UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2013
OR
For the transition period from to
Commission File Number 001-09553
CBS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
04-2949533 (I.R.S. Employer Identification No.) |
|
51 W. 52nd Street, New York, New York (Address of principal executive offices) |
10019 (Zip Code) |
(212) 975-4321
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Number of shares of common stock outstanding at July 26, 2013:
Class A Common Stock, par value $.001 per share39,287,032
Class B Common Stock, par value $.001 per share565,520,041
CBS CORPORATION
INDEX TO FORM 10-Q
-2-
PART I FINANCIAL INFORMATION
CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues |
$ | 3,699 | $ | 3,329 | $ | 7,739 | $ | 7,125 | ||||||
Expenses: |
||||||||||||||
Operating |
2,064 | 1,753 | 4,538 | 4,100 | ||||||||||
Selling, general and administrative |
683 | 665 | 1,333 | 1,307 | ||||||||||
Impairment charges (Note 3) |
| | | 11 | ||||||||||
Depreciation and amortization |
114 | 119 | 230 | 238 | ||||||||||
Total expenses |
2,861 | 2,537 | 6,101 | 5,656 | ||||||||||
Operating income |
838 | 792 | 1,638 | 1,469 | ||||||||||
Interest expense |
(93 | ) | (104 | ) | (188 | ) | (214 | ) | ||||||
Interest income |
2 | 1 | 4 | 3 | ||||||||||
Gain on early extinguishment of debt |
| | | 25 | ||||||||||
Other items, net |
(7 | ) | 3 | (9 | ) | 8 | ||||||||
Earnings from continuing operations before income taxes and equity in loss of investee companies |
740 | 692 | 1,445 | 1,291 | ||||||||||
Provision for income taxes |
(256 | ) | (228 | ) | (490 | ) | (429 | ) | ||||||
Equity in loss of investee companies, net of tax |
(8 | ) | (12 | ) | (16 | ) | (16 | ) | ||||||
Net earnings from continuing operations |
476 | 452 | 939 | 846 | ||||||||||
Net loss from discontinued operations, net of tax (Note 4) |
(4 | ) | (25 | ) | (24 | ) | (56 | ) | ||||||
Net earnings |
$ | 472 | $ | 427 | $ | 915 | $ | 790 | ||||||
Basic net earnings (loss) per common share: |
||||||||||||||
Net earnings from continuing operations |
$ | .78 | $ | .70 | $ | 1.53 | $ | 1.31 | ||||||
Net loss from discontinued operations |
$ | (.01 | ) | $ | (.04 | ) | $ | (.04 | ) | $ | (.09 | ) | ||
Net earnings |
$ | .78 | $ | .66 | $ | 1.49 | $ | 1.22 | ||||||
Diluted net earnings (loss) per common share: |
||||||||||||||
Net earnings from continuing operations |
$ | .76 | $ | .68 | $ | 1.49 | $ | 1.27 | ||||||
Net loss from discontinued operations |
$ | (.01 | ) | $ | (.04 | ) | $ | (.04 | ) | $ | (.08 | ) | ||
Net earnings |
$ | .76 | $ | .65 | $ | 1.45 | $ | 1.19 | ||||||
Weighted average number of common shares outstanding: |
||||||||||||||
Basic |
609 | 646 | 615 | 648 | ||||||||||
Diluted |
624 | 661 | 631 | 664 | ||||||||||
Dividends per common share |
$ |
..12 |
$ |
..10 |
$ |
..24 |
$ |
..20 |
||||||
See notes to consolidated financial statements.
-3-
CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in millions)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
|
||||||||||||||
Net earnings |
$ | 472 | $ | 427 | $ | 915 | $ | 790 | ||||||
Other comprehensive income (loss) from continuing operations, net of tax: |
||||||||||||||
Cumulative translation adjustments |
(9 | ) | (21 | ) | (9 | ) | (5 | ) | ||||||
Amortization of net actuarial loss |
11 | 7 | 22 | 15 | ||||||||||
Change in fair value of cash flow hedges |
(1 | ) | | (1 | ) | | ||||||||
Unrealized gain on securities |
| | 1 | 1 | ||||||||||
Other comprehensive income (loss) from continuing operations, net of tax |
1 | (14 | ) | 13 | 11 | |||||||||
Other comprehensive income (loss) from discontinued operations, net of tax |
| 1 | (9 | ) | (5 | ) | ||||||||
Total other comprehensive income (loss), net of tax |
1 | (13 | ) | 4 | 6 | |||||||||
Total comprehensive income |
$ | 473 | $ | 414 | $ | 919 | $ | 796 | ||||||
See notes to consolidated financial statements.
-4-
CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
|
At June 30, 2013 |
At December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
ASSETS |
|||||||
Current Assets: |
|||||||
Cash and cash equivalents |
$ | 282 | $ | 708 | |||
Receivables, less allowances of $78 (2013) and $81 (2012) |
2,998 | 3,137 | |||||
Programming and other inventory (Note 5) |
449 | 859 | |||||
Deferred income tax assets, net |
261 | 253 | |||||
Prepaid income taxes |
| 27 | |||||
Prepaid expenses |
249 | 206 | |||||
Other current assets |
328 | 312 | |||||
Current assets of discontinued operations |
203 | 218 | |||||
Total current assets |
4,770 | 5,720 | |||||
Property and equipment: |
|||||||
Land |
331 | 330 | |||||
Buildings |
722 | 718 | |||||
Capital leases |
166 | 194 | |||||
Advertising structures |
1,681 | 1,689 | |||||
Equipment and other |
2,017 | 2,057 | |||||
|
4,917 | 4,988 | |||||
Less accumulated depreciation and amortization |
2,689 | 2,717 | |||||
Net property and equipment |
2,228 | 2,271 | |||||
Programming and other inventory (Note 5) |
1,545 | 1,582 | |||||
Goodwill |
8,569 | 8,567 | |||||
Intangible assets (Note 3) |
6,480 | 6,515 | |||||
Other assets |
1,842 | 1,551 | |||||
Assets of discontinued operations |
259 | 260 | |||||
Total Assets |
$ | 25,693 | $ | 26,466 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||
Current Liabilities: |
|||||||
Accounts payable |
$ | 218 | $ | 386 | |||
Accrued compensation |
246 | 374 | |||||
Participants' share and royalties payable |
861 | 953 | |||||
Program rights |
400 | 455 | |||||
Deferred revenues |
149 | 232 | |||||
Income taxes payable |
34 | | |||||
Commercial paper (Note 7) |
453 | | |||||
Current portion of long-term debt (Note 7) |
21 | 18 | |||||
Accrued expenses and other current liabilities |
1,221 | 1,282 | |||||
Current liabilities of discontinued operations |
222 | 241 | |||||
Total current liabilities |
3,825 | 3,941 | |||||
Long-term debt (Note 7) |
5,949 | 5,904 | |||||
Pension and postretirement benefit obligations |
1,659 | 1,860 | |||||
Deferred income tax liabilities, net |
1,314 | 1,254 | |||||
Other liabilities |
3,176 | 3,122 | |||||
Liabilities of discontinued operations |
169 | 172 | |||||
Commitments and contingencies (Note 11) |
|||||||
Stockholders' Equity: |
|||||||
Class A Common Stock, par value $.001 per share; 375 shares authorized; |
|||||||
39 (2013) and 43 (2012) shares issued |
| | |||||
Class B Common Stock, par value $.001 per share; 5,000 shares authorized; |
|||||||
798 (2013) and 785 (2012) shares issued |
1 | 1 | |||||
Additional paid-in capital |
43,450 | 43,424 | |||||
Accumulated deficit |
(25,854 | ) | (26,769 | ) | |||
Accumulated other comprehensive loss (Note 9) |
(565 | ) | (569 | ) | |||
|
17,032 | 16,087 | |||||
Less treasury stock, at cost; 232 (2013) and 198 (2012) Class B shares |
7,431 | 5,874 | |||||
Total Stockholders' Equity |
9,601 | 10,213 | |||||
Total Liabilities and Stockholders' Equity |
$ | 25,693 | $ | 26,466 | |||
See notes to consolidated financial statements.
-5-
CBS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
|
Six Months Ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
|||||||
|
2013 |
2012 |
|||||
Operating Activities: |
|||||||
Net earnings |
$ | 915 | $ | 790 | |||
Less: Net loss from discontinued operations |
(24 | ) | (56 | ) | |||
Net earnings from continuing operations |
939 | 846 | |||||
Adjustments to reconcile net earnings from continuing operations to |
|||||||
Depreciation and amortization |
230 | 238 | |||||
Impairment charges |
| 11 | |||||
Stock-based compensation |
109 | 80 | |||||
Redemption of debt |
| (25 | ) | ||||
Equity in loss of investee companies, net of tax and distributions |
24 | 19 | |||||
Change in assets and liabilities, net of investing and financing activities |
(229 | ) | 99 | ||||
Net cash flow provided by operating activities from continuing operations |
1,073 | 1,268 | |||||
Net cash flow used for operating activities from discontinued operations |
(22 | ) | (10 | ) | |||
Net cash flow provided by operating activities |
1,051 | 1,258 | |||||
Investing Activities: |
|||||||
Acquisitions, net of cash acquired |
(30 | ) | (69 | ) | |||
Capital expenditures |
(83 | ) | (84 | ) | |||
Investments in and advances to investee companies |
(139 | ) | (39 | ) | |||
Proceeds from sale of investments |
18 | 6 | |||||
Proceeds from dispositions |
12 | 1 | |||||
Net cash flow used for investing activities from continuing operations |
(222 | ) | (185 | ) | |||
Net cash flow used for investing activities from discontinued operations |
(8 | ) | (9 | ) | |||
Net cash flow used for investing activities |
(230 | ) | (194 | ) | |||
Financing Activities: |
|||||||
Proceeds from short-term debt borrowings, net |
452 | | |||||
Proceeds from issuance of notes |
| 1,567 | |||||
Repayment of notes |
| (700 | ) | ||||
Payment of capital lease obligations |
(9 | ) | (10 | ) | |||
Payment of contingent consideration |
(30 | ) | (33 | ) | |||
Dividends |
(155 | ) | (135 | ) | |||
Purchase of Company common stock |
(1,579 | ) | (564 | ) | |||
Payment of payroll taxes in lieu of issuing shares for stock-based compensation |
(139 | ) | (105 | ) | |||
Proceeds from exercise of stock options |
98 | 71 | |||||
Excess tax benefit from stock-based compensation |
119 | 73 | |||||
Other financing activities |
(4 | ) | | ||||
Net cash flow (used for) provided by financing activities |
(1,247 | ) | 164 | ||||
Net (decrease) increase in cash and cash equivalents |
(426 | ) | 1,228 | ||||
Cash and cash equivalents at beginning of period |
708 | 660 | |||||
Cash and cash equivalents at end of period |
$ | 282 | $ | 1,888 | |||
Supplemental disclosure of cash flow information |
|||||||
Cash paid for interest |
$ | 180 | $ | 196 | |||
Cash paid for income taxes |
$ | 259 | $ | 273 | |||
Equipment acquired under capitalized leases |
$ | 58 | $ | 1 | |||
See notes to consolidated financial statements.
-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 BusinessCBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the "Company" or "CBS Corp.") is comprised of the following segments: Entertainment (CBS Television, comprised of the CBS Television Network, CBS Television Studios and CBS Global Distribution Group; CBS Films; and CBS Interactive), Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks), Publishing (Simon & Schuster), Local Broadcasting (CBS Television Stations and CBS Radio) and Outdoor Americas (CBS Outdoor). In July 2013, the Company entered into an agreement for the sale of its outdoor advertising business in Europe, which includes an interest in an outdoor business in Asia ("Outdoor Europe"). Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.
Basis of PresentationThe accompanying unaudited consolidated financial statements of the Company have been prepared pursuant to the rules of the Securities and Exchange Commission. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows of the Company for the periods presented. Certain previously reported amounts have been reclassified to conform to the current presentation.
Use of EstimatesThe preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Net Earnings (Loss) per Common ShareBasic earnings (loss) per share ("EPS") is based upon net earnings (loss) divided by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted stock units ("RSUs") and market-based performance share units ("PSUs") only in the periods in which such effect would have been dilutive. For both the three and six months ended June 30, 2013, stock options to purchase 2 million shares of Class B Common Stock were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive. For the three and six months ended June 30, 2012, stock options to purchase 3 million and 4 million shares of Class B Common Stock, respectively, were outstanding but excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive.
-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 June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
(in millions) |
2013 |
2012 |
2013 |
2012 |
|||||||||
Weighted average shares for basic EPS |
609 | 646 | 615 | 648 | |||||||||
Dilutive effect of shares issuable under stock-based compensation plans |
15 | 15 | 16 | 16 | |||||||||
Weighted average shares for diluted EPS |
624 | 661 | 631 | 664 | |||||||||
Other LiabilitiesOther 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 CapitalFor the six months ended June 30, 2013 and 2012, the Company recorded dividends of $149 million and $132 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.
Adoption of New Accounting Standards
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
During the first quarter of 2013, the Company adopted the Financial Accounting Standards Board's ("FASB") guidance which requires disclosure of significant amounts reclassified out of accumulated other comprehensive income by component and their corresponding effect on the respective line items of net income (See Note 9).
