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, 2013

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   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 26, 2013:

        Class A Common Stock, par value $.001 per share—39,287,032

        Class B Common Stock, par value $.001 per share—565,520,041

   


Table of Contents

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, 2013 and June 30, 2012

 

3

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2013 and June 30, 2012

 

4

 

 

Consolidated Balance Sheets (Unaudited) at June 30, 2013 and December 31, 2012

 

5

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2013 and June 30, 2012

 

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

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

 

33

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

57

Item 4.

 

Controls and Procedures.

 

57

 

 

PART II – OTHER INFORMATION

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

58

Item 6.

 

Exhibits.

 

59

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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,

   
 
       
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 3,699   $ 3,329   $ 7,739   $ 7,125    
 

Expenses:

                           

Operating

    2,064     1,753     4,538     4,100    

Selling, general and administrative

    683     665     1,333     1,307    

Impairment charges (Note 3)

                11    

Depreciation and amortization

    114     119     230     238    
 

Total expenses

    2,861     2,537     6,101     5,656    
 

Operating income

    838     792     1,638     1,469    

Interest expense

    (93 )   (104 )   (188 )   (214 )  

Interest income

    2     1     4     3    

Gain on early extinguishment of debt

                25    

Other items, net

    (7 )   3     (9 )   8    
 

Earnings from continuing operations before income taxes and equity in loss of investee companies

    740     692     1,445     1,291    

Provision for income taxes

    (256 )   (228 )   (490 )   (429 )  

Equity in loss of investee companies, net of tax

    (8 )   (12 )   (16 )   (16 )  
 

Net earnings from continuing operations

    476     452     939     846    

Net loss from discontinued operations, net of tax (Note 4)

    (4 )   (25 )   (24 )   (56 )  
 

Net earnings

  $ 472   $ 427   $ 915   $ 790    
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) per common share:

                           

Net earnings from continuing operations

  $ .78   $ .70   $ 1.53   $ 1.31    

Net loss from discontinued operations

  $ (.01 ) $ (.04 ) $ (.04 ) $ (.09 )  

Net earnings

  $ .78   $ .66   $ 1.49   $ 1.22    

Diluted net earnings (loss) per common share:

                           

Net earnings from continuing operations

  $ .76   $ .68   $ 1.49   $ 1.27    

Net loss from discontinued operations

  $ (.01 ) $ (.04 ) $ (.04 ) $ (.08 )  

Net earnings

  $ .76   $ .65   $ 1.45   $ 1.19    

Weighted average number of common shares outstanding:

                           

Basic

    609     646     615     648    

Diluted

    624     661     631     664    

Dividends per common share

 
$

..12
 
$

..10
 
$

..24
 
$

..20
   
 

See notes to consolidated financial statements.

-3-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in millions)

 
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

   
 
       
 
  2013
  2012
  2013
  2012
   
 
     

Net earnings

  $ 472   $ 427   $ 915   $ 790    
 

Other comprehensive income (loss) from continuing operations, net of tax:

                           

Cumulative translation adjustments

    (9 )   (21 )   (9 )   (5 )  

Amortization of net actuarial loss

    11     7     22     15    

Change in fair value of cash flow hedges

    (1 )       (1 )      

Unrealized gain on securities

            1     1    
 

Other comprehensive income (loss) from continuing operations, net of tax

    1     (14 )   13     11    

Other comprehensive income (loss) from discontinued operations, net of tax

        1     (9 )   (5 )  
 

Total other comprehensive income (loss), net of tax

    1     (13 )   4     6    
 

Total comprehensive income

  $ 473   $ 414   $ 919   $ 796    
 

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, 2013

  At
December 31, 2012

 
   

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 282   $ 708  

Receivables, less allowances of $78 (2013) and $81 (2012)

    2,998     3,137  

Programming and other inventory (Note 5)

    449     859  

Deferred income tax assets, net

    261     253  

Prepaid income taxes

        27  

Prepaid expenses

    249     206  

Other current assets

    328     312  

Current assets of discontinued operations

    203     218  
   

Total current assets

    4,770     5,720  
   

Property and equipment:

             

Land

    331     330  

Buildings

    722     718  

Capital leases

    166     194  

Advertising structures

    1,681     1,689  

Equipment and other

    2,017     2,057  
   

    4,917     4,988  

Less accumulated depreciation and amortization

    2,689     2,717  
   

Net property and equipment

    2,228     2,271  
   

Programming and other inventory (Note 5)

    1,545     1,582  

Goodwill

    8,569     8,567  

Intangible assets (Note 3)

    6,480     6,515  

Other assets

    1,842     1,551  

Assets of discontinued operations

    259     260  
   

Total Assets

  $ 25,693   $ 26,466  
   

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current Liabilities:

             

Accounts payable

  $ 218   $ 386  

Accrued compensation

    246     374  

Participants' share and royalties payable

    861     953  

Program rights

    400     455  

Deferred revenues

    149     232  

Income taxes payable

    34      

Commercial paper (Note 7)

    453      

Current portion of long-term debt (Note 7)

    21     18  

Accrued expenses and other current liabilities

    1,221     1,282  

Current liabilities of discontinued operations

    222     241  
   

Total current liabilities

    3,825     3,941  
   

Long-term debt (Note 7)

    5,949     5,904  

Pension and postretirement benefit obligations

    1,659     1,860  

Deferred income tax liabilities, net

    1,314     1,254  

Other liabilities

    3,176     3,122  

Liabilities of discontinued operations

    169     172  

Commitments and contingencies (Note 11)

             

Stockholders' Equity:

             

Class A Common Stock, par value $.001 per share; 375 shares authorized;

             

39 (2013) and 43 (2012) shares issued

         

Class B Common Stock, par value $.001 per share; 5,000 shares authorized;

             

798 (2013) and 785 (2012) shares issued

    1     1  

Additional paid-in capital

    43,450     43,424  

Accumulated deficit

    (25,854 )   (26,769 )

Accumulated other comprehensive loss (Note 9)

    (565 )   (569 )
   

    17,032     16,087  

Less treasury stock, at cost; 232 (2013) and 198 (2012) Class B shares

    7,431     5,874  
   

Total Stockholders' Equity

    9,601     10,213  
   

Total Liabilities and Stockholders' Equity

  $ 25,693   $ 26,466  
   

See notes to consolidated financial statements.

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)

   
 
  Six Months Ended June 30,
 
 
     
 
  2013
  2012
 
   

Operating Activities:

             

Net earnings

  $ 915   $ 790  

Less: Net loss from discontinued operations

    (24 )   (56 )
   

Net earnings from continuing operations

    939     846  

Adjustments to reconcile net earnings from continuing operations to
net cash flow provided by operating activities:

             

Depreciation and amortization

    230     238  

Impairment charges

        11  

Stock-based compensation

    109     80  

Redemption of debt

        (25 )

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

    24     19  

Change in assets and liabilities, net of investing and financing activities

    (229 )   99  
   

Net cash flow provided by operating activities from continuing operations

    1,073     1,268  
   

Net cash flow used for operating activities from discontinued operations

    (22 )   (10 )
   

Net cash flow provided by operating activities

    1,051     1,258  
   

Investing Activities:

             

Acquisitions, net of cash acquired

    (30 )   (69 )

Capital expenditures

    (83 )   (84 )

Investments in and advances to investee companies

    (139 )   (39 )

Proceeds from sale of investments

    18     6  

Proceeds from dispositions

    12     1  
   

Net cash flow used for investing activities from continuing operations

    (222 )   (185 )
   

Net cash flow used for investing activities from discontinued operations

    (8 )   (9 )
   

Net cash flow used for investing activities

    (230 )   (194 )
   

Financing Activities:

             

Proceeds from short-term debt borrowings, net

    452      

Proceeds from issuance of notes

        1,567  

Repayment of notes

        (700 )

Payment of capital lease obligations

    (9 )   (10 )

Payment of contingent consideration

    (30 )   (33 )

Dividends

    (155 )   (135 )

Purchase of Company common stock

    (1,579 )   (564 )

Payment of payroll taxes in lieu of issuing shares for stock-based compensation

    (139 )   (105 )

Proceeds from exercise of stock options

    98     71  

Excess tax benefit from stock-based compensation

    119     73  

Other financing activities

    (4 )    
   

Net cash flow (used for) provided by financing activities

    (1,247 )   164  
   

Net (decrease) increase in cash and cash equivalents

    (426 )   1,228  

Cash and cash equivalents at beginning of period

    708     660  
   

Cash and cash equivalents at end of period

  $ 282   $ 1,888  
   

Supplemental disclosure of cash flow information

             

Cash paid for interest

  $ 180   $ 196  

Cash paid for income taxes

  $ 259   $ 273  

Equipment acquired under capitalized leases

  $ 58   $ 1  
   

   

See notes to consolidated financial statements.

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business—CBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the "Company" or "CBS Corp.") is comprised of the following segments: Entertainment (CBS Television, comprised of the CBS Television Network, CBS Television Studios and CBS Global Distribution Group; CBS Films; and CBS Interactive), Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks), Publishing (Simon & Schuster), Local Broadcasting (CBS Television Stations and CBS Radio) and Outdoor Americas (CBS Outdoor). In July 2013, the Company entered into an agreement for the sale of its outdoor advertising business in Europe, which includes an interest in an outdoor business in Asia ("Outdoor Europe"). Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.

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. 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, 2012.

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 ("GAAP") 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") and market-based performance share units ("PSUs") only in the periods in which such effect would have been dilutive. For both the three and six months ended June 30, 2013, stock options to purchase 2 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 and six months ended June 30, 2012, stock options to purchase 3 million and 4 million shares of Class B Common Stock, respectively, were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.

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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,

 
 
     
(in millions)
  2013
  2012
  2013
  2012
 
   

Weighted average shares for basic EPS

    609     646     615     648  

Dilutive effect of shares issuable under stock-based compensation plans

    15     15     16     16  
   

Weighted average shares for diluted EPS

    624     661     631     664  
   

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

Additional Paid-In Capital—For the six months ended June 30, 2013 and 2012, the Company recorded dividends of $149 million and $132 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.

Adoption of New Accounting Standards

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

During the first quarter of 2013, the Company adopted the Financial Accounting Standards Board's ("FASB") guidance which requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income (See Note 9).

Recent Pronouncements

Obligations Resulting from Joint and Several Liability Arrangements

In February 2013, the FASB issued guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Under this guidance, the Company is required to measure its obligations under such arrangements as the sum of the amount it agreed to pay in the arrangement among its co-obligors and any additional amount the Company expects to pay on behalf of its co-obligors. The Company is also required to disclose the nature and amount of the obligation. The Company is currently evaluating the impact of this guidance on its consolidated financial statements, which is effective for reporting periods beginning after December 15, 2013.

