Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

o

 

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
(State or other jurisdiction of
incorporation or organization)
  04-2949533
(I.R.S. Employer Identification No.)

51 W. 52nd Street, New York, New York
(Address of principal executive offices)

 

10019
(Zip Code)

(212) 975-4321
Registrant's telephone number, including area code

         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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý    No o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

Number of shares of common stock outstanding at July 31, 2010:

         Class A Common Stock, par value $.001 per share—50,882,897

         Class B Common Stock, par value $.001 per share—629,855,757


CBS CORPORATION
INDEX TO FORM 10-Q

 
   
  Page
  PART I – FINANCIAL INFORMATION    

Item 1.

 

Financial Statements.

 

 

 

 

Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2010 and June 30, 2009

 

3

 

 

Consolidated Balance Sheets (Unaudited) at June 30, 2010 and December 31, 2009

 

4

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2010 and June 30, 2009

 

5

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

Item 2.

 

Management's Discussion and Analysis of Results of Operations and Financial Condition.

 

33

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

60

Item 4.

 

Controls and Procedures.

 

60

 

 

PART II – OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings.

 

61

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

61

Item 6.

 

Exhibits.

 

62

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Table of Contents

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
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 3,331.0   $ 3,006.3   $ 6,861.9   $ 6,166.2  
   

Expenses:

                         
 

Operating

    2,077.7     1,984.4     4,641.2     4,297.5  
 

Selling, general and administrative

    673.1     625.7     1,289.2     1,221.9  
 

Restructuring charges

    1.7     8.8     58.8     9.6  
 

Depreciation and amortization

    143.5     145.2     284.3     287.5  
   
   

Total expenses

    2,896.0     2,764.1     6,273.5     5,816.5  
   

Operating income

   
435.0
   
242.2
   
588.4
   
349.7
 

Interest expense

    (133.6 )   (133.9 )   (271.6 )   (267.1 )

Interest income

    1.1     1.1     2.2     2.7  

Loss on early extinguishment of debt

    (40.3 )   (30.5 )   (37.9 )   (29.8 )

Other items, net

    (13.6 )   (3.5 )   (26.7 )   (15.4 )
   

Earnings before income taxes and equity
in loss of investee companies

    248.6     75.4     254.4     40.1  

Provision for income taxes

    (91.7 )   (56.9 )   (112.7 )   (65.7 )

Equity in loss of investee companies, net of tax

    (6.8 )   (3.1 )   (17.8 )   (14.3 )
   

Net earnings (loss)

  $ 150.1   $ 15.4   $ 123.9   $ (39.9 )
   

Basic and diluted net earnings (loss) per common share

 
$

..22
 
$

..02
 
$

..18
 
$

(.06

)

Weighted average number of common shares outstanding:

                         
 

Basic

    679.1     673.4     677.7     672.5  
 

Diluted

    693.4     680.2     692.8     672.5  

Dividends per common share

 
$

..05
 
$

..05
 
$

..10
 
$

..10
 
   

See notes to consolidated financial statements.

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)

   
 
  At
June 30, 2010

  At
December 31, 2009

 
   

ASSETS

             

Current Assets:

             
 

Cash and cash equivalents

  $ 838.1   $ 716.7  
 

Receivables, less allowances of $125.7 (2010) and $142.6 (2009)

    2,895.6     2,900.2  
 

Programming and other inventory (Note 4)

    496.8     1,085.0  
 

Deferred income tax assets, net

    307.2     303.4  
 

Prepaid income taxes

    21.0      
 

Prepaid expenses and other current assets

    678.7     630.4  
 

Current assets of discontinued operations

    4.1     1.2  
   
   

Total current assets

    5,241.5     5,636.9  
   

Property and equipment:

             
 

Land

    328.9     329.3  
 

Buildings

    707.4     706.6  
 

Capital leases

    196.4     196.3  
 

Advertising structures

    1,991.7     2,039.8  
 

Equipment and other

    1,729.7     1,726.0  
   

    4,954.1     4,998.0  
 

Less accumulated depreciation and amortization

    2,238.7     2,139.3  
   
   

Net property and equipment

    2,715.4     2,858.7  
   

Programming and other inventory (Note 4)

    1,296.2     1,464.2  

Goodwill

    8,660.1     8,667.5  

Intangible assets (Note 3)

    6,682.0     6,753.7  

Other assets

    1,330.7     1,489.9  

Assets of discontinued operations

    88.3     91.1  
   

Total Assets

  $ 26,014.2   $ 26,962.0  
   

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current Liabilities:

             
 

Accounts payable

  $ 332.7   $ 436.4  
 

Accrued compensation

    261.3     320.7  
 

Participants' share and royalties payable

    1,046.4     955.0  
 

Program rights

    626.7     729.2  
 

Deferred revenue

    266.7     461.5  
 

Income taxes payable

        4.0  
 

Current portion of long-term debt (Note 6)

    26.1     443.6  
 

Accrued expenses and other current liabilities

    1,328.9     1,376.9  
 

Current liabilities of discontinued operations

    18.9     19.2  
   
   

Total current liabilities

    3,907.7     4,746.5  
   

Long-term debt (Note 6)

   
6,515.9
   
6,553.3
 

Pension and postretirement benefit obligations

    2,114.5     2,117.4  

Deferred income tax liabilities, net

    696.5     631.9  

Other liabilities

    3,345.7     3,636.6  

Liabilities of discontinued operations

    250.9     256.9  

Commitments and contingencies (Note 10)

             

Stockholders' Equity:

             
 

Class A Common Stock, par value $.001 per share; 375.0 shares authorized; 51.0 (2010) and 51.8 (2009) shares issued

    .1     .1  
 

Class B Common Stock, par value $.001 per share; 5,000.0 shares authorized; 748.5 (2010) and 743.4 (2009) shares issued

    .7     .7  
 

Additional paid-in capital

    43,448.7     43,479.2  
 

Accumulated deficit

    (30,247.8 )   (30,371.7 )
 

Accumulated other comprehensive loss (Note 1)

    (329.5 )   (395.5 )
   

    12,872.2     12,712.8  
 

Less treasury stock, at cost; 120.2 (2010) and 120.4 (2009) Class B Shares

    3,689.2     3,693.4  
   
   

Total Stockholders' Equity

    9,183.0     9,019.4  
   

Total Liabilities and Stockholders' Equity

  $ 26,014.2   $ 26,962.0  
   

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)

   
 
  Six Months Ended
June 30,
 
 
  2010
  2009
 
   

Operating Activities:

             

Net earnings (loss)

  $ 123.9   $ (39.9 )

Adjustments to reconcile net earnings (loss) to net cash flow
provided by operating activities:

             
 

Depreciation and amortization

    284.3     287.5  
 

Stock-based compensation

    69.6     66.8  
 

Loss on early extinguishment of debt

    37.9     29.8  
 

Equity in loss of investee companies, net of tax and distributions

    17.9     15.8  
 

Decrease to accounts receivable securitization program (Note 6)

        (300.0 )
 

Change in assets and liabilities, net of effects of acquisitions

    717.4     335.3  
   

Net cash flow provided by operating activities

    1,251.0     395.3  
   

Investing Activities:

             
 

Acquisitions, net of cash acquired

    (7.9 )   (9.3 )
 

Capital expenditures

    (99.7 )   (139.3 )
 

Investments in and advances to investee companies

    (41.2 )   (23.7 )
 

Purchases of marketable securities

        (35.6 )
 

Proceeds from dispositions

    1.6     22.5  
 

Other investing activities

    (.1 )   (.4 )
   

Net cash flow used for investing activities

    (147.3 )   (185.8 )
   

Financing Activities:

             
 

Repayments to banks, including commercial paper, net

        (2.3 )
 

Proceeds from issuance of senior notes

    496.9     974.4  
 

Repayment of notes and debentures

    (976.1 )   (1,007.5 )
 

Payment of capital lease obligations

    (8.1 )   (7.7 )
 

Dividends

    (73.7 )   (228.6 )
 

Purchase of Company common stock

    (35.6 )   (16.5 )
 

Proceeds from exercise of stock options

    2.7      
 

Excess tax benefit from stock-based compensation

    12.0     .7  
 

Decrease to accounts receivable securitization program (Note 6)

    (400.0 )    
 

Other financing activities

    (.4 )    
   

Net cash flow used for financing activities

    (982.3 )   (287.5 )
   

Net increase (decrease) in cash and cash equivalents

    121.4     (78.0 )

Cash and cash equivalents at beginning of period

    716.7     419.5  
   

Cash and cash equivalents at end of period

  $ 838.1   $ 341.5  
   

Supplemental disclosure of cash flow information

             

Cash paid for interest

  $ 263.5   $ 265.2  

Cash paid for income taxes

  $ 32.3   $ 72.4  
   

See notes to consolidated financial statements.

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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, CBS Studios International and CBS Television Distribution; CBS Films and CBS Interactive), Cable Networks (Showtime Networks, Smithsonian Networks and CBS College Sports Network), Publishing (Simon & Schuster), Local Broadcasting (CBS Television Stations and CBS Radio) and Outdoor (CBS Outdoor).

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 fiscal year ended December 31, 2009.

In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only 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 ("U.S.") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. 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.

Net Earnings (Loss) per Common Share—Basic earnings (loss) per share ("EPS") is based upon net earnings (loss) divided by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted stock units ("RSUs"), market-based performance share units ("PSUs") and restricted shares only in the periods in which such effect would have been dilutive. For the three and six months ended June 30, 2010, respectively, stock options to purchase 32.8 million and 33.0 million shares of Class B Common Stock were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive. For the three months ended June 30, 2009, stock options to purchase 43.0 million shares of Class B Common Stock were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive. For the six months ended June 30, 2009, stock options to purchase 45.0 million shares of Class B Common Stock and 19.4 million RSUs, PSUs and restricted shares were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive since the Company reported a net loss.

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

The table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS.

   
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010
  2009
  2010
  2009
 
   

Weighted average shares for basic EPS

    679.1     673.4     677.7     672.5  

Dilutive effect of shares issuable under stock-based compensation plans

    14.3     6.8     15.1      
   

Weighted average shares for diluted EPS

    693.4     680.2     692.8     672.5  
   

Comprehensive Income (Loss)—Total comprehensive income (loss) for the Company includes net earnings (loss) and other comprehensive income (loss) ("OCI") items listed in the table below.

   
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010
  2009
  2010
  2009
 
   

Net earnings (loss)

  $ 150.1   $ 15.4   $ 123.9   $ (39.9 )

Other comprehensive income (loss), net of tax:

                         
 

Cumulative translation adjustments

    (14.5 )   122.9     (19.8 )   44.5  
 

Net actuarial loss and prior service costs

    8.9     11.0     85.9     22.3  
 

Change in fair value of cash flow hedges

        (1.4 )   (.1 )    
 

Net unrealized gain (loss) on securities

    (.1 )   1.2         .3  
   

Total comprehensive income

  $ 144.4   $ 149.1   $ 189.9   $ 27.2  
   

Other Liabilities—Other liabilities consist primarily of the noncurrent portion of residual liabilities of previously disposed businesses, participants' share and royalties payable, program rights, deferred compensation and other employee benefit accruals.

Additional Paid-In Capital—For the six months ended June 30, 2010 and 2009, the Company recorded dividends of $69.6 million and $69.3 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.

Adoption of New Accounting Standards

Variable Interest Entities

Effective January 1, 2010, the Company adopted revised Financial Accounting Standards Board ("FASB") guidance which changes the model for determining whether an entity should consolidate a Variable Interest Entity ("VIE"). This new model requires an assessment of whether an entity has a controlling financial interest in a VIE and is therefore the primary beneficiary and required to consolidate the VIE. This guidance also requires an ongoing assessment of whether an entity continues to be the primary beneficiary of a VIE. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

Transfers of Financial Assets

Effective January 1, 2010, the Company adopted amended FASB guidance on accounting for transfers of financial assets. This amended guidance removes the concept of a qualifying special-purpose entity, establishes specific conditions for reporting a transfer of a portion of a financial asset as a sale, and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset and/or when the transferor has continuing involvement with the transferred financial asset. The adoption of this guidance required the Company's securitized accounts receivables to be recorded on the Consolidated Balance Sheet with a corresponding increase to debt. During the first quarter of 2010, the Company reduced the amounts outstanding under its revolving accounts receivable securitization program from $400.0 million at December 31, 2009 to zero and terminated the program.

