CBS Corporation Q4 2009 Earnings Call Transcript

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CBS Corporation (NYSE:CBS)

Q4 2009 Earnings Call

February 18, 2010 4:30 PM EST

Executives

Adam Townsend – EVP of IR

Sumner Redstone - Executive Chairman

Leslie Moonves – President and CEO

Joseph Ianniello – EVP and CFO

Analysts

Ben Swinburne – Morgan Stanley

Anthony DiClemente – Barclays Capital

Laura Martin – Needham

Doug Mitchelson – Deutsche Bank

Michael Morris – UBS

Richard Greenfield – Pali Capital

Michael Nathanson – Bernstein Research

Michael Mills – JPMorgan

Marci Ryvicker – Wells Fargo Securities

Operator

Good day, everyone and welcome to the CBS Corporation’s fourth quarter 2009 earnings release teleconference. Today’s call is being recorded. At this time, I would like to turn the call over to the Executive Vice President of Investor Relations, Mr. Adam Townsend. Please go ahead, sir.

Adam Townsend

Thank you, Ricci (ph). Good afternoon, everyone and welcome to our fourth quarter and full-year 2009 earnings call. Joining me for today's discussion are Sumner Redstone, our Executive Chairman; Leslie Moonves, President and CEO; and Joe Ianniello, Executive Vice President and CFO.

Sumner will have opening remarks and we'll then turn the call over to Les and Joe who will discuss the strategic and financial results. We will then open the call up 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 releases and securities filings. A webcast of this call and the earnings release related to today's presentation can be found on the Investor Relations section of our website at cbscorporation.com.

Reconciliations for non-GAAP financial information related to this call can be found in our earnings release, our full-year Form 10-K or on our website.

With that, it’s now my pleasure to turn the call over to Sumner.

Sumner Redstone

Thank you, Adam. Good afternoon, everyone. I thank you for being with us today. I am certain that all of you know how delighted I am to be speaking to you today in the light of the fabulous results shown by CBS, and the terrific performance of Les and his team. In the past year, CBS reduced expenses, improved its financial position, and ensured that all the right people and processes were in place, so that CBS would significantly outperform as the market turned and the market is turning. With disciplined management and a solid long-term strategy for growth, there is no economic storm that a company like CBS cannot weather.

With all of this, one thing is for sure content is king and will also be king. And no one has better content out there than CBS and one other company whose name I cannot mention today. Our content focus continues to pay off throughout the company. CBS, the perennial number one network has more new and returning hit shows than any other network. Showtime continues its creative and financial role. We are growing our presence in all the most important areas of the digital world. On the logo front, our focus on the largest TV and Radio markets means we are in the right place as these businesses are rapidly improve and they are improving. Through hard work, through determination, Les and his team have put CBS in a position to reap the benefits of the improving economic environment, which we are witnessing today.

It is Les and his team, have done it every possible thing this past year to ensure that CBS is on the path to succeed. But let there be no misunderstanding, our fourth quarter results are not only the sign of the momentum we have gained across all our companies, but remember this, they are a preview of great things to come well into the future.

Leslie Moonves

Thank you, Sumner, and good afternoon, everybody. Thank you for joining us today. We are pleased to be giving you a look at a very good quarter. We have managed our way through a difficult economic environment and emerged even stronger. And we are now being helped by a marketplace that is steadily improvement. This is a message that you have heard from our peers in recent weeks and we are clearly a prime beneficiary of the recovering economy. The pacing games we saw throughout the fourth quarter of gathering even more momentum in 2010.

Today I am going to briefly review our fourth quarters and operational highlights and discuss what we are seeing in 2010. And then I will turn it over to our CFO Joe Ianniello to offer some more details on our financials and balance sheet. And then we will happily take your questions.

As we promised, each quarter in 2009 came in better than the one before. The second was better than the first, the third was better than the second culminating in the fourth quarter where we had our best revenue performance of the year. Our revenues of $3.5 billion were virtually even with the same quarter last year. And our second half revenues were up 11% over the first half, once again speaking to our own momentum. Also on the adjusted basis, our OIBDA, operating income and EPS were all up double digits. The revenue picture continues to brighten for us largely due to the strength of our industry-leading content and the improvements in our local businesses.

On the content side, CBS is the most watched network on television. And we are selling our hit shows into syndication earlier at better rates and to a broader global audience than ever. Our premium cable network Showtime continues to add subscribers and grow its revenues and profits. We are also expanding and monetizing our leading global online presence and more efficiently distributing our content in major local TV and Radio markets. Our fourth quarter results reflect all of this as well as the improved business marketplace. At the same time we spent the past year working to reduce our cost structure across the company. We have recently removed $250 million in expenses and our commitment to containing these expenses will continue.

As I have stated, we are now reporting a much improved OBIDA, $569 million for the fourth quarter on an adjusted basis up 11% from a year-ago. Our adjusted operating income, net earnings and EPS all turned in terrific increases as well. Operating income was up 16% to $422 million, net earnings were up 23% to $171 million, and EPS was up 19% to $0.25 per share. We are pleased that our businesses have rebounded so strongly in the fourth quarter and has great momentum into the first quarter of 2010. Our financial position is also stronger. As you know, in 2009, we refinanced near-term debt and secured a new credit facility, enhancing our financial security well into the future. Joe will touch on this a bit more later.

