| CBS CORP Item 1A Risk Factors |
| CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This document and the documents incorporated by reference into this Annual Report on Form 10-K, including "e Item 7 |
| Managementapstas Discussion and Analysis of Results of Operations and Financial Condition, "e contain both historical and forward-looking statements |
| All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 |
| These forward-looking statements are not based on historical facts, but rather reflect the Companyapstas current expectations concerning future results and events |
| Similarly, statements that describe the Companyapstas objectives, plans or goals are or may be forward-looking statements |
| These forward-looking statements involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause the actual results, performance or achievements of the Company to be different from any future results, performance and achievements expressed or implied by these statements |
| More information about these risks, uncertainties and other factors is set forth below |
| There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not necessarily known |
| The forward-looking statements included in this document are only made as of the date of this document and the Company does not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances |
| RISK FACTORS For an enterprise as large and complex as the Company, a wide range of factors could affect our business and financial results |
| The factors described below are considered to be the most significant |
| There may be other currently unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on the Companyapstas future results |
| Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods |
| I-26 _________________________________________________________________ A Decline in Advertising Expenditures Could Cause the Companyapstas Revenues and Operating Results to Decline Significantly in Any Given Period or in Specific Markets The Company derives substantial revenues from the sale of advertising on its broadcast and basic cable networks, television stations, radio stations, outdoor media and syndicated programming |
| A decline in the economic prospects of advertisers, the economy in general or the economy of any individual geographic market, particularly a major market such as Los Angeles, New York or Chicago, in which the Company owns and operates sizeable businesses, could alter current or prospective advertisers &apos spending priorities |
| Disasters, acts of terrorism, political uncertainty or hostilities could lead to a reduction in advertising expenditures as a result of uninterrupted news coverage and economic uncertainty |
| Advertising expenditures may also be affected by increasing competition for the leisure time of audiences |
| In addition, advertising expenditures by companies in certain sectors of the economy, including the automotive, financial and pharmaceutical segments, represent a significant portion of the Companyapstas advertising revenues |
| Any political, economic, social or technological change resulting in a reduction in these sectors &apos advertising expenditures may adversely affect the Companyapstas revenue |
| Advertisers &apos willingness to purchase advertising from the Company may also be affected by a decline in audience ratings for the Companyapstas programming, the inability of the Company to retain the rights to popular programming, increasing audience fragmentation caused by the proliferation of new media formats, including cable networks, the Internet and video-on-demand and the deployment of portable digital devices which allow consumers to time shift programming and skip or fast forward through advertisements |
| The Companyapstas revenues from outdoor advertising also depend on the Companyapstas continued ability to obtain the right to use effective outdoor advertising space |
| Any reduction in advertising expenditures could have an adverse effect on the Companyapstas revenues and results of operations |
| The Companyapstas Success Is Dependent upon Audience Acceptance of Its Content, Particularly its Television and Radio Programs, Which Is Difficult to Predict Television and radio content production and distribution are inherently risky businesses because the revenues derived from the production and distribution of a television or radio program, and the licensing of rights to the intellectual property associated with the program, depend primarily upon their acceptance by the public, which is difficult to predict |
| The commercial success of a television or radio program also depends upon the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and other tangible and intangible factors, all of which are difficult to predict |
| Rating points are also factors that are weighed when determining the advertising rates that the Company receives |
| Poor ratings can lead to a reduction in pricing and advertising spending |
| For example, there can be no assurance that any replacement programming on the Companyapstas radio or television stations will generate the same level of revenues or profitability of previous programming |
| In addition, the success of the Companyapstas cable networks and Simon & Schuster is dependent in part on audience acceptance of its programming and publications, respectively |
| Consequently, low public acceptance of the Companyapstas content, particularly its television and radio programs, will have an adverse effect on the Companyapstas results of operations |
| Failure by the Company to Obtain, Create and Retain the Rights in Popular Programming Could Adversely Affect the Companyapstas Revenues Operating results from the Companyapstas programming businesses fluctuate primarily with the acceptance of such programming by the public, which is difficult to predict |
| The Companyapstas revenue from its television and radio business is therefore partially dependent on the Companyapstas continued ability to anticipate and adapt to changes in consumer tastes and behavior on a timely basis |
| Moreover, the Company derives a meaningful portion of its revenues from the exploitation of its extensive library of television programming |
| Generally, a television series must have a network run of at least three or four years to be successfully sold in domestic syndication |
