February 23, 2006
8:30 a.m. EST

Executives

Marty Shea - EVP, Investor Relations
Sumner Redstone - Chairman
Leslie Moonves - President and CEO
Fred Reynolds - EVP and CFO

Analysts

Victor Miller - Bear Stearns
Jessica Reif Cohen - Merrill Lynch
Anthony Diclemente - Lehman Brothers
Doug Mitchelson with Deutsche Bank
Kathy Styponias - Prudential Securities
Andy Baker - Cathay Financial
Arian Mueller - Credit Suisse First Boston
Anthony Noto - Goldman Sachs
Michael Nathanson - Sanford Bernstein

Presentation

Operator

Good day everyone, and welcome to the CBS Corporation fourth quarter and full year 2005 earnings release teleconference. Today’s call is being recorded. At this time I would like to turn the call over to the Senior Vice President of Investor Relations, Mr. Marty Shea. Please go ahead, sir.

Marty Shea

Good morning, everyone. Thank for taking time to join us for our fourth quarter and full year 2005 earnings call. Joining me for today’s discussion are Sumner Redstone, our Chairman; Leslie Moonves our President and CEO; and Fred Reynolds, our Executive Vice President and CFO.

Sumner will have some opening remarks, and then we will turn the call over to Les and Fred for strategic and financial issues. We will then open up the call to questions.

Let me note that statements on this conference call relating to matters which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause actual results to differ. Risks and uncertainties are disclosed in CBS Corporation’s news release and security filings. A summary of CBS Corporation fourth quarter and full year 2005 results should have been sent to all of you. If you did not receive the results please contact [Punam Desay] at 975-3667 and she will get it to you.

A webcast of the call, the earnings release and any other information related to the presentation can be found on CBS Corporation’s corporate website, cbscorporation.com. Now I will turn the call over to Sumner.

Sumner Redstone

Thanks, Marty and good morning, everyone. Thank you for joining us. I just want to offer a couple of thoughts before turning the call over to Leslie. First of all, I could not be more pleased with the execution of the split which went smoother than anyone could have expected. We now have two focused and nimble companies. They each have clear investment strategies.

Here at CBS we have a tremendous content company with the best management in the media business. CBS is a company that will generate great cash flow as it grows and we intend to return the value we create to the shareholders. Let’s face it: the old media era is gone. It is behind us. The new media horizon, founded on outstanding content creation, untapped digital opportunity — that lies ahead. You can count on Leslie and his team to seize that new day and execute our vision for the long-term benefit of the shareholders.

I am, without exaggeration, enthusiastically confident that this company, the new CBS Corporation is well-positioned to assume its place as the leader among its media peers and to continually expand on this leadership for a long, long, long — Leslie, that’s long — long time to come. I will pass this over to the real boss, Leslie Moonves.

Leslie Moonves

Thank you very much, Sumner. Good morning, everybody and once again, thank you for joining us. I am very, very excited to be here today as we put the split behind us and tell you about the strategies and the businesses of the new CBS Corporation.

First I would like to say a couple of words about our overall performance and some significant positive events. Keep in mind these numbers are pro forma, as if the separation had occurred on January 1, 2005. Given that assumption, we were at $0.41 per share for the fourth quarter of 2005 and $1.59 for the full year. And, our free cash flow of $1.5 billion was up 10% for the year. As you know, building businesses that throw off cash is what we do. Excess cash allows us to do a number of things, most importantly share it with our investors in the form of what we hope to be an increasing dividend.

In a few minutes, I am going to hand it off to our CFO, Fred Reynolds, who will discuss these results a bit more, but before I do I want to take a couple of minutes to thank and commend our Chairman for his vision about the split. Thank you, Sumner.

The new Company has been in existence for less than two months and we are already seeing the benefit. We are more focused, more nimble than we were just eight weeks ago. Our management team is extremely strong. It is so good to be out on our own. Just look at what we’ve accomplished in the short time since we began trading as CBS Corporation on January 3rd. We increased our dividend rate by 14% to demonstrate our confidence in our ability to generate strong free cash flow. The same week, we announced the creation of a new broadcast network, the CW, to appeal to valuable young demographics while at the same time eliminating a network that was posting losses year after year.