Our businesses continue to very healthy free cash flow, $828 million for the year, with $295 million of that coming in the fourth quarter. In addition, we finished 2009 with $717 million of cash on hand. And the good news, as we have mentioned, the momentum is not carried into the New Year, it’s accelerating. National advertising is up and we are seeing pacing levels at or well above last year in just about every local TV and Radio markets with particular strength in key categories like auto and financial services. With our new segment structure, reporting structure and place, you can clearly see the continued strength of our content businesses, which include Entertainment, Cable Networks, and Publishing, and ongoing improvement on our local businesses, Local Broadcasting and Outdoor.

Now let’s take a quick look at our financial and operational highlights beginning with our Content Group and its largest segment Entertainment. As you know, our Entertainment segment includes the CBS Television Network, our TV Production and Distribution businesses, our new films business, and CBS Interactive. Entertainment revenues $1.8 billion were up 4% in the fourth quarter from last year. The biggest revenue driver was television advertising which increased 8% versus fourth quarter ’08. As we have maintained our focus on reducing program expenses and other costs in this business, we have improved our operating leverage as well. OIBDA of a $191 million was up 10%. The ongoing strength of the CBS Television Network was front and center in the success we saw in the quarter. We are number one for the season to date and up year-over-year in every major demographics. We have more top 10 shows than any other network and more top 20 shows than all other networks combined, and we are the most watched television network six out of seven nights of the week.

We have also drawn record audiences for our recent 10-poll events. Our Grammy’s telecast pulled the largest audience in six years, nearly 26 million viewers, up 35% over the last year. The average audience of 47 million viewers for the AFC Championship Game last month was our largest ever and the most for any AFC Championship Game since 1986. And as you know, the Super Bowl two weeks ago was the most watched program in television history with a 106.5 million average viewers, eclipsing the M*A*S*H series finale in 1983, which was also on CBS by the way.

After the game, we premiered our new realty series Undercover Boss, and we couldn’t have asked for a better debut, nearly 39 million tuned in and we are encouraged by the strong ratings in the show’s second airing this past Sunday night as well. Along with NCIS: LA and The Good Wife, we now have the top three new shows on television. Partially due to the Super Bowl promos, our programming on Monday after the game was the highest rate of the season to date and the list continued throughout the week.

We have been saying for a long time that in a fragmented but socially network universe, big event and hit programming will be more popular and more relevant than ever. And it’s also true that broadcast television continues to be the best bank for an advertiser’s buck each and everyday. The fact is TV viewership for the five major network is up this season over last year, look at the Grammy’s, look at the Super Bowl, look at the Olympic Games. And you may have heard some issues about Late Night over the last few months. I will just say we are very happy with our performance in that day part. David Letterman and Craig Ferguson are both number one in their time periods and continue to put on a great show night after night. And on another positive note, being the network with the largest number of golf events, the return of Tiger Woods is a welcome one.

The breadth and strength of our programming not only big events but our lineup overall is helping us to excel in a very strong marketplace. Primetime scatter pricing was up and average of 25% over upfront in the fourth quarter and is now up more than 30% in the first. The scatter market remains extremely hot right now and this ad strength to the network is real. And as you know, Super Bowl ad sold out well advance for the game at very favorable rates representing a nice profit for us. Of course it also helps when your own programming that’s performing so well. 11 of the 20 top shows on TV on CBS and through CBS Television Studios we own more than half of them. That means we are not only benefiting from advertising today, but also will benefit both today and for years to come in syndication. And the good news is that the syndication market both domestically and internationally has never been stronger.

I talked on our last call about how we made a record-breaking deal to sell NCIS: LA into domestic syndication after just seven episodes on the air. Globally as well, the marketplace has been terrific. NCIS: LA is now licensed in a 192 markets and The Good Wife is licensed in a 181 markets. As our syndication business continues to grow both in total dollars and as a percentage of our revenue, these deals are diversifying our revenue base, making it more recurring and more providing stability well into the future. So once again the industry has changed to our benefit. Yes, CBS still is the number one network, but we are all now – now also operating in an environment where we own most of our programming and take advantage of a syndication marketplace that continues to grow year-after-year.

We have also established retransmission consent fees as a significant secondary revenue stream. We more than tripled our retransmission revenues in 2009 versus 2008. It’s now a substantial figure and we expect it to grow again this year. At CBS, we are very pleased about the increasing attention paid to retrans. We have been saying for a while that this would be game changer for us and now it is. We have done 56 deals and counting, including the recent major ones with Time Warner Cable Vision and Dish. Meanwhile, we are selectively putting our content online.

Our online strategy of putting non-exclusive distribution deals for our content continues to work very well for us. At CBS Interactive, through our wholly-owned TV.com and CBS.com, we are successfully getting our shows online, along with the shows of other, but never at the expense of cannibalizing our network content. The marketplace of Interactive is also growing strongly with display advertising picking up nicely. We are pacing up high teens this quarter with particular strength in areas like games and supports. And we are gearing up now for March Madness on Demand which we expect will be even better this year than last.

A few words about CBS Films which is just getting started. In this business, our risks are limited and the world is always seeking new content. The potential gain can be high. Our first film did not perform nearly as well as we would have liked. We were disappointed. However, the budget was modest about $30 million and advertising and promotion expenses were helped by reach and power of our own media properties. We have three more films coming up this year. We will continue to report on our progress.

