UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 8, 2014

 

CBS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

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

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01 Other Events.

 

On July 16, 2014, CBS Corporation (the “Company” or “CBS Corp.”) completed the disposition of its approximately 81% ownership of CBS Outdoor Americas Inc. (“Outdoor Americas”) common stock through a tax-free split-off (the “Split-Off”).  In connection with the Split-Off, the Company accepted 44,723,131 shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 97,000,000 shares of Outdoor Americas common stock that it owned.  As a result, in the second quarter of 2014 Outdoor Americas was presented as a discontinued operation in the Company’s consolidated financial statements. Accordingly, the Company has recast its consolidated financial statements to present Outdoor Americas as a discontinued operation.

 

Exhibit 99.1 of this Current Report on Form 8-K presents a recast of the following sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (“Form 10-K”) to present Outdoor Americas as a discontinued operation:  Item 6. Selected Financial Data, Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition, and Item 8. Financial Statements and Supplementary Data.   Except for information and events related to the Split-Off, no revisions have been made to the Company’s Form 10-K to update for other information, developments or events that have occurred since the Company’s Form 10-K was filed on February 14, 2014.

 

This Current Report on Form 8-K should be read in conjunction with the Company’s Form 10-K, First Quarter 2014 Form 10-Q, Second Quarter 2014 Form 10-Q and other filings with the SEC. These SEC filings contain important information regarding events, developments and updates affecting the Company and its expectations that have occurred since the filing of the Form 10-K.

 

 

Item 9.01 Financial Statements and Exhibits.

 

(d)  Exhibits.    The following Exhibits are filed as part of this Report on Form 8-K:

 

 

Exhibit Number		Description of Exhibit
23.1		Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
99.1		Recast of CBS Corporation’s Selected Financial Data, Consolidated Financial Statements and notes thereto as of December 31, 2013 and 2012 and for each of the years ended December 31, 2013, 2012 and 2011, and the related Management’s Discussion and Analysis of Results of Operations and Financial Condition.
101		101. INS XBRL Instance Document. 101. SCH XBRL Taxonomy Extension Schema. 101. CAL XBRL Taxonomy Extension Calculation Linkbase. 101. DEF XBRL Taxonomy Extension Definition Linkbase. 101. LAB XBRL Taxonomy Extension Label Linkbase. 101. PRE XBRL Taxonomy Extension Presentation Linkbase.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

	CBS CORPORATION
	(Registrant)
	By:	/s/ Joseph R. Ianniello
		Name: Joseph R. Ianniello
		Title: Chief Operating Officer

 

 

 

 

Date:  August 8, 2014

 

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Exhibit 23.1

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-177706) and Forms S-8 (No. 333-139248, No. 333-124172, No. 333-36440, No. 333-55346, No. 333-75752, No. 333-82422, No. 333-152342, No. 333-164441 and No. 333-192673)  of CBS Corporation of our report dated February 14, 2014, except with respect to our opinion on the consolidated financial statements insofar as it relates to  the effects of the discontinued operations presentation of Outdoor Americas  discussed  in Note 3, as to which the date is August 8, 2014 relating to the consolidated financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K  dated August 8, 2014.

 

 

 

 

 

/s/PricewaterhouseCoopers LLP
New York, New York
August 8, 2014

 

-1-

 

Exhibit 99.1

 

Item 6.  Selected Financial Data.

 

CBS CORPORATION AND SUBSIDIARIES

(In millions, except per share amounts)

 

		Year Ended December 31, (a)(b)
		2013			2012			2011			2010			2009 (c)
Revenues		$	14,005		$	12,820		$	12,381		$	12,271		$	11,325
Operating income		$	3,025		$	2,778		$	2,423		$	1,803		$	1,108
Net earnings from continuing operations		$	1,738		$	1,508		$	1,263		$	739		$	336
Net earnings (loss) from discontinued operations, net of tax		$	141		$	66		$	42		$	(15	)	$	(109	)
Net earnings		$	1,879		$	1,574		$	1,305		$	724		$	227
Basic net earnings (loss) per common share:
Net earnings from continuing operations		$	2.86		$	2.35		$	1.90		$	1.09		$	.50
Net earnings (loss) from discontinued operations		$	.23		$	.10		$	.06		$	(.02	)	$	(.16	)
Net earnings		$	3.09		$	2.45		$	1.97		$	1.07		$	.34
Diluted net earnings (loss) per common share:
Net earnings from continuing operations		$	2.79		$	2.29		$	1.85		$	1.06		$	.49
Net earnings (loss) from discontinued operations		$	.23		$	.10		$	.06		$	(.02	)	$	(.16	)
Net earnings		$	3.01		$	2.39		$	1.92		$	1.04		$	.33
Dividends per common share		$	.48		$	.44		$	.35		$	.20		$	.20
At Year End:
Total assets:
Continuing operations		$	22,912		$	22,473		$	22,059		$	21,828		$	22,491
Discontinued operations		3,475			3,993			4,161			4,336			4,477
Total assets		$	26,387		$	26,466		$	26,220		$	26,164		$	26,968
Total debt:
Continuing operations		$	6,435		$	5,921		$	5,981		$	5,998		$	6,994
Discontinued operations		14			14			22			23			24
Total debt		$	6,449		$	5,935		$	6,003		$	6,021		$	7,018
Total Stockholders’ Equity		$	9,966		$	10,213		$	9,908		$	9,821		$	9,019

 

(a)          On April 2, 2014, CBS Outdoor Americas Inc. (“Outdoor Americas”) completed an initial public offering through which it sold approximately 19% of its common stock and on July 16, 2014, CBS Corporation (the “Company”) disposed of its approximately 81% ownership of Outdoor Americas through a tax-free split-off. As a result, in the second quarter of 2014, Outdoor Americas was presented as a discontinued operation in the Company’s consolidated financial statements.  Accordingly, all prior periods have been recast to conform to this presentation.

 

(b)          On September 30, 2013, the Company completed the sale of its outdoor advertising business in Europe, which included an interest in an outdoor business in Asia (“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.

 

(c)           In 2009, the Company recorded noncash impairment charges of $210 million ($131 million, net of tax), or $.19 per diluted share, to reduce the carrying value of FCC licenses in certain radio markets and to reduce the carrying value of the allocated goodwill in connection with the sale of certain radio stations.

 

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Item 7.  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 (together with its consolidated subsidiaries, unless the context otherwise requires, the “Company” or “CBS Corp.”) should be read in conjunction with the consolidated financial statements and related notes.

