-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T+DMWkNK4tHa8B60TPhVdJnY95964bmh+GJumkQ85GI8SAwQzbZpdac2V5t8Y6Dv i2SKSCPHETfwVthzTvGRLA== 0000950123-95-002869.txt : 19951013 0000950123-95-002869.hdr.sgml : 19951013 ACCESSION NUMBER: 0000950123-95-002869 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19951012 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBS INC CENTRAL INDEX KEY: 0000018366 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 130590730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-02931 FILM NUMBER: 95579982 BUSINESS ADDRESS: STREET 1: 51 W 52ND ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129754321 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA BROADCASTING SYSTEM INC DATE OF NAME CHANGE: 19740605 10-K/A 1 AMENDMENT NO. 3 TO FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A NO. 3 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File No. 1-2931 December 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 CBS INC. A NEW YORK CORPORATION I.R.S. EMPLOYER NO. 13-0590730 51 West 52 Street, New York, NY 10019 Telephone Number (212) 975-4321 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common stock, $2.50 par value New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 22, 1995, was $4,286,160,242. As of September 22, 1995, there were 64,826,138 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for Annual Meeting of Shareholders held on May 10, 1995 (Part III). 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT NO. 3 TO REPORT FILED PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 CBS INC. ------------------------------------------------- (Exact name of registrant as specified in charter) AMENDMENT NO. 3 The undersigned registrant hereby amends its 1994 Annual Report on Form 10-K as follows. PART I 1. Item 1. The penultimate sentence in the second paragraph under the sub-heading "The CBS Television Stations Division..." on page 3 of the Report is amended by adding the following language. "...; the consideration payable in respect of such acquisition is $83 million, subject, however, to adjustment." 2. Item 1. The first full paragraph under the sub-heading "Material Licenses and Federal Regulation" is amended by adding to such paragraph the following four new sentences. "CBS currently holds broadcast licenses for 10 television stations (three of which are operated as "satellites" of other CBS Owned television stations and are accordingly exempt from the FCC's multiple ownership and television duopoly rules), 13 FM radio stations and eight AM radio stations. During 1995, CBS was required to file a license renewal application for one FM radio station. CBS will be required to file license renewal applications for four FM and four AM radio stations during 1996. In addition to the foregoing, CBS holds a license for a television translator station which is in the process of being assigned to another party, various licenses for auxiliary service stations, and various non-broadcast licenses." 3. Item 1. The text under the sub-heading "Material Licenses and Federal Regulation" is further amended as follows. (a) The last sentence of the second paragraph is deleted and the following sentence is substituted in lieu thereof. "On May 3, 1995, the FCC denied the NAACP petition and granted the WBBM-TV license renewal application." - 2 - 3 (b) The last sentence of the fifth paragraph is deleted and the following sentence is substituted in lieu thereof. "On June 22, 1995 the FCC denied the petition and granted the WCAU-TV license renewal application." (c) The seventh paragraph is deleted in its entirety and the following paragraph is substituted in lieu of thereof. "As noted in Item 1 of Part I of this Form 10-K (under the caption "The CBS Television Stations Division"), CBS, on September 23, 1994, entered into an Asset Purchase Agreement to acquire WGPR-TV, Detroit, Michigan from WGPR Inc. ("WGPR"). On October 27, 1994, CBS and WGPR filed an application with the FCC for consent to the assignment of the broadcast license for the station to CBS. Petitions to deny that application were separately filed on December 22, 1994 by Spectrum Detroit Inc. ("Spectrum"), a Michigan corporation, and Alexander Serafyn, a resident of the Detroit area. The Spectrum petition alleged that registrant had assumed premature control of the station in violation of the Communications Act by virtue of a local marketing agreement with the then- licensee of WGPR-TV pursuant to which registrant was at that time programming the station. The Serafyn petition was based on claims of intentional news distortion in a segment of the CBS News broadcast 60 MINUTES concerning anti-Semitism in the Republic of the Ukraine. On January 17, 1995, registrant filed a consolidated opposition to the petitions. On July 27, 1995, the FCC approved the assignment of the broadcast license for WGPR-TV to CBS. Both Spectrum and Serafyn have appealed the FCC's decision to the United States Court of Appeals for the District of Columbia Circuit (the "D.C. Circuit"). In addition, Oleg Nikolyszyn, who opposed FCC approval of registrant's acquisition of WPRI-TV, Providence, Rhode Island (see paragraph below), filed an appeal of the FCC decision regarding WGPR-TV with the D.C. Circuit. Registrant has intervened in these appeals, which have been consolidated by the Court. On September 20, 1995, registrant's acquisition of WGPR-TV (now WWJ-TV) was consummated." (d) The eighth paragraph is deleted in its entirety and the following paragraph is substituted in lieu of thereof. "As noted in Part I of this Form 10-K (under the caption "The CBS Television Stations Division"), CBS reported that on March 1, 1995, it had entered into an Asset Purchase Agreement to acquire WPRI-TV, Providence, Rhode Island from Narragansett Television L.P. An application for consent to the assignment of the broadcast license for the station to CBS was filed with the FCC on March 16, 1995. On April 26, 1995, Oleg Nikolyszyn, a resident of the Providence area, filed a petition to deny that application, to which CBS filed an opposition. The petition was based on claims of intentional news distortion in a segment of the CBS News broadcast 60 MINUTES concerning anti-Semitism in the Republic of the Ukraine, and also - 3 - 4 argued that action on the application should be delayed pending the resolution of certain issues raised in petitions to deny CBS's application to acquire WGPR-TV, Detroit. On June 22, 1995, the FCC staff approved the assignment of the broadcast license for WPRI-TV to CBS, subject to whatever action, if any, the FCC might deem appropriate in light of its consideration of the issues raised in the WGPR proceeding. On June 29, 1995, Nikolyszyn filed with the FCC staff a petition for reconsideration and motion for stay, to which CBS filed an opposition on July 6, 1995. Subsequently, in granting the WGPR-TV assignment application described in the preceding paragraph, the FCC removed the condition which it had previously placed on its grant of the WPRI-TV assignment application. CBS's acquisition of WPRI-TV was consummated on September 10, 1995." By reason of the foregoing Amendments 1, 2 and 3, Item 1 of Part I of the Report is restated in its entirety to read as follows. "Item 1. Business. The registrant, CBS Inc. ("CBS" or "registrant")*, conducts its domestic and international operations either directly or through subsidiaries and joint ventures. The operations of CBS are carried out primarily by the CBS/Broadcast Group. Other activities of CBS include various activities not directly associated with the Group, i.e., The CBS/FOX Company, Radford Studio Center Inc. and other miscellaneous activities. In addition, a multi-faceted strategic partnership between CBS and Westinghouse Broadcasting Company, Inc. ("Group W") was announced in July 1994. (See caption "Other Activities".) CBS/Broadcast Group The CBS/Broadcast Group, through the CBS Television Network, distributes a comprehensive schedule of news and public affairs broadcasts, entertainment and sports programming and feature films to 206 independently-owned affiliated stations and the seven CBS owned and operated television stations, which in the aggregate serve the 50 states and the District of Columbia, and to certain overseas affiliated stations. The CBS Operations and Administration Division operates the technical facilities used to produce and distribute programs of the CBS News, Sports and Entertainment Divisions. This division is also responsible for providing facilities management, personnel services, management information systems and administrative support services to CBS, including the CBS/Broadcast Group, and to - ------------------------ * Except as the context otherwise requires, references to CBS or registrant in this Annual Report mean CBS Inc. and include its subsidiaries. - 4 - 5 unaffiliated companies for a fee. The CBS/Broadcast Group consists of seven divisions, whose operations are briefly described below: The CBS Entertainment Division produces and otherwise acquires