<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 June 30, 1997
-------------
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 646,807,523 shares outstanding at July 31, 1997
--------------------------------------------------------------
<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 6-14
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 15-27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of
Security Holders 27-28
Item 6. Exhibits and Reports on Form 8-K 28-30
SIGNATURE 31
</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 Six Months Ended
June 30 June 30
------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales of products and services $ 2,413 $ 2,148 $ 4,636 $ 4,187
Costs of products and services (1,516) (1,386) (3,106) (2,893)
Restructuring, litigation and other
matters (notes 2 and 3) - (175) - (829)
Marketing, administration, and
general expenses (751) (617) (1,514) (1,201)
------ ------ ------- -------
Operating profit (loss) 146 (30) 16 (736)
Other income (expenses), net (note 4) 18 8 52 (138)
Interest expense (122) (109) (236) (255)
------ ------ ------- -------
Income (loss) from Continuing
Operations before income taxes
and minority interest in income
of consolidated subsidiaries 42 (131) (168) (1,129)
Income tax benefit (expense) (40) 43 19 384
Minority interest in income of
consolidated subsidiaries (1) (1) (1) (2)
------ ------ ------- -------
Income (loss) from Continuing
Operations 1 (89) (150) (747)
------ ------ ------- -------
Discontinued Operations, net of
income taxes (note 9):
Loss from Discontinued Operations - - - (51)
Estimated net gain on disposal of
Discontinued Operations - - - 1,018
------ ------ ------- -------
Income from Discontinued Operations - - - 967
Extraordinary Item:
Loss on early extinguishment of
debt (note 5) - - - (63)
------ ------ ------- -------
Net income (loss) $ 1 $ (89) $ (150) $ 157
====== ====== ======= =======
Earnings (loss) per common share:
Continuing Operations $ - $(0.20) $ (0.23) $ (1.70)
Discontinued Operations - - - 2.20
Extraordinary Item - - - (0.14)
------ ------ ------- -------
Earnings (loss) per common share $ - $(0.20) $ (0.23) $ 0.36
====== ====== ======= =======
Cash dividends per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10
====== ====== ======= =======
</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>
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS (unaudited)
------
<S> <C> <C>
Cash and cash equivalents $ 210 $ 220
Customer receivables 1,575 1,561
Inventories (note 6) 765 783
Uncompleted contracts costs over related billings 615 686
Program rights 350 431
Deferred income taxes 733 817
Prepaid and other current assets 202 289
------- -------
Total current assets 4,450 4,787
Plant and equipment, net 1,798 1,866
FCC licenses, net 2,210 2,199
Goodwill, net 8,660 8,776
Other intangible and noncurrent assets (note 7) 2,206 2,261
------- -------
Total assets $19,324 $19,889
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Short-term debt $ 284 $ 497
Current maturities of long-term debt 44 4
Accounts payable 605 887
Uncompleted contracts billings over related costs 406 334
Other current liabilities (note 8) 1,971 2,578
------- -------
Total current liabilities 3,310 4,300
Long-term debt 5,775 5,149
Net liabilities of Discontinued Operations
(note 9) 43 --
Pension liability 1,211 1,069
Other noncurrent liabilities (note 8) 3,368 3,619
------- -------
Total liabilities 13,707 14,137
------- -------
Contingent liabilities and commitments (note 10)
Minority interest in equity of consolidated
subsidiaries 14 10
Shareholders' equity (note 11):
Preferred stock, $1.00 par value (25 million
shares authorized):
Series C conversion preferred (0 million
and 4 million shares issued) - 4
Common stock, $1.00 par value (1,100 million
shares authorized, 649 million and 609 million
shares issued) 649 609
Capital in excess of par value 5,453 5,376
Common stock held in treasury (531) (546)
Minimum pension liability adjustment (796) (796)
Cumulative foreign currency translation
adjustments (25) 11
Retained earnings 853 1,084
------- -------
Total shareholders' equity 5,603 5,742
------- -------
Total liabilities and shareholders' equity $19,324 $19,889
======= =======
</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>
Six Months Ended June 30
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash used for operating activities
of Continuing Operations $ (577) $ (624)
Cash used for operating activities
of Discontinued Operations (61) (382)
Cash flows from investing activities:
Business acquisitions (47) (101)
Business divestitures and other asset liquidations 152 3,619
Capital expenditures (80) (94)
------ ------
Cash provided by investing activities 25 3,424
------ ------
Cash flows from financing activities:
Bank revolver borrowings 1,940 2,200
Bank revolver repayments (1,025) (721)
Net change in other short-term debt (210) (371)
Repayments of long-term debt (149) (3,580)
Stock issued 130 67
Dividends paid (82) (63)
Bank fees paid and other (6) (10)
------ ------
Cash provided (used) by financing activities 598 (2,478)
------ ------
Decrease in cash and cash equivalents (15) (60)
Cash and cash equivalents at beginning of period 233 226
------ ------
Cash and cash equivalents at end of period $ 218 $ 166
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid:
Continuing Operations $ 220 $ 266
Discontinued Operations 15 35
------ ------
Total interest paid $ 235 $ 301
====== ======
Income taxes paid $ 33 $ 64
====== ======
</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.
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, 1996, as amended by Form 10-K/A Amendment No. 1 dated July 14,
1997. Reference also should be made to the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, as amended by Form 10-Q/A Amendment No. 1
dated July 14, 1997. Certain amounts pertaining to the three months and six
months ended June 30, 1996 have been restated or reclassified for comparative
purposes. Reference also should be made to the Corporation's Current Report
on Form 8-K dated July 28, 1997 containing certain restated financial
information.
During recent years, the Corporation has made several changes to its business
portfolio. A number of business segments were identified as non-strategic
and were reclassified as Discontinued Operations. When appropriate,
financial information previously issued was restated to give effect to the
classification of these businesses as Discontinued Operations in accordance
with Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." See note 9 to the financial statements.
On December 31, 1996, the Corporation acquired Infinity Broadcasting
Corporation (Infinity). The acquisition, which was accounted for under the
purchase method of accounting, is reflected in the year-end 1996 consolidated
balance sheet. Effective January 1, 1997, operating results for Infinity are
included in the consolidated statement of income. On a proforma basis,
assuming Infinity had been acquired as of January 1, 1996, the Corporation's
revenues for the second quarter of 1996 would have been $2,341 million with
no material impact on loss from Continuing Operations or corresponding loss
per share. For the six months ended June 30, 1996 revenues would have been
$4,524 million, with a loss from Continuing Operations of $767 million, and a
corresponding loss per share of $1.21.
On February 10, 1997, the Corporation announced that it reached a definitive
merger agreement with Gaylord Entertainment Company (Gaylord) whereby the
Corporation will acquire Gaylord s two major cable networks - The Nashville
Network (TNN) and Country Music Television (CMT). The acquisition includes
domestic and international operations of TNN, the U.S. and Canadian
operations of CMT, and approximately $50 million of working capital. The
purchase price of $1.55 billion will be paid in Westinghouse common stock.
The number of shares to be issued will depend on the average of the closing
prices of the Corporation's common stock during a trading period just prior
to the effective time of the transaction, subject to certain limits on the
total number of shares to be issued and certain termination rights under the
merger agreement. The transaction is subject to several conditions,
including the receipt of a favorable ruling from the Internal Revenue Service
and the approval of Gaylord's shareholders at the meeting to be held August
15, 1997.
In November 1996, Westinghouse announced that its Board of Directors had
conditionally approved a plan for a strategic restructuring whereby
Westinghouse would separate its media and industrial businesses into two
separate, publicly traded companies. The Westinghouse Board of Directors
modified the separation plan in June 1997 such that the industrial businesses
would consist primarily of the manufacturing and services businesses for the
nuclear and fossil-fueled power generation industry and the government
operations business. Westinghouse will continue to own Thermo King, subject to
its previously announced intention to consider various options to enhance
Thermo King's value to Westinghouse shareholders. In addition, pension and
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<PAGE> 7
postretirement benefit obligations accrued through the date of the separation
for current and former employees, will be retained by Westinghouse. The
industrial company will assume other non-debt obligations generated by the
Corporation's previously divested businesses, other than those classified as
Discontinued Operations, including environmental, asbestos and other
litigation-related liabilities, as well as certain asbestos and toxic tort
litigation-related matters associated with Discontinued Operations.
Westinghouse plans to separate its industrial businesses by way of a tax-free
dividend to shareholders forming a publicly traded company to be called
Westinghouse Electric Company (WELCO). At the time of separation, Westinghouse
would change its name to CBS Corporation and WELCO would change its name to
Westinghouse Electric Corporation. WELCO, currently a wholly owned subsidiary of
Westinghouse, was incorporated in July 1997. The plan provides that Westinghouse
will distribute to each holder of record of Westinghouse common stock at the
record date, certificates representing a specific number of shares of WELCO
common stock based on a ratio to be determined, and cash in lieu of any
fractional shares of WELCO common stock.
Completion of the plan is subject to a number of conditions, including receipt
of a favorable ruling from the Internal Revenue Service that the transaction
will not be taxable for U.S. federal income tax purposes to Westinghouse or its
shareholders, a credit facility being in place, and the registration statement
for the WELCO stock being declared effective by the Securities and Exchange
Commission. The separation is expected to be completed in the fourth quarter of
1997. However, there can be no assurance that the separation will occur or as
to the related timing. Furthermore, if the separation does occur, there can be
no assurance that all of the assets, liabilities, and contractual obligations
will be transferred as currently contemplated or that changes will not be made
to the separation plan.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. On an ongoing
basis, management reviews its estimates, including those related to
litigation, environmental liabilities, contracts, pensions, and Discontinued
Operations, based on current available information. Changes in facts and
circumstances may result in revised estimates. In the opinion of management,
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 or any other interim period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
requires the dual presentation of basic and diluted earnings per share.
Basic and diluted earnings per share calculated in accordance with this
standard would have been a loss of $0.02 and $0.25 for the three months ended
June 30, 1997 and 1996, respectively, a loss of $0.29 for the six months
ended June 30, 1997, and income of $0.33 for the six months ended June 30,
1996. The Corporation will adopt this standard as of December 31, 1997, as
required. Early adoption is not permitted.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
were issued. The Corporation will adopt these standards in 1998.
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<PAGE> 8
2. RESTRUCTURING, LITIGATION AND OTHER MATTERS
In 1996, the Corporation took several actions to streamline its businesses
and resolve various litigation and other matters. Certain of these actions
resulted in the recognition of charges to operating profit.
During the second quarter of 1996, the Corporation completed a comprehensive
review of its environmental remediation obligations and recorded a charge to
operating profit of $175 million.
During the first quarter of 1996, the Corporation recognized costs for new
restructuring projects of $123 million, primarily for the consolidation of
facilities and the separation of employees. A charge of $486 million was
recognized for pending litigation matters. Other costs of $45 million
recognized in the first quarter generally related to asset impairment, as
discussed in note 3 to the financial statements, or to costs associated with
previously divested businesses.
No such charges were recognized in the first six months of 1997.
3. IMPAIRMENT OF LONG-LIVED ASSETS
During the first quarter of 1996, the Corporation adopted SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS 121 requires that long-lived assets, including
related goodwill, be reviewed for impairment and written down to their
estimated fair value whenever events or changes in circumstances indicate
that the carrying value may not be recoverable.
Upon the adoption of SFAS 121, an impairment charge of $15 million was
recognized in the 1996 first quarter operating profit.
4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ 1 $ 5 $ 2 $ 10
Gain on sale of equity investment - - 24 -
Gain (loss) on disposition of other
assets - 1 - (150)
Operating results - non-consolidated
affiliates 4 1 6 1
Foreign currency transaction and
high-inflation translation effect 2 (2) 9 (4)
Other 11 3 11 5
----- ----- ----- -----
Other income (expenses), net $ 18 $ 8 $ 52 $(138)
===== ===== ===== =====
</TABLE>
5. EXTRAORDINARY ITEM
On March 1, 1996, the Corporation extinguished prior to maturity $3,565
million of debt under the then-existing $7.5 billion credit facility. As a
result of the early extinguishment of debt and the write-off of related debt
issue costs in the first quarter of 1996, the Corporation incurred an
extraordinary loss of $63 million, net of a tax benefit of $41 million.
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<PAGE> 9
6. INVENTORIES (in millions)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Raw materials $ 107 $ 127
Work in process 462 493
Finished goods 127 125
------- -------
696 745
Long-term contracts in process 1,317 986
Progress payments to subcontractors 44 45
Recoverable engineering and development costs 64 68
Less: Inventoried costs related to contracts
with progress billing terms (1,356) (1,061)
------- -------
Inventories, net $ 765 $ 783
======= =======
</TABLE>
7. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Deferred income taxes $ 842 $ 774
Other intangible assets 409 425
Intangible pension asset 40 40
Deferred charges 49 39
Joint ventures and other affiliates 260 232
Noncurrent receivables 331 384
Program rights 120 142
Other 155 225
------- -------
Total other intangible and noncurrent assets $ 2,206 $ 2,261
======= =======
</TABLE>
8. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Other current liabilities:
- -------------------------
Accrued employee compensation $ 192 $ 248
Income taxes currently payable 173 189
Liabilities for talent and program rights 238 308
Accrued product warranty 47 59
Accrued interest and insurance 226 210
Accrued restructuring costs 62 184
Liability for business dispositions 78 79
Accrued expenses 558 875
Environmental liabilities 61 62
Other 336 364
------- -------
Total other current liabilities $ 1,971 $ 2,578
======= =======
Other noncurrent liabilities:
- ----------------------------
Postretirement benefits $ 1,224 $ 1,218
Postemployment benefits 68 67
Accrued restructuring costs 59 94
Liability for business dispositions 55 87
Liabilities for talent and program rights 62 51
Settlement and other accrued liabilities 1,211 1,370
Environmental liabilities 389 404
Other 300 328
------- -------
Total other noncurrent liabilities $ 3,368 $ 3,619
======= =======
</TABLE>
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<PAGE> 10
9. DISCONTINUED OPERATIONS
In recent years, the Corporation has adopted several separate plans to
dispose of major segments of its business. These businesses have been
accounted for as Discontinued Operations in accordance with APB 30.
The table below summarizes each of the Corporation's segment disposal plans
as well as the assets remaining as of June 30, 1997.