 

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, consumer publishing, television and radio stations and interactive media. 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 2013, the Company reported its highest results across all key financial metrics, including revenues, operating income and diluted earnings per share (“EPS”) from continuing operations, since becoming a separate publicly traded company in January 2006.  Diluted EPS from continuing operations of $2.79 increased $.50, or 22%, from $2.29 for the same prior-year period, principally reflecting a 9% increase in both revenues and operating income, and lower weighted average shares outstanding due to the Company’s ongoing share repurchases. The revenue growth reflects increases across all of the Company’s revenue streams. Advertising revenues increased 5%, principally driven by growth at the CBS Television Network, including the benefit from the 2013 broadcast of Super Bowl XLVII. This growth was partially offset by a decline at Local Broadcasting resulting from lower political advertising sales.  Content licensing and distribution revenues increased 15%, led by growth from domestic and international licensing of television and cable programming for digital streaming and syndication. Affiliate and subscription fee revenues increased 16%, reflecting growth from cable affiliate fees, retransmission revenues, fees received from the CBS Television Network’s affiliated television stations, as well as the benefit of Showtime Networks’ distribution of two Floyd Mayweather pay-per-view boxing events. Operating income growth was driven by the increase in revenues which was partially offset by higher sports programming costs and increased investment in television content.

 

For 2014, the Company expects to benefit from continued growth in revenues received from MVPDs and television stations affiliated with the CBS Television Network as well as incremental political advertising sales associated with mid-term elections. Advertising revenue comparisons in 2014 will be negatively impacted by the Super Bowl broadcast on the CBS Television Network in the first quarter of 2013 as well as the broadcast of fewer NCAA Division I Men’s Basketball Championship (“NCAA Tournament”) games on the CBS Television Network in 2014.  The Company’s overall financial performance will be impacted by many other factors, including, the health of the economy and audience acceptance of the Company’s programming.

 

During 2013, the Company returned $2.50 billion to shareholders through repurchases of its stock and payment of dividends.  The Company repurchased 45.8 million shares of its Class B Common Stock during 2013 at an average price of $48.03 per share.  For 2014, the Company expects to continue to return value to shareholders through share repurchases and dividends.

 

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Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

 

The Company generated operating cash flow from continuing operations of $1.78 billion in 2013 and $1.51 billion in 2012. Included in operating cash flows are contributions of $150 million in 2013 and $200 million in 2012 to pre-fund the Company’s qualified pension plans. Free cash flow for 2013 of $1.57 billion increased $262 million compared to $1.31 billion for 2012. Free cash flow is a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Information” on page 10 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 April 2, 2014, CBS Outdoor Americas Inc. (“Outdoor Americas”) completed an initial public offering (“IPO”) through which it sold 23.0 million shares, or 19%, of its common stock for $28.00 per share. On July 16, 2014, the Company completed the disposition of its 81% ownership of Outdoor Americas common stock through a tax-free split-off. In connection with this transaction, the Company accepted 44.7 million shares of CBS Corp. Class B Common Stock from its shareholders in exchange for the 97.0 million shares of Outdoor Americas common stock that it owned. As a result, in the second quarter of 2014, Outdoor Americas was presented as a discontinued operation in the Company’s consolidated financial statements. All prior periods have been recast to conform to this presentation. During 2013, the Company completed the sale of its outdoor advertising business in Europe, which included an interest in an outdoor business in Asia (“Outdoor Europe”) for $225 million. As a result, Outdoor Europe has been presented as a discontinued operation in the Company’s consolidated financial statements for all periods presented.

 

During January 2014, prior to the IPO, Outdoor Americas borrowed $1.60 billion through an $800 million senior secured term loan credit facility (“Term Loan”) and the issuance of $800 million of senior notes. The debt proceeds were primarily used by the Company to repurchase 23.5 million shares of CBS Corp. Class B Common Stock through a $1.5 billion accelerated share repurchase (“ASR”) transaction.

 

CBS Corp. operates in the following four segments:

 

ENTERTAINMENT:  The Entertainment segment consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Films and CBS Interactive.  Entertainment revenues are generated primarily from advertising sales, the licensing and distribution of its content, and affiliate and subscription fees.  The Entertainment segment contributed 62% to consolidated revenues in 2013 and 60% to consolidated revenues in each of 2012 and 2011, and 53%, 50% and 51% to consolidated operating income in 2013, 2012 and 2011, respectively.

 

CABLE NETWORKS:  The Cable Networks segment consists of Showtime Networks, CBS Sports Network and Smithsonian Networks. Cable Networks revenues are generated primarily from affiliate fees, and the licensing and distribution of its content.  The Cable Networks segment contributed 15%, 14% and 13% to consolidated revenues in 2013, 2012 and 2011, respectively, and 29% to consolidated operating income in 2013 and 28% to consolidated operating income in each of 2012 and 2011.

 

PUBLISHING:  The Publishing segment consists of Simon & Schuster’s consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Free Press.  Publishing generates revenues from the distribution of consumer books in print, digital and audio formats. The Publishing segment contributed 6% to consolidated revenues in each of 2013, 2012 and 2011, and 4% to consolidated operating income in 2013 and 3% to consolidated operating income in each of 2012 and 2011.

 

LOCAL BROADCASTING:  The Local Broadcasting segment consists of CBS Television Stations and CBS Radio, with revenues generated primarily from advertising sales. The Local Broadcasting segment contributed 19% to consolidated revenues in 2013 and 22% to consolidated revenues in each of 2012 and 2011, and 27% to consolidated operating income in 2013 and 31% to consolidated operating income in each of 2012 and 2011.

 

-3-

 

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—2013 vs. 2012 and 2012 vs. 2011

 

Revenues

 

The following tables present the Company’s consolidated revenues by type for each of the years ended December 31, 2013, 2012 and 2011.

 

Revenues by Type								Increase/(Decrease)								Increase/(Decrease)
Year Ended December 31,		2013			2012			2013 vs. 2012					2011			2012 vs. 2011
Advertising		$	7,525		$	7,191		$	334		5	%	$	7,145		$	46		1	%
Content licensing and distribution		3,997			3,468			529			15		3,236			232			7
Affiliate and subscription fees		2,221			1,921			300			16		1,762			159			9
Other		262			240			22			9		238			2			1
Total Revenues		$	14,005		$	12,820		$	1,185		9	%	$	12,381		$	439		4	%

 

		Year Ended December 31,
Percentage of Revenues by Type		2013		2012		2011
Advertising		54	%	56	%	58	%
Content licensing and distribution		29		27		26
Affiliate and subscription fees		15		15		14
Other		2		2		2
Total		100	%	100	%	100	%

 

Advertising sales increased 5% to $7.53 billion in 2013 from $7.19 billion in 2012. This growth was principally driven by a 10% increase at the CBS Television Network, reflecting higher revenues from sports, including the 2013 broadcast of the Super Bowl, which is broadcast on the CBS Television Network once every three years, as well as increases in primetime. Advertising revenue growth also reflects an 18% increase at CBS Interactive. These increases were partially offset by a decline in Local Broadcasting advertising of 4%, reflecting lower political advertising revenues.