entertainment series and other programs, and acquires feature films, for distribution by the CBS Television Network for broadcast. The CBS Television Network Division operates the CBS Television Network and, through its CBS Marketing and Communications and CBS Sales units, is responsible for sales of advertising time for CBS Television Network broadcasts and related marketing research, merchandising and sales promotion activities. Through its CBS Affiliate Relations unit, this division is also responsible for the full range of ongoing activities and mutual concerns between the CBS Television Network and the 206 independently-owned affiliated stations. The CBS Enterprises Division, operating primarily through the CBS Broadcast International and CBS Video units, is responsible for the worldwide distribution of CBS-owned news and public affairs broadcasts, sports and entertainment programming and feature films to broadcast and other media (including cable, airlines and home video, in the latter case through The CBS/Fox Company) and the acquisition of broadcast and non-broadcast rights in independently produced programs where permitted by law. The CBS News Division operates a worldwide news organization which produces regularly scheduled news and public affairs broadcasts and special reports for the CBS Television and Radio Networks. This division also produces certain news-oriented programming for broadcast in the early morning daypart and in designated hours during prime time. CBS News Productions, a unit of the CBS News Division, produces documentaries for sale to other media outlets. The CBS Sports Division produces and otherwise acquires sports programs for distribution by the CBS Television Network for broadcast. The CBS Television Stations Division operates and serves as sales representative for the seven CBS-owned television stations (serving New York, Chicago, Los Angeles, Philadelphia, Minneapolis-St. Paul (which includes two satellite stations), Green Bay-Appleton (which includes a satellite station) and Miami). The division also owns and operates Midwest Sports Channel, a supplier of regional sports programming to cable subscribers in Minnesota, North Dakota, South Dakota, northern Iowa and western Wisconsin, and Teleport Minnesota, which provides programming and technical services to cable operators in the upper Midwest and operates a service enabling broadcast companies and other clients to transmit video signals into and out of Minnesota. - 5 - 6 In connection with the implementation of a joint venture agreement with Group W described below under the caption "Other Activities", it is contemplated that the CBS-owned television station in Philadelphia and certain assets of the CBS-owned television station in Miami will be exchanged for other television stations and broadcast assets, and that the proceeds of this exchange (as well as the retained assets and liabilities of the Miami station) will be contributed to the joint venture. As more fully set forth below, this venture will be controlled and managed by Group W. Pursuant to the advertising sales representation joint venture agreement with Group W also described under the caption "Other Activities", it is contemplated that the advertising sales representation operations of the two companies will be combined in an entity that will represent the television stations owned or controlled by CBS or Group W. In September 1994, CBS executed Asset Purchase Agreements for the acquisition of WGPR(TV), Detroit, and WVEU(TV), Atlanta, from WGPR, Inc. and Broadcast Corporation of Georgia ("BCG"), respectively. Subsequent to the execution of CBS's agreement to purchase WVEU(TV), the CBS Television Network agreed to affiliate with another television station in the Atlanta market. Accordingly, CBS has assigned its rights to acquire WVEU(TV) under its Asset Purchase Agreement with BCG to WVEU Purchase Inc. CBS's contemplated acquisition of WGPR-TV is subject to approval by the Federal Communications Commission ("FCC"). (See caption "Material Licenses and Federal Regulation" for further details.) On March 1, 1995, CBS executed an Asset Purchase Agreement for the acquisition of WPRI-TV, Providence, Rhode Island, from Narragansett Television L.P.; the consideration payable in respect of such acquisition is $83 million, subject, however, to adjustment. The transaction is subject to FCC approval. (See caption "Material Licenses and Federal Regulation.") The CBS Radio Division operates the eight CBS-owned AM radio stations (serving New York, Chicago, Detroit, Los Angeles, Philadelphia, Minneapolis-St. Paul, St. Louis and San Francisco) and the 13 CBS-owned FM radio stations (serving the same cities named above, as well as Boston, Dallas/Fort Worth (two stations), Houston and Washington, D.C.); serves as broadcast sales representative for the CBS-owned radio stations, 16 independently-owned AM and 24 independently owned FM radio stations; and operates the CBS Radio Networks, which serve approximately 585 affiliated stations nationwide. Other Activities The CBS/FOX Company is a partnership in which CBS and a wholly-owned subsidiary ("Fox Video") of Twentieth Century-Fox Film Corporation each own a 50% interest. This partnership is engaged in the acquisition from unrelated third parties of the videocassette rights to feature films and other, non-theatrical product, and provides marketing activities relating to the videocassette distribution (by Fox Video) of products produced by CBS and the partnership. It also engages in selling activities to specialized accounts of product of - 6 - 7 CBS and the partnership. In 1994, CBS and Fox Video agreed to extend the term of the related partnership to February 28, 1997. Radford Studio Center Inc., a wholly-owned subsidiary of CBS ("Radford"), owns and operates television and film production facilities at its Studio Center facility in Studio City, California. CBS, through Radford, became the sole owner of the Studio Center business and facilities in 1992 when it acquired the 50 percent partnership interest of MTM Studios, Ltd. in The CBS/MTM Company. In July 1994, CBS and Group W announced that they had agreed to a comprehensive strategic partnership involving long-term affiliation agreements between the CBS Television Network and television stations owned by Group W in four major markets (Boston, Baltimore, Pittsburgh and San Francisco), and the creation of three new joint ventures between the two companies. The new jointly-held entities will be established, respectively, to acquire and operate television stations in major markets; to combine the two companies' current advertising sales representation businesses; and to produce and distribute television programming. The television station and sales representation business joint ventures will be controlled and managed by Group W, which will own a majority voting interest in each of these entities; CBS and Group W will share equally in the profits and losses of these ventures. The entity involved in the production and distribution of programming will become an equal partnership between the two companies upon the termination of the existing Financial Interest and Syndication ("fin/syn") rules of the FCC, which is expected to occur in November 1995. In connection with the implementation of the television station joint venture agreement between CBS and Group W, in 1994 CBS created Station Partners, a Delaware general partnership that is at present wholly controlled by CBS, and transferred to Station Partners CBS's interests in television stations WCAU-TV, Philadelphia and WCIX(TV), Miami. In November 1994, Station Partners entered into an Asset Exchange Agreement with a subsidiary of the National Broadcasting Company, Inc. ("NBC"), pursuant to which Station Partners will exchange WCAU-TV, and the principal FCC licenses, broadcasting tower and certain related assets of WCIX(TV), for NBC's owned television station KCNC-TV, Denver; the principal FCC licenses, broadcasting tower and certain related assets of NBC's owned station WTVJ(TV), Miami; and $30.0 million. Upon the consummation of this exchange, which is subject to necessary regulatory approvals and other customary conditions of closing, Station Partners will become a joint venture between CBS and Group W, and will also own at that time the assets and liabilities of WCIX(TV) retained by Station Partners under the Asset Exchange Agreement with NBC, as well as television station KYW-TV, which is currently Group W's owned station in Philadelphia. In a separate agreement also executed in November 1994, another subsidiary of NBC granted to Station Partners the right to acquire - 7 - 8 partnership interests constituting the ownership rights to television station KUTV(TV), Salt Lake City, Utah, and rights to the construction permit for KUSG(TV), St. George, Utah, following NBC's acquisition of those rights from KUTV(TV)'s existing operators pursuant to a pending agreement. The consideration for this acquisition will consist of cash and the assumption of certain