<TABLE>
<CAPTION>
Plan Date Line of Business Remaining Assets
- --------- ---------------- ----------------
<S> <C> <C>
November 1996 Communication & Information
Systems (CISCO) Several businesses
March 1996 Environmental Services Miscellaneous operations
December 1995 The Knoll Group (Knoll) -
December 1995 Defense and Electronic Systems -
July 1995 Land Development (WCI) Mortgage notes receivable
and miscellaneous securities
November 1992 Financial Services Leasing receivables
November 1992 Distribution & Control (DCBU) -
November 1992 Westinghouse Electric Supply
Company (WESCO) Miscellaneous securities
</TABLE>
Summarized operating results of Discontinued Operations, grouped by
measurement date, follows:
OPERATING RESULTS OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
For the six months ended June 30, 1997
<TABLE>
<CAPTION>
Measurement Date
---------------------------------------
1996 1995 1992 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Sales of products and services $ 179 $ - $ 6 $ 185
Loss before income taxes (29) - (14) (43)
Income tax benefit 9 - - 9
Net operating losses after measurement
date charged to liability for estimated
loss on disposal (20) - (14) (34)
</TABLE>
For the six months ended June 30, 1996
<TABLE>
<CAPTION>
Measurement Date
---------------------------------------
1996 1995 1992 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Sales of products and services $ 282 $ 352 $ 13 $ 647
Loss before income taxes (88) (78) (11) (177)
Income tax benefit (expense) 16 (4) - 12
Net loss prior to measurement date (51) - - (51)
Net operating losses after measurement
date charged to liability for estimated
loss on disposal (21) (82) (11) (114)
</TABLE>
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<PAGE> 11
The assets and liabilities of Discontinued Operations have been separately
classified on the consolidated balance sheet as net liabilities of
Discontinued Operations. A summary of these assets and liabilities follows:
NET LIABILITIES OF DISCONTINUED OPERATIONS
(in millions)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 8 $ 13
Receivables 43 90
Inventories 18 32
Portfolio investments 811 845
Other assets 278 438
------ ------
Total assets -- Discontinued Operations 1,158 1,418
------ ------
LIABILITIES:
Short-term debt 7 5
Current maturities of long-term debt 96 2
Liability for estimated loss on disposal 370 672
Long-term debt 424 417
Other liabilities 84 142
Deferred income taxes 220 180
------ ------
Total liabilities -- Discontinued Operations 1,201 1,418
------ ------
Net liabilities of Discontinued Operations $ (43) $ -
====== ======
</TABLE>
At June 30, 1997, the assets and liabilities of Discontinued Operations
included those related to the remaining operations from both the CISCO
segment and the environmental services business, the remaining securities
from WCI, other miscellaneous securities, the leasing portfolio, and deferred
income taxes. Liabilities also included debt and the estimated losses and
divestiture costs associated with all Discontinued Operations, including
estimated results of operations through divestiture.
Except for the leasing portfolio, the assets generally are expected to be
divested during 1997. Deferred income taxes, which result from temporary
differences between book and tax bases of the assets and liabilities of
Discontinued Operations, generally will be transferred to Continuing
Operations upon reversal and will not result in the receipt or payment of
cash by Discontinued Operations. Liabilities associated with divestitures are
expected to be satisfied over the next several years. Debt will be repaid
using cash proceeds from the liquidation of assets of Discontinued
Operations. Cash proceeds in excess of those required to repay the debt and
satisfy the divestiture liabilities of Discontinued Operations, if any, will
be transferred to Continuing Operations.
Portfolio investments consist primarily of receivables related to the leasing
portfolio of Financial Services. Also included are real estate properties
and investments in leasing partnerships. The leasing portfolio is expected
to liquidate through 2015 in accordance with contractual terms and generally
consists of direct financing and leveraged leases. At June 30, 1997 and
December 31, 1996, 83% and 84% of the leases, respectively, related to
aircraft and 17% and 16%, respectively, related to cogeneration facilities.
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<PAGE> 12
10. CONTINGENT LIABILITIES AND COMMITMENTS
Legal Matters
- -------------
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. Since 1993, settlement agreements have been
entered resolving ten litigation claims. These agreements generally require
the Corporation to provide certain products and services at prices discounted
at varying rates. Two cases were resolved in favor of the Corporation after
trial or arbitration. One active steam generator lawsuit remains.
The Corporation is also a party to six tolling agreements with utilities or
utility plant owners groups which have asserted steam generator claims. The
tolling agreements delay initiation of any litigation for various specified
periods of time and permit the parties time to engage in discussion.
Securities Class Actions - Financial Services
The Corporation has been 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 were
appealed. In July 1996, the United States Court of Appeals for the Third
Circuit (the Circuit Court) affirmed the court s dismissal of the derivative
claim. The Circuit Court also affirmed in part and reversed in part the
dismissal of the class action claims. Those class action claims that were
not dismissed by the Circuit Court have been remanded to the lower court for
further proceedings.
Asbestos
The Corporation is a defendant in numerous lawsuits claiming various
asbestos-related personal injuries, which allegedly occurred from use or
inclusion of asbestos in certain of the Corporation's products, generally in
the pre-1970 time period. Typically, these lawsuits are brought against
multiple defendants. The Corporation was neither a manufacturer nor a
producer of asbestos and is oftentimes dismissed from these lawsuits on the
basis that the Corporation has no relationship to the products in question or
the claimant did not have exposure to the Corporation's product. At June 30,
1997, the Corporation had approximately 107,000 claims outstanding against
it.
In court actions which have been resolved, the Corporation has prevailed in
the majority of the asbestos claims and has resolved others through
settlement. Furthermore, the Corporation has brought suit against certain of
its insurance carriers with respect to these asbestos claims. Under the
terms of a settlement agreement resulting from this suit, carriers that have
agreed to the settlement are now reimbursing the Corporation for a
substantial portion of its current costs and settlements associated with
asbestos claims. The Corporation has recorded a liability for
asbestos-related losses that are deemed probable and can be reasonably
estimated, and has separately recorded an asset equal to the amount of such
estimated liabilities that will be recovered pursuant to agreements with
insurance carriers. The Corporation cannot reasonably estimate costs for
unasserted asbestos claims.
General
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in the steam generator claims, the securities
class action and certain groupings of asbestos claims 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
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<PAGE> 13
meritorious defenses to the litigation described above and that the Corporation
has adequately provided for costs arising from potential settlement of these
matters when in the best interest of the Corporation. 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 laws and regulations relating to
the discharge of pollutants 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. 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, and technology; the
adequacy of information available for individual sites; the extended time
periods over which site remediation occurs; and the identification of new
sites. The Corporation has, however, recognized an estimated liability,
measured in current dollars, for those sites where it is probable that a loss
has been incurred and the amount of the loss can be reasonably estimated.
The Corporation recognizes changes in estimates as new remediation
requirements are defined or as more information becomes available.
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named 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 approximately 90 sites. The Corporation believes
that any liability incurred for cleanup at these sites will be satisfied over
a number of years, and in many cases, the costs will be shared with other
responsible parties. These sites include certain sites for which the
Corporation, as part of an agreement for sale, has retained obligations for
remediation of environmental contamination and for other Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) issues.
Based on the costs associated with the most probable alternative remediation
strategy for the above mentioned sites, the Corporation has an accrued
liability of $450 million. Depending on the remediation alternatives
ultimately selected, the costs related to these sites could differ from the
amounts currently accrued. The accrued liability includes $329 million for
site investigation and remediation and $121 million for post closure and
monitoring activities. Management anticipates that the majority of
expenditures for site investigation and remediation will occur during the
next five to ten years. Expenditures for post-closure and monitoring
activities will be made over periods up to 30 years.
Commitments -- Continuing Operations
- ------------------------------------
In the ordinary course of business, standby letters of credit and surety
bonds are issued on behalf of the Corporation related primarily to
performance obligations under contracts with customers.
The Corporation routinely enters into commitments to purchase the rights to
broadcast programs, including feature films and sporting events. These
contracts permit the broadcast of such properties for various periods ending
no later than April 2002. As of June 30, 1997, the Corporation was committed
to make payments under such broadcasting contracts, along with commitments
for talent contracts, totalling $3,603 million.
Commitments -- Discontinued Operations
- --------------------------------------
Financial Services commitments at June 30, 1997 consisting primarily of
guarantees totalled $31 million compared to $38 million at year-end 1996.
The remaining commitments have fixed expiration dates from 1997 through 2002.
Management expects these commitments to expire unfunded.
-13-
<PAGE> 14
11. SHAREHOLDERS' EQUITY
On May 30, 1997, the Corporation redeemed all outstanding shares of its
Series C Conversion Preferred Stock (Series C Preferred). In accordance with
the terms of the offering, each share of the Series C Preferred converted
into Westinghouse common stock at the rate of 8.85 shares of Westinghouse
common stock, equivalent to 0.885 of a share of Westinghouse common stock for
each $1.30 depositary share. Each depositary share represented one-tenth of a
share of Series C Preferred. In connection with this redemption of the
Series C Preferred, the Corporation issued 31,859,026 shares of common stock.
All accrued and unpaid dividends on the redeemed shares of Series C Preferred
were paid on May 30, 1997.
Prior to its redemption, the Series C Preferred was treated as outstanding
common stock for the calculation of earnings per share, which was in
accordance with prevalent practice at the time of sale. If the Series C
Preferred had been treated as common stock equivalents for the calculation of
earnings per share, the Corporation's per-share results for the three months
ended June 30, 1997 and 1996 would have been losses of $0.02 and $0.25,
respectively, while the per-share results for the six months ended June 30,
1997 and 1996 would have been a loss of $0.28 and income of $0.33,
respectively.
In conjunction with the Infinity acquisition on December 31, 1996, the
Corporation issued 183 million shares of Westinghouse common stock. These
shares, together with the related options outstanding, resulted in an
increase in shareholders equity of $3.8 billion.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In November 1996, Westinghouse Electric Corporation (Westinghouse) announced
that its Board of Directors had conditionally approved a plan for a strategic
restructuring whereby Westinghouse would separate its media and industrial
businesses into two separate, publicly traded companies. The Westinghouse Board
of Directors modified the separation plan in June 1997 such that the industrial
businesses would consist primarily of the manufacturing and services businesses
for the nuclear and fossil-fueled power generation industry and the government
operations business. Westinghouse will continue to own Thermo King, subject to
its previously announced intention to consider various options to enhance Thermo
King's value to Westinghouse shareholders. In addition, pension and
postretirement benefit obligations accrued through the date of the separation
for current and former employees, will be retained by Westinghouse. The
industrial company will assume other non-debt obligations generated by the
Corporation's previously divested businesses, other than those classified as
Discontinued Operations, including environmental, asbestos and other
litigation-related liabilities, as well as certain asbestos and toxic tort
litigation-related matters associated with Discontinued Operations.
Westinghouse plans to separate its industrial businesses by way of a tax-free
dividend to shareholders forming a publicly traded company to be called
Westinghouse Electric Company (WELCO). At the time of separation, Westinghouse
would change its name to CBS Corporation and WELCO would change its name to
Westinghouse Electric Corporation. WELCO, currently a wholly owned subsidiary
of Westinghouse, was incorporated in July 1997. The plan provides that
Westinghouse will distribute to each holder of record of Westinghouse common
stock at the record date, certificates representing a specific number of shares
of WELCO common stock based on a ratio to be determined, and cash in lieu of any
fractional shares of WELCO common stock.
Completion of the plan is subject to a number of conditions, including receipt
of a favorable ruling from the Internal Revenue Service that the transaction
will not be taxable for U.S. federal income tax purposes to Westinghouse or its
shareholders, a credit facility being in place, and the registration statement
for the WELCO stock being declared effective by the Securities and Exchange
Commssion. The separation is expected to be completed in the fourth quarter of
1997. However, there can be no assurance that the separation will occur or as
to the related timing. Furthermore, if the separation does occur, there can be
no assurance that all of the assets, liabilities, and contractual obligations
will be transferred as currently contemplated or that changes will not be made
to the separation plan.
On February 10, 1997, the Corporation announced that it reached a definitive
merger agreement with Gaylord Entertainment Company (Gaylord) whereby the
Corporation will acquire Gaylord s two major cable networks - The Nashville
Network (TNN) and Country Music Television (CMT). The acquisition includes
domestic and international operations of TNN, the U.S. and Canadian
operations of CMT, and approximately $50 million of working capital. The
purchase price of $1.55 billion will be paid in Westinghouse common stock.
The number of shares to be issued will depend on the average of the closing
prices of the Corporation's common stock during a trading period just prior
to the effective time of the transaction, subject to certain limits on the
total number of shares to be issued and certain termination rights under the
merger agreement. The transaction is subject to several conditions, including
the receipt of a favorable ruling from the Internal Revenue Service and the
approval of Gaylord's shareholders at the meeting to be held August 15, 1997.
Management currently anticipates this transaction to be completed prior to
the separation of the industrial businesses as discussed above.
-15-
<PAGE> 16
The $4.7 billion acquisition of Infinity Broadcasting Corporation (Infinity)
resulted in an increase in shareholders equity at December 31, 1996 of $3.8
billion from the issuance of 183 million shares of Westinghouse common stock
and the conversion of Infinity options into options to acquire approximately
22 million additional shares of Westinghouse common stock. Effective January
1, 1997, operating results for Infinity are included in the Corporation's
consolidated financial statements and are reported as part of the radio
segment of the Media group.
Subsequent to the acquisition of Infinity at year-end 1996, the Corporation's
radio group continued to outpace the market. The radio group s profitability
in the first half of 1997 was further enhanced by cost reduction measures at
radio stations.
Both net income and income from Continuing Operations for the second quarter
of 1997 were $1 million compared to a loss of $89 million for the second
quarter of 1996. For the first six months of 1997, both net income and
income from Continuing Operations were a loss of $150 million. For the first
six months of 1996, net income was $157 million reflecting a gain from
Discontinued Operations, while income from Continuing Operations was a loss
of $747 million. Results for the 1996 periods included a number of special
items which are presented in the table below. No special items were included
in the 1997 periods. Excluding the special items, income from Continuing
Operations for the second quarter and first six months of 1996 would have
been $25 million and a loss of $101 million, respectively.
The $24 million decrease in income from Continuing Operations for the second
quarter of 1997, excluding special items, reflected several factors. For the
Media group, the favorable radio results were more than offset by lower
performance by the television network. Results for the industries and
technology group increased, however, due to higher service revenues and
timing of award fees from several government contracts. Interest expense for
the 1997 quarter was unfavorable, reflecting debt assumed in the December 31,
1996 Infinity acquisition.
For the first six months of 1997, the increase in the loss from Continuing
Operations, excluding the special items recognized in the first half of 1996,
reflected the favorable radio results more than offset by lower profits at
the television network. For the industries and technology group, decreased
performance at Energy Systems due to a profit adjustment for a complex
international power project was partially offset by increased service
revenues at Power Generation.
During 1996, several important strategic actions were taken. In early 1996,
the Corporation completed the sales of its defense and electronic systems
business and Knoll, and recorded a combined after-tax gain of $1.2 billion.
The cash proceeds from these divestitures, which totalled nearly $3.6
billion, were used to repay ahead of schedule a significant portion of the
debt incurred to finance the 1995 $5.4 billion acquisition of CBS Inc. (CBS).
The Corporation further streamlined its businesses in 1996 and adopted plans
to exit its Communication & Information Systems (CISCO) segment and its
environmental services line of business, resulting in the transfer of these
businesses to Discontinued Operations. On December 31, 1996, the Corporation
completed the sale of Westinghouse Security Systems, part of CISCO. During
the second quarter of 1997, the Corporation completed the sale of two
businesses and an operating facility of the environmental services business.
In the first six months of 1996, the Corporation recognized costs associated
with additional restructuring actions, as well as outstanding litigation,
environmental remediation, and other matters. During the three months ended
June 30, 1996, a charge of $175 million, or $114 million after-tax, was
recognized for environmental remediation activities.
