Document


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 2, 2018
CBS CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
001-09553
04-2949533
(State or other jurisdiction of
incorporation)
(Commission File Number)
(IRS Employer Identification
Number)

51 West 52nd Street
New York, New York
10019
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (212) 975-4321
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
 




Item 8.01 Other Events.

During the first quarter of 2018, CBS Corporation (the “Company” or “CBS Corp.”) adopted amended Financial Accounting Standards Board ( “FASB”) guidance on the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”). This guidance requires the Company to present the service cost component of net benefit cost in the same line items on the statement of operations as other compensation costs of the related employees. The other components of net benefit cost, which were previously presented within operating income, are now presented in the statement of operations below the subtotal of operating income. This guidance is required to be applied retrospectively and, accordingly, the Company has recast its consolidated financial statements to conform to this presentation.

Exhibit 99.1 of this Current Report on Form 8-K presents a recast of the following sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “Form 10-K”) to reflect the adoption of the amended FASB guidance on the presentation of net benefit cost: Item 6. Selected Financial Data; Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition; and Item 8. Financial Statements and Supplementary Data. Except for information related to the adoption of this FASB guidance, no revisions have been made to the Form 10-K to update for other information, developments or events that have occurred since the Form 10-K was filed with the Securities and Exchange Commission (“SEC”) on February 20, 2018.

This Current Report on Form 8-K should be read in conjunction with the Company’s Form 10-K, Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, Current Reports on Form 8-K and other filings with the SEC. These SEC filings contain important information regarding events, developments and updates affecting the Company and its expectations that have occurred since the filing of the Form 10-K.

This Current Report on Form 8-K is being filed in connection with the Company’s Registration Statement on Form S-4 (Registration No. 333-223415) which was initially filed with the SEC on March 2, 2018, relating to an offer to exchange the Company’s $400,000,000 of 2.9000% Senior Notes due 2023 and $500,000,000 of 3.700% Senior Notes due 2028 (collectively, the “senior notes”) for corresponding issues of SEC-registered senior notes (the “exchange notes”) with terms substantially identical to the senior notes (except that the exchange notes will not be subject to restrictions on transfer).

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits. The following Exhibits are filed as part of this Current Report on Form 8-K:
 
Exhibit Number
 
Description of Exhibit
 
 
 
23.1
 
99.1
 
101
 
101. INS XBRL Instance Document.
101. SCH XBRL Taxonomy Extension Schema.
101. CAL XBRL Taxonomy Extension Calculation Linkbase.
101. DEF XBRL Taxonomy Extension Definition Linkbase.
101. LAB XBRL Taxonomy Extension Label Linkbase.
101. PRE XBRL Taxonomy Extension Presentation Linkbase.

2



SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
CBS CORPORATION
 
(Registrant)
 
 
 
 
 
By:
/s/ Lawrence Liding
 
 
Name:
Lawrence Liding
 
 
Title:
Executive Vice President, Controller and
Chief Accounting Officer
 
 
 
Date: November 2, 2018



3
Exhibit


Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-221338) and Forms S-8 (No. 333-55346, No. 333-82422, No. 333-164441, No. 333-192673, No. 333-198455 and No. 333-204282) of CBS Corporation of our report dated February 16, 2018, except with respect to our opinion on the consolidated financial statements insofar as it relates to the change in the manner in which the company accounts for net periodic pension and postretirement benefit cost discussed in Note 15, as to which the date is November 2, 2018, relating to the consolidated financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K dated November 2, 2018.



/s/PricewaterhouseCoopers LLP
New York, New York
November 2, 2018





Exhibit
Exhibit 99.1

Item 6.
Selected Financial Data.
CBS CORPORATION AND SUBSIDIARIES
(In millions, except per share amounts)
 
Year Ended December 31, (a) (b)
 
2017 (c) (d) (e) (f)
 
2016 (c) (d)
 
2015 (c) (g)
 
2014 (c) (f)
 
2013
Revenues
$
13,692

 
$
13,166

 
$
12,671

 
$
12,519

 
$
12,713

Operating income
$
2,861

 
$
2,902

 
$
2,684

 
$
2,631

 
$
2,697

Net earnings from continuing operations
$
1,309

 
$
1,552

 
$
1,554

 
$
1,151

 
$
1,520

Net earnings (loss) from discontinued operations,
net of tax
$
(952
)
 
$
(291
)
 
$
(141
)
 
$
1,808

 
$
359

Net earnings
$
357

 
$
1,261

 
$
1,413

 
$
2,959

 
$
1,879

 
 
 
 
 
 
 
 
 
 
Basic net earnings (loss) per common share:
 
 
 
 
 
 
 
 
 
Net earnings from continuing operations
$
3.26

 
$
3.50

 
$
3.21

 
$
2.09

 
$
2.50

Net earnings (loss) from discontinued
operations
$
(2.37
)
 
$
(.66
)
 
$
(.29
)
 
$
3.29

 
$
.59

Net earnings
$
.89

 
$
2.84

 
$
2.92

 
$
5.38

 
$
3.09

 
 
 
 
 
 
 
 
 
 
Diluted net earnings (loss) per common share:
 
 
 
 
 
 
 
 
 
Net earnings from continuing operations
$
3.22

 
$
3.46

 
$
3.18

 
$
2.05

 
$
2.44

Net earnings (loss) from discontinued
operations
$
(2.34
)
 
$
(.65
)
 
$
(.29
)
 
$
3.22

 
$
.58

Net earnings
$
.88

 
$
2.81

 
$
2.89

 
$
5.27

 
$
3.01

 
 
 
 
 
 
 
 
 
 
Dividends per common share
$
.72

 
$
.66

 
$
.60

 
$
.54

 
$
.48

 
 
 
 
 
 
 
 
 
 
At Year End:
 
 
 
 
 
 
 
 
 
Total assets:
 
 
 
 
 
 
 
 
 
Continuing operations
$
20,830

 
$
19,642

 
$
18,695

 
$
18,372

 
$
17,191

Discontinued operations
13

 
4,596

 
5,070

 
5,563

 
9,014

Total assets
$
20,843

 
$
24,238

 
$
23,765

 
$
23,935

 
$
26,205

Total debt:
 
 
 
 
 
 
 
 
 
Continuing operations
$
10,162

 
$
9,375

 
$
8,448

 
$
7,112

 
$
6,403

Discontinued operations

 
1,345

 

 

