in a joint venture with another subsidiary of AMC Networks Inc., which owns and operates cable and satellite channels in Europe, the Middle East and Africa.
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, 2019 and 2018, and 2017, respectively, the Companywe had $329$494 million and $283$573 million of equity-method investments, which are included in “Other assets” on the Consolidated Balance Sheets.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 measured at cost less impairment, if any, and adjusted for any observable price changes. At December 31, 2019 and 2018, and 2017, respectively, the Companywe had $23$113 million and $24$112 million of such investments, whichinvestments.
The fair value of our marketable securities was $146 million and $34 million as of December 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 includedrecognized in “Other assets” on the Consolidated Balance Sheets.Statements of Operations. Prior to the adoption of this guidance, we recorded unrealized gains and losses on marketable securities in other comprehensive income.
The CompanyWe invested $124$171 million, $110161 million and $81$128 million into its equityour investments during the years ended December 31, 2019, 2018 2017 and 2016,2017, 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 items, net” in the Consolidated Statements of Operations.
CBS CORPORATIONDuring 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.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
For 2019, 2018, and 2017, respectively, otherincluded in “Other items, netnet” on the statementConsolidated Statements of operations included $3Operations was $50 million, $46 million and $1318 million, respectively, for the write-downimpairment of investments without readily determinable fair values. For 2016, equity in loss of investee companies, net of tax on the statement of operations included $10 million for the write-down of an international television joint venture to its fair value.
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 Consolidated Balance Sheets include assets and liabilities related to consolidated VIEs totaling $141 million and $22 million, respectively, as of December 31, 2019, and $63 million and $4 million, respectively, as of December 31, 2018. In 2017, a 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 operating income were not significant for all periods presented.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
8) BANK FINANCING AND DEBT
The Company’sOur debt consists of the following(a):
| | | At December 31, | 2018 | | 2017 | 2019 | | 2018 |
| Commercial paper | $ | 674 |
| | $ | 679 |
| $ | 699 |
| | $ | 674 |
|
| 2.30% Senior Notes due 2019 | 601 |
| | 604 |
| — |
| | 601 |
|
| 5.625% Senior Notes due 2019 | | — |
| | 221 |
|
| 2.750% Senior Notes due 2019 | | — |
| | 90 |
|
| 4.30% Senior Notes due 2021 | 300 |
| | 299 |
| 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 | 697 |
| | 696 |
| 698 |
| | 697 |
|
| 3.125% Senior Notes due 2022 | | 194 |
| | 194 |
|
| 2.50% Senior Notes due 2023 | 397 |
| | 396 |
| 398 |
| | 397 |
|
| 3.25% Senior Notes due 2023 | | 181 |
| | 181 |
|
| 2.90% Senior Notes due 2023 | 396 |
| | 395 |
| 396 |
| | 396 |
|
| 4.25% Senior Notes due 2023 | | 1,242 |
| | 1,240 |
|
| 7.875% Debentures due 2023 | 187 |
| | 187 |
| 187 |
| | 187 |
|
7.125% Senior Notes due 2023 (b) | 46 |
| | 46 |
| |
| 7.125% Senior Notes due 2023 | | 46 |
| | 46 |
|
| 3.875% Senior Notes due 2024 | | 489 |
| | 489 |
|
| 3.70% Senior Notes due 2024 | 597 |
| | 597 |
| 598 |
| | 597 |
|
| 3.50% Senior Notes due 2025 | 590 |
| | 589 |
| 592 |
| | 590 |
|
| 4.00% Senior Notes due 2026 | 787 |
| | 785 |
| 789 |
| | 787 |
|
| 3.45% Senior Notes due 2026 | | 123 |
| | 123 |
|
| 2.90% Senior Notes due 2027 | 686 |
| | 684 |
| 688 |
| | 686 |
|
| 3.375% Senior Notes due 2028 | 493 |
| | 493 |
| 494 |
| | 493 |
|
| 3.70% Senior Notes due 2028 | 490 |
| | 489 |
| 491 |
| | 490 |
|
| 4.20% Senior Notes due 2029 | | 493 |
| | — |
|
| 7.875% Senior Debentures due 2030 | 832 |
| | 832 |
| 831 |
| | 832 |
|
| 5.50% Senior Debentures due 2033 | 426 |
| | 425 |
| 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 |
| 297 |
| | 297 |
|
| 4.50% Senior Debentures due 2042 | | 45 |
| | 45 |
|
| 4.85% Senior Notes due 2042 | 486 |
| | 485 |
| 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 |
| 539 |
| | 539 |
|
| 4.60% Senior Notes due 2045 | 588 |
| | 588 |
| 589 |
| | 588 |
|
| Obligations under capital leases | 43 |
| | 57 |
| |
Total debt (c) | 10,152 |
| | 10,162 |
| |
| 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 | 674 |
| | 679 |
| 699 |
| | 674 |
|
| Less current portion | 13 |
| | 19 |
| 18 |
| | 339 |
|
| Total long-term debt, net of current portion | $ | 9,465 |
| | $ | 9,464 |
| $ | 18,002 |
| | $ | 18,100 |
|
(a) Unless otherwise noted, the long-term debt instruments are issuances of CBS Corp. and are guaranteed by CBS Operations Inc.
(b) Debt instrument is an issuance of CBS Broadcasting Inc., a wholly owned subsidiary of CBS Corp., and has no guarantor.
(c) At December 31, 20182019 and 2017,2018, the senior and junior subordinated debt balances included (i) a net unamortized discount of $58$412 million and $65$422 million, respectively, (ii) unamortized deferred financing costs of $43$92 million and $47$98 million, respectively, and (iii) a decrease in the carrying value of the debt relating to previously settled fair value hedges of $5$6 million and $3$5 million, respectively. The face value of the Company’sour total debt was $10.26$19.23 billion at December 31, 20182019 and $10.28$19.64 billion at December 31, 2017.
During the year ended December 31, 2017, the Company issued $1.80 billion of senior notes and used the net proceeds for the redemption and repayment of $1.20 billion of senior notes, of which $800 million was redeemed prior to maturity, resulting in a pre-tax loss on early extinguishment of debt of $49 million ($31 million, net of tax). The remaining proceeds were used for general corporate purposes, including discretionary contributions to the Company’s qualified pension plans and the repayment of short-term borrowings, including commercial paper.
At December 31, 2018, the Company classified $600 million of debt maturing in August 2019 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.2018.
CBS CORPORATIONVIACOMCBS 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, 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 redeemed prior to maturity, resulting in a pre-tax loss on early extinguishment of debt of $38 million ($21 million, net of tax).
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 interest rate payable on our 2.25% senior notes due February 2022 and 3.45% senior notes due October 2026, collectively the “Senior Notes”, will be subject to adjustment from time to time if Moody’s Investor Services, Inc. or S&P Global Ratings downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the Senior Notes. The interest rate on these Senior Notes would increase by 0.25% upon each credit agency downgrade up to a maximum of 2.00%, and would similarly be decreased for subsequent upgrades. At December 31, 2018,2019, the Company’soutstanding principal amount of our 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 well as certain optional redemption provisions for our junior debentures.
At December 31, 2019, our scheduled maturities of long-term debt at face value, excluding capitalfinance leases, and the related interest payments were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2024 and |
| | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter |
| Long-term debt | | $ | 600 |
| | | $ | — |
| | | $ | 300 |
| | | $ | 700 |
| | | $ | 1,033 |
| | $ | 6,907 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2025 and |
| | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter |
| Long-term debt | | $ | — |
| | | $ | 1,400 |
| | | $ | 945 |
| | | $ | 2,465 |
| | | $ | 1,092 |
| | $ | 12,584 |
|
Commercial Paper
The CompanyWe had outstanding commercial paper borrowings under itsour $2.50 billion commercial paper program of $674$699 million and $679$674 million at December 31, 20182019 and 2017,2018, respectively, each with maturities of less than 90 days. The weighted average interest rate for these borrowings was 3.02%2.07% and 1.88%3.02% at December 31, 2019 and 2018, and 2017, respectively.
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, 2018, 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.
The Credit Facility requires the Company to maintain a maximumour Consolidated Total Leverage Ratio ofto be less than 4.5x (which we may elect to increase to 5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter, as further described in the Credit Facility. Atto be applied retrospectively from December 31, 2018, the Company’s2019. The Consolidated Leverage Ratio was approximately 3.1x.
The ConsolidatedTotal Leverage Ratio reflects the ratio of the Company’s indebtedness from continuing operations, adjusted to exclude certain capital lease obligations,our Consolidated Indebtedness at the end of a quarter, to the Company’sour Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing four consecutive quarters. Consolidated EBITDA is defined intwelve-month period. We met the Credit Facilitycovenant as operating income plus interest income and before depreciation, amortization and certain other noncash items.
The Credit Facility is used for general corporate purposes. Atof December 31, 2018, the Company had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion.2019.
9)LEASES
On January 1, 2019, we adopted FASB guidance on the accounting 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 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 following 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 use of an asset) associated with long-term operating leases.
(b) Includes costs capitalized in programming assets during the period for leased assets used in the 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, 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 both December 31, 20182019 and 2017,2018, the carrying value of the Company’s senior debtour notes and debentures was $9.43$17.98 billion and $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 $9.48$20.6 billion and $10.16$18.4 billion, respectively.
The Company usesWe use derivative financial instruments primarily to manage itsour exposure to market risks from fluctuations in foreign currency exchange rates. The Company doesWe do not use derivative instruments unless there is an underlying exposure and, therefore, the Company doeswe do not hold or enter into derivative financial instruments for speculative trading purposes.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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, 20182019 and 2017,2018, the notional amount of all foreign currency contracts was $325$1.44 billion and $995 million, respectively. For 2019, $833 million related to future production costs and $410$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, | 2018 | | 2017 | | Financial Statement Account | 2019 | | 2018 | | Financial Statement Account |
| Non-designated foreign exchange contracts | | $ | 25 |
| | $ | (27 | ) | | Other items, net | | $ | (4 | ) | | $ | 25 |
| | 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.
The CompanyVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
We continually monitors its positionsmonitor our position with, and credit quality of, the financial institutions that are counterparties to itsour financial instruments. The Company isWe are exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company doeswe do not anticipate nonperformance by the counterparties.
The Company’s
Our receivables do not represent significant concentrations of credit risk at December 31, 20182019 and 2017,2018, due to the wide variety of customers, markets and geographic areas to which the Company’sour products and services are sold.
10)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, 20182019 and 2017.2018. 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, 2019 | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Marketable securities | $ | 146 |
| | $ | — |
| | $ | — |
| | $ | 146 |
|
| Foreign currency hedges | — |
| | 13 |
| | — |
| | 13 |
|
| Total Assets | $ | 146 |
|
| $ | 13 |
|
| $ | — |
|
| $ | 159 |
|
| Liabilities: | | | | | | | $ | — |
|
| Deferred compensation | $ | — |
| | $ | 490 |
| | $ | — |
| | $ | 490 |
|
| Foreign currency hedges | — |
| | 14 |
| | — |
| | 14 |
|
| Total Liabilities | $ | — |
|
| $ | 504 |
|
| $ | — |
| | $ | 504 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | |
| At December 31, 2018 | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | |
| Foreign currency hedges | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 15 |
|
| Total Assets | $ | — |
|
| $ | 15 |
|
| $ | — |
| | $ | 15 |
|
| Liabilities: | | | | | | | $ | — |
|
| Deferred compensation | $ | — |
| | $ | 336 |
| | $ | — |
| | $ | 336 |
|
| Foreign currency hedges | — |
| | 1 |
| | — |
| | 1 |
|
| Total Liabilities | $ | — |
|
| $ | 337 |
|
| $ | — |
| | $ | 337 |
|
| | | At December 31, 2017 | 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 | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| — |
| | 21 |
| | — |
| | 21 |
|
| Total Assets | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
| $ | 34 |
| | $ | 21 |
| | $ | — |
| | $ | 55 |
|
| Liabilities: | | | | | | | $ | — |
| | | | | | | $ | — |
|
| Deferred compensation | $ | — |
| | $ | 363 |
| | $ | — |
| | $ | 363 |
| $ | — |
| | $ | 501 |
| | $ | — |
| | $ | 501 |
|
| Foreign currency hedges | — |
| | 10 |
| | — |
| | 10 |
| — |
| | 18 |
| | — |
| | 18 |
|
| Total Liabilities | $ | — |
| | $ | 373 |
| | $ | — |
| | $ | 373 |
| $ | — |
| | $ | 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.
11)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.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Merger with Viacom—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, resulting in the issuance of 29 million shares of ViacomCBS Class A Common Stock and 211 million shares of ViacomCBS Class B Common Stock. At the Effective Time, each share of CBS Class A Common Stock and each share of CBS Class B 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.
Dividends—The CompanyOn 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 2017, and 2016.2017. 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, and 2016, the CompanyCBS declared total per share dividends of $.72, $.72, and $.66, respectively, 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 $2942017, Viacom declared total per share dividends of $.80, resulting in total annual dividends of $325 million and $323 million, respectively. Dividends have beenFor 2017, dividends were recorded as a reduction to additional paid-in capital as the Company haswe 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.
Purchase of CompanyTreasury Stock—During 2018, the CompanyDecember 2019, we repurchased 11.51.2 million shares of CBS Corp.ViacomCBS Class B Common Stock under itsour share repurchase program for $600$50 million, at an average cost of $52.06$40.78 per share. At December 31, 2018, $2.462019, $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 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 12.2 million for 2019 and 2.5 million for 2018 and 0.1 million for 2016.2018. Conversions of CBS Corp. Class A Common Stock into Class B Common Stock for 2017 were minimal.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Accumulated Other Comprehensive Income—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, 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 | (26 | ) | | (143 | ) | | (169 | ) | | (248 | ) | | (123 | ) | | — |
| | (371 | ) | |
| Reclassifications to net earnings | — |
| | 56 |
| (a) | 56 |
| | — |
| | 62 |
| (a) | | — |
| | 62 |
| |
| Other comprehensive loss | (26 | ) | | (87 | ) | | (113 | ) | | (248 | ) | | (61 | ) | | — |
| | (309 | ) | |
| Adoption of accounting standard | | | — |
| | | — |
| | (30 | ) | | | (30 | ) | |
| At December 31, 2018 | $ | 133 |
| | $ | (908 | ) | | $ | (775 | ) | | (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 losses, 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(see Note 15).
(b) Reflects the years ended December 31, 2018, 2017 and 2016 (Seereclassification 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 14)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) for the years ended December 31, 2019, 2018 and 2017 and 2016 of $29$44 million, $(106)$23 million and $(3)$(90) million, respectively. The unrealized gain on available-for-sale securities included in other comprehensive income for 2017 is net of a tax provision of $18 million.
12)13) STOCK-BASED COMPENSATION
The Company hasWe have equity incentive plans (the “Plans”) under which stock options and RSUs and market-based performance share units (“PSUs”) wereare issued. The purpose of the Plans is to benefit and advance the interests of the Companyour company by attracting, retaining and motivating participants and to compensate participants for their contributions to the financial success of the Company.our company. The Plans provide for awards of stock options, stock appreciation rights, restricted and unrestricted shares, RSUs, dividend equivalents, performance awards and other equity-related awards. Upon exercise of stock options or vesting of RSUs, the Company issueswe issue new shares from itsour existing authorization. At December 31, 2018,2019, there were 4148 million shares available for future grant under the Plans.
The following table summarizes Prior to the Company’sMerger, stock-based compensation expenseawards were also granted under Viacom’s equity incentive plans. Upon exercise of stock options or vesting of RSUs under Viacom’s equity incentive plans, shares were either issued from Viacom’s existing authorization or from treasury stock.
