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CBS CORPORATION REPORTS THIRD QUARTER 2016 RESULTS Revenues Up 4% to $3.4 Billion Operating Income Up 6% to $798 Million Diluted EPS Up 31% to $1.15; Adjusted Diluted EPS Up 19% to $1.05 NEW YORK, November
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CBS CORPORATION REPORTS THIRD QUARTER 2016 RESULTS Revenues Up 4% to $3.4 Billion Operating Income Up 6% to $798 Million Diluted EPS Up 31% to $1.15; Adjusted Diluted EPS Up 19% to $1.05 NEW YORK, November 3, CBS Corporation (NYSE: CBS.A and CBS) today reported results for the third quarter of 2016, including the highest quarterly diluted earnings per share ( EPS ) in the Company s history and a third quarter record for revenues and operating income. CBS is clearly knocking the cover off the ball, including revenue and profit growth across every one of our operating segments, said Leslie Moonves, Chairman and Chief Executive Officer, CBS Corporation. Our premium content continues to be the driving force behind our success, starting with the CBS Television Network, which kicked off another terrific season as the #1 network, with the #1 new drama, Bull, and the #1 new comedy, Kevin Can Wait. With ownership in all of our new fall shows, we have once again positioned our Company to monetize additional content across all platforms for years to come. This includes content licensing and distribution, which benefited from a 40% increase in streaming revenue during the third quarter. It also includes affiliate and subscription fees, where retransmission consent and reverse compensation grew 32% during the quarter, and where we continue to see rapid growth in our subscription streaming services, CBS All Access and Showtime OTT. Meanwhile, advertising remains strong and is accelerating here in the fourth quarter as our new upfront pricing kicks in and political spending is ramping up nicely. Looking ahead to the separation of our radio business, we see additional opportunities to return value to shareholders and invest in our core content business. So we feel extremely good about our future, and we are confident we have set ourselves up to succeed under any scenario. Third Quarter 2016 Results Revenues for the third quarter of 2016 increased 4% to $3.40 billion from $3.26 billion for the same prior-year period. The growth was led by a 32% increase in retransmission revenues and fees from CBS Television Network affiliated stations as well as growth from digital distribution platforms. Content licensing and distribution revenues increased 6%, driven by growth in domestic television licensing sales. Advertising revenues during the third quarter were affected by 10 hours of primetime preemptions for Democratic and Republican conventions and the first Presidential debate as well as competition from the 2016 Summer Olympics, while advertising benefited from higher political spending. Operating income for the third quarter of 2016 increased 6% to $798 million from $753 million for the same prior-year period, reflecting the higher revenues, which were partially offset by increased investment in programming. Net earnings from continuing operations of $514 million for the third quarter of 2016 rose 21% from $426 million for the same quarter in 2015, and adjusted net earnings from continuing operations increased 10% to $467 million, driven by the higher operating income. EPS from continuing operations for the third quarter of 2016 grew 31% to $1.15 from $.88 for the same quarter in 2015, and adjusted EPS increased 19% to $1.05. Weighted average shares outstanding were 446 million in the third quarter of 2016, down from 484 million in the prior-year period, mainly as a result of the Company s ongoing share repurchase program. Adjusted results for the third quarter of 2016 excluded a one-time tax benefit of $47 million associated with a multiyear adjustment to a tax deduction, which was approved by the Internal Revenue Service ( IRS ) during the third quarter of No adjustments were made to reported results for the third quarter of Free Cash Flow, Balance Sheet and Liquidity For the third quarter of 2016, operating cash flow from continuing operations was an inflow of $55 million compared with an outflow of $231 million in the same prior-year period, and for the first nine months of the year, operating cash flow from continuing operations was $1.31 billion compared with $650 million in For the third quarter of 2016, free cash flow was an inflow of $9 million compared with an outflow of $289 million for the same prior-year period, and for the first nine months of 2016, free cash flow of $1.18 billion increased from $546 million in The increases for the nine-month period were driven by growth in affiliate and subscription fees and higher advertising revenues, including from the broadcast of Super Bowl 50 on CBS, partially offset by increased investment