 
14

Total debt
$
10,162

 
$
10,720

 
$
8,448

 
$
7,112

 
$
6,417

Total Stockholders’ Equity
$
1,978

 
$
3,689

 
$
5,563

 
$
6,970

 
$
9,966

(a) During the first quarter of 2018, CBS Corporation (the “Company” or “CBS Corp.”) adopted amended Financial Accounting Standards Board guidance on the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”). As a result, the components of net benefit cost other than the service cost component are presented in the statement of operations below the subtotal of operating income. All prior periods have been recast to conform to this presentation.
(b) On November 16, 2017, the Company completed the disposition of CBS Radio Inc. (“CBS Radio”) through a tax-free split-off. CBS Radio has been presented as a discontinued operation in the Company’s consolidated financial statements for all periods presented. Also included in discontinued operations is CBS Outdoor Americas Inc., which was disposed of in 2014, and Outdoor Europe, which was sold in 2013.
(c) For 2017, net loss from discontinued operations, net of tax, includes a loss on the split-off of CBS Radio of $105 million, or $.26 per diluted share, and a market value adjustment of $980 million, or $2.41 per diluted share, recorded prior to the split-off to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications Corp. (“Entercom”). Included in net loss from discontinued operations, net of tax, are noncash impairment charges of $444 million ($427 million, net of tax), or $.95 per diluted share, in 2016, and $484 million ($297 million, net of tax), or $.61 per diluted share, in 2015, in each case to reduce the carrying value of CBS Radio’s intangible assets. For 2014, net earnings from discontinued operations, net of tax, included a gain on the disposal of Outdoor Americas of $1.56 billion, or $2.78 per diluted share.
(d) In 2017, the Company recorded a pension settlement charge of $352 million ($237 million, net of tax), or $.58 per diluted share, resulting from the transfer of pension obligations to an insurance company through the purchase of a group annuity contract. In 2016, the Company recorded a pension settlement charge of $211 million ($130 million, net of tax), or $.29 per diluted share, for the settlement of pension obligations resulting from the completion of the Company’s offer to eligible former employees to receive lump-sum distributions of their pension benefits.
(e) In 2017, the Company recorded a provisional charge of $129 million, or $.32 per diluted share, resulting from the enactment of federal tax legislation in December 2017.
(f) In 2017, in connection with the early redemption of $800 million of its debt, the Company recorded a pretax loss on early extinguishment of debt of $49 million ($31 million, net of tax), or $.08 per diluted share. In 2014, in connection with the early redemption of $1.07 billion of its debt, the Company recorded a pretax loss on early extinguishment of debt of $352 million ($219 million, net of tax), or $.39 per diluted share.
(g) In 2015, the Company recorded gains from the sales of internet businesses in China of $139 million in operating income ($131 million, net of tax), or $.27 per diluted share.

1


Item 7.
Management’s Discussion and Analysis of Results of Operations and Financial Condition.
(Tabular dollars in millions, except per share amounts)
Management’s discussion and analysis of the results of operations and financial condition of CBS Corporation (together with its consolidated subsidiaries, unless the context otherwise requires, the “Company” or “CBS Corp.”) should be read in conjunction with the consolidated financial statements and related notes.

Overview
Business Overview and Strategy
The Company operates businesses which span the media and entertainment industries, including the CBS Television Network, cable networks, content production and distribution, television stations, internet-based businesses, and consumer publishing. The Company’s principal strategy is to create and acquire premium content that is widely accepted by audiences and generate both advertising and non-advertising revenues from the distribution of this content on multiple media platforms and to various geographic locations. The Company continues to increase its investment in premium content to enhance its opportunities for revenue growth, which include exhibiting the Company’s content on multiple digital platforms, including the Company’s owned digital streaming services as well as third-party live television streaming offerings; expanding the distribution of its content internationally; and securing compensation from multichannel video programming distributors (“MVPDs”) and television stations affiliated with the CBS Television Network. The Company also seeks to grow its advertising revenues by monetizing all content viewership as industry measurements evolve to reflect viewers’ changing habits. The Company’s continued ability to capitalize on these and other emerging opportunities will provide it with incremental advertising and non-advertising revenues.

Operational Highlights 2017 vs. 2016
Consolidated results of operations
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
GAAP:
 
 
 
 
 
 
 
 
Revenues
$
13,692

 
$
13,166

 
$
526

 
4
 %
 
Operating income
$
2,861

 
$
2,902

 
$
(41
)
 
(1
)%
 
Net earnings from continuing operations
$
1,309

 
$
1,552

 
$
(243
)
 
(16
)%
 
Net earnings
$
357

 
$
1,261

 
$
(904
)

(72
)%
 
Diluted EPS from continuing operations
$
3.22

 
$
3.46

 
$
(.24
)
 
(7
)%
 
Diluted EPS
$
.88

 
$
2.81

 
$
(1.93
)
 
(69
)%
 
 
 
 
 
 
 
 
 
 
Non-GAAP: (a)
 
 
 
 
 
 
 
 
Adjusted operating income
$
2,905

 
$
2,931

 
$
(26
)
 
(1
)%
 
Adjusted net earnings from continuing operations
$
1,705

 
$
1,663

 
$
42

 
3
 %
 
Adjusted net earnings
$
1,791

 
$
1,840

 
$
(49
)
 
(3
)%
 
Adjusted diluted EPS from continuing operations
$
4.19

 
$
3.71

 
$
.48

 
13
 %
 
Adjusted diluted EPS
$
4.40

 
$
4.11

 
$
.29

 
7
 %
 
(a) See pages 5 and 6 for reconciliations of adjusted results to the most directly comparable financial measures in accordance with accounting principles generally accepted in the United States (“GAAP”).

For 2017, revenues grew 4% to an all-time high of $13.69 billion, led by strong growth from affiliate and subscription fee revenues, which increased 26%, driven by higher station affiliation fees and retransmission revenues; Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event; and growth from new digital initiatives, including the Company’s owned streaming subscription services, CBS All Access and the Showtime digital streaming subscription service, and third-party live television streaming services. Growth in content licensing and distribution revenues also contributed to the revenue increase, and was driven by higher licensing sales. These increases were partially offset by lower advertising revenues, mainly resulting from the benefit to 2016 from the broadcast of Super Bowl 50 on CBS and record political advertising sales during the 2016 Presidential election cycle.


2




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


Operating income decreased 1% from 2016 primarily due to a mix of lower-margin revenues in 2017 compared to 2016, as well as an increased investment in programming, which the Company expects to monetize in the future across multiple platforms and geographic regions. Net earnings from continuing operations decreased 16% from 2016. Comparability of net earnings from continuing operations was impacted by several discrete items including charges for pension settlements in 2017 and 2016 and charges in 2017 resulting from the enactment of federal tax legislation and the early extinguishment of debt. Adjusted net earnings from continuing operations increased 3%.

Net earnings, which include the results of CBS Radio Inc. (“CBS Radio”) in discontinued operations, were $357 million in 2017 compared with $1.26 billion in 2016 and diluted earnings per share (“EPS”) was $.88 in 2017 compared with $2.81 in 2016. Discontinued operations for 2017 includes a net loss of $105 million from the split-off of CBS Radio and a market value adjustment of $980 million recorded prior to the split-off to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom Communications Corp. (“Entercom”). (See Note 4 to the consolidated financial statements.) Discontinued operations for 2016 includes an impairment charge at CBS Radio of $444 million. Adjusted net earnings decreased 3% and adjusted diluted EPS grew 7% to $4.40. Diluted EPS benefited from lower weighted average shares outstanding as a result of the shares retired as a result of the split-off of CBS Radio and the Company’s share repurchase program. Adjusted net earnings and adjusted diluted EPS are non-GAAP financial measures. See pages 5 and 6 for details of the discrete items excluded from financial results, and reconciliations of adjusted results to the most directly comparable financial measures in accordance with GAAP.

The Company generated operating cash flow from continuing operations of $793 million in 2017, which included discretionary pension contributions of $600 million to prefund the Company’s qualified pension plans, compared with $1.45 billion in 2016. Adjusted free cash flow was $989 million for 2017 compared with $1.26 billion for 2016. These decreases were impacted by a decline in advertising revenues including from the benefit in 2016 from CBS’s broadcast of Super Bowl 50, and an increased investment in internally-produced television programming, partially offset by higher affiliate and subscription fee revenues. Adjusted free cash flow is a non-GAAP financial measure. See “Adjusted Free Cash Flow” on pages 31 and 32 for a reconciliation of net cash flow provided by (used for) operating activities, the most directly comparable financial measure in accordance with GAAP, to adjusted free cash flow.

Recent Developments

Special Committee to Evaluate Potential Combination with Viacom Inc.
On February 1, 2018, the Company announced that its Board of Directors established a special committee of independent directors to evaluate a potential combination with Viacom Inc. There can be no assurance that this process will result in a transaction or on what terms any transaction may occur.