At the Effective Time, each RSU for the years ended December 31, 2018, 2017Viacom Class B common stock was converted into 0.59625 RSUs for ViacomCBS Class B Common Stock and 2016.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| RSUs and PSUs | $ | 120 |
| | $ | 152 |
| | $ | 137 |
|
| Stock options | 26 |
| | 27 |
| | 28 |
|
| Stock-based compensation expense, before income taxes | 146 |
| | 179 |
| | 165 |
|
| Related tax benefit | (36 | ) | | (69 | ) | | (63 | ) |
| Stock-based compensation expense, net of tax benefit | $ | 110 |
| | $ | 110 |
| | $ | 102 |
|
Stock-based compensation expenseseach outstanding stock option for 2018 included forfeituresViacom Class B common stock was converted into 0.59625 options for ViacomCBS Class B common stock. The exercise price of $28 million and accelerations of $6 million relating to changes in senior management, which are included in “Restructuring and other corporate matters” on the Consolidated Statement of Operations. Included in net loss from discontinued operationsstock options was stock-based compensation expense of $2 million and $12 million for 2017 and 2016, respectively.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
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 stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2019 |
| 2018 |
| 2017 |
| RSUs and PSUs | $ | 173 |
| | $ | 170 |
| | $ | 181 |
|
| Stock options | 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 | 291 |
| | 191 |
| | 232 |
|
| Related tax benefit | (59 | ) | | (45 | ) | | (84 | ) |
| Stock-based compensation expense, net of tax benefit | $ | 232 |
| | $ | 146 |
| | $ | 148 |
|
(a) 2019 primarily reflects accelerations triggered by the Merger and other restructuring activities. 2018 includes forfeitures of $28 million and accelerations of $14 million related to changes in senior management and other restructuring activities. 2017 reflects accelerations related to restructuring activities.
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 $53.96$41.71, $66.5953.90 and $47.30$64.26 in 2019, 2018, 2017, and 2016,2017, respectively. The total market value of RSUs that vested during 2019, 2018, and 2017 and 2016 was $135$159 million, $193$158 million and $129$228 million, respectively. Total unrecognized compensation cost related to non-vested RSUs at December 31, 20182019 was $164$445 million which is expected to be recognized over a weighted average period of 2.43.0 years.
During 2018 and 2017, and 2016, the Companywe also granted PSU awards. The number of shares to 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 $16 million, $23$35 million and $4$32 million, respectively. AllThere 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 forfeited during 2018.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 millions, except per share amounts)
The following table summarizes the Company’sour RSU activity.and PSU share activity:
| | | | | | | Weighted Average | | Weighted Average |
| | RSUs | | Grant Date Fair Value | Shares | Grant Date Fair Value |
| Non-vested at December 31, 2017 | | 5,323,987 |
| | $ | 58.19 |
| | |
| Non-vested at December 31, 2018 | | | 8,011,104 |
| | $ | 55.96 |
| |
| Granted | | 3,093,130 |
| | $ | 53.96 |
| | | 10,620,187 |
| | $ | 41.71 |
| |
| Vested | | (2,443,125 | ) | | $ | 58.71 |
| | | (3,374,331 | ) | | $ | 55.90 |
| |
| Forfeited | | (788,923 | ) | | $ | 56.16 |
| | | (767,231 | ) | | $ | 53.89 |
| |
| Non-vested at December 31, 2018 | | 5,185,069 |
| | $ | 55.73 |
| | |
| Non-vested at December 31, 2019 | | | 14,489,729 |
| | $ | 45.64 |
| |
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 $17.50 and $12.30$17.50 in 2018 and 2017, and 2016, respectively. CBS did not have any stock option grants in 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 | | 2016 | 2018 |
| 2017 |
| Expected dividend yield | 1.33 | % | | 1.09 | % | | 1.31 | % | 1.33 | % | | 1.09 | % |
| Expected stock price volatility | 29.52 | % | | 29.89 | % | | 32.55 | % | 29.52 | % | | 29.89 | % |
| Risk-free interest rate | 2.73 | % | | 2.00 | % | | 1.35 | % | 2.73 | % | | 2.00 | % |
| Expected term of options (years) | 5.00 |
| | 5.00 |
| | 5.00 |
| 5.00 |
| | 5.00 |
|
CBS CORPORATION AND SUBSIDIARIES |
| | | | | |
| | 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 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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 behavior. The expected dividend yield represents the Company’s future expectation of the dividend yield based on current rates and historical patterns of dividend changes.
Total unrecognized compensation cost related to non-vested stock option awards at December 31, 2018 was $31 million, which is expected to be recognized over a weighted average period of 2.5 years.
The following table summarizes the Company’s stock option activity under the Plans.
|
| | | | | | | | | | |
| | | | | | Weighted Average |
| | Stock Options | | Exercise Price |
| Outstanding at December 31, 2017 | | 10,113,836 |
| | | | $ | 50.59 |
| |
| Granted | | 1,774,181 |
| | | | $ | 54.32 |
| |
| Exercised | | (760,503 | ) | | | | $ | 35.80 |
| |
| Forfeited or expired | | (220,544 | ) | | | | $ | 58.74 |
| |
| Outstanding at December 31, 2018 | | 10,906,970 |
| | | | $ | 52.07 |
| |
| Exercisable at December 31, 2018 | | 7,310,228 |
| | | | $ | 50.15 |
| |
The following table summarizes other information relating to stock option exercises during the years ended December 31, 2018, 2017 and 2016.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Cash received from stock option exercises | $ | 27 |
| | $ | 91 |
| | $ | 21 |
|
| Tax benefit of stock option exercises | $ | 4 |
| | $ | 36 |
| | $ | 14 |
|
| Intrinsic value of stock option exercises | $ | 16 |
| | $ | 96 |
| | $ | 37 |
|
The following table summarizes information concerning outstanding and exercisable stock options to purchase CBS Corp. Class B Common Stock under the Plans at December 31, 2018.
|
| | | | | | | | | | | | | | | | | | | |
| | 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 | 10,186 |
| | 0.08 | | | $ | 5.72 |
| | | 10,186 |
| | | $ | 5.72 |
| |
| $10 to 19.99 | 42,442 |
| | 1.61 | | | $ | 16.52 |
| | | 42,442 |
| | | $ | 16.52 |
| |
| $20 to 29.99 | 932,407 |
| | 0.72 | | | $ | 26.71 |
| | | 932,407 |
| | | $ | 26.71 |
| |
| $30 to 39.99 | 791,703 |
| | 1.82 | | | $ | 34.27 |
| | | 791,703 |
| | | $ | 34.27 |
| |
| $40 to 49.99 | 2,741,793 |
| | 3.72 | | | $ | 44.96 |
| | | 1,994,388 |
| | | $ | 44.64 |
| |
| $50 to 59.99 | 3,225,456 |
| | 5.73 | | | $ | 56.71 |
| | | 1,287,783 |
| | | $ | 59.27 |
| |
| $60 to 69.99 | 3,162,983 |
| | 4.33 | | | $ | 66.04 |
| | | 2,251,319 |
| | | $ | 65.96 |
| |
| | 10,906,970 |
| | | | | | | | 7,310,228 |
| | | | |
At December 31, 2018 stock options outstanding have a weighted average remaining contractual life of 4.08 years and the total intrinsic value for “in-the-money” options, based on the Company’s closing stock price of $43.72, was
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
$25behavior. The expected dividend yield represents our future expectation of the annual dividend yield based on the 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, 2019 was $37 million, which is expected to be recognized over a weighted average period of 2.1 years.
The following table summarizes our 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 |
| |
The following table summarizes other information relating to stock option exercises during the years ended December 31, 2019, 2018 and 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 |
|
At December 31, 2019, stock options outstanding have a weighted average remaining contractual life of 3.78 years and the total intrinsic value for “in-the-money” options, based on our closing stock price of $41.97, was $11 million. At December 31, 20182019 stock options exercisable have a weighted average remaining contractual life of 3.022.93 years and the total intrinsic value for “in-the-money” exercisable options was $25$11 million.
13)14) INCOME TAXES
The U.S. and foreign components of earnings from continuing operations before income taxes and equity in lossearnings (loss) of investee companies were as follows:
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 |
| 2018 |
| 2017 |
| United States | $ | 1,743 |
| | $ | 1,441 |
| | $ | 1,803 |
| $ | 2,337 |
| | $ | 3,044 |
| | $ | 3,006 |
|
| Foreign | 546 |
| | 538 |
| | 427 |
| 1,008 |
| | 1,080 |
| | 1,114 |
|
| Total | $ | 2,289 |
| | $ | 1,979 |
| | $ | 2,230 |
| $ | 3,345 |
| | $ | 4,124 |
| | $ | 4,120 |
|
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The components of the (benefit) provision for income taxes were as follows:
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Current: | | | | | | | | | | |
| Federal | $ | 107 |
| | $ | 720 |
| | $ | 359 |
| $ | 389 |
| | $ | 296 |
| | $ | 883 |
|
| State and local | 81 |
| | 38 |
| | 64 |
| 167 |
| | 97 |
| | 93 |
|
| Foreign | 41 |
| | 63 |
| | 61 |
| 204 |
| | 166 |
| | 195 |
|
| | 229 |
| | 821 |
| | 484 |
| |
| Deferred | 44 |
| | (188 | ) | | 144 |
| |
| Provision for income taxes | $ | 273 |
| | $ | 633 |
| | $ | 628 |
| |
| 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 |
|
In addition, included in net loss from discontinued operations was an income tax provision of $8$12 million for 2019 and $124$10 million in 2017for each of 2018 and 2016, 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, 2017, and 20162017 were $19 million, $22$15 million, and $25$(10) million, respectively, which represented an effective tax rate of 25.3%26.5%, 37.9%24.2% and 33.5%71.4% for 2018, 2017, and 2016, respectively.
In2019, 2018, and 2017, the Company realized tax benefits from the exercise of stock options and vesting of RSUs of $37 million and $104 million, respectively.
The difference between income taxes expected at the U.S. federal statutory income tax rate of 21%(21% in 2019 and 2018 and 35% in 2017) and the (benefit) provision for income taxes is summarized as follows:
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Taxes on income at U.S. federal statutory rate | $ | 481 |
| | $ | 693 |
| | $ | 780 |
| $ | 702 |
| | $ | 865 |
| | $ | 1,451 |
|
| State and local taxes, net of federal tax benefit | 77 |
| | 47 |
| | 59 |
| 114 |
| | 114 |
| | 78 |
|
| Effect of foreign operations | (75 | ) | | (162 | ) | | (112 | ) | (50 | ) | | (105 | ) | | (294 | ) |
| Impact of federal tax legislation | (54 | ) | | 129 |
| | — |
| |
Reversal of valuation allowance (a) | (154 | ) | | — |
| | — |
| |
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 | (1 | ) | | (44 | ) | | — |
| 20 |
| | 8 |
| | (26 | ) |
| Domestic production deduction | — |
| | (31 | ) | | (42 | ) | (1 | ) | | 24 |
| | (100 | ) |
Other, net (b) | (1 | ) | | 1 |
| | (57 | ) | |
| Provision for income taxes | $ | 273 |
| | $ | 633 |
| | $ | 628 |
| |
| Tax accounting method change | | — |
| | (78 | ) | | — |
|
Other, net | | 15 |
| | 22 |
| | (9 | ) |
| (Benefit) provision for income taxes | | $ | (9 | ) | | $ | 617 |
| | $ | 804 |
|
(a) IncludesReflects 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 will bewere utilized in connection with the sale of CBS Television City in the first quarter of 2019.
(b) 2016 includes a one-time tax benefit of $47 million associated with a multiyear adjustment to a tax deduction, which was approved by the IRS during the third quarter of 2016.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table summarizes the components of deferred income tax assets and liabilities.
| | | At December 31, | 2018 | | 2017 | 2019 | | 2018 |
| Deferred income tax assets: | | | | | | |
| Reserves and other accrued liabilities | $ | 339 |
| | $ | 391 |
| $ | 540 |
| | $ | 566 |
|
| Pension, postretirement and other employee benefits | 492 |
| | 478 |
| 761 |
| | 741 |
|
| Lease liability | | 531 |
| | — |
|
| Tax credit and loss carryforwards | 723 |
| | 835 |
| 394 |
| | 849 |
|
| Other | 80 |
| | 70 |
| 85 |
| | 41 |
|
| Total deferred income tax assets | 1,634 |
| | 1,774 |
| 2,311 |
| | 2,197 |
|
| Valuation allowance | (719 | ) | | (974 | ) | (550 | ) | | (841 | ) |
| Deferred income tax assets, net | 915 |
| | 800 |
| 1,761 |
| | 1,356 |
|
| Deferred income tax liabilities: | | | | | | |
| Intangible assets | (844 | ) | | (847 | ) | (241 | ) | | (1,090 | ) |
| Unbilled licensing receivables | (401 | ) | | (291 | ) | (390 | ) | | (420 | ) |
| Lease asset | | (467 | ) | | — |
|
| Property, equipment and other assets | (40 | ) | | (86 | ) | (152 | ) | | (166 | ) |
| Financing obligations | | (72 | ) | | (70 | ) |
| Total deferred income tax liabilities | (1,285 | ) | | (1,224 | ) | (1,322 | ) | | (1,746 | ) |
| Deferred income tax liabilities, net | $ | (370 | ) | | $ | (424 | ) | |
| Deferred income tax assets (liabilities), net | | $ | 439 |
| | $ | (390 | ) |
In addition to the deferred income taxes reflected in the table above, included in other liabilities“Other liabilities” on the Consolidated Balance Sheets are net deferred income tax assets of $10 million and $12 million at both December 31, 2019 and 2018, and 2017respectively, relating to discontinued operations.
At December 31, 2018, 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 $1.73 billion, the majority of which expire in various years from 20192020 through 2038.2039.
The 20182019 and 20172018 deferred income tax assets were reduced by a valuation allowance of $719$550 million and $974$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.
In December 2017, the U.S. government enacted the Tax Reform Act which contained significant changes to U.S. federal tax law, including a reduction in the federal corporate tax rate from 35% to 21% and a one-time transition tax on cumulative foreign earnings and profits. For the year ended December 31, 2017, the Companywe recorded a net provisional charge of $129$28 million, reflecting the estimated transition tax of $407$455 million on cumulative foreign earnings and profits, offset by an estimated benefit of $278$427 million to adjust the Company’sour deferred income tax balances as a result of the reduced corporate income tax rate. During 2018, the Companywe completed itsour analysis of these provisional amounts and recorded a charge of $15$48 million to adjust the estimatedprovisional amount of transition tax on cumulative foreign earnings and profits. In January 2019, the U.S. government issued guidance relating to the transition tax. The Company is currently evaluating the impacttax, which resulted in a decrease of $146 million to our reserve for uncertain tax positions during 2019 for amounts paid as a result of this guidance, which will be recorded inguidance; however, it did not have a material impact on the Company’s consolidated financial statements in the first quarterConsolidated Statements of 2019.Operations.
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 the Company’sour foreign subsidiaries. The CompanyWe elected to treat the tax on GILTI as a period cost when incurred and therefore, the tax on GILTI is included in itsour tax provision for the yearyears ended December 31, 2019 and 2018.