-16-
<PAGE> 17
The special items included in the Corporation's results for the first six
months of 1996 are summarized below. No special items were recognized in the
first six months of 1997.
SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (in millions except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pre-Tax After-Tax Per-Share
Amount Amount Impact
------- --------- ---------
<S> <C> <C> <C>
Continuing Operations:
Operating Profit:
Restructuring $ (123)
Litigation matters (486)
Impairment of assets (15)
Environmental remediation activities (175)
Other (30)
-------
Total impact on operating profit (829)
Other income and expense:
Loss on assets held for sale (152)
-------
Total impact on Continuing Operations $ (981) $ (646) $ (1.46)
=======
Discontinued Operations:
Net gain on disposal of businesses 1,018 2.32
Extraordinary Item:
Loss on early extinguishment of debt (63) (0.14)
------ -------
Net amount of special items $ 309 $ 0.72
====== =======
</TABLE>
-17-
<PAGE> 18
RESULTS OF OPERATIONS
The following represents the segment results for the Corporation's Continuing
Operations for the three months and six months ended June 30, 1997 and 1996.
Segment Results (in millions)(unaudited)
----------------------------------------
<TABLE>
<CAPTION>
Operating Profit
(Loss)
Sales of Products Operating Profit Excluding
& Services (Loss) Special Charges
----------------- ---------------- ----------------
Three Months Ended
June 30 1997 1996 1997 1996 1997 1996
- ------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Media:
Television $ 213 $ 226 $ 87 $ 90 $ 87 $ 90
Network 631 681 (22) 87 (22) 87
Radio 378 145 113 47 113 47
Other Media Businesses 77 58 2 9 2 9
Other Media (16) (10) (25) (41) (25) (41)
------ ------ ----- ----- ----- -----
Total Media 1,283 1,100 155 192 155 192
Industries & Technology:
Power Systems:
Energy Systems 309 304 17 2 17 13
Power Generation 585 465 (2) (20) (2) (20)
Other Power Systems (56) (37) (14) (17) (14) (17)
------ ------ ----- ----- ----- -----
Total Power Systems 838 732 1 (35) 1 (24)
Government Operations 24 26 19 13 19 13
------ ------ ----- ----- ----- -----
Total Industries &
Technology 862 758 20 (22) 20 (11)
Thermo King 263 265 49 46 49 46
Corporate & Other 18 34 (78) (246) (78) (82)
Intersegment sales (13) (9) - - - -
------ ------ ----- ----- ----- -----
TOTAL $2,413 $2,148 $ 146 $ (30) $ 146 $ 145
====== ====== ===== ===== ===== =====
</TABLE>
-18-
<PAGE> 19
Segment Results (in millions)(unaudited)
----------------------------------------
<TABLE>
<CAPTION>
Operating Profit
(Loss)
Sales of Products Operating Profit Excluding
& Services (Loss) Special Charges
----------------- ---------------- ----------------
Six Months Ended
June 30 1997 1996 1997 1996 1997 1996
- ------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Media:
Television $ 390 $ 414 $ 143 $ 144 $ 143 $ 144
Network 1,424 1,447 (82) 87 (82) 87
Radio 691 266 160 67 160 67
Other Media Businesses 137 107 (2) 13 (2) 13
Other Media (33) (16) (60) (117) (60) (76)
------ ------ ----- ----- ----- -----
Total Media 2,609 2,218 159 194 159 235
Industries & Technology:
Power Systems:
Energy Systems 496 535 (43) (24) (43) 8
Power Generation 1,059 898 (41) (137) (41) (82)
Other Power Systems (107) (87) (31) (323) (31) (34)
------ ------ ----- ----- ----- -----
Total Power Systems 1,448 1,346 (115) (484) (115) (108)
Government Operations 47 51 29 31 29 31
------ ------ ----- ----- ----- -----
Total Industries &
Technology 1,495 1,397 (86) (453) (86) (77)
Thermo King 514 522 96 91 96 91
Corporate & Other 38 68 (153) (568) (153) (156)
Intersegment sales (20) (18) - - - -
------ ------ ----- ----- ----- -----
TOTAL $4,636 $4,187 $ 16 $(736) $ 16 $ 93
====== ====== ===== ===== ===== =====
</TABLE>
The Corporation's reported sales increased $265 million or 12% for the second
quarter of 1997 compared to the 1996 second quarter. For the first six
months of 1997, sales for the Corporation increased $449 million or 11%
compared to the same period last year. Increases in revenues for Media and
Power Generation were offset partially by higher volume of discounts for
Other Power Systems and certain miscellaneous non-strategic businesses that
were divested in 1996. Revenues for Energy Systems, while essentially flat
for the quarter, decreased 7% for the six months of 1997 compared to the
first half of 1996.
The operating profit for the Corporation for the second quarter of 1997 was
flat with the same period of 1996 at $146 million, excluding special items in
the 1996 second quarter. While the strength of the Media group's radio
business caused profits to increase significantly, the increase was more than
offset by a decline in the CBS Network profits. Power Systems' operating
profit increased for the quarter, excluding special items, primarily as a
result of higher service and new equipment sales at Power Generation and a
strong spring outage season for Energy Systems.
For the first half of 1997, operating profit declined $77 million compared to
the first six months of 1996, excluding special items. The increases in
radio stated above were more than offset by declines in network profits. At
Power Systems, despite a decrease in the operating loss at Power Generation
due to increased service sales, profits for Power Systems declined due to the
completion of a reevaluation of a complex international nuclear project for
Energy Systems in the first quarter of 1997 which required an adjustment to
sales and operating profit.
-19-
<PAGE> 20
Media
Due to the acquisition of Infinity at December 31, 1996, the results for
Media for the second quarter and first half of 1997 include Infinity
financial data, while the same periods of 1996 do not. Where appropriate,
the discussion below provides a comparison of the actual results for the
second quarter and first half of 1997 with the proforma combined CBS and
Infinity results for the second quarter and first half of 1996.
Revenues for the television station group declined $13 million or 6% for the
second quarter of 1997 and $24 million or 6% for the first six months of 1997
compared to the same periods last year. Lower ratings in certain markets
contributed to the decline. The 1996 first half also had revenues from WPRI,
the Providence, Rhode Island station sold in July 1996. Despite the lower
revenues, operating profit decreased only slightly in the second quarter of
1997 and was flat for the first half of 1997 as cost improvements at the
stations offset much of the decreased revenues.
The network experienced a 7% decrease in revenues for the second quarter of
1997 and was flat for the first half of 1997 compared to the same periods
last year primarily as a result of a decline in key demographics. Operating
profit declined significantly as a result of higher programming costs,
primarily associated with entertainment, sports, and syndication costs, and
lower audience levels in key demographic categories. The decline in the
favorable effect from purchase price accounting adjustments related to
program rights acquired in the purchase of CBS contributed to the lower
profit levels.
On a proforma combined basis, sales for radio for the second quarter of 1997
increased $40 million or nearly 12% while sales for the six months ended June
30, 1997 increased $87 million or 14% compared to the same periods of 1996,
continuing to outperform the radio industry. Operating profit, on a proforma
combined basis, increased nearly 18% and 23%, respectively, for the same
periods as a result of the increased revenues and significant benefits from
cost reduction activities. Results for the radio group include amortization
of goodwill and intangible assets related to the Infinity acquisition.
Other Media Businesses includes operating results for CBS Cable and EYEMARK
Entertainment (EYEMARK) which produces and distributes programming. Revenues
for CBS Cable increased 24% and 20% for the second quarter and first six
months of 1997, respectively, compared to the same periods last year,
primarily as a result of increased sales for sports and other cable services
and the June 1996 acquisition of TeleNoticias, a 24-hour, Spanish-language
news service. Operating profit, however, declined for the same periods of
1997 compared to last year primarily due to increased expenses related to
TeleNoticias and costs to develop and launch Eye On People, a new cable
channel which debuted March 31, 1997. The acquisition of TNN and CMT later
in the third quarter of 1997 is expected to strengthen the group s cable
business. Revenues for EYEMARK increased in the second quarter and first
half of 1997 compared to the same periods last year. The operating losses
for EYEMARK also improved due to the mix of programming.
Costs for the Media group's headquarters and amortization of all goodwill
arising from the CBS acquisition comprise Other Media. In the first quarter
of 1996, Other Media included a $41 million restructuring charge for
Westinghouse's actions to obtain operational synergies between CBS and
Westinghouse. The cost of the CBS actions was recognized in connection with
the CBS acquisition. Goodwill amortization related to the CBS acquisition
totals $30 million per quarter.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a
widely accepted financial indicator of a company's ability to incur and
service debt. It is commonly used in the media industry as a surrogate for
cash flows. EBITDA differs from operating cash flows for the group primarily
because it does not consider certain changes in assets and liabilities from
period to period. For the entire Media group, EBITDA totalled $261 million
for the
-20-
<PAGE> 21
second quarter of 1997 and $371 million for the first half of 1997,
essentially flat with the same periods in 1996, excluding the restructuring
charge recognized in the first quarter of 1996. On a proforma combined
basis, EBITDA for the second quarter of 1997 and 1996 was $261 million and
$340 million, respectively, while EBITDA for the first half of 1997 and 1996
was $371 million and $486 million, respectively.
Power Systems
Power Systems includes results for the Energy Systems and Power Generation
business units. For the second quarter of 1997, sales for Power Systems
increased nearly 15%, while sales for the six months ended June 30, 1997
increased 8% compared to the same periods of 1996. Excluding special items
in 1996, operating profit for Power Systems increased $25 million for the
second quarter of 1997 compared to the second quarter of 1996, while the
operating loss for the first half of 1997 increased slightly.
Energy Systems sales for the second quarter of 1997 were flat compared to the
second quarter of 1996, while operating profit was up 30%, excluding an $11
million charge for environmental remediation activities in the second quarter
of 1996. Increased service sales from a strong spring outage season and cost
reduction activities generated the increase in operating profit for the
quarter. For the six months ended June 30, 1997, sales for Energy Systems
decreased 7% while the operating loss, excluding special items in the 1996
period, increased sharply. The 1996 period included the $11 million
remediation charge and a $21 million restructuring charge taken in the first
quarter of 1996. The primary reason for the decrease in sales and operating
profit for the six month period was a $49 million adjustment to both sales
and operating profit following a comprehensive reevaluation of the work scope
and costs to complete a complex international nuclear project which
originated in 1993. Although this $352 million contract remains profitable,
management has determined that the Corporation's profit will be less than
originally estimated. Orders for the second quarter and first six months of
1997 were down 32% and 28%, respectively, primarily due to several large fuel
reload orders in the first and second quarters of 1996 and the delay of
several 1997 fuel orders until the third quarter of 1997.
Power Generation's orders for the second quarter of 1997 decreased $70
million or 10% compared to the second quarter of 1996, while orders for the
first half of 1997 declined $339 million compared to the same period last
year. Delays in project bookings due to timing of financial closings was the
primary cause of the decreased order level. Also, although there continues
to be a high level of negotiation activity, orders are expected to trail
1996's volume.
Revenues in Power Generation increased $120 million or 26% for the second
quarter of 1997 and $161 million or 18% for the first six months of 1997
compared to the same periods last year. Higher service and new equipment
sales were the primary reasons for this revenue increase. The operating loss
declined $18 million for the second quarter of 1997 and $41 million for the
first half of 1997 compared to the same periods in 1996, excluding a $5
million litigation charge and a $50 million restructuring charge recognized
in the first quarter of 1996. Higher service revenues and cost improvements
from restructuring programs caused the decrease in the operating loss.
The operating loss for the first quarter of 1996 for Other Power Systems,
which primarily reflects discounts on prior litigation settlements, included
a $289 million special charge for estimated losses associated with potential
litigation settlements. Excluding this charge, the operating losses for the
second quarter and first six months of 1997 improved $3 million from the same
periods last year.
-21-
<PAGE> 22
Government Operations
Revenues for the second quarter and first six months of 1997 were down 8%
compared to the same periods of 1996. The loss of the Hanford Department of
Energy (DOE) contract in late 1996 was the primary reason for the sales
decline. The operating profit for the second quarter of 1997 increased $6
million or 46% compared to the second quarter of 1996 largely due to the
timing of fees from several government contracts. Operating profit for the
first half of 1997 decreased $2 million or 7% compared to the first half of
1996, primarily as a result of the loss of the Hanford contract.
Thermo King
Thermo King orders for the second quarter of 1997 were up 12%. A strong bus
air conditioning market in North America and Europe was largely responsible
for this increase. Orders for the first six months of 1997 were up 8% from
the 1996 period primarily due to a large container order received in the
first quarter of 1997. Despite increased revenues from bus air conditioning,
sales for the quarter and six months were essentially flat due primarily to
the strong U. S. dollar. While the European truck and trailer market remains
stagnant, the worldwide bus air conditioning markets are surging. Operating
profit increased 6% for the second quarter and first six months of 1997
compared to the same periods last year as revenues from increased bus air
conditioning sales, improved conditions in the North American truck and
trailer industry, lower material costs, and productivity improvements
enhanced profitability.
Corporate and Other
Corporate and Other includes the cost of corporate activities that are managed
for the benefit of the entire Corporation and the results of operations for the
Corporation's non-strategic and divested businesses.
Sales for the second quarter and first six months of 1997 were down 47% and
44%, respectively, due primarily to the 1996 sale of several non-strategic
businesses. The operating loss, excluding the first quarter 1996 charge of
$248 million for restructuring, litigation, and other matters, and a second
quarter 1996 charge of $164 million for environmental remediation activities,
was down slightly for the 1997 second quarter and first half. Cost
reductions from restructuring activities have caused corporate overhead costs
to be lower than the prior year. However, costs associated with the
Corporation's continuing pension obligation for retirees who were part of the
defense and electronic systems business sold in March 1996 continues to
unfavorably impact operating profit and offset the improvement in overheads.
These pension costs for January and February of 1996 were included in
Discontinued Operations as part of the results for that business prior to its
disposal.
RESTRUCTURING AND OTHER ACTIONS
In recent years, the Corporation has restructured many businesses and its
corporate headquarters in an effort to reduce costs and remain competitive in
its markets. Restructuring activities primarily involve the separation of
employees, the closing of facilities, the termination of leases, and the
exiting of product lines. Costs for restructuring activities are limited to
incremental costs that directly result from the restructuring activities and
that provide no future benefit to the Corporation.
During 1996, management approved new restructuring projects with costs
totalling $273 million, $123 million in the first quarter and $150 million in
the fourth quarter, primarily for consolidation of facilities and the
separation of employees. As of June 30, 1997, $180 million had been expended
on the 1996 programs, $124 million of which was cash. Future cash
expenditures for these programs are estimated to approximate $48 million for
the remainder of 1997, and $20 million for 1998 and beyond.
-22-
<PAGE> 23
In addition to the reserves established in 1996, restructuring reserves were
also established in 1994 and 1995. The employee separations and
restructuring expenditures included in the 1994 and 1995 plans are
essentially complete. In addition, a CBS restructuring plan was adopted in
conjunction with the acquisition in November 1995. Implementation of this
plan will continue over the next two years.
