<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
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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
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
--------------------------------------------------------------------
(Address of principal executive offices, zip code)
(412) 244-2000
--------------
(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 358,007,780 shares outstanding at March 31, 1995
-------------------------------------------------------------
<PAGE> 2
WESTINGHOUSE ELECTRIC CORPORATION
INDEX
---------------------------------
<TABLE>
<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 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 14-25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26-27
Item 6. Exhibits and Reports on Form 8-K 27-28
SIGNATURE 29
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
(in millions except per share amounts) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Sales of products and services $ 2,024 $ 1,743
Costs of products and services (1,530) (1,349)
Marketing, administration and general expenses (407) (329)
Other income and expenses, net (note 2) (2) 39
Interest expense (58) (47)
------- -------
Income from Continuing Operations before
income taxes and minority interest in income
of consolidated subsidiaries 27 57
Income taxes (10) (22)
Minority interest in (income) loss of consolidated
subsidiaries (2) 1
------- -------
Net income $ 15 $ 36
======= =======
Earnings per common share $ 0.01 $ 0.07
======= =======
Cash dividends per common share $ 0.05 $ 0.05
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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<PAGE> 4
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in millions)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
ASSETS -------------- -----------------
- ------ (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 291 $ 338
Customer receivables 1,462 1,553
Inventories (note 3) 1,516 1,541
Uncompleted contracts costs over related billings 738 555
Deferred income taxes 543 524
Prepaid and other current assets 267 209
------- -------
Total current assets 4,817 4,720
Plant and equipment, net 1,768 1,898
Intangible and other noncurrent assets (note 4) 3,561 3,572
Net assets of Discontinued Operations (note 6) 434 434
------- -------
Total assets $10,580 $10,624
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Revolving credit borrowings and
other short-term debt $ 814 $ 662
Current maturities of long-term debt 17 17
Accounts payable 704 831
Uncompleted contracts billings over related costs 471 473
Other current liabilities (note 5) 1,668 1,726
------- -------
Total current liabilities 3,674 3,709
Long-term debt 1,884 1,886
Other noncurrent liabilities (note 5) 3,208 3,207
------- -------
Total liabilities 8,766 8,802
------- -------
Contingent liabilities and commitments (note 7)
Minority interest in equity of consolidated
subsidiaries 33 30
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 4
Common stock, $1.00 par value (480 million
shares authorized, 393 million shares issued) 393 393
Capital in excess of par value 1,924 1,932
Common stock held in treasury (845) (870)
Other (1,001) (1,000)
Retained earnings 1,298 1,325
------- -------
Total shareholders' equity 1,781 1,792
------- -------
Total liabilities and shareholders' equity $10,580 $10,624
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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<PAGE> 5
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Cash used by operating activities
of Continuing Operations $ (112) $ (168)
Cash used by operating activities
of Discontinued Operations (25) (75)
Cash flows from investing activities:
Business divestitures 6 50
Business acquisitions (22) -
Liquidation of assets of Discontinued Operations 97 1,505
Capital expenditures (38) (35)
Other - (1)
------- -------
Cash provided by investing activities 43 1,519
------- -------
Cash flows from financing activities:
Bank revolver borrowings 175 -
Bank revolver repayments (117) (2,155)
Net change in other short-term debt 15 10
Repayments of long-term debt (5) (9)
Sale of equity securities - 505
Treasury stock reissued 17 17
Dividends paid (42) (30)
Other - 14
------- -------
Cash provided (used) by financing activities 43 (1,648)
------- -------
Decrease in cash and cash equivalents (51) (372)
Cash and cash equivalents at beginning of period 344 1,248
------- -------
Cash and cash equivalents at end of period $ 293 $ 876
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid -- Continuing Operations $ 47 $ 44
======= =======
Interest paid -- Discontinued Operations $ 22 $ 53
======= =======
Income taxes paid $ 29 $ 58
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements
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<PAGE> 6
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, 1994. Certain amounts pertaining to the three months ended March
31, 1994 and year ended December 31, 1994 have been reclassified for
comparative purposes.
2. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Net gain (loss) on disposition of assets $ (7) $ 35
Miscellaneous other income and expenses, net 5 4
---- ----
Other income (expenses), net $ (2) $ 39
==== ====
</TABLE>
The net gain on disposition of assets for the three months ended March 31, 1994
includes a gain of $32 million from the sale of two Sacramento radio stations.
3. INVENTORIES (in millions)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
<S> <C> <C>
Raw materials $ 169 $ 158
Work in process 1,093 1,065
Finished goods 139 156
------- -------
1,401 1,379
Long-term contracts in process 943 877
Progress payments to subcontractors 95 97
Recoverable engineering and development costs 484 437
Less: Inventoried costs related to contracts
with progress billing terms (1,407) (1,249)
------- -------
Inventories $ 1,516 $ 1,541
======= =======
</TABLE>
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<PAGE> 7
4. INTANGIBLE AND OTHER NONCURRENT ASSETS (in millions)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
<S> <C> <C>
Deferred income taxes $ 1,520 $ 1,516
Goodwill and other intangible assets 1,023 1,119
Intangible pension asset 114 114
Undeveloped land 250 244
Joint ventures, affiliates, and other 189 100
Noncurrent receivables 127 147
Other 338 332
--------- ---------
Total intangible and other noncurrent assets $ 3,561 $ 3,572
========= =========
</TABLE>
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
<S> <C> <C>
Other current liabilities:
- -------------------------
Accrued employee compensation $ 178 $ 198
Income taxes currently payable 200 241
Accrued product warranty 79 82
Accrued taxes, interest and insurance 320 270
Accrued restructuring costs 154 180
Liability for business dispositions 110 112
Other 627 643
--------- ---------
Total other current liabilities $ 1,668 $ 1,726
========= =========
Other noncurrent liabilities:
- ----------------------------
Postretirement and postemployment benefits $ 1,270 $ 1,265
Pension liability 1,248 1,174
Accrued restructuring costs 8 8
Liability for business dispositions 75 75
Other 607 685
--------- ---------
Total other noncurrent liabilities $ 3,208 $ 3,207
========= =========
</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.
-7-
<PAGE> 8
OPERATING RESULTS OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
(in millions) (unaudited)
Three Months Ended March 31
---------------------------
1995 1994*
<S> <C> <C>
Sales of Products and Services ---- ----
- ------------------------------
Financial Services $ 8 $ 14
DCBU and WESCO - 319
----- -----
Sales of Products and Services $ 8 $ 333
===== =====
Net Earnings (Losses)
- ---------------------
Financial Services $ (18) $ (69)
DCBU and WESCO - 4
----- -----
Net Losses $ (18) $ (65)
===== =====
</TABLE>
*Operating results of Discontinued Operations for DCBU and WESCO for the three
months ended March 31, 1994 included the operating results of DCBU for the one
month ended January 31, 1994 and the operating results of WESCO for the two
months ended February 28, 1994, their respective dates of sale.
The assets and liabilities of Discontinued Operations have been separately
classified in the Condensed Consolidated Balance Sheet as net assets of
Discontinued Operations. A summary of these assets and liabilities follows:
NET ASSETS OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
(in millions) March 31, 1995 December 31, 1994*
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2 $ 6
Portfolio investments 1,140 1,230
Deferred income taxes 385 340
Other assets 186 221
------ ------
Total assets -- Discontinued Operations 1,713 1,797
------ ------
LIABILITIES:
Revolving credit facilities borrowings 298 374
Current maturities of long-term debt 299 230
Liability for estimated loss on disposal 112 145
Long-term debt 493 568
Other liabilities 77 46
------ ------
Total liabilities -- Discontinued Operations 1,279 1,363
------ ------
Net assets of Discontinued Operations $ 434 $ 434
====== ======
</TABLE>
*Certain amounts have been reclassified for comparative purposes.
-8-
<PAGE> 9
PORTFOLIO INVESTMENTS
Portfolio investments by category of investment and financing at March 31, 1995
and December 31, 1994 are summarized in the following table.
<TABLE>
<CAPTION>
At March 31, 1995
---------------------------------------
Real
(in millions) (unaudited) Leasing Estate Corporate Total
------- ------ --------- -----
<S> <C> <C> <C> <C>
Receivables $ 879 $ 17 $ 3 $ 899
Other portfolio investments 38 202 1 241
------ ------ ------ ------
Portfolio investments $ 917 $ 219 $ 4 $1,140
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1994
---------------------------------------
Real
(in millions) Leasing Estate Corporate Total
------- ------ --------- -----
<S> <C> <C> <C> <C>
Receivables $ 886 $ 18 $ 9 $ 913
Other portfolio investments 38 279 - 317
------ ------ ------ ------
Portfolio investments $ 924 $ 297 $ 9 $1,230
====== ====== ====== ======
</TABLE>
Other portfolio investments at March 31, 1995 and December 31, 1994 included
the Corporation's investment in LW Real Estate Investments, L.P. (LW) of $47
million and $133 million respectively, real estate properties of $86 million
and $88 million, respectively, and other investments of $108 million and $96
million, respectively, primarily consisting of investments in real estate and
leasing partnerships. The remaining portfolio investments, other than the
leasing assets, are expected to be substantially liquidated by the end of 1995.
The leasing portfolio is expected to liquidate through 2015 in accordance with
contractual terms.
Non-earning receivables at March 31, 1995 and December 31, 1994 totalled $25
million and $30 million, respectively. There were no reduced earning
receivables at either date.
Leasing receivables consist of direct financing and leveraged leases. At March
31, 1995 and December 31, 1994, 80% and 81%, respectively, related to air-
craft and 19% and 18%, respectively, related to cogeneration facilities.
Certain leasing receivables classified as performing and totalling $137 million
at March 31, 1995 have been identified by management as potential problem
receivables. This amount consists primarily of leveraged leases related to
aircraft leased by major U.S. airlines. Such leasing receivables were current
as to payments and performing in accordance with contractual terms at March 31,
1995.
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL
The following table is a reconciliation of the liability for the estimated loss
on disposal of Discontinued Operations from December 31, 1994 to March 31,
1995:
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<PAGE> 10
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
(in millions)(unaudited)
<TABLE>
<CAPTION>
Financial DCBU & Restruc-
Services WESCO turing Total
--------- ------ -------- --------
<S> <C> <C> <C> <C>
December 31, 1994 $ 80 $ 60 $ 5 $ 145
Year-to-date activity (24) (9) - (33)
--------- ------ -------- --------
March 31, 1995 $ 56 $ 51 $ 5 $ 112
========= ====== ======== ========
</TABLE>
Management believes that the liability for the estimated loss on disposal of
Discontinued Operations is adequate. Any variances from estimates which may
occur for one Plan component will be considered in conjunction with those for
other components in determining whether an adjustment of the total liability is
necessary. The adequacy of this liability is evaluated each quarter.
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 reserve
balance at March 31, 1995 is deemed adequate considering all facts and
circumstances known to management. The future obligations require providing
the remainder of the fuel deliveries running through 2013 and the supply of
equipment and services through approximately 1995. Variances from estimates
which may occur are considered in determining if an adjustment of the liability
is necessary.
Litigation
- ----------
Philippines
In December 1988, a 15-count lawsuit was filed against the Corporation alleging
bribery and other fraudulent conduct in connection with the construction of a
nuclear power plant in the Philippines. Of the 15 claims, 14 were stayed
pending arbitration before the International Chamber of Commerce (ICC). With
respect to the remaining count alleging bribery, a jury verdict was rendered in
favor of the Corporation on May 18, 1993 and was appealed by the Republic of
the Philippines on March 24, 1995. A similar finding was made by the ICC in
1991. Arbitration proceedings before the ICC on issues relating to the
construction of the plant were concluded in October 1994, and the parties await
a decision.
Steam Generators
The Corporation has been defending various lawsuits brought by utilities
claiming a substantial amount of damages in connection with alleged tube
degradation in steam generators sold by the Corporation as components of
nuclear steam supply systems. Settlement agreements have been entered
resolving six litigation claims. These agreements generally involve providing
certain products and services at prices discounted at varying rates. Two cases
were resolved in favor of the Corporation after trial or arbitration, although
an appeal has been filed in one of the cases. Four lawsuits are pending.
-10-
<PAGE> 11
The Corporation is also a party to six tolling agreements with utilities or
utility plant owners' groups. The tolling agreements delay initiation of any
litigation for various specified periods of time and permit the parties time to
engage in discussions.
Securities Class Actions - Financial Services
The Corporation is defending derivative and class action lawsuits alleging
federal securities law and common law violations arising out of purported
misstatements or omissions contained in the Corporation's public filings
concerning the financial condition of the Corporation and certain of its former
subsidiaries in connection with charges to earnings of $975 million in 1990 and
$1,680 million in 1991 and a public offering of Westinghouse common stock in
1991. The court dismissed both the derivative claim and the class action
claims in their entirety. These dismissals have been appealed.
Litigation is inherently uncertain and always difficult to predict.
Substantial 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 that
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.
PRP Sites
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named as a potentially responsible party (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
minimis. However, the Corporation may have varying degrees of cleanup
responsibilities at 54 sites. 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 that the Corporation's
total remaining probable costs for remediation of these sites as of March 31,
1995 are approximately $82 million, all of which has been accrued.
Bloomington Sites
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.
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<PAGE> 12
On February 8, 1994, the Consent Decree parties filed with the court a status
report advising of the parties' intention to investigate alternatives. The
Corporation believes it is probable that the Consent Decree will be modified to
an alternate remedial action, which could include a combination of containment,
treatment, remediation and monitoring. As a result, the Corporation estimates
that its cost to implement the most reasonable and likely alternative would
total approximately $70 million for the eight sites, all of which has been
accrued. Approximately $18 million of this estimate represents the present
value, assuming a 5% discount rate, of operating and maintenance costs which
will be incurred over an approximate 30-year period. The remaining portion of
the $70 million estimate represents site construction and other related costs
and is valued as of the year of expenditure. Other alternatives, while
considered less likely, could cause such costs to be as much as $125 million.
The Corporation has received approval from the Environmental Protection Agency
(EPA) to begin removal of materials from one of the additional sites not part
of the Consent Decree to a commercial landfill. The Corporation anticipates
this removal of materials to commence in the second quarter of 1995. The
Corporation has requested approval from the EPA for removal of materials from
the second site.
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.
Other
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 material 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 consistent with contract reform.
