Table of Contents

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



FORM 10-Q

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

For the quarterly period ended September 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 October 31, 2013:

        Class A Common Stock, par value $.001 per share—39,240,440

        Class B Common Stock, par value $.001 per share—560,843,520

   


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 Nine Months Ended September 30, 2013 and September 30, 2012

 

3

 

 

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

 

4

 

 

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

 

5

 

 

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

 

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

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

 

34

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

59

Item 4.

 

Controls and Procedures.

 

59

 

 

PART II – OTHER INFORMATION

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

60

Item 6.

 

Exhibits.

 

61

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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
September 30,

  Nine Months Ended
September 30,

   
 
       
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 3,634   $ 3,266   $ 11,373   $ 10,391    
 

Expenses:

                           

Operating

    1,972     1,717     6,510     5,817    

Selling, general and administrative

    721     645     2,054     1,952    

Impairment charges (Note 3)

                11    

Depreciation and amortization

    113     116     343     354    
 

Total expenses

    2,806     2,478     8,907     8,134    
 

Operating income

    828     788     2,466     2,257    

Interest expense

    (93 )   (94 )   (281 )   (308 )  

Interest income

    2     1     6     4    

Net loss on early extinguishment of debt

        (57 )       (32 )  

Other items, net

    7     (3 )   (2 )   5    
 

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

    744     635     2,189     1,926    

Provision for income taxes

    (254 )   (236 )   (744 )   (665 )  

Equity in loss of investee companies, net of tax

    (21 )   (14 )   (37 )   (30 )  
 

Net earnings from continuing operations

    469     385     1,408     1,231    

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

    25     6     1     (50 )  
 

Net earnings

  $ 494   $ 391   $ 1,409   $ 1,181    
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) per common share:

                           

Net earnings from continuing operations

  $ .78   $ .60   $ 2.30   $ 1.91    

Net earnings (loss) from discontinued operations

  $ .04   $ .01   $   $ (.08 )  

Net earnings

  $ .82   $ .61   $ 2.31   $ 1.83    

Diluted net earnings (loss) per common share:

                           

Net earnings from continuing operations

  $ .76   $ .59   $ 2.25   $ 1.86    

Net earnings (loss) from discontinued operations

  $ .04   $ .01   $   $ (.08 )  

Net earnings

  $ .80   $ .60   $ 2.25   $ 1.78    

Weighted average number of common shares outstanding:

                           

Basic

    603     640     611     645    

Diluted

    618     656     627     662    

Dividends per common share

 
$

..12
 
$

..12
 
$

..36
 
$

..32
   
 

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in millions)

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
       
 
  2013
  2012
  2013
  2012
   
 

Net earnings

  $ 494   $ 391   $ 1,409   $ 1,181    
 

Other comprehensive income from continuing operations, net of tax:

                           

Cumulative translation adjustments

    3     13     (3 )   27    

Amortization of net actuarial loss

    11     8     33     23    

Change in fair value of cash flow hedges

    1                

Unrealized gain on securities

        1     1     2    
 

Other comprehensive income from continuing operations, net of tax

    15     22     31     52    

Other comprehensive income (loss) from discontinued operations, before reclassifications

    5     7     (7 )   (17 )  

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

    (178 )       (178 )      
 

Total other comprehensive income (loss), net of tax

    (158 )   29     (154 )   35    
 

Total comprehensive income

  $ 336   $ 420   $ 1,255   $ 1,216    
 

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

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

   
 
  At
September 30, 2013

  At
December 31, 2012

 
   

ASSETS

             

Current Assets:

             

Cash and cash equivalents

  $ 226   $ 708  

Receivables, less allowances of $80 (2013) and $81 (2012)

    3,221     3,137  

Programming and other inventory (Note 5)

    554     859  

Deferred income tax assets, net

    269     253  

Prepaid income taxes

        27  

Prepaid expenses

    255     206  

Other current assets

    317     312  

Current assets of discontinued operations

    50     218  
   

Total current assets

    4,892     5,720  
   

Property and equipment:

             

Land

    332     330  

Buildings

    726     718  

Capital leases

    165     194  

Advertising structures

    1,694     1,689  

Equipment and other

    2,079     2,057  
   

    4,996     4,988  

Less accumulated depreciation and amortization

    2,796     2,717  
   

Net property and equipment

    2,200     2,271  
   

Programming and other inventory (Note 5)

    1,586     1,582  

Goodwill

    8,568     8,567  

Intangible assets (Note 3)

    6,456     6,515  

Other assets

    2,065     1,551  

Assets of discontinued operations

    128     260  
   

Total Assets

  $ 25,895   $ 26,466  
   

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current Liabilities:

             

Accounts payable

  $ 227   $ 386  

Accrued compensation

    300     374  

Participants' share and royalties payable

    961     953  

Program rights

    436     455  

Deferred revenues

    213     232  

Income taxes payable

    32      

Commercial paper (Note 7)

    341      

Current portion of long-term debt (Note 7)

    21     18  

Accrued expenses and other current liabilities

    1,172     1,282  

Current liabilities of discontinued operations

    50     241  
   

Total current liabilities

    3,753     3,941  
   

Long-term debt (Note 7)

    5,944     5,904  

Pension and postretirement benefit obligations

    1,631     1,860  

Deferred income tax liabilities, net

    1,539     1,254  

Other liabilities

    3,173     3,122  

Liabilities of discontinued operations

    184     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;

             

799 (2013) and 785 (2012) shares issued

    1     1  

Additional paid-in capital

    43,463     43,424  

Accumulated deficit

    (25,360 )   (26,769 )

Accumulated other comprehensive loss (Note 9)

    (723 )   (569 )
   

    17,381     16,087  

Less treasury stock, at cost; 237 (2013) and 198 (2012) Class B shares

    7,710     5,874  
   

Total Stockholders' Equity

    9,671     10,213  
   

Total Liabilities and Stockholders' Equity

  $ 25,895   $ 26,466  
   

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)

   
 
  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
 
   

Operating Activities:

             

Net earnings

  $ 1,409   $ 1,181  

Less: Net earnings (loss) from discontinued operations

    1     (50 )
   

Net earnings from continuing operations

    1,408     1,231  

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

             

Depreciation and amortization

    343     354  

Impairment charges

        11  

Stock-based compensation

    169     118  

Redemption of debt

        (28 )

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

    46     33  

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

    (434 )   (214 )
   

Net cash flow provided by operating activities from continuing operations

    1,532     1,505  
   

Net cash flow used for operating activities from discontinued operations

    (212 )   (25 )
   

Net cash flow provided by operating activities

    1,320     1,480  
   

Investing Activities:

             

Acquisitions, net of cash acquired

    (31 )   (70 )

Capital expenditures

    (140 )   (139 )

Investments in and advances to investee companies

    (144 )   (54 )

Proceeds from sale of investments

    20     11  

Proceeds from dispositions

    196     46  
   

Net cash flow used for investing activities from continuing operations

    (99 )   (206 )
   

Net cash flow used for investing activities from discontinued operations

    (17 )   (13 )
   

Net cash flow used for investing activities

    (116 )   (219 )
   

Financing Activities:

             

Proceeds from short-term debt borrowings, net

    341      

Proceeds from issuance of notes

        1,567  

Repayment of notes

        (1,583 )

Payment of capital lease obligations

    (13 )   (15 )

Payment of contingent consideration

    (30 )   (33 )

Dividends

    (228 )   (199 )

Purchase of Company common stock

    (1,864 )   (839 )

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

    (142 )   (105 )

Proceeds from exercise of stock options

    121     140  

Excess tax benefit from stock-based compensation

    133     93  

Other financing activities

    (4 )    
   

Net cash flow used for financing activities

    (1,686 )   (974 )
   

Net (decrease) increase in cash and cash equivalents

    (482 )   287  

Cash and cash equivalents at beginning of period

    708     660  
   

Cash and cash equivalents at end of period

  $ 226   $ 947  
   

Supplemental disclosure of cash flow information

             

Cash paid for interest

  $ 284   $ 365  

Cash paid for income taxes

  $ 272   $ 353  

Equipment acquired under capitalized leases

  $ 58   $ 13  
   

   

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

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

1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business—CBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the "Company" or "CBS Corp.") is comprised of the following segments: Entertainment (CBS Television, comprised of the CBS Television Network, CBS Television Studios 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). On September 30, 2013, the Company completed 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 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 nine months ended September 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 both the three and nine months ended September 30, 2012, stock options to purchase 3 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.