obligations collectively representing a total value of $124.0 million. Upon the closing of this transaction, which is subject to necessary regulatory approvals and other customary conditions of closing, KUTV(TV) will also be owned by the joint venture between CBS and Group W. The television station joint venture agreement contemplates the acquisition by the venture of two additional major market television stations. All stations owned by the venture will be affiliated with the CBS Television Network. The ownership structure of the joint venture is intended to result in non-attribution of the venture-owned stations to CBS for the purposes of the FCC's multiple ownership rules. INDUSTRY SEGMENT INFORMATION Since 1988, CBS has operated predominantly in a single industry -- broadcasting. Accordingly, there is no requirement for segment reporting. COMPETITION The CBS Television Network and CBS-owned television stations compete for audiences with other television networks and television stations, as well as with other video media, including cable television, multipoint distribution services, low power television stations, satellite television services and videocassettes. In the sale of advertising, the CBS Television Network and the CBS-owned television stations compete with other networks, other television stations, cable television systems and program services, and other advertising media. The CBS Television Network and CBS-owned television stations also compete with other video media for distribution rights to television programming. The CBS-owned television stations compete primarily in their individual markets. In addition to competing television broadcast stations, cable television systems and program services represent an especially significant source of competition for audiences, advertising and program rights to CBS. In individual markets, cable systems provide competition by offering audiences additional signals and by supplying a broad array of advertiser- and subscription-supported video programming not available on conventional stations. Further, the CBS Television Network competes with other television networks to secure affiliations with independently-owned television - 8 - 9 stations in markets across the country, which are necessary to ensure the effective distribution of network programming to a nationwide audience. During 1994, the competition among the networks for affiliates intensified to an unprecedented degree. In May 1994, an agreement was announced between Fox Broadcasting Company ("Fox") and New World Communications Group Inc. ("New World"), pursuant to which 12 television stations owned or to be acquired by New World -- including eight CBS affiliates in large cities -- were to become affiliated with the Fox Television Network. The Fox-New World agreement was followed by a series of affiliation changes affecting existing station affiliations of Capital Cities/ABC, Inc., CBS and NBC in more than 30 markets. CBS has secured other affiliates or entered into station purchase or other agreements to ensure the distribution of its network programming in all markets affected by the Fox-New World agreement. In a majority of those markets, the replacement stations are UHF (ultra high frequency) stations, which have relatively weak signals compared to the VHF (very high frequency) stations with which CBS was formerly affiliated. Despite the affiliation changes occasioned by the Fox-New World agreement, the CBS Television Network is still seen on VHF stations in more markets than any other network. There can be no assurance, however, that the affiliation changes described above, and possible future changes due to increased competition among networks for affiliates, may not adversely affect the audience for CBS Television Network programs. In addition, such increased competition has resulted in CBS's incurring higher costs for affiliate compensation, and further increases in such costs are possible. Current and future technological developments may affect competition within the television field. Developments in advanced digital technology may enable competitors to provide "high definition" pictures and sound qualitatively superior to what television stations now provide. Development of the technology to compress digital signals may also permit the same broadcast or cable channel or satellite transponder to carry multiple video and data services, and could result in an expanded field of competing services. CBS cannot predict when and to what extent digital technology will be implemented in the various television services, and whether and how television stations will be able to make use of the improvements inherent in it. The FCC has initiated proceedings having the ultimate goal of adopting a standard for the use of advanced digital technology in terrestrial television broadcast service. Recent statutory, judicial and regulatory actions may also affect competition. The Cable Consumer Protection and Competition Act of 1992 ("1992 Cable Act") for the first time required cable systems to obtain broadcast stations' consent to retransmit the stations' signals, thereby providing television stations the opportunity to negotiate a fee or other compensation for such retransmission. (CBS - 9 - 10 has granted cable systems carrying the signals of its owned television stations consent to continue to carry those signals, without compensation, until October 6, 1995.) As an alternative, the 1992 Cable Act allowed television stations to require cable systems to carry their signals within their television markets without compensation. The cable industry has brought legal challenges to the latter provisions of the 1992 Cable Act (commonly referred to as the "must carry" provisions), and a split lower court decision upholding them was appealed to the United States Supreme Court, which in June 1994 remanded the case for further fact finding. Telephone companies represent another source of potential competition in the television field through their efforts to provide both video services and data transmission services directly to their subscribers' homes. While the Cable Communications Policy Act of 1984 generally prohibits telephone companies from providing video programming directly to subscribers' homes within their service areas, several recent developments may affect competition. In 1992, the FCC permitted telephone companies, without the necessity of obtaining a municipal cable franchise, to offer "video dialtone" distribution services to programmers on a common carrier basis. The U.S. Court of Appeals for the Fourth and Ninth Circuits recently ruled that the above statutory restriction on telephone company provision of video programming violates the First Amendment rights of those companies. U.S. District Courts in four other circuits have also reached the same conclusion. In light of these decisions, the FCC has allowed Bell Atlantic-Virginia to offer its own programming over a video dialtone platform in Fairfax, Virginia, and commenced a proceeding to establish general rules to govern such offerings by telephone companies generally. Legislative proposals that would provide a regulatory framework for telephone company entry into the cable television business and into the provision of future broadband video services in the companies' service areas are expected to be under active consideration by Congress in 1995. Network regulations may also affect competition. In 1991, the FCC modified the fin/syn rules, which had limited the ability of television networks to acquire any financial interest or syndication rights in television programs and prohibited the networks from themselves syndicating television programs. CBS and other television networks appealed this decision to the United States Court of Appeals for the Seventh Circuit, contending that the rules should have been eliminated rather than modified. The Court affirmed the FCC's decision to abrogate the pre-existing rules, but vacated the FCC's modification of those rules as arbitrary and capricious and remanded the matter to the FCC. In April 1993, the FCC announced new rules which eliminate all restrictions on network acquisition of financial interests and syndication rights in network programming and retain most restrictions on syndication by the networks themselves. In July 1994, the Seventh Circuit Court of Appeals affirmed the FCC's decision to adopt the new rules. - 10 - 11 The television network operations of CBS and other television networks are subject to consent decrees entered by the United States District Court for the Central District of California in 1980. In November 1993, the court modified the consent decrees to eliminate restrictions parallel to the FCC's old fin/syn rules, thereby permitting the networks to act to the extent permitted by the FCC's 1993 rules. The FCC has provided that, unless it issues an order to the contrary, all its fin/syn restrictions are to "sunset" two years from the date of the November 1993 modification of the consent decrees. It has also