10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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 x    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 x    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 x
 
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 x
Number of shares of common stock outstanding at October 30, 2015:
Class A Common Stock, par value $.001 per share— 37,826,904
Class B Common Stock, par value $.001 per share— 433,702,765
 



CBS CORPORATION
INDEX TO FORM 10-Q
 
 
Page
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Operations (Unaudited) for the
 Three and Nine Months Ended September 30, 2015 and September 30, 2014
 
 
 
 
Consolidated Statements of Comprehensive Income (Unaudited) for the
 Three and Nine Months Ended September 30, 2015 and September 30, 2014
 
 
 
 
Consolidated Balance Sheets (Unaudited) at September 30, 2015
 and December 31, 2014
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited) for the
 Nine Months Ended September 30, 2015 and September 30, 2014
 
 
 
 
 
 
 
Management’s Discussion and Analysis of Results of Operations and Financial Condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A.
Risk Factors.
 
 
 
 
 
 

- 2-


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
3,257

 
$
3,367

 
$
9,976

 
$
10,125

Expenses:
 

 
 

 
 
 
 
Operating
1,842

 
1,936

 
5,891

 
5,855

Selling, general and administrative
597

 
617

 
1,790

 
1,793

Restructuring charges (Note 12)
—

 
26

 
55

 
26

Impairment charge (Note 5)
—

 
52

 
—

 
52

Depreciation and amortization
65

 
68

 
199

 
210

Total expenses
2,504

 
2,699

 
7,935

 
7,936

Operating income
753

 
668

 
2,041

 
2,189

Interest expense
(102
)
 
(89
)
 
(289
)
 
(276
)
Interest income
6

 
4

 
18

 
10

Loss on early extinguishment of debt (Note 7)
—

 
(352
)
 
—

 
(352
)
Other items, net
(4
)
 
(21
)
 
(4
)
 
(10
)
Earnings from continuing operations before income taxes
and equity in loss of investee companies
653

 
210

 
1,766

 
1,561

Provision for income taxes
(211
)
 
(110
)
 
(579
)
 
(561
)
Equity in loss of investee companies, net of tax
(16
)
 
(28
)
 
(35
)
 
(48
)
Net earnings from continuing operations
426

 
72

 
1,152

 
952

Net earnings from discontinued operations, net of tax (Note 3)
—

 
1,567

 
—

 
1,594

Net earnings
$
426

 
$
1,639

 
$
1,152

 
$
2,546

 
 
 
 
 
 
 
 
Basic net earnings per common share:
 

 
 

 
 
 
 
Net earnings from continuing operations
$
.89


$
.14


$
2.36


$
1.69

Net earnings from discontinued operations
$
—


$
2.95


$
—


$
2.84

Net earnings
$
.89


$
3.08


$
2.36


$
4.53

 
 
 
 
 
 
 
 
Diluted net earnings per common share:
 

 
 

 
 
 
 
Net earnings from continuing operations
$
.88


$
.13


$
2.33


$
1.66

Net earnings from discontinued operations
$
—


$
2.90


$
—


$
2.78

Net earnings
$
.88


$
3.03


$
2.33


$
4.44

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 

 
 

 
 
 
 
Basic
480

 
532

 
489

 
562

Diluted
484


541


495


574

 
 
 
 
 
 
 
 
Dividends per common share
$
.15

 
$
.15

 
$
.45

 
$
.39

See notes to consolidated financial statements.

-3-


CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in millions)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net earnings
$
426

 
$
1,639

 
$
1,152

 
$
2,546

Other comprehensive income from continuing operations,
net of tax:
 
 
 
 
 
 
 
Cumulative translation adjustments
(5
)
 
—

 
(7
)
 
(7
)
Amortization of net actuarial loss
9

 
6

 
27

 
20

Changes in fair value of cash flow hedges
—

 
—

 
1

 
—

Other comprehensive income from continuing operations, net of tax
4

 
6

 
21

 
13

Other comprehensive income from discontinued operations, net of tax
—

 
—

 
—

 
15

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

 
(30
)
 
—

 
(30
)
Total other comprehensive income (loss), net of tax
4

 
(24
)
 
21

 
(2
)
Total comprehensive income
$
430


$
1,615


$
1,173


$
2,544

See notes to consolidated financial statements.

-4-


CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
 
At
 
At
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
133

 
 
 
$
428

 
Receivables, less allowances of $63 (2015) and $50 (2014)
 
3,397

 
 
 
3,459

 
Programming and other inventory (Note 4)
 
1,420

 
 
 
922

 
Deferred income tax assets, net
 
122

 
 
 
104

 
Prepaid income taxes
 
—

 
 
 
161

 
Prepaid expenses
 
160

 
 
 
129

 
Other current assets
 
323

 
 
 
386

 
Total current assets
 
5,555

 
 
 
5,589

 
Property and equipment
 
3,226

 
 
 
3,164

 
Less accumulated depreciation and amortization
 
1,852

 
 
 
1,731

 
Net property and equipment
 
1,374

 
 
 
1,433

 
Programming and other inventory (Note 4)
 
1,909

 
 
 
1,817

 
Goodwill
 
6,663

 
 
 
6,698

 
Intangible assets
 
5,997

 
 
 
6,008

 
Other assets
 
2,741

 
 
 
2,527

 
Total Assets
 
$
24,239




$
24,072

 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 


 
 
 


 
Current Liabilities:
 


 
 
 


 
Accounts payable
 
$
169

 
 
 
$
302

 
Accrued compensation
 
258

 
 
 
333

 
Participants’ share and royalties payable
 
926

 
 
 
999

 
Program rights
 
377

 
 
 
404

 
Deferred revenues
 
187

 
 
 
206

 
Income taxes payable
 
51

 
 
 
—

 
Commercial paper (Note 7)
 
303

 
 
 
616

 
Current portion of long-term debt (Note 7)
 
20

 
 
 
20

 
Accrued expenses and other current liabilities
 
1,141

 
 
 
1,153

 
Total current liabilities
 
3,432

 
 
 
4,033

 
Long-term debt (Note 7)
 
8,476

 
 
 
6,510

 
Pension and postretirement benefit obligations
 
1,491

 
 
 
1,564

 
Deferred income tax liabilities, net
 
1,594

 
 
 
1,530

 
Other liabilities
 
3,279

 
 
 
3,347

 
Liabilities of discontinued operations (Note 3)
 
88

 
 
 
118

 
 
 


 
 
 


 
Commitments and contingencies (Note 11)
 


 
 
 


 
 
 


 
 
 


 
Stockholders’ Equity:
 


 
 
 


 
Class A Common stock, par value $.001 per share; 375 shares authorized;
 38 (2015 and 2014) shares issued
 
—

 
 
 
—

 
Class B Common stock, par value $.001 per share; 5,000 shares authorized;
 826 (2015) and 818 (2014) shares issued
 
1

 
 
 
1

 
Additional paid-in capital
 
44,076

 
 
 
44,041

 
Accumulated deficit
 
(20,779
)
 
 
 
(21,931
)
 
Accumulated other comprehensive loss (Note 9)
 
(714
)
 
 
 
(735
)
 
 
 
22,584

 
 
 
21,376

 
Less treasury stock, at cost; 390 (2015) and 349 (2014) Class B shares
 
16,705

 
 
 
14,406

 
Total Stockholders’ Equity
 
5,879

 
 
 
6,970

 
Total Liabilities and Stockholders’ Equity
 
$
24,239

 
 
 
$
24,072

 
See notes to consolidated financial statements.

-5-

CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Operating Activities:
 
 
 
Net earnings
$
1,152

 
$
2,546

Less: Net earnings from discontinued operations
—

 
1,594

Net earnings from continuing operations
1,152


952

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





Depreciation and amortization
199


210

Impairment charge
—

 
52

Stock-based compensation
128


117

Equity in loss of investee companies, net of tax and distributions
37


56

Change in assets and liabilities, net of investing and financing activities
(866
)

(1,151
)
Net cash flow provided by operating activities from continuing operations
650


236

Net cash flow (used for) provided by operating activities from discontinued operations
(27
)

52

Net cash flow provided by operating activities
623


288

Investing Activities:





Acquisitions, net of cash acquired
(7
)
 
(27
)
Capital expenditures
(104
)

(112
)
Investments in and advances to investee companies
(58
)

(68
)
Proceeds from dispositions
75


7

Other investing activities
(8
)
 
3

Net cash flow used for investing activities from continuing operations
(102
)

(197
)
Net cash flow used for investing activities from discontinued operations
(4
)

(271
)
Net cash flow used for investing activities
(106
)

(468
)
Financing Activities:





Repayments of short-term debt borrowings, net
(313
)

(44
)
Proceeds from issuance of notes, net
1,959

 
1,729

Repayments of notes and debentures
—

 
(1,152
)
Payment of capital lease obligations
(13
)

(13
)
Dividends
(228
)

(214
)
Purchase of Company common stock
(2,345
)

(2,830
)
Payment of payroll taxes in lieu of issuing shares for stock-based compensation
(96
)

(146
)
Proceeds from exercise of stock options
137


237

Excess tax benefit from stock-based compensation
87


227

Net cash flow used for financing activities from continuing operations
(812
)

(2,206
)
Net cash flow provided by financing activities from discontinued operations
—


2,167

Net cash flow used for financing activities
(812
)

(39
)
Net decrease in cash and cash equivalents
(295
)

(219
)
Cash and cash equivalents at beginning of period
(includes $29 (2014) of discontinued operations cash)
428


397

Cash and cash equivalents at end of period
$
133


$
178

Supplemental disclosure of cash flow information





Cash paid for interest from continuing operations, including early redemption premiums
$
303

 
$
661

Cash paid for income taxes from continuing operations
$
230

 
$
227

Noncash proceeds from split-off of Outdoor Americas (Note 3)
$
—

 
$
2,721

See notes to consolidated financial statements.

-6-


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 Interactive and CBS Films), Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks), Publishing (Simon & Schuster) and Local Broadcasting (CBS Television Stations and CBS Radio).

Discontinued Operations-On July 16, 2014, the Company completed the disposition of CBS Outdoor Americas Inc. (“Outdoor Americas”), which was previously a subsidiary of the Company and has been renamed OUTFRONT Media Inc. Outdoor Americas has been presented as a discontinued operation in the Company’s consolidated financial statements (See Note 3).

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 year ended December 31, 2014.

In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of 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 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 per Common Share-Basic net earnings per share (“EPS”) is based upon net earnings 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. Excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, were 7 million stock options and RSUs for the three months ended September 30, 2015 and 4 million stock options for the nine months ended September 30, 2015. For both the three and nine months ended September 30, 2014, excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, were 2 million stock options.


-7-


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
 
Nine Months Ended
 
September 30,
 
September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Weighted average shares for basic EPS
480

 
532

 
489

 
562

Dilutive effect of shares issuable under stock-based
compensation plans
4

 
9

 
6

 
12

Weighted average shares for diluted EPS
484

 
541

 
495

 
574

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, 2015 and 2014, the Company recorded dividends of $222 million and $218 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.

Adoption of New Accounting Standards
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
During the first quarter of 2015, the Company adopted amended Financial Accounting Standards Board (“FASB”) guidance which changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. Under this guidance, only a disposal of a component of an entity or a group of components of an entity that represents a strategic shift that has (or will have) a major effect on the company’s operations and financial results should be reported in discontinued operations. The guidance also expands the definition of a discontinued operation to include a business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale and disposals of equity method investments that meet the definition of discontinued operations. The adoption of this guidance did not have an effect on the Company’s consolidated financial statements.

Recent Pronouncements

Simplifying the Accounting for Measurement Period Adjustments
In September 2015, the FASB issued amended guidance which eliminates the requirement to retrospectively account for adjustments to provisional amounts recognized in a business combination when new information is obtained during the measurement period about facts and circumstances that existed as of the acquisition date. Under the amended guidance the acquirer will be required to recognize such adjustments in the reporting period in which the adjustment amounts are identified. The acquirer will also be required to record the effect on earnings from any changes in depreciation, amortization, or other income effects resulting from the change to provisional amounts, as if the change occurred at the acquisition date. The amendments also require disclosure or separate presentation on the face of the income statement of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance, which is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted, is not expected to have a material impact on the Company’s consolidated financial statements.

-8-


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

Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued amended guidance which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying amount of the related debt, consistent with debt discounts. In August 2015, the FASB issued a clarification of the amended guidance indicating that issuance costs related to a line of credit may be presented as an asset. The recognition and measurement guidance for debt issuance costs are not affected by this amended guidance. This guidance, which is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted, is not expected to have a material impact on the Company’s consolidated financial statements.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items
In January 2015, the FASB issued amended guidance which eliminates the concept of extraordinary items. This guidance removes the requirement to assess whether an event or transaction is both unusual in nature and infrequent in occurrence and to separately present any such items on the statement of operations after income from continuing operations. Rather, such items will either be presented as a separate component of income from continuing operations or disclosed in the notes to the financial statements. This guidance is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Additionally, the Company is permitted to amend prior periods presented in the financial statements once the guidance is adopted.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the FASB issued guidance which requires management to evaluate, for each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. If management identifies conditions or events that raise substantial doubt, disclosures are required in the financial statements, including any plans that will alleviate the substantial doubt about the entity’s ability to continue as a going concern. This guidance, which is effective for the first annual period ending after December 15, 2016, is not expected to have an impact on the Company’s consolidated financial statements.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
In June 2014, the FASB issued guidance on the accounting for stock-based compensation when the terms of an award provide that a performance target that affects vesting could be achieved after the requisite service period. Under this guidance, such performance target should not be reflected in estimating the grant-date fair value of the award. The Company should begin recognizing compensation cost in the period in which it becomes probable that the performance target will be achieved, for the cumulative amount of compensation cost attributable to the
period(s) for which the requisite service has already been rendered. This guidance, which is effective for interim and annual periods beginning after December 15, 2015, is not expected to have a material impact on the Company’s consolidated financial statements.

