|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Revenues
|
$
|
52
|
|
|
$
|
55
|
|
Operating expenses
|
$
|
2
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
|
At
|
|
March 31, 2020
|
|
December 31, 2019
|
Amounts due to/from other related parties
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
39
|
|
|
|
|
$
|
45
|
|
|
Accounts payable
|
|
$
|
1
|
|
|
|
|
$
|
3
|
|
|
Through the normal course of business, we are involved in transactions with other related parties that have not been material in any of the periods presented.
5) REVENUES
The following table presents our revenues disaggregated into categories based on the nature of such revenues.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Revenues by Type:
|
|
|
|
Advertising
|
$
|
2,484
|
|
|
$
|
3,066
|
|
Affiliate
|
2,197
|
|
|
2,165
|
|
Content licensing
|
1,594
|
|
|
1,465
|
|
Theatrical
|
167
|
|
|
172
|
|
Publishing
|
170
|
|
|
164
|
|
Other
|
57
|
|
|
68
|
|
Total Revenues
|
$
|
6,669
|
|
|
$
|
7,100
|
|
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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 $86 million at both March 31, 2020 and December 31, 2019.
Included in “Other Assets” on the Consolidated Balance Sheets are noncurrent receivables of $2.00 billion and $2.15 billion at March 31, 2020 and 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 March 31, 2020 was $197 million in 2020, $1.02 billion in 2019, $491 million in 2018, $218 million in 2017, $41 million in 2016 and $24 million prior to 2016.
Contract Liabilities
Contract liabilities are included within “Deferred revenues” and “Other liabilities” on the Consolidated Balance Sheets and were $856 million and $910 million at March 31, 2020 and December 31, 2019, respectively. The change in contract liabilities for the three months ended March 31, 2020 primarily reflects $277 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 three months ended March 31, 2019, we recognized revenues of $214 million that were included in deferred revenues at December 31, 2018.
Unrecognized Revenues Under Contract
As of March 31, 2020, unrecognized revenues attributable to unsatisfied performance obligations under our long-term contracts was $7.81 billion, of which $3.52 billion is expected to be recognized for the remainder of 2020, $2.43 billion in 2021, $1.26 billion in 2022, and $598 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 months ended March 31, 2020 and 2019, we recognized revenues of approximately $74 million and $121 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)
6) DEBT
Our debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
|
At
|
|
March 31, 2020
|
|
December 31, 2019
|
Commercial paper
|
|
$
|
312
|
|
|
|
|
$
|
699
|
|
|
Short-term bank borrowings
|
|
200
|
|
|
|
|
—
|
|
|
4.30% Senior Notes due 2021
|
|
300
|
|
|
|
|
300
|
|
|
4.50% Senior Notes due 2021
|
|
499
|
|
|
|
|
499
|
|
|
3.875% Senior Notes due 2021
|
|
598
|
|
|
|
|
597
|
|
|
2.250% Senior Notes due 2022
|
|
49
|
|
|
|
|
49
|
|
|
3.375% Senior Notes due 2022
|
|
698
|
|
|
|
|
698
|
|
|
3.125% Senior Notes due 2022
|
|
194
|
|
|
|
|
194
|
|
|
2.50% Senior Notes due 2023
|
|
398
|
|
|
|
|
398
|
|
|
3.25% Senior Notes due 2023
|
|
181
|
|
|
|
|
181
|
|
|
2.90% Senior Notes due 2023
|
|
397
|
|
|
|
|
396
|
|
|
4.25% Senior Notes due 2023
|
|
1,242
|
|
|
|
|
1,242
|
|
|
7.875% Debentures due 2023
|
|
187
|
|
|
|
|
187
|
|
|
7.125% Senior Notes due 2023
|
|
46
|
|
|
|
|
46
|
|
|
3.875% Senior Notes due 2024
|
|
489
|
|
|
|
|
489
|
|
|
3.70% Senior Notes due 2024
|
|
598
|
|
|
|
|
598
|
|
|
3.50% Senior Notes due 2025
|
|
592
|
|
|
|
|
592
|
|
|
4.00% Senior Notes due 2026
|
|
789
|
|
|
|
|
789
|
|
|
3.45% Senior Notes due 2026
|
|
123
|
|
|
|
|
123
|
|
|
2.90% Senior Notes due 2027
|
|
688
|
|
|
|
|
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
|
|
|
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
|
|
297
|
|
|
|
|
297
|
|
|
4.50% Senior Debentures due 2042
|
|
45
|
|
|
|
|
45
|
|
|
4.85% Senior Notes due 2042
|
|
487
|
|
|
|
|
486
|
|
|
4.375% Senior Debentures due 2043
|
|
1,111
|
|
|
|
|
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
|
|
|