Recent Pronouncements
Obligations Resulting from Joint and Several Liability Arrangements
In February 2013, the FASB issued guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Under this guidance, the Company is required to measure its obligations under such arrangements as the sum of the amount it agreed to pay in the arrangement among its co-obligors and any additional amount the Company expects to pay on behalf of its co-obligors. The Company is also required to disclose the nature and amount of the obligation. The Company is currently evaluating the impact of this guidance on its consolidated financial statements, which is effective for reporting periods beginning after December 15, 2013.
-8-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
2) STOCK-BASED COMPENSATION
The following table summarizes the Company's stock-based compensation expense for the three and six months ended June 30, 2013 and 2012.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
RSUs and PSUs |
$ | 34 | $ | 30 | $ | 66 | $ | 59 | |||||
Stock options and equivalents |
15 | 9 | 43 | 21 | |||||||||
Stock-based compensation expense, |
49 | 39 | 109 | 80 | |||||||||
Related tax benefit |
(19 | ) | (15 | ) | (42 | ) | (31 | ) | |||||
Stock-based compensation expense, |
$ | 30 | $ | 24 | $ | 67 | $ | 49 | |||||
During the six months ended June 30, 2013, the Company granted 4 million RSUs with a weighted average per unit grant date fair value of $43.80. RSUs granted during the first six months of 2013 vest over a one- to four-year service period. Compensation expense for RSUs is determined based upon the market price of the Company's shares underlying the awards on the date of grant. For certain RSU awards the number of shares an employee earns ranges from 0% to 120% of the target award, based on the outcome of established performance conditions. Compensation expense is recorded based on the probable outcome of the performance conditions. During the six months ended June 30, 2013, the Company also granted 3 million stock options with a weighted average exercise price of $44.04. Stock options granted during the first six months of 2013 vest over a four-year service period and expire eight years from the date of grant. Compensation expense for stock options is determined based on the grant date fair value of the award calculated using the Black-Scholes options-pricing model.
Total unrecognized compensation cost related to unvested RSUs at June 30, 2013 was $246 million, which is expected to be recognized over a weighted average period of 2.4 years. Total unrecognized compensation cost related to unvested stock option awards at June 30, 2013 was $78 million, which is expected to be recognized over a weighted average period of 2.5 years.
-9-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
3) GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's intangible assets were as follows:
At June 30, 2013 |
Gross |
Accumulated Amortization |
Net |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Intangible assets subject to amortization: |
||||||||||
Permits and leasehold agreements |
$ | 894 | $ | (653 | ) | $ | 241 | |||
Franchise agreements |
477 | (321 | ) | 156 | ||||||
Trade names |
222 | (35 | ) | 187 | ||||||
Other intangible assets |
232 | (168 | ) | 64 | ||||||
Total intangible assets subject to amortization |
1,825 | (1,177 | ) | 648 | ||||||
FCC licenses |
5,832 | | 5,832 | |||||||
Total intangible assets |
$ | 7,657 | $ | (1,177 | ) | $ | 6,480 | |||
At December 31, 2012 |
Gross |
Accumulated Amortization |
Net |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Intangible assets subject to amortization: |
||||||||||
Permits and leasehold agreements |
$ | 889 | $ | (635 | ) | $ | 254 | |||
Franchise agreements |
477 | (309 | ) | 168 | ||||||
Trade names |
213 | (28 | ) | 185 | ||||||
Other intangible assets |
245 | (169 | ) | 76 | ||||||
Total intangible assets subject to amortization |
1,824 | (1,141 | ) | 683 | ||||||
FCC licenses |
5,832 | | 5,832 | |||||||
Total intangible assets |
$ | 7,656 | $ | (1,141 | ) | $ | 6,515 | |||
Amortization expense was $24 million and $28 million for the three months ended June 30, 2013 and 2012, respectively, and $50 million and $55 million for the six months ended June 30, 2013 and 2012, respectively.
The Company expects its aggregate annual amortization expense for existing intangible assets subject to amortization for each of the years, 2013 through 2017, to be as follows:
|
2013 |
2014 |
2015 |
2016 |
2017 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortization expense |
$ | 100 | $ | 89 | $ | 79 | $ | 69 | $ | 43 | ||||||
During the first quarter of 2012, in connection with the sale of its five owned radio stations in West Palm Beach, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill.
4) DISCONTINUED OPERATIONS
In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of Outdoor Europe for approximately $225 million. The transaction is expected to be completed in 2013. Upon completion, the Company expects to record an after-tax charge of approximately
-10-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
$100 million associated with exiting an unprofitable contractual arrangement and for the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction will become third-party guarantees. The actual amount of the charge may be different from the Company's current expectations. This transaction is subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.
The following table sets forth details of the net loss from discontinued operations for the three and six months ended June 30, 2013 and 2012.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Revenues from discontinued operations |
$ | 139 | $ | 147 | $ | 262 | $ | 275 | |||||
Loss from discontinued operations before income taxes |
$ | (11 | ) | $ | (29 | ) | $ | (47 | ) | $ | (57 | ) | |
Income tax benefit |
7 | 4 | 23 | 1 | |||||||||
Net loss from discontinued operations, net of tax |
$ | (4 | ) | $ | (25 | ) | $ | (24 | ) | $ | (56 | ) | |
Noncurrent assets of discontinued operations of $259 million at June 30, 2013 and $260 million at December 31, 2012, primarily consist of net property and equipment of $108 million and $103 million, respectively, and goodwill of $48 million and $49 million, respectively. Noncurrent liabilities from discontinued operations primarily relate to aircraft leases from previously disposed businesses that are generally expected to liquidate in accordance with contractual terms.
5) PROGRAMMING AND OTHER INVENTORY
|
At June 30, 2013 |
At December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
Program rights |
$ | 959 | $ | 1,389 | |||
Television programming: |
|||||||
Released (including acquired libraries) |
784 | 781 | |||||
In process and other |
111 | 128 | |||||
Theatrical programming: |
|||||||
Released |
14 | 25 | |||||
In process and other |
67 | 60 | |||||
Publishing, primarily finished goods |
58 | 57 | |||||
Other |
1 | 1 | |||||
Total programming and other inventory |
1,994 | 2,441 | |||||
Less current portion |
449 | 859 | |||||
Total noncurrent programming and other inventory |
$ | 1,545 | $ | 1,582 | |||
-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 June 30, 2013, NAI directly or indirectly owned approximately 79.1% of CBS Corp.'s voting Class A Common Stock, and owned approximately 6.6% of CBS Corp.'s Class A Common Stock and non-voting Class B Common Stock on a combined basis.
Viacom Inc. As part of its normal course of business, the Company enters into transactions with Viacom Inc. and its subsidiaries. Through its Entertainment segment, the Company licenses its television products and leases its production facilities to Viacom Inc.'s media networks businesses. In addition, the Company recognizes revenues for advertising spending placed by various subsidiaries of Viacom Inc. Viacom Inc. also distributes certain of the Company's television products in the home entertainment market. The Company's total revenues from these transactions were $75 million and $70 million for the three months ended June 30, 2013 and 2012, respectively, and $131 million and $134 million for the six months ended June 30, 2013 and 2012, respectively.
The Company places advertisements with, leases production facilities from, and purchases other goods and services from various subsidiaries of Viacom Inc. The total amounts for these transactions were $3 million for both the three months ended June 30, 2013 and 2012, and $10 million and $9 million for the six months ended June 30, 2013 and 2012, respectively.
The following table presents the amounts due from Viacom Inc. in the normal course of business as reflected on the Company's Consolidated Balance Sheets. Amounts due to Viacom Inc. were minimal at June 30, 2013 and December 31, 2012.
|
At June 30, 2013 |
At December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
Receivables |
$ | 110 | $ | 124 | |||
Other assets (Receivables, noncurrent) |
146 | 133 | |||||
Total amounts due from Viacom Inc. |
$ | 256 | $ | 257 | |||
Other Related Parties The Company has equity interests in two domestic television networks and several international joint ventures for television channels, from which the Company earns revenues primarily by selling its television programming. Total revenues earned from these joint ventures were $30 million and $35 million for the three months ended June 30, 2013 and 2012, respectively, and $62 million and $71 million for the six months ended June 30, 2013 and 2012, respectively.
The Company, through the normal course of business, is involved in transactions with other related parties that have not been material in any of the periods presented.
-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 June 30, 2013 |
At December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
Commercial paper |
$ | 453 | $ | | |||
Senior debt (1.95% 8.875% due 2014 2042) (a) |
5,862 | 5,863 | |||||
Obligations under capital leases |
121 | 72 | |||||
Total debt |
6,436 | 5,935 | |||||
Less discontinued operations debt (b) |
13 | 13 | |||||
Total debt from continuing operations |
6,423 | 5,922 | |||||
Less commercial paper |
453 | | |||||
Less current portion of long-term debt |
21 | 18 | |||||
Total long-term debt from continuing operations, |
$ | 5,949 | $ | 5,904 | |||
The senior debt of CBS Corp. is fully and unconditionally guaranteed by its wholly owned subsidiary, CBS Operations Inc. Senior debt in the amount of $52 million of the Company's wholly owned subsidiary, CBS Broadcasting Inc., has no guarantor.
At June 30, 2013, the Company classified $99 million of notes maturing in June 2014 as long-term debt on the Consolidated Balance Sheet, reflecting its intent and ability to refinance this debt on a long-term basis.
Commercial Paper
At June 30, 2013, the Company had $453 million of commercial paper borrowings outstanding under its $2.0 billion commercial paper program. Outstanding commercial paper borrowings have a weighted average interest rate of approximately 0.3% and maturities of less than ninety days.
Credit Facility
During the first quarter of 2013, the Company amended and extended its $2.0 billion revolving credit facility (the "Credit Facility") to March 15, 2018. The amended facility provides for lower borrowing rates and fees, as well as more favorable covenant requirements. The Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of each quarter as further described in the Credit Facility. At June 30, 2013, the Company's Consolidated Leverage ratio was approximately 1.7x.
The Consolidated Leverage Ratio reflects the ratio of the Company's indebtedness from continuing operations, adjusted to exclude certain capital lease obligations, at the end of a quarter, to the
-13-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
Company's Consolidated EBITDA for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facility as operating income plus interest income and before depreciation, amortization and certain other noncash items.
The Credit Facility is used for general corporate purposes, including support of the Company's commercial paper program. At June 30, 2013, the remaining availability under the Credit Facility, net of outstanding letters of credit, was $1.99 billion.
8) PENSION AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic cost for the Company's pension and postretirement benefit plans were as follows:
|
Pension Benefits | Postretirement Benefits | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended June 30, |
2013 |
2012 |
2013 |
2012 |
|||||||||
Components of net periodic cost: |
|||||||||||||
Service cost |
$ | 10 | $ | 9 | $ | | $ | | |||||
Interest cost |
53 | 61 | 6 | 8 | |||||||||
Expected return on plan assets |
(68 | ) | (62 | ) | | | |||||||
Amortization of actuarial losses (gains) (a) |
22 | 18 | (4 | ) | (4 | ) | |||||||
Net periodic cost |
$ | 17 | $ | 26 | $ | 2 | $ | 4 | |||||
|
Pension Benefits | Postretirement Benefits | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Six Months Ended June 30, |
2013 |
2012 |
2013 |
2012 |
|||||||||
Components of net periodic cost: |
|||||||||||||
Service cost |
$ | 20 | $ | 18 | $ | | $ | | |||||
Interest cost |
106 | 122 | 12 | 16 | |||||||||
Expected return on plan assets |
(136 | ) | (124 | ) | | | |||||||
Amortization of actuarial losses (gains) (a) |
44 | 36 | (8 | ) | (8 | ) | |||||||
Net periodic cost |
$ | 34 | $ | 52 | $ | 4 | $ | 8 | |||||
During the six months ended June 30, 2013, the Company made discretionary contributions of $150 million to pre-fund its qualified pension plans.
9) STOCKHOLDERS' EQUITY
During the second quarter of 2013, the Company repurchased 6.1 million shares of its Class B Common Stock for $296 million, at an average cost of $48.33 per share, and also received 4.3 million shares of its Class B Common stock upon the settlement of an accelerated share repurchase ("ASR") transaction that was initiated during the first quarter of 2013. During the six months ended June 30, 2013, the Company repurchased 34.5 million shares of its Class B Common Stock for $1.56 billion, at an average cost of $45.20 per share.