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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)

2) STOCK-BASED COMPENSATION

The following table summarizes the Company's stock-based compensation expense for the three and six months ended June 30, 2013 and 2012.

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

RSUs and PSUs

  $ 34   $ 30   $ 66   $ 59  

Stock options and equivalents

    15     9     43     21  
   

Stock-based compensation expense,
before income taxes

    49     39     109     80  

Related tax benefit

    (19 )   (15 )   (42 )   (31 )
   

Stock-based compensation expense,
net of tax benefit

  $ 30   $ 24   $ 67   $ 49  
   

During the six months ended June 30, 2013, the Company granted 4 million RSUs with a weighted average per unit grant date fair value of $43.80. RSUs granted during the first six months of 2013 vest over a one- to four-year service period. Compensation expense for RSUs is determined based upon the market price of the Company's shares underlying the awards on the date of grant. For certain RSU awards the number of shares an employee earns ranges from 0% to 120% of the target award, based on the outcome of established performance conditions. Compensation expense is recorded based on the probable outcome of the performance conditions. During the six months ended June 30, 2013, the Company also granted 3 million stock options with a weighted average exercise price of $44.04. Stock options granted during the first six months of 2013 vest over a four-year service period and expire eight years from the date of grant. Compensation expense for stock options is determined based on the grant date fair value of the award calculated using the Black-Scholes options-pricing model.

Total unrecognized compensation cost related to unvested RSUs at June 30, 2013 was $246 million, which is expected to be recognized over a weighted average period of 2.4 years. Total unrecognized compensation cost related to unvested stock option awards at June 30, 2013 was $78 million, which is expected to be recognized over a weighted average period of 2.5 years.

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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)

3) GOODWILL AND OTHER INTANGIBLE ASSETS

The Company's intangible assets were as follows:

   
At June 30, 2013
  Gross
  Accumulated
Amortization

  Net
 
   

Intangible assets subject to amortization:

                   

Permits and leasehold agreements

  $ 894   $ (653 ) $ 241  

Franchise agreements

    477     (321 )   156  

Trade names

    222     (35 )   187  

Other intangible assets

    232     (168 )   64  
   

Total intangible assets subject to amortization

    1,825     (1,177 )   648  

FCC licenses

    5,832         5,832  
   

Total intangible assets

  $ 7,657   $ (1,177 ) $ 6,480  
   

 

   
At December 31, 2012
  Gross
  Accumulated
Amortization

  Net
 
   

Intangible assets subject to amortization:

                   

Permits and leasehold agreements

  $ 889   $ (635 ) $ 254  

Franchise agreements

    477     (309 )   168  

Trade names

    213     (28 )   185  

Other intangible assets

    245     (169 )   76  
   

Total intangible assets subject to amortization

    1,824     (1,141 )   683  

FCC licenses

    5,832         5,832  
   

Total intangible assets

  $ 7,656   $ (1,141 ) $ 6,515  
   

Amortization expense was $24 million and $28 million for the three months ended June 30, 2013 and 2012, respectively, and $50 million and $55 million for the six months ended June 30, 2013 and 2012, respectively.

The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 2013 through 2017, to be as follows:

   
 
  2013
  2014
  2015
  2016
  2017
 
   

Amortization expense

  $ 100   $ 89   $ 79   $ 69   $ 43  
   

During the first quarter of 2012, in connection with the sale of its five owned radio stations in West Palm Beach, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill.

4) DISCONTINUED OPERATIONS

In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of Outdoor Europe for approximately $225 million. The transaction is expected to be completed in 2013. Upon completion, the Company expects to record an after-tax charge of approximately

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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)

$100 million associated with exiting an unprofitable contractual arrangement and for the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction will become third-party guarantees. The actual amount of the charge may be different from the Company's current expectations. This transaction is subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.

The following table sets forth details of the net loss from discontinued operations for the three and six months ended June 30, 2013 and 2012.

   
 
  Three Months Ended June 30,
  Six Months Ended June 30,
 
 
     
 
  2013
  2012
  2013
  2012
 
   

Revenues from discontinued operations

  $ 139   $ 147   $ 262   $ 275  
   

Loss from discontinued operations before income taxes

  $ (11 ) $ (29 ) $ (47 ) $ (57 )

Income tax benefit

    7     4     23     1  
   

Net loss from discontinued operations, net of tax

  $ (4 ) $ (25 ) $ (24 ) $ (56 )
   

Noncurrent assets of discontinued operations of $259 million at June 30, 2013 and $260 million at December 31, 2012, primarily consist of net property and equipment of $108 million and $103 million, respectively, and goodwill of $48 million and $49 million, respectively. Noncurrent liabilities from discontinued operations primarily relate to aircraft leases from previously disposed businesses that are generally expected to liquidate in accordance with contractual terms.

5) PROGRAMMING AND OTHER INVENTORY

   
 
  At
June 30, 2013

  At
December 31, 2012

 
   

Program rights

  $ 959   $ 1,389  

Television programming:

             

Released (including acquired libraries)

    784     781  

In process and other

    111     128  

Theatrical programming:

             

Released

    14     25  

In process and other

    67     60  

Publishing, primarily finished goods

    58     57  

Other

    1     1  
   

Total programming and other inventory

    1,994     2,441  

Less current portion

    449     859  
   

Total noncurrent programming and other inventory

  $ 1,545   $ 1,582  
   

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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)

6) RELATED PARTIES

National Amusements, Inc.    National Amusements, Inc. ("NAI") is the controlling stockholder of CBS Corp. and Viacom Inc. Mr. Sumner M. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, is the 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, 2013, NAI directly or indirectly owned approximately 79.1% of CBS Corp.'s voting Class A Common Stock, and owned approximately 6.6% of CBS Corp.'s Class A Common Stock and non-voting Class B Common Stock on a combined basis.

Viacom Inc.    As part of its normal course of business, the Company enters into transactions with Viacom Inc. and its subsidiaries. Through its Entertainment segment, the Company licenses its television products and leases its production facilities to Viacom Inc.'s media networks businesses. In addition, the Company recognizes revenues for advertising spending placed by various subsidiaries of Viacom Inc. Viacom Inc. also distributes certain of the Company's television products in the home entertainment market. The Company's total revenues from these transactions were $75 million and $70 million for the three months ended June 30, 2013 and 2012, respectively, and $131 million and $134 million for the six months ended June 30, 2013 and 2012, respectively.

The Company places advertisements with, leases production facilities from, and purchases other goods and services from various subsidiaries of Viacom Inc. The total amounts for these transactions were $3 million for both the three months ended June 30, 2013 and 2012, and $10 million and $9 million for the six months ended June 30, 2013 and 2012, respectively.

The following table presents the amounts due from Viacom Inc. in the normal course of business as reflected on the Company's Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at June 30, 2013 and December 31, 2012.

   
 
  At
June 30, 2013

  At
December 31, 2012

 
   

Receivables

  $ 110   $ 124  

Other assets (Receivables, noncurrent)

    146     133  
   

Total amounts due from Viacom Inc.

  $ 256   $ 257  
   

Other Related Parties    The Company has equity interests in two domestic television networks and several international joint ventures for television channels, from which the Company earns revenues primarily by selling its television programming. Total revenues earned from these joint ventures were $30 million and $35 million for the three months ended June 30, 2013 and 2012, respectively, and $62 million and $71 million for the six months ended June 30, 2013 and 2012, 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.

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CBS CORPORATION AND SUBSIDIARIES

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

7) BANK FINANCING AND DEBT

The following table sets forth the Company's debt.

   
 
  At
June 30, 2013

  At
December 31, 2012

 
   

Commercial paper

  $ 453   $  

Senior debt (1.95% – 8.875% due 2014 – 2042) (a)

    5,862     5,863  

Obligations under capital leases

    121     72  
   

Total debt

    6,436     5,935  

Less discontinued operations debt (b)

    13     13  
   

Total debt from continuing operations

    6,423     5,922  

Less commercial paper

    453      

Less current portion of long-term debt

    21     18  
   

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

  $ 5,949   $ 5,904  
   

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 million of the Company's wholly owned subsidiary, CBS Broadcasting Inc., has no guarantor.

At June 30, 2013, the Company classified $99 million of notes maturing in June 2014 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.

Commercial Paper

At June 30, 2013, the Company had $453 million of commercial paper borrowings outstanding under its $2.0 billion commercial paper program. Outstanding commercial paper borrowings have a weighted average interest rate of approximately 0.3% and maturities of less than ninety days.

Credit Facility

During the first quarter of 2013, the Company amended and extended its $2.0 billion revolving credit facility (the "Credit Facility") to March 15, 2018. The amended facility provides for lower borrowing rates and fees, as well as more favorable covenant requirements. The Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of each quarter as further described in the Credit Facility. At June 30, 2013, the Company's Consolidated Leverage ratio was approximately 1.7x.

The Consolidated Leverage Ratio reflects the ratio of the Company's indebtedness from continuing operations, adjusted to exclude certain capital lease obligations, at the end of a quarter, to the

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CBS CORPORATION AND SUBSIDIARIES

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

Company's Consolidated EBITDA for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facility as operating income plus interest income and before depreciation, amortization and certain other noncash items.

The Credit Facility is used for general corporate purposes, including support of the Company's commercial paper program. At June 30, 2013, the remaining availability under the Credit Facility, net of outstanding letters of credit, was $1.99 billion.

8) 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,
  2013
  2012
  2013
  2012
 
   

Components of net periodic cost:

                         

Service cost

  $ 10   $ 9   $   $  

Interest cost

    53     61     6     8  

Expected return on plan assets

    (68 )   (62 )        

Amortization of actuarial losses (gains) (a)

    22     18     (4 )   (4 )
   

Net periodic cost

  $ 17   $ 26   $ 2   $ 4  
   

 

   
 
  Pension Benefits   Postretirement Benefits  
Six Months Ended June 30,
  2013
  2012
  2013
  2012
 
   

Components of net periodic cost:

                         

Service cost

  $ 20   $ 18   $   $  

Interest cost

    106     122     12     16  

Expected return on plan assets

    (136 )   (124 )        

Amortization of actuarial losses (gains) (a)

    44     36     (8 )   (8 )
   

Net periodic cost

  $ 34   $ 52   $ 4   $ 8  
   

During the six months ended June 30, 2013, the Company made discretionary contributions of $150 million to pre-fund its qualified pension plans.

