<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-977
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WESTINGHOUSE ELECTRIC CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0877540
------------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
Westinghouse Building, 11 Stanwix Street, Pittsburgh, Pa. 15222-1384
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(Address of principal executive offices, zip code)
(412) 244-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Common stock 355,734,280 shares outstanding at September 30, 1994
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<TABLE>
WESTINGHOUSE ELECTRIC CORPORATION
INDEX
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to the Condensed Consolidated
Financial Statements 6-14
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15-26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26-29
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURE 31
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions except per share amounts) (unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of products and services $ 2,229 $ 2,060 $ 6,080 $ 6,234
Costs of products and services (1,641) (1,518) (4,425) (4,542)
(exclusive of depreciation shown below)
Marketing, administration and
general expenses (340) (323) (1,025) (984)
Depreciation and amortization (80) (76) (243) (234)
Other income and expenses, net (note 2) - 1 55 9
Interest expense (43) (52) (135) (157)
------- ------- ------- -------
Income from Continuing Operations
before income taxes and minority
interest in income of
consolidated subsidiaries 125 92 307 326
Income taxes (48) (24) (117) (110)
Minority interest in income of
consolidated subsidiaries (4) (3) (6) (8)
------- ------- ------- -------
Income from Continuing Operations
before cumulative effect of change
in accounting principle 73 65 184 208
Cumulative effect of change in
accounting principle:
Postemployment benefits (note 3) - - - (56)
------- ------- ------- -------
Net income $ 73 $ 65 $ 184 $ 152
======= ======= ======= =======
Earnings per common share:
From Continuing Operations $ 0.15 $ 0.15 $ 0.38 $ 0.48
From cumulative effect of change
in accounting principle - - - (0.16)
------- ------- ------- -------
Earnings per common share $ 0.15 $ 0.15 $ 0.38 $ 0.32
======= ======= ======= =======
Cash dividends per common share $ 0.05 $ 0.10 $ 0.15 $ 0.30
======= ======= ======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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<TABLE>
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
<CAPTION>
September 30, 1994 December 31, 1993
ASSETS ------------------ -----------------
- ------ (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 315 $ 637
Customer receivables 1,349 1,381
Inventories (note 4) 1,777 1,549
Uncompleted contracts costs over related billings 598 371
Prepaid and other current assets 785 836
------- -------
Total current assets 4,824 4,774
Plant and equipment, net 1,894 1,964
Deferred income taxes 1,511 1,502
Goodwill and other acquired intangible assets 1,140 1,131
Other noncurrent assets 1,132 1,182
------- -------
Total assets $10,501 $10,553
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Revolving credit borrowings and
other short-term debt $ 117 $ 662
Current maturities of long-term debt 14 9
Accounts payable 677 656
Uncompleted contracts billings over related costs 583 672
Other current liabilities (note 5) 1,877 1,926
------- -------
Total current liabilities 3,268 3,925
Long-term debt 1,883 1,885
Net liabilities of Discontinued Operations (note 6) 211 211
Other noncurrent liabilities (note 5) 3,474 3,453
------- -------
Total liabilities 8,836 9,474
------- -------
Contingent liabilities and commitments (note 7)
Minority interest in equity of consolidated
subsidiaries 36 34
Shareholders' equity (note 8):
Preferred stock, $1.00 par value (25 million
shares authorized):
Series A preferred (no shares issued) - -
Series B conversion preferred (8 million
shares issued) 8 8
Series C conversion preferred (4 million
shares issued) 4 -
Common stock, $1.00 par value (630 million
and 480 million shares authorized,
393 million shares issued) 393 393
Capital in excess of par value 1,943 1,475
Common stock held in treasury (895) (972)
Other (1,256) (1,260)
Retained earnings 1,432 1,401
------- -------
Total shareholders' equity 1,629 1,045
------- -------
Total liabilities and shareholders' equity $10,501 $10,553
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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<TABLE>
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions) (unaudited)
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
---- ----
<S> <C> <C>
CONTINUING OPERATIONS:
Cash provided by Operating Activities $ 31 $ 208
------- -------
Cash Flows from Investing Activities
Capital Expenditures (154) (131)
Business Divestitures 50 -
Business Acquisitions (81) -
Net cash to Discontinued Operations (95) (258)
Other 29 -
------- -------
Cash used by Investing Activities (251) (389)
------- -------
Cash Flows from Financing Activities
Change in short-term debt (545) (607)
Sale of equity securities 505 -
Long-term borrowings - 600
Dividends paid (111) (142)
Other 49 30
------- -------
Cash used by Financing Activities (102) (119)
------- -------
Cash used by Continuing Operations (322) (300)
------- -------
DISCONTINUED OPERATIONS:
Operating Activities (282) 204
Investing Activities 1,603 2,606
Financing Activities (1,931) (2,774)
------- -------
Cash provided (used) by Discontinued Operations (610) 36
------- -------
Decrease in cash and cash equivalents (932) (264)
Cash and cash equivalents at beginning of period 1,248 1,554
------- -------
Cash and cash equivalents at end of period $ 316 $ 1,290
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid -- Continuing Operations $ 131 $ 139
======= =======
Interest paid -- Discontinued Operations $ 165 $ 331
======= =======
Income taxes paid $ 87 $ 41
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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WESTINGHOUSE ELECTRIC CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements include the accounts of
Westinghouse Electric Corporation (Westinghouse), and its subsidiary companies
(together, the Corporation) after elimination of intercompany accounts and
transactions.
In the opinion of the management of the Corporation, the Condensed Consolidated
Financial Statements include all material adjustments necessary to present
fairly the Corporation's financial position, results of operations and cash
flows. Such adjustments are of a normal recurring nature. The results for
this interim period are not necessarily indicative of results for the entire
year.
When reading the financial information contained in this Quarterly Report,
reference should be made to the financial statements, schedules and notes
contained in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993. Certain amounts pertaining to the three and nine months
ended September 30, 1993 and year ended December 31, 1993 have been
reclassified for comparative purposes.
2. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net gain (loss) on disposition of other assets $ (1) $ (4) $ 45 $ -
Miscellaneous other income and expenses, net 1 5 10 9
---- ---- ---- ----
Other income and expenses, net $ - $ 1 $ 55 $ 9
==== ==== ==== ====
</TABLE>
The net gain on disposition of other assets for the nine months ended September
30, 1994 includes a first quarter gain of $32 million from the sale of two
Sacramento radio stations and a second quarter gain of $10 million at WCI
Communities Inc. (WCI) from the sale of an investment in a shopping center
development joint venture.
3. CHANGE IN ACCOUNTING PRINCIPLE
In December 1993, the Corporation adopted, retroactive to January 1, 1993,
Statement of Financial Accounting Standards (SFAS) No. 112 "Employers'
Accounting for Postemployment Benefits." The retroactive adoption of SFAS No.
112 resulted in a first quarter 1993 after-tax charge of $56 million, or $.16
per share.
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4. INVENTORIES (in millions)
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ -----------------
(unaudited)
<S> <C> <C>
Raw materials $ 152 $ 137
Work in process 1,192 989
Finished goods 136 104
------- -------
1,480 1,230
Long-term contracts in process 836 678
Progress payments to subcontractors 108 124
Recoverable engineering and development costs 599 442
Less: Inventoried costs related to contracts
with progress billing terms (1,246) (925)
------- -------
Inventories $ 1,777 $ 1,549
======= =======
</TABLE>
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ -----------------
(unaudited)
<S> <C> <C>
Other current liabilities:
Accrued employee compensation $ 226 $ 262
Income taxes currently payable 247 292
Accrued product warranty 79 83
Accrued taxes, interest and insurance 273 257
Restructuring costs 102 230
Reserve for disposition loss 182 215
Other 768 587
------- -------
Total other current liabilities $ 1,877 $ 1,926
======= =======
Other noncurrent liabilities:
Postretirement and postemployment benefits $ 1,312 $ 1,280
Pension liability 1,378 1,282
Restructuring costs 60 120
Other 724 771
------- -------
Total other noncurrent liabilities $ 3,474 $ 3,453
======= =======
</TABLE>
6. DISCONTINUED OPERATIONS
In November 1992, the Corporation announced a Plan (the Plan) that included
exiting the financial services business and the sales of the Distribution and
Control Business Unit (DCBU) and Westinghouse Electric Supply Company (WESCO).
In the first quarter of 1994, the Corporation completed the sales of DCBU and
WESCO for proceeds in excess of $1.1 billion and approximately $340 million,
respectively.
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<TABLE>
OPERATING RESULTS OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of Products and Services
- ------------------------------
Financial Services $ 6 $ 64 $ 31 $ 291
DCBU and WESCO - 620 319 1,776
----- ----- ----- ------
Sales of Products and Services $ 6 $ 684 $ 350 $2,067
===== ===== ===== ======
Net Earnings (Losses)
- ---------------------
Financial Services $ (55) $ (42) $(171) $ (130)
DCBU and WESCO - 26 4 47
----- ----- ----- ------
Net Losses $ (55) $ (16) $(167) $ (83)
===== ===== ===== ======
</TABLE>
The assets and liabilities of Discontinued Operations have been separately
classified in the Condensed Consolidated Balance Sheet as net liabilities of
Discontinued Operations. A summary of these assets and liabilities follows:
NET LIABILITIES OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993*
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1 $ 611
Other current assets 25 742
Portfolio investments, net 999 1,127
Plant and equipment, net 1 360
Accrued estimated gain on sale of
Discontinued Operations - 441
Accrued operating income, net - 19
Deferred income taxes 450 415
Other assets 107 375
------ ------
Total assets -- Discontinued Operations 1,583 4,090
------ ------
LIABILITIES:
Revolving credit borrowings 865 2,373
Current maturities of long-term debt 316 774
Other current liabilities 36 338
Long-term debt 569 647
Other liabilities and accrued operating expenses 8 169
------ ------
Total liabilities -- Discontinued Operations 1,794 4,301
------ ------
Net liabilities of Discontinued Operations $ 211 $ 211
====== ======
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
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<PAGE> 9
FINANCIAL SERVICES PORTFOLIO INVESTMENTS
Portfolio Investments by Category of Investment and Financing at September 30,
1994 and December 31, 1993 are summarized in the following table.
<TABLE>
<CAPTION>
At September 30, 1994
---------------------------------------
Real
(in millions) (unaudited) Leasing Estate Corporate Total
------- ------ --------- -----
<S> <C> <C> <C> <C>
Receivables $ 893 $ 30 $ 16 $ 939
Other portfolio investments 39 315 15 369
------ ------ ------ ------
Portfolio investments 932 345 31 1,308
Valuation allowance (46) (257) (6) (309)
------ ------ ------ ------
Portfolio investments, net $ 886 $ 88 $ 25 $ 999
====== ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1993*
---------------------------------------
Real
(in millions) Leasing Estate Corporate Total
------- ------ --------- -----
<S> <C> <C> <C> <C>
Receivables $ 969 $ 46 $ 47 $1,062
Other portfolio investments 39 353 97 489
------ ------ ------ ------
Portfolio investments 1,008 399 144 1,551
Valuation allowance (45) (353) (26) (424)
------ ------ ------ ------
Portfolio investments, net $ 963 $ 46 $ 118 $1,127
====== ====== ===== ======
</TABLE>
*Certain amounts have been recategorized for comparative purposes.
Leasing receivables consist of direct financing and leveraged leases.
At September 30, 1994, 80% of leasing receivables related to aircraft and 20%
primarily related to cogeneration facilities. Certain leasing receivables
classified as performing and totalling approximately $130 million at September
30, 1994 have been identified by management as potential problem receivables.
Included in this amount is approximately $120 million of leasing receivables,
primarily leveraged, related to aircraft leased by a major U.S. airline. Such
leasing receivables were current as to payments and performing in accordance
with contractual terms at September 30, 1994.
Real estate receivables were comprised primarily of residential loans at
September 30, 1994. Corporate receivables resulted from highly-leveraged
transactions.
Non-earning receivables at September 30, 1994 totalled $38 million compared to
$30 million at December 31, 1993. There were no reduced earning receivables at
September 30, 1994 or December 31, 1993.
Other portfolio investments at September 30, 1994 include the Corporation's
investment in LW Real Estate Investments, L.P. (LW) of $133 million, real
estate properties totalling $99 million, and other investments totalling $137
million primarily comprised of real estate and leasing investments in
partnerships. The Corporation's investment in LW at September 30, 1994
represented a 44% limited partnership interest.
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<PAGE> 10
Management expects a significant portion of the Corporation's investment in LW
and any remaining real estate assets to be liquidated by the end of 1995. The
corporate portfolio investments are expected to be liquidated during the
remainder of 1994 and the first quarter of 1995. The leasing portfolio is
expected to run off in accordance with contractual terms.
The following table is a reconciliation of the valuation allowance for
portfolio investments for the nine months ended September 30, 1994.
VALUATION ALLOWANCE FOR PORTFOLIO INVESTMENTS
(in millions) (unaudited)
<TABLE>
<CAPTION>
Transfers to
Reserve for
Portfolio Accrued Percent of
Category of Beginning Investments Operating Ending Portfolio
Financing: Balance Written Off Expenses Balance Investments
- ----------- --------- ----------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C>
Leasing $ 45 $ 1 $ - $ 46 4.9%
Real Estate 353 - (96) 257 74.5%
Corporate 26 (20) - 6 19.5%
----- ----- ----- -----
Total $ 424 $ (19) $ (96) $ 309 23.6%
===== ===== ===== =====
</TABLE>
During the first nine months of 1994, portfolio investments written off
represented 1.4% of the average outstanding portfolio investments. Investments
written off during the first nine months of 1994 usually resulted from the
disposition of the asset for cash.
The valuation allowance for real estate portfolio investments at September 30,
1994 and December 31, 1993 included approximately $139 million and $195
million, respectively, related to real estate assets sold at values in excess
of those used in determining the valuation allowance at the time the Plan was
developed. During the second and third quarters of 1994, a total of $96
million of the valuation allowance for real estate portfolio investments was
transferred to the reserve for accrued operating expenses to offset the
interest expense and other operating expenses of Financial Services through
September 30, 1994. It is expected that the valuation allowance will be used
to offset future operating expenses of Financial Services, payment of the
American Carriers claim of $70 million plus interest, and any differences that
may arise in estimates of other elements of the Plan.
7. CONTINGENT LIABILITIES AND COMMITMENTS
Uranium Settlements
- -------------------
The Corporation had previously provided for the estimated future costs for the
resolution of all uranium supply contract suits and related litigation. The
remaining uranium reserve balance includes assets required for certain
settlement obligations and reserves for estimated future costs. The remaining
balance at September 30, 1994 is deemed adequate considering all facts and
circumstances known to management. The future obligations require providing
specific quantities of uranium which are expected to be completed by the end of
1994, nuclear fuel supply agreements, the majority of which will be completed
by 1999 with the remainder of the deliveries running through 2013, and the
supply of equipment and services through approximately the end of 1995.
