UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192020
OR
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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 CORPORATIONViacomCBS Inc.
(Exact name of registrant as specified in its charter)
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| | | | |
Delaware | | 04-2949533 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
51 W. 52nd Street,1515 Broadway | New York, | New York | | 1001910036 |
(Address of principal executive offices) | | (Zip Code) |
(212) 975-4321258-6000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 | | | CBS.AVIACA | | | | New YorkThe Nasdaq Stock ExchangeMarket LLC | |
Class B Common Stock, $0.001 par value | | | CBSVIAC | | | | New YorkThe Nasdaq Stock ExchangeMarket LLC | |
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 ☒ No ☐
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 the registrant was required to submit such files). Yes ☒ No ☐
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 Exchange Act.
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| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock outstanding at August 5, 2019:3, 2020:
Class A Common Stock, par value $.001 per share— 22,803,15152,266,444
Class B Common Stock, par value $.001 per share— 351,863,655563,771,436
CBS CORPORATIONVIACOMCBS INC.
INDEX TO FORM 10-Q
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| PART I – FINANCIAL INFORMATION | |
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Item 1. | | |
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Item 1A. | | |
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PART I – FINANCIAL INFORMATION
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Item 1. | Financial Statements. |
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
| | | Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 |
| 2019 |
Revenues | $ | 3,809 |
| | $ | 3,466 |
| | $ | 7,976 |
| | $ | 7,227 |
| $ | 6,275 |
| | $ | 7,143 |
| | $ | 12,944 |
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| $ | 14,243 |
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Costs and expenses: | |
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Operating | 2,509 |
| | 2,184 |
| | 5,257 |
| | 4,584 |
| 3,485 |
| | 4,210 |
| | 7,550 |
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| 8,458 |
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Selling, general and administrative | 545 |
| | 532 |
| | 1,118 |
| | 1,056 |
| 1,222 |
| | 1,371 |
| | 2,563 |
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| 2,684 |
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Depreciation and amortization | 53 |
| | 56 |
| | 106 |
| | 112 |
| 124 |
| | 109 |
| | 237 |
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| 215 |
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Restructuring and other corporate matters (Note 3) | 7 |
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| 35 |
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| 121 |
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| 44 |
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Gain on sale of assets (Note 1) | — |
| | — |
| | (549 | ) |
| — |
| |
Restructuring and other corporate matters | | 158 |
| | 7 |
| | 391 |
|
| 185 |
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Total costs and expenses | 3,114 |
| | 2,807 |
| | 6,053 |
| | 5,796 |
| 4,989 |
| | 5,697 |
| | 10,741 |
| | 11,542 |
|
Gain on sale of assets | | — |
| | — |
| | — |
|
| 549 |
|
Operating income | 695 |
| | 659 |
| | 1,923 |
| | 1,431 |
| 1,286 |
| | 1,446 |
| | 2,203 |
| | 3,250 |
|
Interest expense | (115 | ) | | (116 | ) | | (232 | ) | | (234 | ) | (263 | ) | | (237 | ) | | (504 | ) |
| (477 | ) |
Interest income | 12 |
| | 14 |
| | 26 |
| | 31 |
| 11 |
| | 15 |
| | 25 |
|
| 34 |
|
Loss on extinguishment of debt | | (103 | ) | | — |
| | (103 | ) |
| — |
|
Other items, net | (21 | ) | | (24 | ) | | (42 | ) | | (35 | ) | 6 |
| | 15 |
| | (27 | ) |
| 25 |
|
Earnings before income taxes and equity in loss of investee companies | 571 |
| | 533 |
| | 1,675 |
| | 1,193 |
| |
Earnings from continuing operations before income taxes and equity in loss of investee companies | | 937 |
| | 1,239 |
| | 1,594 |
| | 2,832 |
|
(Provision) benefit for income taxes | (119 | ) | | (113 | ) | | 377 |
| | (248 | ) | (202 | ) | | (241 | ) | | (339 | ) |
| 135 |
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Equity in loss of investee companies, net of tax | (12 | ) | | (20 | ) | | (29 | ) | | (34 | ) | (12 | ) | | (21 | ) | | (21 | ) |
| (39 | ) |
Net earnings from continuing operations | | 723 |
| | 977 |
| | 1,234 |
| | 2,928 |
|
Net earnings from discontinued operations, net of tax | | 3 |
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| 6 |
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| 11 |
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| 19 |
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Net earnings (ViacomCBS and noncontrolling interests) | | 726 |
| | 983 |
| | 1,245 |
| | 2,947 |
|
Net earnings attributable to noncontrolling interests | | (245 | ) | | (6 | ) | | (248 | ) |
| (11 | ) |
Net earnings attributable to ViacomCBS | | $ | 481 |
| | $ | 977 |
| | $ | 997 |
| | $ | 2,936 |
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| | | | | | | | |
Amounts attributable to ViacomCBS: | | | | | | | | |
Net earnings from continuing operations | | $ | 478 |
| | $ | 971 |
| | $ | 986 |
|
| $ | 2,917 |
|
Net earnings from discontinued operations, net of tax | | 3 |
| | 6 |
| | 11 |
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| 19 |
|
Net earnings attributable to ViacomCBS | | $ | 481 |
| | $ | 977 |
| | $ | 997 |
| | $ | 2,936 |
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Basic net earnings per common share attributable to ViacomCBS: | | |
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Net earnings from continuing operations | | $ | .78 |
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| $ | 1.58 |
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| $ | 1.60 |
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| $ | 4.74 |
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Net earnings from discontinued operations | | $ | — |
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| $ | .01 |
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| $ | .02 |
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| $ | .03 |
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Net earnings | $ | 440 |
| | $ | 400 |
| | $ | 2,023 |
| | $ | 911 |
| $ | .78 |
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| $ | 1.59 |
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| $ | 1.62 |
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| $ | 4.77 |
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Basic net earnings per common share | $ | 1.18 |
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| $ | 1.06 |
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| $ | 5.41 |
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| $ | 2.40 |
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Diluted net earnings per common share | $ | 1.17 |
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| $ | 1.05 |
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| $ | 5.38 |
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| $ | 2.38 |
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Diluted net earnings per common share attributable to ViacomCBS: | | |
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Net earnings from continuing operations | | $ | .77 |
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| $ | 1.57 |
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| $ | 1.60 |
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| $ | 4.73 |
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Net earnings from discontinued operations | | $ | — |
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| $ | .01 |
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| $ | .02 |
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| $ | .03 |
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Net earnings | | $ | .78 |
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| $ | 1.58 |
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| $ | 1.62 |
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| $ | 4.76 |
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Weighted average number of common shares outstanding: | |
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Basic | 374 |
| | 378 |
| | 374 |
| | 380 |
| 615 |
| | 615 |
| | 615 |
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| 615 |
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Diluted | 376 |
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| 381 |
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| 376 |
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| 383 |
| 617 |
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| 617 |
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| 617 |
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| 617 |
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See notes to consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)
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| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net earnings | $ | 440 |
| | $ | 400 |
| | $ | 2,023 |
| | $ | 911 |
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Other comprehensive income (loss), net of tax: | | | | | | | |
Cumulative translation adjustments | (1 | ) | | (8 | ) | | 2 |
| | (14 | ) |
Amortization of net actuarial loss | 13 |
| | 15 |
| | 27 |
| | 30 |
|
Total other comprehensive income, net of tax | 12 |
| | 7 |
| | 29 |
| | 16 |
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Total comprehensive income | $ | 452 |
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| $ | 407 |
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| $ | 2,052 |
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| $ | 927 |
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| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net earnings (ViacomCBS and noncontrolling interests) | $ | 726 |
| | $ | 983 |
| | $ | 1,245 |
| | $ | 2,947 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Cumulative translation adjustments | 37 |
| | (8 | ) | | (67 | ) | | 8 |
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Net actuarial loss and prior service costs | 18 |
| | 15 |
| | 35 |
| | 29 |
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Other comprehensive income (loss), net of tax (ViacomCBS and noncontrolling interests) | 55 |
| | 7 |
| | (32 | ) | | 37 |
|
Comprehensive income | 781 |
| | 990 |
| | 1,213 |
| | 2,984 |
|
Less: Comprehensive income attributable to noncontrolling interests | 245 |
| | 5 |
| | 245 |
| | 13 |
|
Comprehensive income attributable to ViacomCBS | $ | 536 |
| | $ | 985 |
| | $ | 968 |
| | $ | 2,971 |
|
See notes to consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
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| At | | At |
| June 30, 2019 | | December 31, 2018 |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 216 |
| | | | $ | 322 |
| |
Receivables, less allowances of $46 (2019) and $41 (2018) | | 3,795 |
| | | | 4,041 |
| |
Programming and other inventory (Note 4) | | 1,945 |
| | | | 1,988 |
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Prepaid income taxes | | — |
| | | | 27 |
| |
Prepaid expenses | | 158 |
| | | | 149 |
| |
Other current assets | | 222 |
| | | | 225 |
| |
Total current assets | | 6,336 |
| | | | 6,752 |
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Property and equipment | | 2,931 |
| | | | 2,926 |
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Less accumulated depreciation and amortization | | 1,754 |
| | | | 1,717 |
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Net property and equipment | | 1,177 |
| | | | 1,209 |
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Programming and other inventory (Note 4) | | 4,269 |
| | | | 3,883 |
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Goodwill | | 5,062 |
| | | | 4,920 |
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Intangible assets | | 2,660 |
| | | | 2,638 |
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Operating lease assets (Note 12) | | 922 |
| | | | — |
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Deferred income tax assets, net | | 785 |
| | | | 29 |
| |
Other assets | | 2,624 |
| | | | 2,395 |
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Assets held for sale | | — |
| | | | 33 |
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Total Assets | | $ | 23,835 |
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| $ | 21,859 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | |
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Current Liabilities: | |
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Accounts payable | | $ | 214 |
| | | | $ | 201 |
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Accrued compensation | | 217 |
| | | | 346 |
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Participants’ share and royalties payable | | 1,188 |
| | | | 1,177 |
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Accrued programming and production costs | | 590 |
| | | | 704 |
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Income taxes payable | | 113 |
| | | | — |
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Commercial paper (Note 6) | | — |
| | | | 674 |
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Accrued expenses and other current liabilities | | 1,521 |
| | | | 1,471 |
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Total current liabilities | | 3,843 |
| | | | 4,573 |
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Long-term debt (Note 6) | | 9,359 |
| | | | 9,465 |
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Pension and postretirement benefit obligations | | 1,366 |
| | | | 1,388 |
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Deferred income tax liabilities, net | | 535 |
| | | | 399 |
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Noncurrent operating lease liabilities (Note 12) | | 858 |
| | | | — |
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Other liabilities | | 3,121 |
| | | | 3,230 |
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Commitments and contingencies (Note 13) | |
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Stockholders’ Equity: | |
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Class A Common Stock, par value $.001 per share; 375 shares authorized; 23 (2019) and 35 (2018) shares issued | | — |
| | | | — |
| |
Class B Common Stock, par value $.001 per share; 5,000 shares authorized; 852 (2019) and 838 (2018) shares issued | | 1 |
| | | | 1 |
| |
Additional paid-in capital | | 43,534 |
| | | | 43,637 |
| |
Accumulated deficit | | (15,002 | ) | | | | (17,201 | ) | |
Accumulated other comprehensive loss (Note 8) | | (922 | ) | | | | (775 | ) | |
| | 27,611 |
| | | | 25,662 |
| |
Less treasury stock, at cost; 500 (2019 and 2018) Class B shares | | 22,858 |
| | | | 22,858 |
| |
Total Stockholders’ Equity | | 4,753 |
| | | | 2,804 |
| |
Total Liabilities and Stockholders’ Equity | | $ | 23,835 |
| | | | $ | 21,859 |
| |
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| At | | At |
| June 30, 2020 | | December 31, 2019 |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 2,288 |
| | | | $ | 632 |
| |
Receivables, net | | 7,139 |
| | | | 7,206 |
| |
Programming and other inventory | | 1,837 |
| | | | 2,876 |
| |
Prepaid and other current assets | | 1,175 |
| | | | 1,188 |
| |
Total current assets | | 12,439 |
| | | | 11,902 |
| |
Property and equipment, net | | 1,995 |
| | | | 2,085 |
| |
Programming and other inventory | | 9,728 |
| | | | 8,652 |
| |
Goodwill | | 17,077 |
| | | | 16,980 |
| |
Intangible assets, net | | 2,948 |
| | | | 2,993 |
| |
Operating lease assets | | 1,841 |
| | | | 1,939 |
| |
Deferred income tax assets, net | | 919 |
| | | | 939 |
| |
Other assets | | 4,212 |
| | | | 4,006 |
| |
Assets held for sale | | 29 |
| | | | 23 |
| |
Total Assets | | $ | 51,188 |
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| $ | 49,519 |
| |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | |
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Current Liabilities: | |
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| | | |
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Accounts payable | | $ | 422 |
| | | | $ | 667 |
| |
Accrued expenses | | 1,553 |
| | | | 1,760 |
| |
Participants’ share and royalties payable | | 2,090 |
| | | | 1,977 |
| |
Accrued programming and production costs | | 1,189 |
| | | | 1,500 |
| |
Deferred revenues | | 695 |
| | | | 739 |
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Debt | | 364 |
| | | | 717 |
| |
Other current liabilities | | 1,672 |
| | | | 1,688 |
| |
Total current liabilities | | 7,985 |
| | | | 9,048 |
| |
Long-term debt | | 19,704 |
| | | | 18,002 |
| |
Participants’ share and royalties payable | | 1,485 |
| | | | 1,546 |
| |
Pension and postretirement benefit obligations | | 2,070 |
| | | | 2,121 |
| |
Deferred income tax liabilities, net | | 708 |
| | | | 500 |
| |
Operating lease liabilities | | 1,816 |
| | | | 1,909 |
| |
Program rights obligations | | 252 |
| | | | 356 |
| |
Other liabilities | | 2,344 |
| | | | 2,494 |
| |
Redeemable noncontrolling interest | | 274 |
| | | | 254 |
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Commitments and contingencies (Note 15) | |
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ViacomCBS stockholders’ equity: | |
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| | | |
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Class A Common Stock, par value $.001 per share; 55 shares authorized; 52 (2020 and 2019) shares issued | | — |
|
|
|
| — |
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Class B Common Stock, par value $.001 per share; 5,000 shares authorized; 1,066 (2020) and 1,064 (2019) shares issued | | 1 |
|
|
|
| 1 |
| |
Additional paid-in capital | | 29,680 |
|
|
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| 29,590 |
| |
Treasury stock, at cost; 502 (2020) and 501 (2019) Class B shares | | (22,958 | ) |
|
|
| (22,908 | ) | |
Retained earnings | | 9,150 |
|
|
|
| 8,494 |
| |
Accumulated other comprehensive loss | | (1,999 | ) |
|
|
| (1,970 | ) | |
Total ViacomCBS stockholders’ equity | | 13,874 |
| | | | 13,207 |
| |
Noncontrolling interests | | 676 |
|
|
|
| 82 |
| |
Total Equity | | 14,550 |
| | | | 13,289 |
| |
Total Liabilities and Equity | | $ | 51,188 |
| | | | $ | 49,519 |
| |
See notes to consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
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| | | | | | | |
| Six Months Ended |
| June 30, |
| 2019 | | 2018 |
Operating Activities: | | | |
Net earnings | $ | 2,023 |
| | $ | 911 |
|
Adjustments to reconcile net earnings to net cash flow provided by operating activities from continuing operations: |
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Depreciation and amortization | 106 |
|
| 112 |
|
Deferred tax (benefit) provision | (607 | ) | | 40 |
|
Stock-based compensation | 75 |
|
| 91 |
|
Equity in loss of investee companies, net of tax and distributions | 29 |
|
| 34 |
|
Gain on sale of assets | (549 | ) | | — |
|
Change in assets and liabilities, net of investing and financing activities | (763 | ) |
| (143 | ) |
Net cash flow provided by operating activities from continuing operations | 314 |
|
| 1,045 |
|
Net cash flow used for operating activities from discontinued operations | — |
|
| (2 | ) |
Net cash flow provided by operating activities | 314 |
|
| 1,043 |
|
Investing Activities: |
|
|
|
|
|
Investments in and advances to investee companies | (72 | ) |
| (71 | ) |
Capital expenditures | (60 | ) |
| (62 | ) |
Acquisitions, net of cash acquired | (39 | ) | | (29 | ) |
Proceeds from dispositions | 736 |
|
| — |
|
Proceeds from sale of investments | 15 |
| | — |
|
Other investing activities | 2 |
| | 2 |
|
Net cash flow provided by (used for) investing activities from continuing operations | 582 |
|
| (160 | ) |
Net cash flow used for investing activities from discontinued operations | — |
|
| (23 | ) |
Net cash flow provided by (used for) investing activities | 582 |
|
| (183 | ) |
Financing Activities: |
|
|
|
|
|
Repayments of short-term debt borrowings, net | (674 | ) |
| (309 | ) |
Proceeds from issuance of senior notes | 493 |
| | — |
|
Repayment of senior notes | (600 | ) | | — |
|
Payment of finance lease obligations | (6 | ) |
| (8 | ) |
Payment of contingent consideration | (3 | ) | | (5 | ) |
Dividends | (138 | ) |
| (140 | ) |
Purchase of Company common stock | (14 | ) |
| (394 | ) |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (43 | ) |
| (58 | ) |
Acquisition of noncontrolling interest | (26 | ) | | — |
|
Proceeds from exercise of stock options | 11 |
|
| 22 |
|
Other financing activities | — |
| | (1 | ) |
Net cash flow used for financing activities | (1,000 | ) |
| (893 | ) |
Net decrease in cash, cash equivalents and restricted cash | (104 | ) |
| (33 | ) |
Cash, cash equivalents and restricted cash at beginning of period (includes $120 (2019) and $0 (2018) of restricted cash) | 442 |
|
| 285 |
|
Cash, cash equivalents and restricted cash at end of period (includes $122 (2019) and $0 (2018) of restricted cash) | $ | 338 |
|
| $ | 252 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
Cash paid for interest | $ | 220 |
| | $ | 231 |
|
Cash paid for income taxes | $ | 317 |
| | $ | 31 |
|
|
| | | | | | | |
| Six Months Ended |
| June 30, |
| 2020 |
| 2019 |
Operating Activities: | | | |
Net earnings (ViacomCBS and noncontrolling interests) | $ | 1,245 |
|
| $ | 2,947 |
|
Less: Net earnings from discontinued operations, net of tax | 11 |
|
| 19 |
|
Net earnings from continuing operations | 1,234 |
|
| 2,928 |
|
Adjustments to reconcile net earnings from continuing operations to net cash flow provided by operating activities: |
|
|
|
|
|
Depreciation and amortization | 237 |
|
| 215 |
|
Deferred tax provision (benefit) | 224 |
|
| (535 | ) |
Stock-based compensation | 145 |
|
| 106 |
|
Gain on sale of assets | — |
|
| (549 | ) |
Gains from investments | (32 | ) |
| (77 | ) |
Loss on extinguishment of debt | 103 |
| | — |
|
Equity in loss of investee companies, net of tax and distributions | 22 |
|
| 41 |
|
Change in assets and liabilities | (782 | ) |
| (940 | ) |
Net cash flow provided by operating activities | 1,151 |
|
| 1,189 |
|
Investing Activities: |
|
|
|
|
|
Investments | (60 | ) |
| (132 | ) |
Capital expenditures | (132 | ) |
| (142 | ) |
Acquisitions, net of cash acquired | (141 | ) |
| (361 | ) |
Proceeds from dispositions | 146 |
|
| 751 |
|
Other investing activities | — |
|
| 4 |
|
Net cash flow (used for) provided by investing activities | (187 | ) |
| 120 |
|
Financing Activities: |
|
|
|
|
|
Repayments of short-term debt borrowings, net | (698 | ) |
| (674 | ) |
Proceeds from issuance of senior notes | 4,370 |
|
| 493 |
|
Repayment of notes and debentures | (2,535 | ) |
| (600 | ) |
Dividends | (301 | ) |
| (299 | ) |
Purchase of Company common stock | (58 | ) |
| (14 | ) |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (59 | ) |
| (52 | ) |
Other financing activities | (70 | ) |
| (81 | ) |
Net cash flow provided by (used for) financing activities | 649 |
|
| (1,227 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (17 | ) |
| 2 |
|
Net increase in cash, cash equivalents and restricted cash | 1,596 |
|
| 84 |
|
Cash, cash equivalents and restricted cash at beginning of period (includes $202 (2020) and $120 (2019) of restricted cash) | 834 |
|
| 976 |
|
Cash, cash equivalents and restricted cash at end of period (includes $142 (2020) and $122 (2019) of restricted cash) | $ | 2,430 |
|
| $ | 1,060 |
|
See notes to consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited; in millions)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Class A Common Stock: | | | | | | | |
Balance, beginning and end of period | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Class B Common Stock: | | | | | | | |
Balance, beginning and end of period | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Additional Paid-In Capital: | | | | | | | |
Balance, beginning of period | 43,582 |
| | 43,743 |
| | 43,637 |
| | 43,797 |
|
Stock-based compensation | 36 |
| | 47 |
| | 75 |
| | 98 |
|
Exercise of stock options | — |
| | 6 |
| | 11 |
| | 22 |
|
Retirement of treasury stock | (6 | ) | | (7 | ) | | (43 | ) | | (59 | ) |
Dividends | (68 | ) | | (69 | ) | | (136 | ) | | (138 | ) |
Acquisition of noncontrolling interest | (10 | ) | | — |
| | (10 | ) | | — |
|
Balance, end of period | 43,534 |
| | 43,720 |
| | 43,534 |
| | 43,720 |
|
Accumulated Deficit: | | | | | | | |
Balance, beginning of period | (15,442 | ) | | (18,650 | ) | | (17,201 | ) | | (18,900 | ) |
Net earnings | 440 |
| | 400 |
| | 2,023 |
| | 911 |
|
Adoption of new revenue recognition standard | — |
| | — |
| | — |
| | (261 | ) |
Reclassification of income tax effects of the Tax Reform Act (Note 1) | — |
| | — |
| | 176 |
| | — |
|
Balance, end of period | (15,002 | ) | | (18,250 | ) | | (15,002 | ) | | (18,250 | ) |
Accumulated Other Comprehensive Loss: | | | | | | | |
Balance, beginning of period | (934 | ) | | (653 | ) | | (775 | ) | | (662 | ) |
Other comprehensive income | 12 |
| | 7 |
| | 29 |
| | 16 |
|
Reclassification of income tax effects of the Tax Reform Act (Note 1) | — |
| | — |
| | (176 | ) | | — |
|
Balance, end of period | (922 | ) | | (646 | ) | | (922 | ) | | (646 | ) |
Treasury Stock, at cost: | | | | | | | |
Balance, beginning of period | (22,858 | ) | | (22,458 | ) | | (22,858 | ) | | (22,258 | ) |
Class B Common Stock purchased | — |
| | (200 | ) | | — |
| | (400 | ) |
Shares paid for tax withholding for stock-based compensation | (6 | ) | | (7 | ) | | (43 | ) | | (59 | ) |
Retirement of treasury stock | 6 |
| | 7 |
| | 43 |
| | 59 |
|
Balance, end of period | (22,858 | ) | | (22,658 | ) | | (22,858 | ) | | (22,658 | ) |
Total Stockholders’ Equity | $ | 4,753 |
| | $ | 2,167 |
| | $ | 4,753 |
| | $ | 2,167 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Class A and B Common Stock | Additional Paid-In Capital | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total ViacomCBS Stockholders’ Equity | | Non-Controlling Interests | | Total Equity |
| (Shares) | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2020 | 615 |
| | $ | 1 |
| | $ | 29,633 |
| | $ | (22,958 | ) | | | $ | 8,827 |
| | | | $ | (2,054 | ) | | | | $ | 13,449 |
| | | | $ | 72 |
| | | $ | 13,521 |
|
Stock-based compensation activity and other | 1 |
| | — |
| | 47 |
| | — |
| | | — |
| | | | — |
| | | | 47 |
| | | | — |
| | | 47 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | | (150 | ) | | | | — |
| | | | (150 | ) | | | | — |
| | | (150 | ) |
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | | (8 | ) | | | | — |
| | | | (8 | ) | | | | 359 |
| (a) | | 351 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | | 481 |
| | | | — |
| | | | 481 |
| | | | 245 |
| | | 726 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | | — |
| | | | 55 |
| | | | 55 |
| | | | — |
| | | 55 |
|
June 30, 2020 | 616 |
| | $ | 1 |
| | $ | 29,680 |
| | $ | (22,958 | ) | | | $ | 9,150 |
| | | | $ | (1,999 | ) | | | | $ | 13,874 |
| | | | $ | 676 |
| | | $ | 14,550 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Class A and B Common Stock | Additional Paid-In Capital | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total ViacomCBS Stockholders’ Equity | | Non-Controlling Interests | | Total Equity |
| (Shares) | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | 615 |
| | $ | 1 |
| | $ | 29,590 |
| | $ | (22,908 | ) | | | $ | 8,494 |
| | | | $ | (1,970 | ) | | | | $ | 13,207 |
| | | | $ | 82 |
| | | $ | 13,289 |
|
Stock-based compensation activity and other | 2 |
| | — |
| | 90 |
| | — |
| | | — |
| | | | — |
| | | | 90 |
| | | | — |
| | | 90 |
|
Class B Common Stock purchased | (1 | ) | | — |
| | — |
| | (50 | ) | | | — |
| | | | — |
| | | | (50 | ) | | | | — |
| | | (50 | ) |
Dividends | — |
| | — |
| | — |
| | — |
| | | (300 | ) | | | | — |
| | | | (300 | ) | | | | — |
| | | (300 | ) |
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | | (41 | ) | | | | — |
| | | | (41 | ) | | | | 349 |
| (a) | | 308 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | | 997 |
| | | | — |
| | | | 997 |
| | | | 248 |
| | | 1,245 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | | — |
| | | | (29 | ) | | | | (29 | ) | | | | (3 | ) | | | (32 | ) |
June 30, 2020 | 616 |
| | $ | 1 |
| | $ | 29,680 |
| | $ | (22,958 | ) | | | $ | 9,150 |
| | | | $ | (1,999 | ) | | | | $ | 13,874 |
| | | | $ | 676 |
| | | $ | 14,550 |
|
(a) Primarily reflects the acquisition of Miramax. (See Note 2.)
See notes to consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(Unaudited; in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Class A and B Common Stock | Additional Paid-In Capital | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total ViacomCBS Stockholders’ Equity | | Non-Controlling Interests | | Total Equity |
| (Shares) | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2019 | 615 |
| | $ | 1 |
| | $ | 49,927 |
| | $ | (43,412 | ) | | | $ | 7,594 |
| | | | $ | (1,811 | ) | | | | $ | 12,299 |
| | | | $ | 49 |
| | | $ | 12,348 |
|
Stock-based compensation activity and other | — |
| | — |
| | 27 |
| | 13 |
| | | — |
| | | | — |
| | | | 40 |
| | | | — |
| | | 40 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | | (149 | ) | | | | — |
| | | | (149 | ) | | | | — |
| | | (149 | ) |
Noncontrolling interests | — |
| | — |
| | (10 | ) | | — |
| | | (4 | ) | | | | — |
| | | | (14 | ) | | | | (11 | ) | | | (25 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | | 977 |
| | | | — |
| | | | 977 |
| | | | 6 |
| | | 983 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | | — |
| | | | 8 |
| | | | 8 |
| | | | (1 | ) | | | 7 |
|
June 30, 2019 | 615 |
| | $ | 1 |
| | $ | 49,944 |
| | $ | (43,399 | ) | | | $ | 8,418 |
| | | | $ | (1,803 | ) | | | | $ | 13,161 |
| | | | $ | 43 |
| | | $ | 13,204 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Class A and B Common Stock | Additional Paid-In Capital | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total ViacomCBS Stockholders’ Equity | | Non-Controlling Interests | | Total Equity |
| (Shares) | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2018 | 613 |
| | $ | 1 |
| | $ | 49,907 |
| | $ | (43,420 | ) | | | $ | 5,569 |
| | | | $ | (1,608 | ) | | | | $ | 10,449 |
| | | | $ | 54 |
| | | $ | 10,503 |
|
Stock-based compensation activity and other | 2 |
| | — |
| | 47 |
| | 21 |
| | | (4 | ) | | | | — |
| | | | 64 |
| | | | — |
| | | 64 |
|
Dividends | — |
| | — |
| | — |
| | — |
| | | (299 | ) | | | | — |
| | | | (299 | ) | | | | — |
| | | (299 | ) |
Noncontrolling interests | — |
| | — |
| | (10 | ) | | — |
| | | (14 | ) | | | | — |
| | | | (24 | ) | | | | (24 | ) | | | (48 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | | 2,936 |
| | | | — |
| | | | 2,936 |
| | | | 11 |
| | | 2,947 |
|
Reclassification of income tax effect of the Tax Reform Act | — |
| | — |
| | — |
| | — |
| | | 230 |
| | | | (230 | ) | | | | — |
| | | | — |
| | | — |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | | — |
| | | | 35 |
| | | | 35 |
| | | | 2 |
| | | 37 |
|
June 30, 2019 | 615 |
| | $ | 1 |
| | $ | 49,944 |
| | $ | (43,399 | ) | | | $ | 8,418 |
| | | | $ | (1,803 | ) | | | | $ | 13,161 |
| | | | $ | 43 |
| | | $ | 13,204 |
|
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, Paramount Television Studios and Miramax) 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, the “Company” or “CBS Corp.”) is comprised of the following segments: Entertainment (CBS Television, comprised of the 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, Pop and Smithsonian Networks), Publishing (Simon & Schuster) and Local Media (CBS Television Stations and CBS Local Digital Media).requires.
Basis of Presentation-The-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. (“ViacomCBS”). 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 at their historical carrying amounts and the companies have been presented on a combined basis for all periods presented.
The accompanying unaudited consolidated financial statements of the Company have been prepared on a basis consistent with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of theour financial position, results of operations and cash flows of the Company for the periods presented. Certain previously reported amounts have been reclassified to conform to the current presentation.
Use of Estimates-The preparation of the Company’sour consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases itsperiods presented. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differvary from these estimates under different assumptions or conditions.
Noncurrent Receivables-Noncurrent receivables of $1.77 billion at June 30, 2019The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and $1.55 billion atDecember 31, 2018 are included in “Other assets” on the Company’s Consolidated Balance Sheets and 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 collected over the term of the license period.
Deferred Revenues-Deferred revenues of $287 million at June 30, 2019 and $274 million at December 31, 2018 are primarily included within “Accrued expenses and other current liabilities” on the Company’s Consolidated Balance Sheets. These amounts consist mainly of cash received related to advertising arrangements and the licensing of television programming for which the revenues have not yet been earned. The change in deferred revenues for the six months ended June 30, 2019 primarily reflects cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period offset by $152 million of revenues recognized that were included in deferred revenues at December 31, 2018.
Unrecognized Revenues Under Contract-As of June 30, 2019, unrecognized revenue attributable to unsatisfied performance obligations under the Company’s long-term contracts was $3.47 billion, of which $984 million is expected to continue to impact, the macroeconomic environment in the United States and globally, as well our business, financial condition and results of operations. Due to the evolving and uncertain nature of COVID-19, it is reasonably possible that it could materially impact our estimates, particularly those that require consideration of forecasted financial information, in the near to medium term. These estimates relate to certain accounts including, but not limited to, receivables, programming and other inventory, deferred income tax assets, finite and indefinite lived intangible assets, including goodwill and FCC licenses, and other long-lived assets. The magnitude of the impact will depend on numerous evolving factors that we may not be recognized forable to accurately predict, including the remainderduration and extent of 2019, $1.21 billion for 2020, $833 million for 2021,the pandemic, the impact of federal, state, local and $434 million thereafter. These amounts only include contracts subjectforeign governmental actions, consumer behavior in response to a guaranteed fixed amount or the guaranteed minimum under variable contracts. Such amounts change on a regular basis as the Company renews existing agreements or enters into new agreements. Unrecognized revenues under contract disclosed above do not include
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
(i) contracts with an original expected term of one year or less, mainly consisting of the Company’s advertising contracts (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage, mainly consisting of affiliatepandemic and subscription fee agreementssuch governmental actions, and (iii) long-term licensing agreements for multiple programs for which the Company’s right to invoice corresponds with the value of the programs provided to the customer.
Leases-The Company has operating leases primarily for office space, equipment, satellite transponders and studio facilities and finance leases for satellite transponders and office equipment. The Company determines that a contract contains a lease if it obtains substantially all of the economic benefits of, and the right to direct the use of, an asset identifiedoperating conditions that we may face in the contract. For leases with terms greater than 12 months, the Company records a right-of-use asset and a lease liability representing the present valueaftermath 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 the Company’s 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”), the Company includes both the lease costs and non-lease costs in the measurement of the lease asset and liability. The Company also owns buildings and production facilities where it leases space to lessees.COVID-19.
The Company’s leases have remaining terms ranging from one to 16 years and often contain renewal options to extend the lease for periods of generally up to five years. For leases that contain renewal options, the Company includes the renewal period in the lease term if it is reasonably certain that the option will be exercised. Lease expenses and income 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.
Restricted Cash-Restricted cash of $122 million at June 30, 2019 and $120 million at December 31, 2018 is included within “Other assets” on the Company’s Consolidated Balance Sheets and 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 13).
Net Earnings per Common Share-Basic net earnings per share (“EPS”) is based upon net earnings 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”) or performance stock units (“PSUs”) 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 7 million stock options and RSUs for each of the three25 million and six months endedJune 30, 2019, and 826 million stock options and RSUs for each of the three and six months ended June 30, 2018.2020, respectively, and 17 million and 20 million for the three and six months ended June 30, 2019, respectively.
The table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS.
| | | Three Months Ended | | Six Months Ended | Three Months Ended | | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
(in millions) | 2019 | | 2018 | | 2019 | | 2018 | 2020 | | 2019 | | 2020 | | 2019 |
Weighted average shares for basic EPS | 374 |
| | 378 |
| | 374 |
| | 380 |
| 615 |
| | 615 |
| | 615 |
| | 615 |
|
Dilutive effect of shares issuable under stock-based compensation plans | 2 |
| | 3 |
| | 2 |
| | 3 |
| 2 |
| | 2 |
| | 2 |
| | 2 |
|
Weighted average shares for diluted EPS | 376 |
| | 381 |
| | 376 |
| | 383 |
| 617 |
| | 617 |
| | 617 |
| | 617 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Other Liabilities-Other liabilities consist primarily of the noncurrent portion of residual liabilities of previously disposed businesses, participants’ share and royalties payable, program rights obligations, long-term tax liabilities, deferred compensation and other employee benefit accruals.
Additional Paid-In Capital-For the six months ended June 30, 2019 and 2018, the Company recorded dividends of $136 million and $138 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.
Gain on Sale of Assets-During the first quarter of 2019, the Company completed the sale of its CBS Television City property and sound stage operation (“CBS Television City”) for $750 million. The Company has 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 Company’s Consolidated Balance Sheet at June 30, 2019 is a liability of $122 million, reflecting the present value of the estimated amount payable under the guarantee obligation. This transaction resulted in a gain of $549 million ($386 million, net of tax), which includes a reduction for the guarantee obligation. CBS Television City has been classified as held for sale on the Company’s Consolidated Balance Sheet at December 31, 2018.
