Edgar Filing: CBS CORP

2015Q2_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended June 30, 2015



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

For the transition period from ____________ to ____________

Commission File Number 001-09553

CBS CORPORATION

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	04-2949533 (I.R.S. Employer Identification No.)

51 W. 52^nd Street, New York, New York (Address of principal executive offices)	10019 (Zip Code)

(212) 975-4321

Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Number of shares of common stock outstanding at July 31, 2015:

Class A Common Stock, par value $.001 per share—37,826,904

Class B Common Stock, par value $.001 per share—444,408,370

CBS CORPORATION

INDEX TO FORM 10-Q



		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2015 and June 30, 2014	3

	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and June 30, 2014	4

	Consolidated Balance Sheets (Unaudited) at June 30, 2015 and December 31, 2014	5

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015 and June 30, 2014	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition.	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	49

Item 4.	Controls and Procedures.	49

	PART II – OTHER INFORMATION

Item 1A.	Risk Factors.	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	50

Item 6.	Exhibits.	51

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PART I – FINANCIAL INFORMATION



Item 1.	Financial Statements.

CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in millions, except per share amounts)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues	$	3,219		$	3,188		$	6,719		$	6,758
Expenses:
Operating	1,907			1,798			4,049			3,919
Selling, general and administrative	605			589			1,193			1,176
Restructuring charges (Note 11)	55			—			55			—
Depreciation and amortization	66			71			134			142
Total expenses	2,633			2,458			5,431			5,237
Operating income	586			730			1,288			1,521
Interest expense	(94		)	(94		)	(187		)	(187		)
Interest income	7			3			12			6
Other items, net	4			6			—			11
Earnings from continuing operations before income taxes and equity in loss of investee companies	503			645			1,113			1,351
Provision for income taxes	(165		)	(217		)	(368		)	(451		)
Equity in loss of investee companies, net of tax	(6		)	(10		)	(19		)	(20		)
Net earnings from continuing operations	332			418			726			880
Net earnings from discontinued operations, net of tax (Note 3)	—			21			—			27
Net earnings	$	332		$	439		$	726		$	907

Basic net earnings per common share:
Net earnings from continuing operations	$	.68		$	.73		$	1.47		$	1.52
Net earnings from discontinued operations	$	—		$	.04		$	—		$	.05
Net earnings	$	.68		$	.77		$	1.47		$	1.57

Diluted net earnings per common share:
Net earnings from continuing operations	$	.67		$	.72		$	1.45		$	1.49
Net earnings from discontinued operations	$	—		$	.04		$	—		$	.05
Net earnings	$	.67		$	.76		$	1.45		$	1.54

Weighted average number of common shares outstanding:
Basic	490			570			494			578
Diluted	495			581			500			590

Dividends per common share	$	.15		$	.12		$	.30		$	.24

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in millions)



	Three Months Ended,					Six Months Ended
	June 30,					June 30,
	2015		2014			2015			2014
Net earnings	$	332	$	439		$	726		$	907
Other comprehensive income from continuing operations, net of tax:
Cumulative translation adjustments	2		(1		)	(2		)	(7		)
Amortization of net actuarial loss	9		7			18			14
Changes in fair value of cash flow hedges	—		—			1			—
Other comprehensive income from continuing operations, net of tax	11		6			17			7
Other comprehensive income from discontinued operations, net of tax	—		14			—			15
Total other comprehensive income, net of tax	11		20			17			22
Total comprehensive income	$	343	$	459		$	743		$	929

See notes to consolidated financial statements.

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CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; in millions, except per share amounts)



	At				At
	June 30, 2015				December 31, 2014
ASSETS
Current Assets:
Cash and cash equivalents		$	320			$	428
Receivables, less allowances of $60 (2015) and $50 (2014)		3,124				3,459
Programming and other inventory (Note 4)		1,156				922
Deferred income tax assets, net		119				104
Prepaid income taxes		62				161
Prepaid expenses		123				129
Other current assets		328				386
Total current assets		5,232				5,589
Property and equipment		3,190				3,164
Less accumulated depreciation and amortization		1,814				1,731
Net property and equipment		1,376				1,433
Programming and other inventory (Note 4)		1,805				1,817
Goodwill		6,663				6,698
Intangible assets		5,997				6,008
Other assets		2,559				2,488
Assets of discontinued operations		30				39
Total Assets		$	23,662			$	24,072

