Good day, everyone, and welcome to the CBS Corporation First Quarter 2011 Earnings Release Teleconference. Today's call is being recorded. At this time, I'd like to turn the call over to the Executive Vice President of Investor Relations, Mr. Adam Townsend. Please go ahead.

Good afternoon, everyone, and welcome to our first quarter 2011 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 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. Please note that during today's conference call, financial results and comparisons, with the exception of revenue, will be discussed on an adjusted basis unless otherwise specified. Reconciliations for non-GAAP financial information related to this call can be found in our earnings release or on our website. In addition, statements in this conference call relating to matters which are not historical facts are forward-looking statements, which involve risks and uncertainties that could cause 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 Investors section of our website at cbscorporation.com. With that, it's now my pleasure to turn the call over to Sumner.

Thank you, Adam. Good afternoon, everyone. And I thank you for being with us today. CBS is on a roll in 2011. Our industry-leading content, our multi-platform distribution have once again led to an exceptional performance for the company, and momentum is continuing throughout our businesses. What a terrific way to start off the year. Not only are we operating in a strong marketplace, we have the right strategy to turn our growing revenue into increasing profits. And remember this, we remain committed to enhancing shareholder value. This is an unbeatable approach that I'm confident will propel our company to even greater heights throughout the rest of this year and for many years beyond. This is in no small part, of course, thanks to Les and his team. They are doing a phenomenal job creating the best content, optimizing the business and managing our balance sheet. Needless to say, I'm really pleased, extremely pleased with CBS and all that we're doing to capitalize on our position of strength. And now for more on CBS's exceptional performance, let's hear from my good friend, a man I rightfully and faithfully call a genius, CBS's President and CEO, Les Moonves.

Thank you very much, Sumner, for that wonderful introduction. Good afternoon, everybody. Thank you for joining us once again. By now, you've read our release and have seen that we had a wonderful quarter. OIBDA was up 64%, 96% on a reported basis. EPS was $0.29, up nearly 6x from the first quarter last year. Every single segment of CBS is performing at extremely high levels. In a minute, I'm going to walk you through our divisions in more detail. But I can tell you up top that in every one of our businesses, we are very pleased with what we are seeing. And heading into the rest of the year, we are looking as strong as we ever have. This quarter is also a great one because you can truly see the kind of strong fundamental performance that we are confident we will achieve going forward. We did not benefit from any one-time items or adjustments. We just generated healthy underlying growth that speaks to the strength of our businesses. As the numbers show, we're clearly benefiting from the strategic actions we've taken to enhance and derisk our business model, including diversifying our revenue streams and managing our cost structure. Our valuable content and our ability to sell it with increasing profitability is a powerful combination that positions CBS for success, not just for the rest of this year but for many years to come. We are very encouraged by the ongoing strength of the advertising marketplace. We posted solid underlying revenue growth during the quarter. And as we look to the rest of '11 and into '12, our business continues to be very healthy, particularly given the highly favorable climate heading into this year's upfront. Scatter is still extremely hot, and pacing in our local businesses is looking…

Thanks, Les. Good afternoon, everyone. Today, I will provide you more detail on the results for the quarter and update you on what we're seeing in Q2. But before I walk you through our strong results, I want to point out that we're confident that the performance we're seeing this quarter is sustainable. We're in the early stages of benefiting from the improved long-term deals with many more to come. We are favorably changing our revenue mix, and our visibility into the marketplace is more clear and very promising. This quarter proves that our underlying revenue performance continues to grow, and our operating leverage is significant. We see this momentum continuing. So now let's look at our total company results for the quarter. Revenues at $3.5 billion were essentially flat with the prior year despite no Super Bowl and including the impact of our new NCAA arrangement with Turner. Taken together, these 2 items lowered the revenue comparison by 10 percentage points. As we mentioned on last quarter's call, for our new NCAA contract, we only recognize revenues for the games that air on CBS. The underlying base advertising revenues for the company were up double digits for the quarter. Content licensing and distribution revenues were up 4%, and affiliate and subscription fees were up 10%. It's important to note again that these results do not reflect the impact of our new Netflix deal, which starts in Q2. OIBDA of $576 million was up 64% from the prior year. On a reported basis, OIBDA was up 96% because of $57 million of restructuring charges recognized last year. We have also expanded our OIBDA margin for yet another quarter. The overall margin in the first quarter expanded 650 basis points to 16%, as we continue to enhance our business model with…

[Operator Instructions] We will go first to Jessica Reif-Cohen with Bank of America Merrill Lynch.