| If the content of its television programming library ceases to be widely accepted by audiences or is not continuously replenished with popular content, the Companyapstas revenues could be I-27 _________________________________________________________________ adversely affected |
| The Company obtains a significant portion of its popular programming from third parties |
| For example, some of CBS Networkapstas most widely viewed broadcasts, including the NCAA Division 1 Menapstas Basketball Championship, golfapstas Masters Tournament and PGA Championship, and NFL games, are made available based upon programming rights of varying duration that the Company has negotiated with third parties |
| In addition, Showtime Networks enters into commitments to acquire rights to feature films and other programming for Showtime, The Movie Channel and FLIX from motion picture producers and other suppliers for varying durations, and CBS Radio acquires the broadcast rights to syndicated shows and to various programs, such as sports events from third parties |
| Competition for popular programming that is licensed from third parties is intense, and the Company may be outbid by its competitors for the rights to new, popular programming or in connection with the renewal of popular programming currently licensed by the Company |
| The Companyapstas failure to obtain or retain rights to popular content could adversely affect the Companyapstas revenues |
| Any Decrease in Popularity of the Programming for Which the Company Has Incurred Significant Commitments Could Have an Adverse Effect on Its Profitability Programming and talent commitments of the Company, estimated to aggregate approximately dlra14dtta16 billion as of December 31, 2005, included dlra9dtta89 billion for the acquisition of sports programming rights, dlra2dtta86 billion relating to television, radio and film production and acquisitions and dlra897dtta8 million for talent contracts, with dlra3dtta09 billion of these amounts payable in and after 2011 |
| A shortfall, now or in the future, in the expected popularity of the sports events for which the Company has acquired rights, or in the television and radio programming the Company expects to air, could lead to decreased profitability or losses for a significant period of time |
| The Companyapstas Operating Results Are Subject to Seasonal Variations The Companyapstas business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns, seasonal theme park attendance and seasonal influences on peopleapstas viewing, reading and listening habits |
| Typically, the Companyapstas revenue from advertising increases in the fourth quarter, Simon & Schuster generates a substantial portion of its revenues in the fourth quarter and Paramount Parks &apos revenues from admissions are primarily generated in the second and third quarters |
| In addition, advertising revenues in even-numbered years benefit from advertising placed by candidates for political offices |
| The effect of such seasonality makes it difficult to estimate future operating results based on the previous results of any specific quarter |
| The Companyapstas Businesses Operate in Highly Competitive Industries The Company competes with other media companies for high quality content and attractive outdoor advertising space to achieve large audiences and to generate advertising revenue |
| The Company also competes for distribution on various cable, DTH satellite and other platforms |
| The Companyapstas ability to attract viewers and advertisers and obtain favorable distribution depends in part on its ability to provide popular television, syndicated programming and radio programming and books, as well as well-placed outdoor advertising faces |
| In addition, the consolidation of advertising agencies, distributors and television service providers has made competition for viewers, advertising revenue, and distribution more intense |
| In addition, consolidation among book retailers has resulted in increased competition for limited shelf space for the Companyapstas publications |
| Competition for viewers and advertising comes from: broadcast television stations and networks; cable television systems and networks; the Internet; terrestrial and satellite radio and portable digital audio players; outdoor advertisers; local, regional and national newspapers; direct mail; and other communications and advertising media that operate in these markets |
| Other television and radio stations or cable networks may change their formats or programming, a new station or new network may adopt a format to compete directly with the Companyapstas stations or networks, or stations or networks might engage in aggressive promotional campaigns |
| This competition could result in lower ratings and advertising and subscription revenues or increased promotional and other expenses and, consequently, lower earnings and cash flow for the Company |
| The Company cannot assure you that it will be able to I-28 _________________________________________________________________ compete successfully in the future against existing or potential competitors, or that competition will not have a material adverse effect on its business, financial condition or results of operations |
| The Company Must Respond to Rapid Changes in Technology, Services and Standards in Order to Remain Competitive Video, telecommunications, radio and data services technologies used in the entertainment industry are changing rapidly |
| Advances in technologies or alternative methods of product delivery or storage, or certain changes in consumer behavior driven by these or other technologies and methods of delivery and storage, could have a negative effect on the Companyapstas businesses |
| Examples of such advances in technologies include video-on-demand, satellite radio, new video and electronic book formats and downloading from the Internet and digital outdoor displays |
| For example, devices that allow users to view or listen to television or radio programs on a time-delayed basis and technologies that enable users to fast-forward or skip advertisements, such as DVRs and portable digital devices, may cause changes in consumer behavior that could affect the attractiveness of the Companyapstas offerings to advertisers and could therefore adversely affect its revenues |