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	198			$	302
Accrued compensation		209				333
Participants’ share and royalties payable		975				999
Program rights		406				404
Deferred revenues		136				206
Commercial paper (Note 6)		394				616
Current portion of long-term debt (Note 6)		20				20
Accrued expenses and other current liabilities		1,093				1,127
Current liabilities of discontinued operations		36				26
Total current liabilities		3,467				4,033
Long-term debt (Note 6)		7,686				6,510
Pension and postretirement benefit obligations		1,515				1,564
Deferred income tax liabilities, net		1,611				1,530
Other liabilities		3,332				3,347
Liabilities of discontinued operations (Note 3)		88				118

Commitments and contingencies (Note 10)

Stockholders’ Equity:
Class A Common stock, par value $.001 per share; 375 shares authorized; 38 (2015 and 2014) shares issued		—				—
Class B Common stock, par value $.001 per share; 5,000 shares authorized; 825 (2015) and 818 (2014) shares issued		1				1
Additional paid-in capital		44,090				44,041
Accumulated deficit		(21,205		)		(21,931		)
Accumulated other comprehensive loss (Note 8)		(718		)		(735		)
		22,168				21,376
Less treasury stock, at cost; 379 (2015) and 349 (2014) Class B shares		16,205				14,406
Total Stockholders’ Equity		5,963				6,970
Total Liabilities and Stockholders’ Equity		$	23,662			$	24,072

See notes to consolidated financial statements.

- 5-

CBS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)



	Six Months Ended
	June 30,
	2015			2014
Operating Activities:
Net earnings	$	726		$	907
Less: Net earnings from discontinued operations	—			27
Net earnings from continuing operations	726			880
Adjustments to reconcile net earnings from continuing operations to net cash flow provided by operating activities from continuing operations:
Depreciation and amortization	134			142
Stock-based compensation	89			84
Equity in loss of investee companies, net of tax and distributions	22			28
Change in assets and liabilities, net of investing and financing activities	(90		)	(541		)
Net cash flow provided by operating activities from continuing operations	881			593
Net cash flow (used for) provided by operating activities from discontinued operations	(18		)	31
Net cash flow provided by operating activities	863			624
Investing Activities:
Capital expenditures	(46		)	(69		)
Investments in and advances to investee companies	(55		)	(64		)
Proceeds from sale of investments	—			3
Proceeds from dispositions	59			5
Other investing activities	3			(1		)
Net cash flow used for investing activities from continuing operations	(39		)	(126		)
Net cash flow used for investing activities from discontinued operations	(3		)	(23		)
Net cash flow used for investing activities	(42		)	(149		)
Financing Activities:
Repayments of short-term debt borrowings, net	(222		)	(94		)
Proceeds from issuance of notes, net	1,178			—
Repayments of notes	—			(99		)
Payment of capital lease obligations	(8		)	(8		)
Dividends	(155		)	(145		)
Purchase of Company common stock	(1,832		)	(2,468		)
Payment of payroll taxes in lieu of issuing shares for stock-based compensation	(95		)	(145		)
Proceeds from exercise of stock options	123			192
Excess tax benefit from stock-based compensation	82			204
Net cash flow used for financing activities from continuing operations	(929		)	(2,563		)
Net cash flow provided by financing activities from discontinued operations	—			2,175
Net cash flow used for financing activities	(929		)	(388		)
Net (decrease) increase in cash and cash equivalents	(108		)	87
Cash and cash equivalents at beginning of period (includes $29 (2014) of discontinued operations cash)	428			397
Cash and cash equivalents at end of period (includes $223 (2014) of discontinued operations cash)	$	320		$	484
Supplemental disclosure of cash flow information
Cash paid for interest from continuing operations	$	163		$	181
Cash paid for income taxes from continuing operations	$	125		$	212

See notes to consolidated financial statements.

- 6-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollars in millions, except per share amounts)

1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business-CBS Corporation (together with its consolidated subsidiaries unless the context otherwise requires, the “Company” or “CBS Corp.”) is comprised of the following segments: Entertainment (CBS Television, comprised of the CBS Television Network, CBS Television Studios and CBS Global Distribution Group; CBS Interactive and CBS Films), Cable Networks (Showtime Networks, CBS Sports Network and Smithsonian Networks), Publishing (Simon & Schuster) and Local Broadcasting (CBS Television Stations and CBS Radio).

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

Basis of Presentation-The accompanying unaudited consolidated financial statements of the Company have been prepared pursuant to the rules of the Securities and Exchange Commission. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows of the Company for the periods presented. Certain previously reported amounts have been reclassified to conform to the current presentation.