 

In 2012, advertising sales increased 1% to $7.19 billion from $7.15 billion in 2011 reflecting growth at Local Broadcasting resulting from increased political advertising spending associated with the U.S. presidential election. Network advertising revenues increased slightly reflecting higher pricing, partially offset by lower ratings during the second half of 2012.

 

In 2014, local advertising revenues are expected to benefit from increased political advertising spending for midterm elections.  For national advertising, revenues in 2014 will benefit from upfront pricing increases for the 2013/2014 television broadcast season. In addition, 2014 advertising revenue comparisons will be negatively impacted by the broadcast of the Super Bowl on the CBS Television Network in the first quarter of 2013 as well as the broadcast of fewer NCAA Tournament games on the CBS Television Network in 2014.  In 2014, two regional final games and the national semifinals of the NCAA Tournament, which were previously broadcast by CBS, will be broadcast by Turner Broadcasting System, Inc. (“Turner”). Overall advertising revenues will also be impacted by ratings for the Company’s programming and market conditions, including demand in the scatter advertising market.

 

Content licensing and distribution revenues are principally comprised of fees from the licensing of internally produced television programming to multiple media platforms and in various geographic locations; fees from the distribution of third party programming; and revenues from the publishing and distribution of consumer books. For 2013, content licensing and distribution revenues increased 15% to $4.00 billion from $3.47 billion in 2012 and for 2012, content licensing and distribution revenues increased 7% from $3.24 billion in 2011. These increases

 

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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)

 

 

reflected growth from domestic and international licensing of programming for syndication and digital streaming. For 2013, revenue contributions from significant domestic syndication availabilities included the first-cycle sales of NCIS: Los Angeles and The Good Wife. During 2014, content licensing and distribution revenues are expected to benefit from the first-cycle domestic syndication availabilities of Hawaii Five-0 and Blue Bloods; however, revenue comparisons to 2013 may be impacted by fluctuations resulting from the timing of the availability of television series for multiple year licensing agreements, as television license fee revenues are recognized at the beginning of the license period in which programs are made available for exhibition.

 

Affiliate and subscription fees are principally comprised of revenues received from MVPDs for carriage of the Company’s cable networks, as well as for authorizing the MVPDs’ carriage of the Company’s owned television stations (“retransmission fees”); fees received from television stations affiliated with the CBS Television Network (known as “network affiliation fees” or “reverse compensation”); and subscriber fees for online content. For 2013, affiliate and subscription fees increased 16% to $2.22 billion from $1.92 billion in 2012 and for 2012, affiliate and subscription fees increased 9% from $1.76 billion in 2011. These increases reflected growth in retransmission revenues and network affiliation fees of 39% for 2013 and 42% for 2012; 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, CBS Sports Network and Smithsonian Networks. For 2013, the increase was also driven by revenues from Showtime Networks’ distribution of two Floyd Mayweather pay-per-view boxing events. The Company expects continued growth in retransmission revenues, network affiliation fees and cable affiliate fees in 2014, however, quarterly comparisons will fluctuate based on the timing of pay-per-view boxing events.

 

Other revenues, which include ancillary fees for Entertainment, Cable Networks and Local Broadcasting operations, increased 9% to $262 million in 2013 from $240 million in 2012, principally reflecting higher ancillary digital revenues. For 2012, other revenues increased 1% to $240 million from $238 million in 2011.

 

International Revenues

 

International revenues primarily consist of television licensing revenues. The Company generated approximately 13%, 12% and 11% of its total revenues from international regions in 2013, 2012 and 2011, respectively.

 

					% of					% of					% of
Year Ended December 31,		2013			International		2012			International		2011			International
United Kingdom		$	359		20 %		$	245		16 %		$	202		15 %
Other Europe		607			33		498			32		480			35
Canada		270			15		260			17		233			17
Asia		225			12		198			13		151			11
Other		366			20		344			22		291			22
Total International Revenues		$	1,827		100 %		$	1,545		100 %		$	1,357		100 %

 

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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 table below presents the Company’s consolidated operating expenses by type for each of the years ended December 31, 2013, 2012 and 2011.

 

Operating Expenses by Type								Increase/(Decrease)								Increase/(Decrease)
Year Ended December 31,		2013			2012			2013 vs. 2012					2011			2012 vs. 2011
Programming		$	3,047		$	2,621		$	426		16 %		$	2,563		$	58		2 %
Production		2,491			2,149			342			16		2,096			53			3
Participation, distribution and royalty		1,112			1,004			108			11		1,065			(61		)	(6)
Other		1,474			1,490			(16		)	(1)		1,467			23			2
Total Operating Expenses		$	8,124		$	7,264		$	860		12 %		$	7,191		$	73		1 %

 

Programming expenses represented 38% of total operating expenses for 2013 and 36% for each of the years 2012 and 2011, and reflect the amortization of acquired rights of programs exhibited on the broadcast and cable networks, and television and radio stations.  Programming expenses increased 16% to $3.05 billion in 2013 from $2.62 billion in 2012 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. For 2012, programming expenses increased 2% to $2.62 billion from $2.56 billion in 2011 primarily driven by 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.  In addition, during the first half of 2014, sports programming costs will be lower due to the broadcast of fewer NCAA Tournament games on CBS. For the full year 2014, these decreases will be partially offset by cost increases beginning in the third quarter of 2014 associated with the Company’s new agreement with the National Football League (“NFL”) as well as the addition of a Thursday night NFL game on CBS for eight weeks.

 

Production expenses represented 31% of total operating expenses for 2013, 30% for 2012 and 29% for 2011, and reflect the amortization of direct costs of internally developed television and theatrical film content, as well as television and radio costs, including on-air talent and other production costs. Production expenses increased 16% to $2.49 billion in 2013 from $2.15 billion in 2012 primarily driven by increased revenues from the first-cycle domestic availabilities of NCIS: Los Angeles and The Good Wife, as well as higher investment in internally developed television programming. For 2012, production expenses increased 3% to $2.15 billion from $2.10 billion in 2011 primarily driven by higher amortization associated with increased revenues from television licensing arrangements.