VIACOMCBS INC. AND SUBSIDIARIES
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 doeswe 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 deferred income tax liabilities associated with future
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
repatriations, which were 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, 2016 | $ | 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 |
| |
| At January 1, 2017 | | $ | 268 |
|
| Additions for current year tax positions | 50 |
| 86 |
|
| Additions for prior year tax positions | 39 |
| 45 |
|
| Reductions for prior year tax positions | (41 | ) | (56 | ) |
| Cash settlements | (5 | ) | (13 | ) |
| Statute of limitations lapses | (7 | ) | (30 | ) |
| At December 31, 2017 | 138 |
| 300 |
|
| Additions for current year tax positions | 15 |
| 27 |
|
| Additions for prior year tax positions | 165 |
| 204 |
|
| Reductions for prior year tax positions | (34 | ) | (60 | ) |
| Cash settlements | (16 | ) | (19 | ) |
| Statute of limitations lapses | (2 | ) | (6 | ) |
| At December 31, 2018 | $ | 266 |
| 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 |
|
The reserve for uncertain tax positions of $266$384 million at December 31, 20182019 includes $249$295 million which would affect the Company’sour effective income tax rate, including discontinued operations, if and when recognized in future years.
The Company recognizesWe recognize interest and penalty charges related to the reserve for uncertain tax positions as income tax expense. The CompanyWe recognized interest and penalties of $24 million for each of the years ended December 31, 2019 and 2018 and $16 million for the year ended December 31, 2018, $6 million for the year ended December 31, 2017, and $7 million for the year ended December 31, 2016, in the Consolidated Statements of Operations. As of December 31, 2019 and 2018, and 2017, the Company haswe have recorded liabilities for accrued interest and penalties of $24$51 million and $14$47 million, respectively, on the Consolidated Balance Sheets.
TheViacomCBS 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 20142015 tax year expired in September 2018.2019. During the third quarter of 2019, CBS and the IRS settled the income tax audit for the year 2016, which did not have a material effect on the consolidated financial statements. The IRS is expected to commencecommenced its examination of the 2016 and 2017 tax yearsyear during the firstfourth quarter of 2019.2019 and commenced its examination of the 2018 tax year in February 2020. For Viacom, the IRS began its examination of the 2014 and 2015 tax years in April 2017. Various tax years are also currently under examination by state and local and foreign tax authorities. In addition, there are significant uncertainties withWith respect to the interpretation ofopen tax law provisions containedyears in the Tax Reform Act. Guidance issued by the U.S. government in January 2019 may result in a decrease toall jurisdictions, we currently believe that it is reasonably possible that the reserve for uncertain tax positions may decrease by $125 million within the next twelve months; however, the Company is still evaluating the impact of this guidance and therefore, the amount of this decrease cannot currently be determined. In addition, future guidance issued by federal and state authorities could result in further changes to the reserve for uncertain tax positions.
CBS CORPORATIONVIACOMCBS 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 events could cause our current expectation to change in the future.
14)15) PENSION AND OTHER POSTRETIREMENT BENEFITS
The CompanyViacomCBS and certain of its subsidiaries sponsor qualified and non-qualified defined benefit pension plans, principally non-contributory, covering eligible employees. Our pension plans consist of both funded and unfunded plans. The majority of participants in these plans are retired employees or former employees of previously divested businesses. Most of the Company’sour pension plans are closed to new entrants.entrants and pension plans sponsored by Viacom prior to the Merger are frozen to future benefit accruals. The benefits for some plans are based primarily on an employee’s years of service and average pay near retirement. Benefits under other plans are based primarily on an employee’s pay for each year that the employee participated in the plan. Participating employees are vested in the plans after five years of service. The Company funds itsWe fund our pension plans in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), the Pension Protection Act of 2006, the Internal Revenue Code of 1986 and other applicable rules and regulations. Plan assets consist principally of corporate bonds, equity securities, common collective trust funds and U.S. government securities. The Company’s common stock representsAt December 31, 2019, ViacomCBS Common Stock represented approximately 2.5% and 2.8%2.1% of the fair value of plan assets’ fair values atassets. At December 31, 2018, and 2017, respectively.
During the first quarter of 2018, the Company adopted FASB amended guidance on the presentation of net benefit cost. This guidance requires the Company to present the service cost component of net benefit cost in the same line items on the statement of operations as other compensation costs2.4% of the related employees. Allfair value of the other components of net benefit cost are presentedplan assets was invested in the statement of operations separately from the service cost component and below the subtotal of operating income. As a result of the adoption of this guidance, the Company presented $63 million of net benefit costs in “Other items, net” on the Consolidated Statement of Operations for 2018 representing the components of net benefit cost other than service cost. This guidance is required to be applied retrospectively and therefore, the Company reclassified net benefit costs of $438 million and $281 million, including pension settlement charges, for 2017 and 2016, respectively, below operating income on the Consolidated Statements of Operations. All related amounts presented herein have been recast to conform to this presentation.CBS Common Stock or Viacom Common Stock.
During 2017, the Companywe purchased a group annuity contract under which an insurance company 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, which represented 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 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.
During 2016, the Company offered eligible former employees who had not yet initiated pension benefit payments the option to make a one-time election to receive the present value of their pension benefits as a lump-sum distribution or to commence an immediate monthly annuity benefit. As a result, the Company paid a total of $518 million of lump-sum distributions in 2016 using its pension plan assets, which represented 12% of the total obligations of its qualified pension plans. Accordingly, the Company recorded a settlement charge of $211 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan.
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 our own funds.
The pension plan disclosures herein include information related to our domestic plans only, unless otherwise noted. At December 31, 2019 and 2018, the Company’s funds.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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company uses a December 31 measurement date for all pension and other postretirement benefit plans.
The following table sets forth the change in benefit obligation for the Company’sour pension and postretirement benefit plans.
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| Change in benefit obligation: | | | | | | | | | | | | | | |
| Benefit obligation, beginning of year | $ | 4,040 |
| | $ | 4,660 |
| | $ | 424 |
| | $ | 447 |
| $ | 4,511 |
| | $ | 4,877 |
| | $ | 376 |
| | $ | 456 |
|
| Service cost | 31 |
| | 29 |
| | — |
| | — |
| 28 |
| | 30 |
| | 1 |
| | 1 |
|
| Interest cost | 149 |
| | 191 |
| | 16 |
| | 18 |
| 191 |
| | 180 |
| | 16 |
| | 17 |
|
| Actuarial (gain) loss | (147 | ) | | 337 |
| | (8 | ) | | 19 |
| |
| Actuarial loss (gain) | | 593 |
| | (240 | ) | | 8 |
| | (8 | ) |
| Benefits paid | (305 | ) | | (326 | ) | | (104 | ) | | (73 | ) | (360 | ) | | (336 | ) | | (59 | ) | | (106 | ) |
| Participants’ contributions | — |
| | — |
| | 11 |
| | 10 |
| — |
| | — |
| | 13 |
| | 12 |
|
| Retiree Medicare drug subsidy | — |
| | — |
| | 4 |
| | 3 |
| — |
| | — |
| | 5 |
| | 4 |
|
| Settlements | (90 | ) | | (862 | ) | | — |
| | — |
| |
| Cumulative translation adjustments | (7 | ) | | 11 |
| | — |
| | — |
| |
| Benefit obligation, end of year | $ | 3,671 |
| | $ | 4,040 |
| | $ | 343 |
| | $ | 424 |
| $ | 4,963 |
| | $ | 4,511 |
| | $ | 360 |
| | $ | 376 |
|
The following table sets forth the change in plan assets for the Company’sour pension and postretirement benefit plans.
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| Change in plan assets: | | | | | | | | | | | | | | |
| Fair value of plan assets, beginning of year | $ | 3,046 |
| | $ | 3,244 |
| | $ | — |
| | $ | 4 |
| $ | 2,932 |
| | $ | 3,412 |
| | $ | 1 |
| | $ | — |
|
| Actual return on plan assets | (170 | ) | | 328 |
| | — |
| | — |
| 530 |
| | (205 | ) | | (1 | ) | | — |
|
| Employer contributions | 51 |
| | 650 |
| | 90 |
| | 56 |
| 74 |
| | 61 |
| | 41 |
| | 91 |
|
| Benefits paid | (305 | ) | | (326 | ) | | (104 | ) | | (73 | ) | (360 | ) | | (336 | ) | | (59 | ) | | (106 | ) |
| Participants’ contributions | — |
| | — |
| | 11 |
| | 10 |
| — |
| | — |
| | 13 |
| | 12 |
|
| Retiree Medicare drug subsidy | — |
| | — |
| | 4 |
| | 3 |
| — |
| | — |
| | 5 |
| | 4 |
|
| Settlements | (90 | ) | | (862 | ) | | — |
| | — |
| |
| Cumulative translation adjustments | (6 | ) | | 12 |
| | — |
| | — |
| |
| Fair value of plan assets, end of year | $ | 2,526 |
| | $ | 3,046 |
| | $ | 1 |
| | $ | — |
| $ | 3,176 |
| | $ | 2,932 |
| | $ | — |
| | $ | 1 |
|
The funded status of pension and postretirement benefit obligations and the related amounts recognized on the Company’s Consolidated Balance Sheets were as follows:
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| At December 31, | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| Funded status at end of year | $ | (1,145 | ) | | $ | (994 | ) | | $ | (342 | ) | | $ | (424 | ) | $ | (1,787 | ) | | $ | (1,579 | ) | | $ | (360 | ) | | $ | (375 | ) |
| Amounts recognized on the Consolidated Balance Sheets: | | | | | | | | | | | | | | |
| Other assets | $ | 6 |
| | $ | 12 |
| | $ | — |
| | $ | — |
| $ | 5 |
| | $ | 5 |
| | $ | — |
| | $ | — |
|
| Current liabilities | (59 | ) | | (53 | ) | | (46 | ) | | (49 | ) | (69 | ) | | (70 | ) | | (42 | ) | | (48 | ) |
| Noncurrent liabilities | (1,092 | ) | | (953 | ) | | (296 | ) | | (375 | ) | (1,723 | ) | | (1,514 | ) | | (318 | ) | | (327 | ) |
| Net amounts recognized | $ | (1,145 | ) | | $ | (994 | ) | | $ | (342 | ) | | $ | (424 | ) | $ | (1,787 | ) | | $ | (1,579 | ) | | $ | (360 | ) | | $ | (375 | ) |
The Company’sOur qualified pension plans were underfunded by $478$734 million and $309$623 million at December 31, 20182019 and 2017,2018, respectively.
CBS CORPORATIONVIACOMCBS 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 | Pension Benefits | | Postretirement Benefits |
| At December 31, | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| Net actuarial (loss) gain | $ | (1,692 | ) | | $ | (1,583 | ) | | $ | 179 |
| | $ | 189 |
| $ | (2,153 | ) | | $ | (2,001 | ) | | $ | 147 |
| | $ | 174 |
|
| Net prior service cost | (4 | ) | | (6 | ) | | — |
| | — |
| (3 | ) | | (5 | ) | | (1 | ) | | (2 | ) |
| Share of equity investee | (1 | ) | | (2 | ) | | — |
| | — |
| (2 | ) | | (1 | ) | | — |
| | — |
|
| | (1,697 | ) | | (1,591 | ) | | 179 |
| | 189 |
| (2,158 | ) | | (2,007 | ) | | 146 |
| | 172 |
|
Deferred income taxes | 632 |
| | 606 |
| | (22 | ) | | (25 | ) | 563 |
| | 756 |
| | (14 | ) | | (19 | ) |
Net amount recognized in accumulated other comprehensive income (loss) | $ | (1,065 | ) | | $ | (985 | ) | | $ | 157 |
| | $ | 164 |
| $ | (1,595 | ) | | $ | (1,251 | ) | | $ | 132 |
| | $ | 153 |
|
(a) The decrease in 2019 primarily 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 accumulated benefit obligation for all defined benefit pension plans was $3.58$4.87 billion and $3.96$4.43 billion at December 31, 20182019 and 2017,2018, respectively.
Information for the pension plans with an accumulated benefit obligation in excess of plan assets is set forth below.
| | | At December 31, | 2018 | | 2017 | 2019 | | 2018 |
| Projected benefit obligation | $ | 3,662 |
| | $ | 3,933 |
| $ | 4,962 |
| | $ | 4,511 |
|
| Accumulated benefit obligation | $ | 3,576 |
| | $ | 3,852 |
| $ | 4,873 |
| | $ | 4,427 |
|
| Fair value of plan assets | $ | 2,511 |
| | $ | 2,928 |
| $ | 3,170 |
| | $ | 2,926 |
|
The following tables present the components of net periodic benefit cost and amounts recognized in other comprehensive income (loss).
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 |
| Components of net periodic cost: | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | $ | 31 |
| | $ | 29 |
| | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | 28 |
| | $ | 30 |
| | $ | 28 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
|
| Interest cost | 149 |
| | 191 |
| | 215 |
| | 16 |
| | 18 |
| | 20 |
| 191 |
| | 180 |
| | 219 |
| | 16 |
| | 17 |
| | 19 |
|
| Expected return on plan assets | (177 | ) | | (201 | ) | | (227 | ) | | — |
| | — |
| | — |
| (183 | ) | | (214 | ) | | (230 | ) | | — |
| | — |
| | — |
|
| Amortization of actuarial losses (gains) | 81 |
| | 101 |
| | 84 |
| | (18 | ) | | (22 | ) | | (21 | ) | 94 |
| | 87 |
| | 105 |
| | (18 | ) | | (18 | ) | | (22 | ) |
| Amortization of prior service cost | 1 |
| | 2 |
| | 1 |
| | — |
| | — |
| | — |
| 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
| Settlements | 11 |
| | 352 |
| | 211 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 352 |
| | — |
| | — |
| | — |
|
| Net periodic cost | $ | 96 |
| | $ | 474 |
| | $ | 313 |
| | $ | (2 | ) | | $ | (4 | ) | | $ | (1 | ) | $ | 131 |
| | $ | 84 |
| | $ | 475 |
| | $ | — |
| | $ | 1 |
| | $ | (1 | ) |
The service cost component of net periodic cost is presented on the Consolidated Statements of Operations within operating income. All other components of net periodic cost are presented below operating income, in “Other items, net” and “Pension settlement charges.charge.” Included in net loss from discontinued operations was net periodic cost of $3 million and $2 million in 2017 and 2016, respectively.2017.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| Year Ended December 31, 2018 | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | |
| Year Ended December 31, | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Other comprehensive income (loss): | | -200 | | | | 45 | | | | | | | -200 | | | | 45 | | | | | |
| Actuarial (loss) gain | $ | (200 | ) | | $ | (210 | ) | | $ | (275 | ) | | $ | 8 |
| | $ | (19 | ) | | $ | 5 |
| $ | (246 | ) | | $ | (179 | ) | | $ | (269 | ) | | $ | (9 | ) | | $ | 8 |
| | $ | (20 | ) |
Amortization of actuarial losses (gains) (a) | 81 |
| | 101 |
| | 84 |
| | (18 | ) | | (22 | ) | | (21 | ) | 94 |
| | 87 |
| | 105 |
| | (18 | ) | | (18 | ) | | (22 | ) |
Amortization of prior service cost (a) | 1 |
| | 2 |
| | 1 |
| | — |
| | — |
| | — |
| 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Settlements (a) | 11 |
| | 352 |
| | 211 |
| | — |
| | — |
| | — |
| — |
| | — |
| | 352 |
| | — |
| | — |
| | — |
|
| Cumulative translation adjustments | 1 |
| | (1 | ) | | 2 |
| | — |
| | — |
| | — |
| |
| | (106 | ) | | 244 |
| | 23 |
| | (10 | ) | | (41 | ) | | (16 | ) | (151 | ) | | (91 | ) | | 189 |
| | (26 | ) | | (9 | ) | | (41 | ) |
| Deferred income taxes | 26 |
| | (119 | ) | | (9 | ) | | 3 |
| | 13 |
| | 6 |
| 37 |
| | 25 |
| | (94 | ) | | 5 |
| | 2 |
| | 13 |
|
Recognized in other comprehensive income (loss), net of tax | $ | (80 | ) | | $ | 125 |
| | $ | 14 |
| | $ | (7 | ) | | $ | (28 | ) | | $ | (10 | ) | $ | (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 $90$103 million and $1 million, respectively, will be amortized from accumulated other comprehensive loss into net periodic benefit costs in 2019.2020.