Use of Estimates-The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Net Earnings per Common Share-Basic net earnings per share (“EPS”) is based upon net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the effect of the assumed exercise of stock options and vesting of restricted stock units (“RSUs”) and market-based performance share units (“PSUs”) only in the periods in which such effect would have been dilutive. Excluded from the calculation of diluted EPS because their inclusion would have been anti-dilutive, were 4 million stock options for both the three and six months ended June 30, 2015 and 2 million stock options for both the three and six months ended June 30, 2014.

- 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		Six Months Ended
	June 30,		June 30,
(in millions)	2015	2014	2015	2014
Weighted average shares for basic EPS	490	570	494	578
Dilutive effect of shares issuable under stock-based compensation plans	5	11	6	12
Weighted average shares for diluted EPS	495	581	500	590

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

Additional Paid-In Capital-For the six months ended June 30, 2015 and 2014, the Company recorded dividends of $150 million and $139 million, respectively, as a reduction to additional paid-in capital as the Company had an accumulated deficit balance.

Adoption of New Accounting Standards

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

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

Recent Pronouncements

Simplifying the Presentation of Debt Issuance Costs

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

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

In January 2015, the FASB issued amended guidance which eliminates the concept of extraordinary items. This guidance removes the requirement to assess whether an event or transaction is both unusual in nature and infrequent in occurrence and to separately present any such items on the statement of operations after income from continuing operations. Rather, such items will either be presented as a separate component of income from

- 8-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

continuing operations or disclosed in the notes to the financial statements. This guidance is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Additionally, the Company is permitted to amend prior periods presented in the financial statements once the guidance is adopted.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

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

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

In June 2014, the FASB issued guidance on the accounting for stock-based compensation when the terms of an award provide that a performance target that affects vesting could be achieved after the requisite service period. Under this guidance such performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This guidance, which is effective for interim and annual periods beginning after December 15, 2015, is not expected to have a material impact on the Company’s consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance on the recognition of revenues which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers. The Company is currently evaluating the impact of this guidance, which is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016.

2) STOCK-BASED COMPENSATION

The following table summarizes the Company’s stock-based compensation expense for the three and six months ended June 30, 2015 and 2014.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
RSUs and PSUs	$	35		$	35		$	73		$	69
Stock options and equivalents	8			9			16			15
Stock-based compensation expense, before income taxes	43			44			89			84
Related tax benefit	(16		)	(17		)	(34		)	(33		)
Stock-based compensation expense, net of tax benefit	$	27		$	27		$	55		$	51

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CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

During the six months ended June 30, 2015, the Company granted 3 million RSUs for CBS Corp. Class B Common Stock with a weighted average per unit grant-date fair value of $59.18. RSUs granted during the first six months of 2015 generally vest over a one- to four-year service period. Compensation expense for RSUs is determined based upon the market price of the shares underlying the awards on the date of grant. For certain RSU awards the number of shares an employee earns ranges from 0% to 120% of the target award, based on the outcome of established performance goals. Compensation expense is recorded based on the probable outcome of the performance conditions. During the six months ended June 30, 2015, the Company also granted 2 million stock options with a weighted average exercise price of $59.60. Stock options granted during the first six months of 2015 vest over a four-year service period and expire eight years from the date of grant. Compensation expense for stock options is determined based on the grant date fair value of the award calculated using the Black-Scholes options-pricing model.

Total unrecognized compensation cost related to unvested RSUs at June 30, 2015 was $271 million, which is expected to be recognized over a weighted average period of 2.6 years. Total unrecognized compensation cost related to unvested stock option awards at June 30, 2015 was $66 million, which is expected to be recognized over a weighted average period of 2.8 years.

3) DISCONTINUED OPERATIONS

During 2014, the Company completed the disposition of Outdoor Americas. Outdoor Americas has been presented as a discontinued operation in the Company’s consolidated financial statements. In connection with the Company’s plan to dispose of Outdoor Americas, in January 2014 Outdoor Americas borrowed $1.60 billion. On April 2, 2014, Outdoor Americas completed an IPO through which it sold 23.0 million shares, or approximately 19%, of its common stock for $28.00 per share. Proceeds from the IPO aggregated $615 million, net of underwriting discounts and commissions. The Company received $2.04 billion of the combined IPO and debt proceeds from Outdoor Americas. On July 16, 2014, the Company completed the disposition of its 81% ownership of Outdoor Americas common stock through a tax-free split-off through which the Company accepted 44.7 million shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 97.0 million shares, or approximately 81% of Outdoor Americas common stock that it owned.

