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[Letterhead of Shearman & Sterling LLP]
November 22, 2006
VIA EDGAR TRANSMISSION
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Mr. Larry Spirgel
Securities and Exchange Commission
Division of Corporation Finance
100 F Street NE, Mail Stop 3720
Washington, DC 20549
Phone: 202-551-3810
Re: CBS Corporation
Form 10-K for Fiscal Year Ended December 31, 2005
Filed March 16, 2006
Form 10-Q for the Quarter Ended June 30, 2006
Filed August 8, 2006
File No. 1-09553
Dear Mr. Spirgel:
On behalf of our client, CBS Corporation (the "Company"), set forth
below are the Company's responses to the comments (the "Comments") of the staff
(the "Staff") of the Securities and Exchange Commission (the "Commission"),
received in your letter dated October 31, 2006 concerning the Company's
above-referenced periodic filings. Reference is made to the Company's letter
filed with the SEC on October 4, 2006 (the "Initial Response Letter"), which
responded to the comments made by the Staff in its letter dated September 7,
2006. For the purposes of this letter, the Company refers to its Form 10-K for
the fiscal year ended December 31, 2006 as its "2006 Form 10-K." For your
convenience, the Company's responses follow the sequentially numbered Comments
copied in bold from your letter, dated October 31, 2006.
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 2
Form 10-K for the fiscal year ended December 31, 2005
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Revenue Recognition, page II-44.
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1. We note your response to our prior comment 11. With respect to revenues
from advertising sales, tell us, and disclose, how you determine that the
earnings process is complete, or when "the targeted audience rating has
been met." Please disclose your basis for measurement and your underlying
assumptions if not measured independently.
The Company respectfully submits that when it sells advertising spots
with guarantees for a targeted audience rating, the earnings process is complete
for the audience delivered when such advertising spots are aired. The Company
determines the audience delivered, on a contract-by-contract basis, using
ratings data published by independent audience ratings measurement companies
such as Nielsen Media Research. Revenues are deferred for any shortfall in the
audience rating with respect to an advertising spot until such time as the
required audience rating is delivered, which typically occurs upon airing
additional advertising spots, as required by the underlying contract. In
response to the Staff's Comment, the Company will add the underlined sentences
in the following proposed disclosure in its future filings, beginning with its
2006 Form 10-K (as part of the Revenue Recognition section of Note 1, Summary of
Significant Accounting Policies):
"Advertising revenues are recognized in the period during which
advertising spots are aired or displayed. If there is a guarantee to
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deliver a targeted audience rating, revenues are recognized for the actual
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audience rating delivered, based on the ratings data published by
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independent audience ratings measurement companies. Revenues are deferred
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for any shortfall in the audience rating with respect to an advertising
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spot until such time as the required audience rating is delivered."
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3) Goodwill and Intangible Assets, page II-51
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2. We refer to your response to prior comment 15 regarding your radio
business.
o With respect to your determination of your Radio operating segment,
tell us if the information that is provided to your CEO on a regular
basis contains information about each of your radio stations OR your
radio stations by geographic area.
The Company respectfully notes that information that is provided to the
Company's Chief Executive Officer ("CEO") on a regular basis to make decisions
about resources to be allocated to, and investments to be made in, the Radio
operating segment and to assess this segment's performance is prepared at the
overall Radio operating segment level and does not contain information about
individual radio stations or the Radio operating segment's five geographic
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 3
components. Specifically, the following Radio operating segment financial
information is regularly provided to the CEO and used to make resource
allocation and investment decisions, and to assess performance:
o Radio operating segment Statement of Operations accompanied with
detailed analytical analyses, including a comparison of actual
Radio operating segment revenue and expenses to corresponding
prior year and budget amounts;
o Price volume analysis for Radio operating segment advertising
revenues;
o Radio operating segment Statement of Cash Flows, including capital
expenditures and working capital changes; and
o Radio operating segment Balance Sheet.
Consistent with the foregoing management approach, the Radio operating
segment revenue and operating income before depreciation and amortization
("OIBDA") information in the annual budget and Operations Report, which provides
quarterly financial and other highlights on total Company and operating segment
performance, and which is regularly reviewed by the CEO with the Company's Board
of Directors, is presented on an overall Radio operating segment level.