I guess a couple of follow-ups and some comments. First, Les, on your schedule for next year, I know you haven't announced it. But your comment about your own production, I just was wondering if you could clarify, are you taking any shows from third-party producers? Or will most of it come from internally?

Yes. Our philosophy is always the best show makes it on the air. And as you know, we have over 2/3 of the shows are shows that are CBS. But in terms of our pilots, I think once again, it's about 2/3 CBS and 1/3 from other suppliers. So right now we're just screening our pilots, and may the best man win. Obviously, it's the jump ball. The CBS-owned project gets on the air and fortunately, NCIS and CSI and Hawaii Five-0 and The Good Wife and Blue Bloods are all CBS-owned properties. So we not only get the front ends in advertising but the back end as well.

And then just a last question. On Hawaii Five-0, I just wonder -- I mean, it's incredible that you've had such a big sale and so early. What are the cable networks thinking? I mean, why are they committing so early?

By the way, we had the same situation frankly with NCIS: L.A. if you recall., which we did after only 6 episodes. This one, I think, we waited till there were 12 on the air. Look, it's a competitive marketplace. Quality premium hours are very tough to come by. And there's a bidding war for these types of things going on. So the marketplace is very strong, both internationally which continues to grow, as well as domestically if you have the right kind of hours that aren't serialized that have an action component and that can get this kind of numbers. So it's a great business.

So does that feed the international sales then, if they know that you're going to keep the show on for 3 years?

Look, the international sales are sold fairly early. Right after we announce them on our schedule here, it will continue to feed the pipeline. But Hawaii Five-0 before it even went on the air in the United States got over $2.5 million internationally, and the numbers internationally keep growing.

We'll go next to Ben Swinburne with Morgan Stanley.

Les, I think you have a good chunk of the Netflix revenues flowing through the P&L in Q2. And you've talked about -- I think you sold about 7% of your library in that deal. I'm just wondering if you're talking to Netflix about going with them internationally, and also if you expect some time in the not-too-distant future to announce deals with other players like an Amazon or a Google. Google talked about spending on premium content on YouTube on their earnings call. And I think a lot of people out there are thinking there's a lot of interest from new players. I'm just curious if you'd comment there, and I have one follow-up.

The answer to both questions is an absolute yes. We are in very serious discussions with Netflix about doing a deal in Latin America, doing a deal in Canada, and those deals might happen fairly quickly. And in answer to your question about competitors to Netflix, obviously, Amazon is very interested in content, and there are other players who are also having similar discussions to that. So when you look at a Netflix and you say, "Gee, it's great to be in business with them, and they are terrific," and we feel that way about them, there are going to be competitors who are going to pay the same kind of dollars, and we see that across the way. Look, I don't believe that Blockbuster was bought by DISH to be a bunch of stores selling cassettes. I think they're a content place that wants our content. So the more, the merrier. And we're going to continue to produce them, and we're going to be able to sell them. So the world for the premium content providers gets bigger and bigger across the board.

And just switching gears, Joe, on the TV station business, you talked about second quarter pacings which sound solid. Is that an acceleration in the organic growth from Q1? Because you mentioned the comp in Q1 with the Super Bowl, and political and the station sale. And I know there's some retrans in that 1%. I think there's retrans in that 1% number for Q1. So just looking at if you parse it all, part of look at the organic advertising trend, is that getting better? And if it is, does that tell us that the Japan issues that we're all worried about in the auto side aren't having any material impact yet?

I would say the strength is continuing. I think on an absolute dollar basis, the numbers might be better because of no Super Bowl. But clearly the political comp is getting tougher. As far as the automotive, I mean obviously we saw today, GM and Chrysler for April sales, GM, up 27%; Chrysler, up 22%. So the U.S. is clearly showing there's demand out there for autos. So I think in Japanese, they've got to get their supply right, which we view as really a short-term blip. But we're pretty bullish on the category in general across our local and national mediums.

We'll go next to Michael Nathanson with Nomura.

I have just one clarification for Joe, and 2 on the cost side for both you guys. Joe, did you say the network was up 12% led by football? Is that x Super Bowl, x NCAA, just to clarify that?

Yes, yes, this is x Super Bowl. This is just x NCAA, so kind of apples-to-apples network advertising, up 12%. Obviously Sports, we're leading the way led by the NFL.