Acquisition-In March 2019, the Company acquired the remaining 50% interest in Pop, a general entertainment cable network, for $50 million, bringing the Company’s ownership to 100%. The assets acquired primarily consist of goodwill and other identifiable intangible assets. The results of Pop are included in the Cable Networks segment from the date of acquisition.
Recently Adopted Accounting Pronouncements
Leases
During the first quarter of 2019, the Company adopted Financial Accounting Standards Board (“FASB”) guidance on the accounting for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, the Company recognizes 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. The Company 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. As a result of this guidance, the Company’s Consolidated Balance Sheet at June 30, 2019 included right-of-use assets of $922 million and lease liabilities of $1.0 billion for its operating leases. This guidance did not have an impact on the Company’s Consolidated Statement of Operations. See Note 12 for additional information.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
During the first quarter of 2019, the Company 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, the Company remeasured its deferred income tax assets and liabilities to reflect the reduction in the federal income tax rate from 35% to 21%. The remeasurement was recognized in net earnings and as a result, the income tax effects of the Tax Reform Act on items within AOCI remained at historical rates (“stranded tax effects”). During the first quarter of 2019, as a result of the adoption of this guidance, the Company elected to reclassify the stranded tax effects of $176 million relating to its pension and postretirement obligations from AOCI to
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
accumulated deficit. This guidance also requires entities to disclose their accounting policy for releasing stranded tax effects, unrelated to the Tax Reform Act, from AOCI. For pension and postretirement benefit plans, the Company releases stranded tax effects from AOCI when the pension and postretirement plans are terminated.
Targeted Improvements to Accounting for Hedging Activities
During the first quarter of 2019, the Company adopted FASB 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. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
Improvements to Accounting for Costs of Films and License Agreements for Program Materials
In March 2019, the FASB issuedOn January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) 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 of the adoption of this guidance, the capitalization of costs incurred to produce episodic television series willis no longer be limited to the amount of revenue contracted in the initial market until persuasive evidence of a secondary market exists. In addition, under this guidance requires the Company to testour film and television programming is tested for impairment of television seriesindividually on a title-by-title basis, or together with other seriesfilms and television programming as part of a group, based on the predominant monetization strategy of the series.film or television programming. Further, for programming monetized in a film group, this guidance requires any changes to the estimated use of the film or television series to be accounted for prospectively. This guidance also removes the requirement to classify all capitalized costs for produced television series as noncurrent on theeliminates existing balance sheet classification guidance and adds new disclosure requirements relating to costs for acquired and produced television series. The Company is currently evaluating the impactinternally-produced programming. As a result of this guidance, whichbeginning in the first quarter of 2020, all of our programming inventory, other than prepayments for the rights to air sporting and other live events, is effectivenow classified as noncurrent on the Consolidated Balance Sheet. Therefore, $1.17 billion of programming inventory that was classified in current assets at December 31, 2019 was reclassified to noncurrent assets on January 1, 2020. This guidance did not have a material impact on the Consolidated Statement of Operations. See Note 3 for interim and annual periods beginning after December 15, 2019, with earlyadditional disclosures relating to the adoption permitted.of this guidance.
Collaborative Arrangements: Clarifying the Interaction with the New Revenue Standard
In November 2018,On January 1, 2020, we adopted FASB guidance on the FASB issued guidance to clarifyaccounting for collaborative arrangements, which clarifies that certain transactions between parties to collaborative arrangements should be accounted for in accordance with FASB revenue guidance when the counterparty is a customer. ThisThe adoption of this guidance also prohibits the presentation of collaborative arrangements as revenues from contracts with customers if the counterparty isdid not have 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 anmaterial impact on the Company’sour consolidated financial statements.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
In August 2018, theOn January 1, 2020, we adopted 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. TheUnder this guidance, also specifies the financial statement presentation for capitalizedsuch implementation costs andwill be capitalized in “Other assets” on the Consolidated Balance Sheet, with the related amortization presented in “Selling, general and administrative expenses” on the Consolidated Statement of Operations. This guidance was applied prospectively to implementation costs incurred after January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Financial Instruments
On January 1, 2020, we adopted FASB 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. The guidance applies primarily to our trade and other receivables, and requires the use of a forward-looking “expected loss” model instead of the “incurred loss” model that was used under previous FASB guidance for determining an allowance for credit losses. The adoption of this guidance did not have a material impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued guidance providing optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance is effective for all entities as well as required financial statement disclosures. The Company isof March 12, 2020 through December 31, 2022. We are currently evaluating the impact of the changes in reference rates and the exemptions and exceptions in this guidance whichon our consolidated financial statements.
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. This guidance is effective for interim and annual periods beginning after December 15, 2019,2020 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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 is currently evaluating the impact of this guidance, which isamendments affect annual disclosures only and are effective for our fiscal year ending on December 31, 2020. The amendments are required to be applied retrospectively and is effective for annual periods ending after December 15, 2020, with earlyretrospectively. The adoption permitted.
Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued amendedof this guidance that eliminates, adds and modifies certain disclosure requirements for fair value measurements. This guidance, which 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’sour consolidated financial statements.
2) STOCK-BASED COMPENSATIONACQUISITION
On April 3, 2020, we acquired a 49% interest in Miramax, a global film and television studio, for $375 million, which included a cash payment at closing 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 acquisition, we entered into commercial agreements with Miramax under which we have exclusive, long-term distribution rights to Miramax’s catalog, adding more than 700 titles to our existing library. We also have certain rights to co-produce, co-finance and/or distribute new film and television projects. The investment is accounted for as a consolidated variable interest entity (“VIE”). We are the primary beneficiary of the VIE due to our power to direct the distribution of Miramax’s films and television series, which is considered the most significant activity of the VIE.
The following table summarizes our estimated allocation of the Company’s stock-based compensation expense forpurchase price as of the three and six months ended June 30, 2019 and 2018.acquisition date.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 |
| 2018 | | 2019 | | 2018 |
RSUs and PSUs | $ | 33 |
| | $ | 41 |
| | $ | 66 |
| | $ | 79 |
|
Stock options | 3 |
| | 6 |
| | 9 |
| | 12 |
|
Stock-based compensation expense, before income taxes | 36 |
| | 47 |
| | 75 |
| | 91 |
|
Related tax benefit | (10 | ) | | (12 | ) | | (19 | ) | | (23 | ) |
Stock-based compensation expense, net of tax benefit | $ | 26 |
| | $ | 35 |
| | $ | 56 |
| | $ | 68 |
|
|
| | | | | |
Assets | | | |
Cash | | $ | 32 |
| |
Accounts receivable and other current assets | | 19 |
| |
Programming inventory | | 536 |
| |
Goodwill | | 99 |
| |
Intangible assets | | 12 |
| |
Other assets (noncurrent) | | 7 |
| |
Assets acquired | | $ | 705 |
| |
| | | |
Liabilities | | | |
Accounts payable and accrued expenses | | $ | 13 |
| |
Participants’ share and royalties payable (current) | | 16 |
| |
Deferred revenues | | 10 |
| |
Participants’ share and royalties payable (noncurrent) | | 20 |
| |
Debt | | 105 |
| |
Other liabilities (noncurrent) | | 28 |
| |
Liabilities assumed | | 192 |
| |
Noncontrolling interests | | 363 |
| |
Total purchase price | | $ | 150 |
| |
During
The goodwill, which is not deductible for tax purposes, reflects the six months ended June 30, 2019,expected Company-specific synergies arising from the Company granted 3 million RSUs for CBS Corp. Class B Common Stockacquisition and is included in the Filmed Entertainment segment. Intangible assets consist of a trade name with a weighted average per unit grant-date fair valueuseful life of $50.45. RSUs granted during the first six months10 years.
The operating results of 2019 generally vest over a one- to four-year service period. Compensation expense for RSUs is determined based upon the market price of the shares underlying the awards onMiramax from the date of grant. For certain RSU awards the number of shares an employee earns ranges from 0% to 120% of the target award, based on the outcome of established performance conditions. Compensation expense is recorded based on the probable outcome of the performance conditions.
Total unrecognized compensation cost related to unvested RSUs atacquisition through June 30, 2019 was $253 million, which is expected to be recognized over a weighted average period of 2.8 years. Total unrecognized compensation cost related to unvested stock option awards at June 30, 2019 was $21 million, which is expected to be recognized over a weighted average period of 2.1 years.2020 were not material.
3) RESTRUCTURING AND OTHER CORPORATE MATTERS
During the first quarter of 2019, the Company initiated a restructuring plan under which severance payments are being provided to certain eligible employees who voluntarily elected to participate. The Company also implemented additional restructuring plans during the first quarter of 2019 across several of its businesses in connection with a continued effort to reduce its cost structure. As a result, the Company recorded restructuring charges of $108 million in the first quarter of 2019, reflecting $98 million of severance costs and $10 million of costs associated with exiting contractual obligations and other related costs.
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, 2018, 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.
As of June 30, 2019, the cumulative settlements for the 2019, 2018 and 2017 restructuring charges were3) $112 million, of which $100 million was for severance costs and $12 million was for costs associated with contractual obligations and other related costs. The Company expects to substantially utilize its restructuring reserves by the end of 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at | | 2019 | | 2019 | | Balance at |
| December 31, 2018 | | Charges | | Settlements | | June 30, 2019 |
Entertainment | | $ | 31 |
| | | | $ | 48 |
| | | | $ | (23 | ) | | | | $ | 56 |
| |
Cable Networks | | — |
| | | | 5 |
| | | | — |
| | | | 5 |
| |
Publishing | | 2 |
| | | | 5 |
| | | | (1 | ) | | | | 6 |
| |
Local Media | | 23 |
| | | | 28 |
| | | | (11 | ) | | | | 40 |
| |
Corporate | | 12 |
| | | | 22 |
| | | | (15 | ) | | | | 19 |
| |
Total | | $ | 68 |
| | | | $ | 108 |
| | | | $ | (50 | ) | | | | $ | 126 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at | | 2018 | | 2018 | | Balance at |
| December 31, 2017 | | Charges | | Settlements | | December 31, 2018 |
Entertainment | | $ | 39 |
| | | | $ | 27 |
| | | | $ | (35 | ) | | | | $ | 31 |
| |
Publishing | | 3 |
| | | | 1 |
| | | | (2 | ) | | | | 2 |
| |
Local Media | | 11 |
| | | | 18 |
| | | | (6 | ) | | | | 23 |
| |
Corporate | | 2 |
| | | | 21 |
| | | | (11 | ) | | | | 12 |
| |
Total | | $ | 55 |
| | | | $ | 67 |
| | | | $ | (54 | ) | | | | $ | 68 |
| |
The Company recorded expenses of $7 million and $10 million during the three months ended June 30, 2019 and 2018, respectively, and $13 million and $19 million during the six months ended June 30, 2019 and 2018, respectively, primarily for costs associated with legal proceedings involving the Company (see Note 13) and other corporate matters.
4) PROGRAMMING AND OTHER INVENTORY
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2019 | | December 31, 2018 |
Acquired program rights | | $ | 2,480 |
| | | | $ | 2,400 |
| |
Acquired television library | | 99 |
| | | | 99 |
| |
Internally produced programming: | | | | | | | |
Released | | 2,839 |
| | | | 2,477 |
| |
In process and other | | 731 |
| | | | 839 |
| |
Publishing, primarily finished goods | | 65 |
| | | | 56 |
| |
Total programming and other inventory | | 6,214 |
| | | | 5,871 |
| |
Less current portion | | 1,945 |
| | | | 1,988 |
| |
Total noncurrent programming and other inventory | | $ | 4,269 |
| | | | $ | 3,883 |
| |
We acquire rights to programming and produce programming to exhibit on our broadcast and cable networks, on our broadcast television stations, direct to consumers through our digital streaming services, and in theaters. We also produce programming for third parties. Programming inventory costs for both acquired and internally-produced content are recorded within the noncurrent portion of “Programming and other inventory” on the Consolidated Balance Sheet. Prepayments for the rights to air sporting and other live events that are expected to be expensed over the next 12 months are classified within the current portion of “Programming and other inventory” on the Consolidated Balance Sheet.
Internally-Produced Programming Costs incurred to produce television programs and feature films (which include direct production costs, production overhead, acquisition costs and development costs) are capitalized when incurred. For television programs that are predominantly monetized as part of a film group, capitalized production costs are amortized based on an estimate of the timing of our usage of and benefit from such programming. For television programs and feature films that are predominantly monetized on an individual basis, we use an individual-film-forecast computation method to amortize capitalized production costs and to accrue estimated liabilities for participations and residuals over the applicable title’s life cycle based upon the ratio of current period revenues to estimated remaining total gross revenues to be earned (“Ultimate Revenues”) for each title.
Acquired Programming Rights
Our acquired programming rights are predominantly monetized in film groups together with certain internally-produced programming and other acquired programming rights. Costs incurred in acquiring program 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 our usage of and benefit from such programming.
We test a film group or individual television program or feature film for impairment when events or circumstances indicate that its fair value may be less than its unamortized cost. An impairment charge will then be recorded for any difference between the carrying value and estimated fair value of the film group or individual television program or feature film. In addition, unamortized costs for internally-produced or acquired programming that have been substantively abandoned are written off.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following tables present our programming and other inventory by type at June 30, 2020 and December 31, 2019. Programming inventory at June 30, 2020 has been grouped according to the predominant monetization strategy in accordance with new FASB guidance adopted in the first quarter of 2020 (see Note 1).
|
| | | | | |
| At |
| June 30, 2020 |
Film Group Monetization: | | | |
Acquired television program rights, including prepaid sports rights | | $ | 3,345 |
| |
Internally produced television programming: | | | |
Released | | 3,104 |
| |
In process and other | | 832 |
| |
| | | |
Individual Monetization: | | | |
Acquired libraries | | 501 |
| |
Film inventory: | | | |
Released | | 429 |
| |
Completed, not yet released | | 81 |
| |
In process and other | | 1,258 |
| |
Internally produced television programming: | | | |
Released | | 1,202 |
| |
In process and other | | 718 |
| |
Home entertainment and Publishing, primarily finished goods | | 95 |
| |
Total programming and other inventory | | 11,565 |
| |
Less current portion | | 1,837 |
| |
Total noncurrent programming and other inventory | | $ | 9,728 |
| |
|
| | | | | |
| At |
| December 31, 2019 |
Acquired television program rights, including prepaid sports rights | | $ | 3,477 |
| |
Acquired libraries | | 99 |
| |
Internally produced television programming: | | | |
Released | | 3,627 |
| |
In process and other | | 2,626 |
| |
Film inventory: | | | |
Released | | 502 |
| |
Completed, not yet released | | 55 |
| |
In process and other | | 1,037 |
| |
Home entertainment and Publishing, primarily finished goods | | 105 |
| |
Total programming and other inventory | | 11,528 |
| |
Less current portion | | 2,876 |
| |
Total noncurrent programming and other inventory | | $ | 8,652 |
| |
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presents amortization of programming and production costs, which are included within “Operating expenses” in the Consolidated Statements of Operations.
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2020 | | June 30, 2020 |
Programming costs, acquired programming | | $ | 713 |
| | | | $ | 1,686 |
| |
| | | | | | | |
Production costs, internally produced television and film programming: | | | | | | | |
Individual monetization | | $ | 753 |
| | | | $ | 1,523 |
| |
Film group monetization | | $ | 731 |
| | | | $ | 1,420 |
| |
Included in the table above for the three and six months ended June 30, 2020, are programming charges of $121 million primarily related to the abandonment of certain incomplete programs resulting from COVID-19 related production shutdowns. The programming charges are included within “Operating expenses” in the Consolidated Statement of Operations with $66 million, $50 million and $5 million included within the TV Entertainment,Cable Networks and Filmed Entertainment segments,respectively.
4) RESTRUCTURING, IMPAIRMENT AND OTHER CORPORATE MATTERS
During the three and six months ended June 30, 2020 and 2019, we recorded the following on the Consolidated Statements of Operations:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 |
| 2019 |
Severance | $ | 128 |
|
| $ | — |
| | $ | 304 |
| | $ | 98 |
|
Exit costs | 6 |
|
| — |
| | 32 |
| | 30 |
|
Restructuring charges | 134 |
| | — |
| | 336 |
| | 128 |
|
Merger-related costs | 10 |
|
| — |
| | 41 |
| | — |
|
Other corporate matters | 14 |
|
| 7 |
| | 14 |
| | 57 |
|
Restructuring and other corporate matters | $ | 158 |
| | $ | 7 |
| | $ | 391 |
| | $ | 185 |
|
| | | | | | | |
Impairment charges | $ | 25 |
|
| $ | — |
|
| $ | 25 |
|
| $ | — |
|
| | | | | | | |
Depreciation of abandoned technology | $ | — |
| | $ | — |
| | $ | 12 |
| | $ | — |
|
Restructuring Charges
During the three and six months ended June 30, 2020, we recorded restructuring charges of $134 millionand $336 million, respectively, associated with cost-transformation initiatives in connection with the Merger in an effort to reduce redundancies across our businesses. These charges primarily include severance costs and the acceleration of stock-based compensation. During the six months ended June 30, 2019, we recorded restructuring charges of $128 million primarily for severance costs associated with a restructuring plan initiated in the first quarter of 2019 under which severance payments were provided to certain eligible employees who voluntarily elected to participate. Restructuring charges for the three and six months ended June 30, 2020 and the six months endedJune 30, 2019 also included exit costs resulting from the termination of contractual obligations.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The following table presents a rollforward of our restructuring liability, which is recorded in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheets. The remaining restructuring liability at June 30, 2020, which primarily relates to severance payments, is expected to be substantially paid by the end of 2021.
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at | | 2020 Activity | | Balance at |
| December 31, 2019 | | Charges (a) | | Payments | | Other | | June 30, 2020 |
TV Entertainment | | $ | 99 |
| | | $ | 75 |
|
| | $ | (41 | ) | |
| $ | — |
| | | $ | 133 |
| |
Cable Networks | | 137 |
| | | 135 |
|
| | (85 | ) | |
| (6 | ) | | | 181 |
| |
Filmed Entertainment | | 17 |
| | | 11 |
|
| | (5 | ) | |
| 2 |
| | | 25 |
| |
Publishing | | 4 |
| | | 2 |
|
| | (2 | ) | |
| (1 | ) | | | 3 |
| |
Corporate | | 143 |
| | | 67 |
|
| | (80 | ) | |
| (9 | ) | | | 121 |
| |
Total | | $ | 400 |
| | | $ | 290 |
| | | $ | (213 | ) | |
| $ | (14 | ) | | | $ | 463 |
| |
(a) Excludes stock-based compensation expense of $46 million.
Merger-related Costs and Other Corporate Matters
During the three and six months ended June 30, 2020, in addition to the above-mentioned restructuring charges, we incurred merger-related costs of $10 million and $41 million, respectively, consisting of transaction-related bonuses and professional fees mainly associated with integration activities. In addition, we recorded a charge of $14 million to write down property and equipment that has been classified as held for sale to its fair value less costs to sell at June 30, 2020. During the three and six months ended June 30, 2019, we incurred costs of $7 million and $57 million, respectively, consisting of costs associated with legal proceedings involving the Company and for the six-month period, the settlement of a commercial dispute.
Impairment Charges
We perform a fair value-based impairment test of goodwill and intangible assets with indefinite lives, comprised primarily of television FCC licenses, 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. During the second quarter of 2020, we assessed the relevant factors that could impact the fair value of our reporting units and indefinite-lived intangible assets, including the effects of COVID-19, and determined that an interim impairment test was necessary for 3 markets in which we hold FCC licenses. The impairment test indicated that the estimated fair values of FCC licenses in 2 markets were lower than their respective carrying values, which resulted from recent declines in industry projections in the markets where these FCC licenses are held, that were further accelerated by COVID-19. Accordingly, during the three and six months ended June 30, 2020, we recorded an impairment charge of $25 million to write down the carrying values of these FCC licenses to their aggregate estimated fair value of $216 million. This charge is included within “Depreciation and amortization” in the Consolidated Statement of Operations and was recorded within the TV Entertainment segment. Additionally, the estimated fair value of the FCC license in the third market exceeded its carrying value of $53 million at June 30, 2020 by 7%.
The impairment tests were performed using the Greenfield Discounted Cash Flow Method, which estimates the fair value of FCC licenses by valuing a hypothetical start-up station using industry projections in the relevant market and assuming the station builds up to average market share over a five-year period. Discounted cash flows for this period are added to a residual value, which is calculated using a long-term growth rate based on projected long-range inflation and industry projections.The estimated fair values of FCC licenses are highly dependent on the assumptions of future economic conditions in the individual geographic markets in which we own and operate television stations. A decline in revenue projections, or an increase in the cost of capital, could result in a downward revision to the fair values of our FCC licenses.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Accelerated Depreciation
Also, during the six months ended June 30, 2020, we recorded accelerated depreciation expense of $12 million resulting from the abandonment of technology in connection with synergy plans related to the Merger, which is recorded in “Depreciation and amortization” in the Consolidated Statement of Operations.
5) RELATED PARTIES
National Amusements, Inc. National Amusements, Inc. (“NAI”)NAI is the controlling stockholder of CBS Corp. and Viacom Inc. Mr.ViacomCBS. 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 NAI and the vice chairnon-executive Chair of theour Board of Directors of each of CBS Corp. and Viacom Inc.Directors. At June 30, 2019,2020, NAI directly or indirectly owned approximately 78.7%79.4% of CBS Corp.’sour voting Class A Common Stock and owned approximately 10.4%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.
Viacom Inc. Other Related Parties.As part of its normal In the ordinary 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 certain of the Company’s television programswe are involved in the home entertainment market. The Company’s total revenues from these transactions were $14 million and $10 millionwith our equity-method investees, primarily for the three months ended June 30, 2019licensing of television and 2018, respectively, and $26 million and $29 million for the six months ended June 30, 2019 and 2018, 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 $8 million and $6 million for the three months ended June 30, 2019 and 2018, respectively, and $18 million and $12 million for the six months ended June 30, 2019 and 2018, respectively.
film programming. The following table presentstables present the amounts due from Viacom Inc.recorded in our consolidated financial statements related to these transactions.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 24 |
| | $ | 54 |
| | $ | 76 |
| | $ | 109 |
|
Operating expenses | $ | 3 |
| | $ | 3 |
| | $ | 5 |
| | $ | 4 |
|
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2020 | | December 31, 2019 |
Amounts due to/from other related parties | | | | | | | |
Accounts receivable | | $ | 33 |
| | | | $ | 45 |
| |
Accounts payable | | $ | 2 |
| | | | $ | 3 |
| |
Through the normal course of business, as reflected on the Company’s Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at June 30, 2019 and December 31, 2018.
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2019 | | December 31, 2018 |
Receivables | | $ | 28 |
| | | | $ | 38 |
| |
Other assets (Receivables, noncurrent) | | 15 |
| | | | 23 |
| |
Total amounts due from Viacom | | $ | 43 |
| | | | $ | 61 |
| |
Other Related Parties. The Company has equity interests in a domestic television network and several international joint ventures for television channels from which the Company earns revenues primarily by licensing its television programming. In addition, the Company held a 50% equity interest in Pop, a general entertainment cable network. In March 2019, the Company acquired the remaining 50% interest in Pop for $50 million, bringing the Company’s ownership to 100%. Total revenues earned from sales to these joint ventures were $44 million and $22 million for the three months ended June 30, 2019 and 2018, respectively, and $89 million and $53 million for the six months ended June 30, 2019 and 2018, respectively. At June 30, 2019 and December 31, 2018, total amounts due from these joint ventures were $15 million and $34 million, respectively. Amounts associated with Popwe are included above through the date of acquisition.
The Company, through the normal course of business, is involved in transactions with other related parties that have not been material in any of the periods presented.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
6) BANK FINANCING AND DEBTREVENUES
The following table sets forthpresents our revenues disaggregated into categories based on the Company’s debt.nature of such revenues.
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2019 | | December 31, 2018 |
Commercial paper |
| $ | — |
|
|
|
| $ | 674 |
|
|
Senior debt (2.30% - 7.875% due 2019 - 2045) (a) |
| 9,332 |
|
|
|
| 9,435 |
|
|
Obligations under finance leases |
| 38 |
|
|
|
| 43 |
|
|
Total debt |
| 9,370 |
|
|
|
| 10,152 |
|
|
Less commercial paper |
| — |
|
|
|
| 674 |
|
|
Less current portion of long-term debt |
| 11 |
|
|
|
| 13 |
|
|
Total long-term debt, net of current portion |
| $ | 9,359 |
|
|
|
| $ | 9,465 |
|
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues by Type: | | | | | | | |
Advertising | $ | 1,934 |
| | $ | 2,645 |
| | $ | 4,418 |
| | $ | 5,711 |
|
Affiliate | 2,194 |
| | 2,155 |
| | 4,391 |
| | 4,320 |
|
Content licensing | 1,902 |
| | 1,909 |
| | 3,496 |
| | 3,374 |
|
Theatrical | 3 |
| | 152 |
| | 170 |
| | 324 |
|
Publishing | 200 |
| | 218 |
| | 370 |
| | 382 |
|
Other | 42 |
| | 64 |
| | 99 |
| | 132 |
|
Total Revenues | $ | 6,275 |
| | $ | 7,143 |
| | $ | 12,944 |
| | $ | 14,243 |
|
Receivables
Reserves for accounts receivable reflect our expected credit losses based on historical experience as well as current and expected economic conditions. Our allowance for credit losses was $88 million and $86 million at June 30, 2020 and December 31, 2019, respectively.
Included in “Other assets” on the Consolidated Balance Sheets are noncurrent receivables of $2.33 billion and $2.15 billion atJune 30, 2020and December 31, 2019, respectively. Noncurrent 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 collected over the term of the license period. The year of origination for these receivables at June 30, 2020 was $889 million in 2020, $855 million in 2019, $413 million in 2018, $138 million in 2017, $18 million in 2016 and $19 million prior to 2016.
Contract Liabilities
Contract liabilities are included within “Deferred revenues” and “Other liabilities” on the Consolidated Balance Sheets and were $885 million and $910 million at June 30, 2020and December 31, 2019, respectively. The change in contract liabilities for the six months ended June 30, 2020 primarily reflects $407 million of revenues recognized that were included in deferred revenues at December 31, 2019 offset by cash payments received during the period for which the performance obligation was not satisfied prior to the end of the period. For the six months ended June 30, 2019, we recognized revenues of $411 million that were included in deferred revenues at December 31, 2018.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Unrecognized Revenues Under Contract
As of June 30, 2020, unrecognized revenues attributable to unsatisfied performance obligations under our long-term contracts was $6.79 billion, of which $1.95 billion is expected to be recognized for the remainder of 2020, $2.55 billion in 2021, $1.63 billion in 2022, and $661 million thereafter. These amounts only include contracts subject to a guaranteed fixed amount or the guaranteed minimum under variable contracts, primarily consisting of television and film licensing contracts and affiliate agreements that are subject to a fixed or guaranteed minimum fee. Such amounts change on a regular basis as we renew existing agreements or enter into new agreements. Unrecognized revenues under contract disclosed above do not include (i) contracts with an original expected term of one year or less, mainly consisting of advertising contracts (ii) contracts for which variable consideration is determined based on the customer’s subsequent sale or usage, mainly consisting of affiliate agreements and (iii) long-term licensing agreements for multiple programs for which our 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 three and six months ended June 30, 2020, we recognized revenues of $119 million and $141 million, respectively, in our Filmed Entertainment segment for performance obligations satisfied, or partially satisfied, in a prior period. During the three and six months ended June 30, 2019, we recognized revenues of $65 millionand $155 million, respectively, in our Filmed Entertainment segment for performance obligations satisfied, or partially satisfied, in a prior period.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
7) DEBT
Our debt consists of the following:
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2020 | | December 31, 2019 |
Commercial paper |
| $ | — |
| | | | $ | 699 |
|
|
4.30% Senior Notes due 2021 | | — |
| | | | 300 |
| |
4.50% Senior Notes due 2021 | | — |
| | | | 499 |
| |
3.875% Senior Notes due 2021 | | 339 |
| | | | 597 |
| |
2.250% Senior Notes due 2022 | | 35 |
| | | | 49 |
| |
3.375% Senior Notes due 2022 | | 415 |
| | | | 698 |
| |
3.125% Senior Notes due 2022 | | 117 |
| | | | 194 |
| |
2.50% Senior Notes due 2023 | | 196 |
| | | | 398 |
| |
3.25% Senior Notes due 2023 | | 141 |
| | | | 181 |
| |
2.90% Senior Notes due 2023 | | 242 |
| | | | 396 |
| |
4.25% Senior Notes due 2023 | | 836 |
| | | | 1,242 |
| |
7.875% Debentures due 2023 | | 139 |
| | | | 187 |
| |
7.125% Senior Notes due 2023 | | 35 |
| | | | 46 |
| |
3.875% Senior Notes due 2024 | | 490 |
| | | | 489 |
| |
3.70% Senior Notes due 2024 | | 598 |
| | | | 598 |
| |
3.50% Senior Notes due 2025 | | 593 |
| | | | 592 |
| |
4.75% Senior Notes due 2025 | | 1,238 |
| | | | — |
| |
4.00% Senior Notes due 2026 | | 790 |
| | | | 789 |
| |
3.45% Senior Notes due 2026 | | 123 |
| | | | 123 |
| |
2.90% Senior Notes due 2027 | | 689 |
| | | | 688 |
| |
3.375% Senior Notes due 2028 | | 494 |
| | | | 494 |
| |
3.70% Senior Notes due 2028 | | 491 |
| | | | 491 |
| |
4.20% Senior Notes due 2029 | | 493 |
| | | | 493 |
| |
7.875% Senior Debentures due 2030 | | 831 |
| | | | 831 |
| |
4.95% Senior Notes due 2031 | | 1,218 |
| | | | — |
| |
4.20% Senior Notes due 2032 | | 968 |
| | | | — |
| |
5.50% Senior Debentures due 2033 | | 426 |
| | | | 426 |
| |
4.85% Senior Debentures due 2034 | | 87 |
| | | | 87 |
| |
6.875% Senior Debentures due 2036 | | 1,069 |
| | | | 1,068 |
| |
6.75% Senior Debentures due 2037 | | 75 |
| | | | 75 |
| |
5.90% Senior Notes due 2040 | | 298 |
| | | | 297 |
| |
4.50% Senior Debentures due 2042 | | 45 |
| | | | 45 |
| |
4.85% Senior Notes due 2042 | | 487 |
| | | | 486 |
| |
4.375% Senior Debentures due 2043 | | 1,112 |
| | | | 1,109 |
| |
4.875% Senior Debentures due 2043 | | 18 |
| | | | 18 |
| |
5.850% Senior Debentures due 2043 | | 1,231 |
| | | | 1,231 |
| |
5.25% Senior Debentures due 2044 | | 345 |
| | | | 345 |
| |
4.90% Senior Notes due 2044 | | 539 |
| | | | 539 |
| |
4.60% Senior Notes due 2045 | | 589 |
| | | | 589 |
| |
4.95% Senior Notes due 2050 | | 941 |
| | | | — |
| |
5.875% Junior Subordinated Debentures due 2057 | | 514 |
| | | | 643 |
| |
6.25% Junior Subordinated Debentures due 2057 | | 643 |
| | | | 643 |
| |
Other bank borrowings | | 101 |
| | | | — |
| |
Obligations under finance leases |
| 37 |
|
|
|
| 44 |
|
|
Total debt (a) |
| 20,068 |
|
|
|
| 18,719 |
|
|
Less commercial paper and other short-term borrowings |
| 6 |
|
|
|
| 699 |
|
|
Less current portion of long-term debt |
| 358 |
|
|
|
| 18 |
|
|
Total long-term debt, net of current portion |
| $ | 19,704 |
|
|
|
| $ | 18,002 |
|
|
(a) At June 30, 20192020 and December 31, 2018,2019, the seniorlong-term debt balances included (i) a net unamortized discount of $59$503 million and $58$412 million, respectively, (ii) unamortized deferred financing costs of $43$112 million at both June 30, 2019 and December 31, 2018,$92 million, respectively, and (iii) a decrease in the carrying value of the debt relating to previously settled fair value hedges of $6$5 million and $5$6 million, respectively. The face value of the Company’s seniorour total debt was $9.44$20.69 billion and $9.54$19.23 billion at June 30, 20192020 and December 31, 2018,2019, respectively.
In March 2019,
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During the Companysecond quarter of 2020, we issued $500$4.50 billion of senior notes with interest rates ranging from 4.20% to 4.95% and due dates from 2025 to 2050. The net proceeds from these issuances are being used for the redemption of our long-term debt as well as for general corporate purposes. During the second quarter of 2020, we redeemed senior notes, debentures, and junior subordinated debentures of $2.43 billion, prior to maturity, for a redemption price of $2.52 billion. As a result, we recognized a pre-tax loss on extinguishment of debt of $103 million, net of $15 million of 4.20%unamortized debt issuance costs and fees. On July 10, 2020, we fully redeemed the remaining $340 million of our outstanding 3.875% senior notes due 2029. The Company usedDecember 2021.
Our 5.875% junior subordinated debentures due February 2057 and 6.25% junior subordinated debentures due February 2057 accrue interest at the net proceeds from this issuance instated fixed rates until February 28, 2022 and February 28, 2027, respectively, on which dates the redemptionrates 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 its $600 million outstanding 2.30% senior notes due August 2019.the fixed-rate period.
Commercial Paper
In January 2020, our commercial paper program was increased to $3.50 billion from $2.50 billion in conjunction with the new $3.50 billion revolving credit facility described below. At June 30, 2020, we had 0 outstanding commercial paper borrowings under our commercial paper program. At December 31, 2018, the Company2019, we had $674$699 million of outstanding commercial paper borrowings under its $2.5 billion commercial paper program atwith maturities of less than 90 days and a weighted average interest rate of 3.02% and with maturities of less than 60 days. There were no outstanding commercial paper borrowings at June 30, 2019.2.07%.
Credit Facility
At June 30, 2019,In January 2020, the Company 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, was terminated and the $2.50 billion revolving credit facility held by Viacom prior to the Merger (the “Viacom Credit Facility”), with a maturity in February 2024, 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 Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of each quarter as further described in the Credit Facility. At June 30, 2019, the Company’s Consolidated Leverage Ratio was approximately 3.0x.
The Consolidated Leverage Ratio is the ratio of the Company’s indebtedness from continuing operations, adjusted to exclude certain finance lease obligations, at the end of a quarter, to the Company’s Consolidated EBITDA for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facility as operating income plus interest income and before depreciation, amortization and certain other noncash items.
The Credit Facility is used for general corporate purposes. Atpurposes and to support commercial paper outstanding, if any. We may, at our option, also borrow in certain foreign currencies up to specified limits under the Credit Facility. Borrowing rates under the Credit Facility are determined at the time of each borrowing and are generally based on either the prime rate in the U.S. or LIBOR plus a margin based on our senior unsecured debt rating, depending on the type and tenor of the loans entered. The Credit Facility has one principal financial covenant that requires our Consolidated Total Leverage Ratio to be less than 4.5x (which we may elect to increase to 5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter. The Consolidated Total Leverage Ratio reflects the ratio of our Consolidated Indebtedness at the end of a quarter, to our Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing twelve-month period. We met the covenant as of June 30, 20192020., the Company
At June 30, 2020, we had no0 borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion$3.50 billion.