-14-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During the second quarter of 2013, the Company declared a quarterly cash dividend of $.12 per share on its Class A and Class B Common stock payable on July 1, 2013. The total dividend was $74 million of which $73 million was paid on July 1, 2013 and $1 million was accrued to be paid upon vesting of RSUs. Total dividends for the six months ended June 30, 2013 were $149 million.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in the components of accumulated other comprehensive income (loss).
|
Continuing Operations | Discontinued Operations | |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cumulative Translation Adjustments |
Net Actuarial Gain (Loss) and Prior Service Cost (a) |
Change in Fair Value of Cash Flow Hedges |
Unrealized Gain on Securities |
Other Comprehensive Income |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
At December 31, 2012 |
$ | 91 | $ | (948 | ) | $ | | $ | 2 | $ | 286 | $ | (569 | ) | |||||
Other comprehensive income (loss) before reclassifications |
(9 | ) | | (1 | ) | 1 | (9 | ) | (18 | ) | |||||||||
Reclassifications from accumulated other comprehensive income (loss) to net earnings |
| 22 | | | | 22 | |||||||||||||
Net other comprehensive income (loss) |
(9 | ) | 22 | (1 | ) | 1 | (9 | ) | 4 | ||||||||||
At June 30, 2013 |
$ | 82 | $ | (926 | ) | (1 | ) | $ | 3 | $ | 277 | $ | (565 | ) | |||||
The net actuarial gain (loss) and prior service cost related to pension and other postretirement benefit plans included in other comprehensive income (loss) is net of a tax provision of $14 million for the six months ended June 30, 2013.
10) INCOME TAXES
The provision for income taxes represents federal, state and local, and foreign income taxes on earnings from continuing operations before income taxes and equity in loss of investee companies.
The provision for income taxes for the three months ended June 30, 2013 increased to $256 million from $228 million and for the six months ended June 30, 2013 increased to $490 million from $429 million for the comparable prior-year periods, in both cases driven by the increase in earnings from continuing operations before income taxes. The effective income tax rate increased to 34.6% for the three months ended June 30, 2013 versus 32.9% for the three months ended June 30, 2012 and increased to 33.9% for the six months ended June 30, 2013 versus 33.2% for the six months ended June 30, 2012. The higher effective income tax rates for 2013 were driven by an increase in domestic pre-tax income.
-15-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
During July 2013, the Company and the IRS settled the Company's income tax audit for the years 2008, 2009, and 2010. The IRS is expected to commence its examination of the years 2011 and 2012 in the fourth quarter of 2013. In 2013, the Company also expects to settle an audit in a foreign jurisdiction related to a previously disposed business that is accounted for as a discontinued operation. In addition, various tax years are currently under examination by state and local and other foreign tax authorities. For tax audits that are currently settled, the Company expects the reserve for uncertain tax positions to decrease during 2013 by approximately $15 million, plus accrued interest, a portion of which may impact the Company's effective income tax rate. In addition, with respect to open tax years in all jurisdictions, the Company currently believes that it is reasonably possible that the reserve for uncertain tax positions will decrease within the next twelve months; however, as it is difficult to predict the final outcome of any particular tax matter, an estimate of any additional impact to the reserve for uncertain tax positions cannot currently be determined.
11) COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
The Company has indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2013, the outstanding letters of credit and surety bonds approximated $444 million and were not recorded on the Consolidated Balance Sheet.
In the course of its business, the Company both provides and receives indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Company may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. The Company records a liability for its indemnification obligations and other contingent liabilities when probable.
Legal Matters
E-books Matters. A number of lawsuits described below have been pending against the following parties relating to the sale of e-books: Apple Inc., Hachette Book Group, Inc., HarperCollins Publishers, LLC, Holtzbrinck Publishers LLC d/b/a Macmillan, Penguin Group (USA) Inc. and the Company's subsidiary, Simon & Schuster, Inc. (collectively, the "Publishing parties").
On April 10, 2012, for purposes of settlement and without any admission of wrongdoing or liability, Simon & Schuster and two of the other Publishing parties entered into a settlement stipulation and proposed final judgment (the "Stipulation") with the United States Department of Justice (the "DOJ") in connection with the DOJ's investigations of agency distribution of e-books. In furtherance of this settlement, on April 11, 2012, the DOJ filed an antitrust action in the United States District Court for the Southern District of New York against the Publishing parties and concurrently filed the Stipulation with the court. On September 7, 2012, the Stipulation was approved by the court and final judgment was entered. The Stipulation does not involve any monetary payments by Simon & Schuster, but will require the adoption of certain business practices for a 24 month period and certain compliance practices for a five year period.
On June 11, 2012, for purposes of settlement and without any admission of wrongdoing or liability, Simon & Schuster entered into a proposed settlement agreement to resolve the antitrust action filed by a number of states and the Commonwealth of Puerto Rico against several of the Publishing parties in the United States District Court for the Western District of Texas, which was transferred to the United
-16-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
States District Court for the Southern District of New York ("States") on April 30, 2012. The proposed settlement provides that, certain Publishing parties, including Simon & Schuster, will pay agreed upon amounts for consumer restitution, among other things, and also requires the adoption of certain business and compliance practices, which are substantially similar to those described in the Stipulation with the DOJ. On September 14, 2012, the court granted preliminary approval of the proposed settlement, which all states (except Minnesota), the District of Columbia and the United States territories joined. On October 15, 2012, Simon & Schuster paid the agreed upon amounts into an escrow account pending final court approval. On February 8, 2013, the court approved the proposed settlement following a final settlement approval hearing that day. On June 20, 2013, Simon & Schuster and certain other Publishing parties entered into a settlement agreement in the MDL litigation (as described below) covering claims of Minnesota residents (the "Minnesota Settlement"). The Minnesota Settlement is subject to court approval. The Company believes that the settlements with the DOJ, the States and the Minnesota Settlement will not have a material adverse effect on its results of operations, financial position or cash flows.
On December 9, 2011, the United States Judicial Panel on Multidistrict Litigation (the "MDL") issued an order consolidating in the United States District Court for the Southern District of New York various purported class action suits that private litigants had filed in federal courts in California and New York. On January 20, 2012, the plaintiffs filed a consolidated amended class action complaint with the court against the Publishing parties. These private litigant plaintiffs, who are e-book purchasers, allege that, among other things, the defendants are in violation of federal and/or state antitrust laws in connection with the sale of e-books pursuant to agency distribution arrangements between each of the publishers and e-book retailers. The consolidated amended class action complaint generally seeks multiple forms of damages for the purchase of e-books and injunctive and other relief. On March 2, 2012, the Publishing parties filed a motion to dismiss this action. On May 15, 2012, the court denied the motion to dismiss. As noted above, on June 20, 2013, Simon & Schuster entered into the Minnesota Settlement, subject to court approval. Upon approval of the Minnesota Settlement by the court, Simon & Schuster will be dismissed with prejudice from the MDL litigation and only those individuals who elect to opt out of the States settlement or the Minnesota Settlement will have any potential claims against Simon & Schuster.
Commencing on February 24, 2012, similar antitrust suits have been filed under Canadian law against the Publishing parties by private litigants in Canada, purportedly as class actions. Simon & Schuster intends to defend itself in the Canadian matters.
In addition, the European Commission (the "EC") and Canadian Competition Bureau are conducting separate competition investigations of agency distribution arrangements of e-books in this industry and Simon & Schuster is cooperating with these investigations. On September 19, 2012, the EC began accepting public comment on the terms of a proposed settlement. On December 12, 2012, following the close of that comment period, the EC accepted the proposed settlement. The settlement between the EC and certain Publishing parties, including Simon & Schuster, requires the adoption of certain business and compliance practices similar to those described in the Stipulation with the DOJ.
Claims Related to Former Businesses: Asbestos. The Company is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, which allegedly occurred principally as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. The Company is typically named as one of a large number of defendants in both state and federal
-17-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of the Company's products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing insulating material in turbines sold for power-generation, industrial and marine use, or by asbestos-containing grades of decorative micarta, a laminate used in commercial ships.
Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2013, the Company had pending approximately 45,320 asbestos claims, as compared with approximately 45,900 as of December 31, 2012 and 46,020 as of June 30, 2012. During the second quarter of 2013, the Company received approximately 910 new claims and closed or moved to an inactive docket approximately 1,660 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claim, the quality of evidence supporting the claims and other factors. The Company's total costs for the years 2012 and 2011 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $21 million and $33 million, respectively. The Company's costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.
The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities. This belief is based upon many factors and assumptions, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims. While the number of asbestos claims filed against the Company has trended down in the past five to ten years and has remained flat in recent years, it is difficult to predict future asbestos liabilities, as events and circumstances may occur including, among others, the number and types of claims and average cost to resolve such claims, which could affect the Company's estimate of its asbestos liabilities.
Other. The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to historical and predecessor operations of the Company. In addition, the Company from time to time receives personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operations of the Company and its predecessors.
General. On an ongoing basis, the Company vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state and local authorities (collectively, "litigation"). Litigation may be brought against the Company without merit, is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the above-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows. Under the Separation Agreement between the Company and Viacom Inc., the Company and Viacom Inc. have agreed to defend and indemnify the other in certain litigation in which the Company and/or Viacom Inc. is named.
-18-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
12) RESTRUCTURING CHARGES
During the year ended December 31, 2012, in a continued effort to reduce its cost structure, the Company initiated restructuring plans across several of its businesses, primarily for the reorganization of certain business operations. As a result, the Company recorded restructuring charges of $19 million, reflecting $13 million of severance costs and $6 million of costs associated with exiting contractual obligations. During the year ended December 31, 2011, the Company recorded restructuring charges of $43 million, reflecting $9 million of severance costs and $34 million of costs associated with exiting contractual obligations. As of June 30, 2013, the cumulative amount paid for the 2012 and 2011 restructuring charges was $42 million, of which $19 million was for the severance costs and $23 million was related to costs associated with contractual obligations. The Company expects to substantially utilize the remaining reserves by the end of 2013.
|
Balance at December 31, 2012 |
2013 Payments |
Balance at June 30, 2013 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Entertainment |
$ | 25 | $ | (10 | ) | $ | 15 | |||
Publishing |
2 | (1 | ) | 1 | ||||||
Local Broadcasting |
7 | (3 | ) | 4 | ||||||
Corporate |
1 | (1 | ) | | ||||||
Total |
$ | 35 | $ | (15 | ) | $ | 20 | |||
13) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company uses derivative financial instruments primarily to modify its exposure to market risks from fluctuations in foreign currency exchange rates. The Company does not use derivative instruments unless there is an underlying exposure and, therefore, the Company does not hold or enter into derivative financial instruments for speculative trading purposes. The fair value of the Company's derivative instruments and the related activity was not material to the Consolidated Balance Sheets and Consolidated Statements of Operations for any of the periods presented.
The following tables set forth the Company's assets and liabilities measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar
-19-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
assets or liabilities. Level 3 is based on unobservable inputs reflecting the Company's own assumptions about the assumptions that market participants would use in pricing the asset or liability.
At June 30, 2013 |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||||||
Investments |
$ | 70 | $ | | $ | | $ | 70 | |||||
Foreign currency hedges |
| 6 | | 6 | |||||||||
Total Assets |
$ | 70 | $ | 6 | $ | | $ | 76 | |||||
Liabilities: |
|||||||||||||
Deferred compensation |
$ | | $ | 225 | $ | | $ | 225 | |||||
Foreign currency hedges |
| 2 | | 2 | |||||||||
Total Liabilities |
$ | | $ | 227 | $ | | $ | 227 | |||||
At December 31, 2012 |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||||||
Investments |
$ | 70 | $ | | $ | | $ | 70 | |||||
Total Assets |
$ | 70 | $ | | $ | | $ | 70 | |||||
Liabilities: |
|||||||||||||
Deferred compensation |
$ | | $ | 201 | $ | | $ | 201 | |||||
Foreign currency hedges |
| 2 | | 2 | |||||||||
Total Liabilities |
$ | | $ | 203 | $ | | $ | 203 | |||||
The fair value of investments is determined based on publicly quoted market prices in active markets. The fair value of foreign currency hedges is determined based on the present value of future cash flows using observable inputs including foreign currency exchange rates. The fair value of deferred compensation is determined based on the fair value of the investments elected by employees.
The Company's carrying value of financial instruments approximates fair value, except for differences with respect to the notes and debentures. At both June 30, 2013 and December 31, 2012, the carrying value of the senior debt was $5.86 billion and the fair value, which is estimated, based on quoted market prices for similar liabilities (Level 2) and includes accrued interest, was $6.72 billion and $7.16 billion, respectively.