Recent Pronouncements

Revenue Arrangements with Multiple Deliverables

In October 2009, the FASB issued guidance on revenue arrangements with multiple deliverables, effective for the Company beginning January 1, 2011. This guidance establishes a hierarchy for determining the selling price of a deliverable in a multiple element arrangement. The selling price used for each deliverable will be based on the Company-specific objective evidence if available, third party evidence if Company-specific evidence is not available, or estimated selling price if neither Company-specific objective evidence nor third party evidence is available. This guidance requires the best estimate of the selling price that would be used to sell the deliverable on a stand-alone basis. The Company is currently evaluating the impact of the adoption of this guidance on the 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, 2010 and 2009.

   
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010
  2009
  2010
  2009
 
   

RSUs, PSUs and restricted shares

  $ 29.2   $ 27.2   $ 56.0   $ 54.9  

Stock options and equivalents

    7.8     6.7     13.6     11.9  
   

Stock-based compensation expense,
before income taxes

    37.0     33.9     69.6     66.8  

Related tax benefit

    (14.6 )   (13.5 )   (27.4 )   (26.7 )
   

Stock-based compensation expense,
net of tax benefit

  $ 22.4   $ 20.4   $ 42.2   $ 40.1  
   

During the six months ended June 30, 2010, the Company granted 8.6 million RSUs with a weighted average per unit grant date fair value of $13.31. RSU grants during 2010 generally vest over a one-to-four-year service period. Certain RSU awards are also subject to satisfying performance conditions. The number of shares that will be issued upon vesting of RSU awards with performance conditions can range from 0% to 120% of the target award, based on the achievement of established

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CBS CORPORATION AND SUBSIDIARIES

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


operating performance goals. During the six months ended June 30, 2010, the Company also granted .2 million PSUs with an aggregate grant date fair value of $5.5 million. The number of shares that will be issued upon vesting of PSUs can range from 0% to 300% of the target award, based on the ranking of the total shareholder return for CBS Corp. Class B Common Stock within the S&P 500 Index over a designated three-year measurement period, or in certain circumstances, based on the achievement of established operating performance goals. During the six months ended June 30, 2010, the Company also granted 6.6 million stock options with a weighted average exercise price of $13.44. Stock option grants during 2010 generally vest over a four-year service period.

Total unrecognized compensation cost related to non-vested RSUs and PSUs at June 30, 2010 was $189.9 million, which is expected to be expensed over a weighted average period of 2.5 years. Total unrecognized compensation cost related to unvested stock option awards and stock option equivalents at June 30, 2010 was $75.0 million, which is expected to be expensed over a weighted average period of 2.8 years.

3) INTANGIBLE ASSETS

The Company's intangible assets were as follows:

   
At June 30, 2010
  Gross
  Accumulated
Amortization

  Net
 
   

Intangible assets subject to amortization:

                   

Leasehold agreements

  $ 886.0   $ (531.6 ) $ 354.4  

Franchise agreements

    494.0     (262.8 )   231.2  

Other intangible assets

    403.6     (214.2 )   189.4  
   
 

Total intangible assets subject to amortization

    1,783.6     (1,008.6 )   775.0  

FCC licenses

    5,738.2         5,738.2  

Trade names

    168.8         168.8  
   
 

Total intangible assets

  $ 7,690.6   $ (1,008.6 ) $ 6,682.0  
   

 

   
At December 31, 2009
  Gross
  Accumulated
Amortization

  Net
 
   

Intangible assets subject to amortization:

                   

Leasehold agreements

  $ 883.6   $ (504.1 ) $ 379.5  

Franchise agreements

    512.5     (261.7 )   250.8  

Other intangible assets

    415.6     (199.2 )   216.4  
   
 

Total intangible assets subject to amortization

    1,811.7     (965.0 )   846.7  

FCC licenses

    5,738.2         5,738.2  

Trade names

    168.8         168.8  
   
 

Total intangible assets

  $ 7,718.7   $ (965.0 ) $ 6,753.7  
   

Amortization expense was $33.1 million and $33.4 million for the three months ended June 30, 2010 and 2009, respectively, and $66.3 million for each of the six months ended June 30, 2010 and 2009. The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 2010 through 2014, to be as follows:

   
 
  2010
  2011
  2012
  2013
  2014
 
   

Amortization expense

  $ 129.2   $ 116.4   $ 94.9   $ 83.4   $ 75.4    
   

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

4) PROGRAMMING AND OTHER INVENTORY

   
 
  At
June 30, 2010

  At
December 31, 2009

 
   

Program rights

  $ 1,095.8   $ 1,737.5  

Television programming:

             
 

Released (including acquired libraries)

    513.6     547.9  
 

In process and other

    38.1     134.8  

Theatrical programming:

             
 

Released

    29.0      
 

In process and other

    48.0     58.5  

Publishing, primarily finished goods

    67.5     69.6  

Other

    1.0     .9  
   

Total programming and other inventory

    1,793.0     2,549.2  
 

Less current portion

    496.8     1,085.0  
   

Total noncurrent programming and other inventory

  $ 1,296.2   $ 1,464.2  
   

5) RELATED PARTIES

National Amusements, Inc.    National Amusements, Inc. ("NAI") is the controlling stockholder of CBS Corp. Mr. Sumner M. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, is the Executive Chairman of the Board of Directors and founder of both CBS Corp. and 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 both CBS Corp. and Viacom Inc. Mr. David R. Andelman is a director of CBS Corp. and serves as a director of NAI. Mr. Frederic V. Salerno is a director of CBS Corp. and serves as a director of Viacom Inc. At June 30, 2010, NAI beneficially owned CBS Corp. Class A Common Stock representing approximately 79.7% of the voting power of all classes of CBS Corp.'s Common Stock, and owned approximately 6.0% of CBS Corp.'s Class A Common Stock and Class B Common Stock on a combined basis.

Viacom Inc.    CBS Corp., as part of its normal course of business, enters into transactions with Viacom Inc. and its subsidiaries. CBS Corp., through its Entertainment segment, licenses its television products to Viacom Inc., primarily MTV Networks and BET Networks. In addition, CBS Corp. recognizes advertising revenues for media spending placed by various subsidiaries of Viacom Inc., primarily Paramount Pictures. Paramount Pictures also distributes certain of the Company's television products in the home entertainment market. CBS Corp.'s total revenues from these transactions were $70.5 million and $40.9 million for the three months ended June 30, 2010 and 2009, respectively, and $109.5 million and $112.3 million for the six months ended June 30, 2010 and 2009, respectively.

Showtime Networks pays license fees to Paramount Pictures for motion picture programming under an exclusive output agreement which covers feature films initially theatrically released in the U.S. through 2007. Showtime Networks has exhibition rights to each film licensed under this agreement during three pay television exhibition windows over the course of several years after each such film's initial theatrical release. This agreement has not been renewed for new feature films initially theatrically released in the U.S. after 2007. These license fees are initially recorded as programming inventory and amortized over the shorter of the life of the license agreement or projected useful life of the programming. In addition,

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CBS CORPORATION AND SUBSIDIARIES

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


CBS Corp. places advertisements with and leases production facilities from various subsidiaries of Viacom Inc. The total spending for all of these transactions was $5.6 million and $4.8 million for the three months ended June 30, 2010 and 2009, respectively, and $10.9 million and $8.8 million for the six months ended June 30, 2010 and 2009, respectively.

The following table presents the amounts due from or due to Viacom Inc. in the normal course of business as reflected on CBS Corp.'s Consolidated Balance Sheets.

   
 
  At
June 30, 2010

  At
December 31, 2009

 
   

Amounts due from Viacom Inc.

             

Receivables

  $ 129.4   $ 164.4  

Other assets (Receivables, noncurrent)

    215.0     268.3  
   

Total amounts due from Viacom Inc.

  $ 344.4   $ 432.7  
   

Amounts due to Viacom Inc.

             

Accounts payable

  $ 2.7   $ 2.8  

Program rights

    5.5     18.4  

Other liabilities (Program rights, noncurrent)

    .4     3.8  
   

Total amounts due to Viacom Inc.

  $ 8.6   $ 25.0  
   

Other Related Parties    The Company owns 50% of The CW, a television broadcast network, which is accounted for by the Company as an equity investment. CBS Corp. earns revenues from The CW, primarily from the licensing of the Company's television programming. Total revenues from The CW were $16.1 million and $17.2 million for the three months ended June 30, 2010 and 2009, respectively, and $51.3 million and $34.1 million for the six months ended June 30, 2010 and 2009, respectively.

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.

6) BANK FINANCING AND DEBT

The following table sets forth the Company's debt.

   
 
  At
June 30, 2010

  At
December 31, 2009

 
   

Senior debt (4.625% – 8.875% due 2010 – 2056)(a)

  $ 6,463.9   $ 6,909.5  

Other notes

    1.4     2.7  

Obligations under capital leases

    97.2     105.2  
   

Total debt

    6,562.5     7,017.4  
 

Less discontinued operations debt(b)

    20.5     20.5  
   

Total debt from continuing operations

    6,542.0     6,996.9  
 

Less current portion

    26.1     443.6  
   

Total long-term debt from continuing operations,
net of current portion

  $ 6,515.9   $ 6,553.3  
   

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CBS CORPORATION AND SUBSIDIARIES

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

The senior debt of CBS Corp. is fully and unconditionally guaranteed by its wholly owned subsidiary, CBS Operations Inc. Senior debt in the amount of $52.2 million of the Company's wholly owned subsidiary, CBS Broadcasting Inc., is not guaranteed.

For the six months ended June 30, 2010 and 2009, debt issuances, redemptions and repurchases were as follows:

Debt Issuances

Debt Redemptions

    Second quarter of 2010

Debt Repurchases

    Second quarter of 2010

    First quarter of 2010

    Second quarter of 2009

    First quarter of 2009

These transactions resulted in a pre-tax loss on early extinguishment of debt of $40.3 million and $37.9 million for the three and six months ended June 30, 2010, respectively, and $30.5 million and $29.8 million for the three and six months ended June 30, 2009, respectively.

At June 30, 2010, the Company classified $543.6 million of senior notes maturing in May 2011 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.

Credit Facility

At June 30, 2010, the Company had a $2.0 billion revolving credit facility which expires in December 2012 (the "Credit Facility"). The Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of the second quarter of 2010, which will be reduced to 4.25x at the end of the third quarter of 2010 and 4.0x at the end of the fourth quarter of 2010, subject to further future reductions, and a minimum Consolidated Coverage Ratio of 3.0x for the trailing four

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CBS CORPORATION AND SUBSIDIARIES

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


quarters, each as further described in the Credit Facility. At June 30, 2010, the Company's Consolidated Leverage Ratio was approximately 2.9x and Consolidated Coverage Ratio was approximately 4.4x.

The primary purpose of the Credit Facility is to support commercial paper borrowings. At June 30, 2010, the Company had no commercial paper borrowings under its $2.0 billion commercial paper program. At June 30, 2010, the remaining availability under the Credit Facility, net of outstanding letters of credit, was $1.825 billion.

Accounts Receivable Securitization Program

The Company participated in a revolving accounts receivable securitization program which provided for the sale of receivables on a non-recourse basis to unrelated third parties on a one-year renewable basis. During the first quarter of 2010, the Company reduced the amounts outstanding under its revolving accounts receivable securitization program from $400.0 million at December 31, 2009 to zero and terminated the program.

On January 1, 2010, the Company adopted amended FASB guidance on the accounting for transfers of financial assets which required the Company's securitized accounts receivables to be recorded on the Consolidated Balance Sheet with a corresponding increase to debt. As a result, the decrease to the accounts receivable securitization program of $400.0 million during 2010 is reflected as cash flows used for financing activities and the decrease of $300.0 million for the six months ended June 30, 2009 is reflected as cash flows used for operating activities under previous FASB guidance.

During the period before the termination of the program in 2010 and for the six months ended June 30, 2009, proceeds from collections of securitized accounts receivables of $263.1 million and $609.9 million, respectively, were reinvested in the revolving receivable securitization program. The net loss associated with securitizing the program's accounts receivables was $.5 million for 2010 and $1.3 million for the six months ended June 30, 2009.