 

Participation, distribution and royalty costs, which represented 14% of total operating expenses in each of the years 2013 and 2012, and 15% in 2011, primarily include participation and residual expenses for television programming, royalty costs for Publishing content and other distribution expenses incurred with respect to television and feature film content, such as print and advertising. Participation, distribution and royalty costs increased 11% to $1.11 billion in 2013 from $1.00 billion in 2012, principally due to higher participations associated with higher revenues from the licensing of television programming.  For 2012, participation, distribution and royalty costs decreased 6% to $1.00 billion from $1.07 billion in 2011, principally due to lower participations associated with the mix of titles licensed for syndication.

 

Other operating expenses, which represented 18% of total operating expenses in 2013, 21% for 2012 and 20% for 2011, primarily include compensation and costs associated with book sales, including printing and warehousing.  For 2013, other operating expenses decreased 1% to $1.47 billion from $1.49 billion in 2012. For

 

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Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

2012, other operating expenses increased 2% to $1.49 billion from $1.47 billion in 2011 reflecting higher employee-related costs mainly to support growth in digital businesses.

 

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, represented 18% of revenues for 2013, and 19% for each of the years 2012 and 2011.  For 2013, SG&A expenses increased $104 million, or 4%, to $2.55 billion from $2.44 billion in 2012 reflecting higher employee-related costs, mainly associated with $75 million higher stock-based compensation primarily from the increase in the Company’s stock price and an increase in selling expenses associated with higher revenues. These increases were partially offset by a 2012 charge related to a Publishing legal settlement.

 

For 2012, SG&A expenses increased $30 million, or 1%, to $2.44 billion from $2.41 billion in 2011 principally due to a charge related to a Publishing legal settlement, and higher advertising and promotion expenses.

 

Restructuring Charges

 

During the year ended December 31, 2013, in a continued effort to reduce its cost structure, the Company initiated restructuring plans across several of its businesses, primarily for the reorganization or closure of certain business operations. As a result, the Company recorded restructuring charges of $20 million, reflecting $14 million of severance costs and $6 million of costs associated with exiting contractual obligations. During the years ended December 31, 2012 and 2011, the Company recorded restructuring charges of $19 million and $42 million, respectively. The charges reflected $21 million of severance costs and $40 million of costs associated with exiting contractual obligations. As of December 31, 2013, the cumulative amount paid for the 2013, 2012 and 2011 restructuring charges was $56 million, of which $22 million was for the severance costs and $34 million related to costs associated with exiting contractual obligations. The 2012 and 2011 restructuring reserves were substantially utilized at December 31, 2013. The Company expects to substantially utilize the 2013 restructuring reserve by the end of 2014.

 

		Balance at			2013			2013			Balance at
		December 31, 2012			Charges			Payments			December 31, 2013
Entertainment		$	25		$	12		$	(23)		$	14
Cable Networks		—			1			—			1
Publishing		2			1			(2)			1
Local Broadcasting		7			5			(4)			8
Corporate		1			1			(1)			1
Total		$	35		$	20		$	(30)		$	25

 

		Balance at			2012			2012			Balance at
		December 31, 2011			Charges			Payments			December 31, 2012
Entertainment		$	40		$	7		$	(22)		$	25
Publishing		1			3			(2)			2
Local Broadcasting		—			8			(1)			7
Corporate		—			1			—			1
Total		$	41		$	19		$	(25)		$	35

 

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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)

 

 

Impairment Charges

 

In 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

 

Depreciation and amortization decreased $16 million, or 5%, to $290 million for 2013 from $306 million for 2012, principally reflecting lower depreciation associated with declining capital expenditure levels in recent years and lower amortization resulting from certain intangible assets becoming fully amortized.  For 2012, depreciation and amortization decreased $7 million, or 2%, to $306 million from $313 million for 2011.

 

Interest Expense

 

Interest expense decreased $26 million, or 6%, to $375 million for 2013 from $401 million for 2012 and for 2012, interest expense decreased $32 million, or 7% from $433 million for 2011, in both cases driven by the Company’s debt refinancing during 2012.  The Company had $5.96 billion of long term debt outstanding at December 31, 2013 and $5.92 billion at December 31, 2012, each at a weighted average interest rate of 6.0%.  At December 31, 2013, the Company also had $475 million of commercial paper borrowings outstanding at a weighted average interest rate of 0.3%.

 

Interest Income

 

Interest income increased $3 million to $8 million for 2013 from $5 million for 2012. For 2012, interest income was flat at $5 million compared to 2011.

 

Net Loss on Early Extinguishment of Debt

 

For 2012, the net loss on early extinguishment of debt of $32 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, partially offset by the pre-tax gain recognized upon the redemption of the Company’s $700 million of 6.75% senior notes due 2056 (See Note 8 to the consolidated financial statements).

 

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 represents federal, state and local, and foreign income taxes on earnings from continuing operations before income taxes and equity in loss of investee companies.  For 2013, the provision for income taxes increased to $878 million from $812 million in 2012 and for 2012, the provision for income taxes increased from $681 million in 2011.  These increases were mainly driven by the increase in earnings from continuing operations. The Company’s effective income tax rate was 33% in 2013 and 34% in each of 2012 and 2011. For 2014, the Company’s annual effective tax rate is expected to be comparable to the prior three years.

 

-8-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Equity in Loss of Investee Companies, Net of Tax

 

Equity in loss of investee companies, net of tax, was $49 million for 2013, $37 million for 2012 and $39 million for 2011 reflecting the Company’s share of the operating results of its equity investments.

 

Net Earnings from Continuing Operations

 

The Company reported net earnings from continuing operations of $1.74 billion for 2013, $1.51 billion for 2012 and $1.26 billion for 2011.

 

Net Earnings from Discontinued Operations

 

On April 2, 2014, Outdoor Americas completed an IPO through which it sold 23.0 million shares, or approximately 19% of its common stock. On July 16, 2014, the Company completed the disposition of its approximately 81% ownership of Outdoor Americas common stock through a tax-free split-off. During 2013, the Company completed the sale of Outdoor Europe for $225 million. As a result, Outdoor Americas and Outdoor Europe have been presented as discontinued operations in the Company’s consolidated financial statements for all periods presented.  Included in the loss from discontinued operations of $12 million for 2013 is an after-tax charge of $110 million related to the sale of Outdoor Europe. This charge was associated with exiting 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 14 to the consolidated financial statements).

 

 

The following table sets forth details of the net earnings from discontinued operations for the years ended December 31, 2013, 2012 and 2011.