And then on the cost side, let's drill down a bit to local. It looked like your local cost stepped down year-over-year. And I wonder where we're those savings? Which -- what did you guys do differently this year versus last year? And then, do you expect cost to trend down the rest of the way for local?

Yes, Michael, you've got to remember, when we took a restructuring charge in Q1 of last year, $57 million for the total company. But a big chunk of that was coming from our TV stations and radio stations. So you're seeing the quarterly benefit of those savings. Obviously, they come out of the numbers in the coming quarters because we took the charge last year in the first quarter.

Okay, so a more moderate cost level. And then lastly, if you just look at Entertainment, really mostly TV, if you backed out the NCAA and the Super Bowl on the cost side of TV, what do you think the underlying cost growth is for you guys in the Entertainment segment?

Very low single digits. I think we managed the cost very effectively. So the revenue dollars are really flowing through the profits. We look at that very closely apples-to-apples.

We'll go next Anthony DiClemente with Barclays Capital.

I just a follow-up on Michael's question about the 12%. How do you see that trending in the Q2, Joe? I mean if it was -- if the core revenue is up 12%, will we be just south of that, just given that core football goes away?

Well, look. The sports clearly go away. And in Q2, there's clearly more repeats than in Q1. So but again, the base underlying strength is there. But just in absolute dollars, percentages, it might not be the same. But again I think the key takeaway is we're seeing lots of categories continue to drive the growth. And again, since we have the product, it's well, well, well, above last year's upfront, which is really setting us up, as Les and I talk about mostly, is this year's upfront, which is setting us up for next year.

How does the NFL potential work stoppage start to play into the dynamics in the upfront market?

The upfront marketplace really sort of excludes the NFL. It's sold sort of year-round. And once again, we're guardedly optimistic that there will be some resolution. If there isn't before the upfront, I think it might help the victor. In other words, we expect to be a leader or the leader in the upfront marketplace in terms of growth, in terms of dollars taken in. And if they haven't placed the NFL dollars at that point, we expect to get a piece, a better piece of the pie.

Okay. And then one more, just would love to hear drivers of Showtime. That was an impressive sub-growth number.

Say that again?

Showtime, you picked up 6 million subscribers at Showtime. I thought that was particularly strong. I'm just wondering from your perspective, what really drove that in the quarter?

Well, it wasn't over the quarter. It was over the year. And frankly, we think we're getting a terrific response to our program. The $6 million Showtime network, it has other things. It has The Movie Channel, et cetera, in there. So Showtime has less than -- exists in over 20 million homes. It didn't grow $6 million. So Showtime revenue grew 7%, and it's both rate and subscriptions, Anthony. So there's clearly being -- there's more distribution in Showtime, but again, our other ancillary networks as well. Michael Morris - Davenport & Company, LLC: Got you.

We'll go next to John Janedis with UBS.

Les, can you talk a little bit more about online distribution? Meaning, how do you view the strategy of the distributors longer term? And so as the current yields get renegotiated in 4 or 5 years from now, would you expect the appetite for content broadly to increase or maybe due to consumption patterns or learnings from the OBDs as they potentially look to maybe renew the content on a much smaller scale?

As there are more and more competitors getting into the marketplace, and our attitude is and it's proven to be the case in time and memoriam, if you have the good content, people are going to want to buy it. It is true they want to see it when they want it, and you've heard that cliché, "I want my content when I want it and however I can get it." And when you look at the Amazon TVs and the Google TVs and the Yahoo! TVs, they are all going to be looking for premium content. So as we go down the road, there's going to be more and more competition for it. Will the dollars be there? We expect it to be. It has never gone down in terms of that. So we're confident that it will continue to grow.

We'll go next to Michael Morris with Davenport. Michael Morris - Davenport & Company, LLC: Two questions. First, I'm hoping you can share a little more about your thoughts into the upfront and specifically, the comments of solid double digits obviously, you also have great momentum. I mean, 40%-plus in the scatter market. So I guess my thought is, how much inventory -- do you hold any more back as you go into the upfront given -- I just don't know where solid double digits are relative to the 40%. And at what point do you look to kind of continue to maybe capitalize on those premiums next year that you can get in the scatter market versus maybe what you're going to be able to achieve in the upfront this year?