5.875% Junior Subordinated Debentures due 2057
|
|
643
|
|
|
|
|
643
|
|
|
6.25% Junior Subordinated Debentures due 2057
|
|
643
|
|
|
|
|
643
|
|
|
Obligations under finance leases
|
|
43
|
|
|
|
|
44
|
|
|
Total debt (a)
|
|
18,537
|
|
|
|
|
18,719
|
|
|
Less commercial paper
|
|
312
|
|
|
|
|
699
|
|
|
Less short-term bank borrowings
|
|
200
|
|
|
|
|
—
|
|
|
Less current portion of long-term debt
|
|
20
|
|
|
|
|
18
|
|
|
Total long-term debt, net of current portion
|
|
$
|
18,005
|
|
|
|
|
$
|
18,002
|
|
|
(a) At March 31, 2020 and December 31, 2019, the senior debt balances included (i) a net unamortized discount of $406 million and $412 million, respectively, (ii) unamortized deferred financing costs of $90 million and $92 million at March 31, 2020 and December 31, 2019, respectively, and (iii) a $6 million decrease in the carrying value of the debt relating to previously settled fair value hedges at both March 31, 2020 and December 31, 2019. The face value of our total debt was $19.04 billion and $19.23 billion at March 31, 2020 and December 31, 2019, respectively.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
In April 2020, we issued $1.25 billion of 4.75% senior notes due 2025 and $1.25 billion of 4.95% senior notes due 2031. The net proceeds from this issuance will be used for general corporate purposes, including, but not limited to, repayment of borrowings. Also in April 2020, we announced the full redemption of our $300 million of 4.30% senior notes due February 15, 2021, which were redeemed on May 4, 2020, and the full redemption of our $500 million of 4.50% senior notes due March 1, 2021, which will be redeemed on May 18, 2020. At March 31, 2020, we classified these senior notes of $800 million as long-term debt on the Consolidated Balance Sheet, reflecting our intent and ability to refinance these notes on a long-term basis.
Our 5.875% junior subordinated debentures due February 2057 and 6.25% junior subordinated debentures due February 2057 accrue interest at the stated fixed rates until February 28, 2022 and February 28, 2027, respectively, on which dates the rates will switch to floating rates based on three-month LIBOR plus 3.895% and 3.899%, respectively, reset quarterly. These debentures can be called by us at any time after the expiration of the fixed-rate period.
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. We had outstanding commercial paper borrowings under our commercial paper program of $312 million and $699 million at March 31, 2020 and December 31, 2019, respectively, each with maturities of less than 90 days. The weighted average interest rate for these borrowings was 2.18% and 2.07% at March 31, 2020 and December 31, 2019, respectively.
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 Credit Facility. Borrowing rates under the Credit Facility are determined at our option at the time of each borrowing and are based generally on the prime rate in the U.S. or LIBOR plus a margin based on our senior unsecured debt rating. 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 March 31, 2020.
At March 31, 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.
Short-Term Bank Borrowings
At March 31, 2020, we had $200 million of short-term bank borrowings outstanding under our uncommitted lines of credit with a weighted average interest rate of 2.45%, which were repaid in April 2020.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
7) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The carrying value of our financial instruments approximates fair value, except for notes and debentures, which are not recorded at fair value. The carrying value of our notes and debentures was $17.98 billion at both March 31, 2020 and December 31, 2019 and the fair value, which is determined based on quoted prices in active markets (Level 1 in the fair value hierarchy) was $18.2 billion and $20.6 billion at March 31, 2020 and December 31, 2019, respectively. The carrying value of our investments without a readily determinable fair value for which we have no significant influence was $114 million and $113 million at March 31, 2020 and December 31, 2019, respectively.