Turning to our Cable Networks, an important source of subscription revenues for us. This segment which includes Showtime Networks and CBS College Sports was one of our strongest performers in the fourth quarter. Revenues of $347 million were up 8% year-over-year. And OIBDA of a $153 million was up 46%, once again expanding our base of recurring revenue. Cable Networks financial performance was driven by growth rates and subscribers at both Showtime and College Sports. Showtime Networks finished the year with 61.3 million subscriptions, up 2.6% from fourth quarter ’08.

Most recent industry data shows that Showtime was the only premium network to significantly subscribers in 2009. CBS College Sports have 35 million subscriptions at year-end, up 9.5 million from the prior year. The latest award season proved once again just how popular Showtime original programming is with the audience. Our hit shows Dexter and The United States of Tara were big winners at both the Golden Globes and the SAG Awards. Last month, we began rolling out a new slated programming that I am sure will build upon on the incredible success we’ve already had with Showtime.

The final component of our Content Group is Publishing and this business had a very strong year content wise. Simon & Schuster ended the 2009 with a total of a 164 New York Times Bestsellers and more hit the number one spot 25 in total than in 2008. Fourth quarter revenues were $220 million, OIBDA was $13.6 million. We are seeing signs of a better marketplace here as well and we are exploring new revenue opportunities on a variety of new e-reader platforms that are now coming into the marketplace. We have just concluded a deal to make our content available on the Apple iPad reviewing next month and we look forward to other deals as well.

Overall, our Content Group made $2.4 billion in revenues in the fourth quarter of 2009, up 3% from year-ago and OIBDA up $357 million, up 16%, delivering results like this in the economically challenging year we have gone through is testament to our strategy of focusing first and foremost on creating the best content and effectively monetizing it as well.

Turning to our Local Group, which includes our Local Broadcasting and Outdoor segments, the fourth quarter was by far the best of the year with the revenues of $1.16 billion and OIBDA of $296 million. Nowhere is the recovery more apparent that at our TV and Radio Stations. Fourth quarter Local Broadcasting revenues of $680 million were a highest of the year by a wide margin, and OIBDA of $227 million for the quarter was up 31% from fourth quarter ’08. At our TV Stations, non-political revenues were up 11% year-over-year on the quarter, and the outlook keeps improving.

So far this year, our TV Station Group as a whole is pacing up by high teens on average from the same period last year and our top 10 stations are pacing even higher than that. Certainly helped by our 10 PM primetime program, many of our stations are in first to second place in late news and we are expecting an extra lift from political this year, given the unusually large number of Senate seats that have come into play. Clearly there will be some hard fought battles around the country. And the barriers recently removed by the Supreme Court will bring added political dollars into the market.

Meanwhile Radio is also a really strong story. As we promised you late last year and to some skepticism from many, Radio will be showing plus signs in the first quarter. Averaging pacing has been rising in 2010 and as well ahead of last year. This success is driven by the performance of our bigger markets, while we are pacing up by mid-single digits overall, our top 10 Radio markets are pacing up by low teens. Radio steady improvement has not only been the result of our improving economy, our focus on programming has been instrumental. Our top 10 markets grew average audience share by 10% in 2009 in markets like New York and Los Angeles, implemented new formula, the gains were multiples of that. And CBS Radio Stations had the number ones audience share in five of the top 10 markets for 2009, New York, Chicago, Dallas, Philadelphia and Boston.

Our final Local Group segment is Outdoor, where the recovery has been slower, but also clear. Fourth quarter revenues were $484 million and OIBDA was $69 million. But pacing here too is improving steadily. Right now in the first quarter, our Outdoor business as a whole is pacing even with last year at this time. And as you know this the best level of pacing we have seen in the year. At the same time, we are entering into new deals at much better terms than in the past. And as revenues begin to comeback, we are confident we will see the benefit in our results.

As you can see across the board, 2009 ended on a high notes for us. Our content is performing better than ever and our local assets are improving dramatically as the economy recovers. And as 2010 gets into full swing, top line trends are continuing to move in our favor. Make no mistake, we have no intention of using raising revenues as an excuse to let cost creep back into our businesses. We will stay focused on improving efficiencies, making sure that more of the top line growth we expect translates into free cash flow for our investors. From our leading content to a growing syndication marketplace to significant retransmission consent revenues to rising political spending, I feel very confident about the ongoing strength of this company for this year and beyond.

With that, I will hand it over to Joe, who will give you more detail on our financial performance and what to expect in 2010. Joe?

Joseph Ianniello

Thanks Les. Today, I would like to focus my comments on four areas, first review our fourth quarter results for the company; second, highlight some segment information; third, discuss our liquidity position; and lastly, outline what we see in 2010. Starting with our results, as Les noted, revenues for the quarter were $3.5 billion, down eight-tenths of 1% from a year-ago when we benefitted from strong political advertising. This was our highest revenue quarter of the year building on last quarter where we had five shows going into syndication.

Adjusted OIBDA for the quarter came in at $569 million, up 11% from the prior year. OIBDA is being adjusted for only impairment charges, both this year and last. During the fourth quarter of this year, we took a $178 million non-cash charge to reduce the value of FCC licenses in seven Radio markets. And in Q4 of last year, we recorded a $64 million related to the sale of some Radio Stations. We continue to benefit from strong cost savings initiatives across the company. We now have exceeded $250 million of annualized savings and we see more to come which I will discuss in a bit.