Variances from estimates which may occur are considered in determining if an
adjustment of the liability is necessary.
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<PAGE> 11
Litigation
- ----------
Republic of the Philippines and National Power Corporation
In December 1988, the Republic of the Philippines (Philippines) and National
Power Corporation of the Philippines (NPC) (collectively, the Republic) filed a
15 count lawsuit in the United States District Court (USDC) for the District of
New Jersey against the Corporation in connection with the construction of a
nuclear power plant in the Philippines. In 1989, the USDC stayed substantially
all of the complaint pending arbitration by the International Chamber of
Commerce (ICC) in Geneva, Switzerland. The USDC did not grant a stay with
respect to the one count in the complaint alleging intentional interference
with a fiduciary relationship. A jury verdict with respect to this count was
rendered in favor of the Corporation on May 18, 1993. The Republic has stated
its intention to appeal this verdict.
The Philippines and NPC challenged the jurisdiction of the ICC, claiming the
contract was invalid due to the alleged bribery in the procurement of the
contract. In December 1991, the ICC arbitration panel issued an award finding
that the NPC had failed to carry its burden of proving an alleged bribery by
the Corporation. The panel thereby concluded that the arbitration clauses and
the contracts were valid and the panel had jurisdiction over the disputes
remaining before it with respect to NPC. The panel concluded that it did not
have jurisdiction over the Philippines. NPC, in an attempt to attack the ICC
decision regarding jurisdiction and contract validity, filed an action for
annulment with the Swiss Federal Supreme Court which was not successful.
Arbitration with respect to the remaining disputes was concluded in October and
the parties await a decision.
Steam Generators
At present, there are six pending actions brought by utilities claiming a
substantial amount of damages in connection with alleged tube degradation in
steam generators sold by the Corporation as components for nuclear steam supply
systems. Westinghouse is also a party to six agreements with utilities or
utility plant owners' groups which toll the statute of limitations regarding
their steam generator tube degradation claims and permit the parties time to
engage in discussions. The parties have agreed that no litigation will be
initiated for an agreed upon period of time as set forth in the respective
tolling agreements. The term of each tolling agreement varies. Westinghouse
has notified its insurance carriers of the pending steam generator actions and
claims. While some of the carriers have denied coverage in whole or in part,
most have reserved their rights with respect to obligations to defend and
indemnify the Corporation. Westinghouse and a number of carriers have entered
into settlements resolving steam generator and other coverage issues. The
Corporation is currently involved in litigation with those carriers who have
denied coverage or reserved their rights.
Securities Class Actions - Financial Services
The Corporation has been defending a consolidated class action, a consolidated
derivative action and certain individual lawsuits brought against the
Corporation, Westinghouse Financial Services, Inc. (WFSI) and Westinghouse
Credit Corporation (WCC), both previously subsidiaries of the Corporation,
and/or certain present and former directors and officers of the Corporation, as
well as other unrelated parties. Together, these actions allege various
federal securities law and common law violations arising out of alleged
misstatements or omissions contained in the Corporation's public filings
concerning the financial condition of the Corporation, WFSI and WCC in
connection with a $975 million charge to earnings announced on February 27,
1991, a public offering of Westinghouse common stock in May 1991, a $1,680
million charge to earnings announced on October 7, 1991, and alleged
misrepresentations regarding the adequacy of internal controls at the
Corporation, WFSI and WCC.
Litigation is inherently uncertain and always difficult to predict. Substantial
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<PAGE> 12
damages are sought in each of the foregoing cases and although management
believes a significant adverse judgment is unlikely, any such judgment could
have a material adverse effect on the Corporation's results of operations for a
quarter or a year. However, based on its understanding and evaluation of the
relevant facts and circumstances, management believes the Corporation has
meritorious defenses to the litigation described above and management believes
that the litigation should not have a material adverse effect on the financial
condition of the Corporation.
Environmental Matters
- ---------------------
Compliance with federal, state and local regulations relating to the discharge
of substances into the environment, the disposal of hazardous wastes and other
related activities affecting the environment have had and will continue to have
an impact on the Corporation. While it is difficult to estimate the timing and
ultimate costs to be incurred in the future due to uncertainties about the
status of laws, regulations, technology and information available for
individual sites, management has estimated the total probable and reasonably
possible remediation costs that could be incurred by the Corporation based on
the facts and circumstances currently known. Such estimates are based on the
Corporation's experience to date with investigating and evaluating site cleanup
costs, the professional judgment of the Corporation's environmental experts,
outside environmental specialists and other experts and, when necessary,
counsel. In addition, the likelihood that other parties which have been named
as potentially responsible parties (PRPs) will have the financial resources to
fulfill their obligations at Superfund sites where they and the Corporation may
be jointly and severally liable has been considered. These estimates have been
used to assess materiality for financial statement disclosure purposes as
follows.
PRP Sites
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named as a PRP at numerous sites located throughout the
country. At many of these sites, the Corporation is either not a responsible
party or its site involvement is very limited or de minimus. However, the
Corporation may have varying degrees of cleanup responsibilities at 52 of these
sites, excluding those discussed in the preceding sentence. With regard to
cleanup costs at these sites, in many cases the Corporation will share these
costs with other responsible parties and the Corporation believes that any
liability incurred will be satisfied over a number of years. Management
believes the total remaining probable costs which the Corporation could incur
for remediation of these sites as of September 30, 1994 are approximately $60
million, all of which has been accrued. As the remediation activities
progress, additional information may be obtained which may require additional
investigations or an expansion of the remediation activities which, although
unknown at this time, may result in an increase in costs.
Bloomington Consent Decree
The Corporation is a party to a 1985 Consent Decree relating to remediation of
six sites in Bloomington, Indiana and has additional responsibility for two
other sites in Bloomington. In the Consent Decree, the Corporation agreed to
construct and operate an incinerator, which would be permitted under federal
and state law to burn excavated material.
On February 8, 1994, the parties filed a status report with the United States
District Court for the Southern District of Indiana, which is responsible for
overseeing the implementation of the Consent Decree. This report advised the
court of the parties' intention to investigate alternatives and provided the
court with operating principles for this process. During the third quarter of
1994, the parties held a series of meetings under the operating principles
agreement to review technical information that may be required to investigate
an alternative proposal.
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<PAGE> 13
The Corporation believes it is probable the Consent Decree will be modified to
an alternate remediation action. As a result, the Corporation estimates that
its costs to implement the most reasonable and likely alternative would be
approximately $60 million, all of which has been accrued. Approximately $16
million of this estimate represents operating and maintenance costs which will
be incurred over an approximate 30 year period. These costs are expected to be
distributed equally over this period and, based on the Corporation's experience
with similar operating and maintenance costs, have been determined to be
reliably determinable on a year-to-year basis. Accordingly, the estimated $44
million gross cost of operating and maintenance has been discounted at a rate
of 5% per year. The remaining portion of the $60 million provision represents
site construction and other related costs and is valued as of the year of
expenditure. Analyses of internal experts and outside consultants have been
used in forecasting construction and other related costs. The estimates of
future period costs include an assumed inflation rate of 5% per year. This
estimate of $60 million is within a range of reasonably possible alternatives
and one which the Corporation believes to be the most likely outcome. This
alternative includes a combination of containment, treatment, remediation and
monitoring. Other alternatives, while considered less likely, could cause such
costs to be as much as $100 million.
The parties recognize that at the end of the process, they may conclude that
the remedy currently provided in the Consent Decree is the most appropriate.
The parties also recognize that the Consent Decree shall remain in full force
during this process. The Corporation and the other parties may have claims
against each other under the Consent Decree if a mutually agreeable alternative
is not reached. The Corporation may be required to post security for 125% of
the net cost to complete remediation in the event certain requirements of the
Consent Decree are not met. The Corporation believes it has met all of these
requirements.
Other Sites
The Corporation is involved with several administrative actions alleging
violations of federal, state or local environmental regulations. For these
matters, the Corporation has estimated its remaining reasonably possible costs
and determined them to be insignificant.
The Corporation currently manages under contract several government-owned
facilities, which among other things are engaged in the remediation of
hazardous and nuclear wastes. To date, under the terms of the contracts, the
Corporation is not responsible for costs associated with environmental
liabilities, including environmental cleanup costs, except under certain
circumstances associated with negligence and willful misconduct. There are
currently no known claims for which the Corporation believes it is responsible.
In 1994, the U.S. Department of Energy (DoE) announced its intention to
renegotiate its existing contracts for maintenance and operation of DoE
facilities to address environmental issues.
The Corporation has or will have responsibilities for environmental remediation
such as dismantling incinerators, decommissioning nuclear licensed sites, and
other similar commitments at various sites. The Corporation has estimated
total potential cost to be incurred for these actions to be approximately $125
million, of which $39 million had been accrued at September 30, 1994. The
Corporation's policy is to accrue these costs over the estimated lives of the
individual facilities which in most cases is approximately 20 years. The
anticipated annual costs currently being accrued are $5 million.
Insurance Recoveries
In 1987, the Corporation filed an action in New Jersey against over 100
insurance companies seeking recovery for these and other environmental
liabilities and litigation involving personal injury and property damage. The
Corporation has received certain recoveries from insurance companies related to
environmental costs. The Corporation has not accrued for any future insurance
recoveries.
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<PAGE> 14
Based on the above discussion and including all information presently known to
the Corporation, management believes that the environmental matters described
above will not have a material adverse effect on the Corporation's capital
resources, liquidity, financial condition and results of operations.
Financing Commitments -- Discontinued Operations
- ------------------------------------------------
Financial Services commitments with off-balance-sheet credit risk represent
financing commitments to provide funds, including loan or investment
commitments, guarantees, standby letters of credit and standby commitments,
generally in exchange for fees. The remaining commitments have fixed
expiration dates from 1994 through 2002.
At September 30, 1994, Financial Services commitments with off-balance-sheet
credit risk totalled $93 million compared to $111 million at year- end 1993.
Of the $93 million of commitments at September 30, 1994, $81 million were
guarantees, credit enhancements and other standby agreements, and $12 million
were commitments to extend credit. Of the $111 million of commitments at
year-end 1993, $90 million were guarantees, credit enhancements and other
standby agreements and $21 million were commitments to extend credit.
Management expects the remaining commitments to either expire unfunded, be
assumed by the purchaser in asset dispositions or be funded with the resulting
assets being sold shortly after funding.
Financing Commitments -- Continuing Operations
- ----------------------------------------------
WCI was contingently liable at September 30, 1994 under guarantees for $64
million of sewer and water district borrowings. The proceeds of the borrowings
were used for sewer and water improvements on residential and commercial real
estate projects of WCI. Management expects these borrowings to be repaid as
the projects are completed and sold, and the guarantees for such borrowings to
expire unfunded.
Other Commitments
- -----------------
The Corporation's other commitments consisting primarily of those for the
purchase of plant and equipment are not material.
8. SHAREHOLDERS' EQUITY
In March 1994, the Corporation sold, in a private placement, 36,000,000
depositary shares at $14.44 per share. Each of the depositary shares
represents ownership of one-tenth of a share of the Corporation's $1 par value
Series C Conversion Preferred Stock (Series C preferred) and entitles the owner
to all of the proportionate rights, preferences and privileges of the Series C
preferred.
The net proceeds to the Corporation, after commissions, fees, and out-of-pocket
expenses, totalled $505 million. As a result of the transaction, the par value
of Series C preferred was established for $4 million, and capital in excess of
par was increased by $501 million.
The Series C preferred shares were treated as common stock equivalents for the
calculation of earnings per share for all 1994 periods presented.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Orders in the quarter totalled $2.1 billion led by Power Generation, Energy
Systems and Electronic Systems. Compared to the same quarter last year, orders
were up 4 percent and backlog increased $200 million and is now $10 billion.
Excluding the impact of the Norden acquisition, which was completed earlier
this year, orders and backlog were flat.
Revenues for the quarter increased approximately 8 percent to $2.2 billion led
by Thermo King and Power Generation.
Operating profit for the quarter increased $25 million to $168 million compared
to $143 million in the third quarter last year. The third quarter of 1994
included pension expense that was $20 million higher than a year ago.
Income before taxes increased 36 percent, or $33 million, because of higher
operating profit and lower interest expense on reduced debt levels.
Net income in the quarter was $73 million, or 15 cents per share, compared to
net income of $65 million, or 15 cents per share, for the same quarter last
year. In 1993, a lower effective tax rate benefitted earnings for the quarter
by approximately 3 cents per share. Cash flow, however, was largely unaffected
by tax rate changes due to the utilization of net operating loss carryforwards.
Net income for the first nine months of 1994 was $184 million, or 38 cents per
share, on revenues of $6.1 billion, compared to net income of $152 million, or
32 cents per share, on revenues of $6.2 billion for the same period last year.
The net income for the first nine months of 1993 included an after-tax charge
of $56 million, or 16 cents per share, due to the adoption of Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits."
During the third quarter of 1994, the Corporation reached a four-year labor
agreement with three national unions. As part of the agreement, the
Corporation paid approximately $9 million as a lump sum to covered employees,
all of which has been charged to operations. The wage increases and benefit
changes resulting from the agreement will not have a significant impact on
future operating results.
RESTRUCTURING AND OTHER ACTIONS
Restructuring of Continuing Businesses
On January 11, 1994, the Corporation announced a plan to restructure its
continuing businesses and recorded an associated charge of $350 million. The
charge was comprised of approximately $225 million related to separation costs
for 3,400 employees, approximately $35 million associated with asset
writedowns, approximately $45 million for facility closedown and
rationalization costs and approximately $45 million related to process and
product redesign or reengineering. During the first nine months of 1994,
charges against the liability totalled $188 million.
The Corporation anticipated that actions resulting from implementation of its
restructuring plan would result in the reduction of approximately 6,000
employees, which includes 3,400 separations and an additional 2,600 reductions
expected from normal attrition. Through the end of September 1994, employee
reductions as a result of implementing the restructuring plan totalled
approximately 2,600 employees.
The 3,400 employee separations that were included as part of the restructuring
-15-
<PAGE> 16
charge are expected to result in annual pre-tax savings of approximately $100
million, primarily through reduced employment costs. A substantial portion of
this annual savings is expected to be realized in 1994 with approximately $300
million in savings expected over the three-year period ending December 31,
1996. Additional savings will be realized as the anticipated reductions
resulting from normal attritions occur over the next two years.