The Company respectfully notes that certain revenue-based information
is provided to the CEO on a regular basis, including:
o Weekly advertising revenue pacing information by "Designated
Market Areas," as defined by Nielsen Media Research, divided into
top 5, top 10, top 20 and "all other" markets, which provides
current advertising revenue information; and
o Program ratings information which assists in understanding the
current revenues and future revenue potential of significant radio
programs that are broadcast across many of the radio stations.
In addition, the Company respectfully notes that on a quarterly basis,
the CEO is copied, as part of a wide distribution, on the Company's
Budget/Estimate Book and the press release package, which include Radio
operating segment information principally prepared on an operating segment
basis. These packages also include a supplemental "roll-up" schedule of revenues
and OIBDA by the Radio operating segment's 40 "Designated Market Areas", as
defined by Nielsen Media Research, divided into top 10, top 20 and "all other"
markets. The CEO does not review nor participate in the meetings to discuss the
information in the Budget/Estimate Book or press release package, nor is the
supplemental "roll-up" schedule used, to make resource allocation and investment
decisions or to assess performance, as such OIBDA information excludes certain
shared corporate expenses such as employee-related expenses and rating agency
fees. This supplemental "roll-up" schedule is prepared in order to
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 4
provide some background and context about market-based information in order to
assist the Company in assessing the qualitative public disclosures made by the
Company.
o With respect to your conclusion that your five geographic regions or
components comprise a single reporting unit:
o We note your statement that these five components have similar
economic characteristics. Please tell us whether each of your
components exhibit similar long-term financial performance and
describe in detail what information you analyze to make that
determination.
The Company respectfully notes that in addition to the qualitative
similarities that the five components exhibit, as described in the Company's
Initial Response Letter, from a quantitative perspective, these components also
exhibit similar long-term financial performance. Specifically, the OIBDA margins
for these five components averaged between **CONFIDENTIAL TREATMENT REQUESTED BY
CBS CORPORATION PURSUANT TO RULE 83** and **CONFIDENTIAL TREATMENT REQUESTED BY
CBS CORPORATION PURSUANT TO RULE 83** over the past three completed fiscal
years. The Company respectfully notes that EITF D-101, "Clarification of
Reporting Unit Guidance in Paragraph 30 of FASB Statement No. 142" ("EITF
D-101"), states that the assessment of whether components of an operating
segment are similar should be more qualitative than quantitative.
o We note your discussion of "the extent to which the component
businesses share assets and other resources." It is unclear to us
how your 179 radio stations share physical assets such as
facilities and radio broadcast equipment. It is also unclear how
your radio stations in differing geographic areas share
management, accounting, engineering and other resources. Your
analysis that the sharing of corporate resources or other
centralized operations does not appear sufficient enough to
support aggregation of these five components. Please advise.
The Company acknowledges the Staff's Comment that certain physical
assets, such as buildings, radio station equipment, as well as certain
individual radio station on-site resources like the individual station
management and bookkeeping functions are not shared. However, the Company
respectfully notes that a significant portion of the Radio operating segment's
assets and resources are shared, as described below.
o Programming - Programming costs represent a significant portion of the
Radio operating segment's total operating costs. The Radio operating
segment's most profitable programs are its syndicated morning shows and
network programs that are shared by many of its radio stations. These
programs comprise a significant portion of total programming costs.
These assets are acquired, negotiated and managed centrally.
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 5
o Talent Contracts - The negotiation and management of key talent
that broadcast on many of the Radio operating segment's radio
stations is a shared function that is performed centrally at the
Radio operating segment's corporate office.
o National Advertising Revenues and Accounts Receivables - A significant
portion of the Radio operating segment's total advertising spot
revenues are derived from national advertising arrangements, as
described in the Company's Initial Response Letter. National
advertising revenues and the related receivables (including collections
from national advertisers) are managed centrally on behalf of the
individual radio stations.
o Advertising Agency Relationships - Advertising commissions paid to
advertising agencies represent a significant cost for the Radio
operating segment. The management of advertising agency
relationships is a shared function and all agreements and
relationships with advertising agencies are entered into and
managed centrally by the Radio operating segment's corporate
office.