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



	Three Months Ended			Six Months Ended
	June 30, 2014			June 30, 2014
Revenues from discontinued operations	$	334		$	622
Earnings from discontinued operations	$	40		$	54
Income tax provision	(14		)	(22		)
Net earnings from discontinued operations, net of tax	26			32
Less: Net earnings from discontinued operations attributable to noncontrolling interest, net of tax	5			5
Net earnings from discontinued operations attributable to CBS Corp.	$	21		$	27

Noncurrent liabilities of discontinued operations of $88 million and $118 million at June 30, 2015 and December 31, 2014, respectively, primarily include tax reserves related to previously disposed businesses and the carrying value of a guarantee liability associated with the Company’s disposition of its outdoor advertising business in Europe (“Outdoor Europe”) of approximately $28 million at both June 30, 2015 and December 31, 2014 (See Note 10).

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CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

4) PROGRAMMING AND OTHER INVENTORY



	At			At
	June 30, 2015			December 31, 2014
Program rights		$	1,632		$	1,471
Television programming:
Released (including acquired libraries)		1,051			983
In process and other		153			179
Theatrical programming:
Released		27			23
In process and other		46			36
Publishing, primarily finished goods		52			47
Total programming and other inventory		2,961			2,739
Less current portion		1,156			922
Total noncurrent programming and other inventory		$	1,805		$	1,817

5) 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, 2015, NAI directly or indirectly owned approximately 79.6% of CBS Corp.’s voting Class A Common Stock, and owned approximately 8.1% of CBS Corp.’s Class A Common Stock and non-voting Class B Common Stock on a combined basis.

Viacom Inc. As part of its normal course of business, the Company licenses its television content, leases production facilities and sells advertising spots to various subsidiaries of Viacom Inc. Viacom Inc. also distributes certain of the Company’s television programs in the home entertainment market. The Company’s total revenues from these transactions were $54 million and $48 million for the three months ended June 30, 2015 and 2014, respectively, and $100 million and $83 million for the six months ended June 30, 2015 and 2014, respectively.

The Company places advertisements with and leases production facilities from various subsidiaries of Viacom Inc. The total amounts for these transactions were $5 million and $3 million for the three months ended June 30, 2015 and 2014, respectively, and $11 million and $8 million for the six months ended June 30, 2015 and 2014, respectively.

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



	At			At
	June 30, 2015			December 31, 2014
Receivables		$	86		$	107
Other assets (Receivables, noncurrent)		76			76
Total amounts due from Viacom Inc.		$	162		$	183

- 11-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

Other Related Parties. The Company has equity interests in two domestic television networks and several international joint ventures for television channels, from which the Company earns revenues primarily by selling its television programming. Total revenues earned from sales to these joint ventures were $23 million and $26 million for the three months ended June 30, 2015 and 2014, respectively, and $71 million and $63 million for the six months ended June 30, 2015 and 2014, respectively.

The Company, through the normal course of business, is involved in transactions with other related parties that have not been material in any of the periods presented.

6) BANK FINANCING AND DEBT

The following table sets forth the Company’s debt.



	At			At
	June 30, 2015			December 31, 2014
Commercial paper		$	394		$	616
Senior debt (1.95% - 7.875% due 2016 - 2045) ^(a)		7,615			6,433
Obligations under capital leases		91			97
Total debt		8,100			7,146
Less commercial paper		394			616
Less current portion of long-term debt		20			20
Total long-term debt, net of current portion		$	7,686		$	6,510

(a) At June 30, 2015 and December 31, 2014, the senior debt balances included (i) a net unamortized discount of $33 million and $21 million, respectively, and (ii) an increase in the carrying value of the debt relating to previously settled fair value hedges of $5 million and $14 million, respectively. At June 30, 2015, the senior debt balances also included an increase in the carrying value of the debt relating to outstanding fair value hedges of $3 million. Such amount was minimal at December 31, 2014. The face value of the Company’s senior debt was $7.64 billion and $6.44 billion at June 30, 2015 and December 31, 2014, respectively.

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

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

Commercial Paper

The Company had outstanding commercial paper borrowings under its $2.5 billion commercial paper program of $394 million at June 30, 2015 and $616 million at December 31, 2014 at weighted average interest rates of 0.47% and 0.46%, respectively and with maturities of less than forty-five days.

Credit Facility

At June 30, 2015, the Company had a $2.5 billion revolving credit facility (the “Credit Facility”) which expires in December 2019. The Credit Facility requires the Company to maintain a maximum Consolidated Leverage Ratio of 4.5x at the end of each quarter as further described in the Credit Facility. At June 30, 2015, the Company’s Consolidated Leverage Ratio was approximately 2.5x.

- 12-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

The Consolidated Leverage Ratio is the ratio of the Company’s indebtedness from continuing operations, adjusted to exclude certain capital lease obligations, at the end of a quarter, to the Company’s Consolidated EBITDA for the trailing four consecutive quarters. Consolidated EBITDA is defined in the Credit Facility as operating income plus interest income and before depreciation, amortization and certain other noncash items.