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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
September 30,

  Nine Months Ended
September 30,

 
 
     
(in millions)
  2013
  2012
  2013
  2012
 
   

Weighted average shares for basic EPS

    603     640     611     645  

Dilutive effect of shares issuable under stock-based compensation plans

    15     16     16     17  
   

Weighted average shares for diluted EPS

    618     656     627     662  
   

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 nine months ended September 30, 2013 and 2012, the Company recorded dividends of $222 million and $210 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

Presentation of Reserves for Uncertain Tax Positions when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists

In July 2013, the FASB issued guidance on the presentation of the reserve for uncertain tax positions when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires the reserve for uncertain tax positions to be presented in the financial statements as a reduction to the deferred tax asset for a tax loss or other tax carryforward that would be applied in the settlement of the uncertain tax position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted, and should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is also permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

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

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CBS CORPORATION AND SUBSIDIARIES

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

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.

2) STOCK-BASED COMPENSATION

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

   
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

RSUs and PSUs

  $ 36   $ 28   $ 102   $ 87  

Stock options and equivalents

    24     10     67     31  
   

Stock-based compensation expense, before income taxes

    60     38     169     118  

Related tax benefit

    (24 )   (15 )   (66 )   (46 )
   

Stock-based compensation expense, net of tax benefit

  $ 36   $ 23   $ 103   $ 72  
   

Stock-based compensation of $7 million and $8 million was included in net earnings from discontinued operations for the three and nine months ended September 30, 2013, respectively. For the three and nine months ended September 30, 2012, stock-based compensation included in discontinued operations was minimal.

During the nine months ended September 30, 2013, the Company granted 4 million RSUs with a weighted average per unit grant date fair value of $43.96. RSUs granted during the first nine months of 2013 generally 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 nine months ended September 30, 2013, the Company also granted 3 million stock options with a weighted average exercise price of $44.27. Stock options granted during the first nine 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 September 30, 2013 was $214 million, which is expected to be recognized over a weighted average period of 2.3 years. Total unrecognized compensation cost related to unvested stock option awards at September 30, 2013 was $67 million, which is expected to be recognized over a weighted average period of 2.4 years.

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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 September 30, 2013
  Gross
  Accumulated
Amortization

  Net
 
   

Intangible assets subject to amortization:

                   

Permits and leasehold agreements

  $ 892   $ (659 ) $ 233  

Franchise agreements

    476     (327 )   149  

Trade names

    222     (38 )   184  

Other intangible assets

    231     (173 )   58  
   

Total intangible assets subject to amortization

    1,821     (1,197 )   624  

FCC licenses

    5,832         5,832  
   

Total intangible assets

  $ 7,653   $ (1,197 ) $ 6,456  
   

 

   
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 $26 million and $25 million for the three months ended September 30, 2013 and 2012, respectively, and $76 million and $80 million for the nine months ended September 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.

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CBS CORPORATION AND SUBSIDIARIES

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

4) DISCONTINUED OPERATIONS

On September 30, 2013, the Company completed the sale of Outdoor Europe for $225 million. Outdoor Europe has been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. Included in the loss from discontinued operations for the three and nine months ended September 30, 2013 is an after-tax charge of $110 million associated with the exiting of an unprofitable contractual arrangement and the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction became third-party guarantees (See Note 11).

The following table sets forth details of the net earnings (loss) from discontinued operations for the three and nine months ended September 30, 2013 and 2012.

   
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Revenues from discontinued operations

  $ 139   $ 152   $ 401   $ 427  
   

Loss from discontinued operations

  $ (194 ) $ (11 ) $ (241 ) $ (68 )

Income tax benefit

    72     17     95     18  
   

(Loss) earnings from discontinued operations, net of tax

    (122 )   6     (146 )   (50 )
   

Gain on disposal

    149         149      

Income tax provision

    (2 )       (2 )    
   

Gain on disposal, net of tax

    147         147      
   

Net earnings (loss) from discontinued operations, net of tax

  $ 25   $ 6   $ 1   $ (50 )
   

Noncurrent assets from discontinued operations of $128 million at September 30, 2013 and $260 million at December 31, 2012 include deferred tax assets for previously disposed businesses as well as assets related to aircraft leases from previously disposed businesses that are generally expected to liquidate in accordance with contractual terms. At December 31, 2012, noncurrent assets of discontinued operations also included net property and equipment of $103 million and goodwill of $49 million. Noncurrent liabilities of discontinued operations of $184 million at September 30, 2013 and $172 million at December 31, 2012, primarily relate to the above mentioned aircraft leases. Also included in noncurrent liabilities from discontinued operations at September 30, 2013 is the estimated fair value of guarantee liabilities of approximately $40 million (See Note 11).

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CBS CORPORATION AND SUBSIDIARIES

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

5) PROGRAMMING AND OTHER INVENTORY

   
 
  At
September 30, 2013

  At
December 31, 2012

 
   

Program rights

  $ 1,037   $ 1,389  

Television programming:

             

Released (including acquired libraries)

    754     781  

In process and other

    209     128  

Theatrical programming:

             

Released

    14     25  

In process and other

    69     60  

Publishing, primarily finished goods

    56     57  

Other

    1     1  
   

Total programming and other inventory

    2,140     2,441  

Less current portion

    554     859  
   

Total noncurrent programming and other inventory

  $ 1,586   $ 1,582  
   

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 September 30, 2013, NAI directly or indirectly owned approximately 79.3% 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 $43 million and $50 million for the three months ended September 30, 2013 and 2012, respectively, and $174 million and $184 million for the nine months ended September 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 $7 million and $8 million for the three months ended September 30, 2013 and 2012, respectively, and $17 million for both the nine months ended September 30, 2013 and 2012.

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CBS CORPORATION AND SUBSIDIARIES

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

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 September 30, 2013 and December 31, 2012.

   
 
  At
September 30, 2013

  At
December 31, 2012

 
   

Receivables

  $ 103   $ 124  

Other assets (Receivables, noncurrent)

    131     133  
   

Total amounts due from Viacom Inc.

  $ 234   $ 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 $18 million and $31 million for the three months ended September 30, 2013 and 2012, respectively, and $80 million and $102 million for the nine months ended September 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.

7) BANK FINANCING AND DEBT

The following table sets forth the Company's debt.

   
 
  At
September 30, 2013

  At
December 31, 2012

 
   

Commercial paper

  $ 341   $  

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

    5,861     5,863  

Obligations under capital leases

    117     72  
   

Total debt

    6,319     5,935  

Less discontinued operations debt (b)

    13     13  
   

Total debt from continuing operations

    6,306     5,922  

Less commercial paper

    341      

Less current portion of long-term debt

    21     18  
   

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

  $ 5,944   $ 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.

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CBS CORPORATION AND SUBSIDIARIES

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

At September 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.

For the nine months ended September 30, 2012, debt issuances and redemptions were as follows:

Debt Issuances

Debt Redemptions

Debt redemptions in 2012 resulted in a pre-tax loss on early extinguishment of debt of $57 million for the third quarter of 2012 and a pre-tax net loss on early extinguishment of debt of $32 million for the nine months ended September 30, 2012.

Commercial Paper

At September 30, 2013, the Company had $341 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 thirty 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 September 30, 2013, the Company's Consolidated Leverage ratio was approximately 1.6x.

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 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 September 30, 2013, the remaining availability under the Credit Facility, net of outstanding letters of credit, was $1.99 billion.

