DBRS Confirms CBS Corporation at BBB, Stable Trend

DBRS has today confirmed the Senior Notes and the Debentures ratings of CBS Corporation (CBS or the Company) at BBB. The trend is Stable. CBS continued to execute well during 2007 in the face of an evolving and increasingly competitive media landscape. DBRS notes the Company generates leading content that continues to attract large audiences in the TV segment. CBS Radio continues to perform well, maintaining industry-leading EBITDA margins despite recent industry pressure in the segment, while CBS Outdoor continues to generate good EBITDA growth and provides the Company with geographic exposure to international markets.

CBS continued to generate good levels of EBITDA, at just under $3.1 billion, maintaining stable EBITDA margins of roughly 22%, and to generate good levels of free cash flow at approximately $755 million during 2007, enabling the Company to maintain its credit profile comfortably within the existing rating category.

Despite good performance and DBRS’s expectation that the recent Writers Guild of America (WGA) strike (and a potential further disruption from the Screen Actors Guild) will have a limited adverse effect on the Company, CBS faces a key challenge in 2008 with the prospect of a weakening U.S. economy, given the Company’s above-average dependence on advertising sales (roughly 72% of revenue).

Advertising revenues are expected to be pressured during the year as a result of weakening economic conditions, despite recent demonstration of some resiliance in the U.S. advertising market through the first part of the year. However, DBRS expects political spending in the second half of 2008 should offset some additional cyclical pressures.

Additionally, DBRS expects cyclical EBITDA pressure could be cushioned in the short term by cost savings as a secondary effect of the WGA strike. The strike’s effect on advertising is expected to be moderate; however, the Company’s cost base is expected to have declined given the increase in the amount of preproduced content during the strike period.

As a result, DBRS expects the Company’s EBITDA to demonstrate moderate growth in the low 3% range, to just over $3.2 billion in 2008. However, the Company’s free cash flow is expected to decline to below $700 million (DBRS adjusted) during the year, primarily as cash flow from operations are expected to remain roughly flat, offset by higher capital expenditures, expected to be roughly $525 million in 2008, relating to TV network upgrades for high definition.

Free cash flow is expected to continue to be deployed for share repurchases and for small to mid-sized acquisitions during the year. Given the Company’s sizable cash balance in excess of $1 billion, DBRS expects shareholder-friendly initiatives to be predominantly internally funded. CBS is expected to remain prudent in managing the execution and financing of any acquisitions or share repurchases, thus maintaining its capital structure in line with the BBB rating.

DBRS notes recent pressure on media multiples in the United States and internationally could provide CBS with attractive diversification opportunities, which could enhance its overall business profile. The Company’s relatively strong balance sheet and liquidity position provide some flexibility in terms of any acquisitions it may wish to pursue. Specifically, the Company could take advantage of opportunities to diversify its revenue streams and geographic concentration. However, DBRS expects the Company to be conservative in targeting and financing any sizable acquisition.

Note:
All figures are in U.S. dollars unless otherwise noted.