 

Year Ended December 31,		2013			2012			2011
Revenues from discontinued operations		$	1,695		$	1,873		$	1,885
Earnings (loss) from discontinued operations		$	(12)		$	128		$	125
Income tax provision		—			(62)			(83)
Earnings (loss) from discontinued operations, net of tax		(12)			66			42
Gain on disposal		159			—			—
Income tax provision		(6)			—			—
Gain on disposal, net of tax		153			—			—
Net earnings from discontinued operations, net of tax		$	141		$	66		$	42

 

Net Earnings and Diluted EPS

 

For 2013, net earnings were $1.88 billion, or $3.01 per diluted share, up from $1.57 billion, or $2.39 per diluted share in 2012, and for 2012, net earnings increased from $1.31 billion, or $1.92 per diluted share in 2011.  These increases were mainly driven by the growth in operating income and a decline in interest expense. The increase in diluted EPS also reflected lower weighted average shares outstanding as a result of the Company’s ongoing share repurchase program.

 

-9-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Reconciliation of Non-GAAP Financial Information

 

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

 

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

 

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

 

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

 

Year Ended December 31,		2013			2012			2011
Net cash flow provided by operating activities		$	1,873		$	1,815		$	1,749
Capital expenditures		(212		)	(200		)	(199		)
Exclude net cash flow provided by operating activities from discontinued operations		94			310			293
Free cash flow		$	1,567		$	1,305		$	1,257

 

-10-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Segment Results of Operations – For the Years Ended December 31, 2013, 2012 and 2011

 

The following tables present the Company’s revenues; 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 each of the years ended December 31, 2013, 2012 and 2011. 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 15 (Reportable Segments) to the consolidated financial statements.

 

Year Ended December 31,		2013			2012			2011
Revenues:
Entertainment		$	8,645		$	7,694		$	7,457
Cable Networks		2,069			1,772			1,621
Publishing		809			790			787
Local Broadcasting		2,696			2,774			2,689
Corporate/Eliminations		(214		)	(210		)	(173		)
Total Revenues		$	14,005		$	12,820		$	12,381

 

Year Ended December 31,		2013			2012			2011
Segment OIBDA:
Entertainment		$	1,758		$	1,549		$	1,431
Cable Networks		898			811			707
Publishing		113			89			92
Local Broadcasting		898			957			849
Corporate		(332		)	(292		)	(301		)
Total Segment OIBDA		3,335			3,114			2,778
Restructuring charges		(20		)	(19		)	(42		)
Impairment charges		—			(11		)	—
Depreciation and amortization		(290		)	(306		)	(313		)
Total Operating Income		$	3,025		$	2,778		$	2,423
Operating Income (Loss):
Entertainment		$	1,593		$	1,381		$	1,231
Cable Networks		877			785			684
Publishing		106			80			83
Local Broadcasting		807			848			750
Corporate		(358		)	(316		)	(325		)
Total Operating Income		$	3,025		$	2,778		$	2,423
Depreciation and Amortization:
Entertainment		$	153		$	161		$	160
Cable Networks		20			26			23
Publishing		6			6			7
Local Broadcasting		86			90			99
Corporate		25			23			24
Total Depreciation and Amortization		$	290		$	306		$	313

 

-11-

 

 

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 62% to consolidated revenues in 2013 and 60% to consolidated revenues in each of 2012 and 2011, and 53%, 50% and 51% to consolidated operating income in 2013, 2012 and 2011, respectively.)

 

Year Ended December 31,		2013			2012			2011
Revenues		$	8,645		$	7,694		$	7,457
Segment OIBDA		$	1,758		$	1,549		$	1,431
Restructuring charges		(12)			(7)			(40)
Depreciation and amortization		(153)			(161)			(160)
Operating income		$	1,593		$	1,381		$	1,231
Segment OIBDA as a % of revenues		20%			20%			19%
Operating income as a % of revenues		18%			18%			17%
Capital expenditures		$	101		$	92		$	94

 

2013 vs. 2012

 

For 2013, Entertainment revenues increased 12% to $8.65 billion from $7.69 billion in 2012 reflecting higher advertising revenues, content licensing and distribution revenues and network affiliation fees.  Advertising revenues increased 10%, driven by growth at the CBS Television Network of 10%, reflecting higher revenues from sports, including the broadcast of Super Bowl XLVII on the CBS Television Network in 2013, as well as an increase in primetime. Also contributing to the advertising revenue growth is an increase at CBS Interactive of 18%.  Content licensing and distribution revenues increased 15%, reflecting growth from domestic and international licensing of television programming for digital streaming and syndication, led by the first-cycle domestic availabilities of NCIS: Los Angeles and The Good Wife.

 

For 2013, Entertainment OIBDA increased $209 million, or 13%, to $1.76 billion from $1.55 billion for 2012, principally driven by the growth in revenues which was partially offset by an increased investment in television content and higher sports programming costs associated with the Super Bowl broadcast.  For 2013, restructuring charges of $12 million principally reflected costs associated with exiting certain international operations and severance costs. Restructuring charges of $7 million in 2012 principally reflected severance costs.

 

Comparability in 2014 will be negatively impacted by the Super Bowl broadcast on CBS in the first quarter of 2013 and, beginning in the third quarter of 2014, cost increases associated with the Company’s new agreement with the NFL as well as the addition of a Thursday night NFL game on CBS for eight weeks.  Results in 2014 are expected to benefit from incremental network affiliation fees associated with current agreements and expected renewals in 2014.  Also in 2014, the Company expects to benefit from the first-cycle domestic availabilities of Hawaii Five-0 and Blue Bloods, however, revenue comparisons may be impacted by fluctuations resulting from the timing of the availability of television series for multiple year licensing agreements. Television license fee revenues are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition, while the related cash is collected over the term of the license period.  At December 31, 2013 and 2012, total outstanding receivables attributable to revenues recognized under licensing agreements were $3.14 billion and $2.42 billion, respectively. At December 31, 2013, the total amount due from these receivables was $1.52 billion in 2014, $848 million in 2015, $400 million in 2016, $207 million in 2017, and $168 million in 2018 and thereafter. Unrecognized revenues attributable to license agreements for produced programming that is not yet available for exhibition were $1.14 billion and $1.31 billion at December 31, 2013 and 2012, respectively.

 

-12-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

2012 vs. 2011

 

For 2012, Entertainment revenues increased 3% to $7.69 billion from $7.46 billion in 2011. This growth was led by a 13% increase in revenues from the licensing of television programming, driven by higher licensing revenues from digital streaming as well as domestic and international syndication.  Revenue growth also reflects higher network affiliation fees. Advertising revenues increased slightly, reflecting higher pricing partially offset by lower primetime ratings during the second half of 2012.