determined that it will review the rules six months before they are scheduled to expire and that the burden of proof in this review will rest on those favoring retention of the rules. The FCC's decision as to the expiration of its remaining fin/syn rules, subject to such final review, was also affirmed in the Seventh Circuit's July 1994 decision. The CBS Radio Network and CBS's owned radio stations compete with other radio networks, independent radio stations, suppliers of radio programming, and other advertising media. Competition with CBS's owned radio stations occurs primarily in their individual market areas, although on occasion stations outside a market place signals within that area. While such outside stations may obtain an audience share, they generally do not obtain any significant share of the advertising within the market. Developments in radio technology could affect competition in the radio field. New radio technology, known as "digital audio broadcasting" (DAB), can provide sound of the quality of compact discs, which is significantly higher than that now provided by radio networks and stations using analog technology. CBS, among others, is actively involved in the study and development of this digital technology, but cannot predict when and to what extent existing radio networks and stations will be in a position to utilize it. The FCC has initiated proceedings to consider the development and implementation of DAB services. The FCC is also currently considering several applications to establish a nationwide, satellite-delivered DAB service, which, if approved, could constitute an additional source of competition to conventional radio stations and networks. CBS cannot predict the effect on its business or earnings of possible future competitive, economic, technological, international or industrial changes. Nor can CBS generally predict the outcome of administrative and judicial proceedings or whether new legislation may be enacted or new regulations adopted that might bear on the broadcast industry or affect CBS's business. MATERIAL LICENSES AND FEDERAL REGULATION Except as indicated below, all of CBS's television and radio stations - 11 - 12 operate under currently effective licenses from the FCC, which is empowered by the Communications Act of 1934, as amended, to, inter alia, license and regulate television and radio broadcasting stations. The FCC has authority to grant or renew broadcast licenses for a maximum term of five years for television and seven years for radio if it determines that the "public convenience, interest or necessity" will be served thereby. During a specified period after an application for renewal of a broadcast station license has been filed, competing applications seeking a license to broadcast on the same frequency may be filed with the FCC, and are entitled to consideration by the FCC in a hearing to evaluate the comparative merits of the applications. Persons objecting to the license renewal application may also file petitions to deny during this period. CBS currently holds broadcast licenses for 10 television stations (three of which are operated as "satellites" of other CBS Owned television stations and are accordingly exempt from the FCC's multiple ownership and television duopoly rules), 13 FM radio stations and eight AM radio stations. During 1995, CBS was required to file a license renewal application for one FM radio station. CBS will be required to file license renewal applications for four FM and four AM radio stations during 1996. In addition to the foregoing, CBS holds a license for a television translator station which is in the process of being assigned to another party, various licenses for auxiliary service stations, and various non-broadcast licenses. In Item 1 of CBS's Form 10-K for 1992 (under the caption "Material Licenses and Federal Regulation"), CBS reported that, on August 3, 1992, it had filed with the FCC a timely application to renew the television broadcast licenses for WBBM-TV, Chicago, Illinois. CBS further reported that, on or about August 18, 1992, Edward Magnus, an individual, filed with the FCC a petition to deny the WBBM-TV application, to which CBS responded on September 24, 1992. By letter dated November 14, 1994, the FCC dismissed the petition to deny. CBS also reported that a second petition to deny the WBBM-TV application was filed on or about November 2, 1992, by the NAACP, and that on November 23, 1992, CBS filed its opposition. On May 3, 1995, the FCC denied the NAACP petition and granted the WBBM-TV license renewal application. In Item 1 of Part II of CBS's Form 10-Q for the quarter ended September 30, 1993, CBS reported that, on August 2, 1993, CBS filed with the FCC a timely application to renew the television broadcast license for KCBS-TV, Los Angeles, California. On November 17, 1993, Mark McDermott and Americans for Responsible Media filed with the FCC a petition to deny the KCBS-TV application, to which CBS responded on December 14, 1993. By letter dated November 14, 1994, the FCC dismissed the petition to deny. Thereafter, on January 11, 1995, the FCC granted the KCBS-TV license renewal application. - 12 - 13 In Item 1 of CBS's Form 10-K for 1993 (under the caption "Material Licenses and Federal Regulation"), CBS reported that, on February 1, 1994, CBS filed with the FCC a timely application to renew the television broadcast license for WCBS-TV, New York, New York. CBS's application to renew the WCBS-TV license was granted by the FCC on January 10, 1995. In Item 1 of Part II of CBS's Form 10-Q for the quarter ended March 31, 1994, CBS reported that, on April 1, 1994, CBS filed with the FCC a timely application to renew the television broadcast license for WCAU-TV, Philadelphia, Pennsylvania. On July 13, 1994, the Philadelphia Lesbian and Gay Task Force and other groups filed with the FCC a petition to deny the WCAU-TV application, to which CBS responded on August 22, 1994. On June 22, 1995, the FCC denied the petition and granted the WCAU-TV license renewal application. The FCC has adopted rules prohibiting common ownership in the same market of radio and VHF television stations and prohibiting common ownership of stations with certain overlapping signals ("duopoly"). When those rules were adopted, existing commonly owned stations, including television/radio combinations and a television duopoly then owned by CBS, were "grandfathered". In addition, in February 1992, CBS acquired from Midwest Communications, Inc., a VHF television station and AM and FM radio stations in Minneapolis, Minnesota, pursuant to an FCC waiver of its rules relating to television/radio combinations. As a result, absent an FCC waiver, a transfer of CBS licenses to a third party or a change in control of CBS could result in the loss of the license of either the television station or the radio stations in New York, Philadelphia, Chicago, Los Angeles and Minneapolis, and (as a result of overlapping television signals) the television station in either New York or Philadelphia. Under the FCC's waiver policy, however, the FCC will generally look favorably on waiver applications relating to radio-television station combinations in the top 25 television markets where there would be at least 30 separately owned broadcast stations after the proposed combination. As noted in Item 1 of Part I of this Form 10-K (under the caption "The CBS Television Stations Division"), CBS, on September 23, 1994, entered into an Asset Purchase Agreement to acquire WGPR-TV, Detroit, Michigan from WGPR Inc. ("WGPR"). On October 27, 1994, CBS and WGPR filed an application with the FCC for consent to the assignment of the broadcast license for the station to CBS. Petitions to deny that application were separately filed on December 22, 1994 by Spectrum Detroit Inc. ("Spectrum"), a Michigan corporation, and Alexander Serafyn, a resident of the Detroit area. The Spectrum petition alleged that registrant had assumed premature control of the station in violation of the Communications Act by virtue of a local marketing agreement with the then- licensee of WGPR-TV pursuant to which registrant was at that time programming the station. The Serafyn - 13 - 14 petition was based on claims of intentional news distortion in a segment of the CBS News broadcast 60 MINUTES concerning anti-Semitism in the Republic of the Ukraine. On January 17, 1995, registrant filed a consolidated opposition to the petitions. On July 27, 1995, the FCC approved the assignment of the broadcast license for WGPR-TV to registrant. Both Spectrum and Serafyn have appealed the FCC's decision to the United States Court of Appeals for the District of Columbia Circuit (the "D.C. Circuit"). In addition, Oleg Nikolyszyn, who opposed FCC approval of registrant's acquisition of WPRI-TV, Providence, Rhode Island (see paragraph below), filed an appeal of the FCC decision regarding WGPR-TV with the D.C. Circuit. Registrant has intervened in these appeals, which have been consolidated by the Court. On September 20, 1995, registrant's acquisition of