We use derivative financial instruments primarily to modify our exposure to market risks from fluctuations in foreign currency exchange rates. We do not use derivative instruments unless there is an underlying exposure and, therefore, we do not hold or enter into derivative financial instruments for speculative trading purposes.
Foreign Exchange 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. We 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, we enter into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.
At March 31, 2020 and December 31, 2019, the notional amount of all foreign exchange contracts was $1.37 billion and $1.44 billion, respectively. At March 31, 2020, $713 million related to future production costs and $658 million related 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 million related to our foreign currency balances and other expected foreign currency cash flows.
Gains (losses) recognized on derivative financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
Financial Statement Account
|
Non-designated foreign exchange contracts
|
$
|
29
|
|
|
$
|
(3
|
)
|
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)
The following tables set forth our assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting our own assumptions about the assumptions that market participants would use in pricing the asset or liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2020
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency hedges
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
Total Assets
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation
|
$
|
—
|
|
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
403
|
|
Foreign currency hedges
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
449
|
|
|
$
|
—
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2019
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Marketable securities
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146
|
|
Foreign currency hedges
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Total Assets
|
$
|
146
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
159
|
|
Liabilities:
|
|
|
|
|
|
|
|
Deferred compensation
|
$
|
—
|
|
|
$
|
490
|
|
|
$
|
—
|
|
|
$
|
490
|
|
Foreign currency hedges
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
504
|
|
|
$
|
—
|
|
|
$
|
504
|
|
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 three months ended March 31, 2020, we sold marketable securities for proceeds of $146 million. During the three months ended March 31, 2019, we recorded an unrealized gain of $38 million resulting from changes in the fair value of our marketable securities.
8) STOCKHOLDERS’ EQUITY
During the first 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 April 1, 2020.
During the first quarter of 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 March 31, 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
|
|
(101
|
)
|
|
|
|
—
|
|
|
|
|
(101
|
)
|
|
Reclassifications to net earnings
|
|
—
|
|
|
|
|
17
|
|
(a)
|
|
|
17
|
|
|
Other comprehensive income (loss)
|
|
(101
|
)
|
|
|
|
17
|
|
|
|
|
(84
|
)
|
|
At March 31, 2020
|
|
$
|
(564
|
)
|
|
|
|
$
|
(1,490
|
)
|
|
|
|
$
|
(2,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
13
|
|
|
|
|
—
|
|
|
|
|
13
|
|
|
Reclassifications to net earnings
|
|
—
|
|
|
|
|
14
|
|
(a)
|
|
|
14
|
|
|
Other comprehensive income
|
|
13
|
|
|
|
|
14
|
|
|
|
|
27
|
|
|
Tax effects reclassified to retained earnings
|
|
—
|
|
|
|
|
(230
|
)
|
(b)
|
|
|
(230
|
)
|
|
At March 31, 2019
|
|
$
|
(463
|
)
|
|
|
|
$
|
(1,348
|
)
|
|
|
|
$
|
(1,811
|
)
|
|
|
|
(a)
|
Reflects amortization of net actuarial losses (see Note 11). Amounts are net of tax benefits of $5 million for each of the three months ended March 31, 2020 and 2019.
|
|
|
(b)
|
Reflects the reclassification of certain income tax effects of the Tax Reform Act on items within accumulated other comprehensive loss to retained earnings upon the adoption of FASB guidance.