o Rating Agency Agreements - Program ratings determine the amount of
advertising revenue to be recognized by the individual radio
stations. The management of the rating agency is a shared function
that is managed centrally, and, as such, all rating agency
agreements cover all of its radio stations and are negotiated
centrally.
o Traffic Systems - The Radio operating segment's primary system to track
advertising spots is a common system shared by all 179 of its radio
stations, from which all of the Radio operating segment's advertising
revenue is tracked.
o Accounting, Treasury, Tax, Insurance, Legal, Employee Benefits and
Human Resources - Each of the components of the Radio operating segment
share and benefit from these functional resources that are performed
centrally on behalf of all the radio stations. For example, all radio
stations' cash management, employee benefit programs, insurance
coverage, accounting policies and procedures, legal functions, and tax
matters are handled by the applicable departments at the Radio
operating segment's corporate office.
The Company respectfully notes that EITF D-101 requires consideration
of all of the factors in paragraph 17 of SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), and all of the
factors delineated in EITF D-101 in determining whether the components of an
operating segment exhibit similar economic characteristics. The Company
respectfully notes that it considered all nine of the qualitative factors set
forth in paragraph 17 of SFAS 131 and EITF D-101 in concluding that its Radio
operating segment components are similar. The Company also respectfully notes
that EITF D-101 states that "the [FASB] did not intend that every factor must be
met in order for two components to be economically similar." In addition to the
discussion of the third factor in EITF
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 6
D-101 set forth above, the Company respectfully refers the Staff to its
discussion of the other eight factors in the Initial Response Letter.
Form 10-Q for the Quarterly Period Ended June 30, 2006
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Description of Business, page 6
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3. We note your response to our prior comment 18. Tell us if the information
that is provided to your CEO on a regular basis contains information
about each of your Television components, such as CBS Television, CBS
Paramount Television, Showtime Networks and CSTV Networks.
The Company respectfully notes that the Company's CEO makes resource
allocation and investment decisions, and assesses performance at the Television
operating segment level. The following Television operating segment financial
information is regularly provided to the CEO:
o Statement of Operations, including detailed analytical analysis
comparing actual Television operating segment revenue and expenses
to corresponding prior year and budget amounts;
o Statement of Cash Flows;
o Revenues by type (e.g., advertising, license and affiliate fees);
o Weekly advertising revenue pacing information, which provides
current advertising revenue information for the Television
operating segment's advertising-based businesses; and
o Ratings information which assists in understanding the current
revenues and future revenue potential of significant television
programs that are exhibited or licensed across the Television
operating segment's components.
The Company respectfully notes that the above-listed revenue-related
information includes some disaggregated information that relates to the
Television operating segment components. In addition, the Statement of
Operations and the Statement of Cash Flows information described above are
accompanied by a "roll-up" of the four Television operating segment components.
However, the component "roll-up" information is provided to the CEO as part of a
wide distribution, and is not utilized by him to make resource allocation and
investment decisions, and to assess performance. The Company respectfully notes
that the component "roll-up" information is prepared for the Television Segment
Manager who regularly meets with the Television operating segment component
executives to review such information. In addition, detailed reviews and
analyses of that information are performed at levels below that of the CEO by
the Chief Financial Officer, Chief Accounting Officer, as well as the Television
operating segment component executives. The CEO does not participate in these
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 7
meetings at which those detailed reviews and analyses occur.
Consistent with the level at which the CEO makes resource allocation
and investment decisions, and assesses performance, the Television operating
segment revenue and OIBDA information in the annual budget and Operations
Report, which is regularly reviewed by the CEO with the Company's Board of
Directors, is currently presented on an overall Television operating segment
level, with only revenues broken down by type (e.g., advertising, license and
affiliate fees).