Estimated net actuarial gains related to the other postretirement benefit plans of approximately $18$15 million will be amortized from accumulated other comprehensive loss into net periodic benefit costs in 2019.2020.
| | | | Pension Benefits | | Postretirement Benefits | Pension Benefits | | Postretirement Benefits |
| | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| Weighted average assumptions used to determine benefit obligations at December 31: | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | 4.5 | % | | 3.9 | % | | 4.3 | % | | 4.4 | % | | 3.9 | % | | 4.1 | % | 3.5 | % | | 4.5 | % | | 3.9 | % | | 3.3 | % | | 4.4 | % | | 3.9 | % |
| Rate of compensation increase | 3.0 | % | | 3.0 | % | | 3.0 | % | | N/A |
| | 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 | 3.9 | % | | 4.3 | % | | 4.6 | % | | 3.9 | % | | 4.1 | % | | 4.2 | % | 4.5 | % | | 3.8 | % | | 4.2 | % | | 4.4 | % | | 3.9 | % | | 4.1 | % |
| Expected long-term return on plan assets | 6.3 | % | | 6.4 | % | | 6.4 | % | | N/A |
| | 2.0 | % | | 2.0 | % | 6.6 | % | | 6.6 | % | | 6.6 | % | | N/A |
| | N/A |
| | 2.0 | % |
| Rate of compensation increase | 3.0 | % | | 3.0 | % | | 3.0 | % | | N/A |
| | 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.
| | | | 2018 | | 2017 | CBS | | Viacom |
| Projected health care cost trend rate | 6.6 | % | | 7.0 | % | |
| | | 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 | % | 5.0 | % | | 5.0 | % | | 4.5 | % | | 4.5 | % |
| Year ultimate trend rate is achieved | 2023 |
| | 2023 |
| 2025 |
| | 2023 |
| | 2026 |
| | 2026 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
A one percentage point change in assumed health care cost trend rates would have the following effects:
| | | | One Percentage | | One Percentage | One Percentage | | One Percentage |
| | Point Increase | | Point Decrease | Point Increase | | Point Decrease |
| Effect on total service and interest cost components | | $ | — |
| | $ | — |
| | | $ | — |
| | $ | — |
| |
| Effect on the accumulated postretirement benefit obligation | | $ | 4 |
| | $ | (4 | ) | | | $ | 5 |
| | $ | (5 | ) | |
Plan Assets
ThePrior to the Merger, the investments committees of Viacom and CBS determined the strategies for the investment of pension plan assets. These committees established target asset allocations for the Company’s U.S. qualified defined benefitour pension plan trust and international pension plan trusts are based upon an analysis of the timing and amount of projected benefit payments, projected company contributions, the expected returns and risk of the asset classes and the correlation of those returns. The target asset allocation for the Company’s U.S.CBS’s domestic pension plan trust, which accounted for 97% of total plan assets at December 31, 2018,plans is to invest between 70% - 80% in long duration fixed income investments, 16% - 28% in equity securities and the remainder in cash and other investments. At December 31, 2018,2019, this trust was invested approximately 75%73% in long duration fixed income securities, 22%24% in equity investments, and the remainder in cash, cash equivalents and other investments. Long duration fixed income investments consist of a diversified portfolio of fixed income instruments that are substantially all investment grade, with a duration that approximates the duration of the liabilities covered by the trust. All equity portfolios are diversified between U.S. and non-U.S. equities and include large and small capitalization equities. The asset allocations are reviewed regularly.
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, 20182019 and 2017.2018. 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, 2018 | Level 1 | | Level 2 | | Level 3 | | Total | |
| At December 31, 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash and cash equivalents (a) | $ | 2 |
| | $ | 9 |
| | $ | — |
| | $ | 11 |
| $ | 1 |
| | $ | 34 |
| | $ | — |
| | $ | 35 |
|
| Fixed income securities: | | | | | | |
|
| | | | | | |
|
|
| U.S. treasury securities | 85 |
| | — |
| | — |
| | 85 |
| 83 |
| | — |
| | — |
| | 83 |
|
| Government-related securities | — |
| | 171 |
| | — |
| | 171 |
| — |
| | 171 |
| | — |
| | 171 |
|
Corporate bonds (b) | — |
| | 1,483 |
| | — |
| | 1,483 |
| — |
| | 1,562 |
| | — |
| | 1,562 |
|
| Mortgage-backed and asset-backed securities | — |
| | 113 |
| | — |
| | 113 |
| — |
| | 98 |
| | — |
| | 98 |
|
| Equity securities: | | | | | | |
|
| | | | | | |
|
|
| U.S. large capitalization | 143 |
| | 3 |
| | — |
| | 146 |
| 113 |
| | — |
| | — |
| | 113 |
|
| U.S. small capitalization | 35 |
| | — |
| | — |
| | 35 |
| 40 |
| | — |
| | — |
| | 40 |
|
| International equity | — |
| | 3 |
| | — |
| | 3 |
| |
| Other | 1 |
| | 23 |
| | — |
| | 24 |
| — |
| | 25 |
| | — |
| | 25 |
|
| Total assets in fair value hierarchy | $ | 266 |
| | $ | 1,805 |
| | $ | — |
| | $ | 2,071 |
| $ | 237 |
| | $ | 1,890 |
| | $ | — |
| | $ | 2,127 |
|
Common collective funds measured at net asset value (c) (d) | | | | | | | 397 |
| | | | | | | 978 |
|
Limited partnerships measured at net asset value (c) | | | | | | | 26 |
| | | | | | | 23 |
|
Mutual funds measured at net asset value (c) | | | | | | | 32 |
| | | | | | | 48 |
|
| Investments, at fair value | | | | | | | $ | 2,526 |
| | | | | | | $ | 3,176 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | At December 31, 2017 | Level 1 | | Level 2 | | Level 3 | | Total | |
| At December 31, 2018 | | Level 1 | | Level 2 | | Level 3 | | Total |
Cash and cash equivalents (a) | $ | 8 |
| | $ | 22 |
| | $ | — |
| | $ | 30 |
| $ | 4 |
| | $ | 7 |
| | $ | — |
| | $ | 11 |
|
| Fixed income securities: | | | | | | | | | | | | | | |
| U.S. treasury securities | 135 |
| | — |
| | — |
| | 135 |
| 85 |
| | 31 |
| | — |
| | 116 |
|
| Government-related securities | 12 |
| | 238 |
| | — |
| | 250 |
| — |
| | 169 |
| | — |
| | 169 |
|
Corporate bonds (b) | — |
| | 1,657 |
| | — |
| | 1,657 |
| — |
| | 1,529 |
| | — |
| | 1,529 |
|
| Mortgage-backed and asset-backed securities | — |
| | 97 |
| | 1 |
| | 98 |
| — |
| | 120 |
| | — |
| | 120 |
|
| Equity securities: | | | | | | |
|
| | | | | | |
|
|
| U.S. large capitalization | 175 |
| | 3 |
| | — |
| | 178 |
| 150 |
| | — |
| | — |
| | 150 |
|
| U.S. small capitalization | 43 |
| | — |
| | — |
| | 43 |
| 35 |
| | — |
| | — |
| | 35 |
|
| International equity | — |
| | 3 |
| | — |
| | 3 |
| |
| Other | — |
| | 43 |
| | — |
| | 43 |
| 1 |
| | 18 |
| | — |
| | 19 |
|
| Total assets in fair value hierarchy | $ | 373 |
| | $ | 2,063 |
| | $ | 1 |
| | $ | 2,437 |
| $ | 275 |
| | $ | 1,874 |
| | $ | — |
| | $ | 2,149 |
|
Common collective funds measured at net asset value (c) (d) | | | | | | | 519 |
| | | | | | | 688 |
|
Limited partnerships measured at net asset value (c) | | | | | | | 32 |
| | | | | | | 63 |
|
Mutual funds measured at net asset value (c) | | | | | | | 58 |
| | | | | | | 32 |
|
| Investments, at fair value | | | | | | | $ | 3,046 |
| | | | | | | $ | 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.
The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 at December 31, 2018.
|
| | | | | | |
| | | Mortgage-backed Securities |
| At January 1, 2017 | | | $ | 2 |
| |
| Contributions and distributions, net | | | (1 | ) | |
| At December 31, 2017 | | | 1 |
| |
| Contributions and distributions, net | | | (1 | ) | |
| At December 31, 2018 | | | $ | — |
| |
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company’s other postretirement benefits plan assets of $1 million at December 31, 2018 were invested in U.S. money market funds, which are categorized as Level 2 assets.
Future Benefit Payments
Estimated future benefit payments are as follows:
| | | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024-2028 | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025-2029 |
| Pension | $ | 329 |
| | $ | 266 |
| | $ | 262 |
| | $ | 260 |
| | $ | 256 |
| | $ | 1,218 |
| $ | 357 |
| | $ | 304 |
| | $ | 305 |
| | $ | 307 |
| | $ | 304 |
| | $ | 1,487 |
|
| Postretirement | $ | 53 |
| | $ | 50 |
| | $ | 47 |
| | $ | 44 |
| | $ | 41 |
| | $ | 162 |
| $ | 48 |
| | $ | 45 |
| | $ | 42 |
| | $ | 40 |
| | $ | 37 |
| | $ | 144 |
|
| Retiree Medicare drug subsidy | $ | (5 | ) | | $ | (5 | ) | | $ | (5 | ) | | $ | (5 | ) | | $ | (5 | ) | | $ | (20 | ) | $ | 5 |
| | $ | 5 |
| | $ | 5 |
| | $ | 5 |
| | $ | 4 |
| | $ | 20 |
|
In 2019, the Company expects2020, we expect to make contributions of approximately $60$70 million to itsour non-qualified pension plans to satisfy the benefit payments due under these plans. Also in 2019, the Company expects2020, we expect to contribute approximately $48$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
The Company contributesWe contribute to a number of multiemployer defined benefit pension plans under the terms of collective bargaining agreements that cover itsour union-represented employees including talent, writers, directors, producers and other employees, primarily in the entertainment industry. The other employers participating in these multiemployer plans are primarily in the entertainment and other related industries. The risks of participating in multiemployer plans are different from single-employer plans as assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers and if a participating employer stops 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.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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 | | 2018 | 2017 | | 2018 | | 2017 | | 2016 | | | 2019 | 2018 | | 2019 | | 2018 | | 2017 | |
AFTRA Retirement Plan (b) | | 13-6414972-001 | | Green | | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | (c) | | 13-6414972-001 | | Green | | $ | 12 |
| | $ | 11 |
| | $ | 12 |
| | (c) |
Directors Guild of America - Producer | | 95-2892780-001 | | Green | | 9 |
| | 8 |
| | 6 |
| | 6/30/2020 | | 95-2892780-001 | | Green | | 19 |
| | 15 |
| | 15 |
| | 6/30/2020 |
| Producer-Writers Guild of America | | 95-2216351-001 | | Green | | 17 |
| | 15 |
| | 12 |
| | 5/1/2020 | | 95-2216351-001 | | Green | | 26 |
| | 25 |
| | 22 |
| | 5/1/2020 |
| Screen Actors Guild - Producers | | 95-2110997-001 | | Green | | 28 |
| | 22 |
| | 11 |
| | 6/30/2020 | | 95-2110997-001 | | Green | | 43 |
| | 36 |
| | 29 |
| | 6/30/2020 |
| Motion Picture Industry | | 95-1810805-001 | | Green | | 17 |
| | 14 |
| | 11 |
| | (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 | | 12 |
| | 10 |
| | 9 |
| | 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 | | 7 |
| | 5 |
| | 5 |
| | | 16 |
| | 12 |
| | 10 |
| |
| | | Total contributions | | $ | 96 |
| | $ | 80 |
| | $ | 60 |
| | | 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 20182019 and 2017.2018. 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, 2017.2018.
(c) The expiration dates range from June 30, 2020 through 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.
(d)(e) The expiration dates range from March 2, 2019May 15, 2021 through July 31, 2021March 2, 2022.
(e)(f) The Company was listed in I.A.T.S.E. Local No. 33 Pension Trust Fund’s Form 5500 as providing more than 5% of total contributions for the plan year ended December 31, 2017.2018.
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.
The CompanyWe also contributescontribute to multiemployer plans that provide postretirement healthcare defined contribution and other benefits to certain employees under collective bargaining agreements. The contributions to these plans were $36$89 million, $30$74 million and $28$74 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively.
The Company recognizes
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
The Company sponsorsWe sponsor defined contribution plans for the benefit of substantially all employees meeting eligibility requirements. Employer contributions to such plans were $40$95 million, $42$87 million and $35$94 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively.
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 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 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
15) SEGMENT AND REVENUE INFORMATION
The following tables set forth the Company’s financial performance by reportable segment. The Company’s operating segments, which are the same as its reportable segments, have been determined in accordance with the Company’s internal management structure, which is organized based upon products and services. During the fourth quarter of 2018, the Company began presenting CBS Sports Network in the Entertainment segment, to reflect changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Results for all periods presented have been reclassified to conform to this presentation.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
| Revenues: | | | | | |
| Entertainment | $ | 10,178 |
| | $ | 9,306 |
| | $ | 9,020 |
|
| Cable Networks | 2,204 |
| | 2,355 |
| | 2,015 |
|
| Publishing | 825 |
| | 830 |
| | 767 |
|
| Local Media | 1,830 |
| | 1,668 |
| | 1,779 |
|
| Corporate/Eliminations | (523 | ) | | (467 | ) | | (415 | ) |
| Total Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 13,166 |
|
Revenues generated between segments primarily reflect advertising sales,and content licensing and station affiliation fees.sales. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
| | | Year Ended December 31, | 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
| Intercompany Revenues: | | | | | | | | | | |
| Entertainment | $ | 534 |
| | $ | 477 |
| | $ | 431 |
| |
| TV Entertainment | | $ | 226 |
| | $ | 164 |
| | $ | 189 |
|
| Cable Networks | 1 |
| | 1 |
| | 1 |
| 53 |
| | 47 |
| | 70 |
|
| Local Media | 18 |
| | 13 |
| | 8 |
| |
| Filmed Entertainment | | 117 |
| | 95 |
| | 89 |
|
| Total Intercompany Revenues | $ | 553 |
| | $ | 491 |
| | $ | 440 |
| $ | 396 |
| | $ | 306 |
| | $ | 348 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company presentsWe present operating income (loss) excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters, programming charges and other operating items, net,gain on sale of assets, each where applicable (“Segment Operating Income”Adjusted OIBDA”), as the primary measure of profit and loss for itsour operating segments (“segment profit measure”) in accordance with FASB guidance for segment reporting. The Company believesWe 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 Segment Operating IncomeAdjusted 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 the Company’sour management and enhances their ability to understand the Company’sour 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, (a) | 2018 | | 2017 | | 2016 |
| Segment Operating Income (Loss): | | | | | |
| Entertainment | $ | 1,675 |
| | $ | 1,578 |
| | $ | 1,539 |
|
| Cable Networks | 915 |
| | 999 |
| | 959 |
|
| Publishing | 144 |
| | 136 |
| | 122 |
|
| Local Media | 609 |
| | 497 |
| | 622 |
|
| Corporate | (295 | ) | | (305 | ) | | (311 | ) |
| Restructuring charges | (67 | ) | | (63 | ) | | (30 | ) |
| Corporate matters | (128 | ) | | — |
| | (8 | ) |
| Programming charges | (85 | ) | | — |
| | — |
|
| Other operating items, net | — |
| | 19 |
| | 9 |
|
| Operating income | 2,768 |
| | 2,861 |
| | 2,902 |
|
| Interest expense | (467 | ) | | (457 | ) | | (411 | ) |
| Interest income | 57 |
| | 64 |
| | 32 |
|
| Loss on early extinguishment of debt | — |
| | (49 | ) | | — |
|
| Pension settlement charges | — |
| | (352 | ) | | (211 | ) |
| Other items, net | (69 | ) | | (88 | ) | | (82 | ) |
Earnings from continuing operations before income taxes and equity in loss of investee companies | 2,289 |
| | 1,979 |
| | 2,230 |
|
| Provision for income taxes | (273 | ) | | (633 | ) | | (628 | ) |
| Equity in loss of investee companies, net of tax | (56 | ) | | (37 | ) | | (50 | ) |
| Net earnings from continuing operations | 1,960 |
| | 1,309 |
| | 1,552 |
|
| Net loss from discontinued operations, net of tax | — |
| | (952 | ) | | (291 | ) |
| Net earnings | $ | 1,960 |
| | $ | 357 |
| | $ | 1,261 |
|
(a) During the first quarter of 2018, the Company adopted amended FASB guidance on the presentation of net benefit cost. As a result, the components of net benefit cost other than the service cost component are presented in the statement of operations below the subtotal of operating income. All prior periods have been recast to conform to this presentation.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Depreciation and Amortization: |
|
| |
|
| |
|
|
| Entertainment | $ | 125 |
| | $ | 118 |
| | $ | 120 |
|
| Cable Networks | 18 |
| | 20 |
| | 20 |
|
| Publishing | 6 |
| | 6 |
| | 6 |
|
| Local Media | 43 |
| | 45 |
| | 44 |
|
| Corporate | 31 |
| | 34 |
| | 35 |
|
| Total Depreciation and Amortization | $ | 223 |
| | $ | 223 |
| | $ | 225 |
|
|
| | | | | | | | | | | |
| 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 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Stock-based Compensation: | | | | | |
| Entertainment | $ | 62 |
| | $ | 68 |
| | $ | 63 |
|
| Cable Networks | 12 |
| | 10 |
| | 10 |
|
| Publishing | 4 |
| | 5 |
| | 4 |
|
| Local Media | 11 |
| | 12 |
| | 12 |
|
Corporate (a) | 57 |
| | 84 |
| | 76 |
|
| Total Stock-based Compensation | $ | 146 |
| | $ | 179 |
| | $ | 165 |
|
(a) Included in 2018 are forfeitures of $28 million and accelerations of $6 million relating to changes in senior management.