The Credit Facility is used for general corporate purposes. At June 30, 2015, the Company had no borrowings outstanding under the Credit Facility and the remaining availability under the Credit Facility, net of outstanding letters of credit, was $2.49 billion.

7) 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,	2015			2014			2015			2014
Components of net periodic cost:
Service cost	$	8		$	8		$	—		$	—
Interest cost	53			59			4			6
Expected return on plan assets	(66		)	(66		)	—			—
Amortization of actuarial loss (gain) ^(a)	20			16			(5		)	(5		)
Net periodic cost	$	15		$	17		$	(1	)	$	1



	Pension Benefits						Postretirement Benefits
Six Months Ended June 30,	2015			2014			2015			2014
Components of net periodic cost:
Service cost	$	16		$	16		$	—		$	—
Interest cost	105			118			9			12
Expected return on plan assets	(131		)	(132		)	—			—
Amortization of actuarial loss (gain) ^(a)	40			32			(10		)	(10		)
Net periodic cost	$	30		$	34		$	(1	)	$	2

(a) Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings.

8) STOCKHOLDERS’ EQUITY

During the second quarter of 2015, the Company repurchased 13.2 million shares of its Class B Common Stock under its share repurchase program for $799 million, at an average cost of $60.38 per share. During the six months ended June 30, 2015, the Company repurchased 30.5 million shares of its Class B Common Stock for $1.80 billion, at an average cost of $59.07 per share, leaving $3.00 billion of authorization at June 30, 2015.

During the second quarter of 2015, the Company declared a quarterly cash dividend of $.15 on its Class A and Class B Common Stock, resulting in total dividends of $75 million, payable on July 1, 2015.

- 13-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in the components of accumulated other comprehensive income (loss).



	Cumulative Translation Adjustments			Net Actuarial Gain (Loss) and Prior Service Cost				Change in Fair Value of Cash Flow Hedges				Accumulated Other Comprehensive Loss
At December 31, 2014	$	158		$	(892	)		$	(1	)		$	(735	)
Other comprehensive income (loss) before reclassifications	(2		)	—				(1		)		(3		)
Reclassifications to net earnings	—			18			^(a)	2			^(b)	20
Net other comprehensive income (loss)	(2		)	18				1				17
At June 30, 2015	$	156		$	(874	)		$	—			$	(718	)



	Continuing Operations									Discontinued Operations
	Cumulative Translation Adjustments			Net Actuarial Gain (Loss) and Prior Service Cost				Unrealized Gain on Securities		Other Comprehensive Income (Loss)		Accumulated Other Comprehensive Loss
At December 31, 2013	$	166		$	(729	)		$	3	$	15	$	(545	)
Other comprehensive income (loss) before reclassifications	(7		)	—				—		15		8
Reclassifications to net earnings	—			14			^(a)	—		—		14
Net other comprehensive income (loss)	(7		)	14				—		15		22
At June 30, 2014	$	159		$	(715	)		$	3	$	30	$	(523	)


(a)	Reflects amortization of net actuarial losses. See Note 7.


(b)	Reflects loss recognized on designated foreign exchange contracts. See Note 12.

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 $12 million and $8 million for the six months ended June 30, 2015 and 2014, respectively.

9) INCOME TAXES

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

The provision for income taxes was $165 million for the three months ended June 30, 2015 and $217 million for the three months ended June 30, 2014, reflecting an effective income tax rate of 32.8% and 33.6%, respectively. For the six months ended June 30, 2015, the provision for income taxes was $368 million compared to $451 million for the six months ended June 30, 2014, reflecting an effective income tax rate of 33.1% and 33.4%, respectively.

- 14-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

During the first quarter of 2015, the Company and the IRS settled the Company’s income tax audit for the years 2011 and 2012, which did not have a material effect on the Company’s consolidated financial statements. The IRS is expected to commence its examination of the years 2013 and 2014 during the fourth quarter of 2015. During the second quarter of 2015, the reserve for uncertain tax positions decreased by $14 million as a result of a payment in a foreign jurisdiction for a tax matter related to a previously disposed business that is accounted for as a discontinued operation. During the next six months, the Company expects an additional decrease to its reserve for uncertain tax positions of approximately $14 million, plus accrued interest, relating to this matter. The Company is currently contesting this matter with the taxing authority. In addition, various tax years are currently under examination by state and local and other foreign tax authorities. With respect to open tax years in all jurisdictions, the Company currently believes that it is reasonably possible that the reserve for uncertain tax positions will change 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.