We also benefitted from lower restructuring charges. However, this benefit was offset by the lack of political advertising. Adjusted EPS came in at $0.25 for the quarter, up 19%. We are only adjusting for the impairment charges that I just discussed and some discreet tax benefits from settling some income tax audits. You can see full reconciliations of these adjustments in our press release.

Turning to our segments, this is the first quarter that you see our results in the new segment presentation. In mid-January, we filed historical results in our new format via an 8-K. We also posted historical tables on our Investor Relations website. In addition to our new segments, we provided revenue by type in our press release to give you more details on the various sources of the company’s revenue. We also modified this table slightly.

Let’s start with Entertainment. Revenues were for quarter were up 4%, led by 8% growth in ad sales at the CBS Network. Scatter pricing during the quarter was up 25% above upfront and gaining momentum from the increasingly strong demand. Leading categories were automotive, financial services, and retail. Ad sales at CBS Interactive decreased 5% for the quarter, but the tide started turning during the back half of the quarter, more on that later.

Our Entertainment OIBDA for the quarter was up 10% to a $191 million, driven by higher revenue, lower restructuring costs offset by increased investment into content. Revenues at our cable segment were up 8% during the quarter driven by increases in both rates and subscribers. OIBDA was up 46% from higher revenues and the mix of cable programming. Obviously this is not a normalized flow through of revenue. Looking at the full year is more representative of the earnings power of this segment. So looking at the year, revenues grew 7% and OIBDA grew 18%, putting our cable net at a 34% margin.

Publishing revenues for the quarter decreased 10% due to the soft retail market and fewer titles release this quarter which caused EBITDA to drop from $28 million to $14 million. We will continue to manage costs while we play a critical role in the fast evolving e-book industry. Local Broadcasting revenues were down 8% for the quarter, of which TV Stations were down 3% and Radio down 12%. Remember, we took in significant political dollars in 2008 which accounted for 14 points of the decline in TV.

And for Radio, you should note that we have 10 less stations from our divestitures in 2009, which accounted for 2 points of its decline. TV Stations were the first to see signs of the recovery, which started to benefit Radio in the quarter. And in December, Radio had its best month of the year for revenue led by the automotive categories which was up high-single digits. On an OIBDA level, we were up 31% for the quarter, benefitting from our reduced costs as well as a gain on the sale of some spectrum in the absence of last year’s restructuring cost offset by lower political advertising.

Outdoor revenue decreased 8% for the quarter. Foreign exchange contributed favorably 4 points of that change. Breaking this down further, in constant dollars, the Americas were down 10% and Europe and Asia were down 15%. Contributing to this decline is also the fact that we had fewer transit contracts as we have been disciplined in our approach to renewing these types of contracts. Our occupancy rate for the quarter increased slightly and pricing began to firm up during the quarter. OIBDA dropped from $98 million to $69 million quarter-over-quarter due to the fixed nature of the transit contracts. As Les noted, we are continuously entering into new deals on more favorable terms.

Next a few words about our liquidity profile. As Les mentioned, our free cash flow was $295 million for the quarter and $828 million for the full year. Cash on hand at 12/31/09 was $717 million. This is almost $300 million more than when we started the year. We were able to build our cash balances while at the same time deleveraging the company. We will continue focus on deleveraging throughout 2010 with our credit facility in place and having refinanced $1 billion last year, we are in a much stronger financial position.

Let’s talk about 2010. 2010 for us is going to be about three things; first, driving top line growth; second, a continued commitment to controlling costs; and third, generating significant levels of free cash flow. Here is how we see things shaping up so far. We are confident 2010 is gong to be better financially than 2009, how much better will be determined in part by the pace of the economic recovery, since advertising continues to be an important factor to our revenue base. Our Content Group should have another solid year. As you know our content assets comprised about 70% of total revenues and the outlook is strong. Scatter pricing at the network in the first quarter is now up by more than 30% over upfront. And Q1 ad sales is pacing up high teens for our Interactive units.

The huge Super Bowl performance in Q1 will also drive revenues. It was the most revenue we ever generated for a Super Bowl. Our affiliate and subscription revenue grew steadily. And incremental film revenues will be recognized as our films are released throughout the year. On the syndication front, I should remind you that we do not have the five major titles hitting syndication that we had last year in the third quarter, but not to worry, because our studio has six new shoes on the air in their first season. They all may not make into syndication, but we continue to replenish the pipeline. In addition, Showtime will have some original series available to syndication down the road.

Now for our local assets, we are focused on returning these businesses back to growth or finding new ways to monetize our valuable content. And with an improved cost structure, even a small rebound will have a significant moderate impact. Retransmission fees will be another important contributor of growth. We expect these fees to exceed $100 million in 2010 and we are well on our way to surpassing our $250 million target which now seems conservative from when we first provided it a few years ago. I want to emphasize that each fees are earned by both our TV station and the CBS Network and thus will be reflected in our Local Broadcasting and Entertainment segments.

Later in the year, we expect political advertising to drive strong growth at our Local Broadcasting segment. With the Supreme Court’s recent decision and our stations located in key states, this mid-term election could be a record political year. But for now, here’s what we see. While Q1 isn’t finished yet, we are pacing at our TV Station Group up high teens with our 14 owned and operated CBS stations pacing north of 30%. Radio stations are pacing up mid-single digits with our top 10 markets showing low teen increases, driven by several advertising categories. This is the first quarter that we are seeing real growth at Radio since the separation from Viacom. As Les said, the format changes our team has made in key markets are paying off.