9) STOCKHOLDERS' EQUITY

During the second quarter of 2013, the Company repurchased 6.1 million shares of its Class B Common Stock for $296 million, at an average cost of $48.33 per share, and also received 4.3 million shares of its Class B Common stock upon the settlement of an accelerated share repurchase ("ASR") transaction that was initiated during the first quarter of 2013. During the six months ended June 30, 2013, the Company repurchased 34.5 million shares of its Class B Common Stock for $1.56 billion, at an average cost of $45.20 per share.

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CBS CORPORATION AND SUBSIDIARIES

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

During the second quarter of 2013, the Company declared a quarterly cash dividend of $.12 per share on its Class A and Class B Common stock payable on July 1, 2013. The total dividend was $74 million of which $73 million was paid on July 1, 2013 and $1 million was accrued to be paid upon vesting of RSUs. Total dividends for the six months ended June 30, 2013 were $149 million.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in the components of accumulated other comprehensive income (loss).

   
 
  Continuing Operations   Discontinued Operations    
 
 
  Cumulative
Translation
Adjustments

  Net Actuarial
Gain (Loss)
and Prior
Service Cost (a)

  Change in
Fair Value
of Cash Flow
Hedges

  Unrealized
Gain on
Securities

  Other
Comprehensive
Income

  Accumulated
Other
Comprehensive
Income (Loss)

 
   

At December 31, 2012

  $ 91   $ (948 ) $   $ 2   $ 286   $ (569 )
   

Other comprehensive income (loss) before reclassifications

    (9 )       (1 )   1     (9 )   (18 )

Reclassifications from accumulated other comprehensive income (loss) to net earnings

        22                 22  
   

Net other comprehensive income (loss)

    (9 )   22     (1 )   1     (9 )   4  
   

At June 30, 2013

  $ 82   $ (926 )   (1 ) $ 3   $ 277   $ (565 )
   

The net actuarial gain (loss) and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income (loss) is net of a tax provision of $14 million for the six months ended June 30, 2013.

10) INCOME TAXES

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

The provision for income taxes for the three months ended June 30, 2013 increased to $256 million from $228 million and for the six months ended June 30, 2013 increased to $490 million from $429 million for the comparable prior-year periods, in both cases driven by the increase in earnings from continuing operations before income taxes. The effective income tax rate increased to 34.6% for the three months ended June 30, 2013 versus 32.9% for the three months ended June 30, 2012 and increased to 33.9% for the six months ended June 30, 2013 versus 33.2% for the six months ended June 30, 2012. The higher effective income tax rates for 2013 were driven by an increase in domestic pre-tax income.

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CBS CORPORATION AND SUBSIDIARIES

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

During July 2013, the Company and the IRS settled the Company's income tax audit for the years 2008, 2009, and 2010. The IRS is expected to commence its examination of the years 2011 and 2012 in the fourth quarter of 2013. In 2013, the Company also expects to settle an audit in a foreign jurisdiction related to a previously disposed business that is accounted for as a discontinued operation. In addition, various tax years are currently under examination by state and local and other foreign tax authorities. For tax audits that are currently settled, the Company expects the reserve for uncertain tax positions to decrease during 2013 by approximately $15 million, plus accrued interest, a portion of which may impact the Company's effective income tax rate. In addition, with respect to open tax years in all jurisdictions, the Company currently believes that it is reasonably possible that the reserve for uncertain tax positions will decrease within the next twelve months; however, as it is difficult to predict the final outcome of any particular tax matter, an estimate of any additional impact to the reserve for uncertain tax positions cannot currently be determined.

11) 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, 2013, the outstanding letters of credit and surety bonds approximated $444 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.

Legal Matters

E-books Matters.    A number of lawsuits described below have been pending against the following parties relating to the sale of e-books: Apple Inc., Hachette Book Group, Inc., HarperCollins Publishers, LLC, Holtzbrinck Publishers LLC d/b/a Macmillan, Penguin Group (USA) Inc. and the Company's subsidiary, Simon & Schuster, Inc. (collectively, the "Publishing parties").

On April 10, 2012, for purposes of settlement and without any admission of wrongdoing or liability, Simon & Schuster and two of the other Publishing parties entered into a settlement stipulation and proposed final judgment (the "Stipulation") with the United States Department of Justice (the "DOJ") in connection with the DOJ's investigations of agency distribution of e-books. In furtherance of this settlement, on April 11, 2012, the DOJ filed an antitrust action in the United States District Court for the Southern District of New York against the Publishing parties and concurrently filed the Stipulation with the court. On September 7, 2012, the Stipulation was approved by the court and final judgment was entered. The Stipulation does not involve any monetary payments by Simon & Schuster, but will require the adoption of certain business practices for a 24 month period and certain compliance practices for a five year period.

On June 11, 2012, for purposes of settlement and without any admission of wrongdoing or liability, Simon & Schuster entered into a proposed settlement agreement to resolve the antitrust action filed by a number of states and the Commonwealth of Puerto Rico against several of the Publishing parties in the United States District Court for the Western District of Texas, which was transferred to the United

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CBS CORPORATION AND SUBSIDIARIES

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

States District Court for the Southern District of New York ("States") on April 30, 2012. The proposed settlement provides that, certain Publishing parties, including Simon & Schuster, will pay agreed upon amounts for consumer restitution, among other things, and also requires the adoption of certain business and compliance practices, which are substantially similar to those described in the Stipulation with the DOJ. On September 14, 2012, the court granted preliminary approval of the proposed settlement, which all states (except Minnesota), the District of Columbia and the United States territories joined. On October 15, 2012, Simon & Schuster paid the agreed upon amounts into an escrow account pending final court approval. On February 8, 2013, the court approved the proposed settlement following a final settlement approval hearing that day. On June 20, 2013, Simon & Schuster and certain other Publishing parties entered into a settlement agreement in the MDL litigation (as described below) covering claims of Minnesota residents (the "Minnesota Settlement"). The Minnesota Settlement is subject to court approval. The Company believes that the settlements with the DOJ, the States and the Minnesota Settlement will not have a material adverse effect on its results of operations, financial position or cash flows.

On December 9, 2011, the United States Judicial Panel on Multidistrict Litigation (the "MDL") issued an order consolidating in the United States District Court for the Southern District of New York various purported class action suits that private litigants had filed in federal courts in California and New York. On January 20, 2012, the plaintiffs filed a consolidated amended class action complaint with the court against the Publishing parties. These private litigant plaintiffs, who are e-book purchasers, allege that, among other things, the defendants are in violation of federal and/or state antitrust laws in connection with the sale of e-books pursuant to agency distribution arrangements between each of the publishers and e-book retailers. The consolidated amended class action complaint generally seeks multiple forms of damages for the purchase of e-books and injunctive and other relief. On March 2, 2012, the Publishing parties filed a motion to dismiss this action. On May 15, 2012, the court denied the motion to dismiss. As noted above, on June 20, 2013, Simon & Schuster entered into the Minnesota Settlement, subject to court approval. Upon approval of the Minnesota Settlement by the court, Simon & Schuster will be dismissed with prejudice from the MDL litigation and only those individuals who elect to opt out of the States settlement or the Minnesota Settlement will have any potential claims against Simon & Schuster.

Commencing on February 24, 2012, similar antitrust suits have been filed under Canadian law against the Publishing parties by private litigants in Canada, purportedly as class actions. Simon & Schuster intends to defend itself in the Canadian matters.

In addition, the European Commission (the "EC") and Canadian Competition Bureau are conducting separate competition investigations of agency distribution arrangements of e-books in this industry and Simon & Schuster is cooperating with these investigations. On September 19, 2012, the EC began accepting public comment on the terms of a proposed settlement. On December 12, 2012, following the close of that comment period, the EC accepted the proposed settlement. The settlement between the EC and certain Publishing parties, including Simon & Schuster, requires the adoption of certain business and compliance practices similar to those described in the Stipulation with the DOJ.

Claims Related to Former Businesses: Asbestos.    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

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CBS CORPORATION AND SUBSIDIARIES

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

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, 2013, the Company had pending approximately 45,320 asbestos claims, as compared with approximately 45,900 as of December 31, 2012 and 46,020 as of June 30, 2012. During the second quarter of 2013, the Company received approximately 910 new claims and closed or moved to an inactive docket approximately 1,660 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 2012 and 2011 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $21 million and $33 million, respectively. The Company's costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.

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 the past five to ten years and has remained flat 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.

Other.    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 vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state and local authorities (collectively, "litigation"). Litigation may be brought against the Company without merit, 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.

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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)

12) RESTRUCTURING CHARGES

During the year ended December 31, 2012, in a continued effort to reduce its cost structure, the Company initiated restructuring plans across several of its businesses, primarily for the reorganization of certain business operations. As a result, the Company recorded restructuring charges of $19 million, reflecting $13 million of severance costs and $6 million of costs associated with exiting contractual obligations. During the year ended December 31, 2011, the Company recorded restructuring charges of $43 million, reflecting $9 million of severance costs and $34 million of costs associated with exiting contractual obligations. As of June 30, 2013, the cumulative amount paid for the 2012 and 2011 restructuring charges was $42 million, of which $19 million was for the severance costs and $23 million was related to costs associated with contractual obligations. The Company expects to substantially utilize the remaining reserves by the end of 2013.

   
 
  Balance at
December 31, 2012

  2013
Payments

  Balance at
June 30, 2013

 
   

Entertainment

  $ 25   $ (10 ) $ 15  

Publishing

    2     (1 )   1  

Local Broadcasting

    7     (3 )   4  

Corporate

    1     (1 )    
   

Total

  $ 35   $ (15 ) $ 20  
   

13) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company uses derivative financial instruments primarily to modify its exposure to market risks from fluctuations in foreign currency exchange 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. The fair value of the Company's derivative instruments and the related activity was not material to the Consolidated Balance Sheets and Consolidated Statements of Operations for any of the periods presented.

The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar

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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)

assets or liabilities. Level 3 is based on unobservable inputs reflecting the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability.