Revenue from Contracts with Customers
In May 2014, the FASB issued guidance on the recognition of revenues which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers. The Company is currently evaluating the impact of this guidance, which is effective for interim and annual reporting periods beginning after

-9-


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

December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016.
2) STOCK-BASED COMPENSATION
The following table summarizes the Company’s stock-based compensation expense for the three and nine months ended September 30, 2015 and 2014.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
RSUs and PSUs
$
32

 
$
33

 
$
105

 
$
102

Stock options and equivalents
7

 
—

 
23

 
15

Stock-based compensation expense, before income taxes
39

 
33

 
128

 
117

Related tax benefit
(15
)
 
(12
)
 
(49
)
 
(45
)
Stock-based compensation expense, net of tax benefit
$
24

 
$
21

 
$
79

 
$
72

During the nine months ended September 30, 2015, the Company granted 3 million RSUs for CBS Corp. Class B Common Stock with a weighted average per unit grant-date fair value of $59.18. RSUs granted during the first nine months of 2015 generally vest over a one- to four-year service period. Compensation expense for RSUs is determined based upon the market price of the 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 goals. Compensation expense is recorded based on the probable outcome of the performance conditions. During the nine months ended September 30, 2015, the Company also granted 2 million stock options with a weighted average exercise price of $59.60. Stock options granted during the first nine months of 2015 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, 2015 was $235 million, which is expected to be recognized over a weighted average period of 2.5 years. Total unrecognized compensation cost related to unvested stock option awards at September 30, 2015 was $59 million, which is expected to be recognized over a weighted average period of 2.6 years.


-10-


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

3) DISCONTINUED OPERATIONS
During 2014, the Company completed the disposition of Outdoor Americas through a tax-free split-off. Outdoor Americas has been presented as a discontinued operation in the Company’s consolidated financial statements. This transaction resulted in a gain of $1.56 billion for the three and nine months ended September 30, 2014.

The following table sets forth details of the net earnings from discontinued operations.

Three Months Ended
 
Nine Months Ended

September 30, 2014
 
September 30, 2014
Revenues from discontinued operations
 
$
55

 
 
 
$
677

 
Earnings from discontinued operations
 
$
5

 
 
 
$
59

 
Income tax benefit (provision)
 
5

 
 
 
(17
)
 
Earnings from discontinued operations, net of tax
 
10

 
 
 
42

 
Gain on disposal, net of tax
 
1,557

 
 
 
1,557

 
Less: Net earnings from discontinued operations attributable
to noncontrolling interest, net of tax
 
—

 
 
 
5

 
Net earnings from discontinued operations attributable to CBS Corp.
 
$
1,567

 
 
 
$
1,594

 
Noncurrent liabilities of discontinued operations of $88 million and $118 million at September 30, 2015 and December 31, 2014, respectively, primarily include tax reserves related to previously disposed businesses and the carrying value of a guarantee liability associated with the Company’s disposition of its outdoor advertising business in Europe (“Outdoor Europe”) (See Note 11).
4) PROGRAMMING AND OTHER INVENTORY
 
At
 
At
 
September 30, 2015
 
December 31, 2014
Program rights
 
$
1,929

 
 
 
$
1,471

 
Television programming:
 
 
 
 
 
 
 
Released (including acquired libraries)
 
969

 
 
 
983

 
In process and other
 
304

 
 
 
179

 
Theatrical programming:
 
 
 
 
 
 
 
Released
 
18

 
 
 
23

 
In process and other
 
51

 
 
 
36

 
Publishing, primarily finished goods
 
58

 
 
 
47

 
Total programming and other inventory
 
3,329

 
 
 
2,739

 
Less current portion
 
1,420

 
 
 
922

 
Total noncurrent programming and other inventory
 
$
1,909

 
 
 
$
1,817

 

5) IMPAIRMENT CHARGE
During the third quarter of 2014, in connection with a radio station swap with Beasley Broadcast Group, Inc. the Company recorded a pretax noncash impairment charge of $52 million to reduce the carrying value of the allocated goodwill.

-11-


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

6) RELATED PARTIES
National Amusements, Inc. National Amusements, Inc. (“NAI”) is the controlling stockholder of CBS Corp. and Viacom Inc. Mr. Sumner M. Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, is the Executive Chairman of the Board of Directors and founder of both CBS Corp. and Viacom Inc. In addition, Ms. Shari Redstone, Mr. Sumner M. Redstone’s daughter, is the president and a director of NAI and the vice chair of the Board of Directors of both CBS Corp. and Viacom Inc. Mr. David R. Andelman is a director of CBS Corp. and serves as a director of NAI. Mr. Frederic V. Salerno is a director of CBS Corp. and serves as a director of Viacom Inc. At September 30, 2015, NAI directly or indirectly owned approximately 79.6% of CBS Corp.’s voting Class A Common Stock, and owned approximately 8.3% 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 licenses its television content, leases production facilities and sells advertising spots to various subsidiaries of Viacom Inc. Viacom Inc. also distributes certain of the Company’s television programs in the home entertainment market. The Company’s total revenues from these transactions were $44 million and $54 million for the three months ended September 30, 2015 and 2014, respectively, and $144 million and $150 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company places advertisements with and leases production facilities from various subsidiaries of Viacom Inc. The total amounts for these transactions were $6 million for each of the three months ended September 30, 2015 and 2014, and $17 million and $14 million for the nine months ended September 30, 2015 and 2014, respectively.

The following table presents the amounts due from Viacom Inc. in the normal course of business as reflected on the Company’s Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at September 30, 2015 and December 31, 2014.
 
At
 
At
 
September 30, 2015
 
December 31, 2014
Receivables
 
$
109

 
 
 
$
107

 
Other assets (Receivables, noncurrent)
 
45

 
 
 
76

 
Total amounts due from Viacom Inc.
 
$
154

 
 
 
$
183

 
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 sales to these joint ventures were $20 million and $18 million for the three months ended September 30, 2015 and 2014, respectively, and $91 million and $81 million for the nine months ended September 30, 2015 and 2014, 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.

-12-


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

7) BANK FINANCING AND DEBT
The following table sets forth the Company’s debt.

At
 
At

September 30, 2015
 
December 31, 2014
Commercial paper

$
303




$
616


Senior debt (1.95% - 7.875% due 2016 - 2045) (a)

8,409




6,433


Obligations under capital leases

87




97


Total debt

8,799




7,146


Less commercial paper

303




616


Less current portion of long-term debt

20




20


Total long-term debt, net of current portion

$
8,476




$
6,510


(a) At September 30, 2015 and December 31, 2014, the senior debt balances included (i) a net unamortized discount of $46 million and $21 million, respectively, and (ii) an increase in the carrying value of the debt relating to previously settled fair value hedges of $4 million and $14 million, respectively. At September 30, 2015, the senior debt balances also included an increase in the carrying value of the debt relating to outstanding fair value hedges of $12 million. Such amount was minimal at December 31, 2014. The face value of the Company’s senior debt was $8.44 billion and $6.44 billion at September 30, 2015 and December 31, 2014, respectively.

During July 2015, the Company issued $800 million of 4.00% senior notes due 2026. During January 2015, the Company issued $600 million of 3.50% senior notes due 2025 and $600 million of 4.60% senior notes due 2045. The Company used the net proceeds from these issuances for general corporate purposes, including the repurchase of CBS Corp. Class B Common Stock and repayment of short-term borrowings, including commercial paper.

At September 30, 2015, the Company classified $200 million of debt maturing in January 2016 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.

Debt repurchases and early debt redemptions of $1.07 billion in 2014 resulted in a pre-tax loss on early extinguishment of debt of $352 million ($219 million, net of tax) for the three and nine months ended September 30, 2014.

Commercial Paper
The Company had outstanding commercial paper borrowings under its $2.5 billion commercial paper program of $303 million at September 30, 2015 and $616 million at December 31, 2014, each at a weighted average interest rate of 0.46% and with maturities of less than forty-five days.

Credit Facility
At September 30, 2015, the Company had a $2.5 billion revolving credit facility (the “Credit Facility”) which expires in December 2019. 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, 2015, the Company’s Consolidated Leverage Ratio was approximately 2.7x.

The Consolidated Leverage Ratio is 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.


-13-


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

The Credit Facility is used for general corporate purposes. At September 30, 2015, the Company had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion.
8) PENSION AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic cost for the Company’s pension and postretirement benefit plans were as follows:
 
Pension Benefits
 
Postretirement Benefits
Three Months Ended September 30,
2015
 
2014
 
2015
 
2014
Components of net periodic cost:
 
 
 
 
 
 
 
Service cost
$
7

 
$
8

 
$
—

 
$
—

Interest cost
52

 
60

 
6

 
6

Expected return on plan assets
(65
)
 
(65
)
 
—

 
—

Amortization of actuarial loss (gain) (a)
20

 
16

 
(6
)
 
(6
)
Net periodic cost
$
14

 
$
19

 
$
—

 
$
—

 
Pension Benefits
 
Postretirement Benefits
Nine Months Ended September 30,
2015
 
2014
 
2015
 
2014
Components of net periodic cost:
 
 
 
 
 
 
 
Service cost
$
23

 
$
24

 
$
—

 
$
—

Interest cost
157

 
178

 
15

 
18

Expected return on plan assets
(196
)
 
(197
)
 
—

 
—

Amortization of actuarial loss (gain) (a)
60

 
48

 
(16
)
 
(16
)
Net periodic cost
$
44

 
$
53

 
$
(1
)
 
$
2

(a) Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings.
9) STOCKHOLDERS’ EQUITY
During the third quarter of 2015, the Company repurchased 10.6 million shares of its Class B Common Stock under its share repurchase program for $500 million. During the nine months ended September 30, 2015, the Company repurchased 41.0 million shares of its Class B Common Stock for $2.30 billion. At September 30, 2015, the Company had $2.50 billion of authorization remaining under its share repurchase program.

During the third quarter of 2015, the Company declared a quarterly cash dividend of $.15 on its Class A and Class B Common Stock, resulting in total dividends of $72 million, payable on October 1, 2015.

-14-


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 tables summarize the changes in the components of accumulated other comprehensive income (loss).
 
Cumulative
Translation
Adjustments
 
Net Actuarial
Gain (Loss)
and Prior
Service Cost
 
Change in Fair Value of Cash Flow Hedges
 
Accumulated
Other
Comprehensive
Loss
At December 31, 2014
$
158

 
$
(892
)
 
$
(1
)
 
$
(735
)
Other comprehensive income (loss) before reclassifications
(7
)
 
—

 
(1
)
 
(8
)
Reclassifications to net earnings
—

 
27

(a) 
2

(b) 
29

Net other comprehensive income (loss)
(7
)
 
27


1

 
21

At September 30, 2015
$
151

 
$
(865
)

$
—

 
$
(714
)
 
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, 2013
$
166

 
$
(729
)
 
$
3

 
$
15

 
$
(545
)
Other comprehensive income (loss) before reclassifications
(7
)
 
—

 
—

 
15

 
8

Reclassifications to net earnings
—

 
20

(a) 
—

 
(30
)
(c) 
(10
)
Net other comprehensive
income (loss)
(7
)
 
20

 
—

 
(15
)
 
(2
)
At September 30, 2014
$
159

 
$
(709
)
 
$
3

 
$
—

 
$
(547
)
(a)
Reflects amortization of net actuarial losses, net of tax. See Note 8.
(b)
Reflects loss recognized on designated foreign exchange contracts, net of tax. See Note 13.
(c)
Reclassified in connection with the disposal of Outdoor Americas in 2014. See Note 3.

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 $17 million and $12 million for the nine months ended September 30, 2015 and 2014, respectively.
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 was $211 million for the three months ended September 30, 2015 and $110 million for the three months ended September 30, 2014, reflecting an effective income tax rate of 32.3% and 52.4%, respectively. For the nine months ended September 30, 2015, the provision for income taxes was $579 million compared to $561 million for the nine months ended September 30, 2014, reflecting an effective income tax rate of 32.8% and 35.9%, respectively. The Company’s income tax provision for the three and nine months ended September 30, 2014 included a tax benefit of $133 million associated with the loss on early extinguishment of debt of $352 million; a tax provision of $22 million associated with the noncash impairment charge of $52 million to

-15-


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

reduce the carrying value of the allocated goodwill in connection with a radio station swap; and the establishment of a tax reserve of $19 million for the retroactive impact of an uncertain tax position in a foreign jurisdiction.