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,
  2010
  2009
  2010
  2009
 
   

Components of net periodic cost:

                         
 

Service cost

  $ 7.8   $ 7.8   $ .2   $ .2  
 

Interest cost

    66.8     72.4     10.8     12.3  
 

Expected return on plan assets

    (56.7 )   (54.8 )        
 

Amortization of actuarial loss (gain)

    17.9     21.2     (2.6 )   (2.8 )
 

Amortization of prior service cost (credit)

    .1     .2     (.2 )   (.1 )
   

Net periodic cost

  $ 35.9   $ 46.8   $ 8.2   $ 9.6  
   

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CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Pension Benefits   Postretirement Benefits  
Six Months Ended June 30,
  2010
  2009
  2010
  2009
 
   

Components of net periodic cost:

                         
 

Service cost

  $ 15.6   $ 15.2   $ .4   $ .4  
 

Interest cost

    133.6     145.3     21.6     24.7  
 

Expected return on plan assets

    (113.4 )   (109.3 )        
 

Amortization of actuarial loss (gain)

    35.8     42.5     (5.2 )   (5.6 )
 

Amortization of prior service cost (credit)

    .2     .4     (.4 )   (.2 )
   

Net periodic cost

  $ 71.8   $ 94.1   $ 16.4   $ 19.3  
   

8) STOCKHOLDERS' EQUITY

On May 26, 2010, the Company announced a quarterly cash dividend of $.05 per share on its Class A and Class B Common Stock payable on July 1, 2010. The total dividend was $35.0 million of which $33.9 million was paid on July 1, 2010 and $1.1 million was accrued to be paid upon vesting of RSUs. During the second quarter of 2010, the Company paid $37.1 million for the dividend declared on February 23, 2010 and for dividend payments on RSUs that vested during the second quarter of 2010.

9) INCOME TAXES

The provision for income taxes represents federal, state and local, and foreign income taxes on earnings before income taxes and equity in loss of investee companies.

The provision for income taxes was $91.7 million and $56.9 million for the three months ended June 30, 2010 and 2009, respectively, and $112.7 million and $65.7 million for the six months ended June 30, 2010 and 2009, respectively. The provision for income taxes for the six months ended June 30, 2010 included three discrete items which impacted comparability totaling $25.9 million, comprised of a $62.2 million reduction of deferred tax assets associated with the 2010 Patient Protection and Affordable Care Act, partially offset by a $26.4 million reversal of previously established deferred tax liabilities and a $9.9 million tax benefit from the settlements of tax audits. The provision for income taxes for the three and six months ended June 30, 2009 was impacted by a reduction of deferred tax assets associated with stock-based compensation of $23.3 million and $42.1 million, respectively. This reduction reflects the difference between the estimated tax benefit recognized based on the grant date fair value of the stock-based compensation award versus the actual tax benefit realized based on the market value on the date of vest.

The Company is currently under examination by various U.S. and foreign tax authorities through the 2007 tax year. With respect to open tax years in all jurisdictions, the Company believes it is reasonably possible that the reserve for uncertain tax positions may decrease during the remainder of 2010 by approximately $20 million, plus accrued interest, a portion of which may impact the Company's effective income tax rate. The estimate of any additional impact to the reserve for uncertain tax positions within the next twelve months can not currently be determined.

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CBS CORPORATION AND SUBSIDIARIES

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

10) COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet Arrangements

The Company has indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2010, the outstanding letters of credit and surety bonds approximated $386.8 million and were not recorded on the Consolidated Balance Sheet.

In the course of its business, the Company both provides and receives indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Company may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. The Company records a liability for its indemnification obligations and other contingent liabilities when probable under generally accepted accounting principles.

Legal Matters

Securities and Derivative Actions.    On December 12, 2008, the City of Pontiac General Employees' Retirement System filed a self-styled class action complaint in the United States District Court for the Southern District of New York against the Company and its Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and Treasurer, alleging violations of federal securities law. The complaint, which was filed on behalf of a putative class of purchasers of the Company's common stock between February 26, 2008 and October 10, 2008 (the "Class Period"), alleges that, among other things, the Company's failure to timely write down the value of certain assets caused the Company's reported operating results during the Class Period to be materially inflated. The plaintiffs seek unspecified compensatory damages. On February 11, 2009, a motion was filed in the case on behalf of The City of Omaha, Nebraska Civilian Employees' Retirement System, and The City of Omaha Police and Fire Retirement System (collectively, the "Omaha Funds") seeking to appoint the Omaha Funds as the lead plaintiffs in this case; on March 5, 2009, the court granted that motion. On May 4, 2009, the plaintiffs filed an Amended Complaint, which removes the Treasurer as a defendant and adds the Executive Chairman. On July 13, 2009, all defendants filed a motion to dismiss this action. On March 16, 2010, the court granted the Company's motion and dismissed this action as to the Company and all defendants. On April 30, 2010, the plaintiffs filed a motion for leave to serve an amended complaint, which is pending before the court. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend itself in the litigation.

On October 2, 2009, a shareholder derivative complaint, Hatcher v. Moonves, et al., was filed in the United States District Court for the Southern District of New York naming the Company, as a nominal defendant, members of its board of directors and its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer as defendants. The complaint alleges that the defendants breached fiduciary duties by failing to timely write down the value of certain of the Company's assets and relates to the same or similar allegations in the Omaha Funds case. The complaint seeks, among other things, unspecified compensatory damages, restitution from the defendants with respect to compensation, benefits and profits obtained and the institution of certain reforms to the Company's internal control functions. On December 11, 2009, another shareholder derivative complaint, Iron Workers v. Redstone, et al., was filed in the United States District Court for the Southern District of New York naming the same defendants as the Hatcher action, and making similar claims and demands. On December 28, 2009, the Hatcher and Iron Workers actions were consolidated and, on February 16, 2010, the plaintiffs

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CBS CORPORATION AND SUBSIDIARIES

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


filed a consolidated amended complaint in the United States District Court for the Southern District of New York. On April 3, 2010, the plaintiffs unilaterally filed a stipulation discontinuing the action without prejudice. On April 6, 2010, the court entered an order adopting this stipulation.

On December 22, 2009, another shareholder derivative complaint, Gray v. Redstone, et al., was filed in the Supreme Court, New York County, naming the same defendants as the Hatcher and Iron Workers actions, and making similar claims and demands. On March 8, 2010, the Company filed a motion to dismiss the action. On July 1, 2010, the parties entered into a stipulation discontinuing this action without prejudice, which was adopted by the court on July 6, 2010.

Indecency Regulation.    In March 2006, the FCC released certain decisions relating to indecency complaints against certain of the Company's owned television stations and affiliated stations. The FCC ordered the Company to pay a forfeiture of $550,000 in the proceeding relating to the broadcast of a Super Bowl half-time show by the Company's television stations (the "Super Bowl Proceeding"). In May 2006, the FCC denied the Company's petition for reconsideration. In July 2006, the Company filed a Petition for Review of the forfeiture with the United States Court of Appeals for the Third Circuit and paid the $550,000 forfeiture in order to facilitate the Company's ability to bring the appeal. Oral argument was heard in September 2007. In July 2008, the Third Circuit vacated the FCC's order to have the Company pay the forfeiture and remanded the case to the FCC. On November 18, 2008, the FCC filed a petition for certiorari with the United States Supreme Court, seeking review of the Third Circuit's decision. The petition requested that the United States Supreme Court not act on the petition until it ruled in the "fleeting expletives case" mentioned below. On January 8, 2009, the Company filed its opposition to the FCC's petition for certiorari.

In another case involving broadcasts on another network, in June 2007, the United States Court of Appeals for the Second Circuit vacated the FCC's November 2006 finding that the broadcast of fleeting and isolated expletives was indecent and remanded the case to the FCC (the "fleeting expletives case"). On March 17, 2008, the United States Supreme Court granted the FCC's petition to review the United States Court of Appeals for the Second Circuit's decision. On November 4, 2008, the United States Supreme Court heard argument in this case. On April 28, 2009, the United States Supreme Court issued a 5-4 decision reversing the Second Circuit's judgment on administrative grounds in favor of the FCC and remanding the fleeting expletives case to the Second Circuit. The Second Circuit requested additional briefing and argument was heard on January 13, 2010. On July 13, 2010, the Second Circuit struck down an FCC policy on indecency and found that the FCC's indecency policies and decisions regarding the use of "fleeting expletives" on radio and television violated the First Amendment.

Following the April 28, 2009 decision in the fleeting expletives case, on May 4, 2009, the United States Supreme Court remanded the Super Bowl Proceeding to the United States Court of Appeals for the Third Circuit and requested supplemental briefing from the Company and the FCC, in light of the United States Supreme Court's fleeting expletives decision. Argument was heard by the Third Circuit in the Super Bowl Proceeding on February 23, 2010. On May 18, 2010, at the Third Circuit's request, the Company and the FCC each submitted supplemental briefs.

In March 2006, the FCC also notified the Company and certain affiliates of the CBS Television Network of apparent liability for forfeitures relating to a broadcast of the program Without a Trace. The FCC proposed to assess a forfeiture of $32,500 against each of these stations, totaling $260,000 for the Company's owned stations. The Company is contesting the FCC decision and the proposed forfeitures.

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

Additionally, the Company, from time to time, has received and may receive in the future letters of inquiry from the FCC prompted by complaints alleging that certain programming on the Company's broadcasting stations included indecent material.

Claims Related to Former Businesses: Asbestos, Environmental and Other.    The Company is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred principally as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. The Company is typically named as one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of the Company's products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing insulating material in turbines sold for power-generation, industrial and marine use, or by asbestos containing grades of decorative micarta, a laminate used in commercial ships.

Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2010, the Company had pending approximately 58,920 asbestos claims, as compared with approximately 62,360 as of December 31, 2009 and 64,480 as of June 30, 2009. During the second quarter of 2010, the Company received approximately 740 new claims and closed or moved to an inactive docket approximately 4,160 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claim, the quality of evidence supporting the claims and other factors. The Company's total costs for the years 2009 and 2008 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $17.8 million and $15.0 million, respectively. The Company's costs for settlement and defense of asbestos claims may vary year to year as insurance proceeds are not always recovered in the same period as the insured portion of the expenses.

The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities. This belief is based upon many factors and assumptions, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims. While the number of asbestos claims filed against the Company has trended down in recent years, it is difficult to predict future asbestos liabilities, as events and circumstances may occur including, among others, the number and types of claims and average cost to resolve such claims, which could affect the Company's estimate of its asbestos liabilities.

The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to historical and predecessor operations of the Company. In addition, the Company from time to time receives personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operations of the Company and its predecessors.

General.    On an ongoing basis, the Company defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state and local authorities (collectively,

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CBS CORPORATION AND SUBSIDIARIES

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


"litigation"). Litigation is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the above-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows. Under the Separation Agreement between the Company and Viacom Inc., the Company and Viacom Inc. have agreed to defend and indemnify the other in certain litigation in which the Company and/or Viacom Inc. is named.

11) RESTRUCTURING CHARGES

During the six months ended June 30, 2010, the Company recorded restructuring charges of $58.8 million, reflecting $47.0 million of severance costs associated with the elimination of positions and $12.5 million of contract termination and other associated costs, partially offset by the reversal of $.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2009, the Company recorded restructuring charges of $22.8 million, reflecting $20.8 million of severance costs and $6.7 million of contract termination and other associated costs, partially offset by the reversal of $4.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2008, the Company recorded restructuring charges of $136.7 million, which reflected $127.5 million of severance costs and $9.2 million of contract termination and other associated costs. As of June 30, 2010, the Company had paid $139.4 million of the severance costs and $11.3 million of the contract termination and other associated costs. The Company expects to substantially utilize the remaining reserves by the end of 2011.

   
 
  Balance at
December 31, 2009

  2010
Charges

  2010
Payments

  Balance at
June 30, 2010

 
   

Entertainment

  $ 2.2   $ 10.4   $ (6.9 ) $ 5.7  

Cable Networks

    .1         (.1 )    

Publishing

    2.4     1.7     (2.4 )   1.7  

Local Broadcasting

    28.6     25.2     (15.2 )   38.6  

Outdoor

    6.2     21.5     (6.1 )   21.6  

Corporate

    .3         (.3 )    
   
 

Total

  $ 39.8   $ 58.8   $ (31.0 ) $ 67.6  
   

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CBS CORPORATION AND SUBSIDIARIES

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

12) FAIR VALUE MEASUREMENTS

The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2010 and December 31, 2009. 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.

   
At June 30, 2010
  Level 1 (a)
  Level 2 (b)
  Level 3 (c)
  Total
 
   

Assets:

                         

Investments

  $ 51.2   $ 25.0   $   $ 76.2  

Foreign currency hedges

        4.2         4.2  
   

Total Assets

  $ 51.2   $ 29.2   $   $ 80.4  
   

Liabilities:

                         

Deferred compensation

  $   $ 132.0   $   $ 132.0  

Foreign currency hedges

        .8         .8  
   

Total Liabilities

  $   $ 132.8   $   $ 132.8  
   

 

   
At December 31, 2009
  Level 1 (a)
  Level 2 (b)
  Level 3 (c)
  Total
 
   

Assets:

                         

Investments

  $ 57.2   $   $   $ 57.2  
   

Total Assets

  $ 57.2   $   $   $ 57.2  
   

Liabilities:

                         

Deferred compensation

  $   $ 138.6   $   $ 138.6  

Foreign currency hedges

        5.8         5.8  
   

Total Liabilities

  $   $ 144.4   $   $ 144.4  
   

The fair value of Level 1 investments is determined based on publicly quoted market prices in active markets. The fair value of Level 2 investments is determined by reference to market prices for similar securities. 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 is determined based on the fair value of the investments elected by employees.

