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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-09553
CBS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
04-2949533
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
51 W. 52nd Street,
New York,
New York
 
10019
(Address of principal executive offices)
 
(Zip Code)
(212) 975-4321
(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:
Title of each class
 
Trading Symbols
 
Name of each exchange on which registered
Class A Common Stock, $0.001 par value
 
 
CBS.A
 
 
 
New York Stock Exchange
 
Class B Common Stock, $0.001 par value
 
 
CBS
 
 
 
New York Stock Exchange
 
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.
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:
Class A Common Stock, par value $.001 per share— 22,803,151
Class B Common Stock, par value $.001 per share— 351,863,655
 




CBS CORPORATION
INDEX TO FORM 10-Q
 
 
Page
 
PART I – FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 

- 2-



PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
3,809

 
$
3,466

 
$
7,976

 
$
7,227

Costs and expenses:
 

 
 

 
 
 
 
Operating
2,509

 
2,184

 
5,257

 
4,584

Selling, general and administrative
545

 
532

 
1,118

 
1,056

Depreciation and amortization
53

 
56

 
106

 
112

Restructuring and other corporate matters (Note 3)
7


35


121


44

Gain on sale of assets (Note 1)

 

 
(549
)


Total costs and expenses
3,114

 
2,807

 
6,053

 
5,796

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

 
 
 
 
 
 
 
 
Basic net earnings per common share
$
1.18


$
1.06


$
5.41


$
2.40

 
 
 
 
 
 
 
 
Diluted net earnings per common share
$
1.17


$
1.05


$
5.38


$
2.38

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 

 
 

 
 
 
 
Basic
374

 
378

 
374

 
380

Diluted
376


381


376


383

See notes to consolidated financial statements.

-3-



CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Net earnings
$
440

 
$
400

 
$
2,023

 
$
911

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

Total comprehensive income
$
452


$
407


$
2,052


$
927

See notes to consolidated financial statements.

-4-



CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
 
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

 
Prepaid income taxes
 

 
 
 
27

 
Prepaid expenses
 
158

 
 
 
149

 
Other current assets
 
222

 
 
 
225

 
Total current assets
 
6,336

 
 
 
6,752

 
Property and equipment
 
2,931

 
 
 
2,926

 
Less accumulated depreciation and amortization
 
1,754

 
 
 
1,717

 
Net property and equipment
 
1,177

 
 
 
1,209

 
Programming and other inventory (Note 4)
 
4,269

 
 
 
3,883

 
Goodwill
 
5,062

 
 
 
4,920

 
Intangible assets
 
2,660

 
 
 
2,638

 
Operating lease assets (Note 12)
 
922

 
 
 

 
Deferred income tax assets, net
 
785

 
 
 
29

 
Other assets
 
2,624

 
 
 
2,395

 
Assets held for sale
 

 
 
 
33

 
Total Assets
 
$
23,835




$
21,859

 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS EQUITY
 


 
 
 


 
Current Liabilities:
 


 
 
 


 
Accounts payable
 
$
214

 
 
 
$
201

 
Accrued compensation
 
217

 
 
 
346

 
Participants’ share and royalties payable
 
1,188

 
 
 
1,177

 
Accrued programming and production costs
 
590

 
 
 
704

 
Income taxes payable
 
113

 
 
 

 
Commercial paper (Note 6)
 

 
 
 
674

 
Accrued expenses and other current liabilities
 
1,521

 
 
 
1,471

 
Total current liabilities
 
3,843

 
 
 
4,573

 
Long-term debt (Note 6)
 
9,359

 
 
 
9,465

 
Pension and postretirement benefit obligations
 
1,366

 
 
 
1,388

 
Deferred income tax liabilities, net
 
535

 
 
 
399

 
Noncurrent operating lease liabilities (Note 12)
 
858

 
 
 

 
Other liabilities
 
3,121

 
 
 
3,230

 
 
 


 
 
 


 
Commitments and contingencies (Note 13)
 


 
 
 


 
 
 


 
 
 


 
Stockholders Equity:
 


 
 
 


 
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

 
See notes to consolidated financial statements.

-5-


CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
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:





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

See notes to consolidated financial statements.

-6-


CBS CORPORATION 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

See notes to consolidated financial statements.


-7-



CBS CORPORATION 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-CBS Corporation (together with 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).

Basis of Presentation-The accompanying unaudited consolidated financial statements of the Company have been prepared 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’s Annual Report on Form 10-K for the year ended December 31, 2018.

In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of the 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’s financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its 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 differ from these estimates under different assumptions or conditions.