WGPR-TV (now WWJ-TV) was consummated. As also noted in Item 1 of Part I of this Form 10-K (under the caption "The CBS Television Stations Division"), CBS, on March 1, 1995, entered an Asset Purchase Agreement to acquire WPRI-TV, Providence, Rhode Island from Narragansett Television L.P. An application for consent to the assignment of the broadcast license for the station to registrant was filed with the FCC on March 16, 1995. On April 26, 1995, Oleg Nikolyszyn, a resident of the Providence area, filed a petition to deny that application, to which registrant filed an opposition. The petition was based on claims of intentional news distortion in a segment of the CBS News broadcast 60 MINUTES concerning anti-Semitism in the Republic of the Ukraine, and also argued that action on the application should be delayed pending the resolution of certain issues raised in petitions to deny registrant's application to acquire WGPR-TV, Detroit (see paragraph above). On June 22, 1995, the FCC staff approved the assignment of the broadcast license for WPRI-TV to registrant, subject to whatever action, if any, the FCC might deem appropriate in light of its consideration of the issues raised in the WGPR proceeding. On June 29, 1995, Nikolyszyn filed with the FCC staff a petition for reconsideration and motion for stay, to which registrant filed an opposition on July 6, 1995. Subsequently, in granting the WGPR-TV assignment application described in the paragraph above, the FCC removed the condition which it had previously placed on its grant of the WPRI-TV assignment application. Registrant's acquisition of WPRI-TV was consummated on September 10, 1995. EMPLOYEES As of December 31, 1994, CBS had approximately 6,400 full-time employees." PART III 4. Item 10. Item 10 of Part III of the Report is amended and restated in its entirety to read as follows. - 14 - 15 "Item 10. Directors and Executive Officers of the Registrant. Incorporated herein by this reference and made a part of this Item 10 are the materials included in CBS's Proxy Statement" under the captions "Information Concerning Nominees for Directors", "Additional Information in Respect of the Board of Directors and its Committees", "Non-Employee Directors' Compensation and Benefits" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934". Definitive copies of the 1995 Proxy Statement were filed with the Commission on or about April 7, 1995. See also, "Executive Officers of the Registrant", included in Item 1 hereof pursuant to Instruction 3 to Item 401(b) of Regulation S-K." MANAGEMENT'S FINANCIAL COMMENTARY 5. The first paragraph under the heading "Management's Financial Commentary" (which commenced on page 18) is amended by adding after the last sentence in such paragraph the following new sentence. "Net income in 1994 declined from 1993 due mainly to a legal settlement with Viacom, as noted above, an insurance settlement for hurricane damage to the Company's television station in Miami, higher gains from the sale of marketable securities and higher tax benefits - all of which benefited earnings in 1993." 6. The fourth paragraph under the sub-heading "Capital Structure and Total Assets" (page 23) is amended by adding the following three sentences to the beginning of such paragraph thereof. "As of December 31, 1994, the Company had commitments to acquire program rights of $497.3 million and $547.4 million in 1995 and 1996, respectively (note 11). The Company anticipates funding these amounts from internally generated cash flows. The Company anticipates investing approximately $60.0 million in 1995 in the jointly-held entities with Group W (note 2)." 7. The fourth paragraph under the sub-heading "Capital Structure and Total Assets" (page 23) is amended by adding after the last sentence in such paragraph the following two new sentences. "As part of the $500.0 million revolving credit agreement, as of December 31, 1994, the Company had borrowed $150.7 million of short-term debt (note 8) for working capital and other corporate purposes. The remaining $349.3 million of credit was available to the Company at an interest rate of LIBOR plus 17 basis points, in the range of approximately 6.2 percent to 7.5 percent." - 15 - 16 8. Under the sub-heading "Income from Continuing Operations and Net Income" (page 19), the present paragraphs two through seven become paragraphs four through nine, respectively, and two new paragraphs (numbers two and three) are inserted between the first and the new fourth paragraph. The text of such new paragraphs reads in its entirety as follows. "The Company's cost of sales as a percentage of net sales remained essentially flat in 1994 compared with 1993, because the increase in costs related to the broadcast of the Olympic Winter Games in 1994 was offset by the absence of Major League Baseball and National Football League games broadcast in 1993. The cost of sales in 1992 includes the costs to broadcast the Olympic Winter Games and Super Bowl. The costs in 1991 and 1990 were adversely effected by the pretax provision of $322.0 million and $282.0 million, respectively, for losses on the Company's Major League Baseball and National Football League television contracts. The increases in selling, general and administrative expenses in 1994, 1993 and 1992 were due primarily to higher advertising and promotional expenses." "Other income, net, in 1993 included a pretax gain of $29.5 million from a legal settlement with Viacom and a pretax gain of $12.4 million from insurance settlements for hurricane damage to the Company's television station in Miami." 9. The fifth paragraph under the sub-heading "Cash Flows from Investing Activities" (page 22) is amended by adding the following new sentence. "The gain on sale of marketable securities was included in Interest Income on Investments, net, in the Consolidated Statements of Income and in note 5." By reason of the foregoing Amendments 5, 6, 7, 8, and 9, the text and related financial tables under the heading "Management's Financial Commentary" are restated to read in their entirety as follows. "MANAGEMENT'S FINANCIAL COMMENTARY In 1994, the Company's operating results improved compared with the prior year, reflecting strengthened demand for national and local television advertising. The increase in operating results would have been higher but for a legal settlement with Viacom International Inc. ("Viacom"), which benefited earnings in 1993. Net income in 1994 declined from 1993 due mainly to a legal settlement with Viacom, as noted above, an insurance settlement for hurricane damage to the Company's television station in Miami, higher gains from the sale of - 16 - 17 marketable securities and higher tax benefits - all of which benefited earnings in 1993. The operating results of the Company in the future primarily depend on the success of its programs, demand for television advertising and competitive changes in media businesses. In 1994, the Company and Westinghouse Broadcasting Company, Inc., ("Group W") announced that they had agreed to extended station affiliation agreements, and to the formation of three new jointly-held entities which will acquire and operate additional television stations, produce and distribute programming, and combine the companies' existing advertising sales representation businesses. In addition, the Company, on behalf of the televison station joint venture, agreed to exchange with the National Broadcasting Company ("NBC") certain broadcast stations and assets in Denver, Miami, Philadelphia and Salt Lake City (note 2). In October 1994, the Company effected a 5-for-1 split of its common stock (note 12). The adjusted weighted average number of shares outstanding, per share amounts, and Stock Rights Plan data have been adjusted for the common stock split for all periods presented in this report. The Company continually updates its evaluations of environmental liabilities and the adequacy of the provisions made in prior years to cover asserted and unasserted environmental claims arising from the operations of its discontinued businesses. (There are no significant environmental claims known to the Company arising from its continuing operations.) In the Company's opinion, any additional liabilities that may result from such claims are not reasonably likely to have a material adverse effect on its consolidated financial position, results of operations, or liquidity. The impact of inflation on the Company's financial statements in 1994 was not considered sufficient to warrant the inclusion of any additional current cost disclosures in these statements. This Financial Commentary should be read in conjunction with the consolidated financial statements and notes to these financial statements. In addition, although the Commentary's Liquidity and Capital Resources section is based upon the Consolidated Statements of Cash Flows, certain data have been rearranged for purposes of clarification and, therefore, it should be read in conjunction with the Consolidated Statements of Cash Flows. - 17 - 18 RESULTS OF OPERATIONS Income