   
At June 30, 2013
  Level 1
  Level 2
  Level 3
  Total
 
   

Assets:

                         

Investments

  $ 70   $   $   $ 70  

Foreign currency hedges

        6         6  
   

Total Assets

  $ 70   $ 6   $   $ 76  
   

Liabilities:

                         

Deferred compensation

  $   $ 225   $   $ 225  

Foreign currency hedges

        2         2  
   

Total Liabilities

  $   $ 227   $   $ 227  
   

 

   
At December 31, 2012
  Level 1
  Level 2
  Level 3
  Total
 
   

Assets:

                         

Investments

  $ 70   $   $   $ 70  
   

Total Assets

  $ 70   $   $   $ 70  
   

Liabilities:

                         

Deferred compensation

  $   $ 201   $   $ 201  

Foreign currency hedges

        2         2  
   

Total Liabilities

  $   $ 203   $   $ 203  
   

The fair value of investments is determined based on publicly quoted market prices in active markets. 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.

The Company's carrying value of financial instruments approximates fair value, except for differences with respect to the notes and debentures. At both June 30, 2013 and December 31, 2012, the carrying value of the senior debt was $5.86 billion and the fair value, which is estimated, based on quoted market prices for similar liabilities (Level 2) and includes accrued interest, was $6.72 billion and $7.16 billion, respectively.

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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)

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. Outdoor Europe, previously included in the Outdoor segment, has been presented as a discontinued operation. As a result, the Outdoor segment has been renamed Outdoor Americas. In addition, Residual Costs, which was previously presented as a separate line item in the Company's segment presentation, is now included within Corporate. Prior periods have been reclassified to conform to this presentation.

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Revenues:

                         

Entertainment

  $ 2,008   $ 1,707   $ 4,547   $ 4,025  

Cable Networks

    518     446     996     898  

Publishing

    189     189     360     365  

Local Broadcasting

    698     704     1,336     1,326  

Outdoor Americas

    335     334     616     622  

Eliminations

    (49 )   (51 )   (116 )   (111 )
   

Total Revenues

  $ 3,699   $ 3,329   $ 7,739   $ 7,125  
   

Revenues generated between segments primarily reflect advertising sales and television and feature film 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,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Intercompany Revenues:

                         

Entertainment

  $ 42   $ 44   $ 104   $ 97  

Local Broadcasting

    4     5     7     9  

Outdoor Americas

    3     2     5     5  
   

Total Intercompany Revenues

  $ 49   $ 51   $ 116   $ 111  
   

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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 Company presents segment operating income (loss) before depreciation and amortization ("OIBDA"), restructuring charges and impairment charges ("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,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Segment OIBDA:

                         

Entertainment

  $ 429   $ 426   $ 909   $ 837  

Cable Networks

    207     190     438     399  

Publishing

    21     9     33     19  

Local Broadcasting

    255     248     454     419  

Outdoor Americas

    107     103     181     179  

Corporate

    (67 )   (65 )   (147 )   (135 )
   

Total Segment OIBDA

    952     911     1,868     1,718  

Impairment charges

                (11 )

Depreciation and amortization

    (114 )   (119 )   (230 )   (238 )
   

Operating income

    838     792     1,638     1,469  

Interest expense

    (93 )   (104 )   (188 )   (214 )

Interest income

    2     1     4     3  

Gain on early extinguishment of debt

                25  

Other items, net

    (7 )   3     (9 )   8  
   

Earnings from continuing operations before income taxes and equity in loss of investee companies

    740     692     1,445     1,291  

Provision for income taxes

    (256 )   (228 )   (490 )   (429 )

Equity in loss of investee companies, net of tax

    (8 )   (12 )   (16 )   (16 )
   

Net earnings from continuing operations

    476     452     939     846  

Net loss from discontinued operations, net of tax

    (4 )   (25 )   (24 )   (56 )
   

Net earnings

  $ 472   $ 427   $ 915   $ 790  
   

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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,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Operating Income (Loss):

                         

Entertainment

  $ 391   $ 385   $ 831   $ 755  

Cable Networks

    202     184     429     388  

Publishing

    20     7     30     15  

Local Broadcasting

    234     225     410     363  

Outdoor Americas

    65     62     97     95  

Corporate

    (74 )   (71 )   (159 )   (147 )
   

Total Operating Income

  $ 838   $ 792   $ 1,638   $ 1,469  
   

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Depreciation and Amortization:

                         

Entertainment

  $ 38   $ 41   $ 78   $ 82  

Cable Networks

    5     6     9     11  

Publishing

    1     2     3     4  

Local Broadcasting

    21     23     44     45  

Outdoor Americas

    42     41     84     84  

Corporate

    7     6     12     12  
   

Total Depreciation and Amortization

  $ 114   $ 119   $ 230   $ 238  
   

   
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Stock-based Compensation:

                         

Entertainment

  $ 15   $ 14   $ 30   $ 27  

Cable Networks

    2     2     4     3  

Publishing

    1         2     1  

Local Broadcasting

    7     6     14     12  

Outdoor Americas

    1     2     3     3  

Corporate

    23     15     56     34  
   

Total Stock-based Compensation

  $ 49   $ 39   $ 109   $ 80  
   

-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,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Capital Expenditures:

                         

Entertainment

  $ 24   $ 19   $ 43   $ 36  

Cable Networks

    2     3     4     4  

Publishing

    1         1      

Local Broadcasting

    12     14     18     24  

Outdoor Americas

    9     10     15     17  

Corporate

    1     3     2     3  
   

Total Capital Expenditures

  $ 49   $ 49   $ 83   $ 84  
   

   
 
  At
June 30, 2013

  At
December 31, 2012

 
   

Assets:

             

Entertainment

  $ 8,665   $ 9,023  

Cable Networks

    1,880     1,750  

Publishing

    959     1,033  

Local Broadcasting

    9,609     9,614  

Outdoor Americas

    3,435     3,542  

Corporate

    683     1,026  

Discontinued operations

    462     478  
   

Total Assets

  $ 25,693   $ 26,466  
   

-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 7). 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. Changes to the entities that comprise the guarantor group are reflected for all periods presented. In addition, the operations of Outdoor Europe have been presented as a discontinued operation for all periods presented (See Note 4).

   
 
  Statement of Operations
For the Three Months Ended June 30, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 37   $ 3   $ 3,659   $   $ 3,699  
   

Expenses:

                               

Operating

    17     2     2,045         2,064  

Selling, general and administrative

    14     70     599         683  

Depreciation and amortization

    1     3     110         114  
   

Total expenses

    32     75     2,754         2,861  
   

Operating income (loss)

    5     (72 )   905         838  

Interest (expense) income, net

    (114 )   (91 )   114         (91 )

Other items, net

        5     (12 )       (7 )
   

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

    (109 )   (158 )   1,007         740  

Benefit (provision) for income taxes

    38     55     (349 )       (256 )

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

    543     289     (8 )   (832 )   (8 )
   

Net earnings from continuing operations

    472     186     650     (832 )   476  

Net loss from discontinued operations, net of tax

            (4 )       (4 )
   

Net earnings

  $ 472   $ 186   $ 646   $ (832 ) $ 472  
   

Comprehensive income

 
$

473
 
$

185
 
$

637
 
$

(822

)

$

473
 
   

-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, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 72   $ 6   $ 7,661   $   $ 7,739  
   

Expenses:

                               

Operating

    34     4     4,500         4,538  

Selling, general and administrative

    31     147     1,155         1,333  

Depreciation and amortization

    3     7     220         230  
   

Total expenses

    68     158     5,875         6,101  
   

Operating income (loss)

    4     (152 )   1,786         1,638  

Interest (expense) income, net

    (229 )   (180 )   225         (184 )

Other items, net

    (1 )   8     (16 )       (9 )
   

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

    (226 )   (324 )   1,995         1,445  

Benefit (provision) for income taxes

    78     112     (680 )       (490 )

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

    1,063     577     (16 )   (1,640 )   (16 )
   

Net earnings from continuing operations

    915     365     1,299     (1,640 )   939  

Net loss from discontinued operations, net of tax

            (24 )       (24 )
   

Net earnings

  $ 915   $ 365   $ 1,275   $ (1,640 ) $ 915  
   

Comprehensive income

 
$

919
 
$

371
 
$

1,251
 
$

(1,622

)

$

919
 
   

-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, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 35   $ 4   $ 3,290   $   $ 3,329  
   

Expenses:

                               

Operating

    16     2     1,735         1,753  

Selling, general and administrative

    21     57     587         665  

Depreciation and amortization

    2     3     114         119  
   

Total expenses

    39     62     2,436         2,537  
   

Operating income (loss)

    (4 )   (58 )   854         792  

Interest (expense) income, net

    (123 )   (87 )   107         (103 )

Other items, net

    (1 )   2     2         3  
   

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

    (128 )   (143 )   963         692  

Benefit (provision) for income taxes

    42     47     (317 )       (228 )

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

    513     270     (12 )   (783 )   (12 )
   

Net earnings from continuing operations

    427     174     634     (783 )   452  

Net loss from discontinued operations, net of tax

            (25 )       (25 )
   

Net earnings

  $ 427   $ 174   $ 609   $ (783 ) $ 427  
   

Comprehensive income

 
$

414
 
$

177
 
$

585
 
$

(762

)

$

414
 
   

-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, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 67   $ 8   $ 7,050   $   $ 7,125  
   

Expenses:

                               

Operating

    34     4     4,062         4,100  

Selling, general and administrative

    43     119     1,145         1,307  

Impairment charges

            11         11  

Depreciation and amortization

    3     7     228         238  
   

Total expenses

    80     130     5,446         5,656  
   

Operating income (loss)

    (13 )   (122 )   1,604         1,469  

Interest (expense) income, net

    (252 )   (173 )   214         (211 )

Gain on early extinguishment of debt

    25                 25  

Other items, net

        (1 )   9         8  
   

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

    (240 )   (296 )   1,827         1,291  

Benefit (provision) for income taxes

    80     99     (608 )       (429 )

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

    950     614     (16 )   (1,564 )   (16 )
   

Net earnings from continuing operations

    790     417     1,203     (1,564 )   846  

Net loss from discontinued operations, net of tax

            (56 )       (56 )
   

Net earnings

  $ 790   $ 417   $ 1,147   $ (1,564 ) $ 790  
   

Comprehensive income

 
$

796
 
$

414
 
$

1,138
 
$

(1,552

)

$

796
 
   

-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, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Assets

                               

Cash and cash equivalents

  $ 42   $ 1   $ 239   $   $ 282  

Receivables, net

    24     2     2,972         2,998  

Programming and other inventory

    4     3     442         449  

Prepaid expenses and other current assets

    110     22     931     (22 )   1,041  
   

Total current assets

    180     28     4,584     (22 )   4,770  
   

Property and equipment

    36     118     4,763         4,917  

Less accumulated depreciation and amortization

    7     76     2,606         2,689  
   

Net property and equipment

    29     42     2,157         2,228  
   

Programming and other inventory

    1     1     1,543         1,545  

Goodwill

    98     62     8,409         8,569  

Intangible assets

            6,480         6,480  

Investments in consolidated subsidiaries

    39,705     9,703         (49,408 )    