Total cash expenditures for restructuring are expected to approximate
$270 million, with expenditures of approximately $180 million in 1994, $55
million in 1995 and $35 million in 1996. Cash expenditures for restructuring
during the first nine months of 1994 totalled $123 million. Non-cash activities
consist primarily of asset writedowns and pension curtailment.
The following table is a reconciliation of the liability for restructuring
costs of continuing businesses for the nine months ended September 30, 1994:
LIABILITY FOR RESTRUCTURING COSTS OF CONTINUING BUSINESSES
(in millions) (unaudited)
<TABLE>
<S> <C>
Balance at December 31, 1993 $ 350
Separation costs (118)
Asset writedowns (43)
Facility closedown/rationalization (27)
-----
Balance at September 30, 1994 $ 162
=====
</TABLE>
Disposition of Non-Strategic Businesses
Also on January 11, 1994, the Corporation announced plans to dispose of certain
non-strategic businesses including parts of the former Environmental Services
business unit and certain businesses in the Industrial Products and Services
business unit and recorded a $215 million charge during the fourth quarter of
1993. This charge included all associated costs anticipated to be incurred in
disposing of these businesses, including estimates for the cost of certain
possible environmental remediation which may result from the selling process.
Included in the $215 million charge is approximately $20 million for the
writedown of certain assets related to discontinued projects. In May 1994, the
Corporation completed the sale of Controlmatic. The Corporation continues to
pursue the disposition of the remaining non-strategic businesses.
Activity relating to the liability for disposition of non-strategic businesses
for the nine months ended September 30, 1994 is summarized below:
LIABILITY FOR DISPOSITION OF NON-STRATEGIC BUSINESSES
(in millions) (unaudited)
<TABLE>
<S> <C>
Balance at December 31, 1993 $ 215
Asset writedowns (20)
Disposal of businesses (13)
-----
Balance at September 30, 1994 $ 182
=====
</TABLE>
The asset writedowns were primarily composed of permitting and site preparation
costs for two projects that the Corporation no longer intends to pursue.
-16-
<PAGE> 17
RESULTS OF OPERATIONS
The following represents the segment results of the Corporation's Continuing
Operations for the three and nine months ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Segment Results ($ in millions)(unaudited)
----------------------------------------
Three Months Ended 9/30 Nine Months Ended 9/30
1994 1993 % Change 1994 1993 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Broadcasting:
Orders $ 202.6 $ 195.2 3.8% $ 621.4 $ 592.6 4.9%
Backlog - - - - - -
Sales 202.6 195.2 3.8% 621.4 592.6 4.9%
Operating Profit (Loss) 40.3 31.8 26.7% 131.6 107.9 22.0%
Operating Profit Margin 19.9% 16.3% N/A 21.2% 18.2% N/A
Depreciation &
Amortization (D&A) 9.5 9.5 -% 28.1 27.8 1.1%
Capital Expenditures 8.8 5.4 63.0% 24.5 11.5 113.0%
Electronic Systems:
Orders $ 563.8 $ 651.0 -13.4% $1,481.3 $1,655.9 -10.5%
Backlog 3,799.3 3,738.2 1.6% 3,799.3 3,738.2 1.6%
Sales 661.4 617.0 7.2% 1,599.2 1,836.7 -12.9%
Operating Profit (Loss) 39.2 52.9 -25.9% 100.4 154.7 -35.1%
Operating Profit Margin 5.9% 8.6% N/A 6.3% 8.4% N/A
D&A 24.8 17.5 41.7% 62.1 57.1 8.8%
Capital Expenditures 8.3 6.7 23.9% 27.2 22.5 20.9%
Government and
Environmental Services:
Orders $ 110.9 $ 67.1 65.3% $ 254.9 $ 194.0 31.4%
Backlog 120.1 42.6 181.9% 120.1 42.6 181.9%
Sales 102.3 85.0 20.4% 285.8 243.1 17.6%
Operating Profit (Loss) 22.3 11.9 87.4% 51.2 52.8 -3.0%
Operating Profit Margin 21.8% 14.0% N/A 17.9% 21.7% N/A
D&A 5.0 4.5 11.1% 16.0 11.7 36.8%
Capital Expenditures 6.7 5.0 34.0% 13.5 18.2 -25.8%
Thermo King:
Orders $ 223.3 $ 175.8 27.0% $ 712.5 $ 574.2 24.1%
Backlog 213.3 149.4 42.8% 213.3 149.4 42.8%
Sales 248.1 180.3 37.6% 660.5 543.7 21.5%
Operating Profit (Loss) 37.0 27.3 35.5% 98.6 84.4 16.8%
Operating Profit Margin 14.9% 15.1% N/A 14.9% 15.5% N/A
D&A 3.6 3.4 5.9% 11.3 9.9 14.1%
Capital Expenditures 5.2 3.2 62.5% 12.4 8.4 47.6%
Energy Systems:
Orders $ 395.7 $ 180.0 119.8% $1,096.8 $1,222.8 -10.3%
Backlog 2,776.5 2,733.5 1.6% 2,776.5 2,733.5 1.6%
Sales 262.0 287.5 -8.9% 821.9 909.2 -9.6%
Operating Profit (Loss) .4 10.3 -96.1% 8.7 71.9 -87.9%
Operating Profit Margin .2% 3.6% N/A 1.1% 7.9% N/A
D&A 13.5 13.6 -.7% 39.9 41.3 -3.4%
Capital Expenditures 10.3 9.6 7.3% 25.2 23.3 8.2%
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Segment Results ($ in millions)(unaudited)(continued)
-----------------------------------------------------
Three Months Ended 9/30 Nine Months Ended 9/30
1994 1993 % Change 1994 1993 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Power Generation:
Orders $ 320.1 $ 414.7 -22.8% $1,440.7 $1,365.7 5.5%
Backlog 2,263.1 2,200.8 2.8% 2,263.1 2,200.8 2.8%
Sales 451.4 375.4 20.2% 1,138.1 1,187.2 -4.1%
Operating Profit (Loss) 29.7 11.3 162.8% 7.5 18.4 -59.2%
Operating Profit Margin 6.6% 3.0% N/A .7% 1.5% N/A
D&A 10.4 11.4 -8.8% 34.2 35.5 -3.7%
Capital Expenditures 10.2 10.3 -1.0% 25.1 20.0 25.5%
Knoll:
Orders $ 143.8 $ 125.3 14.8% $ 405.4 $ 365.1 11.0%
Backlog 98.2 86.3 13.8% 98.2 86.3 13.8%
Sales 150.2 126.2 19.0% 411.4 372.3 10.5%
Operating Profit (Loss) (.8) (7.6) 89.5% (25.5) (24.5) -4.1%
Operating Profit Margin -.5% -6.0% N/A -6.2% -6.6% N/A
D&A 6.9 7.4 -6.8% 21.3 23.5 -9.4%
Capital Expenditures 5.0 3.7 35.1% 9.6 10.6 -9.4%
WCI:
Orders $ 35.7 $ 54.3 -34.3% $ 165.9 $ 147.0 12.9%
Backlog - - - - - -
Sales 35.7 54.3 -34.3% 165.9 147.0 12.9%
Operating Profit (Loss) 6.0 14.5 -58.6% 43.2 38.9 11.1%
Operating Profit Margin 16.8% 26.7% N/A 26.0% 26.5% N/A
D&A .4 .3 33.3% 1.3 1.0 30.0%
Capital Expenditures .2 .1 100.0% 1.7 .5 240.0%
Other Businesses:
Orders $ 109.1 $ 144.4 -24.4% $ 321.6 $ 414.2 -22.4%
Backlog 685.7 807.4 -15.1% 685.7 807.4 -15.1%
Sales 114.9 136.4 -15.8% 376.1 400.2 -6.0%
Operating Profit (Loss) (2.7) (2.5) -8.0% (25.0) (12.7) -96.9%
Operating Profit Margin -2.3% -1.8% N/A -6.6% -3.2% N/A
D&A 3.3 3.6 -8.3% 9.8 10.5 -6.7%
Capital Expenditures .2 3.2 -93.8% 1.5 8.5 -82.4%
Corporate and Other:
Orders $ 12.9 $ 19.7 -34.5% $ 54.1 $ 67.4 -19.7%
Backlog 57.6 52.3 10.1% 57.6 52.3 10.1%
Sales 38.8 39.2 -1.0% 112.3 112.4 -.1%
Operating Profit (Loss) (3.0) (6.9) N/A (3.4) (17.6) N/A
Operating Profit Margin -7.7% -17.6% N/A -3.0% -15.7% N/A
D&A 3.0 5.1 -41.2% 19.2 15.3 25.5%
Capital Expenditures 7.2 2.4 200.0% 13.0 7.1 83.1%
Intersegment:
Orders $ (40.3) $ (36.0) -11.9% $ (119.1) $ (119.0) -.1%
Backlog (45.4) (40.8) -11.3% (45.4) (40.8) -11.3%
Sales (38.3) (36.3) -5.5% (112.4) (110.4) -1.8%
Total - Continuing Operations:
Orders $2,077.6 $1,991.5 4.3% $6,435.5 $6,479.9 -.7%
Backlog 9,968.4 9,769.7 2.0% 9,968.4 9,769.7 2.0%
Sales 2,229.1 2,060.2 8.2% 6,080.2 6,234.0 -2.5%
Operating Profit (Loss) 168.4 143.0 17.8% 387.3 474.2 -18.3%
Operating Profit Margin 7.5% 6.9% N/A 6.4% 7.6% N/A
D&A 80.4 76.3 5.4% 243.2 233.6 4.1%
Capital Expenditures 62.1 49.6 25.2% 153.7 130.6 17.7%
</TABLE>
-18-
<PAGE> 19
Broadcasting
Broadcasting continues its excellent performance. Revenues were up 4 percent
and 5 percent, respectively, for the third quarter and the first nine months of
1994 compared to the same periods in 1993, while operating profit increased 27
percent and 22 percent for the same periods. Revenues and operating profit
increases were driven by strong advertising sales in television and by tight
cost controls.
Electronic Systems
Revenues increased 7 percent for the third quarter compared to last year.
Without the Norden Systems, Inc. (Norden) acquisition, revenues would have been
down 3 percent.
Operating profit for the third quarter of 1994 was down 26 percent compared to
the same quarter last year, while operating profit decreased 35 percent for the
first nine months of 1994 compared to 1993. The changes were caused primarily
by decreased torpedo production, completion of certain Department of Defense
contracts, and increased pension costs of $5 million for the third quarter and
$25 million for the first nine months in 1994.
Backlog of $3.8 billion at the end of September 1994 includes approximately
$200 million associated with Norden.
Government and Environmental Services
Higher award fees at three Department of Energy facilities managed by
Westinghouse and improved sales and margins in the incineration business drove
revenues up 20 percent and operating profit up 87 percent in the quarter
compared to the same period in 1993. Orders entered for the quarter were up 65
percent, resulting in a backlog of over $120 million.
Thermo King
Strong North American truck, trailer and service parts markets coupled with
rebounding volume in Western Europe fueled Thermo King's record pace for sales
in the third quarter. Orders were up 27 percent in the quarter, and revenues
increased 38 percent over the same period last year. Operating profit growth
for the quarter increased 36 percent compared to last year.
Energy Systems
Lower service revenues because of delays in scheduled power plant outages and
decreased sales of engineering services were the primary causes of revenues and
operating profit declining $26 million and $10 million, respectively, in the
quarter compared to the same period last year. Pension costs for the third
quarter of 1994 increased $3 million over the year-earlier quarter.
Strong bookings for nuclear fuel, equipment, and services in Asia and North
America increased orders by $216 million in the quarter compared to the 1993
quarter.
Revenues and operating profit for the first nine months of 1994 were down $87
million and $63 million, respectively, compared to the same periods in 1993.
Decreased licensee income and the favorable effect of an accounting change for
nuclear fuel revenues in 1993 were primarily responsible for the change.
Pension costs for the nine months of 1994 were $14 million more than the same
period of 1993.
-19-
<PAGE> 20
Power Generation
Strong international parts, service and combustion turbine sales drove revenues
up 20 percent in the quarter compared to the year-earlier period. Operating
profit almost tripled to approximately $30 million in the quarter. Pension
costs for the third quarter of 1994 were $5 million higher than the same
quarter of 1993. Operating profit for the first nine months of 1994 was down
$11 million compared to the same period of 1993 due to an unfavorable mix of
sales and increased pension costs of $19 million, partially offset by cost
reductions.
Although orders were down 23 percent for the quarter, they were up 6 percent
for the first nine months compared to the year-earlier period. Backlog at the
end of the quarter was $2.3 billion, an increase of about 3 percent compared to
the same period last year.
Knoll
Increases across most major product lines in North America and a rebounding
European market pushed orders up about 15 percent, or $19 million, for the
third quarter 1994 compared to last year. Revenues for the quarter grew by 19
percent. Tight cost controls and the strong revenue growth enabled Knoll to
approach break-even in the quarter versus a loss of approximately $8 million
last year. The business continues to see encouraging bookings in Europe and
North America across most major product lines.
WCI
Revenues and operating profit for the third quarter of 1994 were down $19
million and $9 million, respectively. However, a strong South Florida market
raised revenues and operating profit for the first nine months of 1994 by $19
million and $4 million, respectively, compared to the same period last year.
WCI generated approximately $50 million of cash for the first nine months of
1994.
Other Businesses
Revenues for the third quarter were down 16 percent. Operating losses for the
quarter were flat compared to the third quarter of 1993.
DISCONTINUED OPERATIONS
In November 1992, the Corporation announced a Plan (the Plan) that included
exiting the financial services business and selling both DCBU and WESCO. Since
adoption of the Plan, net portfolio investments of Financial Services have
decreased from $5,534 million at November 30, 1992 to $999 million at September
30, 1994, a decrease of $4,535 million. The Corporation completed the sales of
DCBU and WESCO during the first quarter of 1994. See Liquidity and Capital
Resources - Overview.
The liability for the estimated after-tax loss on the disposal of Discontinued
Operations of $1,383 million was established in November 1992. In the fourth
quarter of 1993, the Corporation recorded an additional provision for estimated
after-tax loss on the disposal of Discontinued Operations of $95 million based
on changes in estimates on the sales of DCBU and WESCO, a decision to bulk sell
certain Financial Services assets and a revision to estimated interest expense.