10) COMMITMENTS AND CONTINGENCIES

Guarantees

During 2013, the Company completed the sale of Outdoor Europe. The Company continues to be the guarantor of certain of Outdoor Europe’s obligations, including franchise payment obligations under certain transit franchise agreements. Generally, the Company would be required to perform under the guarantees in the event of non-performance by the buyer. These agreements have varying terms, with the majority of the obligations guaranteed under these agreements expiring by September 2016. At June 30, 2015, the total franchise payment obligations under these agreements are estimated to be approximately $136 million, which will decrease on a monthly basis thereafter. The carrying value of the guarantee liability of approximately $28 million at both June 30, 2015 and December 31, 2014 is included in ‘‘Liabilities of discontinued operations’’ on the Consolidated Balance Sheets.

The Company also has indemnification obligations with respect to letters of credit and surety bonds primarily used as security against non-performance in the normal course of business. At June 30, 2015, the outstanding letters of credit and surety bonds approximated $196 million and were not recorded on the Consolidated Balance Sheet.

In the course of its business, the Company both provides and receives indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Company may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not live up to its obligations under an indemnification obligation. The Company records a liability for its indemnification obligations and other contingent liabilities when probable and reasonably estimable.

Legal Matters

General. On an ongoing basis, the Company vigorously defends itself in numerous lawsuits and proceedings and responds to various investigations and inquiries from federal, state, local and international authorities (collectively, ‘‘litigation’’). Litigation may be brought against the Company without merit, is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the below-described legal matters and other litigation to which it is a party are not likely, in the aggregate, to have a material adverse effect on its results of operations, financial position or cash flows. Under the Separation Agreement between the Company and Viacom Inc., the Company and Viacom Inc. have agreed to defend and indemnify the other in certain litigation in which the Company and/or Viacom Inc. is named.

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

- 15-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

one of a large number of defendants in both state and federal cases. In the majority of asbestos lawsuits, the plaintiffs have not identified which of the Company’s products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing insulating material in turbines sold for power-generation, industrial and marine use.

Claims are frequently filed and/or settled in groups, which may make the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of June 30, 2015, the Company had pending approximately 38,000 asbestos claims, as compared with approximately 41,100 as of December 31, 2014 and 43,730 as of June 30, 2014. During the second quarter of 2015, the Company received approximately 1,020 new claims and closed or moved to an inactive docket approximately 3,110 claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement. Settlement costs depend on the seriousness of the injuries that form the basis of the claims, the quality of evidence supporting the claims and other factors. The Company’s total costs for the years 2014 and 2013 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $11 million and $29 million, respectively. The Company’s costs for settlement and defense of asbestos claims may vary year to year and insurance proceeds are not always recovered in the same period as the insured portion of the expenses.

The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities. This belief is based upon many factors and assumptions, including the number of outstanding claims, estimated average cost per claim, the breakdown of claims by disease type, historic claim filings, costs per claim of resolution and the filing of new claims. While the number of asbestos claims filed against the Company has trended down in the past five to ten years and has remained flat in recent years, it is difficult to predict future asbestos liabilities, as events and circumstances may occur including, among others, the number and types of claims and average cost to resolve such claims, which could affect the Company’s estimate of its asbestos liabilities.

Other. The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to historical and predecessor operations of the Company. In addition, the Company from time to time receives personal injury claims including toxic tort and product liability claims (other than asbestos) arising from historical operations of the Company and its predecessors.

11) RESTRUCTURING CHARGES

During the second quarter of 2015, in a continued effort to reduce its cost structure, the Company initiated restructuring plans across several of its businesses, primarily for the reorganization of certain business operations. As a result, the Company recorded restructuring charges of $55 million, reflecting $34 million of severance costs and $21 million of costs associated with exiting contractual obligations and other related costs.

During the year ended December 31, 2014, the Company recorded restructuring charges of $26 million, reflecting $17 million of severance costs and $9 million of costs associated with exiting contractual obligations.

- 16-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

As of June 30, 2015, the cumulative settlements for the 2015 and 2014 restructuring charges were $24 million, of which $17 million was for severance costs and $7 million was for costs associated with contractual obligations. The Company expects to substantially utilize its restructuring reserves by the end of 2016.