-20-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
14) REPORTABLE SEGMENTS
The following tables set forth the Company's financial performance by reportable segment. The Company's operating segments, which are the same as its reportable segments, have been determined in accordance with the Company's internal management structure, which is organized based upon products and services. Outdoor Europe, previously included in the Outdoor segment, has been presented as a discontinued operation. As a result, the Outdoor segment has been renamed Outdoor Americas. In addition, Residual Costs, which was previously presented as a separate line item in the Company's segment presentation, is now included within Corporate. Prior periods have been reclassified to conform to this presentation.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Revenues: |
|||||||||||||
Entertainment |
$ | 2,008 | $ | 1,707 | $ | 4,547 | $ | 4,025 | |||||
Cable Networks |
518 | 446 | 996 | 898 | |||||||||
Publishing |
189 | 189 | 360 | 365 | |||||||||
Local Broadcasting |
698 | 704 | 1,336 | 1,326 | |||||||||
Outdoor Americas |
335 | 334 | 616 | 622 | |||||||||
Eliminations |
(49 | ) | (51 | ) | (116 | ) | (111 | ) | |||||
Total Revenues |
$ | 3,699 | $ | 3,329 | $ | 7,739 | $ | 7,125 | |||||
Revenues generated between segments primarily reflect advertising sales and television and feature film license fees. These transactions are recorded at market value as if the sales were to third parties and are eliminated in consolidation.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Intercompany Revenues: |
|||||||||||||
Entertainment |
$ | 42 | $ | 44 | $ | 104 | $ | 97 | |||||
Local Broadcasting |
4 | 5 | 7 | 9 | |||||||||
Outdoor Americas |
3 | 2 | 5 | 5 | |||||||||
Total Intercompany Revenues |
$ | 49 | $ | 51 | $ | 116 | $ | 111 | |||||
-21-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
The Company presents segment operating income (loss) before depreciation and amortization ("OIBDA"), restructuring charges and impairment charges ("Segment OIBDA") as the primary measure of profit and loss for its operating segments in accordance with FASB guidance for segment reporting. The Company believes the presentation of Segment OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enhances their ability to understand the Company's operating performance.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Segment OIBDA: |
|||||||||||||
Entertainment |
$ | 429 | $ | 426 | $ | 909 | $ | 837 | |||||
Cable Networks |
207 | 190 | 438 | 399 | |||||||||
Publishing |
21 | 9 | 33 | 19 | |||||||||
Local Broadcasting |
255 | 248 | 454 | 419 | |||||||||
Outdoor Americas |
107 | 103 | 181 | 179 | |||||||||
Corporate |
(67 | ) | (65 | ) | (147 | ) | (135 | ) | |||||
Total Segment OIBDA |
952 | 911 | 1,868 | 1,718 | |||||||||
Impairment charges |
| | | (11 | ) | ||||||||
Depreciation and amortization |
(114 | ) | (119 | ) | (230 | ) | (238 | ) | |||||
Operating income |
838 | 792 | 1,638 | 1,469 | |||||||||
Interest expense |
(93 | ) | (104 | ) | (188 | ) | (214 | ) | |||||
Interest income |
2 | 1 | 4 | 3 | |||||||||
Gain on early extinguishment of debt |
| | | 25 | |||||||||
Other items, net |
(7 | ) | 3 | (9 | ) | 8 | |||||||
Earnings from continuing operations before income taxes and equity in loss of investee companies |
740 | 692 | 1,445 | 1,291 | |||||||||
Provision for income taxes |
(256 | ) | (228 | ) | (490 | ) | (429 | ) | |||||
Equity in loss of investee companies, net of tax |
(8 | ) | (12 | ) | (16 | ) | (16 | ) | |||||
Net earnings from continuing operations |
476 | 452 | 939 | 846 | |||||||||
Net loss from discontinued operations, net of tax |
(4 | ) | (25 | ) | (24 | ) | (56 | ) | |||||
Net earnings |
$ | 472 | $ | 427 | $ | 915 | $ | 790 | |||||
-22-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Operating Income (Loss): |
|||||||||||||
Entertainment |
$ | 391 | $ | 385 | $ | 831 | $ | 755 | |||||
Cable Networks |
202 | 184 | 429 | 388 | |||||||||
Publishing |
20 | 7 | 30 | 15 | |||||||||
Local Broadcasting |
234 | 225 | 410 | 363 | |||||||||
Outdoor Americas |
65 | 62 | 97 | 95 | |||||||||
Corporate |
(74 | ) | (71 | ) | (159 | ) | (147 | ) | |||||
Total Operating Income |
$ | 838 | $ | 792 | $ | 1,638 | $ | 1,469 | |||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Depreciation and Amortization: |
|||||||||||||
Entertainment |
$ | 38 | $ | 41 | $ | 78 | $ | 82 | |||||
Cable Networks |
5 | 6 | 9 | 11 | |||||||||
Publishing |
1 | 2 | 3 | 4 | |||||||||
Local Broadcasting |
21 | 23 | 44 | 45 | |||||||||
Outdoor Americas |
42 | 41 | 84 | 84 | |||||||||
Corporate |
7 | 6 | 12 | 12 | |||||||||
Total Depreciation and Amortization |
$ | 114 | $ | 119 | $ | 230 | $ | 238 | |||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Stock-based Compensation: |
|||||||||||||
Entertainment |
$ | 15 | $ | 14 | $ | 30 | $ | 27 | |||||
Cable Networks |
2 | 2 | 4 | 3 | |||||||||
Publishing |
1 | | 2 | 1 | |||||||||
Local Broadcasting |
7 | 6 | 14 | 12 | |||||||||
Outdoor Americas |
1 | 2 | 3 | 3 | |||||||||
Corporate |
23 | 15 | 56 | 34 | |||||||||
Total Stock-based Compensation |
$ | 49 | $ | 39 | $ | 109 | $ | 80 | |||||
-23-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|||||||||
Capital Expenditures: |
|||||||||||||
Entertainment |
$ | 24 | $ | 19 | $ | 43 | $ | 36 | |||||
Cable Networks |
2 | 3 | 4 | 4 | |||||||||
Publishing |
1 | | 1 | | |||||||||
Local Broadcasting |
12 | 14 | 18 | 24 | |||||||||
Outdoor Americas |
9 | 10 | 15 | 17 | |||||||||
Corporate |
1 | 3 | 2 | 3 | |||||||||
Total Capital Expenditures |
$ | 49 | $ | 49 | $ | 83 | $ | 84 | |||||
|
At June 30, 2013 |
At December 31, 2012 |
|||||
---|---|---|---|---|---|---|---|
Assets: |
|||||||
Entertainment |
$ | 8,665 | $ | 9,023 | |||
Cable Networks |
1,880 | 1,750 | |||||
Publishing |
959 | 1,033 | |||||
Local Broadcasting |
9,609 | 9,614 | |||||
Outdoor Americas |
3,435 | 3,542 | |||||
Corporate |
683 | 1,026 | |||||
Discontinued operations |
462 | 478 | |||||
Total Assets |
$ | 25,693 | $ | 26,466 | |||
-24-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
15) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CBS Operations Inc. is a wholly owned subsidiary of the Company. CBS Operations Inc. has fully and unconditionally guaranteed CBS Corp.'s senior debt securities (See Note 7). The following condensed consolidating financial statements present the results of operations, financial position and cash flows of CBS Corp., CBS Operations Inc., the direct and indirect Non-Guarantor Affiliates of CBS Corp. and CBS Operations Inc., and the eliminations necessary to arrive at the information for the Company on a consolidated basis. Changes to the entities that comprise the guarantor group are reflected for all periods presented. In addition, the operations of Outdoor Europe have been presented as a discontinued operation for all periods presented (See Note 4).
|
Statement of Operations For the Three Months Ended June 30, 2013 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Revenues |
$ | 37 | $ | 3 | $ | 3,659 | $ | | $ | 3,699 | ||||||
Expenses: |
||||||||||||||||
Operating |
17 | 2 | 2,045 | | 2,064 | |||||||||||
Selling, general and administrative |
14 | 70 | 599 | | 683 | |||||||||||
Depreciation and amortization |
1 | 3 | 110 | | 114 | |||||||||||
Total expenses |
32 | 75 | 2,754 | | 2,861 | |||||||||||
Operating income (loss) |
5 | (72 | ) | 905 | | 838 | ||||||||||
Interest (expense) income, net |
(114 | ) | (91 | ) | 114 | | (91 | ) | ||||||||
Other items, net |
| 5 | (12 | ) | | (7 | ) | |||||||||
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies |
(109 | ) | (158 | ) | 1,007 | | 740 | |||||||||
Benefit (provision) for income taxes |
38 | 55 | (349 | ) | | (256 | ) | |||||||||
Equity in earnings (loss) of investee companies, net of tax |
543 | 289 | (8 | ) | (832 | ) | (8 | ) | ||||||||
Net earnings from continuing operations |
472 | 186 | 650 | (832 | ) | 476 | ||||||||||
Net loss from discontinued operations, net of tax |
| | (4 | ) | | (4 | ) | |||||||||
Net earnings |
$ | 472 | $ | 186 | $ | 646 | $ | (832 | ) | $ | 472 | |||||
Comprehensive income |
$ |
473 |
$ |
185 |
$ |
637 |
$ |
(822 |
) |
$ |
473 |
|||||
-25-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Statement of Operations For the Six Months Ended June 30, 2013 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Revenues |
$ | 72 | $ | 6 | $ | 7,661 | $ | | $ | 7,739 | ||||||
Expenses: |
||||||||||||||||
Operating |
34 | 4 | 4,500 | | 4,538 | |||||||||||
Selling, general and administrative |
31 | 147 | 1,155 | | 1,333 | |||||||||||
Depreciation and amortization |
3 | 7 | 220 | | 230 | |||||||||||
Total expenses |
68 | 158 | 5,875 | | 6,101 | |||||||||||
Operating income (loss) |
4 | (152 | ) | 1,786 | | 1,638 | ||||||||||
Interest (expense) income, net |
(229 | ) | (180 | ) | 225 | | (184 | ) | ||||||||
Other items, net |
(1 | ) | 8 | (16 | ) | | (9 | ) | ||||||||
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies |
(226 | ) | (324 | ) | 1,995 | | 1,445 | |||||||||
Benefit (provision) for income taxes |
78 | 112 | (680 | ) | | (490 | ) | |||||||||
Equity in earnings (loss) of investee companies, net of tax |
1,063 | 577 | (16 | ) | (1,640 | ) | (16 | ) | ||||||||
Net earnings from continuing operations |
915 | 365 | 1,299 | (1,640 | ) | 939 | ||||||||||
Net loss from discontinued operations, net of tax |
| | (24 | ) | | (24 | ) | |||||||||
Net earnings |
$ | 915 | $ | 365 | $ | 1,275 | $ | (1,640 | ) | $ | 915 | |||||
Comprehensive income |
$ |
919 |
$ |
371 |
$ |
1,251 |
$ |
(1,622 |
) |
$ |
919 |
|||||
-26-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Statement of Operations For the Three Months Ended June 30, 2012 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Revenues |
$ | 35 | $ | 4 | $ | 3,290 | $ | | $ | 3,329 | ||||||
Expenses: |
||||||||||||||||
Operating |
16 | 2 | 1,735 | | 1,753 | |||||||||||
Selling, general and administrative |
21 | 57 | 587 | | 665 | |||||||||||
Depreciation and amortization |
2 | 3 | 114 | | 119 | |||||||||||
Total expenses |
39 | 62 | 2,436 | | 2,537 | |||||||||||
Operating income (loss) |
(4 | ) | (58 | ) | 854 | | 792 | |||||||||
Interest (expense) income, net |
(123 | ) | (87 | ) | 107 | | (103 | ) | ||||||||
Other items, net |
(1 | ) | 2 | 2 | | 3 | ||||||||||
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies |
(128 | ) | (143 | ) | 963 | | 692 | |||||||||
Benefit (provision) for income taxes |
42 | 47 | (317 | ) | | (228 | ) | |||||||||
Equity in earnings (loss) of investee companies, net of tax |
513 | 270 | (12 | ) | (783 | ) | (12 | ) | ||||||||
Net earnings from continuing operations |
427 | 174 | 634 | (783 | ) | 452 | ||||||||||
Net loss from discontinued operations, net of tax |
| | (25 | ) | | (25 | ) | |||||||||
Net earnings |
$ | 427 | $ | 174 | $ | 609 | $ | (783 | ) | $ | 427 | |||||
Comprehensive income |
$ |
414 |
$ |
177 |
$ |
585 |
$ |
(762 |
) |
$ |
414 |
|||||
-27-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Statement of Operations For the Six Months Ended June 30, 2012 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Revenues |
$ | 67 | $ | 8 | $ | 7,050 | $ | | $ | 7,125 | ||||||
Expenses: |
||||||||||||||||
Operating |
34 | 4 | 4,062 | | 4,100 | |||||||||||
Selling, general and administrative |
43 | 119 | 1,145 | | 1,307 | |||||||||||
Impairment charges |
| | 11 | | 11 | |||||||||||
Depreciation and amortization |
3 | 7 | 228 | | 238 | |||||||||||
Total expenses |
80 | 130 | 5,446 | | 5,656 | |||||||||||
Operating income (loss) |
(13 | ) | (122 | ) | 1,604 | | 1,469 | |||||||||
Interest (expense) income, net |
(252 | ) | (173 | ) | 214 | | (211 | ) | ||||||||
Gain on early extinguishment of debt |
25 | | | | 25 | |||||||||||
Other items, net |
| (1 | ) | 9 | | 8 | ||||||||||
Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of investee companies |
(240 | ) | (296 | ) | 1,827 | | 1,291 | |||||||||