Other Bank Borrowings
At June 30, 2020, we had $101 million of bank borrowings with a weighted average interest rate of 3.59%. These borrowings consisted primarily of amounts outstanding under Miramax’s $300 million credit facility, which matures in April 2023.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
7) PENSION AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic cost for the Company’s pension and postretirement benefit plans were as follows:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
Three Months Ended June 30, | 2019 | | 2018 | | 2019 | | 2018 |
Components of net periodic cost: | | | | | | | |
Service cost | $ | 7 |
| | $ | 8 |
| | $ | — |
| | $ | — |
|
Interest cost | 39 |
| | 37 |
| | 3 |
| | 4 |
|
Expected return on plan assets | (38 | ) | | (45 | ) | | — |
| | — |
|
Amortization of actuarial loss (gain) (a) | 23 |
| | 24 |
| | (4 | ) | | (4 | ) |
Net periodic cost | $ | 31 |
| | $ | 24 |
| | $ | (1 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
Six Months Ended June 30, | 2019 |
| 2018 |
| 2019 |
| 2018 |
Components of net periodic cost: | | | | | | | |
Service cost | $ | 14 |
| | $ | 16 |
| | $ | — |
| | $ | — |
|
Interest cost | 78 |
| | 74 |
| | 7 |
| | 8 |
|
Expected return on plan assets | (76 | ) | | (90 | ) | | — |
| | — |
|
Amortization of actuarial loss (gain) (a) | 46 |
| | 48 |
| | (9 | ) | | (9 | ) |
Net periodic cost | $ | 62 |
| | $ | 48 |
| | $ | (2 | ) | | $ | (1 | ) |
(a) Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings.
The service cost component of net periodic cost is presented on the Consolidated Statements of Operations within operating income and all other components of net periodic cost are presented within “Other items, net.”
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
8) STOCKHOLDERS’ EQUITY
During the second quarter of 2019, the Company declared a quarterly cash dividend of $.18 per share on its Class A and Class B Common Stock, resulting in total dividends of $68 million, which were paid on July 1, 2019.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the changes in the components of accumulated other comprehensive loss.
|
| | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | Net Actuarial Loss and Prior Service Cost | | Accumulated Other Comprehensive Loss |
At December 31, 2018 | $ | 133 |
| | $ | (908 | ) | | | $ | (775 | ) | |
Other comprehensive income before reclassifications | 2 |
| | — |
| | | 2 |
| |
Reclassifications to net earnings | — |
| | 27 |
| (a) | | 27 |
| |
Other comprehensive income | 2 |
| | 27 |
|
| | 29 |
| |
Tax effects reclassified to accumulated deficit | — |
| | (176 | ) | (b) | | (176 | ) | |
At June 30, 2019 | $ | 135 |
| | $ | (1,057 | ) |
| | $ | (922 | ) | |
|
| | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | Net Actuarial Loss and Prior Service Cost | | Accumulated Other Comprehensive Loss |
At December 31, 2017 | $ | 159 |
| | $ | (821 | ) | | | $ | (662 | ) | |
Other comprehensive loss before reclassifications | (14 | ) | | — |
| | | (14 | ) | |
Reclassifications to net earnings | — |
| | 30 |
| (a) | | 30 |
| |
Other comprehensive income (loss) | (14 | ) | | 30 |
| | | 16 |
| |
At June 30, 2018 | $ | 145 |
| | $ | (791 | ) | | | $ | (646 | ) | |
| |
(a) | Reflects amortization of net actuarial losses (see Note 7). Amounts are net of tax benefits of $10 million and $9 million for the six months ended June 30, 2019 and 2018, respectively. |
| |
(b) | Reflects the reclassification of certain income tax effects of the Tax Reform Act on items within accumulated other comprehensive loss to accumulated deficit upon the adoption of new FASB guidance (see Note 1). |
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
9) INCOME TAXES
The (provision) benefit for income taxes represents federal, state and local, and foreign income taxes on earnings before income taxes and equity in loss of investee companies.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Provision for income taxes before discrete items | $ | (128 | ) | | $ | (111 | ) | | $ | (240 | ) | | $ | (245 | ) |
Tax benefit from transfer of assets (a) | — |
| | — |
| | 768 |
| | — |
|
Provision for gain on sale of assets (b) | — |
| | — |
| | (163 | ) | | — |
|
Other discrete items | 9 |
|
| (2 | ) |
| 12 |
|
| (3 | ) |
(Provision) benefit for income taxes | $ | (119 | ) |
| (113 | ) |
| $ | 377 |
|
| $ | (248 | ) |
Effective income tax rate | 20.8 | % |
| 21.2 | % |
| (22.5 | )% |
| 20.8 | % |
(a) Reflects a deferred tax benefit resulting from the transfer of intangible assets between subsidiaries of the Company in connection with a reorganization of the Company’s international operations. The related deferred tax asset is primarily expected to be realized over the next 25 years.
(b) Reflects the tax provision from the gain on the sale of CBS Television City.
In January 2019, the United States government issued guidance relating to the one-time transition tax on cumulative foreign earnings and profits required by the Tax Reform Act. This guidance resulted in a decrease of $146 million to the Company’s reserve for uncertain tax positions during the six months ended June 30, 2019 for amounts paid as a result of this guidance; however, it did not have a material impact on the Company’s Consolidated Statement of Operations.
10) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company’s carrying value of our financial instruments approximates fair value, except for notes and debentures, which are not recorded at fair value. AtThe carrying value of our notes and debentures was $19.93 billion and $17.98 billion at June 30, 20192020 and December 31, 2018, the carrying value of the Company’s senior debt was $9.33 billion and $9.43 billion,2019, respectively, and the fair value, which is estimateddetermined based on quoted market prices for similar liabilitiesin active markets (Level 2) and includes accrued interest,1 in the fair value hierarchy) was $10.28$23.2 billion and $9.48$20.6 billion at June 30, 2020 and December 31, 2019, respectively.
The Company usescarrying value of our investments without a readily determinable fair value for which we have no significant influence was $104 million and $113 million at June 30, 2020 and December 31, 2019, respectively. These investments are included in “Other assets” on the Consolidated Balance Sheets. During the three and six months ended June 30, 2020, in connection with the merger of an investee company with a publicly traded company, we recorded an unrealized gain of $32 million based on the market price of the company’s publicly traded equity instruments, which are deemed similar to our investment. The gain is reflected in “Other items, net” in the Consolidated Statement of Operations.
We use derivative financial instruments primarily to modify 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.
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 June 30, 2020 and December 31, 2019, the notional amount of all foreign exchange contracts was $881 million and $1.44 billion, respectively. At June 30, 2020, $421 million related to future production costs and $460 millionrelated to our foreign currency balances and other expected foreign currency cash flows. At December 31, 2019, $833 million related to future production costs and $606 millionrelated to our foreign currency balances and other expected foreign currency cash flows.
CBS CORPORATIONGains (losses) recognized on derivative financial instruments were as follows:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | Financial Statement Account |
Non-designated foreign exchange contracts | $ | (11 | ) | | $ | 3 |
| | $ | 18 |
| | $ | — |
| Other items, net |
The fair value of our derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
At June 30, 2019 and December 31, 2018, the notional amount of all foreign exchange contracts was $422 million and $325 million, respectively.
Gains recognized on derivative financial instruments were as follows:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| 2019 | | 2018 | | 2019 | | 2018 | Financial Statement Account |
Non-designated foreign exchange contracts | $ | 3 |
| | $ | 17 |
| | $ | 2 |
| | $ | 13 |
| Other items, net |
The fair value of the Company’s derivative instruments was not material to the Company’s Consolidated Balance Sheets for any of the periods presented.
The following tables set forth the Company’sour assets and liabilities measured at fair value on a recurring basis at June 30, 20192020 and December 31, 20182019. 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 June 30, 2019 | Level 1 | | Level 2 | | Level 3 | | Total | |
At June 30, 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | | | | | |
Equity securities | | $ | — |
| | $ | 32 |
| | $ | — |
| | $ | 32 |
|
Foreign currency hedges | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 10 |
| — |
| | 13 |
| | — |
| | 13 |
|
Total Assets | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 10 |
| $ | — |
| | $ | 45 |
| | $ | — |
| | $ | 45 |
|
Liabilities: | | | | | | | | | | | | | | |
Deferred compensation | $ | — |
| | $ | 326 |
| | $ | — |
| | $ | 326 |
| $ | — |
| | $ | 452 |
| | $ | — |
| | $ | 452 |
|
Foreign currency hedges | — |
| | 1 |
| | — |
| | 1 |
| — |
| | 18 |
| | — |
| | 18 |
|
Total Liabilities | $ | — |
| | $ | 327 |
| | $ | — |
| | $ | 327 |
| $ | — |
| | $ | 470 |
| | $ | — |
| | $ | 470 |
|
| | At December 31, 2018 | Level 1 | | Level 2 | | Level 3 | | Total | |
At December 31, 2019 | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | | | | | |
Marketable securities | | $ | 146 |
| | $ | — |
| | $ | — |
| | $ | 146 |
|
Foreign currency hedges | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 15 |
| — |
| | 13 |
| | — |
| | 13 |
|
Total Assets | $ | — |
| | $ | 15 |
| | $ | — |
| | $ | 15 |
| $ | 146 |
| | $ | 13 |
| | $ | — |
| | $ | 159 |
|
Liabilities: | | | | | | | | | | | | | | |
Deferred compensation | $ | — |
| | $ | 336 |
| | $ | — |
| | $ | 336 |
| $ | — |
| | $ | 490 |
| | $ | — |
| | $ | 490 |
|
Foreign currency hedges | — |
| | 1 |
| | — |
| | 1 |
| — |
| | 14 |
| | — |
| | 14 |
|
Total Liabilities | $ | — |
| | $ | 337 |
| | $ | — |
| | $ | 337 |
| $ | — |
| | $ | 504 |
| | $ | — |
| | $ | 504 |
|
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. The fair value of marketable securities at December 31, 2019 was determined based on quoted market prices in active markets. During the six months ended June 30, 2020, we sold marketable securities for proceeds of $146 million. During the three and six months ended June 30, 2019, we recorded an unrealized gain of $28 millionand$66 million, respectively, resulting from changes in the fair value of our marketable securities.
During the three and six months ended June 30, 2020, we recorded an impairment charge of $25 million to write down the carrying values of FCC licenses in 2 markets to their fair values, which were determined based on the Greenfield Discounted Cash Flow Method (Level 3). See Note 4.
9) STOCKHOLDERS’ EQUITY
During the second quarter of 2020, 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 July 1, 2020.
During the six months ended June 30, 2020, we repurchased 1.3 million shares of ViacomCBS Class B Common Stock under our share repurchase program for $50 million, at an average cost of $38.63 per share. At June 30, 2020, $2.36 billion of authorization remained under the share repurchase program.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the changes in the components of accumulated other comprehensive loss.
|
| | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | Net Actuarial Loss and Prior Service Cost | | Accumulated Other Comprehensive Loss |
At December 31, 2019 | | $ | (463 | ) | | | | $ | (1,507 | ) | | | | $ | (1,970 | ) | |
Other comprehensive loss before reclassifications | | (64 | ) | | | | — |
| | | | (64 | ) | |
Reclassifications to net earnings | | — |
| | | | 35 |
| (a) | | | 35 |
| |
Other comprehensive income (loss) | | (64 | ) | | | | 35 |
| | | | (29 | ) | |
At June 30, 2020 | | $ | (527 | ) | | | | $ | (1,472 | ) | | | | $ | (1,999 | ) | |
|
| | | | | | | | | | | | | | | | | |
| Cumulative Translation Adjustments | | Net Actuarial Loss and Prior Service Cost | | Accumulated Other Comprehensive Loss |
At December 31, 2018 | | $ | (476 | ) | | | | $ | (1,132 | ) | | | | $ | (1,608 | ) | |
Other comprehensive income before reclassifications | | 6 |
| | | | — |
| | | | 6 |
| |
Reclassifications to net earnings | | — |
| | | | 29 |
| (a) | | | 29 |
| |
Other comprehensive income | | 6 |
| | | | 29 |
| | | | 35 |
| |
Tax effects reclassified to retained earnings | | — |
| | | | (230 | ) | (b) | | | (230 | ) | |
At June 30, 2019 | | $ | (470 | ) | | | | $ | (1,333 | ) | | | | $ | (1,803 | ) | |
| |
(a) | Reflects amortization of net actuarial losses (see Note 12). Amounts are net of tax benefits of $11 million and $10 million for the six months ended June 30, 2020 and 2019, respectively. |
| |
(b) | Reflects the reclassification of certain income tax effects of the federal tax legislation enacted in December 2017 on items within accumulated other comprehensive loss to retained earnings upon the adoption of FASB guidance. |
10) STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense for the three and six months ended June 30, 2020 and 2019.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 |
| 2019 | | 2020 | | 2019 |
RSUs and PSUs | $ | 40 |
| | $ | 42 |
| | $ | 88 |
| | $ | 85 |
|
Stock options | 5 |
| | 8 |
| | 11 |
| | 16 |
|
Compensation cost included in operating and SG&A expense | 45 |
| | 50 |
| | 99 |
| | 101 |
|
Compensation cost included in restructuring and other corporate matters (a) | 12 |
| | — |
| | 46 |
| | 5 |
|
Stock-based compensation expense, before income taxes | 57 |
| | 50 |
| | 145 |
| | 106 |
|
Related tax benefit | (11 | ) | | (12 | ) | | (27 | ) | | (24 | ) |
Stock-based compensation expense, net of tax benefit | $ | 46 |
| | $ | 38 |
| | $ | 118 |
| | $ | 82 |
|
(a) Reflects accelerations as a result of restructuring activities.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
11) SEGMENT AND REVENUE INFORMATIONINCOME TAXES
The following tables set forth(provision) benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the Company’s financial information 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 productsthree and services.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 |
| 2019 | | 2018 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
Entertainment | $ | 2,741 |
|
| $ | 2,402 |
|
| $ | 5,917 |
|
| $ | 5,155 |
|
Cable Networks | 562 |
|
| 553 |
|
| 1,114 |
|
| 1,124 |
|
Publishing | 218 |
|
| 207 |
|
| 382 |
|
| 367 |
|
Local Media | 423 |
| | 420 |
| | 880 |
| | 835 |
|
Corporate/Eliminations | (135 | ) |
| (116 | ) |
| (317 | ) |
| (254 | ) |
Total Revenues | $ | 3,809 |
|
| $ | 3,466 |
|
| $ | 7,976 |
|
| $ | 7,227 |
|
Revenues generated between segments primarily reflect advertising sales, content licensingsix months ended June 30, 2020, we recorded a provision for income taxes of $202 million and station affiliation fees. These transactions are recorded at market value as if the sales were to third parties$339 million, reflecting effective income tax rates of 21.6% and are eliminated in consolidation.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Intercompany Revenues: | | | | | | | |
Entertainment | $ | 135 |
| | $ | 118 |
| | $ | 318 |
| | $ | 257 |
|
Cable Networks | 1 |
| | — |
| | 2 |
| | — |
|
Local Media | 6 |
| | 5 |
| | 11 |
| | 10 |
|
Total Intercompany Revenues | $ | 142 |
| | $ | 123 |
| | $ | 331 |
| | $ | 267 |
|
21.3%, respectively.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollarsFor the three and six months ended June 30, 2019, we recorded a provision for income taxes of $241 million and a benefit of $135 million, reflecting effective income tax rates of 19.5% and (4.8)%, respectively. Included in millions, except per share amounts)
The Company presents operatingthe provision for income (loss) excluding coststaxes for the second quarter of 2019 is a net tax benefit of $32 million principally related to the bankruptcy of an investee. This item, taken together with a provision of $5 million for restructuring and other corporate matters and gain on equity securities, reduced our effective income tax rate by 2.7 percentage points. The tax benefit for the six months ended June 30, 2019 included 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, the aforementioned tax benefit of $32 million principally related to the bankruptcy of an investee, and a tax provision of $163 million on the gain from the sale of assets, each where applicable,the CBS Television City property and sound stage operation (“Segment Operating Income”CBS Television City”) as. These items, taken together with a net tax benefit of $29 million for restructuring and other corporate matters and gain on equity securities, reduced the primary measure of profit and losseffective income tax rate by 27.0 percentage points 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.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Segment Operating Income (Loss): | | | | | | | |
Entertainment | $ | 426 |
| | $ | 367 |
| | $ | 956 |
| | $ | 853 |
|
Cable Networks | 185 |
| | 245 |
| | 360 |
| | 481 |
|
Publishing | 33 |
| | 31 |
| | 50 |
| | 47 |
|
Local Media | 130 |
| | 128 |
| | 268 |
| | 246 |
|
Corporate | (72 | ) | | (77 | ) | | (139 | ) | | (152 | ) |
Restructuring and other corporate matters | (7 | ) | | (35 | ) | | (121 | ) | | (44 | ) |
Gain on sale of assets | — |
| | — |
| | 549 |
| | — |
|
Operating income | 695 |
|
| 659 |
|
| 1,923 |
|
| 1,431 |
|
Interest expense | (115 | ) | | (116 | ) | | (232 | ) | | (234 | ) |
Interest income | 12 |
| | 14 |
| | 26 |
| | 31 |
|
Other items, net | (21 | ) | | (24 | ) | | (42 | ) | | (35 | ) |
Earnings before income taxes and equity in loss of investee companies | 571 |
| | 533 |
| | 1,675 |
| | 1,193 |
|
(Provision) benefit for income taxes | (119 | ) | | (113 | ) | | 377 |
| | (248 | ) |
Equity in loss of investee companies, net of tax | (12 | ) | | (20 | ) | | (29 | ) | | (34 | ) |
Net earnings | $ | 440 |
| | $ | 400 |
| | $ | 2,023 |
| | $ | 911 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Depreciation and Amortization: | | | | | | | |
Entertainment | $ | 29 |
|
| $ | 32 |
|
| $ | 59 |
|
| $ | 63 |
|
Cable Networks | 6 |
|
| 4 |
|
| 10 |
|
| 9 |
|
Publishing | 2 |
|
| 2 |
|
| 3 |
|
| 3 |
|
Local Media | 9 |
| | 11 |
| | 20 |
| | 22 |
|
Corporate | 7 |
|
| 7 |
|
| 14 |
|
| 15 |
|
Total Depreciation and Amortization | $ | 53 |
|
| $ | 56 |
|
| $ | 106 |
|
| $ | 112 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Stock-based Compensation: | | | | | | | |
Entertainment | $ | 17 |
| | $ | 16 |
| | $ | 33 |
| | $ | 31 |
|
Cable Networks | 3 |
| | 3 |
| | 6 |
| | 6 |
|
Publishing | 1 |
| | 1 |
| | 2 |
| | 2 |
|
Local Media | 3 |
| | 3 |
| | 6 |
| | 6 |
|
Corporate | 12 |
| | 24 |
| | 28 |
| | 46 |
|
Total Stock-based Compensation | $ | 36 |
| | $ | 47 |
| | $ | 75 |
| | $ | 91 |
|
six months ended June 30, 2019.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
In March 2020, the U.S. government enacted tax legislation containing provisions to support businesses during the COVID-19 pandemic (the “CARES Act”), including deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on our consolidated financial statements for the three and six months ended June 30, 2020. We do not expect the future impact of the CARES Act provisions to be material.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 |
| 2018 | | 2019 |
| 2018 |
Capital Expenditures: | | | | | | | |
Entertainment | $ | 23 |
|
| $ | 20 |
|
| $ | 43 |
|
| $ | 38 |
|
Cable Networks | 1 |
|
| 3 |
|
| 4 |
|
| 6 |
|
Publishing | 2 |
|
| 1 |
|
| 2 |
|
| 2 |
|
Local Media | 5 |
| | 5 |
| | 7 |
| | 9 |
|
Corporate | 2 |
| | 3 |
| | 4 |
| | 7 |
|
Total Capital Expenditures | $ | 33 |
| | $ | 32 |
| | $ | 60 |
| | $ | 62 |
|
In March 2020, the UK government passed a resolution increasing the UK corporate income tax rate from 17% to 19% beginning April 1, 2020. The resolution received Royal Assent on July 22, 2020. Accordingly, the impact of the rate increase will be recorded in our consolidated financial statements in the third quarter of 2020. We currently estimate the impact of the rate increase to result in a net tax benefit of approximately $100 million, primarily attributable to the adjustment of our UK deferred income tax balances. |
| | | | | | | | | | | |
| At | | At |
| June 30, 2019 | | December 31, 2018 |
Assets: | | | | | | | |
Entertainment (a) | | $ | 14,816 |
| | | | $ | 13,579 |
| |
Cable Networks | | 3,238 |
| | | | 2,693 |
| |
Publishing | | 1,231 |
| | | | 1,054 |
| |
Local Media | | 4,156 |
| | | | 4,037 |
| |
Corporate/Eliminations | | 381 |
| | | | 484 |
| |
Discontinued operations | | 13 |
| | | | 12 |
| |
Total Assets | | $ | 23,835 |
| | | | $ | 21,859 |
| |
(a) Includes assets heldViacomCBS 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 IRS commenced its examination of the 2017 tax year during the fourth quarter of 2019 and commenced its examination of the 2018 tax year in February 2020. For Viacom, the IRS began its examination of the 2014 and 2015 tax years in April 2017. Various tax years are also currently under examination by state and local and foreign tax authorities. With respect to open tax years in all jurisdictions, we currently believe that it is reasonably possible that the reserve for saleuncertain tax positions may decrease by $125 million within the next 12 months primarily related to potential resolutions of $33 million at December 31, 2018.
The following table presentsmatters involving multiple tax periods and jurisdictions; however, it is difficult to predict the Company’s revenues disaggregated into categories based onfinal outcome or timing of resolution of any particular tax matter and events could cause our current expectation to change in the nature of such revenues.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
Revenues by Type | 2019 | | 2018 | | 2019 | | 2018 |
Advertising | $ | 1,424 |
| | $ | 1,327 |
| | $ | 3,468 |
| | $ | 3,060 |
|
Content licensing and distribution: | | | | | | | |
Programming | 1,006 |
| | 889 |
| | 1,805 |
| | 1,724 |
|
Publishing | 218 |
| | 207 |
| | 382 |
| | 367 |
|
Affiliate and subscription fees | 1,113 |
| | 989 |
| | 2,224 |
| | 1,968 |
|
Other | 48 |
| | 54 |
| | 97 |
| | 108 |
|
Total Revenues | $ | 3,809 |
| | $ | 3,466 |
| | $ | 7,976 |
| | $ | 7,227 |
|
future.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
12) LEASESPENSION AND OTHER POSTRETIREMENT BENEFITS
On January 1, 2019,The following tables present the Company adopted new FASB guidance on the accountingcomponents of net periodic cost for leases. The Company applied the modified retrospective method of adoptionour pension 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 Company’s 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 June 30, 2019, the following amounts were recorded on the Company’s Consolidated Balance Sheet relating to its leases.postretirement benefit plans.
|
| | | | | | | |
| Leases |
| Operating | | Finance |
Right-of-Use Assets | | | |
Operating lease assets | $ | 922 |
| | $ | — |
|
Property and equipment, net | $ | — |
| | $ | 34 |
|
| | | |
Lease Liabilities | | | |
Accrued expenses and other current liabilities | $ | 146 |
| | $ | 12 |
|
Noncurrent operating lease liabilities | 858 |
| | — |
|
Long-term debt | — |
| | 26 |
|
Total lease liabilities | $ | 1,004 |
| | $ | 38 |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
Three Months Ended June 30, | 2020 | | 2019 | | 2020 | | 2019 |
Components of net periodic cost (a): | | | | | | | |
Service cost | $ | 8 |
| | $ | 7 |
| | $ | — |
| | $ | 1 |
|
Interest cost | 41 |
| | 48 |
| | 3 |
| | 4 |
|
Expected return on plan assets | (49 | ) | | (46 | ) | | — |
| | — |
|
Amortization of actuarial loss (gain) (b) | 26 |
| | 24 |
| | (4 | ) | | (5 | ) |
Net periodic cost | $ | 26 |
| | $ | 33 |
| | $ | (1 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
Six Months Ended June 30, | 2020 |
| 2019 |
| 2020 |
| 2019 |
Components of net periodic cost (a): | | | | | | | |
Service cost | $ | 15 |
| | $ | 14 |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | 82 |
| | 96 |
| | 6 |
| | 8 |
|
Expected return on plan assets | (97 | ) | | (92 | ) | | — |
| | — |
|
Amortization of actuarial loss (gain) (b) | 52 |
| | 48 |
| | (8 | ) | | (9 | ) |
Net periodic cost | $ | 52 |
| | $ | 66 |
| | $ | (1 | ) | | $ | — |
|
(a) Amounts reflect our domestic plans only.
|
| | | | | |
| Leases |
| Operating | | Finance |
Weighted average remaining lease term | 9 years |
| | 4 years |
|
| | | |
Weighted average discount rate | 4.3 | % | | 4.2 | % |
(b) Reflects amounts reclassified from accumulated other comprehensive loss to net earnings.The service cost component of net periodic cost is presented in the Consolidated Statements of Operations within operating income and all other components of net periodic cost are presented within “Other items, net.”
13) REDEEMABLE NONCONTROLLING INTERESTS
We are subject to a redeemable put option, payable in a foreign currency, with respect to an international subsidiary. The put option expires in December 2022 and is classified as “Redeemable noncontrolling interest” on the Consolidated Balance Sheets. The activity reflected within redeemable noncontrolling interest for the six months ended June 30, 2020 and 2019 is presented below.
|
| | | | | | | |
| Six Months Ended |
| June 30, |
| 2020 | | 2019 |
Beginning balance | $ | 254 |
| | $ | 239 |
|
Net earnings | 3 |
| | 5 |
|
Distributions | (7 | ) | | (8 | ) |
Translation adjustment | (17 | ) | | — |
|
Redemption value adjustment | 41 |
| | 14 |
|
Ending balance | $ | 274 |
| | $ | 250 |
|
For existing leases at the time of adoption, the Company 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.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Lessee Contracts
The Company has operating leases primarily for office space, equipment, satellite transponders and studio facilities. The Company also has finance leases for satellite transponders and office 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.
14) REPORTABLE SEGMENTS
The following table presentstables set forth our financial information by reportable segment. Our operating segments, which are the Company’s lease cost.same as our reportable segments, have been determined in accordance with our internal management structure, which is organized based upon products and services.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 |
| 2020 | | 2019 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
Advertising | $ | 951 |
| | $ | 1,309 |
| | $ | 2,332 |
| | $ | 3,276 |
|
Affiliate | 751 |
| | 616 |
| | 1,485 |
| | 1,227 |
|
Content licensing | 544 |
| | 966 |
| | 1,341 |
| | 1,747 |
|
Other | 41 |
| | 47 |
| | 76 |
| | 94 |
|
TV Entertainment | 2,287 |
| | 2,938 |
| | 5,234 |
| | 6,344 |
|
Advertising | 992 |
| | 1,347 |
| | 2,109 |
| | 2,462 |
|
Affiliate | 1,443 |
| | 1,539 |
| | 2,906 |
| | 3,093 |
|
Content licensing | 797 |
| | 290 |
| | 1,075 |
| | 523 |
|
Cable Networks | 3,232 |
| | 3,176 |
| | 6,090 |
| | 6,078 |
|
Theatrical | 3 |
| | 152 |
| | 170 |
| | 324 |
|
Home entertainment | 209 |
| | 161 |
| | 383 |
| | 315 |
|
Licensing | 434 |
| | 540 |
| | 876 |
| | 915 |
|
Other | 1 |
| | 24 |
| | 29 |
| | 53 |
|
Filmed Entertainment | 647 |
| | 877 |
| | 1,458 |
| | 1,607 |
|
Publishing | 200 |
| | 218 |
| | 370 |
| | 382 |
|
Corporate/Eliminations | (91 | ) |
| (66 | ) |
| (208 | ) |
| (168 | ) |
Total Revenues | $ | 6,275 |
|
| $ | 7,143 |
|
| $ | 12,944 |
|
| $ | 14,243 |
|
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | | June 30, 2019 |
Operating lease cost (a) (b) | | $ | 54 |
| | | | $ | 108 |
| |
Finance lease cost: | | | | | | | |
Amortization of right-of-use assets | | 3 |
| | | | 6 |
| |
Interest expense on lease liabilities | | 1 |
| | | | 1 |
| |
Short-term lease cost (b) (c) | | 24 |
| | | | 41 |
| |
Variable lease cost (d) | | 5 |
| | | | 11 |
| |
Sublease income | | (6 | ) | | | | (12 | ) | |
Total lease cost | | $ | 81 |
| | | | $ | 155 |
| |
(a) Includes fixed lease costsRevenues generated between segments primarily reflect advertising and non-lease costs (consisting of other occupancycontent licensing revenues. These transactions are recorded at market value as if the sales were to third parties and service costs relating to the use of an asset) associated with long-term operating leases.
(b) Includes costs capitalizedare eliminated 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 Company’s 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 the Company’s leases.consolidation.
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2019 | | June 30, 2019 |
Cash paid for amounts included in lease liabilities | | | | | | | |
Operating cash flows from operating leases | | $ | 53 |
| | | | $ | 107 |
| |
Financing cash flows from finance leases | | $ | 3 |
| | | | $ | 6 |
| |
| | | | | | | |
Noncash additions to operating lease assets | | $ | 32 |
| | | | $ | 166 |
| |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 |
| 2019 | | 2020 |
| 2019 |
Intercompany Revenues: | | | | | | | |
TV Entertainment | $ | 43 |
| | $ | 38 |
| | $ | 118 |
| | $ | 94 |
|
Cable Networks | 2 |
| | 9 |
| | 18 |
| | 27 |
|
Filmed Entertainment | 46 |
| | 26 |
| | 72 |
| | 61 |
|
Total Intercompany Revenues | $ | 91 |
| | $ | 73 |
| | $ | 208 |
| | $ | 182 |
|
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The expected future payments relating toWe present operating income (loss) excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters, programming charges and gain (loss) on sale of assets, each where applicable (“Adjusted OIBDA”), as the Company’sprimary measure of profit and loss for our operating segments in accordance with FASB guidance for segment reporting since it is the primary method used by our management. Stock-based compensation is excluded from our segment measure of profit and finance lease liabilities at June 30, 2019 are as follows:loss because it is set and approved by our Board of Directors in consultation with corporate executive management.
|
| | | | | | | |
| Leases |
| Operating | | Finance |
2019 (July 1 through December 31) | $ | 104 |
| | $ | 7 |
|
2020 | 168 |
| | 12 |
|
2021 | 157 |
| | 11 |
|
2022 | 133 |
| | 7 |
|
2023 | 120 |
| | 2 |
|
2024 and thereafter | 568 |
| | 2 |
|
Total minimum payments | 1,250 |
| | 41 |
|
Less amounts representing interest | 246 |
| | 3 |
|
Present value of minimum payments | $ | 1,004 |
| | $ | 38 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Adjusted OIBDA: | | | | | | | |
TV Entertainment | $ | 392 |
| | $ | 613 |
| | $ | 965 |
| | $ | 1,355 |
|
Cable Networks | 1,285 |
| | 989 |
| | 2,079 |
| | 1,882 |
|
Filmed Entertainment | 116 |
| | 95 |
| | 143 |
| | 133 |
|
Publishing | 38 |
| | 35 |
| | 57 |
| | 54 |
|
Corporate/Eliminations | (97 | ) | | (120 | ) | | (193 | ) | | (222 | ) |
Stock-based compensation | (45 | ) | | (50 | ) | | (99 | ) | | (101 | ) |
Depreciation and amortization | (124 | ) | | (109 | ) | | (237 | ) | | (215 | ) |
Restructuring and other corporate matters | (158 | ) | | (7 | ) | | (391 | ) | | (185 | ) |
Programming charges | (121 | ) | | — |
| | (121 | ) | | — |
|
Gain on sale of assets | — |
| | — |
| | — |
| | 549 |
|
Operating income | 1,286 |
|
| 1,446 |
|
| 2,203 |
|
| 3,250 |
|
Interest expense | (263 | ) | | (237 | ) | | (504 | ) | | (477 | ) |
Interest income | 11 |
| | 15 |
| | 25 |
| | 34 |
|
Loss on extinguishment of debt | (103 | ) | | — |
| | (103 | ) | | — |
|
Other items, net | 6 |
| | 15 |
| | (27 | ) | | 25 |
|
Earnings from continuing operations before income taxes and equity in loss of investee companies | 937 |
| | 1,239 |
| | 1,594 |
| | 2,832 |
|
(Provision) benefit for income taxes | (202 | ) | | (241 | ) | | (339 | ) | | 135 |
|
Equity in loss of investee companies, net of tax | (12 | ) | | (21 | ) | | (21 | ) | | (39 | ) |
Net earnings from continuing operations | 723 |
| | 977 |
| | 1,234 |
| | 2,928 |
|
Net earnings from discontinued operations, net of tax | 3 |
| | 6 |
| | 11 |
| | 19 |
|
Net earnings (ViacomCBS and noncontrolling interests) | 726 |
| | 983 |
| | 1,245 |
| | 2,947 |
|
Net earnings attributable to noncontrolling interests | (245 | ) | | (6 | ) | | (248 | ) | | (11 | ) |
Net earnings attributable to ViacomCBS | $ | 481 |
| | $ | 977 |
| | $ | 997 |
| | $ | 2,936 |
|
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2020 | | December 31, 2019 |
Assets: | | | | | | | |
TV Entertainment | | $ | 19,289 |
| | | | $ | 19,689 |
| |
Cable Networks | | 22,539 |
| | | | 22,109 |
| |
Filmed Entertainment | | 6,454 |
| | | | 5,477 |
| |
Publishing | | 1,246 |
| | | | 1,262 |
| |
Corporate/Eliminations | | 1,649 |
| | | | 967 |
| |
Discontinued Operations | | 11 |
| | | | 15 |
| |
Total Assets | | $ | 51,188 |
| | | | $ | 49,519 |
| |
At December 31, 2018, future minimum payments under noncancellable operating leases with terms in excess of one year and payments under finance leases were as follows:
|
| | | | | | | |
| Leases |
| Operating | | Finance |
2019 | $ | 174 |
| | $ | 13 |
|
2020 | 129 |
| | 12 |
|
2021 | 122 |
| | 11 |
|
2022 | 110 |
| | 7 |
|
2023 | 101 |
| | 2 |
|
2024 and thereafter | 465 |
| | 2 |
|
Total minimum payments | $ | 1,101 |
| | $ | 47 |
|
Less amounts representing interest | | | 4 |
|
Present value of minimum payments |
|
| | $ | 43 |
|
Future minimum operating lease payments at December 31, 2018 have been reduced by future minimum sublease income of $30 million.
As of June 30, 2019, the Company had signed additional operating leases with lease terms ranging from two to 16 years that have not yet commenced. The total future undiscounted lease payments under these leases are
$150 million, which were not recorded on the Company’s Consolidated Balance Sheet at June 30, 2019.
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Lessor Contracts
The Company enters into operating leases for the use of its 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. The Company recorded total lease income of $31 million and $63 million, including both fixed and variable amounts, for the three and six months ended June 30, 2019, respectively.