from Continuing Operations and Net Income The Company's sales increased in 1994 due primarily to the Television Network's broadcast of the Olympic Winter Games, increased revenues in the late-night time period and strengthened demand for national and local television advertising. In 1993, the sales increase was due to the Television Network's strong household ratings and better unit prices from its regularly scheduled programming, which largely compensated for the absence of sales generated from the broadcasts of the Olympic Winter Games and Super Bowl in 1992. Sales improved significantly in 1992 because of the Television Network's stronger primetime program schedule and the broadcasts of the Olympic Winter Games and the Super Bowl. In 1991, sales decreased as a result of the absence of the Super Bowl and NBA post-season games which were broadcast in 1990. The Company's cost of sales as a percentage of net sales remained essentially flat in 1994 compared with 1993, because the increase in costs related to the broadcast of the Olympic Winter Games in 1994 was offset by the absence of Major League Baseball and National Football League games broadcast in 1993. The cost of sales in 1992 includes the costs to broadcast the Olympic Winter Games and Super Bowl. The costs in 1991 and 1990 were adversely effected by the pretax provision of $322.0 million and $282.0 million, respectively, for losses on the Company's Major League Baseball and National Football League television contracts. The increases in selling, general and administrative expenses in 1994, 1993 and 1992 were due primarily to higher advertising and promotional expenses. Other income, net, in 1993 included a pretax gain of $29.5 million from a legal settlement with Viacom and a pretax gain of $12.4 million from insurance settlements for hurricane damage to the Company's television station in Miami. In 1994, operating income increased modestly over 1993. Operating income decreased at the Television Network due to weakness in primetime and daytime broadcast dayparts as well as the absence of a 1993 pretax gain of $29.5 million from a legal settlement with Viacom. However, operating income increased in the late-night time period due to higher sales, as noted above. The Television Stations Division recorded higher operating income at all stations aided by increased demand for local television advertising. The Radio Division experienced a significant improvement in earnings attributable largely to the FM Stations Group and the Radio Networks. In 1993, at the Television Network Division, the increase in operating income reflected strong household ratings, better unit prices, and a legal settlement with Viacom. The Company's operating income improved significantly in 1992 as a result of the Television - 18 (Page 1 of 3) - 19 Network's stronger primetime program schedule. In 1991 and 1990, the Company recorded operating losses due mainly to the provisions for losses on its baseball and football television contracts. Interest, net, decreased significantly in 1994 compared with 1993 due to the Company's $1.1 billion common stock repurchase (note 12), as well as a decrease of $38.9 million in gains from the sale of marketable securities. The increase in interest, net, in 1993 resulted mainly from the conversion of the 5% convertible debt into common stock in that year. In the preceding two years, interest, net, declined largely as a result of the sale of marketable securities to fund the Company's $2 billion repurchase of its common stock in February 1991. In 1994, the effective income tax expense rate increased from the prior year due to higher tax benefits in 1993. In 1994, income tax expense was reduced by state and local tax audit settlements of $18.2 million; in 1993, income tax expense was reduced by $34.2 million as a result of deferred tax benefits and a favorable Federal tax audit settlement for the years 1988-1990. The 1992 effective income tax expense rate was reduced by a favorable Federal tax audit settlement of $17.9 million for the years 1985-1987. In 1992, the Company adopted certain accounting standards (note 1) that resulted in a one-time charge to net income, shown as cumulative effects of changes in accounting principles. Net income and earnings per share in 1994 declined due mainly to a legal settlement with Viacom, an insurance settlement for hurricane damage to the Company's television station in Miami, gains from the sale of marketable securities, and higher tax benefits - all of which benefited earnings in 1993. Absent the impact of these items, net income and earnings per share would have increased in 1994 over 1993 by $19.7 million and $.25 per share, respectively. The decreases in adjusted weighted average shares outstanding in 1994 and 1991 were related to the Company's repurchase of 17.5 million and 52.5 million shares of its common stock (shares reflected on an after-split basis), respectively (note 12). In connection with the share repurchase in 1991, the Company reduced its quarterly dividend per share in the first quarter of 1991 from $.22 to $.05. Based on the Company's improved financial condition, it raised its quarterly dividend per share to $.10 in the fourth quarter of 1993. - 18 (Page 2 of 3) - 20
Year ended December 31 -------------------------------------------------------- 1994 1993 1992 1991 1990 -------------------------------------------------------- (In millions, except per share amounts) Net sales . . . . . . . . . $3,711.9 $3,510.1 $3,503.0 $3,035.0 $3,261.2 Cost of sales . . . . . . . (2,823.2) (2,688.8) (2,906.5) (2,938.0) (2,925.6) Selling, general and administrative expenses. . (475.8) (461.3) (422.9) (384.6) (409.3) Other income, net . . . . . 13.3 51.2 6.5 16.3 22.8 Operating income (loss) . . 426.2 411.2 180.1 (271.3) (50.9) Interest income on investments, net . . . . . 57.8 110.4 107.6 140.1 210.1 Interest expense on debt, net. . . . . . . . . (47.0) (42.3) (60.7) (47.4) (57.9) -------- -------- -------- -------- -------- Interest, net.. . . . . . . 10.8 68.1 46.9 92.7 152.2 -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes . . . 437.0 479.3 227.0 (178.6) 101.3 Income tax (expense) benefit . . . . . . . . . (155.4) (153.1) (64.5) 79.9 (10.5) -------- -------- -------- -------- -------- Income (loss) from continuing operations. . . 281.6 326.2 162.5 (98.7) 90.8 Discontinued operations . . 12.9 20.0 Cumulative effects of changes in accounting principles . . . . . . . (81.5) -------- -------- -------- -------- -------- Net income (loss) . . . . . $ 281.6 $ 326.2 $ 81.0 $ (85.8) $ 110.8 Per share of common stock: Continuing operations . . $3.74 $ 4.08 $ 2.10 $ (1.22) $ .70 Discontinued operations . .16 .16 Cumulative effects of changes in accounting principles . . . . . . (1.05) -------- -------- -------- -------- -------- Net income (loss) . . . . $ 3.74 $ 4.08 $ 1.05 $ (1.06) $ .86 Dividends per common share. $ .40 $ .25 $ .20 $ .20 $ .88 Adjusted weighted average shares outstanding. . . . 72.2 77.7 77.1 81.0 128.7
- 18 (Page 3 of 3) - 21 LIQUIDITY AND CAPITAL RESOURCES Cash Flows The Company's liquid assets include its cash and cash equivalents and readily marketable securities held in its short-term and long-term portfolios. In 1994, the decrease in liquid assets of $743.4 million was attributable primarily to the Company's repurchase of 17.5 million shares of its common stock for $1.1 billion (note 12), partially offset by positive cash flows from operating activities. In 1993, the increase in liquid assets of $123.8 million was due mainly to cash flows from operating activities, gain on sale of marketable securities and the issuance of $100.0 million of debt, partially offset by capital expenditures. The increase in 1992 of $46.7 million reflected the cash flows from operating activities, partially offset by capital expenditures. The issuance of $150.0 million of debt in 1992 was primarily used to fund the acquisition of Midwest Communications, Inc. ("Midwest") (note 2). In 1991, the decrease in liquid assets was related principally to the Company's $2 billion repurchase of its common stock. In 1990, the combination of capital expenditures, retirement of debt and the payment of dividends to shareholders moderately exceeded the Company's cash flows from operating activities. Additional details on specific cash flows are provided in subsequent sections of this Commentary. - 19 (Page 1 of 2) - 22
Year ended December 31 -------------------------------------------------------- 1994 1993 1992 1991 1990 -------------------------------------------------------- (In millions) Cash flows: Operating activities . . . . $ 444.2 $ 117.6 $ 144.2 $ 97.8 $ 217.7 Investing activities . . . . 498.7 (163.0) (374.1) 1,484.3 103.5 Financing activities . . . . (1,101.0) 73.4 105.3 (2,033.2) (198.6) --------- -------- ------- --------- -------- Net change in cash and cash equivalents. . . . . . (158.1) 28.0 (124.6) (451.1) 122.6 Remove net investment in marketable securities included above*. . . . . . (570.8) 95.8 171.3 (1,456.2) (147.6) --------- -------- ------- --------- -------- Cash flows before investment in marketable securities. . . (728.9) 123.8 46.7 (1,907.3) (25.0) Unrealized pretax holding losses, net, on marketable securities at end of year. (14.5) --------- -------- ------- --------- -------- (Decrease) increase in cash and marketable securities . . . . . . . . (743.4) 123.8 46.7 (1,907.3) (25.0) Cash and marketable securities at beginning of year**. . . . . . . . . 1,045.4 921.6 874.9 2,782.2 2,807.2 --------- -------- ------- --------- -------- Cash and marketable securities at end of year**. . . . . . . . . $ 302.0 $1,045.4 $ 921.6 $ 874.9 $2,782.2