 

For 2012, Entertainment OIBDA increased $118 million, or 8%, to $1.55 billion from $1.43 billion for 2011, principally driven by the aforementioned revenue growth and higher profit margins on television licensing revenues. For 2011, restructuring charges of $40 million principally reflected costs associated with exiting operating facilities and severance costs.

 

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

 

(Contributed 15%, 14% and 13% to consolidated revenues in 2013, 2012 and 2011, respectively, and 29% to consolidated operating income in 2013 and 28% to consolidated operating income in each of 2012 and 2011.)

 

Year Ended December 31,		2013			2012			2011
Revenues		$	2,069		$	1,772		$	1,621
Segment OIBDA		$	898		$	811		$	707
Restructuring charges		(1)			—			—
Depreciation and amortization		(20)			(26)			(23)
Operating income		$	877		$	785		$	684
Segment OIBDA as a % of revenues		43%			46%			44%
Operating income as a % of revenues		42%			44%			42%
Capital expenditures		$	16		$	18		$	15

 

2013 vs. 2012

 

For 2013, Cable Networks revenues increased 17% to $2.07 billion from $1.77 billion in 2012 driven by higher domestic and international licensing revenues from the digital streaming and syndication of Showtime original series, led by Dexter, revenues from the distribution of two Floyd Mayweather pay-per-view boxing events, and higher affiliate revenues.  Affiliate revenues increased 5% reflecting rate increases and growth in subscriptions at Showtime Networks, CBS Sports Network and Smithsonian Networks.  As of December 31, 2013 subscriptions totaled approximately 76 million for Showtime Networks (including Showtime, The Movie Channel and Flix), 51 million for CBS Sports Network and 21 million for Smithsonian Networks.

 

For 2013, Cable Networks OIBDA increased $87 million, or 11%, to $898 million from $811 million for 2012, principally due to the aforementioned revenue increases, partially offset by higher programming and production costs associated with the pay-per-view boxing events, the increase in licensing revenues and increased investment in Showtime original series.  Cable Networks OIBDA margin decreased to 43% in 2013 from 46% in 2012 due to the margin impact from the distribution of the above mentioned pay-per-view boxing events. Restructuring charges of $1 million in 2013 reflected severance costs.

 

2012 vs. 2011

 

For 2012, Cable Networks revenues increased 9% to $1.77 billion from $1.62 billion in 2011 primarily driven by higher affiliate fees, which reflected increases in rates and growth in subscriptions at Showtime

 

-13-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Networks, CBS Sports Network and Smithsonian Networks, as well as higher licensing revenues from the digital streaming and international syndication of Showtime original series. As of December 31, 2012 subscriptions totaled approximately 76 million for Showtime Networks (including Showtime, The Movie Channel and Flix), 46 million for CBS Sports Network and 17 million for Smithsonian Networks.

 

For 2012, Cable Networks OIBDA increased $104 million, or 15%, to $811 million from $707 million for 2011, primarily due to the aforementioned revenue growth and lower costs for theatrical programming, partially offset by higher programming and production costs associated with Showtime original series and sports programming.

 

Publishing (Simon & Schuster)

 

(Contributed 6% to consolidated revenues in each of 2013, 2012 and 2011, and 4% to consolidated operating income in 2013 and 3% to consolidated operating income in each of 2012 and 2011.)

 

Year Ended December 31,		2013			2012			2011
Revenues		$	809		$	790		$	787
Segment OIBDA		$	113		$	89		$	92
Restructuring charges		(1)			(3)			(2)
Depreciation and amortization		(6)			(6)			(7)
Operating income		$	106		$	80		$	83
Segment OIBDA as a % of revenues		14%			11%			12%
Operating income as a % of revenues		13%			10%			11%
Capital expenditures		$	4		$	5		$	7

 

2013 vs. 2012

 

For 2013, Publishing revenues increased 2% to $809 million from $790 million in 2012 led by growth in digital book sales.  Digital book sales increased 22% from the same prior-year period and represented 27% of Publishing’s total revenues for 2013 compared to 23% in 2012.  Best-selling titles in 2013 included Doctor Sleep by Stephen King and Happy, Happy, Happy by Phil Robertson.

 

For 2013, Publishing OIBDA increased $24 million, or 27%, to $113 million from $89 million for 2012. The increase was mainly driven by the revenue growth, a charge in 2012 related to a legal settlement and a decline in production and distribution costs associated with a higher mix of revenues from digital book sales, partially offset by higher advertising expenses. Restructuring charges of $1 million in 2013 primarily reflected severance costs and restructuring charges of $3 million in 2012 primarily reflected costs associated with combining several of Publishing’s imprints.

 

2012 vs. 2011

 

For 2012, Publishing revenues of $790 million remained relatively flat compared to $787 million in 2011, reflecting growth in digital book sales and lower print book sales. Revenues from digital sales increased 35% from the same prior-year period and represented 23% of total Publishing revenues in 2012 compared to 17% in 2011.  Best-selling titles in 2012 included Kill Shot by Vince Flynn and The Wind Through the Keyhole by Stephen King.

 

For 2012, Publishing OIBDA decreased $3 million, or 3%, to $89 million from $92 million for 2011.  The decrease was driven by a charge related to a settlement agreement to resolve the e-books antitrust action covering

 

-14-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

a number of states, the District of Columbia and United States territories. Underlying Publishing results in 2012 reflected margin growth associated with an increase in the mix of revenues from digital book sales, which have lower production and distribution costs than print books. Restructuring charges of $2 million in 2011 reflected severance costs.

 

Local Broadcasting (CBS Television Stations and CBS Radio)

 

(Contributed 19% to consolidated revenues in 2013 and 22% to consolidated revenues in each of 2012 and 2011, and 27% to consolidated operating income in 2013 and 31% to consolidated operating income in each of 2012 and 2011.)

 

Year Ended December 31,		2013			2012			2011
Revenues		$	2,696		$	2,774		$	2,689
Segment OIBDA		$	898		$	957		$	849
Restructuring charges		(5)			(8)			—
Impairment charges		—			(11)			—
Depreciation and amortization		(86)			(90)			(99)
Operating income		$	807		$	848		$	750
Segment OIBDA as a % of revenues		33%			34%			32%
Operating income as a % of revenues		30%			31%			28%
Capital expenditures		$	64		$	64		$	69

 

2013 vs. 2012

 

For 2013, Local Broadcasting revenues decreased 3% to $2.70 billion from $2.77 billion for 2012.  CBS Television Stations revenues decreased 4%, primarily driven by lower political advertising and lower revenues from the nonrenewal of an unprofitable sports programming contract.  These decreases were partially offset by the benefit of the 2013 broadcast of Super Bowl XLVII to the Company’s owned CBS affiliated stations and higher retransmission revenues.  CBS Radio revenues decreased 1% principally reflecting the impact of radio station dispositions in 2012, partially offset by the benefit of the new CBS Sports Radio network.  Results for 2014 are expected to benefit from increased political advertising spending for midterm elections.