During the first quarter of 2015, the Company and the IRS settled the Company’s income tax audit for the years 2011 and 2012, which did not have a material effect on the Company’s consolidated financial statements. The IRS is expected to commence its examination of the years 2013 and 2014 during the first quarter of 2016. In addition, various tax years are currently under examination by state and local and foreign tax authorities. With respect to open tax years in all jurisdictions, the Company does not currently believe that it is reasonably possible that the reserve for uncertain tax positions will significantly change within the next twelve months; however, it is difficult to predict the final outcome or timing of resolution of any particular tax matter and accordingly, unforeseen events could cause the Company’s expectation to change in the future.
11) COMMITMENTS AND CONTINGENCIES
Guarantees
During 2013, the Company completed the sale of Outdoor Europe. The Company continues to be the guarantor of certain of Outdoor Europe’s obligations, including 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, 2015, the total franchise payment obligations under these agreements, which will decrease on a monthly basis, are estimated to be approximately $111 million, and the carrying value of the guarantee liability, which is included in ‘‘Liabilities of discontinued operations’’ on the Consolidated Balance Sheets, was approximately $28 million.

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, 2015, the outstanding letters of credit and surety bonds approximated $195 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
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, local and international 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 below-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.


-16-


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

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.

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, 2015, the Company had pending approximately 37,190 asbestos claims, as compared with approximately 41,100 as of December 31, 2014 and 42,560 as of September 30, 2014. During the third quarter of 2015, the Company received approximately 950 new claims and closed or moved to an inactive docket approximately 1,760 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 claims, the quality of evidence supporting the claims and other factors. The Company’s total costs for the years 2014 and 2013 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $11 million and $29 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.
12) RESTRUCTURING CHARGES
During the nine months ended September 30, 2015, 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 $55 million, reflecting $34 million of severance costs and $21 million of costs associated with exiting contractual obligations and other related costs.
During the year ended December 31, 2014, the Company recorded restructuring charges of $26 million, reflecting $17 million of severance costs and $9 million of costs associated with exiting contractual obligations.

-17-


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

As of September 30, 2015, the cumulative settlements for the 2015 and 2014 restructuring charges were $36 million, of which $26 million was for severance costs and $10 million was for costs associated with contractual obligations. The Company expects to substantially utilize its restructuring reserves by the end of 2016.
 
Balance at
 
2015
 
2015
 
Balance at
 
December 31, 2014
 
Charges
 
Settlements
 
September 30, 2015
Entertainment
 
$
6

 
 
 
$
12

 
 
 
$
(8
)
 
 
 
$
10

 
Local Broadcasting
 
10

 
 
 
43

 
 
 
(19
)
 
 
 
34

 
Corporate
 
2

 
 
 
—

 
 
 
(1
)
 
 
 
1

 
Total
 
$
18

 
 
 
$
55

 
 
 
$
(28
)
 
 
 
$
45

 
 
 
 
2014
 
2014
 
Balance at
 
 
 
Charges
 
Settlements
 
December 31, 2014
Entertainment
 
 
 
 
 
$
8

 
 
 
$
(2
)
 
 
 
$
6

 
Publishing
 
 
 
 
 
1

 
 
 
(1
)
 
 
 
—

 
Local Broadcasting
 
 
 
 
 
14

 
 
 
(4
)
 
 
 
10

 
Corporate
 
 
 
 
 
3

 
 
 
(1
)
 
 
 
2

 
Total
 

 
 
 
$
26

 
 
 
$
(8
)
 
 
 
$
18

 
13) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company’s carrying value of financial instruments approximates fair value, except for differences with respect to notes and debentures. At September 30, 2015 and December 31, 2014, the carrying value of the Company’s senior debt was $8.41 billion and $6.43 billion, respectively, and the fair value, which is estimated based on quoted market prices for similar liabilities (Level 2) and includes accrued interest, was $8.81 billion and $7.15 billion, respectively.

The Company uses derivative financial instruments primarily to modify its exposure to market risks from fluctuations in interest rates and 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.

Foreign Exchange Contracts

Foreign exchange forward contracts have principally been used to hedge projected cash flows, generally within the next twelve months, in currencies such as the British Pound, the Euro, the Canadian Dollar and the Australian Dollar. The Company designates forward contracts used to hedge projected future production costs as cash flow hedges. Gains or losses on the effective portion of designated cash flow hedges are initially recorded in other comprehensive income (“OCI”) and reclassified to the statement of operations when the hedged item is recognized. Additionally, the Company enters into non-designated forward contracts to hedge non-U.S. dollar denominated cash flows.

At September 30, 2015 and December 31, 2014, the notional amount of all foreign exchange contracts was $321 million and $152 million, respectively.


-18-


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

Interest Rate Swaps

All of the Company’s long-term debt has been issued under fixed interest rate agreements. At September 30, 2015 the Company had $600 million notional amount of fixed-to-floating rate swaps outstanding to hedge its $600 million of 2.30% senior notes due 2019. These interest rate swaps are designated as fair value hedges. The fair value of interest rate swaps is included within the carrying value of the debt attributable to the risk being hedged, and in other assets or other liabilities on the Consolidated Balance Sheet.

Gains (losses) recognized on derivative financial instruments were as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
 
September 30,
 
September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
Financial Statement Account
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
Designated hedging instruments:
 
 
 
 
 
 
 
 
 
 
Recognized in OCI
 
$
—

 
$
—

 
$
(1
)
 
$
(1
)
 
Change in fair value of cash flow hedges
Reclassified from accumulated OCI
 
$
—

 
$
(1
)
 
$
(2
)
 
$
(2
)
 
Programming costs
 
 
 
 
 
 
 
 
 
 
 
Non-designated hedging instruments
 
$
10

 
$
5

 
$
16

 
$
3

 
Other items, net
 
 
 
 
 
 
 
 
 
 
 
Designated interest rate swaps
 
$
2

 
$
1

 
$
7

 
$
1

 
Interest expense
The fair value of the Company’s derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.
The following tables set forth the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014. 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, 2015
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments
$
71

 
$
—

 
$
—

 
$
71

Interest rate swaps
—

 
12

 
—

 
12

Foreign exchange contracts
—

 
12

 
—

 
12

Total Assets
$
71

 
$
24

 
$
—

 
$
95

Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
—

 
$
294

 
$
—

 
$
294

Foreign exchange contracts
—

 
2

 
—

 
2

Total Liabilities
$
—

 
$
296

 
$
—

 
$
296


-19-


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

At December 31, 2014
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments
$
80

 
$
—

 
$
—

 
$
80

Foreign exchange contracts
—

 
6

 
—

 
6

Total Assets
$
80

 
$
6

 
$
—

 
$
86

Liabilities:
 
 
 
 
 
 
 
Deferred compensation
$
—

 
$
307

 
$
—

 
$
307

Foreign exchange contracts
—

 
2

 
—

 
2

Total Liabilities
$
—

 
$
309

 
$
—

 
$
309

The fair value of investments is determined based on publicly quoted market prices in active markets. The fair value of interest rate swaps and foreign currency hedges is determined based on the present value of future cash flows using observable inputs including interest rates, yield curves and foreign currency exchange rates. The fair value of deferred compensation is determined based on the fair value of the investments elected by employees.
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.

Three Months Ended
 
Nine Months Ended

September 30,
 
September 30,

2015
 
2014

2015
 
2014
Revenues:











Entertainment
$
1,932


$
1,911


$
5,978


$
6,049

Cable Networks
526


624


1,680


1,677

Publishing
203


199


547


563

Local Broadcasting
638


680


1,888


1,971

Corporate/Eliminations
(42
)

(47
)

(117
)

(135
)
Total Revenues
$
3,257


$
3,367


$
9,976


$
10,125

Revenues generated between segments primarily reflect advertising sales and television and feature film license fees. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Intercompany Revenues:
 
 
 
 
 
 
 
Entertainment
$
39

 
$
45

 
$
113

 
$
130

Local Broadcasting
5

 
5

 
11

 
13

Total Intercompany Revenues
$
44

 
$
50

 
$
124

 
$
143


-20-


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

The Company presents operating income (loss) excluding restructuring charges and impairment charges, if any, (“Segment Operating Income”) as the primary measure of profit and loss for its operating segments (“segment profit measure”) in accordance with FASB guidance for segment reporting. The Company began presenting Segment Operating Income as its segment profit measure in the first quarter of 2015 in order to align with the primary method the Company’s management began using in 2015 to evaluate segment performance and to make decisions regarding the allocation of resources to its segments. The Company believes the presentation of Segment Operating Income 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Segment Operating Income (Loss):
 
 
 
 
 
 
 
Entertainment
$
339

 
$
302

 
$
947

 
$
1,063

Cable Networks
246

 
266

 
717

 
733

Publishing
43

 
42

 
80

 
76

Local Broadcasting
174

 
192

 
533

 
586

Corporate
(49
)
 
(56
)
 
(181
)
 
(191
)
Total Segment Operating Income
753

 
746

 
2,096

 
2,267

Restructuring charges
—

 
(26
)
 
(55
)
 
(26
)
Impairment charge
—

 
(52
)
 
—

 
(52
)
Operating income
753


668


2,041


2,189

Interest expense
(102
)
 
(89
)
 
(289
)
 
(276
)
Interest income
6

 
4

 
18

 
10

Loss on early extinguishment of debt
—

 
(352
)
 
—

 
(352
)
Other items, net
(4
)
 
(21
)
 
(4
)
 
(10
)
Earnings from continuing operations before income taxes
and equity in loss of investee companies
653

 
210

 
1,766

 
1,561

Provision for income taxes
(211
)
 
(110
)
 
(579
)
 
(561
)
Equity in loss of investee companies, net of tax
(16
)
 
(28
)
 
(35
)
 
(48
)
Net earnings from continuing operations
426

 
72

 
1,152

 
952

Net earnings from discontinued operations, net of tax
—

 
1,567

 
—

 
1,594

Net earnings
$
426

 
$
1,639

 
$
1,152

 
$
2,546

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Depreciation and Amortization:
 
 
 
 
 
 
 
Entertainment
$
31


$
33


$
95


$
105

Cable Networks
5


6


17


17

Publishing
1


1


4


4

Local Broadcasting
20


22


60


66

Corporate
8


6


23


18

Total Depreciation and Amortization
$
65


$
68


$
199


$
210


-21-


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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Stock-based Compensation:
 
 
 
 
 
 
 
Entertainment
$
16

 
$
16

 
$
48

 
$
45

Cable Networks
3

 
2

 
8

 
7

Publishing
1

 
1

 
3

 
3

Local Broadcasting
5

 
7

 
21

 
22

Corporate
14

 
7

 
48

 
40

Total Stock-based Compensation
$
39

 
$
33

 
$
128

 
$
117

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Capital Expenditures:
 
 
 
 
 
 
 
Entertainment
$
33


$
21


$
54


$
58

Cable Networks
5


2


8


7

Publishing
2


—


4


1

Local Broadcasting
15


15


33


35

Corporate
3

 
5

 
5

 
11

Total Capital Expenditures
$
58

 
$
43

 
$
104

 
$
112

 
At
 
At
 
September 30, 2015
 
December 31, 2014
Assets:
 
 
 
 
 
 
 
Entertainment
 
$
10,919

 
 
 
$
10,469

 
Cable Networks
 
2,236

 
 
 
2,113

 
Publishing
 
969

 
 
 
990

 
Local Broadcasting
 
9,549

 
 
 
9,585

 
Corporate
 
536

 
 
 
876

 
Discontinued operations
 
30

 
 
 
39

 
Total Assets
 
$
24,239

 
 
 
$
24,072

 


-22-


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. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of CBS Corp., CBS Operations Inc., the direct and indirect Non-Guarantor Affiliates of CBS Corp. and CBS Operations Inc., and the eliminations necessary to arrive at the information for the Company on a consolidated basis.
 