Our Outdoor Group is currently pacing flat, but gaining pace points each week. On the cost side, we will continue to drive further efficiencies. We have taken steps to restructure our operations. Early in 2010, we expect to record a restructuring charge of approximately $50 million across the company that will lead to annual savings at least one time if that announced. As we experience a return to top line growth and to continue to benefit from the cost reductions we have implemented, we have created a path to return the company to historical profit margins in the future.

Turning to free cash flow which we believe is the best metric to measure wealth creation and where we expect to have a very strong year. We have a great conversion ratio of OIBDA into cash flow. Over the last several years, we are averaging a greater than 50% conversion ratio. Let me discuss a few components of free cash flow. Capital spending will remain relatively flat and come in at a range of $250 million to $300 million. As you know in 2009, we spent $262 million on capital. You should also note that this normalized capital spending is significantly lower than our annual depreciation expense. Working capital will benefit from: one the syndication profit we recognized last year as the cash comes in; two, the Super Bowl where the rights fees were paid in 2009; and thirdly, from political advertising and it is paid upfront which will help our receivable balances later in the year. Lastly, cash interest costs on our debt will decrease as we de-lever.

So to conclude, I think you should be able to use these tools as a guide to help you think about our business – our businesses throughout the year. We feel very good about the trends we are seeing in terms of the advertising marketplace and the growing opportunities to monetize our content. We finished 2009 strong and believe the company is well positioned for 2010 and beyond.

With that, operator, we can now open the lines for questions. Operator?

Question-and-Answer Session

Operator

Today’s question-and-answer session will be conducted electronically. (Operator Instructions). We will go first to Ben Swinburne with Morgan Stanley.

Ben Swinburne – Morgan Stanley

Thanks and good afternoon. It’s Ben Swinburne.

Leslie Moonves

Hi Ben.

Ben Swinburne – Morgan Stanley

Hi. Two questions if I could. Les, first on the NBC activities you highlighted on your prepared remarks. The station numbers were really strong both in the fourth quarter and always pacing well. I am sure some of that has to do with how much NBC has been hit at 10 o’clock and to lead-in, so how did the change impact your thought process in terms of investing going forward? And then along those lines, NBC I guess is going to have to program an entire 10 o’clock lineup, what does that opportunity look like for you on the CBS TV Studio front, do you think that’s an opportunity to sell shows into NBC? And then I have one follow-up for Joe.

Leslie Moonves

In terms of – obviously we win every night, every 10 o’clock show we are number one. The fact that NBC is – could to be going into drama or some new shows doesn’t really scare us very much. We are still the strongest at 10. And when you look at CSI: Miami, The Good Wife, CSI: New York, The Mentalist, on those first four nights, I think we are going to be number a year from now and our stations are going to still benefit from that lead-in per se. We will not be producing any shows for NBC. We are concentrating most of our production for either CBS or the CW. And once again, being as this year, we have done in CIS: LA and The Good Wife and they are a 100% wholly-owned bodes well for us syndicating them in the first place. So we are fairly confident we will remain strong at 10 o’clock, and our stations which are getting a much bigger piece of the market share will continue that way.

Ben Swinburne – Morgan Stanley

Thanks. And then Joe just going back to your comments on cash flow, which was helpful – which were helpful. Any comment on cash taxes? And then operating expenses at the – on your local businesses, you mentioned the restructuring I don’t know if that’s at the local businesses. But if you could help us think about how you see OpEx trending at the local assets that would be helpful as we think about operating leverage on the business?

Joseph Ianniello

Sure, sure. Thanks Ben. On the OpEx – on the restructuring, the $250 million I gave you was really across the company. Obviously realigning the segments, putting TV and Radio together, there will be some efficiency, so they will be part of that $50 million. So again I think you can expect certainly a multiple of that in terms of savings. And the $250 million is obviously a run rate, so we have not really laughed that yet, but again we are getting there. So I think again you are seeing a significant margin improvement. In terms of cash – the cash taxes, obviously we are going to continue to manage that down. I mean you can look at – we have spent $55 million in cash taxes in 2009, so earnings growing we expect obviously to pay more than that, but I think we have a very low conversion rate and good tax planning strategies to keep that rate under control.

Ben Swinburne – Morgan Stanley

Thank you.

Operator

And our next question will go to Anthony DiClemente with Barclays Capital.

Anthony DiClemente – Barclays Capital

Hi, thanks guys. I have a couple. First for Joe. Just trying to figure out the year-over-year delta in terms of TV licensing fees in syndication; I think last quarter there were up by 36% or is an incremental $240 million. What was the – what was the hole that you had to fill in the fourth quarter on that metric?

Joseph Ianniello

You are talking on the quarter Anthony or –

Anthony DiClemente – Barclays Capital

Yes, 4Q, 4Q.

Joseph Ianniello

I mean we break down the revenues by type. If you see it – if you see it in the release, I mean it’s content –

Anthony DiClemente – Barclays Capital

I saw it within Entertainment, right? So it’s within Entertainment is the key reason.

Joseph Ianniello

No, no, no, no. In the release on page four, we break down its content license fees. It’s down 8% in the quarter, but within content license fees is Publishing and that was the biggest driver of the decrease.