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CBS CORPORATION AND SUBSIDIARIES

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

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 September 30,
  2013
  2012
  2013
  2012
 
   

Components of net periodic cost:

                         

Service cost

  $ 10   $ 9   $   $  

Interest cost

    54     60     6     8  

Expected return on plan assets

    (69 )   (63 )        

Amortization of actuarial losses (gains) (a)

    20     17     (4 )   (4 )

Amortization of prior service cost

    1     1          
   

Net periodic cost

  $ 16   $ 24   $ 2   $ 4  
   

 

   
 
  Pension Benefits   Postretirement Benefits  
Nine Months Ended September 30,
  2013
  2012
  2013
  2012
 
   

Components of net periodic cost:

                         

Service cost

  $ 30   $ 27   $   $  

Interest cost

    160     182     18     24  

Expected return on plan assets

    (205 )   (187 )        

Amortization of actuarial losses (gains) (a)

    64     53     (12 )   (12 )

Amortization of prior service cost

    1     1          
   

Net periodic cost

  $ 50   $ 76   $ 6   $ 12  
   

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

9) STOCKHOLDERS' EQUITY

During the third quarter of 2013, the Company repurchased 5.3 million shares of its Class B Common Stock for $279 million, at an average cost of $53.20 per share. During the nine months ended September 30, 2013, the Company repurchased 39.7 million shares of its Class B Common Stock for $1.84 billion, at an average cost of $46.25 per share, leaving $5.79 billion of authorization remaining at September 30, 2013.

During the third 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 October 1, 2013. The total dividend was $73 million of which $72 million was paid on October 1, 2013 and $1 million was accrued to be paid upon vesting of RSUs. Total dividends for the nine months ended September 30, 2013 were $222 million.

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CBS CORPORATION AND SUBSIDIARIES

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

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

  Unrealized
Gain on
Securities

  Other
Comprehensive
Income (Loss)

  Accumulated
Other
Comprehensive
Loss

 
   

At December 31, 2012

  $ 192   $ (948 ) $ 2   $ 185   $ (569 )
   

Other comprehensive income (loss) before reclassifications

    (3 )       1     (7 )   (9 )

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

        33  (a)       (178 (b)   (145 )
   

Net other comprehensive income (loss)

    (3 )   33     1     (185 )   (154 )
   

At September 30, 2013

  $ 189   $ (915 ) $ 3   $   $ (723 )
   

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 $19 million for the nine months ended September 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 September 30, 2013 increased to $254 million from $236 million for the three months ended September 30, 2012, and for the nine months ended September 30, 2013, the provision for income taxes increased to $744 million from $665 million for the comparable prior-year period. These increases were mainly driven by the increase in earnings from continuing operations. For the nine months ended September 30, 2013, the effective income tax rate decreased to 34.0% from 34.5% for the comparable prior-year period, reflecting the favorable impact from the settlement of income tax audits in 2013.

During the third quarter of 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. During the next six months the Company 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. With respect to open tax years in all jurisdictions, the Company

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CBS CORPORATION AND SUBSIDIARIES

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

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 related impact to the reserve for uncertain tax positions cannot currently be determined.

11) COMMITMENTS AND CONTINGENCIES

Guarantees

On September 30, 2013 the Company completed the sale of Outdoor Europe to an affiliate of Platinum Equity. The Company continues to remain as guarantor of Outdoor Europe's franchise payment obligations under certain transit franchise agreements. Generally, the Company would be required to perform under the guarantees in the event of non-performance by the buyer. These agreements have varying terms, with the majority of the obligations guaranteed under these agreements expiring by September 2016. At September 30, 2013, the total franchise payment obligations under these agreements are estimated to be approximately $284 million, which will decrease on a monthly basis thereafter. The estimated fair value of the guarantee liability of approximately $40 million is included in "Liabilities of discontinued operations" on the Consolidated Balance Sheet at September 30, 2013.

The Company also 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 September 30, 2013, the outstanding letters of credit and surety bonds approximated $371 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 and reasonably estimable.

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 (the "24 Month Period") and certain compliance practices for a five year period. Following a ruling in favor of the DOJ and a judgment against Apple that was entered by the court on September 6, 2013, Apple filed an appeal, which will be heard by the United States Court of Appeals for the Second Circuit. On October 4, 2013,

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CBS CORPORATION AND SUBSIDIARIES

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

Simon & Schuster filed an appeal with the court relating to an aspect of the Apple judgment involving the 24 Month 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 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; preliminary approval was issued by the court on August 5, 2013. 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 final 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.

Similar antitrust suits have been filed against the Publishing parties by private litigants in Canada, purportedly as class actions, under Canadian law, commencing on February 24, 2012; and by an Australian e-book retailer in the United States Court for the Southern District of New York on September 16, 2013. Simon & Schuster intends to defend itself in these 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

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CBS CORPORATION AND SUBSIDIARIES

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

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 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 September 30, 2013, the Company had pending approximately 45,480 asbestos claims, as compared with approximately 45,900 as of December 31, 2012 and 46,060 as of September 30, 2012. During the third quarter of 2013, the Company received approximately 1,180 new claims and closed or moved to an inactive docket approximately 1,020 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.

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CBS CORPORATION AND SUBSIDIARIES

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

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.

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 September 30, 2013, the cumulative amount paid for the 2012 and 2011 restructuring charges was $47 million, of which $20 million was for the severance costs and $27 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
September 30, 2013

 
   

Entertainment

  $ 25   $ (14 ) $ 11  

Publishing

    2     (2 )    

Local Broadcasting

    7     (3 )   4  

Corporate

    1     (1 )    
   

Total

  $ 35   $ (20 ) $ 15  
   

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.

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CBS CORPORATION AND SUBSIDIARIES

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

The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis at September 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 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 September 30, 2013
  Level 1
  Level 2
  Level 3
  Total
 
   

Assets:

                         

Investments

  $ 79   $   $   $ 79  

Foreign currency hedges

        2         2  
   

Total Assets

  $ 79   $ 2   $   $ 81  
   

Liabilities:

                         

Deferred compensation

  $   $ 244   $   $ 244  

Guarantees

            40     40  

Foreign currency hedges

        3         3  
   

Total Liabilities

  $   $ 247   $ 40   $ 287  
   

 

   
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 fair value of the guarantee liabilities reflects the premium that would be required to issue such guarantee in a standalone arm's length transaction and is calculated based on an assessment of the probability of the primary obligor's default under the obligation, discounted to its present value.

The Company's carrying value of financial instruments approximates fair value, except for differences with respect to the notes and debentures. At both September 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 $6.66 billion and $7.16 billion, respectively.

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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
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Revenues:

                         

Entertainment

  $ 1,884   $ 1,680   $ 6,431   $ 5,705  

Cable Networks

    596     436     1,592     1,334  

Publishing

    224     210     584     575  

Local Broadcasting

    641     661     1,977     1,987  

Outdoor Americas

    341     334     957     956  

Eliminations

    (52 )   (55 )   (168 )   (166 )
   

Total Revenues

  $ 3,634   $ 3,266   $ 11,373   $ 10,391  
   

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
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Intercompany Revenues:

                         

Entertainment

  $ 41   $ 42   $ 145   $ 139  

Local Broadcasting

    4     5     11     14  

Outdoor Americas

    7     8     12     13  
   

Total Intercompany Revenues

  $ 52   $ 55   $ 168   $ 166  
   

-22-


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
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Segment OIBDA:

                         

Entertainment

  $ 431   $ 384   $ 1,340   $ 1,221  

Cable Networks

    261     227     699     626  

Publishing

    43     39     76     58  

Local Broadcasting

    181     213     635     632  

Outdoor Americas

    110     105     291     284  

Corporate

    (85 )   (64 )   (232 )   (199 )
   

Total Segment OIBDA

    941     904     2,809     2,622  

Impairment charges

                (11 )

Depreciation and amortization

    (113 )   (116 )   (343 )   (354 )
   