Pension Settlement
During the fourth quarter of 2017, the Company purchased a group annuity contract under which an insurance company has permanently assumed the Company’s obligation to pay and administer pension benefits to certain of the Company’s pension plan participants, or their designated beneficiaries, who had been receiving pension benefits. The purchase of this group annuity contract was funded with pension plan assets. As a result, the Company’s outstanding pension benefit obligation was reduced by approximately $800 million, representing approximately 20% of the total obligations of the Company’s qualified pension plans. In connection with this transaction, the Company recorded a settlement charge of $352 million in the fourth quarter of 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Company made discretionary contributions totaling $600 million to prefund its qualified pension plans.


3




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


Federal Tax Reform
On December 22, 2017, the U.S. government enacted tax legislation containing significant changes to U.S. federal tax law (the “Tax Reform Act“), including a reduction in the federal corporate tax rate from 35% to 21% and a one-time transition tax on cumulative foreign earnings and profits. The Company recorded a net provisional charge of $129 million for the year ended December 31, 2017, reflecting an estimated tax impact of $407 million on the Company’s historical accumulated foreign earnings and profits, partially offset by an estimated benefit of $278 million to adjust the Company’s deferred income tax balances as a result of the reduced corporate income tax rate.

The final impacts of the Tax Reform Act may differ materially from the current estimates since all of the necessary information was not available, prepared or analyzed in sufficient detail to complete the assessment of the Tax Reform Act. In addition, future interpretive guidance issued by federal and state tax authorities may impact the provisional amount. The Company will complete its analysis of this provisional amount and finalize and record any adjustments to its estimates within one year from the enactment of the Tax Reform Act.

CBS Radio Separation
On November 16, 2017, the Company completed the split-off of CBS Radio through an exchange offer, in which the Company accepted 17.9 million shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 101.4 million shares of CBS Radio common stock that it owned. Immediately following the exchange offer, each share of CBS Radio common stock was converted into one share of Entercom Class A common stock upon completion of the merger of CBS Radio with Entercom.

Share Repurchases
The following is a summary of the Company’s purchases of its Class B Common Stock during the year ended December 31, 2017:
 
Total Number
of Shares
(in millions)
 
Average Price
Per Share
 
Dollar Value
of Shares Repurchased
 
Remaining Authorization
Share repurchase program
 
16.2

 
 
 
$
64.70

 
 
 
$
1,050

 
 
 
$
3,057

 
Shares retired in split-off of CBS Radio
 
17.9

 
 
 
$
56.40

 
 
 
1,007

 
 
 
 
 
Total
 
34.1

 
 
 
$
60.35

 
 
 
$
2,057

 
 
 
 
 

Dividends
 
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
 
2017
 
2016
 
$
 
%
 
Dividends per share
 
$
.72

 
$
.66

 
$
.06

 
9
 %
 
Total dividends
 
$
289

 
$
294

 
$
(5
)
 
(2
)%
 

Debt
During 2017, the Company issued a total of $1.80 billion of senior debt at interest rates between 2.50% and 3.70%. The proceeds of these issuances were used to repay $400 million of senior notes which matured in July 2017 and to early redeem a total of $800 million of senior debt with interest rates of 4.625% and 5.75%. The remaining proceeds were used for general corporate purposes, including discretionary contributions to the Company’s qualified pension plans and the repayment of short-term borrowings, including commercial paper. The redemptions resulted in a loss on early extinguishment of debt of $49 million ($31 million, net of tax) for 2017.

4




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


Reconciliation of Non-GAAP Measures
Results for the years ended December 31, 2017 and 2016 included discrete items that were not part of the normal course of operations. The following tables present non-GAAP financial measures, which exclude the impact of these discrete items, reconciled to the most directly comparable financial measures in accordance with GAAP. The Company believes that presenting its financial results adjusted for the impact of discrete items is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by the Company’s management and provides a clearer perspective on the underlying performance of the Company.
 
 
 
 
Year Ended December 31,
2017

2016
Operating income
$
2,861

 
$
2,902

Discrete items:
 
 
 
Restructuring and merger and acquisition-related costs
63

 
38

Other operating items, net (a)
(19
)
 
(9
)
Adjusted operating income
$
2,905

 
$
2,931

 
Net Earnings from Continuing Operations
 
Diluted EPS from Continuing Operations (f)
 
Year Ended December 31,
2017
 
2016
 
2017
 
2016
 
Reported (GAAP)
$
1,309

 
$
1,552

 
$
3.22

 
$
3.46

 
Discrete items:
 
 
 
 
 
 
 
 
Restructuring and merger and acquisition-related costs
(net of a tax benefit of $24 million in 2017 and $15 million in 2016)
39


23

 
.10

 
.05

 
Other operating items, net (net of a tax benefit of $4 million in 2017 and a tax provision of $4 million in 2016) (a)
(23
)

(5
)
 
(.06
)
 
(.01
)
 
Loss on early extinguishment of debt
(net of a tax benefit of $18 million)
31



 
.08

 

 
Pension settlement charges
(net of a tax benefit of $115 million in 2017 and $81 million in 2016)
237


130

 
.58

 
.29

 
Write-down of investments
(net of a tax benefit of $3 million in 2017) (b)
5


10

 
.01

 
.02

 
Federal tax reform (c)
129



 
.32

 

 
Tax items (d)
(22
)

(47
)
 
(.05
)
 
(.10
)
 
Adjusted (Non-GAAP)
$
1,705

 
$
1,663

 
$
4.19

 
$
3.71

 


5




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


 
Net Earnings
 
Diluted EPS (f)
 
Year Ended December 31,
2017
 
2016
 
2017
 
2016
 
Reported (GAAP)
$
357

 
$
1,261

 
$
.88

 
$
2.81

 
Discrete items:
 
 
 
 
 
 
 
 
Restructuring and merger and acquisition-related costs
(net of a tax benefit of $24 million in 2017 and $15 million in 2016)
39

 
23

 
.10

 
.05

 
Other operating items, net (net of a tax benefit of $4 million in 2017 and a tax provision of $4 million in 2016) (a)
(23
)
 
(5
)
 
(.06
)
 
(.01
)
 
Loss on early extinguishment of debt
(net of a tax benefit of $18 million)
31

 

 
.08

 

 
Pension settlement charges
(net of a tax benefit of $115 million in 2017 and $81 million in 2016)
237

 
130

 
.58

 
.29

 
Write-down of investments
(net of a tax benefit of $3 million in 2017) (b)
5

 
10

 
.01

 
.02

 
Federal tax reform (c)
129

 

 
.32

 

 
Tax items (d)
(64
)
 
(11
)
 
(.16
)
 
(.02
)
 
Discontinued operations items (e)
1,080

 
432

 
2.65

 
.96

 
Adjusted (Non-GAAP)
$
1,791

 
$
1,840

 
$
4.40

 
$
4.11

 
(a) For 2017, includes a net gain relating to the disposition of property and equipment. For 2016, includes a gain from the sale of an internet business in China and a multiyear, retroactive impact of a new operating tax.
(b) Reflects the write-down of a cost investment in 2017 and an equity-method investment in 2016 to their fair values.
(c) Reflects a provisional charge resulting from the enactment of the Tax Reform Act in December 2017.
(d) For 2017, primarily reflects a tax benefit from the resolution of certain state income tax matters and in discontinued operations, a tax benefit from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business. For 2016, reflects a one-time tax benefit associated with a multiyear adjustment to a tax deduction, which was approved by the IRS during the third quarter of 2016 and in discontinued operations, a charge from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business.
(e) For 2017, reflects a loss on the split-off of CBS Radio of $105 million, or $.26 per diluted share; a market value adjustment of $980 million, or $2.41 per diluted share, recorded prior to the split-off to reduce the carrying value of CBS Radio to the value indicated by the stock valuation of Entercom; adjustments to the loss on disposal of the Company’s Outdoor advertising business; and restructuring charges at CBS Radio of $7 million ($4 million, net of tax). For 2016, reflects a noncash impairment charge of $444 million ($427 million, net of tax) to reduce the carrying value of CBS Radio’s goodwill and FCC licenses to their fair value and restructuring charges at CBS Radio of $8 million ($5 million, net of tax).
(f) Amounts may not sum as a result of rounding.