It's a very good question. We will sit down with our sales team as the market begins to evolve, and we feel very strong about our schedule. We will feel strong about our schedule. We haven't set it yet, but knowing that we are only going to replace a few shows. And we're going to look at a very solid increase. And as the marketplace evolves, we feel confident that the scatter will be strong. However, if the upfront dollars are where they should be, obviously, you'll sell more of it. It's always the risk reward factor. But any way you play the game, we're in very, very good shape. You're right. As you're sitting here, May 2, with 40% increase going on in scatter, you know when people are buying in June, they're going to be looking at that. So I think advertisers that didn't buy it at the upfront last year are kicking themselves because they are paying substantially more today than they were yesterday. How much we sell? It'll depend how much they want to pay. So it's going to be a question that we will ask. We have sold over the last 5 years anywhere from 65% to 80%. So it will be somewhere in that range. Michael Morris - Davenport & Company, LLC: Okay, great. And then over on Outdoor, it sounds like -- the comment with that you're starting to see pricing power come back, and I'm hoping maybe you can talk a little bit more about that, just given that maybe some other Outdoor advertisers, it seems that they've started to struggle a little bit. Maybe you can -- I know you're in bigger markets, but is it just too early to judge the pricing power here? Or what are you kind of seeing there going forward?

Michael, it's Joe. What I would say, maybe they're in just smaller markets than we're in. Again, we're not seeing that at all, and we're seeing clearly the benefits from the other local medium, their pricing. As they're raising their pricing, people are coming into Outdoor again. We're seeing them with longer lead times. So now that the inventory is at historical levels in terms of the sellout, we're really trying to push the price. And we're just, again -- we're in this kind of second inning of that to see that benefit. So it's a little too early to tell how far we can push it. But there's clearly a lot of upside from where we sit today.

We'll go next to David Miller with Caris & Company. David Miller - Caris & Company: Just kind of a loaded question for either of you with regard to mergers and acquisitions. And I know you're somewhat hamstrung by how you can comment on this. But clearly, the notion of JCDecaux sort of expanding its U.S. footprint is obviously nothing new. We've been hearing about this for 3 years now. Previous rumors of pending deals have just turned out to be massive head takes. That being said, you guys have stated for the record many times that Outdoor is sort of non-cored operations. So could you comment -- against that backdrop, could you maybe comment on a couple things? First of all, is the London tube platform also non-core? And then could you just comment on the tax basis of the Outdoor business in general?

Yes, I'll talk about the first part. Mr. Decaux, who we know very well, and we like, and makes statements about how he'd like to buy our Outdoor company. As you know, our Outdoor results, as you can see, are growing substantially quarter-after-quarter. We have no great intent to sell it. We like it. Yes, we do consider ourselves primarily a content company. But Outdoor is a wonderful business. We are here. He has our phone number. If he wants to make an offer, well, we'll always listen to it. It's not our intent to aggressively sell. He said some very bold statements, and I think the Clear Channel guys sort of took a shot at some of his statements. But we like Mr. Decaux talking up how good our business is, and we agree with him.

And David, it's Joe. And I'd just add that when he does call over, remind him that the earnings are up 53%. So if ever he's -- multiply it by -- plus 3. We're not going to come up on our tax basis, David. But other than, we have a lot of basis, so we've got a lot of financial flexibility. And we do have a tough contract in the London Underground. Two things I'd say is, one, that contract comes to an end in early 2015; and two, there's an Olympics there next year. So we're looking for some real upside in 2012.

We'll go next to Doug Mitchelson with Deutsche Bank.

So Les, typically right now advertisers are lining up starting the early deals. And it gives you a peek at what pricing might look like. Any early pre-upfront deals being talked?

There have been a couple, which my head of sales told me that I can't talk about. So I won't. But needless to say, any deal that we would have taken in April would be at a very, very good number, which gives me great confidence heading into the upfront.

And then given your comments on the difficulty of gaining a show on the CBS. There's a few holes in the schedule, right? I'm wondering if you could take advantage of having more shelf space to put more TV shows on the air. Is there any strategic synergy to owning a cable network or starting up a cable network for that matter?

The start-ups are virtually impossible on the price of what the cable networks would want. I mean, by the way, we do have the programming. As a matter of fact, we thought of buying another broadcast network. But I don't think the government would allow us because we do have a great deal of programming. But it's great because of our pilots, number one, we were able to do less pilots this year by about 6 or 7 that we'd normally do. And the bar is really high because of that shelf space, so it's a very good position to be in.

And then lastly, Joe, given the schedule starting to take shape, and you made some comments about the pricing of returning shows. What are you looking at for the cost base for the network next year? Is it going to grow a few percentage points?

We don't see that -- we look at that flat, Doug. Again, year-over-year, we're paying top dollar for the shows. We don't see why that goes up. We look at that strategically. On every schedule we put up, I sit there with the numbers on a per episodic basis. So we expect that to be flat.