-20-
<PAGE> 21
A summary of changes in net debt of Discontinued Operations for the nine months
ended September 30, 1994 is presented in the table below:
CHANGES IN NET DEBT OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
<TABLE>
<S> <C>
Net Debt at December 31, 1993 $ 3,183
Proceeds from sales of DCBU and WESCO (1,374)
Liquidations of Financial Services assets (234)
Cash used in operating activities of Financial Services 138
Asset fundings of Financial Services 5
Cash used in operating and divestiture activities
related to DCBU & WESCO and restructuring 144
Net cash provided by Continuing Operations (95)
Debt assumed by buyers of Discontinued Operations (18)
-------
(1,434)
-------
Net Debt at September 30, 1994 $ 1,749
=======
</TABLE>
The net proceeds expected to be realized from liquidation of the
remaining $999 million of net portfolio investments of Discontinued Operations
are insufficient to satisfy the $1.7 billion of net debt attributed to
Discontinued Operations. The Corporation also expects to use cash flows from
Continuing Operations, specifically, proceeds from sales of certain
non-strategic businesses, WCI's cash flow from operations, and proceeds from
any sales of WCI's assets, in bulk or in total, to pay down debt of
Discontinued Operations. Management is evaluating alternative strategies with
respect to WCI to optimize its value and as a result does not anticipate that
WCI will be sold in 1994. Upon determination of the WCI strategy, which is
expected to occur by year-end 1994, management will evaluate the available
sources of cash in conjunction with the remaining debt of Discontinued
Operations and make appropriate adjustments.
Management believes that the combination of the net proceeds anticipated from
the continued liquidation of assets of Discontinued Operations and from sales
of certain non-strategic businesses, as well as cash flow from WCI, will be
sufficient to fund Discontinued Operations, including the repayment of its
debt. Management further believes that the liability for the estimated loss on
disposal of Discontinued Operations should be adequate assuming appropriate
reduction of the related debt. The adequacy of this liability is evaluated
each quarter.
LIQUIDITY AND CAPITAL RESOURCES
Overview
- --------
Significant progress was made during the first nine months of 1994 in reducing
the Corporation's net debt (total debt less cash and cash equivalents). Net
debt at September 30, 1994 totalled $3,448 million, a reduction of $1,654
million from $5,102 million at December 31, 1993. The principal sources of
cash for this reduction were the sales of DCBU and WESCO, the issuance of the
Series C preferred stock, and liquidations of Financial Services assets.
The Corporation completed the sale of DCBU, excluding its Australian
subsidiary, to Eaton Corporation on January 31, 1994, for approximately $1.1
billion and the assumption by the buyer of certain liabilities. The
Corporation completed the sale of the Australian subsidiary in March 1994.
The Corporation completed the sale of WESCO on February 28, 1994 to an
affiliate of Clayton, Dubilier & Rice, Inc., a private investment firm. The
sales proceeds of approximately $340 million consisted of approximately $275
million in cash,
-21-
<PAGE> 22
approximately $50 million in first mortgage notes and the remainder in stock
and options in the new company.
During March 1994, the Corporation sold in a private placement depositary
shares representing 3,600,000 shares of Series C preferred stock. Net proceeds
from the offering, which totalled $505 million, were used to reduce short-term
debt.
On August 26, 1992, Westinghouse filed a registration statement on Form S-3 for
the issuance of up to $1 billion of Westinghouse debt securities. At September
30, 1994, $400 million of this shelf registration was unused.
Sources of liquidity generally available to the Corporation include cash and
cash equivalents, cash flow from operations, proceeds from sales of
non-strategic assets, unused borrowing capacity under the Corporation's
revolving credit facilities, and borrowings from other sources, including funds
from the capital markets, subject to then existing market conditions and other
considerations.
As of the second quarter of 1994, substantially all of the Corporation's cash
is included in and managed from Continuing Operations. Any cash receipts and
cash payments related to Discontinued Operations require cash transfers between
Continuing and Discontinued Operations. For purposes of the Consolidated
Statement of Cash Flows, the net amount of cash transfers represents an
investing activity to Continuing Operations and a financing activity to
Discontinued Operations.
Operating Activities
- --------------------
The following table provides a reconciliation of net income to cash provided by
operating activities of Continuing Operations for the nine months ended
September 30, 1994 and 1993:
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
(in millions) (unaudited) 1994 1993
---- ----
<S> <C> <C>
Net income $ 184 $ 152
Adjustments to reconcile net income to cash:
Cumulative effect of change in accounting principle - 56
Depreciation and amortization 243 234
Pension expense in excess of cash contributions 101 87
Income tax and interest expense 89 87
Restructuring and divestiture costs (140) -
Gain on disposition of assets (45) -
Change in other assets and liabilities:
Accounts receivable 105 (6)
Inventories (228) (207)
Long-term contracts (316) (117)
Other assets and liabilities 38 (78)
------ ------
Cash provided by operating activities $ 31 $ 208
====== ======
</TABLE>
The operating activities of Continuing Operations provided $31 million of cash
for the first nine months of 1994, a decrease of $177 million from the amount
provided in the same period in 1993. This decrease primarily is the result of
reduced progress billings from project closeout delays and payments of
restructuring and divestiture costs of Continuing Operations. In addition, the
1994 operating cash flows include collection of a receivable from a claim
settlement and a reduction in current receivables.
-22-
<PAGE> 23
Cash used by operating activities of Discontinued Operations was $282 million
for the first nine months of 1994 compared to cash provided of $204 million in
the same period in 1993. The primary operating cash requirements of
Discontinued Operations for the 1994 period represent interest and operating
costs of Financial Services and restructuring and divestiture costs of DCBU and
WESCO. Operating activities for the 1993 period included cash generated by the
operations of DCBU and WESCO, both of which were sold in early 1994.
Investing Activities
- --------------------
Investing activities of Continuing Operations used $251 million of cash for the
first nine months of 1994, compared to $389 million of cash used in the same
period of 1993. Capital expenditures, which represent a recurring activity,
were $23 million higher for the 1994 period. During the first nine months of
1994, the Corporation sold two radio stations and an investment in a joint
venture, and purchased Norden. Net cash transfers from Continuing to
Discontinued Operations totalled $95 million for the first nine months of 1994.
During the first nine months of 1993, Continuing Operations purchased assets
from Discontinued Operations for $258 million for contribution to the
Corporation's pension plans.
Investing activities of Discontinued Operations provided $1,603 million of cash
during the first nine months of 1994, compared to $2,606 million of cash
provided for the same period of 1993. Proceeds from the first quarter 1994
sales of DCBU and WESCO generated $1.4 billion of cash, while liquidations of
the assets of Financial Services generally provided the remainder of the cash.
Because of the early success of the Plan, liquidations of Financial Services
assets were significantly higher during the 1993 period.
Financing Activities
- --------------------
Cash used in financing activities of Continuing Operations was $102 million for
the first nine months of 1994 compared to $119 million for the same period of
1993. Dividend payments in the first nine months of 1994 were $31 million
lower than those in the same period of 1993 reflecting the reduction in the
Corporation's dividend on common stock. In March 1994, the Corporation
received net proceeds of $505 million from the sale of Series C preferred
stock, which were then used to repay bank revolver borrowings. During the
first nine months of 1993, the Corporation issued $600 million of long-term
debt and repaid short-term debt.
Financing activities of Discontinued Operations generally involve the repayment
of debt as the assets are liquidated. Net financing cash outflows for
Discontinued Operations totalled $1,931 million for the first nine months of
1994 compared to $2,774 million for the same period of 1993 due to the early
success of the asset liquidation program.
Total debt of the Corporation was $3,764 million at September 30, 1994, a
decrease of $2,586 million from $6,350 million at December 31, 1993. Cash and
cash equivalents of the Corporation were $316 million at September 30, 1994, a
decrease of $932 million from $1,248 million at December 31, 1993.
Short-term debt, including current maturities of long-term debt, of the
Corporation totalled $1,312 million at September 30, 1994, compared to $3,818
million at December 31, 1993, a decrease of $2,506 million. This decrease is
primarily attributable to net repayments of revolver borrowings of $1,990
million and repayments of maturing medium-term notes totalling $545 million.
Total borrowings outstanding under the revolver were $865 million at September
30, 1994 (excluding $76 million of letters of credit), all of which was under
the three-year facility. These borrowings carried a composite interest rate of
5.3%.
Long-term debt of the Corporation totalled $2,452 million at September 30,
1994, compared to $2,532 million at December 31, 1993, a decrease of $80
million. The
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<PAGE> 24
decrease is primarily attributable to the classification of additional
medium-term notes as current maturities of long-term debt.
Revolving Credit Facilities
- ---------------------------
On August 5, 1994, the Corporation replaced its December 1991 revolver with two
revolving credit agreements (revolvers) entered into with a syndicate of
domestic and international banks. These facilities have a combined commitment
level of $2.5 billion, with $2.0 billion from a revolver which expires on
August 4, 1997 (three-year revolver) and $500 million from a revolver which
expires on August 4, 1995 (364-day revolver). Contemporaneous with entering
into the revolvers, the $800 million of outstanding borrowings under the
December 1991 revolver was repaid with borrowings from the three-year revolver.
Availability under the revolvers is subject to compliance with certain
covenants, representations and warranties, including a no material adverse
change provision with respect to the Corporation taken as a whole, restrictions
on the incurrence of liens, a maximum leverage ratio, minimum interest coverage
ratio and minimum consolidated net worth. Certain of these covenants become
more restrictive over the terms of the revolvers.
The interest rates for borrowings under the revolvers are based on the London
Interbank Offer Rate (LIBOR) plus an interest rate spread based on the
Corporation's long-term debt ratings. The revolvers also include facility fees
based on revolver commitment level, whether used or unused.
Hedging Activities
- ------------------
Interest Rate and Currency Exchange Hedging - Debt Instruments
Prior to the adoption of the Plan, Financial Services entered into interest
rate and currency exchange agreements to manage the interest rate and currency
risk associated with various debt instruments. No transactions were
speculative in nature or leveraged. Given their nature, these agreements have
been accounted for as hedging transactions.
At September 30, 1994, the notional amount of interest rate and currency
exchange agreements outstanding totalled $793 million with an average remaining
maturity of 1.5 years. Of this total, $518 million relates to interest rate
swaps with rate and maturity characteristics set forth in the table below:
CONTRACTUAL MATURITIES OF INTEREST RATE SWAPS AT SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
4th
Qtr.
(in millions) (unaudited) Total 1994 1995 1996 1997 1998 1999
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Swaps (Pay Fixed):
Notional Amount $368 $120 $ 87 $ 81 $ - $ 50 $ 30
Wtd. Avg. Fixed Rate Paid 9.04% 9.39% 8.99% 8.79% -% 8.73% 8.92%
Floating Rate Swaps
(Pay Floating):
Notional Amount $150 $ - $150 $ - $ - $ - $ -
Wtd. Avg. Fixed Rate Received 8.74% -% 8.74% -% -% -% -%
</TABLE>
Under the majority of these agreements, the floating rate received on fixed
rate swaps or paid on floating rate swaps is based upon the average 30 day
commercial paper rate for the relevant period. This rate was 5.04% on
September 30, 1994. The floating rate received or paid on the remaining
agreements is based upon six month LIBOR set on dates specified in the
agreements. This rate was 5.75% on September 30, 1994.
-24-
<PAGE> 25
The remaining $275 million notional amount outstanding at September 30, 1994
consists of forward interest rate swap agreements, which are exercisable at the
option of a counterparty, an interest rate floor agreement, and an interest
rate and currency exchange agreement.
The Corporation's credit exposure under interest rate and currency exchange
agreements is limited to the cost of replacing an agreement in the event of
non-performance by its counterparty. To minimize this risk, Financial Services
selected high credit quality counterparties. At September 30, 1994, the
aggregate exposure to counterparties totalled approximately $80 million. This
exposure resulted primarily from an interest rate and currency exchange
agreement with an A-rated counterparty. The contract matures in 1996.
Outstanding interest rate exchange agreements resulted in a net increase in the
average borrowing rate for Discontinued Operations of approximately .80% and
.60% for the three and nine month periods ended September 30, 1994,
respectively. This resulted in a net increase in the interest expense incurred
by Discontinued Operations for the same periods of approximately $4 million and
$10 million, respectively. The hedging policy implemented by Financial
Services targeted a certain level of fixed and floating rate debt attainable
through the issuance of debt instruments with particular rate reset
characteristics and/or the use of interest rate exchange agreements.
Therefore, interest expense would not have been materially different had the
fixed/floating target been attained without the use of interest rate exchange
agreements.
Continuing Operations had no interest rate and currency exchange agreements
outstanding as of September 30, 1994.
Foreign Exchange Hedging
The Corporation's foreign exchange exposure policy includes purchasing and
selling in national currencies, when possible, and hedging those transactions,
in excess of $250,000, occurring in currencies other than those of the
originating country. In accordance with this policy, the Corporation has
entered into various foreign exchange agreements in which it sells a currency
forward to hedge a receivable and purchases a currency forward to hedge a
payable.
FORWARD FOREIGN EXCHANGE POSITIONS AS OF SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Weighted Average
(in millions) (unaudited) Contract Amount Maturity
--------------- --------
(in U.S. dollars)
<S> <C> <C>
Sales:
Canadian Dollar $178 511 days
French Franc 41 158 days
Japanese Yen 33 251 days
British Pound 18 128 days
Italian Lira 16 49 days
Belgium Franc 13 74 days
Saudi Arabian Riyal 12 231 days
Austrian Shilling 7 91 days
Other 5 66 days
----
Total $323
====
Purchases:
Canadian Dollar $ 47 249 days
British Pound 16 240 days
Other 5 54 days
----
Total $ 68
====
</TABLE>
-25-
<PAGE> 26
The Corporation's accounting policies require translation of local currency
financial statements of subsidiaries in highly inflationary and unstable
economies into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation," to provide for appropriate accounting treatment where exchange
rates are most volatile.
With respect to the Corporation's operations in highly inflationary and
unstable economies that are accounted for in accordance with SFAS No. 52, the
combined total sales for those operations were less than 0.5% of the
Corporation's sales for the first nine months of 1994. Any translation
adjustments resulting from converting the local currency balance sheets and
income statements of designated hyperinflationary subsidiaries into U.S.
dollars are recorded as period costs in accordance with SFAS No. 52.
OTHER MATTERS
Pensions
- --------
Estimated 1994 pension expense will increase by approximately $100 million
compared to 1993. This increase is primarily attributable to changes in
pension plan assumptions and reduced levels of pension plan assets which
resulted from benefit payment levels exceeding contributions and returns on
plan assets.
As a result of the Corporation's restructuring activities, cash distributions
from the pension fund during 1994 are expected to exceed levels previously
contemplated. As such, the Corporation may be required to apply certain
settlement accounting provisions of SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits." The Corporation estimates that the application of these
provisions could result in a fourth quarter 1994 non-cash charge to earnings of
$200 million to $250 million. Any charge to earnings would have minimal effect
on shareholders' equity due to the offsetting reduction in the charge to
shareholders' equity related to the minimum pension liability.