The Corporation has or will have responsibilities for environmental closure
activities, such as dismantling incinerators or decommissioning nuclear
licensed sites. The Corporation has estimated the total potential cost to be
incurred for these actions to be approximately $97 million, of which $29
million had been accrued at March 31, 1995. The Corporation's policy is to
accrue these costs over the estimated life of the individual facilities, which
in most cases is approximately 20 years. The anticipated annual costs
currently being accrued are $5 million.
As part of the agreement for the sales of certain of its businesses or sites,
the Corporation has agreed to assume obligations for remediation as a result of
contamination caused during the Corporation's operation of the sites. The
Corporation has provided for all known environmental liabilities related to
these agreements.
Management believes that the Corporation has adequately provided for its
present environmental obligations and that complying with existing government
regulations will not materially impact the Corporation's financial position,
liquidity or results of operations.
-12-
<PAGE> 13
Insurance Recoveries
- --------------------
The Corporation has filed actions against over 100 of its insurance carriers
seeking recovery for environmental, product and property damage liabilities,
and certain other matters. The Corporation has settled with several of these
carriers and has received recoveries related to these actions. Amounts
received to date generally have been applied to cover obligations assumed
through the settlements or litigation costs. The Corporation has not accrued
for any future insurance recoveries.
Financing Commitments -- Continuing Operations
- ----------------------------------------------
WCI Communities, Inc. (WCI) was contingently liable at March 31, 1995 under
guarantees for $56 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.
In the ordinary course of business, standby letters of credit are issued by
commercial banks on behalf of the Corporation related to performance
obligations primarily under contracts with customers.
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 1995 through 2002.
At March 31, 1995, Financial Services commitments totalled $79 million compared
to $80 million at year-end 1994. Of this amount, $70 million were guarantees,
credit enhancements and other standby agreements, and $9 million were
commitments to extend credit. Of the $80 million of commitments at year-end
1994, $71 million were guarantees, credit enhancements and other standby
agreements and $9 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.
8. SHAREHOLDERS' EQUITY
In March 1994, the Corporation issued 36,000,000 depositary shares each
representing ownership of one-tenth of a share of the Corporation's Series C
Conversion Preferred Stock (Series C Preferred). Each depositary share will
automatically convert into one share of common stock on June 1, 1997 unless
called on May 30, 1997 by the Corporation or redeemed at any time prior to June
1 by the holder. In accordance with prevalent practice at the time of
issuance, these shares were treated as outstanding common stock for the
calculation of earnings per share. If the Series C Preferred had been treated
as common stock equivalents for the calculation of earnings per share, the
Corporation's results would have been a loss of $.03 per share for the first
quarter of 1995 compared to income of $.07 per share for the first quarter of
1994.
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<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Orders in the first quarter of 1995 totalled $2.4 billion. Compared to the
same quarter last year, orders increased 17 percent led by Power Generation and
Electronic Systems. Backlog increased almost $900 million to $10.7 billion.
Revenues for the quarter increased $281 million, or 16 percent, to $2.0
billion, led by Electronic Systems, Thermo King and Power Generation.
Operating profit for the quarter increased $22 million to $87 million compared
to $65 million for the first quarter of last year. The increase in operating
profit was more than offset by a substantial decrease in other income and
higher interest expense.
Net income for the first quarter of 1995 was $15 million, or 1 cent per share,
compared to net income of $36 million, or 7 cents per share, for the same
period last year.
During 1995, the Corporation will continue the divestitures of its
non-strategic businesses as well as explore strategic opportunities to expand
and grow its core businesses. The Corporation is evaluating alternative
strategies for monetizing WCI in the near term. Alternatives include divesting
the business, leveraging its assets, and other strategies.
RESTRUCTURING ACTIONS
The Corporation is committed to strengthening its core businesses and improving
its profitability through certain restructuring actions including changes in
business and product line strategies, as well as downsizing for process
reengineering and productivity improvements.
Progress continued on implementation of the Corporation's restructuring
programs initiated in 1993 and 1994. These programs included the involuntary
separation of approximately 4,600 employees by the end of 1995. During the
first quarter of 1995, 300 employees were involuntarily separated, bringing the
program-to-date separations to approximately 4,000. The remaining employees to
be separated generally have been notified and are expected to be separated
within the next several months.
Expected costs for these programs totalled $463 million, consisting of $276
million for employee separation costs, $22 million for a noncash pension
curtailment charge, $100 million for asset writedowns, and $65 million for
facility closure and rationalization costs. Through March 31, 1995,
expenditures totalled $301 million. Approximately half of the remaining
expenditures represent employee separation costs, which generally are paid over
a period of up to two years following separation. A portion of the other
remaining expenditures relates to a major product line that Knoll will
discontinue in June 1995.
Savings resulting from implementing these programs are expected to total $170
million annually, primarily related to reduced employment costs. During the
first quarter of 1995, actual savings approximated $35 million. Competitive
pressures causing price compression in certain of the Corporation's markets
have absorbed a significant portion of these savings.
The Corporation expects to continue to identify restructuring initiatives as
competitive conditions dictate in an ongoing effort to reduce its overall cost
structure and improve its competitiveness.
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<PAGE> 15
RESULTS OF OPERATIONS
The following represents the segment results of the Corporation's Continuing
Operations for the three months ended March 31, 1995 and 1994.
Segment Results ($ in millions)(unaudited)
------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994 % Change
---- ---- --------
<S> <C> <C> <C>
Broadcasting:
Orders $ 202.2 $ 190.5 6.1%
Backlog - - -
Sales 202.2 190.5 6.1%
Operating Profit (Loss) 35.0 33.7 3.9%
Operating Profit Margin 17.3% 17.7% N/A
Depreciation &
Amortization (D&A) 9.7 9.2 5.4%
Capital Expenditures 3.1 5.4 -42.6%
Electronic Systems:
Orders $ 553.0 $ 386.9 42.9%
Backlog 3,811.0 3,773.8 1.0%
Sales 607.4 449.9 35.0%
Operating Profit (Loss) 36.7 39.4 -6.9%
Operating Profit Margin 6.0% 8.8% N/A
D&A 21.7 18.6 16.7%
Capital Expenditures 6.0 7.2 -16.7%
Government and
Environmental Services:
Orders $ 61.6 $ 67.6 -8.9%
Backlog 121.6 86.3 40.9%
Sales 85.9 83.8 2.5%
Operating Profit (Loss) 12.2 10.0 22.0%
Operating Profit Margin 14.2% 11.9% N/A
D&A 4.9 5.6 -12.5%
Capital Expenditures 6.0 1.4 328.6%
Thermo King:
Orders $ 312.3 $ 248.0 25.9%
Backlog 316.4 223.2 41.8%
Sales 273.3 186.8 46.3%
Operating Profit (Loss) 42.9 26.8 60.1%
Operating Profit Margin 15.7% 14.3% N/A
D&A 4.1 3.7 10.8%
Capital Expenditures 5.6 3.8 47.4%
Energy Systems:
Orders $ 377.1 $ 368.3 2.4%
Backlog 2,782.2 2,682.1 3.7%
Sales 251.5 236.0 6.6%
Operating Profit (Loss) (12.4) (8.3) -49.4%
Operating Profit Margin -4.9% -3.5% N/A
D&A 13.2 13.6 -2.9%
Capital Expenditures 5.0 7.2 -30.6%
</TABLE>
-15-
<PAGE> 16
Segment Results ($ in millions)(unaudited)(continued)
-----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994 % Change
---- ---- --------
<S> <C> <C> <C>
Power Generation:
Orders $ 579.1 $ 463.2 25.0%
Backlog 2,938.7 2,185.5 34.5%
Sales 322.4 291.6 10.6%
Operating Profit (Loss) (33.0) (25.9) -27.4%
Operating Profit Margin -10.2% -8.9% N/A
D&A 11.2 11.9 -5.9%
Capital Expenditures 4.2 7.8 -46.2%
Knoll:
Orders $ 140.6 $ 117.3 19.9%
Backlog 87.6 104.3 -16.0%
Sales 147.5 117.5 25.5%
Operating Profit (Loss) 6.4 (15.0) 142.7%
Operating Profit Margin 4.3% -12.8% N/A
D&A 6.9 7.3 -5.5%
Capital Expenditures 2.2 1.2 83.3%
WCI:
Orders $ 57.0 $ 56.2 1.4%
Backlog - - -
Sales 57.0 56.2 1.4%
Operating Profit (Loss) 11.9 12.9 -7.8%
Operating Profit Margin 20.9% 23.0% N/A
D&A 0.4 0.4 0.0%
Capital Expenditures 0.7 0.2 250.0%
Other Businesses:
Orders $ 89.7 $ 128.3 -30.1%
Backlog 647.9 758.9 -14.6%
Sales 100.8 130.5 -22.8%
Operating Profit (Loss) (4.4) (13.1) N/A%
Operating Profit Margin -4.4% -10.0% N/A
D&A 2.8 3.5 -20.0%
Capital Expenditures 1.2 0.7 71.4%
Corporate and Other:
Orders $ 25.6 $ 25.4 0.8%
Backlog 70.4 73.7 -4.5%
Sales 22.2 34.5 -35.7%
Operating Profit (Loss) (8.0) 4.9 N/A
Operating Profit Margin -36.0% 14.2% N/A
D&A 5.4 7.7 -29.9%
Capital Expenditures 3.9 0.2 N/A
Intersegment:
Orders $ (42.0) $ (38.0) -10.5%
Backlog (40.4) (33.4) -21.0%
Sales (46.5) (34.6) -34.4%
Total - Continuing Operations:
Orders $ 2,356.2 $2,013.7 17.0%
Backlog 10,735.4 9,854.4 8.9%
Sales 2,023.7 1,742.7 16.1%
Operating Profit (Loss) 87.3 65.4 33.5%
Operating Profit Margin 4.3% 3.7% N/A
D&A 80.3 81.5 -1.5%
Capital Expenditures 37.9 35.1 8.0%
</TABLE>
-16-
<PAGE> 17
Broadcasting
Broadcasting sales and operating profit were up $12 million and $1 million,
respectively, in the first quarter of 1995 compared to the same period last
year. Higher television and radio advertising revenues, coupled with
productivity improvements from cost reduction programs, generated the increased
Broadcasting revenues and profits during the first quarter of 1995. Increased
costs for two new television programs under development by the production
company partially offset the higher radio and television results. Group W
Satellite Communications also showed a slight increase in revenues and
operating profit despite the negative impact of the national baseball strike on
the quarter.
Electronic Systems
Orders for the first quarter of 1995 were up $166 million over the same quarter
of 1994. A submarine propulsion system and a classified space project were two
significant orders in the quarter. Backlog at March 31, 1995 reached $3.8
billion, up slightly from the first quarter of 1994, and included approximately
$196 million for Norden Systems, the unit acquired from United Technologies
Corporation in May 1994.
The Corporation's Norden acquisition coupled with increased revenues from air
traffic control and anti-submarine warfare contracts contributed to an increase
in revenues of $158 million for the first quarter of 1995 compared to the same
quarter last year. Despite the higher revenues, operating profit for the first
quarter of 1995 declined $3 million because of lower margins from an
unfavorable product mix and a lower level of contract claims in 1995. Savings
from restructuring initiatives partially offset these unfavorable factors.
Government and Environmental Services
Orders were down slightly for the quarter primarily due to a decrease in
material orders for the U.S. Navy. Backlog was $35 million higher at March 31,
1995 compared to the prior year due to the buildup of container orders in late
1994, several government remediation contracts, and a large material order for
the U.S. Navy.
The early completion of milestones at a Department of Energy site caused
revenues and operating profit to increase for the first quarter of 1995
compared to the same period in 1994.
A Westinghouse subsidiary is a key member of the Kaiser-Hill Company team,
which recently won the five-year contract to clean up the Department of
Energy's Rocky Flats plant near Denver.
Thermo King
Thermo King posted another strong quarter. Orders rose $64 million and backlog
increased $93 million reflecting the improving truck and trailer market in
Europe and the continued strength of the truck and trailer market for North
America.
Revenues increased $87 million for the quarter due to these market
improvements. In addition, sea-going container sales nearly doubled in the
quarter. The volume increases and the product cost improvement programs
increased operating profit $16 million, or 60 percent, for the quarter.
-17-
<PAGE> 18
Energy Systems
Orders and backlog showed slight gains in the first quarter of 1995 compared to
the same quarter of 1994. Backlog at March 31, 1995 reached $2.8 billion.
Revenues for the quarter increased $16 million, or 7 percent. Increased
service revenues from planned power plant outages were partially offset by
decreased licensee income and additional price discounts from previous
settlement agreements.
The operating loss for the first quarter of 1995 increased by $4 million
compared to the same quarter last year. Margins from increased service
revenues from power plant outages and cost savings from restructuring
initiatives were more than offset by the unfavorable effects of the reduced
licensee income and increased discounts.
Power Generation
Equipment orders for China led the $116 million increase in orders for the
quarter. Power Generation's backlog of $2.9 billion was up $753 million, or 35
percent, compared to the same period last year. International orders represent
approximately one-third of the total backlog at March 31, 1995.
Higher field service sales, partially offset by lower factory service sales,
drove revenues up $31 million in the first quarter of 1995 compared to the same
period last year. Although revenues improved, the operating loss for the
quarter increased $7 million. Higher margins from field service sales were
more than offset by lower price realization on new apparatus and reduced
margins related to factory service. Cost savings from restructuring
initiatives partially offset the price compression and lower margins. In
addition, the start of revenue recognition on large, long-cycle orders booked
in the second half of 1994 was awaiting the completion of financial closings.
Knoll
Knoll's new products and expanded sales force have complemented the continued
strength of the North American market and an improved European market. Orders
increased $23 million for the first quarter of 1995 compared to the same
quarter last year. Backlog decreased $17 million compared to March 31, 1994
due to several large project orders that were completed during 1994.
Revenues increased $30 million for the first quarter of 1995 compared to the
same quarter last year due to the strength in the North American and European
markets.
The increased volume in North America and Europe and aggressive cost reduction
programs begun in 1994 resulted in an operating profit increase of $21 million
for the first quarter of 1995 compared to the same period of 1994.
The strong orders, revenues, and improvements in operating profit are
continuing signs of the turnaround Knoll began late last year.
WCI
Revenues were up $1 million and operating profit was down $1 million for the
first quarter of 1995 compared to the same period in 1994. An unfavorable mix
of sales caused the slight decrease in operating profit for the quarter.