Other assets

    152     16     1,933         2,101  

Intercompany

        3,411     17,541     (20,952 )    
   

Total Assets

  $ 40,165   $ 13,263   $ 42,647   $ (70,382 ) $ 25,693  
   

Liabilities and Stockholders' Equity

                               

Accounts payable

  $ 1   $ 10   $ 207   $   $ 218  

Participants' share and royalties payable

            861         861  

Program rights

    5     2     393         400  

Commercial paper

    453                 453  

Current portion of long-term debt

    5         16         21  

Accrued expenses and other current liabilities

    342     233     1,319     (22 )   1,872  
   

Total current liabilities

    806     245     2,796     (22 )   3,825  
   

Long-term debt

    5,792         157         5,949  

Other liabilities

    3,014     269     3,035         6,318  

Intercompany

    20,952             (20,952 )    

Stockholders' Equity:

                               

Preferred Stock

            128     (128 )    

Common Stock

    1     123     1,136     (1,259 )   1  

Additional paid-in capital

    43,450         61,690     (61,690 )   43,450  

Retained earnings (deficit)

    (25,854 )   12,958     (21,774 )   8,816     (25,854 )

Accumulated other comprehensive income (loss)

    (565 )   (1 )   279     (278 )   (565 )
   

    17,032     13,080     41,459     (54,539 )   17,032  

Less treasury stock, at cost

    7,431     331     4,800     (5,131 )   7,431  
   

Total Stockholders' Equity

    9,601     12,749     36,659     (49,408 )   9,601  
   

Total Liabilities and Stockholders' Equity

  $ 40,165   $ 13,263   $ 42,647   $ (70,382 ) $ 25,693  
   

-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, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Assets

                               

Cash and cash equivalents

  $ 254   $ 1   $ 453   $   $ 708  

Receivables, net

    31     2     3,104         3,137  

Programming and other inventory

    5     3     851         859  

Prepaid expenses and other current assets

    142     14     886     (26 )   1,016  
   

Total current assets

    432     20     5,294     (26 )   5,720  
   

Property and equipment

    39     117     4,832         4,988  

Less accumulated depreciation and amortization

    8     69     2,640         2,717  
   

Net property and equipment

    31     48     2,192         2,271  
   

Programming and other inventory

    3     2     1,577         1,582  

Goodwill

    98     62     8,407         8,567  

Intangible assets

            6,515         6,515  

Investments in consolidated subsidiaries

    38,658     9,128         (47,786 )    

Other assets

    171     14     1,626         1,811  

Intercompany

        3,655     16,122     (19,777 )    
   

Total Assets

  $ 39,393   $ 12,929   $ 41,733   $ (67,589 ) $ 26,466  
   

Liabilities and Stockholders' Equity

                               

Accounts payable

  $ 2   $ 6   $ 378   $   $ 386  

Participants' share and royalties payable

            953         953  

Program rights

    6     4     445         455  

Current portion of long-term debt

    5         13         18  

Accrued expenses and other current liabilities

    345     286     1,524     (26 )   2,129  
   

Total current liabilities

    358     296     3,313     (26 )   3,941  
   

Long-term debt

    5,793         111         5,904  

Other liabilities

    3,252     255     2,901         6,408  

Intercompany

    19,777             (19,777 )    

Stockholders' Equity:

                               

Preferred Stock

            128     (128 )    

Common Stock

    1     123     1,136     (1,259 )   1  

Additional paid-in capital

    43,424         61,690     (61,690 )   43,424  

Retained earnings (deficit)

    (26,769 )   12,593     (23,049 )   10,456     (26,769 )

Accumulated other comprehensive income (loss)

    (569 )   (7 )   303     (296 )   (569 )
   

    16,087     12,709     40,208     (52,917 )   16,087  

Less treasury stock, at cost

    5,874     331     4,800     (5,131 )   5,874  
   

Total Stockholders' Equity

    10,213     12,378     35,408     (47,786 )   10,213  
   

Total Liabilities and Stockholders' Equity

  $ 39,393   $ 12,929   $ 41,733   $ (67,589 ) $ 26,466  
   

-30-


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, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (579 ) $ (135 ) $ 1,765   $   $ 1,051  
   

Investing Activities:

                               

Acquisitions, net of cash acquired

            (30 )       (30 )

Capital expenditures

        (2 )   (81 )       (83 )

Investments in and advances to investee companies

            (139 )       (139 )

Proceeds from sale of investments

    15     1     2         18  

Proceeds from dispositions

            12         12  
   

Net cash flow provided by (used for) investing activities from continuing operations

    15     (1 )   (236 )       (222 )
   

Net cash flow used for investing activities from discontinued operations

            (8 )       (8 )
   

Net cash flow provided by (used for) investing activities

    15     (1 )   (244 )       (230 )
   

Financing Activities:

                               

Proceeds from short-term debt borrowings, net

    452                 452  

Payment of capital lease obligations

            (9 )       (9 )

Payment of contingent consideration

            (30 )       (30 )

Dividends

    (155 )               (155 )

Purchase of Company common stock

    (1,579 )               (1,579 )

Payment of payroll taxes in lieu of issuing shares for
stock-based compensation

    (139 )               (139 )

Proceeds from exercise of stock options

    98                 98  

Excess tax benefit from stock-based compensation

    119                 119  

Other financing activities

    (4 )               (4 )

Increase (decrease) in intercompany

    1,560     136     (1,696 )        
   

Net cash flow provided by (used for) financing activities

    352     136     (1,735 )       (1,247 )
   

Net decrease in cash and cash equivalents

    (212 )       (214 )       (426 )

Cash and cash equivalents at beginning of period

    254     1     453         708  
   

Cash and cash equivalents at end of period

  $ 42   $ 1   $ 239   $   $ 282  
   

-31-


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, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (450 ) $ (136 ) $ 1,844   $   $ 1,258  
   

Investing Activities:

                               

Acquisitions, net of cash acquired

            (69 )       (69 )

Capital expenditures

        (3 )   (81 )       (84 )

Investments in and advances to investee companies

            (39 )       (39 )

Proceeds from sale of investments

    6                 6  

Proceeds from dispositions

            1         1  
   

Net cash flow provided by (used for) investing activities from continuing operations

    6     (3 )   (188 )       (185 )
   

Net cash flow used for investing activities from discontinued operations

            (9 )       (9 )
   

Net cash flow provided by (used for) investing activities

    6     (3 )   (197 )       (194 )
   

Financing Activities:

                               

Proceeds from issuance of notes

    1,567                 1,567  

Repayment of notes

    (700 )               (700 )

Payment of capital lease obligations

            (10 )       (10 )

Payment of contingent consideration

            (33 )       (33 )

Dividends

    (135 )               (135 )

Purchase of Company common stock                        

    (564 )               (564 )

Payment of payroll taxes in lieu of issuing shares for stock-based compensation

    (105 )               (105 )

Proceeds from exercise of stock options

    71                 71  

Excess tax benefit from stock-based compensation

    73                 73  

Increase (decrease) in intercompany

    1,665     139     (1,804 )        
   

Net cash flow provided by (used for) financing activities

    1,872     139     (1,847 )       164  
   

Net increase (decrease) in cash and cash equivalents

    1,428         (200 )       1,228  

Cash and cash equivalents at beginning of period

    134     1     525         660  
   

Cash and cash equivalents at end of period

  $ 1,562   $ 1   $ 325   $   $ 1,888  
   

-32-


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 of CBS Corporation (the "Company" or "CBS Corp.") 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, 2012.

Overview

The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable program services, television content production and distribution, motion pictures, publishing, radio stations, television stations, interactive businesses, and outdoor advertising. The Company's principal strategy is to create and acquire content that is widely accepted by audiences and generate both advertising and non-advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company also continues to pursue opportunities to grow its revenue streams, including licensing its content for exhibition on digital and other platforms; expanding the distribution of its content internationally; securing compensation from multichannel video programming distributors ("MVPDs") and television stations affiliated with the CBS Television Network; and increasingly monetizing content viewership and ratings as industry measurements evolve to reflect changing viewership habits. The Company's continued ability to capitalize on these and other emerging opportunities will provide it with incremental advertising and non-advertising revenues and serves to de-risk and diversify the Company's business model.

For the three months ended June 30, 2013, the Company's diluted earnings per share ("EPS") from continuing operations of $.76 increased $.08, or 12%, from $.68 for the same prior year period, principally reflecting 11% higher revenues, 6% higher operating income and lower weighted average shares outstanding due to the Company's ongoing share repurchases. Revenue growth was driven by 22% higher content licensing and distribution revenues, led by growth in licensing revenues from digital streaming and international syndication, as well as an 18% increase in affiliate and subscription fee revenues. Advertising revenues increased 5%, driven by the timing of the NCAA Division I Men's Basketball Championship ("NCAA Tournament"), which aired during the second quarter of 2013 versus the first quarter of 2012, as well as the strength of Network advertising. Operating income growth reflects the increase in revenues which was partially offset by a higher investment in television content and higher sports programming costs mainly from the timing of the semifinals of the NCAA Tournament.

For the six months ended June 30, 2013, diluted EPS from continuing operations of $1.49 increased $.22, or 17%, from $1.27 for the same prior-year period, driven by growth in revenues of 9% and operating income of 12%, and lower weighted average shares outstanding due to the Company's ongoing share repurchases. Revenue and operating income growth was driven by 7% higher advertising revenues mainly from the broadcast of Super Bowl XLVII on the CBS Television Network, growth in cable network affiliate fees and retransmission revenues, and increased revenues from the licensing of television programming. The operating income comparison was also impacted by higher investment in television content.

For the remainder of 2013 the Company expects to benefit from continued growth in affiliate and subscription fee revenues, including growth in retransmission revenues, cable network affiliate fees and fees received from the CBS Television Network's affiliated television stations ("network affiliation fees"), as well as higher television license fees driven by the first-cycle domestic syndication availabilities of two television series. However, the Company's overall financial performance will be impacted by many factors, including, the health of the economy and audience acceptance of the Company's programming.