Segments

CBS Corp. operates in the following four segments:
 
ENTERTAINMENT:  The Entertainment segment consists of the CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, Network Ten, CBS Interactive, and CBS Films as well as the Company’s digital streaming services, CBS All Access and CBSN.  Entertainment’s revenues are generated primarily from advertising sales, the licensing and distribution of its content, and affiliate and subscription fees.  The Entertainment segment contributed 67% to consolidated revenues in each of the years 2017, 2016 and 2015, and 54%, 52% and 50% to total segment operating income in 2017, 2016 and 2015, respectively.
 

6




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


CABLE NETWORKS:  The Cable Networks segment consists of Showtime Networks, including its digital subscription streaming offering, CBS Sports Network and Smithsonian Networks. Cable Networks’ revenues are generated primarily from affiliate and subscription fees and the licensing and distribution of its content.  The Cable Networks segment contributed 18%, 16% and 18% to consolidated revenues in 2017, 2016, and 2015, respectively, and 35%, 33% and 37% to total segment operating income in 2017, 2016 and 2015, respectively.
 
PUBLISHING:  The Publishing segment consists of Simon & Schuster’s consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books.  Publishing generates revenues from the distribution of consumer books in print, digital and audio formats. The Publishing segment contributed 6% to consolidated revenues in each of the years 2017, 2016, and 2015, and 5% to total segment operating income in 2017 and 4% to total segment operating income in each of the years 2016 and 2015.
 
LOCAL MEDIA:  The Local Media segment consists of CBS Television Stations and CBS Local Digital Media, with revenues generated primarily from advertising sales and retransmission fees. The Local Media segment contributed 12%, 14% and 12% to consolidated revenues in 2017, 2016, and 2015, respectively, and 17%, 21%, and 19% to total segment operating income in 2017, 2016, and 2015, respectively.

Consolidated Results of Operations—2017 vs. 2016
Revenues
Revenues by Type
 
 
% of Total
 
 
 
% of Total
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
Revenues
 
2016
 
Revenues
 
$
 
%
 
Advertising
$
5,753

 
 
42
%
 
 
$
6,288

 
 
48
%
 
 
$
(535
)
 
(9
)%
 
Content licensing and distribution
3,952

 
 
29

 
 
3,673

 
 
28

 
 
279

 
8

 
Affiliate and subscription fees
3,758

 
 
27

 
 
2,978

 
 
22

 
 
780

 
26

 
Other
229

 
 
2

 
 
227

 
 
2

 
 
2

 
1

 
Total Revenues
$
13,692

 
 
100
%
 
 
$
13,166

 
 
100
%
 
 
$
526

 
4
 %
 
Advertising
For 2017, the 9% decrease in advertising revenues primarily reflects the benefit to 2016 from CBS’s broadcast of the Super Bowl, which is broadcast on the CBS Television Network on a rotating basis with other networks. CBS’s most recent Super Bowl broadcast was in 2016 and the next broadcast will be in 2019. The decline also reflects the benefit in 2016 from record political advertising sales during the 2016 Presidential election cycle. Underlying CBS Television Network advertising declined 2% in 2017, mainly as a result of lower ratings for the Company’s programming, which was partially offset by higher pricing. In addition, a majority of the CBS Television Network’s upfront advertising sales (“Upfront”) for the 2017/2018 television broadcast season are measured based on a live-plus-seven day viewing window, which began to benefit the Company’s advertising revenues in the fourth quarter of 2017.
 
In 2018, advertising revenues will benefit from political advertising sales from the U.S. midterm elections and the Company’s acquisition of Ten Network Holdings Limited (“Network Ten”) in the fourth quarter of 2017. The CBS Television Network’s Upfront for the 2017/2018 television broadcast season, which runs from the middle of September 2017 through the middle of September 2018, concluded with increases in pricing compared with the prior broadcast season, as well as a majority of agreements being based on a live-plus-seven day viewing window, which are each expected to benefit advertising revenues during the 2017/2018 broadcast season. The advertising comparison in the second half of 2018 will be negatively affected by the broadcast of five Thursday Night Football games in 2017, which CBS will not broadcast in 2018. However, this will result in an improvement in the Company’s operating income margin. Overall advertising revenues for the Company will be dependent on ratings for its programming and

7




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


market conditions, including demand in the scatter advertising market, which is when advertisers purchase the remaining advertising spots closer to the broadcast of the related programming.
Content Licensing and Distribution
Content licensing and distribution revenues are principally comprised of fees from the licensing of internally-produced television programming; fees from the distribution of third-party programming; and revenues from the publishing and distribution of consumer books. For 2017, the 8% increase in content licensing and distribution revenues reflected growth in both international and domestic licensing sales. The increase in domestic licensing sales was primarily driven by sales of NCIS: New Orleans, Madam Secretary and several titles from the CSI franchise. Internationally, the Company benefited from strong demand for its content during 2017, reflecting additional titles available for sale as a result of the Company’s recent increased investment in internally-produced series.

Content licensing and distribution revenue comparisons are impacted by fluctuations resulting from the timing of the availability of Company-owned television series for multiyear licensing agreements. Television license fee revenues are recognized at the beginning of the license period in which programs are made available to the licensee for exhibition. Unrecognized revenues attributable to signed license agreements for produced programming that is not yet available for exhibition were $670 million and $749 million at December 31, 2017 and 2016, respectively. The adoption of new Financial Accounting Standards Board (“FASB”) guidance on January 1, 2018, discussed below, increases the amount of unrecognized revenues attributable to license agreements for produced programming that is not yet available for exhibition to $1.33 billion. At December 31, 2017, the Company had approximately 650 episodes of scripted original programming that had not yet been made available in the secondary domestic marketplace (See page 53 for a description of the secondary marketplace).

Total outstanding receivables attributable to revenues recognized under licensing agreements at December 31, 2017 and 2016 were $4.06 billion and $3.82 billion, respectively. At December 31, 2017, the total amount due from these receivables was $1.85 billion in 2018, $1.03 billion in 2019, $626 million in 2020, $327 million in 2021, and $230 million in 2022 and thereafter.

Affiliate and Subscription Fees
Affiliate and subscription fees are principally comprised of revenues received from MVPDs for carriage of the Company’s cable networks (“cable affiliate fees”), as well as for authorizing the MVPDs’ carriage of the Company’s owned television stations (“retransmission fees”); fees received from television stations affiliated with the CBS Television Network (“station affiliation fees”); subscription fees for digital streaming services; fees received from third-party live television streaming offerings (“virtual MVPDs”); and revenues received for the distribution of pay-per-view boxing events. For 2017, the 26% increase in affiliate and subscription fees reflects revenues from Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event, which contributed nine points of the growth. Underlying affiliate and subscription fee revenues increased 17%, led by 27% growth in station affiliation fees and retransmission fees, and 98% growth from digital initiatives, including the Company’s owned streaming subscription services, CBS All Access and the Showtime digital streaming subscription offering, and virtual MVPDs.