Management has also reviewed expected pension plan contributions and
anticipates that the Corporation will contribute a total of approximately $300
million in cash and/or stock to the pension plans during 1994. Through
September 30, 1994, $80 million has been contributed, of which $75 million was
cash and the remainder other assets. In 1995, total pension plan
contributions, as well as pension expense, are expected to approximate 1994
levels.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) As previously reported, on December 1, 1988, the Republic of the
Philippines (Republic) and National Power Corporation (NPC) filed a 15 count
lawsuit in the United States District Court (USDC) for the District of New
Jersey asserting claims against the Corporation, Westinghouse International
Projects Company and Burns and Roe Enterprises, Inc. (Burns and Roe) relating
to the construction of a nuclear power plant in the Philippines, as well as an
earlier consulting contract between NPC and Burns and Roe relating to the same
project. This action seeks rescission of the Westinghouse and Burns and Roe
contracts and restitution of all money and other property paid to Westinghouse
and Burns and Roe or, alternatively, reformation of the NPC-Westinghouse
contract. Plaintiffs requested compensatory, punitive and treble damages,
costs and expenses of the lawsuit, and such other relief as the USDC deems just
and proper. The complaint alleges, among other things, bribery and other
fraudulent conduct, tortious interferences with the fiduciary duty owed by
Ferdinand E. Marcos to the Republic and the people of the Philippines, common
law fraud, and violations of various New Jersey and federal statutes, including
the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) statute.
Plaintiffs
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<PAGE> 27
demanded a jury trial.
Also on December 1, 1988, Westinghouse filed a request for arbitration with the
International Chamber of Commerce Court of Arbitration (ICC) pursuant to the
NPC-Westinghouse contract, setting forth certain claims Westinghouse has
against NPC and the Republic and asking for arbitration of the anticipated
claims of the Republic and NPC related to construction of the Philippines
nuclear power plant. The Republic and NPC challenged the jurisdiction of the
ICC arguing that the contract between the parties, including its arbitration
provision, was invalid due to alleged bribery in the procurement of the
contract. In December 1991, the ICC arbitration panel issued its award finding
that the Republic and NPC had failed to carry their burden of proving the
alleged bribery by the Corporation. The panel thereby concluded that the
arbitration clause and contract were valid and that the panel has jurisdiction
over the remaining disputes between NPC and the Corporation. In January 1992,
NPC filed an action for annulment of the award by the ICC arbitration panel in
the Swiss Federal Supreme Court. In September 1993, the Swiss Federal Supreme
Court issued an order dismissing NPC's annulment action and assessing cost
against NPC. Evidentiary hearings before the ICC began in the first quarter of
1994 and continued on June 13, 14 and 15, when they were concluded. Final
arguments were heard by the ICC from October 3, 1994 through October 6, 1994
and the parties await a decision.
With respect to the suit filed in the USDC, Westinghouse filed a motion
requesting that the action filed there be stayed in its entirety pending
arbitration of the Republic's claim. In 1989, the Court granted a motion
brought by the Corporation and ordered 14 of the 15 counts in the lawsuit
stayed pending arbitration. The Court retained jurisdiction over the remaining
count involving an alleged intentional interference with a fiduciary
relationship. Trial commenced with respect to this one count in March 1993.
In May 1993, a jury verdict was rendered in favor of the Corporation with
respect to all claims relating to the alleged intentional interference with a
fiduciary relationship. NPC and the Republic have indicated that they intend
to appeal this decision.
(b) As previously reported, in April 1991, Duquesne Light Company (Duquesne)
and its co-owners filed a law suit against the Corporation in the USDC for the
Western District of Pennsylvania for an undetermined amount of damages,
including treble and punitive damages. Subsequently, Duquesne disclosed that
it is seeking approximately $269 million to $320 million for estimated past and
future damages sustained by two nuclear steam supply systems furnished by the
Corporation for Duquesne's Beaver Valley, Pennsylvania plants. Prior to the
start of trial, the judge dismissed Duquesne's negligent misrepresentation
claim and a portion of its RICO claim. Trial with respect to the other claims
commenced on September 12, 1994. On October 24, 1994, the judge granted the
Corporation's motion for directed verdicts with respect to Duquesne's claims
for breach of warranty, breach of contract, and RICO. The judge also dismissed
Duquesne's punitive damage claims. The only claim remaining before the USDC is
the common law fraud claim. Trial is continuing and is expected to last into
the month of November.
(c) As previously reported, in February 1993, the Corporation was sued by 108
former employees who were laid off subsequent to the cancellation by the
federal government of all contracts pertaining to the carrier based A-12
aircraft program. The complaint alleges age discrimination on the part of the
Corporation. The suit was filed in the USDC for the District of Maryland. The
plaintiffs seek back pay with benefits and reinstatement of jobs or front pay.
Also, in April 1993, the Equal Employment Opportunity Commission (EEOC) filed a
class-action, age discrimination suit against Westinghouse in the USDC for the
District of Maryland on behalf of 388 former Westinghouse employees who were
laid off or involuntarily terminated from employment subsequent to the federal
government's cancellation of all contracts pertaining to the carrier based A-12
aircraft program. The suit alleges age discrimination and discriminatory
employment practices. The suit seeks back pay, interest, liquidated damages,
reinstatement of jobs, court costs and other appropriate relief. These two
cases have been consolidated by the court. On October 20, 1994, the court
stayed discovery until issues concerning case management and trail structure
are resolved.
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<PAGE> 28
(d) The Corporation is a defendant in 32 asbestos cases and a third-party
defendant in 2,200 other cases that are part of consolidated litigation pending
in Baltimore County Circuit Court. The plaintiffs have claimed damages for
personal injury, wrongful death and loss of consortium arising from exposure to
asbestos-containing products manufactured, supplied or installed by various
defendants, including the Corporation. Trial commenced on June 20, 1994, and
is continuing, with respect to six representative plaintiffs, none of whom have
claims against the Corporation. The product defect and punitive damages issues
resolved in this trial will be binding upon the Corporation in subsequent
trials of the remaining plaintiffs' claims, subject to appeal, each individual
plaintiff will nevertheless still have to prove exposure, causation and actual
damages prior to receiving any recoveries from the Corporation.
(e) In August of 1993, the bankruptcy Trustee for the Bonneville Pacific
Corporation (Bonneville) sued over 70 defendants, including Westinghouse, in
federal district court in Salt Lake City, Utah. The Trustee's claims against
the group of defendants, including Westinghouse; Deloitte & Touche; Mayer,
Brown & Platt; Piper Jaffray, Inc.; and Kidder Peabody and Company, are
numerous, but consist primarily of common law fraud and aiding and abetting in
breaches of fiduciary duty on the part of former officers and directors of
Bonneville. There are also claims by the Trustee for the tort of conspiracy
and civil RICO violations. Westinghouse has filed numerous motions seeking
dismissal of the claims and has filed a denial of the allegations. The
Corporation's involvement with Bonneville consisted of four sale/lease back
transactions through the former Westinghouse Credit Corporation in
co-generation projects.
The case is now entering the deposition phase. On October 6, 1994, the
Trustee filed its preliminary calculation of damages which total $647 million
against a group of defendants, including Westinghouse on a theory of joint and
several liability. The Trustee is also seeking treble damages, based upon the
Trustee's position that a violation of civil RICO has occurred. Westinghouse
continues to reject the validity of the claims and believes that the
preliminary damage calculations are without merit. In the course of discovery,
Westinghouse intends to challenge these damage calculations.
(f) On August 16, 1994, the Official Committee of Unsecured Creditors of
Phar-Mor, Inc. filed suit against Westinghouse Credit Corporation
(Westinghouse) and others in the United States Bankruptcy Court for the
Northern District of Ohio, alleging that an August 1991 tender offer conducted
by Phar-Mor, Inc. (Phar-Mor) was a fraudulent conveyance and therefore should
be rescinded. Westinghouse participated in the tender offer and received
approximately $30 million. The suit also alleges that Westinghouse
must repay approximately $20 million it received in the tender offer as
proceeds from the tender of stock by the DeBartolo Family Limited Partnership
(DeBartolo). Westinghouse received the proceeds from DeBartolo's tender of
Phar-Mor stock pursuant to a pre-existing loan to DeBartolo from Westinghouse
collateralized by DeBartolo's holdings in Phar-Mor. DeBartolo also has
been named as a defendant in this litigation and has separately been sued for
the same $20 million.
Counsel for DeBartolo has filed a motion with the Judicial Panel on
Multidistrict Litigation requesting that the fraudulent conveyance action be
transferred to the United States District Court (USDC) for the Western District
of Pennsylvania for consolidation with approximately 40 other Phar-Mor-related
cases currently pending in the USDC. Among these 40 cases is an action filed
by Westinghouse in October 1992 in connection with loans to, and equity
investments in, Phar-Mor. Westinghouse's suit against Phar-Mor asserts, among
other things, federal securities law fraud claims and state law claims for
fraud and negligent misrepresentation against various defendants, including
principally Phar-Mor's independent accountants (Coopers & Lybrand), its Chief
Executive Officer and Treasurer (David S. Shapira), and its controlling
shareholder (Giant Eagle, Inc.).
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<PAGE> 29
Westinghouse has filed a pretrial statement of damages with the Court claiming
total damages in excess of $162 million.
Among the other Phar-Mor-related cases pending in the USDC are claims by
creditors and investors in Phar-Mor against Coopers & Lybrand and/or David
Shapira and Giant Eagle, and an action by Phar-Mor against Coopers & Lybrand.
Beginning in December 1993 and thereafter, Coopers & Lybrand, David Shapira
and/or Giant Eagle asserted cross-claims or third-party complaints in numerous
of these cases against Westinghouse and others for contribution and
indemnification, alleging, that Westinghouse, by virtue of attendance by its
representatives at meetings of Phar- Mor's Board of Directors, became a "de
facto" member of the board of directors and thus should share jointly and
severally in the payment of damages. Westinghouse has filed an answer denying
the allegations contained in the cross-claims and third-party complaints.
Total damage claims being asserted in cross-claims and third-party complaints
amount to something in excess of $1.5 billion.
The parties are currently involved in fact discovery in the litigation
currently pending in the USDC.
(g) The Corporation has been defending a consolidated class action, a
consolidated derivative action and certain individual lawsuits that have been
brought in the USDC for the Western District of Pennsylvania by shareholders of
the Corporation against the Corporation, WFSI and WCC, previously subsidiaries
of the Corporation and/or certain present and former directors and officers of
the Corporation, as well as other unrelated parties. Together, these actions
allege various federal securities law and common law violations arising out of
alleged misstatements or omissions contained in the Corporation's public
filings concerning the financial condition of the Corporation, WFSI and WCC in
connection with a $975 million charge to earnings announced on February 27,
1991, a public offering of Westinghouse common stock in May 1991, a $1,680
million charge to earnings announced on October 7, 1991, and alleged
misrepresentations regarding the adequacy of internal controls at the
Corporation, WFSI and WCC. In July 1993, the USDC dismissed in its entirety
the derivative claim and dismissed most of the class action claims set forth
above, with leave to replead portions of these actions. In August 1993, the
plaintiffs refiled, in its entirety, the derivative action. In September 1993,
the plaintiffs refiled all dismissed claims in the class-action suit. In
September 1993, the Corporation moved to strike and dismiss the refiled
derivative action. In December 1993, the Corporation filed a motion to dismiss
the refiled class action claims. On September 27, 1994, the USDC reaffirmed
its July 1993 ruling and denied plaintiff's motion for reinstatement of the
dismissed class action claims against the Corporation.
Management believes that the Corporation has meritorious defenses to the
proceedings described in items (a) through (g) above.
(h) As previously reported, in January 1992, a suit was filed against
Westinghouse Credit Corporation (WCC) in the Circuit Court of Jackson County,
Missouri by three affiliated entities (collectively American Carriers) for the
alleged breach of a commitment letter issued by WCC to lend up to $65 million.
American Carriers claimed that the failure to make the loan caused American
Carriers to file for bankruptcy protection. In February 1993, the jury
returned a verdict in favor of American Carriers in the amount of $70 million.
The Corporation appealed, and on July 12, 1994, the Missouri Court of Appeals,
affirmed the judgment entered by the Circuit Court on the jury verdict. The
Corporation moved for a rehearing before the entire panel of the Court of
Appeals. On August 30, 1994, the Court of Appeals denied the Corporation's
motion for a rehearing. On September 13, 1994, the Corporation filed an
application for transfer to the Missouri Supreme Court. On October 25, 1994,
the Corporation's Application for Transfer was denied. The Corporation
previously provided for this claim and on November 2, 1994, paid the jury
verdict.
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<PAGE> 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) Amendments to the Bylaws of the Corporation, as amended to
July 27, 1994, included in its entirety as Exhibit 3(b) herein.
(b) The Bylaws of the Corporation, as amended to July 27, 1994.
(4) RIGHTS OF SECURITY HOLDERS
(a) The Corporation agrees to provide to the Securities and Exchange
Commission, upon request, a copy of instruments defining the
rights of holders of long-term debt of the Corporation and its
consolidated subsidiaries.
(b) Form of Senior Indenture dated as of November 1, 1990, between the
Corporation and Citibank, N.A., is incorporated herein by
reference to Exhibit 4.1 to the Corporation's Registration
Statement No. 33-41417.
(10) MATERIAL CONTRACTS
(a) The Annual Performance Plan is incorporated herein by reference to
Exhibit 10(a) to Form 10-K/A for the year ended December 31, 1992.
(b) The 1993 Long-Term Incentive Plan is incorporated herein by
reference to Exhibit A to the Corporation's Notice of 1994 Annual
Meeting and Proxy Statement filed with the Commission pursuant to
Schedule 14A of the Exchange Act.
(c) The 1984 Long-Term Incentive Plan, as amended, is incorporated
herein by reference to Exhibit 10(b) to Form 10-Q for the quarter
ended June 30, 1993.
(d) The 1979 Stock Option and Long-Term Incentive Plan is incorporated
herein by reference to Exhibit 10(c) to Form 10-K/A for the year
ended December 31, 1992.
(e) The Westinghouse Executive Pension Plan, as amended, is
incorporated herein by reference to Exhibit 10(f) to Form 10-Q for
the quarter ended June 30, 1993.
(f) The Deferred Stock and Compensation Plan for Directors is
incorporated herein by reference to Exhibit 10(i) to Form 10-K/A
for the year ended December 31, 1992.
(g) The Advisory Director's Plan is incorporated herein by reference to
Exhibit 10(k) to Form 10-K for the year ended December 31, 1989.
(h) Employment Agreement between the Corporation and Michael H. Jordan
is incorporated herein by reference to Exhibit 10 to the
Corporation's Form 8-K, dated September 1, 1993.