Annualized savings from the 1994 and 1995 restructuring programs other than
the CBS plan are estimated to total approximately $75 million; however,
competitive pressures causing price compression in certain of the
Corporation's markets have absorbed a significant portion of the savings
achieved through restructuring actions. Annualized savings from the 1996
plan, which will be gradually achieved over the next two years, are estimated
at $100 million.
The Corporation expects to continue to identify restructuring initiatives at
its business units and its Corporate headquarters in an ongoing effort to
reduce its overall cost structure and improve competitiveness, particularly
in light of the impending separation. Additional restructuring initiatives
are likely in 1997.
DISCONTINUED OPERATIONS
At June 30, 1997, the assets and liabilities of Discontinued Operations
included those related to the remaining operations from the CISCO segment and
the environmental services business, the remaining securities from the land
development subsidiary, other miscellaneous securities, the leasing
portfolio, and deferred income taxes. Liabilities also included debt and the
estimated losses and divestiture costs associated with all Discontinued
Operations, including estimated results of operations through divestiture.
During the second quarter of 1997, the Corporation completed the sale of two
businesses and an operating facility of the environmental services business.
Other than the leasing portfolio, the Corporation is actively pursuing the
sale of assets, which are generally expected to be divested during 1997.
Deferred income taxes, which result from temporary differences between book
and tax bases of the assets and liabilities of Discontinued Operations,
generally will be transferred to Continuing Operations upon reversal and will
not result in the receipt or payment of cash by Discontinued Operations.
Liabilities associated with divestitures are expected to be satisfied over
the next several years. Debt will be repaid using cash proceeds from the
liquidation of assets of Discontinued Operations. Cash proceeds in excess of
those required to repay the debt and satisfy the divestiture liabilities of
Discontinued Operations, if any, will be transferred to Continuing
Operations.
Management believes that the net proceeds anticipated from the continued
liquidation of assets of Discontinued Operations will be sufficient to fund
the liabilities of Discontinued Operations, including the repayment of its
debt. Management further believes that the liability for the estimated loss
on disposal of Discontinued Operations of $370 million at June 30, 1997 is
adequate to cover future operating costs, estimated losses, and the remaining
divestiture costs associated with all discontinued businesses.
OTHER INCOME AND EXPENSES
Other income and expenses generated income of $18 million in the second
quarter of 1997 and $52 million for the first six months of 1997 compared to
income of $8 million and a loss of $138 million for the same periods of 1996.
The 1997 income included the sale of an equity investment in a regional
sports network. During the first quarter of 1996, a comprehensive review was
undertaken by the Corporation to identify non-strategic assets. A charge of
$152 million was recognized during the quarter for losses expected to be
realized upon the sale of those assets.
-23-
<PAGE> 24
INTEREST EXPENSE
Interest expense for Continuing Operations for the second quarter and first
half of 1997 was $122 million and $236 million, respectively, compared to
$109 million and $255 million, respectively, for the same periods in 1996.
The increase in interest expense in the second quarter of 1997 is the result
of higher average debt primarily attributable to debt assumed in the December
31, 1996 acquisition of Infinity. Average debt for the first six months of
1997 was significantly lower than the prior year because of the January and
February 1996 impact of the CBS acquisition debt prior to its repayment from
the proceeds of major divestitures.
INCOME TAXES
The Corporation's effective income tax rate for Continuing Operations for the
second quarter and first half of 1997 was a benefit of 96% and 11%,
respectively, compared to a benefit of 33% and 34%, respectively, for the
same periods of 1996. Because of the amortization of non-deductible
goodwill for CBS and Infinity and the impact of special transactions, these
rates can vary dramatically depending on the Corporation's income or loss
levels.
At June 30, 1997, the Corporation had recorded net deferred income tax
benefits totalling $1,355 million compared to $1,411 million at December 31,
1996. As a result of these net deferred income tax benefits, cash payments
for federal income taxes are minimal. Management believes that the
Corporation's tax planning strategies combined with its future taxable income
will make it more likely than not that the net deferred tax asset will be
realized. Realization of the net deferred tax asset will be reevaluated at the
time of the separation of the businesses.
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.
On February 10, 1997, the Corporation announced an agreement to acquire two
cable networks - TNN and CMT. The purchase price of $1.55 billion will be
paid in Westinghouse common stock, which will further increase the
Corporation's equity. No debt will be assumed in conjunction with this
transaction.
As discussed previously, the Corporation intends to separate its media and
industrial businesses through a tax-free dividend of the industrial businesses
to shareholders. As currently contemplated, the media company will retain all
debt obligations of the current Westinghouse as well as the $1.5 billion tax net
operating loss carryforward. The media company also will retain the pension and
postretirement benefit obligations while the industrial businesses will assume
other non-debt obligations generated by the Corporation's industrial businesses
in earlier years. Management currently anticipates the separation will occur in
the fourth quarter of 1997. However, there can be no assurance that all of the
assets, liabilities and contractual obligations will be transferred as currently
contemplated or that changes will not be made to the separation plan.
The Corporation has and will continue to monetize non-strategic assets. In
1996, the Corporation adopted plans to exit its environmental services business
and CISCO. In addition to the $3.6 billion of cash generated by the sale of
Knoll and the defense and electronic systems business, sales of various
non-strategic assets in 1996 generated cash proceeds of approximately $550
million. During 1997, sales of non-strategic assets could generate additional
cash of approximately $300 million. The majority of these proceeds are
anticipated to be received in the second half of the year.
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<PAGE> 25
Total debt for the Corporation was $6,630 million at June 30, 1997, of which
$527 million was included in Discontinued Operations and will be repaid
through the liquidation of those assets. Debt of Continuing Operations of
$6,103 million increased $453 million from December 31, 1996 reflecting
higher working capital requirements at several of its businesses. The
Corporation's debt of Continuing Operations is expected to remain at
approximately this level for the remainder of the year.
Management expects that the Corporation will have sufficient liquidity to
meet ordinary future business needs. Sources of liquidity generally
available to the Corporation include cash from operations, availability under
its credit facility, cash and cash equivalents, proceeds from sales of
non-strategic assets, borrowings from other sources, including funds from the
capital markets, and the issuance of additional capital stock.
Operating Activities
The following table provides a reconciliation of net income to cash used by
operating activities of Continuing Operations for the six months ended June
30, 1997 and 1996:
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
(in millions) (unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1997 1996
---- ----
<S> <C> <C>
Loss from Continuing Operations $ (150) $ (747)
Adjustments to reconcile loss from
Continuing Operations to net cash used
for operating activities:
Depreciation and amortization 270 209
Losses (gains) on asset dispositions (24) 150
Other noncash adjustments (33) (104)
Changes in assets and liabilities, net of effects
of acquisitions and divestitures of businesses:
Receivables, current and noncurrent 36 18
Inventories 13 (38)
Accounts payable (282) (252)
Deferred and current income taxes 1 (145)
Environmental liabilities (16) 203
Accrued restructuring costs (157) 71
Liabilities for asset dispositions (33) 98
Other assets and liabilities (202) (87)
------ ------
Cash used for operating activities
of Continuing Operations $ (577) $ (624)
====== ======
</TABLE>
The operating activities of Continuing Operations used $577 million of cash
during the first six months of 1997 compared to cash used of $624 million
during the first six months of 1996. The two primary factors contributing to
the use of cash in the first half of 1997 were a significant reduction in
accounts payable and higher restructuring expenditures. Restructuring
spending increased in the first half of 1997 relative to the first half of
1996. This was primarily attributable to expenditures associated with the
restructuring plans adopted in late 1996.
The Corporation's pension contribution level for 1997, which is expected to
be approximately $250 million to $300 million, is consistent with the
Corporation's goal to fully fund its qualified pension plans over the next
several years. In July 1997, the Corporation began making its pension
contributions quarterly pursuant to certain minimum funding requirements.
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<PAGE> 26
The operating activities of Discontinued Operations used $61 million of cash
during the first six months of 1997 compared to $382 million of cash used
during the same period of 1996. During 1996, a significant amount of cash
was used for the divestiture costs of Knoll and the defense and electronic
systems business as well as in the operations of those businesses through the
date of their disposal.
Future cash requirements of Discontinued Operations will consist primarily of
interest costs on debt, remaining costs associated with completed
divestitures, and operating and disposal costs associated with the
environmental services business and CISCO. Management believes that the
future cash receipts of Discontinued Operations will be sufficient to satisfy
the divestiture liabilities of Discontinued Operations and the remaining
debt. Any cash in excess of that required to satisfy those liabilities will
be transferred to Continuing Operations.
Investing Activities
Investing activities provided $25 million of cash during the first six months
of 1997 compared to $3.4 billion of cash provided during the same period of
1996. In the first half of 1997, the Corporation had investing cash outflows
related to the acquisition of Buspack, a transit advertising company in the
United Kingdom, and a $20 million payment in conjunction with a swap of three
radio stations in Orlando for two radio stations in Chicago. Acquisition
cash outflows in the first six months of 1996 included the purchase of two
Chicago radio stations.
Investing cash inflows from business divestitures in the first half of 1997
included proceeds from the sale of several radio stations and two businesses
and an operating facility of the environmental services business. In the
first half of 1996, the Corporation completed the sales of Knoll and the
defense and electronic systems business, generating $3.6 billion of cash.
Capital expenditures were $80 million for the first six months of 1997, a
decrease of $14 million from the same period of 1996. Capital spending
during 1997 is expected to be slightly higher than 1996 primarily driven by
the Media group.
Financing Activities
Cash provided by financing activities during the first six months of 1997
totalled $598 million compared to cash used of $2.5 billion during the same
period of 1996. The cash outflows in the first half of 1997 included $149
million to extinguish the long-term debt previously issued by Infinity. The
cash outflows in the first half of 1996 included $3.6 billion of debt prepaid
upon the sales of Knoll and the defense and electronic systems business.
Total borrowings under the Corporation's $5.5 billion revolving credit
facility were $4.0 billion at June 30, 1997 (see Revolving Credit Facility).
These borrowings were subject to a floating interest rate of 6.5% at June 30,
1997, which was based on the London Interbank Offer Rate (LIBOR), plus a
margin based on the Corporation's senior unsecured debt rating and leverage.
Dividends paid in the first six months of 1997 and 1996 included $23 million
for the Series C preferred stock, which the Corporation replaced with
31,859,026 shares of common stock on May 30, 1997. Common stock dividends
increased $19 million in the first half of 1997 compared to 1996 because of
additional shares outstanding.
At June 30, 1997, the Corporation had a shelf registration statement for debt
securities with an unused amount of $400 million.
Revolving Credit Facility
On August 29, 1996, the Corporation executed a new five-year revolving credit
agreement with total commitments of $5.5 billion. The unused capacity under
the facility equaled $1.5 billion as of June 30, 1997. Borrowing
availability under the revolver is subject to compliance with certain
covenants, representations and warranties, including a no material adverse
change provision with respect to the Corporation taken as a whole, and
restrictions on
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<PAGE> 27
liens incurred. During the first quarter of 1997, this agreement was amended
twice.
The Corporation is subject to financial covenants including a maximum
leverage ratio, a minimum interest coverage ratio, and minimum consolidated
net worth. These covenants become more restrictive over the remaining term
of the agreement. At June 30, 1997, the Corporation was in compliance with
these covenants.
Legal, Environmental, and Other Matters
Over the past several years, the Corporation has addressed a variety of
legal, environmental, and other matters related to current operations as well
as to previously divested businesses. See note 10 to the financial
statements. The costs associated with resolving these matters are recognized
in the period in which the costs are deemed probable and can be reasonably
estimated. Management believes that the Corporation has adequately provided
for the estimated costs of resolving these matters.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable events.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders of the Corporation was held on April
30, 1997.
(b) The following matters were submitted to a vote of the shareholders at the
annual meeting.
(i) In connection with the election of fourteen directors, the
following votes were cast for or withheld from the following
candidates.
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Frank C. Carlucci 525,391,778 7,774,741
Robert E. Cawthorn 526,593,142 6,573,377
Gary M. Clark 526,434,862 6,731,657
George H. Conrades 526,614,341 6,552,178
William H. Gray III 525,762,438 7,404,081
Michael H. Jordan 526,300,310 6,866,209
Mel Karmazin 526,575,150 6,591,369
David K. P. Li 513,327,963 19,838,556
Peter A. Lund 526,498,423 6,668,096
David T. McLaughlin 526,160,551 7,005,968
Richard R. Pivirotto 525,957,131 7,209,388
Raymond W. Smith 526,365,765 6,800,754
Paula Stern 526,444,513 6,722,006
Robert D. Walter 526,598,665 6,567,854
</TABLE>
(ii) A management proposal regarding the election of KPMG Peat
Marwick LLP as independent accountants was presented at the
meeting and 528,881,488 shares of common stock were voted
for, 2,303,604 shares were voted against, and 1,981,427
shares abstained in connection with the adoption of this
resolution, the text of which is set forth on pages 34 and 35
of the Corporation's Proxy Statement dated March 17, 1997,
and incorporated herein by reference.
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<PAGE> 28
(iii) A shareholder's resolution concerning redemption of the
shareholder rights issued pursuant to the Corporation's
Shareholder Rights Plan was presented at the meeting and
170,637,896 shares of common stock were voted for,
250,977,168 shares were voted against, 7,965,710 shares
abstained, and there were 103,585,745 broker non-votes in
connection with this resolution, the text of which is set
forth on pages 35 through 38 of the Corporation's Proxy
Statement dated March 17, 1997, and incorporated herein by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of the Corporation, as amended to July
25, 1997.
(b) The Bylaws of the Corporation, as amended to September 25,
1996, are incorporated herein by reference to Exhibit 4.2 to
the Corporation's Registration Statement No. 333-13219 on
Form S-4 filed with the Securities and Exchange Commission on
October 22, 1996.
(4) RIGHTS OF SECURITY HOLDERS
(a) 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.
(b) Rights Agreement is incorporated herein by reference to
Exhibit 1 to Form 8-A filed with the Securities and
Exchange Commission on January 9, 1996.
(10) MATERIAL CONTRACTS
(a*) The Annual Performance Plan, as amended to November 1, 1996,
is incorporated herein by reference to Exhibit 10(a) to Form
10-Q for the quarter ended September 30, 1996.
(b*) The 1993 Long-Term Incentive Plan, as amended to November 1,
1996, is incorporated herein by reference to Exhibit 10(b) to
Form 10-Q for the quarter ended September 30, 1996.
(c*) The 1984 Long-Term Incentive Plan, as to amended November 1,
1996, is incorporated herein by reference to Exhibit 10(c) to
Form 10-Q for the quarter ended September 30, 1996.
(d*) The Westinghouse Executive Pension Plan, as amended to
September 25, 1996, is incorporated herein by reference to
Exhibit 10(d) to Form 10-Q for the quarter ended September
30, 1996.
(e*) The Deferred Compensation and Stock Plan for Directors, as
amended to November 1, 1996, is incorporated herein by
reference to Exhibit 10(e) to Form 10-K for the year ended
1996.
(f*) The Director's Charitable Giving Program, as amended to
April 30, 1996, is incorporated herein by reference to
Exhibit 10(g) to Form 10-Q for the quarter ended June 30,
1996.