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| Capital Expenditures: | | | | | | |
| Entertainment | $ | 93 |
| | $ | 102 |
| | $ | 102 |
| |
| Depreciation and Amortization: | |
|
| |
|
| |
|
|
| TV Entertainment | | $ | 150 |
| | $ | 160 |
| | $ | 163 |
|
| Cable Networks | 20 |
| | 16 |
| | 15 |
| 219 |
| | 194 |
| | 193 |
|
| Filmed Entertainment | | 37 |
| | 38 |
| | 42 |
|
| Publishing | 7 |
| | 5 |
| | 9 |
| 5 |
| | 6 |
| | 6 |
|
| Local Media | 27 |
| | 32 |
| | 37 |
| |
| Corporate | 18 |
| | 30 |
| | 33 |
| 32 |
| | 35 |
| | 39 |
|
| Total Capital Expenditures | $ | 165 |
| | $ | 185 |
| | $ | 196 |
| |
| Total Depreciation and Amortization | | $ | 443 |
| | $ | 433 |
| | $ | 443 |
|
|
| | | | | | | |
| At December 31, | 2018 | | 2017 |
| Assets: | | | |
Entertainment (a) | $ | 13,579 |
| | $ | 12,927 |
|
| Cable Networks | 2,693 |
| | 2,577 |
|
| Publishing | 1,054 |
| | 906 |
|
| Local Media | 4,037 |
| | 4,042 |
|
| Corporate/Eliminations | 484 |
| | 378 |
|
| Discontinued operations | 12 |
| | 13 |
|
| Total Assets | $ | 21,859 |
| | $ | 20,843 |
|
|
| | | | | | | | | | | |
| 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 and $34at December 31, 2018.
(b) Includes assets held for sale of $23 million at December 31, 20182019 and 2017, respectively.2018.
The following table presents the Company’sour revenues disaggregated into categories based on the nature of such revenues.
| | | Year Ended December 31, | 2018 |
| 2017 |
| 2016 | 2019 |
| 2018 |
| 2017 |
| Revenues by Type: | | | | | | | | | | |
| Advertising | $ | 6,195 |
| | $ | 5,753 |
| | $ | 6,288 |
| $ | 11,074 |
| | $ | 10,841 |
| | $ | 10,582 |
|
| Content licensing and distribution | | | | | | |
| Programming | 3,256 |
| | 3,122 |
| | 2,906 |
| |
| Affiliate | | 8,602 |
| | 8,376 |
| | 8,153 |
|
| Content licensing | | 6,483 |
| | 6,163 |
| | 5,947 |
|
| Theatrical | | 547 |
| | 744 |
| | 716 |
|
| Publishing | 825 |
| | 830 |
| | 767 |
| 814 |
| | 825 |
| | 830 |
|
| Affiliate and subscription fees | 4,003 |
| | 3,758 |
| | 2,978 |
| |
| Other | 235 |
| | 229 |
| | 227 |
| 292 |
| | 301 |
| | 307 |
|
| Total Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 13,166 |
| $ | 27,812 |
| | $ | 27,250 |
| | $ | 26,535 |
|
| | | Year Ended December 31, | 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Revenues: (a) | | | | | | | | | | |
| United States | $ | 11,979 |
| | $ | 11,675 |
| | $ | 11,317 |
| $ | 22,160 |
| | $ | 21,160 |
| | $ | 20,652 |
|
| International | 2,535 |
| | 2,017 |
| | 1,849 |
| 5,652 |
| | 6,090 |
| | 5,883 |
|
| Total Revenues | $ | 14,514 |
| | $ | 13,692 |
| | $ | 13,166 |
| $ | 27,812 |
| | $ | 27,250 |
| | $ | 26,535 |
|
(a) Revenue classifications are based on customers’ locations.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
| | | At December 31, | 2018 |
| 2017 | 2019 |
| 2018 |
Long-lived Assets: (a) | | | | | | |
| United States | $ | 14,286 |
| | $ | 13,699 |
| $ | 12,417 |
| | $ | 9,322 |
|
| International | 429 |
| | 495 |
| 498 |
| | 300 |
|
| Total Long-lived Assets | $ | 14,715 |
| | $ | 14,194 |
| $ | 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.
16) ADOPTION OF “REVENUE FROM CONTRACTS WITH CUSTOMERS”
On January 1, 2018, the Company adopted FASB Accounting Standards Codification 606 (“ASC 606”) on the recognition of revenues using the modified retrospective method applied to all contracts. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior periods have not been adjusted. The Company recorded an increase to accumulated deficit of $261 million as of January 1, 2018 reflecting the cumulative impact of the adoption of ASC 606.
The adoption of ASC 606 primarily resulted in two changes to the Company’s revenue recognition policies.
Revenues from Distribution Arrangements
Revenues from the Company’s distribution of third-party content are now 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, which include content licensing and distribution revenues and advertising revenues, were recognized at the net amount retained by the Company after the payment of fees to the third party. For the year ended December 31, 2018, revenues and operating expenses relating to such distribution arrangements were $279 million higher under ASC 606 than the amounts that would have been reported under previous accounting guidance, with no impact to operating income.
Revenues from the Renewal of Licensing Agreements
Revenues associated with the renewal of an existing license agreement are now recognized at the beginning of the renewal period. Under previous accounting guidance, these revenues were recognized upon the execution of such renewal. Content licensing and distribution revenue comparisons will continue to be impacted by fluctuations resulting from the timing of when Company-owned television series are made available for multiyear licensing agreements. Therefore, this change is not expected to have a material impact on the trend of the Company’s financial results. Additionally, historically, on an annual basis, revenues from renewals executed each year have approximated revenues associated with renewal periods that began in the same year.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presents the amount by which each applicable financial statement line item on the Consolidated Statement of Operations would have decreased for 2018 if license renewals were recognized under previous accounting guidance.
|
| | | | | |
| | Year Ended |
| | December 31, 2018 |
| Revenues | | $ | 263 |
| |
| Operating expenses | | 124 |
| |
| Operating income | | 139 |
| |
| Less: Provision for income taxes | | 30 |
| |
| Net earnings | | $ | 109 |
| |
| Diluted EPS | | $ | .29 |
| |
In addition, the adoption of ASC 606 resulted in certain classification changes on the Consolidated Balance Sheet. The primary change is the reclassification of the sales returns reserve relating to the publishing business to “Other current liabilities.” Such amount, which was $116 million at December 31, 2018, was previously presented as a reduction to receivables.
The following table presents the amount by which each applicable financial statement line item on the Consolidated Balance Sheet at December 31, 2018 would increase (decrease) if all of the above changes resulting from the adoption of ASC 606 were presented under previous accounting guidance.
|
| | | |
| Assets | |
| Receivables, net | $ | (102 | ) |
| Programming and other inventory (noncurrent) | $ | (35 | ) |
| Other assets (noncurrent receivables) | $ | 327 |
|
| | |
| Liabilities | |
| Other current liabilities | $ | (128 | ) |
| Deferred income tax liabilities, net | $ | 38 |
|
| Participants’ share and royalties payable | $ | 128 |
|
| | |
| Accumulated deficit | $ | 152 |
|
ASC 606 also requires enhanced disclosures relating to the Company’s revenues from contracts with customers (See Note 1), including the disaggregation of revenues into categories (See Note 15).
17)18) DISCONTINUED OPERATIONS
On November 16, 2017, the Companywe completed the split-off of CBS Radio through an exchange offer, in which the Companywe accepted 17.9 million shares of CBS Corp. Class B Common Stock from itsCBS stockholders in exchange for the 101.4 million shares of CBS Radio common stock that itwe 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.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following tables settable 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, 20172019 and 2016.2018 were not material to our consolidated financial statements.
| | | 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 | 444 |
| |
| (1 | ) | | 443 |
| 444 |
| |
| (8 | ) | | 436 |
|
| Market value adjustment | 980 |
| (a) | | — |
| | 980 |
| 980 |
| (a) | | — |
| | 980 |
|
| Restructuring charges | 7 |
| |
| — |
| | 7 |
| 7 |
| |
| — |
| | 7 |
|
| Total costs and expenses | 1,795 |
| | (1 | ) | | 1,794 |
| 1,795 |
| | (8 | ) | | 1,787 |
|
| Operating income (loss) | (777 | ) | | 1 |
| | (776 | ) | (777 | ) | | 8 |
| | (769 | ) |
| Interest expense | (70 | ) | |
| — |
| | (70 | ) | (70 | ) | |
| — |
| | (70 | ) |
| Other items, net | (2 | ) | | — |
| | (2 | ) | (2 | ) | | — |
| | (2 | ) |
| Earnings (loss) from discontinued operations | (849 | ) | | 1 |
| | (848 | ) | (849 | ) | | 8 |
| | (841 | ) |
| Income tax benefit (provision) | (55 | ) | |
| 45 |
| (b) | | (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 |
| (c) | | (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 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, the Companywe 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) ReflectsPrimarily 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 the Company’sour outdoor advertising businesses, primarily from a decrease to the guarantee liability associated with the 2013 disposal of the Company’sour outdoor advertising business in Europe.
|
| | | | | | | | | | | | | |
| 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 | 496 |
|
| | — |
| | | 496 |
|
| Depreciation and amortization | 26 |
|
| | — |
| | | 26 |
|
| Restructuring charges | 8 |
|
| | — |
| | | 8 |
|
| Impairment charge | 444 |
| (a) | | — |
| | | 444 |
|
| Total costs and expenses | 1,371 |
| | | — |
| | | 1,371 |
|
| Operating loss | (151 | ) | | | — |
| | | (151 | ) |
| Interest expense | (17 | ) |
| | — |
| | | (17 | ) |
| Other items, net | 1 |
|
| | — |
| | | 1 |
|
| Loss from discontinued operations | (167 | ) | | | — |
| | | (167 | ) |
| Income tax provision | (88 | ) |
| | (36 | ) | | | (124 | ) |
| Net loss from discontinued operations, net of tax | $ | (255 | ) | | | $ | (36 | ) | | | $ | (291 | ) |
(a) Reflects a pretax noncash impairment charge of $444 million ($427 million, net of tax) to reduce the carrying value of CBS Radio’s goodwill by $408 million ($405 million, net of tax) and FCC licenses in 11 radio markets by $36 million ($22 million, net of tax).
(b) Reflects a charge 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
18)19) COMMITMENTS AND CONTINGENCIES
The Company’sCommitments
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.
ProgrammingOur programming and talent commitments, of the Company, estimated to aggregate $8.98$10.36 billion as of December 31, 2018, primarily2019, include $6.62$5.39 billion for sports programming rights, $1.71$3.80 billion relating to the production and licensing of television and film programming, and $660 million$1.17 billion for talent contracts. The CompanyWe also hashave committed purchase obligations which include agreements to purchase goods or services in the future that totaled $795 million$1.52 billion as of December 31, 2018.2019.
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, 2018,2019, 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:
|
| | | | | | | | | | | | | |
| | Programming and Talent | | Purchase Obligations | | Other Long-Term Contractual Obligations |
| 2019 | $ | 2,270 |
| | $ | 285 |
| | | $ | — |
| |
| 2020 | 1,989 |
| | 247 |
| | | 569 |
| |
| 2021 | 1,830 |
| | 171 |
| | | 360 |
| |
| 2022 | 1,704 |
| | 26 |
| | | 199 |
| |
| 2023 | 300 |
| | 8 |
| | | 112 |
| |
| 2024 and thereafter | 889 |
| | 58 |
| | | 229 |
| |
| Total | $ | 8,982 |
| | $ | 795 |
| | | $ | 1,469 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
The Company hasWe also have long-term noncancellable operating and finance lease commitments for office space, equipment, transponders and studio facilities. The Company also enters into capital leases for satellite transponders.
Atfacilities, which are recorded on the Consolidated Balance Sheet at December 31, 2018, future minimum rental payments under noncancellable2019. See Note 9 for detail of our operating leases with terms in excess of one year and payments under capital leases are as follows:
|
| | | | | | | |
| | Leases |
| | Capital | | Operating |
| 2019 | $ | 13 |
| | $ | 174 |
|
| 2020 | 12 |
| | 129 |
|
| 2021 | 11 |
| | 122 |
|
| 2022 | 7 |
| | 110 |
|
| 2023 | 2 |
| | 101 |
|
| 2024 and thereafter | 2 |
| | 465 |
|
| Total minimum payments | $ | 47 |
| | $ | 1,101 |
|
| Less amounts representing interest | 4 |
| | |
| Present value of minimum payments | $ | 43 |
| | |
Future minimum operatingfinance lease payments have been reduced by future minimum sublease income of $30 million. Rent expense was $212 million in 2018, $181 million in 2017 and $167 million in 2016. Included in net earnings (loss) from discontinued operations was rent expense of $32 million in 2017 and $36 million in 2016.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
commitments.
Guarantees
The Company hasLetters of Credit and Surety Bonds. We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At December 31, 2018,2019, the outstanding letters of credit and surety bonds approximated $100$136 million and were not recorded on the Consolidated Balance Sheet.