(i) 364-Day Competitive Advance and Revolving Credit Facility
Agreement dated as of August 5, 1994 among the Corporation as
borrower, the Co- Agents and Lenders named therein, and Chemical
Bank as Administrative Agent is incorporated herein by reference
to Exhibit 10(r) to Form 10-Q for the quarter ended June 30, 1994.
(j) Three Year Competitive Advance and Revolving Credit Facility
Agreement dated as of August 5, 1994 among the Corporation as
borrower, the Co- Agents and Lenders named therein, and Chemical
Bank as Administrative Agent is incorporated herein by reference
to Exhibit 10(s) to Form 10-Q for the quarter ended June 30, 1994.
(11) COMPUTATION OF PER SHARE EARNINGS
(12)
(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(27) FINANCIAL DATA SCHEDULE
b) REPORTS ON FORM 8-K: None
-30-
<PAGE> 31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 9th day of November 1994.
WESTINGHOUSE ELECTRIC CORPORATION
Fredric G. Reynolds
-----------------------------------
Fredric G. Reynolds
Executive Vice President and
Chief Financial Officer
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<PAGE> 1
"ARTICLE IX. EXHIBIT 3(a)
Treasurer
The Treasurer shall have custody of, and shall manage and invest, all
moneys and securities of the Corporation, and shall have such powers and duties
as generally pertain to the office of Treasurer.
To the extent not invested, the Treasurer shall deposit all moneys in
such banks or other places of deposit as the Board of Directors may from time
to time designate or as may be designated by any officer or officers of the
Corporation so authorized by resolution of the Board of Directors. Unless
otherwise provided by the Board of Directors, all checks, drafts, notes and
other orders for the payment of money from a disbursing account shall be signed
by the Treasurer or such person or persons as may be designated by name by the
Treasurer in writing. The Treasurer's signature and, if authorized by the
Treasurer in writing, the signature of such person or persons as may be
designated by the Treasurer as provided above, to a check, draft, note or other
order for the payment of money from a disbursing account may be by facsimile or
other means. Procedures for withdrawal of moneys from accounts other than
disbursing accounts shall require the approval and signature of the Treasurer,
an assistant treasurer or such person or persons as may be designated by name
by the Treasurer in writing and also of the Controller, an assistant controller
or such person
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<PAGE> 2
or persons as may be designated by name by the Controller in writing.
The Treasurer shall have such other powers and perform such other duties
as may be assigned by the Board of Directors. The Chief Financial Officer of
the Corporation shall have all of the powers granted to the Treasurer under
these by-laws, including the power to sign any check, draft, note or other
order for the payment of money from a disbursing account, including by
facsimile signature or other means.
ARTICLE X.
Controller
The Controller shall have general charge of the Accounting Department of
the Corporation and its controlled companies. He shall prescribe and supervise
a system of accounting and internal auditing that shall be adopted and followed
by the Corporation and its controlled companies. He, or some other person or
persons designated by him by name, in writing, shall prepare and certify all
vouchers and payrolls. As provided in Article IX, procedures for withdrawal of
moneys from accounts other than disbursing accounts shall require the approval
and signature of the Controller, an assistant controller or such person or
persons as may be designated by name by the Controller in writing. The
Controller shall at the close of each month present for the information of the
Board of Directors a complete
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<PAGE> 3
statement of the Corporation's financial affairs and of its operations for the
preceding month and for the months elapsed since the commencement of the fiscal
year. He shall also present full statements of the properties owned and
controlled by the Corporation, under appropriate headings, as the Board of
Directors may at any time require. He shall carefully preserve and keep in his
custody in the office of the Corporation, contracts, leases, assignments and
other valuable instruments in writing. He shall be charged with the duty of
verification of all property of the Corporation and of its controlled companies
and the supervision of the taking of all inventories."
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<PAGE> 1
EXHIBIT 3(b)
BY-LAWS
OF
WESTINGHOUSE
ELECTRIC CORPORATION
______________
AS AMENDED TO
JULY 27, 1994
______________
<PAGE> 2
BY-LAWS
OF
WESTINGHOUSE ELECTRIC CORPORATION
__________
ARTICLE I.
Meetings of Stockholders
The annual meeting of the stockholders of the Corporation shall be held
on such date and at such hour as the Board of Directors may designate and on
any subsequent day or days to which such meeting may be adjourned, for the
purpose of electing directors and for the transaction of such other business as
may lawfully come before the meeting. If for any reason the annual meeting
shall not have been held on the day designated by the Board or on the day
specified above, the Board of Directors shall cause the annual meeting to be
called and held as soon thereafter as may be convenient.
Special meetings of the stockholders of the Corporation may be called by
the Board of Directors or by the Chairman to be held on such date as the Board
or the Chairman shall determine.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in
the notice of the meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise brought before the
meeting by
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<PAGE> 3
or at the direction of the Board of Directors or (iii) brought before the
meeting by a stockholder in accordance with the procedure set forth below. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must be entitled by Pennsylvania law to present such business and
must have given written notice of such business, either by personal delivery or
by United States mail, postage prepaid, to the Secretary of the Corporation,
not later than 90 days in advance of such meeting; provided, however, that if
such annual meeting of stockholders is held on a date other than the last
Wednesday of April, such written notice must be given within ten days after the
first public disclosure, which may include any public filing by the Corporation
with the Securities and Exchange Commission, of the date of the annual meeting.
Any such notice shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the meeting and the reasons for conducting such business
at the meeting, and in the event that such business includes a proposal to
amend the By-laws of the Corporation, the language of the proposed amendment,
(b) the name and address of the stockholder proposing such business, (c) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to propose such business and (d) any material interest
of any stockholder in such business. No
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business shall be conducted at an annual meeting except in accordance with this
paragraph, and the chairman of any annual meeting of stockholders may refuse to
permit any business to be brought before such annual meeting without compliance
with the foregoing procedures.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
upon liquidation, nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the election of
directors. Any stockholder entitled to vote for the election of directors may
nominate at a meeting persons for election as directors only if written notice
of such stockholder's intent to make such nomination is given, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
of the Corporation not later than (i) with respect to an election to be held at
an annual meeting of stockholders, 90 days in advance of such meeting (provided
that if such annual meeting of stockholders is held on a date other than the
last Wednesday of April, such written notice must be given within ten days
after the first public disclosure, which may include any public filing by the
Corporation with the Securities and Exchange Commission, of the date of the
annual meeting), and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day following the date on which notice of such meeting is first
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given to stockholders. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of each
person to be nominated; (b) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person
or persons specified in the notice as directors; (c) a description of all
arrangements or understandings between the stockholder and each proposed
nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission were such
nominee to be nominated by the Board of Directors; and (e) the consent of each
proposed nominee to serve as a director of the Corporation if so elected. The
chairman of any meeting of stockholders to elect directors may refuse to permit
the nomination of any person to be made without compliance with the foregoing
procedure.
Every meeting of the stockholders, annual or special, shall be held at
such place within or without the Commonwealth of Pennsylvania as the Board of
Directors may designate or, in the absence of such designation, at the
registered office of the Corporation in the Commonwealth of Pennsylvania.
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Written notice of every meeting of the stockholders shall be given by,
or at the direction of, the person authorized to call the meeting, to each
stockholder of record entitled to vote at the meeting, at his address appearing
on the books of the Corporation. The notice of every meeting of the
stockholders shall specify the place, day and hour of the meeting and, in the
case of a special meeting, the matter or matters to be acted upon at such
meeting. Only the matter or matters specified in the notice of a special
meeting shall be acted upon thereat. All notices of meetings of the
stockholders shall be provided in accordance with Pennsylvania law.
The notice of every meeting of the stockholders may be accompanied by a
form of proxy approved by the Board of Directors in favor of such person or
persons as the Board of Directors may select.
Except as otherwise provided by law or by the Restated Articles of the
Corporation, as from time to time amended, (hereinafter called the Articles of
the Corporation) or by these By-laws, the presence in person or by proxy of
stockholders entitled to cast at least a majority of the votes that all
stockholders are entitled to cast on a particular matter shall constitute a
quorum at the meeting of stockholders, and all questions shall be decided by a
majority of the votes cast, in person or by proxy, at a duly organized meeting
by the holders of shares entitled to vote thereon. The stockholders present at
any duly organized meeting may continue to do business until
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adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
Any meeting of the stockholders may be adjourned from time to time,
without notice other than by announcement at the meeting at which such
adjournment is taken, and at any such adjourned meeting at which a quorum shall
be present any action may be taken that could have been taken at the meeting
originally called; provided that any meeting at which directors are to be
elected shall be adjourned only from day to day, or for such longer periods,
not exceeding fifteen days each, as the holders of a majority of the shares
present in person or by proxy shall direct, until such directors have been
elected.
If a meeting cannot be organized because of lack of a quorum, those
present may, except as otherwise provided by law, adjourn the meeting to such
time and place as they may determine, but in the case of any meeting called for
the election of directors those who attend the second of such adjourned
meetings, although less than a quorum, shall nevertheless constitute a quorum
for the purpose of electing directors.
At each meeting, each stockholder entitled to vote may vote in person or
by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact and filed with the Secretary of the Corporation. Except as
otherwise provided by law or the Articles of the Corporation or these By-laws,
each holder of record of shares of any class of the Corporation shall
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be entitled to one vote, on each matter submitted to a vote at a meeting of the
stockholders, and in respect of which shares of such class shall be entitled to
be voted, for every share of such class standing in his name on the books of
the Corporation.
ARTICLE II.
Board of Directors - Committees -
Their Powers and Duties
The business, affairs and property of the Corporation shall be managed
and controlled by a Board of Directors, which, except as otherwise provided by
law or the Articles of the Corporation, shall exercise all the powers of the
Corporation. The number, qualifications, manner of election, time and place of
meeting, compensation and powers and duties of the directors of the Corporation
shall be fixed from time to time by or pursuant to these By-laws. Nominees for
election to the Board of Directors who qualify as Independent Directors on the
date of their nomination shall be such that the majority of all directors
holding office immediately after such nomination, assuming the election of such
nominees, shall be Independent Directors.
The number of directors which shall constitute the Board of Directors
shall be fixed from time to time by a vote of a majority of the Board of
Directors, provided, however, that the number of directors of the Corporation
shall be not less than three nor more than twenty-four. The stockholders
shall, at
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each annual meeting, elect directors, each of whom shall serve until the annual
meeting of stockholders next following his election and until his successor is
elected and shall qualify; provided, however, that directors with terms
expiring at the annual meetings of stockholders to be held in 1994 and 1995
shall serve until the expiration of their respective terms.
Each election of directors by the stockholders shall be conducted by one
or three judges of election appointed by the Board of Directors in advance of
the meeting to act at that meeting and at any adjournment thereof. If any or
all of such appointees shall fail to appear or fail or refuse to act, the
vacancy or vacancies shall be filled by the Board of Directors or the presiding
officer of the meeting. No person who is a candidate for office to be filled
at the meeting shall act as a judge.
Except as the law may otherwise provide, the stockholders shall not
remove any director from office without assigning any cause (as such term is
defined in the Articles of Incorporation) prior to the expiration of the term
of office unless holders of at least 80% of the shares of capital stock of the
Corporation entitled to vote thereon, vote to remove the director from office.
In case of any vacancy in the Board of Directors through death,
resignation, disqualification, removal, increase in the number of directors or
other cause, the remaining directors, though less than a quorum, by affirmative
vote of a majority
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thereof or by a sole remaining director, may fill such vacancy to serve for the
balance of the unexpired term and until his successor shall have been elected
and qualified; provided, however, that any director elected to fill a vacancy
for a director having a term expiring at the annual meeting of stockholders to
be held in 1994 or 1995 shall serve only until the annual election of
stockholders next following his election.
There shall be a Management Compensation Policy Committee, an Audit Review
Committee, a Committee on Environment and Health, and a Nominating and
Governance Committee. The Management Compensation Policy Committee may
determine to retain an independent compensation consultant to assist it in
carrying out its duties. Each committee shall consist of not less than three
members of the Board of Directors, at least three of whom, on the date of their
appointment to the committee, are Independent Directors. All members of the
Management Compensation Policy Committee and the Nominating and Governance
Committee must, on the date of their appointment to said committee, be
Independent Directors. With respect to each such Committee, the Board of
Directors shall, by one or more resolutions adopted by a majority of the whole
Board, determine the duties and responsibilities, determine the number of
members, appoint the members and the chairman and fill each vacancy occurring
in the membership.
The Board of Directors may from time to time appoint such further
standing or special committees as it may deem in the
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best interest of the Corporation, but no such committee shall have any powers,
except such as are expressly conferred upon it by the Board. Each committee
referred to in this Article II shall act only as a committee and the individual
members shall have no power as such.
Each director shall be entitled to receive from the Corporation such
annual and meeting fees as the Board of Directors shall from time to time
determine and to be reimbursed for his reasonable expenses in connection with
attendance at meetings. Nothing herein contained shall preclude any director
from serving the Corporation or its subsidiaries in any other capacity and
receiving compensation therefor.
For purposes of this Article II, the term "Independent Director" shall
mean a director who: (a) is not and has not been employed by the Corporation or
a subsidiary in an executive capacity within the five years immediately prior
to the annual meeting at which he will be voted upon; (b) is not an employee or
five percent or more owner of an entity that is a regular advisor or consultant
to the Corporation or its subsidiaries; (c) is not an employee or five percent
or more owner of a significant customer or supplier of the Corporation or its
subsidiaries; (d) does not have a personal services contract with the
Corporation or its subsidiaries; (e) is not employed by a tax-exempt
organization that receives significant contributions from the Corporation or
its subsidiaries; and (f) is not a spouse, parent, sibling, child,
parent-in-law, brother
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or sister-in-law or son or daughter-in-law of an officer of the Corporation.
The Board of Directors shall have the exclusive right and power to
interpret and apply the provisions of this Article II, including, without
limitation, the adoption of written definitions of terms used in and guidelines
for its application (any such definitions and guidelines shall be filed with
the Secretary, and such definitions and guidelines as may prevail shall be made
available to any stockholder upon written request). Any such definitions or
guidelines and any other interpretation or application of the provisions of
this Article II made in good faith shall be binding and conclusive.
ARTICLE III.
Contributions
The Board of Directors shall have the power, at any time and from time
to time, to make contributions and donations for the public welfare or for
religious, charitable, scientific or educational purposes.
ARTICLE IV.
Election and Term of
Chairman of the Board and Officers
The Board of Directors shall elect a Chairman of the Board, who may be
designated an officer of the Corporation, a President or a Chief Executive
Officer or both, such Vice Presidents as
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may from time to time be necessary or desirable, a Secretary, a Treasurer and a
Controller. There shall also be one or more assistant secretaries, treasurers
and controllers and such other officers and assistant officers as the Board may
deem appropriate. The Board of Directors shall elect and fix the compensation
of all officers, except assistant officers.