13) FINANCIAL INSTRUMENTS

The Company's carrying value of financial instruments approximates fair value, except for differences with respect to notes and debentures. At June 30, 2010 and December 31, 2009, the carrying value of the senior debt was $6.46 billion and $6.91 billion, respectively, and the fair value, which is

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


estimated, based on quoted market prices and includes accrued interest, was $7.05 billion and $7.25 billion, respectively.

The Company uses derivative financial instruments to modify its exposure to market risks from changes in foreign currency exchange rates and interest rates. The Company does not use derivative instruments unless there is an underlying exposure and, therefore, the Company does 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, generally within the next twelve months, in such currencies as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar. The Company designates forward contracts used to hedge projected future television and film production costs as cash flow hedges. Gains or losses on the effective portion of designated cash flow hedges are initially recorded in OCI and reclassified to the statement of operations when the hedged item is recognized. Additionally, the Company enters into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows. The change in fair value of the non-designated contracts is included in "Other items, net" in the Consolidated Statement of Operations.

At June 30, 2010, the notional amount of all foreign currency contracts was $124.6 million, of which $16.0 million related to the hedging of future production costs and $108.6 million represents hedges of expected foreign currency cash flows. At December 31, 2009, the notional amount of all foreign currency contracts was $97.1 million, of which $2.1 million related to the hedging of future production costs and $95.0 million represented hedges of expected foreign currency cash flows.

Interest Rate Swaps

All of the Company's long-term debt has been issued under fixed interest rate agreements. During 2009, the Company entered into fixed-to-floating rate swap agreements for a portion of this debt, which were designated as fair value hedges. Gains or losses on interest rate swaps were recorded as a change in the carrying value of the debt attributable to the risk being hedged. During the fourth quarter of 2009, the Company settled all of its interest rate swaps outstanding. The Company did not have any interest rate swaps outstanding at June 30, 2010 or December 31, 2009.

The fair value of foreign exchange contracts recorded on the Consolidated Balance Sheets were as follows:

 
 
  At
June 30, 2010

  At
December 31, 2009

  Balance Sheet Account
 

Designated hedging instruments:

               
 

Assets

  $ .1   $   Prepaid expenses and other current assets
 

Liabilities

  $ (.3 ) $ (.1 ) Accrued expenses and other current liabilities

Non-designated hedging instruments:

               
 

Assets

  $ 4.1   $   Prepaid expenses and other current assets
 

Liabilities

  $ (.5 ) $ (5.7 ) Accrued expenses and other current liabilities
 

-20-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

Gains (losses) recognized on derivative financial instruments were as follows:

 
 
  Three Months Ended
June 30,
   
 
  2010
  2009
  Financial Statement Account
 

Foreign exchange contracts:

               
 

Designated hedging instruments:

               
   

Recognized in OCI

  $   $ (1.4 ) Change in fair value of cash flow hedges
   

Reclassified from accumulated OCI

  $   $ 2.9   Programming costs
 

Non-designated hedging instruments

 
$

5.7
 
$

(5.7

)

Other items, net

Designated interest rate swaps

 
$

 
$

2.8
 

Interest expense

 

 

 
 
  Six Months Ended
June 30,
   
 
  2010
  2009
  Financial Statement Account
 

Foreign exchange contracts:

               
 

Designated hedging instruments:

               
   

Recognized in OCI

  $ (.1 ) $   Change in fair value of cash flow hedges
   

Reclassified from accumulated OCI

  $   $ 3.0   Programming costs
 

Non-designated hedging instruments

 
$

3.8
 
$

(3.1

)

Other items, net

Designated interest rate swaps

 
$

 
$

2.8
 

Interest expense

 

14) REPORTABLE SEGMENTS

The following tables set forth the Company's financial performance by reportable segment. The Company's operating segments, which are the same as its reportable segments, have been determined in accordance with the Company's internal management structure, which is organized based upon products and services. In the fourth quarter of 2009, the Company realigned its management structure to more effectively pursue its long-term strategy of investing in content businesses and capitalizing on its strong local presence. As a result, the Company realigned its operating segments. Prior period results have been reclassified to conform to this presentation.

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues:

                         
 

Entertainment

  $ 1,671.7   $ 1,515.5   $ 3,753.2   $ 3,333.1  
 

Cable Networks

    368.8     328.4     736.8     669.0  
 

Publishing

    189.7     181.4     341.4     343.1  
 

Local Broadcasting

    678.2     579.5     1,283.7     1,089.9  
 

Outdoor

    456.3     434.1     848.5     814.0  
 

Eliminations

    (33.7 )   (32.6 )   (101.7 )   (82.9 )
   
   

Total Revenues

  $ 3,331.0   $ 3,006.3   $ 6,861.9   $ 6,166.2  
   

-21-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

Revenues generated between segments primarily reflect advertising sales and television license fees. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Intercompany Revenues:

                         
 

Entertainment

  $ 25.7   $ 25.6   $ 82.8   $ 67.9  
 

Cable Networks

    .1     .2     .2     .8  
 

Local Broadcasting

    5.1     4.5     10.5     8.7  
 

Outdoor

    2.8     2.3     8.2     5.5  
   
   

Total Intercompany Revenues

  $ 33.7   $ 32.6   $ 101.7   $ 82.9  
   

The Company presents segment operating income (loss) before depreciation and amortization ("Segment OIBDA") as the primary measure of profit and loss for its operating segments in accordance with FASB guidance for segment reporting. The Company believes the presentation of Segment OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enhances their ability to understand the Company's operating performance.

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Segment OIBDA:

                         
 

Entertainment

  $ 222.5   $ 209.5   $ 357.0   $ 360.6  
 

Cable Networks

    129.3     96.9     230.2     180.3  
 

Publishing

    16.7     8.1     18.8     8.2  
 

Local Broadcasting

    214.0     100.6     322.8     154.7  
 

Outdoor

    77.3     42.2     89.4     67.3  
 

Corporate

    (55.9 )   (34.7 )   (94.6 )   (63.2 )
 

Residual costs

    (26.2 )   (35.9 )   (52.5 )   (71.9 )
 

Eliminations

    .8     .7     1.6     1.2  
   

OIBDA

    578.5     387.4     872.7     637.2  

Depreciation and amortization

    (143.5 )   (145.2 )   (284.3 )   (287.5 )
   

Total Operating Income

    435.0     242.2     588.4     349.7  
 

Interest expense

    (133.6 )   (133.9 )   (271.6 )   (267.1 )
 

Interest income

    1.1     1.1     2.2     2.7  
 

Loss on early extinguishment of debt

    (40.3 )   (30.5 )   (37.9 )   (29.8 )
 

Other items, net

    (13.6 )   (3.5 )   (26.7 )   (15.4 )
   

Earnings before income taxes and equity in loss of investee companies

    248.6     75.4     254.4     40.1  

Provision for income taxes

    (91.7 )   (56.9 )   (112.7 )   (65.7 )

Equity in loss of investee companies, net of tax

    (6.8 )   (3.1 )   (17.8 )   (14.3 )
   

Net Earnings (Loss)

  $ 150.1   $ 15.4   $ 123.9   $ (39.9 )
   

-22-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Operating Income (Loss):

                         
 

Entertainment

  $ 181.1   $ 165.7   $ 274.3   $ 272.7  
 

Cable Networks

    123.7     91.0     218.9     168.4  
 

Publishing

    15.0     6.1     15.5     4.0  
 

Local Broadcasting

    189.6     78.9     274.0     110.8  
 

Outdoor

    12.1     (24.8 )   (38.7 )   (63.0 )
 

Corporate

    (61.1 )   (39.5 )   (104.7 )   (72.5 )
 

Residual costs

    (26.2 )   (35.9 )   (52.5 )   (71.9 )
 

Eliminations

    .8     .7     1.6     1.2  
   
   

Total Operating Income

  $ 435.0   $ 242.2   $ 588.4   $ 349.7  
   

 

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Depreciation and Amortization:

                         
 

Entertainment

  $ 41.4   $ 43.8   $ 82.7   $ 87.9  
 

Cable Networks

    5.6     5.9     11.3     11.9  
 

Publishing

    1.7     2.0     3.3     4.2  
 

Local Broadcasting

    24.4     21.7     48.8     43.9  
 

Outdoor

    65.2     67.0     128.1     130.3  
 

Corporate

    5.2     4.8     10.1     9.3  
   
   

Total Depreciation and Amortization

  $ 143.5   $ 145.2   $ 284.3   $ 287.5  
   

 

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Stock-based Compensation:

                         
 

Entertainment

  $ 11.9   $ 12.0   $ 23.3   $ 23.3  
 

Cable Networks

    1.5     1.6     3.1     3.2  
 

Publishing

    .9     .9     1.8     1.8  
 

Local Broadcasting

    6.1     6.1     11.9     13.1  
 

Outdoor

    1.6     1.5     3.0     3.1  
 

Corporate

    15.0     11.8     26.5     22.3  
   
   

Total Stock-based Compensation

  $ 37.0   $ 33.9   $ 69.6   $ 66.8  
   

-23-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Capital Expenditures:

                         
 

Entertainment

  $ 23.3   $ 16.8   $ 38.2   $ 36.7  
 

Cable Networks

    3.3     1.7     4.3     2.9  
 

Publishing

    .9     .4     1.7     .9  
 

Local Broadcasting

    16.3     19.6     27.0     40.3  
 

Outdoor

    13.3     24.2     24.9     50.1  
 

Corporate

    1.7     2.4     3.6     8.4  
   
   

Total Capital Expenditures

  $ 58.8   $ 65.1   $ 99.7   $ 139.3  
   

 

   
 
  At
June 30, 2010

  At
December 31, 2009

 
   

Assets:

             
 

Entertainment

  $ 7,798.2   $ 8,935.6  
 

Cable Networks

    1,601.4     1,680.0  
 

Publishing

    1,044.1     1,142.7  
 

Local Broadcasting

    9,708.5     9,646.6  
 

Outdoor

    4,330.7     4,452.8  
 

Corporate

    1,522.5     1,100.2  
 

Discontinued operations

    92.4     92.3  
 

Eliminations

    (83.6 )   (88.2 )
   
   

Total Assets

  $ 26,014.2   $ 26,962.0  
   

-24-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

15) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

CBS Operations Inc. is a wholly owned subsidiary of the Company. CBS Operations Inc. has fully and unconditionally guaranteed CBS Corp.'s senior debt securities (See Note 6). The following condensed consolidating financial statements present the results of operations, financial position and cash flows of CBS Corp., CBS Operations Inc., the direct and indirect Non-Guarantor Affiliates of CBS Corp. and CBS Operations Inc., and the eliminations necessary to arrive at the information for the Company on a consolidated basis.