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 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 separation agreement betweenMerger. 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 CompanyMerger (the “Demand”). On October 10, 2019, we offered to produce certain categories of documents properly within the scope of a books and Viacom Inc.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 CompanyCBS 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. have agreedStockholders 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 and indemnify the otheragainst 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 certain litigation in which the Company and/or Viacom Inc. is named.our consolidated financial statements.
Investigation-Related Matters. As announced on August 1, 2018, the Company’sCBS Board of Directors (“(the “CBS Board”) retained two law firms to conduct a full investigation of the allegations in recent press reports about the Company’sCBS’ former Chairman of the Board, President and Chief Executive Officer, Mr. Leslie Moonves, CBS News and cultural issues at all levels of the Company.CBS. On December 17, 2018, the CBS Board announced the completion of theits investigation, certain findings of the investigation and the CBS Board’s determination, discussed below, with respect to the termination of Mr. Moonves’sMoonves’ employment. The Company hasWe 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 hasand the United States Securities and Exchange Commission have also requested information about these matters. The Companymatters, 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. The Company isWe 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 the Company,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 the Company’sCBS 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, the CompanyCBS entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Leslie Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of the Company. Pursuant to the
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Separation Agreement, the Company is contributing the aggregate amount of $20 million toward various charitable organizations that support the #MeToo movement and equality for women in the workplace, which organizations were mutually agreed by the Company and Mr. Moonves. The Company has recorded the contribution of $20 million in “Restructuring and other corporate matters” on the Consolidated Statements of Operations for the year ended December 31, 2018.CBS. In October 2018, the Companywe contributed $120 million to a grantor trust.trust pursuant to the Separation Agreement. On December 17, 2018, the CBS 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’sMoonves’ employment for cause under his employment agreement with the Company.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 notified the Company of his election to demandcommenced a binding arbitration proceeding with respect to this matter and the related CBS Board investigation.investigation, which proceeding is ongoing. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. The Company isWe are currently unable to determine the outcome of the arbitration and the amount, if any, that may be awarded thereunder and, accordingly, no accrual for this matter has been made in the Company’sour 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 most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines.turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company doesWe do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2018, the Company2019, we had pending approximately 31,57030,950 asbestos claims, as compared with approximately 31,570 as of December 31, 2018 and 31,660 as of December 31, 2017 and 33,610 as of December 31, 2016.2017. During 2018, the Company2019, we received approximately 3,2903,460 new claims and closed or moved to an inactive docket approximately 3,3804,080 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 20182019 and 20172018 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $58 million and $45 million, and $57 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.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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. 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 fromFrom 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.
19) SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the components of Other items, net on the Consolidated Statements of Operations.
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Pension and postretirement benefit costs | $ | (63 | ) | | $ | (86 | ) | | $ | (70 | ) |
| Foreign exchange (losses) gains | (3 | ) | | 2 |
| | (12 | ) |
| Net loss from investments | (3 | ) | | (4 | ) | | — |
|
| Other items, net | $ | (69 | ) | | $ | (88 | ) | | $ | (82 | ) |
Supplemental Cash Flow Information
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
| Cash paid for interest: | | | | | |
| Continuing operations | $ | 457 |
| | $ | 448 |
| | $ | 407 |
|
| Discontinued operations | — |
| | 70 |
| | 8 |
|
| Total | $ | 457 |
| | $ | 518 |
| | $ | 415 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 |
| 2017 |
| 2016 |
| Cash paid (refunded) for income taxes: | | | | | |
| Continuing operations | $ | 16 |
|
| $ | 365 |
|
| $ | 373 |
|
| Discontinued operations | (4 | ) | | 26 |
| | 119 |
|
| Total | $ | 12 |
| | $ | 391 |
| | $ | 492 |
|
|
| | | | | | | | | | | |
| Year Ended December 31, | 2018 | | 2017 | | 2016 |
| Noncash investing and financing activities: | | | | | |
| Shares received in split-off of CBS Radio (Note 17) | $ | — |
| | $ | 1,007 |
| | $ | — |
|
| Noncash additions to property and equipment | $ | — |
| | $ | 31 |
| | $ | — |
|
| Equipment acquired under capitalized leases | $ | 9 |
| | $ | 5 |
| | $ | 10 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
20) SUPPLEMENTAL FINANCIAL INFORMATION
The following table presents the components of Other items, net on the Consolidated Statements of 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 split-off of CBS Radio in a noncash disposition (see Note 18).
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
21) QUARTERLY FINANCIAL DATA (unaudited):
|
| | | | | | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth | | |
2018 (a) | Quarter | | Quarter | | Quarter | | Quarter (b) | | Total Year |
| Revenues: | | | | | | | | | |
| Entertainment | $ | 2,753 |
| | $ | 2,402 |
| | $ | 2,190 |
| | $ | 2,833 |
| | $ | 10,178 |
|
| Cable Networks | 571 |
| | 553 |
| | 529 |
| | 551 |
| | 2,204 |
|
| Publishing | 160 |
| | 207 |
| | 240 |
| | 218 |
| | 825 |
|
| Local Media | 415 |
| | 420 |
| | 434 |
| | 561 |
| | 1,830 |
|
| Corporate/Eliminations | (138 | ) | | (116 | ) | | (130 | ) | | (139 | ) | | (523 | ) |
| Total Revenues | $ | 3,761 |
| | $ | 3,466 |
| | $ | 3,263 |
| | $ | 4,024 |
| | $ | 14,514 |
|
| Segment Operating Income (Loss): |
|
| | | | | | | | |
| Entertainment | $ | 486 |
| | $ | 367 |
| | $ | 384 |
| | $ | 438 |
| | $ | 1,675 |
|
| Cable Networks | 236 |
| | 245 |
| | 241 |
| | 193 |
| | 915 |
|
| Publishing | 16 |
| | 31 |
| | 51 |
| | 46 |
| | 144 |
|
| Local Media | 118 |
| | 128 |
| | 124 |
| | 239 |
| | 609 |
|
| Corporate | (75 | ) | | (77 | ) | | (64 | ) | | (79 | ) | | (295 | ) |
| Total Segment Operating Income | 781 |
| | 694 |
| | 736 |
| | 837 |
| | 3,048 |
|
| Restructuring charges | — |
| | (25 | ) | | — |
| | (42 | ) | | (67 | ) |
| Corporate matters | (9 | ) | | (10 | ) | | (46 | ) | | (63 | ) | | (128 | ) |
| Programming charges | — |
| | — |
| | — |
| | (85 | ) | | (85 | ) |
| Total Operating Income | $ | 772 |
| | $ | 659 |
| | $ | 690 |
| | $ | 647 |
| | $ | 2,768 |
|
| Net earnings | $ | 511 |
| | $ | 400 |
| | $ | 488 |
| | $ | 561 |
| | $ | 1,960 |
|
| | | | | | | | | | |
| Basic net earnings per common share | $ | 1.34 |
| | $ | 1.06 |
| | $ | 1.30 |
| | $ | 1.50 |
| | $ | 5.20 |
|
| | | | | | | | | | |
| Diluted net earnings per common share | $ | 1.32 |
| | $ | 1.05 |
| | $ | 1.29 |
| | $ | 1.49 |
| | $ | 5.14 |
|
| | | | | | | | | | |
| Weighted average number of common shares | | | | | | | | | |
| outstanding: | | | | | | | | | |
| Basic | 382 |
| | 378 |
| | 375 |
| | 374 |
| | 377 |
|
| Diluted | 386 |
| | 381 |
| | 379 |
| | 377 |
| | 381 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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) DuringOn December 4, 2019, Viacom merged with and into CBS, with CBS continuing as the fourth quartersurviving company. At the effective time of 2018, the Company began presentingMerger, 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 Sports Network in the Entertainment segment, to reflect changes in management structureat their historical carrying amounts and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Resultscompanies have been presented on a combined basis for all periods presented have been reclassified to conform to this presentation. The following table provides the impact on the Company’s revenues and Segment Operating Income by segment for 2018 as a result of this change. There was no change to the Company’s total revenues or total operating income.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Revenues | | Segment Operating Income |
| | First | | Second | | Third | | First | | Second | | Third |
| | Quarter | | Quarter | | Quarter | | Quarter | | Quarter | | Quarter |
| Entertainment | $ | 37 |
| | $ | 37 |
| | $ | 39 |
| | $ | (6 | ) | | $ | 11 |
| | $ | 7 |
|
| Cable Networks | $ | (38 | ) | | $ | (38 | ) | | $ | (40 | ) | | $ | 6 |
| | $ | (11 | ) | | $ | (7 | ) |
| Corporate/Eliminations | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | — |
|
(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 fourthfirst quarter includes a gain of 2018 includes the reversal$549 million ($386 million, net of a valuation allowance of $140 million relating to capital loss carryforwards that will be utilized in connection withtax) 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 the firstconnection with a reorganization of our international operations.
(d) The fourth quarter includes programming charges of 2019.$589 million.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth | | |
2017 (a) (e) | Quarter | | Quarter | | Quarter | | Quarter (c) (d) | | Total Year |
| Revenues: | | | | | | | | | | | |
| Entertainment | $ | 2,384 |
| | $ | 2,217 |
| | $ | 1,849 |
| | | $ | 2,856 |
| | | $ | 9,306 |
|
| Cable Networks | 505 |
| | 537 |
| | 805 |
| | | 508 |
| | | 2,355 |
|
| Publishing | 161 |
| | 206 |
| | 228 |
| | | 235 |
| | | 830 |
|
| Local Media | 409 |
| | 412 |
| | 397 |
| | | 450 |
| | | 1,668 |
|
| Corporate/Eliminations | (116 | ) | | (115 | ) | | (108 | ) | | | (128 | ) | | | (467 | ) |
| Total Revenues | $ | 3,343 |
| | $ | 3,257 |
| | $ | 3,171 |
| | | $ | 3,921 |
| | | $ | 13,692 |
|
| Segment Operating Income (Loss): | | | | | | | | | | | |
| Entertainment | $ | 400 |
| | $ | 359 |
| | $ | 354 |
| | | $ | 465 |
| | | $ | 1,578 |
|
| Cable Networks | 253 |
| | 247 |
| | 292 |
| | | 207 |
| | | 999 |
|
| Publishing | 15 |
| | 29 |
| | 47 |
| | | 45 |
| | | 136 |
|
| Local Media | 124 |
| | 128 |
| | 106 |
| | | 139 |
| | | 497 |
|
| Corporate | (66 | ) | | (73 | ) | | (70 | ) | | | (96 | ) | | | (305 | ) |
| Total Segment Operating Income | 726 |
| | 690 |
| | 729 |
| | | 760 |
| | | 2,905 |
|
| Restructuring charges | — |
| | — |
| | — |
| | | (63 | ) | | | (63 | ) |
| Other operating items, net | — |
| | — |
| | — |
| | | 19 |
| | | 19 |
|
| Total Operating Income | $ | 726 |
| | $ | 690 |
| | $ | 729 |
| | | $ | 716 |
| | | $ | 2,861 |
|
| Net earnings from continuing operations | $ | 454 |
| | $ | 397 |
| | $ | 418 |
| | | $ | 40 |
| | | $ | 1,309 |
|
Net earnings (loss) (b) | $ | (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 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| | 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) DuringOn December 4, 2019, Viacom merged with and into CBS, with CBS continuing as the first quartersurviving company. At the effective time of 2018, the Company adopted amended FASB guidance onMerger, the presentationcombined 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 net benefit cost. As a result,Viacom were combined with those of CBS at their historical carrying amounts and the components of net benefit cost other than the service cost component are presented in the statement of operations below the subtotal of operating income. All prior periodscompanies have been recast to conform to this presentation. This change resulted in an increase to total operating income of $22 million, $21 million, $22 million and $373 million for the first quarter, second quarter, third quarter and fourth quarter of 2017, respectively.
(b) CBS Radio has been presented ason a discontinued operationcombined basis for all periods presented. In the fourth quarter
(b) Includes costs for restructuring and other corporate matters of 2017, the Company recorded a loss on the split-off of CBS Radio of $105 million. During 2017, prior to the split-off, the Company recorded a market value adjustment of $980 million, including a charge of $715 million, a charge of $365 million and a gain of $100$194 million in the first quarter, $50 million in the second andquarter, $70 million in the third quarter respectively,and $176 million in the fourth quarter.
(c) The fourth quarter includes programming charges of $162 million and the reversal of a valuation allowance of $140 million relating to reducecapital loss carryforwards that were utilized in connection with the carrying valuesale of CBS Radio to the value indicated by the stock valuation of Entercom (See Note 17).
(c) In the fourth quarter of 2017, the Company recorded a pension settlement charge of $352 million for the settlement of pension obligations resulting from the transfer of pension obligations to an insurance company through the purchase of a group annuity contract (See Note 14).
(d) In the fourth quarter of 2017, the Company recorded a provisional charge of $129 million resulting from the enactment of the Tax Reform Act.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollarsTelevision City in millions, except per share amounts)2019.
(e) During the fourth quarter of 2018, the Company began presenting CBS Sports Network in the Entertainment segment, to reflect changes in management structure and the integration of CBS Sports Network programming with the CBS Television Network. CBS Sports Network was previously included in the Cable Networks segment. Results for all periods presented have been reclassified to conform to this presentation. The following table provides the impact on the Company’s revenues and Segment Operating Income by segment for 2017 as a result of this change. There was no change to the Company’s total revenues or total operating income.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Revenues | | Segment Operating Income |
| | First | | Second | | Third | | Fourth | | Total | | First | | Second | | Third | | Fourth | | Total |
| | Quarter | | Quarter | | Quarter | | Quarter | | Year | | Quarter | | Quarter | | Quarter | | Quarter | | Year |
| Entertainment | $ | 37 |
| | $ | 33 |
| | $ | 34 |
| | $ | 38 |
| | $ | 142 |
| | $ | (3 | ) | | $ | 8 |
| | $ | 4 |
| | $ | (4 | ) | | $ | 5 |
|
| Cable Networks | $ | (38 | ) | | $ | (34 | ) | | $ | (35 | ) | | $ | (39 | ) | | $ | (146 | ) | | $ | 3 |
| | $ | (8 | ) | | $ | (4 | ) | | $ | 4 |
| | $ | (5 | ) |
| Corporate/Eliminations | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 1 |
| | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
21) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CBS Operations Inc. is a wholly owned subsidiary of the Company. CBS Operations Inc. has fully and unconditionally guaranteed CBS Corp.’s senior debt securities (See Note 8). The following condensed consolidating financial statements present the results of operations, financial position and cash flows of CBS Corp., CBS Operations Inc., the direct and indirect Non-Guarantor Affiliates of CBS Corp. and CBS Operations Inc., and the eliminations necessary to arrive at the information for the Company on a consolidated basis. Changes to the entities that comprise the guarantor group are reflected for all periods presented.