Over the next few years, the Company expects to benefit from the renewal of several of its agreements with station affiliates and MVPDs as well as from agreements with new distributors of live television streaming offerings. In addition, the Company’s existing agreements with station affiliates and MVPDs include annual contractual increases. Together, these factors are expected to result in continued growth in affiliate and subscription fees over the next several years.


8




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


Adoption of New Revenue Recognition Guidance
During the first quarter of 2018, the Company will adopt new FASB guidance on the recognition of revenues which will impact the comparability of revenues during 2018. The adoption of this guidance will result in changes to the Company’s revenue recognition policies primarily relating to two areas of its content licensing and distribution operations. First, revenues from certain distribution arrangements of third-party content will be recognized based on the gross amount of consideration received by the Company, with a participation expense recognized for the fees paid to the third party. Under current accounting guidance, such revenues are recognized at the net amount retained by the Company after the payment of fees to the third party. This accounting change if adopted in 2017 would have increased 2017 revenues by approximately $275 million, with no impact on operating income. Second, revenues associated with the extension of an existing licensing arrangement, which are currently recognized upon the execution of such extension, will be recognized at a later date once the extension period begins. This change will result in quarterly fluctuations in the Company’s results; however, it is not expected to have a material impact on the Company’s operating income on an annual basis, since revenues from extensions executed each year approximate revenues from extensions for which the license period has begun. The Company will apply the modified retrospective method for the adoption of this guidance and therefore revenues for reporting periods prior to 2018 will not be affected.
International Revenues
For 2017, international revenues increased 9% primarily as a result of higher television licensing sales. The Company generated approximately 15% and 14% of its total revenues from international regions in 2017 and 2016, respectively. In 2018, international revenues are expected to increase compared to the prior year as a result of the Company’s acquisition of Network Ten in the fourth quarter of 2017.
 
 
 
 
% of
 
 
 
% of
 
Year Ended December 31,
 
2017
 
International
 
2016
 
International
 
United Kingdom
 
$
300

 
 
15
%
 
 
$
279

 
 
15
%
 
 
Other Europe
 
735

 
 
37

 
 
717

 
 
39

 
 
Canada
 
279

 
 
14

 
 
256

 
 
14

 
 
Asia
 
210

 
 
10

 
 
190

 
 
10

 
 
Australia
 
166

 
 
8

 
 
167

 
 
9

 
 
Other
 
327

 
 
16

 
 
240

 
 
13

 
 
Total International Revenues
 
$
2,017

 
 
100
%
 
 
$
1,849

 
 
100
%
 
 
Operating Expenses
 
 
 
% of
 
 
 
% of
 
 
 
Operating Expenses by Type
 
 
Operating
 
 
 
Operating
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
Expenses
 
2016
 
Expenses
 
$
 
%
 
Programming
$
3,156

 
 
37
%
 
 
$
2,941

 
 
37
%
 
 
$
215

 
7
 %
 
Production
2,873

 
 
34

 
 
2,658

 
 
34

 
 
215

 
8

 
Participation, distribution and
royalty
1,050

 
 
13

 
 
1,058

 
 
13

 
 
(8
)
 
(1
)
 
Other
1,359

 
 
16

 
 
1,299

 
 
16

 
 
60

 
5

 
Total Operating Expenses
$
8,438

 
 
100
%
 
 
$
7,956

 
 
100
%
 
 
$
482

 
6
 %
 
Programming
Programming expenses reflect the amortization of acquired programs exhibited on television broadcast and cable networks, and television stations. For 2017, the 7% increase in programming expenses was driven by costs associated with Showtime Networks’ distribution of the Floyd Mayweather/Conor McGregor pay-per-view boxing event; CBS’s broadcast of the semifinals and finals of the NCAA Tournament, and an increased investment in cable programming. Costs in 2016 associated with CBS’s broadcast of Super Bowl 50 partially offset these increases.

9




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


Production
Production expenses reflect the amortization of direct costs of internally-developed television and theatrical film content as well as other television production costs, including on-air talent. For 2017, the 8% increase in production expenses reflected an increased investment in internally-developed television series and higher costs associated with the increase in television licensing revenues.

Participation, Distribution and Royalty
Participation, distribution and royalty costs primarily include participation and residual expenses for television programming, royalty costs for Publishing content and other distribution expenses incurred with respect to television content, such as print and advertising. For 2017, the 1% decrease in participation, distribution and royalty costs was primarily driven by the mix of titles sold under television licensing arrangements.

During the first quarter of 2018, the Company will adopt new FASB guidance on the recognition of revenues which will result in changes to the Company’s revenue recognition policies relating to certain distribution arrangements of third-party content. Beginning in 2018, these revenues will be recognized based on the gross amount of consideration received by the Company for such sale, with an associated participation expense recognized for the fees paid to the third party. Under current accounting guidance, such revenues are recognized at the net amount retained by the Company after the payment of participations to the third party. This accounting change if adopted in 2017 would have increased 2017 participation, distribution and royalty expenses by approximately $275 million, with a corresponding increase in revenues.
 
Other
Other operating expenses primarily include compensation and costs associated with book sales, including printing and warehousing. For 2017, the 5% increase in other operating expenses mainly reflected higher compensation costs associated with the Company’s growth initiatives and increased costs resulting from a higher volume of book sales.
 
Selling, General and Administrative Expenses
 
 
 
% of
 
 
 
% of
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
Revenues
 
2016
 
Revenues
 
$
 
%
 
Selling, general and administrative
expenses
$
2,126

 
 
16
%
 
 
$
2,054

 
 
16
%
 
 
$
72

 
4
%
 
Selling, general and administrative (“SG&A”) expenses include expenses incurred for selling and marketing costs, occupancy and back office support. The 4% increase in SG&A expenses primarily reflected higher advertising and marketing costs, mainly to support the Company’s growth initiatives.

Depreciation and Amortization
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
Depreciation and amortization
$
223

 
$
225

 
$
(2
)
 
(1
)%
 

Restructuring and Merger and Acquisition-Related Costs
During the year ended December 31, 2017, 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 $63 million, reflecting $54 million of severance costs and $9

10




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


million of costs associated with exiting contractual obligations and other related costs. These restructuring activities are expected to reduce the Company’s annual cost structure by approximately $50 million.

During the year ended December 31, 2016, the Company recorded restructuring charges of $30 million, reflecting $19 million of severance costs and $11 million of costs associated with exiting contractual obligations and other related costs. During the year ended December 31, 2015, the Company recorded restructuring charges of $45 million, reflecting $24 million of severance costs and $21 million of costs associated with exiting contractual obligations and other related costs.

As of December 31, 2017, the cumulative settlements for the 2017, 2016, and 2015 restructuring charges were $68 million, of which $45 million was for severance costs and $23 million related to costs associated with exiting contractual obligations and other related costs. The Company expects to substantially utilize its restructuring reserves by the end of 2018.
 
Balance at
 
2017
 
2017
 
Balance at
 
December 31, 2016
 
Charges
 
Settlements
 
December 31, 2017
Entertainment
 
$
20

 
 
$
44

 
 
$
(18
)
 
 
 
$
46

 
Cable Networks
 
4

 
 

 
 
(3
)
 
 
 
1

 
Publishing
 
1

 
 
5

 
 
(3
)
 
 
 
3

 
Local Media
 
12

 
 
12

 
 
(7
)
 
 
 
17

 
Corporate
 
2

 
 
2

 
 
(1
)
 
 
 
3

 
Total
 
$
39

 
 
$
63

 
 
$
(32
)
 
 
 
$
70

 
 
Balance at
 
2016
 
2016
 
Balance at
 
December 31, 2015
 
Charges
 
Settlements
 
December 31, 2016
Entertainment
 
$
19

 
 
$
16

 
 
$
(15
)
 
 
 
$
20

 
Cable Networks
 

 
 
4

 
 

 
 
 
4

 
Publishing
 

 
 
1

 
 

 
 
 
1

 
Local Media
 
11

 
 
6

 
 
(5
)
 
 
 
12

 
Corporate
 
1

 
 
3

 
 
(2
)
 
 
 
2

 
Total
 
$
31

 
 
$
30

 
 
$
(22
)
 
 
 
$
39

 
In 2016, the Company incurred professional fees of $8 million associated with merger and acquisition-related activities.