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<PAGE> 29
(g*) The 1991 Long-Term Incentive Plan, as amended to January
29, 1997, is incorporated herein by reference to Exhibit 10(g)
to Form 10-Q for the quarter ended March 31, 1997.
(h*) Advisory Director's Plan Termination Fee Deferral Terms and
Conditions, dated April 30, 1996, is incorporated herein by
reference to Exhibit 10(i) to Form 10-Q for the quarter
ended June 30, 1996.
(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) $5.5 billion Credit Agreement among Westinghouse Electric
Corporation, the Lenders parties thereto, Nationsbank, N.A.
and The Toronto-Dominion Bank as Syndication Agents, The
Chase Manhattan Bank as Documentation Agent, and Morgan
Guaranty Trust Company of New York as Administrative Agent,
dated August 29, 1996, is incorporated herein by reference
to Exhibit 10(l) to Form 10-Q for the quarter ended
September 30, 1996.
(l*) CBS Supplemental Executive Retirement Plan, as amended to
November 15, 1995, is incorporated herein by reference to
Exhibit 10(n) to Form 10-K for the year ended 1996.
(m*) CBS Bonus Supplemental Executive Retirement Plan, as
amended, to November 15, 1995, is incorporated herein by
reference to Exhibit 10(o) to Form 10-K for the year ended
1996.
(n) First Amendment, dated as of January 29, 1997 to the Credit
Agreement, dated as of August 29, 1996, among Westinghouse
Electric Corporation, the Lenders parties thereto,
Nationsbank, N.A. and The Toronto-Dominion Bank as
Syndication Agents, The Chase Manhattan Bank as
Documentation Agent, and Morgan Guarantee Trust Company of
New York as Administrative Agent, is hereby incorporated by
reference to Exhibit 10(p) to Form 10-Q for the quarter
ended March 31, 1997.
(o) Second Amendment, dated as of March 21, 1997, to the Credit
Agreement, dated as of August 29, 1996, as amended by the
First Amendment thereto dated as of January 29, 1997, among
Westinghouse Electric Corporation, the Subsidiary Borrowers
parties thereto, the Lenders parties thereto, Nationsbank,
N.A. and The Toronto-Dominion Bank as Syndication Agents,
The Chase Manhattan Bank as Documentation Agent, and Morgan
Guarantee Trust Company of New York as Administrative
Agent, is hereby incorporated by reference to Exhibit 10(q)
to Form 10-Q for the quarter ended March 31, 1997.
(p) Agreement and Plan of Merger, dated as of February 9, 1997,
among Westinghouse Electric Corporation, G Acquisition
Corp., and Gaylord Entertainment Company is incorporated
herein by reference to Exhibit 99.2 to Form 8-K of
Westinghouse Electric Corporation, dated as of February 11,
1997.
(q*) Employment Agreement between the Corporation and Mel Karmazin,
made as of June 20, 1996 and effective as of December 31,
1996, is hereby incorporated by reference to Exhibit 10(s) to
Form 10-Q for the quarter ended March 31, 1997.
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<PAGE> 30
(r*) Amended and restated Infinity Broadcasting Corporation Stock
Option Plan is incorporated herein by reference to Exhibit
4.4 to the Corporation's Registration Statement No. 333-13219
on Post-Effective Amendment No. 1 on Form S-8 to Form S-4
filed with the Securities and Exchange Commission on January
2, 1997.
(s*) The WCK Acquisition Corp. Stock Option Plan is incorporated
herein by reference to Exhibit 4.5 to the Corporation's
Registration Statement No. 333-13219 on Post-Effective
Amendment No. 1 on Form S-8 to Form S-4 filed with the
Securities and Exchange Commission on January 2, 1997.
(t*) Infinity Broadcasting Corporation Warrant Certificate No. 3
to Mel Karmazin is incorporated herein by reference to
Exhibit 4.6 to the Corporation's Registration Statement No.
333-13219 on Post-Effective Amendment No. 1 on Form S-8 to
Form S-4 filed with the Securities and Exchange Commission on
January 2, 1997.
* 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 Stock Dividends
(27) Financial Data Schedule
B) REPORTS ON FORM 8-K:
A Current Report on Form 8-K (Items 5 and 7) dated April 25,
1997, filing financial information for the three months ended
March 31, 1997.
A Current Report on Form 8-K (Items 5 and 7) dated May 9, 1997,
announcing the departure of Francis J. Harvey from the Corporation.
A Current Report on Form 8-K (Items 5 and 7) dated May 27,
1997, announcing organization changes at CBS Inc. and the
departure of Peter Lund.
A Current Report on Form 8-K (Items 5 and 7) dated May 30,
1997, announcing Dr. Ernest H. Drew will become Chief
Executive Officer of Westinghouse's Industries and Technology
Group.
A Current Report on Form 8-K (Items 5 and 7) dated June 18,
1997, announcing modification to the Corporation's previously
announced separation plan.
A Current Report on Form 8-K (Item 5) dated June 23, 1997,
reporting Westinghouse's intention to redeem the Shareholder Rights
Plan in January 2001.
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<PAGE> 31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of August 1997.
WESTINGHOUSE ELECTRIC CORPORATION
/s/ CAROL V. SAVAGE
------------------------
Vice President and
Chief Accounting Officer
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<PAGE> 1
Exhibit 3.a
WESTINGHOUSE ELECTRIC CORPORATION
RESTATED ARTICLES OF INCORPORATION
(As amended through July 25, 1997)
FIRST: The name of the corporation (hereinafter called the "Company")
is WESTINGHOUSE ELECTRIC CORPORATION.
SECOND: The location and post office address of the current registered
office of the Company in the Commonwealth of Pennsylvania is Westinghouse
Building, Gateway Center, Pittsburgh, Allegheny County, Pennsylvania 15222.
THIRD: The Company is subject to the Act of the General Assembly of
the Commonwealth of Pennsylvania, known as the "Business Corporation Law,"
approved May 5, 1933, and any act amendatory thereof, supplementary thereto or
substituted therefor, and the purposes for which the Company is organized are:
(1) To develop, build, manufacture, process and otherwise
produce, to purchase, lease, exchange and otherwise acquire, and to
hold, own, use, operate, repair, sell, lease, assign, distribute and
otherwise deal in and dispose of structures, machinery, equipment,
apparatus, appliances, devices, products, materials, articles,
processes and systems for any application or purpose, whether for use
for industrial, utility, transportation, broadcasting, communication,
home, defense, consumer or other purposes or applications, or
combinations thereof, whatsoever, including but not limited
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<PAGE> 2
to the following: for the generation, conversion, transmission,
utilization, storage and control of any form of energy whatsoever
(including but not limited to electrical, mechanical, chemical,
atomic, nuclear, steam, thermal, mineral, gas, water and solar); for
the handling, conditioning, heating, cooling, treatment, application
or use of air and other gases, liquids and solids; for aerial,
nautical, terrestrial, spatial or celestial operations, applications
or navigation; for radio, television and all other forms of
transmission, reception or communication; and for incorporation into
or use in, on or about any establishment, building or structure of any
kind or nature whatsoever; and any and all related engines, turbines,
motors, parts, tools, accessories and improvements thereof and
supplies or materials pertaining or incidental to any of the above
structures, machinery, equipment, apparatus, appliances, devices,
products, materials, articles, processes and systems, of any kind or
nature whatsoever.
(2) To develop, build, manufacture, process and otherwise
produce, to purchase, lease, exchange and otherwise acquire, and to
hold, own, use, operate, repair, sell, lease, assign, distribute and
otherwise deal in and dispose of structures, machinery, equipment,
apparatus, appliances, devices, products, materials, articles,
processes, systems, goods, wares and merchandise of every kind, nature
and description, and to engage in any industrial, manufacturing,
mining, mercantile, broadcasting, trading or other lawful business of
any kind or character whatsoever.
(3) To conduct and carry on research work in, and to engage
in any activity pertaining or incidental to, any scientific, technical
or other field or fields, and to render services of a scientific,
technical or other nature to any person, association, firm,
corporation, country, state, municipality or other governmental
division or subdivision.
-2-
<PAGE> 3
(4) To purchase, lease, exchange and otherwise acquire all,
or any part of, or any interest in, the properties, assets, business
and goodwill of any one or more persons, associations, firms or
corporations; to pay for the same in cash, property or its own or
other securities; to hold, own, use, operate, reorganize and otherwise
manage such properties, assets, business and goodwill; to sell, lease,
assign, distribute, liquidate and otherwise deal in and dispose of the
whole or any part thereof; and in connection therewith, to assume or
guarantee performance of any liabilities, obligations or contracts of
such persons, associations, firms or corporations.
(5) To develop, apply for, register, take licenses in respect
of, purchase, lease, exchange and otherwise acquire, and to hold, own,
use, operate, sell, lease, assign, grant licenses in respect of,
manufacture under, exercise and otherwise deal in and dispose of any
and all inventions, devices, formulae, technical or business
information, including trade secrets, know-how, processes,
improvements and modifications thereof, letters patent and all rights
connected therewith or appertaining thereto, copyrights, trademarks,
trade names, trade symbols and other indications of origin and
ownership, franchises, licenses, concessions or other rights granted
by or recognized under the laws of any country, state, municipality or
other governmental division or subdivision.
(6) To purchase, exchange and otherwise acquire, and to hold,
own, sell, assign, transfer, reissue, cancel and otherwise deal in and
dispose of its own shares and securities, to such extent and in such
manner and upon such terms as it may determine; provided that the
Company shall not use its funds or property for the purchase of its
own shares when such purchase shall be prohibited by law; and provided
that shares of its capital stock which belong to the Company shall not
be voted directly or indirectly.
-3-
<PAGE> 4
(7) To enter into, make, perform and carry out contracts and
agreements of every kind and description which may be necessary,
appropriate, convenient or advisable in carrying out the purposes of
the Company, with any person, association, firm, corporation, country,
state, municipality or other governmental division or subdivision.
(8) To carry out any of or all the foregoing purposes as
principal or agent and alone or with associates; and to execute from
time to time such general or special powers of attorney to such person
or persons as it may determine, granting to such person or persons
such powers as it may deem proper, and to revoke such powers of
attorney as and when it may desire; and to conduct its business in any
and all of its branches at one or more offices in the Commonwealth of
Pennsylvania and elsewhere.
(9) To do everything necessary, suitable, convenient or
proper for, or in connection with, or incident to, the accomplishment
of any of the purposes herein enumerated, or which shall at any time
appear conducive to or expedient for the accomplishment of any of such
purposes, not inconsistent with the laws of the Commonwealth of
Pennsylvania.
Except as otherwise expressly provided in this Article THIRD,
none of the purposes set forth above in this Article THIRD shall be in any way
limited or restricted by reference to, or inference from, any other of the
purposes therein set forth, and each of said purposes shall be regarded as a
separate and independent purpose.
The purposes set forth above shall be construed as powers as
well as purposes; but the enumeration herein of certain powers is not intended
to be exclusive of, or a waiver of, but shall be in addition to, the powers,
rights or privileges granted or conferred by said "Business Corporation Law"
and any other laws of the Commonwealth of Pennsylvania
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<PAGE> 5
applicable to the Company that may now or hereafter be in force. Without
limiting the generality of the foregoing, the Company shall have and may
exercise the general powers which are now or may hereafter be enumerated in
Section 302 of said "Business Corporation Law," or any act amendatory thereof,
supplemental thereto or substituted therefor, to the same extent as if such
powers were set forth in full herein.
Except as otherwise provided by law or these Restated
Articles of Incorporation or the By-laws, the powers of the Company shall be
exercised by its Board of Directors.
Nothing herein contained shall authorize or be construed as
intended to authorize the Company to carry on any business or exercise any
powers in any commonwealth, state, territory, or country which a business
corporation organized under the laws of such commonwealth, state, territory or
country could not carry on or exercise, except to the extent permitted or
authorized by the laws of such commonwealth, state, territory or country; and
notwithstanding any provision herein, the Company shall not be deemed to have
the power to carry on or exercise within the Commonwealth of Pennsylvania any
business whatsoever the carrying on or exercising of which would prevent the
Company from being classified as a business corporation under said "Business
Corporation Law," or any act amendatory thereof, supplemental thereto or
substituted therefor.
FOURTH: The term of existence of Company shall be perpetual.
FIFTH: A. The total number of shares of all classes of stock which the
Company shall have authority to issue is 1,125,000,000 consisting of: (1)
25,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"), and (2) 1,100,000,000 shares of Common Stock, par value $1.00 per
share ("Common Stock").
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<PAGE> 6
B. The Board of Directors is hereby expressly authorized to
provide, out of the unissued shares of Preferred Stock, for series of Preferred
Stock. Before any share of any such series is issued, the Board shall fix, and
hereby is expressly empowered to fix, the following provisions of the shares
thereof:
(1) the terms of such series, the number of shares to
constitute such series and the stated value thereof if different from
the par value thereof;
(2) whether the shares of such series shall have voting
rights in addition to any voting rights provided by law and, if so,
the terms of such voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether
any such dividends shall be cumulative and, if so, from what dates,
the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the
dividends payable on any shares of stock of any other class or any
other series of Preferred Stock;
(4) whether the shares of such series shall be subject to
redemption at the election of the Company or the holders of such
series and, if so, the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in the event of,
voluntary or involuntary liquidation, dissolution or winding up, or
upon any distribution of the assets of the Company;
(6) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares
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<PAGE> 7
of such series for retirement or other corporate purposes and the
terms and provisions relative to the operation thereof;
(7) whether the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or any
other series of Preferred Stock or any other securities and, if so,
the price or prices or the rate or rates of conversion or exchange and
the method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, or upon the
purchase, redemption or other acquisition by the Company of, the
Common Stock or shares of stock of any other class or any other series
of Preferred Stock;
(9) the conditions or restrictions, if any, upon the creation
of indebtedness of the Company or upon the issue of any additional
stock, including additional shares of any other series of Preferred
Stock or of any other class of stock; and
(10) any other powers, preferences and relative,
participating, optional and other special rights, and any
qualifications, limitations and restrictions thereof.