Now when you say flat, you're talking about the Entertainment programming piece because the sports always has whatever, 3% or 4% amortization.

I'm talking about the Entertainment. Sports and News, hopefully we have some savings. And Sports will be what it will be.

Well, sports advertising is growing fast. You know that already. So you basically just need revenue growth on the Entertainment side to drive profit, is that right?

Correct.

We'll go next to Laura Martin with Needham & Company. Laura Martin - Needham & Company, LLC: Could you talk about Two and a Half Men on the schedule? There's been a lot of chatter that you guys are talking about renewing it and are maybe not renewing it. What are the economic implications of bringing Two and a Half Men back or not without Charlie Sheen presumably? And then on the margin, one of the things as I recall from last quarter, Joe, is that you said you were going to hit -- exceed peak margins. And given that the first quarter, you grew 650 basis points. So I assume you're on track to do better than that. Can we model an even higher margin than we did last quarter?

On Two and a Half Men, Laura, we don't know what the resolution is right now. There are obviously a lot of moving pieces. Warner Bros. is exploring different ideas on how to do the show. So we're sort of waiting on them. It's an important show to us. But the good news about the CBS schedule is we are not dependent on a single show on any single night of the week. So we will see what happens, and I can't really say a whole lot more than that. Joe?

Laura, on the margin point, clearly, again we said at our last quarter's earnings call, we said it at our investor upfront that to expect margin expansion. You've seen that today. We laid out a plan to -- for no reason why we can't meet or exceed peak margins. And again, you're just going to continue to see that quarter-after-quarter. So we're well on our way to achieving or exceeding those targets.

We'll go next to David Joyce of Miller Tabak. David Joyce - Miller Tabak + Co., LLC: I just was hoping you could provide some more color on how we should think about modeling free cash flow, it was up 29%. Is there any draw-forward from what we would have normally been expecting in the second quarter? Then secondarily on Netflix, how should we expect that to be phasing in? Or is it a fixed rate contract or per-subscriber contract?

Okay, again, it's Joe. Free cash flow, look, we obviously don't give guidance on free cash flow. Traditionally, Q1 is the highest of the quarter. Q2 is also a very strong quarter. So you can expect to see that. We've also said we expect to fund our share repurchase program as well as our dividend out of free cash flow, so that gives you some nice kind of indication. So we're feeling pretty good about our free cash flow prospects. As far as Netflix goes, the way we recognize the revenue is when we make those shows available to Netflix, it is not all in one quarter but it does -- a significant portion does start in Q2. But again, like I said, it's when we choose to make those shows available to them is when we recognize the revenue. So it will be over a period of time. But again, the biggest cost starting in Q2. David Joyce - Miller Tabak + Co., LLC: And also on the timing of expenses with the NCAA, is that also based on a per game, is that a pro rata perspective like your revenue?

No, on a pro rata -- the deal we have with Turner is, again, it's no surprise that our downside is capped, and the upside is split. So again, that's what you're seeing in the results in the margin. So that will continue obviously in the second quarter. The Final Four games were all on CBS and not on Turner, so there's no revenue comp issue. But we're very pleased with the performance of the tournament as a whole and the financial results as well.

Our final question comes from Marci Ryvicker with Wells Fargo.

Just a quick question. Can you update us on reverse retrans? You threw out a $225 million number at your investor upfront, so curious as to first, your progress and then second, the time frame you expect to capture this entire revenue stream. And then I have one follow-up.

Marci, it's Joe. Look, that $225 million is obviously -- we did the math on $0.25 a sub there, which was again just by ease of math, 50% of the retrans number. We have about 180 of those contracts to negotiate. So we're in the early stages. And as we said in the coming years, you should look for that number to grow significantly similarly to retrans. So it's incremental. It's all 100% dollar profits, so I think it's good news for 2013, '14 and '15.

And the $0.25 number is a little low.

It was illustrative, the $0.25 number just to get a negotiation.

And then my follow-up is, in your local segment, how much of the growth is from digital versus core advertising?

Most of that's coming from core advertising. The digital still represents as a percentage basis a very small kind of piece. It is growing clearly at a faster clip. But still to move the needle, it's a -- top line is $621 million for a quarter. So we have a lot of upside on the digital side.

And this concludes today's call. Thank you, everyone, for joining us. Have a great evening.

That does conclude today's conference. Thank you for your participation.