| In addition, further increases in the use of portable digital devices which allow users to view or listen to content of their own choosing, in their own time, while avoiding traditional commercial advertisements, could adversely affect the Companyapstas radio and television broadcasting advertising and subscription revenues |
| Cable providers and DTH satellite operators are developing new techniques that allow them to transmit more channels on their existing equipment to highly targeted audiences, reducing the cost of creating channels and potentially leading to the division of the television marketplace into more specialized niche audiences |
| More television options increase competition for viewers and competitors targeting programming to narrowly defined audiences may gain an advantage over the Company for television advertising and subscription revenues |
| The ability to anticipate and adapt to changes in technology on a timely basis and exploit new sources of revenue from these changes will affect the Companyapstas ability to continue to grow and increase its revenue |
| Increased Programming and Content Costs May Adversely Affect the Companyapstas Profits The Company produces and acquires programming and content and incurs costs for all types of creative talent, including actors, authors, writers and producers |
| An increase in the costs of such programming and content or in the costs for creative talent may lead to decreased profitability |
| Piracy of the Companyapstas Programming and Other Content, Including Digital and Internet Piracy, May Decrease Revenue Received from the Exploitation of the Companyapstas Programming and Other Content and Adversely Affect Its Businesses and Profitability Piracy of programming is prevalent in many parts of the world and is made easier by technological advances allowing conversion of programming and other content into digital formats, which facilitates the creation, transmission and sharing of high quality unauthorized copies of the Companyapstas content |
| The proliferation of unauthorized copies and piracy of these products has an adverse effect on the Companyapstas businesses and profitability because these products reduce the revenue that the Company potentially could receive from the legitimate sale and distribution of its products and services |
| In addition, if piracy were to increase, it would have an adverse effect on the Companyapstas businesses and profitability |
| Changes in US Communications Laws or Other Regulations May Have an Adverse Effect on the Companyapstas Business The television and radio broadcasting and distribution industries in the US are highly regulated by US federal laws and regulations issued and administered by various federal agencies, including the FCC The television and radio broadcasting industry is subject to extensive regulation by the FCC under the Communications Act |
| For example, the Company is required to obtain licenses from the FCC to operate its radio and television stations |
| The Company cannot assure you that the FCC will approve its future renewal applications or that the renewals will be for full terms or will not include conditions or qualifications |
| The non-renewal, or renewal with substantial conditions or modifications, of one or more of I-29 _________________________________________________________________ the Companyapstas licenses could have a material adverse effect on the Companyapstas revenues |
| The Company must also comply with extensive FCC regulations and policies in the ownership and operation of its television and radio stations and its television networks |
| FCC regulations prohibit the ownership of more than one of the top four networks, ABC, CBS, FOX and NBC, and limit the number of television and radio stations that a licensee can own in a market and the number of television stations that can be owned nationwide, which could restrict the Companyapstas ability to consummate future transactions and in certain circumstances could require it to divest some television or radio stations |
| The Company and public interest groups, among others, have entered into a settlement agreement, which, if adopted by the FCC, would moot the concerns |
| In the meantime, the FCC has stayed the effectiveness of the new rules pending its decision of whether to accept the settlement |
| As part of the nationwide transition from analog to digital broadcasting, the Companyapstas full power television stations are required to transmit a digital signal 100prca of the time they are transmitting an analog signal |
| This requirement increases the Companyapstas operating costs |
| At the end of the analog-to-digital period, which is scheduled to occur in February 2009, these television stations will be required to cease analog transmissions |
| The Company is unable to predict the extent to which consumers will acquire digital television receivers or digital conversion devices for analog television receivers and the effect of the cessation of analog broadcasting on viewership |
| In addition, the Company is unable to predict the extent or timing of consumer demand for digital television services and the resulting impact on the Companyapstas viewership |
| The US Congress and the FCC currently have under consideration, and may in the future adopt, new laws, regulations, and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation and ownership of the Companyapstas radio and television properties |
| For example, from time to time, proposals have been advanced in the US Congress and at the FCC to require radio and television broadcast stations to provide advertising time to political candidates for free or at a reduced charge |
| In addition, some policymakers maintain that cable operators should be required to offer a la carte programming to subscribers on a network by network basis or "e family friendly "e programming tiers |
| The FCC recently issued a report finding that consumers would benefit if cable operators were required to offer programming on an a la carte basis because of greater choice and the opportunity to lower bills |
| Unbundling packages of program services may increase both competition for carriage on distribution platforms and marketing expenses, which could adversely affect the Companyapstas cable networks &apos results of operations |