C. The powers, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series of Preferred Stock at any time outstanding.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
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<PAGE> 8
D. Subject to the provisions of this Article FIFTH and
actions taken by the Board of Directors pursuant to this Article FIFTH:
(1) such dividends (whether in cash, stock or otherwise) as
may be determined by the Board of Directors may be declared and paid
on the Common Stock from time to time in accordance with the laws of
the Commonwealth of Pennsylvania; and the holders of the Preferred
Stock shall not be entitled to participate in any such dividends
whether payable in cash, stock or otherwise;
(2) voting power shall be exclusively vested in the Common
Stock;
(3) dividends upon shares of any class of the Company shall
be payable only out of assets legally available for the payment of
such dividends, and the rights of the holders of the Preferred Stock
of all series and of the holders of the Common Stock in respect of
dividends shall at all times be subject to the power of the Board of
Directors, which is hereby expressly vested in said Board, from time
to time to set aside such reserves and to make such other provisions,
if any, as said Board shall deem to be necessary or advisable for
working capital, for additions, improvements and betterments to plant
and equipment, for expansion of the Company's business (including the
acquisition of real and personal property for that purpose), for plans
for maintaining employment at the plants of the Company and also for
other plans for the benefit of employees generally, and for any other
purposes of the Company whether or not similar to those herein
mentioned;
(4) holders of Preferred Stock and holders of Common Stock
shall not have any preemptive, preferential or other right to
subscribe for or purchase or acquire any shares of any class or any
other securities of the Company, whether now or hereafter
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<PAGE> 9
authorized, and whether or not convertible into, or evidencing or
carrying the right to purchase, shares of any class or any other
securities now or hereafter authorized, and whether the same shall be
issued for cash, services or property, or by way of dividend or
otherwise, other than such right, if any, as the Board of Directors in
its discretion from time to time may determine. If the Board of
Directors shall offer to the holders of the Preferred Stock or the
holders of the Common Stock, or any of them, any such shares or other
securities of the Company, such offer shall not in any way constitute
a waiver or release of the right of the Board of Directors
subsequently to dispose of other portions of said shares or securities
without so offering the same to said holders;
(5) the shares of Preferred Stock and the shares of Common
Stock may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine;
(6) subject to the provisions of the By-laws of the Company
as from time to time amended, with respect to the closing of the
transfer books or the fixing of a record date for the determination of
shareholders entitled to vote, each holder of record of shares of any
class of the Company shall be entitled to one vote, on each matter
submitted to a vote at a meeting of shareholders and in respect of
which shares of such class shall be entitled to be voted, for every
share of such class standing in his name on the books of the Company;
(7) in each election of directors no shareholder shall have
any right to cumulate his votes and cast them for one candidate or
distribute them among two or more candidates.
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<PAGE> 10
E. 1. Designation and Amount. The shares of this series shall
be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred Stock"). The par value of each share of Series A Preferred Stock
shall be $1.00. The number of shares constituting the Series A Preferred Stock
initially shall be 5,000,000; provided, however, that, if more than a total of
5,000,000 shares of Series A Preferred Stock shall be issuable upon the
exercise of Rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of December 28, 1995, between the Company and First Chicago Trust
Company of New York, as Rights Agent (as such agreement may be amended from
time to time, the "Rights Agreement"), the Board of Directors of the Company,
pursuant to Section 1914(c) and/or Section 1522(b) of the Pennsylvania Business
Corporation Law of 1988, as amended (the "Pennsylvania BCL"), and in accordance
with the provisions of Article FIFTH of the Restated Articles of Incorporation,
shall adopt a resolution or resolutions increasing the previously determined
total number of shares of Series A Preferred Stock authorized to be issued (to
the extent that the Restated Articles of Incorporation then permit) to the
largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights and directing that a statement or
articles of amendment with respect to such increase in authorized shares for
the Series A Preferred Stock be executed and filed with the Department of State
of the Commonwealth of Pennsylvania.
2. Dividends and Distributions.
(a) Subject to the provisions for adjustment hereinafter set
forth, the holders of outstanding shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, (i) a cash dividend in an amount per
share (rounded to the nearest cent) equal to 100 times the aggregate per share
amount of each cash dividend declared or paid on the Common Stock,
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<PAGE> 11
$1.00 par value per share, of the Company (the "Common Stock") and any other
security ranking junior to the Series A Preferred Stock, and (ii) a
preferential cash dividend (the "Preferential Dividends"), if any, in
preference to the holders of Common Stock and any other security ranking junior
to the Series A Preferred Stock, on the first day of March, June, September and
December of each year (each a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Preferred Stock, payable in an amount
(except in the case of the first Quarterly Dividend Payment if the date of the
first issuance of Series A Preferred Stock is a date other than a Quarterly
Dividend Payment date, in which case such payment shall be a prorated amount of
such amount) equal to $1.00 per share of Series A Preferred Stock less the per
share amount of all cash dividends declared on the Series A Preferred Stock
pursuant to clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In addition, in the event the Company shall,
at any time after the issuance of any share or fraction of a share of Series A
Preferred Stock, pay any dividend or make any distribution on the shares of
Common Stock of the Company, whether by way of a dividend or a reclassification
of stock, a recapitalization, reorganization or partial liquidation of the
Company or otherwise, which is payable in cash or any debt security, debt
instrument, real or personal property or any other property (other than (x)
cash dividends subject to the immediately preceding sentence, (y) a
distribution of shares of Common Stock or other capital stock of the Company or
(z) a distribution of rights or warrants to acquire any such shares, including
as such a right any debt security convertible into or exchangeable for any such
shares, at a price less than the Fair Market Value (as hereinafter defined) of
such shares on the date of issuance of such rights or warrants), then, and in
each
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<PAGE> 12
such event, the Company shall simultaneously pay on each then outstanding share
of Series A Preferred Stock a distribution, in like kind, of 100 times such
distribution paid on a share of Common Stock (subject to the provisions for
adjustment hereinafter set forth). The dividends and distributions on the
Series A Preferred Stock to which holders thereof are entitled pursuant to
clause (i) of the first sentence of this paragraph and pursuant to the second
sentence of this paragraph are hereinafter referred to as "Dividends" and the
multiple of such cash and non-cash dividends and distributions on the Common
Stock applicable to the determination of the Dividends, which shall be 100
initially but shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Dividend Multiple." In the event the Company
shall at any time after January 9, 1996 declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter
applicable to the determination of the amount of Dividends which holders of
shares of Series A Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) The Company shall declare each Dividend at the same time
it declares any cash or non-cash dividend or distribution on the Common Stock
in respect of which a Dividend is required to be paid. No cash or non-cash
dividend or distribution on the Common Stock in respect of which a Dividend is
required to be paid shall be paid or set aside for payment on the
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<PAGE> 13
Common Stock unless a Dividend in respect of such dividend or distribution on
the Common Stock shall be simultaneously paid, or set aside for payment, on the
Series A Preferred Stock.
(c) Preferential Dividends shall begin to accrue on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issuance of such shares of Series A
Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but
shall not bear interest.
(d) Any dividend payment made on shares of the Series A
Preferred Stock shall first be credited against the earliest accrued but unpaid
Preferential Dividend due with respect to shares of the Series A Preferred
Stock.
(e) All dividends paid with respect to shares of the Series A
Preferred Stock pursuant to this paragraph 2 shall be paid pro rata on a
share-by-share basis to the holders entitled thereto.
(f) The holders of shares of Series A Preferred Stock shall not be
entitled to receive any dividends or distributions except as provided herein.
3. Voting Rights. The holders of record of outstanding shares
of Series A Preferred Stock shall have the following voting rights:
(a) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the holders
of the Common Stock. The number of votes which a holder of a share of
Series A Preferred Stock is entitled to cast, as the same may be
adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Vote Multiple." In the event the Company shall at
any time after January 9, 1996 declare or pay any dividend on Common
Stock, payable in shares of Common Stock, or effect a subdivision or
split or a combination, consolidation or reverse split of the
outstanding
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<PAGE> 14
shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Vote Multiple thereafter
applicable to the determination of the number of votes per share to
which holders of shares of Series A Preferred Stock shall be entitled
after such event shall be the Vote Multiple immediately prior to such
event multiplied by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in the Restated
Articles of Incorporation, in the By-laws, or as otherwise provided by
law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of shareholders of the Company.
(c) In the event that the Preferential Dividends payable to
the holders of Series A Preferred Stock are in arrears and unpaid for
the equivalent of six quarterly periods, the Board of Directors will
be increased by two directors and the holders of Series A Preferred
Stock, together with the holders of all other outstanding series of
the Preferred Stock in respect of which such a default in payment of
dividends as described hereinabove exists and is entitled to vote
thereon, voting as a single class without regard to series, will be
entitled to elect two directors of the expanded Board of Directors.
Such entitlement shall continue until such time as all dividends in
arrears on all of the Series A Preferred Stock at the time outstanding
have been paid or declared and set aside for payment, whereupon such
voting rights of the holders of the Series A Preferred Stock shall
cease (and, unless holders of shares of other series of Preferred
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<PAGE> 15
Stock shall still have the right to elect such directors, the
respective terms of the two additional directors shall thereupon
expire and the number of directors constituting the full board be
decreased by two) subject to being again revived from time to time
upon the reoccurrence of the conditions described in this paragraph
(3)(c) as giving rise thereto.
At any time when the rights of holders of Series A Preferred
Stock to elect two additional directors shall have so vested, the
Company shall, upon the written request of the holders of record of
not less than 10% of the Series A Preferred Stock then outstanding (or
10% of all of the shares of Preferred Stock having the right to vote
for such directors in case holders of shares of other series of
Preferred Stock shall also have the right to elect directors in such
circumstances), call a special meeting of holders of the Series A
Preferred Stock (and other series of Preferred Stock, if applicable)
for the election of directors. In the case of a written request, the
special meeting shall be held within 60 days after the delivery of the
request, upon the notice provided by law and in the By-laws of the
Company; except that the Company shall not be required to call such a
special meeting if the request is received less than 120 days before
the date fixed for the next ensuing annual meeting of shareholders of
the Company.
Whenever the number of directors of the Company shall have
been increased by two as provided in this paragraph (3)(c), the number
as so increased may thereafter be further increased or decreased in
such manner as may be permitted by the By-laws and without the vote of
the holders of Series A Preferred Stock. No such action shall impair
the right of the holders of Series A Preferred Stock to elect and to
be represented by two directors as provided in this paragraph (3)(c).
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<PAGE> 16
The two directors elected as provided in this paragraph
(3)(c) shall serve until the next annual meeting of shareholders of
the Company and until their respective successors shall be elected and
qualified or the earlier expiration of their terms as provided in this
paragraph (3)(c). No such director may be removed without the vote of
holders of a majority of shares of Series A Preferred Stock (or
holders of a majority of shares of Preferred Stock having the right to
vote in the election of such director in case holders of shares of
other series of Preferred Stock shall also have the right to elect
such director). If, prior to the expiration of the term of any such
director, a vacancy in the office of such director shall occur, such
vacancy shall, until the expiration of such term, in each case be
filled by the remaining director elected as provided in this paragraph
(3)(c) or, if none remains in office, by vote of the holders of record
of a majority of the outstanding shares of Series A Preferred Stock
(or holders of a majority of shares of Preferred Stock who are then
entitled to participate in the election of such directors in case
holders of shares of other series of Preferred Stock shall also have
the right to elect such director).
(d) Except as otherwise required by the Articles of
Incorporation or By-laws or set forth in this paragraph 3 or in
paragraph 13 or as otherwise provided by law, holders of Series A
Preferred Stock shall have no other special voting rights and their
consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for the
taking of any corporate action.
4. Certain Restrictions.
(a) Whenever Preferential Dividends or Dividends are in arrears
or the Company shall be in default of payment thereof, thereafter and until all
accrued and unpaid Preferential Dividends and Dividends, whether or not
declared, on shares of Series A Preferred Stock
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<PAGE> 17
outstanding shall have been paid or set irrevocably aside for payment in full,
and in addition to any and all other rights which any holder of shares of
Series A Preferred Stock may have in such circumstances, the Company shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration, any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity as to dividends with the
Series A Preferred Stock, unless dividends are paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled if the full dividends
accrued thereon were to be paid;
(iii) except as permitted by subparagraph (iv) of this paragraph
4(a), redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Company ranking junior (both as to
dividends and upon liquidation, dissolution or winding up) to the
Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock (either as to dividends or
upon liquidation, dissolution or winding up), except as permitted by
subparagraph (iii) of this paragraph 4(a) or in accordance with a
purchase
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<PAGE> 18
offer made to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(b) The Company shall not permit any Subsidiary (as hereinafter
defined) of the Company to purchase or otherwise acquire for consideration any
shares of stock of the Company unless the Company could, under subparagraph (a)
of this paragraph 4, purchase or otherwise acquire such shares at such time and
in such manner. A "Subsidiary" of the Company shall mean any corporation or
other entity of which securities or other ownership interests entitled to cast
at least a majority of the votes that would be entitled to be cast in an
election of the board of directors of such corporation or other entity or other
persons performing similar functions are beneficially owned, directly or
indirectly, by the Company or by any corporation or other entity that is
otherwise controlled by the Company.
(c) The Company shall not issue any shares of Series A Preferred
Stock except upon exercise of Rights issued pursuant to the Rights Agreement, a
copy of which is on file with the Secretary of the Company at its principal
executive office and shall be made available to shareholders of record without
charge upon written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing contained in the provisions of
this Article FIFTH (E) shall prohibit or restrict the Company from issuing for
any purpose any series of Preferred Stock with rights and privileges similar
to, different from, or greater than, those of the Series A Preferred Stock or,
subject to the limitations set forth in paragraph 13, from creating other
securities senior to, junior to or on a parity with the Series A Preferred
Stock.
5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall
be retired and cancelled
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<PAGE> 19
promptly after the acquisition thereof. All such shares upon their retirement
and cancellation shall become authorized but unissued shares of Preferred
Stock, without designation as to series, and such shares may be redesignated
and reissued as part of any series of the Preferred Stock.
6. Liquidation, Dissolution or Winding Up; Fair Value for
Purposes of Pennsylvania Anti-Takeover Statute.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Company, no distribution shall be made (i) to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless the holders
of shares of Series A Preferred Stock outstanding shall have received out of
the assets of the Company available for distribution to its shareholders after
payment or provision for payment of any securities ranking senior to the Series
A Preferred Stock, for each share of Series A Preferred Stock, subject to
adjustment as hereinafter provided, (A) $100.00 plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment or, (B) if greater than the amount specified in clause
(i)(A) of this sentence, an amount equal to 100 times the aggregate amount to
be distributed per share to holders of Common Stock, as the same may be
adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a
parity upon liquidation, dissolution or winding up with the Series A Preferred
Stock, unless simultaneously therewith distributions are made ratably on the
Series A Preferred Stock and all other shares of such parity stock in
proportion to the total amounts to which the holders of shares of Series A
Preferred Stock are entitled under clause (i)(A) of this sentence and to which
the holders of such parity shares are entitled, in each case upon such
liquidation, dissolution or winding up. The amount to which holders of Series A
Preferred Stock may be entitled upon liquidation, dissolution or winding up of
the Company
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<PAGE> 20
pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to
as the "Participating Liquidation Amount" and the multiple of the amount to be
distributed to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the Company applicable pursuant to said clause to
the determination of the Participating Liquidation Amount, as said multiple may
be adjusted from time to time as hereinafter provided, is hereinafter referred
to as the "Liquidation Multiple." In the event the Company shall at any time
after January 9, 1996 declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or split or a combination,
consolidation or reverse split of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then, in each such case,
the Liquidation Multiple thereafter applicable to the determination of the
Participating Liquidation Amount to which holders of Series A Preferred Stock
shall be entitled after such event shall be the Liquidation Multiple applicable
immediately prior to such event multiplied by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. Except as provided in this
paragraph 6(a), holders of Series A Preferred Stock shall not be entitled to
any distribution in the event of liquidation, dissolution or winding up of the
Company.