Also in our first month, we closed on the acquisition of CS TV, expanding our holdings in the lucrative world of college sports, cable and new media. Plus, we announced our intention to divest Paramount Parks, a great business that just didn’t fit with our strengths. Also as part of our effort to extend the reach of our world-class content to emerging technology platforms, we launched the first partnership of its kind with Google.

A lot of activity in such a short time, and these are just the highlights. Add it all up and you have a Company that is leaving the past behind, a Company that is totally on the move.

I want to talk briefly about our businesses and where we are with them right now. Television, our largest segment, CBS continues to have more breadth and depth of success than any other network: #1 in viewers, #1 in 25-54, a close #2 in 18-49 — and by the way, we have won 10 of 21 weeks in this important demo, more than any other network. This includes not having the Super Bowl — which by the way, we will have in ‘07 — and obviously not having the Olympics.

We have also widened our lead on the very important Thursday night, which is the largest monetary night of the week. We have five of the top 10 shows, nine of the top 20 and we have a leadership position in almost every genre: #1 series in CSI, #1 sitcom in Two And A Half Men, #1 news magazine in 60 minutes. And it is not only our entertainment content fueling our success, news and sports are also big players. CBS News is having a renaissance on its own. The CBS News is the only network evening news to increase season-to-date in total viewers, while our competitors are down more than 750,000 viewers each. Bob Schieffer is doing a terrific job. Over at CBS Sports we are coming off another incredible NFL season, and this time was the third time in four years that we topped Fox in the all-important post season, beating Fox’s NFC Championship by 13%. As I said, we look forward to having the Super Bowl again next year on CBS. We just announced recently a new PGA deal so we are very excited about that.

A minute about the CW Network. A more powerful, new network that will launch in the fall with a line-up of well-known, hit shows aimed at the valuable younger audience; a combination of the best of CBS and Warner Brothers, two great brands. The affiliation process for the stations across the country that are not aligned with Tribune or CBS is underway, and we are already seeing major activity in many, many markets with many lucrative deals to come.

Moving on to syndication, we have another great story. As you know, we control most of the top shows in Syndication. In fact, we had eight of the top 10 syndication shows, and they are all renewed past 2010. Plus, many of our shows are doing extremely well internationally. Just a few years ago our product had a first run and the rerun, that was it. But now we get it all: the original, the rerun, syndication, international, Internet, wireless, DVD, cellular. All new revenue streams for the same exact piece of programming.

Turning to television stations. (1) We are now poised to benefit from CBS’ primetime success. (2) Our CW stations obviously are a lot more valuable today than they were as just UPN stations. They will get stronger with the addition of all of these new shows. In addition, we expect strong station results this year from the amount of political advertising that is going to come our way.

I don’t want to leave the subject of television without saying a few words about our two cable networks, Showtime and CS TV. The quality and recognition of Showtime programming is growing: Weeds, Sleeper Cell and The L Word, that is how HBO increased their amount of subs. We are going to be doing the same. By the way, Weeds is one of the top TV downloads on iTunes. As Showtime continues to add high quality programs, there is no reason it won’t become, for CBS, what HBO is for Time Warner. And CS TV, our college sports cable network powerhouse is a perfect example of a tuck-in acquisition that makes sense for us. Working with CBS Sports and the NCAA, CS TV will provide unprecedented coverage of March Madness, the most coverage of the tournament by any cable network ever, and it will include live streaming of outer market game coverage, once again getting us additional revenue for the same product.

Radio, let’s turn to our next largest segment. CBS Radio, obviously we have had some challenges losing Howard Stern. However, we are going to successfully make this work. We’ve got the best local brands in the most attractive markets, now it is about content and promotion. Again, historically that is what we do. We have recently launched over 20 new programming initiatives and several format changes including: Free FM; ratings for Jack FM, which we flipped last year, are up in nine of 11 markets; Our Spanish formats continue to perform very well, and just last week we announced that Jim Cramer, the host of Mad Money, will host a one-hour live show on eight CBS stations. Welcome, Jim.

Some of our new shows will work, some of them won’t work, but we are constantly evaluating these new programs and as we did with the CBS Television Group, we are going to increase the programming quality on the CBS Radio Group.