Anthony DiClemente – Barclays Capital

Okay. So just thinking – just thinking towards 2010, you don’t have the five shows as you mentioned in your prepared comments. What is the headwind in terms of the year-over-year? What do you expect that headwind to be in terms of what your TV syndication was in ’09 versus what it should be in 2010?

Joseph Ianniello

We are not going to break down the revenue for those five shows. Clearly, obviously things that go into second cycle certainly will help, but clearly I mean it is going to be a difficult comp for that business, because of the five shows that hit. So that’s purely just an accounting metric of when you recognize the revenue for us that cash flow comes in consistently over the year. And as Les just said, NCIS: Los Angeles has sold. So as once we hit product the magic number of episodes, that will hit as well. So we will have difficult comps in 2010 for that for TV license fees.

Anthony DiClemente – Barclays Capital

Okay. And then on – just following up Ben’s questions on free cash flow, I just wonder what – Joe as you think about free cash flow, as we – we think about use of proceeds, can you remind us what your plan is for the prepayment of the pension? And then if that’s decreasing in 2010 versus 2009, what can you tell us about what you are thinking on use of proceed with that free cash flow?

Joseph Ianniello

Sure. I think there is very little – falls on free cash flow. Obviously we have the dividends and you can look at our cash flow statement and you can see that. But clearly again, there is no required pension – qualified pension contribution in 2010. So what we do is we look at that opportunistically to fund it just to make sure we are getting the maximum tax benefit when we make that payment. So we will continue to monitor that, but again that will be an opportunistic funding as we are committed to deleveraging.

Anthony DiClemente – Barclays Capital

Okay. And then I just have one quick one for Les, please if I may. Les, you have – you know you have March Madness coming up here. I think you have a summer deadline on the contract, because the NCAA cannot get out of the contract, they have talked about expanding the tournament to 96 teams, which I think is insane. But I am wondering about what are the drivers and how are you thinking about re-upping your contract with the NCAA on March Madness?

Leslie Moonves

We have this year and then the NCAA has an option to pickup the three remaining years in the contract. We are talking to them about all sorts of different ways of redoing the contract. As an analyst you are not allowed to editorialize on the tournament, that’s not in your purview. No, I am only –

Anthony DiClemente – Barclays Capital

Okay.

Leslie Moonves

(inaudible). So we are obviously in a constant discussion about them about what that would look like, but clearly nothing has been decided, and we are always talking to the NCAA, we met with them a few days ago, and that’s an ongoing dialog.

Anthony DiClemente – Barclays Capital

Okay. Thanks.

Adam Townsend

Thanks Anthony. We will move take the next question please.

Operator

Our next question comes from Laura Martin with Needham.

Laura Martin – Needham

Good afternoon. Just a couple things; on one sizing the political opportunity in 2010, we were showing that in the last mid-term election, your stations set about a $160 million, and that’s what you were using until the Supreme Court decision, do you have any granularity around what the last Presidential cycle was, because it feels like that’s going to be the better comp given the new rules at the Supreme Court?

Leslie Moonves

The last split of the Presidential cycle was somewhat down from that that from the off cycle. So we are – there are a lot of things that we feel are giving us wind at our back regarding that. Number one, as you have seen, there are a lot more political contest than one would have expected even three of four months ago, also because of what happened to Massachusetts. There are a lot more races that we think are going to be rather hotly contested and that there is going to be a lot of money behind them. Then when you add to that the Supreme Court ruling would some say could bring in another $500 million to the political marketplace. And once again we don’t know what that is. But generally speaking, we have gotten approximately 10% of what is out there. So to – it’s difficult to project, but to put us around the $200 million mark wouldn’t be that far out I don’t believe.

Laura Martin – Needham

Okay, perfect. And then on retrans; I know we are using an estimate for your retrans fees are about $0.50, but it sounds to us like FOX got more from Time Warner Cable. Can you just remind me, because it feels like you are right at the momentum on these retrans fees is going up with every sequential negotiation? Can you remind us what your terms on your biggest rollovers like Time Warner Cable and CVC and Dish, when do those come up for re-negotiation up for you guys?

Leslie Moonves

Well, we are not allowed to really talk about terms. Time Warner we just did. We did it about a year before FOX did. To tell you the truth, the rates are not that far away from what Fox’s rates are, so we are very pleased with that. Dish was also done within the last year. Some of the – we have most of the big ones done. Comcast is up in a couple years, so a lot of the big ones are up. And as Joe said, in 2012, we are looking at being in at least of the $250 million number.

Joseph Ianniello

And Laura I would just add; I mean the strategy into the negotiations as we go in, we are going to keep it short term, if we don’t like the rates we are getting, because we are going to have another bite at that apple. But clearly the strategy is if we get our rates, we will do it slightly longer, but if we don’t it’s going to be short term and we will be coming back for more.

Laura Martin – Needham

Great, very helpful. Thank you so much.

Leslie Moonves

Thank you.

Adam Townsend

Thanks Laura. We will take our next question, please.

Operator

Our next question will go to Doug Mitchelson with Deutsche Bank.