Statement of Operations
 
For the Three Months Ended September 30, 2015
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Revenues
$
36

 
$
2

 
$
3,219

 
$
—

 
$
3,257

Expenses:
 
 
 
 
 
 
 
 
 
Operating
17

 
1

 
1,824

 
—

 
1,842

Selling, general and administrative
3

 
49

 
545

 
—

 
597

Depreciation and amortization
1

 
5

 
59

 
—

 
65

Total expenses
21

 
55

 
2,428

 
—

 
2,504

Operating income (loss)
15

 
(53
)
 
791

 
—

 
753

Interest (expense) income, net
(125
)
 
(103
)
 
132

 
—

 
(96
)
Other items, net
(1
)
 
6

 
(9
)
 
—

 
(4
)
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies
(111
)
 
(150
)
 
914

 
—

 
653

Benefit (provision) for income taxes
36

 
48

 
(295
)
 
—

 
(211
)
Equity in earnings (loss) of investee companies,
net of tax
501

 
338

 
(16
)
 
(839
)
 
(16
)
Net earnings
$
426

 
$
236

 
$
603

 
$
(839
)
 
$
426

Total comprehensive income
$
430

 
$
240

 
$
590

 
$
(830
)
 
$
430


-23-


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, 2015
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Revenues
$
101

 
$
8

 
$
9,867

 
$
—

 
$
9,976

Expenses:
 
 
 
 
 
 
 
 
 
Operating
47

 
4

 
5,840

 
—

 
5,891

Selling, general and administrative
27

 
165

 
1,598

 
—

 
1,790

Restructuring charges
—

 
—

 
55

 
—

 
55

Depreciation and amortization
4

 
15

 
180

 
—

 
199

Total expenses
78

 
184

 
7,673

 
—

 
7,935

Operating income (loss)
23

 
(176
)
 
2,194

 
—

 
2,041

Interest (expense) income, net
(358
)
 
(300
)
 
387

 
—

 
(271
)
Other items, net
(1
)
 
6

 
(9
)
 
—

 
(4
)
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies
(336
)
 
(470
)
 
2,572

 
—

 
1,766

Benefit (provision) for income taxes
109

 
152

 
(840
)
 
—

 
(579
)
Equity in earnings (loss) of investee companies,
net of tax
1,379

 
802

 
(35
)
 
(2,181
)
 
(35
)
Net earnings
$
1,152

 
$
484

 
$
1,697

 
$
(2,181
)
 
$
1,152

Total comprehensive income
$
1,173

 
$
487

 
$
1,705

 
$
(2,192
)
 
$
1,173


-24-


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, 2014
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Revenues
$
40

 
$
2

 
$
3,325

 
$
—

 
$
3,367

Expenses:
 
 
 
 
 
 
 
 
 
Operating
18

 
1

 
1,917

 
—

 
1,936

Selling, general and administrative
11

 
51

 
555

 
—

 
617

Restructuring charges
—

 
3

 
23

 
—

 
26

Impairment charge
—

 
—

 
52

 
—

 
52

Depreciation and amortization
2

 
4

 
62

 
—

 
68

Total expenses
31

 
59

 
2,609

 
—

 
2,699

Operating income (loss)
9

 
(57
)
 
716

 
—

 
668

Interest (expense) income, net
(109
)
 
(97
)
 
121

 
—

 
(85
)
Loss on early extinguishment of debt
(351
)
 
—

 
(1
)
 
—

 
(352
)
Other items, net
(1
)
 
4

 
(24
)
 
—

 
(21
)
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies
(452
)
 
(150
)
 
812

 
—

 
210

Benefit (provision) for income taxes
167

 
52

 
(329
)
 
—

 
(110
)
Equity in earnings (loss) of investee companies,
net of tax
1,924

 
314

 
(28
)
 
(2,238
)
 
(28
)
Net earnings from continuing operations
1,639

 
216

 
455

 
(2,238
)
 
72

Net earnings from discontinued operations, net of tax
—

 
—

 
1,567

 
—

 
1,567

Net earnings
$
1,639

 
$
216

 
$
2,022

 
$
(2,238
)
 
$
1,639

Total comprehensive income
$
1,615

 
$
222

 
$
1,987

 
$
(2,209
)
 
$
1,615



-25-


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, 2014
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Revenues
$
108

 
$
8

 
$
10,009

 
$
—

 
$
10,125

Expenses:
 
 
 
 
 
 
 
 
 
Operating
49

 
4

 
5,802

 
—

 
5,855

Selling, general and administrative
43

 
165

 
1,585

 
—

 
1,793

Restructuring charges
—

 
3

 
23

 
—

 
26

Impairment charge
—

 
—

 
52

 
—

 
52

Depreciation and amortization
5

 
11

 
194

 
—

 
210

Total expenses
97

 
183

 
7,656

 
—

 
7,936

Operating income (loss)
11

 
(175
)
 
2,353

 
—

 
2,189

Interest (expense) income, net
(338
)
 
(285
)
 
357

 
—

 
(266
)
Loss on early extinguishment of debt
(351
)
 
—

 
(1
)
 
—

 
(352
)
Other items, net
—

 
2

 
(12
)
 
—

 
(10
)
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies
(678
)
 
(458
)
 
2,697

 
—

 
1,561

Benefit (provision) for income taxes
244

 
157

 
(962
)
 
—

 
(561
)
Equity in earnings (loss) of investee companies, net of tax
2,980

 
978

 
(48
)
 
(3,958
)
 
(48
)
Net earnings from continuing operations
2,546

 
677

 
1,687

 
(3,958
)
 
952

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

 
(1
)
 
1,595

 
—

 
1,594

Net earnings
$
2,546

 
$
676

 
$
3,282

 
$
(3,958
)
 
$
2,546

Total comprehensive income
$
2,544

 
$
678

 
$
3,242

 
$
(3,920
)
 
$
2,544



-26-


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

 
Balance Sheet
 
At September 30, 2015
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
48

 
$
1

 
$
84

 
$
—

 
$
133

Receivables, net
22

 
2

 
3,373

 
—

 
3,397

Programming and other inventory
4

 
3

 
1,413

 
—

 
1,420

Prepaid expenses and other current assets
99

 
32

 
506

 
(32
)
 
605

Total current assets
173

 
38

 
5,376

 
(32
)
 
5,555

Property and equipment
44

 
165

 
3,017

 
—

 
3,226

Less accumulated depreciation and amortization
19

 
113

 
1,720

 
—

 
1,852

Net property and equipment
25

 
52

 
1,297

 
—

 
1,374

Programming and other inventory
7

 
10

 
1,892

 
—

 
1,909

Goodwill
98

 
62

 
6,503

 
—

 
6,663

Intangible assets
—

 
—

 
5,997

 
—

 
5,997

Investments in consolidated subsidiaries
42,533

 
12,488

 
—

 
(55,021
)
 
—

Other assets
224

 
12

 
2,505

 
—

 
2,741

Intercompany
—

 
2,341

 
22,900

 
(25,241
)
 
—

Total Assets
$
43,060

 
$
15,003

 
$
46,470

 
$
(80,294
)
 
$
24,239

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
9

 
$
3

 
$
157

 
$
—

 
$
169

Participants’ share and royalties payable
—

 
—

 
926

 
—

 
926

Program rights
4

 
3

 
370

 
—

 
377

Commercial paper
303

 
—

 
—

 
—

 
303

Current portion of long-term debt
4

 
—

 
16

 
—

 
20

Accrued expenses and other current liabilities
372

 
214

 
1,083

 
(32
)
 
1,637

Total current liabilities
692

 
220

 
2,552

 
(32
)
 
3,432

Long-term debt
8,359

 
—

 
117

 
—

 
8,476

Other liabilities
2,889

 
247

 
3,316

 
—

 
6,452

Intercompany
25,241

 
—

 
—

 
(25,241
)
 
—

Stockholders’ Equity:
 
 
 
 
 
 
 
 
 
Preferred stock
—

 
—

 
126

 
(126
)
 
—

Common stock
1

 
123

 
590

 
(713
)
 
1

Additional paid-in capital
44,076

 
—

 
60,894

 
(60,894
)
 
44,076

Retained earnings (deficit)
(20,779
)
 
14,744

 
(16,414
)
 
1,670

 
(20,779
)
Accumulated other comprehensive income (loss)
(714
)
 
—

 
89

 
(89
)
 
(714
)
 
22,584

 
14,867

 
45,285

 
(60,152
)
 
22,584

Less treasury stock, at cost
16,705

 
331

 
4,800

 
(5,131
)
 
16,705

Total Stockholders’ Equity
5,879

 
14,536

 
40,485

 
(55,021
)
 
5,879

Total Liabilities and Stockholders’ Equity
$
43,060

 
$
15,003

 
$
46,470

 
$
(80,294
)
 
$
24,239


-27-


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

 
Balance Sheet
 
At December 31, 2014
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
63

 
$
1

 
$
364

 
$
—

 
$
428

Receivables, net
29

 
2

 
3,428

 
—

 
3,459

Programming and other inventory
4

 
3

 
915

 
—

 
922

Prepaid expenses and other current assets
306

 
27

 
477

 
(30
)
 
780

Total current assets
402


33


5,184


(30
)

5,589

Property and equipment
41

 
162

 
2,961

 
—

 
3,164

Less accumulated depreciation and amortization
15

 
98

 
1,618

 
—

 
1,731

Net property and equipment
26


64


1,343


—

 
1,433

Programming and other inventory
7

 
8

 
1,802

 
—

 
1,817

Goodwill
98

 
62

 
6,538

 
—

 
6,698

Intangible assets
—

 
—

 
6,008

 
—

 
6,008

Investments in consolidated subsidiaries
41,144

 
11,685

 
—

 
(52,829
)
 
—

Other assets
219

 
17

 
2,291

 
—

 
2,527

Intercompany
—

 
2,726

 
21,772

 
(24,498
)
 
—

Total Assets
$
41,896


$
14,595


$
44,938


$
(77,357
)
 
$
24,072

Liabilities and Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Accounts payable
$
3

 
$
24

 
$
275

 
$
—

 
$
302

Participants’ share and royalties payable
—

 
—

 
999

 
—

 
999

Program rights
5

 
3

 
396

 
—

 
404

Commercial paper
616

 
—

 
—

 
—

 
616

Current portion of long-term debt
4

 
—

 
16

 
—

 
20

Accrued expenses and other current liabilities
388

 
270

 
1,064

 
(30
)
 
1,692

Total current liabilities
1,016


297


2,750


(30
)
 
4,033

Long-term debt
6,383

 
—

 
127

 
—

 
6,510

Other liabilities
3,029

 
249

 
3,281

 
—

 
6,559

Intercompany
24,498

 
—

 
—

 
(24,498
)
 
—

Stockholders’ Equity:
 
 
 
 
 
 
 
 


Preferred stock
—

 
—

 
126

 
(126
)
 
—

Common stock
1

 
123

 
590

 
(713
)
 
1

Additional paid-in capital
44,041

 
—

 
60,894

 
(60,894
)
 
44,041

Retained earnings (deficit)
(21,931
)
 
14,260

 
(18,111
)
 
3,851

 
(21,931
)
Accumulated other comprehensive income (loss)
(735
)
 
(3
)
 
81

 
(78
)
 
(735
)
 
21,376


14,380


43,580


(57,960
)
 
21,376

Less treasury stock, at cost
14,406

 
331

 
4,800

 
(5,131
)
 
14,406

Total Stockholders’ Equity
6,970

 
14,049

 
38,780

 
(52,829
)
 
6,970

Total Liabilities and Stockholders’ Equity
$
41,896


$
14,595


$
44,938


$
(77,357
)
 
$
24,072


-28-


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, 2015
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Net cash flow (used for) provided by operating activities
$
(557
)
 
$
(183
)
 
$
1,363

 
$
—

 
$
623

Investing Activities:
 
 
 
 
 
 
 
 
 
Acquisitions, net of cash acquired
—

 
—

 
(7
)
 
—

 
(7
)
Capital expenditures
—

 
(5
)
 
(99
)
 
—

 
(104
)
Investments in and advances to investee companies
—

 
—

 
(58
)
 
—

 
(58
)
Proceeds from dispositions
—

 
—

 
75

 
—

 
75

Other investing activities
(8
)
 
—

 
—

 
—

 
(8
)
Net cash flow used for investing activities from continuing operations
(8
)
 
(5
)
 
(89
)
 
—

 
(102
)
Net cash flow used for investing activities from discontinued operations
(4
)
 
—

 
—

 
—

 
(4
)
Net cash flow used for investing activities
(12
)
 
(5
)
 
(89
)
 
—

 
(106
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Repayments of short-term debt borrowings, net
(313
)
 
—

 
—

 
—

 
(313
)
Proceeds from issuance of notes, net
1,959

 
—

 
—

 
—

 
1,959

Payment of capital lease obligations
—

 
—

 
(13
)
 
—

 
(13
)
Dividends
(228
)
 
—

 
—

 
—

 
(228
)
Purchase of Company common stock
(2,345
)
 
—

 
—

 
—

 
(2,345
)
Payment of payroll taxes in lieu of issuing
shares for stock-based compensation
(96
)
 
—

 
—

 
—

 
(96
)
Proceeds from exercise of stock options
137

 
—

 
—

 
—

 
137

Excess tax benefit from stock-based compensation
87

 
—

 
—

 
—

 
87

Increase (decrease) in intercompany payables
1,353

 
188

 
(1,541
)
 
—

 
—

Net cash flow provided by (used for) financing activities
554

 
188

 
(1,554
)
 
—

 
(812
)
Net decrease in cash and cash equivalents
(15
)
 
—

 
(280
)
 
—

 
(295
)
Cash and cash equivalents at beginning of period
63

 
1

 
364

 
—

 
428

Cash and cash equivalents at end of period
$
48

 
$
1

 
$
84

 
$
—

 
$
133


-29-


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, 2014
 
CBS Corp.
 
CBS
Operations
Inc.
 