Other Operating Items, Net
For 2017, other operating items, net reflected a net gain relating to the disposition of property and equipment. For 2016, other operating items, net included a gain from the disposition of an internet business in China and a multiyear, retroactive impact of a new operating tax.

Interest Expense and Interest Income
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
Interest expense
$
(457
)
 
$
(411
)
 
$
46

 
11
%
 
Interest income
$
64

 
$
32

 
$
32

 
100
%
 
The following table presents the Company’s outstanding debt balances, excluding capital leases and discontinued operations debt, and the weighted average interest rate as of December 31, 2017 and 2016:

11




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


 
 
 
Weighted Average
 
 
 
Weighted Average
 
At December 31,
2017
 
Interest Rate
 
2016
 
Interest Rate
 
Total long-term debt
$
9,426

 
 
4.26
%
 
 
$
8,850

 
 
4.47
%
 
 
Commercial paper
$
679

 
 
1.88
%
 
 
$
450

 
 
0.98
%
 
 
Loss on Early Extinguishment of Debt
For 2017, the loss on early extinguishment of debt of $49 million reflected a pretax loss associated with the redemption of the Company’s $500 million outstanding 5.75% senior notes due April 2020 and the Company’s $300 million outstanding 4.625% senior notes due May 2018.

Pension Settlement Charges
During the fourth quarter of 2017, the Company purchased a group annuity contract under which an insurance company has permanently assumed the Company’s obligation to pay and administer pension benefits to certain of the Company’s pension plan participants, or their designated beneficiaries, who had been receiving pension benefits. The purchase of this group annuity contract was funded with pension plan assets. As a result, the Company’s outstanding pension benefit obligation was reduced by approximately $800 million, representing approximately 20% of the total obligations of the Company’s qualified pension plans. In connection with this transaction, the Company recorded a settlement charge of $352 million in the fourth quarter of 2017, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan. Additionally, during 2017, the Company made discretionary contributions totaling $600 million to prefund its qualified pension plans.

During 2016, the Company offered eligible former employees who had not yet initiated pension benefit payments the option to make a one-time election to receive the present value of their pension benefits as a lump-sum distribution or to commence an immediate monthly annuity benefit. As a result, the Company paid a total of $518 million of lump-sum distributions in 2016 using its pension plan assets, representing 12% of the total obligations of its qualified pension plans. Accordingly, the Company recorded a settlement charge of $211 million reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan.

Other Items, Net
The following table presents the components of Other items, net.
 
 
 
 
Year Ended December 31,
2017
 
2016
Pension and postretirement benefit costs
$
(86
)
 
$
(70
)
Foreign exchange gains (losses)
2

 
(12
)
Write-down of cost investments
(4
)
 

Other items, net
$
(88
)
 
$
(82
)

As a result of the adoption of new accounting guidance in the first quarter of 2018, the Company presents pension and postretirement benefit costs, other than service cost, below operating income on the Consolidated Statements of Operations, with settlement costs presented in “Pension settlement charges” and the remaining components presented within “Other items, net.” All prior periods have been reclassified to conform to this presentation. (See Note 1 to the consolidated financial statements.)


12




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


Provision for Income Taxes
The provision for income taxes represents federal, state and local, and foreign taxes on earnings from continuing operations before income taxes and equity in loss of investee companies.
Year Ended December 31,
2017

2016
 
Increase/(Decrease)
Provision for income taxes, including interest and before other
discrete items
$
(565
)
 
$
(686
)
 
 
(18
)%
 
Excess tax benefits from stock-based compensation (a)
44

 

 
 
 
 
Other discrete items (b)
17

 
58

 
 
 
 
Federal tax reform (c)
(129
)
 

 
 
 
 
Provision for income taxes
$
(633
)
 
$
(628
)
 
 
1
 %
 
Effective income tax rate
32.0
%
 
28.2
%
 
 
 
 
(a) Reflects excess tax benefits associated with the exercise of stock options and vesting of RSUs. During the first quarter of 2017, the Company adopted FASB guidance which requires that the difference between the tax benefit from stock-based compensation expense and the deduction on the tax return be recognized within the income tax provision on the statement of operations. Previously, such difference was recognized in stockholders’ equity on the balance sheet. This difference occurs because stock-based compensation expense is determined based on the grant-date fair value of the award, whereas the tax deduction is based on the fair value on the date the stock option is exercised or the RSU vests. This guidance requires the income statement classification to be applied prospectively, and therefore, excess tax benefits for prior periods remain classified in stockholders’ equity.
(b) For the year ended December 31, 2017, primarily reflects tax benefits from the resolution of certain state income tax matters. For the year ended December 31, 2016, primarily reflects a one-time tax benefit of $47 million associated with a multiyear adjustment to a tax deduction, which was approved by the IRS during the third quarter of 2016.
(c) Reflects the impact of the enactment of the Tax Reform Act in December 2017. As a result of this tax law, the Company recorded a net provisional charge of $129 million for the year ended December 31, 2017, reflecting an estimated tax impact of $407 million on the Company’s historical accumulated foreign earnings and profits, partially offset by an estimated benefit of $278 million to adjust the Company’s deferred income tax balances as a result of the reduction in the federal corporate income tax rate from 35% to 21%.

For 2018, the Company’s annual effective income tax rate is expected to be approximately 24% before any potential discrete items, including the tax impacts from stock-based compensation. This rate reflects a reduction in the federal corporate income tax rate to 21% beginning in 2018 as a result of the enactment of the Tax Reform Act.

Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in earnings (loss) of investee companies for the Company’s domestic and international equity investments.
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
Domestic
$
(61
)
 
$
(67
)
 
$
6

 
9
 %
 
International
2

 
(8
)
 
10

 
125
 %
 
Tax benefit
22

 
25

 
(3
)
 
(12
)
 
Equity in loss of investee companies, net of tax
$
(37
)
 
$
(50
)
 
$
13

 
26
 %
 


13




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


For 2016, equity in loss of investee companies, net of tax included $10 million for the write-down of an international television joint venture to its fair value.
Net Earnings from Continuing Operations and Diluted EPS from Continuing Operations
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
Net earnings from continuing operations
$
1,309

 
$
1,552

 
$
(243
)
 
(16
)%
 
Diluted EPS from continuing operations
$
3.22

 
$
3.46

 
$
(.24
)
 
(7
)%
 
For 2017, the decreases in net earnings from continuing operations and diluted EPS from continuing operations of 16% and 7%, respectively, were driven by pension settlement charges of $352 million ($237 million, net of tax); in 2017 compared with $211 million ($130 million, net of tax) in 2016; a provisional charge of $129 million from the enactment of the Tax Reform Act in December 2017; and a charge of $49 million ($31 million, net of tax) from the early extinguishment of debt. Diluted EPS from continuing operations benefited from lower weighted average shares outstanding as a result of the Company’s share repurchases and the shares retired as a result of the split-off of CBS Radio during the fourth quarter of 2017.