Benefit (provision) for income taxes |
80 | 99 | (608 | ) | | (429 | ) | |||||||||
Equity in earnings (loss) of investee companies, net of tax |
950 | 614 | (16 | ) | (1,564 | ) | (16 | ) | ||||||||
Net earnings from continuing operations |
790 | 417 | 1,203 | (1,564 | ) | 846 | ||||||||||
Net loss from discontinued operations, net of tax |
| | (56 | ) | | (56 | ) | |||||||||
Net earnings |
$ | 790 | $ | 417 | $ | 1,147 | $ | (1,564 | ) | $ | 790 | |||||
Comprehensive income |
$ |
796 |
$ |
414 |
$ |
1,138 |
$ |
(1,552 |
) |
$ |
796 |
|||||
-28-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Balance Sheet At June 30, 2013 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 42 | $ | 1 | $ | 239 | $ | | $ | 282 | ||||||
Receivables, net |
24 | 2 | 2,972 | | 2,998 | |||||||||||
Programming and other inventory |
4 | 3 | 442 | | 449 | |||||||||||
Prepaid expenses and other current assets |
110 | 22 | 931 | (22 | ) | 1,041 | ||||||||||
Total current assets |
180 | 28 | 4,584 | (22 | ) | 4,770 | ||||||||||
Property and equipment |
36 | 118 | 4,763 | | 4,917 | |||||||||||
Less accumulated depreciation and amortization |
7 | 76 | 2,606 | | 2,689 | |||||||||||
Net property and equipment |
29 | 42 | 2,157 | | 2,228 | |||||||||||
Programming and other inventory |
1 | 1 | 1,543 | | 1,545 | |||||||||||
Goodwill |
98 | 62 | 8,409 | | 8,569 | |||||||||||
Intangible assets |
| | 6,480 | | 6,480 | |||||||||||
Investments in consolidated subsidiaries |
39,705 | 9,703 | | (49,408 | ) | | ||||||||||
Other assets |
152 | 16 | 1,933 | | 2,101 | |||||||||||
Intercompany |
| 3,411 | 17,541 | (20,952 | ) | | ||||||||||
Total Assets |
$ | 40,165 | $ | 13,263 | $ | 42,647 | $ | (70,382 | ) | $ | 25,693 | |||||
Liabilities and Stockholders' Equity |
||||||||||||||||
Accounts payable |
$ | 1 | $ | 10 | $ | 207 | $ | | $ | 218 | ||||||
Participants' share and royalties payable |
| | 861 | | 861 | |||||||||||
Program rights |
5 | 2 | 393 | | 400 | |||||||||||
Commercial paper |
453 | | | | 453 | |||||||||||
Current portion of long-term debt |
5 | | 16 | | 21 | |||||||||||
Accrued expenses and other current liabilities |
342 | 233 | 1,319 | (22 | ) | 1,872 | ||||||||||
Total current liabilities |
806 | 245 | 2,796 | (22 | ) | 3,825 | ||||||||||
Long-term debt |
5,792 | | 157 | | 5,949 | |||||||||||
Other liabilities |
3,014 | 269 | 3,035 | | 6,318 | |||||||||||
Intercompany |
20,952 | | | (20,952 | ) | | ||||||||||
Stockholders' Equity: |
||||||||||||||||
Preferred Stock |
| | 128 | (128 | ) | | ||||||||||
Common Stock |
1 | 123 | 1,136 | (1,259 | ) | 1 | ||||||||||
Additional paid-in capital |
43,450 | | 61,690 | (61,690 | ) | 43,450 | ||||||||||
Retained earnings (deficit) |
(25,854 | ) | 12,958 | (21,774 | ) | 8,816 | (25,854 | ) | ||||||||
Accumulated other comprehensive income (loss) |
(565 | ) | (1 | ) | 279 | (278 | ) | (565 | ) | |||||||
|
17,032 | 13,080 | 41,459 | (54,539 | ) | 17,032 | ||||||||||
Less treasury stock, at cost |
7,431 | 331 | 4,800 | (5,131 | ) | 7,431 | ||||||||||
Total Stockholders' Equity |
9,601 | 12,749 | 36,659 | (49,408 | ) | 9,601 | ||||||||||
Total Liabilities and Stockholders' Equity |
$ | 40,165 | $ | 13,263 | $ | 42,647 | $ | (70,382 | ) | $ | 25,693 | |||||
-29-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Balance Sheet At December 31, 2012 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 254 | $ | 1 | $ | 453 | $ | | $ | 708 | ||||||
Receivables, net |
31 | 2 | 3,104 | | 3,137 | |||||||||||
Programming and other inventory |
5 | 3 | 851 | | 859 | |||||||||||
Prepaid expenses and other current assets |
142 | 14 | 886 | (26 | ) | 1,016 | ||||||||||
Total current assets |
432 | 20 | 5,294 | (26 | ) | 5,720 | ||||||||||
Property and equipment |
39 | 117 | 4,832 | | 4,988 | |||||||||||
Less accumulated depreciation and amortization |
8 | 69 | 2,640 | | 2,717 | |||||||||||
Net property and equipment |
31 | 48 | 2,192 | | 2,271 | |||||||||||
Programming and other inventory |
3 | 2 | 1,577 | | 1,582 | |||||||||||
Goodwill |
98 | 62 | 8,407 | | 8,567 | |||||||||||
Intangible assets |
| | 6,515 | | 6,515 | |||||||||||
Investments in consolidated subsidiaries |
38,658 | 9,128 | | (47,786 | ) | | ||||||||||
Other assets |
171 | 14 | 1,626 | | 1,811 | |||||||||||
Intercompany |
| 3,655 | 16,122 | (19,777 | ) | | ||||||||||
Total Assets |
$ | 39,393 | $ | 12,929 | $ | 41,733 | $ | (67,589 | ) | $ | 26,466 | |||||
Liabilities and Stockholders' Equity |
||||||||||||||||
Accounts payable |
$ | 2 | $ | 6 | $ | 378 | $ | | $ | 386 | ||||||
Participants' share and royalties payable |
| | 953 | | 953 | |||||||||||
Program rights |
6 | 4 | 445 | | 455 | |||||||||||
Current portion of long-term debt |
5 | | 13 | | 18 | |||||||||||
Accrued expenses and other current liabilities |
345 | 286 | 1,524 | (26 | ) | 2,129 | ||||||||||
Total current liabilities |
358 | 296 | 3,313 | (26 | ) | 3,941 | ||||||||||
Long-term debt |
5,793 | | 111 | | 5,904 | |||||||||||
Other liabilities |
3,252 | 255 | 2,901 | | 6,408 | |||||||||||
Intercompany |
19,777 | | | (19,777 | ) | | ||||||||||
Stockholders' Equity: |
||||||||||||||||
Preferred Stock |
| | 128 | (128 | ) | | ||||||||||
Common Stock |
1 | 123 | 1,136 | (1,259 | ) | 1 | ||||||||||
Additional paid-in capital |
43,424 | | 61,690 | (61,690 | ) | 43,424 | ||||||||||
Retained earnings (deficit) |
(26,769 | ) | 12,593 | (23,049 | ) | 10,456 | (26,769 | ) | ||||||||
Accumulated other comprehensive income (loss) |
(569 | ) | (7 | ) | 303 | (296 | ) | (569 | ) | |||||||
|
16,087 | 12,709 | 40,208 | (52,917 | ) | 16,087 | ||||||||||
Less treasury stock, at cost |
5,874 | 331 | 4,800 | (5,131 | ) | 5,874 | ||||||||||
Total Stockholders' Equity |
10,213 | 12,378 | 35,408 | (47,786 | ) | 10,213 | ||||||||||
Total Liabilities and Stockholders' Equity |
$ | 39,393 | $ | 12,929 | $ | 41,733 | $ | (67,589 | ) | $ | 26,466 | |||||
-30-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Statement of Cash Flows For the Six Months Ended June 30, 2013 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Net cash flow (used for) provided by operating activities |
$ | (579 | ) | $ | (135 | ) | $ | 1,765 | $ | | $ | 1,051 | ||||
Investing Activities: |
||||||||||||||||
Acquisitions, net of cash acquired |
| | (30 | ) | | (30 | ) | |||||||||
Capital expenditures |
| (2 | ) | (81 | ) | | (83 | ) | ||||||||
Investments in and advances to investee companies |
| | (139 | ) | | (139 | ) | |||||||||
Proceeds from sale of investments |
15 | 1 | 2 | | 18 | |||||||||||
Proceeds from dispositions |
| | 12 | | 12 | |||||||||||
Net cash flow provided by (used for) investing activities from continuing operations |
15 | (1 | ) | (236 | ) | | (222 | ) | ||||||||
Net cash flow used for investing activities from discontinued operations |
| | (8 | ) | | (8 | ) | |||||||||
Net cash flow provided by (used for) investing activities |
15 | (1 | ) | (244 | ) | | (230 | ) | ||||||||
Financing Activities: |
||||||||||||||||
Proceeds from short-term debt borrowings, net |
452 | | | | 452 | |||||||||||
Payment of capital lease obligations |
| | (9 | ) | | (9 | ) | |||||||||
Payment of contingent consideration |
| | (30 | ) | | (30 | ) | |||||||||
Dividends |
(155 | ) | | | | (155 | ) | |||||||||
Purchase of Company common stock |
(1,579 | ) | | | | (1,579 | ) | |||||||||
Payment of payroll taxes in lieu of issuing shares for |
(139 | ) | | | | (139 | ) | |||||||||
Proceeds from exercise of stock options |
98 | | | | 98 | |||||||||||
Excess tax benefit from stock-based compensation |
119 | | | | 119 | |||||||||||
Other financing activities |
(4 | ) | | | | (4 | ) | |||||||||
Increase (decrease) in intercompany |
1,560 | 136 | (1,696 | ) | | | ||||||||||
Net cash flow provided by (used for) financing activities |
352 | 136 | (1,735 | ) | | (1,247 | ) | |||||||||
Net decrease in cash and cash equivalents |
(212 | ) | | (214 | ) | | (426 | ) | ||||||||
Cash and cash equivalents at beginning of period |
254 | 1 | 453 | | 708 | |||||||||||
Cash and cash equivalents at end of period |
$ | 42 | $ | 1 | $ | 239 | $ | | $ | 282 | ||||||
-31-
CBS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular dollars in millions, except per share amounts)
|
Statement of Cash Flows For the Six Months Ended June 30, 2012 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CBS Corp. |
CBS Operations Inc. |
Non- Guarantor Affiliates |
Eliminations |
CBS Corp. Consolidated |
|||||||||||
Net cash flow (used for) provided by operating activities |
$ | (450 | ) | $ | (136 | ) | $ | 1,844 | $ | | $ | 1,258 | ||||
Investing Activities: |
||||||||||||||||
Acquisitions, net of cash acquired |
| | (69 | ) | | (69 | ) | |||||||||
Capital expenditures |
| (3 | ) | (81 | ) | | (84 | ) | ||||||||
Investments in and advances to investee companies |
| | (39 | ) | | (39 | ) | |||||||||
Proceeds from sale of investments |
6 | | | | 6 | |||||||||||
Proceeds from dispositions |
| | 1 | | 1 | |||||||||||
Net cash flow provided by (used for) investing activities from continuing operations |
6 | (3 | ) | (188 | ) | | (185 | ) | ||||||||
Net cash flow used for investing activities from discontinued operations |
| | (9 | ) | | (9 | ) | |||||||||
Net cash flow provided by (used for) investing activities |
6 | (3 | ) | (197 | ) | | (194 | ) | ||||||||
Financing Activities: |
||||||||||||||||
Proceeds from issuance of notes |
1,567 | | | | 1,567 | |||||||||||
Repayment of notes |
(700 | ) | | | | (700 | ) | |||||||||
Payment of capital lease obligations |
| | (10 | ) | | (10 | ) | |||||||||
Payment of contingent consideration |
| | (33 | ) | | (33 | ) | |||||||||
Dividends |
(135 | ) | | | | (135 | ) | |||||||||
Purchase of Company common stock |
(564 | ) | | | | (564 | ) | |||||||||
Payment of payroll taxes in lieu of issuing shares for stock-based compensation |
(105 | ) | | | | (105 | ) | |||||||||
Proceeds from exercise of stock options |
71 | | | | 71 | |||||||||||
Excess tax benefit from stock-based compensation |
73 | | | | 73 | |||||||||||
Increase (decrease) in intercompany |
1,665 | 139 | (1,804 | ) | | | ||||||||||
Net cash flow provided by (used for) financing activities |
1,872 | 139 | (1,847 | ) | | 164 | ||||||||||
Net increase (decrease) in cash and cash equivalents |
1,428 | | (200 | ) | | 1,228 | ||||||||||
Cash and cash equivalents at beginning of period |
134 | 1 | 525 | | 660 | |||||||||||
Cash and cash equivalents at end of period |
$ | 1,562 | $ | 1 | $ | 325 | $ | | $ | 1,888 | ||||||
-32-
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. (Tabular dollars in millions, except per share amounts)
Management's discussion and analysis of the results of operations and financial condition of CBS Corporation (the "Company" or "CBS Corp.") should be read in conjunction with the consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.
Overview
The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable program services, television content production and distribution, motion pictures, publishing, radio stations, television stations, interactive businesses, and outdoor advertising. The Company's principal strategy is to create and acquire content that is widely accepted by audiences and generate both advertising and non-advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company also continues to pursue opportunities to grow its revenue streams, including licensing its content for exhibition on digital and other platforms; expanding the distribution of its content internationally; securing compensation from multichannel video programming distributors ("MVPDs") and television stations affiliated with the CBS Television Network; and increasingly monetizing content viewership and ratings as industry measurements evolve to reflect changing viewership habits. The Company's continued ability to capitalize on these and other emerging opportunities will provide it with incremental advertising and non-advertising revenues and serves to de-risk and diversify the Company's business model.