	Balance at			2015			2015				Balance at
	December 31, 2014			Charges			Settlements				June 30, 2015
Entertainment		$	6		$	12		$	(4	)		$	14
Local Broadcasting		10			43			(11		)		42
Corporate		2			—			(1		)		1
Total		$	18		$	55		$	(16	)		$	57



	2014			2014				Balance at
	Charges			Settlements				December 31, 2014
Entertainment		$	8		$	(2	)		$	6
Publishing		1			(1		)		—
Local Broadcasting		14			(4		)		10
Corporate		3			(1		)		2
Total		$	26		$	(8	)		$	18

12) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The Company’s carrying value of financial instruments approximates fair value, except for differences with respect to notes and debentures. At June 30, 2015 and December 31, 2014, the carrying value of the Company’s senior debt was $7.62 billion and $6.43 billion, respectively, and the fair value, which is estimated based on quoted market prices for similar liabilities (Level 2) and includes accrued interest, was $7.96 billion and $7.15 billion, respectively.

The Company uses derivative financial instruments primarily to modify its exposure to market risks from fluctuations in interest rates and foreign currency exchange rates. The Company does not use derivative instruments unless there is an underlying exposure and, therefore, the Company does not hold or enter into derivative financial instruments for speculative trading purposes.

Foreign Exchange Contracts

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

At June 30, 2015 and December 31, 2014, the notional amount of all foreign exchange contracts was $296 million and $152 million, respectively.

- 17-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

Interest Rate Swaps

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

Gains (losses) recognized on derivative financial instruments were as follows:



	Three Months Ended
	June 30,
	2015			2014			Financial Statement Account
Non-designated foreign exchange contracts	$	(7	)	$	(2	)	Other items, net

Designated interest rate swaps	$	3		$	—		Interest expense



	Six Months Ended
	June 30,
	2015			2014			Financial Statement Account
Foreign exchange contracts:
Designated hedging instruments:
Recognized in OCI	$	(1	)	$	(1	)	Change in fair value of cash flow hedges
Reclassified from accumulated OCI	$	(2	)	$	(1	)	Programming costs

Non-designated hedging instruments	$	6		$	(2	)	Other items, net

Designated interest rate swaps	$	5		$	—		Interest expense

The fair value of the Company’s derivative instruments was not material to the Consolidated Balance Sheets for any of the periods presented.

The following tables set forth the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2015 and December 31, 2014. These assets and liabilities have been categorized according to the three-level fair value hierarchy established by the FASB, which prioritizes the inputs used in measuring fair value. Level 1 is based on publicly quoted prices for the asset or liability in active markets. Level 2 is based on inputs that are observable other than quoted market prices in active markets, such as quoted prices for the asset or liability in inactive markets or quoted prices for similar assets or liabilities. Level 3 is based on unobservable inputs reflecting the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

- 18-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)



At June 30, 2015	Level 1		Level 2		Level 3		Total
Assets:
Investments	$	77	$	—	$	—	$	77
Interest rate swaps	—		3		—		3
Foreign exchange contracts	—		8		—		8
Total Assets	$	77	$	11	$	—	$	88
Liabilities:
Deferred compensation	$	—	$	314	$	—	$	314
Foreign exchange contracts	—		3		—		3
Total Liabilities	$	—	$	317	$	—	$	317



At December 31, 2014	Level 1		Level 2		Level 3		Total
Assets:
Investments	$	80	$	—	$	—	$	80
Foreign exchange contracts	—		6		—		6
Total Assets	$	80	$	6	$	—	$	86
Liabilities:
Deferred compensation	$	—	$	307	$	—	$	307
Foreign exchange contracts	—		2		—		2
Total Liabilities	$	—	$	309	$	—	$	309

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

13) REPORTABLE SEGMENTS

The following tables set forth the Company’s financial performance by reportable segment. The Company’s operating segments, which are the same as its reportable segments, have been determined in accordance with the Company’s internal management structure, which is organized based upon products and services.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues:
Entertainment	$	1,785		$	1,835		$	4,046		$	4,138
Cable Networks	615			516			1,154			1,053
Publishing	199			211			344			364
Local Broadcasting	654			665			1,250			1,291
Corporate/Eliminations	(34		)	(39		)	(75		)	(88		)
Total Revenues	$	3,219		$	3,188		$	6,719		$	6,758

- 19-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

Revenues generated between segments primarily reflect advertising sales and television 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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Intercompany Revenues:
Entertainment	$	34	$	39	$	74	$	85
Local Broadcasting	3		5		6		8
Total Intercompany Revenues	$	37	$	44	$	80	$	93