| Changes to the media ownership and other FCC rules may affect the competitive landscape in ways that could increase the competition faced by the Company |
| Proposals have also been advanced from time to time before the US Congress and the FCC to extend the program access rules (currently applicable only to those cable program services which also own or are owned by cable distribution systems) to all cable program services |
| The Companyapstas ability to obtain the most favorable terms available for its content could be adversely affected should such an extension be enacted into law |
| In addition, changes in international laws may have an adverse impact on the Companyapstas international businesses |
| The Company is unable to predict the effect that any such laws, regulations or policies may have on its operations |
| Vigorous Enforcement or Enhancement of FCC Indecency and Other Program Content Rules Against the Broadcast and Cable Industries Could Have an Adverse Effect on the Companyapstas Businesses and Results of Operations The FCCapstas rules prohibit the broadcast of obscene material at any time and indecent or profane material on television or radio broadcast stations between the hours of 6 a |
| Broadcasters risk violating the prohibition against broadcasting indecent material because of the vagueness of the FCCapstas definition of indecent material, coupled with the spontaneity of live programming |
| The FCC vigorously enforces its indecency rules against the broadcasting industry as a whole |
| The FCC has indicated that it is stepping up its enforcement activities as they apply to indecency, and has threatened to initiate license revocation proceedings against broadcast licensees for "e serious "e indecency violations |
| The FCC has found on a number of occasions recently, chiefly with regard to radio stations, that the content of broadcasts has contained indecent material |
| In such instances, the FCC issued fines to the offending licensees |
| Moreover, I-30 _________________________________________________________________ the FCC has recently begun imposing separate fines for each allegedly indecent "e utterance, "e in contrast with its previous policy, which generally considered all indecent words or phrases within a given program as constituting a single violation |
| In addition, legislation has been introduced in the US Congress which would, among other things, (i) significantly increase the fines for indecent broadcasts, (ii) specify that all indecency violations are "e serious "e violations for license renewal purposes and (iii) mandate an evidentiary hearing to consider the revocation of a stationapstas license or construction permit of any station that has had three indecency violations during its license term |
| If the FCC denied a license renewal for one of the Companyapstas broadcast radio or television stations, the Company would lose its authority to operate the station |
| The determination of whether content is indecent is inherently subjective and, as such, it can be difficult to predict whether particular content could violate indecency standards |
| The difficulty in predicting whether individual programs, words or phrases may violate the FCCapstas indecency rules adds significant uncertainty to the Companyapstas ability to comply with the rules |
| Violation of the indecency rules could lead to sanctions which may adversely affect the Companyapstas businesses and results of operations |
| Some policymakers also support the extension of the indecency rules that are applicable to over-the-air broadcasters to cover cable and satellite programming and/or attempts to step up enforcement of or otherwise expand existing laws and rules |
| If such an extension, attempt to step up enforcement or other expansion took place and were found to be constitutional, some of the Companyapstas cable content could be subject to additional regulation and might not be able to attract the same subscription and viewership levels |
| The Loss of Affiliation Agreements or Retransmission Agreements Could Materially Adversely Affect the Companyapstas Results of Operations CBS and UPN television networks provide their affiliates with up to 98 and 10 hours, respectively, of programming per week |
| In return, CBS Networkapstas affiliated stations and UPNapstas affiliated stations broadcast network-inserted commercials during that programming |
| Loss of network affiliation agreements of CBS and UPN television networks could adversely affect the Companyapstas results of operations by reducing the reach of the Companyapstas programming and therefore its attractiveness to advertisers and renewal on less favorable terms may also adversely affect the Companyapstas results of operations |
| The 50/50 joint venture between the Company and Warner Bros |
| Entertainment is pursuing affiliation agreements for the launch of The CW network and there can be no assurance that broad distribution for the network will be achieved |
| The non-renewal or termination of retransmission agreements with distributors such as Comcast Corporation, Time Warner Cable, a division of Time Warner Inc, DIRECTV Holdings LLC, or EchoStar Communications Corporation or continued distribution on less favorable terms, could also adversely affect the Companyapstas ability to distribute its network programming to a nationwide audience and affect the Companyapstas ability to sell advertising, which could have a material adverse effect on the Companyapstas results of operations |
| Showtime Networks and the CSTV cable network are also dependent upon the maintenance of affiliation agreements with cable and DTH satellite operators, and there can be no assurance that these affiliation agreements will be renewed in the future on terms acceptable to such entities |
| The loss of one or more of these arrangements would reduce the distribution of Showtime Networks &apos and CSTVapstas program services and reduce revenues from subscriber fees, as applicable |
| Further, the loss of favorable packaging, positioning, pricing or other marketing opportunities with any distributor could reduce revenues from subscriber fees |
| In addition, consolidation among cable and DTH satellite operators and increased vertical integration of such distributors into the cable or broadcast network business have provided more leverage to these providers and could adversely affect the Companyapstas ability to maintain or obtain distribution for its network programming or distribution and/or marketing of its subscription program services on commercially reasonable terms, or at all |
