CBS Dividend Cuts Whack Redstone

Things couldn't get much worse for CBS Chairman Sumner Redstone.The 85-year-old billionaire, whose National Amusements theater chain is in tense negotiations with bankers over restructuring some of its $1.6 billion debt, just saw his wallet get a little lighter. CBS (CBS) announced on Feb. 18 an $11.7 billion loss after taking writedowns for its radio, television, and billboard businesses, and said it will slash its 27¢ qarterly dividend to 5¢. That's a hit of nearly $14 million for Redstone in this quarter alone, as National Amusements owns 39.8 million of the company's "A" shares and another 22.8 million of its "B" shares, according to the company's most recent filing.

Redstone says he's discussed the dividend with National Amusements' lenders and that "it will not impact the successful conclusion of the discussions," which he reiterated was "making very good progress."

When Redstone split Viacom (VIA) into two separate companies in 2005, he created Viacom (which holds assets that include MTV and the Paramount Pictures) as a growth vehicle, and he envisioned CBS, with its stable of more mature assets, such as the CBS network and its billboard business, as a dividend-generating machine for shareholders. Last year, Redstone grossed an estimated $70 million alone in dividends from his CBS holdings, which were key to helping his theater chain repay debt and fuel expansion into Russia and elsewhere.

CBS CEO: "A Prudent Action"

That all changed with what Redstone, in a statement, calls "one of the most difficult financial environments in history, with very little visibility on how long these economic conditions will continue or if there is worse to come." The dividend cut comes as the CBS cash hoard has shrunk to $419.5 million from more than $1.35 billion a year earlier (the company has another $2.7 billion in receivables). CBS Chief Executive Officer Leslie Moonves called the dividend cut "a prudent action to take while we await improvement in the economy and credit markets."

CBS still continues to produce strong cash flow—it generated $2.14 billion in cash from its operations, about the same as a year ago—and reported strong sales for some of its segments, including its Showtime unit. But soft ad sales have decimated its advertising-heavy businesses, including a radio unit that saw earnings decline by 29% for the year. The TV unit fell 40%, despite cuts in its programming costs as it programmed more reality series during the recent writers' strike.

Overall, CBS said its revenue fell by 1%, to $13.95 billion, in part because the prior year's numbers included the 2007 Super Bowl telecast. The company had operating profits of nearly $2.8 billion before taking $14.18 in impairment charges.

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