At June 30, 2019, future fixed lease income under noncancellable operating leases is as follows:
|
| | | |
2019 (July 1 through December 31) | $ | 27 |
|
2020 | 52 |
|
2021 | 48 |
|
2022 | 44 |
|
2023 | 43 |
|
2024 and thereafter | 85 |
|
Total | $ | 299 |
|
13)15) COMMITMENTS AND CONTINGENCIES
Guarantees
On January 31, 2019, the Company completed the saleLetters of CBS Television City. The Company has 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 Company’s Consolidated Balance Sheet at June 30, 2019 is a liability of $122 million, reflecting the present value of the estimated amount payable under the guarantee obligation (Level 3 in the fair value hierarchy).
The Company hasCredit and Surety Bonds. We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2019,2020, the outstanding letters of credit and surety bonds approximated $99$135 million and were not recorded on the Company’s Consolidated Balance Sheet.
CBS Television City. In connection with the sale of CBS Television City in 2019, we guaranteed a specified level of cash flows to be generated by the business during the first five years following the completion of the sale. Included in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet at June 30, 2020 is a liability of $99 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 amount to $72 million as of June 30, 2020 and are presented on the Consolidated Balance Sheet within “Other liabilities.” The amount of lease commitments varies over time depending on expiration or termination of individual underlying leases, or the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We believe our accrual is sufficient to meet any future obligations based on our consideration of available financial information, the lessees’ historical performance in meeting their lease obligations and the underlying economic factors impacting the lessees’ business models.
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.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 legalfollowing matters and other litigation to which it is a party are not likely, in the aggregate, to haveresult in a material adverse effect on itsour business, financial condition and results of operations, financial position or cash flows. Underoperations.
Litigation Relating to 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 CompanyMerger
Beginning on February 20, 2020, three purported CBS stockholders filed separate derivative and/or Viacom Inc. is named.
putative class action lawsuits in the Court of Chancery of the State of Delaware. On March 31, 2020, the Court consolidated the 3 lawsuits and appointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs for the consolidated action. On April 14, 2020, the lead plaintiffs filed a Verified Consolidated Class Action and Derivative Complaint (as used in this paragraph, the “Complaint”) against Shari E. Redstone, NAI, Sumner M. Redstone National Amusements Trust,
CBS CORPORATIONVIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
members of the CBS Board of Directors (comprised of Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Robert N. Klieger, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick), former CBS President and Acting Chief Executive Officer Joseph Ianniello and nominal defendant ViacomCBS Inc. The Complaint alleges breaches of fiduciary duties to CBS stockholders in connection with the negotiation and approval of the Agreement and Plan of Merger dated as of August 13, 2019, as amended on October 16, 2019 (the “Merger Agreement”). The Complaint also alleges waste and unjust enrichment in connection with Mr. Ianniello’s compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On June 5, 2020, the defendants filed motions to dismiss. 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.
Beginning on November 25, 2019, four purported Viacom stockholders filed separate putative class action lawsuits in the Court of Chancery of the State of Delaware. On January 23, 2020, the Court consolidated the 4 lawsuits. On February 6, 2020, the Court appointed California Public Employees’ Retirement System (“CalPERS”) as lead plaintiff for the consolidated action. On February 28, 2020, CalPERS, together with Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago and Louis M. Wilen, filed a First Amended Verified Class Action Complaint (as used in this paragraph, the “Complaint”) against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the 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. The Complaint alleges breaches of fiduciary duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On May 22, 2020, the defendants filed motions to dismiss. We believe that the claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Investigation-Related Matters.
As announced on August 1, 2018, the Company’sCBS Board of Directors (“Board”) retained two law firms to conduct a full investigation of the allegations in 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 of Directors announced the completion of theits investigation, certain findings of the investigation and the Board’sCBS Board of Directors’ 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 and the United States Securities and Exchange Commission have also requested information about these matters, including with respect to the Company’sCBS’ related public disclosures. The CompanyWe 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 Board.CBS Board of Directors. The consolidated action is stated to be on behalf of purchasers of the Company’sCBS Class A Common Stock and Class B Common
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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 are pending. The Company believesthe 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 iswe 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 the Company’sour 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.CBS. In October 2018, the Companywe contributed $120 million to a grantor trust pursuant to the Separation Agreement. On December 17, 2018, the CBS Board of Directors 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 Board’sCBS Board of Directors’ determination is subject to binding arbitration as set forth in the Separation Agreement. On January 16, 2019, Mr. Moonves commenced a binding arbitration proceeding with respect to this matter and the related CBS Board of Directors 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,thereunder. Accordingly, no accrual for this matter has been made in the Company’sour consolidated financial statements.
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Claims Related to Former Businesses: Asbestos. The Company isAsbestos
We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. 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 June 30, 2019, the Company2020, we had pending approximately 32,12031,190 asbestos claims, as compared with approximately 31,57030,950 as of December 31, 2018 and 31,750 as of June 30, 2018.2019. During the second quarter of 2019, the Company2020, we received approximately 1,000590 new claims and closed or moved to an inactive docket approximately 720480 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
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The Company believespredominant number of pending claims against us are non-cancer claims. It is difficult to predict future asbestos liabilities, as events and circumstances may impact the estimate of our asbestos liabilities, including, among others, the number and types of claims and average cost to resolve such claims. We record an accrual for a loss contingency when it is both probable that its reservesa liability has been incurred and when the amount of the loss can be reasonably estimated. We believe that our accrual and insurance are adequate to cover itsour asbestos liabilities. This beliefOur liability estimate is based upon many factors, and assumptions, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims. 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. OtherThe Company from
From time to time receiveswe receive claims from federal and state environmental regulatory agencies and other entities asserting that it iswe are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations of the Company.operations. In addition, the Company from time to time receiveswe receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations of the Company and its predecessors.
16) SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental Cash Flow Information
|
| | | | | | | |
| Six Months Ended |
| June 30, |
| 2020 | | 2019 |
Cash paid for interest | $ | 470 |
| | $ | 463 |
|
| | | |
Cash paid for income taxes | $ | 100 |
| | $ | 498 |
|
| | | |
Noncash additions to operating lease assets | $ | 89 |
| | $ | 213 |
|
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.
CBS CORPORATION
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
14) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CBS Operations Inc. is a wholly owned subsidiaryThe Consolidated Balance Sheets include assets and liabilities related to consolidated VIEs totaling $1.31 billion and $219 million, respectively, at June 30, 2020, and $141 million and $22 million, respectively, at December 31, 2019. Revenues and operating income from our consolidated VIEs were $538 million and $500 million, respectively, for the three months ended June 30, 2020, and $556 million and $498 million, respectively, for the six months ended June 30, 2020. Revenues and operating income from our consolidated VIEs were not significant for the three and six months ended June 30, 2019. The increase in amounts related to our consolidated VIEs reflects the acquisition of Miramax (see Note 2) and the licensing of the Company. CBS Operations Inc. has fully and unconditionally guaranteed CBS Corp.’s senior debt securities. 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 necessarystreaming rights to arrive at the information for the Company onSouth Park by a consolidated basis. Changes to51%-owned VIE in the entities that comprise the guarantor group are reflected for the prior periods presented. |
| | | | | | | | | | | | | | | | | | | |
| Statement of Operations |
| For the Three Months Ended June 30, 2019 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Revenues | $ | 43 |
| | $ | 2 |
| | $ | 3,764 |
| | $ | — |
| | $ | 3,809 |
|
Costs and expenses: | | | | | | | | | |
Operating | 24 |
| | 1 |
| | 2,484 |
| | — |
| | 2,509 |
|
Selling, general and administrative | 12 |
| | 68 |
| | 465 |
| | — |
| | 545 |
|
Depreciation and amortization | 1 |
| | 5 |
| | 47 |
| | — |
| | 53 |
|
Restructuring and other corporate matters | — |
| | 7 |
| | — |
| | — |
| | 7 |
|
Total costs and expenses | 37 |
| | 81 |
| | 2,996 |
| | — |
| | 3,114 |
|
Operating income (loss) | 6 |
| | (79 | ) | | 768 |
| | — |
| | 695 |
|
Interest (expense) income, net | (138 | ) | | (137 | ) | | 172 |
| | — |
| | (103 | ) |
Other items, net | (10 | ) | | (9 | ) | | (2 | ) | | — |
| | (21 | ) |
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies | (142 | ) | | (225 | ) | | 938 |
| | — |
| | 571 |
|
Benefit (provision) for income taxes | 32 |
| | 50 |
| | (201 | ) | | — |
| | (119 | ) |
Equity in earnings (loss) of investee companies, net of tax | 550 |
| | 402 |
| | (12 | ) | | (952 | ) | | (12 | ) |
Net earnings | $ | 440 |
| | $ | 227 |
| | $ | 725 |
| | $ | (952 | ) | | $ | 440 |
|
Total comprehensive income | $ | 452 |
|
| $ | 232 |
|
| $ | 720 |
|
| $ | (952 | ) | | $ | 452 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Statement of Operations |
| For the Six Months Ended June 30, 2019 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Revenues | $ | 89 |
| | $ | 5 |
| | $ | 7,882 |
| | $ | — |
| | $ | 7,976 |
|
Costs and expenses: | | | | | | | | | |
Operating | 50 |
| | 2 |
| | 5,205 |
| | — |
| | 5,257 |
|
Selling, general and administrative | 26 |
| | 125 |
| | 967 |
| | — |
| | 1,118 |
|
Depreciation and amortization | 2 |
| | 10 |
| | 94 |
| | — |
| | 106 |
|
Restructuring and other corporate matters | 3 |
| | 30 |
| | 88 |
| | — |
| | 121 |
|
Gain on sale of assets | — |
| | — |
| | (549 | ) | | — |
| | (549 | ) |
Total costs and expenses | 81 |
| | 167 |
| | 5,805 |
| | — |
| | 6,053 |
|
Operating income (loss) | 8 |
| | (162 | ) | | 2,077 |
| | — |
| | 1,923 |
|
Interest (expense) income, net | (275 | ) | | (268 | ) | | 337 |
| | — |
| | (206 | ) |
Other items, net | (18 | ) | | (20 | ) | | (4 | ) | | — |
| | (42 | ) |
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies | (285 | ) | | (450 | ) | | 2,410 |
| | — |
| | 1,675 |
|
Benefit from income taxes | 61 |
| | 96 |
| | 220 |
| | — |
| | 377 |
|
Equity in earnings (loss) of investee companies, net of tax | 2,247 |
| | 344 |
| | (29 | ) | | (2,591 | ) | | (29 | ) |
Net earnings (loss) | $ | 2,023 |
| | $ | (10 | ) | | $ | 2,601 |
| | $ | (2,591 | ) | | $ | 2,023 |
|
Total comprehensive income (loss) | $ | 2,052 |
|
| $ | (7 | ) |
| $ | 2,592 |
|
| $ | (2,585 | ) | | $ | 2,052 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Statement of Operations |
| For the Three Months Ended June 30, 2018 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Revenues | $ | 44 |
| | $ | 2 |
| | $ | 3,420 |
| | $ | — |
| | $ | 3,466 |
|
Costs and expenses: | | | | | | | | | |
Operating | 23 |
| | 1 |
| | 2,160 |
| | — |
| | 2,184 |
|
Selling, general and administrative | 12 |
| | 68 |
| | 452 |
| | — |
| | 532 |
|
Depreciation and amortization | 1 |
| | 5 |
| | 50 |
| | — |
| | 56 |
|
Restructuring and other corporate matters | — |
| | 16 |
| | 19 |
| | — |
| | 35 |
|
Total costs and expenses | 36 |
| | 90 |
| | 2,681 |
| | — |
| | 2,807 |
|
Operating income (loss) | 8 |
| | (88 | ) | | 739 |
| | — |
| | 659 |
|
Interest (expense) income, net | (133 | ) | | (126 | ) | | 157 |
| | — |
| | (102 | ) |
Other items, net | (9 | ) | | 14 |
| | (29 | ) | | — |
| | (24 | ) |
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies | (134 | ) | | (200 | ) | | 867 |
| | — |
| | 533 |
|
Benefit (provision) for income taxes | 28 |
| | 42 |
| | (183 | ) | | — |
| | (113 | ) |
Equity in earnings (loss) of investee companies, net of tax | 506 |
| | 351 |
| | (20 | ) | | (857 | ) | | (20 | ) |
Net earnings | $ | 400 |
| | $ | 193 |
| | $ | 664 |
| | $ | (857 | ) | | $ | 400 |
|
Total comprehensive income | $ | 407 |
| | $ | 202 |
| | $ | 644 |
| | $ | (846 | ) | | $ | 407 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Statement of Operations |
| For the Six Months Ended June 30, 2018 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Revenues | $ | 87 |
| | $ | 5 |
| | $ | 7,135 |
| | $ | — |
| | $ | 7,227 |
|
Costs and expenses: | | | | | | | | | |
Operating | 48 |
| | 2 |
| | 4,534 |
| | — |
| | 4,584 |
|
Selling, general and administrative | 25 |
| | 132 |
| | 899 |
| | — |
| | 1,056 |
|
Depreciation and amortization | 2 |
| | 11 |
| | 99 |
| | — |
| | 112 |
|
Restructuring and other corporate matters | — |
| | 25 |
| | 19 |
| | — |
| | 44 |
|
Total costs and expenses | 75 |
| | 170 |
| | 5,551 |
| | — |
| | 5,796 |
|
Operating income (loss) | 12 |
| | (165 | ) | | 1,584 |
| | — |
| | 1,431 |
|
Interest (expense) income, net | (263 | ) | | (248 | ) | | 308 |
| | — |
| | (203 | ) |
Other items, net | (16 | ) | | 12 |
| | (31 | ) | | — |
| | (35 | ) |
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies | (267 | ) | | (401 | ) | | 1,861 |
| | — |
| | 1,193 |
|
Benefit (provision) for income taxes | 55 |
| | 83 |
| | (386 | ) | | — |
| | (248 | ) |
Equity in earnings (loss) of investee companies, net of tax | 1,123 |
| | 764 |
| | (34 | ) | | (1,887 | ) | | (34 | ) |
Net earnings | $ | 911 |
| | $ | 446 |
| | $ | 1,441 |
| | $ | (1,887 | ) | | $ | 911 |
|
Total comprehensive income | $ | 927 |
| | $ | 448 |
| | $ | 1,424 |
| | $ | (1,872 | ) | | $ | 927 |
|
second quarter of 2020.
Gain on Sale of Assets
During the first quarter of 2019, we completed the sale of CBS Television City for $750 million. We guaranteed a specified level of cash flows to be generated by the business during the first five years following the completion of the sale. This transaction resulted in a gain of $549 million ($386 million, net of tax), which included a reduction for the estimated amount payable under the guarantee obligation.
CBS CORPORATION AND SUBSIDIARIESLease Income
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Balance Sheet |
| At June 30, 2019 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | 11 |
| | $ | — |
| | $ | 205 |
| | $ | — |
| | $ | 216 |
|
Receivables, net | 21 |
| | 1 |
| | 3,773 |
| | — |
| | 3,795 |
|
Programming and other inventory | 2 |
| | 2 |
| | 1,941 |
| | — |
| | 1,945 |
|
Prepaid expenses and other current assets | 6 |
| | 40 |
| | 367 |
| | (33 | ) | | 380 |
|
Total current assets | 40 |
| | 43 |
| | 6,286 |
| | (33 | ) | | 6,336 |
|
Property and equipment | 30 |
| | 227 |
| | 2,674 |
| | — |
| | 2,931 |
|
Less accumulated depreciation and amortization | 14 |
| | 194 |
| | 1,546 |
| | — |
| | 1,754 |
|
Net property and equipment | 16 |
| | 33 |
| | 1,128 |
| | — |
| | 1,177 |
|
Programming and other inventory | 4 |
| | 3 |
| | 4,262 |
| | — |
| | 4,269 |
|
Goodwill | 98 |
| | 62 |
| | 4,902 |
| | — |
| | 5,062 |
|
Intangible assets | — |
| | — |
| | 2,660 |
| | — |
| | 2,660 |
|
Operating lease assets | 5 |
| | 110 |
| | 807 |
| | — |
| | 922 |
|
Investments in consolidated subsidiaries | 50,017 |
| | 17,246 |
| | — |
| | (67,263 | ) | | — |
|
Deferred income tax assets, net | — |
| | — |
| | 785 |
| | — |
| | 785 |
|
Other assets | 292 |
| | — |
| | 2,332 |
| | — |
| | 2,624 |
|
Intercompany | — |
| | 104 |
| | 33,255 |
| | (33,359 | ) | | — |
|
Total Assets | $ | 50,472 |
| | $ | 17,601 |
| | $ | 56,417 |
| | $ | (100,655 | ) | | $ | 23,835 |
|
Liabilities and Stockholders’ Equity | | | | | | | | | |
Accounts payable | $ | 4 |
| | $ | 9 |
| | $ | 201 |
| | $ | — |
| | $ | 214 |
|
Participants’ share and royalties payable | — |
| | — |
| | 1,188 |
| | — |
| | 1,188 |
|
Accrued programming and production costs | 3 |
| | 2 |
| | 585 |
| | — |
| | 590 |
|
Accrued expenses and other current liabilities | 451 |
| | 254 |
| | 1,179 |
| | (33 | ) | | 1,851 |
|
Total current liabilities | 458 |
| | 265 |
| | 3,153 |
| | (33 | ) | | 3,843 |
|
Long-term debt | 9,287 |
| | — |
| | 72 |
| | — |
| | 9,359 |
|
Noncurrent operating lease liabilities | 5 |
| | 104 |
| | 749 |
| | — |
| | 858 |
|
Other liabilities | 2,610 |
| | 211 |
| | 2,201 |
| | — |
| | 5,022 |
|
Intercompany | 33,359 |
| | — |
| | — |
| | (33,359 | ) | | — |
|
Stockholders’ Equity: | | | | | | | | | |
Preferred stock | — |
| | — |
| | 126 |
| | (126 | ) | | — |
|
Common stock | 1 |
| | 123 |
| | 590 |
| | (713 | ) | | 1 |
|
Additional paid-in capital | 43,534 |
| | — |
| | 60,894 |
| | (60,894 | ) | | 43,534 |
|
Retained earnings (accumulated deficit) | (15,002 | ) | | 17,204 |
| | (6,604 | ) | | (10,600 | ) | | (15,002 | ) |
Accumulated other comprehensive income (loss) | (922 | ) | | 25 |
|
| 36 |
|
| (61 | ) | | (922 | ) |
| 27,611 |
| | 17,352 |
| | 55,042 |
| | (72,394 | ) | | 27,611 |
|
Less treasury stock, at cost | 22,858 |
| | 331 |
| | 4,800 |
| | (5,131 | ) | | 22,858 |
|
Total Stockholders’ Equity | 4,753 |
| | 17,021 |
| | 50,242 |
| | (67,263 | ) | | 4,753 |
|
Total Liabilities and Stockholders’ Equity | $ | 50,472 |
| | $ | 17,601 |
| | $ | 56,417 |
| | $ | (100,655 | ) | | $ | 23,835 |
|
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 | ) | | — |
|
Deferred income tax assets, net | — |
| | — |
| | 29 |
| | — |
| | 29 |
|
Other assets | 281 |
| | — |
| | 2,114 |
| | — |
| | 2,395 |
|
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 |
|
Accrued expenses and other current liabilities | 396 |
| | 308 |
| | 1,149 |
| | (36 | ) | | 1,817 |
|
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 (accumulated 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)
|
| | | | | | | | | | | | | | | | | | | |
| Statement of Cash Flows |
| For the Six Months Ended June 30, 2019 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Net cash flow (used for) provided by operating activities | $ | (525 | ) | | $ | (223 | ) | | $ | 1,062 |
| | $ | — |
| | $ | 314 |
|
Investing Activities: | | | | | | | | | |
Investments in and advances to investee companies | — |
| | — |
| | (72 | ) | | — |
| | (72 | ) |
Capital expenditures | — |
| | (4 | ) | | (56 | ) | | — |
| | (60 | ) |
Acquisitions, net of cash acquired | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) |
Proceeds from dispositions | — |
| | — |
| | 736 |
| | — |
| | 736 |
|
Proceeds from sale of investments | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
Other investing activities | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Net cash flow provided by (used for) investing activities | 2 |
| | (4 | ) | | 584 |
| | — |
| | 582 |
|
Financing Activities: | | | | | | | | | |
Repayments of short-term debt borrowings, net | (674 | ) | | — |
| | — |
| | — |
| | (674 | ) |
Proceeds from issuance of senior notes | 493 |
| | — |
| | — |
| | — |
| | 493 |
|
Repayment of senior notes | (600 | ) | | — |
| | — |
| | — |
| | (600 | ) |
Payment of finance lease obligations | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) |
Payment of contingent consideration | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
Dividends | (138 | ) | | — |
| | — |
| | — |
| | (138 | ) |
Purchase of Company common stock | (14 | ) | | — |
| | — |
| | — |
| | (14 | ) |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (43 | ) | | — |
| | — |
| | — |
| | (43 | ) |
Acquisition of noncontrolling interest | — |
| | — |
| | (26 | ) | | — |
| | (26 | ) |
Proceeds from exercise of stock options | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
Increase (decrease) in intercompany payables | 1,353 |
| | 227 |
| | (1,580 | ) | | — |
| | — |
|
Net cash flow provided by (used for) financing activities | 388 |
| | 227 |
| | (1,615 | ) | | — |
| | (1,000 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (135 | ) | | — |
| | 31 |
| | — |
| | (104 | ) |
Cash, cash equivalents and restricted cash at beginning of period (includes $120 of restricted cash) | 268 |
| | — |
| | 174 |
| | — |
| | 442 |
|
Cash, cash equivalents and restricted cash at end of period (includes $122 of restricted cash) | $ | 133 |
| | $ | — |
| | $ | 205 |
| | $ | — |
| | $ | 338 |
|
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| Statement of Cash Flows |
| For the Six Months Ended June 30, 2018 |
| CBS Corp. | | CBS Operations Inc. | | Non- Guarantor Affiliates | | Eliminations | | CBS Corp. Consolidated |
Net cash flow (used for) provided by operating activities | $ | (234 | ) | | $ | (130 | ) | | $ | 1,407 |
| | $ | — |
| | $ | 1,043 |
|
Investing Activities: | | | | | | | | |
|
|
Investments in and advances to investee companies | — |
| | — |
| | (71 | ) | | — |
| | (71 | ) |
Capital expenditures | — |
| | (7 | ) | | (55 | ) | | — |
| | (62 | ) |
Acquisitions, net of cash acquired | — |
| | — |
| | (29 | ) | | — |
| | (29 | ) |
Other investing activities | 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Net cash flow provided by (used for) investing activities from continuing operations | 2 |
|
| (7 | ) |
| (155 | ) |
| — |
| | (160 | ) |
Net cash flow used for investing activities from discontinued operations | (23 | ) | | — |
| | — |
| | — |
| | (23 | ) |
Net cash flow used for investing activities | (21 | ) |
| (7 | ) |
| (155 | ) |
| — |
| | (183 | ) |
Financing Activities: | | | | | | | | |
|
|
Repayments of short-term debt borrowings, net | (309 | ) | | — |
| | — |
| | — |
| | (309 | ) |
Payment of finance lease obligations | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
Payment of contingent consideration | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
Dividends | (140 | ) | | — |
| | — |
| | — |
| | (140 | ) |
Purchase of Company common stock | (394 | ) | | — |
| | — |
| | — |
| | (394 | ) |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | (58 | ) | | — |
| | — |
| | — |
| | (58 | ) |
Proceeds from exercise of stock options | 22 |
| | — |
| | — |
| | — |
| | 22 |
|
Other financing activities | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Increase (decrease) in intercompany payables | 1,068 |
| | 137 |
| | (1,205 | ) | | — |
| | — |
|
Net cash flow provided by (used for) financing activities | 188 |
| | 137 |
| | (1,218 | ) | | — |
| | (893 | ) |
Net (decrease) increase in cash and cash equivalents | (67 | ) |
| — |
|
| 34 |
|
| — |
| | (33 | ) |
Cash and cash equivalents at beginning of period | 173 |
| | — |
| | 112 |
| | — |
| | 285 |
|
Cash and cash equivalents at end of period | $ | 106 |
|
| $ | — |
|
| $ | 146 |
|
| $ | — |
| | $ | 252 |
|
We enter into operating leases for the use of our owned production facilities and office buildings. Lease payments received under these agreements consist of fixed payments for the rental of space and certain building operating costs, as well as variable payments based on usage of production facilities and services, and escalating costs of building operations. We recorded total lease income, including both fixed and variable amounts, of $19 million and $53 million for three and six months ended June 30, 2020, respectively, and $38 million and $78 million for three and six months ended June 30, 2019, respectively.
|
| |
Item 2. | 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 (the “Company” or “CBS Corp.”)ViacomCBS Inc. should be read in conjunction with the consolidated financial statements and related notes in the Company’sViacomCBS Inc.’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2018.2019. References in this document to “ViacomCBS,” the “Company,” “we,” “us” and “our” refer to ViacomCBS Inc.
Significant components of management’s discussion and analysis of results of operations and financial condition include:
| |
• | Overview—Summary of ViacomCBS and our business and operational highlights. |
| |
• | Consolidated Results of Operations—Analysis of our results on a consolidated basis for the three and six months ended June 30, 2020 compared with the three and six months ended June 30, 2019. |
| |
• | Segment Results of Operations—Analysis of our results on a reportable segment basis for the three and six months ended June 30, 2020 compared with the three and six months ended June 30, 2019. |
| |
• | Liquidity and Capital Resources—Discussion of our cash flows for the six months ended June 30, 2020 compared with the six months ended June 30, 2019 and of our outstanding debt, commitments and contingencies existing as of June 30, 2020. |
| |
• | Legal Matters—Discussion of legal matters to which we are involved. |
Overview
Business overview and strategy
The Company operates businesses which span theViacomCBS is a leading global media and entertainment industries, includingcompany 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 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. (“NAI”) was the controlling stockholder of each of CBS Television Network, cable networks, content production and distribution, television stations, direct-to-consumer digital streaming servicesViacom (and remains the controlling stockholder of ViacomCBS). Upon the closing of the Merger, the net assets of Viacom were combined with those of CBS at their historical carrying amounts and other internet-basedthe companies have been presented on a combined basis for all periods presented.
Impact of COVID-19
The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and is expected to continue to impact, the macroeconomic environment in the United States and globally, as well as our business, financial condition and results of operations. As a result of COVID-19, we have experienced a material negative impact on our advertising revenues because of weakness in the advertising market as advertisers have sought to reduce their own costs in response to the pandemic’s impact on their businesses, and consumer publishing. The Company’s principal strategy isbecause of the cancellation or postponement of sporting events for which we have broadcast rights, such as the NCAA Division I Men’s Basketball Championship (the “NCAA Tournament”) and professional golf tournaments. We are not able to createpredict whether future sporting events will be canceled or postponed, or whether advertising revenues from these broadcasts, or advertising budgets and acquire premiumthe advertising market generally, will return or be comparable to historical levels. While we expect this negative impact to continue in the second half of the year, we expect the rate of decline in advertising revenues will improve from the second quarter.
COVID-19 has also led to a temporary shutdown of production of our television and film programming, which resulted in the abandonment of certain program materials that were not complete, delays in deliveries of
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
programming to third parties, and fewer original programs and live events airing on our broadcast and cable networks. While production has begun on a limited basis, we are not able to predict when production will fully resume, or the impact of incremental costs required to adhere to new health and safety protocols. We may also experience lower demand for the licensing of our programming in the near term as licensees implement financial austerity measures and aim to reduce costs. As a result, content that is widely accepted by audiences and generate affiliate and subscription fee, licensing and advertising revenues have been and may continue to be negatively impacted in the near to medium term.
In addition, our theatrical revenues have been negatively impacted by the closure or reduction in capacity of movie theaters that show our films, either voluntarily or as a result of government orders or restrictions on public gatherings in response to COVID-19, which has impacted our theatrical release strategy for several films in 2020. As a result, we did not release any films in the second quarter of 2020 and postponed two significant theatrical releases from 2020 to 2021. We are not able to predict when movie theaters will reopen at scale, whether consumers will return to movie theaters (even upon their reopening) at the distribution of this contentsame levels they previously did, or whether revenues from theatrical releases will be comparable to historical levels.
COVID-19 could also have a negative impact on multiple media platforms andour affiliate revenues, as consumers may seek to various geographic locations. The Company plansreduce discretionary spending by cutting back or foregoing subscriptions 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 fromcable television or other multichannel video programming distributors (“MVPDs”), third-party live television digital streaming offerings (“ and 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 all of the Company’s main revenue streams.MVPDs.
Operational Highlights - Three Months Ended June 30, 2019 versusThree Months Ended June 30, 2018
|
| | | | | | | | | | | | | | | |
Consolidated results of operations | | | | | Increase/(Decrease) | |
Three Months Ended June 30, | 2019 |
| 2018 | | $ | | % | |
GAAP: | | | | | | | | |
Revenues | $ | 3,809 |
| | $ | 3,466 |
| | $ | 343 |
| | 10 | % | |
Operating income | $ | 695 |
| | $ | 659 |
| | $ | 36 |
| | 5 | % | |
Net earnings | $ | 440 |
| | $ | 400 |
| | $ | 40 |
| | 10 | % | |
Diluted EPS | $ | 1.17 |
| | $ | 1.05 |
| | $ | .12 |
| | 11 | % | |
Net cash flow (used for) provided by operating activities | $ | (124 | ) | | $ | 326 |
| | $ | (450 | ) | | n/m |
| |
| | | | | | | | |
| | | | | | | | |
Non-GAAP: (a) | | | | | | | | |
Adjusted operating income | $ | 702 |
| | $ | 694 |
| | $ | 8 |
| | 1 | % | |
Adjusted net earnings | $ | 435 |
| | $ | 427 |
| | $ | 8 |
| | 2 | % | |
Adjusted diluted EPS | $ | 1.16 |
| | $ | 1.12 |
| | $ | .04 |
| | 4 | % | |
Free cash flow | $ | (157 | ) | | $ | 296 |
| | $ | (453 | ) | | n/m |
| |
n/m -The continuing impact of COVID-19 could be material to our business, financial condition and results of operations. The magnitude of the impact will depend on numerous evolving factors that we may not meaningful
(a) See pages 40-42be able to accurately predict, including the duration and 57-58 for reconciliationsextent of non-GAAP resultsthe pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the most directly comparable financial measures in accordance with accounting principles generally acceptedpandemic and such governmental actions, and the economic and operating conditions that we may face in the United States (“GAAP”).
Foraftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the three months ended June 30, 2019, revenues increased 10%future. Due to a second quarter record of $3.81 billion, with growth in eachthe evolving and uncertain nature of the Company’s mainpandemic, we are not able to estimate the full extent of the impact on our business, financial condition and results of operations, particularly over the near to medium term.
While COVID-19 has negatively impacted parts of our business, we have seen increased viewership across our broadcast, cable and digital properties and are utilizing our deep library of content to mitigate its impact. We are also working proactively to offset a portion of the revenue streams. Content licensing and distributionlosses through cost-savings initiatives. In addition, results for the second half of the year are expected to benefit from increased political advertising revenues grew 12%, mainly from an increase in domestic licensing revenues. Affiliate and subscription fee revenues increased 13%, reflecting growth from the Company’s direct-to-consumer digital streaming services, an increase in fees from television stations affiliatedassociated with the CBS Television Network (“station affiliation fees”)U.S. Presidential election. We have taken steps to strengthen our financial position during this period of market uncertainty, such as the issuance of long-term debt and higher retransmission revenues, driven by virtual MVPDs. Advertising revenues were 7% higher, driven byredemption of near-term debt discussed under “Liquidity and Capital Resources,” and we will continue to actively monitor the broadcastpotential impact of COVID-19 and related events on the nationalcommercial paper and credit markets.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
semifinals and championship game of the NCAADivision I Men’s Basketball Tournament (“NCAA Tournament”) on the CBS Television Network.
Operating income for the three months ended June 30, 2019 increased 5% from the same prior-year period and adjusted operating income increased 1%, reflecting the revenue growth, which was partially offset by an increased investment in content, including a higher number of series produced for distribution on multiple platforms, and higher costs associated with the growth and expansion of the Company’s direct-to-consumer digital streaming services.
Net earnings for the three months ended June 30, 2019 increased 10% and diluted earnings per share (“EPS”) increased 11% from the same prior-year period. Adjusted net earnings increased 2% and adjusted diluted EPS increased 4%, mainly as a result of the higher operating income. Diluted EPS also benefited from lower weighted average shares outstanding in 2019. Adjusted operating income, adjusted net earnings and adjusted diluted EPS are non-GAAP financial measures. See pages 40 - 42 for details of the discrete items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.
Operational Highlights - SixThree Months Ended June 30, 20192020 versus SixThree Months Ended June 30, 20182019
| | Consolidated results of operations | | | | | Increase/(Decrease) | | | | | | Increase/(Decrease) | |
Six Months Ended June 30, | 2019 | | 2018 | | $ | | % | | |
Three Months Ended June 30, | | 2020 | | 2019 | | $ | | % | |
GAAP: | | | | | | | | | | | | | | | | |
Revenues | $ | 7,976 |
| | $ | 7,227 |
| | $ | 749 |
| | 10 | % | | $ | 6,275 |
| | $ | 7,143 |
| | $ | (868 | ) | | (12 | )% | |
Operating income | $ | 1,923 |
| | $ | 1,431 |
| | $ | 492 |
| | 34 | % | | $ | 1,286 |
| | $ | 1,446 |
| | $ | (160 | ) | | (11 | )% | |
Net earnings | $ | 2,023 |
| | $ | 911 |
| | $ | 1,112 |
| | 122 | % | | |
Diluted EPS | $ | 5.38 |
| | $ | 2.38 |
| | $ | 3.00 |
| | 126 | % | | |
Net earnings from continuing operations attributable to ViacomCBS | | $ | 478 |
| | $ | 971 |
| | $ | (493 | ) | | (51 | )% | |
Diluted EPS from continuing operations attributable to ViacomCBS | | $ | .77 |
| | $ | 1.57 |
| | $ | (.80 | ) | | (51 | )% | |
Net cash flow provided by operating activities | $ | 314 |
| | $ | 1,043 |
| | $ | (729 | ) | | (70 | )% | | $ | 795 |
| | $ | 260 |
| | $ | 535 |
| | 206 | % | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-GAAP: (a) | | | | | | | | | | | | | | | | |
Adjusted operating income | $ | 1,495 |
| | $ | 1,475 |
| | $ | 20 |
| | 1 | % | | |
Adjusted net earnings | $ | 950 |
| | $ | 945 |
| | $ | 5 |
| | 1 | % | | |
Adjusted diluted EPS | $ | 2.53 |
| | $ | 2.47 |
| | $ | .06 |
| | 2 | % | | |
Adjusted OIBDA | | $ | 1,689 |
| | $ | 1,562 |
| | $ | 127 |
| | 8 | % | |
Adjusted net earnings from continuing operations attributable to ViacomCBS | | $ | 769 |
| | $ | 912 |
| | $ | (143 | ) | | (16 | )% | |
Adjusted diluted EPS from continuing operations attributable to ViacomCBS | | $ | 1.25 |
| | $ | 1.48 |
| | $ | (.23 | ) | | (16 | )% | |
Free cash flow | $ | 254 |
| | $ | 983 |
| | $ | (729 | ) | | (74 | )% | | $ | 714 |
| | $ | 185 |
| | $ | 529 |
| | 286 | % | |
(a) See pages 40-42“Reconciliation of Non-GAAP Measures” and 57-58“Free Cash Flow” for reconciliations of non-GAAP results to the most directly comparable financial measures in accordance with GAAP.accounting principles generally accepted in the United States (“GAAP”).