Doug Mitchelson – Deutsche Bank

Thanks so much. Couple of questions; Les, it feels like we just finished the last upfront, but the reality is we are three months away from the next one, right? So I have never seen scatter pricing up this much not lead to very, very strong pricing in the upfront. I mean any preliminary conversations with the advertisers regarding the –

Leslie Moonves

There are constant conservations. Obviously with – and you are right, I don’t think I have ever seen scatter this strong at these numbers. And frankly the – that it is a terrific marketplace where our sales guys are begging us to give back promo time for ad sales. So as you head into the upfront, clearly all the advertisers that are playing, paying plus 30 for what we offer to them last June are going to be coming in. But we are not just looking at low-single digit increases at the upfront, because our numbers are going to expect more. We believe in our product, we believe in the strength of our network, in our programming. And we said last year, a year-ago at this time Doug, and it wasn’t that long ago, we are not going to sell that much if we are not getting the numbers that we wanted, and that’s why we held back and only sold 64%, and we are benefiting greatly from that. Once again heading into May and June, if we don’t get the pricing we want, we will very happy to play this hand that we played this year.

Doug Mitchelson – Deutsche Bank

And the secondary is just online distribution of your TV shows, I don’t want to belabor it because we have talked a lot about over the last year, year or two, but there is a story out there that Apple wants to try to get prices down $0.99 per episode on the sales side and we are all still wondering if this is a right ad load on the free streaming shows. I mean any thoughts on your comfort level with the business models that are out there online?

Leslie Moonves

Yes, I mean the interesting thing about online ads and once again the reason we are happy we are controlling our own content is the advertising thing it’s sort of a trial in process. And we are experimenting with different ad loads and as you know authentication TV everywhere would involve the same load that is on the network with similar pricing. So in all these, once again, they are all short-term deals and it is a moving target. There are a certain shows that will be sold on Apple for $0.99, I don’t know yet which will be – and we will talk to them about it. But look the great news for us is are we are up in every single demographic category, at the same time we are increasing our revenue from online and other sources. So it all looks good for the future.

Doug Mitchelson – Deutsche Bank

If TV authentication takes off, would you see either ending the free streaming of TV shows online, because there is people who pay for cable can get it through authentication anyways or do you see taking up the ad loads on the free streaming to match the authentication levels, so there is not a –

Leslie Moonves

Authentication would involve the exact same ads that are on the television or over the air, and as well as it’s counted by Nielson as a full-time viewer, so it’s sort of changes the model quite a bit where if you get authentication, you have to be a subscriber to an MSO or a satellite or a phone company.

Doug Mitchelson – Deutsche Bank

You think you will take the free streaming ad load up to your authentication level then to balance that out, so you could be watching –

Leslie Moonves

Once authentication is in place, yes.

Doug Mitchelson – Deutsche Bank

Okay, great, thanks.

Adam Townsend

Thanks Doug. We will go to our next question.

Operator

Our next question comes from Michael Morris with UBS.

Michael Morris – UBS

Hi, thank you, good afternoon. A couple of questions on advertising and Outdoor, it’s been a bit of a unique space and it’s kind of lagged some of the improvement that we have seen on the television side. Can you talk a little bit about the dynamic that you are seeing there, it had some unique pricing I think because of the competitive environment? What it’s going to take you think to kind of turn around the top line there and what are you seeing in terms of how your competitors are behaving? And then also on the cost side in Outdoor, a couple of contracts especially I am thinking of the London Underground in particular, you seem to be weighing on the potential to turn profit there. What opportunity do you have for some relief on the contract side, be it those international contracts or anything domestic in the coming year? Thanks.

Leslie Moonves

Mike, I will deal with part two and then I will flip to Joe on part one. Obviously we are looking at some of these contracts and some of them – some of the bad ones have come to the end, and we have renegotiated a number of contracts. In some we have just played and gotten out of where there are a large guarantees. When you deal with something like the London Underground, obviously it’s always a work-in-progress when you are dealing with a lengthy contract, and we are in constant discussion with them about revenue share, about more boards, et cetera, and it’s very fluent. So good news about London is there is Olympics coming up, so we expect that the rates to improve significantly there and changes. But once again overall you hit the nail on the head. Outdoor was the last one to get hit by the cold of economy and it’s the last one to come back. But Joe you want to talk about –

Joseph Ianniello

Yes, I think that’s exactly right Mike. We saw there is a pecking order, so as Radio and TV Stations cut rates, I think – and advertisers said, well if I had the choice to choose, I am going to put it on TV or Radio. So now as the demand is coming back and you are seeing pricing increases at the national level, at the local level broadcasting, I think now it’s becoming back to that price disparity, where advertisers are now starting to look back at Outdoor as an efficient means of advertising. So it seems like it’s feeling the same – following the same exact trends that Radio followed.

Leslie Moonves

And once again, we have point out. Occupancy has remained the same, still about 70%, so it’s all about pricing. And as you see with some of our competitors and us as well, pricing has now starting to rise again. So there is good secular trend there that it’s going to be coming back like the other businesses?

Michael Morris – UBS

Great, thanks guys.

Leslie Moonves

Thank you.

Adam Townsend

Thank you, Mike. We will go to the next question.

Operator

The next question comes from Richard Greenfield with Pali Capital.

Richard Greenfield – Pali Capital

Few questions; one on CBS Films, can you comment on whether the write-off or I assume we took a write-off on a disappointing performance with the first film. Was that a Q4 event or is that actually going to show up on a go-forward basis in Q1? And then on Showtime, you – I think Joe you kind of talked to the fact that there was some unusual benefit from the cost side in the quarter. Just wondering how much of that type of reduced costs from having fewer films from either three studios that went to Epics, how much of that benefit you are going to see in the early part of 2010 and when we should expect that to kind of normalize on a quarterly basis? Thanks.