Alternative strategies for monetizing WCI are currently being evaluated.
Other Businesses
The sale of Controlmatic in May 1994 and Gladwin in December 1994 caused
revenues for the first quarter of 1995 to decline $30 million compared to the
same period in 1994. The operating loss for the same period improved about $9
million, primarily due to the Controlmatic divestiture.
-18-
<PAGE> 19
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. The
portfolio investments of Financial Services have decreased from $8,967 million
at year-end 1992, to $1,140 million at March 31, 1995, a decrease of $7,827
million. The Corporation completed the sales of DCBU and WESCO during the
first quarter of 1994.
The liability for the estimated loss on the disposal of Discontinued Operations
was established in November 1992. In the fourth quarter of 1993, the
Corporation recorded an additional provision for loss based on changes in
various estimates.
A summary of the changes in the liability for the estimated loss on the
disposal of Discontinued Operations during the first quarter are presented in
the following table:
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
(in millions)(unaudited)
<TABLE>
<CAPTION>
Financial DCBU & Restruc-
Services WESCO turing Total
--------- ------ -------- --------
<S> <C> <C> <C> <C>
December 31, 1994 $ 80 $ 60 $ 5 $ 145
Year-to-date activity (24) (9) - (33)
--------- ------ -------- --------
March 31, 1995 $ 56 $ 51 $ 5 $ 112
========= ====== ======== ========
</TABLE>
A summary of changes in net debt of Discontinued Operations for the first
quarter of 1995 is presented in the table below:
CHANGES IN NET DEBT OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
<TABLE>
<S> <C>
Net Debt at December 31, 1994 $ 1,166
Liquidations of Discontinued Operations assets (97)
Cash used in operating activities of Discontinued Operations 25
Net cash received from Continuing Operations (6)
-------
Net Debt at March 31, 1995 $ 1,088
=======
</TABLE>
Of the remaining $1.1 billion of net debt of Discontinued Operations at March
31, 1995, approximately $675 million is expected to be repaid during the
remainder of 1995. Approximately $200 million is expected to be repaid through
the liquidation of portfolio investments of Financial Services. The remaining
1995 debt repayment of $475 million will occur as cash is received from
Continuing Operations, the timing of which is expected to coincide with sales
of non-strategic businesses and the monetization of WCI. The Corporation
expects to reduce the debt of Discontinued Operations to that amount which is
supportable by the leasing portfolio and can be repaid as that portfolio
liquidates over its contractual terms. As a result, additional cash may be
required from Continuing Operations.
-19-
<PAGE> 20
DISPOSITION OF NON-STRATEGIC BUSINESSES
During the fourth quarter of 1993, the Corporation identified certain
businesses as non-strategic and provided for the cost of their disposition.
Non-strategic businesses generally included parts of the former Environmental
Services business unit and all of the businesses in the Industrial Products and
Services business unit. During 1994, the Corporation completed the sales of
Controlmatic and Gladwin Corporation. On March 31, 1995, the sale of Aptus,
Inc., an environmental services subsidiary, was completed. On April 12, 1995,
the Corporation completed the transfer of its 75 percent equity interest in the
Westinghouse Motor Company to TECO Electric & Machinery Co., Ltd. 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 first quarter of 1995 is summarized below:
LIABILITY FOR DISPOSITION OF NON-STRATEGIC BUSINESSES
(in millions)(unaudited)
<TABLE>
<S> <C>
Balance at December 31, 1994 $187
Additional provision 7
Disposal of businesses (9)
------
Balance at March 31, 1995 $185
======
</TABLE>
OTHER INCOME AND EXPENSES
Other income and expenses represented a net expense of $2 million for the first
quarter of 1995 compared to income of $39 million for the first quarter of
1994. The 1994 period included gains on dispositions of assets, principally
two Sacramento radio stations.
INTEREST EXPENSE
Interest expense for the first quarter of 1995 was $11 million higher than the
same period of 1994 primarily related to short-term borrowings. For Continuing
Operations, average borrowings under the revolving credit facilities for the
first quarter of 1995 increased over $200 million compared to average
borrowings for the first quarter of 1994. This increase reflected the fourth
quarter 1994 transfer of debt to Continuing Operations from Discontinued
Operations. Average interest rates for short-term borrowings also increased
significantly over the prior-year quarter.
By December 31, 1995, the Corporation expects to reduce the debt of Continuing
Operations by up to $300 million compared to year-end 1994 debt levels.
INCOME TAXES
The Corporation's effective income tax rate for the first quarter of both 1995
and 1994 was 38%. This rate is consistent with management's expectations for
the year.
At March 31, 1995, the Corporation had recorded net deferred income tax
benefits totalling $2,448 million compared to $2,380 million at December 31,
1994. Management believes that the Corporation will have sufficient future
taxable income to make it more likely than not that the net deferred tax asset
will be realized.
-20-
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Corporation manages its liquidity as a consolidated enterprise without
regard to whether assets or debt are classified for balance sheet purposes as
part of Continuing Operations or Discontinued Operations. As a result, the
discussion below focuses on the Corporation's consolidated cash flows and
capital structure.
The Corporation seeks to ensure that it has adequate resources for reinvestment
in its core businesses and for strategic acquisitions. Based on its ongoing
review of the Corporation's capital structure and associated interest costs,
management believes that the Corporation's operating and financial flexibility
will benefit from lower leverage.
During 1994, the Corporation took several actions to reduce its leverage and
rebuild its capital structure. As a result, net debt (total debt less cash and
cash equivalents) was reduced by $1.7 billion. The Corporation intends to
continue to reduce its consolidated net debt by up to an additional $1 billion
in 1995. This reduction will be achieved principally by the sale of portfolio
investments of Discontinued Operations, the disposition of other non-strategic
businesses of Continuing Operations, and the monetization of WCI.
Management expects that cash from Continuing Operations and availability under
its revolving credit facilities will continue to be sufficient to meet future
business needs. Other sources of liquidity generally available to the
Corporation include cash and cash equivalents, proceeds from sales of
non-strategic assets and borrowings from other sources, including funds from
the capital markets.
Operating Activities
The following table provides a reconciliation of net income to cash provided by
operating activities of Continuing Operations for the three months ended March
31, 1995 and 1994:
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
(in millions) (unaudited) 1995 1994
---- ----
<S> <C> <C>
Net income from Continuing Operations $ 15 $ 36
Noncash items included in income:
Depreciation and amortization 80 81
Losses (gains) on asset dispositions 7 (35)
Change in assets and liabilities, net of effects
of acquisitions and divestitures of businesses:
Receivables, current and noncurrent 99 112
Inventories 24 (113)
Progress payments net of costs on uncompleted
contracts (185) (56)
Accounts payable (124) (74)
Accrued taxes, interest and insurance 50 (23)
Deferred and current income taxes (55) (43)
Accrued restructuring costs (23) (29)
Other assets and liabilities - (24)
------ ------
Cash used by operating activities
of Continuing Operations $ (112) $ (168)
====== ======
</TABLE>
-21-
<PAGE> 22
The operating activities of Continuing Operations used $112 million of cash
during the first three months of 1995, an improvement of $56 million from the
amount used in the first three months of 1994. The use of cash during both
periods was primarily attributable to higher working capital requirements
related to uncompleted contracts with progress billing terms. Customers
continue to delay payments under major contracts for as long as possible. The
Corporation is focusing significant effort in 1995 on reducing long-term
contract and inventory investments in an overall effort to improve working
capital turnover.
Savings from the Corporation's restructuring activities are expected to
essentially offset related cash expenditures in 1995.
Management expects to contribute approximately $300 million in cash to the
Corporation's pension plans in 1995 which is consistent with 1994 cash
contribution levels. No contributions were made in the first quarter of either
year.
The operating activities of Discontinued Operations used $25 million of cash
during the first three months of 1995 compared to cash used of $75 million for
the same period of 1994. The decrease in operating cash requirements during
the first quarter of 1995 was primarily attributable to lower interest expense
resulting from lower levels of outstanding debt, as well as lower divestiture
costs for DCBU and WESCO. The future operating cash requirements of
Discontinued Operations are primarily attributable to interest costs on debt,
operating costs and disposition costs related to DCBU and WESCO.
Investing Activities
Investing activities provided $43 million of cash during the first three months
of 1995 compared to $1,519 million of cash provided during the same period of
1994. In the first quarter of 1995, the Corporation completed the sale of
Aptus, Inc., an environmental services subsidiary. The majority of the
proceeds for Aptus consisted of notes. Also, during the quarter, approximately
$22 million was paid in connection with the 1994 acquisition of Norden Systems.
During the first quarter of 1994, the Corporation sold its DCBU and WESCO
businesses as well as two Sacramento radio stations generating cash proceeds of
$1.4 billion and $50 million, respectively. Liquidations of Financial Services
portfolio investments generated $97 million in the first three months of 1995
compared to cash generated of $147 million for the same period of 1994.
Capital expenditures were $38 million for the first three months of 1995, an
increase of $3 million from the same period of 1994. Capital spending in 1995
is expected to approximate the 1994 level.
During the remainder of 1995, the Corporation expects to generate approximately
$200 million of cash through the continued liquidation of portfolio investments
of Discontinued Operations. In addition, sales of non-strategic businesses and
the monetization of WCI are expected to generate cash proceeds to the
Corporation.
Financing Activities
Cash provided by financing activities during the first three months of 1995
totalled $43 million compared to cash used of $1,648 million during the first
three months of 1994.
Net debt of the Corporation increased $119 million at March 31, 1995 to $3,512
million from $3,393 million at December 31, 1994, primarily reflecting
increased borrowings under the revolving credit facilities. Total debt of the
Corporation was $3,805 million at March 31, 1995, an increase of $68 million
from $3,737 million at December 31, 1994. Debt reductions of $750 million to
$1 billion are expected in 1995.
-22-
<PAGE> 23
Two new revolving credit agreements with more favorable terms and conditions
than the previous facility were executed in August 1994 (see Revolving Credit
Facilities). Total borrowings under the revolvers were $977 million at March
31, 1995. These borrowings carried a composite interest rate of 6.7% at March
31, 1995 and were based on the London Interbank Offer Rate (LIBOR).
In March 1994, the Corporation sold in a private placement depositary shares
representing 3,600,000 shares of Series C preferred stock for net proceeds of
$505 million. These shares will convert to 36,000,000 common shares in June
1997.
Dividends paid in the 1995 first quarter included approximately $12 million for
dividends for the Series C preferred stock issued in March 1994 and $13 million
for the Series B preferred shares. The remainder represented common stock
dividends of 5 cents per share for both quarters.
The Corporation's net debt increased from 65% of consolidated net
capitalization to 66% at March 31, 1995. As net debt begins to decline during
the remainder of 1995 and equity grows through consistent earnings of
Continuing Operations, this percentage is expected to improve.
On August 26, 1992, the Corporation filed a registration statement on Form S-3
for the issuance of up to $1 billion of debt securities. At March 31, 1995,
$400 million of this shelf registration remained unused.
Revolving Credit Facilities
On August 5, 1994, the Corporation replaced its December 1991 revolver with two
revolving credit agreements (revolvers). These facilities have a combined
commitment level of $2.5 billion, with $2.0 billion maturing on August 4, 1997
(three-year revolver) and $500 million maturing on August 4, 1995 (364-day
revolver). Borrowings under the revolvers are used for general corporate
purposes, including the repayment of maturing long-term debt. The interest
rates for borrowings under the revolvers are determined at the time of each
borrowing and are based on one of a variety of floating rate indices plus a
margin based on the Corporation's long-term debt ratings.
Unused capacity under the revolvers equalled $1,523 million at March 31, 1995.
Borrowing availability is subject to compliance with certain covenants,
representations and warranties. At March 31, 1995, the Corporation was in
compliance with these covenants.
Hedging Activities
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 or leveraged. Given their nature, these agreements have been
accounted for as hedging transactions. A summary of notional amounts
outstanding at March 31, 1995 is presented in the table below:
INTEREST RATE AND CURRENCY EXCHANGE AGREEMENTS NOTIONAL AMOUNTS OUTSTANDING
(in millions)(unaudited)
<TABLE>
<CAPTION>
Short-Term Long-Term
At March 31, 1995 Debt Debt Total
---------- --------- -----
<S> <C> <C> <C>
Continuing Operations $ 240 $ - $ 240
Discontinued Operations 25 374 399
----- ----- -----
Notional amounts $ 265 $ 374 $ 639
===== ===== =====
</TABLE>
The average remaining maturity of interest rate and currency exchange
agreements was 1.26 years at March 31, 1995.
-23-
<PAGE> 24
Of the total notional amount outstanding at March 31, 1995, $390 million
relates to interest rate swaps with rate and maturity characteristics set forth
in the table below:
CONTRACTUAL MATURITIES OF INTEREST RATE SWAPS (in millions)(unaudited)
<TABLE>
<CAPTION>
Twelve months ended March 31, Total 1996 1997 1998 1999 2000
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Fixed rate swaps (pay fixed):
Notional amount $240 $ 80 $ 55 $ 25 $ 25 $ 55
Wtd. avg. fixed rate paid 8.82% 8.88% 8.74% 8.87% 8.59% 8.87%
Floating rate swaps (pay floating):
Notional amount $150 $150 - - - -
Wtd. avg. fixed rate received 8.74% 8.74% - - - -
</TABLE>
Under the majority of the swap agreements, the floating rate received or paid
is based on the average 30-day commercial paper rate for the relevant period.
This rate was 6.1% on March 31, 1995. The floating rate received or paid on
the remaining agreements is based on six month LIBOR and is set on dates
specified in the agreements. This rate was 6.5% on March 31, 1995.
The remaining $249 million notional amount outstanding at March 31, 1995
consists of a $25 million forward interest rate swap agreement, which is
exercisable at the option of a counterparty, a $150 million interest rate floor
agreement and a $74 million interest rate and currency swap.
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 March 31, 1995, the aggregate
credit exposure to counterparties totalled approximately $95 million. This
exposure resulted primarily from an interest rate and currency swap with a
counterparty rated A+. The contract matures in February 1996.
In the first quarter of 1995, outstanding interest rate exchange agreements
resulted in a net increase in the average borrowing rate for Continuing
Operations of approximately 0.3% and a net decrease for Discontinued Operations
of 0.1%. These agreements resulted in a net increase in interest expense of
Continuing Operations of approximately $2 million and a net decrease in
interest expense of Discontinued Operations of approximately $.4 million.