Outdoor. As you know, we are already the largest out-of-home media company in North America. Today the improved reliability and lower access costs of digital technology is beginning to have an impact on this marketplace. As digital continues to gain a lot of traction, we are taking full advantage of it. We are also moving fast into the huge domestic Hispanic market, a segment that we have been growing about 100% per year for the last three years, across this nation as well as Mexico. And, we are being very selective about our major market transit contracts, opting out of those — which we have done quite a few times in the last year — which do not meet our profit and return criteria. Outdoor has done extremely well in the fourth quarter and they are looking extremely well as we head towards this year. It is a great part of our business.

Publishing. Stephen King’s latest thriller, Cell, has been #1 on the New York Times Bestseller List for the past three weeks, and Simon and Schuster’s fast-growing audio division has been moving ahead. Once again, they are entering into the world of audio as well as digital and we see a great progress for Simon and Schuster as well.

New media, very quickly. I want to address something that I know is on your mind and that is very important to us, and that is all of these areas of new media. It is not one of our reporting segments, but it is an opportunity — as we mentioned before — for all of our divisions to expand their existing operations. I have challenged all of our businesses to drive our world-class content into new platforms and to get paid for it

There are three primary ways we are already doing this. On-demand subscriber fees, subscription, on-demand fees and online advertising. Along these lines, w have announced a bunch of deals in recent months. Earlier this month we began offering Survivor downloads on CBS.com at $1.99 per episode — the first television network to make our own primetime hit programming available, on our own website for a fee, without going through a middleman.

As I mentioned earlier, we have a new deal with Google. We have a deal in place with Comcast for video-on-demand; Showtime is now offering episodes on iTunes; and radio as well is bringing new revenues with streaming channels. We also have a great deal with Verizon and we are entering in to the telephone space.

Add to that all of the exciting developments in the digital world of publishing and outdoor, and you can see — as Sumner mentioned — we are not an old media company. To help us put this all into perspective, we have just launched a new major research initiative called CBS Vision. It will help us better understand our many audiences.

As you can tell, we are pretty excited about the opportunities that lie ahead. At our core, we remain committed to operating world-class assets with total distinction; being the best at what we do while once again — and I emphasis this — returning value to our shareholders. Before I close, I just want to point out that one of the questions we always get is, what is management doing to improve the financial structure of this business? You should know that our entire management team is committed to improving our return on invested capital. Every investment we make, every decision we make, is made with the goal of getting a superior return on our capital. We are very strong and we are looking forward to the future. Now, to turn it over to our terrific CFO, Fred Reynolds.

Fred Reynolds

Thank you, Leslie. What I would like to do this morning is first highlight our fourth quarter performance, focusing on the pro forma results. As Leslie mentioned, our pro forma financial statements are consistent with the S-4 which was filed late last year and assumes that the separation occurred at the very start of 2005.

The three most significant changes that the pro forma financials reflect are (1) the number of shares outstanding — they are reduced in half to about 765 million shares; (2) new Viacom is shown as discontinued operations; and (3) our interest expense than as-reported results as we assumed that our debt was fixed at $7 billion.

So with that, let me discuss our performance. I would like to then wrap up with a discussion of the non-cash impairment charge which we announced today of $9.5 billion and then briefly discuss our as-reported results for the fourth quarter of 2005.

Let’s start off with the fourth quarter of 2005. Total revenues for the CBS Corporation were $3.8 billion, up 2% to year-ago fourth quarter. Pro forma operating profit before depreciation and amortization, or OIBDA, excluding the impairment charge, was $779 million, up 3% over the fourth quarter of 2004. Now our OIBDA margin in the fourth quarter of 2005 were 20.4%, and that is up slightly from about 20% in last year’s fourth quarter margin. So we saw improvement in our operating margins.

As Leslie mentioned, our largest segment is television, which consists of the CBS and UPN networks; TV stations, King World, Paramount TV and Showtime. Our television segment has revenues in the fourth quarter of 2005 of $2.5 billion, up 1.4% over year ago. Revenue growth in the quarter was led by our broadcast networks, where sales were up 5.8%. TV stations were down 2% in the fourth quarter overall. However, if you look at November and December they were up 2.5% and 6% respectively over 2004, as these two months were largely unaffected by the heavy political spending in the fourth quarter of 2004.