Joseph Ianniello

Sure, Rich. On CBS Films, obviously we don’t break down profitability by film. I think obviously P&A gets expensed as incurred and we do ultimate for each of our category. So stay tuned for more on that. But on Showtime, yes it was the mix, it was a lot of the original programming as we were amortizing their cost, which is based on again quarter-over-quarter what originals released in the quarter, so that’s why again you see a big pop. Obviously again that’s not normalized like I said in my comments. So I think you got to look at it over an annual basis to get a more representative picture of the earnings power of the segment.

Leslie Moonves

And Rich, once again we have stated before that more of our money is going to go into original programming which it has. We now have more series on the air than ever before, and we have made other film deals that are not as costly as some of the ones we have had in the past, but filling out whatever we –

Joseph Ianniello

Yes, and you can look at the year-over-year margins, I think this is a good indication of this earnings leverage.

Richard Greenfield – Pali Capital

But Q1 2010 will be the first time that you will have no movies at all flowing in from any of the three former studio partners, correct?

Joseph Ianniello

Correct. But we do have – again it’s – we are expensing lots of content and product –

Leslie Moonves

And of the studio is also is no longer in business.

Richard Greenfield – Pali Capital

Fair point.

Adam Townsend

Thanks Rich. Let’s go the next question, please.

Operator

Next we will go to Michael Nathanson from Bernstein Research

Michael Nathanson – Bernstein Research

Thank you. I have two of them for you. One question would be on pacings, we know local is very strong, but how much of the TV and Radio pacings came from Super Bowl, because I did hear Westwood One had a big game, too. So give us a sense of first quarter how much was helped by Super Bowl?

Joseph Ianniello

Yes, I think again ex-Super Bowl, that’s why I tried to give you total stations in the CBS. I mean ex-Super Bowl, it’s still high teens at the stations. So we tried to give the – CBS stations are obviously pacing at a higher rates because of the Super Bowl, but even the non-CBS stations again are up high teens.

Michael Nathanson – Bernstein Research

Okay. And then Radio was any of that from Super Bowl in terms of the strengthening there –

Joseph Ianniello

No, no, no there is no benefit. We didn’t have the Super Bowl.

Michael Nathanson – Bernstein Research

Okay. Well, okay.

Leslie Moonves

Yes (inaudible).

Michael Nathanson – Bernstein Research

Yes, then on the second point let me ask you Joe, in the past you have talked about target leverage ratios –

Joseph Ianniello

Can you say that one more time Michael?

Michael Nathanson – Bernstein Research

You talked about the target ratio for debt for you guys in terms of leverage ratio you want. I wonder now given the strength of the debt markets, have you rethought where you think leverage ratio should be for CBS and or you going to tap the near-term markets at all for to maybe refinance some of the stuff you got to payoff from you cash flow?

Joseph Ianniello

I think like we said earlier, I mean we are obviously in a much stronger financial position, so it’s going to be opportunistic. I think the ratios are coming down, earnings is grow and the debt is coming down. So the leverage ratios have come down considerably. So again if the market present itself we will evaluate it, and if it makes sense, we will jump through. It’s not – again the cash is there on hand as you see it. And we have plenty of it.

Michael Nathanson – Bernstein Research

But you – do you have – what’s your target ideal ratio.

Joseph Ianniello

Yes, I don’t want to – it’s not a target number, Michael, only because again it really depends on the underlying trend. So to say, I am stuck within a number, I think we have said we are committed to investment grade, obviously weighing agencies have targets for us and so we do work with that. But I don’t think again we have ever said a target number – a fixed target number, because again I do think it moves.

Adam Townsend

Thanks Michael.

Michael Nathanson – Bernstein Research

Thanks.

Adam Townsend

We will take the next question please.

Operator

We will go next to Michael Mills with JPMorgan.

Michael Mills – JPMorgan

You know what, I am good. I got to get faster with Star One. Have a good night.

Adam Townsend

All right, Michael. No problem. And why don’t we take one more question please then.

Operator

Okay, that will come from Marci Ryvicker with Wells Fargo Securities.

Marci Ryvicker – Wells Fargo Securities

Thanks. I have two quick ones. Les, you said that some of the retrans is going to the network. So are you already getting payments from the affiliates?

Leslie Moonves

Yes.

Joseph Ianniello

Just (inaudible) Marci, our affiliates that’s a reverse compensation and stuff. The retrans – we are talking about two different things. Just so we are clear, retrans is from our owned and operated station, a separate revenue stream, you can call it whatever you want to call it, retrans, reverse compensation, fee, license fees, is that the separate fee that will be paid to the network, that obviously will have nothing to do with our owned and operating stations.

Leslie Moonves

But – and to answer your question Marci, yes we are getting reverse comp from certain stations in the certain months of our affiliates and we will continue.

Marci Ryvicker – Wells Fargo Securities

And then one last question; Joe, can you remind us what you have coming due on the balance sheet over the next few years?

Joseph Ianniello

We are $415 million due in July 2010, which again obviously we have the – well more than a cash on hand for that. In many of 2011, we have $950 million due and in August of 12, $840 million.

Marci Ryvicker – Wells Fargo Securities

Thank you very much.

Adam Townsend

Great. Thanks Marci. And this concludes today’s call. Thank you everyone for joining us this evening and have a great night.

Operator

And once again ladies and gentlemen, this does conclude the conference. We appreciate your participation.

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