   
 
  Statement of Operations
For the Three Months Ended June 30, 2010
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 32.5   $ 31.8   $ 3,266.7   $   $ 3,331.0  
   

Expenses:

                               
 

Operating

    16.1     25.6     2,036.0         2,077.7  
 

Selling, general and administrative

    34.7     62.0     576.4         673.1  
 

Restructuring charges

            1.7         1.7  
 

Depreciation and amortization

    1.0     3.1     139.4         143.5  
   
   

Total expenses

    51.8     90.7     2,753.5         2,896.0  
   

Operating income (loss)

   
(19.3

)
 
(58.9

)
 
513.2
   
   
435.0
 

Interest (expense) income, net

    (146.7 )   (75.3 )   89.5         (132.5 )

Loss on early extinguishment of debt

    (40.3 )               (40.3 )

Other items, net

    (.1 )   8.3     (21.8 )       (13.6 )
   

Earnings (loss) before income taxes and equity in earnings (loss) of investee companies

    (206.4 )   (125.9 )   580.9         248.6  

Benefit (provision) for income taxes

    75.5     45.1     (212.3 )       (91.7 )

Equity in earnings (loss) of
investee companies, net of tax

    281.0     145.4     (6.8 )   (426.4 )   (6.8 )
   

Net earnings

  $ 150.1   $ 64.6   $ 361.8   $ (426.4 ) $ 150.1  
   

-25-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Statement of Operations
For the Six Months Ended June 30, 2010
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 65.6   $ 60.8   $ 6,735.5   $   $ 6,861.9  
   

Expenses:

                               
 

Operating

    32.1     50.5     4,558.6         4,641.2  
 

Selling, general and administrative

    69.4     105.9     1,113.9         1,289.2  
 

Restructuring charges

            58.8         58.8  
 

Depreciation and amortization

    2.2     5.9     276.2         284.3  
   
   

Total expenses

    103.7     162.3     6,007.5         6,273.5  
   

Operating income (loss)

   
(38.1

)
 
(101.5

)
 
728.0
   
   
588.4
 

Interest (expense) income, net

    (294.4 )   (157.1 )   182.1         (269.4 )

Loss on early extinguishment of debt

    (37.9 )               (37.9 )

Other items, net

    (.3 )   10.2     (36.6 )       (26.7 )
   

Earnings (loss) before income taxes and equity in earnings (loss) of investee companies

    (370.7 )   (248.4 )   873.5         254.4  

Benefit (provision) for income taxes

    101.8     91.4     (305.9 )       (112.7 )

Equity in earnings (loss) of
investee companies, net of tax

    392.8     315.3     (17.8 )   (708.1 )   (17.8 )
   

Net earnings

  $ 123.9   $ 158.3   $ 549.8   $ (708.1 ) $ 123.9  
   

-26-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Statement of Operations
For the Three Months Ended June 30, 2009
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 25.8   $ 16.2   $ 2,964.3   $   $ 3,006.3  
   

Expenses:

                               
 

Operating

    17.3     12.9     1,954.2         1,984.4  
 

Selling, general and administrative

    44.0     40.3     541.4         625.7  
 

Restructuring charges

            8.8         8.8  
 

Depreciation and amortization

    1.0     2.7     141.5         145.2  
   
   

Total expenses

    62.3     55.9     2,645.9         2,764.1  
   

Operating income (loss)

   
(36.5

)
 
(39.7

)
 
318.4
   
   
242.2
 

Interest (expense) income, net

    (143.4 )   (76.7 )   87.3         (132.8 )

Loss on early extinguishment of debt

    (30.5 )               (30.5 )

Other items, net

    (8.7 )   (8.7 )   13.9         (3.5 )
   

Earnings (loss) before income taxes and equity in earnings (loss) of investee companies

    (219.1 )   (125.1 )   419.6         75.4  

Benefit (provision) for income taxes

    94.5     49.2     (200.6 )       (56.9 )

Equity in earnings (loss) of
investee companies, net of tax

    140.0     166.1     (3.1 )   (306.1 )   (3.1 )
   

Net earnings

  $ 15.4   $ 90.2   $ 215.9   $ (306.1 ) $ 15.4  
   

-27-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Statement of Operations
For the Six Months Ended June 30, 2009
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 50.6   $ 43.0   $ 6,072.6   $   $ 6,166.2  
   

Expenses:

                               
 

Operating

    34.1     34.3     4,229.1         4,297.5  
 

Selling, general and administrative

    87.4     77.0     1,057.5         1,221.9  
 

Restructuring charges

            9.6         9.6  
 

Depreciation and amortization

    2.1     5.2     280.2         287.5  
   
   

Total expenses

    123.6     116.5     5,576.4         5,816.5  
   

Operating income (loss)

   
(73.0

)
 
(73.5

)
 
496.2
   
   
349.7
 

Interest (expense) income, net

    (286.6 )   (152.1 )   174.3         (264.4 )

Loss on early extinguishment of debt

    (29.8 )               (29.8 )

Other items, net

    (2.9 )   (10.9 )   (1.6 )       (15.4 )
   

Earnings (loss) before income taxes and equity in earnings (loss) of investee companies

    (392.3 )   (236.5 )   668.9         40.1  

Benefit (provision) for income taxes

    163.6     86.7     (316.0 )       (65.7 )

Equity in earnings (loss) of
investee companies, net of tax

    188.8     264.8     (14.3 )   (453.6 )   (14.3 )
   

Net earnings (loss)

  $ (39.9 ) $ 115.0   $ 338.6   $ (453.6 ) $ (39.9 )
   

-28-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

   
 
  Balance Sheet
At June 30, 2010
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Assets

                               

Cash and cash equivalents

  $ 471.6   $ .2   $ 366.3   $   $ 838.1  

Receivables, net

    25.8     31.2     2,838.6         2,895.6  

Programming and other inventory

    3.0     4.9     488.9         496.8  

Prepaid expenses and other current assets

    78.0     73.0     869.6     (9.6 )   1,011.0  
   
 

Total current assets

    578.4     109.3     4,563.4     (9.6 )   5,241.5  
   

Property and equipment

    39.9     81.7     4,832.5         4,954.1  
 

Less accumulated depreciation and amortization

    7.6     39.1     2,192.0         2,238.7  
   
 

Net property and equipment

    32.3     42.6     2,640.5         2,715.4  
   

Programming and other inventory

    6.7     54.7     1,234.8         1,296.2  

Goodwill

    100.3     63.0     8,496.8         8,660.1  

Intangible assets

    255.1         6,426.9         6,682.0  

Investments in consolidated subsidiaries

    33,793.8     6,157.8         (39,951.6 )    

Other assets

    249.4     13.3     1,156.3         1,419.0  

Intercompany

        5,026.0     11,302.8     (16,328.8 )    
   

Total Assets

  $ 35,016.0   $ 11,466.7   $ 35,821.5   $ (56,290.0 ) $ 26,014.2  
   

Liabilities and Stockholders' Equity

                               

Accounts payable

  $ 2.0   $ 16.4   $ 314.3   $   $ 332.7  

Participants' share and royalties payable

        20.4     1,026.0         1,046.4  

Program rights

    4.1     5.9     616.7         626.7  

Current portion of long-term debt

    8.0         18.1         26.1  

Accrued expenses and other current liabilities

    332.3     265.8     1,287.7     (10.0 )   1,875.8  
   
 

Total current liabilities

    346.4     308.5     3,262.8     (10.0 )   3,907.7  
   

Long-term debt

   
6,383.2
   
   
132.7
   
   
6,515.9
 

Other liabilities

    3,082.0     769.4     2,556.8     (.6 )   6,407.6  

Intercompany

    16,021.4             (16,021.4 )    

Stockholders' Equity:

                               
 

Preferred Stock

            128.2     (128.2 )    
 

Common Stock

    .8     122.8     1,135.9     (1,258.7 )   .8  
 

Additional paid-in capital

    43,448.7         61,434.8     (61,434.8 )   43,448.7  
 

Retained earnings (deficit)

    (30,247.8 )   10,597.0     (28,340.9 )   17,743.9     (30,247.8 )
 

Accumulated other comprehensive income (loss)

    (329.5 )   .1     311.1     (311.2 )   (329.5 )
   

    12,872.2     10,719.9     34,669.1     (45,389.0 )   12,872.2  
 

Less treasury stock, at cost

    3,689.2     331.1     4,799.9     (5,131.0 )   3,689.2  
   
 

Total Stockholders' Equity

    9,183.0     10,388.8     29,869.2     (40,258.0 )   9,183.0  
   

Total Liabilities and Stockholders' Equity

  $ 35,016.0   $ 11,466.7   $ 35,821.5   $ (56,290.0 ) $ 26,014.2  
   

-29-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Balance Sheet
At December 31, 2009
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Assets

                               

Cash and cash equivalents

  $ 247.5   $ .5   $ 468.7   $   $ 716.7  

Receivables, net

    28.6     32.0     2,839.6         2,900.2  

Programming and other inventory

    3.1     6.1     1,075.8         1,085.0  

Prepaid expenses and other current assets

    50.4     71.7     826.6     (13.7 )   935.0  
   
 

Total current assets

    329.6     110.3     5,210.7     (13.7 )   5,636.9  
   

Property and equipment

    38.5     78.0     4,881.5         4,998.0  
 

Less accumulated depreciation and amortization

    6.5     33.3     2,099.5         2,139.3  
   
 

Net property and equipment

    32.0     44.7     2,782.0         2,858.7  
   

Programming and other inventory

    5.9     68.3     1,390.0         1,464.2  

Goodwill

    100.3     63.0     8,504.2         8,667.5  

Intangible assets

    255.1         6,498.6         6,753.7  

Investments in consolidated subsidiaries

    33,401.0     5,842.5         (39,243.5 )    

Other assets

    256.9     29.8     1,294.3         1,581.0  

Intercompany

        5,218.0     10,187.1     (15,405.1 )    
   

Total Assets

  $ 34,380.8   $ 11,376.6   $ 35,866.9   $ (54,662.3 ) $ 26,962.0  
   

Liabilities and Stockholders' Equity

                               

Accounts payable

  $ 2.1   $ 35.4   $ 398.9   $   $ 436.4  

Participants' share and royalties payable

        17.6     937.4         955.0  

Program rights

    5.7     8.2     715.3         729.2  

Current portion of long-term debt

    424.6         19.0         443.6  

Accrued expenses and other current liabilities

    341.9     280.2     1,574.3     (14.1 )   2,182.3  
   
 

Total current liabilities

    774.3     341.4     3,644.9     (14.1 )   4,746.5  
   

Long-term debt

   
6,412.2
   
   
141.1
   
   
6,553.3
 

Other liabilities

    3,106.6     804.7     2,734.5     (3.0 )   6,642.8  

Intercompany

    15,068.3             (15,068.3 )    

Stockholders' Equity:

                               
 

Preferred Stock

            128.2     (128.2 )    
 

Common Stock

    .8     122.8     1,135.9     (1,258.7 )   .8  
 

Additional paid-in capital

    43,479.2         61,434.8     (61,434.8 )   43,479.2  
 

Retained earnings (deficit)

    (30,371.7 )   10,438.7     (28,890.7 )   18,452.0     (30,371.7 )
 

Accumulated other comprehensive income (loss)

    (395.5 )   .1     338.1     (338.2 )   (395.5 )
   

    12,712.8     10,561.6     34,146.3     (44,707.9 )   12,712.8  
 

Less treasury stock, at cost

    3,693.4     331.1     4,799.9     (5,131.0 )   3,693.4  
   
 

Total Stockholders' Equity

    9,019.4     10,230.5     29,346.4     (39,576.9 )   9,019.4  
   

Total Liabilities and Stockholders' Equity

  $ 34,380.8   $ 11,376.6   $ 35,866.9   $ (54,662.3 ) $ 26,962.0  
   

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

   
 
  Statement of Cash Flows
For the Six Months Ended June 30, 2010
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (279.6 ) $ (143.2 ) $ 1,673.8   $   $ 1,251.0  
   

Investing Activities:

                               
 

Acquisitions, net of cash acquired

            (7.9 )       (7.9 )
 

Capital expenditures

        (3.7 )   (96.0 )       (99.7 )
 

Investments in and advances to investee companies

            (41.2 )       (41.2 )
 

Proceeds from dispositions

            1.6         1.6  
 

Other investing activities

    (.1 )               (.1 )
   

Net cash flow used for investing activities

    (.1 )   (3.7 )   (143.5 )       (147.3 )
   

Financing Activities:

                               
 

Proceeds from issuance of senior notes

    496.9                 496.9  
 

Repayment of notes and debentures

    (975.0 )       (1.1 )       (976.1 )
 

Payment of capital lease obligations

            (8.1 )       (8.1 )
 

Dividends

    (73.7 )               (73.7 )
 

Purchase of Company common stock

    (35.6 )               (35.6 )
 

Proceeds from exercise of stock options

    2.7                 2.7  
 

Excess tax benefit from stock-based compensation

    12.0                 12.0  
 

Decrease to accounts receivable securitization program

            (400.0 )       (400.0 )
 

Other financing activities

    (.4 )               (.4 )
 

Increase (decrease) in intercompany payables

    1,076.9     146.6     (1,223.5 )        
   

Net cash flow provided by (used for) financing activities

    503.8     146.6     (1,632.7 )       (982.3 )
   
 

Net increase (decrease) in cash and cash equivalents

    224.1     (.3 )   (102.4 )       121.4  
 

Cash and cash equivalents at beginning of period

    247.5     .5     468.7         716.7  
   

Cash and cash equivalents at end of period

  $ 471.6   $ .2   $ 366.3   $   $ 838.1  
   

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

 

   
 
  Statement of Cash Flows
For the Six Months Ended June 30, 2009
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (322.9 ) $ (89.7 ) $ 807.9   $   $ 395.3  
   

Investing Activities:

                               
 

Acquisitions, net of cash acquired

            (9.3 )       (9.3 )
 

Capital expenditures

        (8.4 )   (130.9 )       (139.3 )
 

Investments in and advances to investee companies

            (23.7 )       (23.7 )
 