Operating income

    828     788     2,466     2,257  

Interest expense

    (93 )   (94 )   (281 )   (308 )

Interest income

    2     1     6     4  

Net loss on early extinguishment of debt

        (57 )       (32 )

Other items, net

    7     (3 )   (2 )   5  
   

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

    744     635     2,189     1,926  

Provision for income taxes

    (254 )   (236 )   (744 )   (665 )

Equity in loss of investee companies, net of tax

    (21 )   (14 )   (37 )   (30 )
   

Net earnings from continuing operations

    469     385     1,408     1,231  

Net earnings (loss) from discontinued operations, net of tax

    25     6     1     (50 )
   

Net earnings

  $ 494   $ 391   $ 1,409   $ 1,181  
   

-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
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Operating Income (Loss):

                         

Entertainment

  $ 394   $ 346   $ 1,225   $ 1,101  

Cable Networks

    255     221     684     609  

Publishing

    41     38     71     53  

Local Broadcasting

    161     190     571     553  

Outdoor Americas

    68     62     165     157  

Corporate

    (91 )   (69 )   (250 )   (216 )
   

Total Operating Income

  $ 828   $ 788   $ 2,466   $ 2,257  
   

 

   
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Depreciation and Amortization:

                         

Entertainment

  $ 37   $ 38   $ 115   $ 120  

Cable Networks

    6     6     15     17  

Publishing

    2     1     5     5  

Local Broadcasting

    20     23     64     68  

Outdoor Americas

    42     43     126     127  

Corporate

    6     5     18     17  
   

Total Depreciation and Amortization

  $ 113   $ 116   $ 343   $ 354  
   

 

   
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Stock-based Compensation:

                         

Entertainment

  $ 14   $ 13   $ 44   $ 40  

Cable Networks

    2     1     6     4  

Publishing

    1     1     3     2  

Local Broadcasting

    7     7     21     19  

Outdoor Americas

    3     2     6     5  

Corporate

    33     14     89     48  
   

Total Stock-based Compensation

  $ 60   $ 38   $ 169   $ 118  
   

-24-


Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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


   
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
 
     
 
  2013
  2012
  2013
  2012
 
   

Capital Expenditures:

                         

Entertainment

  $ 24   $ 20   $ 67   $ 56  

Cable Networks

    2     5     6     9  

Publishing

    1     1     2     1  

Local Broadcasting

    15     14     33     38  

Outdoor Americas

    13     11     28     28  

Corporate

    2     4     4     7  
   

Total Capital Expenditures

  $ 57   $ 55   $ 140   $ 139  
   

 

   
 
  At
September 30, 2013

  At
December 31, 2012

 
   

Assets:

             

Entertainment

  $ 9,158   $ 9,023  

Cable Networks

    1,992     1,750  

Publishing

    979     1,033  

Local Broadcasting

    9,548     9,614  

Outdoor Americas

    3,385     3,542  

Corporate

    655     1,026  

Discontinued operations

    178     478  
   

Total Assets

  $ 25,895   $ 26,466  
   

-25-


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 September 30, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 31   $ 2   $ 3,601   $   $ 3,634  
   

Expenses:

                               

Operating

    16     2     1,954         1,972  

Selling, general and administrative

    17     81     623         721  

Depreciation and amortization

    2     4     107         113  
   

Total expenses

    35     87     2,684         2,806  
   

Operating income (loss)

    (4 )   (85 )   917         828  

Interest (expense) income, net

    (113 )   (96 )   118         (91 )

Other items, net

    1     (4 )   10         7  
   

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

    (116 )   (185 )   1,045         744  

Benefit (provision) for income taxes

    41     65     (360 )       (254 )

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

    566     484     (21 )   (1,050 )   (21 )
   

Net earnings from continuing operations

    491     364     664     (1,050 )   469  

Net earnings from discontinued operations, net of tax

    3         22         25  
   

Net earnings

  $ 494   $ 364   $ 686   $ (1,050 ) $ 494  
   

Comprehensive income

 
$

336
 
$

357
 
$

525
 
$

(882

)

$

336
 
   

-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 Nine Months Ended September 30, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 103   $ 8   $ 11,262   $   $ 11,373  
   

Expenses:

                               

Operating

    50     6     6,454         6,510  

Selling, general and administrative

    48     228     1,778         2,054  

Depreciation and amortization

    5     11     327         343  
   

Total expenses

    103     245     8,559         8,907  
   

Operating income (loss)

        (237 )   2,703         2,466  

Interest (expense) income, net

    (342 )   (276 )   343         (275 )

Other items, net

        4     (6 )       (2 )
   

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

    (342 )   (509 )   3,040         2,189  

Benefit (provision) for income taxes

    119     177     (1,040 )       (744 )

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

    1,629     1,061     (37 )   (2,690 )   (37 )
   

Net earnings from continuing operations

    1,406     729     1,963     (2,690 )   1,408  

Net earnings (loss) from discontinued operations, net of tax

    3         (2 )       1  
   

Net earnings

  $ 1,409   $ 729   $ 1,961   $ (2,690 ) $ 1,409  
   

Comprehensive income

 
$

1,255
 
$

728
 
$

1,776
 
$

(2,504

)

$

1,255
 
   

-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 Three Months Ended September 30, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 36   $ 3   $ 3,227   $   $ 3,266  
   

Expenses:

                               

Operating

    19     2     1,696         1,717  

Selling, general and administrative

    21     56     568         645  

Depreciation and amortization

    1     3     112         116  
   

Total expenses

    41     61     2,376         2,478  
   

Operating income (loss)

    (5 )   (58 )   851         788  

Interest (expense) income, net

    (114 )   (88 )   109         (93 )

Loss on early extinguishment of debt

    (57 )               (57 )

Other items, net

    1     (5 )   1         (3 )
   

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

    (175 )   (151 )   961         635  

Benefit (provision) for income taxes

    65     57     (358 )       (236 )

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

    501     323     (14 )   (824 )   (14 )
   

Net earnings from continuing operations

    391     229     589     (824 )   385  

Net earnings from discontinued operations, net of tax

            6         6  
   

Net earnings

  $ 391   $ 229   $ 595   $ (824 ) $ 391  
   

Comprehensive income

 
$

420
 
$

224
 
$

622
 
$

(846

)

$

420
 
   

-28-


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 Nine Months Ended September 30, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Revenues

  $ 103   $ 11   $ 10,277   $   $ 10,391  
   

Expenses:

                               

Operating

    53     6     5,758         5,817  

Selling, general and administrative

    64     175     1,713         1,952  

Impairment charges

            11         11  

Depreciation and amortization

    4     10     340         354  
   

Total expenses

    121     191     7,822         8,134  
   

Operating income (loss)

    (18 )   (180 )   2,455         2,257  

Interest (expense) income, net

    (366 )   (261 )   323         (304 )

Net loss on early extinguishment of debt

    (32 )               (32 )

Other items, net

    1     (6 )   10         5  
   

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

    (415 )   (447 )   2,788         1,926  

Benefit (provision) for income taxes

    145     156     (966 )       (665 )

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

    1,451     937     (30 )   (2,388 )   (30 )
   

Net earnings from continuing operations

    1,181     646     1,792     (2,388 )   1,231  

Net loss from discontinued operations,
net of tax

            (50 )       (50 )
   

Net earnings

  $ 1,181   $ 646   $ 1,742   $ (2,388 ) $ 1,181  
   

Comprehensive income

 
$

1,216
 
$

638
 
$

1,760
 
$

(2,398

)

$

1,216
 
   

-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 September 30, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Assets

                               

Cash and cash equivalents

  $ 39   $ 1   $ 186   $   $ 226  

Receivables, net

    23     1     3,197         3,221  

Programming and other inventory

    4     3     547         554  

Prepaid expenses and other current assets

    117     18     784     (28 )   891  
   

Total current assets

    183     23     4,714     (28 )   4,892  
   

Property and equipment

    36     120     4,840         4,996  

Less accumulated depreciation and amortization

    9     79     2,708         2,796  
   

Net property and equipment

    27     41     2,132         2,200  
   

Programming and other inventory

    1         1,585         1,586  

Goodwill

    98     62     8,408         8,568  

Intangible assets

            6,456         6,456  

Investments in consolidated subsidiaries

    34,555     10,187         (44,742 )    