|
9) STOCK-BASED COMPENSATION
The following table summarizes our stock-based compensation expense for the three months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
RSUs and PSUs
|
$
|
48
|
|
|
$
|
43
|
|
Stock options
|
6
|
|
|
8
|
|
Compensation cost included in operating and SG&A expense
|
54
|
|
|
51
|
|
Compensation cost included in restructuring and other
corporate matters (a)
|
34
|
|
|
5
|
|
Stock-based compensation expense, before income taxes
|
88
|
|
|
56
|
|
Related tax benefit
|
(16
|
)
|
|
(12
|
)
|
Stock-based compensation expense, net of tax benefit
|
$
|
72
|
|
|
$
|
44
|
|
(a) Reflects accelerations as a result of restructuring activities.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
10) INCOME TAXES
The (provision) benefit for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies. For the three months ended March 31, 2020, we recorded a provision for income taxes of $137 million, reflecting an effective income tax rate of 20.9%. Included in the provision for income taxes is a net tax benefit of $54 million for the tax impact of restructuring and other corporate matters, depreciation on abandoned technology and other discrete tax items, which had a minimal effect on the effective income tax rate for the three months ended March 31, 2020.
For the three months ended March 31, 2019, we recorded a benefit from income taxes of $376 million, reflecting an effective income tax rate of (23.6)%, which 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, and a tax provision of $163 million on the sale of the CBS Television City property and sound stage operation (“CBS Television City”). These items, taken together with a net tax benefit of $34 million for restructuring and other corporate matters and gain on marketable securities, reduced the effective income tax rate by 45.8 percentage points for the three months ended March 31, 2019.
On March 27, 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 months ended March 31, 2020. We are currently evaluating the future impact of the CARES Act provisions on our consolidated financial statements.
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 impact of the rate increase will be recorded in our consolidated financial statements when the resolution receives Royal Assent, which is expected to occur later in 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.
ViacomCBS and its subsidiaries file income tax returns with the Internal Revenue Service (“IRS”) and various state and international jurisdictions. For periods prior to the Merger, Viacom and CBS filed separate tax returns. For CBS, the 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 uncertain tax positions may decrease by $125 million within the next 12 months primarily related to potential resolutions of matters involving multiple tax periods and jurisdictions; however, it is difficult to predict the final outcome or timing of resolution of any particular tax matter and events could cause our current expectation to change in the future.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
11) PENSION AND OTHER POSTRETIREMENT BENEFITS
The following table presents the components of net periodic cost for our pension and postretirement benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
Three Months Ended March 31,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Components of net periodic cost (a):
|
|
|
|
|
|
|
|
Service cost
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Interest cost
|
41
|
|
|
48
|
|
|
3
|
|
|
4
|
|
Expected return on plan assets
|
(48
|
)
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
Amortization of actuarial loss (gain) (b)
|
26
|
|
|
24
|
|
|
(4
|
)
|
|
(4
|
)
|
Net periodic cost
|
$
|
26
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(a) Amounts reflect our domestic plans only.
(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.”
12) REDEEMABLE NONCONTROLLING INTERESTS
We are subject to a redeemable put option, payable in a foreign currency, with respect to an international subsidiary. The put option expires in December 2022 and is classified as “Redeemable noncontrolling interest” on the Consolidated Balance Sheets. The activity reflected within redeemable noncontrolling interest for the three months ended March 31, 2020 and 2019 is presented below.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Beginning balance
|
$
|
254
|
|
|
$
|
239
|
|
Net earnings
|
1
|
|
|
3
|
|
Distributions
|
(4
|
)
|
|
(6
|
)
|
Translation adjustment
|
(14
|
)
|
|
7
|
|
Redemption value adjustment
|
33
|
|
|
10
|
|
Ending balance
|
$
|
270
|
|
|
$
|
253
|
|
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
13) REPORTABLE SEGMENTS
The following tables set forth our financial information by reportable segment. Our operating segments, which are the same as our reportable segments, have been determined in accordance with our internal management structure, which is organized based upon products and services.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