| I-31 _________________________________________________________________ The Failure or Destruction of Satellites and Transmitter Facilities That the Company Depends Upon to Distribute Its Programming Could Materially Adversely Affect the Companyapstas Businesses and Results of Operations The Company uses satellite systems to transmit its broadcast and cable networks to affiliates |
| The distribution facilities include uplinks, communications satellites and downlinks |
| Transmissions may be disrupted as a result of local disasters that impair on-ground uplinks or downlinks, or as a result of an impairment of a satellite |
| Currently, there are a limited number of communications satellites available for the transmission of programming |
| If a disruption occurs, the Company may not be able to secure alternate distribution facilities in a timely manner |
| Failure to secure alternate distribution facilities in a timely manner could have a material adverse effect on the Companyapstas businesses and results of operations |
| In addition, each of the Companyapstas television and radio stations and cable networks uses studio and transmitter facilities that are subject to damage or destruction |
| Failure to restore such facilities in a timely manner could have a material adverse effect on the Companyapstas businesses and results of operations |
| The Company Could Suffer Losses Due to Asset Impairment Charges for Goodwill, Intangible Assets, FCC Licenses and Programming In accordance with SFAS 142, the Company will test goodwill and intangible assets, including broadcast licenses, for impairment during the fourth quarter of each year, and on an interim date should factors or indicators become apparent that would require an interim test |
| A downward revision in the fair value of a reporting unit or intangible assets could result in an impairment under SFAS 142 and a non-cash charge would be required |
| Any significant shortfall, now or in the future, in the expected popularity of the programming for which the Company has acquired rights could lead to a downward revision in the fair value of such assets |
| Any such charge could have a material effect on the Companyapstas reported net earnings |
| The Loss of Key Personnel, Including Talent, Could Disrupt the Management or Operations of the Companyapstas Business and Adversely Affect Its Revenues The Companyapstas business depends upon the continued efforts, abilities and expertise of its chief executive officer and other key employees and entertainment personalities |
| The Company believes that the unique combination of skills and experience possessed by its executive officers would be difficult to replace, and that the loss of its executive officers could have a material adverse effect on the Company, including the impairment of the Companyapstas ability to execute its business strategy |
| Additionally, the Company employs or independently contracts with several entertainment personalities and authors with significant loyal audiences |
| Entertainment personalities are sometimes significantly responsible for the ranking of a television or radio station and, therefore, the ability of the station to sell advertising, and an authorapstas popularity can be significantly responsible for the success of a particular book |
| There can be no assurance that these entertainment personalities and authors will remain with the Company or will retain their current audiences or readership |
| If the Company fails to retain these entertainment personalities and authors or they lose their current audiences or readership, the Companyapstas revenues could be adversely affected |
| Regulation of the Outdoor Advertising Industry Could Materially Adversely Affect the Companyapstas Outdoor Business The outdoor advertising industry is subject to extensive governmental regulation and enforcement at the federal, state and local levels in the US and to national, regional and local restrictions in foreign countries |
| These regulations and enforcement actions can affect the operation and continuance of operations of advertising displays and include restrictions on the construction, repair, upgrading, height, size and location of outdoor advertising structures and, in some instances, the content of advertising copy that can be displayed on these structures |
| In addition, in recent years, outdoor advertising has become the subject of targeted state and municipal taxes |
| Such laws may reduce the Companyapstas expansion opportunities or may increase competitive pressure from others |
| The Company cannot give any assurance that existing or future laws or regulations will not materially and adversely affect its outdoor business |
| I-32 _________________________________________________________________ If Accidents Occur at Paramount Parks or Competing Parks, Attendance at Paramount Parks May Decline Which Would Negatively Impact the Companyapstas Revenues There are inherent risks involved with the attractions at theme parks |
| An accident or an injury at any of Paramount Parks &apos theme parks could expose the Company to significant liability for personal injury claims |
| In addition, an accident or injury at these parks or at parks operated by competitors of Paramount Parks may create public concern and negative media coverage about the safety of theme parks and reduce attendance at Paramount Parks &apos theme parks, which would negatively impact the Companyapstas revenues |
| Fluctuations in Foreign Exchange Rates Could Have an Adverse Effect on the Companyapstas Results of Operations Certain of the Companyapstas revenues are earned and expenses are incurred in foreign currencies |
| The value of these currencies fluctuates relative to the US dollar |
| As a result, the Company is exposed to exchange rate fluctuations, which could have an adverse effect on its results of operations |