For the sixthree months ended June 30, 2019,2020, revenues grew 10%,decreased 12% to $6.28 billion, driven by the broadcastsadverse effects of COVID-19 on our business, including weak demand in the advertising market, the closure of movie theaters throughout the second quarter, and Super Bowl LIIIthe cancellation and postponement of professional golf tournaments and. The decline in revenues also reflected the comparison against the broadcast of the national semifinals and championship gamegames of the NCAA Tournament on CBS in the second quarter of 2019. These NCAA Tournament games are broadcast on CBS Television Network;every other year through 2032 under agreements with the NCAA and Turner Broadcasting System, Inc. (“Turner”). These decreases were partially offset by growth from our streaming services, including CBS All Access, Pluto TV and the Company’s direct-to-consumerShowtime streaming subscription offering (“Showtime OTT”), as well as BET+, which launched in September 2019. Revenues from our domestic streaming and digital video business grew 25% to $489 million for the three months ended June 30, 2020. Content licensing revenues for the three months ended June 30, 2020 were relatively flat compared with the same prior-year period, as the licensing of the domestic streaming services; increasesrights to South Park was offset by a lower volume of licensing in station affiliation feesthe second quarter of 2020 as a result of the benefit to the prior-year period from several significant licensing agreements for library programming, the timing of the delivery of programming produced for third parties, and retransmission revenues, driven by virtual MVPDs; and higher domestic licensing sales.production shutdowns because of COVID-19.
Operating income for the sixthree months ended June 30, 2019 increased 34%2020 decreased 11% from the same prior-year period. This comparison was impacted by several discrete items in 2019,identified as affecting comparability, including a gain of $549 million on the sale of the CBS Television City propertyprogramming, restructuring and sound stage operation (“CBS Television City”)impairment charges and costs of $121 million for restructuring andassociated with other corporate matters. See “Reconciliation of Non-GAAP Measures.” Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) increased 1%,8% as the revenue decline was more than offset by lower programming and distribution costs mainly as a result of production shutdowns and the absence of theatrical releases during the quarter, lower advertising and promotion costs from the broadcast of fewer original programs and lower employee expenses reflecting the revenue growth, which was partially offset by an increased investment in content and higher costs associated with the growth and expansion of the Company’s direct-to-consumer digital streaming services.benefit from restructuring activities.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Net earnings forFor the sixthree months ended June 30, 2019 were $2.02 billion, or $5.382020, net earnings from continuing operations attributable to ViacomCBS and diluted earnings per diluted share compared with $911 million, or $2.38per diluted share, for(“EPS”) from continuing operations each decreased 51% from the same prior-year period. The net earnings and diluted EPSThese comparisons were impacted by the aforementioned discrete items as well asaffecting comparability, including a deferred tax benefitloss on extinguishment of debt of $103 million in 2020 and gains relating to investments in the 2020 and 2019 of $768 million, or $2.04 per diluted share, resulting from the transfer of intangible assets between subsidiaries of the Company in connection with a reorganization of the Company’s international operations.periods. Adjusted net earnings increased 1%from continuing operations attributable to ViacomCBS and adjusted diluted EPS increased 2%each decreased 16%, reflectingas the higher adjusted operating income. Diluted EPS also benefitedgrowth in Adjusted OIBDA was more than offset by the noncontrolling interest’s share of profit from lower weighted average shares outstanding.the licensing of South Park in 2020. Adjusted operating income,OIBDA, adjusted net earnings from continuing operations attributable to ViacomCBS and adjusted diluted EPS from continuing operations are non-GAAP financial measures. See pages 40 - 42“Reconciliation of Non-GAAP Measures” for details of the discrete items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.
The Company’s operating cash flow was $314 millionOperational Highlights - Six Months Ended June 30, 2020 versusSix Months Ended June 30, 2019
|
| | | | | | | | | | | | | | | |
Consolidated results of operations | | | | | Increase/(Decrease) | |
Six Months Ended June 30, | 2020 | | 2019 | | $ | | % | |
GAAP: | | | | | | | | |
Revenues | $ | 12,944 |
| | $ | 14,243 |
| | $ | (1,299 | ) | | (9 | )% | |
Operating income | $ | 2,203 |
| | $ | 3,250 |
| | $ | (1,047 | ) | | (32 | )% | |
Net earnings from continuing operations attributable to ViacomCBS | $ | 986 |
| | $ | 2,917 |
| | $ | (1,931 | ) | | (66 | )% | |
Diluted EPS from continuing operations attributable to ViacomCBS | $ | 1.60 |
| | $ | 4.73 |
| | $ | (3.13 | ) | | (66 | )% | |
Net cash flow provided by operating activities | $ | 1,151 |
| | $ | 1,189 |
| | $ | (38 | ) | | (3 | )% | |
| | | | | | | | |
| | | | | | | | |
Non-GAAP: (a) | | | | | | | | |
Adjusted OIBDA | $ | 2,952 |
| | $ | 3,101 |
| | $ | (149 | ) | | (5 | )% | |
Adjusted net earnings from continuing operations attributable to ViacomCBS | $ | 1,468 |
| | $ | 1,810 |
| | $ | (342 | ) | | (19 | )% | |
Adjusted diluted EPS from continuing operations attributable to ViacomCBS | $ | 2.38 |
| | $ | 2.93 |
| | $ | (.55 | ) | | (19 | )% | |
Free cash flow | $ | 1,019 |
| | $ | 1,047 |
| | $ | (28 | ) | | (3 | )% | |
(a) See “Reconciliation of Non-GAAP Measures” and “Free Cash Flow” for reconciliations of non-GAAP results to the most directly comparable financial measures in accordance with GAAP.
For the six months endedJune 30, 2019 compared2020, revenues decreased 9% to $12.94 billion, driven by the adverse effects of COVID-19 on our business as well as the comparison against CBS’ broadcasts of Super Bowl LIII and the NCAA Tournament in the first half of 2019. The Super Bowl is broadcast on the CBS Television Network on a rotating basis with $1.04 billionother networks through the 2022 season under the current contract with the National Football League (“NFL”) and the 2020 NCAA Tournament, which was scheduled to be broadcast on CBS in the first quarter of 2020, was canceled as a result of concerns about COVID-19. These decreases were partially offset by growth from our streaming services, including CBS All Access, Pluto TV, Showtime OTT, and BET+. Revenues from our domestic streaming and digital video business grew 37% to $960 million for the six months ended June 30, 2018. Free cash flow2020.
Operating income for the six months endedJune 30, 2019 was $254 million compared with $983 million for2020 decreased 32% from the same prior-year period. These decreases primarily reflected an increased investment in contentThis comparison was impacted by items identified as affecting comparability, including programming, restructuring and higher paymentsimpairment charges and costs for income taxes, partially offset by the benefit from the broadcast of Super Bowl LIIIother corporate matters, as well as a gain on the CBS Television Networksale of assets in 2019. Free cash flow is a non-GAAP financial measure. See “Free Cash Flow” on pages 57 - 58 for a reconciliation of net cash flow provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow.
Transactions
During the first quarter of 2019,2019. See “Reconciliation of Non-GAAP Measures.” Adjusted OIBDA decreased 5%, primarily reflecting the Company completed the sale of CBS Television City, which resulteddecline in a gain of $549 million ($386 million, net of tax). In addition, in March 2019, the Company acquired the remaining 50% interest in Pop, a general entertainment cable network, for $50 million, bringing the Company’s ownership to 100%.
Dividends
During the second quarter of 2019, the Company declared a quarterly cash dividend of $.18 per share on its Class A and Class B Common Stock, resulting in total dividends of $68 million, which were paid on July 1, 2019.
Adoption of New Leases Standard
During the first quarter of 2019, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance on the accounting for leases. Asrevenues, partially offset by lower operating expenses, as a result of production shutdowns, the adoption of this guidance, the Company’s Consolidated Balance Sheet at June 30, 2019 included right-of-use assets of $922 million and lease liabilities of $1.0 billion, representing the present value of future lease payments for all operating leases with terms in excess of one year. The Company 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.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
in the 2020 period of certain major sporting events and theatrical film releases, and the benefit from restructuring activities.
For the six months ended June 30, 2020, net earnings from continuing operations attributable to ViacomCBS and diluted EPS from continuing operations each decreased 66% from the same prior-year period. These comparisons were impacted by items identified as affecting comparability, including the aforementioned items, a loss on extinguishment of debt of $103 million, as well as discrete tax items of $800 million in 2019, principally related to tax benefits from the transfer of intangible assets between our subsidiaries in connection with a reorganization of our international operations and the bankruptcy of an investee. Adjusted net earnings from continuing operations attributable to ViacomCBS and diluted EPS from continuing operations each decreased 19%, reflecting the lower Adjusted OIBDA and the noncontrolling interest’s share of profit from the licensing of South Park during the second quarter of 2020. Adjusted OIBDA, adjusted net earnings from continuing operations attributable to ViacomCBS and adjusted diluted EPS from continuing operations are non-GAAP financial measures. See “Reconciliation of Non-GAAP Measures” for details of the items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.
We generated operating cash flow of $1.15 billion for the six months endedJune 30, 2020 compared with $1.19 billion for the six months ended June 30, 2019. Free cash flow for the six months endedJune 30, 2020 was $1.02 billion compared with $1.05 billion for the same prior-year period. These decreases primarily reflect lower revenues, including from the impact of COVID-19 and the comparison against the broadcast of the Super Bowl in the first quarter of 2019, and higher payments for restructuring and merger-related costs. These decreases were offset by lower programming and production spending resulting from COVID-19 related production shutdowns and lower payments for income taxes in the first half of 2020. Operating cash flow and free cash flow for the six months ended June 30, 2020 and 2019 included payments for restructuring and merger-related costs of $351 million and $101 million, respectively. Free cash flow is a non-GAAP financial measure. See “Free Cash Flow” for a reconciliation of net cash flow provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow.
Reconciliation of Non-GAAP Measures
The Company’s resultsResults for the three and six months ended June 30, 2020 and 2019 and 2018 included discretecertain items that affectedidentified as affecting comparability. Adjusted operatingOIBDA, 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 discrete items and are measures of performance not calculated in accordance with GAAP. The Company usesWe use these measures to, among other things, evaluate the Company’sour 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 the Company’sour operational strength and business performance. In addition, the Company uses adjusted operating incomewe use Adjusted OIBDA to, among other things, value prospective acquisitions and as one of several components of incentive compensation targets for certain management personnel. The Company believesacquisitions. 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 the Company’sour management; provide a clearer perspective on theour underlying performance of the Company;performance; and make it easier for investors, analysts and peers to compare the Company’sour operating performance to other companies in itsour industry and to compare the Company’sour year-over-year results.
Because the adjusted operating income, adjusted net earnings and adjusted diluted EPSmeasures are measures of performance not calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income, earnings from continuing operations before income taxes, (provision) benefit for income taxes, net earnings from continuing operations attributable to ViacomCBS or diluted EPS from continuing operations, as applicable, as indicators of operating performance.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
These measures, as the Company calculateswe calculate them, may not be comparable to similarly titled measures employed by other companies. In addition, adjusted operating income does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company’s ability to fund its cash needs. As adjusted operating income, adjusted net earnings and adjusted diluted EPS exclude certain financial information that is included in operating income, net earnings or diluted EPS, the most directly comparable GAAP financial measures, as applicable, users of this financial information should consider the types of events and transactions that are excluded.
The following tables reconcile the adjusted resultsmeasures to their most directly comparable financial measures in accordance with GAAP.
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Reported | | Corporate Matters (a) | | Gain on Sale of Asset (b) | | Adjusted | |
Operating income | $ | 695 |
| | | $ | 7 |
| | | | $ | — |
| | | $ | 702 |
| |
Interest expense | (115 | ) | | | — |
| | | | — |
| | | (115 | ) | |
Interest income | 12 |
| | | — |
| | | | — |
| | | 12 |
| |
Other items, net | (21 | ) | | | — |
| | | | — |
| | | (21 | ) | |
Earnings before income taxes and equity in loss of investee companies | 571 |
| | | 7 |
| | | | — |
| | | 578 |
| |
Provision for income taxes | (119 | ) | | | (2 | ) | | | | — |
| | | (121 | ) | |
Equity in loss of investee companies, net of tax | (12 | ) | | | — |
| | | | (10 | ) | | | (22 | ) | |
Net earnings | $ | 440 |
| | | $ | 5 |
| | | | $ | (10 | ) | | | $ | 435 |
| |
Diluted EPS | $ | 1.17 |
| | | $ | .01 |
| | | | $ | (.03 | ) | | | $ | 1.16 |
| |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 |
| 2019 | | 2020 |
| 2019 |
Operating income (GAAP) | $ | 1,286 |
|
| $ | 1,446 |
| | $ | 2,203 |
|
| $ | 3,250 |
|
Depreciation and amortization (a) | 124 |
|
| 109 |
| | 237 |
|
| 215 |
|
Restructuring and other corporate matters (b) | 158 |
|
| 7 |
| | 391 |
|
| 185 |
|
Programming charges (b) | 121 |
|
| — |
|
| 121 |
|
| — |
|
Gain on sale of assets (b) | — |
|
| — |
| | — |
|
| (549 | ) |
Adjusted OIBDA (Non-GAAP) | $ | 1,689 |
| | $ | 1,562 |
| | $ | 2,952 |
| | $ | 3,101 |
|
(a) The three and six months ended June 30, 2020 include an impairment charge for FCC licenses of $25 million and the six months ended June 30, 2020 also includes accelerated depreciation of $12 million for technology that was abandoned in connection with synergy plans related to the Merger.
(b) See notes on the following tables for additional information on items affecting comparability.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| 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) | | $ | 937 |
|
|
|
| $ | (202 | ) |
|
|
| $ | 478 |
|
|
|
| $ | .77 |
| |
Items affecting comparability: | | | | | | | | | | | | | | | |
Restructuring and other corporate matters (a) |
| 158 |
|
|
|
| (34 | ) |
|
|
| 124 |
| | | | .20 |
| |
Impairment charge (b) |
| 25 |
|
|
|
| (6 | ) |
|
|
| 19 |
| | | | .03 |
| |
Programming charges (c) |
| 121 |
|
|
|
| (29 | ) |
|
|
| 92 |
|
|
|
| .15 |
| |
Gains from investments (d) |
| (32 | ) |
|
|
| 8 |
|
|
|
| (24 | ) | | | | (.03 | ) | |
Loss on extinguishment of debt |
| 103 |
|
|
|
| (24 | ) |
|
|
| 79 |
| | | | .13 |
| |
Discrete tax items |
| — |
|
|
|
| 1 |
|
|
|
| 1 |
| | | | — |
| |
Adjusted (Non-GAAP) | | $ | 1,312 |
| | | | $ | (286 | ) | | | | $ | 769 |
| | | | $ | 1.25 |
| |
(a) Reflects professional fees associated with legal proceedings involving the Companyseverance, exit costs and other corporate matters.costs related to the Merger and a charge to write down property and equipment classified as held for sale.
(b) Reflects a gaincharge to reduce the carrying values of FCC licenses in two markets to their fair values.
(c) Programming charges primarily related to the abandonment of certain incomplete programs resulting from COVID-19 related production shutdowns.
(d) Reflects an increase to the carrying value of an equity security based on the salemarket price of an international joint venture.a similar security.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Reported | | Restructuring and Other Corporate Matters (a) | | Adjusted | |
Operating income | $ | 659 |
| | | $ | 35 |
| | | $ | 694 |
| |
Interest expense | (116 | ) | | | — |
| | | (116 | ) | |
Interest income | 14 |
| | | — |
| | | 14 |
| |
Other items, net | (24 | ) | | | — |
| | | (24 | ) | |
Earnings before income taxes and equity in loss of investee companies | 533 |
| | | 35 |
| | | 568 |
| |
Provision for income taxes | (113 | ) | | | (8 | ) | | | (121 | ) | |
Equity in loss of investee companies, net of tax | (20 | ) | | | — |
| | | (20 | ) | |
Net earnings | $ | 400 |
| | | $ | 27 |
| | | $ | 427 |
| |
Diluted EPS | $ | 1.05 |
| | | $ | .07 |
| | | $ | 1.12 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| 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) | | $ | 1,239 |
|
|
|
| $ | (241 | ) |
|
|
| $ | 971 |
|
|
|
| $ | 1.57 |
| |
Items affecting comparability: | | | | | | | | | | | | | | | |
Restructuring and other corporate matters (a) | | 7 |
|
|
|
| (2 | ) |
|
|
| 5 |
| | | | .01 |
| |
Gains from investments (b) | | (39 | ) |
|
|
| 7 |
|
|
|
| (32 | ) | | | | (.05 | ) | |
Discrete tax items (c) | | — |
|
|
|
| (32 | ) |
|
|
| (32 | ) | | | | (.05 | ) | |
Adjusted (Non-GAAP) | | $ | 1,207 |
| | | | $ | (268 | ) | | | | $ | 912 |
| | | | $ | 1.48 |
| |
(a) Reflects restructuring charges of $25 million ($19 million, net of tax) as well as expenses of $10 million ($8 million, net of tax) primarily for professional fees associated with legal proceedings involving the Company and other corporate matters.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 | |
| Reported | | Restructuring and Other Corporate Matters (a) | | Gain on Sale of Assets (b) | | Tax Item (c) | | Adjusted | |
Operating income | $ | 1,923 |
| | | $ | 121 |
| | | | $ | (549 | ) | | | $ | — |
| | $ | 1,495 |
| |
Interest expense | (232 | ) | | | — |
| | | | — |
| | | — |
| | (232 | ) | |
Interest income | 26 |
| | | — |
| | | | — |
| | | — |
| | 26 |
| |
Other items, net | (42 | ) | | | — |
| | | | — |
| | | — |
| | (42 | ) | |
Earnings before income taxes and equity in loss of investee companies | 1,675 |
| | | 121 |
| | | | (549 | ) | | | — |
| | 1,247 |
| |
Benefit (provision) for income taxes | 377 |
| | | (30 | ) | | | | 163 |
| | | (768 | ) | | (258 | ) | |
Equity in loss of investee companies, net of tax | (29 | ) | | | — |
| | | | (10 | ) | | | — |
| | (39 | ) | |
Net earnings | $ | 2,023 |
| | | $ | 91 |
| | | | $ | (396 | ) | | | $ | (768 | ) | | $ | 950 |
| |
Diluted EPS | $ | 5.38 |
| | | $ | .24 |
| | | | $ | (1.05 | ) | | | $ | (2.04 | ) | | $ | 2.53 |
| |
(a) Primarily reflects restructuring charges of $108 million ($81 million, net of tax) and expenses of $13 million ($10 million, net of tax) associated with legal proceedings involving the Company and other corporate matters.
(b) Reflects a gain on marketable securities of $549$28 million ($386 million, net of tax) on the sale of CBS Television City and a gain of $11 million on the sale of an international joint venture.
(c) Primarily reflects a tax benefit related to the bankruptcy of an investee.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| 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) |
| $ | 1,594 |
|
|
|
| $ | (339 | ) |
|
|
| $ | 986 |
|
|
|
| $ | 1.60 |
|
|
Items affecting comparability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other corporate matters (a) |
| 391 |
|
|
|
| (81 | ) |
|
|
| 310 |
|
|
|
| .50 |
|
|
Impairment charge (b) | | 25 |
|
|
|
| (6 | ) |
|
|
| 19 |
| | | | .03 |
| |
Depreciation of abandoned technology (c) | | 12 |
|
|
|
| (3 | ) |
|
|
| 9 |
|
|
|
| .01 |
| |
Programming charges (d) | | 121 |
|
|
|
| (29 | ) |
|
|
| 92 |
| | | | .15 |
| |
Gains from investments (e) | | (32 | ) |
|
|
| 8 |
|
|
|
| (24 | ) | | | | (.04 | ) | |
Loss on extinguishment of debt | | 103 |
|
|
|
| (24 | ) |
|
|
| 79 |
| | | | .13 |
| |
Discrete tax items | | — |
|
|
|
| (3 | ) |
|
|
| (3 | ) |
|
|
| — |
| |
Adjusted (Non-GAAP) |
| $ | 2,214 |
|
|
|
| $ | (477 | ) |
|
|
| $ | 1,468 |
|
|
|
| $ | 2.38 |
|
|
(a) Reflects severance, exit costs and other costs related to the Merger and a charge to write down property and equipment classified as held for sale.
(b) Reflects a deferred tax benefit resulting fromcharge to reduce the transfercarrying values of intangible assets between subsidiaries of the CompanyFCC licenses in two markets to their fair values.
(c) Reflects accelerated depreciation for technology that was abandoned in connection with a reorganizationsynergy plans related to the Merger.
(d) Programming charges primarily related to the abandonment of certain incomplete programs resulting from COVID-19 related production shutdowns.
(e) Reflects an increase to the Company’s international operations.
Management’s Discussion and Analysiscarrying value of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 | |
| Reported | | Restructuring and Other Corporate Matters (a) | | Adjusted | |
Operating income | $ | 1,431 |
| | | $ | 44 |
| | | $ | 1,475 |
| |
Interest expense | (234 | ) | | | — |
| | | (234 | ) | |
Interest income | 31 |
| | | — |
| | | 31 |
| |
Other items, net | (35 | ) | | | — |
| | | (35 | ) | |
Earnings before income taxes and equity in loss of investee companies | 1,193 |
| | | 44 |
| | | 1,237 |
| |
Provision for income taxes | (248 | ) | | | (10 | ) | | | (258 | ) | |
Equity in loss of investee companies, net of tax | (34 | ) | | | — |
| | | (34 | ) | |
Net earnings | $ | 911 |
| | | $ | 34 |
| | | $ | 945 |
| |
Diluted EPS | $ | 2.38 |
| | | $ | .09 |
| | | $ | 2.47 |
| |
(a) Reflects restructuring charges of $25 million ($19 million, net of tax), as well as expenses of $19 million ($15 million, net of tax) primarily for professional fees associated with legal proceedings involving the Company and other corporate matters.
Consolidated Results of Operations
Three and Six Months Ended June 30, 2019versusThree and Six Months Ended June 30, 2018
Revenues
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
| | | % of Total Revenues | | | | % of Total Revenues | | Increase/(Decrease) | |
Revenues by Type | 2019 | | | 2018 | | | $ | | % | |
Advertising | $ | 1,424 |
| | 38 | % | | $ | 1,327 |
| | 38 | % | | $ | 97 |
| | 7 | % | |
Content licensing and distribution | 1,224 |
| | 32 |
| | 1,096 |
| | 32 |
| | 128 |
| | 12 |
| |
Affiliate and subscription fees | 1,113 |
| | 29 |
| | 989 |
| | 28 |
| | 124 |
| | 13 |
| |
Other | 48 |
| | 1 |
| | 54 |
| | 2 |
| | (6 | ) | | (11 | ) | |
Total Revenues | $ | 3,809 |
| | 100 | % | | $ | 3,466 |
| | 100 | % | | $ | 343 |
| | 10 | % | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | | % of Total Revenues | | | | % of Total Revenues | | Increase/(Decrease) | |
Revenues by Type | 2019 | | | 2018 | | | $ | | % | |
Advertising | $ | 3,468 |
| | 44 | % | | $ | 3,060 |
| | 42 | % | | $ | 408 |
| | 13 | % | |
Content licensing and distribution | 2,187 |
| | 27 |
| | 2,091 |
| | 29 |
| | 96 |
| | 5 |
| |
Affiliate and subscription fees | 2,224 |
| | 28 |
| | 1,968 |
| | 27 |
| | 256 |
| | 13 |
| |
Other | 97 |
| | 1 |
| | 108 |
| | 2 |
| | (11 | ) | | (10 | ) | |
Total Revenues | $ | 7,976 |
| | 100 | % | | $ | 7,227 |
| | 100 | % | | $ | 749 |
| | 10 | % | |
Advertising
For the three months ended June 30, 2019, advertising revenues increased 7%, driven by CBS’ broadcast of the national semifinals and championship game of the NCAA Tournament, which are broadcast an equity security based on the CBS Television Network every other year through 2032 under the current agreement with the NCAA and Turner Broadcasting System, Inc. (“Turner”). For the six months ended June 30, 2019, advertising revenues increased 13%, reflecting the broadcastmarket price of the above-mentioned NCAA Tournament games as well as CBS’ broadcast of Super Bowl LIII. The Super Bowl is broadcast on the CBS Television Network on a rotating basis with other networks through the 2022 season under the current contract with the National Football League (“NFL”). The increase for the six-month period was partially offset by lower revenues as a result of the timing of the broadcast of several other sportingsimilar security.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
events. Underlying CBS Network advertising revenues increased 3% |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 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) | | $ | 2,832 |
|
|
|
| $ | 135 |
|
|
|
| $ | 2,917 |
|
|
|
| $ | 4.73 |
| |
Items affecting comparability: | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Restructuring and other corporate matters (a) | | 185 |
|
|
|
| (45 | ) |
|
|
| 140 |
|
|
|
| .23 |
| |
Gain on sale of assets (b) | | (549 | ) |
|
|
| 163 |
|
|
|
| (386 | ) |
|
|
| (.63 | ) | |
Gains from investments (c) | | (77 | ) |
|
|
| 16 |
|
|
|
| (61 | ) | | | | (.10 | ) | |
Discrete tax items (d) | | — |
|
|
|
| (800 | ) |
|
|
| (800 | ) |
|
|
| (1.30 | ) | |
Adjusted (Non-GAAP) | | $ | 2,391 |
| | | | $ | (531 | ) | | | | $ | 1,810 |
| | | | $ | 2.93 |
| |
(a) Reflects severance, exit costs, costs associated with the settlement of a commercial dispute, and 2% forother legal proceedings involving the three and six months endedJune 30, 2019, respectively, fromCompany.
(b) Reflects a gain on the same prior-year periods, reflecting higher pricing, which was partially offset by lower ratings for primetime programming.
The Company recently completedsale of the CBS Television Network’s upfront advertising salesCity property and sound stage operation (“Upfront”CBS Television City”) for.
(c) Reflects a gain on marketable securities of $66 million and a gain of $11 million on the 2019/2020 television broadcast season, which runssale of an international joint venture.
(d) Reflects a deferred tax benefit of $768 millionresulting from the middletransfer of September 2019 through the middleintangible assets between our subsidiaries in connection with a reorganization of September 2020. A significant portionour international operations and a net tax benefit of advertising spots for the CBS Television Network’s non-sports programming is sold during May through July in the Upfront each year. This year’s Upfront concluded with increases in pricing compared with the prior broadcast season, which are expected to benefit the Company’s advertising revenues during the 2019/2020 broadcast season. 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, which is when advertisers purchase the remaining advertising spots closer$32 million principally related to the broadcastbankruptcy of the related programming. In addition, in the second halfan investee.
Consolidated Results of 2019, the advertising revenue comparison with the prior year will be negatively affected by the benefit in 2018 from record political advertising sales.Operations
Content LicensingThree and DistributionSix Months Ended June 30, 2020versusThree and Six Months Ended June 30, 2019
Revenues
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
| | | % of Total Revenues | | | | % of Total Revenues | | Increase/(Decrease) | |
Revenues by Type | 2020 | | | 2019 | | | $ | | % | |
Advertising | $ | 1,934 |
| | 31 | % | | $ | 2,645 |
| | 37 | % | | $ | (711 | ) | | (27 | )% | |
Affiliate | 2,194 |
| | 35 |
| | 2,155 |
| | 30 |
| | 39 |
| | 2 |
| |
Content licensing | 1,902 |
| | 30 |
| | 1,909 |
| | 27 |
| | (7 | ) | | — |
| |
Theatrical | 3 |
| | — |
| | 152 |
| | 2 |
| | (149 | ) | | (98 | ) | |
Publishing | 200 |
| | 3 |
| | 218 |
| | 3 |
| | (18 | ) | | (8 | ) | �� |
Other | 42 |
| | 1 |
| | 64 |
| | 1 |
| | (22 | ) | | (34 | ) | |
Total Revenues | $ | 6,275 |
| | 100 | % | | $ | 7,143 |
| | 100 | % | | $ | (868 | ) | | (12 | )% | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | | % of Total Revenues | | | | % of Total Revenues | | Increase/(Decrease) | |
Revenues by Type | 2020 | | | 2019 | | | $ | | % | |
Advertising | $ | 4,418 |
| | 34 | % | | $ | 5,711 |
| | 40 | % | | $ | (1,293 | ) | | (23 | )% | |
Affiliate | 4,391 |
| | 34 |
| | 4,320 |
| | 30 |
| | 71 |
| | 2 |
| |
Content licensing | 3,496 |
| | 27 |
| | 3,374 |
| | 24 |
| | 122 |
| | 4 |
| |
Theatrical | 170 |
| | 1 |
| | 324 |
| | 2 |
| | (154 | ) | | (48 | ) | |
Publishing | 370 |
| | 3 |
| | 382 |
| | 3 |
| | (12 | ) | | (3 | ) | |
Other | 99 |
| | 1 |
| | 132 |
| | 1 |
| | (33 | ) | | (25 | ) | |
Total Revenues | $ | 12,944 |
| | 100 | % | | $ | 14,243 |
| | 100 | % | | $ | (1,299 | ) | | (9 | )% | |
Advertising
For the three and six months ended June 30, 2019, content licensing2020, the decreases in advertising revenues of 27% and distribution revenues increased 12% and 5%23%, respectively, reflecting growth from the domestic licensing of library programming and higher sales of series produced for third-party distributors. These increases were partially offsetdriven by the timingadverse effects of international licensing sales.
For the remainder of 2019, the content licensing and distribution revenues comparison will continue to be impacted by fluctuations resulting from the timing of when Company-owned television series are made available for multiyear licensing agreements.
Affiliate and Subscription Fees
Affiliate and subscription fees increased 13% for each of the three and six months ended June 30, 2019. For the three-month period, the increase reflected 43% growth from the Company’s direct-to-consumer digital streaming services, CBS All Access and Showtime, and an aggregate increase of 17% in retransmission revenues, station affiliation fees and revenues from virtual MVPDs. For the six-month period, the increase reflected 41% growth from the Company’s direct-to-consumer digital streaming services and an aggregate increase of 18% in retransmission revenues, station affiliation fees and revenues from virtual MVPDs.
Over the next few years, the Company expects to benefit from the renewal of several of its agreements with station affiliates, MVPDs and virtual MVPDs. Historically, renewals of these agreements have resulted in increasesCOVID-19, including lower demand in the rates received by the Company. In addition, the Company’s 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.
International Revenues
The Company generated approximately 15% and 18% of its total revenues from international regions for the three months ended June 30, 2019 and 2018, respectively, and generated 15% and 19% of its total revenues from international regions for the six months ended June 30, 2019 and 2018, respectively.
advertising market
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
| | | % of Operating Expenses | | | | % of Operating Expenses | | Increase/(Decrease) | |
Operating Expenses by Type | 2019 | | | 2018 | | | $ | | % | |
Programming | $ | 665 |
| | 27 | % | | $ | 579 |
| | 27 | % | | $ | 86 |
| | 15 | % | |
Production | 1,000 |
| | 40 |
| | 902 |
| | 41 |
| | 98 |
| | 11 |
| |
Participation, distribution and royalty | 433 |
| | 17 |
| | 331 |
| | 15 |
| | 102 |
| | 31 |
| |
Other | 411 |
| | 16 |
| | 372 |
| | 17 |
| | 39 |
| | 10 |
| |
Total Operating Expenses | $ | 2,509 |
| | 100 | % | | $ | 2,184 |
| | 100 | % | | $ | 325 |
| | 15 | % | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | | % of Operating Expenses | | | | % of Operating Expenses | | Increase/(Decrease) | |
Operating Expenses by Type | 2019 | | | 2018 | | | $ | | % | |
Programming | $ | 1,879 |
| | 36 | % | | $ | 1,547 |
| | 34 | % | | $ | 332 |
| | 21 | % | |
Production | 1,821 |
| | 35 |
| | 1,661 |
| | 36 |
| | 160 |
| | 10 |
| |
Participation, distribution and royalty | 763 |
| | 14 |
| | 653 |
| | 14 |
| | 110 |
| | 17 |
| |
Other | 794 |
| | 15 |
| | 723 |
| | 16 |
| | 71 |
| | 10 |
| |
Total Operating Expenses | $ | 5,257 |
| | 100 | % | | $ | 4,584 |
| | 100 | % | | $ | 673 |
| | 15 | % | |
Programming
Forand the threecancellation and sixpostponement of sporting events. Canceled or postponed sporting events include professional golf tournaments in the three months ended June 30, 2019,2020 and the increases2020 NCAA Tournament in programming expenses of 15% and 21%, respectively,the six-month period. In addition, our advertising revenues were primarily drivennegatively affected by increased sports programming costs as a result of the comparison against CBS’ broadcast of the national semifinals and championship gamegames of the NCAA Tournament as well asin the second quarter of 2019. These games are broadcast on CBS every other sporting eventsyear through 2032 under agreements with the NCAA and Turner. The decline in advertising revenues for the six-month period also reflects the comparison against CBS’ broadcast of Super Bowl LIII.in the first quarter of 2019. The national semifinals and championship game of the NCAA Tournament areSuper Bowl is broadcast on the CBS Television Network every other year through 2032 under the current agreement with the NCAA and Turner. The Super Bowl is broadcast on CBS on a rotating basis with other networks through the 2022 season under the current contract with the NFL.
Production
ForDomestic advertising revenues for the threesecond quarter of 2020 decreased 24% to $1.73 billion from $2.29 billion for the same prior-year period, and for the six months ended June 30, 2019, the increases in production expenses of 11% and 10%, respectively, reflected an increased investment in content, including a higher number of series produced for distribution on multiple platforms, and higher costs associated with the increase in television licensing revenues. The increase2020decreased 22% to $3.96 billion from $5.07 billion for the six-month period also reflects production costs associated withsame prior-year period. These decreases were the broadcastresult of Super Bowl LIII.the aforementioned factors for the applicable period. Advertising revenues benefited from growth from our domestic streaming and digital video business, including Pluto TV.
Participation, Distribution and Royalty
ForInternational advertising revenues for the three months ended June 30, 2020 decreased 43% to $204 million from $355 million for the same prior-year period, and for the six months ended June 30, 2019, participation, distribution2020 decreased 29% to $459 million from $646 million for the same prior-year period. These decreases primarily reflect the effects of COVID-19 as well as the unfavorable impact of foreign exchange rate changes of 4 percentage points on the three-month comparison and royalty costs increased 31% and 17%, respectively, mainly as a result of higher costs associated with6 percentage points on the increase in television licensing revenues and the mix of titles sold under television licensing arrangements.six-month comparison.