(b) For the purposes of this paragraph 6, none of the following
shall be deemed to be a voluntary or involuntary liquidation, dissolution or
winding up of the Company:
(i) the voluntary sale, conveyance, lease, exchange or transfer
(for cash, shares of stock, securities or other consideration) of all
or substantially all of the property or assets of the Company;
(ii) the consolidation or merger of the Company with or into
one or more other corporations or other associations;
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<PAGE> 21
(iii) the consolidation or merger of one or more corporations
or other associations with or into the Company;
(iv) the participation by the Company in a share exchange;
(v) the division of the Company pursuant to sections 1951
through 1957 of the Pennsylvania BCL;
(vi) the conversion of the Company pursuant to sections 1961
through 1966 of the Pennsylvania BCL;
(c) Notwithstanding anything to the contrary in this Article
FIFTH (E), in case any Controlling Person or Group (as defined from time to time
in Section 2543 of the Pennsylvania BCL) shall be required to purchase any
shares of Series A Preferred Stock pursuant to Sections 2541 through 2548 of the
Pennsylvania BCL, as in effect from time to time, the amount that is determined
to represent the "fair value" (as that term is used in such Section 2542 of the
Pennsylvania BCL) of such shares shall be an amount per share equal to the
Liquidation Multiple then in effect times the aggregate amount per share that
such Controlling Person or Group is required to pay to purchase any share of
Common Stock pursuant to such Sections 2541 through 2548 of the Pennsylvania
BCL.
7. Certain Reclassifications and Other Events.
(a) In the event that holders of shares of Common Stock of the
Company receive after January 9, 1996 in respect of their shares of Common
Stock any share of capital stock of the Company (other than any share of Common
Stock of the Company), whether by way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise (a "Transaction"),
then, and in each such event, the dividend rights, voting rights and rights
upon the liquidation, dissolution or winding up of the Company of the shares of
Series A Preferred Stock shall be adjusted so that after such event the holders
of Series A Preferred Stock shall be
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<PAGE> 22
entitled, in respect of each share of Series A Preferred Stock held, in
addition to such rights in respect thereof to which such holder was entitled
immediately prior to such adjustment, to (i) such additional dividends as equal
the Dividend Multiple in effect immediately prior to such Transaction
multiplied by the additional dividends which the holder of a share of Common
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock, (ii) such additional voting rights as equal the Vote
Multiple in effect immediately prior to such Transaction multiplied by the
additional voting rights to which the holder of a share of Common Stock shall
be entitled by virtue of the receipt in the Transaction of such capital stock
and (iii) such additional distributions upon liquidation, dissolution or
winding up of the Company as equal the Liquidation Multiple in effect
immediately prior to such Transaction multiplied by the additional amount which
the holder of a share of Common Stock shall be entitled to receive upon
liquidation, dissolution or winding up of the Company by virtue of the receipt
in the Transaction of such capital stock, as the case may be, all as provided
by the terms of such capital stock.
(b) In the event that holders of shares of Common Stock of the
Company receive after January 9, 1996 in respect of their shares of Common
Stock any right or warrant to purchase Common Stock (including as such a right,
for all purposes of this paragraph 7(b), any security convertible into or
exchangeable for Common Stock) at a purchase price per share less than the Fair
Market Value of a share of Common Stock on the date of issuance of such right
or warrant, then and in each such event the dividend rights, voting rights and
rights upon the liquidation, dissolution or winding up of the Company of the
shares of Series A Preferred Stock shall each be adjusted so that after such
event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple
shall each be the product of the Dividend Multiple, the Vote Multiple and the
Liquidation Multiple, as the case may be, in effect immediately prior to such
event multiplied by
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<PAGE> 23
a fraction the numerator of which shall be the number of shares of Common Stock
outstanding immediately before such issuance of rights or warrants plus the
maximum number of shares of Common Stock which could be acquired upon exercise
in full of all such rights or warrants and the denominator of which shall be
the number of shares of Common Stock outstanding immediately before such
issuance of rights or warrants plus the number of shares of Common Stock which
could be purchased, at the Fair Market Value of the Common Stock at the time of
such issuance, by the maximum aggregate consideration payable upon exercise in
full of all such rights or warrants.
(c) In the event that holders of shares of Common Stock of the
Company receive after January 9, 1996 in respect of their shares of Common
Stock any right or warrant to purchase capital stock of the Company (other than
shares of Common Stock), including as such a right, for all purposes of this
paragraph 7(c), any security convertible into or exchangeable for capital stock
of the Company (other than Common Stock), at a purchase price per share less
than the Fair Market Value of a share of such capital stock on the date of
issuance of such right or warrant, then and in each such event the dividend
rights, voting rights and rights upon liquidation, dissolution or winding up of
the Company of the shares of Series A Preferred Stock shall each be adjusted so
that after such event each holder of a share of Series A Preferred Stock shall
be entitled, in respect of each share of Series A Preferred Stock held, in
addition to such rights in respect thereof to which such holder was entitled
immediately prior to such event, to receive (i) such additional dividends as
equal the Dividend Multiple in effect immediately prior to such event
multiplied, first, by the additional dividends to which the holder of a share
of Common Stock shall be entitled upon exercise of such right or warrant by
virtue of the capital stock which could be acquired upon such exercise, and
multiplied again by the Discount Fraction (as hereinafter defined), (ii) such
additional voting rights as equal the Vote
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<PAGE> 24
Multiple in effect immediately prior to such event multiplied, first, by the
additional voting rights to which the holder of a share of Common Stock shall
be entitled upon exercise of such right or warrant by virtue of the capital
stock which could be acquired upon such exercise, and multiplied again by the
Discount Fraction and (iii) such additional distributions upon liquidation,
dissolution or winding up of the Company as equal the Liquidation Multiple in
effect immediately prior to such event multiplied, first, by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the Company upon exercise of
such right or warrant by virtue of the capital stock which could be acquired
upon such exercise, and multiplied again by the Discount Fraction. For purposes
of this paragraph, the "Discount Fraction" shall be a fraction the numerator of
which shall be the difference between the Fair Market Value of a share of the
capital stock subject to a right or warrant distributed to holders of shares of
Common Stock of the Company as contemplated by this paragraph 7(c) immediately
after the distribution thereof and the purchase price per share for such share
of capital stock pursuant to such right or warrant and the denominator of which
shall be the Fair Market Value of a share of such capital stock immediately
after the distribution of such right or warrant.
(d) For purposes of this Article FIFTH (E), the "Fair Market
Value" of a share of capital stock of the Company (including a share of Common
Stock) on any date shall be deemed to be the average of the daily closing price
per share thereof over the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date; provided, however, that in
the event that such Fair Market Value of any such share of capital stock is
determined during a period which includes any date that is within 30 Trading
Days after (i) the ex-dividend date for a dividend or distribution on stock
payable in shares of such stock or
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<PAGE> 25
securities convertible into shares of such stock, or (ii) the effective date of
any subdivision, split, combination, consolidation, reverse stock split or
reclassification of such stock or division of the Company pursuant to Sections
1951 through 1957 of the Pennsylvania BCL, then, and in each such case, the
Fair Market Value shall be appropriately adjusted by the Board of Directors of
the Company to take into account ex-dividend or post-effective date trading.
The closing price for any day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way (in either case, as reported in the applicable
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange), or, if the shares are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
applicable transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares are listed or
admitted to trading or, if the shares are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by The Nasdaq Stock Market or such other system then in
use, or if on any such date the shares are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in the shares selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares are listed or admitted to
trading is open for the transaction of business or, if the shares are not
listed or admitted to trading on any national securities exchange, on which the
New York Stock Exchange or such other national securities exchange as may be
selected by the Board of Directors of the Company is open. If the shares are
not publicly held or not so listed or traded on any day within the period of 30
Trading Days applicable to the determination of Fair Market Value thereof as
aforesaid, "Fair Market Value"
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<PAGE> 26
shall mean the fair market value thereof per share as determined in good faith
by the Board of Directors of the Company. In either case referred to in the
foregoing sentence, the determination of Fair Market Value shall be described
in a statement filed with the Secretary of the Company.
8. Consolidation, Merger, etc. In case the Company shall enter
into any consolidation, merger, division, share exchange, combination, sale of
all or substantially all of the Company's assets, or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event; provided,
however, no fractional share or scrip representing fractional shares of any
other stock or securities shall be issued. Instead of any fractional interest
in a share of such other stock or securities which would otherwise be
deliverable pursuant to this paragraph 8, the Company will pay to the holder
thereof an amount in cash (computed to the nearest cent) equal to the same
fraction of the Fair Market Value of a share of such other stock or security.
9. Effective Time of Adjustments.
(a) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event
requiring such adjustments occurs.
(b) The Company shall give prompt written notice to each holder
of a share of outstanding Series A Preferred Stock of the effect of any
adjustment to the voting rights, dividend rights or rights upon liquidation,
dissolution or winding up of the Company of such
-26-
<PAGE> 27
shares required by the provisions hereof. Notwithstanding the foregoing
sentence, the failure of the Company to give such notice shall not affect the
validity of or the force or effect of or the requirement for such adjustment.
10. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable at the option of the Company or any holder thereof.
Notwithstanding the foregoing sentence of this paragraph, the Company may
acquire shares of Series A Preferred Stock in any other manner permitted by
law, the provisions hereof and the Restated Articles of Incorporation.
11. Ranking. The Series A Preferred Stock shall rank senior to
the Common Stock and, unless otherwise provided in a Statement with Respect to
Shares or an amendment to the Restated Articles of Incorporation relating to
the determination of a subsequent series of preferred stock of the Company, the
Series A Preferred Stock shall rank junior to all other series of the Company's
preferred stock as to the payment of dividends and the distribution of assets
on liquidation, dissolution or winding up.
12. Limitations. Except as may otherwise be required by law, the
shares of Series A Preferred Stock shall not have any powers, preferences or
relative, participating, optional or other special rights other than those
specifically set forth in this Article FIFTH (E) (as such may be amended from
time to time) or otherwise in the Restated Articles of Incorporation.
13. Amendment. So long as any shares of the Series A Preferred
Stock are outstanding, the Company shall not amend this Article FIFTH (E) or
the Restated Articles of Incorporation in any manner which would alter or
change the rights, preferences or limitations of the Series A Preferred Stock
so as to affect such rights, preferences or limitations in any material respect
prejudicial to the holders of the Series A Preferred Stock without, in addition
to any other vote of shareholders required by law, the affirmative vote of the
holders of two-thirds
-27-
<PAGE> 28
or more of the outstanding shares of Series A Preferred Stock, voting together
as a single class; provided, however, that the creation of another series of
the Preferred Stock ranking senior to or on a parity with the Series A
Preferred Stock as to the payment of dividends or the distribution of assets or
liquidation, dissolution or winding up shall not be deemed to be prejudicial to
the holders of the Series A Preferred Stock for the purposes of this paragraph
13.
SIXTH: A. A higher than majority shareholder vote for certain Business
Combinations (as defined below) shall be required as follows:
(1) In addition to any affirmative vote required by law or these
Restated Articles of Incorporation or the terms of any series of
Preferred Stock or any other securities of the Company and except as
otherwise expressly provided in Section B. of this Article SIXTH:
(a) any merger or consolidation of the Company or
any Subsidiary with (i) any Interested Stockholder or with (ii)
any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate or Associate of an Interested
Stockholder;
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions whether or not related) to an Interested
Stockholder (or an Affiliate or Associate of an Interested
Stockholder) of any assets of the Company or of a Subsidiary
having an aggregate Fair Market Value of $10,000,000 or more;
(c) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions whether or not related) to or with the Company or a
Subsidiary of any assets of an Interested Stockholder (or
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<PAGE> 29
an Affiliate or Associate of an Interested Stockholder) having
an aggregate Fair Market Value of $10,000,000 or more;
(d) the issuance or sale by the Company or any
Subsidiary (in one transaction or a series of transactions
whether or not related) of any securities of the Company or of
any Subsidiary to any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder in exchange for cash,
securities or other consideration (or a combination thereof)
having an aggregate Fair Market Value of $10,000,000 or more
except an issuance of securities upon conversion of convertible
securities of the Company or of a Subsidiary which were not
acquired by such Interested Stockholder (or such Affiliate or
Associate) from the Company or a Subsidiary;
(e) the adoption of any plan or proposal for the
liquidation or dissolution of the Company proposed by or on
behalf of any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or
(f) any reclassification of securities (including
any reverse stock split), or recapitalization of the Company, or
any merger or consolidation of the Company with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which has
the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity securities or securities convertible into equity
securities of the Company or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder; shall require the
affirmative vote of (i) the holders of at least eighty percent
(80%) of the combined voting power of the then outstanding
shares of capital stock of the
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<PAGE> 30
Company entitled to vote generally in an annual election of
directors (the "Voting Stock") and (ii) the holders of at least
a majority of the combined voting power of the then outstanding
Voting Stock held by Disinterested Stockholders, in each case
voting together as a single class. Such affirmative vote shall
be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law,
by any other provisions of these Restated Articles of
Incorporation or by the terms of any series of Preferred Stock
or any other securities of the Company;
(2) The term "Business Combination" as used in this Article
SIXTH shall mean any transaction which is referred to in any one or
more of clauses (a) through (f) of paragraph (1) of Section A. of this
Article SIXTH.
B. The provisions of Section A. of this Article SIXTH shall not
be applicable to any Business Combination, and such Business Combination shall
require only such affirmative vote (if any) as is required by law, any other
provision of these Restated Articles of Incorporation or the terms of any class
or series of capital stock of the Company entitled to a preference over the
Common Stock as to dividends or upon liquidation, or the terms of any other
securities of the Company, if all of the conditions specified in either of the
following paragraphs (1) or (2) are met:
(1) The Business Combination shall have been approved by a
majority of the Disinterested Directors or
(2) All the following six conditions shall have been met -
(a) The transaction constituting the Business
Combination shall provide for a consideration to be received by
holders of Common Stock in exchange for
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<PAGE> 31
their Common Stock, and the aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination shall be at least equal to the highest of the
following:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid in order to
acquire any shares of Common Stock beneficially
owned by the Interested Stockholder which were
acquired (x) within the two-year period immediately
prior to the first public announcement of the
proposed Business Combination (the "Announcement
Date") or (y) in the transaction in which it became
an Interested Stockholder, whichever is higher;
(ii) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on
which the Interested Stockholder became an
Interested Stockholder (the "Determination Date"),
whichever is higher; and
(iii) (if applicable) the price per share equal
to the Fair Market Value per share of Common Stock
determined pursuant to clause (ii) immediately
preceding, multiplied by the ratio of (x) the
highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of Common
Stock beneficially owned by the Interested
Stockholder which were acquired within the two-year
period immediately prior to the Announcement Date to
-31-
<PAGE> 32
(y) the Fair Market Value per share of Common Stock
on the first day in such two-year period on which
the Interested Stockholder beneficially owned any
shares of Common Stock, whether or not such
Stockholder was an Interested Stockholder on that
day.