The Corporation continually monitors its economic exposure to changes in
foreign exchange rates and enters into foreign exchange forward or option
contracts to hedge its transaction exposure when appropriate. As a result, the
Corporation's unhedged foreign exchange exposure is not significant.
Furthermore, changes in foreign exchange rates whether favorable or unfavorable
are not expected to have a significant impact on the Corporation's financial
results or operating activities.
With respect to the Corporation's operations in highly inflationary and
unstable economies that are accounted for in accordance with SFAS No. 52,
"Foreign Currency Translation," the combined total sales for those operations
were less than 0.5% of the Corporation's sales for the first three months of
1995. 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.
-24-
<PAGE> 25
OTHER MATTERS
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. See note 7 to the financial
statements.
At March 31, 1995, the Corporation had accrued liabilities totalling $82
million for sites where it has been either named a potentially responsible
party (PRP) or has other remedial responsibilities, $70 million for the
Bloomington sites and $29 million for decommissioning costs at facilities where
the Corporation has ongoing operations. In conjunction with the sales of
certain of its businesses, the Corporation has also provided for remediation
costs related to past operations of such sites.
Management believes that the Corporation has adequately provided for its
present environmental obligations and that complying with existing government
regulations will not materially impact the Corporation's financial position,
liquidity or results of operations.
Legal Matters
The Corporation is defending a number of lawsuits on various matters. See note
7 to the financial statements. Costs to defend these lawsuits are charged to
operations in the period in which the services are rendered.
In the last two years, the Corporation has entered into agreements to resolve
six litigation claims in connection with alleged tube degradation in steam
generators sold by the Corporation as components for nuclear steam supply
systems. These agreements generally involve providing certain products and
services at prices discounted at varying rates. The future impact of these
discounts on operating results will be incurred over the next 15 years with the
greatest impact occurring during the next nine years.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in certain of these cases and although
management believes a significant adverse judgment is unlikely, any such
judgments 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 that
the Corporation has meritorious defenses to the litigation referenced in note
7, and management believes that the litigation should not have a material
adverse effect on the financial condition of the Corporation.
Insurance Recoveries
The Corporation has filed actions against more than 100 of its insurance
carriers seeking recovery for environmental, product and property damage
liabilities, and certain other matters. The Corporation has settled with
several of these carriers and has received recoveries related to these actions.
Amounts received to date generally have been applied to cover obligations
assumed through the settlements or litigation costs. The Corporation has not
accrued for any future insurance recoveries.
-25-
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) On December 1, 1988, the Republic of the Philippines (Republic) and
National Power Corporation (NPC) filed a 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 a contract between NPC and
Westinghouse for 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. The complaint alleges, among other things,
bribery and other fraudulent conduct, tortious interference 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
statues, including the Federal Racketeer Influenced and Corrupt Organization
Act (RICO) statue. This action seeks recision 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.
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 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 costs against NPC.
Arbitration before the ICC was concluded in October 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 claims. 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. On February 27, 1995, the USDC granted the Republic's
motion for leave to appeal the verdict and on March 24, 1995, the verdict was
appealed.
(b) The Corporation has been defending consolidated class and derivative
actions and an individual lawsuit brought by shareholders of the Corporation
against the Corporation, Westinghouse Financial Services, Inc. (WFSI) and
Westinghouse Credit Corporation (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. The consolidated class and derivative actions are
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<PAGE> 27
pending in the USDC for the Western District of Pennsylvania. In July 1993,
the court dismissed in its entirety the derivative claim and dismissed most of
the class action claims, with leave to replead certain claims in both actions.
Both actions were subsequently replead. On September 27, 1994, the court
denied plaintiffs' motion for reinstatement of certain of the dismissed class
action claims against the Corporation. On January 20, 1995, the court again
dismissed the derivative complaint in its entirety with prejudice. On February
8, 1995, plaintiff appealed the dismissal of these claims. Also on January 20,
1995, the court dismissed the class action claims, but granted plaintiffs the
right to replead certain of the class action claims. Plaintiffs did not
replead the claims and on February 28, 1995, the court dismissed the class
action claims in their entirety. The plaintiffs appealed the dismissal on
March 7, 1995 to the United States Court of Appeals for the Third Circuit.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in the foregoing matters 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 that 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of the Corporation are incorporated herein by
reference to Exhibit 3(b) to Form 10-Q for the quarter ended
March 31, 1994.
(b) The Bylaws of the Corporation, as amended January 25, 1995, are
incorporated herein by reference to Exhibit 3(c) to Form 10-K
for the year ended December 31, 1994.
(4) RIGHTS OF SECURITY HOLDERS
Except as set forth below, there are no instruments with respect
to long-term debt of the Corporation that involve securities
authorized thereunder exceeding 10% of the total assets of the
Corporation and its subsidiaries on a consolidated basis. 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
subsidiaries.
(a) 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, as amended.
(c*) The 1984 Long-Term Incentive Plan, as amended, is incorporated
herein
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by reference to Exhibit 10(b) to Form 10-Q for the quarter ended
June 30, 1993.
(d*) The Westinghouse Executive Pension Plan, as amended, is
incorporated herein by reference to Exhibit 10(d) to Form 10-K for
the year ended December 31, 1994.
(e*) The Deferred Compensation and Stock Plan for Directors, as
amended.
(f*) 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.
(g) The Director's Charitable Giving Program is incorporated herein by
reference to Exhibit 10(g) to Form 10-K for the year ended
December 31, 1994.
(h*) The 1991 Long-Term Incentive Plan, as amended, is incorporated
herein by reference to Exhibit 10(h) to Form 10-K for the year
ended December 31, 1994.
(i*) Employment Agreement between the Corporation and Michael H. Jordan
is hereby incorporated by reference to Exhibit 10 to the
Corporation's Form 8-K, dated September 1, 1993.
(j*) Employment Agreement between the Corporation and Fredric G.
Reynolds is incorporated herein by reference to Exhibit 10(j) to
Form 10-K for the year ended December 31, 1994.
(k) 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.
(l) 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.
* Identifies management contract or compensatory plan or arrangement.
(11) Computation of Per Share Earnings
(12)(a) Computation of Ratio of Earnings to Fixed Charges
(12)(b) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K (Items 5 and 7) dated March 2, 1995 to
report the Corporation's contract awards and anticipated 1995
financial performance.
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<PAGE> 29
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 28th day of April, 1995.
WESTINGHOUSE ELECTRIC CORPORATION
Fredric G. Reynolds
---------------------------
Executive Vice President and
Chief Financial Officer
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<PAGE> 1
Exhibit 10(b)
1993 LONG-TERM INCENTIVE PLAN
ARTICLE I
GENERAL
1.1 Purpose
-------
The purposes of the 1993 Long-Term Incentive Plan ("Plan") for key management
personnel of Westinghouse Electric Corporation ("Corporation") and its
Subsidiaries (the Corporation and its Subsidiaries severally and collectively
referred to in the Plan as the "Company") are to foster and promote the
long-term financial success of the Company and materially increase stockholder
value by (i) attracting and retaining key management personnel of outstanding
ability, (ii) strengthening the Company's capability to develop, maintain and
direct a competent management team, (iii) motivating key management personnel,
by means of performance-related incentives, to achieve long-range performance
goals, (iv) providing incentive compensation opportunities competitive with
those of other major companies and (v) enabling key management personnel to
participate in the long-term growth and financial success of the Company.
1.2 Administration
--------------
(a) The Plan shall be administered by a committee of the Board of Directors of
the Corporation ("Committee") which shall consist of three or more members.
Each member shall be a "disinterested person," as that term is defined by Rule
16b-3 promulgated under
- 1 -
<PAGE> 2
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director," as that term is defined by Section 162(m) of the Internal
Revenue Code of 1986, as amended. The members shall be appointed by the Board
of Directors, and any vacancy on the Committee shall be filled by the Board of
Directors.
The Committee shall keep minutes of its meetings and of any action taken
by it without a meeting. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present shall be the acts of the Committee. Any action
that may be taken at a meeting of the Committee may be taken without a
meeting if a consent or consents in writing setting forth the action so
taken shall be signed by all of the members of the Committee. The
Committee shall make appropriate reports to the Board of Directors
concerning the operations of the Plan.
(b) Subject to the limitations of the Plan, the Committee shall have the sole
and complete authority: (i) to select in accordance with Section 1.3 persons
who shall participate in the Plan ("Participant" or "Participants"), (ii) to
make Awards and payments in such forms and amounts as it shall determine, (iii)
to impose such limitations, restrictions and conditions upon such Awards as it
shall deem appropriate, (iv) to interpret the Plan and the terms of any
document relating to the Plan and to adopt, amend and rescind administrative
guidelines and other rules and
- 2 -
<PAGE> 3
regulations relating to the Plan, (v) to amend or cancel an existing Award in
whole or in part, except that the Committee may not, unless otherwise provided
in the Plan, or unless the Participant affected thereby consents, take any
action under this clause that would adversely affect the rights of such
Participant with respect to the Award and except that the Committee may not
take any action to amend any outstanding Option under the Plan in order to
decrease the Option Price under such Option or to cancel and replace any such
Option with an Option with a lower Option Price unless such action is approved
by the common stockholders of the Corporation and (vi) to make all other
determinations and to take all other actions necessary or advisable for the
interpretation, implementation and administration of the Plan. The Committee's
determinations on matters within its authority shall be conclusive and binding
upon the company and all other persons.
(c) The Committee shall act with respect to the Plan on behalf of the
Corporation and on behalf of any subsidiary issuing stock under the Plan,
subject to appropriate action by the board of directors of any such Subsidiary.
All expenses associated with the Plan shall be borne by the Corporation subject
to such allocation to its Subsidiaries and operating units as it deems
appropriate.
- 3 -
<PAGE> 4
1.3 Selection for Participation
---------------------------
Participants selected by the Committee shall be Eligible Persons (as
defined below) who occupy key management positions and have the capacity to
contribute to the success of the Company. "Eligible Persons" are persons who
are regular, full-time salaried employees of the Company exempt from the
minimum wage and overtime provisions of the Fair Labor Standards Act of 1938,
as amended ("Employee" or "Employees"). In addition, Participants selected by
the Committee for Awards of options, SARs or Limited Rights under Article II
or III of the Plan shall be elected officers of the Corporation or business unit
general managers or shall hold comparable-level positions. In making this
selection and in determining the form and amount of Awards, the Committee may
give consideration to the functions and responsibilities of the Eligible
Person, his or her past, present and potential contributions to the Company and
other factors deemed relevant by the Committee.
1.4 Types of Awards under Plan
--------------------------
Awards ("Awards") under the Plan may be in the form of any one or more of
the following: (i) Incentive Stock Options ("ISOs") and Non-statutory Stock
options ("NSOs") (Incentive Stock Options and Non-statutory Stock Options
severally and collectively referred to in the Plan as "Options"), as described
in Article II, (ii) Stock Appreciation Rights ("SARs") and Limited Stock
Appreciation Rights ("Limited Rights"), as
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<PAGE> 5
described in Article III, (iii) Performance Awards ("Performance Awards") as
described in Article IV, and (iv) Restricted Stock ("Restricted Stock") as
described in Article V.
1.5 Shares Subject to the Plan
--------------------------
Shares of stock issued under the Plan may be in whole or in part authorized
and unissued or treasury shares of the Corporation's common stock, par value
$1.00 ("Common Stock"), or "Formula Value Stock" as defined in Section 8.12(d)
(Common Stock and Formula Value Stock severally and collectively referred to in
the Plan as "Stock").
The maximum number of shares of Stock which may be issued for all purposes
under the Plan shall be 4,000,000 increased on January 1 of each calendar year
from and including 1994 to and including 2003 by a number of shares equal to
one percent (1%) of the number of shares of Stock outstanding on December 31 of
the preceding year. The maximum number of such shares which may be issued
pursuant to the exercise of ISOs shall be 1,000,000 increased on January 1 of
each calendar year from and including 1994 to and including 2003 by 1,000,000
shares. The maximum number of shares subject to options to purchase Stock,
SARs and Limited Rights under the Plan awarded to any one Participant may not
exceed one percent (1%) of the number of shares of Stock outstanding at the
time of option, SAR or Limited Rights grant.
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<PAGE> 6
Except as otherwise provided below, any shares of Stock subject to an
Option or other Award which is canceled or terminates without having been
exercised shall again be available for Awards under the Plan. Shares subject
to an option canceled upon the exercise of an SAR shall not again be available
for Awards under the Plan except to the extent the SAR is settled in cash. To
the extent that an Award is settled in cash, shares of Stock subject to that
Award shall again be available for Awards. Shares of Stock tendered by a
Participant or withheld by the Company to pay the exercise price of an Option
or to satisfy the tax withholding obligations of the exercise or vesting of an
Award shall be available again for Awards under the Plan, but only to persons
who are not required to file reports ("nonreporting Persons") pursuant to
Section 16(a) under the Exchange Act. Shares of Restricted Stock forfeited to
the Company in accordance with the Plan and the terms of the particular Award
shall be available again for Awards under the Plan unless the Participant has
received the benefits of ownership (within the applicable interpretation under
Rule 16b-3 under the Exchange Act), in which case such shares may only be
available for Awards to nonreporting Persons.
No fractional shares shall be issued, and the Committee shall determine the
manner in which fractional share value shall be treated.
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<PAGE> 7
ARTICLE II
STOCK OPTIONS
2.1 Award of Stock Options
----------------------
The Committee may, from time to time, subject to the provisions of the Plan
and such other terms and conditions as the Committee may prescribe, award to
any Participant ISOs and NSOs to purchase Stock.
The Committee may provide with respect to any option to purchase Stock
that, if the Participant, while an Eligible Person, exercises the option in
whole or in part using already-owned Stock, the Participant will, subject to
this Section 2.1 and such other terms and conditions as may be imposed by the
Committee, receive an additional option ("Reload Option"). The Reload Option
will be to purchase, at Fair Market Value as of the date the original option
was exercised, a number of shares of Stock equal to the number of whole shares
used by the Participant to exercise the original option. The Reload Option
will be exercisable only between the date of its grant and the date of
expiration of the original option.