Other assets

    155     17     2,021         2,193  

Intercompany

        3,321     12,588     (15,909 )    
   

Total Assets

  $ 35,019   $ 13,651   $ 37,904   $ (60,679 ) $ 25,895  
   

Liabilities and Stockholders' Equity

                               

Accounts payable

  $ 3   $ 6   $ 218   $   $ 227  

Participants' share and royalties payable

            961         961  

Program rights

    5     3     428         436  

Commercial paper

    341                 341  

Current portion of long-term debt

    5         16         21  

Accrued expenses and other current liabilities

    319     250     1,226     (28 )   1,767  
   

Total current liabilities

    673     259     2,849     (28 )   3,753  
   

Long-term debt

    5,791         153         5,944  

Other liabilities

    2,975     286     3,266         6,527  

Intercompany

    15,909             (15,909 )    

Stockholders' Equity:

                               

Preferred stock

            126     (126 )    

Common stock

    1     123     953     (1,076 )   1  

Additional paid-in capital

    43,463         56,327     (56,327 )   43,463  

Retained earnings (deficit)

    (25,360 )   13,322     (21,088 )   7,766     (25,360 )

Accumulated other comprehensive income (loss)

    (723 )   (8 )   118     (110 )   (723 )
   

    17,381     13,437     36,436     (49,873 )   17,381  

Less treasury stock, at cost

    7,710     331     4,800     (5,131 )   7,710  
   

Total Stockholders' Equity

    9,671     13,106     31,636     (44,742 )   9,671  
   

Total Liabilities and Stockholders' Equity

  $ 35,019   $ 13,651   $ 37,904   $ (60,679 ) $ 25,895  
   

-30-


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  
   

-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 Nine Months Ended September 30, 2013
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (858 ) $ (174 ) $ 2,352   $   $ 1,320  
   

Investing Activities:

                               

Acquisitions, net of cash acquired

            (31 )       (31 )

Capital expenditures

        (4 )   (136 )       (140 )

Investments in and advances to investee companies

            (144 )       (144 )

Proceeds from sale of investments

    15     1     4         20  

Proceeds from dispositions

            196         196  
   

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

    15     (3 )   (111 )       (99 )
   

Net cash flow used for investing activities from discontinued operations

            (17 )       (17 )
   

Net cash flow provided by (used for) investing activities

    15     (3 )   (128 )       (116 )
   

Financing Activities:

                               

Proceeds from short-term debt borrowings, net

    341                 341  

Payment of capital lease obligations

            (13 )       (13 )

Payment of contingent consideration

            (30 )       (30 )

Dividends

    (228 )               (228 )

Purchase of Company common stock

    (1,864 )               (1,864 )

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

    (142 )               (142 )

Proceeds from exercise of stock options

    121                 121  

Excess tax benefit from stock-based compensation

    133                 133  

Other financing activities

    (4 )               (4 )

Increase (decrease) in intercompany

    2,271     177     (2,448 )        
   

Net cash flow provided by (used for) financing activities

    628     177     (2,491 )       (1,686 )
   

Net decrease in cash and cash equivalents

    (215 )       (267 )       (482 )

Cash and cash equivalents at beginning of period

    254     1     453         708  
   

Cash and cash equivalents at end of period

  $ 39   $ 1   $ 186   $   $ 226  
   

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Table of Contents


CBS CORPORATION AND SUBSIDIARIES

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

   
 
  Statement of Cash Flows
For the Nine Months Ended September 30, 2012
 
 
  CBS Corp.
  CBS
Operations
Inc.

  Non-
Guarantor
Affiliates

  Eliminations
  CBS Corp.
Consolidated

 
   

Net cash flow (used for) provided by operating activities

  $ (692 ) $ (167 ) $ 2,339   $   $ 1,480  
   

Investing Activities:

                               

Acquisitions, net of cash acquired

            (70 )       (70 )

Capital expenditures

        (7 )   (132 )       (139 )

Investments in and advances to investee companies

            (54 )       (54 )

Proceeds from sale of investments

        11             11  

Proceeds from dispositions

            46         46  
   

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

        4     (210 )       (206 )
   

Net cash flow used for investing activities from discontinued operations

            (13 )       (13 )
   

Net cash flow provided by (used for) investing activities

        4     (223 )       (219 )
   

Financing Activities:

                               

Proceeds from issuance of notes

    1,567                 1,567  

Repayment of notes

    (1,583 )               (1,583 )

Payment of capital lease obligations

            (15 )       (15 )

Payment of contingent consideration

            (33 )       (33 )

Dividends

    (199 )               (199 )

Purchase of Company common stock                        

    (839 )               (839 )

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

    (105 )               (105 )

Proceeds from exercise of stock options

    140                 140  

Excess tax benefit from stock-based compensation

    93                 93  

Increase (decrease) in intercompany

    2,106     163     (2,269 )        
   

Net cash flow provided by (used for) financing activities

    1,180     163     (2,317 )       (974 )
   

Net increase (decrease) in cash and cash equivalents

    488         (201 )       287  

Cash and cash equivalents at beginning of period

    134     1     525         660  
   

Cash and cash equivalents at end of period

  $ 622   $ 1   $ 324   $   $ 947  
   

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Table of Contents

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

Management's discussion and analysis of the results of operations and financial condition 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 September 30, 2013, the Company's diluted earnings per share ("EPS") from continuing operations of $.76 increased $.17, or 29%, from $.59 for the same prior-year period, principally reflecting 11% higher revenues, 5% higher operating income and lower weighted average shares outstanding due to the Company's ongoing share repurchases. The 11% increase in revenues reflects 18% higher content licensing and distribution revenues, led by growth in domestic licensing mainly from the first-cycle availabilities of NCIS: Los Angeles and The Good Wife. Revenue growth was also driven by a 23% increase in affiliate and subscription fee revenues, reflecting the benefit of Showtime Networks' distribution of a Floyd Mayweather pay-per-view boxing event, as well as steady growth from cable affiliate fees, retransmission revenues and fees received from the CBS Television Network's affiliated television stations ("network affiliation fees"). Advertising revenues increased 4%, principally driven by growth at the CBS Television Network, which was partially offset by a decline at CBS Television Stations resulting from lower political advertising spending. Operating income growth was driven by the increase in revenues which was partially offset by a higher investment in content and higher stock-based compensation primarily attributable to appreciation in the Company's stock price.

For the nine months ended September 30, 2013, diluted EPS from continuing operations of $2.25 increased $.39, or 21%, from $1.86 for the same prior-year period, driven by growth in revenues of 9% and operating income of 9%, and lower weighted average shares outstanding due to the Company's ongoing share repurchases. Revenue growth was driven by 6% higher advertising revenues, mainly from the broadcast of Super Bowl XLVII on the CBS Television Network and the strength of network primetime advertising, 19% higher affiliate and subscription fee revenues and a 16% increase in revenues from the licensing of television programming. Operating income growth was driven by the increase in revenues, partially offset by a higher investment in content and higher stock-based compensation primarily attributable to appreciation in the Company's stock price.

During the quarter, the Company repurchased 5.3 million shares of its Class B Common Stock for $279 million, at an average cost of $53.20 per share. During the nine months ended September 30, 2013, the Company repurchased 39.7 million shares of its Class B Common Stock for $1.84 billion, at an average cost of $46.25 per share.

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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)

Free cash flow for the nine months ended September 30, 2013 was $1.39 billion compared to $1.37 billion for the same prior-year period. The Company generated operating cash flow from continuing operations of $1.53 billion for the nine months ended September 30, 2013 versus $1.51 billion for the comparable prior-year period. Cash flow from operating activities for the nine months ended September 30, 2013 included a contribution of $150 million to pre-fund the Company's qualified pension plans, while cash flow from operating activities for the same prior-year period included payments of approximately $60 million associated with the early extinguishment of debt, primarily for make-whole premiums. Free cash flow is a non-GAAP financial measure. See "Reconciliation of Non-GAAP Financial Information" on pages 41-42 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.