| The Companyapstas Liabilities Related to Discontinued Operations and Former Businesses Could Adversely Impact Its Financial Condition The Company has both recognized and potential liabilities and costs related to discontinued operations and former businesses, certain of which are unrelated to the media business, including leases, guarantees, environmental liabilities, liabilities related to the pensions and medical expenses of retirees, asbestos liabilities, contractual disputes and other pending and threatened litigation |
| The Company cannot assure you that its reserves are sufficient to cover these liabilities in their entirety or any one of these liabilities when it becomes due or at what point any of these liabilities may come due |
| Therefore, there can be no assurances that these liabilities will not have a material adverse effect on the Companyapstas financial position, operating performance or cash flow |
| The Company Could Be Adversely Affected by Strikes and Other Union Activity The Company and its suppliers engage the services of writers, directors, actors and other talent, trade employees and others who are subject to collective bargaining agreements |
| If the Company or its suppliers are unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages |
| Such actions, higher costs in connection with these agreements or a significant labor dispute could adversely affect the Companyapstas television and radio businesses by causing delays in the production of the Companyapstas television or radio programming or the Companyapstas outdoor business by disrupting its ability to place advertising on outdoor faces |
| Political and Economic Risks Associated with the Companyapstas International Businesses Could Harm the Companyapstas Financial Condition or Results of Operations The Companyapstas businesses operate and have customers worldwide |
| Inherent risks of doing business in international markets include, among other risks, changes in the economic environment, export restrictions, exchange controls, tariffs and other trade barriers and longer payment cycles |
| The Company may incur substantial expense as a result of the imposition of new restrictions or changes in the existing economic environment in the regions where it does business |
| In addition, acts of terrorism or other hostilities, or other future financial, political, economic or other uncertainties, could lead to a reduction in advertising expenditures, which could materially adversely affect the Companyapstas business, financial condition or results of operations |
| NAI, Through Its Voting Control of the Company, is in a Position to Control Actions that Require Stockholder Approval NAI, through its beneficial ownership of the Companyapstas Class A Common Stock, has voting control of the Company |
| Sumner M Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, serves as Executive Chairman of the Companyapstas Board of Directors, and Ms |
| Shari Redstone, the president and a director of NAI, serves as Vice Chair of the Companyapstas Board of I-33 _________________________________________________________________ Directors |
| Andelman and Dauman are directors of NAI and they are directors of the Company |
| NAI is in a position to control the outcome of corporate actions that require stockholder approval, including the election of directors and transactions involving a change of control |
| Other stockholders are unable to affect the outcome of the corporate actions of the Company for so long as NAI retains voting control |
| Many Factors May Cause the Stock Price of the Companyapstas Class A Common Stock and Class B Common Stock to Fluctuate The stock price of Class A Common Stock and Class B Common Stock may fluctuate significantly as a result of many factors |
| These factors, some or all of which are beyond the Companyapstas control, include: • lack of a trading history since the Separation; • actual or anticipated fluctuations in CBS Corp |
| apstas operating results; • changes in expectations as to CBS Corp |
| apstas operating and growth strategies; • investor anticipation of strategic, technological or regulatory threats, whether or not warranted by actual events; • operating and stock price performance of other comparable companies; and • realization of any of the risks described in these risk factors |
| In addition, the stock market has experienced volatility that often has been unrelated or disproportionate to the operating performance of particular companies |
| These broad market and industry fluctuations may adversely affect the trading prices of the Companyapstas common stock, regardless of the Companyapstas actual operating performance |
| Risks Related to the Separation The Financial Results of the Company May Be Subject to Increased Variability After the Separation After the Separation, the Company has market dynamics and economics that may be different from Former Viacom |
| The businesses that the Company operates are sensitive to general economic conditions, consumer confidence, consumer retail spending, interest rates, adverse publicity, competition and trends in technology |
| The diversification that Former Viacom had prior to the Separation, resulting from operating the businesses of New Viacom alongside the businesses of the Company, may have moderated financial and operational volatility |
| Following the Separation, that diversification diminishes, and the Company may experience increased volatility in terms of cash flow, seasonality, working capital and financing requirements |
| The Businesses of the Company and New Viacom Will Be Attributable to the Other Company for Certain Regulatory Purposes So long as the Company and New Viacom are under common control, each companyapstas businesses, as well as the businesses of any other commonly controlled company, will be attributable to the other company for purposes of US and non-US antitrust rules and regulations, certain rules and regulations of the FCC, and certain rules regarding political campaign contributions in the US, among others |
| The businesses of one company will continue to be attributable to the other company for certain FCC purposes even after the two companies cease to be commonly controlled, if the two companies share common officers, directors, or attributable stockholders |
| As a result, the businesses and conduct of New Viacom may have the effect of limiting the activities or strategic business alternatives available to the Company |