|
| | | | | | | | | | | | | | | | | | | |
| | Statement of Operations |
| | For the Year Ended December 31, 2018 |
| | CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
| Revenues | $ | 187 |
| | $ | 10 |
| | $ | 14,317 |
| | $ | — |
| | $ | 14,514 |
|
| Costs and expenses: | | | | | | | | | |
| Operating | 99 |
| | 4 |
| | 9,008 |
| | — |
| | 9,111 |
|
| Selling, general and administrative | 54 |
| | 252 |
| | 1,911 |
| | — |
| | 2,217 |
|
| Depreciation and amortization | 4 |
| | 22 |
| | 197 |
| | — |
| | 223 |
|
| Restructuring and other corporate matters | 1 |
| | 141 |
| | 53 |
| | — |
| | 195 |
|
| Total costs and expenses | 158 |
| | 419 |
| | 11,169 |
| | — |
| | 11,746 |
|
| Operating income (loss) | 29 |
| | (409 | ) | | 3,148 |
| | — |
| | 2,768 |
|
| Interest (expense) income, net | (533 | ) | | (509 | ) | | 632 |
| | — |
| | (410 | ) |
| Other items, net | (32 | ) | | 15 |
| | (52 | ) | | — |
| | (69 | ) |
| Earnings (loss) before income taxes and equity in earnings (loss) of investee companies | (536 | ) | | (903 | ) | | 3,728 |
| | — |
| | 2,289 |
|
| Benefit (provision) for income taxes | 110 |
| | 185 |
| | (568 | ) | | — |
| | (273 | ) |
Equity in earnings (loss) of investee companies, net of tax | 2,386 |
| | 1,515 |
| | (56 | ) | | (3,901 | ) | | (56 | ) |
| Net earnings | $ | 1,960 |
| | $ | 797 |
| | $ | 3,104 |
| | $ | (3,901 | ) | | $ | 1,960 |
|
| Total comprehensive income | $ | 1,847 |
| | $ | 801 |
| | $ | 3,072 |
| | $ | (3,873 | ) | | $ | 1,847 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | 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 | 49 |
| | 274 |
| | 1,803 |
| | — |
| | 2,126 |
|
| Depreciation and amortization | 5 |
| | 23 |
| | 195 |
| | — |
| | 223 |
|
| Restructuring charges and other corporate matters | — |
| | 2 |
| | 61 |
| | — |
| | 63 |
|
| Other operating items, net | — |
| | — |
| | (19 | ) | | — |
| | (19 | ) |
| Total costs and expenses | 149 |
| | 305 |
| | 10,377 |
| | — |
| | 10,831 |
|
| Operating income (loss) | 23 |
| | (295 | ) | | 3,133 |
| | — |
| | 2,861 |
|
| Interest (expense) income, net | (509 | ) | | (486 | ) | | 602 |
| | — |
| | (393 | ) |
| Loss on early extinguishment of debt | (49 | ) | | — |
| | — |
| | — |
| | (49 | ) |
| Pension settlement charge | (352 | ) | | — |
| | — |
| | — |
| | (352 | ) |
| Other items, net | (37 | ) | | (54 | ) | | 3 |
| | — |
| | (88 | ) |
| 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 |
| | 1,450 |
| | (37 | ) | | (2,464 | ) | | (37 | ) |
| Net earnings from continuing operations | 356 |
| | 855 |
| | 2,562 |
| | (2,464 | ) | | 1,309 |
|
| Net earnings (loss) from discontinued operations, net of tax | 1 |
| | (5 | ) | | (948 | ) | | — |
| | (952 | ) |
| Net earnings | $ | 357 |
| | $ | 850 |
| | $ | 1,614 |
| | $ | (2,464 | ) | | $ | 357 |
|
| Total comprehensive income | $ | 462 |
| | $ | 839 |
| | $ | 1,640 |
| | $ | (2,479 | ) | | $ | 462 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | 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 | 46 |
| | 287 |
| | 1,721 |
| | — |
| | 2,054 |
|
| Depreciation and amortization | 5 |
| | 23 |
| | 197 |
| | — |
| | 225 |
|
| Restructuring and other corporate matters | — |
| | 2 |
| | 36 |
| | — |
| | 38 |
|
| Other operating items, net | — |
| | — |
| | (9 | ) | | — |
| | (9 | ) |
| Total costs and expenses | 118 |
| | 318 |
| | 9,828 |
| | — |
| | 10,264 |
|
| Operating income (loss) | 63 |
| | (306 | ) | | 3,145 |
| | — |
| | 2,902 |
|
| Interest (expense) income, net | (502 | ) | | (433 | ) | | 556 |
| | — |
| | (379 | ) |
| Pension settlement charge | (211 | ) | | — |
| | — |
| | — |
| | (211 | ) |
| Other items, net | (37 | ) | | 9 |
| | (54 | ) | | — |
| | (82 | ) |
| 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 |
| | 1,161 |
| | (50 | ) | | (2,897 | ) | | (50 | ) |
| Net earnings from continuing operations | 1,261 |
| | 655 |
| | 2,533 |
| | (2,897 | ) | | 1,552 |
|
| Net loss from discontinued operations, net of tax | — |
| | (1 | ) | | (290 | ) | | — |
| | (291 | ) |
| Net earnings | $ | 1,261 |
| | $ | 654 |
| | $ | 2,243 |
| | $ | (2,897 | ) | | $ | 1,261 |
|
| Total comprehensive income | $ | 1,264 |
| | $ | 679 |
| | $ | 2,212 |
| | $ | (2,891 | ) | | $ | 1,264 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | Balance Sheet |
| | At December 31, 2018 |
| | CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
| Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 148 |
| | $ | — |
| | $ | 174 |
| | $ | — |
| | $ | 322 |
|
| Receivables, net | 27 |
| | 1 |
| | 4,013 |
| | — |
| | 4,041 |
|
| Programming and other inventory | 2 |
| | 2 |
| | 1,984 |
| | — |
| | 1,988 |
|
| Prepaid expenses and other current assets | 81 |
| | 46 |
| | 310 |
| | (36 | ) | | 401 |
|
| Total current assets | 258 |
| | 49 |
| | 6,481 |
| | (36 | ) | | 6,752 |
|
| Property and equipment | 31 |
| | 223 |
| | 2,672 |
| | — |
| | 2,926 |
|
| Less accumulated depreciation and amortization | 14 |
| | 184 |
| | 1,519 |
| | — |
| | 1,717 |
|
| Net property and equipment | 17 |
| | 39 |
| | 1,153 |
| | — |
| | 1,209 |
|
| Programming and other inventory | 5 |
| | 4 |
| | 3,874 |
| | — |
| | 3,883 |
|
| Goodwill | 98 |
| | 62 |
| | 4,760 |
| | — |
| | 4,920 |
|
| Intangible assets | — |
| | — |
| | 2,638 |
| | — |
| | 2,638 |
|
| Investments in consolidated subsidiaries | 47,600 |
| | 16,901 |
| | — |
| | (64,501 | ) | | — |
|
| Other assets | 281 |
| | — |
| | 2,143 |
| | — |
| | 2,424 |
|
| Assets held for sale | — |
| | — |
| | 33 |
| | — |
| | 33 |
|
| Intercompany | — |
| | 526 |
| | 31,686 |
| | (32,212 | ) | | — |
|
| Total Assets | $ | 48,259 |
| | $ | 17,581 |
| | $ | 52,768 |
| | $ | (96,749 | ) | | $ | 21,859 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
| Accounts payable | $ | 5 |
| | $ | 31 |
| | $ | 165 |
| | $ | — |
| | $ | 201 |
|
Participants’ share and royalties payable | — |
| | — |
| | 1,177 |
| | — |
| | 1,177 |
|
| Accrued programming and production costs | 3 |
| | 2 |
| | 699 |
| | — |
| | 704 |
|
| Commercial paper | 674 |
| | — |
| | — |
| | — |
| | 674 |
|
| Current portion of long-term debt | 1 |
| | — |
| | 12 |
| | — |
| | 13 |
|
| Accrued expenses and other current liabilities | 395 |
| | 308 |
| | 1,137 |
| | (36 | ) | | 1,804 |
|
| Total current liabilities | 1,078 |
| | 341 |
| | 3,190 |
| | (36 | ) | | 4,573 |
|
| Long-term debt | 9,388 |
| | — |
| | 77 |
| | — |
| | 9,465 |
|
| Other liabilities | 2,777 |
| | 212 |
| | 2,028 |
| | — |
| | 5,017 |
|
| Intercompany | 32,212 |
| | — |
| | — |
| | (32,212 | ) | | — |
|
| Stockholders’ Equity: | | | | | | | | | |
| Preferred stock | — |
| | — |
| | 126 |
| | (126 | ) | | — |
|
| Common stock | 1 |
| | 123 |
| | 590 |
| | (713 | ) | | 1 |
|
| Additional paid-in capital | 43,637 |
| | — |
| | 60,894 |
| | (60,894 | ) | | 43,637 |
|
| Retained earnings (deficit) | (17,201 | ) | | 17,214 |
| | (9,381 | ) | | (7,833 | ) | | (17,201 | ) |
| Accumulated other comprehensive income (loss) | (775 | ) | | 22 |
| | 44 |
| | (66 | ) | | (775 | ) |
| | 25,662 |
| | 17,359 |
| | 52,273 |
| | (69,632 | ) | | 25,662 |
|
| Less treasury stock, at cost | 22,858 |
| | 331 |
| | 4,800 |
| | (5,131 | ) | | 22,858 |
|
Total Stockholders’ Equity | 2,804 |
| | 17,028 |
| | 47,473 |
| | (64,501 | ) | | 2,804 |
|
Total Liabilities and Stockholders’ Equity | $ | 48,259 |
| | $ | 17,581 |
| | $ | 52,768 |
| | $ | (96,749 | ) | | $ | 21,859 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | 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 |
| | 341 |
| | (36 | ) | | 463 |
|
| Total current assets | 335 |
| | 33 |
| | 5,941 |
| | (36 | ) | | 6,273 |
|
| Property and equipment | 49 |
| | 217 |
| | 2,681 |
| | — |
| | 2,947 |
|
| Less accumulated depreciation and amortization | 27 |
| | 163 |
| | 1,511 |
| | — |
| | 1,701 |
|
| Net property and equipment | 22 |
| | 54 |
| | 1,170 |
| | — |
| | 1,246 |
|
| 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 |
| | 15,385 |
| | — |
| | (60,889 | ) | | — |
|
| Other assets | 162 |
| | 5 |
| | 2,685 |
| | — |
| | 2,852 |
|
| Assets held for sale | — |
| | — |
| | 34 |
| | — |
| | 34 |
|
| Intercompany | — |
| | 1,221 |
| | 29,562 |
| | (30,783 | ) | | — |
|
| Total Assets | $ | 46,124 |
| | $ | 16,764 |
| | $ | 49,663 |
| | $ | (91,708 | ) | | $ | 20,843 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
| Accounts payable | $ | 1 |
| | $ | 30 |
| | $ | 200 |
| | $ | — |
| | $ | 231 |
|
| Participants’ share and royalties payable | — |
| | — |
| | 986 |
| | — |
| | 986 |
|
| Accrued programming and production costs | 4 |
| | 4 |
| | 489 |
| | — |
| | 497 |
|
| Commercial paper | 679 |
| | — |
| | — |
| | — |
| | 679 |
|
| Current portion of long-term debt | 2 |
| | — |
| | 17 |
| | — |
| | 19 |
|
| Accrued expenses and other current liabilities | 352 |
| | 269 |
| | 975 |
| | (36 | ) | | 1,560 |
|
| Total current liabilities | 1,038 |
| | 303 |
| | 2,667 |
| | (36 | ) | | 3,972 |
|
| Long-term debt | 9,378 |
| | — |
| | 86 |
| | — |
| | 9,464 |
|
| Other liabilities | 2,947 |
| | 234 |
| | 2,248 |
| | — |
| | 5,429 |
|
| 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 | ) | | 16,417 |
| | (12,224 | ) | | (4,193 | ) | | (18,900 | ) |
| Accumulated other comprehensive income (loss) | (662 | ) | | 18 |
| | 76 |
| | (94 | ) | | (662 | ) |
| | 24,236 |
| | 16,558 |
| | 49,462 |
| | (66,020 | ) | | 24,236 |
|
| Less treasury stock, at cost | 22,258 |
| | 331 |
| | 4,800 |
| | (5,131 | ) | | 22,258 |
|
| Total Stockholders’ Equity | 1,978 |
| | 16,227 |
| | 44,662 |
| | (60,889 | ) | | 1,978 |
|
Total Liabilities and Stockholders’ Equity | $ | 46,124 |
| | $ | 16,764 |
| | $ | 49,663 |
| | $ | (91,708 | ) | | $ | 20,843 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | Statement of Cash Flows |
| | For the Year Ended December 31, 2018 |
| | CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
| Net cash flow (used for) provided by operating activities | $ | (440 | ) | | $ | (286 | ) | | $ | 2,152 |
| | $ | — |
| | $ | 1,426 |
|
| Investing Activities: | | | | | | | | | |
| Investments in and advances to investee companies | — |
| | — |
| | (124 | ) | | — |
| | (124 | ) |
| Capital expenditures | — |
| | (18 | ) | | (147 | ) | | — |
| | (165 | ) |
| Acquisitions, net of cash acquired | — |
| | — |
| | (31 | ) | | — |
| | (31 | ) |
| Other investing activities | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
| Net cash flow used for investing activities from continuing operations | (5 | ) | | (18 | ) | | (302 | ) | | — |
| | (325 | ) |
| Net cash flow used for investing activities from discontinued operations | (23 | ) | | — |
| | — |
| | — |
| | (23 | ) |
| Net cash flow used for investing activities | (28 | ) | | (18 | ) | | (302 | ) | | — |
| | (348 | ) |
| Financing Activities: | | | | | | | | | |
| Repayments of short-term debt borrowings, net | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
| Payment of capital lease obligations | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| Dividends | (276 | ) | | — |
| | — |
| | — |
| | (276 | ) |
| Purchase of Company common stock | (586 | ) | | — |
| | — |
| | — |
| | (586 | ) |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (59 | ) | | — |
| | — |
| | — |
| | (59 | ) |
| Proceeds from exercise of stock options | 27 |
| | — |
| | — |
| | — |
| | 27 |
|
| Other financing activities | (1 | ) | | — |
| | (5 | ) | | — |
| | (6 | ) |
| Increase (decrease) in intercompany payables | 1,463 |
| | 304 |
| | (1,767 | ) | | — |
| | — |
|
| Net cash flow provided by (used for) financing activities | 563 |
| | 304 |
| | (1,788 | ) | | — |
| | (921 | ) |
| Net increase in cash, cash equivalents and restricted cash | 95 |
| | — |
| | 62 |
| | — |
| | 157 |
|
| Cash and cash equivalents at beginning of year | 173 |
| | — |
| | 112 |
| | — |
| | 285 |
|
Cash, cash equivalents and restricted cash at end of year (includes $120 of restricted cash) | $ | 268 |
| | $ | — |
| | $ | 174 |
| | $ | — |
| | $ | 442 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | 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: | | | | | | | | | |
| Investments in and advances to investee companies | — |
| | — |
| | (110 | ) | | — |
| | (110 | ) |
| Capital expenditures | — |
| | (30 | ) | | (155 | ) | | — |
| | (185 | ) |
Acquisitions (including acquired television library), net of cash acquired | — |
| | — |
| | (270 | ) | | — |
| | (270 | ) |
| 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 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | 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: | | | | | | | | | |
| Investments in and advances to investee companies | — |
| | — |
| | (81 | ) | | — |
| | (81 | ) |
| Capital expenditures | — |
| | (33 | ) | | (163 | ) | | — |
| | (196 | ) |
| Acquisitions | — |
| | — |
| | (92 | ) | | — |
| | (92 | ) |
| 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 |
|
|
| |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
|
| |
| Item 9A. | Controls and Procedures. |
The Company’sOur chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, the Company’sour disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)) were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Exchange Act. No change in the Company’sour internal control over financial reporting occurred during the Company’sour fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.
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-49 and 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 20192020 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-48.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-48.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.