Television OIBDA in the fourth quarter was $444 million, up 9% over the comparable period in ‘04, driven by higher revenue and lower costs, largely lower programming expenses at the CBS Network.

Radio’s revenue in the fourth quarter was $543 million, down 1% to a year ago. OIBDA for radio totaled $215 million, and that was down 10%. OIBDA was down approximately $30 million due to a gain on the sale of a radio station in the fourth quarter of 2004. If you exclude the gain on the sale of the radio station in the fourth quarter of 2004, radio’s OIBDA would have been up 2% in 2005’s fourth quarter. So up 2% if you exclude the one-time gain in the prior year.

Outdoor, as Leslie mentioned, had a really solid fourth quarter. Revenues were up 3%, somewhat muted by some foreign exchange, the dollar strengthened against the euro and the U.K. pound. While OIBDA increased to $147 million, or up 7% over 2004 fourth quarter. As you know, our outdoor business in New Orleans was really whacked very hard by Hurricane Katrina, with losses and extraordinary expenses hitting us in the third and fourth quarters of 2005. Outdoor’s fourth quarter OIBDA would have been up in the mid-teens had we not incurred these hurricane-related expenses, but still a solid 7%.

Parks and publishing had a strong fourth quarter, closing out 2005 with a strong revenue gain, and OIBDA of $40 million, up 60%. Our parks business extended their season into the fall and winter and drove incremental revenues and profits. Simon and Schuster had a number of bestsellers in the fourth quarter that drove its profitability.

Now turning to the non-cash impairment charge. As you know, FASB 142 requires an annual review of goodwill for possible impairment. In the fourth quarter of last year, we analyzed our market value of the Company versus the goodwill we carry on the books, which is approximately $39 billion. Based on our current market value, the amount of goodwill needed to be reduced. A $9.5 billion non-cash charge resets our goodwill for our television and radio segments to the appropriate amounts, using very realistic assumptions.

Now let’s quickly turn to the fourth quarter results on an as-reported basis. Operating income, excluding the impairment charge, was $647 million, up 3% over 2004 fourth quarter. As-reported earnings per share was $0.17 on a diluted share basis, assuming the shares outstanding were pre-split, or about 1.5 billion shares outstanding. Finally, as Sumner and Leslie both said, free cash flow. A big hit for us in the fourth quarter and all of 2005. Full year free cash flow for CBS Corporation was $1.5 billion, up 10% over 2004. Not only were we successful in converting a significant amount of our OIBDA to free cash flow, we were also very successful in managing our working capital, an area of continued focus and opportunity for us.

Before we wrap up, we want to mention that we did provide guidance for the full year. As we have stated in the past, we expect our revenues to grow in the low single digits, and we expect our operating income and earnings per share to be mid single-digit growth. This excludes any of the expenses that would relate to expensing stock options going forward. With that, I think I will turn it over to Marty and we will take your questions.

Question and Answer Session

Marty Shea

We will open the call to questions.

Operator

Thank you, gentlemen. (Operator instructions) We will go first to Victor Miller with Bear Stearns.

Victor Miller - Bear Stearns

Good morning, thanks for taking the questions. First of all, can you contrast the offering that you will have for your potential affiliate base of CW versus what Fox announced yesterday, which is My Network TV?

Secondly, could you talk a little bit about the transition in radio? Obviously the radio business was down 270 basis points, we think, as an industry in the fourth quarter. You beat that by 170 basis points, but now you’ve added another 27 stations into the mix. What should we realistically expect as we go into the first quarter, the earliest part of the transition, and as we look toward the year? What should we expect, really, for the radio business? What can you do?

Sumner Redstone

All right, Victor, I will answer the first question with Leslie and I will turn over the second to Fred. The CW versus My TV, number one, we already have a base of 50% of the country between the Tribune stations and the CBS stations. We have a very, very strong station base. We are also getting a lot of activity right now, as we speak, from different affiliate groups throughout the country who are bidding on getting CW. I know the Fox people announced My TV and nobody should ever under-estimate Roger Ailes, but it took UPN 12 years and WB 12 years and they are better off together. So we are very excited about the affiliate base we have. The economics, we are looking at a number of things. Obviously we want to have what we call programming fees from them, but we are also looking at, what is the best station for our network? That is also a factor. So there are a number of factors in there, but we are putting together a group of affiliates that are going to be spectacular. As I said, out of the box CW is going to be stronger than UPN. It is 1+1=4. We are very excited about it. We wish My TV good luck.