Non-
Guarantor
Affiliates
 
Eliminations
 
CBS Corp.
Consolidated
Net cash flow (used for) provided by operating activities
$
(843
)
 
$
(199
)
 
$
1,330

 
$
—

 
$
288

Investing Activities:
 
 
 
 
 
 
 
 


Acquisitions, net of cash acquired
—

 
—

 
(27
)
 
—

 
(27
)
Capital expenditures
—

 
(11
)
 
(101
)
 
—

 
(112
)
Investments in and advances to investee companies
—

 
—

 
(68
)
 
—

 
(68
)
Proceeds from dispositions
—

 
—

 
7

 
—

 
7

Other investing activities
—

 
2

 
1

 
—

 
3

Net cash flow used for investing activities from continuing operations
—


(9
)

(188
)

—

 
(197
)
Net cash flow used for investing activities from discontinued operations
—

 
—

 
(271
)
 
—

 
(271
)
Net cash flow used for investing activities
—


(9
)

(459
)

—

 
(468
)
Financing Activities:
 
 
 
 
 
 
 
 


Repayments of short-term debt borrowings, net
(44
)
 
—

 
—

 
—

 
(44
)
Proceeds from issuance of notes, net
1,729

 
—

 
—

 
—

 
1,729

Repayment of notes and debentures
(1,146
)
 
—

 
(6
)
 
—

 
(1,152
)
Payment of capital lease obligations
—

 
—

 
(13
)
 
—

 
(13
)
Dividends
(214
)
 
—

 
—

 
—

 
(214
)
Purchase of Company common stock
(2,830
)
 
—

 
—

 
—

 
(2,830
)
Payment of payroll taxes in lieu of issuing
shares for stock-based compensation
(146
)
 
—

 
—

 
—

 
(146
)
Proceeds from exercise of stock options
237

 
—

 
—

 
—

 
237

Excess tax benefit from stock-based compensation
227

 
—

 
—

 
—

 
227

Increase (decrease) in intercompany payables
2,970

 
208

 
(3,178
)
 
—

 
—

Net cash flow provided by (used for) financing activities from continuing operations
783

 
208

 
(3,197
)
 
—

 
(2,206
)
Net cash flow provided by financing activities from discontinued operations
—

 
—

 
2,167

 
—

 
2,167

Net cash flow provided by (used for) financing activities
783


208


(1,030
)

—

 
(39
)
Net decrease in cash and cash equivalents
(60
)

—


(159
)

—

 
(219
)
Cash and cash equivalents at beginning of period
(includes $29 of discontinued operations cash)
80

 
1

 
316

 
—

 
397

Cash and cash equivalents at end of period
$
20


$
1


$
157


$
—

 
$
178


-30-


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 filed on Form 10-K fiscal year ended December 31, 2014.

Overview

The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television and radio stations, Internet-based businesses, and consumer publishing. The Company’s principal strategy is to create and acquire premium content that is widely accepted by audiences and generate both advertising and non-advertising revenues from its distribution on multiple media platforms and to various geographic locations. The Company is increasing its investment in both Company-owned and acquired premium content to enhance its opportunities for revenue growth, which include exhibiting the Company’s content on digital and other platforms through licensing and subscription services; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”) and television stations affiliated with the CBS Television Network. The Company also seeks to grow its advertising revenues by monetizing all content viewership as industry measurements evolve to reflect viewers’ changing 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 diversify the Company’s business model.

For the three months ended September 30, 2015, the Company reported diluted earnings per share from continuing operations (“EPS”) of $.88, up $.75 from the same prior-year period. On an adjusted basis EPS was up 19%, driven by growth in operating income and lower weighted average shares outstanding compared with the same prior-year period. See page 32 for a reconciliation of reported EPS to adjusted EPS.

Revenues of $3.26 billion for the three months ended September 30, 2015, decreased 3% compared with $3.37 billion for the same prior-year period driven by 8% lower content licensing and distribution revenues, primarily from the timing of television licensing sales, and decreases in lower-margin revenues, including the nonrenewal of a sports programming contract and lower revenues from pay-per-view boxing events. Total revenues benefited from growth in network advertising, which increased 1% despite fewer sporting events broadcast on the CBS Television Network, as well as 50% growth in CBS Television Network affiliation fees (“station affiliation fees”) and retransmission revenues.

For the nine months ended September 30, 2015, revenues of $9.98 billion decreased 1%, compared with $10.13 billion for the same prior-year period. Advertising revenues declined 4% driven by fewer sporting events broadcast on the CBS Television Network, the benefit in 2014 from midterm elections, and lower radio advertising sales. Content licensing and distribution revenues decreased 7% reflecting lower domestic television licensing revenues, partially offset by higher international licensing revenues. Affiliate and subscription fee revenues grew 16%, a result of growth in station affiliation fees, retransmission revenues, and cable affiliate fees, as well as higher revenues from pay-per-view boxing events.

Operating income of $753 million for the third quarter of 2015 increased 13% from $668 million for the same prior-year period, primarily reflecting two discrete items from the third quarter of 2014 — restructuring charges of $26 million and a noncash impairment charge of $52 million, in connection with a radio station swap. These two items represent 12 percentage points of the operating income increase. The remaining increase reflects growth in high margin affiliate and subscription fee revenues, partially offset by lower profits from television licensing and political advertising revenues. Operating income of $2.04 billion for the nine months ended September 30, 2015 decreased 7% from $2.19 billion for the same prior-year period, primarily reflecting the lower revenues and an increased investment in programming and digital distribution initiatives.

-31-


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


Diluted EPS from continuing operations was $.88 for the third quarter of 2015 compared with $.13 for the same prior-year period and for the nine months ended September 30, 2015 was $2.33 compared with $1.66 for the same prior-year period. The EPS comparison for the three and nine months ended September 30, 2015 benefited from lower weighted average shares outstanding mainly as a result of the Company’s ongoing share repurchase program and the split-off of CBS Outdoor Americas Inc. (“Outdoor Americas”), which occurred during the third quarter of 2014. Comparability of results also benefited from several discrete items that were not part of the normal course of operations. The following tables present adjusted net earnings from continuing operations and adjusted diluted EPS from continuing operations, which exclude the impact of the discrete items. The adjusted results are non-GAAP financial measures, which are reconciled below to the most directly comparable financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company believes that presenting its financial results adjusted for the impact of these discrete items is relevant and useful for investors because it allows investors to view its performance in a manner similar to the method used by the Company’s management and provides a clearer perspective on the current underlying performance of the Company.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net earnings from continuing operations
$
426

 
$
72

 
$
1,152

 
$
952

Exclude:
 
 
 
 
 
 
 
Loss on early extinguishment of debt
(net of tax benefit of $133 million)
—

 
219

 
—

 
219

Impairment charge
(including tax provision of $22 million)
—

 
74

 
—

 
74

Restructuring charges
(net of tax benefit of $22 million in 2015 and
$10 million in 2014)
—

 
16

 
33

 
16

Discrete tax item
(See Note 10 to the consolidated financial statements)
—

 
19

 
—

 
19

Adjusted net earnings from continuing operations
$
426


$
400


$
1,185


$
1,280

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Diluted EPS from continuing operations
$
.88

 
$
.13

 
$
2.33

 
$
1.66

Exclude:
 
 
 
 
 
 
 
Loss on early extinguishment of debt
—

 
.40

 
—

 
.38

Impairment charge
—

 
.14

 
—

 
.13

Restructuring charges
—

 
.03

 
.07

 
.03

Discrete tax item
—

 
.04

 
—

 
.03

Adjusted diluted EPS from continuing operations (a)
$
.88

 
$
.74

 
$
2.39

 
$
2.23

(a) Amounts may not sum as a result of rounding.

During the third quarter of 2015, the Company repurchased 10.6 million shares of its Class B Common Stock under its share repurchase program for $500 million. During the nine months ended September 30, 2015, the Company repurchased 41.0 million shares of its Class B Common Stock for $2.30 billion. As of September 30, 2015, the Company had $2.50 billion of authorization remaining on its share repurchase program.

During January 2015, the Company issued $600 million of 3.50% senior notes due 2025 and $600 million of 4.60% senior notes due 2045, and during July 2015, the Company issued $800 million of 4.00% senior notes due 2026. The Company used the net proceeds from these offerings for general corporate purposes, including the repurchase of CBS Corp. Class B Common Stock and repayment of short-term borrowings.

-32-


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, 2015 was $546 million compared with $124 million for the same prior-year period. The Company generated operating cash flow from continuing operations of $650 million for the nine months ended September 30, 2015 versus $236 million for the comparable prior-year period. These increases reflect premiums paid in 2014 in connection with the Company’s debt refinancing and higher collections from television licensing arrangements. Free cash flow is a non-GAAP financial measure. See “Free Cash Flow” on page 39 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable GAAP financial measure, to free cash flow.

Consolidated Results of Operations
Three and Nine Months Ended September 30, 2015 versus Three and Nine Months Ended September 30, 2014
Revenues
The following tables present the Company’s consolidated revenues by type for the three and nine months ended September 30, 2015 and 2014.
 
Three Months Ended September 30,
 
 
 
Percentage
of Total
 
 
 
Percentage
of Total
 
Increase/(Decrease)
Revenues by Type
2015
 
 
2014
 
 
$
 
%
Advertising
$
1,481

 
46
%
 
$
1,548

 
46
%
 
$
(67
)
 
(4
)%
Content licensing and distribution
1,046

 
32
%
 
1,141

 
34
%
 
(95
)
 
(8
)%
Affiliate and subscription fees
664

 
20
%
 
608

 
18
%
 
56

 
9
 %
Other
66

 
2
%
 
70

 
2
%
 
(4
)
 
(6
)%
Total Revenues
$
3,257

 
100
%
 
$
3,367

 
100
%
 
$
(110
)
 
(3
)%
 
Nine Months Ended September 30,
 
 
 
Percentage
of Total
 
 
 
Percentage
of Total
 
Increase/(Decrease)
Revenues by Type
2015
 
 
2014
 
 
$
 
%
Advertising
$
4,859

 
49
%
 
$
5,057

 
50
%
 
$
(198
)
 
(4
)%
Content licensing and distribution
2,889

 
29
%
 
3,117

 
31
%
 
(228
)
 
(7
)%
Affiliate and subscription fees
2,044

 
20
%
 
1,761

 
17
%
 
283

 
16
 %
Other
184

 
2
%
 
190

 
2
%
 
(6
)
 
(3
)%
Total Revenues
$
9,976

 
100
%
 
$
10,125

 
100
%
 
$
(149
)
 
(1
)%
Advertising revenues for the three months ended September 30, 2015 decreased $67 million, or 4%, to $1.48 billion principally driven by the broadcast of fewer sporting events on the CBS Television Network in 2015, and lower local advertising revenues, mainly from the benefit to 2014 from midterm elections and lower radio advertising revenues. The decline was partially offset by growth in underlying network advertising revenues, reflecting higher pricing, primarily as a result of increased demand. For the nine months ended September 30, 2015, advertising revenues decreased $198 million, or 4%, to $4.86 billion driven by the broadcast of fewer sporting events on the CBS Television Network in 2015, and lower local advertising revenues, mainly from the benefit to 2014 from midterm elections and lower radio advertising revenues. The nine month comparison also benefited from growth in underlying network advertising revenues.


-33-


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


During the fourth quarter of 2015, advertising revenue comparisons will continue to be impacted by the benefit to 2014 from political advertising spending associated with the midterm elections. Additionally, the CBS Television Network’s upfront advertising sales (“Upfront”) for the 2015/2016 television broadcast season, which runs from the middle of September 2015 through the middle of September 2016, resulted in pricing increases and lower overall volume compared with the prior season. As a result, more advertising spots are available in the scatter advertising market, when advertisers purchase the remaining advertising spots closer to the broadcast of the related programming. Overall advertising revenues for the Company will be dependent on ratings for its programming and demand in the overall advertising marketplace.

Content licensing and distribution revenues for the three months ended September 30, 2015 decreased $95 million, or 8%, to $1.05 billion primarily reflecting the timing of television licensing sales. Significant sales in the third quarter of 2015 included the domestic licensing of Elementary, while the third quarter of 2014 included domestic licensing sales of Hawaii 5-0 and Dexter. For the nine months ended September 30, 2015 content licensing and distribution revenues decreased $228 million, or 7%, to $2.89 billion reflecting lower domestic television licensing revenues, partially offset by higher international television licensing revenues.

Affiliate and subscription fees for the three months ended September 30, 2015 increased $56 million, or 9%, to $664 million reflecting growth in station affiliation fees, retransmission revenues, and cable affiliate fees from growth in rates, as well as revenues from new digital distribution platforms. These increases were partially offset by lower revenues from pay-per-view boxing events. For the nine months ended September 30, 2015 affiliate and subscription fees increased $283 million, or 16%, to $2.04 billion reflecting growth in station affiliation fees, retransmission revenues, and cable affiliate fees from growth in rates; higher revenues from pay-per-view boxing events; and revenues from new digital distribution platforms. For the remainder of 2015, the Company expects continued growth in affiliate and subscription fees. Over the next few years the Company expects to renew a significant portion of its agreements with station affiliates and MVPDs, which is expected to result in continued future growth in affiliate and subscription fees.

International Revenues
The Company generated approximately 12% of its total revenues from international regions for each of the three months ended September 30, 2015 and 2014, and generated 14% and 13% of its total revenues from international regions for the nine months ended September 30, 2015 and 2014, respectively.

Operating Expenses
The following tables present the Company’s consolidated operating expenses by type for the three and nine months ended September 30, 2015 and 2014.
 
