At least three purported class action lawsuits have been filed against CBS Corporation. All claim the company misled investors before it announced in October that it would take a $14 billion impairment charge. All of the lawsuits were filed by law firms who specialize in these class action suits claiming securities law violations and all three are seeking to add plaintiffs to their suits.
All of the lawsuits claim that anyone who bought CBS shares between February 26th, when the company reported its Q4 results and CEO Les Moonves said CBS was "not seeing a recession," to October 10th, when CBS announced plans for the $14 billion write-down, is a victim.
“The complaint alleges that, during the Class Period, defendants made materially false and misleading statements about the Company’s financial condition and operating results. Specifically, Defendants failed to disclose: (i) that adverse market conditions had materially impaired CBS’s operations, expected cash flows and the value of its intangible assets, including goodwill; (ii) that the Company’s reported goodwill and intangible assets, which ranged between 69% – 73% of CBS’s total assets and 131% – 137% of CBS’s total equity during the Class Period, were materially overstated; (iii) that the Company reported equity capital during the Class Period that was materially overstated; (iv) that, as a result of its failure to timely write-down impaired intangible and goodwill assets, the Company’s financial results during the Class Period were materially overstated; (v) that the Company’s financial statements were not prepared in accordance with Generally Accepted Accounting Principles ("GAAP") and, therefore, were materially false and misleading; (vi) that the Company’s balance sheet was not ‘pristine,’ ‘extremely strong’ or ‘extremely healthy;’ (vii) that the Company’s cash flow from operations was declining at a significant rate; and (x) that Defendants’ positive statements concerning the Company’s free cash flow, including Defendant Moonves’s representation that CBS ‘clearly has the right broad range of assets to produce outstanding free cash flow quarter after quarter, year after year,’ were materially false and misleading and without reasonable basis,” said two of the supposedly separate law firms in identical descriptions of their claims.
According to the complaints, after CBS issued a press release on October 10th announcing that it "expects to incur a non-cash impairment charge of approximately $14 billion, in the third quarter of 2008" the price of CBS common stock declined from $10.14 to $8.10, on very heavy trading volume.
A check of the RBR/TVBR epapers finds that the broad market and nearly all broadcast stocks were hard hit on October 10th, with the market still in turmoil over worries that the $700 billion financial bailout signed into law that day by President Bush would not be enough. Several other radio and TV stocks had worse percentage drops than CBS that day.
RBR/TVBR observation: If this is a securities law violation, then pretty much every public broadcasting company is guilty – and newspaper companies even more so. Pretty much all have been taking non-cash write-downs – not because they really think their intangible assets have deteriorated so badly, but because they are required by SEC regulations to regularly review values against the current market place. So, it’s a catch 22. You are required to take these write-downs – which have no impact whatsoever on your operating performance – because stock prices have deteriorated. And then you get sued for taking the write-downs by shareholders upset about the stock price deterioration.