On September 30, 2013, the Company completed the sale of its outdoor advertising business in Europe, which includes an interest in an outdoor business in Asia ("Outdoor Europe") for $225 million, resulting in a gain on disposal of $147 million. Outdoor Europe has been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. Included in the loss from discontinued operations for the three and nine months ended September 30, 2013 is an after-tax charge of $110 million associated with the exiting of an unprofitable contractual arrangement and the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction became third-party guarantees.

During the first quarter of 2013, the Company submitted a private letter ruling request to the Internal Revenue Service ("IRS") with respect to certain matters related to the planned separation of its Outdoor Americas business as well as the qualification of such business as a Real Estate Investment Trust ("REIT"). Also during 2013, a preliminary registration statement was filed with the Securities and Exchange Commission ("SEC") for the proposed initial public offering ("IPO") of less than 20% of the common stock of CBS Outdoor Americas Inc. Subject to market conditions, customary approvals and obtaining the private letter ruling with respect to the separation, the Company currently expects to initiate the IPO during the first quarter of 2014 and, at a time subsequent to the IPO, dispose of the shares of CBS Outdoor Americas Inc. that it will own after the completion of the IPO.

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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 Nine Months Ended September 30, 2013 versus Three and Nine Months Ended September 30, 2012

Revenues

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

 
 
  Three Months Ended September 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

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

Advertising

  $ 1,856     51 % $ 1,779     54 % $ 77   4%    

Content licensing and distribution

    1,094     30     931     29     163   18        

Affiliate and subscription fees

    611     17     496     15     115   23        

Other

    73     2     60     2     13   22        
 

Total Revenues

  $ 3,634     100 % $ 3,266     100 % $ 368   11%    
 

 

 
 
  Nine Months Ended September 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

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

Advertising

  $ 6,401     56 % $ 6,044     58 % $ 357   6%    

Content licensing and distribution

    3,099     27     2,764     26     335   12        

Affiliate and subscription fees

    1,679     15     1,416     14     263   19        

Other

    194     2     167     2     27   16        
 

Total Revenues

  $ 11,373     100 % $ 10,391     100 % $ 982   9%    
 

Advertising revenues for the three months ended September 30, 2013 increased $77 million, or 4%, to $1.86 billion, principally driven by growth at the CBS Television Network and CBS Interactive. Network advertising revenues increased 13%, mainly reflecting the benefit from more original programming as well as an easier 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. Local Broadcasting advertising revenues decreased 4% for the third quarter, reflecting lower political advertising revenues, as 2012 benefited from the U.S. presidential election. For the nine months ended September 30, 2013, advertising revenues increased $357 million, or 6%, to $6.40 billion, principally driven by the 2013 broadcast of the Super Bowl, which is broadcast on the CBS Television Network once every three years, as well as growth from network primetime and CBS Interactive. These increases were partially offset by a decline in Local Broadcasting advertising of 2%, reflecting lower political advertising revenues.

During the fourth quarter of 2013, local advertising revenues will continue to be negatively impacted by lower political advertising spending. For national advertising, upfront advertising sales for the 2013/2014 television broadcast season resulted in pricing increases that are expected to positively impact revenues during the season, which runs from the middle of September 2013 through the middle of September 2014. Upfront advertising sales occur annually, generally during May through July preceding the start of the television broadcast season, and represent a significant portion of advertising spots sold for CBS

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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)

Television Network's non-sports programming. During the first quarter of 2014, the advertising revenue comparison will be negatively impacted by the broadcast of the Super Bowl on the CBS Television Network during the first quarter of 2013. Also during 2014, local advertising revenues are expected to benefit from increased political advertising spending for 2014 midterm elections. 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.

Content licensing and distribution revenues for the three months ended September 30, 2013 increased $163 million, or 18%, to $1.09 billion, principally due to higher domestic syndication revenues, led by the first-cycle availabilities of NCIS: Los Angeles and The Good Wife, and higher revenues from the licensing of programming for digital streaming. For the nine months ended September 30, 2013, content licensing and distribution revenues increased $335 million, or 12%, to $3.10 billion reflecting growth from domestic and international licensing of programming for syndication and digital streaming. During 2014, content licensing and distribution revenues are expected to benefit from the first-cycle domestic syndication availabilities of Hawaii Five-O and Blue Bloods.

Affiliate and subscription fees increased $115 million, or 23%, to $611 million for the three months ended September 30, 2013 and for the nine months ended September 30, 2013 increased $263 million, or 19%, to $1.68 billion. These increases were principally driven by revenues from Showtime Networks' distribution of Floyd Mayweather pay-per-view boxing events; growth in retransmission revenues and network affiliation fees of 32% and 47% for the three and nine months ended September 30, 2013, respectively; as well as increases in Cable Networks affiliate fees. The increase in Cable Networks affiliate fees reflected growth in subscriptions and rate increases at Showtime Networks and Smithsonian Networks, as well as rate increases at CBS Sports Network. The Company expects continued growth in affiliate and subscription fee revenues for the remainder of 2013 as well as in 2014.

Other revenues, which include ancillary fees for Entertainment, Cable Networks, Local Broadcasting, and Outdoor Americas operations, increased $13 million, or 22%, to $73 million for the three months ended September 30, 2013 and increased $27 million, or 16%, to $194 million for the nine months ended September 30, 2013, principally reflecting higher ancillary digital and network revenues.

International Revenues

The Company generated approximately 10% and 11% of its total revenues from international regions for the three months ended September 30, 2013 and 2012, respectively, and generated approximately 13% of its total revenues from international regions for both the nine months ended September 30, 2013 and 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)

Operating Expenses

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

 
 
  Three Months Ended September 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

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

Programming

  $ 552     28 % $ 461     27 % $ 91   20%    

Production

    601     31     449     26     152   34        

Billboard, transit and other occupancy

    159     8     161     9     (2 ) (1)        

Participation, distribution and royalty

    259     13     254     15     5   2        

Other

    401     20     392     23     9   2        
 

Total Operating Expenses

  $ 1,972     100 % $ 1,717     100 % $ 255   15%    
 

 

 
 
  Nine Months Ended September 30,
 
   
  Percentage
of Total

   
  Percentage
of Total

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

Programming

  $ 2,198     34 % $ 1,821     31 % $ 377   21%    

Production

    1,837     28     1,595     28     242   15        

Billboard, transit and other occupancy

    472     7     472     8       —        

Participation, distribution and royalty

    842     13     777     13     65   8        

Other

    1,161     18     1,152     20     9   1        
 

Total Operating Expenses

  $ 6,510     100 % $ 5,817     100 % $ 693   12%    
 

Programming expenses for the three months ended September 30, 2013 increased $91 million, or 20%, to $552 million from $461 million for the same prior-year period, primarily driven by higher programming costs associated with a pay-per-view boxing event, as well as higher investment in acquired television programming. For the nine months ended September 30, 2013, programming expenses increased $377 million, or 21%, to $2.20 billion from $1.82 billion for the same prior-year period, primarily reflecting higher sports programming costs associated with the CBS Television Network's 2013 broadcast of the Super Bowl and Showtime Networks' distribution of two pay-per-view boxing events, as well as higher investment in acquired television programming.

Sports programming expenses in the first quarter of 2014 are expected to be lower compared to the first quarter of 2013, which included costs associated with the Super Bowl broadcast on the CBS Television Network. For the full year 2014, this decrease will be partially offset by cost increases associated with the Company's new agreement with the National Football League, which commences in the third quarter of 2014.