OtherAffiliate
Other operating expenses primarily include compensation and costs associated with book sales, including printing and warehousing. For each of the three and six months ended June 30, 2020, affiliate revenues increased 2%, reflecting growth from station affiliation fees and retransmission fees, driven by annual contractual increases and contract renewals with television stations affiliated with the CBS Television Network, MVPDs and virtual MVPDs, as well as growth from our streaming services, including CBS All Access and Showtime OTT, driven by subscriber growth, as well as BET+, which we launched in September 2019. These increases were partially offset by lower cable affiliate fees, mainly resulting from subscriber declines. For the three months ended June 30, 2020, domestic affiliate revenues increased 2% to $2.03 billion from $1.99 billion for the same prior-year period, while international affiliate revenues decreased 5% to $160 million from $169 million for the second quarter of 2019, driven by the increasesunfavorable impact of foreign exchange rate changes of 3 percentage points. For the six months ended June 30, 2020, domestic affiliate revenues increased 3% to $4.08 billion from $3.98 billion for the same prior-year period, while international affiliate revenues decreased 9% to $311 million from $341 million for the first six months of 2019, including the unfavorable impact of foreign exchange rate changes of 6 percentage points.
Content Licensing
Content licensing revenues for the three months ended June 30, 2020 remained relatively flat and for the six months ended June 30, 2020 increased 4%, as the licensing of the domestic streaming rights to South Park to an SVOD providerwasoffset by a lower volume of licensing in other operatingeach of the current-year periods. The lower volume was primarily the result of the benefit to the prior-year periods from several significant licensing agreements for library programming, the timing of deliveries, and production shutdowns that began in March 2020 and continued throughout the second quarter because of COVID-19.
Theatrical
Theatrical revenues for the three and six months ended June 30, 2020 were impacted by the closure of movie theaters throughout the second quarter in response to COVID-19.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Publishing
For the three and six months ended June 30, 2020, publishing revenues decreased 8% and 3%, respectively, driven by lower print book sales mainly reflecting the impacts of COVID-19, including fewer new releases in the second quarter of 2020 due to their postponement to later in the year and weakness in the retail market. The decline was partially offset by growth in sales of electronic and digital audio books.
Other
For the three and six months ended June 30, 2020, other revenues decreased 34% and 25%, respectively, primarily reflecting lower revenues from the rental of our production facilities as a result of the shutdown of production studios due to COVID-19.
Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | |
| | | % of Operating Expenses | | | | % of Operating Expenses | | Increase/(Decrease) | |
Operating Expenses by Type | 2020 | | | 2019 | | | $ | | % | |
Production | $ | 1,491 |
| | 43 | % | | $ | 1,815 |
| | 43 | % | | $ | (324 | ) | | (18 | )% | |
Programming | 713 |
| | 20 |
| | 925 |
| | 22 |
| | (212 | ) | | (23 | ) | |
Participation, distribution and royalty | 618 |
| | 18 |
| | 923 |
| | 22 |
| | (305 | ) | | (33 | ) | |
Programming charges | 121 |
| | 3 |
| | — |
| | — |
| | 121 |
| | n/m |
| |
Other | 542 |
| | 16 |
| | 547 |
| | 13 |
| | (5 | ) | | (1 | ) | |
Total Operating Expenses | $ | 3,485 |
| | 100 | % | | $ | 4,210 |
| | 100 | % | | $ | (725 | ) | | (17 | )% | |
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | | % of Operating Expenses | | | | % of Operating Expenses | | Increase/(Decrease) | |
Operating Expenses by Type | 2020 | | | 2019 | | | $ | | % | |
Production | $ | 3,145 |
| | 42 | % | | $ | 3,311 |
| | 39 | % | | $ | (166 | ) | | (5 | )% | |
Programming | 1,686 |
| | 22 |
| | 2,375 |
| | 28 |
| | (689 | ) | | (29 | ) | |
Participation, distribution and royalty | 1,496 |
| | 20 |
| | 1,712 |
| | 20 |
| | (216 | ) | | (13 | ) | |
Programming charges | 121 |
| | 2 |
| | — |
| | — |
| | 121 |
| | n/m |
| |
Other | 1,102 |
| | 14 |
| | 1,060 |
| | 13 |
| | 42 |
| | 4 |
| |
Total Operating Expenses | $ | 7,550 |
| | 100 | % | | $ | 8,458 |
| | 100 | % | | $ | (908 | ) | | (11 | )% | |
n/m - not meaningful
Production
For the three and six months ended June 30, 2020, the decreases in production expenses of 10%18% and 5%, respectively, reflect lower costs associated with the mix of titles licensed under television licensing arrangements, as well as the impact of COVID-19, which resulted in the absence of theatrical releases in the second quarter of 2020, the cancellation and postponement of live events, and the broadcast of fewer episodes of original programming on our broadcast networks.
Programming
For the three months ended June 30, 2020, the 23% decrease in programming expenses was driven by lower sports programming costs resulting from the comparison against CBS’ broadcast of the national semifinals and championship games of the NCAA Tournament in the second quarter of 2019, and the postponement and cancellation of professional golf tournaments as a result of concerns around COVID-19. These NCAA Tournament games are broadcast on CBS every other year through 2032 under agreements with the NCAA and Turner. The
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
decline also reflects the broadcast of fewer original programs on our broadcast networks, as a result of COVID-19 related production shutdowns, and the mix of programming.
For the six months ended June 30, 2020, the 29% decrease in programming expenses was driven by lower sports programming costs, reflecting CBS’ broadcasts of the Super Bowl and the NCAA Tournament in the first quarter of 2019 and the above-mentioned noncomparable sporting events. The Super Bowl is broadcast on CBS on a rotating basis with other networks through the 2022 season under the current contract with the NFL. The 2020 NCAA Tournament was canceled as a result of concerns about COVID-19. The decline also reflects the broadcast of fewer original programs on our broadcast networks, as a result of COVID-19 related production shutdowns, and the mix of programming.
Participation, Distribution and Royalty
For the three and six months ended June 30, 2020, participation, distribution and royalty costs decreased 33%and13%, respectively, reflecting higher distribution costs in the prior-year periods to support theatrical releases, including Rocketman, while the current-year periods were impacted by the postponement of films from theatrical release due to COVID-19. Participation and residuals costs associated with television licensing revenues were also lower for the three and six months ended June 30, 2020 compared with the same prior-year periods, reflecting the mix of titles licensed in each period.
Programming Charges
During the three and six months ended June 30, 2020, we recorded programming charges of $121 million primarily reflectedrelated to the abandonment of certain incomplete programs resulting from COVID-19 related production shutdowns.
Other
Other operating expenses primarily include overhead costs associated with operating departments, including compensation expense, revenue-sharing costs and costs associated with book sales, including printing and warehousing. For the three months ended June 30, 2020, other operating expenses decreased 1%. For the six months endedJune 30, 2020, the increase in other operating expenses of 4% was driven by higher revenue-sharing costs associated with the growth in retransmission and expansiondigital revenues and higher costs at CBS News as a result of the Company’s direct-to-consumer digital streaming services.unscheduled news broadcasts and political coverage.
Selling, General and Administrative Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | % of Revenues | | 2018 | | % of Revenues | | Increase/(Decrease) | |
Selling, general and administrative expenses | $ | 545 |
| | | 14 | % | | | $ | 532 |
| | | 15 | % | | | | 2 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| 2019 | | % of Revenues | | 2018 | | % of Revenues | | Increase/(Decrease) | |
Selling, general and administrative expenses | $ | 1,118 |
| | | 14 | % | | | $ | 1,056 |
| | | 15 | % | | | | 6 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2020 | | 2019 | | Increase/(Decrease) | | 2020 | | 2019 | | Increase/(Decrease) | |
Selling, general and administrative expenses | $ | 1,222 |
| | $ | 1,371 |
| | | (11 | )% | | | $ | 2,563 |
| | $ | 2,684 |
| | | (5 | )% | | |
Selling, general and administrative (“SG&A”) expenses include expenses incurred for selling and marketing costs, occupancy, professional service fees and back office support.support, including employee compensation. For the three and six months ended June 30, 2019, the increases in2020, SG&A expenses of 2% decreased 11%and 6%5%, respectively, were primarily driven by higherreflecting lower advertising and marketingpromotion costs from the broadcast of fewer original programs during the second quarter and lower employee expenses reflecting an increase inlower incentive compensation and the number of series premieres andbenefit from restructuring activities. For the six-month period, these decreases were partially offset by costs associated with Pluto TV, which was acquired during the Company’s direct-to-consumer digital streaming services.first quarter of 2019.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Depreciation and Amortization
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 |
| 2018 | | Increase/(Decrease) | | 2019 |
| 2018 | | Increase/(Decrease) | |
Depreciation and amortization | $ | 53 |
| | $ | 56 |
| | | (5 | )% | | | $ | 106 |
| | $ | 112 |
| | | (5 | )% | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2020 |
| 2019 | | Increase/(Decrease) | | 2020 |
| 2019 | | Increase/(Decrease) | |
Depreciation and amortization | $ | 124 |
| | $ | 109 |
| | | 14 | % | | | $ | 237 |
| | $ | 215 |
| | | 10 | % | | |
Depreciation and amortization expense for the three and six months endedJune 30, 2020included an impairment charge of $25 million in the TV Entertainment segment to write down the carrying values of FCC licenses in two markets to their fair values (see Note 4). Also included in the six months ended June 30, 2020 was accelerated depreciation of $12 million resulting from the abandonment of technology in connection with synergy plans related to the Merger. Partially offsetting these increases was lower depreciation as a result of assets that became fully depreciated during 2019.
Restructuring and Other Corporate Matters
During the three and six months ended June 30, 2020 and 2019, we recorded costs for restructuring and other corporate matters as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 |
| 2019 | | 2020 | | 2019 |
Severance | $ | 128 |
| | $ | — |
| | $ | 304 |
| | $ | 98 |
|
Exit costs | 6 |
| | — |
| | 32 |
| | 30 |
|
Restructuring charges | 134 |
| | — |
| | 336 |
| | 128 |
|
Merger-related costs | 10 |
| | — |
| | 41 |
| | — |
|
Other corporate matters | 14 |
| | 7 |
| | 14 |
| | 57 |
|
Restructuring and other corporate matters | $ | 158 |
| | $ | 7 |
| | $ | 391 |
| | $ | 185 |
|
During the three and six months ended June 30, 2020, we recorded restructuring charges of $134 millionand $336 million, respectively, associated with cost-transformation initiatives in connection with the Merger in an effort to reduce redundancies across our businesses. These charges primarily include severance costs and the acceleration of stock-based compensation. During the six months ended June 30, 2019, we recorded restructuring charges of $128 million primarily for severance costs associated with a restructuring plan initiated in the first quarter of 2019 the Company initiated a restructuring plan under which severance payments are beingwere provided to certain eligible employees who voluntarily elected to participate. TheRestructuring charges for the three and six months ended June 30, 2020 and the six months endedJune 30, 2019 also included exit costs resulting from the termination of contractual obligations.
In addition, for the three and six months ended June 30, 2020, we incurred merger-related costs of $10 million and $41 million, respectively, consisting of transaction-related bonuses and professional fees mainly associated with integration activities. In addition, we recorded a charge of $14 million to write down property and equipment that has been classified as held for sale to its fair value less costs to sell at June 30, 2020. During the three and six months ended June 30, 2019, we incurred costs of $7 million and $57 million, respectively, consisting of costs associated with legal proceedings involving the Company also implemented additional restructuring plans duringand for the six-month period, the settlement of a commercial dispute.
Gain on Sale of Assets
During the first quarter of 2019, across severalwe completed the sale of its businessesCBS Television City for $750 million, resulting in connection with a continued effort to reduce its cost structure. As a result, the Company recorded restructuring chargesgain of $108$549 million in the first quarter($386 million, net of 2019, reflecting $98 million of severance costs and $10 million of costs associated with exiting contractual obligations and other related costs.
During the year ended December 31, 2018, 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.
As of June 30, 2019, the cumulative settlements for the 2019, 2018 and 2017 restructuring charges were $112 million, of which $100 million was for severance costs and $12 million was for costs associated with contractual obligations and other related costs. The Company expects to substantially utilize its restructuring reserves by the end of 2020.tax).
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at | | 2019 | | 2019 | | Balance at |
| December 31, 2018 | | Charges | | Settlements | | June 30, 2019 |
Entertainment | | $ | 31 |
| | | | $ | 48 |
| | | | $ | (23 | ) | | | | $ | 56 |
| |
Cable Networks | | — |
| | | | 5 |
| | | | — |
| | | | 5 |
| |
Publishing | | 2 |
| | | | 5 |
| | | | (1 | ) | | | | 6 |
| |
Local Media | | 23 |
| | | | 28 |
| | | | (11 | ) | | | | 40 |
| |
Corporate | | 12 |
| | | | 22 |
| | | | (15 | ) | | | | 19 |
| |
Total | | $ | 68 |
| | | | $ | 108 |
| | | | $ | (50 | ) | | | | $ | 126 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at | | 2018 | | 2018 | | Balance at |
| December 31, 2017 | | Charges | | Settlements | | December 31, 2018 |
Entertainment | | $ | 39 |
| | | | $ | 27 |
| | | | $ | (35 | ) | | | | $ | 31 |
| |
Publishing | | 3 |
| | | | 1 |
| | | | (2 | ) | | | | 2 |
| |
Local Media | | 11 |
| | | | 18 |
| | | | (6 | ) | | | | 23 |
| |
Corporate | | 2 |
| | | | 21 |
| | | | (11 | ) | | | | 12 |
| |
Total | | $ | 55 |
| | | | $ | 67 |
| | | | $ | (54 | ) | | | | $ | 68 |
| |
The Company recorded expenses of $7 million and $10 million during the three months ended June 30, 2019 and 2018, respectively, and $13 million and $19 million during the six months ended June 30, 2019 and 2018, respectively, primarily for costs associated with legal proceedings involving the Company (see “Legal Matters”) and other corporate matters.
Gain on Sale of Assets
During the first quarter of 2019, the Company completed the sale of CBS Television City for $750 million. The Company has 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 Company’s Consolidated Balance Sheet at June 30, 2019 is a liability of $122 million, reflecting the present value of the estimated amount payable under the guarantee obligation. This transaction resulted in a gain of $549 million ($386 million, net of a tax provision of $163 million) for the six months ended June 30, 2019, which includes a reduction for the guarantee obligation. The Company 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/Income
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 |
| 2018 |
| Increase/(Decrease) | | 2019 |
| 2018 | | Increase/(Decrease) | | 2020 |
| 2019 |
| Increase/(Decrease) | | 2020 |
| 2019 | | Increase/(Decrease) | |
Interest expense | $ | (115 | ) | | $ | (116 | ) | | (1 | )% | | $ | (232 | ) | | $ | (234 | ) | | | (1 | )% | | | $ | (263 | ) | | $ | (237 | ) | | 11 | % | | $ | (504 | ) | | $ | (477 | ) | | | 6 | % | | |
Interest income | $ | 12 |
| | $ | 14 |
| | (14 | )% | | $ | 26 |
| | $ | 31 |
| | (16 | )% | | $ | 11 |
| | $ | 15 |
| | (27 | )% | | $ | 25 |
| | $ | 34 |
| | (26 | )% | |
The following table presents the Company’sour outstanding debt balances, excluding finance leases, and the weighted average interest rate as of June 30, 20192020 and 2018:2019:
|
| | | | | | | | | | | | | | | | | |
| At June 30, |
| | | Weighted Average | | | | Weighted Average |
| 2019 | | Interest Rate | | 2018 | | Interest Rate |
Senior debt | $ | 9,332 |
| | | 4.38 | % | | | $ | 9,430 |
| | | 4.26 | % | |
Commercial paper | $ | — |
| | | — | % | | | $ | 370 |
| | | 2.42 | % | |
|
| | | | | | | | | | | | | | | | | |
| At June 30, |
| | | Weighted Average | | | | Weighted Average |
| 2020 | | Interest Rate | | 2019 | | Interest Rate |
Total long-term debt | $ | 19,930 |
| | | 4.78 | % | | | $ | 18,273 |
| | | 4.70 | % | |
Other bank borrowings | $ | 101 |
| | | 3.59 | % | | | $ | — |
| | | — | % | |
Loss on Extinguishment of Debt
For the three and six months ended June 30, 2020, the loss on extinguishment of debt of $103 million reflects a pre-tax loss associated with the early redemption of $2.43 billion of our long-term debt.
Other Items, Net
The following table presents the components of Other items, net.
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 |
| 2019 | | 2020 | | 2019 | |
Pension and postretirement benefit costs | $ | (18 | ) | | $ | (26 | ) | | $ | (36 | ) | | $ | (53 | ) | |
Foreign exchange (losses) gains | (9 | ) | | 2 |
| | (25 | ) | | (3 | ) | |
Gain from equity securities | 32 |
| | 28 |
| | 32 |
| | 66 |
| |
Gain on sale of investment | — |
| | 11 |
| | — |
| | 11 |
| |
Other | 1 |
| | — |
| | 2 |
| | 4 |
| |
Other items, net | $ | 6 |
| | $ | 15 |
| | $ | (27 | ) | | $ | 25 |
| |
(Provision) Benefit for Income Taxes
The (provision) benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the three and six months ended June 30, 2020, we recorded a provision for income taxes of $202 million and $339 million, reflecting effective income tax rates of 21.6% and 21.3%, respectively.
For the three and six months ended June 30, 2019, we recorded a provision for income taxes of $241 million and a benefit of $135 million, reflecting effective income tax rates of 19.5% and (4.8)%, respectively. Included in the provision for income taxes for the second quarter of 2019 is a net tax benefit of $32 million principally related to the bankruptcy of an investee. This item, taken together with a provision of $5 million for restructuring and other corporate matters and gain on equity securities, reduced our effective income tax rate by 2.7 percentage points. The tax benefit for the six months ended June 30, 2019 included 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, the aforementioned tax benefit of $32 million principally related to the bankruptcy of an investee, and a tax provision of $163 million on the gain from the sale of CBS Television City. These items, taken together with a
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Other Items, Net
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 |
| 2018 | | 2019 | | 2018 | |
Pension and postretirement benefit costs | $ | (23 | ) | | $ | (16 | ) | | $ | (46 | ) | | $ | (31 | ) | |
Foreign exchange gains (losses) | 2 |
| | (5 | ) | | 4 |
| | (1 | ) | |
Loss from investments | — |
| | (3 | ) | | — |
| | (3 | ) | |
Other items, net | $ | (21 | ) | | $ | (24 | ) | | $ | (42 | ) | | $ | (35 | ) | |
net tax benefit of $29 million for restructuring and other corporate matters and gain on equity securities, reduced the effective income tax rate by 27.0 percentage points for the six months ended June 30, 2019.
(Provision) BenefitIn March 2020, the U.S. government enacted tax legislation containing provisions to support businesses during the COVID-19 pandemic (the “CARES Act”), including deferment of the employer portion of certain payroll taxes, refundable payroll tax credits, and technical amendments to tax depreciation methods for Income Taxesqualified improvement property. The CARES Act did not have a material impact on our consolidated financial statements for the three and six months ended June 30, 2020. We do not expect the future impact of the CARES Act provisions to be material.
In March 2020, the UK government passed a resolution increasing the UK corporate income tax rate from 17% to 19% beginning April 1, 2020. The (provision) benefit for income taxes represents federal, state and local, and foreign income taxesresolution received Royal Assent on earnings before income taxes and equityJuly 22, 2020. Accordingly, the impact of the rate increase will be recorded in lossour consolidated financial statements in the third quarter of investee companies.
|
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | Increase/(Decrease) | | 2019 | | 2018 | | Increase/(Decrease) | |
Provision for income taxes before discrete items | $ | (128 | ) | | $ | (111 | ) | | 15 | % | | $ | (240 | ) | | $ | (245 | ) | | (2 | )% | |
Tax benefit from transfer of assets (a) | — |
| | — |
| | | | 768 |
| | — |
| | | |
Provision for gain on sale of assets (b) | — |
| | — |
| | | | (163 | ) | | — |
| | | |
Other discrete items | 9 |
| | (2 | ) | |
|
| | 12 |
| | (3 | ) | |
|
| |
(Provision) benefit for income taxes | $ | (119 | ) | | (113 | ) | | 5 | % | | $ | 377 |
| | $ | (248 | ) | | n/m |
| |
Effective income tax rate | 20.8 | % | | 21.2 | % | | | | (22.5 | )% | | 20.8 | % | | | |
n/m - not meaningful
(a) Reflects2020. We currently estimate the impact of the rate increase to result in a deferrednet tax benefit resulting fromof approximately $100 million, primarily attributable to the transferadjustment of intangible assets between subsidiaries of the Company in connection with a reorganization of the Company’s international operations. The relatedour UK deferred income tax asset is primarily expected to be realized over the next 25 years.
(b) Reflects the tax provision from the gain on the sale of CBS Television City.balances.
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in loss of investee companies for our equity-method investments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 |
| 2018 |
| Increase/(Decrease) | | 2019 | | 2018 | | Increase/(Decrease) | |
Equity in loss of investee companies, net of tax | $ | (12 | ) | | $ | (20 | ) | | | (40 | )% | | | $ | (29 | ) | | $ | (34 | ) | | | (15 | )% | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2020 |
| 2019 |
| Increase/(Decrease) | | 2020 |
| 2019 | | Increase/(Decrease) | |
Equity in loss of investee companies | $ | (16 | ) | | $ | (28 | ) | | | 43 | % | | | $ | (32 | ) | | $ | (51 | ) | | | 37 | % | | |
Tax benefit | 4 |
| | 7 |
| | | (43 | ) | | | 11 |
| | 12 |
| | | (8 | ) | | |
Equity in loss of investee companies, net of tax | $ | (12 | ) | | $ | (21 | ) | | | (43 | )% | | | $ | (21 | ) | | $ | (39 | ) | | | (46 | )% | | |
Net Earnings Attributable to Noncontrolling Interests
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2020 | | 2019 | | 2020 | | 2019 | |
Net earnings attributable to noncontrolling interests | | $ | 245 |
| | | | $ | 6 |
| | | | $ | 248 |
| | | | $ | 11 |
| | |
For the three and six months endedJune 30, 2019,2020, net earnings attributable to noncontrolling interests primarily reflects our joint venture partners’ share of profit from the Company recorded a gainlicensing of $10 million on the saledomestic streaming rights to South Park to an SVOD provider in the second quarter of an international joint venture.2020.
Net Earnings from Continuing Operations Attributable to ViacomCBS and Diluted EPS from Continuing Operations Attributable to ViacomCBS
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | |
| 2019 |
| 2018 |
| Increase/(Decrease) | | 2019 | | 2018 | | Increase/(Decrease) | |
Net earnings | $ | 440 |
| | $ | 400 |
| | �� | 10 | % | | | $ | 2,023 |
| | $ | 911 |
| | | 122 | % | | |
Diluted EPS | $ | 1.17 |
| | $ | 1.05 |
| | | 11 | % | | | $ | 5.38 |
| | $ | 2.38 |
| | | 126 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| Six Months Ended June 30, | |
| 2020 |
| 2019 |
| Increase/(Decrease) |
| 2020 |
| 2019 |
| Increase/(Decrease) | |
Net earnings from continuing operations attributable to ViacomCBS | $ | 478 |
| | $ | 971 |
| | | (51 | )% | | | $ | 986 |
| | $ | 2,917 |
| | | (66 | )% | | |
Diluted EPS from continuing operations attributable to ViacomCBS | $ | .77 |
| | $ | 1.57 |
| | | (51 | )% | | | $ | 1.60 |
| | $ | 4.73 |
| | | (66 | )% | | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the three months ended June 30, 2019,2020, net earnings from continuing operations attributable to ViacomCBS and diluted EPS increased 10%from continuing operations each decreased 51%, driven by the lower operating income, the noncontrolling interest’s share of profit from the licensing of South Park and 11%, respectively, mainly as a resultloss on extinguishment of the increasedebt of $103 million in operating income. Diluted EPS also benefited from lower weighted average shares outstanding.2020. For the six months ended June 30, 2019, the increases in2020, net earnings from continuing operations attributable to ViacomCBS and diluted EPS werefrom continuing operations each decreased 66%, primarily driven by the lower operating income, which in 2019 included the above-mentioned gain of $549 million ($386 million, net of tax, or $1.03$.63 per diluted share) fromon the sale of CBS Television City, andas well as the aforementioned discrete tax benefitbenefits of $768$800 million, or $2.04$1.30 per diluted share, resulting from the transfer of intangible assets between subsidiaries of the Company in connection with a reorganization of the Company’s international operations.share.
Segment Results of Operations
The Company presentsWe present operating income (loss) excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters, programming charges and gain (loss) on sale of assets, each where applicable (“Segment Operating Income”Adjusted OIBDA”), as the primary measure of profit and loss for itsour operating segments in accordance with FASB guidance for segment reporting. The Company believesWe 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’s management; providesour management and enhances their ability to understand our operating performance. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management. Stock-based compensation is included as a clearer perspective on the underlying performancecomponent of the Company; and makes it easier for investors, analysts and peers to compare the Company’s operating performance to other companies in its industry and to compare the Company’s year-over-year results.our consolidated Adjusted OIBDA. The reconciliation of Segment Operating IncomeAdjusted OIBDA to the Company’sour consolidated net earnings is presented in Note 1114 to the consolidated financial statements.
Three Months Ended June 30, 20192020 and 20182019
|
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | % of Total Revenues | | | % of Total Revenues | Increase/(Decrease) | |
| 2019 |
| 2018 | $ | | % | |
Revenues: | | | | | | | | | | | | | |
Entertainment | $ | 2,741 |
| | 72 | % | | | $ | 2,402 |
| | 69 | % | | $ | 339 |
| | 14 | % | |
Cable Networks | 562 |
| | 15 |
| | | 553 |
| | 16 |
| | 9 |
| | 2 |
| |
Publishing | 218 |
| | 6 |
| | | 207 |
| | 6 |
| | 11 |
| | 5 |
| |
Local Media | 423 |
| | 11 |
| | | 420 |
| | 12 |
| | 3 |
| | 1 |
| |
Corporate/Eliminations | (135 | ) | | (4 | ) | | | (116 | ) | | (3 | ) | | (19 | ) | | (16 | ) | |
Total Revenues | $ | 3,809 |
| | 100 | % | | | $ | 3,466 |
| | 100 | % | | $ | 343 |
| | 10 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | % of Total Segment Operating Income | | | % of Total Segment Operating Income | | |
| | | | Increase/(Decrease) | |
| 2019 | | 2018 | $ | | % | |
Segment Operating Income (Loss): | | | | | | | | | | | | | |
Entertainment | $ | 426 |
| | 61 | % | | | $ | 367 |
| | 53 | % | | $ | 59 |
| | 16 | % | |
Cable Networks | 185 |
| | 26 |
| | | 245 |
| | 35 |
| | (60 | ) | | (24 | ) | |
Publishing | 33 |
| | 5 |
| | | 31 |
| | 5 |
| | 2 |
| | 6 |
| |
Local Media | 130 |
| | 18 |
| | | 128 |
| | 18 |
| | 2 |
| | 2 |
| |
Corporate | (72 | ) | | (10 | ) | | | (77 | ) | | (11 | ) | | 5 |
| | 6 |
| |
Total Segment Operating Income | 702 |
| | 100 | % | | | 694 |
| | 100 | % | | 8 |
| | 1 |
| |
Restructuring and other corporate matters | (7 | ) | | | | | (35 | ) | | | | 28 |
| | n/m |
| |
Total Operating Income | $ | 695 |
| |
|
| | | $ | 659 |
| |
|
| | $ | 36 |
| | 5 | % | |
n/m - not meaningful |
| | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | % of Total Revenues | | | % of Total Revenues | Increase/(Decrease) | |
| 2020 |
| 2019 | $ | | % | |
Revenues: | | | | | | | | | | | | | |
TV Entertainment | $ | 2,287 |
| | 36 | % | | | $ | 2,938 |
| | 41 | % | | $ | (651 | ) | | (22 | )% | |
Cable Networks | 3,232 |
| | 52 |
| | | 3,176 |
| | 45 |
| | 56 |
| | 2 |
| |
Filmed Entertainment | 647 |
| | 10 |
| | | 877 |
| | 12 |
| | (230 | ) | | (26 | ) | |
Publishing | 200 |
| | 3 |
| | | 218 |
| | 3 |
| | (18 | ) | | (8 | ) | |
Corporate/Eliminations | (91 | ) | | (1 | ) | | | (66 | ) | | (1 | ) | | (25 | ) | | (38 | ) | |
Total Revenues | $ | 6,275 |
| | 100 | % | | | $ | 7,143 |
| | 100 | % | | $ | (868 | ) | | (12 | )% | |
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
| 2019 | | 2018 | | $ | | % | |
Depreciation and Amortization: | | | | | | | | |
Entertainment | $ | 29 |
| | $ | 32 |
| | $ | (3 | ) | | (9 | )% | |
Cable Networks | 6 |
| | 4 |
| | 2 |
| | 50 |
| |
Publishing | 2 |
| | 2 |
| | — |
| | — |
| |
Local Media | 9 |
| | 11 |
| | (2 | ) | | (18 | ) | |
Corporate | 7 |
| | 7 |
| | — |
| | — |
| |
Total Depreciation and Amortization | $ | 53 |
| | $ | 56 |
| | $ | (3 | ) | | (5 | )% | |
Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | % of Total Revenues | | | % of Total Revenues | Increase/(Decrease) | |
| 2019 | | 2018 | $ | | % | |
Revenues: | | | | | | | | | | | | | |
Entertainment | $ | 5,917 |
| | 74 | % | | | $ | 5,155 |
| | 71 | % | | $ | 762 |
| | 15 | % | |
Cable Networks | 1,114 |
| | 14 |
| | | 1,124 |
| | 16 |
| | (10 | ) | | (1 | ) | |
Publishing | 382 |
| | 5 |
| | | 367 |
| | 5 |
| | 15 |
| | 4 |
| |
Local Media | 880 |
| | 11 |
| | | 835 |
| | 12 |
| | 45 |
| | 5 |
| |
Corporate/Eliminations | (317 | ) | | (4 | ) | | | (254 | ) | | (4 | ) | | (63 | ) | | (25 | ) | |
Total Revenues | $ | 7,976 |
| | 100 | % | | | $ | 7,227 |
| | 100 | % | | $ | 749 |
| | 10 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | % of Total Segment Operating Income | | | % of Total Segment Operating Income | | |
| | | | Increase/(Decrease) | |
| 2019 | | 2018 | $ | | % | |
Segment Operating Income (Loss): | | | | | | | | | | | | | |
Entertainment | $ | 956 |
| | 64 | % | | | $ | 853 |
| | 58 | % | | $ | 103 |
| | 12 | % | |
Cable Networks | 360 |
| | 24 |
| | | 481 |
| | 32 |
| | (121 | ) | | (25 | ) | |
Publishing | 50 |
| | 3 |
| | | 47 |
| | 3 |
| | 3 |
| | 6 |
| |
Local Media | 268 |
| | 18 |
| | | 246 |
| | 17 |
| | 22 |
| | 9 |
| |
Corporate | (139 | ) | | (9 | ) | | | (152 | ) | | (10 | ) | | 13 |
| | 9 |
| |
Total Segment Operating Income | 1,495 |
| | 100 | % | | | 1,475 |
| | 100 | % | | 20 |
| | 1 |
| |
Restructuring and other corporate matters | (121 | ) | | | | | (44 | ) | | | | (77 | ) | | n/m |
| |
Gain on sale of assets | 549 |
| | | | | — |
| | | | 549 |
| | n/m |
| |
Total Operating Income | $ | 1,923 |
| | | | | $ | 1,431 |
| | | | $ | 492 |
| | 34 | % | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | | | Increase/(Decrease) | |
| 2020 | | 2019 | | $ | | % | |
Adjusted OIBDA: | | | | | | | | |
TV Entertainment | $ | 392 |
| | $ | 613 |
| | $ | (221 | ) | | (36 | )% | |
Cable Networks | 1,285 |
| | 989 |
| | 296 |
| | 30 |
| |
Filmed Entertainment | 116 |
| | 95 |
| | 21 |
| | 22 |
| |
Publishing | 38 |
| | 35 |
| | 3 |
| | 9 |
| |
Corporate/Eliminations | (97 | ) | | (120 | ) | | 23 |
| | 19 |
| |
Stock-based compensation | (45 | ) | | (50 | ) | | 5 |
| | 10 |
| |
Total Adjusted OIBDA | 1,689 |
| | 1,562 |
| | 127 |
| | 8 |
| |
Depreciation and amortization | (124 | ) | | (109 | ) | | (15 | ) | | (14 | ) | |
Restructuring and other corporate matters | (158 | ) | | (7 | ) | | (151 | ) | | n/m |
| |
Programming charges | (121 | ) | | — |
| | (121 | ) | | n/m |
| |
Total Operating Income | $ | 1,286 |
| | $ | 1,446 |
| | $ | (160 | ) | | (11 | )% | |
n/m - not meaningful
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
| 2019 | | 2018 | | $ | | % | |
Depreciation and Amortization: | | | | | | | | |
Entertainment | $ | 59 |
| | $ | 63 |
| | $ | (4 | ) | | (6 | )% | |
Cable Networks | 10 |
| | 9 |
| | 1 |
| | 11 |
| |
Publishing | 3 |
| | 3 |
| | — |
| | — |
| |
Local Media | 20 |
| | 22 |
| | (2 | ) | | (9 | ) | |
Corporate | 14 |
| | 15 |
| | (1 | ) | | (7 | ) | |
Total Depreciation and Amortization | $ | 106 |
| | $ | 112 |
| | $ | (6 | ) | | (5 | )% | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | % of Total Revenues | | | % of Total Revenues | Increase/(Decrease) | |
| 2020 | | 2019 | $ | | % | |
Revenues: | | | | | | | | | | | | | |
TV Entertainment | $ | 5,234 |
| | 40 | % | | | $ | 6,344 |
| | 44 | % | | $ | (1,110 | ) | | (17 | )% | |
Cable Networks | 6,090 |
| | 47 |
| | | 6,078 |
| | 43 |
| | 12 |
| | — |
| |
Filmed Entertainment | 1,458 |
| | 11 |
| | | 1,607 |
| | 11 |
| | (149 | ) | | (9 | ) | |
Publishing | 370 |
| | 3 |
| | | 382 |
| | 3 |
| | (12 | ) | | (3 | ) | |
Corporate/Eliminations | (208 | ) | | (1 | ) | | | (168 | ) | | (1 | ) | | (40 | ) | | (24 | ) | |
Total Revenues | $ | 12,944 |
| | 100 | % | | | $ | 14,243 |
| | 100 | % | | $ | (1,299 | ) | | (9 | )% | |
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, | |
| | | | | Increase/(Decrease) | |
| 2020 | | 2019 | | $ | | % | |
Adjusted OIBDA: | | | | | | | | |
TV Entertainment | $ | 965 |
| | $ | 1,355 |
| | $ | (390 | ) | | (29 | )% | |
Cable Networks | 2,079 |
| | 1,882 |
| | 197 |
| | 10 |
| |
Filmed Entertainment | 143 |
| | 133 |
| | 10 |
| | 8 |
| |
Publishing | 57 |
| | 54 |
| | 3 |
| | 6 |
| |
Corporate/Eliminations | (193 | ) | | (222 | ) | | 29 |
| | 13 |
| |
Stock-based compensation | (99 | ) | | (101 | ) | | 2 |
| | 2 |
| |
Total Adjusted OIBDA | 2,952 |
| | 3,101 |
| | (149 | ) | | (5 | ) | |
Depreciation and amortization | (237 | ) | | (215 | ) | | (22 | ) | | (10 | ) | |
Restructuring and other corporate matters | (391 | ) | | (185 | ) | | (206 | ) | | n/m |
| |
Programming charges | (121 | ) | | — |
| | (121 | ) | | n/m |
| |
Gain on sale of assets | — |
| | 549 |
| | (549 | ) | | n/m |
| |
Total Operating Income | $ | 2,203 |
| | $ | 3,250 |
| | $ | (1,047 | ) | | (32 | )% | |
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)
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)
Three Months Ended June 30, 20192020 and 20182019
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Entertainment | 2019 |
| 2018 | | $ | | % | |
Revenues | $ | 2,741 |
| | $ | 2,402 |
| | $ | 339 |
| | 14 | % | |
Segment Operating Income | $ | 426 |
| | $ | 367 |
| | $ | 59 |
| | 16 | % | |
Segment Operating Income as a % of revenues | 16 | % | | 15 | % | | | | | |
Restructuring charges | $ | — |
| | $ | 6 |
| | $ | (6 | ) | | n/m |
| |
Depreciation and amortization | $ | 29 |
| | $ | 32 |
| | $ | (3 | ) | | (9 | )% | |
Capital expenditures | $ | 23 |
| | $ | 20 |
| | $ | 3 |
| | 15 | % | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Entertainment | 2020 |
| 2019 | | $ | | % | |
Advertising | $ | 951 |
| | $ | 1,309 |
| | $ | (358 | ) | | (27 | )% | |
Affiliate | 751 |
| | 616 |
| | 135 |
| | 22 |
| |
Content licensing | 544 |
| | 966 |
| | (422 | ) | | (44 | ) | |
Other | 41 |
| | 47 |
| | (6 | ) | | (13 | ) | |
Revenues | $ | 2,287 |
| | $ | 2,938 |
| | $ | (651 | ) | | (22 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 392 |
| | $ | 613 |
| | $ | (221 | ) | | (36 | )% | |
n/m - not meaningfulRevenues
For the three months ended June 30, 2019,2020, the 14%22% decrease in TV Entertainment increase in revenues reflectswas mainly driven by lower advertising and content licensing revenues, including from the impact of COVID-19 on our business, partially offset by growth in each main revenue stream. Content licensing and distributionaffiliate revenues.