- --------------- * Includes liabilities for securities sold subject to repurchase agreements (note 1). ** Includes cash and cash equivalents and readily marketable securites held in the Company's short-term and long-term portfolios as well as liabilities for securities sold under repurchase agreements. - 19 (Page 2 of 2) - 23 Cash Flows from Operating Activities In accordance with Statement of Financial Accounting Standards (SFAS) No. 95, "Statement of Cash Flows," all cash flows not classified as investing or financing activities, and all interest and income taxes, including those related to investing and financing activities, are classified as operating activities. In 1994, cash flows from operating activities were higher than in 1993 due largely to the broadcasts of baseball and football programs in 1993 (the cash payments for these programs far exceeded their related revenues and, therefore, had a significantly negative impact on 1993 cash flows) and the prepayment of the rights fee made in prior years for the broadcast of the 1994 Olympic Winter Games. In 1993, cash flows were lower than in 1992. This was primarily caused by the higher rights fee paid for the football television contract, and a higher level of year-end accounts receivable, due to increased sales in the fourth quarter, partially offset by increased income. In 1992, cash flows increased over the preceding year due to higher operating income which resulted from the improved primetime ratings and unit pricing. In 1991, cash flows declined from 1990's level, principally as a result of a decline in sales which more than offset cost reductions, and also because of reduced interest income resulting from the sale of marketable securities in February 1991 to fund the Company's $2 billion repurchase of its common stock. Interest, net, decreased in 1994 due to the cash outlay of $1.1 billion for the repurchase of 17.5 million shares of the Company's common stock (note 12). Interest, net, increased in 1993, mainly because of the conversion of the 5% convertible debt into common stock in that year. In 1992 and 1991, interest, net, had declined, due principally to the sale of securities in February 1991 to fund the Company's $2 billion repurchase of its common stock. The significant taxes paid in 1994 and 1993 related primarily to the Company's improved operating results. The small positive cash flows from taxes in 1992 and 1991 were attributable largely to refunds related to prior years, offsetting those years' tax payments which were small due to tax deductions for timing items. These timing items arose mainly from baseball and football losses (note 3), which were accrued in 1990 and 1991, but which were deducted for tax purposes in 1991, 1992 and 1993. From an overall standpoint, the fluctuations in cash flows from operating activities, over the period covered by the table, were due - 20 (Page 1 of 3) - 24 mainly to changes in operating income (exclusive of noncash items) and investments in program rights. Additionally, there were period-to-period changes in year-end levels of accounts receivable and various other assets and liabilities, due mainly to the timing of transactions. - 20 (Page 2 of 3) - 25
Year ended December 31 --------------------------------------------------- 1994 1993 1992 1991 1990 --------------------------------------------------- (In millions) Net income (loss). . . . . . . . . $ 281.6 $ 326.2 $ 81.0 $ (85.8) $ 110.8 Adjustments: Depreciation and amortization 76.2 71.0 66.7 59.9 58.7 Gain on sale of marketable securities, net. . . . . . . . . (.7) (39.6) (28.9) (38.1) (12.4) Cumulative effects of changes in accounting principles. . . 81.5 Gain on discontinued operations (21.2) (33.0) Changes in assets and liabilities: Accounts receivable. . . . . . . . 31.5 (37.1) 7.8 (2.7) 32.4 Program rights, net. . . . . . . . 73.8 (26.0) 23.3 .9 8.1 Accounts payable . . . . . . . . . 4.5 (2.3) (18.1) 4.7 (5.0) Accrual on baseball and football television contracts. . . . . . . (21.0) (242.0) (160.0) 233.0 190.0 Income taxes . . . . . . . . . . . 2.0 60.5 69.8 (64.5) (114.7) Other, net . . . . . . . . . . . . (3.7) 6.9 21.1 11.6 (17.2) ------ ------- ------- ------ ------ Cash flows from operating activities . . . . . . . . . . . $ 444.2 $ 117.6 $ 144.2 $ 97.8 $ 217.7 Cash flows from interest and income taxes included above: Interest, net* . . . . . . . . . . $ 10.1 $ 28.5 $ 18.0 $ 54.6 $ 139.8 Income taxes . . . . . . . . . . . (155.0) (94.2) 2.6 2.4 (143.4)
* Excludes gain on sale of marketable securities, which was included in cash flows from investing activities. - 20 (Page 3 of 3) - 26 Cash Flows from Investing Activities The cash flows from marketable securities in 1994 and 1991 were used mainly to fund the Company's repurchase of 17.5 million shares of its common stock for $1.1 billion (note 12) and 52.5 million shares of its common stock for $2 billion, respectively. Other changes in net investment in marketable securities were due essentially to the cash requirements of the Company. In addition, the increases and decreases in the sales and purchases of these securities, as presented in the Statements of Cash Flows, reflected activity stimulated by financial market conditions. In 1992, the Company acquired Midwest and the remaining 50 percent interest in television and film production facilities in Los Angeles (note 2). The Company's principal capital expenditures in 1994, as in previous years, were for broadcasting assets. In 1993, they also included the acquisition and renovation of the Ed Sullivan Theater in New York City from which the LATE SHOW with DAVID LETTERMAN is broadcast. The asset dispositions in 1991 represent the cash receipt of the final settlement of all disputed items in arbitration related to the 1988 sale of the Company's Records Group. Interest income on investments, net, excluding gain on sale of marketable securities, was included in operating activities and is presented for informational purposes. The gain on sale of marketable securities was included in Interest Income on Investments, net, in the Consolidated Statements of Income and in note 5. - 21 (Page 1 of 4) - 27
Year ended December 31 ------------------------------------------------- 1994 1993 1992 1991 1990 ------------------------------------------------- (In millions) Marketable securities: Gain on sale. . . . . . . . . $ .7 $ 39.6 $ 28.9 $ 38.1 $ 12.4 Net investment. . . . . . . . 570.8 (95.8) (171.3) 1,456.2 147.6 Cash flows from marketable securities* . . . 571.5 (56.2) (142.4) 1,494.3 160.0 Major acquisitions** . . . . . . (160.2) Capital expenditures . . . . . . (72.8) (106.8) (71.5) (64.2) (60.4) Asset dispositions . . . . . . . 54.2 3.9 ------ ------- ------- -------- ------ Cash flows from investing activities***. . . . . . . . . $498.7 $(163.0) $(374.1) $1,484.3 $103.5 Interest income on investments, net (not included above). . . $ 57.1 $ 70.8 $ 78.7 $ 102.0 $197.7
- ----------- * Includes liabilities for securities sold subject to repurchase agreements (note 1). ** The table excludes the noncash items indicated in the footnotes to the Statements of Cash Flows. *** Cash flows related to interest (excluding gain on sale of marketable securities) and taxes are included in operating activities in accordance with SFAS No. 95. - 21 (Page 2 of 4) - 28 Cash Flows from Financing Activities In September 1994, the Company repurchased 17.5 million shares of its common stock at a cost of $1.1 billion (note 12). Also in 1994, the Company entered into a $500.0 million revolving credit agreement. As of December 31, 1994, pursuant to this credit agreement, the Company had borrowed $150.7 million of short-term debt for working capital and other corporate purposes. In addition, in 1994, the Company commenced a $50.0 million debt repurchase program (note 8). Under this program,$36.1 million of debt was repurchased during the year. In 1993, the Company issued $100.0 million of senior notes.The proceeds from the issuance of these debt securities were used to purchase New York City Industrial Development Agency (IDA) bonds, which were issued by the IDA to establish a trust fund to implement the Company's agreement with the IDA. Under this agreement, the Company is required to invest in production facilities and develop new broadcasting and production technologies in New York City in return for certain tax incentives and low-cost energy. In 1992, the Company issued $150.0 million of senior notes in connection with the acquisition of Midwest. In addition, it issued $125.0 million of senior notes and $125.0 million of senior debentures to refinance $263.0 million of senior notes due 1995. During 1990 and 1991, the Company retired debt of $91.1 million. In 1991, the Company repurchased 52.5 million shares of its common stock at a cost of approximately $2 billion. In connection with this repurchase of shares, the Company reduced its quarterly dividend per share in the first quarter of 1991 from $.22 to $.05. In the fourth quarter of 1993, based on its improved financial condition, the Company increased its quarterly dividend per share to $.10. Interest expense on debt, net, was included in operating activities and is presented for informational purposes. - 21 (Page 3 of 4) - 29