For the three months ended June 30, 2013, the Company's diluted earnings per share ("EPS") from continuing operations of $.76 increased $.08, or 12%, from $.68 for the same prior year period, principally reflecting 11% higher revenues, 6% higher operating income and lower weighted average shares outstanding due to the Company's ongoing share repurchases. Revenue growth was driven by 22% higher content licensing and distribution revenues, led by growth in licensing revenues from digital streaming and international syndication, as well as an 18% increase in affiliate and subscription fee revenues. Advertising revenues increased 5%, driven by the timing of the NCAA Division I Men's Basketball Championship ("NCAA Tournament"), which aired during the second quarter of 2013 versus the first quarter of 2012, as well as the strength of Network advertising. Operating income growth reflects the increase in revenues which was partially offset by a higher investment in television content and higher sports programming costs mainly from the timing of the semifinals of the NCAA Tournament.
For the six months ended June 30, 2013, diluted EPS from continuing operations of $1.49 increased $.22, or 17%, from $1.27 for the same prior-year period, driven by growth in revenues of 9% and operating income of 12%, and lower weighted average shares outstanding due to the Company's ongoing share repurchases. Revenue and operating income growth was driven by 7% higher advertising revenues mainly from the broadcast of Super Bowl XLVII on the CBS Television Network, growth in cable network affiliate fees and retransmission revenues, and increased revenues from the licensing of television programming. The operating income comparison was also impacted by higher investment in television content.
For the remainder of 2013 the Company expects to benefit from continued growth in affiliate and subscription fee revenues, including growth in retransmission revenues, cable network affiliate fees and fees received from the CBS Television Network's affiliated television stations ("network affiliation fees"), as well as higher television license fees driven by the first-cycle domestic syndication availabilities of two television series. However, the Company's overall financial performance will be impacted by many factors, including, the health of the economy and audience acceptance of the Company's programming.
-33-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
During the quarter, the Company repurchased 6.1 million shares of its Class B Common Stock for $296 million, at an average cost of $48.33 per share, and also received 4.3 million shares of its Class B Common Stock upon the settlement of the accelerated share repurchase ("ASR") transaction that was initiated during the first quarter of 2013. For the six months ended June 30, 2013, the Company repurchased 34.5 million shares of its Class B Common Stock for $1.56 billion, at an average cost of $45.20 per share. On July 25, 2013, the Company announced a $5.1 billion increase to the authorization under its share repurchase program to a total availability of $6.0 billion.
Free cash flow for the six months ended June 30, 2013 was $990 million compared to $1.18 billion for the same prior-year period. The Company generated operating cash flow from continuing operations of $1.07 billion for the six months ended June 30, 2013 versus $1.27 billion for the comparable prior-year period. These decreases primarily reflect a $150 million contribution to pre-fund the Company's qualified pension plans during 2013 and higher investment in television content. Free cash flow is a non-GAAP financial measure. See "Reconciliation of Non-GAAP Financial Information" on page 40 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with accounting principles generally accepted in the United States ("GAAP"), to free cash flow.
In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of the Company's outdoor advertising business in Europe, which includes an interest in an outdoor business in Asia ("Outdoor Europe"), for approximately $225 million. The transaction is expected to be completed in 2013, subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.
During the first quarter of 2013, the Company submitted a private letter ruling request with the Internal Revenue Service ("IRS") to qualify its Outdoor Americas business as a real estate investment trust ("REIT"). During the second quarter of 2013, a preliminary registration statement was filed with the Securities and Exchange Commission ("SEC") for the proposed initial public offering of the common stock of CBS Outdoor Americas Inc. The Company currently expects to dispose of the shares of CBS Outdoor Americas Inc. that it will own after the completion of the offering. These actions are subject to customary approvals and market conditions.
-34-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Consolidated Results of Operations
Three and Six Months Ended June 30, 2013 versus Three and Six Months Ended June 30, 2012
Revenues
The following tables present the Company's consolidated revenues by type for the three and six months ended June 30, 2013 and 2012.
|
Three Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percentage of Total |
|
Percentage of Total |
Increase/(Decrease) |
||||||||||||
Revenues by Type |
2013 |
2012 |
$ |
% |
|||||||||||||
Advertising |
$ | 2,090 | 56 | % | $ | 1,995 | 60 | % | $ | 95 | 5% | ||||||
Content licensing and distribution |
997 | 27 | 816 | 24 | 181 | 22 | |||||||||||
Affiliate and subscription fees |
549 | 15 | 465 | 14 | 84 | 18 | |||||||||||
Other |
63 | 2 | 53 | 2 | 10 | 19 | |||||||||||
Total Revenues |
$ | 3,699 | 100 | % | $ | 3,329 | 100 | % | $ | 370 | 11% | ||||||
|
Six Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percentage of Total |
|
Percentage of Total |
Increase/(Decrease) |
||||||||||||
Revenues by Type |
2013 |
2012 |
$ |
% |
|||||||||||||
Advertising |
$ | 4,545 | 59 | % | $ | 4,265 | 60 | % | $ | 280 | 7% | ||||||
Content licensing and distribution |
2,005 | 26 | 1,833 | 26 | 172 | 9 | |||||||||||
Affiliate and subscription fees |
1,068 | 14 | 920 | 13 | 148 | 16 | |||||||||||
Other |
121 | 1 | 107 | 1 | 14 | 13 | |||||||||||
Total Revenues |
$ | 7,739 | 100 | % | $ | 7,125 | 100 | % | $ | 614 | 9% | ||||||
Advertising revenues for the three months ended June 30, 2013 increased $95 million, or 5%, to $2.09 billion from $2.00 billion for the same prior-year period, principally driven by the timing of the semifinals of the NCAA Tournament, which aired during the second quarter of 2013 versus the first quarter of 2012, as well as underlying growth at the CBS Television Network. Local Broadcasting advertising decreased 2% mainly reflecting lower political advertising revenues and a steady advertising marketplace. For the six months ended June 30, 2013, advertising revenues increased $280 million, or 7%, to $4.55 billion from $4.27 billion for the same prior-year period, principally driven by higher Network advertising, mainly from the 2013 broadcast of the Super Bowl, which is broadcast on the CBS Television Network once every three years, and growth at CBS Interactive. These increases were partially offset by lower political advertising revenues.
In the second half of 2013, local advertising revenues will continue to be negatively impacted by lower political advertising spending as 2012 benefitted from the U.S. presidential election. National advertising revenues during the third quarter of 2013 are expected to benefit from more original summer programming, as well as the comparison against 2012 which included the broadcast of programming against the highly rated 2012 Summer Olympics and pre-emptions for the Republican and Democratic national conventions. In addition, the Company recently concluded its upfront advertising sales season for the 2013/2014 television broadcast season, during which a significant portion of advertising spots for CBS Television Network's non-sports programming is sold. The upfront sales resulted in pricing increases that are expected to positively impact revenues during the season, which
-35-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
runs from the middle of September 2013 through the middle of September 2014. However, overall advertising revenues for the Company will also be dependent on ratings for its programming and market conditions, including demand in the scatter advertising market, when advertisers purchase the remaining advertising spots closer to the broadcast of the related programming.
Content licensing and distribution revenues for the three months ended June 30, 2013 increased $181 million, or 22%, to $997 million and for the six months ended June 30, 2013 increased $172 million, or 9%, to $2.01 billion. These increases were primarily driven by higher revenues from the licensing of programming for digital streaming and international syndication. For the six-month period, the increase was also partially offset by a significant domestic syndication sale in 2012. Content licensing and distribution revenues are expected to grow in the second half of 2013, reflecting the benefit from the first-cycle domestic syndication availabilities of The Good Wife and NCIS: Los Angeles.
Affiliate and subscription fees increased $84 million, or 18%, to $549 million for the three months ended June 30, 2013 and for the six months ended June 30, 2013 increased $148 million, or 16%, to $1.07 billion. These increases were principally driven by revenues from a pay-per-view boxing event; growth in retransmission revenues and network affiliation fees of 57% and 59% for the three and six months ended June 30, 2013, respectively; as well as an increase in Cable Networks affiliate fees. Cable Networks affiliate fees increased 5% and 6% for the three and six months ended June 30, 2013, respectively, reflecting growth in subscriptions and rate increases at Showtime Networks, CBS Sports Network and Smithsonian Networks. The Company expects continued growth in affiliate and subscription fee revenues for the remainder of 2013.
Other revenues, which include ancillary fees for Entertainment, Cable Networks, Local Broadcasting and Outdoor Americas operations, increased $10 million, or 19%, to $63 million for the three months ended June 30, 2013 and increased $14 million, or 13%, to $121 million for the six months ended June 30, 2013, principally reflecting higher ancillary digital and network revenues.
International Revenues
The Company generated approximately 17% and 15% of its total revenues from international regions for the three and six months ended June 30, 2013, respectively, versus 14% and 13% for the three and six months ended June 30, 2012, respectively.
Operating Expenses
The following tables present the Company's consolidated operating expenses by type for the three and six months ended June 30, 2013 and 2012.
|
Three Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percentage of Total |
|
Percentage of Total |
Increase/(Decrease) |
||||||||||||
Operating Expenses by Type |
2013 |
2012 |
$ |
% |
|||||||||||||
Programming |
$ | 644 | 31 | % | $ | 473 | 27 | % | $ | 171 | 36% | ||||||
Production |
587 | 28 | 517 | 30 | 70 | 14 | |||||||||||
Billboard, transit and other occupancy |
159 | 8 | 163 | 9 | (4 | ) | (2) | ||||||||||
Participation, distribution and royalty |
285 | 14 | 212 | 12 | 73 | 34 | |||||||||||
Other |
389 | 19 | 388 | 22 | 1 | | |||||||||||
Total Operating Expenses |
$ | 2,064 | 100 | % | $ | 1,753 | 100 | % | $ | 311 | 18% | ||||||
-36-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
Six Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percentage of Total |
|
Percentage of Total |
Increase/(Decrease) |
||||||||||||
Operating Expenses by Type |
2013 |
2012 |
$ |
% |
|||||||||||||
Programming |
$ | 1,646 | 36 | % | $ | 1,360 | 33 | % | $ | 286 | 21% | ||||||
Production |
1,236 | 27 | 1,146 | 28 | 90 | 8 | |||||||||||
Billboard, transit and other occupancy |
313 | 7 | 311 | 8 | 2 | 1 | |||||||||||
Participation, distribution and royalty |
583 | 13 | 523 | 13 | 60 | 11 | |||||||||||
Other |
760 | 17 | 760 | 18 | | | |||||||||||
Total Operating Expenses |
$ | 4,538 | 100 | % | $ | 4,100 | 100 | % | $ | 438 | 11% | ||||||
Programming expenses for the three months ended June 30, 2013 increased $171 million, or 36%, to $644 million from $473 million for the same prior-year period, primarily driven by higher sports programming costs from the timing of the semifinals of the NCAA Tournament, which aired in the second quarter of 2013 versus the first quarter of 2012, higher programming costs associated with a pay-per-view boxing event and higher investment in acquired television programming. For the six months ended June 30, 2013, programming expenses increased $286 million, or 21%, to $1.65 billion from $1.36 billion for the same prior-year period, primarily reflecting higher sports programming costs mainly associated with the CBS Television Network's 2013 broadcast of the Super Bowl, which is broadcast on CBS once every three years, and higher investment in acquired television programming.
Production expenses increased $70 million, or 14%, to $587 million for the three months ended June 30, 2013 and increased $90 million, or 8%, to $1.24 billion for the six months ended June 30, 2013, primarily driven by higher production costs associated with increased revenues from the licensing of television programming. For the six-month period, the increase also reflects higher production costs associated with the Super Bowl broadcast in 2013. For the remainder of 2013, the Company expects production costs to increase mainly reflecting cost amortization associated with revenues from first-cycle domestic syndication availabilities.
Billboard, transit and other occupancy expenses for the three months ended June 30, 2013 decreased $4 million, or 2%, to $159 million from $163 million for the same prior-year period primarily due to lower costs associated with the renewal of a transit contract. For the six months ended June 30, 2013, billboard, transit and other occupancy expenses increased $2 million, or 1%, to $313 million from $311 million for the same prior-year period, primarily reflecting higher billboard lease and other occupancy costs, partially offset by lower transit costs.
Participation, distribution and royalty expenses increased $73 million, or 34%, to $285 million for the three months ended June 30, 2013 and increased $60 million, or 11%, to $583 million for the six months ended June 30, 2013, principally due to higher participations associated with higher revenues from the licensing of television programming.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses, which include expenses incurred for selling and marketing costs, occupancy and back office support, increased $18 million, or 3%, to $683 million for the three months ended June 30, 2013, and increased $26 million, or 2%, to $1.33 billion for the six months ended June 30, 2013, primarily due to higher stock based compensation and other expense increases associated with the increase in the Company's stock price; higher advertising expenses; and professional fees associated with the conversion of Outdoor Americas to a REIT. These increases were
-37-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
partially offset by costs incurred during 2012 relating to a Publishing legal matter. Pension and postretirement benefits costs decreased $11 million to $19 million for the second quarter of 2013 and decreased $22 million to $38 million for the six months ended June 30, 2013 versus the comparable prior-year periods, principally due to the benefit from pre-funding pension plans in 2012 and the favorable performance of pension plan assets in 2012. SG&A expenses as a percentage of revenues for the three and six months ended June 30, 2013 were 18% and 17%, respectively, versus 20% and 18% for the same prior-year periods.