Three Months Ended September 30,
 
 
 
Percentage
of Total
 
 
 
Percentage
of Total
 
Increase/(Decrease)
Operating Expenses by Type
2015
 
 
2014
 
 
$
 
%
Programming
$
518

 
28
%
 
$
605

 
31
%
 
$
(87
)
 
(14
)%
Production
683

 
37
%
 
702

 
37
%
 
(19
)
 
(3
)%
Participation, distribution and royalty
271

 
15
%
 
258

 
13
%
 
13

 
5
 %
Other
370

 
20
%
 
371

 
19
%
 
(1
)
 
—
 %
Total Operating Expenses
$
1,842

 
100
%
 
$
1,936

 
100
%
 
$
(94
)
 
(5
)%

-34-


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


 
Nine Months Ended September 30,
 
 
 
Percentage
of Total
 
 
 
Percentage
of Total
 
Increase/(Decrease)
Operating Expenses by Type
2015
 
 
2014
 
 
$
 
%
Programming
$
2,033

 
34
%
 
$
2,042

 
35
%
 
$
(9
)
 
—
 %
Production
1,940

 
33
%
 
1,857

 
32
%
 
83

 
4
 %
Participation, distribution and royalty
817

 
14
%
 
864

 
15
%
 
(47
)
 
(5
)%
Other
1,101

 
19
%
 
1,092

 
18
%
 
9

 
1
 %
Total Operating Expenses
$
5,891

 
100
%
 
$
5,855

 
100
%
 
$
36

 
1
 %
Programming expenses for the three months ended September 30, 2015 decreased $87 million, or 14%, to $518 million from $605 million for the same prior-year period, principally driven by lower sports programming costs associated with the broadcast of fewer sporting events on the CBS Television Network and pay-per-view boxing events, as well as lower costs for acquired television series. For the nine months ended September 30, 2015, programming expenses decreased $9 million to $2.03 billion from $2.04 billion for the same prior-year period primarily driven by lower costs for acquired television series as a result of a shift to a higher mix of internally developed television series, substantially offset by higher sports programming costs, primarily associated with pay-per-view boxing events.

Production expenses for the three months ended September 30, 2015 decreased $19 million, or 3%, to $683 million from $702 million for the same prior-year period, primarily from the decrease in television licensing sales, partially offset by increased investment in internally developed television series. For the nine months ended September 30, 2015 production expenses increased $83 million, or 4%, to $1.94 billion, primarily reflecting an increased investment in internally developed television series and the mix of titles sold under television licensing agreements.

Participation, distribution and royalty expenses for the three months ended September 30, 2015 increased $13 million, or 5%, to $271 million from $258 million for the same prior-year period, primarily reflecting higher participations and residuals associated with the mix of titles sold under television licensing arrangements. For the nine months ended September 30, 2015, participation, distribution and royalty expenses decreased $47 million, or 5%, to $817 million compared with the same prior-year period principally reflecting lower costs for feature films and books.

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, decreased $20 million, or 3%, to $597 million for the three months ended September 30, 2015, primarily reflecting lower employee-related expenses and the timing of advertising costs. For the nine months ended September 30, 2015 SG&A expenses of $1.79 billion remained flat with the same prior-year period. SG&A expenses as a percentage of revenues was 18% for each of the three and nine months ended September 30, 2015 and 2014.


-35-


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


Restructuring Charges
During the nine months ended September 30, 2015, 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 $55 million, reflecting $34 million of severance costs and $21 million of costs associated with exiting contractual obligations and other related costs. These restructuring activities are expected to reduce the Company’s annual cost structure by approximately $70 million.
During the year ended December 31, 2014, the Company recorded restructuring charges of $26 million, reflecting $17 million of severance costs and $9 million of costs associated with exiting contractual obligations.
As of September 30, 2015, the cumulative settlements for the 2015 and 2014 restructuring charges were $36 million, of which $26 million was for severance costs and $10 million was for costs associated with contractual obligations. The Company expects to substantially utilize its restructuring reserves by the end of 2016.
 
Balance at
 
2015
 
2015
 
Balance at
 
December 31, 2014
 
Charges
 
Settlements
 
September 30, 2015
Entertainment
 
$
6

 
 
 
$
12

 
 
 
$
(8
)
 
 
 
$
10

 
Local Broadcasting
 
10

 
 
 
43

 
 
 
(19
)
 
 
 
34

 
Corporate
 
2

 
 
 
—

 
 
 
(1
)
 
 
 
1

 
Total
 
$
18

 
 
 
$
55

 
 
 
$
(28
)
 
 
 
$
45

 
 
 
 
2014
 
2014
 
Balance at
 
 
 
Charges
 
Settlements
 
December 31, 2014
Entertainment
 
 
 
 
 
$
8

 
 
 
$
(2
)
 
 
 
$
6

 
Publishing
 
 
 
 
 
1

 
 
 
(1
)
 
 
 
—

 
Local Broadcasting
 
 
 
 
 
14

 
 
 
(4
)
 
 
 
10

 
Corporate
 
 
 
 
 
3

 
 
 
(1
)
 
 
 
2

 
Total
 
 
 
 
 
$
26

 
 
 
$
(8
)
 
 
 
$
18

 
Impairment Charge
During the third quarter of 2014, in connection with a radio station swap with Beasley Broadcast Group, Inc. the Company recorded a pretax noncash impairment charge of $52 million to reduce the carrying value of the allocated goodwill.
Depreciation and Amortization
For the three months ended September 30, 2015, depreciation and amortization decreased $3 million, or 4%, to $65 million and for the nine months ended September 30, 2015, depreciation and amortization decreased $11 million, or 5%, to $199 million as a result of intangibles and property and equipment that became fully amortized.

Interest Expense
For the three months ended September 30, 2015, interest expense increased $13 million, or 15%, to $102 million from $89 million for the same prior-year period and for the nine months ended September 30, 2015, interest expense increased $13 million, or 5%, to $289 million from $276 million for the same prior-year period. These increases were primarily driven by the Company’s 2015 debt issuances, partially offset by savings from 2014 debt refinancing activities.


-36-


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


The Company had outstanding long-term debt, excluding capital leases, of $8.41 billion at September 30, 2015 and $6.43 billion at September 30, 2014, at weighted average interest rates of 4.67% and 4.87%, respectively. The Company also had outstanding commercial paper borrowings of $303 million at September 30, 2015 and $431 million at September 30, 2014, at weighted average interest rates of 0.46% and 0.28%, respectively.

Interest Income
For the three months ended September 30, 2015, interest income increased $2 million to $6 million from $4 million from the same prior-year period and for the nine months ended September 30, 2015, interest income increased $8 million to $18 million from $10 million for the same prior-year period.

Loss on Early Extinguishment of Debt
For the three and nine months ended September 30, 2014, the loss on early extinguishment of debt of $352 million reflected a pre-tax loss associated with the redemption of $1.07 billion of the Company’s long-term debt.
Other Items, Net
For the nine months ended September 30, 2015, “Other items, net” principally included foreign exchange losses of $22 million ($19 million, net of tax) associated with the strengthening of the U.S. dollar during the period, offset by a gain of $19 million ($3 million, net of tax) on the sale of an Internet business in China. For the three months ended September 30, 2015 and the three and nine months ended September 30, 2014, “Other items, net” primarily consisted of foreign exchange losses.
Provision for Income Taxes
The provision for income taxes was $211 million for the three months ended September 30, 2015 and $110 million for the three months ended September 30, 2014, reflecting an effective income tax rate of 32.3% and 52.4%, respectively. For the nine months ended September 30, 2015, the provision for income taxes was $579 million compared to $561 million for the nine months ended September 30, 2014, reflecting an effective income tax rate of 32.8% and 35.9%, respectively. The Company’s income tax provision for the three and nine months ended September 30, 2014 included a tax benefit of $133 million associated with the loss on early extinguishment of debt of $352 million; a tax provision of $22 million associated with the noncash impairment charge of $52 million to reduce the carrying value of the allocated goodwill in connection with a radio station swap; and the establishment of a tax reserve of $19 million for the retroactive impact of an uncertain tax position in a foreign jurisdiction.

Equity in Loss of Investee Companies, Net of Tax
Equity in loss of investee companies, net of tax, reflects the Company’s share of the operating results of its equity investments. For the three months ended September 30, 2015, equity in loss of investee companies, net of tax, decreased $12 million to a loss of $16 million compared to the same prior-year period. For the nine months ended September 30, 2015, equity in loss of investee companies, net of tax, decreased $13 million to a loss of $35 million compared to the same prior-year period.


-37-


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


Net Earnings from Continuing Operations and Diluted EPS from Continuing Operations
Net earnings from continuing operations of $426 million for the three months ended September 30, 2015 increased $354 million, versus $72 million for the same prior-year period and for the nine months ended September 30, 2015 increased $200 million, or 21%, to $1.15 billion compared with $952 million for the same prior-year period. Diluted EPS from continuing operations increased $.75 to $.88 for the third quarter of 2015 and increased $.67 to $2.33 for the nine months ended September 30, 2015 compared with the same prior-year periods. These increases were mainly driven by the 2014 loss of $352 million associated with the early redemption of debt as well as lower weighted average shares outstanding as a result of the Company’s ongoing share repurchase program.

Net Earnings from Discontinued Operations
Net earnings from discontinued operations of $1.57 billion and $1.59 billion for the three and nine months ended September 30, 2014, respectively, primarily reflected a gain of $1.56 billion on the disposition of Outdoor Americas during the third quarter of 2014.

Net Earnings and Diluted EPS
For the three months ended September 30, 2015, net earnings were $426 million compared with $1.64 billion for the same prior-year period and diluted EPS was $.88 compared with $3.03 for the same prior-year period. For the nine months ended September 30, 2015, net earnings were $1.15 billion compared with $2.55 billion for the same prior-year period and diluted EPS was $2.33 compared with $4.44 for the same prior-year period.


-38-


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


Free Cash Flow
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 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,
 
2015
 
2014
Net cash flow provided by operating activities
$
623

 
$
288

Capital expenditures
(104
)
 
(112
)
Exclude operating cash flow from discontinued operations
(27
)
 
52

Free cash flow
$
546

 
$
124


-39-


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


Segment Results of Operations
The Company presents operating income (loss) excluding restructuring charges and impairment charges, if any, (“Segment Operating Income”) as the primary measure of profit and loss for its operating segments (“segment profit measure”) in accordance with FASB guidance for segment reporting. The Company began presenting Segment Operating Income as its segment profit measure in the first quarter of 2015 in order to align with the primary method the Company’s management began using in 2015 to evaluate segment performance and to make decisions regarding the allocation of resources to its segments. The Company believes the presentation of Segment Operating Income 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 Operating Income to the Company’s consolidated Net earnings is presented in Note 14 (Reportable Segments) to the consolidated financial statements.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Entertainment
$
1,932

 
$
1,911

 
$
5,978

 
$
6,049

Cable Networks
526

 
624

 
1,680

 
1,677

Publishing
203

 
199

 
547

 
563

Local Broadcasting
638

 
680

 
1,888

 
1,971

Corporate/Eliminations
(42
)
 
(47
)
 
(117
)
 
(135
)
Total Revenues
$
3,257

 
$
3,367

 
$
9,976

 
$
10,125

Segment Operating Income (Loss):
 
 
 
 
 
 
 
Entertainment
$
339

 
$
302

 
$
947

 
$
1,063

Cable Networks
246

 
266

 
717

 
733

Publishing
43

 
42

 
80

 
76

Local Broadcasting
174

 
192

 
533

 
586

Corporate
(49
)
 
(56
)
 
(181
)
 
(191
)
Total Segment Operating Income
753

 
746

 
2,096

 
2,267

Restructuring charges
—

 
(26
)
 
(55
)
 
(26
)
Impairment charge
—

 
(52
)
 
—

 
(52
)
Total Operating Income
$
753

 
$
668

 
$
2,041

 
$
2,189

Depreciation and Amortization:
 
 
 
 
 
 
 
Entertainment
$
31

 
$
33

 
$
95

 
$
105

Cable Networks
5

 
6

 
17

 
17

Publishing
1

 
1

 
4

 
4

Local Broadcasting
20

 
22

 
60

 
66

Corporate
8

 
6

 
23

 
18

Total Depreciation and Amortization
$
65

 
$
68

 
$
199

 
$
210


-40-


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 Interactive and CBS Films)
(Contributed 59% and 60% to consolidated revenues for the three and nine months ended September 30, 2015, respectively, versus 57% and 60% for the comparable prior-year periods and 45% to total segment operating income for both the three and nine months ended September 30, 2015, respectively, versus 40% and 47% for the comparable prior-year periods.)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
1,932

 
$
1,911

 
$
5,978

 
$
6,049

Segment Operating Income
$
339

 
$
302

 
$
947

 
$
1,063

Segment Operating Income as a % of revenues
18
%
 
16
%
 
16
%
 
18
%
Restructuring charges
$
—

 
$
8

 
$
12

 
$
8

Depreciation and amortization
$
31

 
$
33

 
$
95

 
$
105

Capital expenditures
$
33

 
$
21

 
$
54

 
$
58

Three Months Ended September 30, 2015 and 2014
For the three months ended September 30, 2015, Entertainment revenues increased $21 million, or 1%, to $1.93 billion from $1.91 billion for the same prior-year period reflecting 55% growth in affiliate and subscription fees. Network advertising revenues for the three months ended September 30, 2015 increased 1%, despite the impact from fewer sporting events broadcast on the CBS Television Network in 2015, reflecting higher pricing primarily as a result of increased demand. Content licensing and distribution revenues decreased 3% reflecting lower domestic television licensing revenues, partially offset by higher international television licensing revenues.
For the three months ended September 30, 2015, Entertainment operating income increased $37 million, or 12%, to $339 million from $302 million for the same prior-year period, driven by increases in higher margin revenues, partially offset by an increased investment in programming and digital distribution initiatives.
Nine Months Ended September 30, 2015 and 2014
For the nine months ended September 30, 2015, Entertainment revenues decreased $71 million, or 1%, to $5.98 billion from $6.05 billion for the same prior-year period reflecting 5% lower content licensing and distribution revenues, primarily from lower domestic television licensing revenues, partially offset by higher international television licensing revenues. Advertising revenues decreased 3% mainly because of fewer sporting events broadcast on the CBS Television Network and the disposition of an Internet business in China during the first quarter of 2015, partially offset by growth in underlying network advertising revenues. Total Entertainment revenues also benefited from 48% growth in affiliate and subscription fees.