Advertising
The 27% decrease in advertising revenues increased 18%,was driven by growth from the domestic licensingadverse effects of library programmingCOVID-19, including lower demand in the advertising market and higher salesthe cancellation and postponement of series producedprofessional golf tournaments scheduled for third-party services. Affiliate and subscription fee revenues grew 22%, reflecting increases in station affiliation fees and revenues from virtual MVPDs as well as subscriber growth at CBS All Access. Advertising revenues were 9% higher, drivenbroadcast by the CBS Television Network. The decrease also reflects the comparison against CBS’ broadcast of the national semifinals and championship gamegames of the NCAA Tournament.Tournament in the second quarter of 2019. These games are broadcast by the CBS Television Network every other year through 2032 under the current rights agreementagreements with the NCAA and Turner. Underlying CBS Network advertising for the three months ended June 30, 2019 increased 3% from the same prior-year period, benefiting from higher pricing, which was partially offset by lower ratings for primetime programming.
For the three months ended June 30, 2019, operating income increased 16%, driven by the higher revenues, which were partially offset by an increased investment in content and higher costs associated with the growth and expansion of the Company’s direct-to-consumer digital streaming services.Affiliate
Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Entertainment | 2019 | | 2018 | | $ | | % | |
Revenues | $ | 5,917 |
| | $ | 5,155 |
| | $ | 762 |
| | 15 | % | |
Segment Operating Income | $ | 956 |
| | $ | 853 |
| | $ | 103 |
| | 12 | % | |
Segment Operating Income as a % of revenues | 16 | % | | 17 | % | | | | | |
Restructuring charges | $ | 48 |
| | $ | 6 |
| | $ | 42 |
| | n/m |
| |
Depreciation and amortization | $ | 59 |
| | $ | 63 |
| | $ | (4 | ) | | (6 | )% | |
Capital expenditures | $ | 43 |
| | $ | 38 |
| | $ | 5 |
| | 13 | % | |
n/m - not meaningful
For the six months ended June 30, 2019, the 15% increase in revenues was led by 15%growth in advertising revenues, driven by CBS’ broadcast of Super Bowl LIII and the national semifinals and championship game of the NCAA Tournament. Underlying CBS Network advertising revenues increased 2% for the six months ended June 30, 2019 from the same prior-year period. Affiliate and subscription fee revenues grew 24%22%, primarily as a result of higherreflecting 19% growth in station affiliation fees and retransmission revenues, from virtual MVPDs, as well as subscriber growth at CBS All Access. Access.
Content Licensing
Content licensing revenues decreased 44% mainly due to the benefit to the prior-year period from several significant licensing agreements for library programming, as well as fewer deliveries of our programming during the current-year period as a result of production shutdowns related to COVID-19 and distributionthe timing of deliveries of programs produced for third parties.
Other
Other revenues increased 11%decreased 13%, driven by growthprimarily reflecting lower revenues from domestic licensing,the rental of our production facilities as a result of production shutdowns due to COVID-19.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
well as additional series produced for third parties. These increases were partially offset by lower international licensingAdjusted OIBDA
Adjusted OIBDA decreased36%, mainly as a result of the timingrevenue decline, partially offset by lower production and programming costs resulting from production shutdowns due to COVID-19 and the mix of sales.primetime programming. Advertising and promotion costs were also lower, reflecting the broadcast of fewer original programs due to COVID-19.
Six Months Ended June 30, 2020 and 2019
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
TV Entertainment | 2020 | | 2019 | | $ | | % | |
Advertising | $ | 2,332 |
| | $ | 3,276 |
| | $ | (944 | ) | | (29 | )% | |
Affiliate | 1,485 |
| | 1,227 |
| | 258 |
| | 21 |
| |
Content licensing | 1,341 |
| | 1,747 |
| | (406 | ) | | (23 | ) | |
Other | 76 |
| | 94 |
| | (18 | ) | | (19 | ) | |
Revenues | $ | 5,234 |
| | $ | 6,344 |
| | $ | (1,110 | ) | | (17 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 965 |
| | $ | 1,355 |
| | $ | (390 | ) | | (29 | )% | |
Revenues
For the six months ended June 30, 2020, the 17% decrease in TV Entertainment revenues was mainly driven by the comparison against CBS’ broadcasts of tentpole sporting events in 2019, operating income increased 12%the impact of COVID-19 on our business during the second quarter of 2020, including weakness in the advertising market, and lower content licensing revenues partially offset by growth in affiliate revenues.
Advertising
The 29% decrease in advertising revenues was driven by the aforementioned impact of COVID-19 during the second quarter of 2020, as well as the comparison against CBS’ broadcasts of Super Bowl LIII and the NCAA Tournament in 2019. The Super Bowl is broadcast on the CBS Television Network on a rotating basis with other networks through the 2022 season under the current contract with the NFL. The 2020 NCAA Tournament, which was scheduled to be broadcast by CBS in the first quarter of 2020, was canceled as a result of concerns about COVID-19. In addition, the revenue growth, partially offsetnational semifinals and championship games of the NCAA Tournament, which are broadcast by programming costs associatedCBS every other year through 2032 under agreements with the NCAA and Turner, were broadcast on CBS in the second quarter of Super Bowl LIII, an increased investment in content and higher costs associated with the growth and expansion of the Company’s direct-to-consumer digital streaming services. Restructuring charges for the six months ended June 30, 2019 primarily reflected severance costs associated with a voluntary restructuring plan.2019.
Cable Networks (Showtime Networks, PopAffiliate
Affiliate revenues grew 21%, reflecting 19% growth in station affiliation fees and Smithsonian Networks)
Three Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Cable Networks | 2019 |
| 2018 | | $ | | % | |
Revenues | $ | 562 |
| | $ | 553 |
| | $ | 9 |
| | 2 | % | |
Segment Operating Income | $ | 185 |
| | $ | 245 |
| | $ | (60 | ) | | (24 | )% | |
Segment Operating Income as a % of revenues | 33 | % | | 44 | % | | | | | |
Depreciation and amortization | $ | 6 |
| | $ | 4 |
| | $ | 2 |
| | 50 | % | |
Capital expenditures | $ | 1 |
| | $ | 3 |
| | $ | (2 | ) | | (67 | )% | |
For the three months ended June 30, 2019,retransmission revenues, increased 2%, primarily reflecting growth from the Showtime digital streaming subscription offering as well as the inclusion of the results of Pop. The Company acquired the remaining 50% interest in Pop in March 2019, bringing the Company’s ownership to 100%. These increases were partially offset by lowersubscriber growth at CBS All Access.
Content Licensing
Content licensing revenues decreased 23%, mainly due to the benefit to the prior-year period from several significant licensing agreements for library programming, as well as fewer deliveries of our programming during the current-year period as a result of production shutdowns related to COVID-19 and the timing of international licensing sales. As of June 30, 2019, subscriptions totaled approximately 27 million for Showtime, including its direct-to-consumer digital streaming subscription offering, and 32 million for Smithsonian Networks.
For the three months ended June 30, 2019, operating income decreased 24%mainly as a result of the lower licensing revenues and an increased investment in programming, including costs associated with the second quarter 2019 premieres of the new series City On A Hill and the limited series The Loudest Voice.
Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Cable Networks | 2019 | | 2018 | | $ | | % | |
Revenues | $ | 1,114 |
| | $ | 1,124 |
| | $ | (10 | ) | | (1 | )% | |
Segment Operating Income | $ | 360 |
| | $ | 481 |
| | $ | (121 | ) | | (25 | )% | |
Segment Operating Income as a % of revenues | 32 | % | | 43 | % | | | | | |
Restructuring charges | $ | 5 |
| | $ | — |
| | $ | 5 |
| | n/m |
| |
Depreciation and amortization | $ | 10 |
| | $ | 9 |
| | $ | 1 |
| | 11 | % | |
Capital expenditures | $ | 4 |
| | $ | 6 |
| | $ | (2 | ) | | (33 | )% | |
n/m - not meaningful
For the six months ended June 30, 2019, the 1% decrease in revenues primarily reflects lower licensing sales as a result of the timing of international licensing sales and the benefit to 2018 from the renewal of a significantdeliveries.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
domestic licensingOther
Other revenues decreased 19%, primarily reflecting lower revenues from the rental of our production facilities as a result of production shutdowns during the second quarter of 2020 due to COVID-19 and the sale of CBS Television City in January 2019.
Adjusted OIBDA
Adjusted OIBDA decreasedDexter.29% driven by the impact of COVID-19 on our advertising revenues, the comparison against the broadcast of major sporting events in the first six months of 2019 and lower profits from content licensing. These decreases were partially offset by growth from the Showtime digital streaming subscription offeringincrease in affiliate revenues and lower production and programming costs as a result of production shutdowns due to COVID-19 and the inclusionmix of the results of Pop.
For the six months ended June 30, 2019, the 25% decrease in operating income was driven by an increased investment in programming, including costs for new series in 2019 which included City On A Hill, Black Monday, Desus & Mero, and the limited series The Loudest Voice, and higher advertising and marketing costs to promote new series and to drive subscriber growth to the Showtime direct-to-consumer offering. Restructuring charges for the six months ended June 30, 2019 primarily reflected severance costs associated with a voluntary restructuring plan.
In March 2019, the Company acquired the remaining 50% interest in Pop, a general entertainment cable network, bringing the Company’s ownership to 100%. The results of Pop are included in the Cable Networks segment from the date of acquisition.programming.
PublishingCable Networks (Simon & Schuster)(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)
Three Months Ended June 30, 20192020 and 20182019
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Publishing | 2019 |
| 2018 | | $ | | % | |
Revenues | $ | 218 |
| | $ | 207 |
| | $ | 11 |
| | 5 | % | |
Segment Operating Income | $ | 33 |
| | $ | 31 |
| | $ | 2 |
| | 6 | % | |
Segment Operating Income as a % of revenues | 15 | % | | 15 | % | | | | | |
Restructuring charges | $ | — |
| | $ | 1 |
| | $ | (1 | ) | | n/m |
| |
Depreciation and amortization | $ | 2 |
| | $ | 2 |
| | $ | — |
| | — | % | |
Capital expenditures | $ | 2 |
| | $ | 1 |
| | $ | 1 |
| | 100 | % | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Cable Networks | 2020 |
| 2019 | | $ | | % | |
Advertising | $ | 992 |
| | $ | 1,347 |
| | $ | (355 | ) | | (26 | )% | |
Affiliate | 1,443 |
| | 1,539 |
| | (96 | ) | | (6 | ) | |
Content licensing | 797 |
| | 290 |
| | 507 |
| | 175 |
| |
Revenues | $ | 3,232 |
| | $ | 3,176 |
| | $ | 56 |
| | 2 | % | |
| | | | | | | | |
Adjusted OIBDA | $ | 1,285 |
| | $ | 989 |
| | $ | 296 |
| | 30 | % | |
n/m - not meaningfulRevenues
For the three months ended June 30, 2019,2020, Cable Networks revenues increased 2% from the 5% increase in revenues mainly reflects higher print book sales and 14% growth in digital audio sales. Bestselling titlessame prior-year period, reflecting the licensing of the domestic streaming rights of South Park to an SVOD provider, which was partially offset by weakness in the second quarteradvertising market as a result of 2019 included Howard Stern Comes Again by Howard Stern and The Pioneers by David McCullough.COVID-19 as well as lower affiliate revenues. Domestic revenues increased 8% while international revenues decreased 22%, including a 3-percentage point unfavorable impact of foreign exchange rate changes.
ForAdvertising
The 26% decrease in advertising revenues was primarily driven by the three months ended June 30, 2019,adverse effects of COVID-19. Domestic advertising revenues decreased 21% reflecting lower linear impressions, including from weakness in the advertising market as a result of COVID-19, partially offset by growth from streaming and digital video advertising and higher pricing. International advertising revenues decreased 43%, primarily reflecting weakness in the advertising market as well as the unfavorable impact of foreign exchange rate changes of 4 percentage points.
Affiliate
Affiliate revenues decreased 6% increasefrom the same prior-quarter period. Domestic affiliate revenues decreased 6%, primarily driven by declines in operating income primarily reflects the higher revenues.
Six Months Ended June 30, 2019traditional MVPD subscribers at our cable networks, partially offset by growth from our owned subscription services, including Showtime OTT and 2018
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Publishing | 2019 | | 2018 | | $ | | % | |
Revenues | $ | 382 |
| | $ | 367 |
| | $ | 15 |
| | 4 | % | |
Segment Operating Income | $ | 50 |
| | $ | 47 |
| | $ | 3 |
| | 6 | % | |
Segment Operating Income as a % of revenues | 13 | % | | 13 | % | | | | | |
Restructuring charges | $ | 5 |
| | $ | 1 |
| | $ | 4 |
| | n/m |
| |
Depreciation and amortization | $ | 3 |
| | $ | 3 |
| | $ | — |
| | — | % | |
Capital expenditures | $ | 2 |
| | $ | 2 |
| | $ | — |
| | — | % | |
n/m - not meaningfulBET+, which was launched in September 2019. International affiliate revenues decreased 5%, including a 3-percentage point unfavorable impact of foreign
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the six months endedexchange rate changes. As of June 30, 2019, the 4%2020, Showtime subscriptions, including Showtime OTT, totaled approximately 27 million.
Content Licensing
The increase in content licensing revenues was primarily reflected higher print book and digital audio sales.the result of growth from the licensing of programming to SVOD providers, mainly for the domestic streaming rights to South Park.
ForAdjusted OIBDA
Adjusted OIBDA increased 30%, driven by lower programming costs primarily due to scheduling changes and the six months ended June 30, 2019,cancellation and postponement of live events as a result of COVID-19, lower advertising and promotion costs resulting from the 6%broadcast of fewer original programs during the quarter, lower employee costs reflecting the benefit from restructuring activities and the increase in operating income mainly reflects the higher revenues. Restructuring charges for the six months ended June 30, 2019 primarily reflected severance costs associated with a voluntary restructuring plan.revenues.
Local Media (CBSTelevision Stations and CBS Local Digital Media)
Three Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Local Media | 2019 | | 2018 | | $ | | % | |
Revenues | $ | 423 |
| | $ | 420 |
| | $ | 3 |
| | 1 | % | |
Segment Operating Income | $ | 130 |
| | $ | 128 |
| | $ | 2 |
| | 2 | % | |
Segment Operating Income as a % of revenues | 31 | % | | 30 | % | | | | | |
Restructuring charges | $ | — |
| | $ | 11 |
| | $ | (11 | ) | | n/m |
| |
Depreciation and amortization | $ | 9 |
| | $ | 11 |
| | $ | (2 | ) | | (18 | )% | |
Capital expenditures | $ | 5 |
| | $ | 5 |
| | $ | — |
| | — | % | |
n/m - not meaningful
For the three months ended June 30, 2019, the 1% increase in revenues was driven by revenues from CBS’ broadcast of the national semifinals and championship game of the NCAA Tournament in the second quarter of 2019 and growth in retransmission revenues. These increases were partially offset by lower political advertising sales.
For the three months ended June 30, 2019, the 2% increase in operating income reflects the higher revenues.
Six Months Ended June 30, 20192020 and 20182019
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Local Media | 2019 | | 2018 | | $ | | % | |
Revenues | $ | 880 |
| | $ | 835 |
| | $ | 45 |
| | 5 | % | |
Segment Operating Income | $ | 268 |
| | $ | 246 |
| | $ | 22 |
| | 9 | % | |
Segment Operating Income as a % of revenues | 30 | % | | 29 | % | | | | | |
Restructuring charges | $ | 28 |
| | $ | 11 |
| | $ | 17 |
| | n/m |
| |
Depreciation and amortization | $ | 20 |
| | $ | 22 |
| | $ | (2 | ) | | (9 | )% | |
Capital expenditures | $ | 7 |
| | $ | 9 |
| | $ | (2 | ) | | (22 | )% | |
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Cable Networks | 2020 | | 2019 | | $ | | % | |
Advertising | $ | 2,109 |
| | $ | 2,462 |
| | $ | (353 | ) | | (14 | )% | |
Affiliate | 2,906 |
| | 3,093 |
| | (187 | ) | | (6 | ) | |
Content licensing | 1,075 |
| | 523 |
| | 552 |
| | 106 |
| |
Revenues | $ | 6,090 |
| | $ | 6,078 |
| | $ | 12 |
| | — | % | |
| | | | | | | | |
Adjusted OIBDA | $ | 2,079 |
| | $ | 1,882 |
| | $ | 197 |
| | 10 | % | |
n/m - not meaningfulRevenues
For the six months ended June 30, 2020, Cable Networks revenues increased slightly from the same prior-year period, as the benefit from the domestic licensing of South Park was mostly offset by weakness in the advertising market as a result of COVID-19 and lower affiliate revenues. Domestic revenues increased 4% while international revenues decreased 15%, including a 5-percentage point unfavorable impact of foreign exchange rate changes.
Advertising
Advertising revenues decreased 14% primarily driven by the adverse effects of COVID-19 in the second quarter of 2020. Domestic advertising revenues decreased 9%, reflecting lower linear impressions, including the effects of weakness in the advertising market as a result of COVID-19. These decreases were partially offset by growth from streaming and digital video advertising, including revenues from Pluto TV, which was acquired in March 2019 as well as the 5%consolidation of Pop TVbeginningin March 2019, when we acquired the 50% interest we did not own. International advertising revenues decreased 29%, primarily reflecting weakness in the advertising market and the unfavorable impact of foreign exchange rate changes of 6 percentage points.
Affiliate
Affiliate revenues decreased 6%, which included a 1-percentage point unfavorable impact from foreign exchange rate changes. Domestic affiliate revenues decreased 6%, primarily driven by declines in traditional MVPD subscribers at our cable networks. These declines were partially offset by growth from our owned subscription services, including Showtime OTT and BET+, and the inclusion of the results of Pop TV. International affiliate revenues decreased 9%, including a 6-percentage point unfavorable impact of foreign exchange rate changes.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Content Licensing
The increase in content licensing revenues reflectedwas primarily the result of growth from the licensing of programming to SVOD providers, mainly from South Park.
Adjusted OIBDA
Adjusted OIBDA increased 10%, driven by lower programming costs primarily due to scheduling changes and the cancellation and postponement of live events as a result of COVID-19, lower advertising and promotion costs due to the broadcast of fewer original programs, and lower employee costs reflecting the benefit from restructuring activities. These cost decreases were partially offset by incremental costs associated with Pluto TV and Pop TV, which were acquired in retransmissionthe first quarter of 2019.
Filmed Entertainment (Paramount Pictures, Paramount Players, Paramount Animation, Paramount Television Studios, and Miramax)
Three Months Ended June 30, 2020 and 2019
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Filmed Entertainment | 2020 |
| 2019 | | $ | | % | |
Theatrical | $ | 3 |
| | $ | 152 |
| | $ | (149 | ) | | (98 | )% | |
Home entertainment | 209 |
| | 161 |
| | 48 |
| | 30 |
| |
Licensing | 434 |
| | 540 |
| | (106 | ) | | (20 | ) | |
Other | 1 |
| | 24 |
| | (23 | ) | | (96 | ) | |
Revenues | $ | 647 |
| | $ | 877 |
| | $ | (230 | ) | | (26 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 116 |
| | $ | 95 |
| | $ | 21 |
| | 22 | % | |
Revenues
For the three months ended June 30, 2020, Filmed Entertainment revenues decreased26% as a result of the closure of movie theaters throughout the second quarter of 2020 and CBS’ broadcaststhe timing of Slicensing revenues.
Theatrical
Theatrical revenues for the three months ended June 30, 2020 were impacted by the closure of movie theaters throughout the second quarter of 2020 in response to COVID-19.
Home Entertainment
The 30% increase in home entertainment revenues was driven by the mix of titles in release and higher sales of catalog titles. The current quarter benefited from the strong performanceuper Bowl LIII of Sonic the Hedgehog in the home entertainment market.
Licensing
The 20% decrease in licensing revenues was due to lower revenues from the licensing of catalog titles and the timing of deliveries of programs produced for third parties. Foreign exchange rate changes had a 1-percentage point unfavorable impact on the licensing revenue comparison.
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 increased 22%, reflecting lower distribution costs resulting from the absence of theatrical releases during the three months ended June 30, 2020 as compared to the prior-year period, which included costs associated with theatrical releases, including Rocketman. The increase also reflects the strong performance of Sonic the Hedgehog in the home entertainment market and lower incentive compensation, partially offset by lower licensing revenues. Fluctuations in results for the Filmed Entertainment segment may occur as a result of the timing of the recognition of distribution costs, including print and advertising, which are generally incurred before and throughout the theatrical release of a film, while the revenues for the respective film are recognized as earned through the film’s theatrical exhibition and subsequent distribution windows.
Six Months Ended June 30, 2020 and 2019
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Filmed Entertainment | 2020 | | 2019 | | $ | | % | |
Theatrical | $ | 170 |
| | $ | 324 |
| | $ | (154 | ) | | (48 | )% | |
Home entertainment | 383 |
| | 315 |
| | 68 |
| | 22 |
| |
Licensing | 876 |
| | 915 |
| | (39 | ) | | (4 | ) | |
Other | 29 |
| | 53 |
| | (24 | ) | | (45 | ) | |
Revenues | $ | 1,458 |
| | $ | 1,607 |
| | $ | (149 | ) | | (9 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 143 |
| | $ | 133 |
| | $ | 10 |
| | 8 | % | |
Revenues
For the six months ended June 30, 2020, the 9% decrease in Filmed Entertainment revenues primarily reflects the closure of movie theaters throughout the second quarter of 2020 in response to COVID-19.
Theatrical
Theatrical revenues decreased 48% as a result of the closure of movie theaters throughout the second quarter of 2020 in response to COVID-19. Theatrical revenues during the current year benefited from the theatrical release of Sonic the Hedgehog in the first quarter, while the prior year benefited from the second quarter releases of Rocketman and Pet Sematary and the national semifinals2018 release of Bumblebee. Foreign exchange rate changes had a 1-percentage point unfavorable impact on the theatrical revenues comparison.
Home Entertainment
The 22% increase in home entertainment revenues was driven by the mix of titles in release and championship gamehigher sales of catalog titles. For the six months ended June 30, 2020, revenues benefited from the release of Sonic the Hedgehog and Terminator: Dark Fate, while the prior-year period benefited from Bumblebee and Mission: Impossible-Fallout.
Licensing
The 4% decrease in licensing revenues was primarily due to lower revenues from the licensing of films to SVOD providers, driven by catalog titles partially offset by the benefit from the current year SVOD release of Lovebirds, and lower revenues from the licensing of music rights. These decreases were partially offset by higher revenues from the production of television programming for third parties, mainly Defending Jacob.
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 increased 8% as the revenue decline was more than offset by lower distribution costs resulting from the absence of theatrical releases in the second quarter of 2020 and lower incentive compensation. Fluctuations in results for the Filmed Entertainment segment may occur as a result of the NCAA Tournament.timing of the recognition of distribution costs, including print and advertising, which are generally incurred before and throughout the theatrical release of a film, while the revenues for the respective film are recognized as earned through the film’s theatrical exhibition and subsequent distribution windows.
Publishing (Simon & Schuster)
Three Months Ended June 30, 2020 and 2019
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Publishing | 2020 | | 2019 | | $ | | % | |
Revenues | $ | 200 |
| | $ | 218 |
| | $ | (18 | ) | | (8 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 38 |
| | $ | 35 |
| | $ | 3 |
| | 9 | % | |
Revenues
For the three months ended June 30, 2020, the 8% decrease in revenues was primarily driven by lower print book sales mainly reflecting the impacts of COVID-19, including fewer new releases in the second quarter of 2020 due to their postponement to later in the year and weakness in the retail market. These increases were partially offset by higher digital audio and electronic book sales. Bestselling titles for the second quarter of 2020 included The Room Where It Happened by John Bolton and If It Bleeds by Stephen King.
Adjusted OIBDA
Adjusted OIBDA increased 9%, as the decrease in revenues was more than offset by lower political advertising sales.production and distribution costs associated with the lower print book sales and the mix of titles.
Six Months Ended June 30, 2020 and 2019
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Publishing | 2020 | | 2019 | | $ | | % | |
Revenues | $ | 370 |
| | $ | 382 |
| | $ | (12 | ) | | (3 | )% | |
| | | | | | | | |
Adjusted OIBDA | $ | 57 |
| | $ | 54 |
| | $ | 3 |
| | 6 | % | |
Revenues
For the six months ended June 30, 2019,2020, the 9% increase3% decrease in operating incomerevenues was primarily reflectsdriven by lower print book sales mainly reflecting the impacts of COVID-19, including fewer new releases in the second quarter of 2020 due to their postponement to later in the year and weakness in the retail market. These increases were partially offset by higher revenues. Restructuring charges fordigital audio and electronic book sales.
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 increased 6%, as the six months ended June 30, 2019 primarily reflected severancedecrease in revenues was more than offset by lower production and distribution costs associated with the lower print book sales and the mix of titles.
Liquidity and Capital Resources
Sources and Uses of Cash
We project anticipated cash requirements for our operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. Our operating needs include, among other items, commitments for sports programming rights, television and film programming, talent contracts, leases, interest payments, income tax payments and pension funding obligations. Our investing and financing spending includes capital expenditures, investments and acquisitions, share repurchases, dividends and principal payments on our outstanding indebtedness. We believe that our operating cash flows; cash and cash equivalents; borrowing capacity under our $3.50 billion Credit Facility described below, as well as access to capital markets are sufficient to fund our operating, investing and financing requirements for the next twelve months.
Our funding for 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 Credit Facility provides sufficient capacity to satisfy short-term borrowing needs. We routinely assess our capital structure and opportunistically enter into transactions to lower our interest expense, which could result in a voluntary restructuring plan.charge from the early extinguishment of debt.
Funding for our long-term debt obligations due over the next five years of $5.54 billion as of June 30, 2020 is expected to come from our ability to refinance our debt and cash generated from operating activities. During the second quarter of 2020, we issued $4.50 billion of senior notes with interest rates ranging from 4.20% to 4.95% and due dates from 2025 to 2050. The net proceeds from these issuances are being used for the redemption of our long-term debt as well as for general corporate purposes. During the second quarter of 2020, we redeemed senior notes, debentures, and junior subordinated debentures of $2.43 billion, prior to maturity, for a redemption price of $2.52 billion. On July 10, 2020, we fully redeemed the remaining $340 million of our outstanding 3.875% senior notes due December 2021.
The ongoing impact of COVID-19 could have a negative effect on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost of, or difficulty in, obtaining debt or equity financing, or our ability to comply with the leverage covenant in our Credit Facility in the future. The magnitude of the impact could be material to our business, financial condition and results of operations and will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Corporate
Three Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| | | Increase/(Decrease) | |
Corporate | 2019 |
| 2018 | | $ | | % | |
Segment Operating Loss | $ | (72 | ) | | $ | (77 | ) | | $ | 5 |
| | 6 | % | |
Restructuring charges | $ | — |
| | $ | 7 |
| | $ | (7 | ) | | n/m |
| |
Depreciation and amortization | $ | 7 |
| | $ | 7 |
| | $ | — |
| | — | % | |
Capital expenditures | $ | 2 |
| | $ | 3 |
| | $ | (1 | ) | | (33 | )% | |
n/m - not meaningful
Corporate expenses include general corporate overhead, unallocated shared company expenses and intercompany eliminations. For the three months ended June 30, 2019, corporate expenses decreased 6%, primarily reflecting lower compensation costs resulting from changes in senior management during 2018.
Six Months Ended June 30, 2019 and 2018
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | Increase/(Decrease) | |
Corporate | 2019 | | 2018 | | $ | | % | |
Segment Operating Loss | $ | (139 | ) | | $ | (152 | ) | | $ | 13 |
| | 9 | % | |
Restructuring charges | $ | 22 |
| | $ | 7 |
| | $ | 15 |
| | n/m |
| |
Depreciation and amortization | $ | 14 |
| | $ | 15 |
| | $ | (1 | ) | | (7 | )% | |
Capital expenditures | $ | 4 |
| | $ | 7 |
| | $ | (3 | ) | | (43 | )% | |
n/m - not meaningful
For the six months ended June 30, 2019, corporate expenses decreased 9% primarily reflecting lower compensation costs resulting from changes in senior management during 2018. Restructuring charges for the six months ended June 30, 2019 primarily reflected severance costs.
Financial Position
|
| | | | | | | | | | | | | | | | | | | |
| At | | At | | Increase/(Decrease) | |
| June 30, 2019 |
| December 31, 2018 | | $ | | % | |
Current Assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 216 |
| | | | $ | 322 |
| | | $ | (106 | ) | | (33 | )% | |
Receivables, net (a) | | 3,795 |
| | | | 4,041 |
| | | (246 | ) | | (6 | ) | |
Programming and other inventory | | 1,945 |
| | | | 1,988 |
| | | (43 | ) | | (2 | ) | |
Prepaid income taxes | | — |
| | | | 27 |
| | | (27 | ) | | (100 | ) | |
All other current assets | | 380 |
| | | | 374 |
| | | 6 |
| | 2 |
| |
Total current assets | | $ | 6,336 |
| | | | $ | 6,752 |
| | | $ | (416 | ) | | (6 | )% | |
(a) The decrease primarily reflects cash collections in excess of billings mainly due to seasonality.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| At | | At | | Increase/(Decrease) | |
| June 30, 2019 | | December 31, 2018 | | $ | | % | |
Programming and other inventory (a) | | $ | 4,269 |
| | | | $ | 3,883 |
| | | $ | 386 |
| | 10 | % | |
Goodwill (b) | | $ | 5,062 |
| | | | $ | 4,920 |
| | | $ | 142 |
| | 3 | % | |
Operating lease assets (c) | | $ | 922 |
| | | | $ | — |
| | | $ | 922 |
| | n/m |
| |
Deferred income tax assets, net (d) | | $ | 785 |
| | | | $ | 29 |
| | | $ | 756 |
| | n/m |
| |
Other assets (e) | | $ | 2,624 |
| | | | $ | 2,395 |
| | | $ | 229 |
| | 10 | % | |
Assets held for sale (f) | | $ | — |
| | | | $ | 33 |
| | | $ | (33 | ) | | (100 | )% | |
n/m - not meaningful
(a) The increase primarily reflects a higher investment in programming.
(b) The increase primarily reflects the acquisition of the remaining 50% interest in Pop, a general entertainment cable network, in March 2019.
(c) Reflects the recognition of right-of-use assets for the Company’s operating leases as a result of the adoption of new FASB guidance on the accounting for leases on January 1, 2019.
(d) The increase reflects a deferred tax benefit related to the transfer of intangible assets between subsidiaries of the Company in connection with a reorganization of the Company’s international operations.
(e) The increase primarily reflects higher receivables from television licensing arrangements.
(f) The balance at December 31, 2018 reflected the assets of CBS Television City, which were sold during the first quarter of 2019.
|
| | | | | | | | | | | | | | | | | | | |
| At | | At | | Increase/(Decrease) | |
| June 30, 2019 | | December 31, 2018 | | $ | | % | |
Current Liabilities: | | | | | | | | | | | | |
Accounts payable | | $ | 214 |
| | | | $ | 201 |
| | | $ | 13 |
| | 6 | % | |
Accrued compensation (a) | | 217 |
| | | | 346 |
| | | (129 | ) | | (37 | ) | |
Participants’ share and royalties payable | | 1,188 |
| | | | 1,177 |
| | | 11 |
| | 1 |
| |
Accrued programming and production costs (b) | | 590 |
| | | | 704 |
| | | (114 | ) | | (16 | ) | |
Income taxes payable (c) | | 113 |
| | | | — |
| | | 113 |
| | n/m |
| |
Commercial paper | | — |
| | | | 674 |
| | | (674 | ) | | (100 | ) | |
Accrued expenses and other current liabilities (d) | | 1,521 |
| | | | 1,471 |
| | | 50 |
| | 3 |
| |
Total current liabilities | | $ | 3,843 |
| | | | $ | 4,573 |
| | | $ | (730 | ) | | (16 | )% | |
n/m - not meaningful
(a) The decrease primarily reflects the timing of payments.
(b) The decrease is due to the timing of the production of television programming.
(c) The increase primarily reflects the timing of income tax payments.
(d) The increase primarily reflects the recognition of operating lease liabilities of $146 million resulting from the adoption of new FASB guidance on the accounting for leases on January 1, 2019. This increase was partially offset by the timing of payments.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| At | | At | | Increase/(Decrease) | |
| June 30, 2019 | | December 31, 2018 | | $ | | % | |
Deferred income tax liabilities, net (a) | | $ | 535 |
| | | | $ | 399 |
| | | $ | 136 |
| | 34 | % | |
Noncurrent operating lease liabilities (b) | | $ | 858 |
| | | | $ | — |
| | | $ | 858 |
| | n/m |
| |
Other liabilities (c) | | $ | 3,121 |
| | | | $ | 3,230 |
| | | $ | (109 | ) | | (3 | )% | |
n/m - not meaningful
(a) The increase primarily reflects the utilization of capital loss carryforwards in connection with the sale of CBS Television City.
(b) Reflects the adoption of new FASB guidance on the accounting for leases on January 1, 2019.