| I-34 _________________________________________________________________ The Separation Agreement Prohibits the Company from Engaging in Certain Types of Businesses Under the terms of the Separation Agreement entered into between the Company and New Viacom in connection with the Separation, the Company may not make acquisitions, enter into agreements or accept or agree to any condition that purports to bind New Viacom or subjects New Viacom to restrictions it is not otherwise subject to by legal order without New Viacomapstas consent |
| The Company and New Viacom have agreed that prior to the earliest of (1) the fourth anniversary of the Separation, (2) the date on which none of Mr |
| Redstone, NAI, NAIRI, Inc, a wholly owned subsidiary of NAI, or any of their successors, assigns or transferees are deemed to have interests in both the Company and New Viacom that are attributable under applicable US federal laws and (3) the date on which the other company ceases to own the video programming vendors that it owns as of the Separation, neither of them will own or acquire an interest in a cable television operator if such ownership would subject the other company to US federal laws regulating contractual relationships between video programming vendors and video programming distributors that the other company is not then subject to |
| These restrictions could limit the strategic business alternatives available to the Company |
| The Tax Matters Agreement and the Tax Rules Applicable to the Separation May Restrict the Companyapstas Ability to Engage in Certain Corporate Transactions In connection with the Separation, the Company and New Viacom entered into a tax matters agreement dated December 30, 2005, which is filed as an exhibit to this report, effective as of the Separation (the "e Tax Matters Agreement "e ) |
| The Tax Matters Agreement provides, among other things, that, depending on the event, New Viacom may have to indemnify the Company, or the Company may have to indemnify New Viacom, for some or all of the taxes resulting from the merger and the distribution of New Viacom common stock in the merger if the merger and distribution do not qualify as a tax-free distribution under Sections 355 and 368 of the United States Internal Revenue Code of 1986, as amended (the "e Code "e ) |
| In addition, the current US federal income tax law creates a presumption that the distribution of New Viacom common stock in the merger would be taxable to Former Viacom, but not to its stockholders, if either New Viacom or the Company engages in, or enters into an agreement to engage in, a transaction that would result in a 50prca or greater change, by vote or value, in the Companyapstas or New Viacomapstas stock ownership during the four-year period that begins two years before the date of the Separation, unless it is established that the transaction was not undertaken pursuant to a plan or series of transactions related to the Separation |
| The Treasury Regulations currently in effect generally provide that whether such distribution is part of a plan is determined based on all of the facts and circumstances, including, but not limited to, specific factors described in the Treasury Regulations |
| In addition, the Treasury Regulations provide several "e safe harbors "e for acquisition transactions that are not considered to be part of a plan |
| The indemnification obligations set forth in the Tax Matters Agreement and the above-described provisions of the tax law may prevent the Company from entering into transactions which might be advantageous to its stockholders, such as issuing equity securities to satisfy financing needs or acquiring businesses or assets with equity securities, and may make the Company less attractive to a potential acquiror and reduce the possibility that an acquiror will propose or seek to effect certain transactions with the Company |
| If the Merger Is Determined to Be Taxable, the Company and its Stockholders Could Be Subject to a Material Amount of Taxes Former Viacom received an opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP and a private letter ruling from the US Internal Revenue Service (IRS), in each case, to the effect that, for US federal income tax purposes, the merger and the distribution of New Viacom common stock in the merger qualified as a tax-free distribution under Sections 355 and 368 of the Code and the distribution of the Companyapstas common stock in the merger was also generally tax-free to Former Viacom and its stockholders |
| In accordance with current IRS ruling policy, the IRS ruling does not address certain significant issues relating to qualification under Section 355 of the Code and, as to those issues, Former Viacom relied on an opinion of counsel |
| The merger was structured to be tax-free for US federal income tax purposes to Former Viacom stockholders, except with respect to cash received in lieu of fractional I-35 _________________________________________________________________ shares of CBS Corp |
| common stock |
| The merger was also tax-free to the Company for US federal income tax purposes, except with respect to taxes arising out of foreign and other internal restructurings undertaken in connection with the Separation and any "e excess loss account "e or "e intercompany transaction "e required to be taken into account by Former Viacom under the Treasury Regulations |
| The IRS ruling was based on the facts presented and representations made by Former Viacom in the ruling request |
| Generally, an IRS private letter ruling will not be revoked or modified retroactively unless there was an omission or misstatement of a material fact or a breach of a material representation |
| If the facts or representations are found to be incorrect or incomplete in a material respect or if the facts at the time of the Separation were materially different from the facts upon which the IRS ruling was based, the Company cannot rely on the IRS ruling |
| An opinion of counsel is not binding on the IRS or any court and is also based on representations and assumptions included therein |
| If the factual representations and assumptions were incorrect, the Company cannot rely on the tax opinion |
| If the merger is determined to be taxable, the Company and its stockholders who received shares of CBS Corp |
| common stock would be subject to a material amount of taxes |
| will not indemnify any individual stockholder for any taxes that may be incurred in connection with the Separation |