Impairment Charges
In April 2012, in connection with the sale of its five owned radio stations in West Palm Beach, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill.
Depreciation and Amortization
For the three months ended June 30, 2013, depreciation and amortization decreased $5 million, or 4%, to $114 million and for the six months ended June 30, 2013, depreciation and amortization decreased $8 million, or 3%, to $230 million.
Interest Expense
For the three months ended June 30, 2013, interest expense decreased $11 million, or 11%, to $93 million and for the six months ended June 30, 2013, interest expense decreased $26 million, or 12%, to $188 million. These decreases were driven by the Company's debt refinancing during 2012. The Company had $5.97 billion of long-term debt outstanding at June 30, 2013 and $6.80 billion at June 30, 2012, at weighted average interest rates of 6.0% and 6.1%, respectively. At June 30, 2013, the Company also had $453 million of commercial paper outstanding at a weighted average interest rate of 0.3%.
Interest Income
For the three months ended June 30, 2013, interest income increased $1 million to $2 million and for the six months ended June 30, 2013, interest income increased $1 million to $4 million.
Gain on Early Extinguishment of Debt
For the six months ended June 30, 2012, gain on early extinguishment of debt of $25 million reflected the pre-tax gain recognized upon the redemption of the Company's $700 million of 6.75% senior notes due 2056.
Other Items, Net
For all periods presented, "Other items, net" primarily consisted of foreign exchange gains and losses.
Provision for Income Taxes
The provision for income taxes for the three months ended June 30, 2013 increased to $256 million from $228 million and for the six months ended June 30, 2013 increased to $490 million from $429 million for the comparable prior-year periods, in both cases driven by the increase in earnings from continuing operations before income taxes. The effective income tax rate increased to 34.6% for
-38-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
the three months ended June 30, 2013 versus 32.9% for the three months ended June 30, 2012 and increased to 33.9% for the six months ended June 30, 2013 versus 33.2% for the six months ended June 30, 2012. The higher effective income tax rates for 2013 were driven by an increase in domestic pre-tax income.
Equity in Loss of Investee Companies, Net of Tax
Equity in loss of investee companies reflects the Company's share of the operating results of its equity investments. For the three months ended June 30, 2013, equity in loss of investee companies, net of tax, decreased $4 million to a loss of $8 million and for the six months ended June 30, 2013, equity in loss of investee companies, net of tax, remained flat at a loss of $16 million compared to the same prior-year period.
Net Earnings from Continuing Operations
The Company reported net earnings from continuing operations of $476 million for the three months ended June 30, 2013 versus $452 million for the three months ended June 30, 2012 and $939 million for the six months ended June 30, 2013 versus $846 million for the six months ended June 30, 2012.
Net Loss from Discontinued Operations
In July 2013, the Company entered into an agreement with an affiliate of Platinum Equity for the sale of Outdoor Europe for approximately $225 million. The transaction is expected to be completed in 2013. Upon completion, the Company expects to record an after-tax charge of approximately $100 million associated with exiting an unprofitable contractual arrangement and for the estimated fair value of guarantees, which historically have been intercompany but upon the closing of the transaction will become third-party guarantees. The actual amount of the charge may be different from the Company's current expectations. This transaction is subject to customary closing conditions. Outdoor Europe has been classified as held-for-sale and its results have been presented as a discontinued operation in the Company's consolidated financial statements for all periods presented.
The following table sets forth details of the net loss from discontinued operations for the three and six months ended June 30, 2013 and 2012.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||
|
2013 |
2012 |
2013 |
2012 |
||||||||
Revenues from discontinued operations |
$ | 139 | $ | 147 | $ | 262 | $ | 275 | ||||
Loss from discontinued operations before income taxes |
$ | (11 | ) | $ | (29 | ) | $ | (47 | ) | $ | (57) | |
Income tax benefit |
7 | 4 | 23 | 1 | ||||||||
Net loss from discontinued operations, net of tax |
$ | (4 | ) | $ | (25 | ) | $ | (24 | ) | $ | (56) | |
Net Earnings and Diluted EPS
For the three months ended June 30, 2013, net earnings of $472 million, or $.76 per diluted share, increased from $427 million, or $.65 per diluted share, for the same prior-year period. For the six months ended June 30, 2013, net earnings of $915 million, or $1.45 per diluted share, increased from
-39-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
$790 million, or $1.19 per diluted share, for the same prior-year period. These increases were mainly driven by the growth in operating income. The increase in diluted EPS also reflected lower weighted average shares outstanding as a result of the Company's ongoing share repurchase program.
Reconciliation of Non-GAAP Financial Information
Free cash flow is a non-GAAP financial measure. Free cash flow reflects the Company's net cash flow provided by (used for) operating activities before operating cash flow from discontinued operations and less capital expenditures. The Company's calculation of free cash flow includes capital expenditures because investment in capital expenditures is a use of cash that is directly related to the Company's operations. The Company's net cash flow provided by (used for) operating activities is the most directly comparable GAAP financial measure.
Management believes free cash flow provides investors with an important perspective on the cash available to the Company to service debt, make strategic acquisitions and investments, maintain its capital assets, satisfy its tax obligations and fund ongoing operations and working capital needs. As a result, free cash flow is a significant measure of the Company's ability to generate long-term value. It is useful for investors to know whether this ability is being enhanced or degraded as a result of the Company's operating performance. The Company believes the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate the cash generated from the Company's underlying operations in a manner similar to the method used by management. Free cash flow is one of several components of incentive compensation targets for certain management personnel. In addition, free cash flow is a primary measure used externally by the Company's investors, analysts and industry peers for purposes of valuation and comparison of the Company's operating performance to other companies in its industry.
As free cash flow is not a measure calculated in accordance with GAAP, free cash flow should not be considered in isolation of, or as a substitute for, either net cash flow provided by (used for) operating activities as a measure of liquidity or net earnings (loss) as a measure of operating performance. Free cash flow, as the Company calculates it, may not be comparable to similarly titled measures employed by other companies. In addition, free cash flow as a measure of liquidity has certain limitations, does not necessarily represent funds available for discretionary use and is not necessarily a measure of the Company's ability to fund its cash needs. When comparing free cash flow to net cash flow provided by (used for) operating activities, the most directly comparable GAAP financial measure, users of this financial information should consider the types of events and transactions that are not reflected in free cash flow.
The following table presents a reconciliation of the Company's net cash flow provided by operating activities to free cash flow.
|
Six Months Ended June 30, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2012 |
|
|||||
Net cash flow provided by operating activities |
$ | 1,051 | $ | 1,258 | ||||
Capital expenditures |
(83 | ) | (84 | ) | ||||
Exclude net cash flow used for operating activities from |
(22 | ) | (10 | ) | ||||
Free cash flow |
$ | 990 | $ | 1,184 | ||||
-40-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Segment Results of Operations
The following tables present the Company's revenues, segment operating income (loss) before depreciation and amortization ("OIBDA"), restructuring charges and impairment charges ("Segment OIBDA"), operating income (loss), and depreciation and amortization by segment, for the three and six months ended June 30, 2013 and 2012. The Company presents Segment OIBDA as the primary measure of profit and loss for its operating segments in accordance with Financial Accounting Standards Board ("FASB") guidance for segment reporting. The Company believes the presentation of Segment OIBDA is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company's management and enhances their ability to understand the Company's operating performance. The reconciliation of Segment OIBDA to the Company's consolidated Net earnings (loss) is presented in Note 14 (Reportable Segments) to the consolidated financial statements.
Outdoor Europe, previously included in the Outdoor segment, has been presented as a discontinued operation. As a result, the Outdoor segment has been renamed Outdoor Americas. In addition, Residual Costs, which was previously presented as a separate line item in the Company's segment presentation, is now included within Corporate. Prior periods have been reclassified to conform to this presentation.
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues: |
||||||||||||||
Entertainment |
$ | 2,008 | $ | 1,707 | $ | 4,547 | $ | 4,025 | ||||||
Cable Networks |
518 | 446 | 996 | 898 | ||||||||||
Publishing |
189 | 189 | 360 | 365 | ||||||||||
Local Broadcasting |
698 | 704 | 1,336 | 1,326 | ||||||||||
Outdoor Americas |
335 | 334 | 616 | 622 | ||||||||||
Eliminations |
(49 | ) | (51 | ) | (116 | ) | (111 | ) | ||||||
Total Revenues |
$ | 3,699 | $ | 3,329 | $ | 7,739 | $ | 7,125 | ||||||
-41-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Segment OIBDA: |
||||||||||||||
Entertainment |
$ | 429 | $ | 426 | $ | 909 | $ | 837 | ||||||
Cable Networks |
207 | 190 | 438 | 399 | ||||||||||
Publishing |
21 | 9 | 33 | 19 | ||||||||||
Local Broadcasting |
255 | 248 | 454 | 419 | ||||||||||
Outdoor Americas |
107 | 103 | 181 | 179 | ||||||||||
Corporate |
(67 | ) | (65 | ) | (147 | ) | (135 | ) | ||||||
Total Segment OIBDA |
952 | 911 | 1,868 | 1,718 | ||||||||||
Impairment charges |
| | | (11 | ) | |||||||||
Depreciation and amortization |
(114 | ) | (119 | ) | (230 | ) | (238 | ) | ||||||
Total Operating Income |
$ | 838 | $ | 792 | $ | 1,638 | $ | 1,469 | ||||||
Operating Income (Loss): |
||||||||||||||
Entertainment |
$ | 391 | $ | 385 | $ | 831 | $ | 755 | ||||||
Cable Networks |
202 | 184 | 429 | 388 | ||||||||||
Publishing |
20 | 7 | 30 | 15 | ||||||||||
Local Broadcasting |
234 | 225 | 410 | 363 | ||||||||||
Outdoor Americas |
65 | 62 | 97 | 95 | ||||||||||
Corporate |
(74 | ) | (71 | ) | (159 | ) | (147 | ) | ||||||
Total Operating Income |
$ | 838 | $ | 792 | $ | 1,638 | $ | 1,469 | ||||||
Depreciation and Amortization: |
||||||||||||||
Entertainment |
$ | 38 | $ | 41 | $ | 78 | $ | 82 | ||||||
Cable Networks |
5 | 6 | 9 | 11 | ||||||||||
Publishing |
1 | 2 | 3 | 4 | ||||||||||
Local Broadcasting |
21 | 23 | 44 | 45 | ||||||||||
Outdoor Americas |
42 | 41 | 84 | 84 | ||||||||||
Corporate |
7 | 6 | 12 | 12 | ||||||||||
Total Depreciation and Amortization |
$ | 114 | $ | 119 | $ | 230 | $ | 238 | ||||||
-42-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Entertainment (CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Films and CBS Interactive)
(Contributed 54% and 59% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 51% and 56% for the comparable prior-year periods and 47% and 51% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 49% and 51% for the comparable prior-year periods.)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues |
$ | 2,008 | $ | 1,707 | $ | 4,547 | $ | 4,025 | ||||||
Segment OIBDA |
$ | 429 | $ | 426 | $ | 909 | $ | 837 | ||||||
Depreciation and amortization |
(38 | ) | (41 | ) | (78 | ) | (82 | ) | ||||||
Operating income |
$ | 391 | $ | 385 | $ | 831 | $ | 755 | ||||||
Segment OIBDA as a % of revenues |
21 | % | 25 | % | 20 | % | 21 | % | ||||||
Operating income as a % of revenues |
19 | % | 23 | % | 18 | % | 19 | % | ||||||
Capital expenditures |
$ | 24 | $ | 19 | $ | 43 | $ | 36 | ||||||
Three Months Ended June 30, 2013 and 2012
For the three months ended June 30, 2013, Entertainment revenues increased 18% to $2.01 billion from $1.71 billion for the same prior-year period principally reflecting 27% higher content licensing and distribution revenues, driven by growth from the licensing of television programming for digital streaming and international syndication, as well as 10% higher advertising revenues. The increase in advertising revenues was driven by 11% growth at the CBS Television Network and increases at CBS Interactive. The timing of the semifinals of the NCAA Tournament, which aired during the second quarter of 2013 versus the first quarter of 2012, contributed seven percentage points to the CBS Television Network advertising growth. The revenue comparison also reflects 43% higher affiliate and subscription fees, driven by growth in network affiliation fees. Revenue comparisons for the second half of 2013 will benefit from incremental network affiliation fees, as well as the first-cycle domestic syndication availabilities of The Good Wife and NCIS: Los Angeles.
For the three months ended June 30, 2013, Entertainment OIBDA increased $3 million, or 1%, to $429 million from $426 million for the same prior-year period, as the revenue growth was offset by an increased investment in television content and higher sports programming costs from the timing of the semifinals of the NCAA Tournament.