 

Local Broadcasting OIBDA decreased $59 million, or 6%, to $898 million from $957 million for 2012, principally reflecting lower revenues, partially offset by lower television programming costs and the benefit from the nonrenewal of an unprofitable sports programming contract.  During 2012, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill in connection with the disposition of the Company’s radio stations in West Palm Beach. Restructuring charges of $5 million in 2013 reflected severance costs. For 2012, restructuring charges of $8 million principally reflected severance costs and costs associated with exiting contractual obligations.

 

2012 vs. 2011

 

For 2012, Local Broadcasting revenues increased 3% to $2.77 billion from $2.69 billion for 2011 principally reflecting higher political advertising and retransmission revenues partially offset by softness in local economies. CBS Television Stations revenues increased 8% from the prior year, while CBS Radio revenues decreased 2%.

 

For 2012, Local Broadcasting OIBDA increased $108 million, or 13%, to $957 million from $849 million for 2011, primarily driven by the revenue growth, lower programming costs for syndicated programming, and lower music royalty costs.

 

-15-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Acquisitions and Dispositions

 

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

 

Corporate

 

Corporate expenses include general corporate overhead, unallocated shared company expenses, pension and postretirement benefit costs for plans retained by the Company for previously divested businesses, and intercompany eliminations. For 2013, corporate expenses increased 13% to $358 million from $316 million for 2012 driven by higher stock-based compensation of $62 million, mainly associated with the increase in the Company’s stock price. This increase was partially offset by lower pension and postretirement benefit costs, reflecting the benefit from pre-funding pension plans in 2012 and the favorable performance of pension plan assets in 2012.

 

For 2012, corporate expenses decreased 3% to $316 million from $325 million for 2011 driven by lower pension and postretirement benefit costs, primarily due to the benefit from pre-funding pension plans in 2011 and lower pension-related interest cost associated with retirees.  This decrease was partially offset by expense increases associated with the Company’s higher stock price.

 

Financial Position

 

Current assets decreased by $350 million to $5.37 billion at December 31, 2013 from $5.72 billion at December 31, 2012, primarily due to a decrease in cash and cash equivalents and a decrease in current assets of discontinued operations reflecting the disposition of Outdoor Europe during 2013.  These decreases were partially offset by an increase in receivables associated with television licensing agreements.  The allowance for doubtful accounts as a percentage of receivables decreased to 1.8% at December 31, 2013 compared with 2.1% at December 31, 2012, primarily due to the increase in receivables relating to television licensing agreements, which historically had a lower rate of uncollectability compared to the Company’s other receivables.

 

Net property and equipment of $1.47 billion at December 31, 2013 increased by $19 million from $1.45 billion at December 31, 2012, primarily reflecting depreciation expense of $251 million, partially offset by capital expenditures of $212 million and capital lease additions for broadcasting equipment of $58 million.

 

Other assets increased by $456 million to $1.96 billion at December 31, 2013 from $1.51 billion at December 31, 2012, primarily reflecting higher long-term receivables associated with additional revenues from long-term television licensing agreements, and the acquisition of a 50% interest in TVGN (TV Guide Network) during the first quarter of 2013.

 

As of December 31, 2013, total outstanding receivables from licensing arrangements, including both current and noncurrent, were $3.14 billion versus $2.42 billion at December 31, 2012.  At December 31, 2013, the total amount due from these receivables was $1.52 billion in 2014, $848 million in 2015, $400 million in 2016, $207 million in 2017, and $168 million in 2018 and thereafter.

 

Current liabilities increased by $266 million to $4.21 billion at December 31, 2013 from $3.94 billion at December 31, 2012, primarily driven by commercial paper borrowings, partially offset by a decrease in current liabilities of discontinued operations resulting from the disposition of Outdoor Europe.

 

-16-

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Pension and postretirement benefit obligations decreased by $520 million to $1.33 billion at December 31, 2013 from $1.85 billion at December 31, 2012, primarily reflecting contributions to the Company’s qualified pension plans and an increase in the discount rate partially offset by changes in other actuarial assumptions.

 

Other liabilities decreased $73 million to $2.03 billion at December 31, 2013 from $2.11 billion at December 31, 2012, primarily driven by lower programming liabilities and residual liabilities of previously disposed businesses.

 

Cash Flows

 

Cash and cash equivalents decreased by $311 million for the year ended December 31, 2013 and increased by $48 million and $180 million for the years ended December 31, 2012 and 2011, respectively.  The changes in cash and cash equivalents were as follows:

 

Year Ended December 31,		2013			2012			2011
Cash provided by operating activities from:
Continuing operations		$	1,779		$	1,505		$	1,456
Discontinued operations		94			310			293
Cash provided by operating activities		1,873			1,815			1,749
Cash used for investing activities from:
Continuing operations		(214		)	(375		)	(316		)
Discontinued operations		(58		)	(76		)	(73		)
Cash used for investing activities		(272		)	(451		)	(389		)
Cash used for financing activities		(1,912		)	(1,316		)	(1,180		)
Net (decrease) increase in cash and cash equivalents		$	(311	)	$	48		$	180

 

Operating Activities.  In 2013, cash provided by operating activities from continuing operations increased $274 million to $1.78 billion from $1.51 billion in 2012 primarily reflecting growth in operating income, the benefit from the 2013 Super Bowl broadcast on the CBS Television Network and lower payments for interest.  Cash interest payments for 2012 included approximately $60 million associated with the early extinguishment of debt, primarily for make-whole premiums.  The increase from operating income was partially offset by an increase in receivables from the licensing of television programming, driven by the timing difference between revenue recognition and collections for long term television licensing arrangements. Revenues from the licensing of television programming are recognized when the television series is made available to the licensee, at the beginning of the applicable license period, while the related cash is collected over the term of the license period. During 2013, the Company made contributions of $150 million to pre-fund its qualified pension plans compared with contributions of $200 million in 2012.

 

Cash provided by operating activities from discontinued operations decreased $216 million to $94 million in 2013 from $310 million in 2012 mainly reflecting a payment of $171 million in 2013 associated with exiting an unprofitable contractual arrangement in connection with the sale of Outdoor Europe.