The term of office for all officers shall be until the organization
meeting of the Board of Directors following the next annual meeting of
shareholders and until their respective successors are elected or appointed and
shall qualify, or until their earlier death, resignation or removal. The
Chairman of the Board or any officer may be removed from office, either with or
without cause, at any time by the affirmative vote of the majority of the
members of the Board then in office. A vacancy in any office arising from any
cause may be filled for the unexpired term by the Board.
ARTICLE V.
Meetings of Directors
Regular meetings of the Board of Directors shall be held without notice
at such place or places either within or without the Commonwealth of
Pennsylvania, at such hour and on such day as may be fixed by resolution of the
Board of Directors.
The Board of Directors shall meet for organization at its first regular
meeting after the annual meeting of stockholders or at a special meeting of the
Board of Directors called after
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the annual meeting of stockholders and prior to said first regular meeting. If
no special meeting of the Board of Directors for organization shall be called,
all provisions of these By-laws in respect of notice of special meetings of the
Board of Directors shall apply to the first regular meeting of the Board of
Directors held after the annual meeting of stockholders.
Special meetings of the Board of Directors shall be held, whenever
called by the Chairman or by four directors or by resolution adopted by the
Board of Directors, at such place or places either within or without the
Commonwealth of Pennsylvania as may be stated in the notice of the meeting.
Written notice of the time and place of, and general nature of the
business to be transacted at, all special meetings of the Board of Directors,
and written notice of any change in the time or place of holding the regular
meetings of the Board of Directors, shall be given to each director either
personally or by mail, telegraph or any type of electronic communication at
least two days before the day of the meeting; provided, however, that notice of
any meeting need not be given to any director if waived by him in writing, or
if he shall be present at such meeting.
Except as otherwise provided in these By-laws, a majority of the
directors in office shall constitute a quorum of the Board competent to
transact business; but a lesser number may adjourn from day to day until a
quorum is present. Except as otherwise
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provided in these By-laws, all questions shall be decided by a vote of a
majority of the directors present.
All or any number less than all of the directors may participate in a
meeting of the Board of Directors or of a committee of the Board of Directors
by conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other.
Each committee referred to or provided for in these By-laws shall have
authority, except as may otherwise be required by law or by resolution of the
Board of Directors, to fix its own rules of procedure and to meet where and as
provided by such rules. The presence at any meeting of any such committee of a
majority of the members, including alternate members thereof, shall be
necessary to constitute a quorum for the transaction of business and in every
case the affirmative vote of a majority of such members present at any meeting
shall be necessary for the adoption of any resoluton of such committee. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof, including alternate members, present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of any such absent or disqualified member.
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ARTICLE VI.
Chairman of the Board
The Chairman of the Board shall preside at all meetings of the Board of
Directors at which he is present and shall call meetings of the Board and Board
Committees when he deems them necessary. Unless otherwise precluded from doing
so by these By-laws, he may be a member of the committees of the Board. He
shall act as chairman at all meetings of the shareholders at which he is
present unless he elects that the Chief Executive Officer shall so preside.
The Chairman of the Board may be designated by the Board as an officer of the
Corporation and may be elected by the Board as the Chief Executive Officer.
The Chairman of the Board shall perform all duties as may be assigned to him by
the Board of Directors.
ARTICLE VII.
President; Chief Executive Officer
The President shall have such powers and duties as may, from time to
time, be prescribed by the Board of Directors or the Chairman of the Board.
Unless the Board of Directors shall otherwise direct, the President shall be
the Chief Executive Officer of the Corporation. In the absence of the Chairman
of the Board, the President or, if none, the Chief Executive Officer shall
perform the duties and have the powers of the Chairman of the Board, as
determined by the Board of Directors.
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The Chief Executive Officer shall have general charge of the affairs of
the Corporation, subject to the control of the Board of Directors. He may
appoint all officers and employees of the Corporation for whose election no
other provision is made in these By-laws, and may discharge or remove any
officer or employee, subject to action thereon by the Board of Directors as
required by these By-laws. He shall be the officer through whom the Board
delegates authority to corporate management, and shall be responsible to see
that all orders and resolutions of the Board are carried into effect by the
proper officers or other persons. He shall also perform all duties as may be
assigned to him by the Board of Directors.
ARTICLE VIII.
Secretary
The Secretary shall attend meetings of the shareholders and the Board of
Directors, shall keep minutes thereof in suitable books, and shall send out all
notices of meetings as required by law or by these By-Laws. He shall, in
general, perform all duties incident to the office of the Secretary and perform
such other duties as may be assigned to him by the Board, the Chairman of the
Board or the President.
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ARTICLE IX.
Treasurer
The Treasurer shall have custody of, and shall manage and invest, all
moneys and securities of the Corporation, and shall have such powers and duties
as generally pertain to the office of Treasurer.
To the extent not invested, the Treasurer shall deposit all moneys in
such banks or other places of deposit as the Board of Directors may from time
to time designate or as may be designated by any officer or officers of the
Corporation so authorized by resolution of the Board of Directors. Unless
otherwise provided by the Board of Directors, all checks, drafts, notes and
other orders for the payment of money from a disbursing account shall be signed
by the Treasurer or such person or persons as may be designated by name by the
Treasurer in writing. The Treasurer's signature and, if authorized by the
Treasurer in writing, the signature of such person or persons as may be
designated by the Treasurer as provided above, to a check, draft, note or other
order for the payment of money from a disbursing account may be by facsimile or
other means. Procedures for withdrawal of moneys from accounts other than
disbursing accounts shall require the approval and signature of the Treasurer,
an assistant treasurer or such person or persons as may be designated by name
by the Treasurer in writing and also of the Controller, an assistant controller
or such person
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or persons as may be designated by name by the Controller in writing.
The Treasurer shall have such other powers and perform such other duties
as may be assigned by the Board of Directors. The Chief Financial Officer of
the Corporation shall have all of the powers granted to the Treasurer under
these by-laws, including the power to sign any check, draft, note or other
order for the payment of money from a disbursing account, including by
facsimile signature or other means.
ARTICLE X.
Controller
The Controller shall have general charge of the Accounting Department of
the Corporation and its controlled companies. He shall prescribe and supervise
a system of accounting and internal auditing that shall be adopted and followed
by the Corporation and its controlled companies. He, or some other person or
persons designated by him by name, in writing, shall prepare and certify all
vouchers and payrolls. As provided in Article IX, procedures for withdrawal of
moneys from accounts other than disbursing accounts shall require the approval
and signature of the Controller, an assistant controller or such person or
persons as may be designated by name by the Controller in writing. The
Controller shall at the close of each month present for the information of the
Board of Directors a complete
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statement of the Corporation's financial affairs and of its operations for the
preceding month and for the months elapsed since the commencement of the fiscal
year. He shall also present full statements of the properties owned and
controlled by the Corporation, under appropriate headings, as the Board of
Directors may at any time require. He shall carefully preserve and keep in his
custody in the office of the Corporation, contracts, leases, assignments and
other valuable instruments in writing. He shall be charged with the duty of
verification of all property of the Corporation and of its controlled companies
and the supervision of the taking of all inventories.
ARTICLE XI.
Assistant Secretary, Assistant Treasurer,
Assistant Controller and Other Officers
In the event of the absence or inability to serve of the Secretary, an
assistant secretary shall perform all the duties of the Secretary; in the
event of the absence or inability to serve of the Treasurer, an assistant
treasurer shall perform all the duties of the Treasurer; and in the event of
the absence or inability to serve of the Controller, an assistant controller
shall perform all the duties of the Controller.
The powers and duties of other officers of the Corporation shall be such
as may, from time to time, be prescribed by the Board of Directors, the
Chairman of the Board, the President or the Chief Executive Officer.
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In case of the absence of any officer of the Corporation, or for any
other reason that the Board of Directors may deem sufficient, the Board, or in
the absence of action by the Board, the Chief Executive Officer, or in his
absence, the President, or in his absence, the Chairman of the Board, may
delegate for the time being the powers and duties of any officer to any other
officer or to any director.
ARTICLE XII.
Corporate Seal
The Corporation shall have a corporate seal, which shall contain within
a circle the name of the Corporation, together with the following:
"Incorporated 1872".
ARTICLE XIII.
Certificates of Stock
The shares of stock of the Corporation shall be represented by
certificates of stock, signed by the President or one of the Vice Presidents or
other officer designated by the Board of Directors, countersigned by the
Treasurer or an assistant treasurer and sealed with the corporate seal of the
Corporation; and if such certificates of stock are signed or countersigned by a
corporate transfer agent or a corporate registrar of this Corporation, such
signature of the President, Vice President or other officer, such
counter-signature of the Treasurer or
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assistant treasurer, and such seal, or any of them, may be executed in
facsimile, engraved or printed.
ARTICLE XIV.
Transfers of Stock
Transfers of shares of stock of the Corporation shall be made on the
books of the Corporation by the holder of record thereof or his legal
representative, acting by his attorney-in-fact duly authorized by written power
of attorney filed with the Secretary of the Corporation, or with one of its
transfer agents, and on surrender for cancellation of the certificate or
certificates for such shares. Except as otherwise provided in these By-laws,
the person in whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof for all purposes as regards the Corporation.
The Corporation may have one or more transfer offices of agencies and
registrars for the transfer and registration of shares of stock of the
Corporation.
The Board of Directors may fix in advance a time, which shall not be
more than ninety days prior to the date of any meeting of stockholders, or the
date for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date, for the determination
of the stockholders entitled to notice of, or to vote at, any such meeting, or
entitled to receive payment of any
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such dividend or distribution, or to receive any such allotment of rights, or
to exercise the rights in respect of any such change, conversion or exchange of
shares; and in such case only stockholders of record at the time so fixed as a
record date shall be entitled to notice of, or to vote at, such meeting or to
vote at any adjournment thereof, or to receive payment of such dividend or
distribution, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of stock on the books
of the Corporation after any such record date fixed as aforesaid.
ARTICLE XV.
Fiscal Year
The fiscal year of the Corporation shall be the calendar year.
ARTICLE XVI.
Employees' Stock Purchases and Stock Option Plans
Shares of Common Stock of the Corporation may be reserved, from time to
time, by the Board of Directors for offering for sale, pursuant to one or more
plans, to employees, including assistant officers, of the Corporation and to
employees, including officers, of its subsidiaries, on an installment payment
basis, either by deductions from pay or by direct cash payments, or otherwise.
Shares so reserved may be offered for sale, from time to time, pursuant to such
plan or plans, but may
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be issued only after completion of payment therefor. Except for shares
acquired pursuant to a plan for the deferral of director fees, directors, other
than employee directors, will not be eligible to purchase shares hereunder.
The Board of Directors may determine, with respect to any plan, the
class or classes of employees eligible to participate therein, the number of
shares to be offered, the number of shares which the respective employees may
elect to purchase (which may, but need not, be fixed in proportion to their
compensation) and the price at which the shares will be offered for sale. The
price so determined by the Board (i) may be a fixed price, or (ii) may be a
price determined by the average market price of the shares for a designated
period or periods, or (iii) may be a price less than such average market price
by a fixed amount or a specified percentage thereof. In any event, the price
determined by the Board shall not be less than the par value of the shares.
Each such plan shall set forth the terms and conditions upon which an
employee may elect to purchase shares thereunder, upon which any such election
may be cancelled by the employee or terminated by the Corporation, and upon
which funds credited to the employee's account shall be refunded to him or
applied to the purchase of shares.
Subject to the foregoing, the Board of Directors may prescribe the
terms and conditions of each plan.
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Shares of Common Stock of the Corporation may also be reserved, from
time to time, by the Board of Directors for sale upon the exercise of options
granted pursuant to one or more plans to officers and other employees of the
Corporation and its subsidiaries, but not including any director who is not
also such an officer or employee. Any such plan shall be administered by a
committee consisting of three or more members of the Board of Directors who are
not eligible to receive options under the plan. The members of any such
committee shall be appointed by the Board of Directors and shall have plenary
authority to determine the individuals to whom and the time or times at which
options shall be granted; to determine the number of shares to be subject to
each option; to determine the duration of such options; to determine the
purchase price of the Common Stock under any such option, which may be less
than the fair market value of the stock at the time of the granting of the
option and which, upon the exercise of any option, shall be paid in full with
respect to the shares then purchased under such option; to determine the terms
and provisions of the respective option agreements, which need not be
identical, and which may include such terms and provisions as shall be
necessary or desirable under tax law and to make such other determinations as
shall be deemed to be necessary or advisable for the administration of such
plan. Any such plan shall contain such other terms and conditions as the Board
of Directors may prescribe.
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ARTICLE XVII.
Indemnification
A. Indemnification Provisions Applicable to Proceedings Not Covered
by Section B. of this Article.
Every person who is or was a director, officer or employee of the
Corporation, or of any other corporation which he serves or served as such at
the request of the Corporation, shall, in accordance with this Article XVII but
not if prohibited by law, be indemnified by the Corporation as hereinafter
provided against reasonable expense and any liability paid or incurred by him
in connection with or resulting from any threatened or actual claim, action,
suit or proceeding (whether brought by or in the right of the Corporation or
such other corporation or otherwise), civil, criminal administrative or
investigative, in which he may be involved, as a party or otherwise, by reason
of his being or having been a director, officer or employee of the Corporation
or such other corporation, whether or not he continues to be such at the time
such expense or liability shall have been paid or incurred.
As used in this Article XVII, the term "expense" shall mean counsel fees
and disbursements and all other expenses (except any liability) relating to any
such claim, action, suit or proceeding, and the term "liability" shall mean
amounts of judgments, fines or penalties against, and amounts paid in
settlement by, a director, officer or employee with respect to any such claim,
action, suit or proceeding.
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Any person referred to in the first paragraph of this Article XVII who
has been wholly successful, on the merits or otherwise, with respect to any
claim, action, suit or proceeding of the character described in such first
paragraph shall be reimbursed by the Corporation for his reasonable expense.
Any other person claiming indemnification under the first paragraph of
this Article XVII shall be reimbursed by the Corporation for his reasonable
expense and for any liability (other than any amount paid to the Corporation)
if a Referee shall deliver to the Corporation his written finding that such
person acted, in good faith, in what he reasonably believed to be the best
interests of the Corporation, and in addition with respect to any criminal
action or proceeding, reasonably believed that his conduct was lawful. The
termination of any claim, action, suit or proceeding by judgment, settlement
(whether with or without court approval), adverse decision or conviction after
trial or upon a plea of guilty or of nolo contendere, or its equivalent, shall
not create a presumption that a director, officer or employee did not meet the
foregoing standards of conduct. The person claiming indemnification shall at
the request of the Referee appear before him and answer questions which the
Referee deems relevant and shall be given ample opportunity to present to the
Referee evidence upon which he relies for indemnification; and the Corporation
shall, at the request of the Referee, make available to the Referee facts,
opinions or other evidence in any way relevant for his finding
-26-
<PAGE> 28
which are within the possession or control of the Corporation. As used in this
Article XVII, the term "Referee" shall mean independent legal counsel (who may
be regular counsel of the Corporation), or other disinterested person or
persons, selected to act as such hereunder by the Board of Directors of the
Corporation, whether or not a disinterested quorum exists.