Purchases of marketable securities

        (35.6 )           (35.6 )
 

Proceeds from dispositions

            22.5         22.5  
 

Other investing activities

    (.4 )               (.4 )
   

Net cash flow used for investing activities

    (.4 )   (44.0 )   (141.4 )       (185.8 )
   

Financing Activities:

                               
 

Repayments to banks, including commercial paper, net

            (2.3 )       (2.3 )
 

Proceeds from issuance of senior notes

    974.4                 974.4  
 

Repayment of notes and debentures

    (1,007.5 )               (1,007.5 )
 

Payment of capital lease obligations

            (7.7 )       (7.7 )
 

Dividends

    (228.6 )               (228.6 )
 

Purchase of Company common stock

    (16.5 )               (16.5 )
 

Excess tax benefit from stock-based compensation

    .7                 .7  
 

Increase (decrease) in intercompany payables

    589.3     133.4     (722.7 )        
   

Net cash flow provided by (used for) financing activities

    311.8     133.4     (732.7 )       (287.5 )
   
 

Net decrease in cash and cash equivalents

    (11.5 )   (.3 )   (66.2 )       (78.0 )
 

Cash and cash equivalents at beginning of period

    108.6     .8     310.1         419.5  
   

Cash and cash equivalents at end of period

  $ 97.1   $ .5   $ 243.9   $   $ 341.5  
   

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Table of Contents

Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition.
              (Tabular dollars in millions, except per share amounts)

Management's discussion and analysis of the results of operations and financial condition should be read in conjunction with the consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Overview

For the second quarter of 2010, CBS Corporation reported revenues of $3.33 billion, up 11% from $3.01 billion for the second quarter of 2009 reflecting growth across all of the Company's segments led by increases of 17% at Local Broadcasting, 12% at Cable Networks and 10% at Entertainment. Revenue growth for the second quarter reflected increases across all significant revenue streams including 9% higher advertising sales, driven by the improved worldwide advertising marketplace and higher political advertising sales, 19% higher content licensing and distribution revenues and 12% higher affiliate and subscription fees. For the six months ended June 30, 2010, revenues of $6.86 billion increased 11% from $6.17 billion for the same prior-year period, led by growth of 18% at Local Broadcasting, 13% at Entertainment and 10% at Cable Networks.

The Company reported operating income of $435.0 million for the three months ended June 30, 2010, an increase of 80% from $242.2 million for the comparable prior-year period and operating income of $588.4 million for the six months ended June 30, 2010, up 68% from $349.7 million for the same prior-year period. For the three- and six-month periods the increases reflect growth in revenues, partially offset by higher sports programming costs and increased investment in content. Operating income margins improved to 13% for the second quarter of 2010 from 8% for the second quarter of 2009 led by Local Broadcasting, Cable Networks and Outdoor. Operating income margins increased to 9% for the six months ended June 30, 2010 versus 6% for the comparable prior-year period.

For the second quarter of 2010, the Company generated $491.5 million of free cash flow, an increase of 40% from $351.7 million for the same prior-year period, principally reflecting higher operating income, partially offset by the timing of interest payments. For the six months ended June 30, 2010, free cash flow of $1.15 billion increased 107% from $556.0 million for the same prior-year period principally reflecting higher advertising sales and the timing of tax payments. The Company generated cash flow from operating activities of $1.25 billion for the six months ended June 30, 2010, up $855.7 million versus $395.3 million for the comparable prior-year period, which included a $300.0 million reduction to the amounts outstanding under the Company's accounts receivable securitization program. Free cash flow, a non-GAAP financial measure, reflects the Company's net cash flow provided by operating activities before increases and decreases to the accounts receivable securitization program and less capital expenditures. See "Reconciliation of Non-GAAP Financial Information" on pages 39 – 40 for a reconciliation of net cash flow provided by operating activities, the most directly comparable financial measure in accordance with accounting principles generally accepted in the United States of America ("GAAP"), to free cash flow.

During the first half of the year, the Company reduced its outstanding debt by $840.2 million, through a $400.0 million reduction to the accounts receivable securitization program and the repurchase and early redemption of $940.2 million of debt principally due between 2010 and 2012, using cash on hand and proceeds from the second quarter issuance of $500.0 million of senior notes due in 2020. These actions extended the maturity of the Company's debt and are expected to result in annualized net interest expense savings of approximately $40 million. At June 30, 2010, the Company's cash balance was $838.1 million, an increase of $121.4 million from $716.7 million at December 31, 2009.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

Consolidated Results of Operations

Three and Six Months Ended June 30, 2010 versus Three and Six Months Ended June 30, 2009

Revenues

The following tables present the Company's consolidated revenues by type for the three and six months ended June 30, 2010 and 2009.

   
 
  Three Months Ended June 30,  
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
 
Revenues by Type
  2010
  2009
  $
  %
 
   

Advertising

  $ 2,157.0     65 % $ 1,986.3     66 % $ 170.7     9 %

Content licensing and distribution

    733.7     22     614.0     21     119.7     19  

Affiliate and subscription fees

    381.4     11     340.8     11     40.6     12  

Other

    58.9     2     65.2     2     (6.3 )   (10 )
   
 

Total Revenues

  $ 3,331.0     100 % $ 3,006.3     100 % $ 324.7     11 %
   

 

   
 
  Six Months Ended June 30,  
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
 
Revenues by Type
  2010
  2009
  $
  %
 
   

Advertising

  $ 4,538.4     66 % $ 4,014.7     65 % $ 523.7     13 %

Content licensing and distribution

    1,447.3     21     1,344.4     22     102.9     8  

Affiliate and subscription fees

    764.0     11     684.1     11     79.9     12  

Other

    112.2     2     123.0     2     (10.8 )   (9 )
   
 

Total Revenues

  $ 6,861.9     100 % $ 6,166.2     100 % $ 695.7     11 %
   

Advertising sales increased $170.7 million, or 9%, to $2.16 billion for the three months ended June 30, 2010 driven by 5% higher Network advertising revenues, led by increases in primetime and sports, 11% higher local advertising sales, driven by growth from CBS Television Stations, CBS Radio and CBS Outdoor, and 22% growth in CBS Interactive display advertising revenues. For the six months ended June 30, 2010, advertising sales increased $523.7 million, or 13%, to $4.54 billion driven by 16% higher Network advertising revenues, including the 2010 telecast of Super Bowl XLIV on the CBS Television Network, 11% higher local advertising sales and 20% higher CBS Interactive display advertising revenues.

Content licensing and distribution revenues increased $119.7 million, or 19%, to $733.7 million for the three months ended June 30, 2010 and increased $102.9 million, or 8%, to $1.45 billion for the six months ended June 30, 2010 principally reflecting higher international syndication sales of television programming, higher home entertainment revenues and the addition of theatrical revenues in 2010. For the six-month period, the increase was partially offset by lower domestic syndication sales of television programming.

Affiliate and subscription fees increased $40.6 million, or 12%, to $381.4 million for the three months ended June 30, 2010 and increased $79.9 million, or 12%, to $764.0 million for the six months ended June 30, 2010 reflecting growth in subscriptions and rate increases at Showtime Networks and CBS College Sports Network, and higher retransmission revenues.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

International Revenues

The Company generated approximately 16% of its total revenues from international regions for both the three and six months ended June 30, 2010 and 15% for both the three and six months ended June 30, 2009.

Operating Expenses

The following tables present the Company's consolidated operating expenses by type for the three and six months ended June 30, 2010 and 2009.

   
 
  Three Months Ended June 30,  
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
 
Operating Expenses by Type
  2010
  2009
  $
  %
 
   

Programming

  $ 779.3     38 % $ 762.2     38 % $ 17.1     2 %

Production

    564.8     27     525.3     26     39.5     8  

Outdoor operations

    289.8     14     298.5     15     (8.7 )   (3 )

Publishing operations

    129.1     6     128.7     7     .4      

Other

    314.7     15     269.7     14     45.0     17  
   
 

Total Operating Expenses

  $ 2,077.7     100 % $ 1,984.4     100 % $ 93.3     5 %
   

 

   
 
  Six Months Ended June 30,  
 
   
  Percentage of Total
   
  Percentage of Total
  Increase/(Decrease)
 
Operating Expenses by Type
  2010
  2009
  $
  %
 
   

Programming

  $ 2,009.4     43 % $ 1,848.0     43 % $ 161.4     9 %

Production

    1,220.7     27     1,113.3     26     107.4     10  

Outdoor operations

    565.1     12     570.0     13     (4.9 )   (1 )

Publishing operations

    236.7     5     247.3     6     (10.6 )   (4 )

Other

    609.3     13     518.9     12     90.4     17  
   
 

Total Operating Expenses

  $ 4,641.2     100 % $ 4,297.5     100 % $ 343.7     8 %
   

Programming expenses for the three months ended June 30, 2010 increased $17.1 million, or 2%, to $779.3 million primarily reflecting higher sports programming costs associated with the 2010 NCAA Division I Men's Basketball Championship partially offset by a charge of $14.0 million recorded in the second quarter of 2009 for the write-down of programming inventory to its net realizable value. For the six months ended June 30, 2010, programming expenses increased $161.4 million, or 9%, to $2.01 billion driven by higher sports programming costs, principally associated with the 2010 telecast of Super Bowl XLIV and the 2010 NCAA Division I Men's Basketball Championship, partially offset by lower acquired television series costs.

Production expenses for the three months ended June 30, 2010 increased $39.5 million, or 8%, to $564.8 million and for the six months ended June 30, 2010 production expenses increased $107.4 million, or 10%, to $1.22 billion, primarily due to higher investment in new series and theatrical films.

Outdoor operations expenses for the three months ended June 30, 2010 decreased $8.7 million, or 3%, to $289.8 million and for the six months ended June 30, 2010 decreased $4.9 million, or 1%, to $565.1 million, primarily reflecting lower billboard lease, maintenance and display costs principally due

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)


to cost-savings initiatives, partially offset by higher transit costs for new contracts. For the six-month period, the decrease was also partially offset by the impact of foreign exchange rate changes.

Publishing operations expenses for the three months ended June 30, 2010 increased $.4 million to $129.1 million principally reflecting higher royalty expense partially offset by the impact of cost reduction measures. Publishing operations expenses for the six months ended June 30, 2010 decreased $10.6 million, or 4%, to $236.7 million, principally due to the impact of cost reduction measures partially offset by higher royalty expense.

Other operating expenses for the three months ended June 30, 2010 increased $45.0 million, or 17%, to $314.7 million and for the six months ended June 30, 2010 increased $90.4 million, or 17%, to $609.3 million primarily reflecting higher advertising expense for theatrical films.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses, which include expenses incurred for selling and marketing costs, occupancy and back office support, increased $47.4 million, or 8%, to $673.1 million for the three months ended June 30, 2010 and increased $67.3 million, or 6%, to $1.29 billion for the six months ended June 30, 2010 primarily due to higher incentive compensation accruals, higher selling expenses driven by the revenue growth and a 2009 benefit from the favorable termination of a real estate lease arrangement, partially offset by lower pension and postretirement benefits costs. Pension and postretirement benefits costs decreased $12.3 million to $44.1 million for the second quarter of 2010 and decreased $25.2 million to $88.2 million for the six-month period versus the comparable prior-year periods principally due to pension plan asset performance in 2009 and a lower discount rate. SG&A expenses as a percentage of revenues for the three and six months ended June 30, 2010 were 20% and 19%, respectively, versus 21% and 20% for the three and six months ended June 30, 2009, respectively.

Restructuring Charges

During the six months ended June 30, 2010, the Company recorded restructuring charges of $58.8 million, reflecting $47.0 million of severance costs associated with the elimination of positions and $12.5 million of contract termination and other associated costs, partially offset by the reversal of $.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2009, the Company recorded restructuring charges of $22.8 million, reflecting $20.8 million of severance costs and $6.7 million of contract termination and other associated costs, partially offset by the reversal of $4.7 million as a result of changes in estimates of previously established restructuring accruals. During the year ended December 31, 2008, the Company recorded restructuring charges of $136.7 million, which reflected $127.5 million of severance costs and $9.2 million of contract termination and other associated costs. As of June 30, 2010, the Company had paid $139.4 million of the severance costs and $11.3 million of the contract termination and other

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)


associated costs. The Company expects to substantially utilize the remaining reserves by the end of 2011.