A Reload Option shall be subject to such additional terms and conditions as
the Committee shall approve, which terms may provide that the Committee may
cancel the Participant's right to receive the Reload Option and that the Reload
Option will be
- 7 -
<PAGE> 8
granted only if the Committee has not canceled such right prior to the exercise
of the original option. Such terms may also provide that, upon the exercise by
a Participant of a Reload Option while an Eligible Person, an additional Reload
Option will be granted with respect to the number of whole shares used to
exercise the first Reload Option.
2.2 Stock Option Agreements
-----------------------
The award of an option shall be evidenced by a signed written agreement
("Stock Option Agreement") containing such terms and conditions as the
Committee may from time to time determine.
2.3 Option Price
------------
The purchase price of Stock under each Option ("Option Price") shall be not
less than the Fair Market Value of such Stock on the date the Option is
awarded.
2.4 Exercise and Term of Options
----------------------------
(a) Except as otherwise provided in the Plan, Options shall become exercisable
at such time or times as the Committee may specify. The Committee may at any
time and from time to time accelerate the time at which all or any part of the
Option may be exercised.
(b) The Committee shall establish procedures governing the
- 8 -
<PAGE> 9
exercise of options and shall require that written notice of exercise be given.
Stock purchased on exercise of an option must be paid for as follows: (1) in
cash or by check (acceptable to the Company in accordance with guidelines
established for this purpose), bank draft or money order payable to the order
of the Company or (2) if so provided by the Committee (not later than the time
of grant, in the case of an ISO) (i) through the delivery of shares of Stock
which are then outstanding and which have a Fair Market Value on the last
business day preceding the date of exercise equal to the exercise price, (ii)
by delivery of an unconditional and irrevocable undertaking by a broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
(iii) by any combination of the permissible forms of payment.
2.5 Termination of Eligibility
--------------------------
In the event the Participant is no longer an Eligible Person and ceased
to be such as a result of termination of service to the Company with the
consent of the Committee or as a result of his or her death, retirement or
disability, each of his or her outstanding Options shall be exercisable by the
Participant (or his or her legal representative or designated beneficiary), to
the extent that such Option was then exercisable, at any time prior to an
expiration date established by the Committee at the time of award, but in no
event after such expiration date. If the Participant ceases to be an Eligible
Person for any other
- 9 -
<PAGE> 10
reason, all of the Participant's then outstanding Options shall terminate
immediately.
ARTICLE III
STOCK APPRECIATION RIGHTS AND LIMITED RIGHTS
3.1 Award of Stock Appreciation Right
---------------------------------
(a) An SAR is an Award entitling the recipient on exercise to receive an
amount, in cash or Stock or a combination thereof (such form to be determined
by the Committee), determined in whole or in part by reference to appreciation
in Stock value.
(b) In general, an SAR entitles the Participant to receive, with respect to
each share of Stock as to which the SAR is exercised, the excess of the share's
Fair Market Value on the date of exercise over its Fair Market Value on the
date the SAR was granted.
(c) SARs may be granted in tandem with options granted under the Plan ("Tandem
SARS") or independently of Options ("Independent SARs"). An SAR granted in
tandem with an NSO may be granted either at or after the time the option is
granted. An SAR granted in tandem with an ISO may be granted only at the time
the option is granted.
(d) SARs awarded under the Plan shall be evidenced by either a
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<PAGE> 11
Stock Option Agreement (when SARs are granted in tandem with an Option) or a
separate agreement between the Company and the Participant.
(e) Except as otherwise provided herein, a Tandem SAR shall be exercisable
only at the same time and to the same extent and subject to the same conditions
as the option related thereto is exercisable, and the Committee may prescribe
additional conditions and limitations on the exercise of the SAR. The exercise
of a Tandem SAR shall cancel the related Option. Tandem SARs may be exercised
only when the Fair Market Value of Stock to which it relates exceeds the Option
Price.
(f) Except as otherwise provided herein, an Independent SAR will become
exercisable at such time or times, and on such conditions, as the Committee may
specify, and the Committee may at any time accelerate the time at which all or
any part of the SAR may be exercised.
The Committee may provide, under such terms and conditions as it may deem
appropriate, for the automatic grant of additional SARs upon the full or
partial exercise of an Independent SAR.
Any exercise of an Independent SAR must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by any other
documents required by the Committee.
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<PAGE> 12
(g) Except as otherwise provided herein, all SARs shall automatically be
exercised on the last trading day prior to the expiration date established by
the Committee at the time of the award for the SAR, or, in the case of a Tandem
SAR, for the related Option, so long as exercise on such date will result in a
payment to the Participant.
(h) Unless otherwise provided by the Committee, no SAR shall become
exercisable or shall be automatically exercised for six months following the
date on which it was granted or the effective date of the Plan, whichever is
later.
(i) At the time of award of an SAR, the Committee may limit the amount of the
payment that may be made to a Participant upon the exercise of the SAR. The
Committee may further determine that, if the amount to be received by a
Participant in any year is limited pursuant to this provision, payment of all
or a portion of the amount that is unpaid as a result of the limitation may be
made to the Participant at a subsequent time. No such limitation shall require
a Participant to return to the Company any amount theretofore received by him
or her upon the exercise of an SAR.
(j) Payment of the amount to which a Participant is entitled upon the exercise
of an SAR shall be made in cash, Stock, or
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<PAGE> 13
partly in cash and partly in Stock, as the Committee shall determine. To the
extent that payment is made in Stock, the shares shall be valued at their Fair
Market Value on the date of exercise of the SAR.
(k) Each SAR shall expire on a date determined by the Committee or earlier
upon the occurrence of the first of the following: (i) in the case of a Tandem
SAR, termination of the related option, (ii) expiration of a period of six
months after the Participant's ceasing to be an Eligible Person as a result of
termination of service to the Company with the consent of the Committee or as a
result of his or her death, retirement or disability, or (iii) the Participant
ceasing to be an Eligible Person for any other reason.
3.2 Limited Rights
--------------
(a) The Committee may award Limited Rights pursuant to the provisions of this
Section 3.2 to the holder of an Option to purchase Common Stock granted under
the Plan (a "Related Option") with respect to all or a portion of the shares
subject to the Related Option. A Limited Right may be exercised only during
the period beginning on the first day following a Change in Control, as defined
in Section 7.2 of the Plan, and ending on the thirtieth day following such
date. Each Limited Right shall be exercisable only to the same extent that the
Related Option is
- 13 -
<PAGE> 14
exercisable, and in no event after the termination of the Related Option. In
no event shall a Limited Right be exercised during the first six months after
the date of grant of the Limited Right or the effective date of the Plan,
whichever is later. Limited Rights shall be exercisable only when the Fair
Market Value (determined as of the date of exercise of the Limited Rights) of
each share of Common Stock with respect to which the Limited Rights are to be
exercised shall exceed the Option Price per share of Common Stock subject to
the Related option.
(b) Upon the exercise of Limited Rights, the Related Option shall be
considered to have been exercised to the extent of the number of shares of
Common Stock with respect to which such Limited Rights are exercised. Upon the
exercise or termination of the Related Option, the Limited Rights with respect
to such Related Option shall be considered to have been exercised or terminated
to the extent of the number of shares of Common Stock with respect to which the
Related Option was so exercised or terminated.
(c) The effective date of the grant of a Limited Right shall be the date on
which the Committee approves the grant of such Limited Right. Each grantee of
a Limited Right shall be notified promptly of the grant of the Limited Right in
such manner as the Committee shall prescribe.
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<PAGE> 15
(d) Upon the exercise of Limited Rights, the holder thereof shall receive in
cash an amount equal to the product computed by multiplying (i) the excess of
(a) the higher of (x) the Minimum Price Per Share (as hereinafter defined), or
(y) the highest reported closing sales price of a share of Common Stock on the
New York Stock Exchange at any time during the period beginning on the sixtieth
day prior to the date on which such Limited Rights are exercised and ending on
the date on which such Limited Rights are exercised, over (b) the Option Price
per share of Common Stock subject to the Related Option, by (ii) the number of
shares of Common Stock with respect to which such Limited Rights are being
exercised.
(e) For purposes of this Section 3.2, the term "Minimum Price Per Share" shall
mean the highest gross price (before brokerage commissions and soliciting
dealers' fees) paid or to be paid for a share of Common Stock (whether by way
of exchange, conversion, distribution upon liquidation or otherwise) in any
Change in Control which is in effect at any time during the period beginning on
the sixtieth day prior to the date on which such Limited Rights are exercised
and ending on the date on which such Limited Rights are exercised. For
purposes of this definition, if the consideration paid or to be paid in any
such Change in Control shall consist, in whole or in part, of consideration
other than cash, the Board shall take such action, as in its judgement it deems
appropriate, to establish the cash value of such consideration.
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<PAGE> 16
ARTICLE IV
PERFORMANCE AWARDS
4.1 Nature of Performance Awards
----------------------------
A Performance Award provides for the recipient to receive an amount in cash
or Stock or a combination thereof (such form to be determined by the Committee)
following the attainment of Performance Goals. Performance Goals may be
related to personal performance, corporate performance (including corporate
stock performance), departmental performance or any other category of
performance deemed by the Committee to be important to the success of the
Company. The Committee shall determine the Performance Goals, the period or
periods during which performance is to be measured and all other terms and
conditions applicable to the Award. Regardless of the degree to which
Performance Goals are attained, a Performance Award shall be paid only when, if
and to the extent that the Committee determines to make such payment.
4.2 Other Awards Subject to Performance Condition
---------------------------------------------
The Committee may, at the time any Award described in this Plan is granted,
impose the condition (in addition to any conditions specified or authorized in
the Plan) that Performance Goals be met prior to the Participant's realization
of any payment or benefit under the Award.
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<PAGE> 17
ARTICLE V
RESTRICTED STOCK
5.1 Award of Restricted Stock
The Committee may award to any Participant shares of Stock subject to this
Article V and such other terms and conditions as the Committee may prescribe,
such Stock referred to herein as "Restricted Stock."
Each certificate for Restricted Stock shall be registered in the name of
the Participant and deposited by him or her, together with a stock power
endorsed in blank, with the Corporation.
5.2 Restricted Stock Agreement
--------------------------
Shares of Restricted Stock awarded under the Plan shall be evidenced by a
signed written agreement containing such terms and conditions as the Committee
may determine.
5.3 Restriction Period
------------------
At the time of award, there shall be established for each Participant a
"Restriction Period" of such length as shall be determined by the Committee.
The Restriction Period may be waived by the Committee. Shares of Restricted
Stock may not be sold, assigned, transferred, pledged or otherwise encumbered,
- 17 -
<PAGE> 18
except as hereinafter provided, during the Restriction Period. Subject to such
restriction on transfer, the Participant as owner of such shares of Restricted
Stock shall have the rights of the holder of such Restricted Stock, except that
the Committee may provide at the time of the Award that any dividends or other
distributions paid on such Stock during the Restriction Period shall be
accumulated and held by the Company and shall be subject to forfeiture under
Section 5.4.
Upon the expiration or waiver by the Committee of the Restriction Period,
the Corporation shall redeliver to the Participant (or his or her legal
representative or designated beneficiary) the shares deposited pursuant to
Section 5.1.
5.4 Termination of Eligibility
--------------------------
In the event the Participant is no longer an Eligible Person and ceased
to be such as a result of termination of service to the Company with the
consent of the Committee, or as a result of his or her death, retirement or
disability, the restrictions imposed under this Article V shall lapse with
respect to such number of shares theretofore awarded to him or her as shall be
determined by the Committee. All other shares of Restricted Stock theretofore
awarded to him or her which are still subject to restrictions, along with any
dividends or other distributions thereon that have been accumulated and held
by the Company, shall be forfeited, and the Corporation shall have the right
to complete the blank stock power.
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<PAGE> 19
In the event the Participant ceases to be an Eligible Person for any other
reason, all shares of Restricted Stock theretofore awarded to him or her which
are still subject to restrictions, along with any dividend or other
distributions thereon that have been accumulated and held by the Company, shall
be forfeited, and the Corporation shall have the right to complete the blank
stock power.
ARTICLE VI
DEFERRAL OF PAYMENTS
6.1 Deferral of Amounts
-------------------
If the Committee makes a determination to designate Awards or, from time to
time, groups or types of Awards, eligible for deferral hereunder, a Participant
may, subject to such terms and conditions and within such limits as the
Committee may from time to time establish, elect to defer the receipt of
amounts due to him or her under the Plan. Amounts so deferred are referred to
herein as "Deferred Amounts." The Committee may also permit amounts now or
hereafter deferred or available for deferral under any present or future
incentive compensation program or deferral arrangement of the Company to be
deemed Deferred Amounts and to become subject to the provisions of this
Article. Awards which are so deferred will be deemed to have been awarded in
cash and the cash deferred as Deferred Amounts.
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<PAGE> 20
The period between the date on which the Participant's Deferred Amount
would have been payable absent deferral and the final payment of such Deferred
Amount shall be referred to herein as the "Deferral Period."
6.2 Investment During Deferral Period
---------------------------------
Unless otherwise determined by the Committee, and subject to such changes
as the Committee may determine, the Deferred Amount will be treated during the
Deferral Period as if it were invested in putative convertible debentures with
a fixed interest rate, compounded annually, for the entire Deferral Period.
For purposes of determining the value of the Deferred Amount at the time of
payment, each putative debenture will be deemed to be convertible into Common
Stock at a conversion rate computed by reference to the Fair Market Value of
the Common Stock on the last trading day prior to the regular January meeting
of the Board of Directors on or preceding the date of deferral. Payment of
Deferred Amounts may be made in cash, Stock, or partly in cash and partly in
Stock, in the Committee's sole discretion.
6.3 Participant Reports
-------------------
Annually, each Participant who has a Deferred Amount will receive a report
setting forth all of his or her then Deferred Amounts and the yield thereon to
date.
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<PAGE> 21
6.4 Payment of Deferred Amounts
---------------------------
Payment of Deferred Amounts will be made at such time or times, and may
be in cash, Stock, or partly in cash and partly in Stock, as the Committee
shall from time to time determine. The limitations respecting the issuance of
Stock or other limitations on aggregate awards payable contained in the Annual
Performance Plan of the Corporation, Article XVI of the by-laws of the
Corporation, the 1974 Stock Option Plan, the 1979 Stock Option and Long-Term
Incentive Plan, the 1984 Long-Term Incentive Plan, the Plan and in any plan
hereafter adopted by the stockholders shall be limitations applicable to the
payment of any Deferred Amounts under this Article VI.