For the nine months ended September 30, 2015, Entertainment operating income decreased $116 million, or 11%, to $947 million from $1.06 billion for the same prior-year period, driven by the decline in revenues and an increased investment in programming and digital distribution initiatives. For the nine months ended September 30, 2015 restructuring charges primarily reflected severance costs and for the three and nine months ended September 30, 2014 restructuring charges primarily reflected severance costs and costs associated with exiting operating facilities.

For the remainder of 2015, results are expected to benefit from continued growth in affiliate and subscription fees.

-41-


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 17% to consolidated revenues for the three and nine months ended September 30, 2015, respectively, versus 19% and 17% for the comparable prior-year periods and 33% and 34% to total segment operating income for the three and nine months ended September 30, 2015, respectively, versus 36% and 32% for the comparable prior-year periods.)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
$
526

 
$
624

 
$
1,680

 
$
1,677

Segment Operating Income
$
246

 
$
266

 
$
717

 
$
733

Segment Operating Income as a % of revenues
47
%
 
43
%
 
43
%
 
44
%
Depreciation and amortization
$
5

 
$
6

 
$
17

 
$
17

Capital expenditures
$
5

 
$
2

 
$
8

 
$
7

Three Months Ended September 30, 2015 and 2014
For the three months ended September 30, 2015, Cable Networks revenues of $526 million decreased $98 million, or 16%, from $624 million for the same prior-year period, reflecting lower revenues from the licensing of Showtime original series, primarily the result of the timing of domestic streaming sales. The third quarter of 2015 included one significant sale, Nurse Jackie, while the third quarter of 2014 included sales of Dexter and Californication. The revenue decline also reflects lower revenues from pay-per-view boxing events. Revenues benefited from higher affiliate fees, reflecting growth in rates, and revenues from new digital distribution platforms. As of September 30, 2015 subscriptions totaled 76 million for Showtime Networks (including Showtime, The Movie Channel and Flix), 54 million for CBS Sports Network and 30 million for Smithsonian Networks.
For the three months ended September 30, 2015, Cable Networks operating income decreased $20 million, or 8%, to $246 million from $266 million for the same prior-year period, primarily reflecting the lower revenues, partially offset by lower programming costs, mainly associated with pay-per-view boxing events.
Nine Months Ended September 30, 2015 and 2014
For the nine months ended September 30, 2015, Cable Networks revenues remained flat at $1.68 billion compared with the same prior-year period. Higher revenues from pay-per-view boxing events and affiliates, as well as revenues from new digital distribution platforms were offset by lower revenues from the licensing of Showtime original series. The lower licensing revenues reflect the benefit to 2014 from significant domestic streaming sales of Dexter, partially offset by higher international streaming revenues in 2015 primarily from a new licensing agreement with Bell Media.
For the nine months ended September 30, 2015, Cable Networks operating income decreased $16 million, or 2%, to $717 million from $733 million for the same prior-year period, primarily reflecting the timing of theatrical programming.
In July 2015, the Company launched a Showtime-branded Internet streaming service that is available both on a stand-alone basis and through third-party Internet distributors. Subscribers to Showtime over the Internet have on demand access to Showtime original series, movies, documentaries and sports programming, as well as the live east and west coast linear feeds of Showtime.

-42-


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 each of the three and nine months ended September 30, 2015, respectively, versus 6% for each of the comparable prior-year periods and 6% and 4% to total segment operating income for the three and nine months ended September 30, 2015, respectively, versus 6% and 3% for the comparable prior-year periods.)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015

2014
 
2015
 
2014
Revenues
$
203

 
$
199

 
$
547

 
$
563

Segment Operating Income
$
43

 
$
42

 
$
80

 
$
76

Segment Operating Income as a % of revenues
21
%
 
21
%
 
15
%
 
13
%
Restructuring charges
$
—

 
$
1

 
$
—

 
$
1

Depreciation and amortization
$
1

 
$
1

 
$
4

 
$
4

Capital expenditures
$
2

 
$
—

 
$
4

 
$
1

Three Months Ended September 30, 2015 and 2014
For the three months ended September 30, 2015, Publishing revenues increased $4 million, or 2%, to $203 million from $199 million for the same prior-year period, reflecting higher book sales. Digital revenues represented 25% of Publishing’s total revenues for the third quarter of 2015. Best-selling titles in the third quarter of 2015 included The Survivor by Vince Flynn and Kyle Mills and Plunder and Deceit by Mark R. Levin, as well as the continued success of the Pulitzer Prize-winning 2014 release All the Light We Cannot See by Anthony Doerr.
For the three months ended September 30, 2015, Publishing operating income increased $1 million, or 2%, to $43 million from $42 million for the same prior-year period, primarily reflecting the revenue increase.
Nine Months Ended September 30, 2015 and 2014
For the nine months ended September 30, 2015, Publishing revenues decreased $16 million, or 3%, to $547 million from $563 million for the same prior-year period, mainly reflecting lower book sales.
For the nine months ended September 30, 2015, Publishing operating income increased $4 million, or 5%, to $80 million from $76 million for the same prior-year period, as the revenue decline was more than offset by lower production and distribution costs.

-43-


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


Local Broadcasting (CBS Television Stations and CBS Radio)
(Contributed 20% to consolidated revenues for each of the three months ended September 30, 2015 and 2014, and 19% to consolidated revenues for each of the nine months ended September 30, 2015 and 2014, and 23% and 25% to total segment operating income for each of the three and nine months ended September 30, 2015, respectively, versus 26% for each of the comparable prior-year periods.)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015

2014
 
2015
 
2014
Revenues
$
638

 
$
680

 
$
1,888

 
$
1,971

Segment Operating Income
$
174

 
$
192

 
$
533

 
$
586

Segment Operating Income as a % of revenues
27
%
 
28
%
 
28
%
 
30
%
Restructuring charges
$
—

 
$
14

 
$
43

 
$
14

Impairment charge
$
—

 
$
52

 
$
—

 
$
52

Depreciation and amortization
$
20

 
$
22

 
$
60

 
$
66

Capital expenditures
$
15

 
$
15

 
$
33

 
$
35

Three Months Ended September 30, 2015 and 2014
For the three months ended September 30, 2015, Local Broadcasting revenues decreased $42 million, or 6%, to $638 million from $680 million for the same prior-year period. CBS Television Stations revenues declined 7%, reflecting lower political advertising revenues as 2014 benefited from midterm elections, as well as fewer sporting events broadcast on CBS in 2015. Growth in affiliate and subscription fees partially offset the decline. CBS Radio revenues decreased 6%, reflecting several noncomparable items, including fewer radio stations and lower political revenues, as well as continued softness in the radio advertising marketplace.
For the three months ended September 30, 2015, Local Broadcasting operating income decreased $18 million, or 9%, to $174 million from $192 million for the same prior-year period, primarily reflecting the revenue decline, partially offset by a decrease in programming and employee related costs, as a result of recent cost-cutting measures the Company put in place.
For the remainder of 2015, affiliate and subscription fees are expected to continue to increase, while advertising revenue comparisons will continue to be negatively impacted by lower political spending.
Nine Months Ended September 30, 2015 and 2014
For the nine months ended September 30, 2015, Local Broadcasting revenues decreased $83 million, or 4%, to $1.89 billion from $1.97 billion for the same prior-year period, reflecting lower advertising revenues, including the benefit to 2014 from midterm elections, partially offset by growth in affiliate and subscription fees. CBS Television Stations revenues decreased 3% and CBS Radio revenues decreased 6%.
For the nine months ended September 30, 2015, Local Broadcasting operating income decreased $53 million, or 9%, to $533 million from $586 million for the same prior-year period, primarily reflecting the revenue decline, partially offset by a decrease in programming and employee related costs. For the nine months ended September 30, 2015 and for the three and nine months ended September 30, 2014 restructuring charges primarily reflected severance costs and costs associated with exiting contractual obligations.
During 2014, the Company recorded a pretax noncash impairment charge of $52 million to reduce the carrying value of the allocated goodwill in connection with a radio station swap with Beasley Broadcast Group, Inc.

-44-


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


As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, based on the Company’s most recent annual impairment tests for goodwill and FCC licenses performed during the fourth quarter of 2014, the estimated fair value of the Company’s CBS Radio reporting unit exceeded its carrying value by 5% and the carrying value of FCC licenses in eleven radio markets was within 10% of their respective estimated fair values. If recent declines in the radio marketplace or at CBS Radio become other than temporary, the results of the next impairment test could reflect a downward revision in the estimated fair value of this reporting unit and/or its FCC licenses, which could result in a noncash impairment charge. Any impairment charge for goodwill and/or FCC licenses could have a material adverse effect on the Company’s reported net earnings.

Corporate
Corporate expenses include general corporate overhead, unallocated shared company expenses, pension and postretirement benefit costs for plans retained by the Company for previously divested businesses, and intercompany eliminations.
For the three months ended September 30, 2015, corporate expenses decreased $7 million, or 13%, to $49 million from $56 million for the same prior-year period due to lower employee-related costs.
For the nine months ended September 30, 2015, corporate expenses decreased $10 million, or 5%, to $181 million from $191 million for the same prior-year period due to lower pension and postretirement benefit costs.
Financial Position
Current programming and other inventory increased $498 million to $1.42 billion at September 30, 2015 from $922 million at December 31, 2014, primarily reflecting an increase in prepaid program rights from the timing of payments for sports programming.

Other assets increased $214 million to $2.74 billion at September 30, 2015 from $2.53 billion at December 31, 2014, primarily reflecting an increase in long-term receivables associated with additional revenues from long-term television licensing arrangements.

Current liabilities decreased by $601 million to $3.43 billion at September 30, 2015 from $4.03 billion at December 31, 2014, primarily driven by lower commercial paper borrowings and decreases in accounts payable and accrued compensation from the timing of payments.

Long-term debt increased $1.97 billion to $8.48 billion at September 30, 2015 from $6.51 billion at December 31, 2014 primarily reflecting the issuance of $600 million of 3.50% senior notes due 2025, $600 million of 4.60% senior notes due 2045, and $800 million of 4.00% senior notes due 2026.


-45-


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


Cash Flows
The changes in cash and cash equivalents were as follows:
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash provided by (used for) operating activities from:
 
 
 
Continuing operations
$
650

 
$
236

Discontinued operations
(27
)
 
52

Cash provided by operating activities
623

 
288

Cash used for investing activities from:
 
 
 
Continuing operations
(102
)
 
(197
)
Discontinued operations
(4
)
 
(271
)
Cash used for investing activities
(106
)
 
(468
)
Cash (used for) provided by financing activities from:
 
 
 
Continuing operations
(812
)
 
(2,206
)
Discontinued operations
—

 
2,167

Cash used for financing activities
(812
)
 
(39
)
Net decrease in cash and cash equivalents
$
(295
)
 
$
(219
)
Operating Activities. For the nine months ended September 30, 2015 cash provided by operating activities from continuing operations increased $414 million to $650 million from $236 million for the same prior-year period, primarily reflecting premiums paid in 2014 in connection with the Company's debt refinancing and higher collections, resulting from increases in the Company’s long-term licensing arrangements in recent years as revenues for these arrangements are recognized at the beginning of the applicable license period while the related cash is collected over the term of such license period.

Cash paid for income taxes from continuing operations for the nine months ended September 30, 2015 was $230 million versus $227 million for the same prior-year period.

Cash used for operating activities from discontinued operations for the nine months ended September 30, 2015 of$27 million primarily reflects payments for a tax matter in a foreign jurisdiction related to a previously disposed business that is accounted for as a discontinued operation. Cash provided by operating activities from discontinued operations for the nine months ended September 30, 2014 of $52 million primarily reflected the operating activities of Outdoor Americas.

Investing Activities. Cash used for investing activities from continuing operations of $102 million for the nine months ended September 30, 2015 principally reflected capital expenditures of $104 million and investments in domestic and international television joint ventures of $58 million, partially offset by proceeds from dispositions of $75 million, primarily from the sale of Internet businesses in China. Cash used for investing activities from continuing operations of $197 million for the nine months ended September 30, 2014 principally reflected capital expenditures of $112 million and investments in domestic and international television joint ventures of $68 million.

Cash used for investing activities from discontinued operations of $271 million for the nine months ended September 30, 2014 principally reflected the disposition of Outdoor Americas’ cash as well as the capital expenditures of Outdoor Americas.


-46-


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


Financing Activities. Cash used for financing activities of $812 million for the nine months ended September 30, 2015 principally reflected the repurchase of CBS Corp. Class B Common Stock for $2.35 billion and repayments of short-term borrowings of $313 million, partially offset by proceeds from the issuance of senior notes of $1.96 billion. Cash used for financing activities from continuing operations of $2.21 billion for the nine months ended September 30, 2014 principally reflected the repurchase of CBS Corp. Class B Common Stock for $2.83 billion and the repayment of notes and debentures of $1.15 billion, partially offset by proceeds from the issuance of senior notes of $1.73 billion.

Cash provided by financing activities from discontinued operations of $2.17 billion for the nine months ended September 30, 2014 principally reflected net proceeds from Outdoor Americas’ long-term debt borrowings and initial public offering.