Advertising
|
$
|
1,381
|
|
|
$
|
1,967
|
|
Affiliate
|
734
|
|
|
611
|
|
Content licensing
|
797
|
|
|
781
|
|
Other
|
35
|
|
|
47
|
|
TV Entertainment
|
2,947
|
|
|
3,406
|
|
Advertising
|
1,117
|
|
|
1,115
|
|
Affiliate
|
1,463
|
|
|
1,554
|
|
Content licensing
|
278
|
|
|
233
|
|
Cable Networks
|
2,858
|
|
|
2,902
|
|
Theatrical
|
167
|
|
|
172
|
|
Home entertainment
|
174
|
|
|
154
|
|
Licensing
|
442
|
|
|
375
|
|
Other
|
28
|
|
|
29
|
|
Filmed Entertainment
|
811
|
|
|
730
|
|
Publishing
|
170
|
|
|
164
|
|
Corporate/Eliminations
|
(117
|
)
|
|
(102
|
)
|
Total Revenues
|
$
|
6,669
|
|
|
$
|
7,100
|
|
Revenues generated between segments primarily reflect advertising sales and content licensing sales. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Intercompany Revenues:
|
|
|
|
TV Entertainment
|
$
|
75
|
|
|
$
|
56
|
|
Cable Networks
|
16
|
|
|
18
|
|
Filmed Entertainment
|
26
|
|
|
35
|
|
Total Intercompany Revenues
|
$
|
117
|
|
|
$
|
109
|
|
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
We present operating income (loss) excluding depreciation and amortization, stock-based compensation, costs for restructuring and other corporate matters and gain on sale of assets, each where applicable, (“Adjusted OIBDA”) as the primary measure of profit and loss for our operating segments in accordance with FASB guidance for segment reporting since it is the primary method used by our management. Stock-based compensation is excluded from our segment measure of profit and loss because it is set and approved by our Board of Directors in consultation with corporate executive management.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Adjusted OIBDA:
|
|
|
|
TV Entertainment
|
$
|
573
|
|
|
$
|
742
|
|
Cable Networks
|
794
|
|
|
893
|
|
Filmed Entertainment
|
27
|
|
|
38
|
|
Publishing
|
19
|
|
|
19
|
|
Corporate/Eliminations
|
(96
|
)
|
|
(102
|
)
|
Stock-based compensation
|
(54
|
)
|
|
(51
|
)
|
Depreciation and amortization
|
(113
|
)
|
|
(106
|
)
|
Restructuring and other corporate matters
|
(233
|
)
|
|
(178
|
)
|
Gain on sale of assets
|
—
|
|
|
549
|
|
Operating income
|
917
|
|
|
1,804
|
|
Interest expense
|
(241
|
)
|
|
(240
|
)
|
Interest income
|
14
|
|
|
19
|
|
Gain on marketable securities
|
—
|
|
|
38
|
|
Other items, net
|
(33
|
)
|
|
(28
|
)
|
Earnings from continuing operations before income taxes and equity in
loss of investee companies
|
657
|
|
|
1,593
|
|
(Provision) benefit for income taxes
|
(137
|
)
|
|
376
|
|
Equity in loss of investee companies, net of tax
|
(9
|
)
|
|
(18
|
)
|
Net earnings from continuing operations
|
511
|
|
|
1,951
|
|
Net earnings from discontinued operations, net of tax
|
8
|
|
|
13
|
|
Net earnings (ViacomCBS and noncontrolling interests)
|
519
|
|
|
1,964
|
|
Net earnings attributable to noncontrolling interests
|
(3
|
)
|
|
(5
|
)
|
Net earnings attributable to ViacomCBS
|
$
|
516
|
|
|
$
|
1,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
|
At
|
|
March 31, 2020
|
|
December 31, 2019
|
Assets:
|
|
|
|
|
|
|
|
TV Entertainment
|
|
$
|
19,260
|
|
|
|
|
$
|
19,689
|
|
|
Cable Networks (a)
|
|
22,220
|
|
|
|
|
22,109
|
|
|
Filmed Entertainment
|
|
5,724
|
|
|
|
|
5,477
|
|
|
Publishing
|
|
1,187
|
|
|
|
|
1,262
|
|
|
Corporate/Eliminations
|
|
643
|
|
|
|
|
967
|
|
|
Discontinued Operations
|
|
11
|
|
|
|
|
15
|
|
|
Total Assets
|
|
$
|
49,045
|
|
|
|
|
$
|
49,519
|
|
|
(a) Includes assets held for sale of $23 million at both March 31, 2020 and December 31, 2019.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
14) COMMITMENTS AND CONTINGENCIES
Guarantees
Letters of Credit and Surety Bonds. We have indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At March 31, 2020, the outstanding letters of credit and surety bonds approximated $138 million and were not recorded on the 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 March 31, 2020 is a liability of $98 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 $75 million as of March 31, 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 our business, we both provide and receive indemnities which are intended to allocate certain risks associated with business transactions. Similarly, we may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. We record a liability for our indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
General. On an ongoing basis, we vigorously defend ourselves in numerous lawsuits and proceedings and respond to various investigations and inquiries from federal, state, local and international authorities (collectively, “litigation’’). Litigation may be brought against us without merit, is inherently uncertain and always difficult to predict. However, based on our understanding and evaluation of the relevant facts and circumstances, we believe that the below-described legal matters and other litigation to which we are a party are not likely, in the aggregate, to have a material adverse effect on our results of operations, financial position or cash flows.