in content. During the third quarter of 2016, the Company issued $700 million of 2.90% senior notes due 2027 and used the net proceeds from this issuance for general corporate purposes, including the repurchase of CBS Corp. Class B Common Stock and the repayment of short-term borrowings, including commercial paper. -2- Repurchase of Company Stock During the third quarter of 2016, the Company repurchased 9.5 million shares of its Class B Common Stock for $500 million. For the first nine months of 2016, the Company repurchased 29.0 million shares of its Class B Common Stock for $1.50 billion, at an average cost of $51.76 per share. Radio Separation In connection with the Company s previously announced plans to separate its radio business, CBS Radio Inc. ( CBS Radio ) filed a preliminary registration statement with the Securities and Exchange Commission during the third quarter of 2016 for the proposed initial public offering of its common stock. In October 2016, CBS Radio borrowed $1.46 billion through a $1.06 billion senior secured term loan due 2023 and the issuance of $400 million of 7.25% senior unsecured notes due 2024 through a private placement ( CBS Radio Borrowings ). The term loan bears interest at a rate equal to 3.50% plus the greater of LIBOR and 1.00%. The weighted average interest rate on these borrowings is 5.25% as of November 3, Also in October 2016, CBS Radio entered into a $250 million senior secured revolving credit facility. As of November 3, 2016, there were no outstanding borrowings under the revolving credit facility. The CBS Radio Borrowings are guaranteed by certain subsidiaries of CBS Radio. The Company does not guarantee, or otherwise provide credit support for, the CBS Radio Borrowings or the revolving credit facility. The net debt proceeds will be primarily used by CBS Corporation to repurchase shares of its Class B Common Stock, with the remainder to be used for general corporate purposes and ongoing cash needs. Segment Presentation In preparation for the planned separation of CBS Radio, the Company changed the manner in which it manages its television and radio operations during the third quarter of Accordingly, the Company s previously reported operating segment, Local Broadcasting, has been separated into two operating segments, Local Media and Radio. In connection with this new segment presentation, the presentation of intercompany revenues has been revised, including station affiliation fees paid by Local Media to the CBS Television Network. Prior period results have been reclassified to conform to this presentation. Reconciliations of non-gaap measures to reported results are included at the end of this earnings release. -3- Consolidated and Segment Results (dollars in millions) The tables below present the Company s revenues by segment and type, operating income (loss) excluding restructuring charges, impairment charges, and other operating items, net by segment ( Segment Operating Income ), and depreciation and amortization by segment for the three and nine months ended September 30, 2016, and Three Months Ended Nine Months Ended September 30, September 30, Revenues by Segment Entertainment $ 1,949 $ 1,932 $ 6,483 $ 5,978 Cable Networks ,659 1,680 Publishing Local Media ,253 1,138 Radio Corporate/Eliminations (105) (98) (319) (274) Total Revenues $ 3,396 $ 3,257 $ 10,532 $ 9,976 Three Months Ended Nine Months Ended September 30, September 30, Revenues by Type Advertising $ 1,469 $ 1,481 $ 5,363 $ 4,859 Content licensing and distribution 1,108 1,046 2,780 2,889 Affiliate and subscription fees ,208 2,044 Other Total Revenues $ 3,396 $ 3,257 $ 10,532 $ 9,976 Three Months Ended Nine Months Ended September 30, September 30, Segment Operating Income (Loss) Entertainment $ 348 $ 339 $ 1,148 $ 947 Cable Networks Publishing Local Media Radio Corporate (78) (49) (245) (181) Adjusted Operating Income ,343 2,096 Restructuring charges (55) Other operating items, net 9 19 Total Operating Income $ 798 $ 753 $ 2,352 $ 2,060 Three Months Ended Nine Months Ended September 30, September 30, Depreciation and Amortization Entertainment $ 28 $ 31 $ 88 $ 95 Cable Networks Publishing Local Media Radio Corporate Total Depreciation and Amortization $ 61 $ 65 $ 188 $ Entertainment (CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Interactive, and CBS Films) Entertainment revenues for the third quarter of 2016 were $1.95 billion, up 1% from $1.93 billion for the same prior-year period. This increase was led by 39% growth in affiliate and subscription fees, driven by higher station affiliation fees and subscription growth for CBS All Access. Due to 10 hours of primetime preemptions for Democratic and Republican conventions and the first Presidential debate as well as competition from the 2016 Summer Olympics, network advertising revenues were down 2% for the third quarter. Content licensing and distributions revenues