The Company respectfully notes that the CEO makes resource allocation
and investment decisions, and assesses performance only at the Television
operating segment level due to the interrelationships and interdependencies that
exist among the four Television operating segment components. Since most
individual television programs generate revenues across different components
within the Television operating segment, the CEO makes programming return on
investment decisions on an overall Television operating segment basis. By
managing its programming investment decisions in this manner, the Company
believes it is able to achieve a greater return on its programming investments
if it analyzes the return of the overall Television operating segment for each
programming dollar spent. Accordingly, the Company does not attempt to match
programming and other costs with the related revenues generated by each of the
Television components nor does it allocate certain shared costs borne by one
component for the benefit of the other components. There are also synergistic
benefits of managing television and cable networks, television stations and
television production, distribution and syndication operations together as these
businesses are complementary in nature. Such benefits include the cost
efficiencies achieved in sharing the functional and back office efforts across
the television businesses, resulting in a higher value and economic utility of
the combined businesses. Because of the manner in which the CEO manages the
Television operating segment and the way shared programming and other shared
costs are reported by the individual Television operating segment components,
profitability measures and return on investment analyses for the individual
components of the Television operating segment can be misleading without
considering the profits and returns of the Television operating components in
the aggregate. The Company respectfully submits the following examples for the
Staff's consideration:
o The CBS Paramount Television component produces programs primarily
for exhibition on the CBS Television component's CBS Network and
the owned and operated television stations, and on Showtime
Networks. These arrangements are in line with the basis of the
CEO's approach to make programming return on investment decisions
on the overall Television operating segment. The CBS Paramount
Television component, in this example, will reflect the production
costs and may therefore incur a net loss on the investment.
o CBS Paramount Television distributes CBS Television and Showtime
owned programming. **CONFIDENTIAL TREATMENT REQUESTED BY CBS
CORPORATION PURSUANT TO RULE 83**.
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
Page 8
o The CBS Television component oversees the Television operating
segment's overall digital activities, where content from CBS
Networks, Showtime Networks, CBS Paramount Television and CSTV is
distributed. The shared costs associated with these activities are
solely reflected in the CBS Television component.
In summary, the Company respectfully submits that notwithstanding the
fact that the Company's CEO does receive some disaggregated information with
respect to the components of the Television operating segment, this does not
cause these components to be considered operating segments. As noted above, such
information provided to the Company's CEO on a regular basis is either (a) only
revenue-related information or (b) profitability information which is subject to
the above-described limitations with respect to its usage and is not utilized by
the Company's CEO to make resource allocation and investment decisions, and to
assess performance. The Company's CEO performs such analyses only at the overall
Television operating segment level.
Additionally, please address the following when determining whether
your television components meet the operating segment criterion in
paragraph 10.b of SFAS 131:
o The fact that in a recent earnings call, the CEO specifically referred
to performance metrics and discrete information related to certain of
your respective divisions, including Showtime, CBS Television Stations
and CSTV, and
The CEO does, from time to time, refer to discrete, primarily
qualitative information related to certain components of the Television
operating segment in CBS earnings release conference calls. With respect to
quantitative information, because profitability information related to the
Television operating segment components is limited, as described above, the
Company's public financial disclosures and references by the CEO on earnings
calls about components have been limited to revenue or revenue-related measures.
o The basis of compensation for each of the television executives and the
degree of involvement of your CEO in setting the total compensation.
**CONFIDENTIAL TREATMENT REQUESTED BY CBS CORPORATION PURSUANT TO RULE 83**
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83
* * * *
We hereby acknowledge on behalf of the Company that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o Staff comments or changes to disclosure in response to Staff comments
do not foreclose the Commission from taking any action with respect to
the filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you have any questions concerning the matters referred to in this
letter, please call the undersigned at (212) 848-7325.
Sincerely,
/s/ Stephen T. Giove
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Stephen T. Giove
cc: Leslie Moonves, President and Chief Executive Officer
Fredric G. Reynolds, Executive Vice President and Chief Financial Officer
Susan Gordon, Senior Vice President, Controller and Chief Accounting Officer
Louis J. Briskman, Executive Vice President and General Counsel
Charles K. Gifford, Chair of the Audit Committee
Robert Conklin, PricewaterhouseCoopers LLP
Kathryn T. Jacobson, Securities and Exchange Commission
Confidential Treatment of Limited Portions of the
Responses to Comments 2 and 3 Requested by
CBS Corporation pursuant to Rule 83