 

In 2012, cash provided by operating activities from continuing operations increased $49 million to $1.51 billion from $1.46 billion in 2011 primarily reflecting growth in operating income which was partially offset by higher income tax payments and a higher use of cash from working capital. The increased use of working capital primarily reflected a higher level of investment in television content in 2012, and higher receivables from the timing difference between revenue recognition and collections for long term television licensing arrangements, primarily for digital streaming. The Company made pension contributions to its qualified plans of $200 million in 2012 compared with $410 million in 2011.

 

-17-

 

 

Management’s Discussion and Analysis of

Results of Operations and Financial Condition (Continued)

(Tabular dollars in millions, except per share amounts)

 

 

Cash paid for income taxes from continuing operations was $294 million for 2013, $331 million for 2012 and $217 million for 2011.  The decrease in cash taxes for 2013 was mainly due to the receipt of federal tax refunds, offset by the increase in pre-tax income.  The increase in cash taxes for 2012 compared to 2011 was driven by the increase in pre-tax income and lower tax benefits from lower contributions to the Company’s qualified pension plans.

 

Investing Activities.  In 2013, cash used for investing activities from continuing operations of $214 million principally reflects capital expenditures of $212 million and investments in investee companies of $176 million, mainly for the Company’s new investment in TVGN (TV Guide Network) as well as its other domestic and international television joint ventures. These cash uses were partially offset by net proceeds from dispositions of $164 million, principally from the sale of Outdoor Europe. In 2012, cash used for investing activities from continuing operations of $375 million principally includes capital expenditures of $200 million; acquisitions of $146 million, primarily for television and radio stations; and investments of $91 million, primarily in domestic and international television joint ventures. These uses of cash were partially offset by $49 million received for dispositions, principally from the sale of radio stations.  In 2011, cash used for investing activities from continuing operations of $316 million principally reflected capital expenditures of $199 million; investments of $79 million, principally in domestic and international television joint ventures; and acquisitions of $67 million, primarily for internet businesses.

 

Capital expenditures for 2014 are anticipated to be at a similar level to 2013.

 

Financing Activities.  In 2013, cash used for financing activities of $1.91 billion principally reflected the repurchase of CBS Corp. Class B Common Stock for $2.19 billion and dividend payments of $300 million, partially offset by proceeds from short-term borrowings of $475 million. For 2012, cash used for financing activities of $1.32 billion principally reflected the repayment of notes and debentures of $1.58 billion, the repurchase of CBS Corp. Class B Common Stock for $1.14 billion and dividend payments of $276 million, partially offset by proceeds from the issuance of notes of $1.57 billion and proceeds from the exercise of stock options of $168 million.  For 2011, cash used for financing activities of $1.18 billion principally reflected the repurchase of CBS Corp. Class B Common Stock for $1.01 billion and dividend payments of $206 million, partially offset by proceeds from the exercise of stock options of $72 million.

 

Dividends

 

On January 29, 2014, the Company announced a quarterly cash dividend of $.12 per share on its Class A and Class B Common Stock, payable on April 1, 2014.  The Company declared a quarterly cash dividend on its Class A and Class B Common Stock during each of the four quarters of 2013, 2012 and 2011, resulting in total annual dividends of $295 million, $287 million and $237 million, respectively.

 

Share Repurchase Program

 

During 2013, the Company repurchased 45.8 million shares of CBS Corp. Class B Common Stock for $2.20 billion, at an average cost of $48.03 per share.  Since the inception of the share repurchase program in January 2011 through December 31, 2013, the Company has repurchased 123.5 million shares of its Class B Common Stock for $4.39 billion, at an average cost of $35.54 per share, leaving $5.43 billion of authorization remaining at December 31, 2013.

 

During the first six months of 2014, the Company spent $2.41 billion to repurchase 38.5 million shares of CBS Corp. Class B Common Stock, of which $1.5 billion was spent for an ASR transaction using proceeds from Outdoor Americas borrowings.

 

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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)

 

 

On July 16, 2014, the Company completed an exchange offer through which it received 44.7 million shares of CBS Corp. Class B Common Stock in exchange for the 97.0 million shares of Outdoor Americas common stock that it owned.

 

Capital Structure

 

At December 31,		2013			2012
Commercial paper		$	475		$	—
Senior debt (1.95% - 8.875% due 2014-2042)		5,861			5,863
Obligations under capital leases		113			72
Total debt (a)		6,449			5,935
Less discontinued operations debt (b)		14			14
Total debt from continuing operations		6,435			5,921
Less commercial paper		475			—
Less current portion of long-term debt		20			18
Total long-term debt from continuing operations, net of current portion		$	5,940		$	5,903

 

(a) At December 31, 2013 and December 31, 2012, the senior debt balances included (i) a net unamortized discount of $13 million and $16 million, respectively, and (ii) an increase in the carrying value of the debt relating to previously settled fair value hedges of $18 million and $23 million, respectively.  The face value of the Company’s total debt was $6.44 billion at December 31, 2013 and $5.93 billion at December 31, 2012.

 

(b) Included in “Liabilities of discontinued operations” on the Consolidated Balance Sheets.

 

At December 31, 2013, the Company’s scheduled maturities of long-term debt at face value, excluding capital leases, were as follows:

 

																	2019 and
		2014			2015			2016			2017			2018			Thereafter
Long-term debt		$	99		$	—		$	200		$	400		$	300		$	4,857

 

Outdoor Americas Indebtedness

 

In January 2014, prior to the IPO, Outdoor Americas borrowed $1.60 billion through an $800 million Term Loan and the issuance of $800 million of senior notes through a private placement. The senior notes are comprised of $400 million of 5.25% Senior Notes due 2022 and $400 million of 5.625% Senior Notes due 2024.  The Term Loan is due in 2021 and bears interest at a rate equal to 2.25% plus the greater of the London Interbank Offer Rate (“LIBOR”) or 0.75%.  The debt is guaranteed by Outdoor Americas and certain of its subsidiaries.

 

The Term Loan is part of a credit agreement which also includes a $425 million revolving credit facility (the ‘‘Outdoor Revolving Credit Facility’’) which expires in 2019. The Outdoor Revolving Credit Facility bears interest based on LIBOR plus a margin based on Outdoor Americas consolidated Net Secured Leverage Ratio. The Net Secured Leverage Ratio reflects the ratio of Outdoor Americas secured debt (less up to $150 million of unrestricted cash) to Outdoor Americas consolidated EBITDA (as defined in the credit agreement). The Outdoor Revolving Credit Facility requires Outdoor Americas to maintain a maximum Consolidated Net Secured Leverage Ratio of 3.50 to 1.00, which will be increased to 4.00 to 1.00 if Outdoor Americas elects to be taxed as a REIT. As of February 14, 2014, there were no borrowings outstanding under the Outdoor Revolving Credit Facility.

 

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