were 3% lower than last year s third quarter, which included the initial domestic availability of Elementary. Growth in domestic streaming sales partly offset this impact. Entertainment operating income for the third quarter of 2016 grew 3% to $348 million from $339 million for the same prior-year period, driven by the increase in revenues. Cable Networks (Showtime Networks, CBS Sports Network, and Smithsonian Networks) Cable Networks revenues grew 14% to $598 million for the third quarter of 2016 from $526 million for the same prior-year period. The increase was driven by higher revenues from the domestic licensing of Showtime original series, including Penny Dreadful, and growth from Showtime Networks over-the-top streaming service. Cable Networks operating income for the third quarter of 2016 increased 16% to $285 million from $246 million for the same prior-year period, reflecting the revenue growth, which was partly offset by increased investment in original series. Publishing (Simon & Schuster) Publishing revenues increased 11% to $226 million for the third quarter of 2016 from $203 million for the same prior-year period. The increase was led by growth in both print and digital book sales, including the bestselling titles Born to Run by Bruce Springsteen and The Girl with the Lower Back Tattoo by Amy Schumer. Digital revenues represented 23% of Publishing s total revenues for the third quarter of Publishing operating income increased to $44 million for the third quarter of 2016 from $43 million for the same prior-year period, as the increase in revenues was largely offset by higher production and selling costs. -5- Local Media (CBS Television Stations) Local Media revenues rose 9% to $409 million for the third quarter of 2016 from $376 million for the same prioryear period, reflecting growth in retransmission revenues and higher political advertising sales from upcoming federal and state elections. Local Media operating income increased 21% to $122 million for the third quarter of 2016 from $101 million for the same prior-year period, primarily reflecting the higher revenues. Radio (CBS Radio) Radio revenues were $319 million for the third quarter of 2016 compared with $318 million for the same prioryear period, reflecting higher national advertising sales, which were offset by lower local advertising sales. Radio operating income grew 5% to $77 million for the third quarter of 2016 from $73 million for the same prioryear period. The increase mainly reflects lower expenses resulting from restructuring activities put in place during Corporate Corporate expenses for the third quarter of 2016 increased $29 million to $78 million from $49 million for the same prior-year period, mainly due to higher pension and other employee-related costs. -6- About CBS Corporation CBS Corporation (NYSE: CBS.A and CBS) is a mass media company that creates and distributes industry-leading content across a variety of platforms to audiences around the world. The Company has businesses with origins that date back to the dawn of the broadcasting age as well as new ventures that operate on the leading edge of media. CBS owns the most-watched television network in the U.S. and one of the world s largest libraries of entertainment content, making its brand - the Eye - one of the most recognized in business. The Company s operations span virtually every field of media and entertainment, including cable, publishing, radio, local TV, film, and interactive and socially responsible media. CBS s businesses include CBS Television Network, The CW (a joint venture between CBS Corporation and Warner Bros. Entertainment), CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Consumer Products, CBS Home Entertainment, CBS Interactive, CBS Films, Showtime Networks, CBS Sports Network, Pop (a joint venture between CBS Corporation and Lionsgate), Smithsonian Networks, Simon & Schuster, CBS Television Stations, CBS Radio and CBS EcoMedia. For more information, go to Cautionary Statement Concerning Forward-Looking Statements This news release contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of These forward-looking statements are not based on historical facts, but rather reflect the Company s current expectations concerning future results and events. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause the actual results, performance or achievements of the Company to be different from any future results, performance or achievements expressed or implied by these statements. These risks, uncertainties and other factors include, among others: advertising market conditions generally; changes in the public acceptance of the Company s content; changes in technology and its effect on competition in the Company s markets; changes in the federal communications laws and regulations; the impact of piracy on the Company s products; the impact of the consolidation in the market for the Company s content; the impact of negotiations or the loss of affiliation agreements or retransmission agreements; effects relating to the Company exploring, entering into, and/or consummating any potential transaction with Viacom Inc.; other domestic and global economic, business, competitive and/or other regulatory factors affecting the Company s businesses generally; the ability to achieve the separation of the Company s radio business on terms that the Company finds acceptable; the impact of union activity, including possible strikes or work stoppages or the Company s inability to negotiate favorable terms for contract renewals; and other factors described in the Company s filings with the Securities and Exchange Commission including but not limited to the Company s most recent Form 10-K, Form 10-Qs and Form 8-Ks. The forward-looking statements included in this document are made only as of the date of this document, and under section 27A of the Securities Act and section 21E of the Exchange Act, we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. Contacts: Press: Investors: Gil Schwartz Adam Townsend Senior Executive Vice President and Executive Vice President, Corporate Finance and Chief Communications Officer Investor Relations (212) (212) Dana McClintock David Bank Executive Vice President of Communications Senior Vice President, Investor Relations (212) (212) CBS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited; in millions, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, Revenues $ 3,396 $ 3,257 $ 10,532 $ 9,976 Operating income ,352 2,060 Interest expense (104) (102) (304) (289) Interest income Other items, net 2 (4) (5) (23) Earnings from continuing operations before income taxes ,065 1,766 Provision for income taxes (176) (211) (612) (579) Equity in loss of investee companies, net of tax (13) (16) (43) (35) Net earnings from continuing operations ,410 1,152 Loss from discontinued operations (36) (36) Net earnings $ 478 $ 426 $ 1,374 $ 1,152 Basic net earnings (loss) per common share: Net earnings from continuing operations $ 1.16 $.89 $ 3.13 $ 2.36 Loss from discontinued operations $ (.08) $ $ (.08) $ Net earnings $ 1.08 $.89 $ 3.05 $ 2.36 Diluted net earnings (loss) per common share: Net earnings from continuing operations $ 1.15 $.88 $ 3.10 $ 2.33 Loss from discontinued operations $ (.08) $ $ (.08) $ Net earnings $ 1.07 $.88 $ 3.02 $ 2.33 Weighted average number of common shares outstanding: Basic Diluted Dividends per common share $.18 $.15 $.48 $.45-8- CBS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited; in millions) At At September 30, 2016 December 31, 2015 Assets Cash and cash equivalents $ 179 $ 323 Receivables, net 3,348 3,628 Programming and other inventory 1,459 1,271 Prepaid expenses and other current assets Total current assets 5,457 5,747 Property and equipment 3,263 3,243 Less accumulated depreciation and amortization 1,918 1,838 Net property and equipment 1,345 1,405 Programming and other inventory 2,237 1,957 Goodwill 6,531 6,481 Intangible assets 5,499 5,514 Other assets 2,779 2,661 Total Assets $ 23,848 $ 23,765 Liabilities and Stockholders Equity Accounts payable $ 153 $ 192 Participants share and royalties payable 979 1,013 Program rights Commercial paper 33 Current portion of long-term debt Accrued expenses and other current liabilities 1,538 1,759 Total current liabilities 3,098 3,560 Long-term debt 8,902 8,226 Other liabilities 6,433 6,344 Liabilities of discontinued operations Total Stockholders Equity 5,348 5,563 Total Liabilities and Stockholders Equity $ 23,848 $ 23,765-9- CBS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited; in millions) Nine Months Ended September 30, Operating Activities: Net earnings $ 1,374 $ 1,152 Less: Loss from discontinued operations (36) Net earnings from continuing operations 1,410 1,152 Adjustments to reconcile net earnings from continuing operations to net cash flow provided by operating activities from continuing operations: Depreciation and amortization Stock-based compensation Equity in loss of investee companies, net of tax and distributions Change in assets and liabilities, net of investing and financing activities (472) (866) Net cash flow provided by operating activities from continuing operations 1, Net cash flow used for operating activities from discontinued operations (2) (27) Net cash flow provided by operating activities 1, Investing Activities: Acquisitions (51) (7) Capital expenditures (125) (104) Investments in and advances to investee companies (44) (58) Proceeds from dispositions Other investing activities 11 (8) Net cash flow used for investing activities from continuing operations (181) (102) Net cash flow used for investing activities from discontinued operations (4) Net cash flow used for investing activities (181) (106) Financing Activities: P
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