Litigation Relating to the Merger. Beginning on February 20, 2020, three purported CBS stockholders filed separate derivative and/or putative class action lawsuits in the Court of Chancery of the State of Delaware. On March 31, 2020, the Court consolidated the three lawsuits and appointed Bucks County Employees’ Retirement Fund and International Union of Operating Engineers of Eastern Pennsylvania and Delaware as co-lead plaintiffs (“Lead Plaintiffs”) for the consolidated action. On April 14, 2020, 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, 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
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
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. 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 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 (collectively, “Defendants”). 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 March 13, 2020, the Defendants filed pro forma 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 CBS Board of Directors (the “CBS Board”) retained two law firms to conduct a full investigation of the allegations in press reports about CBS’ former Chairman of the Board, President and Chief Executive Officer, Leslie Moonves, CBS News and cultural issues at CBS. On December 17, 2018, the CBS Board announced the completion of its investigation, certain findings of the investigation and the CBS Board’s determination, discussed below, with respect to the termination of Mr. Moonves’ employment. We have received subpoenas from the New York County District Attorney’s Office and the New York City Commission on Human Rights regarding the subject matter of this investigation and related matters. The New York State Attorney General’s Office and the United States Securities and Exchange Commission have also requested information about these matters, including with respect to CBS’ related public disclosures. We may continue to receive additional related regulatory and investigative inquiries from these and other entities in the future. We are cooperating with these inquiries.
On August 27, 2018 and on October 1, 2018, each of Gene Samit and John Lantz, respectively, filed putative class action suits in the United States District Court for the Southern District of New York, individually and on behalf of others similarly situated, for claims that are similar to those alleged in the amended complaint described below. On November 6, 2018, the Court entered an order consolidating the two actions. On November 30, 2018, the Court appointed Construction Laborers Pension Trust for Southern California as the lead plaintiff of the consolidated action. On February 11, 2019, the lead plaintiff filed a consolidated amended putative class action complaint against CBS, certain current and former senior executives and members of the CBS Board. The consolidated action is stated to be on behalf of purchasers of CBS Class A Common Stock and Class B Common Stock between September 26, 2016 and December 4, 2018. This action seeks to recover damages arising during this time period allegedly caused by the defendants’ purported violations of the federal securities laws, including by allegedly making materially false and misleading statements or failing to disclose material information, and seeks costs and expenses as well as remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On April 12, 2019, the defendants filed motions to dismiss this action, which the
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Court granted in part and denied in part on January 15, 2020. With the exception of one statement made by Mr. Moonves at an industry event in November 2017, in which he allegedly was acting as the agent of CBS, all claims as to all other allegedly false and misleading statements were dismissed. We believe that the remaining claims are without merit and we intend to defend against them vigorously. We are currently unable to determine a range of potential liability, if any. Accordingly, no accrual for this matter has been made in our consolidated financial statements.