Net Loss from Discontinued Operations
On February 2, 2017, the Company entered into an agreement with Entercom to combine the Company’s radio business, CBS Radio, with Entercom in a merger effected through a Reverse Morris Trust transaction, which was tax-free to CBS Corp. and its stockholders. Beginning in the fourth quarter of 2016, CBS Radio has been presented as a discontinued operation in the consolidated financial statements for all periods presented.

On November 16, 2017, the Company completed the split-off of CBS Radio through an exchange offer, in which the Company accepted 17.9 million shares of CBS Corp. Class B Common Stock from its stockholders in exchange for the 101.4 million shares of CBS Radio common stock that it owned. Immediately following the exchange offer, each share of CBS Radio common stock was converted into one share of Entercom Class A common stock upon completion of the merger.

During the fourth quarter of 2017, upon closing of the transaction, the Company recorded a net loss of $105 million calculated as follows:
Fair value of CBS Corp. Class B Common Stock accepted
 
 
(17,854,689 shares at $56.40 per share on November 16, 2017)
 
$
1,007

Carrying value of CBS Radio (a)
 
(1,112
)
Net loss on split-off of CBS Radio
 
$
(105
)
(a) Net of a market value adjustment of $980 million recorded prior to the split-off.

The split-off was a tax-free transaction and therefore, there is no tax impact on the loss.

In connection with the Company’s plan to dispose of CBS Radio, 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.

14




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


The following tables set forth details of net earnings (loss) from discontinued operations for the years ended December 31, 2017 and 2016.
Year Ended December 31, 2017
CBS Radio
 
Other
 
Total
Revenues
$
1,018

 
$

 
$
1,018

Costs and expenses:
 
 
 
 
 
Operating
364

 

 
364

Selling, general and administrative
444

 
(1
)
 
443

Market value adjustment
980

(a) 

 
980

Restructuring charges
7

(b) 

 
7

Total costs and expenses
1,795

 
(1
)
 
1,794

Operating income (loss)
(777
)
 
1

 
(776
)
Interest expense
(70
)
 

 
(70
)
Other items, net
(2
)
 

 
(2
)
Earnings (loss) from discontinued operations
(849
)
 
1

 
(848
)
Income tax benefit (provision)
(55
)
 
45

(c) 
(10
)
Earnings (loss) from discontinued operations, net of tax
(904
)
 
46

 
(858
)
Net gain (loss) on disposal
(109
)
 
13

 
(96
)
Income tax benefit (provision)
4

 
(2
)
 
2

Net gain (loss) on disposal, net of tax
(105
)
 
11

(d) 
(94
)
Net earnings (loss) from discontinued operations, net of tax
$
(1,009
)
 
$
57

 
$
(952
)
(a) During 2017, prior to the split-off, CBS Radio was measured each reporting period, beginning with the first quarter of 2017, at the lower of its carrying amount or fair value less cost to sell. The value of the transaction with Entercom was determined based on Entercom’s stock price at the closing of the transaction and therefore, the carrying value of CBS Radio was measured at the value indicated by the stock valuation of Entercom. As a result, the Company recorded a market value adjustment of $980 million during the nine months ended September 30, 2017 to adjust the carrying value of CBS Radio as follows:
First Quarter 2017
 
$
(715
)
Second Quarter 2017
 
(365
)
Third Quarter 2017
 
100

 
 
$
(980
)
(b) Reflects restructuring charges associated with the reorganization of certain business operations, including severance costs and costs associated with exiting contractual obligations.
(c) Reflects a tax benefit from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business that was accounted for as a discontinued operation.
(d) Reflects adjustments to the loss on disposal of the Company’s outdoor advertising businesses, primarily from a decrease to the guarantee liability associated with the 2013 disposal of the Company’s outdoor advertising business in Europe (“Outdoor Europe”).


15




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


Year Ended December 31, 2016
CBS Radio
 
Other (b)
 
Total
Revenues
$
1,220

 
$

 
$
1,220

Costs and expenses:
 
 
 
 
 
Operating
397

 

 
397

Selling, general and administrative
496

 

 
496

Depreciation and amortization
26

 

 
26

Restructuring charges
8

(a) 

 
8

Impairment charge
444

 

 
444

Total costs and expenses
1,371

 

 
1,371

Operating loss
(151
)
 

 
(151
)
Interest expense
(17
)
 

 
(17
)
Other items, net
1

 

 
1

Loss from discontinued operations
(167
)
 

 
(167
)
Income tax provision
(88
)
 
(36
)
 
(124
)
Net loss from discontinued operations, net of tax
$
(255
)
 
$
(36
)
 
$
(291
)
(a) Reflects restructuring charges associated with the reorganization of certain business operations, including severance costs and costs associated with exiting contractual obligations.
(b) Reflects a charge from the resolution of a tax matter in a foreign jurisdiction relating to a previously disposed business that was accounted for as a discontinued operation.
The results of CBS Radio for 2016 included a pretax noncash impairment charge of $444 million ($427 million, net of tax) to reduce the carrying value of CBS Radio’s goodwill and FCC licenses in 11 markets to their fair value.

Net Earnings and Diluted EPS
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2017
 
2016
 
$
 
%
 
Net earnings
$
357

 
$
1,261

 
$
(904
)
 
(72
)%
 
Diluted EPS
$
.88

 
$
2.81

 
$
(1.93
)
 
(69
)%
 
Consolidated Results of Operations— 2016 vs. 2015
Revenues
Revenues by Type
 
 
% of Total
 
 
 
% of Total
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
Revenues
 
2015
 
Revenues
 
$
 
%
 
Advertising
$
6,288

 
 
48
%
 
 
$
5,824

 
 
46
%
 
 
$
464

 
8
 %
 
Content licensing and distribution
3,673

 
 
28

 
 
3,903

 
 
31

 
 
(230
)
 
(6
)
 
Affiliate and subscription fees
2,978

 
 
22

 
 
2,724

 
 
21

 
 
254

 
9

 
Other
227

 
 
2

 
 
220

 
 
2

 
 
7

 
3

 
Total Revenues
$
13,166

 
 
100
%
 
 
$
12,671

 
 
100
%
 
 
$
495

 
4
 %
 
Advertising
For 2016, the 8% increase in advertising revenues was driven by CBS’s broadcast of the Super Bowl, which is broadcast on the CBS Television Network on a rotating basis with other networks; higher political advertising sales; and 3% growth in underlying network advertising. The increase in network advertising reflects higher pricing, including from increased demand, partially offset by lower ratings, including from the broadcast of NFL games.


16




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


Content Licensing and Distribution
For 2016, the 6% decrease in content licensing and distribution revenues primarily reflected lower domestic television licensing revenues compared with 2015, which included sales of NCIS, Elementary and CSI. A significant contributor to television licensing revenues in 2016 was the international licensing of five Star Trek series.

Affiliate and Subscription Fees
For 2016, the 9% increase in affiliate and subscription fees reflected 35% growth in station affiliation fees and retransmission fees, and revenues from the Company’s streaming subscription services, including CBS All Access and the Showtime digital streaming subscription offering. These increases were partially offset by the benefit to 2015 from Showtime Networks’ distribution of the Floyd Mayweather/Manny Pacquiao boxing event.

International Revenues
International revenues primarily consist of television licensing revenues. The Company generated approximately 14% and 16% of its total revenues from international regions in 2016 and 2015, respectively.
 