The Company presents operating income (loss) excluding restructuring charges and impairment charges, if any, (“Segment Operating Income”) as the primary measure of profit and loss for its operating segments (“segment profit measure”) in accordance with FASB guidance for segment reporting. The Company began presenting Segment Operating Income as its segment profit measure in the first quarter of 2015 in order to align with the primary method the Company's management began using in 2015 to evaluate segment performance and to make decisions regarding the allocation of resources to its segments. The Company believes the presentation of Segment Operating Income is relevant and useful for investors because it allows investors to view segment performance in a manner similar to the primary method used by the Company’s management and enhances their ability to understand the Company’s operating performance.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Segment Operating Income (Loss):
Entertainment	$	262		$	341		$	608		$	761
Cable Networks	220			213			471			467
Publishing	25			23			37			34
Local Broadcasting	198			215			359			394
Corporate	(64		)	(62		)	(132		)	(135		)
Total Segment Operating Income	641			730			1,343			1,521
Restructuring charges	(55		)	—			(55		)	—
Operating income	586			730			1,288			1,521
Interest expense	(94		)	(94		)	(187		)	(187		)
Interest income	7			3			12			6
Other items, net	4			6			—			11
Earnings from continuing operations before income taxes and equity in loss of investee companies	503			645			1,113			1,351
Provision for income taxes	(165		)	(217		)	(368		)	(451		)
Equity in loss of investee companies, net of tax	(6		)	(10		)	(19		)	(20		)
Net earnings from continuing operations	332			418			726			880
Net earnings from discontinued operations, net of tax	—			21			—			27
Net earnings	$	332		$	439		$	726		$	907

- 20-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Depreciation and Amortization:
Entertainment	$	32	$	35	$	64	$	72
Cable Networks	6		6		12		11
Publishing	2		1		3		3
Local Broadcasting	19		23		40		44
Corporate	7		6		15		12
Total Depreciation and Amortization	$	66	$	71	$	134	$	142



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Stock-based Compensation:
Entertainment	$	16	$	15	$	32	$	29
Cable Networks	2		3		5		5
Publishing	1		1		2		2
Local Broadcasting	9		8		16		15
Corporate	15		17		34		33
Total Stock-based Compensation	$	43	$	44	$	89	$	84



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Capital Expenditures:
Entertainment	$	13	$	20	$	21	$	37
Cable Networks	2		3		3		5
Publishing	2		1		2		1
Local Broadcasting	11		12		18		20
Corporate	1		5		2		6
Total Capital Expenditures	$	29	$	41	$	46	$	69



	At			At
	June 30, 2015			December 31, 2014
Assets:
Entertainment		$	10,282		$	10,469
Cable Networks		2,260			2,113
Publishing		937			990
Local Broadcasting		9,520			9,585
Corporate		633			876
Discontinued operations		30			39
Total Assets		$	23,662		$	24,072

- 21-

CBS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular dollars in millions, except per share amounts)

14) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

CBS Operations Inc. is a wholly owned subsidiary of the Company. CBS Operations Inc. has fully and unconditionally guaranteed CBS Corp.’s senior debt securities. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of CBS Corp., CBS Operations Inc., the direct and indirect Non-Guarantor Affiliates of CBS Corp. and CBS Operations Inc., and the eliminations necessary to arrive at the information for the Company on a consolidated basis.



	Statement of Operations
	For the Three Months Ended June 30, 2015
	CBS Corp.			CBS Operations Inc.			Non- Guarantor Affiliates			Eliminations			CBS Corp. Consolidated
Revenues	$	34		$	3		$	3,182		$	—		$	3,219
Expenses:
Operating	14			2			1,891			—			1,907
Selling, general and administrative	12			55			538			—			605
Restructuring charges	—			—			55			—			55
Depreciation and amortization	2			5			59			—			66
Total expenses	28			62			2,543			—			2,633
Operating income (loss)	6			(59		)	639			—			586
Interest (expense) income, net	(118		)	(99		)	130			—			(87		)
Other items, net	1			(11		)	14			—			4
Earnings (loss) before income taxes and equity in earnings (loss) of investee companies	(111		)	(169		)	783			—			503
Benefit (provision) for income taxes	36			55			(256		)	—			(165		)
Equity in earnings (loss) of investee companies, net of tax	407			149			(6		)	(556		)	(6		)
Net earnings	$	332		$	35		$	521		$	(556	)	$	332
Total comprehensive income	$	343		$	34		$	542		$	(576	)	$	343

- 22-

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, 2015
	CBS Corp.		CBS Operations Inc.		Non- Guarantor Affiliates		Eliminations		CBS Corp. Consolidated
Revenues	$	65	$	6	$	6,648	$	—	$	6,719
Expenses:
Operating	30		3		4,016		—		4,049
Selling, general and administrative	24		116		1,053		—		1,193
Restructuring charges	—		—		55		—		55
Depreciation and amortization	3		10		121		—		134
Total expenses	57		129		5,245		—