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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)

During the quarter, the Company repurchased 6.1 million shares of its Class B Common Stock for $296 million, at an average cost of $48.33 per share, and also received 4.3 million shares of its Class B Common Stock upon the settlement of the accelerated share repurchase ("ASR") transaction that was initiated during the first quarter of 2013. For the six months ended June 30, 2013, the Company repurchased 34.5 million shares of its Class B Common Stock for $1.56 billion, at an average cost of $45.20 per share. On July 25, 2013, the Company announced a $5.1 billion increase to the authorization under its share repurchase program to a total availability of $6.0 billion.

Free cash flow for the six months ended June 30, 2013 was $990 million compared to $1.18 billion for the same prior-year period. The Company generated operating cash flow from continuing operations of $1.07 billion for the six months ended June 30, 2013 versus $1.27 billion for the comparable prior-year period. These decreases primarily reflect a $150 million contribution to pre-fund the Company's qualified pension plans during 2013 and higher investment in television content. Free cash flow is a non-GAAP financial measure. See "Reconciliation of Non-GAAP Financial Information" on page 40 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with accounting principles generally accepted in the United States ("GAAP"), to free cash flow.

In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of the Company's outdoor advertising business in Europe, which includes an interest in an outdoor business in Asia ("Outdoor Europe"), for approximately $225 million. The transaction is expected to be completed in 2013, subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.

During the first quarter of 2013, the Company submitted a private letter ruling request with the Internal Revenue Service ("IRS") to qualify its Outdoor Americas business as a real estate investment trust ("REIT"). During the second quarter of 2013, a preliminary registration statement was filed with the Securities and Exchange Commission ("SEC") for the proposed initial public offering of the common stock of CBS Outdoor Americas Inc. The Company currently expects to dispose of the shares of CBS Outdoor Americas Inc. that it will own after the completion of the offering. These actions are subject to customary approvals and market conditions.

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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, 2013 versus Three and Six Months Ended June 30, 2012

Revenues

The following tables present the Company's consolidated revenues by type for the three and six months ended June 30, 2013 and 2012.

 
 
  Three Months Ended June 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
Revenues by Type
  2013
  2012
  $
  %
 

Advertising

  $ 2,090     56 % $ 1,995     60 % $ 95   5%    

Content licensing and distribution

    997     27     816     24     181   22        

Affiliate and subscription fees

    549     15     465     14     84   18        

Other

    63     2     53     2     10   19        
 

Total Revenues

  $ 3,699     100 % $ 3,329     100 % $ 370   11%    
 

 

 
 
  Six Months Ended June 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
Revenues by Type
  2013
  2012
  $
  %
 

Advertising

  $ 4,545     59 % $ 4,265     60 % $ 280   7%    

Content licensing and distribution

    2,005     26     1,833     26     172   9        

Affiliate and subscription fees

    1,068     14     920     13     148   16        

Other

    121     1     107     1     14   13        
 

Total Revenues

  $ 7,739     100 % $ 7,125     100 % $ 614   9%    
 

Advertising revenues for the three months ended June 30, 2013 increased $95 million, or 5%, to $2.09 billion from $2.00 billion for the same prior-year period, principally driven by the timing of the semifinals of the NCAA Tournament, which aired during the second quarter of 2013 versus the first quarter of 2012, as well as underlying growth at the CBS Television Network. Local Broadcasting advertising decreased 2% mainly reflecting lower political advertising revenues and a steady advertising marketplace. For the six months ended June 30, 2013, advertising revenues increased $280 million, or 7%, to $4.55 billion from $4.27 billion for the same prior-year period, principally driven by higher Network advertising, mainly from the 2013 broadcast of the Super Bowl, which is broadcast on the CBS Television Network once every three years, and growth at CBS Interactive. These increases were partially offset by lower political advertising revenues.

In the second half of 2013, local advertising revenues will continue to be negatively impacted by lower political advertising spending as 2012 benefitted from the U.S. presidential election. National advertising revenues during the third quarter of 2013 are expected to benefit from more original summer programming, as well as the comparison against 2012 which included the broadcast of programming against the highly rated 2012 Summer Olympics and pre-emptions for the Republican and Democratic national conventions. In addition, the Company recently concluded its upfront advertising sales season for the 2013/2014 television broadcast season, during which a significant portion of advertising spots for CBS Television Network's non-sports programming is sold. The upfront sales resulted in pricing increases that are expected to positively impact revenues during the season, which

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

runs from the middle of September 2013 through the middle of September 2014. However, overall advertising revenues for the Company will also be dependent on ratings for its programming and market conditions, including demand in the scatter advertising market, when advertisers purchase the remaining advertising spots closer to the broadcast of the related programming.

Content licensing and distribution revenues for the three months ended June 30, 2013 increased $181 million, or 22%, to $997 million and for the six months ended June 30, 2013 increased $172 million, or 9%, to $2.01 billion. These increases were primarily driven by higher revenues from the licensing of programming for digital streaming and international syndication. For the six-month period, the increase was also partially offset by a significant domestic syndication sale in 2012. Content licensing and distribution revenues are expected to grow in the second half of 2013, reflecting the benefit from the first-cycle domestic syndication availabilities of The Good Wife and NCIS: Los Angeles.

Affiliate and subscription fees increased $84 million, or 18%, to $549 million for the three months ended June 30, 2013 and for the six months ended June 30, 2013 increased $148 million, or 16%, to $1.07 billion. These increases were principally driven by revenues from a pay-per-view boxing event; growth in retransmission revenues and network affiliation fees of 57% and 59% for the three and six months ended June 30, 2013, respectively; as well as an increase in Cable Networks affiliate fees. Cable Networks affiliate fees increased 5% and 6% for the three and six months ended June 30, 2013, respectively, reflecting growth in subscriptions and rate increases at Showtime Networks, CBS Sports Network and Smithsonian Networks. The Company expects continued growth in affiliate and subscription fee revenues for the remainder of 2013.

Other revenues, which include ancillary fees for Entertainment, Cable Networks, Local Broadcasting and Outdoor Americas operations, increased $10 million, or 19%, to $63 million for the three months ended June 30, 2013 and increased $14 million, or 13%, to $121 million for the six months ended June 30, 2013, principally reflecting higher ancillary digital and network revenues.

International Revenues

The Company generated approximately 17% and 15% of its total revenues from international regions for the three and six months ended June 30, 2013, respectively, versus 14% and 13% for the three and six months ended June 30, 2012, respectively.

Operating Expenses

The following tables present the Company's consolidated operating expenses by type for the three and six months ended June 30, 2013 and 2012.

 
 
  Three Months Ended June 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
Operating Expenses by Type
  2013
  2012
  $
  %
 

Programming

  $ 644     31 % $ 473     27 % $ 171   36%    

Production

    587     28     517     30     70   14        

Billboard, transit and other occupancy

    159     8     163     9     (4 ) (2)        

Participation, distribution and royalty

    285     14     212     12     73   34        

Other

    389     19     388     22     1   —        
 

Total Operating Expenses

  $ 2,064     100 % $ 1,753     100 % $ 311   18%    
 

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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)


 
 
  Six Months Ended June 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

  Increase/(Decrease)
Operating Expenses by Type
  2013
  2012
  $
  %
 

Programming

  $ 1,646     36 % $ 1,360     33 % $ 286   21%    

Production

    1,236     27     1,146     28     90   8        

Billboard, transit and other occupancy

    313     7     311     8     2   1        

Participation, distribution and royalty

    583     13     523     13     60   11        

Other

    760     17     760     18       —        
 

Total Operating Expenses

  $ 4,538     100 % $ 4,100     100 % $ 438   11%    
 

Programming expenses for the three months ended June 30, 2013 increased $171 million, or 36%, to $644 million from $473 million for the same prior-year period, primarily driven by higher sports programming costs from the timing of the semifinals of the NCAA Tournament, which aired in the second quarter of 2013 versus the first quarter of 2012, higher programming costs associated with a pay-per-view boxing event and higher investment in acquired television programming. For the six months ended June 30, 2013, programming expenses increased $286 million, or 21%, to $1.65 billion from $1.36 billion for the same prior-year period, primarily reflecting higher sports programming costs mainly associated with the CBS Television Network's 2013 broadcast of the Super Bowl, which is broadcast on CBS once every three years, and higher investment in acquired television programming.

Production expenses increased $70 million, or 14%, to $587 million for the three months ended June 30, 2013 and increased $90 million, or 8%, to $1.24 billion for the six months ended June 30, 2013, primarily driven by higher production costs associated with increased revenues from the licensing of television programming. For the six-month period, the increase also reflects higher production costs associated with the Super Bowl broadcast in 2013. For the remainder of 2013, the Company expects production costs to increase mainly reflecting cost amortization associated with revenues from first-cycle domestic syndication availabilities.

Billboard, transit and other occupancy expenses for the three months ended June 30, 2013 decreased $4 million, or 2%, to $159 million from $163 million for the same prior-year period primarily due to lower costs associated with the renewal of a transit contract. For the six months ended June 30, 2013, billboard, transit and other occupancy expenses increased $2 million, or 1%, to $313 million from $311 million for the same prior-year period, primarily reflecting higher billboard lease and other occupancy costs, partially offset by lower transit costs.

Participation, distribution and royalty expenses increased $73 million, or 34%, to $285 million for the three months ended June 30, 2013 and increased $60 million, or 11%, to $583 million for the six months ended June 30, 2013, principally due to higher participations associated with higher revenues from the licensing of television programming.

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 $18 million, or 3%, to $683 million for the three months ended June 30, 2013, and increased $26 million, or 2%, to $1.33 billion for the six months ended June 30, 2013, primarily due to higher stock based compensation and other expense increases associated with the increase in the Company's stock price; higher advertising expenses; and professional fees associated with the conversion of Outdoor Americas to a REIT. These increases were

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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)

partially offset by costs incurred during 2012 relating to a Publishing legal matter. Pension and postretirement benefits costs decreased $11 million to $19 million for the second quarter of 2013 and decreased $22 million to $38 million for the six months ended June 30, 2013 versus the comparable prior-year periods, principally due to the benefit from pre-funding pension plans in 2012 and the favorable performance of pension plan assets in 2012. SG&A expenses as a percentage of revenues for the three and six months ended June 30, 2013 were 18% and 17%, respectively, versus 20% and 18% for the same prior-year periods.

Impairment Charges

In April 2012, in connection with the sale of its five owned radio stations in West Palm Beach, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill.

Depreciation and Amortization

For the three months ended June 30, 2013, depreciation and amortization decreased $5 million, or 4%, to $114 million and for the six months ended June 30, 2013, depreciation and amortization decreased $8 million, or 3%, to $230 million.