6.5 Alternative Valuation Election
------------------------------
Unless otherwise determined by the Committee, a Participant may, at a time
established by the committee, but prior to such Participant's ceasing to be an
Eligible Person, elect to establish the ultimate payable value of each Deferred
Amount by reference to the Fair Market Value of the Common Stock as of the day
on which an alternate valuation election is received by the corporation in
accordance with procedures established by the Committee.
Notwithstanding the establishment of the ultimate payable value resulting
from the alternate valuation election by the Participant, the yield will
continue as though no such election
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<PAGE> 22
had been made and will continue to be subject to the limitations set forth in
Section 6.2, and Deferred Amounts and the yield thereon will be paid as
otherwise provided in this Article.
ARTICLE VII
CHANGES IN CONTROL
7.1 Effect of Change in Control
---------------------------
Notwithstanding any other provision of the Plan, upon the occurrence of a
Change in Control, as defined in Section 7.2: (i) all Options and, subject to
the exercise provisions of Section 3.2(a) of the Plan, Limited Rights, but not
SARS, outstanding and unexercised on the date of the Change in Control shall
become immediately exercisable; (ii) all Performance Awards shall be deemed to
have been earned on such basis as the Committee may prescribe and then paid on
such basis, at such time and in such form as the Committee may prescribe, or
deferred in accordance with the elections of Participants; (iii) all Restricted
Stock shall be deemed to be earned and the Restriction Period shall be deemed
expired on such terms and conditions as the Committee may determine; and (iv)
all amounts deferred under this Plan shall be paid to a trustee or otherwise on
such terms as the Committee may prescribe or permit.
7.2 Definition of Change in Control
-------------------------------
The term "Change in Control" means the occurrence of one or
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<PAGE> 23
more of the following events: (a) there shall be consummated (i) any
consolidation or merger of the Corporation in which the Corporation is not the
continuing or surviving corporation or pursuant to which shares of the Common
Stock would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, or (ii) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Corporation,
or (b) the stockholders of the Corporation shall approve any plan or proposal
for the liquidation or dissolution of the Corporation, or (c) (i) any person
(as such term is defined in Section 13(d) of the Exchange Act), corporation or
other entity shall purchase any Common Stock of the Corporation (or securities
convertible into Common Stock) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer, unless, prior to the making of
such purchase of Common Stock (or securities convertible into Common Stock),
the Board shall determine that the making of such purchase shall not constitute
a Change in Control, or (ii) any person (as such term is defined in Section
13(d) of the Exchange Act), corporation or other entity (other than the
Corporation or any benefit plan sponsored by the Corporation or any of its
subsidiaries) shall be the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange
- 23 -
<PAGE> 24
Act), directly or indirectly, of securities of the Corporation representing
twenty percent or more of the combined voting power of the Corporation's then
outstanding securities ordinarily (and apart from any rights accruing under
special circumstances) having the right to vote in the election of directors
(calculated as provided in Rule 13d-3(d) in the case of rights to acquire any
such securities), unless, prior to such person so becoming such beneficial
owner, the Board shall determine that such person so becoming such beneficial
owner shall not constitute a Change in Control, or (d) at any time during any
period of two consecutive years, individuals who at the beginning of such
period constituted the entire Board shall cease for any reason to constitute at
least a majority thereof, unless the election or nomination for election of
each new director during such two-year period was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of such two-year period.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Transferability
-------------------
No Option, SAR, Performance Award or share of Restricted Stock or Deferred
Amount under the Plan shall be transferable by the Participant other than by
will or the applicable laws of descent and distribution. All Awards and
Deferred Amounts shall
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<PAGE> 25
be exercisable or received during the Participant's lifetime only by such
Participant or his or her legal representative. Any transfer contrary to this
Section 8.1 will nullify the option, SAR, Performance Award or share of
Restricted Stock, and any attempted transfer of a Deferred Amount contrary to
this Section 8.1 will be void and of no effect.
8.2 Beneficiaries
-------------
The Committee may establish procedures not inconsistent with Section 8.1
under which a Participant may designate a beneficiary or beneficiaries to
receive amounts due under an Award or with respect to Deferred Amounts in the
event of the Participant's death.
8.3 Adjustments Upon Changes in Stock
---------------------------------
If there shall be any change in the Stock of the Company, through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
split up, dividend in kind or other change in the corporate structure or
distribution to the stockholders, appropriate adjustments may be made by the
Board of Directors of the Company (or if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation) in the aggregate number and kind of shares subject to the Plan,
and the number and kind of shares and the price per share subject to
outstanding Options or which may be issued under outstanding Performance Awards
or Awards of
- 25 -
<PAGE> 26
Restricted Stock. Appropriate adjustments may also be made by the Board of
Directors or the Committee in the terms of any Awards under the Plan to reflect
such changes and to modify any other terms of outstanding Awards on an
equitable basis, including modifications of performance targets and changes in
the length of Performance Periods.
8.4 Conditions of Awards
--------------------
(a) The rights of a Participant with respect to any Award received under
this Plan shall be subject to the conditions that, until the Participant has
fully received all payments, transfers and other benefits under the Award, he
or she shall (i) not engage, either directly or indirectly, in any manner or
capacity as advisor, principal, agent, partner, officer, director, employee,
member of any association or otherwise, in any business or activity which is at
the time competitive with any business or activity conducted by the Company and
(ii) be available, unless he or she shall have died, at reasonable times for
consultations at the request of the Company's management with respect to phases
of the business with which he or she is or was actively connected during his or
her employment, but such consultations shall not (except in the case of a
Participant whose active service was outside the United States) be required to
be performed at any place or places outside of the United States of America or
during usual vacation periods or periods of illness or other incapacity. In
the event that either of the above conditions is not
- 26 -
<PAGE> 27
fulfilled, the Participant shall forfeit all rights to any unexercised option
or SAR, or any Performance Award or Stock held which has not yet been
determined by the Committee to be payable or unrestricted (and any unpaid
amounts equivalent to dividends or other distributions or amounts equivalent to
interest relating thereto) as of the date of the breach of condition. Any
determination by the Board of Directors of the Corporation, which shall act
upon the recommendation of the Chief Executive Officer, that the Participant
is, or has, engaged in a competitive business or activity as aforesaid or has
not been available for consultations as aforesaid shall be conclusive.
(b) This Section 8.4 shall not apply to Limited Rights.
8.5 Use of Proceeds
---------------
All cash proceeds from the exercise of options shall constitute general
funds of the Company.
8.6 Tax Withholding
---------------
The Company will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the
- 27 -
<PAGE> 28
Participant or other appropriate person remit to the Company an amount
sufficient to satisfy the withholding requirements, or make other arrangements
satisfactory to the Committee with regard to such requirements, prior to the
delivery of any Stock. If and to the extent that such withholding is required,
the Committee may permit the Participant or such other person to elect at such
time and in such manner as the Committee provides to have the Company hold back
from the shares to be delivered, or to deliver to the Company, Stock having a
value calculated to satisfy the withholding requirement. In the alternative,
the Committee may, at the time of grant of any such Award, require that the
Company withhold from any shares to be delivered Stock with a value calculated
to satisfy applicable tax withholding requirements.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may require as
a condition of exercise that the person exercising the ISO agree (i) to inform
the Company promptly of any disposition of Stock received upon exercise, and
(ii) to give such security as the Committee deems adequate to meet the
potential liability of the Company for the withholding requirements and to
augment such security from time to time in any amount reasonably deemed
necessary by the Committee to preserve the adequacy of such security.
- 28 -
<PAGE> 29
8.7 Non-Uniform Determinations
--------------------------
The Committee's determinations under the Plan, including without
limitation, (i) the determination of the Participants to receive Awards, (ii)
the form, amount, timing and payment of such Awards, (iii) the terms and
provisions of such Awards and (iv) the agreements evidencing the same, need
not be uniform and may be made by it selectively among Participants who
receive, or who are eligible to receive, Awards under the Plan, whether or not
such Participants are similarly situated.
8.8 Leaves of Absence; Transfers
----------------------------
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect to any leave
of absence from the Company granted to a Participant. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine (i)
whether or not any such leave of absence shall be treated as if the Participant
ceased to be an employee and (ii) the impact, if any, of any such leave of
absence on Awards under the Plan. In the event a Participant transfers within
the Company, such Participant shall not be deemed to have ceased to be an
employee for purposes of the Plan.
- 29 -
<PAGE> 30
8.9 General Restriction
-------------------
(a) Each Award under the Plan shall be subject to the condition that, if at
any time the Committee shall determine that (i) the listing, registration or
qualification of shares of Stock upon any securities exchange or under any
state or federal law, (ii) the consent or approval of any government or
regulatory body or (iii) an agreement by the Participant with respect thereto,
is necessary or desirable, then such Award shall not be consummated in whole or
in part unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free from any conditions not
acceptable to the Committee.
(b) Shares of Common Stock for use under the provisions of this Plan shall not
be issued until they have been duly listed, upon official notice of issuance,
upon the New York Stock Exchange and such other exchanges, if any, as the Board
of Directors of the Corporation shall determine, and a registration statement
under the Securities Act of 1933 with respect to such shares shall have become,
and be, effective.
8.10 Effective Date
--------------
The Plan shall be effective on the date on which it is approved by the
common stockholders of the Corporation. Grants of Awards under the Plan may be
made prior to that date (but not before the date on which the Plan is adopted
by the Board of Directors), subject to such approval.
- 30 -
<PAGE> 31
No Award may be granted under the Plan after May 25, 2003, but Awards
previously made may extend beyond that date and Reload Options and additional
Reload Options provided for with respect to original options outstanding prior
to that date may continue unless the Committee otherwise provides and subject
to such additional terms and conditions as the Committee may provide except
that all Reload Options issued after that date shall be NSOs, and the
provisions of Article VI of the Plan shall survive and remain effective as to
all present and future Deferred Amounts until such later date as the Committee
or the Board of Directors shall determine.
The adoption of the Plan shall not preclude the adoption by appropriate
means of any other stock option or other incentive plan for employees.
8.11 Amendment, Suspension and Termination of Plan
---------------------------------------------
The Board of Directors may at any time or times amend the Plan for any
purpose which may at the time be permitted by law, or may at any time suspend
or terminate the Plan as to any further grants of Awards, provided that (except
to the extent expressly required or permitted by the Plan) no such amendment
shall, without the approval of the stockholders of the Corporation, effectuate
a change for which stockholder approval
- 31 -
<PAGE> 32
is required in order for the Plan to continue to qualify under Rule 16b-3
promulgated under Section 16 of the Exchange Act.
8.12 Certain Definitions
-------------------
(a) Unless otherwise determined by the Committee, the terms "retirement" and
"disability" as used under the Plan shall be construed by reference to the
provisions of the Westinghouse Pension Plan or other similar plan or program of
the Company applicable to a Participant.
(b) The term "Fair Market Value" as it relates to Common Stock means the mean
of the high and low prices of the Common Stock as reported by the Composite
Tape of the New York Stock Exchange (or such successor reporting system as
shall be selected by the Committee) on the relevant date or, if no sale of the
Common Stock shall have been reported for that day, the average of such prices
on the next preceding day and the next following day for which there were
reported sales. The term "Fair Market Value" as it relates to Formula Value
Stock shall mean the value determined by the Committee.
(c) The term "Subsidiary" shall mean, unless the context otherwise requires,
any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the corporation if each of the corporations other
than the last corporation in such chain owns stock possessing at least 50% of
- 32 -
<PAGE> 33
the voting power in one of the other corporations in such chain.
(d) "Formula Value Stock" means shares of a class or classes of stock the
value of which is derived from a formula established by the Committee which
reflects such financial measures as the Committee shall determine. Such shares
shall have such other characteristics as shall be determined at time of their
authorization.
- 33 -
<PAGE> 1
Exhibit 10(e)
DEFERRED COMPENSATION AND STOCK PLAN
FOR DIRECTORS
(AS AMENDED AS OF APRIL 26, 1995)
SECTION 1. INTRODUCTION
1.1 Establishment. Westinghouse Electric Corporation, a Pennsylvania
corporation (the "Company"), has established the Deferred Compensation and
Stock Plan for Directors as amended as of April 26, 1995 (the "Plan") for those
directors of the Company who are neither officers nor employees of the Company.
The Plan provides (i) for the grant of awards in the form of Common Stock
Equivalents to Directors prior to April 26, 1995 and in the form of Stock
Options to Directors beginning April 26, 1995, and (ii) the opportunity for the
Directors to defer receipt of all or a part of their cash compensation through
a tax effective investment mechanism. Unless otherwise provided for herein,
the term Company includes Westinghouse Electric Corporation and its
subsidiaries.
1.2 Purposes. The purposes of the Plan are to encourage the Directors to
own shares of the Company's stock and thereby to align their interests more
closely with the interests of the other shareholders of the Company, to
encourage the highest level of Director performance by providing the Directors
with a direct
1
<PAGE> 2
interest in the Company's attainment of its financial goals, and to provide a
financial incentive that will help attract and retain the most qualified
Directors.
1.3 Effective Date of Amendment. This Plan shall be effective on the
date on which the amendment to the Deferred Stock and Compensation Plan for
Directors is approved by the common shareholders of the Corporation. In the
event that this amendment is not so approved, the Deferred Stock and
Compensation Plan for Directors as in effect prior to the amendment shall
remain in full force and effect.
SECTION 2. DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CASH ACCOUNT" means the account established by the Company in
respect of each Director pursuant to Section 6.3 hereof and to which will be
credited annual retainer and/or fees and other amounts deferred pursuant to the
Plan.
2
<PAGE> 3
(c) "CAUSE" means any act of (a) fraud or intentional
misrepresentation, or (b) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any of its direct or indirect
majority-owned subsidiaries.
(d) "CHANGE IN CONTROL" shall have the meaning assigned to it in
Section 8.2 hereof.
(e) "COMMITTEE" means the Compensation Committee of the Board or any
successor established by the Board.
(f) "COMMON STOCK EQUIVALENT" means a hypothetical share of Stock
which shall have a value on any date equal to the mean of the high and low
prices of the Stock as reported by the composite tape of the New York Stock
Exchange on that date.