(c) Primarily reflects a decrease to long-term tax liabilities, including the reserve for uncertain tax positions, for amounts paid as a result of guidance issued by the United States government in January 2019 relating to federal tax legislation enacted in December 2017. This decrease was partially offset by a guarantee liability recorded in connection with the sale of CBS Television City.
Liquidity and Capital Resources
Sources and Uses of Cash Flows
We project anticipated cash requirements for our operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. Our operating needs include, among other items, commitments for sports programming rights, television and film programming, talent contracts, leases, interest payments, income tax payments and pension funding obligations. Our investing and financing spending includes capital expenditures, investments and acquisitions, share repurchases, dividends and principal payments on our outstanding indebtedness. We believe that our operating cash flows; cash and cash equivalents; borrowing capacity under our $3.50 billion Credit Facility described below, as well as access to capital markets are sufficient to fund our operating, investing and financing requirements for the next twelve months.
Our funding for 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 Credit Facility provides sufficient capacity to satisfy short-term borrowing needs. We routinely assess our capital structure and opportunistically enter into transactions to lower our interest expense, which could result in a charge from the early extinguishment of debt.
Funding for our long-term debt obligations due over the next five years of $5.54 billion as of June 30, 2020 is expected to come from our ability to refinance our debt and cash generated from operating activities. During the second quarter of 2020, we issued $4.50 billion of senior notes with interest rates ranging from 4.20% to 4.95% and due dates from 2025 to 2050. The net proceeds from these issuances are being used for the redemption of our long-term debt as well as for general corporate purposes. During the second quarter of 2020, we redeemed senior notes, debentures, and junior subordinated debentures of $2.43 billion, prior to maturity, for a redemption price of $2.52 billion. On July 10, 2020, we fully redeemed the remaining $340 million of our outstanding 3.875% senior notes due December 2021.
The changes in cash, cash equivalents and restricted cash were as follows:
|
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 | | Increase/(Decrease) |
Net cash flow provided by (used for) operating activities from: | | | | | | | |
Continuing operations | $ | 314 |
| | $ | 1,045 |
| | | $ | (731 | ) | |
Discontinued operations | — |
| | (2 | ) | | | 2 |
| |
Net cash flow provided by operating activities | 314 |
| | 1,043 |
| | | (729 | ) | |
Net cash flow provided by (used for) investing activities from: | | | | | | | |
Continuing operations | 582 |
| | (160 | ) | | | 742 |
| |
Discontinued operations | — |
| | (23 | ) | | | 23 |
| |
Net cash flow provided by (used for) investing activities | 582 |
| | (183 | ) | | | 765 |
| |
Net cash flow used for financing activities | (1,000 | ) | | (893 | ) | | | (107 | ) | |
Net decrease in cash, cash equivalents and restricted cash | $ | (104 | ) | | $ | (33 | ) | | | $ | (71 | ) | |
Operating Activities. For the six months ended June 30, 2019, the decrease in cash provided by operating activities was primarily driven by an increasedongoing impact of COVID-19 could have a negative effect on our financial condition or our ability to fund operations or future investment in content, including a higher number of series produced for distribution on multiple platforms, and higher cash payments for income taxes, partially offset by the benefit from the broadcast of Super Bowl LIII on the CBS Television Network in 2019. Cash paid for income taxes increased to $317 million for the six months endedJune 30, 2019 from $31 million for the same prior-year period. The increase was primarilyopportunities due to a paymentan increase in 2019 as a resultthe cost of, guidance issued byor difficulty in, obtaining debt or equity financing, or our ability to comply with the United States governmentleverage covenant in January 2019 relatingour Credit Facility in the future. The magnitude of the impact could be material to our business, financial condition and results of operations and will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the transition tax on cumulative foreign earningspandemic and profitssuch governmental actions, and the economic and operating conditions that resulted fromwe may face in the enactmentaftermath of federal tax legislation in December 2017. In addition, cash taxes for 2018 benefited from the application of a federal income tax overpayment carryforward from 2017.COVID-19.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Investing Activities
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 |
| 2018 |
Investments in and advances to investee companies (a) | | $ | (72 | ) | | | | $ | (71 | ) | |
Capital expenditures | | (60 | ) | | | | (62 | ) | |
Acquisitions, net of cash acquired (b) | | (39 | ) | | | | (29 | ) | |
Proceeds from dispositions (c) | | 736 |
| | | | — |
| |
All other investing activities, net | | 17 |
| | | | 2 |
| |
Net cash flow provided by (used for) investing activities from continuing operations | | 582 |
| | | | (160 | ) | |
Net cash flow used for investing activities from discontinued operations | | — |
| | | | (23 | ) | |
Net cash flow provided by (used for) investing activities | | $ | 582 |
| | | | $ | (183 | ) | |
(a) Mainly includes the Company’s investment in The CW as well as its other domestic and international television joint ventures.
(b) 2019 reflects the acquisition of the remaining 50% interest in Pop, a general entertainment cable network.
(c) Reflects the sale of CBS Television City.
Financing Activities
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
Repayments of short-term debt borrowings, net | | $ | (674 | ) | | | | $ | (309 | ) | |
Proceeds from issuance of senior notes | | 493 |
| | | | — |
| |
Repayment of senior notes | | (600 | ) | | | | — |
| |
Dividends | | (138 | ) | | | | (140 | ) | |
Repurchase of CBS Corp. Class B Common Stock | | (14 | ) | | | | (394 | ) | |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | | (43 | ) | | | | (58 | ) | |
Acquisition of noncontrolling interest (a) | | (26 | ) | | | | — |
| |
All other financing activities, net | | 2 |
| | | | 8 |
| |
Net cash flow used for financing activities | | $ | (1,000 | ) | | | | $ | (893 | ) | |
(a) Reflects the acquisition of the remaining interest in the Smithsonian Channel.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. Free cash flow reflects the Company’s net cash flow (used for) provided by operating activities before operating cash flow from discontinued operations, and less capital expenditures. The Company’s calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash that is directly related to the Company’s operations. The Company’s net cash flow (used for) provided by operating activities is the most directly comparable GAAP financial measure.
Management believes free cash flow provides investors with an important perspective on the cash available to the Company to service debt, make strategic acquisitions and investments, maintain its capital assets, satisfy its tax obligations, and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the Company’s 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’s operating performance. The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Company’s underlying operations in a manner similar to the method used by management. Free cash flow is one of several components of incentive compensation targets for certain management personnel.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
In addition, free cash flow is a primary measure used externally by the Company’s investors, analysts and industry peers for purposes of valuation and comparison of the Company’s operating performance to other companies in its industry.
As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, either net cash flow (used for) provided by operating activities as a measure of liquidity or net earnings as a measure of operating performance. Free cash flow, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow as a measure of liquidity has certain limitations, does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company’s ability to fund its cash needs. When comparing free cash flow to net cash flow (used for) provided by 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.
The following table presents a reconciliation of the Company’s net cash flow (used for) provided by operating activities to free cash flow.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net cash flow (used for) provided by operating activities | $ | (124 | ) | | $ | 326 |
| | $ | 314 |
| | $ | 1,043 |
|
Capital expenditures | (33 | ) | | (32 | ) | | (60 | ) | | (62 | ) |
Less: Operating cash flow from discontinued operations | — |
| | (2 | ) | | — |
| | (2 | ) |
Free cash flow | $ | (157 | ) | | $ | 296 |
| | $ | 254 |
| | $ | 983 |
|
Dividends
During the second quarter of 2019, the Company declared a quarterly cash dividend of $.18 per share on its Class A and Class B Common Stock, resulting in total dividends of $68 million, which were paid on July 1, 2019.
Capital Structure
The following table sets forth the Company’s debt.
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2019 | | December 31, 2018 |
Commercial paper | | $ | — |
| | | | $ | 674 |
| |
Senior debt (2.30% – 7.875% due 2019 – 2045) (a) | | 9,332 |
| | | | 9,435 |
| |
Obligations under finance leases | | 38 |
| | | | 43 |
| |
Total debt | | 9,370 |
| | | | 10,152 |
| |
Less commercial paper | | — |
| | | | 674 |
| |
Less current portion of long-term debt | | 11 |
| | | | 13 |
| |
Total long-term debt, net of current portion | | $ | 9,359 |
| | | | $ | 9,465 |
| |
(a) At June 30, 2019 and December 31, 2018, the senior debt balances included (i) a net unamortized discount of $59 million and $58 million, respectively, (ii) unamortized deferred financing costs of $43 million at both June 30, 2019 and December 31, 2018, and (iii) a decrease in the carrying value of the debt relating to previously settled fair value hedges of $6 million and $5 million, respectively. The face value of the Company’s senior debt was $9.44 billion and $9.54 billion at June 30, 2019 and December 31, 2018, respectively.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
In March 2019, the Company issued $500 million of 4.20% senior notes due 2029. The Company used the net proceeds from this issuance in the redemption of its $600 million outstanding 2.30% senior notes due August 2019.
Commercial Paper
At December 31, 2018, the Company had $674 million of outstanding commercial paper borrowings under its $2.5 billion commercial paper program at a weighted average interest rate of 3.02% and with maturities of less than 60 days. There were no outstanding commercial paper borrowings at June 30, 2019.
Credit Facility
At June 30, 2019, the Company had a $2.5 billion revolving credit facility (the “Credit Facility”) which expires in June 2021. The Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of each quarter as further described in the Credit Facility. At June 30, 2019, the Company’s Consolidated Leverage Ratio was approximately 3.0x.
The Consolidated Leverage Ratio is the ratio of the Company’s indebtedness from continuing operations, adjusted to exclude certain finance lease obligations, at the end of a quarter, to the Company’s Consolidated EBITDA for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facility as operating income plus interest income and before depreciation, amortization and certain other noncash items.
The Credit Facility is used for general corporate purposes. At June 30, 2019, 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.
Liquidity and Capital Resources
The Company continually projectsSources and Uses of Cash
We 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 tax 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 believesWe believe that itsour operating cash flows; cash and cash equivalents; borrowing capacity under theour $3.50 billion Credit Facility which had $2.49 billion of remaining availability at June 30, 2019; anddescribed below, as well as 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. WeThe Company 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.
The Company’sFunding for our long-term debt obligations due over the next five years of $2.03$5.54 billion areas of June 30, 2020 is expected to be funded bycome from our ability to refinance our debt and cash generated from operating activitiesactivities. During the second quarter of 2020, we issued $4.50 billion of senior notes with interest rates ranging from 4.20% to 4.95% and due dates from 2025 to 2050. The net proceeds from these issuances are being used for the redemption of our long-term debt as well as for general corporate purposes. During the second quarter of 2020, we redeemed senior notes, debentures, and junior subordinated debentures of $2.43 billion, prior to maturity, for a redemption price of $2.52 billion. On July 10, 2020, we fully redeemed the remaining $340 million of our outstanding 3.875% senior notes due December 2021.
The ongoing impact of COVID-19 could have a negative effect on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost of, or difficulty in, obtaining debt or equity financing, or our ability to comply with the leverage covenant in our Credit Facility in the future. The magnitude of the impact could be material to our business, financial condition and results of operations and will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the Company’s ability to refinance its debt.
economic and operating conditions that we may face in the aftermath of COVID-19.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
GuaranteesCash Flows
OnThe changes in cash, cash equivalents and restricted cash were as follows:
|
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 | | Increase/(Decrease) |
Cash flow provided by operating activities | $ | 1,151 |
| | $ | 1,189 |
| | | $ | (38 | ) | |
Cash flow (used for) provided by investing activities | (187 | ) | | 120 |
| | | (307 | ) | |
Cash flow provided by (used for) financing activities | 649 |
| | (1,227 | ) | | | 1,876 |
| |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (17 | ) | | 2 |
| | | (19 | ) | |
Net increase in cash, cash equivalents and restricted cash | $ | 1,596 |
| | $ | 84 |
| | | $ | 1,512 |
| |
Operating Activities. For the six months ended June 30, 2020, the decrease in cash flow provided by operating activities was primarily driven by lower revenues, including from the impact of COVID-19 and the comparison against the broadcast of the Super Bowl in the first quarter of 2019, and higher payments for restructuring and merger-related costs. These decreases were offset by lower programming and production spending resulting from COVID-19 related production shutdowns and lower payments for income taxes in the first half of 2020. Operating cash flow included payments for restructuring and merger-related costs of $351 million for the six months ended June 30, 2020 compared to $101 million in the same prior-year period. Cash paid for income taxes decreased to $100 million for the six months ended June 30, 2020 from $498 million for the prior-year period. The decrease was primarily due to a payment in 2019 as a result of guidance issued by the United States government in January 31, 2019 relating to the Company completedtransition tax on cumulative foreign earnings and profits that resulted from the enactment of federal tax legislation in December 2017. Cash taxes for 2020 benefited from the deferral of estimated federal income tax payments in the first half of 2020 as a result of tax relief granted by the United States government during the COVID-19 pandemic.
Investing Activities
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2020 |
| 2019 |
Investments (a) | | $ | (60 | ) | | | | $ | (132 | ) | |
Capital expenditures | | (132 | ) | | | | (142 | ) | |
Acquisitions, net of cash acquired (b) | | (141 | ) | | | | (361 | ) | |
Proceeds from dispositions (c) | | 146 |
| | | | 751 |
| |
Other investing activities | | — |
| | | | 4 |
| |
Cash flow (used for) provided by investing activities | | $ | (187 | ) | | | | $ | 120 |
| |
(a) Primarily includes our investment in The CW.
(b) 2020 primarily reflects the acquisition of Miramax, a global film and television studio. 2019 reflects the acquisition of Pluto Inc. and the remaining 50% interest in Pop TV, a general entertainment cable network.
(c) 2020 reflects the sale of marketable securities. 2019 reflects the sale of CBS Television City. The Company has guaranteed
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Financing Activities
|
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2020 | | 2019 |
Repayments of short-term debt borrowings, net | | $ | (698 | ) | | | | $ | (674 | ) | |
Proceeds from issuance of senior notes | | 4,370 |
| | | | 493 |
| |
Repayment of notes and debentures | | (2,535 | ) | | | | (600 | ) | |
Dividends | | (301 | ) | | | | (299 | ) | |
Repurchase of the Company’s Class B Common Stock | | (58 | ) | | | | (14 | ) | |
Payment of payroll taxes in lieu of issuing shares for stock-based compensation | | (59 | ) | | | | (52 | ) | |
Other financing activities | | (70 | ) | | | | (81 | ) | |
Cash flow provided by (used for) financing activities | | $ | 649 |
| | | | $ | (1,227 | ) | |
Free Cash Flow
Free cash flow is a specified levelnon-GAAP financial measure. Free cash flow reflects our net cash flow provided by operating activities less capital expenditures. Our calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash flowsthat is directly related to our operations. Our net cash flow provided by operating activities is the most directly comparable GAAP financial measure.
Management believes free cash flow provides investors with an important perspective on the cash available to us to service debt, make strategic acquisitions and investments, maintain our capital assets, satisfy our tax obligations, and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of our 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 our operating performance. We believe the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from our underlying operations in a manner similar to the method used by management. Free cash flow is among several components of incentive compensation targets for certain management personnel. In addition, free cash flow is a primary measure used externally by our investors, analysts and industry peers for purposes of valuation and comparison of our operating performance to other companies in our industry.
As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be generatedconsidered in isolation of, or as a substitute for, either net cash flow provided by operating activities as a measure of liquidity or net earnings as a measure of operating performance. Free cash flow, as we calculate it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow as a measure of liquidity has certain limitations, does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.
The following table presents a reconciliation of our net cash flow provided by operating activities to free cash flow.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net cash flow provided by operating activities (GAAP) | $ | 795 |
| | $ | 260 |
|
| $ | 1,151 |
|
| $ | 1,189 |
|
Capital expenditures | (81 | ) | | (75 | ) |
| (132 | ) |
| (142 | ) |
Free cash flow (Non-GAAP) | $ | 714 |
| | $ | 185 |
| | $ | 1,019 |
| | $ | 1,047 |
|
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Dividends
During the business duringsecond quarter of 2020, 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 July 1, 2020.
Share Repurchase Program
During the first five yearssix months ended June 30, 2020, we repurchased 1.3 million shares of ViacomCBS Class B Common Stock under our share repurchase program for $50 million, at an average cost of $38.63 per share. At June 30, 2020, $2.36 billion of authorization remained under the share repurchase program.
Capital Structure
The following table sets forth our debt.
|
| | | | | | | | | | | |
| At | | At |
| June 30, 2020 | | December 31, 2019 |
Commercial paper | | $ | — |
| | | | $ | 699 |
| |
Senior debt (2.250%-7.875% due 2021-2050) | | 18,773 |
| | | | 16,690 |
| |
Junior debt (5.875%-6.25% due 2057) | | 1,157 |
| | | | 1,286 |
| |
Other bank borrowings | | 101 |
| | | | — |
| |
Obligations under finance leases | | 37 |
| | | | 44 |
| |
Total debt (a) | | 20,068 |
| | | | 18,719 |
| |
Less commercial paper and other short-term borrowings | | 6 |
| | | | 699 |
| |
Less current portion of long-term debt | | 358 |
| | | | 18 |
| |
Total long-term debt, net of current portion | | $ | 19,704 |
| | | | $ | 18,002 |
| |
(a) At June 30, 2020 and December 31, 2019, the completionlong-term debt balances included (i) a net unamortized discount of $503 million and $412 million, respectively, (ii) unamortized deferred financing costs of $112 million and $92 million, respectively, and (iii) a decrease in the carrying value of the sale. Included on the Company’s Consolidated Balance Sheetdebt relating to previously settled fair value hedges of $5 million and $6 million, respectively. The face value of our total debt was $20.69 billion and $19.23 billion at June 30, 2020 and December 31, 2019, isrespectively.
During the second quarter of 2020, we issued $4.50 billion of senior notes with interest rates ranging from 4.20% to 4.95% and due dates from 2025 to 2050. The net proceeds from these issuances are being used for the redemption of our long-term debt as well as for general corporate purposes. During the second quarter of 2020, we redeemed senior notes, debentures, and junior subordinated debentures of $2.43 billion, prior to maturity, for a liabilityredemption price of $122$2.52 billion. As a result, we recognized a pre-tax loss on extinguishment of debt of $103 million, reflectingnet of $15 million of unamortized debt issuance costs and fees. On July 10, 2020, we fully redeemed the present valueremaining $340 million of our outstanding 3.875% senior notes due December 2021.
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 estimated amount payablefixed-rate period.
Commercial Paper
In January 2020, our commercial paper program was increased to $3.50 billion from $2.50 billion in conjunction with the new $3.50 billion revolving credit facility described below. At June 30, 2020, we had 0 outstanding commercial paper borrowings under our commercial paper program. At December 31, 2019, we had $699 million
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
of outstanding commercial paper borrowings with maturities of less than 90 days and a weighted average interest rate of 2.07%.
Credit Facility
In January 2020, the $2.50 billion revolving credit facility held by CBS prior to the Merger (the “CBS Credit Facility”), with a maturity in June 2021, was terminated and the $2.50 billion revolving credit facility held by Viacom prior to the Merger (the “Viacom Credit Facility”), with a maturity in February 2024, was amended and restated to a $3.50 billion revolving credit facility with a maturity in January 2025 (the “Credit Facility”). The Credit Facility is used for general corporate purposes and to support commercial paper outstanding, if any. We may, at our option, also borrow in certain foreign currencies up to specified limits under the guarantee obligation.Credit Facility. Borrowing rates under the Credit Facility are determined at the time of each borrowing and are generally based on either the prime rate in the U.S. or LIBOR plus a margin based on our senior unsecured debt rating, depending on the type and tenor of the loans entered. The Credit Facility has one principal financial covenant that requires our Consolidated Total Leverage Ratio to be less than 4.5x (which we may elect to increase to 5.0x for up to four consecutive quarters following a qualified acquisition) at the end of each quarter. The Consolidated Total Leverage Ratio reflects the ratio of our Consolidated Indebtedness at the end of a quarter, to our Consolidated EBITDA (each as defined in the amended credit agreement) for the trailing twelve-month period. We met the covenant as of June 30, 2020.
At June 30, 2020, we had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $3.50 billion.
The Company hasOther Bank Borrowings
At June 30, 2020, we had $101 million of bank borrowings with a weighted average interest rate of 3.59%. These borrowings consisted primarily of amounts outstanding under Miramax’s $300 million credit facility, which matures in April 2023.
Guarantees
Letters of Credit and Surety Bonds. We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2019,2020, the outstanding letters of credit and surety bonds approximated $99$135 million and were not recorded on the Company’s Consolidated Balance Sheet.
CBS Television City. In connection with the sale of CBS Television City in 2019, we guaranteed a specified level of cash flows to be generated by the business during the first five years following the completion of the sale. Included in “Other current liabilities” and “Other liabilities” on the Consolidated Balance Sheet at June 30, 2020 is a liability of $99 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 amount to $72 million as of June 30, 2020 and are presented on the Consolidated Balance Sheet within “Other liabilities.” The amount of lease commitments varies over time depending on expiration or termination of individual underlying leases, or the related indemnification obligation, and foreign exchange rates, among other things. We may also have exposure for certain other expenses related to the leases, such as property taxes and common area maintenance. We believe our accrual is sufficient to meet any future obligations based on our consideration of
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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.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 legalfollowing matters and other litigation to which it is a party are not likely, in the aggregate, to haveresult in a material adverse effect on itsour business, financial condition and results of operations, financial position operations.
Litigation Relating to the Merger
Beginning on February 20, 2020, three purported CBS stockholders filed separate derivative and/or cash flows. Underputative class action lawsuits in the separation agreement betweenCourt of Chancery of the CompanyState of Delaware. On March 31, 2020, the Court consolidated the three lawsuits and Viacomappointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs for the consolidated action. On April 14, 2020, the lead plaintiffs filed a Verified Consolidated Class Action and Derivative Complaint (as used in this paragraph, the “Complaint”) against Shari E. Redstone, NAI, Sumner M. Redstone National Amusements Trust, members of the CBS Board of Directors (comprised of Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Robert N. Klieger, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick), former CBS President and Acting Chief Executive Officer Joseph Ianniello and nominal defendant ViacomCBS Inc., The Complaint alleges breaches of fiduciary duties to CBS stockholders in connection with the Companynegotiation and Viacom Inc. have agreedapproval of the Agreement and Plan of Merger dated as of August 13, 2019, as amended on October 16, 2019 (the “Merger Agreement”). The Complaint also alleges waste and unjust enrichment in connection with Mr. Ianniello’s compensation. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On June 5, 2020, the defendants filed motions to dismiss. 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.
Beginning on November 25, 2019, four purported Viacom stockholders filed separate putative class action lawsuits in the Court of Chancery of the State of Delaware. On January 23, 2020, the Court consolidated the four lawsuits. On February 6, 2020, the Court appointed California Public Employees’ Retirement System (“CalPERS”) as lead plaintiff for the consolidated action. On February 28, 2020, CalPERS, together with Park Employees’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago and Louis M. Wilen, filed a First Amended Verified Class Action Complaint (as used in this paragraph, the “Complaint”) against NAI, NAI Entertainment Holdings LLC, Shari E. Redstone, the members of the 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. The Complaint alleges breaches of fiduciary
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
duties to Viacom stockholders in connection with the negotiation and approval of the Merger Agreement. The Complaint seeks unspecified damages, costs and expenses, as well as other relief. On May 22, 2020, the defendants filed motions to dismiss. We believe that the claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Investigation-Related Matters.
As announced on August 1, 2018, the Company’sCBS Board of Directors (“Board”) retained two law firms to conduct a full investigation of the allegations in 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 of Directors announced the completion of theits investigation, certain findings of the investigation and the Board’sCBS Board of Directors’ 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 and the United States Securities and Exchange Commission have also requested information about these matters, including with respect to the Company’sCBS’ related public disclosures. The CompanyWe 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 Board.CBS Board of Directors. The consolidated
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
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 are pending. The Company believesthe 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 iswe 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 the Company’sour 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.CBS. In October 2018, the Companywe contributed $120 million to a grantor trust pursuant to the Separation Agreement. On December 17, 2018, the CBS Board of Directors 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 Board’sCBS Board of Directors’ determination is subject to binding arbitration as set forth in the
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Separation Agreement. On January 16, 2019, Mr. Moonves commenced a binding arbitration proceeding with respect to this matter and the related CBS Board of Directors 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,thereunder. Accordingly, no accrual for this matter has been made in the Company’sour consolidated financial statements.
Claims Related to Former Businesses: Asbestos. The Company isAsbestos
We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. 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 June 30, 2019, the Company2020, we had pending approximately 32,12031,190 asbestos claims, as compared with approximately 31,57030,950 as of December 31, 2018 and 31,750 as of June 30, 2018.2019. During the second quarter of 2019, the Company2020, we received approximately 1,000590 new claims and closed or moved to an inactive docket approximately 720480 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.
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (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 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 fromOther
From time to time receiveswe receive claims from federal and state environmental regulatory agencies and other entities asserting that it iswe are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations of the Company.operations. In addition, the Company from time to time receiveswe receive personal injury claims
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
including toxic tort and product liability claims (other than asbestos) arising from our historical operations of the Company and its predecessors.
Related Parties
See Note 5 to the consolidated financial statements.
Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted
See Note 1 to the consolidated financial statements.
Critical Accounting Policies
See Item 7, Management’s Discussion and Analysis of Results of Operations and Financial Condition in the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, for a discussion of the Company’sour critical accounting policies.
Cautionary Statement Concerning Forward-Looking Statements
This quarterly reportQuarterly Report on Form 10-Q, including “Item 2 - Management’s Discussion and Analysis of Results of Operations and Financial Condition,” contains both historical and forward‑looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward‑looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934.1934, as amended. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward‑lookingforward-looking statements are not based on historical facts, but rather reflect the Company’sour current expectations concerning future results and events. These forward-looking statementsevents; 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 or goals are or may be forward‑looking statements. These forward‑looking statementsphrases; and 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 CompanyViacomCBS to be different from any future results, performance or achievements expressed or implied by these statements. These risks, uncertainties and other factors include, among others: the impact of the COVID-19 pandemic (and other widespread health emergencies or pandemics) and measures taken in response thereto; technological developments, alternative content offerings and their effects in our markets and on consumer behavior; the impact on our advertising revenues of changes in consumers’ content viewership, deficiencies in audience measurement and advertising market conditions; the public acceptance of our brands, programming, films, published content and other entertainment content on the Company’s content;various platforms on which they are distributed; increased costs for programming, films and other rights; the loss of key talent; competition for content, audiences, advertising market conditions generally; changesand distribution in technology and its effect on competitionconsolidating industries; the potential for loss of carriage or other reduction in the Company’s markets; changes in the federal communications laws and regulations; increased programming costs and investments;or the impact of piracynegotiations for the distribution of our content; the risks and costs associated with the integration of the CBS Corporation and Viacom Inc. businesses and investments in new businesses, products, services and technologies; evolving cybersecurity and similar risks; the failure, destruction or breach of critical satellites or facilities; content theft; domestic and global political, economic and/or regulatory factors affecting our businesses generally; volatility in capital markets or a decrease in our debt ratings; strikes and other union activity; fluctuations in our results due to the timing, mix, number and availability of our films and other programming; losses due to asset impairment charges for goodwill, intangible assets, FCC licenses and programming; liabilities related to discontinued operations and former businesses; and potential conflicts of interest arising from our ownership structure with a controlling stockholder. These risks, uncertainties and other factors are discussed in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 (filed with the SEC on February 20, 2020) and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (filed with the SEC on May 7, 2020). Other risks may be described in our news releases and other filings with the SEC, including but not limited to our Current Reports on Form 8-K. There may be additional risks, uncertainties and
Management’s Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Company’s products; the impact of the consolidation in the market for the Company’s content; the impact of negotiations or the loss of affiliation agreements or retransmission agreements; the outcomes of investigation- related legal actions, which are inherently unpredictable, and any associated costs; the uncertainties arising from leadership changes at the Company; the impact of union activity, including possible strikes or work stoppages or the Company’s inability to negotiate favorable terms for contract renewals; other domestic and global economic, business, competitive, technological and/or other regulatory factors affecting the Company’s businesses generally; and other factors described in the Company’s filings made under the securities laws, including, among others, those set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in our Quarterly Reports on Form 10-Q, and in the Company’s recent Current Reports on Form 8-K. There may be additional risks, uncertainties and factors that the Company doeswe do not currently view as material or that are not necessarily known. The forward‑looking statements included in this documentQuarterly Report on Form 10-Q are made only as of the date of this document and the Company doeswe do not undertake any obligation to publicly update any forward‑looking statements to reflect subsequent events or circumstances.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
There have been no significant changes to market risk since reported in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2018.2019.
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Item 4. | 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 Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended.
No change in the Company’sour internal control over financial reporting occurred during the Company’sour last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.
PART II – OTHER INFORMATION
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Item 1. | Legal Proceedings. |
The information set forth in Note 1315 to the consolidated financial statements appearing in Item 1 of Part I of this reportQuarterly Report on Form 10-Q under the captions “Investigation-Relatedcaption “Legal Matters” and “Separation Agreement” is incorporated by reference herein.
In addition to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2019 (filed with the SEC on February 20, 2020), the following risk factor could have a material adverse effect on our business, financial condition and results of operations.
The coronavirus disease (COVID-19) pandemic has negatively impacted and is expected to continue to impact our business (and other pandemics could do the same), which could have a material adverse effect on our business, financial condition and results of operations.
The coronavirus disease (“COVID-19”) pandemic has negatively impacted, and is expected to continue to impact, the macroeconomic environment in the United States and globally. Federal, state and local governmental authorities in the United States and foreign governments around the world have implemented numerous orders, policies and initiatives to try and reduce the transmission of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders and business shutdowns. The difficult macroeconomic environment, which has included increased and prolonged unemployment and a decline in consumer confidence, as a result of COVID-19, and any resulting recession or prolonged declines in economic growth, as well as changes in consumer behavior in response to a pandemic, has had, and may continue to have, a negative impact on our business, financial condition and results of operations. Other pandemics or widespread health emergencies may have similar impacts and effects.
As a result of COVID-19, we have experienced a material negative impact on our advertising revenues because of weakness in the advertising market as advertisers have sought to reduce their own costs in response to the pandemic’s impact on their businesses, and because of the cancellation or postponement of sporting events for which we have broadcast rights, such as the NCAA Division I Men’s Basketball Championship and professional golf tournaments. We are not able to predict whether future sporting events will be canceled or postponed, or whether advertising revenues from these broadcasts, or advertising budgets and the advertising market generally, will return or be comparable to historical levels. Any prolonged decline in our advertising revenues would have a negative impact on our business, financial condition and results of operations.
COVID-19 has also led to a temporary shutdown of production of our television and film programming, which resulted in the abandonment of certain program materials that were not complete, delays in deliveries of programming to third parties, and fewer original programs and live events airing on our broadcast and cable networks. While production has begun on a limited basis, we are not able to predict when production will fully resume, or the impact of incremental costs required to adhere to new health and safety protocols. We may also experience lower demand for the licensing of our programming in the near term as licensees implement financial austerity measures and aim to reduce costs. As a result, content licensing and advertising revenues have been and may continue to be negatively impacted in the near to medium term.
In addition, our theatrical revenues have been negatively impacted by the closure or reduction in capacity of movie theaters that show our films, either voluntarily or as a result of government orders or restrictions on public gatherings in response to COVID-19, which has impacted our theatrical release strategy for several films in 2020. As a result, we did not release any films in the second quarter of 2020 and postponed two significant theatrical releases from 2020 to 2021. We are not able to predict when movie theaters will reopen at scale. We are also not
able to predict if consumers will return to movie theaters (even upon their reopening) at the same levels they previously did because of concerns related to COVID-19 or because of changes to viewing habits. As such, revenues from theatrical releases may not return to historical levels in the short or medium term.
In addition, COVID-19 could impact our business, financial condition and results of operations in a number of other ways, including, but not limited to:
continuing to negatively impact our affiliate revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors (“MVPDs”) and virtual MVPDs;
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• | negatively impacting on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with the leverage covenant in our Credit Facility; |
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• | impairments of our programming and other inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets; and |
increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity.
The continuing impact of COVID-19 could be material to our business, financial condition and results of operations. The magnitude of the impact will depend on numerous evolving factors that we may not be able to accurately predict or control, including the duration, extent and possible resurgence of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. Due to the evolving and uncertain nature of the pandemic, we are not able to estimate the full extent of the impact that COVID-19 will have on our business, financial condition and results of operations, and that impact could also exacerbate the risks identified in “Item 1A. Risk Factors” in our Annual Report on Form 10-K.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Company Purchases of Equity Securities
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. During the second quarter of 2019, the Company2020, we did not purchase any shares under itsour publicly announced share repurchase program, which had remaining authorization of $2.46$2.36 billion at June 30, 2019.2020.
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Exhibit No. | Description of Document |
(4 | ) | | Instruments defining the rights of security holders, including indentures |
| (a) | Amended and RestatedForm of 4.200% Senior Indenture dated as of November 3, 2008 (“2008 Indenture”) between CBS Corporation, CBS Operations Inc., and The Bank of New York Mellon, as senior trusteeNotes due 2032 (incorporated by reference to Exhibit 4.1 to the Registration StatementCurrent Report on Form S-38-K of CBS CorporationViacomCBS Inc. filed November 3, 2008 (Registration No. 333-154962)May 19, 2020) (File No. 001-09553)). |
| (b) | First Supplemental Indenture to 2008 Indenture dated asForm of April 5, 2010 between CBS Corporation, CBS Operations Inc., and Deutsche Bank Trust Company Americas, as senior trustee4.950% Senior Notes due 2050 (incorporated by reference to Exhibit 4.34.2 to the Current Report on Form 8-K of CBS CorporationViacomCBS Inc. filed May 19, 2020) (File No. 001-09553). |
| (c) | Form of 4.750% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of ViacomCBS Inc. filed April 1, 2020) (File No. 001-09553). |
| (d) | Form of 4.950% Senior Notes due 2031 (incorporated by reference toExhibit 4.2 to the Current Report on Form 8-K of ViacomCBS Inc. filed April 5, 20101, 2020) (File No. 001-09553). |
(10 | ) | | Material Contracts |
| (a) | Employment Agreement, dated as of June 30, 2020, between ViacomCBS Inc. and Naveen Chopra (filed herewith). |
| (b) | The other instruments defining the rightsLetter Agreement, dated as of holdersJune 30, 2020, between ViacomCBS Inc. and Naveen Chopra (filed herewith). |
| (c) | Letter Agreement, dated as of the long-term debt securities of CBS CorporationJuly 24, 2020, between ViacomCBS Inc. and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. CBS Corporation hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request.Christina Spade (filed herewith). |
(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 |
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| | 101. SCH Inline XBRL Taxonomy Extension Schema. |
| | 101. CAL Inline XBRL Taxonomy Extension Calculation Linkbase. |
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(104 | ) | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the(formatted as Inline XBRL document.and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CBS CORPORATIONVIACOMCBS INC.
(Registrant) |
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Date: August 8, 20196, 2020 | /s/ Christina Spade |
| Christina Spade Executive Vice President, Chief Financial Officer |
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Date: August 8, 20196, 2020 | /s/ David F. ByrnesKatherine Gill-Charest |
| David F. ByrnesKatherine Gill-Charest
SeniorExecutive Vice President, Controller and
Chief Accounting Officer |