Any expense incurred with respect to any claim, action, suit or
proceeding of the character described in the first paragraph of this Article
XVII may be advanced by the Corporation prior to the final disposition thereof
upon receipt of an undertaking made by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not indemnified under
this Article XVII.
The rights of indemnification provided in this Article XVII shall be in
addition to any rights to which any such director, officer or employee may
otherwise be entitled by contract or as a matter of law and, in the event of
such person's death, such rights shall extend to his heirs and legal
representatives.
B. Indemnification Provisions Applicable to Proceedings Based on
Acts or Omissions on or after January 27, 1987.
SECTION 1. Right to Indemnification and Effect of Amendments.
(a) Right to Indemnification. The Corporation, unless prohibited by
applicable law, shall indemnify any person who is or was a director or officer
of the Corporation and who is or was involved in any manner (including, without
limitation, as a
-27-
<PAGE> 29
party or a witness) or is threatened to be made so involved in any threatened,
pending or completed investigation, claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (a Proceeding) (whether or not
the indemnified liability arises or arose from any threatened, pending or
completed Proceeding by or in the right of the Corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise (including, without limitation, any employee benefit plan)
(a Covered Entity) against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such Proceeding; provided, however, that except as
provided in Section 4(c) of this Article, the foregoing shall not apply to a
director or officer of the Corporation with respect to a Proceeding that was
commenced by such director or officer. Any director or officer of the
Corporation entitled to indemnification as provided in this Section 1, is
hereinafter called an "Indemnitee". Any right of an Indemnitee to
indemnification shall be a contract right and shall include the right to
receive, prior to the conclusion of any Proceeding, payment of any expenses
incurred by the Indemnitee in connection with such Proceeding, consistent with
the provisions of
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<PAGE> 30
applicable law as then in effect and the other provisions of this Article.
(b) Effect of Amendments. Neither the alteration, amendment or
repeal of, nor the adoption of a provision inconsistent with, any provision of
this Article (including, without limitation, this Section 1(b)) shall adversely
affect the rights of any director or officer under this Article with respect to
any Proceeding commenced or threatened, or any alleged act or omission, prior
to such alteration, amendment, repeal or adoption of an inconsistent provision,
without the written consent of such director or officer.
SECTION 2. Insurance; Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any indemnified person
against any expenses, judgments, fines and amounts paid in settlement as
specified in Section 1 or Section 5 of this Article or incurred by any
indemnified person in connection with any Proceeding referred to in such
Sections, to the fullest extent permitted by applicable law as then in effect.
The Corporation may enter into contracts with any director, officer, employee
or agent of the Corporation or of any Covered Entity in furtherance of the
provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to insure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
-29-
<PAGE> 31
SECTION 3. Indemnification and Not Exclusive Right. The right of
indemnification provided in this Article shall not be exclusive of any other
rights to which any indemnified person may otherwise be entitled, and the
provisions of this Article shall inure to the benefit of the heirs and legal
representatives of any indemnified person under this Article and shall be
applicable to Proceedings arising from acts or omissions occurring on or after
January 27, 1987.
SECTION 4. Advancement of Expenses; Request for Indemnification;
Remedies; Presumptions and Defenses. In furtherance, but not in limitation of
the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article:
(a) Advancement of Expenses. All reasonable expenses incurred
by or on behalf of the Indemnitee in connection with any Proceeding (including
any Proceeding commenced by the Indemnitee under Section 4(c) but excluding any
other Proceeding commenced by the Indemnitee) shall be advanced to the
Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an
-30-
<PAGE> 32
undertaking by or on behalf of the Indemnitee to repay the amounts advanced if
it should ultimately be determined that the Indemnitee is not entitled to be
indemnified against such expenses pursuant to this Article.
(b) Request for Indemnification. To obtain indemnification
under this Article, an Indemnitee shall submit to the Secretary of the
Corporation a written request, including such documentation and information as
is reasonably available to the Indemnitee and reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification (the
Supporting Documentation).
(c) Remedies; Presumptions and Defenses. If (i) expenses
are not advanced in full within 20 days after receipt by the Corporation of the
statement or statements and the undertaking (if an undertaking is required by
law, By-law, agreement or otherwise at the time of such advance) required by
Section 4(a) of this Article, or (ii) indemnification is not paid in full
within 60 days after receipt by the Corporation of the written request for
indemnification and Supporting Documentation required by Section 4(b) of this
Article, then the person claiming advancement of expenses or indemnification
shall be entitled to seek judicial enforcement of the Corporation's obligation
to pay such advancement of expenses or indemnification. It shall be a defense
to any Proceeding seeking judicial enforcement of the Corporation's obligation
to pay indemnification that the conduct of the person claiming
-31-
<PAGE> 33
indemnification was such that under Pennsylvania law the Corporation is
prohibited from indemnifying such person for the amount claimed. The
Corporation shall have the burden of proving such defense. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel
and its stockholders) to have made a determination prior to the commencement of
such Proceeding that indemnification is proper in the circumstances, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that such indemnification is
prohibited by law, shall be a defense to a Proceeding seeking enforcement of
the provisions of this Article or create a presumption that such
indemnification is prohibited by law. The only defense to any such Proceeding
to receive payment of expenses in advance shall be failure to make an
undertaking to reimburse, if such an undertaking is required by law, By-law,
agreement or otherwise. Notwithstanding the foregoing, the Corporation may
bring an action, in an appropriate court in the Commonwealth of Pennsylvania or
any other court of competent jurisdiction, contesting the right of a person
claiming advancement of expenses or indemnification to receive such advancement
or indemnification hereunder because such advancement or indemnification is
prohibited by law; provided, however, that in any such action the Corporation
shall have the burden of proving that such advancement or indemnification is
prohibited by law.
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<PAGE> 34
The Corporation shall be precluded from asserting in any action or
Proceeding commenced pursuant to this Section 4(c) that the procedure and
presumptions of this Article are not valid, binding and enforceable and shall
stipulate in any such court that the Corporation is bound by all the provisions
of this Article.
If the person claiming advancement of expenses or indemnification,
pursuant to this Section 4(c), seeks to enforce his rights under, or to recover
damages for breach of this Article, that person shall be entitled to recover
from the Corporation, and shall be indemnified by the Corporation against, any
expenses actually and reasonably incurred by such person if such person
prevails in such Proceeding. If it shall be determined in such Proceeding that
such person is entitled to receive part but not all of the indemnification or
advancement of expenses sought, the expenses incurred by such person in
connection with such Proceeding shall be prorated accordingly.
SECTION 5. Indemnification of Employees and Agents. Notwithstanding
any other provision or provisions of this Article, the Corporation, unless
prohibited by applicable law, may indemnify any person other than a director or
officer of the Corporation who is or was an employee or agent of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed Proceeding by reason of the fact that such
person is or was a
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<PAGE> 35
director, officer, employee or agent of a Covered Entity against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding. The Corporation may also advance expenses incurred by such
employee or agent in connection with any such Proceeding, consistent with the
provisions of applicable law as then in effect.
SECTION 6. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article (including, without limitation, all portions of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article (including, without
limitation, all portions of any Section of this Article containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
-34-
<PAGE> 36
ARTICLE XVIII.
Director Liability
To the fullest extent that the law of the Commonwealth of Pennsylvania,
as it exists on January 27, 1987, or as it may thereafter be amended, permits
the elimination of the liability of directors, no director of the Corporation
shall be liable for monetary damages for any action taken, or any failure to
take any action. This Article shall not apply to any breach of performance of
duty or any failure of performance of duty by any director occurring prior to
January 27, 1987. No amendment to or repeal of this Article shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any act or failure to act on the part of
such director occurring prior to such amendment or repeal.
ARTICLE XIX.
Pennsylvania Opt Out
A. "Subsections (e) through (g) of Section 1721, "Board of
Directors," of Title 15 of the Pennsylvania Consolidated Statutes, or any
successor subsections thereto, shall not be applicable to the Corporation.
B. Subchapter G, "Control-Share Acquisitions," of Chapter 25,
Title 15 of the Pennsylvania Consolidated Statutes, or any successor subchapter
thereto, shall not be applicable to the Corporation.
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<PAGE> 37
C. Subchapter H, "Disgorgement By Certain Controlling
Shareholders Following Attempts to Acquire Control," of Chapter 25, Title 15 of
the Pennsylvania Consolidated Statutes, or any successor subchapter thereto,
shall not be applicable to the Corporation."
ARTICLE XX.
Amendments
The By-laws of the Corporation, regardless of whether adopted by the
stockholders or by the Board of Directors, may be altered, amended or repealed
by the Board of Directors, to the extent permitted by applicable law, or,
subject to the third paragraph of Article I hereof, by the stockholders. Such
action at a meeting of the Board of Directors shall be taken by the affirmative
vote of a majority of the members of the Board of Directors in office at the
time; and such action by the stockholders shall be taken by the affirmative
vote of the holders of 80% of the shares of capital stock of the Corporation
entitled to vote thereon.
These By-laws are subject to any requirements of law, any provisions
of the Articles of the Corporation, as from time to time amended, and any terms
of any series of preferred stock or any other securities of the Corporation.
-36-
<PAGE> 38
ARTICLE XXI.
Confidentiality in Voting
Stockholders shall be provided permanent confidentiality in all
voting, except as necessary to meet applicable legal requirements. The
Corporation shall engage the services of an independent third party to receive,
inspect, count and tabulate proxies. A representative of the independent third
party shall also act as a judge of election at the annual meeting of
stockholders.
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<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article I Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 1
Article II Board of Directors - Committees - Their Powers and Duties . . . . . . . . 7
Article III Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Article IV Election and Term of Chairman of the Board and Officers . . . . . . . . . 11
Article V Meetings of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article VI Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article VII President; Chief Executive Officer . . . . . . . . . . . . . . . . . . . 15
Article VIII Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article IX Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Article X Controller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article XI Assistant Secretary, Assistant Treasurer, Assistant Controller
and Other Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Article XII Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Article XIII Certificates of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Article XIV Transfers of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Article XV Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Article XVI Employees' Stock Purchases and Stock Option Plans . . . . . . . . . . . 22
Article XVII Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Article XVIII Director Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Article XIX Pennsylvania Opt Out . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Article XX Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Article XXI Confidentiality in Voting . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
-i-
<PAGE> 1
EXHIBIT 11
<TABLE>
EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<CAPTION>
Nine Months Ended September 30
------------------------------
1994 1993
---- ----
<S> <C> <C>
EQUIVALENT SHARES:
Average shares outstanding 354,051,146 348,735,036
Additional shares due to:
Stock options 3,816,456 3,458,852
Series C preferred shares 21,948,387 -
----------- -----------
Total equivalent shares 379,815,989 352,193,888
=========== ===========
ADJUSTED EARNINGS (in millions):
Net income from Continuing Operations $ 184 $ 208
Less: Series B preferred stock dividends 38 38
----------- -----------
Adjusted net income from Continuing Operations 146 170
Cumulative effect of change in accounting principle - (56)
----------- -----------
Adjusted net income after cumulative
effect of change in accounting principle $ 146 $ 114
=========== ===========
EARNINGS (LOSS) PER SHARE:
From Continuing Operations $ 0.38 $ 0.48
From cumulative effect of change
in accounting principle - (0.16)
----------- -----------
Earnings per share $ 0.38 $ 0.32
=========== ===========
</TABLE>
-32-
<PAGE> 1
EXHIBIT 12(a)
<TABLE>
EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions) (unaudited)
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) before income taxes
and minority interest $ 307 $ 332 $(236)
Less: Equity in income (loss) of 50 percent
or less owned affiliates (2) (6) (7)
Add: Fixed charges excluding capitalized interest 161 184 253
----- ----- -----
Earnings as adjusted $ 470 $ 522 $ 24
===== ===== =====
Fixed charges:
Interest expense $ 135 $ 157 $ 217
Rental expense 26 27 36
Capitalized interest - 2 3
----- ----- -----
Total fixed charges $ 161 $ 186 $ 256
===== ===== =====
Ratio of earnings to fixed charges 2.92x 2.81x (b)
===== ===== =====
<FN>
(b) Additional income before income taxes and minority interest of $232
million would be necessary to attain a ratio of earnings to fixed charges
of 1.00x for the year ended December 31, 1993.
</TABLE>
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<PAGE> 1
EXHIBIT 12(b)
<TABLE>
EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
($ in millions) (unaudited)
<CAPTION>
Nine Months Ended Year Ended
September 30 December 31
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Income (loss) before income taxes
and minority interest $ 307 $ 332 $(236)
Less: Equity in income (loss) of 50 percent
or less owned affiliates (2) (6) (7)
Add: Fixed charges excluding capitalized interest 260 241 325
----- ----- -----
Earnings as adjusted $ 569 $ 579 $ 96
===== ===== =====
Combined fixed charges and preferred dividends:
Interest expense $ 135 $ 157 $ 217
Rental expense 26 27 36
Capitalized interest - 2 3
Pre-tax earnings required to cover
preferred dividend requirements (a) 99 57 72
----- ----- -----
Total combined fixed charges and preferred dividends $ 260 $ 243 $ 328
===== ===== =====
Ratio of earnings to combined fixed charges
and preferred dividends 2.19x 2.38x (c)
===== ===== =====
<FN>
(a) Dividend requirement divided by 100% minus effective income tax rate.
(c) Additional income before income taxes and minority interest of $232
million would be necessary to attain a ratio of earnings to combined fixed
charges and preferred dividends of 1.00x for the year ended December 31,
1993.
</TABLE>
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 315
<SECURITIES> 0
<RECEIVABLES> 1,404
<ALLOWANCES> 55
<INVENTORY> 1,777
<CURRENT-ASSETS> 4,824
<PP&E> 4,324
<DEPRECIATION> 2,430
<TOTAL-ASSETS> 10,501
<CURRENT-LIABILITIES> 3,268
<BONDS> 1,883
<COMMON> 393
12
0
<OTHER-SE> 1,224
<TOTAL-LIABILITY-AND-EQUITY> 10,501
<SALES> 6,080
<TOTAL-REVENUES> 6,080
<CGS> 4,425
<TOTAL-COSTS> 4,425
<OTHER-EXPENSES> 1,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 307
<INCOME-TAX> 117
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