(g) "COMMON STOCK EQUIVALENT AWARD" means an award of Common Stock
Equivalents granted to a Director pursuant to Section 5 of the Plan.
(h) "DEBENTURE" means a hypothetical debenture of the Company that
has a face value of $100, bears interest at a rate equal to the seven year U.S.
Treasury Bond rate (beginning January 1, 1995, the ten year U.S. Treasury Bond
rate) in effect the week prior to the regular January meeting of the Board
(or, if no such meeting is held, the week prior to the first trading
3
<PAGE> 4
day of the New York Stock Exchange in February) in the year in respect
of which deferred amounts are earned, and is convertible into Stock at a
conversion rate determined by dividing $100 by the mean of the high and low
prices of the Stock as reported by the composite tape of the New York Stock
Exchange on the date the Debenture is credited to the Deferred Debenture
Account pursuant to Section 6.3 hereof.
(i) "DEFERRED DEBENTURE ACCOUNT" means the account established by the
Company in respect of each Director pursuant to Section 6.3 hereof and to which
will be credited Debentures and other amounts pursuant to the Plan.
(j) "DEFERRED STOCK ACCOUNT" means the account established by the
Company in respect of each Director pursuant to Section 5.2 hereof and to which
will be credited Common Stock Equivalents pursuant to the Plan.
(k) "DIRECTOR" means a member of the Board who is neither an officer
nor an employee of the Company. For purposes of the Plan, an employee is an
individual whose wages are subject to the withholding of federal income tax
under section 3401 of the Internal Revenue Code, and an officer is an
individual elected or appointed by the Board or chosen in such other manner as
may be prescribed in the By-laws of the Company to serve as such.
4
<PAGE> 5
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.
(m) "FAIR MARKET VALUE" means the mean of the high and low prices of
the Stock as reported by the composite tape of the New York Stock Exchange (or
such successor reporting system as shall be selected by the Committee) on the
relevant date or, if no sale of the Stock shall have been reported for that
day, the average of such prices on the next preceding day and the next
following day for which there were reported sales.
(n) "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
as amended from time to time.
(o) "STOCK" means the $1.00 par value Common Stock of the Company.
(p) "STOCK OPTION" means a non-statutory stock option to purchase
shares of Stock for a purchase price per share equal to the "Exercise Price"
(as defined in Section 7.2(a) below) in accordance with the provisions of the
Plan.
5
<PAGE> 6
2.2 Gender and Number. Except when otherwise indicated by the
context, the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
SECTION 3. PLAN ADMINISTRATION
(a) The Plan shall be administered by the Committee. The members of
the Committee shall be members of the Board appointed by the Board,
and any vacancy on the Committee shall be filled by the Board.
The Committee shall keep minutes of its meetings and of any action taken
by it without a meeting. A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present shall be the acts of the Committee. Any action that
may be taken at a meeting of the Committee may be taken without a meeting if a
consent or consents in writing setting forth the action so taken shall be
signed by all of the members of the Committee. The Committee shall make
appropriate reports to the Board concerning the operations of the Plan.
(b) Subject to the limitations of the Plan, the Committee shall
have the sole and complete authority: (i) to impose such limitations,
restrictions and conditions upon such awards as it shall deem appropriate, (ii)
to interpret the Plan
6
<PAGE> 7
and to adopt, amend and rescind administrative guidelines and other
rules and regulations relating to the Plan and (iii) to make all other
determinations and to take all other actions necessary or advisable for the
implementation and administration of the Plan. Notwithstanding the foregoing,
the Committee shall have no authority, discretion or power to select the
Directors who will receive awards pursuant to the Plan, determine the awards to
be granted pursuant to the Plan, the number of shares of Stock to be issued
thereunder or the price thereof or the time at which such awards are to be
granted, establish the duration and nature of awards or alter any other terms
or conditions specified in the Plan, except in the sense of administering the
Plan subject to the provisions of the Plan. The Committee's determinations on
matters within its authority shall be conclusive and binding upon the Company
and all other persons. The Plan shall be interpreted and implemented in a
manner so that Directors will not fail, by reason of the Plan or its
implementation, to be "disinterested persons" within the meaning of Rule 16b-3
under Section 16 of the Exchange Act, as such rule may be amended.
(c) The Committee shall act on behalf of the Company as sponsor
of the Plan. All expenses associated with the Plan shall be borne by the
Company.
7
<PAGE> 8
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. 500,000 shares of Stock are authorized for
issuance under the Plan in accordance with the provisions of the Plan, subject
to adjustment and substitution as set forth in this Section 4. This
authorization may be increased from time to time by approval of the Board and
by the shareholders of the Company if such shareholder approval is required.
The Company shall at all times during the term of the Plan retain as authorized
and unissued Stock at least the number of shares from time to time required
under the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject
to a Common Stock Equivalent Award, a Stock Option Award or a Debenture and
which are forfeited, any shares of Stock that for any other reason are not
issued to a Director, and any shares of Stock tendered by a Director to pay the
Exercise Price of a Stock Option shall automatically become available again for
use under the Plan if Rule 16b-3 under the Exchange Act and interpretations of
the Securities and Exchange Commission or its Staff thereunder permit such share
replenishment.
8
<PAGE> 9
4.3 Adjustments Upon Changes in Stock. If there shall be any
change in the Stock of the Company, through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, spinoff, split
up, dividend in kind or other change in the corporate structure or
distribution to the shareholders, appropriate adjustments may be made by the
Committee (or if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) in the
aggregate number and kind of shares subject to the Plan, and the number and
kind of shares which may be issued under the Plan. Appropriate adjustments may
also be made by the Committee in the terms of any awards or Debentures under
the Plan to reflect such changes and to modify any other terms of outstanding
awards on an equitable basis as the Committee in its discretion determines.
SECTION 5. COMMON STOCK EQUIVALENT AWARDS
5.1 Grants of Common Stock Equivalent Awards. Common Stock
Equivalents equal to 400 shares of Stock shall be granted automatically each
year, immediately following the Annual Meeting (as described in the Company's
By-laws) up to but not including the Annual Meeting held in 1995, to each
Director elected at such meeting or then continuing to serve on the Board
subsequent to such meeting. In addition, if a person is elected to the Board
at any time other than at an Annual Meeting and prior to the Annual Meeting
held in 1995, whether by action of the shareholders of the Company or the
Board, such person upon
9
<PAGE> 10
becoming a Director shall be granted automatically (i) if such election
shall occur after the Annual Meeting and prior to July 1, Common Stock
Equivalents equal to 300 shares of Stock, (ii) if such election shall occur on
or after July 1 and prior to October 1, Common Stock Equivalents equal to 200
shares of Stock, and (iii) if such election shall occur on or after October 1
and prior to January 1 of the following year, Common Stock Equivalents equal to
100 shares of Stock. All Common Stock Equivalents granted pursuant to this
Section 5.1 shall be adjusted as provided in Section 4.3.
5.2 Deferred Stock Account. A Deferred Stock Account shall be
established for each Director elected prior to the Annual Meeting held in 1995.
The Deferred Stock Account shall consist of compensation in the form of Common
Stock Equivalents awarded to the Director hereunder by the Company plus Common
Stock Equivalents credited to the Deferred Stock Account in respect of
dividends and other distributions on the Stock pursuant to Sections 5.3 and 5.4.
5.3 Hypothetical Investment. Compensation awarded hereunder in the form
of Common Stock Equivalents is assumed to be a hypothetical investment in
shares of Stock, and will be adjusted to reflect stock dividends, splits and
reclassifications and as otherwise set forth in Section 4.3.
10
<PAGE> 11
5.4 Hypothetical Dividends. Dividends and other distributions on
Common Stock Equivalents shall be deemed to have been paid as if such Common
Stock Equivalents were actual shares of Stock issued and outstanding on the
respective record or distribution dates. Common Stock Equivalents shall be
credited to the Deferred Stock Account in respect of cash dividends and any
other securities or property issued on the Stock in connection with
reclassifications, spinoffs and the like on the basis of the value of the
dividend or other asset distributed and the value of the Common Stock
Equivalents on the date of the announcement of the dividend or asset
distribution, all at the same time and in the same amount as dividends or other
distributions are paid or issued on the Stock. Fractional shares shall be
credited to a Director's Deferred Stock Account cumulatively but the balance of
shares of Common Stock Equivalents in a Director's Deferred Stock Account shall
be rounded to the next highest whole share for any payment to such Director
pursuant to Section 5.6 hereof.
5.5 Statement of Account. A statement will be sent to each Director
as to the balance of his Deferred Stock Account at least once each
calendar year.
5.6 Payment of Deferred Stock. Upon termination of services as a
Director, the balance of the Director's Deferred
11
<PAGE> 12
Stock Account shall be paid to such director in Stock in January of the
year following the year of termination of services as a Director on the basis
of one share of Stock for each Common Stock Equivalent in such Director's
Deferred Stock Account.
5.7 Payments to a Deceased Director's Estate. In the event of a
Director's death before the balance of his Deferred Stock Account is fully paid
to him, payment of the balance of the Director's Deferred Stock Account shall
then be made to his estate in the time and manner selected by the Committee in
the absence of a designation of a beneficiary pursuant to Section 5.8 hereof.
The Committee may take into account the application of any duly appointed
administrator or executor of a Director's estate and direct that the balance of
the Director's Deferred Stock Account be paid to his estate in the manner
requested by such application.
5.8 Designation of Beneficiary. A Director may designate a
beneficiary in a form approved by the Committee.
SECTION 6. DEFERRAL OF COMPENSATION
6.1 Amount of Deferral. A Director may elect to defer receipt of
all or a specified portion of the cash annual retainers and/or cash meeting
fees otherwise payable to the Director for serving on the Board or any
committee thereof.
12
<PAGE> 13
6.2 Manner of Electing Deferral. A Director shall make elections
permitted hereunder by giving written notice to the Company in a form approved
by the Committee. The notice shall include: (i) the percentage of meeting fees
and/or annual retainer to be deferred which amount must be stated in whole
increments of 5 percent; and (ii) the time as of which deferral is to commence.
Notwithstanding the foregoing, the election by a Director to participate in the
Company's Deferral Program for Directors, which this Plan amends, shall
continue in full force and effect with respect to this Plan without any action
required to be taken by such Director and such election shall be deemed to be
an election by a Director to defer such Director's cash compensation paid by
the Company in respect of annual retainers and meeting fees.
6.3 Accounts. A Cash Account and a Deferred Debenture Account
shall be established for each Director electing to defer hereunder. Each Cash
Account shall be credited with the amounts deferred on the date such
compensation is otherwise payable. Such deferred amounts shall accrue interest
from time to time at a rate equal to the seven year U.S. Treasury Bond rate
(beginning January 1, 1995, the ten year U.S. Treasury Bond rate) in effect the
week prior to the regular January meeting of the Board (or, if no such meeting
is held, the week prior to the first trading day of the New York Stock Exchange
in February) in the year in
13
<PAGE> 14
respect of which such deferred amounts are earned until the last trading
day of the New York Stock Exchange prior to the regular January meeting
of the Board (or, if no such meeting is held, until the first trading day of
February) in the year following the year in respect of which deferred amounts
are earned, at which time such deferred amounts, including interest, shall be
invested in Debentures and credited to the Deferred Debenture Account.
Deferred amounts shall be credited to the Deferred Debenture Account only in
$100 amounts. Fractional amounts of $100 shall remain in the Cash Account and
continue to accrue interest.
6.4 Time for Electing Deferral. Any election to (i) defer cash
annual retainer and/or cash meeting fees, (ii) alter the portion of such
amounts deferred, or (iii) revoke an election to defer such amounts, must be
made no later than six months prior to the time such compensation is earned by
the Director or, if permitted by the rules under Section 16 of the Exchange
Act, no later than six months prior to the time such deferred compensation is
invested in Debentures and credited to the Deferred Debenture Account pursuant
to Section 6.3 hereof. An election to commence a deferral may be made at any
time in accordance with the procedures set forth in Section 6.2. Any election
so made shall remain in effect beginning six months from the date of election
until the Director ceases to be a Director
14
<PAGE> 15
or six months from the date the Director elects in writing to change
his election.
6.5 Payment of Deferred Amounts. Payments from a Deferred
Debenture Account shall be made in five consecutive annual installments
beginning in the January following the Director's termination of service.
Payments from a Deferred Debenture Account shall consist of accumulated
interest on the Debentures (which amount shall only be payable in cash) plus
the greater value of (i) the face value of the Debentures or (ii) the shares of
Stock into which the Debentures are convertible. In the event the value of
the payment is determined by the amount referred to in clause (i), payment
shall be made in cash. In the event such value is determined by clause (ii),
such payment shall be made in Stock, other than the value of fractional
shares which will be paid in cash.
6.6 Payments to a Deceased Director's Estate. In the event of a
Director's death before the balance of his Cash Account or Deferred Debenture
Account is fully paid to him, payment of the balance of the Cash Account or
Deferred Debenture Account shall then be made to his estate in the time and
manner selected by the Committee in the absence of a designation of a
beneficiary pursuant to Section 6.7 hereof. The Committee may take into
account the application of any duly appointed
15
<PAGE> 16
administrator or executor of a Director's estate and direct that the balance
of the Director's Cash Account or Deferred Debenture Account be paid to his
estate in the manner requested by such application.
6.7 Designation of Beneficiary. A Director may designate a
beneficiary in a form approved by the Committee.
SECTION 7. STOCK OPTION AWARDS
7.1 Grants of Stock Option Awards.
(a) Stock Options for 3,000 shares of Stock shall be granted
automatically each year, immediately following the Annual Meeting (as
described in the Company's By-laws), beginning with the Annual Meeting held in
1995, to each Director elected at such meeting or then continuing to serve on
the Board subsequent to such meeting. In addition, if a person is elected to
the Board at any time after the Annual Meeting held in 1995 and other than at
an Annual Meeting, whether by action of the shareholders of the Company or the
Board, such person upon becoming a Director shall be granted automatically (i)
if such election shall occur after the Annual Meeting and prior to July 1,
Stock Options for 2,250 shares of Stock, (ii) if such election shall occur on
or after July 1 and prior to October 1, Stock Options for 1,500 shares of
Stock, and (iii) if such election shall occur on or
16
<PAGE> 17
after October 1 and prior to January 1 of the following year, Stock
Options for 750 shares of Stock.