Noncurrent Receivables-Noncurrent receivables of $1.77 billion at June 30, 2019 and $1.55 billion at December 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 be recognized for the remainder of 2019, $1.21 billion for 2020, $833 million for 2021, and $434 million thereafter. These amounts only include contracts subject 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

-8-



CBS CORPORATION 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 affiliate and subscription fee agreements 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 identified 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 value of future lease payments. The discount rate used to measure the lease asset and liability is determined at the beginning of the lease term using the rate implicit in the lease, if readily determinable, or 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.

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”) 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 three and six months ended June 30, 2019, and 8 million stock options and RSUs for each of the three and six months ended June 30, 2018.

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
 
June 30,
 
June 30,
(in millions)
2019
 
2018
 
2019
 
2018
Weighted average shares for basic EPS
374

 
378

 
374

 
380

Dilutive effect of shares issuable under stock-based
compensation plans
2

 
3

 
2

 
3

Weighted average shares for diluted EPS
376

 
381

 
376

 
383



-9-



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

-10-



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 issued guidance on the accounting for costs of films and episodic television series, which aligns the accounting for capitalizing production costs of episodic television series with the guidance for films. As a result, the capitalization of costs incurred to produce episodic television series will no longer be limited to the amount of revenue contracted in the initial market until persuasive evidence of a secondary market exists. In addition, this guidance requires the Company to test for impairment of television series on a title-by-title basis or together with other series as part of a group, based on the predominant monetization strategy of the series. This guidance also removes the requirement to classify all capitalized costs for produced television series as noncurrent on the balance sheet and adds new disclosure requirements relating to costs for acquired and produced television series. The Company is currently evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

Collaborative Arrangements: Clarifying the Interaction with the New Revenue Standard

In November 2018, the FASB issued guidance to clarify that certain transactions between parties to collaborative arrangements should be accounted for in accordance with FASB revenue guidance when the counterparty is a customer. This guidance also prohibits the presentation of collaborative arrangements as revenues from contracts with customers if the counterparty is not a customer. This guidance, which is required to be applied retrospectively and is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, is not expected to have an impact on the Company’s consolidated financial statements.

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
In August 2018, the FASB issued guidance on the accounting for implementation costs of a cloud computing arrangement that is considered to be a service contract. This guidance requires companies to follow the guidance for capitalizing costs associated with internal-use software to determine which costs to capitalize in a cloud computing arrangement that is a service contract. The guidance also specifies the financial statement presentation for capitalized implementation costs and the related amortization, as well as required financial statement disclosures. The Company is currently evaluating the impact of this guidance, which is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.


-11-



CBS CORPORATION 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 is required to be applied retrospectively and is effective for annual periods ending after December 15, 2020, with early adoption permitted.

Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued amended 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 an impact on the Company’s consolidated financial statements.
2) STOCK-BASED COMPENSATION
The following table summarizes the Company’s stock-based compensation expense for the three and six months ended June 30, 2019 and 2018.
 
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


During the six months ended June 30, 2019, the Company granted 3 million RSUs for CBS Corp. Class B Common Stock with a weighted average per unit grant-date fair value of $50.45. RSUs granted during the first six months 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 on 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 at 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.
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.


-12-



CBS CORPORATION 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 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.
 
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

 



-13-



CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)

5) RELATED PARTIES
National Amusements, Inc. National Amusements, Inc. (“NAI”) is the controlling stockholder of CBS Corp. and Viacom Inc. Mr. Sumner M. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, is the Chairman Emeritus of CBS Corp. and the Chairman Emeritus of Viacom Inc. In addition, Ms. Shari Redstone, Mr. Sumner M. Redstone’s daughter, is the president and a director of NAI and the vice chair of the Board of Directors of each of CBS Corp. and Viacom Inc. At June 30, 2019, NAI directly or indirectly owned approximately 78.7% of CBS Corp.’s voting Class A Common Stock, and owned approximately 10.4% of CBS Corp.’s 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 seven trustees, who will include CBS Corporation director Ms. Shari Redstone. No member of the Company’s management is a trustee of the SMR Trust.

Viacom Inc. As part of its normal course of business, the Company licenses its television content, leases production facilities and sells advertising spots to various subsidiaries of Viacom Inc. Viacom Inc. also distributes certain of the Company’s television programs in the home entertainment market. The Company’s total revenues from these transactions were $14 million and $10 million for the three months ended June 30, 2019 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.

The following table presents the amounts due from Viacom Inc. in 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 Pop 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.

-14-



CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)

6) BANK FINANCING AND DEBT
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.

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.

-15-



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.”

-16-



CBS CORPORATION 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