Production expenses increased $152 million, or 34%, to $601 million for the three months ended September 30, 2013 and increased $242 million, or 15%, to $1.84 billion for the nine months ended September 30, 2013, primarily driven by higher amortization of production costs mainly associated with increased revenues from the first-cycle availabilities of NCIS: Los Angeles and The Good Wife, as well as higher investment in television content.

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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)

Billboard, transit and other occupancy expenses decreased $2 million, or 1%, to $159 million for the three months ended September 30, 2013, primarily reflecting lower transit costs associated with the renewal of a transit contract at more favorable terms, partially offset by higher contingent rent expenses associated with the increase in revenues. Billboard, transit and other occupancy expenses remained flat at $472 million for the nine months ended September 30, 2013 versus the same prior-year period.

Participation, distribution and royalty expenses for the three months ended September 30, 2013 increased $5 million, or 2%, to $259 million and for the nine months ended September 30, 2013, increased $65 million, or 8%, to $842 million compared with the same prior-year periods. These increases were 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 $76 million, or 12%, to $721 million for the three months ended September 30, 2013, and increased $102 million, or 5%, to $2.05 billion for the nine months ended September 30, 2013. These increases primarily reflected higher stock-based compensation, mainly associated with the increase in the Company's stock price, higher advertising expenses, as well as professional fees related to the conversion of Outdoor Americas to a REIT. For the nine-month period, these increases were partially offset by costs incurred during 2012 relating to a Publishing legal matter. SG&A expenses as a percentage of revenues for the three and nine months ended September 30, 2013 were 20% and 18%, respectively, versus 20% and 19% 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 September 30, 2013, depreciation and amortization decreased $3 million, or 3%, to $113 million and for the nine months ended September 30, 2013, depreciation and amortization decreased $11 million, or 3%, to $343 million.

Interest Expense

For the three months ended September 30, 2013, interest expense decreased $1 million, or 1%, to $93 million. For the nine months ended September 30, 2013, interest expense decreased $27 million, or 9%, to $281 million, driven by the Company's debt refinancing during 2012. The Company had $5.97 billion and $5.93 billion of long-term debt outstanding at September 30, 2013 and September 30, 2012, respectively, each at weighted average interest rate of 6.0%. At September 30, 2013, the Company also had $341 million of commercial paper outstanding at a weighted average interest rate of 0.3%.

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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)

Interest Income

For the three months ended September 30, 2013, interest income increased $1 million to $2 million and for the nine months ended September 30, 2013, interest income increased $2 million to $6 million.

Net Loss on Early Extinguishment of Debt

For the three months ended September 30, 2012, the loss on early extinguishment of debt of $57 million reflected a pre-tax loss associated with the redemption of the Company's $338 million of 5.625% senior notes due 2012 and $400 million of 8.20% senior notes due 2014. For the nine months ended September 30, 2012, the net loss on early extinguishment of debt of $32 million also included a 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 September 30, 2013 increased to $254 million from $236 million for the three months ended September 30, 2012, and for the nine months ended September 30, 2013, the provision for income taxes increased to $744 million from $665 million for the comparable prior-year period. These increases were mainly driven by the increase in earnings from continuing operations. For the nine months ended September 30, 2013, the effective income tax rate decreased to 34.0% from 34.5% for the comparable prior-year period, reflecting the favorable impact from the settlement of income tax audits in 2013.

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 September 30, 2013, equity in loss of investee companies, net of tax, increased $7 million to a loss of $21 million and for the nine months ended September 30, 2013, increased $7 million to a loss of $37 million compared to the same prior-year periods.

Net Earnings from Continuing Operations

The Company reported net earnings from continuing operations of $469 million for the three months ended September 30, 2013 versus $385 million for the three months ended September 30, 2012 and $1.41 billion for the nine months ended September 30, 2013 versus $1.23 billion for the nine months ended September 30, 2012.

Net Earnings (Loss) from Discontinued Operations

On September 30, 2013, the Company completed the sale of Outdoor Europe for $225 million. Outdoor Europe has been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented. Included in the loss from discontinued operations for the three and nine months ended September 30, 2013 is an after-tax charge of $110 million associated with the exiting of an unprofitable contractual arrangement and the estimated fair value of guarantees,

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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)

which historically have been intercompany but upon the closing of the transaction became third-party guarantees (See Note 11 to the consolidated financial statements).

The following table sets forth details of the net earnings (loss) from discontinued operations for the three and nine months ended September 30, 2013 and 2012.

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

 
   
 
  2013
  2012
  2013
  2012
 

Revenues from discontinued operations

  $ 139   $ 152   $ 401   $ 427      
 

Loss from discontinued operations

  $ (194 ) $ (11 ) $ (241 ) $ (68)    

Income tax benefit

    72     17     95     18      
 

(Loss) earnings from discontinued operations, net of tax

    (122 )   6     (146 )   (50)    
 

Gain on disposal

    149         149     —      

Income tax provision

    (2 )       (2 )   —      
 

Gain on disposal, net of tax

    147         147     —      
 

Net earnings (loss) from discontinued operations, net of tax

  $ 25   $ 6   $ 1   $ (50)    
 

Net Earnings and Diluted EPS

For the three months ended September 30, 2013, net earnings of $494 million, or $.80 per diluted share, increased from $391 million, or $.60 per diluted share, for the same prior-year period. For the nine months ended September 30, 2013, net earnings of $1.41 billion, or $2.25 per diluted share, increased from $1.18 billion, or $1.78 per diluted share, for the same prior-year period. These increases were mainly driven by the growth in operating income and the absence of the 2012 net loss on early extinguishment of debt. 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

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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)

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.

 
 
  Nine Months Ended
September 30,
   
 
  2013
  2012
   
 

Net cash flow provided by operating activities

  $ 1,320   $ 1,480    

Capital expenditures

    (140 )   (139 )  

Exclude net cash flow used for operating activities from discontinued operations

    (212 )   (25 )  
 

Free cash flow

  $ 1,392   $ 1,366    
 

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 nine months ended September 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

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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)

presentation, is now included within Corporate. Prior periods have been reclassified to conform to this presentation.

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues:

                           

Entertainment

  $ 1,884   $ 1,680   $ 6,431   $ 5,705    

Cable Networks

    596     436     1,592     1,334    

Publishing

    224     210     584     575    

Local Broadcasting

    641     661     1,977     1,987    

Outdoor Americas

    341     334     957     956    

Eliminations

    (52 )   (55 )   (168 )   (166 )  
 

Total Revenues

  $ 3,634   $ 3,266   $ 11,373   $ 10,391    
 

 

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Segment OIBDA:

                           

Entertainment

  $ 431   $ 384   $ 1,340   $ 1,221    

Cable Networks

    261     227     699     626    

Publishing

    43     39     76     58    

Local Broadcasting

    181     213     635     632    

Outdoor Americas

    110     105     291     284    

Corporate

    (85 )   (64 )   (232 )   (199 )  
 

Total Segment OIBDA

    941     904     2,809     2,622    

Impairment charges

                (11 )  

Depreciation and amortization

    (113 )   (116 )   (343 )   (354 )  
 

Total Operating Income

  $ 828   $ 788   $ 2,466   $ 2,257    
 

Operating Income (Loss):

                           

Entertainment

  $ 394   $ 346   $ 1,225   $ 1,101    

Cable Networks

    255     221     684     609    

Publishing

    41     38     71     53    

Local Broadcasting

    161     190     571     553    

Outdoor Americas

    68     62     165     157    

Corporate

    (91 )   (69 )   (250 )   (216 )  
 

Total Operating Income

  $ 828   $ 788   $ 2,466   $ 2,257    
 

Depreciation and Amortization:

                           

Entertainment

  $ 37   $ 38   $ 115   $ 120    

Cable Networks

    6     6     15     17    

Publishing

    2     1     5     5    

Local Broadcasting

    20     23     64     68    

Outdoor Americas

    42     43     126     127    

Corporate

    6     5     18     17    
 

Total Depreciation and Amortization

  $ 113   $ 116   $ 343   $ 354    
 

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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 52% and 57% to consolidated revenues for the three and nine months ended September 30, 2013, respectively, versus 51% and 55% for the comparable prior-year periods and 48% and 50% to consolidated operating income for the three and nine months ended September 30, 2013, respectively, versus 44% and 49% for the comparable prior-year periods.)