Interest Expense

For the three months ended June 30, 2013, interest expense decreased $11 million, or 11%, to $93 million and for the six months ended June 30, 2013, interest expense decreased $26 million, or 12%, to $188 million. These decreases were driven by the Company's debt refinancing during 2012. The Company had $5.97 billion of long-term debt outstanding at June 30, 2013 and $6.80 billion at June 30, 2012, at weighted average interest rates of 6.0% and 6.1%, respectively. At June 30, 2013, the Company also had $453 million of commercial paper outstanding at a weighted average interest rate of 0.3%.

Interest Income

For the three months ended June 30, 2013, interest income increased $1 million to $2 million and for the six months ended June 30, 2013, interest income increased $1 million to $4 million.

Gain on Early Extinguishment of Debt

For the six months ended June 30, 2012, gain on early extinguishment of debt of $25 million reflected the pre-tax gain recognized upon the redemption of the Company's $700 million of 6.75% senior notes due 2056.

Other Items, Net

For all periods presented, "Other items, net" primarily consisted of foreign exchange gains and losses.

Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2013 increased to $256 million from $228 million and for the six months ended June 30, 2013 increased to $490 million from $429 million for the comparable prior-year periods, in both cases driven by the increase in earnings from continuing operations before income taxes. The effective income tax rate increased to 34.6% for

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

the three months ended June 30, 2013 versus 32.9% for the three months ended June 30, 2012 and increased to 33.9% for the six months ended June 30, 2013 versus 33.2% for the six months ended June 30, 2012. The higher effective income tax rates for 2013 were driven by an increase in domestic pre-tax income.

Equity in Loss of Investee Companies, Net of Tax

Equity in loss of investee companies reflects the Company's share of the operating results of its equity investments. For the three months ended June 30, 2013, equity in loss of investee companies, net of tax, decreased $4 million to a loss of $8 million and for the six months ended June 30, 2013, equity in loss of investee companies, net of tax, remained flat at a loss of $16 million compared to the same prior-year period.

Net Earnings from Continuing Operations

The Company reported net earnings from continuing operations of $476 million for the three months ended June 30, 2013 versus $452 million for the three months ended June 30, 2012 and $939 million for the six months ended June 30, 2013 versus $846 million for the six months ended June 30, 2012.

Net Loss from Discontinued Operations

In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of Outdoor Europe for approximately $225 million. The transaction is expected to be completed in 2013. Upon completion, the Company expects to record an after-tax charge of approximately $100 million associated with exiting an unprofitable contractual arrangement and for the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction will become third-party guarantees. The actual amount of the charge may be different from the Company's current expectations. This transaction is subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.

The following table sets forth details of the net loss from discontinued operations for the three and six months ended June 30, 2013 and 2012.

 
 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   
 
  2013
  2012
  2013
  2012
 

Revenues from discontinued operations

  $ 139   $ 147   $ 262   $ 275      
 

Loss from discontinued operations before income taxes

  $ (11 ) $ (29 ) $ (47 ) $ (57)    

Income tax benefit

    7     4     23     1      
 

Net loss from discontinued operations, net of tax

  $ (4 ) $ (25 ) $ (24 ) $ (56)    
 

Net Earnings and Diluted EPS

For the three months ended June 30, 2013, net earnings of $472 million, or $.76 per diluted share, increased from $427 million, or $.65 per diluted share, for the same prior-year period. For the six months ended June 30, 2013, net earnings of $915 million, or $1.45 per diluted share, increased from

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

$790 million, or $1.19 per diluted share, for the same prior-year period. These increases were mainly driven by the growth in operating income. The increase in diluted EPS also reflected lower weighted average shares outstanding as a result of the Company's ongoing share repurchase program.

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 operating cash flow from discontinued operations and less capital expenditures. The Company's calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash that is directly related to the Company's operations. The Company's net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.

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

As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, either net cash flow provided by (used for) 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, 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 that are not reflected in free cash flow.

The following table presents a reconciliation of the Company's net cash flow provided by operating activities to free cash flow.

 
 
  Six Months Ended
June 30,
   
 
  2013
  2012
   
 

Net cash flow provided by operating activities

  $ 1,051   $ 1,258    

Capital expenditures

    (83 )   (84 )  

Exclude net cash flow used for operating activities from
discontinued operations

    (22 )   (10 )  
 

Free cash flow

  $ 990   $ 1,184    
 

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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)

Segment Results of Operations

The following tables present the Company's revenues, segment operating income (loss) before depreciation and amortization ("OIBDA"), restructuring charges and impairment charges ("Segment OIBDA"), operating income (loss), and depreciation and amortization by segment, for the three and six months ended June 30, 2013 and 2012. 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.

Outdoor Europe, previously included in the Outdoor segment, has been presented as a discontinued operation. As a result, the Outdoor segment has been renamed Outdoor Americas. In addition, Residual Costs, which was previously presented as a separate line item in the Company's segment presentation, is now included within Corporate. Prior periods have been reclassified to conform to this presentation.

 
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues:

                           

Entertainment

  $ 2,008   $ 1,707   $ 4,547   $ 4,025    

Cable Networks

    518     446     996     898    

Publishing

    189     189     360     365    

Local Broadcasting

    698     704     1,336     1,326    

Outdoor Americas

    335     334     616     622    

Eliminations

    (49 )   (51 )   (116 )   (111 )  
 

Total Revenues

  $ 3,699   $ 3,329   $ 7,739   $ 7,125    
 

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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,
   
 
   
 
  2013
  2012
  2013
  2012
   
 

Segment OIBDA:

                           

Entertainment

  $ 429   $ 426   $ 909   $ 837    

Cable Networks

    207     190     438     399    

Publishing

    21     9     33     19    

Local Broadcasting

    255     248     454     419    

Outdoor Americas

    107     103     181     179    

Corporate

    (67 )   (65 )   (147 )   (135 )  
 

Total Segment OIBDA

    952     911     1,868     1,718    

Impairment charges

                (11 )  

Depreciation and amortization

    (114 )   (119 )   (230 )   (238 )  
 

Total Operating Income

  $ 838   $ 792   $ 1,638   $ 1,469    
 

Operating Income (Loss):

                           

Entertainment

  $ 391   $ 385   $ 831   $ 755    

Cable Networks

    202     184     429     388    

Publishing

    20     7     30     15    

Local Broadcasting

    234     225     410     363    

Outdoor Americas

    65     62     97     95    

Corporate

    (74 )   (71 )   (159 )   (147 )  
 

Total Operating Income

  $ 838   $ 792   $ 1,638   $ 1,469    
 

Depreciation and Amortization:

                           

Entertainment

  $ 38   $ 41   $ 78   $ 82    

Cable Networks

    5     6     9     11    

Publishing

    1     2     3     4    

Local Broadcasting

    21     23     44     45    

Outdoor Americas

    42     41     84     84    

Corporate

    7     6     12     12    
 

Total Depreciation and Amortization

  $ 114   $ 119   $ 230   $ 238    
 

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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 Global Distribution Group, CBS Films and CBS Interactive)

(Contributed 54% and 59% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 51% and 56% for the comparable prior-year periods and 47% and 51% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 49% and 51% for the comparable prior-year periods.)

 
 
  Three Months Ended June 30,
  Six Months Ended June 30,
   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 2,008   $ 1,707   $ 4,547   $ 4,025    
 

Segment OIBDA

  $ 429   $ 426   $ 909   $ 837    

Depreciation and amortization

    (38 )   (41 )   (78 )   (82 )  
 

Operating income

  $ 391   $ 385   $ 831   $ 755    
 

Segment OIBDA as a % of revenues

    21 %   25 %   20 %   21 %  

Operating income as a % of revenues

    19 %   23 %   18 %   19 %  

Capital expenditures

  $ 24   $ 19   $ 43   $ 36    
 

Three Months Ended June 30, 2013 and 2012

For the three months ended June 30, 2013, Entertainment revenues increased 18% to $2.01 billion from $1.71 billion for the same prior-year period principally reflecting 27% higher content licensing and distribution revenues, driven by growth from the licensing of television programming for digital streaming and international syndication, as well as 10% higher advertising revenues. The increase in advertising revenues was driven by 11% growth at the CBS Television Network and increases at CBS Interactive. The timing of the semifinals of the NCAA Tournament, which aired during the second quarter of 2013 versus the first quarter of 2012, contributed seven percentage points to the CBS Television Network advertising growth. The revenue comparison also reflects 43% higher affiliate and subscription fees, driven by growth in network affiliation fees. Revenue comparisons for the second half of 2013 will benefit from incremental network affiliation fees, as well as the first-cycle domestic syndication availabilities of The Good Wife and NCIS: Los Angeles.

For the three months ended June 30, 2013, Entertainment OIBDA increased $3 million, or 1%, to $429 million from $426 million for the same prior-year period, as the revenue growth was offset by an increased investment in television content and higher sports programming costs from the timing of the semifinals of the NCAA Tournament.

Six Months Ended June 30, 2013 and 2012

For the six months ended June 30, 2013, Entertainment revenues increased 13% to $4.55 billion from $4.03 billion for the same prior-year period principally reflecting higher advertising revenues, content licensing and distribution revenues and network affiliation fees. Advertising revenues increased 12%, principally driven by the broadcast of Super Bowl XLVII on the CBS Television Network in 2013 and growth at CBS Interactive. Content licensing and distribution revenues increased 11%, reflecting growth from the licensing of television programming for digital streaming and international syndication, partially offset by the timing of theatrical releases and a significant domestic syndication sale in 2012.

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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, 2013, Entertainment OIBDA increased $72 million, or 9%, to $909 million from $837 million for the same prior-year period, primarily driven by the increase in revenues which was partially offset by an increased investment in television content and higher sports programming costs associated with the Super Bowl broadcast.

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

(Contributed 14% and 13% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 13% for each of the comparable prior-year periods and 24% and 26% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 23% and 26% for the comparable prior-year periods.)

 
 
  Three Months Ended June 30,
  Six Months Ended June 30,
   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 518   $ 446   $ 996   $ 898    
 

Segment OIBDA

  $ 207   $ 190   $ 438   $ 399    

Depreciation and amortization

    (5 )   (6 )   (9 )   (11 )  
 

Operating income

  $ 202   $ 184   $ 429   $ 388    
 

Segment OIBDA as a % of revenues

    40 %   43 %   44 %   44 %  

Operating income as a % of revenues

    39 %   41 %   43 %   43 %  

Capital expenditures

  $ 2   $ 3   $ 4   $ 4    
 

Three Months Ended June 30, 2013 and 2012

For the three months ended June 30, 2013, Cable Networks revenues increased 16% to $518 million from $446 million for the same prior-year period primarily driven by revenues from a pay-per-view boxing event, higher affiliate revenues reflecting rate increases and growth in subscriptions at Showtime Networks, CBS Sports Network and Smithsonian Networks, as well as higher licensing revenues from digital streaming of Showtime original series. As of June 30, 2013 subscriptions totaled 77 million for Showtime Networks, including Showtime, The Movie Channel and Flix, 46 million for CBS Sports Network and 21 million for Smithsonian Networks.