Six Months Ended June 30, 2013 and 2012
For the six months ended June 30, 2013, Entertainment revenues increased 13% to $4.55 billion from $4.03 billion for the same prior-year period principally reflecting higher advertising revenues, content licensing and distribution revenues and network affiliation fees. Advertising revenues increased 12%, principally driven by the broadcast of Super Bowl XLVII on the CBS Television Network in 2013 and growth at CBS Interactive. Content licensing and distribution revenues increased 11%, reflecting growth from the licensing of television programming for digital streaming and international syndication, partially offset by the timing of theatrical releases and a significant domestic syndication sale in 2012.
-43-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the six months ended June 30, 2013, Entertainment OIBDA increased $72 million, or 9%, to $909 million from $837 million for the same prior-year period, primarily driven by the increase in revenues which was partially offset by an increased investment in television content and higher sports programming costs associated with the Super Bowl broadcast.
Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks)
(Contributed 14% and 13% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 13% for each of the comparable prior-year periods and 24% and 26% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 23% and 26% for the comparable prior-year periods.)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues |
$ | 518 | $ | 446 | $ | 996 | $ | 898 | ||||||
Segment OIBDA |
$ | 207 | $ | 190 | $ | 438 | $ | 399 | ||||||
Depreciation and amortization |
(5 | ) | (6 | ) | (9 | ) | (11 | ) | ||||||
Operating income |
$ | 202 | $ | 184 | $ | 429 | $ | 388 | ||||||
Segment OIBDA as a % of revenues |
40 | % | 43 | % | 44 | % | 44 | % | ||||||
Operating income as a % of revenues |
39 | % | 41 | % | 43 | % | 43 | % | ||||||
Capital expenditures |
$ | 2 | $ | 3 | $ | 4 | $ | 4 | ||||||
Three Months Ended June 30, 2013 and 2012
For the three months ended June 30, 2013, Cable Networks revenues increased 16% to $518 million from $446 million for the same prior-year period primarily driven by revenues from a pay-per-view boxing event, higher affiliate revenues reflecting rate increases and growth in subscriptions at Showtime Networks, CBS Sports Network and Smithsonian Networks, as well as higher licensing revenues from digital streaming of Showtime original series. As of June 30, 2013 subscriptions totaled 77 million for Showtime Networks, including Showtime, The Movie Channel and Flix, 46 million for CBS Sports Network and 21 million for Smithsonian Networks.
For the three months ended June 30, 2013, Cable Networks OIBDA increased $17 million, or 9%, to $207 million from $190 million for the same prior-year period primarily due to the revenue growth, partially offset by higher sports programming costs, including costs for the pay-per-view boxing event, as well as higher advertising and marketing costs to promote Showtime series and drive subscriber growth.
Six Months Ended June 30, 2013 and 2012
For the six months ended June 30, 2013, Cable Networks revenues increased 11% to $996 million from $898 million for the same prior-year period driven by higher affiliate revenues, reflecting rate increases and growth in subscriptions at Showtime Networks, CBS Sports Network and Smithsonian Networks. Revenue growth also benefitted from a pay-per-view boxing event and higher licensing revenues from digital streaming of Showtime original series.
-44-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the six months ended June 30, 2013, Cable Networks OIBDA increased $39 million, or 10%, to $438 million from $399 million for the same prior-year period, primarily due to the revenue growth, partially offset by higher programming costs.
Publishing (Simon & Schuster)
(Contributed 5% to consolidated revenues for both the three and six months ended June 30, 2013, versus 6% and 5% for the comparable prior-year periods and 2% to consolidated operating income for both the three and six months ended June 30, 2013 versus 1% for each of the comparable prior-year periods.)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues |
$ | 189 | $ | 189 | $ | 360 | $ | 365 | ||||||
Segment OIBDA |
$ | 21 | $ | 9 | $ | 33 | $ | 19 | ||||||
Depreciation and amortization |
(1 | ) | (2 | ) | (3 | ) | (4 | ) | ||||||
Operating income |
$ | 20 | $ | 7 | $ | 30 | $ | 15 | ||||||
Segment OIBDA as a % of revenues |
11 | % | 5 | % | 9 | % | 5 | % | ||||||
Operating income as a % of revenues |
11 | % | 4 | % | 8 | % | 4 | % | ||||||
Capital expenditures |
$ | 1 | $ | | $ | 1 | $ | | ||||||
Three Months Ended June 30, 2013 and 2012
For the three months ended June 30, 2013, Publishing revenues of $189 million were comparable with the same prior-year period as strong growth in digital book sales was offset by lower print book sales. Digital book sales increased 39% from the same prior-year period and represented 29% of Publishing's total revenues for the second quarter of 2013, compared with 21% for the second quarter of 2012. Best-selling titles in the second quarter included Happy, Happy, Happy by Phil Robertson and City of Bones by Cassandra Clare.
For the three months ended June 30, 2013, Publishing OIBDA increased $12 million to $21 million from $9 million for the same prior-year period, as the more profitable digital book sales continued to grow and the second quarter of 2012 included a charge related to a legal matter.
Six Months Ended June 30, 2013 and 2012
For the six months ended June 30, 2013, Publishing revenues decreased 1% to $360 million from $365 million for the same prior-year period as growth in digital book sales was offset by lower print book sales.
For the six months ended June 30, 2013, Publishing OIBDA increased $14 million to $33 million from $19 million for the same prior-year period, reflecting lower costs associated with legal matters and continued growth from more profitable digital book sales, partially offset by the decline in print book sales.
-45-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Local Broadcasting (CBS Television Stations and CBS Radio)
(Contributed 19% and 17% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 21% and 19% for the comparable prior-year periods and 28% and 25% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 28% and 25% for the comparable prior-year periods.)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||||
|
2013 |
2012 |
2013 |
2012 |
|
|||||||||
Revenues |
$ | 698 | $ | 704 | $ | 1,336 | $ | 1,326 | ||||||
Segment OIBDA |
$ | 255 | $ | 248 | $ | 454 | $ | 419 | ||||||
Impairment charges |
| | | (11 | ) | |||||||||
Depreciation and amortization |
(21 | ) | (23 | ) | (44 | ) | (45 | ) | ||||||
Operating income |
$ | 234 | $ | 225 | $ | 410 | $ | 363 | ||||||
Segment OIBDA as a % of revenues |
37 | % | 35 | % | 34 | % | 32 | % | ||||||
Operating income as a % of revenues |
34 | % | 32 | % | 31 | % | 27 | % | ||||||
Capital expenditures |
$ | 12 | $ | 14 | $ | 18 | $ | 24 | ||||||
Three Months Ended June 30, 2013 and 2012
For the three months ended June 30, 2013, Local Broadcasting revenues decreased $6 million, or 1%, to $698 million from $704 million for the same prior-year period. CBS Television Stations revenues decreased 1% primarily reflecting lower political advertising which was offset by 57% higher retransmission revenues. CBS Radio revenues remained flat compared with the same prior-year period as the benefit of the new CBS Sports Radio network, which was launched in January 2013, was offset by the impact of radio station dispositions in 2012.
For the three months ended June 30, 2013, Local Broadcasting OIBDA increased $7 million, or 3%, to $255 million from $248 million for the same prior-year period, primarily reflecting lower programming and production costs partially offset by the revenue decline.
Six Months Ended June 30, 2013 and 2012
For the six months ended June 30, 2013, Local Broadcasting revenues increased $10 million, or 1%, to $1.34 billion from $1.33 billion for the same prior-year period. CBS Television Stations revenues increased 2%, primarily driven by the benefit of the 2013 broadcast of Super Bowl XLVII to the Company's owned CBS affiliated stations and higher retransmission revenues. These increases were partially offset by lower political advertising and lower revenues from the nonrenewal of an unprofitable sports programming contract. CBS Radio revenues remained flat compared with the same prior-year period as the benefit of the new CBS Sports Radio network was offset by the impact of radio station dispositions in 2012.
For the six months ended June 30, 2013, Local Broadcasting OIBDA increased $35 million, or 8%, to $454 million from $419 million for the same prior-year period, primarily driven by the revenue growth, lower programming and production costs, and the benefit from the nonrenewal of an unprofitable sports programming contract. During the first quarter of 2012, the Company recorded a pre-tax noncash impairment charge of $11 million to reduce the carrying value of the allocated goodwill in connection with the disposition of the Company's radio stations in West Palm Beach.
-46-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
Acquisitions and Dispositions
During 2012, the Company acquired a radio station in the New York market and a radio station in the Washington, D.C. area, as well as a television station in Long Island, New York. Also during 2012, the Company sold five radio stations in West Palm Beach. Together, these acquisitions and dispositions did not have a material impact on the comparability of operating results.
Outdoor Americas (CBS Outdoor)
(Contributed 9% and 8% to consolidated revenues for the three and six months ended June 30, 2013, respectively, versus 10% and 9% for the comparable prior-year periods and 8% and 6% to consolidated operating income for the three and six months ended June 30, 2013, respectively, versus 8% and 6% for the comparable prior-year periods.)
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||||
|
2013 |
2012 |
2013 |
2012 |
||||||||
Revenues |
$ | 335 | $ | 334 | $ | 616 | $ | 622 | ||||
Segment OIBDA |
$ | 107 | $ | 103 | $ | 181 | $ | 179 | ||||
Depreciation and amortization |
(42 | ) | (41 | ) | (84 | ) | (84) | |||||
Operating income |
$ | 65 | $ | 62 | $ | 97 | $ | 95 | ||||
Segment OIBDA as a % of revenues |
32 | % | 31 | % | 29 | % | 29% | |||||
Operating income as a % of revenues |
19 | % | 19 | % | 16 | % | 15% | |||||
Capital expenditures |
$ | 9 | $ | 10 | $ | 15 | $ | 17 | ||||
Three Months Ended June 30, 2013 and 2012
For the three months ended June 30, 2013, Outdoor Americas revenues increased slightly to $335 million from $334 million for the same prior-year period, driven by 2% revenue growth in the U.S., mainly reflecting 5% higher revenues in the billboard business. This increase was partially offset by lower revenues in Mexico and a decline in Canada from the nonrenewal of transit contracts. Approximately 14% and 15% of Outdoor Americas revenues were generated from regions outside the U.S. for the three months ended June 30, 2013 and 2012, respectively.
For the three months ended June 30, 2013, Outdoor Americas OIBDA increased $4 million, or 4%, to $107 million from $103 million for the same prior-year period, principally due to the revenue growth and lower costs associated with the renewal of a transit contract.
Six Months Ended June 30, 2013 and 2012
For the six months ended June 30, 2013, Outdoor Americas revenues decreased $6 million, or 1%, to $616 million from $622 million for the same prior-year period, principally reflecting the nonrenewal of transit contracts, as well as declines in Canada and Mexico. These decreases were partially offset by 1% growth in the U.S., mainly reflecting 3% higher revenues in the billboard business. Approximately 13% and 15% of Outdoor Americas revenues were generated from regions outside the U.S. for the six months ended June 30, 2013 and 2012, respectively.
-47-
Management's Discussion and Analysis of
Results of Operations and Financial Condition (Continued)
(Tabular dollars in millions, except per share amounts)
For the six months ended June 30, 2013, Outdoor Americas OIBDA increased $2 million, or 1%, to $181 million from $179 million for the same prior-year period, as the revenue decline was more than offset by a gain on the sale of outdoor advertising structures.
During the first quarter of 2013, the Company submitted a private letter ruling request with the IRS to qualify its Outdoor Americas business as a REIT. During the second quarter of 2013, a preliminary registration statement was filed with the SEC for the proposed initial public offering of the common stock of CBS Outdoor Americas Inc. The Company currently expects to dispose of the shares of CBS Outdoor Americas Inc. that it will own after the completion of the offering. These actions are subject to customary approvals and market conditions.
Corporate
Corporate expenses include general corporate overhead, unallocated shared company expenses, pension and postretirement benefit costs for plans retained by the Company for previously divested businesses, and intercompany eliminations. For the three months ended June 30, 2013, corporate expenses increased $3 million, or 4%, to $74 million from $71 million for the same prior-year period, and for the six months ended June 30, 2013, corporate expenses increased $12 million, or 8%, to $159 million from $147 million for the same prior-year period. These increases principally reflected higher stock based compensation and other expense increases associated with the increase in the Company's stock price, and professional fees related to the conversion of Outdoor Americas to a REIT. These increases were partially offset by lower pension and postretirement benefit costs, reflecting the benefit from prefunding pension plans in 2012 and the favorable performance of pension plan assets in 2012.
Financial Position
Current assets decreased by $950 million to $4.77 billion at June 30, 2013 from $5.72 billion at December 31, 2012, primarily due to a decrease in cash and lower prepaid program rights. The decrease in prepaid program rights reflects the broadcast of Super Bowl XLVII on the CBS Television Network in 2013 and the timing of the broadcast of entertainment programs. The allowance for doubtful accounts as a percentage of receivables was 2.5% at both June 30, 2013 and December 31, 2012.
Net property and equipment of $2.23 billion at June 30, 2013 decreased $43 million from $2.27 billion at December 31, 2012, primarily reflecting depreciation expense of $180 million, partially offset by capital expenditures of $83 million and capital lease additions for broadcasting equipme