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 1,884   $ 1,680   $ 6,431   $ 5,705    
 

Segment OIBDA

  $ 431   $ 384   $ 1,340   $ 1,221    

Depreciation and amortization

    (37 )   (38 )   (115 )   (120 )  
 

Operating income

  $ 394   $ 346   $ 1,225   $ 1,101    
 

Segment OIBDA as a % of revenues

    23 %   23 %   21 %   21 %  

Operating income as a % of revenues

    21 %   21 %   19 %   19 %  

Capital expenditures

  $ 24   $ 20   $ 67   $ 56    
 

Three Months Ended September 30, 2013 and 2012

For the three months ended September 30, 2013, Entertainment revenues increased $204 million, or 12%, to $1.88 billion from $1.68 billion for the same prior-year period reflecting higher advertising revenues at the CBS Television Network and CBS Interactive, higher content licensing and distribution revenues and growth in network affiliation fees. Advertising revenues at the CBS Television Network increased 13% reflecting the benefit of more original programming as well as an easier 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. Content licensing and distribution revenues increased 11%, driven by higher domestic licensing revenues mainly from the first-cycle availabilities of NCIS: Los Angeles and The Good Wife.

For the three months ended September 30, 2013, Entertainment OIBDA increased $47 million, or 12%, to $431 million from $384 million for the same prior-year period, driven by the revenue growth, which was partially offset by increased investment in television programming.

Nine Months Ended September 30, 2013 and 2012

For the nine months ended September 30, 2013, Entertainment revenues increased $726 million, or 13%, to $6.43 billion from $5.71 billion for the same prior-year period 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, growth in Network primetime advertising and growth at CBS Interactive. Content licensing and distribution revenues increased 11%, reflecting growth from the licensing of television programming for digital streaming and domestic and international syndication.

For the nine months ended September 30, 2013, Entertainment OIBDA increased $119 million, or 10%, to $1.34 billion from $1.22 billion 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.

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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)

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

(Contributed 16% and 14% to consolidated revenues for the three and nine months ended September 30, 2013, respectively, versus 13% for both of the comparable prior-year periods and 31% and 28% to consolidated operating income for the three and nine months ended September 30, 2013, respectively, versus 28% and 27% for the comparable prior-year periods.)

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 596   $ 436   $ 1,592   $ 1,334    
 

Segment OIBDA

  $ 261   $ 227   $ 699   $ 626    

Depreciation and amortization

    (6 )   (6 )   (15 )   (17 )  
 

Operating income

  $ 255   $ 221   $ 684   $ 609    
 

Segment OIBDA as a % of revenues

    44 %   52 %   44 %   47 %  

Operating income as a % of revenues

    43 %   51 %   43 %   46 %  

Capital expenditures

  $ 2   $ 5   $ 6   $ 9    
 

Three Months Ended September 30, 2013 and 2012

For the three months ended September 30, 2013, Cable Networks revenues increased $160 million, or 37%, to $596 million from $436 million for the same prior-year period. This increase was driven by revenues from the distribution of a Floyd Mayweather pay-per-view boxing event, growth from the licensing of Showtime original series, primarily Dexter, and higher affiliate revenues driven by rate increases and growth in subscriptions at Showtime Networks and Smithsonian Networks. As of September 30, 2013 subscriptions totaled 77 million for Showtime Networks, including Showtime, The Movie Channel and Flix, 45 million for CBS Sports Network and 21 million for Smithsonian Networks.

For the three months ended September 30, 2013, Cable Networks OIBDA increased $34 million, or 15%, to $261 million from $227 million for the same prior-year period primarily due to the revenue growth, partially offset by higher programming costs, including costs associated with the pay-per-view boxing event, the increase in licensing revenues, as well as increased investment in Showtime original series.

Nine Months Ended September 30, 2013 and 2012

For the nine months ended September 30, 2013, Cable Networks revenues increased $258 million, or 19%, to $1.59 billion from $1.33 billion for the same prior-year period primarily driven by revenues from the distribution of two Floyd Mayweather pay-per-view boxing events, higher revenues from the licensing of Showtime original series, led by Dexter, and higher affiliate revenues. Affiliate revenues increased 5% reflecting rate increases and growth in subscriptions at Showtime Networks and Smithsonian Networks, as well as rate increases at CBS Sports Network.

For the nine months ended September 30, 2013, Cable Networks OIBDA increased $73 million, or 12%, to $699 million from $626 million for the same prior-year period, primarily due to the revenue growth, partially offset by higher programming costs, mainly associated with the pay-per-view boxing events, the increase in licensing revenues, and increased investment in Showtime original series.

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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)

Publishing (Simon & Schuster)

(Contributed 6% and 5% to consolidated revenues for the three and nine months ended September 30, 2013, respectively, versus 6% for both of the comparable prior-year periods and 5% and 3% to consolidated operating income for the three and nine months ended September 30, 2013, respectively, versus 5% and 2% for the comparable prior-year periods.)

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 224   $ 210   $ 584   $ 575    
 

Segment OIBDA

  $ 43   $ 39   $ 76   $ 58    

Depreciation and amortization

    (2 )   (1 )   (5 )   (5 )  
 

Operating income

  $ 41   $ 38   $ 71   $ 53    
 

Segment OIBDA as a % of revenues

    19 %   19 %   13 %   10 %  

Operating income as a % of revenues

    18 %   18 %   12 %   9 %  

Capital expenditures

  $ 1   $ 1   $ 2   $ 1    
 

Three Months Ended September 30, 2013 and 2012

For the three months ended September 30, 2013, Publishing revenues increased $14 million, or 7%, to $224 million from $210 million for the same prior-year period primarily driven by growth in digital book sales. Digital book sales increased 39% from the same prior-year period and represented 27% of Publishing's total revenues for the third quarter of 2013, compared with 21% for the third quarter of 2012. Best-selling titles in the third quarter included Doctor Sleep by Stephen King and Si-cology 1 by Si Robertson.

For the three months ended September 30, 2013, Publishing OIBDA increased $4 million, or 10%, to $43 million from $39 million for the same prior-year period. This increase was primarily due to the revenue growth which was partially offset by higher royalties and other direct costs associated with the revenue increase, as well as higher advertising expenses.

Nine Months Ended September 30, 2013 and 2012

For the nine months ended September 30, 2013, Publishing revenues increased $9 million, or 2%, to $584 million from $575 million for the same prior-year period reflecting growth in digital book sales which was partially offset by lower print book sales.

For the nine months ended September 30, 2013, Publishing OIBDA increased $18 million, or 31%, to $76 million from $58 million for the same prior-year period, reflecting lower costs associated with legal matters and the growth in more profitable digital book sales, partially offset by the decline in print book sales and higher advertising expenses.

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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 18% and 17% to consolidated revenues for the three and nine months ended September 30, 2013, respectively, versus 20% and 19% for the comparable prior-year periods and 19% and 23% to consolidated operating income for the three and nine months ended September 30, 2013, respectively, versus 24% and 25% for the comparable prior-year periods.)

 
 
  Three Months Ended
September 30,

  Nine Months Ended
September 30,

   
 
   
 
  2013
  2012
  2013
  2012
   
 

Revenues

  $ 641   $ 661   $ 1,977   $ 1,987    
 

Segment OIBDA

  $ 181   $ 213   $ 635   $ 632    

Impairment charges

                (11 )  

Depreciation and amortization

    (20 )   (23 )   (64 )   (68 )  
 

Operating income

  $ 161   $ 190   $ 571   $ 553    
 

Segment OIBDA as a % of revenues

    28 %   32 %   32 %   32 %  

Operating income as a % of revenues

    25 %   29 %   29 %   28 %  

Capital expenditures

  $ 15   $ 14