| In Connection with the Separation, Each Company Will Rely on the Other Companyapstas Performance Under Various Agreements Between the Companies In connection with the Separation, the Company and New Viacom entered into various agreements, including the Separation Agreement, the Tax Matters Agreement, a transition services agreement pursuant to which the Company and New Viacom have agreed to provide certain specified services to each other following the Separation (the "e transition services agreement "e ) and certain related party arrangements pursuant to which the Company and New Viacom will provide services and products to each other from and after the Separation |
| The Separation Agreement sets forth the allocation of assets, liabilities, rights and obligations of the Company and New Viacom following the Separation, and includes indemnification obligations for such liabilities and obligations |
| In addition, pursuant to the Tax Matters Agreement, certain income tax liabilities and related responsibilities are allocated between, and indemnification obligations are assumed by, each of the Company and New Viacom |
| Each company will rely on the other to satisfy its performance and payment obligations under these agreements |
| Certain of the liabilities to be assumed or indemnified by the Company or New Viacom under these agreements are legal or contractual liabilities of the other company |
| If New Viacom were to breach or be unable to satisfy its material obligations under these agreements, including a failure to satisfy its indemnification obligations, the Company could suffer operational difficulties or significant losses |
| Certain Members of Management, Directors and Stockholders May Face Actual or Potential Conflicts of Interest The management and directors of the Company own both CBS Corp |
| common stock and New Viacom common stock, and both the Company and New Viacom are controlled by NAI Mr |
| Redstone, the controlling stockholder, chairman of the board of directors and chief executive officer of NAI, serves as Executive Chairman of the Companyapstas Board of Directors and executive chairman of New Viacomapstas board of directors |
| Redstone, the president and a director of NAI, serves as Vice Chair of the Board of Directors of each of the Company and New Viacom |
| David R Andelman and Philippe P Dauman are directors of NAI, and Mr |
| Dauman serves as a director of both the Company and New Viacom and Mr |
| Andelman serves as a director of the Company |
| This ownership overlap and these common directors could create, or appear to create, potential conflicts of interest when the Companyapstas and New Viacomapstas management, directors and controlling stockholder face decisions that could have different implications for the Company and New Viacom |
| For example, potential conflicts of interest could arise in connection with the resolution of any dispute between the Company and New Viacom regarding the terms of the agreements governing the Separation and the relationship between the Company and New Viacom thereafter |
| These agreements include, among others, the Separation Agreement, the Tax Matters I-36 _________________________________________________________________ Agreement, the transition services agreement and any commercial agreements between the parties or their affiliates |
| Potential conflicts of interest could also arise if the Company and New Viacom enter into any commercial arrangements with each other in the future |
| Each of Mr |
| Redstone and Mr |
| Dauman may also face conflicts of interest with regard to the allocation of his or her time between the Company and New Viacom |
| apstas certificate of incorporation contains provisions related to corporate opportunities that may be of interest to both the Company and New Viacom |
| apstas certificate of incorporation provides that in the event that a director, officer or controlling stockholder of the Company who is also a director, officer or controlling stockholder of New Viacom acquires knowledge of a potential corporate opportunity for both the Company and New Viacom, such director, officer or controlling stockholder may present such opportunity to the Company or New Viacom or both, as such director, officer or controlling stockholder deems appropriate in his or her sole discretion, and that by doing so such person will have satisfied his or her fiduciary duties to the Company and its stockholders |
| apstas certificate of incorporation provides that it renounces any interest in any such opportunity presented to New Viacom |
| These provisions create the possibility that a corporate opportunity of one of such companies may be used for the benefit of the other company |
| May Not Enjoy All of the Benefits of Scale that Former Viacom Achieved with All of Its Businesses Under the Same Corporate Structure Prior to the Separation, Former Viacom businesses shared benefits of scope and scale in costs, human capital, vendor relationships and customer relationships |
| While the Company and New Viacom entered into agreements that will govern a number of their commercial and other relationships after the Separation, those arrangements do not fully capture the benefits the businesses enjoyed as a result of common ownership prior to the Separation |
| The loss of these benefits as a consequence of the Separation could have an adverse effect on the Companyapstas businesses, results of operations and financial condition following the Separation |
| Has a New Operating Structure and New Management The separation of Former Viacom into two publicly traded companies involved the division of Former Viacomapstas businesses |
| In connection with the Separation, many jointly-held assets and operating systems as well as personnel have been allocated between the companies, in particular at Paramount and in Former Viacomapstas corporate offices, and new related party agreements have been entered into to govern the ongoing business relationships between the companies following the Separation |
| The Company has a senior corporate staff that includes several executives who were hired relatively recently or who recently assumed all or a substantial part of their current responsibilities |
| There can therefore be no assurance that the Company will be successful under these conditions |