Repurchase of Company Stock and Cash Dividends
During the third quarter of 2015, the Company repurchased 10.6 million shares of its Class B Common Stock under its share repurchase program for $500 million. During the nine months ended September 30, 2015, the Company repurchased 41.0 million shares of its Class B Common Stock for $2.30 billion. Since the inception of the program in January 2011 through September 30, 2015, the Company has repurchased 224.9 million shares of its Class B Common Stock under its share repurchase program for $10.30 billion, at an average cost of $45.81 per share. At September 30, 2015, the Company had $2.50 billion of authorization remaining under its share repurchase program.

During the third quarter of 2015, the Company declared a quarterly cash dividend of $.15 on its Class A and Class B Common Stock, resulting in total dividends of $72 million, payable on October 1, 2015.
Capital Structure
The following table sets forth the Company’s debt.
 
At
 
At
 
September 30, 2015
 
December 31, 2014
Commercial paper
 
$
303

 
 
 
$
616

 
Senior debt (1.95% – 7.875% due 2016 – 2045) (a)
 
8,409

 
 
 
6,433

 
Obligations under capital leases
 
87

 
 
 
97

 
Total debt
 
8,799

 
 
 
7,146

 
Less commercial paper
 
303

 
 
 
616

 
Less current portion of long-term debt
 
20

 
 
 
20

 
Total long-term debt, net of current portion
 
$
8,476

 
 
 
$
6,510

 
(a) At September 30, 2015 and December 31, 2014, the senior debt balances included (i) a net unamortized discount of $46 million and $21 million, respectively, and (ii) an increase in the carrying value of the debt relating to previously settled fair value hedges of $4 million and $14 million, respectively. At September 30, 2015, the senior debt balances also included an increase in the carrying value of the debt relating to outstanding fair value hedges of $12 million. Such amount was minimal at December 31, 2014. The face value of the Company’s senior debt was $8.44 billion and $6.44 billion at September 30, 2015 and December 31, 2014, respectively.

During July 2015, the Company issued $800 million of 4.00% senior notes due 2026. During January 2015, the Company issued $600 million of 3.50% senior notes due 2025 and $600 million of 4.60% senior notes due 2045. The Company used the net proceeds from these issuances for general corporate purposes, including for the repurchase of CBS Corp. Class B Common Stock and repayment of short-term borrowings, including commercial paper.

-47-


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



At September 30, 2015, the Company classified $200 million of debt maturing in January 2016 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.

Debt repurchases and early debt redemptions of $1.07 billion in 2014 resulted in a pre-tax loss on early extinguishment of debt of $352 million ($219 million, net of tax) for the three and nine months ended September 30, 2014.

All of the Company’s long-term debt has been issued under fixed interest rate agreements. At September 30, 2015 the Company had $600 million notional amount of fixed-to-floating rate swaps outstanding to hedge its $600 million of 2.30% senior notes due 2019. These interest rate swaps are designated as fair value hedges. During October 2015, prior to maturity, the Company settled these interest rate swaps and received $12 million in cash, plus accrued interest. The resulting increase in the carrying value of the previously hedged debt is being amortized as a reduction to interest expense over the remaining term of the debt.

Commercial Paper
The Company had outstanding commercial paper borrowings under its $2.5 billion commercial paper program of $303 million at September 30, 2015 and $616 million at December 31, 2014, each at a weighted average interest rate of 0.46% and with maturities of less than forty-five days. The Company’s commercial paper borrowings fluctuate based on the timing of the Company’s cash requirements for its operating, investing and financing needs as well as the cash flows generated to meet these needs.
Credit Facility
At September 30, 2015, the Company had a $2.5 billion revolving credit facility (the “Credit Facility”) which expires in December 2019. 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, 2015, the Company’s Consolidated Leverage Ratio was approximately 2.7x.

The Consolidated Leverage Ratio is 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. At September 30, 2015, the Company had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion.
Liquidity and Capital Resources
The Company continually projects anticipated cash requirements for its operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. The Company’s operating needs include, among other items, commitments for sports programming rights, television and film programming, talent contracts, operating leases, interest payments, and pension funding obligations. The Company’s investing and financing spending includes capital expenditures, share repurchases, dividends and principal payments on its outstanding indebtedness. The Company believes that its operating cash flows; cash and cash equivalents; borrowing capacity under the Credit Facility, which had $2.49 billion of remaining availability at September 30, 2015; and access to capital markets are sufficient to fund its operating, investing and financing requirements for the next twelve months.

-48-


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



The Company’s funding for short-term and long-term obligations will come primarily from cash flows from operating activities. Any additional cash funding requirements are financed with short-term borrowings, including commercial paper, and long-term debt. To the extent that commercial paper is not available to the Company, the existing Credit Facility provides sufficient capacity to satisfy short-term borrowing needs. The Company routinely assesses its capital structure and opportunistically enters into transactions to lower its interest expense, which could result in a charge from the early extinguishment of debt.

Funding for the Company’s long-term debt obligations due over the next five years of $2.00 billion is expected to come from the Company’s ability to refinance its debt and cash generated from operating activities.

Legal Matters
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, local and international 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 below-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.

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.

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, 2015, the Company had pending approximately 37,190 asbestos claims, as compared with approximately 41,100 as of December 31, 2014 and 42,560 as of September 30, 2014. During the third quarter of 2015, the Company received approximately 950 new claims and closed or moved to an inactive docket approximately 1,760 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 claims, the quality of evidence supporting the claims and other factors. The Company’s total costs for the years 2014 and 2013 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $11 million and $29 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.

Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased by exposure to asbestos; lung cancer, a cancer which may be caused by various factors, one of which is

-49-


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


alleged to be asbestos exposure; other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. The predominant number of claims against the Company are non-cancer claims. In a substantial number of the pending claims, the plaintiff has not yet identified the claimed injury. 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.

Related Parties
See Note 6 to the consolidated financial statements.
Recent Pronouncements and Adoption of New Accounting Standards
See Note 1 to the consolidated financial statements.

Critical Accounting Policies
See Item 7, Management’s Discussion and Analysis of Results of Operations and Financial Condition in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, for a discussion of the Company’s critical accounting policies.

Cautionary Statement Concerning Forward-Looking Statements
This quarterly report on Form 10-Q, including “Item 2 - Management’s Discussion and Analysis of Results of Operations and Financial Condition,” contains both historical and forward‑looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward‑looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward‑looking statements are not based on historical facts, but rather reflect the Company’s current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “may,” “could,” or other similar words or phrases. Similarly, statements that describe the Company’s objectives, plans or goals are or may be forward‑looking statements. These forward‑looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause the actual results, performance or achievements of the Company to be different from any future results, performance and achievements expressed or implied by these statements. These risks, uncertainties and other factors include, among others: advertising market conditions generally; changes in the public acceptance of the Company’s programming; changes in technology and its effect on competition in the Company’s markets; changes in the federal communications laws and regulations; the impact of piracy on the Company’s products; the impact of consolidation in the market for the Company’s programming; the impact of negotiations or the loss of affiliation

-50-


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


agreements or retransmission agreements; the impact of union activity, including possible strikes or work stoppages or the Company’s inability to negotiate favorable terms for contract renewals; other domestic and global economic, business, competitive and/or regulatory factors affecting the Company’s businesses generally; and other factors described in the Company’s filings made under the securities laws, including, among others, those set forth under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 and in our Quarterly Reports on Form 10-Q. There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not necessarily known. The forward‑looking statements included in this document are made as of the date of this document and the Company does not have any obligation to publicly update any forward‑looking statements to reflect subsequent events or circumstances.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes to market risk since reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Item 4.
Controls and Procedures.
The Company’s chief executive officer and chief operating officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Securities Exchange Act of 1934, as amended.

No change in the Company’s internal control over financial reporting occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

-51-


PART II – OTHER INFORMATION
Item 1A.
Risk Factors.
The following updates the corresponding risk factor included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

The Company Could Suffer Losses Due to Asset Impairment Charges for Goodwill, Intangible Assets, FCC Licenses and Programming

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, based on the Company’s most recent annual impairment tests for goodwill and FCC licenses performed during the fourth quarter of 2014, the estimated fair value of the Company’s CBS Radio reporting unit exceeded its carrying value by 5% and the carrying value of FCC licenses in eleven radio markets was within 10% of their respective estimated fair values. If recent declines in the radio marketplace or at CBS Radio become other than temporary, the results of the next impairment test could reflect a downward revision in the estimated fair value of this reporting unit and/or its FCC licenses, which could result in a noncash impairment charge. Any impairment charge for goodwill and/or FCC licenses could have a material adverse effect on the Company’s reported net earnings.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Company Purchases of Equity Securities
In November 2010, the Company announced that its Board of Directors approved a program to repurchase $1.5 billion of the Company’s common stock in open market purchases or other types of transactions (including accelerated stock repurchases or privately negotiated transactions). Since then, various increases to such amount have been approved and announced, including most recently a $3.0 billion increase to the amount available under such program on August 7, 2014. Below is a summary of CBS Corp.’s purchases of its Class B Common Stock during the three months ended September 30, 2015.
(in millions, except per share amounts)
Total
Number of
Shares
Purchased
 
Average
Price Per
Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
 
Remaining
Authorization
July 1, 2015 - July 31, 2015
 
2.5

 
 
$54.36
 
 
2.5

 
 
 
$
2,864

 
August 1, 2015 - August 31, 2015
 
3.4

 
 
$48.34
 
 
3.4

 
 
 
$
2,698

 
September 1, 2015 - September 30, 2015
 
4.7

 
 
$42.56
 
 
4.7

 
 
 
$
2,501

 
Total
 
10.6

 
 
$47.23
 
 
10.6

 
 
 
$
2,501

 


-52-


Item 6.
Exhibits.
Exhibit No.
Description of Document
(4
)
 
Instruments defining the rights of security holders, including indentures.
 
(a)
Amended and Restated Senior Indenture dated as of November 3, 2008 (“2008 Indenture”) between CBS Corporation, CBS Operations Inc., and The Bank of New York Mellon, as senior trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed by CBS Corporation on November 3, 2008 (Registration No. 333-154962) (File No. 001-09553)).

 
(b)
First Supplemental Indenture to 2008 Indenture dated as of April 5, 2010 between CBS Corporation, CBS Operations Inc., and Deutsche Bank Trust Company Americas, as senior trustee (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by CBS Corporation on April 5, 2010 (File No. 001-09553)).

 
 
The other instruments defining the rights of holders of the long-term debt securities of CBS Corporation and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. CBS Corporation hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request.

(10)

 
Material Contracts
 
(a)
Summary of CBS Corporation Compensation for Outside Directors (as of May 21, 2015) (filed herewith).
(12
)
 
Statement Regarding Computation of Ratios (filed herewith)
(31
)
 
Rule 13a-14(a)/15d-14(a) Certifications
 
(a)
Certification of the Chief Executive Officer of CBS Corporation pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
 
(b)
Certification of the Chief Operating Officer of CBS Corporation pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
(32
)
 
Section 1350 Certifications
 
(a)
Certification of the Chief Executive Officer of CBS Corporation furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
 
(b)
Certification of the Chief Operating Officer of CBS Corporation furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
(101
)
 
Interactive Data File
 
 
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.

-53-


SIGNATURES
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 thereunto duly authorized.

 
CBS CORPORATION
(Registrant)
 
 
Date: November 3, 2015
/s/ Joseph R. Ianniello
 
Joseph R. Ianniello
Chief Operating Officer
 
 
Date: November 3, 2015
/s/ Lawrence Liding
 
Lawrence Liding
Executive Vice President, Controller and
Chief Accounting Officer

-54-


EXHIBIT INDEX
Exhibit No.
Description of Document
(4
)
 
Instruments defining the rights of security holders, including indentures.
 
(a)
Amended and Restated Senior Indenture dated as of November 3, 2008 (“2008 Indenture”) between CBS Corporation, CBS Operations Inc., and The Bank of New York Mellon, as senior trustee (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed by CBS Corporation on November 3, 2008 (Registration No. 333-154962) (File No. 001-09553)).

 
(b)
First Supplemental Indenture to 2008 Indenture dated as of April 5, 2010 between CBS Corporation, CBS Operations Inc., and Deutsche Bank Trust Company Americas, as senior trustee (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by CBS Corporation on April 5, 2010 (File No. 001-09553)).
 
 
The other instruments defining the rights of holders of the long-term debt securities of CBS Corporation and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. CBS Corporation hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request.

(10
)
 
Material Contracts
 
(a)
Summary of CBS Corporation Compensation for Outside Directors (as of May 21, 2015) (filed herewith).
(12
)
 
Statement Regarding Computation of Ratios (filed herewith)
(31
)
 
Rule 13a-14(a)/15d-14(a) Certifications
 
(a)
Certification of the Chief Executive Officer of CBS Corporation pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
 
(b)
Certification of the Chief Operating Officer of CBS Corporation pursuant to Rule 13a-14(a), or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith).
(32
)
 
Section 1350 Certifications
 
(a)
Certification of the Chief Executive Officer of CBS Corporation furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
 
(b)
Certification of the Chief Operating Officer of CBS Corporation furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (furnished herewith).
(101
)
 
Interactive Data File
 
 
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.


-55-