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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Tabular dollars in millions)
| | | Col. A | | Col. B | | Col. C | | | Col. D | | Col. E | | 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 | | 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 | | $ | 49 |
| | $ | 1 |
| | $ | 5 |
| | $ | — |
| | $ | 14 |
| | $ | 41 |
| | | $ | 101 |
| | $ | — |
| | $ | 26 |
| | $ | 41 |
| | $ | 86 |
| |
| Year ended December 31, 2017 | | $ | 60 |
| | $ | 1 |
| | $ | 5 |
| | $ | — |
| | $ | 17 |
| | $ | 49 |
| | | $ | 105 |
| | $ | — |
| | $ | 31 |
| | $ | 35 |
| | $ | 101 |
| |
| Year ended December 31, 2016 | | $ | 59 |
| | $ | 1 |
| | $ | 12 |
| | $ | — |
| | $ | 12 |
| | $ | 60 |
| | |
| | | | | | | | | | | | |
|
| | | | | | | | | | |
|
| |
| Valuation allowance on deferred tax assets: | | | | | | | | | | | |
|
| | | | | | | | | | |
|
| |
| Year ended December 31, 2019 | | | $ | 841 |
| | $ | — |
| | $ | 76 |
| | $ | 366 |
| | $ | 551 |
| |
| Year ended December 31, 2018 | | $ | 974 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 258 |
| | $ | 719 |
| | | $ | 1,120 |
| | $ | — |
| | $ | 37 |
| | $ | 316 |
| | $ | 841 |
| |
| Year ended December 31, 2017 | | $ | 928 |
| | $ | 218 |
| | $ | 143 |
| | $ | — |
| | $ | 315 |
| | $ | 974 |
| | | $ | 1,108 |
| | $ | 218 |
| | $ | 157 |
| | $ | 363 |
| | $ | 1,120 |
| |
| Year ended December 31, 2016 | | $ | 914 |
| | $ | — |
| | $ | 41 |
| | $ | — |
| | $ | 27 |
| | $ | 928 |
| | |
| | | | | | | | | | | | |
|
| | | | | | | | | | |
|
| |
| Reserves for inventory obsolescence: | | | | | | | | | | | |
|
| | | | | | | | | | |
|
| |
| Year ended December 31, 2019 | | | $ | 56 |
| | $ | — |
| | $ | 11 |
| | $ | 6 |
| | $ | 61 |
| |
| Year ended December 31, 2018 | | $ | 19 |
| | $ | — |
| | $ | 7 |
| | $ | — |
| | $ | 6 |
| | $ | 20 |
| | | $ | 67 |
| | $ | — |
| | $ | 5 |
| | $ | 16 |
| | $ | 56 |
| |
| Year ended December 31, 2017 | | $ | 19 |
| | $ | 1 |
| | $ | 6 |
| | $ | — |
| | $ | 7 |
| | $ | 19 |
| | | $ | 59 |
| | $ | — |
| | $ | 26 |
| | $ | 18 |
| | $ | 67 |
| |
| Year ended December 31, 2016 | | $ | 23 |
| | $ | 1 |
| | $ | 2 |
| | $ | — |
| | $ | 7 |
| | $ | 19 |
| | |
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) | PurchaseAgreement and Sale AgreementPlan of Merger, dated as of December 10, 2018 amongAugust 13, 2019, by and between CBS BroadcastingCorporation and Viacom Inc., Television City Equity, LLC and First American Title Insurance Company (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of CBS Corporation filed December 11, 2018)August 19, 2019) (File No. 001‑09553)001-09553). |
| (b) | Amendment No. 1 to the Agreement and Plan of Merger, dated as of October 16, 2019, by and between CBS Corporation and Viacom Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of CBS Corporation, filed October 17, 2019) (File No. 001-09553). |
| (3) | | Articles of Incorporation and Bylaws |
| | (a) | Amended and Restated Certificate of Incorporation of CBS CorporationViacomCBS Inc., effective December 31, 20054, 2019 (incorporated by reference to Exhibit 3(a)3.1 to the AnnualCurrent Report on Form 10‑8‑K of CBS Corporation for the fiscal year endedfiled December 31, 2005)4, 2019) (File No. 001‑09553). |
| | (b) | Amended and Restated Bylaws of CBS CorporationViacomCBS Inc., effective as of December 4, 2019 (incorporated by reference to Exhibit 3(b)3.2 to the QuarterlyCurrent Report on Form 10-Q8-K of CBS Corporation for the quarter ended September 30, 2018)filed December 4, 2019) (File No. 001‑09553)001-09553). |
| (4) | | Instruments defining the rights of security holders, including indentures |
| | (a) | Description of Class A Common Stock and Class B Common Stock (filed herewith). |
| (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). |
| | (b)(c) | 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 CBS CorporationViacomCBS Inc. and its subsidiaries are omitted pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S‑K. CBS CorporationViacomCBS Inc. hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request. |
| (10) | | Material Contracts |
| | (a) | CBS Corporation 2009 Long‑Term Incentive Plan (as amended and restated December 11, 2018) (incorporated by reference to (filed herewith)Exhibit 10(a) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2018) (File No. 001-09553).* |
| | (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 |
| | | (iii) | Restricted Share Units with Time Vesting (incorporated by reference to Exhibit 10(c)(vii) to the Annual Report on Form 10‑K of CBS Corporation for the fiscal year ended December 31, 2011) (File No. 001‑09553).* |
| | (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).* |
*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 |
| | (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) (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2017) (File No. 001-09553) (as Part B was amended by Amendment No. 6 as of October 2, 2017) (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2017) (File No. 001-09553) (as Part A was amended by Amendment No. 5 as of July 1, 2019) (incorporated by reference to Exhibit 10(a) for the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended March 31, 2019) (as Part B was amended by Amendment No. 7 as of July 1, 2019) (incorporated by reference to Exhibit 10(a) for the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended March 31, 2019) (File No. 001-09553).* |
| | (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) (incorporated by reference to Exhibit 10(f) of the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2017) (File No. 001-09553) (as Part B was amended by Amendment No. 5 as of October 2, 2017) (incorporated by reference to Exhibit 10(f) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2017) (File No. 001-09553) (as Part A was amended by Amendment No. 4 as of July 1, 2019) (incorporated by reference to Exhibit 10(b) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended March 31, 2019) (as Part B was amended by Amendment No. 6 as of July 1, 2019) (incorporated by reference to Exhibit 10(b) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended March 31, 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 |
| | (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 31, 2019) ((incorporated by reference to filed herewithExhibit 10(g)) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2018) (File No. 001-09553).* |
| | (h)(m) | 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).* |
| | (i) | Former Viacom Deferred Compensation Plan for Non‑Employee Directors (as amended and restated as of October 14, 2003) (incorporated by reference to Exhibit 10(e) to the Annual Report on Form 10‑K of Former Viacom for the fiscal year ended December 31, 2003) (File No. 001‑09553).* |
| (j)(n) | 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).* |
| | (k) | CBS Corporation 2000 Stock Option Plan for Outside Directors (as amended and restated through December 14, 2016) (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, 2016) (File No. 001-09553).* |
| (l)(o) | 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).* |
| | (m)(p) | 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 |
| | (n)(q) | Viacom Inc. 2011 RSU Plan for Outside Directors, as amended and restated as of January 1, 2016 (incorporated by reference to Exhibit B to the Definitive Proxy Statement of Viacom Inc. filed January 23, 2015) (File No. 001-32686), as further amended and restated as of May 18, 2016 (incorporated by reference to Exhibit 10.2 to the Quarterly Report of Viacom Inc. for the quarter ended June 30, 2016) (File No. 001-32686).* |
| (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).* |
| (s) | 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 as of August 13, 2019, between Viacom Inc. and Robert M. Bakish (incorporated by reference to Exhibit 10.5 to CBS Corporation’s Registration Statement No. 333-234238 on Form S-4 filed October 17, 2019) (File No. 333-234238).* |
| (v) | Employment Agreement dated October 18, 2018 between CBS Corporation and Christina Spade (incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of CBS Corporation filed October 19, 2018) (File No. 001-09553).* |
| (w) | Employment Agreement, dated as of August 13, 2019, between CBS Corporation and Christina Spade (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-4 of CBS Corporation filed October 17, 2019) (Registration No. 333-234238) (File No. 001-09553).* |
| (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, 2018) (File No. 001-09553).* |
| (aa) | 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) 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 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 27, 2018) (File No. 001-09553).* |
| | (o)(ee) | EmploymentLetter Agreement dated October 18, 2018as of April 23, 2019 between CBS Corporation and Christina SpadeJoseph R. Ianniello (incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of CBS Corporation filed October 19, 2018)April 26, 2019) (File No. 001-09553).* |
| | (p)(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).* |
| | (q)(ll) | EmploymentSeparation Agreement dated as of January 1,February 22, 2019 between CBS Corporation and Jonathan H. Anschell (filed herewith).* |
| (r) | Employment Agreement dated as of January 1, 2019 between CBS Corporation and Richard M. Jones (filed herewith).* |
| (s) | Employment Agreement dated May 19, 2017 between CBS Corporation and Leslie Moonves (incorporated by reference to Exhibit 10(a) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended June 30, 2017) (File No. 001-09553).* |
| (t) | Letter Agreement dated December 11, 2014 between CBS Corporation and Leslie Moonves amending and restating the Letter Agreement dated May 2, 2012 between CBS Corporation and Leslie Moonves (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, 2014) (File No. 001-09553).*Certain portions of this exhibit have been omitted pursuant to a confidential treatment order granted by the Securities and Exchange Commission.
|
| (u) | Separation and Settlement Agreement and Releases effective as of September 9, 2018 between CBS Corporation and Leslie Moonves (incorporated by reference to Exhibit 10(b) to the Current Report on Form 8-K of CBS Corporation filed September 10, 2018) (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 |
| (v) | Employment Agreement dated as of September 29, 2016 between CBS Corporation and Anthony G. Ambrosio (incorporated by reference to Exhibit 10(a) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended September 30, 2016), as amended by Letter Agreement dated August 4, 2017 (incorporated by reference to Exhibit 10(c) to the Quarterly Report on Form 10-Q of CBS Corporation for the quarter ended September 30, 2017) (File No. 001-09553).* |
| (w) | Separation Agreement dated October 11, 2018 between CBS Corporation and Anthony G. AmbrosioLawrence P. Tu (incorporated by reference to Exhibit 10 to the Current Report on Form 8-K of CBS Corporation filed October 12, 2018)February 27, 2019) (File No. 001-09553).* |
| | (x)(mm) | Employment Agreement dated as of July 1, 2016 between CBS Corporation and Gil Schwartz (incorporated by reference to Exhibit 10(u) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2015) (File No. 001-09553), as amended by Letter Agreement dated August 4, 2017 (incorporated by reference to Exhibit 10(d) 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 January 11, 2018 (incorporated by reference to Exhibit 10(s) to the Annual Report on Form 10-K of CBS Corporation for the year ended December 31, 2017) (File No. 001-09553).* |
| (y) | Separation Agreement dated as of September 21, 2018 between CBS Corporation and Gil D. Schwartz (incorporated by reference to Exhibit 10(b) to the Current Report on Form 8-K of CBS Corporation filed September 27, 2018) (File No. 001-09553).* |
| (z) | CBS Corporation plansPlans 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).* |
| | (aa)(nn) | CBS Corporation Matching Gifts Program for Directors ((incorporated by reference to filed herewithExhibit 10(aa)) to the Annual Report on Form 10-K of CBS Corporation for the fiscal year ended December 31, 2018) (File No. 001-09553).* |
| | (bb)(oo) | Amended and Restated $2.5$3.5 Billion Credit Agreement, dated as of June 9, 2016,January 23, 2020, among CBS Corporation; CBS OperationsViacomCBS Inc.; the Subsidiary Borrowers Partiesparty thereto; the Lenders named therein; JPMorgan Chase Bank, N.A., as Administrative Agent; Citibank, N.A., as Syndication Agent; and 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, and Wells Fargo Bank, N.A., as Co‑Documentation Agents (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of CBS CorporationViacomCBS Inc. filed June 10, 2016)January 23, 2020) (File No. 001-09553). |
| | (cc)(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). |
| | (dd)(qq) | SeparationAmendment No. 1 to the Settlement and Release Agreement, dated as of December 19, 2005August 13, 2019, by and between Former Viacomamong 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 New Viacom Corp.among the parties listed therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8‑K8-K of Former ViacomCBS Corporation filed December 21, 2005)August 19, 2019) (File No. 001‑09553)001-09553). |
| | (ee)(ss) | Tax MattersGovernance Agreement, dated as of December 30, 2005August 13, 2019, by and between Former Viacom and New Viacom Corp.among the parties listed therein (incorporated by reference to Exhibit 10.110.2 to the Current Report on Form 8‑K8-K of CBS Corporation filed January 5, 2006)August 19, 2019) (File No. 001‑09553)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 CBS CorporationViacomCBS Inc. pursuant to Rule 13a‑14(a) or 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 (filed herewith). |
| | (b) | Certification of the Chief Financial Officer of CBS CorporationViacomCBS Inc. pursuant to Rule 13a‑14(a) or 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 (filed herewith). |
| (32) | | Section 1350 Certifications |
| | (a) | Certification of the Chief Executive Officer of CBS CorporationViacomCBS Inc. furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (furnished herewith). |
| | (b) | Certification of the Chief Financial Officer of CBS CorporationViacomCBS Inc. furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002 (furnished herewith). |
| (101) | | Interactive Data File |
| | | 101. INS XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101. SCH 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.
|
| | | |
| | | CBS CORPORATIONVIACOMCBS INC. |
| | | | |
| | | By: | /s/ Joseph R. IannielloRobert M. Bakish |
| | | | Joseph R. IannielloRobert M. Bakish
President and Acting Chief Chief Executive Officer |
Date: February 15, 201920, 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/ Joseph R. IannielloRobert M. Bakish | | President and Acting Chief Executive OfficerOfficer; Director (Principal Executive Officer) | | February 15, 201920, 2020 |
Joseph R. IannielloRobert M. Bakish | | |
| | | | | | |
| /s/ Christina Spade | | Executive Vice President, Chief Financial Officer (Principal Financial Officer) | | February 15, 201920, 2020 |
| Christina Spade | | |
| | | | | | |
/s/ Lawrence LidingKatherine Gill-Charest | | Executive Vice President,
Controller and Chief Accounting Officer
(Principal Accounting Officer) | | February 15, 201920, 2020 |
Lawrence LidingKatherine Gill-Charest | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
| Candace K. Beinecke | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
| Barbara M. Byrne | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
Gary L. CountrymanBrian Goldner | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
Brian GoldnerLinda M. Griego | | |
| | | | | | |
|
| | | | | |
| | | | | | |
| Signature | | Title | | Date |
| | | | | | |
| * | | Director | | February 15, 2019 |
Linda M. Griego | | |
| | | | | |
* | | Director | | February 15, 201920, 2020 |
| Robert N. Klieger | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
Martha L. MinowJudith A. McHale | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
| Ronald L. Nelson | | |
| | | | | |
| * | | Director | | February 20, 2020 |
| Charles E. Phillips, Jr. | | |
| | | | | |
| * | | Chair | | February 20, 2020 |
| Shari E. Redstone | | |
| | | | | | |
| * | | Director | | February 15, 201920, 2020 |
| Susan Schuman | | |
| | | | | | |
| * | | Director
| | February 15, 201920, 2020 |
| Nicole Seligman | | |
| | | | | |
| * | | Director
| | February 20, 2020 |
| Frederick O. Terrell | | |
| | | | | | |
| * | | Director
(Interim Chairman of the
Board of Directors)
| | February 15, 2019 |
Strauss Zelnick | | |
| | | | | |
| | | | | |
*By: | /s/ Lawrence P. TuChrista A. D’Alimonte | | | | February 15, 201920, 2020 |
| | Lawrence P. TuChrista A. D’Alimonte
Attorney-in-Fact for Directors | | |