Year ended December 31 ------------------------------------------------ 1994 1993 1992 1991 1990 ------------------------------------------------ (In millions) 7 1/8% senior notes due 2023. . . . $ (2.7) $100.0 7 5/8% senior notes due 2002. . . . $ 150.0 7 3/4% senior notes due 1999. . . . 125.0 8 7/8% senior debentures due 2022 . (33.4) 125.0 10 7/8% senior notes due 1995 . . . (263.0) $ (3.0) $ (7.7) 11 3/8% notes due 1992. . . . . . . (75.6) Other long-term debt. . . . . . . . (46.5) (.9) (2.5) (2.5) (2.3) Short-term debt . . . . . . . . . . 150.7 --------- ------ ------- -------- ------- Debt issued (retired)*. . . . . . . 68.1 99.1 134.5 (5.5) (85.6) Repurchases of common stock . . . . (1,138.8) (3.0) (2,005.1) Dividends to shareholders . . . . . (38.1) (31.3) (25.9) (25.7) (116.6) Other, net. . . . . . . . . . . . . 7.8 5.6 (.3) 3.1 3.6 --------- ------ ------- -------- -------- Cash flows from financing activities**. . . . . . . . . . . $(1,101.0) $ 73.4 $ 105.3 $(2,033.2) (198.6) Interest expense on debt, net (not included above) . . . . . . . . . $ (47.0) $(42.3) $ (60.7) $ (47.4) $ (57.9)
- --------------- * The table excludes the noncash items indicated in the footnotes to the Statements of Cash Flows. ** Cash flows related to interest and taxes are included in operating activities in accordance with SFAS No. 95. - 21 (Page 4 of 4) - 30 Working Capital In 1994, the decrease in working capital was attributable largely to the use of cash and marketable securities to partially fund the Company's repurchase of shares of its common stock. In addition, the working capital was affected negatively by the increase in current debt, and a decrease in program rights due mainly to the 1994 broadcasts of the Olympic Winter Games and National Football League games for which the rights fee was paid in prior years. In 1993, the increase in working capital reflected the decrease in other current liabilities caused by the reversal of accrued losses recorded in prior years related to the baseball and football television contracts (note 3), partially offset by the realization of tax benefits related to these losses. The increase in accounts receivable, due to increased sales in the fourth quarter, and the increase in net program rights, due principally to the 1994 Olympic Winter Games, also contributed to the increase in working capital. In 1992, the decrease in working capital was due primarily to the reclassification of certain marketable securities to the Company's long-term portfolio, and to a reclassification from long-term to other current liabilities of the accrued losses related to the baseball and football television contracts. The main reason for the decrease in working capital in 1991 was related to the Company's cash outlay for its $2 billion common stock repurchase. In addition, the increase in other current liabilities was due mainly to accrued losses on the baseball and football television contracts. In 1990, working capital reflected the reclassification of marketable securities from long-term to short-term in anticipation of their sale to fund the $2 billion common stock repurchase. - 22 (Page 1 of 4) - 31
December 31 ------------------------------------------------------ 1994 1993 1992 1991 1990 ------------------------------------------------------ (In millions) Current assets: Cash and marketable securities*. . . . . . . . . $ 29.4 $ 219.4 $ 169.0 $ 272.5 $2,318.8 Accounts receivable. . . . . . 423.0 454.5 417.4 420.3 417.6 Program rights . . . . . . . . 404.4 581.9 447.4 505.5 403.3 Recoverable income taxes** . . 28.8 117.1 90.2 87.6 Other. . . . . . . . . . . . . 18.3 18.2 20.9 18.2 17.8 ------ ------- ------- ------- -------- Total current assets . . . . . 875.1 1,302.8 1,171.8 1,306.7 3,245.1 Current liabilities: Accounts payable . . . . . . . 37.9 33.4 35.7 48.1 43.4 Liabilities for talent and program rights. . . . . . 245.2 317.4 245.5 276.3 236.4 Debt . . . . . . . . . . . . . 151.5 .9 13.0 3.5 3.4 Other. . . . . . . . . . . . . 285.6 312.5 514.4 410.0 251.7 Total current liabilities. . . 720.2 664.2 808.6 737.9 534.9 Working capital. . . . . . . . $154.9 $ 638.6 $ 363.2 $ 568.8 $2,710.2 Ratio of current assets to current liabilities . . . . 1.22:1 1.96:1 1.45:1 1.77:1 6.07:1
- --------------- * Includes cash and cash equivalents and liabilities related to securities sold subject to repurchase agreements (note 1). ** Primarily related to temporary differences attributable to the Major League Baseball and National Football League television contracts (note 3). - 22 (Page 2 of 4) - 32 Capital Structure and Total Assets In 1994, the Company's total debt as a percentage of total capitalization rose primarily as a result of the Company's repurchase of 17.5 million shares of its common stock which reduced shareholders' equity by $1.1 billion. In 1993, the Company's total debt as a percentage of total capitalization improved mainly because of the conversion of the 5% convertible debentures into common stock, and a significant increase in net income. The percentage remained essentially unchanged in 1992 compared with 1991 due largely to the higher level of debt offset by the increase in shareholders' equity. The percentage rose in 1991, primarily as a result of the Company's repurchase of common stock which reduced shareholders' equity by $2 billion. The higher level of debt in 1992 was because of the issuance of $150.0 million of senior notes in connection with the acquisition of Midwest (note 2). Also in 1992, the Company retired its 10 7/8% senior notes due 1995 by refinancing debt with lower interest rates and lengthened maturities. As of December 31, 1994, the Company had commitments to acquire program rights of $497.3 million and $547.4 million in 1995 and 1996, respectively (note 11). The Company anticipates funding these amounts from internally generated cash flows. The Company anticipates investing approximately $60.0 million in 1995 in the jointly-held entities with Group W (note 2). The Company believes that, with an ample amount of highly liquid assets and a revolving credit agreement of $500.0 million (note 8), it remains fully capable of funding its current operations and sufficiently flexible with respect to the acquisition of additional media properties should suitable opportunities arise. As part of the $500.0 million revolving credit agreement, as of December 31, 1994, the Company had borrowed $150.7 million of short-term debt (note 8) for working capital and other corporate purposes. The remaining $349.3 million of credit was available to the Company at an interest rate of LIBOR plus 17 basis points, in the range of approximately 6.2 percent to 7.5 percent. The principal changes in total assets over the five-year period were related to the Company's $1.1 billion common stock repurchase in 1994; increased investment in marketable securities from the issuance of debt and increased program rights in 1993; the acquisitions of Midwest and television and film production facilities in 1992; and the $2 billion common stock repurchase in 1991. - 22 (Page 3 of 4) - 33
December 31 ------------------------------------------------------ 1994 1993 1992 1991 1990 ------------------------------------------------------ (In millions) Current debt . . . . . . . . . $ 151.5 $ .9 $ 13.0 $ 3.5 $ 3.4 Long-term debt . . . . . . . . 507.3 590.3 870.0 696.5 712.4 Total debt . . . . . . . . . . 658.8 591.2 883.0 700.0 715.8 Common stock subject to redemption. . . . . . . . 65.2 Preference stock subject to redemption. . . . . . . . 89.9 124.7 124.5 124.4 124.2 Shareholders' equity . . . . . 277.1 1,138.0 446.8 354.8 2,392.7 -------- -------- -------- -------- -------- Total capitalization . . . . . $1,025.8 $1,853.9 $1,454.3 $1,179.2 $3,297.9 Total debt as a percentage of total capitalization. . . . 64.2% 31.9% 60.7% 59.4% 21.7% Total assets . . . . . . . . . $2,160.1 $3,418.7 $3,175.0 $2,798.6 $4,691.8"
- 22 (Page 4 of 4) - 34 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. CBS INC. ------------------------------------ (Registrant) Dated: October 12, 1995 By /s/ Peter W. Keegan ------------------------------------- Executive Vice President and Chief Financial Officer - 23 - -----END PRIVACY-ENHANCED MESSAGE-----