For the three months ended June 30, 2013, Cable Networks OIBDA increased $17 million, or 9%, to $207 million from $190 million for the same prior-year period primarily due to the revenue growth, partially offset by higher sports programming costs, including costs for the pay-per-view boxing event, as well as higher advertising and marketing costs to promote Showtime series and drive subscriber growth.

Six Months Ended June 30, 2013 and 2012

For the six months ended June 30, 2013, Cable Networks revenues increased 11% to $996 million from $898 million for the same prior-year period driven by higher affiliate revenues, reflecting rate increases and growth in subscriptions at Showtime Networks, CBS Sports Network and Smithsonian Networks. Revenue growth also benefitted from a pay-per-view boxing event and higher licensing revenues from digital streaming of Showtime original series.

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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, 2013, Cable Networks OIBDA increased $39 million, or 10%, to $438 million from $399 million for the same prior-year period, primarily due to the revenue growth, partially offset by higher programming costs.

Publishing (Simon & Schuster)

(Contributed 5% to consolidated revenues for both the three and six months ended June 30, 2013, versus 6% and 5% for the comparable prior-year periods and 2% to consolidated operating income for both the three and six months ended June 30, 2013 versus 1% for each of the comparable prior-year periods.)

 
 
  Three Months Ended June 30,
  Six Months Ended June 30,
   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 189   $ 189   $ 360   $ 365    
 

Segment OIBDA

  $ 21   $ 9   $ 33   $ 19    

Depreciation and amortization

    (1 )   (2 )   (3 )   (4 )  
 

Operating income

  $ 20   $ 7   $ 30   $ 15    
 

Segment OIBDA as a % of revenues

    11 %   5 %   9 %   5 %  

Operating income as a % of revenues

    11 %   4 %   8 %   4 %  

Capital expenditures

  $ 1   $   $ 1   $    
 

Three Months Ended June 30, 2013 and 2012

For the three months ended June 30, 2013, Publishing revenues of $189 million were comparable with the same prior-year period as strong growth in digital book sales was offset by lower print book sales. Digital book sales increased 39% from the same prior-year period and represented 29% of Publishing's total revenues for the second quarter of 2013, compared with 21% for the second quarter of 2012. Best-selling titles in the second quarter included Happy, Happy, Happy by Phil Robertson and City of Bones by Cassandra Clare.

For the three months ended June 30, 2013, Publishing OIBDA increased $12 million to $21 million from $9 million for the same prior-year period, as the more profitable digital book sales continued to grow and the second quarter of 2012 included a charge related to a legal matter.

Six Months Ended June 30, 2013 and 2012

For the six months ended June 30, 2013, Publishing revenues decreased 1% to $360 million from $365 million for the same prior-year period as growth in digital book sales was offset by lower print book sales.

For the six months ended June 30, 2013, Publishing OIBDA increased $14 million to $33 million from $19 million for the same prior-year period, reflecting lower costs associated with legal matters and continued growth from more profitable digital book sales, partially offset by the decline in print book sales.

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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 19% and 17% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 21% and 19% for the comparable prior-year periods and 28% and 25% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 28% and 25% for the comparable prior-year periods.)

     
 
  Three Months Ended June 30,
  Six Months Ended June 30,
   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 698   $ 704   $ 1,336   $ 1,326    
 

Segment OIBDA

  $ 255   $ 248   $ 454   $ 419    

Impairment charges

                (11 )  

Depreciation and amortization

    (21 )   (23 )   (44 )   (45 )  
 

Operating income

  $ 234   $ 225   $ 410   $ 363    
 

Segment OIBDA as a % of revenues

    37 %   35 %   34 %   32 %  

Operating income as a % of revenues

    34 %   32 %   31 %   27 %  

Capital expenditures

  $ 12   $ 14   $ 18   $ 24    
 

Three Months Ended June 30, 2013 and 2012

For the three months ended June 30, 2013, Local Broadcasting revenues decreased $6 million, or 1%, to $698 million from $704 million for the same prior-year period. CBS Television Stations revenues decreased 1% primarily reflecting lower political advertising which was offset by 57% higher retransmission revenues. CBS Radio revenues remained flat compared with the same prior-year period as the benefit of the new CBS Sports Radio network, which was launched in January 2013, was offset by the impact of radio station dispositions in 2012.

For the three months ended June 30, 2013, Local Broadcasting OIBDA increased $7 million, or 3%, to $255 million from $248 million for the same prior-year period, primarily reflecting lower programming and production costs partially offset by the revenue decline.

Six Months Ended June 30, 2013 and 2012

For the six months ended June 30, 2013, Local Broadcasting revenues increased $10 million, or 1%, to $1.34 billion from $1.33 billion for the same prior-year period. CBS Television Stations revenues increased 2%, primarily driven by the benefit of the 2013 broadcast of Super Bowl XLVII to the Company's owned CBS affiliated stations and higher retransmission revenues. These increases were partially offset by lower political advertising and lower revenues from the nonrenewal of an unprofitable sports programming contract. CBS Radio revenues remained flat compared with the same prior-year period as the benefit of the new CBS Sports Radio network was offset by the impact of radio station dispositions in 2012.

For the six months ended June 30, 2013, Local Broadcasting OIBDA increased $35 million, or 8%, to $454 million from $419 million for the same prior-year period, primarily driven by the revenue growth, lower programming and production costs, and the benefit from the nonrenewal of an unprofitable sports programming contract. During the first quarter of 2012, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill in connection with the disposition of the Company's radio stations in West Palm Beach.

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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)

Acquisitions and Dispositions

During 2012, the Company acquired a radio station in the New York market and a radio station in the Washington, D.C. area, as well as a television station in Long Island, New York. Also during 2012, the Company sold five radio stations in West Palm Beach. Together, these acquisitions and dispositions did not have a material impact on the comparability of operating results.

Outdoor Americas (CBS Outdoor)

(Contributed 9% and 8% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 10% and 9% for the comparable prior-year periods and 8% and 6% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 8% and 6% for the comparable prior-year periods.)

 
 
  Three Months Ended
June 30,

  Six Months Ended
June 30,

 
   
 
  2013
  2012
  2013
  2012
 

Revenues

  $ 335   $ 334   $ 616   $ 622    
 

Segment OIBDA

  $ 107   $ 103   $ 181   $ 179    

Depreciation and amortization

    (42 )   (41 )   (84 )   (84)  
 

Operating income

  $ 65   $ 62   $ 97   $ 95    
 

Segment OIBDA as a % of revenues

    32 %   31 %   29 %   29%

Operating income as a % of revenues

    19 %   19 %   16 %   15%

Capital expenditures

  $ 9   $ 10   $ 15   $ 17    
 

Three Months Ended June 30, 2013 and 2012

For the three months ended June 30, 2013, Outdoor Americas revenues increased slightly to $335 million from $334 million for the same prior-year period, driven by 2% revenue growth in the U.S., mainly reflecting 5% higher revenues in the billboard business. This increase was partially offset by lower revenues in Mexico and a decline in Canada from the nonrenewal of transit contracts. Approximately 14% and 15% of Outdoor Americas revenues were generated from regions outside the U.S. for the three months ended June 30, 2013 and 2012, respectively.

For the three months ended June 30, 2013, Outdoor Americas OIBDA increased $4 million, or 4%, to $107 million from $103 million for the same prior-year period, principally due to the revenue growth and lower costs associated with the renewal of a transit contract.

Six Months Ended June 30, 2013 and 2012

For the six months ended June 30, 2013, Outdoor Americas revenues decreased $6 million, or 1%, to $616 million from $622 million for the same prior-year period, principally reflecting the nonrenewal of transit contracts, as well as declines in Canada and Mexico. These decreases were partially offset by 1% growth in the U.S., mainly reflecting 3% higher revenues in the billboard business. Approximately 13% and 15% of Outdoor Americas revenues were generated from regions outside the U.S. for the six months ended June 30, 2013 and 2012, 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 six months ended June 30, 2013, Outdoor Americas OIBDA increased $2 million, or 1%, to $181 million from $179 million for the same prior-year period, as the revenue decline was more than offset by a gain on the sale of outdoor advertising structures.

During the first quarter of 2013, the Company submitted a private letter ruling request with the IRS to qualify its Outdoor Americas business as a REIT. During the second quarter of 2013, a preliminary registration statement was filed with the SEC for the proposed initial public offering of the common stock of CBS Outdoor Americas Inc. The Company currently expects to dispose of the shares of CBS Outdoor Americas Inc. that it will own after the completion of the offering. These actions are subject to customary approvals and market conditions.

Corporate

Corporate expenses include general corporate overhead, unallocated shared company expenses, pension and postretirement benefit costs for plans retained by the Company for previously divested businesses, and intercompany eliminations. For the three months ended June 30, 2013, corporate expenses increased $3 million, or 4%, to $74 million from $71 million for the same prior-year period, and for the six months ended June 30, 2013, corporate expenses increased $12 million, or 8%, to $159 million from $147 million for the same prior-year period. These increases principally reflected higher stock based compensation and other expense increases associated with the increase in the Company's stock price, and professional fees related to the conversion of Outdoor Americas to a REIT. These increases were partially offset by lower pension and postretirement benefit costs, reflecting the benefit from prefunding pension plans in 2012 and the favorable performance of pension plan assets in 2012.

Financial Position

Current assets decreased by $950 million to $4.77 billion at June 30, 2013 from $5.72 billion at December 31, 2012, primarily due to a decrease in cash and lower prepaid program rights. The decrease in prepaid program rights reflects the broadcast of Super Bowl XLVII on the CBS Television Network in 2013 and the timing of the broadcast of entertainment programs. The allowance for doubtful accounts as a percentage of receivables was 2.5% at both June 30, 2013 and December 31, 2012.

Net property and equipment of $2.23 billion at June 30, 2013 decreased $43 million from $2.27 billion at December 31, 2012, primarily reflecting depreciation expense of $180 million, partially offset by capital expenditures of $83 million and capital lease additions for broadcasting equipm