(b) Stock Options for 750 shares of Stock shall be granted
automatically each year, immediately following the Annual Meeting and
the organization meeting of the Board related to such Annual Meeting, beginning
with the Annual Meeting and related organization meeting held in 1995, to each
Director elected at such organization meeting to serve as Chair of a standing
Committee of the Board.
(c) All Stock Options granted pursuant to Section 7.1 shall be
adjusted as provided in Section 4.3.
7.2 Terms and Conditions of Stock Options. Stock Options granted
under the Plan shall be subject to the following terms and conditions:
(a) EXERCISE PRICE. The purchase price at which each Stock Option
may be exercised ("Exercise Price") shall be determined as follows:
on any date of grant pursuant to Section 7.1 above ("Grant Date"), (i)
Stock Options for two thirds of the option shares granted on the Grant Date
shall have an Exercise Price per share at 100% of Fair Market Value on the
Grant Date and (ii) Stock Options for the remaining one third of the option
17
<PAGE> 18
shares granted on the Grant Date shall have an Exercise Price per share at 125%
of Fair Market Value on the Grant Date.
(b) EXERCISABILITY. Subject to the terms and conditions of the Plan
and of the agreement referred to in Section 7.2(i), a Stock Option may be e
xercised in whole or in part upon written notice of exercise to the Company
commencing on the first day after the Grant Date and until it terminates.
During a Director's lifetime, a Stock Option may be exercised only by the
Director or the Director's guardian or legal representative.
(c) MANDATORY HOLDING OF STOCK. Except as otherwise provided in
Section 7.5, any Stock acquired on exercise of a Stock Option must be held
by the grantee for a minimum of (1) three years from the date of exercise,
(2) two years from the date the grantee ceases to be a director of the
Company, or (3) until the occurrence of a Change of Control, whichever
first occurs (the "Holding Period").
(d) OPTION TERM. The term of a Stock Option (the "Option Term")
shall be the period of ten years from its Grant Date or until the date
the Stock Option ceases to be exercisable as provided in Section 7.2(g),
whichever is earlier.
18
<PAGE> 19
(e) PAYMENT OF EXERCISE PRICE. Stock purchased on exercise of a Stock
Option must be paid for as follows: (1) in cash or by check (acceptable to
the Company in accordance with guidelines established for this purpose),
bank draft or money order payable to the order of the Company, (2) through
the delivery of shares of Stock which are then outstanding and which have
a Fair Market Value on the last business day preceding the date of
exercise equal to the Exercise Price, (3) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the Exercise Price, or (4) by a combination of the
permissible forms of payment; provided, that any portion of the Exercise Price
representing a fraction of a share must be paid in cash and no share of Stock
held for less than six months may be delivered in payment of the Exercise Price
of a Stock Option.
(f) RIGHTS AS A SHAREHOLDER. The holder of a Stock Option will not
have any of the rights of a shareholder with respect to any shares of Stock
subject to the Stock Option until such shares are issued by the Company
following the exercise of the Stock Option.
(g) TERMINATION OF ELIGIBILITY. If a grantee ceases to be a Director
for any reason, any outstanding Stock Options shall be exercisable according
to the following provisions:
19
<PAGE> 20
(1) If a grantee ceases to be a Director for any reason other
than removal for Cause or death, any outstanding Stock Options held by
such grantee shall be exercisable by the grantee at any time prior to
the expiration of the Option Term;
(2) If a grantee is removed from office as a director of the
Company for Cause, any outstanding Stock Options held by such grantee
shall be exercisable by the grantee at any time prior to the expiration
of the Option Term or on or before the date the grantee is so removed from
office, whichever first occurs; and
(3) Following the death of a grantee while a Director or after
the grantee ceased to be a Director for any reason other than removal
for Cause, any Stock Options that are outstanding and exercisable by
such grantee at the time of death shall be exercisable by the person or persons
entitled to do so under the grantee's will, by a properly designated
beneficiary in the event of death, or by the person or persons entitled to do
so under the applicable laws of descent and distribution at any time prior to
the earlier of (a) the expiration of the Option Term and (b) two years after
the date of death.
(h) TERMINATION OF STOCK OPTION. A Stock Option shall
terminate on the earlier of (1) exercise of the Stock
20
<PAGE> 21
Option in accordance with the terms of the Plan, and (2) the expiration of the
Option Term as specified in Sections 7.2(d) and 7.2(g).
(i) STOCK OPTION AGREEMENT. All Stock Options shall be confirmed by
an agreement, or an amendment thereto, which shall be executed on behalf
of the Company by the Chief Executive Officer, the President or any Vice
President and by the grantee.
(j) GENERAL RESTRICTION.
(1) The obligation of the Company to issue Stock pursuant to
Stock Options under the Plan shall be subject to the condition that, if at any
time the Committee shall determine that (a) the listing, registration or
qualification of shares of Stock upon any securities exchange or under any
state or federal law or (b) the consent or approval of any government or
regulatory body is necessary or desirable, then such Stock shall not be issued
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free from any conditions not acceptable to the
Committee.
(2) Shares of Stock for use under the provisions of this
Section 7 shall not be issued until they have been duly listed, upon official
notice of issuance, upon the New York Stock Exchange and such other exchanges,
if any, as the Board of
21
<PAGE> 22
Directors of the Company shall determine, and a registration statement
under the Securities Act of 1933 with respect to such shares shall have become,
and be, effective.
Subject to the foregoing provisions of this Section 7.2 and the other
provisions of the Plan, any Stock Option granted under the Plan shall be
subject to such restrictions and other terms and conditions, if any, as shall
be determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 7.2(i), or an amendment thereto; provided,
that in no event shall the Committee or the Board have any power or authority
which would cause the Directors to cease to be "disinterested persons" or
transactions pursuant to the Plan to cease to be exempt from the provisions of
Section 16(b) of the Exchange Act under Rule 16b-3.
7.3 Annual Statement. A statement will be sent to each Director
as to the status of his Stock Options at least once each calendar year.
7.4 Designation of a Beneficiary. A Director may designate a
beneficiary to hold and exercise outstanding Stock Options in accordance with
the Plan in the event of the Director's death.
22
<PAGE> 23
7.5 Holding Period Applicable to a Deceased Grantee's Estate. As
long as at least six months have elapsed since the Grant Date, a properly
designated beneficiary or a person holding a Stock Option under a deceased
grantee's will or under the applicable laws of descent or distribution
exercising a Stock Option in accordance with Section 7.2(g) will not be
subject to the Holding Period with respect to shares of Stock received on
exercise of a Stock Option.
SECTION 8. CHANGE OF CONTROL
8.1 Settlement of Compensation. In the event of a Change in
Control of the Company as defined herein, (a) (i) to the extent not already
vested, all benefits hereunder shall be vested immediately, and (ii) awards as
to a period of time less than a full year may be made as the Committee may
determine as of the date of such Change in Control and then paid on such basis
and in such form as the Committee may prescribe; and (b) the value of all
unpaid benefits and deferred amounts shall be paid in cash to PNC Bank, N.A.
(formerly known as Pittsburgh National Bank), the trustee pursuant to a trust
agreement dated November 24, 1987, or any successor trustee, or otherwise on
such terms as the Committee may prescribe or permit. For purposes of this
paragraph, the value of deferred amounts shall be equal to the sum of (i) the
value of all Common Stock Equivalent Awards then held in such Director's
Deferred Stock Account (the value of
23
<PAGE> 24
which shall be based upon the highest price of the Stock as reported by
the composite tape of the New York Stock Exchange during the thirty days
immediately preceding the Change in Control) and (ii) the greater value of (x)
the cash amount equal to the face value of the Debentures plus cash equal to
accrued interest or (y) the number of shares of Stock into which the Debentures
are convertible (the value of which shall be based upon the highest price of
the Stock as reported by the composite tape of the New York Stock Exchange
during the thirty days immediately preceding the Change in Control), plus cash
equal to accrued interest.
8.2 Definition of Change in Control. A Change in Control shall mean
the occurrence of one or more of the following events:
(a) there shall be consummated (i) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's Stock would be converted into cash,
securities or other property, other than a merger of the Company in which the
holders of the Company's Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation
immediately after the merger, or (ii) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the
24
<PAGE> 25
assets of the Company, or (b) the shareholders of the Company shall
approve of any plan or proposal for the liquidation or dissolution of the
Company, or (c) (i) any person (as such term is defined in Section 13(d) of the
Exchange Act), corporation or other entity shall purchase any Stock of the
Company (or securities convertible into the Company's Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, unless, prior to the making of such purchase of Stock (or securities
convertible into Stock), the Board shall determine that the making of such
purchase shall not constitute a Change in Control, or (ii) any person (as such
term is defined in Section 13(d) of the Exchange Act), corporation or other
entity (other than the Company or any benefit plan sponsored by the Company or
any of its subsidiaries) shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty percent or more of the combined
voting power of the Company's then outstanding securities ordinarily (and apart
from any rights accruing under special circumstances) having the right to vote
in the election of directors (calculated as provided in Rule 13d-3(d) in the
case of rights to acquire any such securities), unless, prior to such person so
becoming such beneficial owner, the Board shall determine that such person so
becoming such beneficial owner shall not constitute a Change in Control, or (d)
at any time during any period of two consecutive
25
<PAGE> 26
years individuals who at the beginning of such period constituted the entire
Board shall cease for any reason to constitute at least a majority thereof,
unless the election or nomination for election of each new director during such
two-year period is approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such two-year
period.
SECTION 9. ASSIGNABILITY
The right to receive payments or distributions hereunder (including
any "derivative security" issued pursuant to the Plan, as such term is
defined by the rules promulgated under Section 16 of the Exchange Act) and
any Stock Options granted hereunder shall not be transferable or assignable by
a Director other than by will, by the laws of descent and distribution, to a
properly designated beneficiary in the event of death, or pursuant to a
domestic relations order as defined by Section 414(p)(1)(B) of the Internal
Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of
that Code or the rules thereunder. In addition, Stock acquired on exercise of
a Stock Option shall not be transferable prior to the end of the applicable
Holding Period, if any, set forth in Sections 7.2(a) and 7.5, other than by
will, by transfer to a properly designated beneficiary in the event of death,
by the applicable laws of descent and distribution or pursuant to a domestic
relations
26
<PAGE> 27
order as defined by Section 414(p)(1)(B) of the Internal Revenue Code
or the rules thereunder that satisfies Section 414(p)(1)(A) of that Code or the
rules thereunder.
SECTION 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or
modify the Plan, provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
shareholders if shareholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements and provided further, that
no amendment or modification shall be made more than once every six months that
would change the amount, price, or timing of the Common Stock Equivalent Awards
or Stock Option Awards hereunder, other than to comport with changes in the
Internal Revenue Code, the Employment Retirement Income Security Act, or the
rules promulgated thereunder.
SECTION 11. REQUIREMENTS OF LAW
11.1 Federal Securities Law Requirements. Transactions pursuant to
the Plan shall be subject to all conditions required under Rule 16b-3 to
qualify such transactions for any exemption from the provisions of Section
16(b) of the Exchange Act available under that Rule.
11.2 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the Commonwealth of
Pennsylvania.
27
<PAGE> 1
EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1995 1994
---- ----
EQUIVALENT SHARES:
<S> <C> <C>
Average shares outstanding 357,422,449 352,972,879
Additional shares due to:
Stock options 4,378,665 3,309,018
Series C preferred shares 36,000,000 870,968
----------- -----------
Total equivalent shares 397,801,114 357,152,865
=========== ===========
ADJUSTED EARNINGS (in millions):
Net income from Continuing Operations $ 15 $ 36
Less: Series B preferred stock dividends 13 13
----------- -----------
Adjusted net income from Continuing Operations $ 2 $ 23
=========== ===========
EARNINGS PER SHARE:
From Continuing Operations $ 0.01 $ 0.07
----------- -----------
Earnings per share (a) $ 0.01 $ 0.07
=========== ===========
</TABLE>
(a) For earnings per share using an alternative treatment for the Series C
Preferred Shares, see note 8 to the condensed consolidated financial
statements included in Part I of this report
-30-
<PAGE> 1
EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31 December 31
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Income (loss) before income taxes
and minority interest $ 27 $ 57 $ 157
Less: Equity in income (loss) of 50 percent
or less owned affiliates - (1) (5)
Add: Fixed charges excluding capitalized interest 66 56 212
----- ----- -----
Earnings as adjusted $ 93 $ 114 $ 374
===== ===== =====
Fixed charges:
Interest expense $ 58 $ 47 $ 177
Rental expense 8 9 35
Capitalized interest - - -
----- ----- -----
Total fixed charges $ 66 $ 56 $ 212
===== ===== =====
Ratio of earnings to fixed charges 1.41x 2.04x 1.76x
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
($ in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31 December 31
1995 1994 1994
---- ---- ----
<S> <C> <C>
Income (loss) before income taxes
and minority interest $ 27 $ 57 $ 157
Less: Equity in income (loss) of 50 percent
or less owned affiliates - (1) (5)
Add: Fixed charges excluding capitalized interest 105 77 369
----- ----- -----
Earnings as adjusted $ 132 $ 135 $ 531
===== ===== =====
Combined fixed charges and preferred dividends:
Interest expense $ 58 $ 47 $ 177
Rental expense 8 9 35
Capitalized interest - - -
Pre-tax earnings required to cover
preferred dividend requirements (a) 39 21 157
----- ----- -----
Total combined fixed charges and preferred dividends $ 105 $ 77 $ 369
===== ===== =====
Ratio of earnings to combined fixed charges
and preferred dividends 1.26x 1.75x 1.44x
===== ===== =====
</TABLE>
(a) Dividend requirement divided by 100% minus effective income tax rate.
-31-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 291
<SECURITIES> 0
<RECEIVABLES> 1,515
<ALLOWANCES> 53
<INVENTORY> 1,516
<CURRENT-ASSETS> 4,817
<PP&E> 4,222
<DEPRECIATION> 2,454
<TOTAL-ASSETS> 10,580
<CURRENT-LIABILITIES> 3,674
<BONDS> 1,884
<COMMON> 393
12
0
<OTHER-SE> 1,376
<TOTAL-LIABILITY-AND-EQUITY> 10,580
<SALES> 2,024
<TOTAL-REVENUES> 2,024
<CGS> 1,530
<TOTAL-COSTS> 1,530
<OTHER-EXPENSES> 407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> 27
<INCOME-TAX> 10
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