Fred Reynolds

Victor, let me just try on the radio side to answer your question. Clearly, the comparables with the 27 Howard stations are going to be difficult, not only in the first quarter but in the first few quarters of 2006. We look at the business, both the Howard stations — the 27 — and the non-Howard, the other 151. So I think you have seen our CBS Radio Group outperform this segment, the non-Howard stations we expect would outperform the radio industry. I just would only caution that the first quarter is always difficult when you have an Olympic year in there. Everything is ranking a little bit later. We are more encouraged today than we were maybe two weeks ago when we started February, because it seems like the back half of February and March are picking up a little bit. It is going to be tough to read. I don’t want to be any less clear, that it is going to be tough to read the first quarter because of the Olympics, because of the non-Howard stations. We look at both and we expect to outperform the industry.

Victor Miller - Bear Stearns

Thank you.

Sumner Redstone

Thank you.

Operator

We will go next to Jessica Reif Cohen - Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Thank you. A couple of questions. Could you discuss any interest you might have in Univision? Given the regulatory issues, I wonder if you could participate possibly as a minority strategic partners?

Secondly, Les, could you expand on what you said in your opening remarks about the dividend? You mentioned that you hopefully will have a higher dividend over time. I want to know your thinking on that currently.

Finally, just to go back to the Fox Network question. How does it — it is not really 100% clear how your affiliates will get compensated. Could you be more specific about how it affects affiliate compensation and maybe even marketing plans?

Leslie Moonves

Sure, let me go through them. Univision — Look, we look at everything, Jessica. We have major FCC issues. As you know, our Television Station Group is at its limit right now; our radio stations in many markets are at the limit. Whenever there is an opportunity like that, I don’t think there is a media company in the world that is looking at Univision. I don’t want to comment any more than that. The regulatory issues are pretty extreme there. I don’t foresee anything further on that.

In terms of the dividend, I thought it was significant that we went out and Fred and I did an investors meeting about three or four weeks ago, and we announced an increase in our stated dividend. I think that was as much financial as it was symbolic about our intent as to how we are going to use our cash, that we intend to continue to increase the dividend. I think shareholders and investors should feel very confident in that we are going to be giving money back constantly, and it is our goal to keep increasing it. I think the fact that we did that three weeks into our operation should have been fairly significant.

Now regarding the Fox Television Station, the Fox announcement and the CW stations. Let me just announce, when we did the deal, the initial deal was made up of Tribune and CBS stations, which encompass almost 50% of the country. Tribune is paying reverse compensation to the CW network. That is happening. We already have offers in many, many markets to pay reverse compensation. Once again, as I said earlier, that is only going to be one of the factors. The other factor is having a very, very strong affiliate base so the network soars, which we think it will. As I’ve stated, I think this network will be profitable from day one.

The other advantage for us is obviously our 11 CW stations already become immensely more valuable than they had been as UPN television stations.

The third part that CW works for us is, most of the new content are going to be joint ventures between Warner Brothers and CBS. As you know, as we go forward content is going to be extremely important, not only for the CW Network but for all of the other uses we can have.

So we are looking at it as a three-way victory, CW. Both network stations and content for us. Once again, Fox will have it a bit tougher than we will.

Jessica Reif Cohen - Merrill Lynch

Thank you.

Operator

We will go next to Anthony Diclemente - Lehman Brothers.

Anthony Diclemente - Lehman Brothers

Hi, good morning. Thanks for taking my question. You just posted $1.5 billion in free cash flow in 2005. Many of The Street analysts — ourselves included — are looking for about $1.15 billion to $1.2 billion in free cash in ‘06. I think the difference, and the big reason for the gap is negative working capital, people are looking for about $350 million to $400 million in negative working capital in ‘06.

This question is for Fred, and the question is:

(1) Can you just remind everybody what is exactly included in that number?

(2) How recurring is that number? You alluded to working capital earlier, but should we be modeling such a big negative number, $350 ...