Separation Agreement. On September 9, 2018, CBS entered into a separation and settlement agreement and releases (the “Separation Agreement”) with Mr. Moonves, pursuant to which Mr. Moonves resigned as a director and as Chairman of the Board, President and Chief Executive Officer of CBS. In October 2018, we contributed $120 million to a grantor trust pursuant to the Separation Agreement. On December 17, 2018, the CBS Board announced that, following its consideration of the findings of the investigation referred to above, it had determined that there were grounds to terminate Mr. Moonves’ employment for cause under his employment agreement with CBS. Any dispute related to the CBS Board’s determination is subject to binding arbitration as set forth in the Separation Agreement. On January 16, 2019, Mr. Moonves commenced a binding arbitration proceeding with respect to this matter and the related CBS Board investigation, which proceeding is ongoing. The assets of the grantor trust will remain in the trust until a final determination in the arbitration. We are currently unable to determine the outcome of the arbitration and the amount, if any, that may be awarded thereunder and, accordingly, no accrual for this matter has been made in our consolidated financial statements.
Claims Related to Former Businesses: Asbestos. We are a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. We are typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of our products is the basis of a claim. Claims against us in which a product has been identified most commonly relate to allegations of exposure to asbestos-containing insulating material used in conjunction with turbines and electrical equipment.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. We do not report as pending those claims on inactive, stayed, deferred or similar dockets that some jurisdictions have established for claimants who allege minimal or no impairment. As of March 31, 2020, we had pending approximately 31,080 asbestos claims, as compared with approximately 30,950 as of December 31, 2019. During the first quarter of 2020, we received approximately 730 new claims and closed or moved to an inactive docket approximately 600 claims. We report claims as closed when we become aware that a dismissal order has been entered by a court or when we have reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claims, the quality of evidence supporting the claims and other factors. Our total costs for the years 2019 and 2018 for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $58 million and $45 million, respectively. Our costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of pending claims against us are non-cancer claims. It is difficult to predict future asbestos
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
liabilities, as events and circumstances may impact the estimate of our asbestos liabilities, including, among others, the number and types of claims and average cost to resolve such claims. We record an accrual for a loss contingency when it is both probable that a liability has been incurred and when the amount of the loss can be reasonably estimated. We believe that our accrual and insurance are adequate to cover our asbestos liabilities. Our liability estimate is based upon many factors, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims, as well as consultation with a third party firm on trends that may impact our future asbestos liability.
Other. From time to time we receive claims from federal and state environmental regulatory agencies and other entities asserting that we are or may be liable for environmental cleanup costs and related damages principally relating to our historical and predecessor operations. In addition, from time to time we receive personal injury claims including toxic tort and product liability claims (other than asbestos) arising from our historical operations and predecessors.
15) SUPPLEMENTAL FINANCIAL INFORMATION
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2020
|
|
2019
|
Cash paid for interest
|
$
|
322
|
|
|
$
|
340
|
|
|
|
|
|
Cash paid for income taxes
|
$
|
55
|
|
|
$
|
197
|
|
|
|
|
|
Noncash additions to operating lease assets
|
$
|
55
|
|
|
$
|
179
|
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Variable Interest Entities
In the normal course of business, we enter into joint ventures or make investments with business partners that support our underlying business strategy and provide us the ability to enter new markets to expand the reach of our brands, develop new programming and/or distribute our existing content. In certain instances, an entity in which we make an investment may qualify as a variable interest entity (“VIE”). In determining whether we are the primary beneficiary of a VIE, we assess whether we have the power to direct matters that most significantly impact the activities of the VIE and have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Consolidated Balance Sheets include assets and liabilities related to consolidated VIEs totaling $137 million and $32 million, respectively, at March 31, 2020, and $141 million and $22 million, respectively, at December 31, 2019. The consolidated VIEs’ revenues, expenses and operating income were not significant for any period presented.
VIACOMCBS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Acquisition of Miramax
In April 2020, we completed the acquisition of a 49% stake 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. In addition to maximizing library content distribution, we also have certain rights to co-produce, co-finance and/or distribute new film and television projects. The investment will be accounted for as a consolidated VIE beginning in the 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.
Lease Income
We enter into operating leases for the use of our owned production facilities and office buildings. Lease payments received under these agreements consist of fixed payments for the rental of space and certain building operating costs, as well as variable payments based on usage of production facilities and services, and escalating costs of building operations. We recorded total lease income, including both fixed and variable amounts, of $34 million and$40 million for the three months ended March 31, 2020 and 2019, respectively.