   
 
  Balance at
December 31, 2009

  2010 Charges
  2010 Payments
  Balance at
June 30, 2010

 
   

Entertainment

  $ 2.2   $ 10.4   $ (6.9 ) $ 5.7  

Cable Networks

    .1         (.1 )    

Publishing

    2.4     1.7     (2.4 )   1.7  

Local Broadcasting

    28.6     25.2     (15.2 )   38.6  

Outdoor

    6.2     21.5     (6.1 )   21.6  

Corporate

    .3         (.3 )    
   
 

Total

  $ 39.8   $ 58.8   $ (31.0 ) $ 67.6  
   

Depreciation and Amortization

For the three months ended June 30, 2010, depreciation and amortization decreased $1.7 million, or 1%, to $143.5 million and for the six months ended June 30, 2010, depreciation and amortization decreased $3.2 million, or 1%, to $284.3 million.

Interest Expense

For the three months ended June 30, 2010, interest expense decreased $.3 million to $133.6 million. For the six months ended June 30, 2010, interest expense increased $4.5 million to $271.6 million. The Company had $6.54 billion at June 30, 2010 and $6.99 billion at June 30, 2009, of principal amounts of debt outstanding (including current maturities) at weighted average interest rates of 7.1% and 7.2%, respectively.

Interest Income

For the three months ended June 30, 2010, interest income of $1.1 million remained flat compared to the same prior-year period and for the six months ended June 30, 2010, interest income decreased $.5 million to $2.2 million.

Loss on Early Extinguishment of Debt

For the three and six months ended June 30, 2010, loss on early extinguishment of debt of $40.3 million and $37.9 million, respectively, reflected a pre-tax loss associated with the repurchase and redemption of $920.7 million of the Company's debt during the second quarter of 2010. For the six-month period the loss was partially offset by a pre-tax gain associated with the repurchase of $19.5 million of the Company's debt during the first quarter of 2010 (See Note 6 to the consolidated financial statements).

For the three and six months ended June 30, 2009, loss on early extinguishment of debt of $30.5 million and $29.8 million, respectively, reflected a pre-tax loss associated with the repurchase, through a tender offer, of $825.5 million of the Company's debt during the second quarter of 2009. For the six-month period the loss was partially offset by a pre-tax gain associated with the repurchase of $152.8 million of the Company's debt during the first quarter of 2009.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

Other Items, Net

For the three and six months ended June 30, 2010, "Other items, net" reflected a net loss of $13.6 million and $26.7 million, respectively, primarily consisting of foreign exchange losses.

For the three and six months ended June 30, 2009, "Other items, net" reflected a net loss of $3.5 million and $15.4 million, respectively, primarily consisting of foreign exchange losses.

Provision for Income Taxes

The provision for income taxes was $91.7 million and $56.9 million for the three months ended June 30, 2010 and 2009, respectively, and $112.7 million and $65.7 million for the six months ended June 30, 2010 and 2009, respectively. The provision for income taxes for the six months ended June 30, 2010 included three discrete items which impacted comparability totaling $25.9 million, comprised of a $62.2 million reduction of deferred tax assets associated with the 2010 Patient Protection and Affordable Care Act, partially offset by a $26.4 million reversal of previously established deferred tax liabilities and a $9.9 million tax benefit from the settlements of tax audits. The provision for income taxes for the three and six months ended June 30, 2009 was impacted by a reduction of deferred tax assets associated with stock-based compensation of $23.3 million and $42.1 million, respectively. This reduction reflects the difference between the estimated tax benefit recognized based on the grant date fair value of the stock-based compensation award versus the actual tax benefit realized based on the market value on the date of vest.

The Company is currently under examination by various U.S. and foreign tax authorities through the 2007 tax year. With respect to open tax years in all jurisdictions, the Company believes it is reasonably possible that the reserve for uncertain tax positions may decrease during the remainder of 2010 by approximately $20 million, plus accrued interest, a portion of which may impact the Company's effective income tax rate. The estimate of any additional impact to the reserve for uncertain tax positions within the next twelve months can not currently be determined.

Equity in Loss of Investee Companies, Net of Tax

For the three months ended June 30, 2010, equity in loss of investee companies, net of tax, increased $3.7 million to a loss of $6.8 million and for the six months ended June 30, 2010, equity in loss of investee companies, net of tax, increased $3.5 million to a loss of $17.8 million, reflecting the Company's share of the operating results of its equity investments.

Net Earnings (Loss)

The Company reported net earnings of $150.1 million for the three months ended June 30, 2010 versus net earnings of $15.4 million for the three months ended June 30, 2009 and net earnings of $123.9 million for the six months ended June 30, 2010 versus a net loss of $39.9 million for the six months ended June 30, 2009. Comparability of net earnings for the second quarter of 2010 and 2009 was impacted by a pre-tax loss on early extinguishment of debt of $40.3 million and $30.5 million, respectively, and discrete tax items of $23.3 million for the second quarter of 2009. Comparability of net earnings (loss) for the six months ended June 30, 2010 and 2009 was impacted by restructuring charges of $58.8 million ($35.6 million, net of tax) and $9.6 million ($5.7 million, net of tax), respectively, a pre-tax loss on early extinguishment of debt of $37.9 million and $29.8 million, respectively, and discrete tax items of $25.9 million and $42.1 million, respectively.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

Reconciliation of Non-GAAP Financial Information

Free cash flow is a non-GAAP financial measure. Free cash flow reflects the Company's net cash flow provided by (used for) operating activities before increases and decreases to the accounts receivable securitization program and less capital expenditures. The Company's net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.

The Company's calculation of free cash flow for 2009 does not include increases and decreases to the accounts receivable securitization program because the Company does not consider the cash flow from this program to be indicative of the cash generated by the underlying operating performance of the Company. Accordingly, the Company considers its decision to increase or decrease its accounts receivable securitization program a financing decision. In 2010, as a result of the adoption of amended FASB guidance on accounting for transfers of financial assets, increases and decreases to the accounts receivable securitization program are reflected as financing activities on the Consolidated Statement of Cash Flows. Under the previous guidance these changes were reflected as operating activities. See Note 6 to the consolidated financial statements. Also, the Company's calculation of free cash flow includes capital expenditures since investment in capital expenditures is a use of cash that is directly related to the Company's operations.

Management believes free cash flow provides investors with an important perspective on the cash available to the Company to service debt, make strategic acquisitions and investments, maintain its capital assets, satisfy its tax obligations and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the Company's ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of the Company's operating performance. The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Company's underlying operations in a manner similar to the method used by management. Free cash flow is one of several components of incentive compensation targets for certain management personnel. In addition, free cash flow is also a primary measure used externally by the Company's investors, analysts and peers in its industry for purposes of valuation and comparing the operating performance of the Company to other companies in its industry.

As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, either net cash flow provided by operating activities as a measure of liquidity or net earnings (loss) as a measure of operating performance. Free cash flow, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow as a measure of liquidity has certain limitations, and does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company's ability to fund its cash needs. When comparing free cash flow to net cash flow provided by (used for) operating activities, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions which are not reflected in free cash flow.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

The following table presents a reconciliation of the Company's net cash flow provided by operating activities, the most directly comparable GAAP financial measure, to free cash flow.

   
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010
  2009
  2010
  2009
 
   

Net cash flow provided by operating activities

  $ 550.3   $ 416.8   $ 1,251.0   $ 395.3  

Exclude: Decrease to accounts receivable securitization program

                300.0  

Capital expenditures

    (58.8 )   (65.1 )   (99.7 )   (139.3 )
   

Free cash flow

  $ 491.5   $ 351.7   $ 1,151.3   $ 556.0  
   

Segment Results of Operations

During 2009, the Company realigned its management structure to more effectively pursue its long-term strategy of investing in content businesses and capitalizing on its strong local presence. As a result, the Company realigned its operating segments. Prior period results have been reclassified to conform to this presentation.

The following tables present the Company's revenues, segment operating income (loss) before depreciation and amortization ("Segment OIBDA"), operating income (loss), and depreciation and amortization by segment, for the three and six months ended June 30, 2010 and 2009. The Company presents Segment OIBDA as the primary measure of profit and loss for its operating segments in accordance with Financial Accounting Standards Board ("FASB") guidance for segment reporting. The Company believes the presentation of Segment OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enhances their ability to understand the Company's operating performance. The reconciliation of Segment OIBDA to the Company's consolidated Net earnings (loss) is presented in Note 14 (Reportable Segments) to the consolidated financial statements.

   
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
 
  2010
  2009
  2010
  2009
 
   

Revenues:

                         
 

Entertainment

  $ 1,671.7   $ 1,515.5   $ 3,753.2   $ 3,333.1  
 

Cable Networks

    368.8     328.4     736.8     669.0  
 

Publishing

    189.7     181.4     341.4     343.1  
 

Local Broadcasting

    678.2     579.5     1,283.7     1,089.9  
 

Outdoor

    456.3     434.1     848.5     814.0  
 

Eliminations

    (33.7 )   (32.6 )   (101.7 )   (82.9 )
   
   

Total Revenues

  $ 3,331.0   $ 3,006.3   $ 6,861.9   $ 6,166.2  
   

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Segment OIBDA:

                         
 

Entertainment

  $ 222.5   $ 209.5   $ 357.0   $ 360.6  
 

Cable Networks

    129.3     96.9     230.2     180.3  
 

Publishing

    16.7     8.1     18.8     8.2  
 

Local Broadcasting

    214.0     100.6     322.8     154.7  
 

Outdoor

    77.3     42.2     89.4     67.3  
 

Corporate

    (55.9 )   (34.7 )   (94.6 )   (63.2 )
 

Residual costs

    (26.2 )   (35.9 )   (52.5 )   (71.9 )
 

Eliminations

    .8     .7     1.6     1.2  
   

OIBDA

    578.5     387.4     872.7     637.2  

Depreciation and amortization

    (143.5 )   (145.2 )   (284.3 )   (287.5 )
   
   

Total Operating Income

  $ 435.0   $ 242.2   $ 588.4   $ 349.7  
   

Operating Income (Loss):

                         
 

Entertainment

  $ 181.1   $ 165.7   $ 274.3   $ 272.7  
 

Cable Networks

    123.7     91.0     218.9     168.4  
 

Publishing

    15.0     6.1     15.5     4.0  
 

Local Broadcasting

    189.6     78.9     274.0     110.8  
 

Outdoor

    12.1     (24.8 )   (38.7 )   (63.0 )
 

Corporate

    (61.1 )   (39.5 )   (104.7 )   (72.5 )
 

Residual costs

    (26.2 )   (35.9 )   (52.5 )   (71.9 )
 

Eliminations

    .8     .7     1.6     1.2  
   
   

Total Operating Income

  $ 435.0   $ 242.2   $ 588.4   $ 349.7  
   

Depreciation and Amortization:

                         
 

Entertainment

  $ 41.4   $ 43.8   $ 82.7   $ 87.9  
 

Cable Networks

    5.6     5.9     11.3     11.9  
 

Publishing

    1.7     2.0     3.3     4.2  
 

Local Broadcasting

    24.4     21.7     48.8     43.9  
 

Outdoor

    65.2     67.0     128.1     130.3  
 

Corporate

    5.2     4.8     10.1     9.3  
   
   

Total Depreciation and Amortization

  $ 143.5   $ 145.2   $ 284.3   $ 287.5  
   

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

Entertainment (CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Films and CBS Interactive)

(Contributed 50% and 55% to consolidated revenues for the three and six months ended June 30, 2010, respectively, versus 50% and 54% for the comparable prior-year periods.)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 1,671.7   $ 1,515.5   $ 3,753.2   $ 3,333.1  
   

OIBDA

  $ 222.5   $ 209.5   $ 357.0   $ 360.6  

Depreciation and amortization

    (41.4 )   (43.8 )   (82.7 )   (87.9 )
   

Operating income

  $ 181.1   $ 165.7   $ 274.3   $ 272.7  
   

OIBDA as a % of revenues

    13%     14%     10%     11%  

Operating income as a % of revenues

    11%     11%     7%     8%  

Restructuring charges

  $ .1   $ (.6 ) $ 10.4   $ (.6 )

Capital expenditures

  $ 23.3   $ 16.8   $ 38.2   $ 36.7  
   

Three Months Ended June 30, 2010 and 2009

For the three months ended June 30, 2010, Entertainment revenues increased 10% to $1.67 billion from $1.52 billion for the same prior-year period reflecting a 12% increase in revenues from the licensing and distribution of television programming, primarily due to higher international syndication sales, including the CSI: franchise, NCIS: Los Angeles and The Good Wife. Revenue growth also reflects 5% higher Network advertising revenues, driven by growth in primetime and sports, the addition of theatrical revenues in 2010 and a 22% increase in CBS Interactive display advertising revenues from an improved advertising marketplace.