 
 
 
% of
 
 
 
% of
 
Year Ended December 31,
 
2016
 
International
 
2015
 
International
 
United Kingdom
 
$
279

 
 
15
%
 
 
$
345

 
 
17
%
 
 
Other Europe
 
717

 
 
39

 
 
691

 
 
35

 
 
Canada
 
256

 
 
14

 
 
286

 
 
14

 
 
Asia
 
190

 
 
10

 
 
236

 
 
12

 
 
Other
 
407

 
 
22

 
 
446

 
 
22

 
 
Total International Revenues
 
$
1,849

 
 
100
%
 
 
$
2,004

 
 
100
%
 
 
Operating Expenses
 
 
 
% of Total
 
 
 
% of Total
 
 
 
Operating Expenses by Type
 
 
Operating
 
 
 
Operating
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
Expense
 
2015
 
Expense
 
$
 
%
 
Programming
$
2,941

 
 
37
%
 
 
$
2,892

 
 
37
%
 
 
$
49

 
2
 %
 
Production
2,658

 
 
34

 
 
2,604

 
 
33

 
 
54

 
2

 
Participation, distribution and
royalty
1,058

 
 
13

 
 
1,109

 
 
14

 
 
(51
)
 
(5
)
 
Other
1,299

 
 
16

 
 
1,306

 
 
16

 
 
(7
)
 
(1
)
 
Total Operating Expenses
$
7,956

 
 
100
%
 
 
$
7,911

 
 
100
%
 
 
$
45

 
1
 %
 
Programming
For 2016, the 2% increase in programming expenses was primarily driven by increased sports programming costs associated with the broadcast of NFL games, including Super Bowl 50, which was broadcast by CBS in 2016, partially offset by three fewer Thursday Night Football games than 2015. This increase was partially offset by costs in 2015 associated with Showtime Networks’ distribution of the Floyd Mayweather/Manny Pacquiao pay-per-view boxing event and lower costs for acquired television series as a result of a shift to a higher mix of internally developed television series.

Production
For 2016, the 2% increase in production expenses reflected increased investment in internally developed television series, partially offset by lower expenses associated with the decrease in television licensing revenues.


17




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


Participation, Distribution and Royalty
For 2016, the 5% decrease in participation, distribution and royalty costs primarily reflected lower participations associated with lower licensing sales of the CSI franchise.

Selling, General and Administrative Expenses
 
 
 
% of
 
 
 
% of
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
Revenues
 
2015
 
Revenues
 
$
 
%
 
Selling, general and administrative
expenses
$
2,054

 
 
16
%
 
 
$
1,935

 
 
15
%
 
 
$
119

 
6
%
 
For 2016, the 6% increase in SG&A expenses primarily reflects incremental advertising, marketing and employee-related costs to support the Company’s growth initiatives, and higher incentive compensation costs.
Depreciation and Amortization
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
2015
 
$
 
%
 
Depreciation and amortization
$
225

 
$
235

 
$
(10
)
 
(4
)%
 
For 2016, the 4% decrease in depreciation and amortization was the result of intangibles and property and equipment that became fully amortized, and the sales of internet businesses in China.

Restructuring Charges
During the year ended December 31, 2015, the Company recorded restructuring charges of $45 million, reflecting $24 million of severance costs and $21 million of costs associated with exiting contractual obligations and other related costs.

Other Operating Items, Net
For 2015, other operating items, net included gains from the disposition of businesses in China.

Interest Expense and Interest Income
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
2015
 
$
 
%
 
Interest expense
$
(411
)
 
$
(392
)
 
$
19

 
5
%
 
Interest income
$
32

 
$
24

 
$
8

 
33
%
 
The following table presents the Company’s outstanding debt balances, excluding capital leases and discontinued operations debt, and the weighted average interest rate as of December 31, 2016 and 2015:
 
 
 
Weighted Average
 
 
 
Weighted Average
 
At December 31,
2016
 
Interest Rate
 
2015
 
Interest Rate
 
Total long-term debt
$
8,850

 
 
4.47
%
 
 
$
8,365

 
 
4.68
%
 
 
Commercial paper
$
450

 
 
0.98
%
 
 
$

 
 
n/a

 
 
n/a - not applicable

18




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


Pension Settlement Charge
During 2016, the Company offered eligible former employees who had not yet initiated pension benefit payments the option to make a one-time election to receive the present value of their pension benefits as a lump-sum distribution or to commence an immediate monthly annuity benefit. As a result, the Company paid a total of $518 million of lump-sum distributions in 2016 using its pension plan assets, representing 12% of the total obligations of its qualified pension plans. Accordingly, the Company recorded a settlement charge of $211 million, reflecting the accelerated recognition of a portion of unamortized actuarial losses in the plan.

Other Items, Net
The following table presents the components of Other items, net.
 
 
 
 
Year Ended December 31,
2016
 
2015
Pension and postretirement benefit costs
$
(70
)
 
$
(26
)
Foreign exchange losses
(12
)
 
(26
)
Other items, net
$
(82
)
 
$
(52
)
As a result of the adoption of new accounting guidance in the first quarter of 2018, the Company presents pension and postretirement benefit costs, other than service cost, below operating income on the Consolidated Statements of Operations, with settlement costs presented in “Pension settlement charges” and the remaining components presented within “Other items, net.” All prior periods have been reclassified to conform to this presentation. (See Note 1 to the consolidated financial statements.)

Provision for Income Taxes
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2016

2015
 
$
 
%
 
Tax provision
$
(628
)
 
$
(676
)
 
$
(48
)
 
(7
)%
 
Effective tax rate
28.2
%
 
29.9
%
 
 
 
 
 
The Company’s income tax provision for 2016 included a one-time tax benefit of $47 million associated with a multiyear adjustment to a tax deduction, which was approved by the IRS during the third quarter of 2016, and a tax benefit of $81 million related to the pension settlement charge of $211 million. In 2015, the Company’s income tax provision included a tax provision of $8 million related to gains from the sales of internet businesses in China of $139 million.
Equity in Loss of Investee Companies, Net of Tax
The following table presents equity in earnings (loss) of investee companies for the Company’s domestic and international equity investments.
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
2015
 
$
 
%
 
Domestic
$
(67
)
 
$
(60
)
 
$
(7
)
 
(12
)%
 
International
(8
)
 
4

 
(12
)
 
n/m

 
Tax benefit
25

 
22

 
3

 
14
 %
 
Equity in loss of investee companies, net of tax
$
(50
)
 
$
(34
)
 
$
(16
)
 
(47
)%
 
n/m - not meaningful

19




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


Net Earnings from Continuing Operations and Diluted EPS from Continuing Operations
 
 
 
 
 
Increase/(Decrease)
 
Year Ended December 31,
2016
 
2015
 
$
 
%
 
Net earnings from continuing operations
$
1,552

 
$
1,554

 
$
(2
)
 
%
 
Diluted EPS from continuing operations
$
3.46

 
$
3.18

 
$
.28

 
9
%
 
Net earnings from continuing operations for 2016 was comparable with 2015, as the increase in revenues was offset by the 2016 pension settlement charge of $211 million ($130 million, net of tax), and 2015 gains on the sales of internet businesses in China of $139 million ($131 million, net of tax). The 9% increase in diluted EPS from continuing operations was driven by lower weighted average shares outstanding as a result of the Company’s share repurchases during 2016, which totaled $3.0 billion.

Net Loss from Discontinued Operations
The following table sets forth details of net earnings (loss) from discontinued operations for the year ended December 31, 2015:
Year Ended December 31, 2015
CBS Radio
 
Other (a)
 
Total
Revenues
$
1,223

 
$

 
$
1,223

Costs and expenses:
 
 
 
 
 
Operating
415

 

 
415

Selling, general and administrative
500

 

 
500

Depreciation and amortization
29

 

 
29

Restructuring charges
36

 

 
36

Impairment charge
484

 

 
484

Total costs and expenses
1,464

 

 
1,464

Operating loss
(241
)
 

 
(241
)
Other items, net
1