For the three months ended June 30, 2010, Entertainment operating income increased $15.4 million, or 9%, to $181.1 million from $165.7 million and OIBDA increased $13.0 million, or 6%, to $222.5 million from $209.5 million for the same prior-year period, as the increase in revenues was partially offset by increased investment in content and higher sports programming costs, principally attributable to the 2010 NCAA Division I Men's Basketball Championship.

Six Months Ended June 30, 2010 and 2009

For the six months ended June 30, 2010, Entertainment revenues increased 13% to $3.75 billion from $3.33 billion for the same prior-year period primarily due to higher advertising sales, revenues from theatrical releases of films and higher television licenses fees, reflecting higher international syndication sales partially offset by lower domestic syndication sales. Advertising sales increased 14% primarily reflecting 16% higher Network advertising sales, driven by an increase in sports, including the telecast of Super Bowl XLIV and the 2010 NCAA Division I Men's Basketball Championship on the CBS Television Network, and growth in primetime as well as 20% growth in CBS Interactive display advertising revenues from an improved advertising marketplace.

For the six months ended June 30, 2010, Entertainment operating income increased $1.6 million, or 1%, to $274.3 million from $272.7 million. Entertainment OIBDA for the six months ended June 30, 2010 decreased $3.6 million, or 1%, to $357.0 million from $360.6 million for the same prior-year

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)


period, as the increase in revenues was more than offset by higher sports programming costs, principally attributable to Super Bowl XLIV and the 2010 NCAA Division I Men's Basketball Championship, increased investment in content and restructuring charges of $10.4 million incurred during the six months ended June 30, 2010. The restructuring charges primarily reflect severance costs associated with the elimination of positions.

Cable Networks (Showtime Networks, Smithsonian Networks and CBS College Sports Network)

(Contributed 11% to consolidated revenues for each of the three and six months ended June 30, 2010 and 2009.)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 368.8   $ 328.4   $ 736.8   $ 669.0  
   

OIBDA

  $ 129.3   $ 96.9   $ 230.2   $ 180.3  

Depreciation and amortization

    (5.6 )   (5.9 )   (11.3 )   (11.9 )
   

Operating income

  $ 123.7   $ 91.0   $ 218.9   $ 168.4  
   

OIBDA as a % of revenues

    35%     30%     31%     27%  

Operating income as a % of revenues

    34%     28%     30%     25%  

Capital expenditures

  $ 3.3   $ 1.7   $ 4.3   $ 2.9  
   

Three Months Ended June 30, 2010 and 2009

For the three months ended June 30, 2010, Cable Networks revenues increased 12% to $368.8 million from $328.4 million for the same prior-year period due to rate increases and growth in subscriptions at Showtime Networks and CBS College Sports Network, as well as higher home entertainment revenues for Showtime original series, including Dexter and The Tudors. At June 30, 2010, Showtime Networks, including Showtime, The Movie Channel and Flix, in the aggregate, had 63.5 million subscriptions, up by 5.1 million, or 9%, from June 30, 2009, reflecting increased direct broadcast satellite and telephone company subscriptions. At June 30, 2010, CBS College Sports Network subscriptions of 36.0 million were up by 5.6 million, or 18%, from June 30, 2009, resulting from increased carriage across all platforms and launches on additional multi-system operators. At June 30, 2010, Smithsonian Networks had 5.3 million subscriptions, up by 1.1 million from June 30, 2009.

For the three months ended June 30, 2010, Cable Networks operating income increased $32.7 million, or 36%, to $123.7 million from $91.0 million and OIBDA increased $32.4 million, or 33%, to $129.3 million from $96.9 million for the same prior-year period, primarily due to the revenue growth and lower costs for theatrical programming, partially offset by increased costs for original series.

Six Months Ended June 30, 2010 and 2009

For the six months ended June 30, 2010, Cable Networks revenues increased 10% to $736.8 million from $669.0 million for the same prior-year period due to rate increases and growth in subscriptions at Showtime Networks and CBS College Sports Network, as well as higher home entertainment revenues.

For the six months ended June 30, 2010, Cable Networks operating income increased $50.5 million, or 30%, to $218.9 million from $168.4 million and OIBDA increased $49.9 million, or 28%, to

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)


$230.2 million from $180.3 million for the same prior-year period, primarily due to revenue growth and lower costs for theatrical programming, partially offset by higher costs for original series.

Publishing (Simon & Schuster)

(Contributed 6% and 5% to consolidated revenues for the three and six months ended June 30, 2010, respectively, versus 6% for the comparable prior-year periods.)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 189.7   $ 181.4   $ 341.4   $ 343.1  
   

OIBDA

  $ 16.7   $ 8.1   $ 18.8   $ 8.2  

Depreciation and amortization

    (1.7 )   (2.0 )   (3.3 )   (4.2 )
   

Operating income

  $ 15.0   $ 6.1   $ 15.5   $ 4.0  
   

OIBDA as a % of revenues

    9%     4%     6%     2%  

Operating income as a % of revenues

    8%     3%     5%     1%  

Restructuring charges

  $ .2   $ 2.2   $ 1.7   $ 2.2  

Capital expenditures

  $ .9   $ .4   $ 1.7   $ .9  
   

Three Months Ended June 30, 2010 and 2009

For the three months ended June 30, 2010, Publishing revenues increased 5% to $189.7 million from $181.4 million for the same prior-year period primarily reflecting growth in digital sales of Publishing content and the strength of best-selling titles in the second quarter of 2010, including Spoken from the Heart by Laura Bush and Women Food and God by Geneen Roth.

For the three months ended June 30, 2010, Publishing operating income increased $8.9 million to $15.0 million from $6.1 million and OIBDA increased $8.6 million to $16.7 million from $8.1 million for the same prior-year period, driven by higher revenues and the impact of cost reduction measures.

Six Months Ended June 30, 2010 and 2009

For the six months ended June 30, 2010, Publishing revenues decreased $1.7 million to $341.4 million from $343.1 million for the same prior-year period reflecting the soft retail market, partially offset by growth in digital sales of Publishing content.

For the six months ended June 30, 2010, Publishing operating income increased $11.5 million to $15.5 million from $4.0 million and OIBDA increased $10.6 million to $18.8 million from $8.2 million for the same prior-year period due to the impact of cost reduction measures, partially offset by higher royalty expense. Restructuring charges of $1.7 million incurred during the six months ended June 30, 2010 reflect severance costs associated with the elimination of positions.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

Local Broadcasting (CBS Television Stations and CBS Radio)

(Contributed 20% and 19% to consolidated revenues for the three and six months ended June 30, 2010, respectively, versus 19% and 18% for the comparable prior-year periods.)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 678.2   $ 579.5   $ 1,283.7   $ 1,089.9  
   

OIBDA

  $ 214.0   $ 100.6   $ 322.8   $ 154.7  

Depreciation and amortization

    (24.4 )   (21.7 )   (48.8 )   (43.9 )
   

Operating income

  $ 189.6   $ 78.9   $ 274.0   $ 110.8  
   

OIBDA as a % of revenues

    32%     17%     25%     14%  

Operating income as a % of revenues

    28%     14%     21%     10%  

Restructuring charges

  $   $ 4.7   $ 25.2   $ 4.7  

Capital expenditures

  $ 16.3   $ 19.6   $ 27.0   $ 40.3  
   

Three Months Ended June 30, 2010 and 2009

For the three months ended June 30, 2010, Local Broadcasting revenues increased 17% to $678.2 million from $579.5 million for the same prior-year period, principally reflecting higher advertising sales as a result of the improved advertising marketplace and higher political advertising sales. Political advertising sales contributed four percentage points to the Local Broadcasting revenue growth. Revenues for CBS Television Stations increased 31% to $337.9 million from $257.9 million for the same prior-year period, principally reflecting growth across many key categories, including automotive and financial services. CBS Radio revenues increased 6% to $340.9 million from $322.0 million for the same prior-year period and revenues from the ten largest radio markets increased 10%.

For the three months ended June 30, 2010, Local Broadcasting operating income increased $110.7 million to $189.6 million from $78.9 million and OIBDA increased $113.4 million to $214.0 million from $100.6 million for the same prior-year period reflecting improved OIBDA and operating income margins for the second quarter of 2010, primarily due to the revenue growth and a $14.0 million charge recorded in the second quarter of 2009 to write-down programming inventory to its net realizable value.

Six Months Ended June 30, 2010 and 2009

For the six months ended June 30, 2010, Local Broadcasting revenues increased 18% to $1.28 billion from $1.09 billion for the same prior-year period. Revenues for CBS Television Stations increased 30% to $661.6 million from $508.8 million for the same prior-year period as a result of the improved advertising marketplace, the benefit of the 2010 telecast of Super Bowl XLIV to the Company's owned CBS affiliated stations and higher political advertising sales. CBS Radio revenues increased 7% to $623.6 million from $581.7 million for the same prior-year period and revenues from the ten largest radio markets increased 12%, reflecting the improved advertising marketplace. Political advertising sales contributed three percentage points to the Local Broadcasting revenue growth.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

For the six months ended June 30, 2010, Local Broadcasting operating income increased $163.2 million to $274.0 million from $110.8 million and OIBDA increased $168.1 million to $322.8 million from $154.7 million for the same prior-year period reflecting improved OIBDA and operating income margins for the six months ended June 30, 2010, the result of the revenue growth, a lower fixed cost structure due to recent expense reduction measures and a $14.0 million charge recorded in the second quarter of 2009 to write-down programming inventory to its net realizable value, partially offset by $20.5 million higher restructuring charges in 2010. Restructuring charges of $25.2 million for the six months ended June 30, 2010 consist of severance costs associated with the elimination of positions, and contract terminations and other associated costs.

Dispositions

On March 6, 2009, the Company completed the sale of three of its owned radio stations in Denver to Wilks Broadcasting for $19.5 million.

Outdoor (CBS Outdoor)

(Contributed 14% and 12% to consolidated revenues for the three and six months ended June 30, 2010, respectively, versus 14% and 13% for the comparable prior-year periods.)

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2010
  2009
  2010
  2009
 
   

Revenues

  $ 456.3   $ 434.1   $ 848.5   $ 814.0  
   

OIBDA

  $ 77.3   $ 42.2   $ 89.4   $ 67.3  

Depreciation and amortization

    (65.2 )   (67.0 )   (128.1 )   (130.3 )
   

Operating income

  $ 12.1   $ (24.8 ) $ (38.7 ) $ (63.0 )
   

OIBDA as a % of revenues

    17%     10%     11%     8%  

Operating income as a % of revenues

    3%     NM     NM     NM  

Restructuring charges

  $ 1.4   $ 2.5   $ 21.5   $ 3.3  

Capital expenditures

  $ 13.3   $ 24.2   $ 24.9   $ 50.1  
   

Three Months Ended June 30, 2010 and 2009

For the three months ended June 30, 2010, Outdoor revenues increased 5% to $456.3 million from $434.1 million for the same prior-year period as outdoor advertising began to benefit from the improved advertising marketplace. In constant dollars, Outdoor revenues increased 6%, led by constant dollar increases of 9% and 14% in the United States ("U.S.") and United Kingdom, respectively. Americas revenues (comprising North America and South America) for the second quarter of 2010 increased 8% (6% in constant dollars) to $308.0 million from $285.6 million for the same prior-year period driven by growth in the U.S. displays business, partially reflecting the impact of new contracts. Europe revenues decreased $.2 million to $148.3 million for the second quarter of 2010 from $148.5 million for the same quarter last year reflecting the unfavorable impact of foreign exchange rate changes. In constant dollars, Europe revenues increased 5% reflecting growth in the United Kingdom, Holland and Italy. Approximately 44% and 46% of Outdoor revenues were generated from regions outside the U.S. for the three months ended June 30, 2010 and 2009, respectively.

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Table of Contents


Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)

For the three months ended June 30, 2010, Outdoor reported operating income of $12.1 million versus an operating loss of $24.8 million for the same prior-year period. Outdoor OIBDA increased $35.1 million, or 83%, to $77.3 million from $42.2 million for the same prior-year period. These increases were driven by the revenue growth as well as lower billboard lease, maintenance and display costs principally due to cost-savings initiatives, partially offset by higher transit costs for new contracts. Restructuring charges of $1.4 million recorded in the second quarter of 2010 primarily reflect severance costs associated with the elimination of positions.

Six Months Ended June 30, 2010 and 2009

For the six months ended June 30, 2010, Outdoor revenues increased 4% to $848.5 million from $814.0 million for the same prior-year period principally reflecting the improved advertising marketplace and the favorable impact of foreign exchange rate changes. Revenues for the Americas increased 5% (2% in constant dollars) to $556.8 million primarily due to 23% growth in the U.S. transit and displays business