(b) If the transaction constituting the Business
Combination shall provide for a consideration to be
received by holders of any class of outstanding Voting
Stock other than Common Stock, the aggregate amount of
the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of
shares of such Voting Stock shall be at least equal to
the highest of the following (it being intended that the
requirements of this clause (2)(b) shall be required to
be met with respect to every class of outstanding Voting
Stock other than Institutional Voting Stock, whether or
not the Interested Stockholder beneficially owns any
shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid in order to
acquire any shares of such class of Voting Stock
beneficially owned by the Interested Stockholder
which were acquired (x) within the two-year period
immediately prior to the Announcement Date or (y) in
the transaction in which it became an Interested
Stockholder, whichever is higher;
(ii) (if applicable) the highest preferential
amount per share to which the holders of shares of
such class of Voting Stock are entitled in
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<PAGE> 33
the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Company;
(iii) the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on
the Determination Date, whichever is higher; and
(iv) (if applicable) the price per share equal
to the Fair Market Value per share of such class of
Voting Stock determined pursuant to clause (iii)
immediately preceding, multiplied by the ratio of
(x) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid in order to acquire any shares
of such class of Voting Stock beneficially owned by
the Interested Stockholder which were acquired
within the two-year period immediately prior to the
Announcement Date to (y) the Fair Market Value per
share of such class of Voting Stock on the first day
in such two-year period on which the Interested
Stockholder beneficially owned any shares of such
class of Voting Stock, whether or not such
Stockholder was an Interested Stockholder on that
day.
(c) The consideration to be received by holders of a
particular class of Voting Stock (including Common Stock) shall
be in cash or in the same form as was previously paid in order
to acquire shares of such class of Voting Stock which are
beneficially owned by the Interested Stockholder and, if the
Interested Stockholder beneficially owns shares of any class of
Voting Stock which were acquired with varying forms of
consideration, the form of consideration to be received by
holders of such class of Voting Stock shall be either cash or
the form
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<PAGE> 34
used to acquire the largest number of shares of such class of
Voting Stock beneficially owned by it. The prices determined in
accordance with clauses (a) and (b) of paragraph (2) of this
Section B. shall be subject to an appropriate adjustment in the
event of any stock dividend, stock split, subdivision,
combination of shares or similar event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination:
(i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure
to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any
outstanding Preferred Stock or other capital stock
entitled to a preference over the Common Stock as to
dividends or upon liquidation;
(ii) except as approved by a majority of the
Disinterested Directors, there shall have been (x) no
reduction in the annual amount of dividends paid on the
Common Stock (except as necessary to reflect any
subdivision of the Common Stock) and (y) no failure to
increase the annual amount of dividends as necessary to
prevent any such reduction in the event of any
reclassification (including any reverse stock split),
recapitalization, reorganization or similar transaction
which has the effect of reducing the number of
outstanding shares of the Common Stock;
(iii) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction in which
it became an Interested Stockholder; and
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<PAGE> 35
(iv) there shall have always been at least three
Disinterested Directors on the Board of Directors.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Company, whether
in anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to
shareholders at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article SIXTH:
(1) A "person" shall mean any individual, a
partnership, a corporation, an association, a trust or other
entity.
(2) "Interested Stockholder" at any particular time
shall mean any person (other than the Company or any Subsidiary)
who or which:
(a) is at such time the beneficial owner,
directly or indirectly, of five percent (5%) or more
of the voting power of the Voting Stock;
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<PAGE> 36
(b) is an Affiliate of the Company and at any
time within the two-year period immediately prior to
the date in question was the beneficial owner,
directly or indirectly, of five percent (5%) or more
of the voting power of the Voting Stock; or
(c) is at such time an assignee of or has
otherwise succeeded to the beneficial ownership of
any shares of Voting Stock which were at any time
within the two-year period immediately prior to the
date in question beneficially owned by any
Interested Stockholder (as defined in C.(2)(a) and
(b) above), if such assignment or succession shall
have occurred in the course of a transaction or
series of transactions not involving a public
offering within the meaning of the Securities Act of
1933.
(3) "Disinterested Stockholder" shall mean a
shareholder of the Company who is not an Interested Stockholder
or an Affiliate or an Associate of an Interested Stockholder.
(4) A person shall be a "beneficial owner" of any
shares of Voting Stock:
(a) which such person or any of its Affiliates
or Associates beneficially owns, directly or
indirectly;
(b) which such person or any of its Affiliates
or Associates has (i) the right to acquire (whether
or not such right is exercisable immediately)
pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding; or
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<PAGE> 37
(c) which are beneficially owned, directly or
indirectly, by any other person with which such
person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing
of any shares of Voting Stock.
(5) For the purpose of determining whether a person
is an Interested Stockholder pursuant to paragraph (2) of this
Section C., the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned by an Interested
Stockholder through application of paragraph (4) of this Section
C. but shall not include any other shares of Voting Stock which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
(6) "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as in effect on December 31, 1984 (the term
"registrant" in such Rule 12b-2 meaning in this case the
Company).
(7) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Company; provided, however, that for the
purposes of the definition of Interested Stockholder set forth
in paragraph (2) of this Section C. the term "Subsidiary" shall
mean only a corporation of which a majority of each class of
equity security is owned, directly or indirectly, by the
Company.
(8) "Disinterested Director" means any member of the
Board of Directors who is unaffiliated with, and not a
representative or nominee of, an Interested Stockholder and (a)
was a member of the Board prior to the time that the
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<PAGE> 38
Interested Stockholder became an Interested Stockholder, or (b)
recommended to succeed a Disinterested Director by a majority of
the Disinterested Directors then on the Board.
(9) "Fair Market Value" means: (a) in the case of
stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or if such stock is not listed
on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotation System or any other
system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such
stock as determined by a majority of the Disinterested Directors
in good faith; and (b) in the case of property other than cash
or stock, the fair market value of such property on the date in
question as determined by a majority of the Disinterested
Directors in good faith.
(10) In the event of any Business Combination in
which the Company survives, the phrase "consideration other than
cash to be received" as used in paragraph (2) of Section B. of
this Article SIXTH shall include the shares of Common Stock and
the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
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<PAGE> 39
(11) The term "class" of Voting Stock shall be
deemed to refer to a series of Voting Stock where more than one
series of Voting Stock is outstanding within a class of Voting
Stock.
(12) "Institutional Voting Stock" shall mean any
class of Voting Stock which was issued to and continues to be
held solely by one or more insurance companies, pension funds,
commercial banks, savings banks or similar financial
institutions or institutional investors.
D. A majority of the Disinterested Directors of the Company
shall have the power and duty to determine for the purposes of this Article
SIXTH, on the basis of information known to them after reasonable inquiry, (1)
whether a person is an Interested Stockholder, (2) the number of shares of
Voting Stock beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether the requirements of Section B.
of this Article SIXTH have been met with respect to any Business Combination,
(5) whether a class of Voting Stock is Institutional Voting Stock and (6)
whether the assets which are subject to any Business Combination have, or the
consideration to be received for the issuance or transfer of securities by this
Company or any subsidiary in any Business Combination has, an aggregate Fair
Market Value of $10,000,000 or more. Any such determination made in good faith
shall be binding and conclusive on all parties.
E. Nothing contained in this Article SIXTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
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<PAGE> 40
F. In addition to any requirements of law and any other
provisions of these Restated Articles of Incorporation or the terms of any
class or series of capital stock of the Company entitled to a preference over
the Common Stock as to dividends or upon liquidation, or the terms of any other
securities of the Company (and notwithstanding the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation or
any such terms), the affirmative vote of
(1) the holders of eighty percent (80%) or more of the combined
voting power of the Voting Stock, voting together as a single class,
and
(2) a majority of the combined voting power of the Voting Stock
held by the Disinterested Stockholders, voting together as a single
class, shall be required to amend, alter or repeal, or adopt any
provision inconsistent with, this Article SIXTH.
SEVENTH: A. Except as otherwise fixed by or pursuant to the terms of
any class or series of capital stock of the Company entitled to a preference
over the Common Stock as to dividends or upon liquidation, the number,
qualification, terms of office, manner of election, time and place of meeting,
compensation, powers and duties of the directors shall be fixed from time to
time by or pursuant to the By-laws.
B. If the By-laws so provide, the members of the Board (other
than those who may be elected by the holders of any class or series of capital
stock having a preference over the Common Stock as to dividends or upon
liquidation pursuant to the terms of these Restated Articles of Incorporation
or of such class or series of stock) shall be classified, with respect to the
time for which they severally hold office, into three classes, as nearly equal
in number as possible, having such terms and being elected in such manner as
shall be specified in the By-laws.
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<PAGE> 41
EIGHTH: In furtherance and not in limitation of the powers conferred
upon it by law, the Board of Directors is expressly authorized to:
(1) adopt any By-laws a majority of the entire Board of
Directors may deem necessary or desirable for the efficient conduct of
the affairs of the Company, including, but not limited to, provisions
governing the conduct of, and the matters which may properly be
brought before, meetings of the shareholders and provisions specifying
the manner and extent to which prior notice shall be given of the
submission of proposals to be considered at any such meeting or of
nominations for the election of directors to be held at any such
meeting; and
(2) repeal, alter or amend the By-laws by the vote of a majority
of the entire Board of Directors.
NINTH: In addition to any requirements of law and any other
provisions of these Restated Articles of Incorporation or the terms of any
series of Preferred Stock or any other securities of the Company (and
notwithstanding the fact that a lesser percentage may be specified by law,
these Restated Articles of Incorporation or any such terms), the affirmative
vote of the holders of eighty percent (80%) or more of the combined voting
power of the then outstanding shares of capital stock of the Company entitled
to vote generally in an annual election (the "Voting Stock"), voting together
as a single class, shall be required to:
(1) remove a director without cause (For purposes of this
Article (NINTH) "cause" shall mean the willful and continuous failure
of a director to substantially perform such director's duties to the
Company, other than any such failure resulting from incapacity
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<PAGE> 42
due to physical or mental illness, or the willful engaging by a
director in gross misconduct materially and demonstrably injurious to
the Company);
(2) adopt, amend, alter or repeal any provision of the By-laws,
except that By-law XVI may be amended or altered by a majority vote of
the Voting Stock if the majority of the entire Board of Directors has
first recommended the amendment or alteration for approval by the
shareholders;
(3) amend, alter or repeal or adopt any provision inconsistent
with, Articles SEVENTH or EIGHTH or this Article NINTH; and
(4) amend, alter or repeal or adopt any provisions inconsistent
with any provision, other than Articles SIXTH, SEVENTH or EIGHTH or
this Article NINTH, contained in these Restated Articles of
Incorporation, unless otherwise first recommended and approved by a
majority of the entire Board of Directors or, if there is an
Interested Stockholder (as defined in Article SIXTH), by a majority of
the Disinterested Directors (as defined in Article SIXTH), in which
cases a majority vote of the Voting Stock is required to amend, alter
or repeal such other provisions of these Restated Articles of
Incorporation.
TENTH: To the fullest extent that the law of the Commonwealth of
Pennsylvania, as it exists on January 27, 1987, or as it may thereafter be
amended, permits the elimination of the liability of directors, no director of
the corporation shall be liable for monetary damages for any action taken, or
any failure to take any action. This Article TENTH shall not apply to any
breach of performance of duty or any failure of performance of duty by any
director occurring prior to January 27, 1987. No amendment to or repeal of this
Article TENTH shall apply to or have any effect on the liability or alleged
liability of any director of the Company for or with
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<PAGE> 43
respect to any act or failure to act on the part of such director occurring
prior to such amendment or repeal.
ELEVENTH: The Company may, to the fullest extent permitted by
applicable law as then in effect, indemnify any person who is or was a
director, officer, employee or agent of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan) and may take such steps as may
be deemed appropriate by the Company, including purchasing and maintaining
insurance, entering in to contracts (including, without limitation, contracts
of indemnification between the Company and its directors and officers),
creating a trust fund, granting security interests or using other means
(including, without limitation, a letter of credit) to insure the payment of
such amount as may be necessary to effect such indemnification. This Article
shall apply to any action taken, or any failure to take any action, on or after
January 27, 1987.
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<PAGE> 1
EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
EQUIVALENT SHARES:
Average shares outstanding 600,522,963 399,232,141 595,159,589 398,307,494
Additional Shares due to:
Stock options 16,670,511 7,368,773 16,860,848 6,558,043
Series C Preferred Shares 27,000,000 36,000,000 30,857,143 36,000,000
---------- ---------- ----------- -----------
Total equivalent shares 644,193,474 442,600,914 642,877,580 440,865,537
=========== =========== =========== ===========
ADJUSTED EARNINGS
(in millions):
Income (loss) from Continuing
Operations $ 1 $ (89) $ (150) $ (747)
Income from Discontinued
Operations - - - 967
Extraordinary Item - - - (63)
-------- -------- --------- --------
Adjusted net income (loss) $ 1 $ (89) $ (150) $ 157
======== ======== ========= =========
EARNINGS (LOSS) PER SHARE:
From Continuing Operations $ - $ (0.20) $ (0.23) $ (1.70)
From Discontinued Operations - - - 2.20
From Extraordinary Item - - - (0.14)
-------- -------- --------- --------
Earnings (loss) per share (a) $ - $ (0.20) $ (0.23) $ 0.36
======== ======== ========= =========
</TABLE>
(a) For earnings per share using an alternative treatment for the Series C
Preferred Shares, see note 11 to the condensed consolidated financial
statements included in Part I of this report.
-32-
<PAGE> 1
EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions) (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
----------------- -----------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Loss before income taxes and
minority interest $ (168) $(1,129) $(1,190)
Less: Equity in income of 50 percent
or less owned affiliates 6 1 9
Add: Fixed charges 256 268 484
------- ------- -------
Earnings as adjusted $ 82 $ (862) $ (715)
======= ======= =======
Fixed charges:
Interest expense $ 236 $ 255 $ 456
Rental expense 20 13 28
------- ------- -------
Total fixed charges $ 256 $ 268 $ 484
======= ======= =======
Ratio of earnings to fixed charges (a) (a) (a)
======= ======= =======
</TABLE>
(a) Additional income before income taxes and minority interest necessary to
attain a ratio of 1.00x for the six months ended June 30, 1997, June 30,
1996, and the year ended December 31, 1996 would be $174 million, $1,130
million, and $1,199 million, respectively.
-33-
<PAGE> 1
EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(in millions) (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
---------------- -----------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Loss before income taxes and
minority interest $ (168) $(1,129) $(1,190)
Less: Equity in income of 50 percent
or less owned affiliates 6 1 9
Add: Combined fixed charges and
preferred stock dividends 282 303 557
------- ------- -------
Earnings as adjusted $ 108 $ (827) $ (642)
======= ======= =======
Combined fixed charges and preferred
stock dividends:
Interest expense $ 236 $ 255 $ 456
Rental expense 20 13 28
Pre-tax earnings required to cover
preferred stock dividend
requirements (b) 26 35 73
------- ------- -------
Total combined fixed charges and
preferred stock dividends $ 282 $ 303 $ 557
======= ======= =======
Ratio of earnings to combined fixed
charges and preferred stock dividends (a) (a) (a)
======= ======= =======
</TABLE>
(a) Additional income before income taxes and minority interest necessary
to attain a ratio of 1.00x for the six months ended June 30, 1997,
June 30, 1996, and the year ended December 31, 1996 would be $174
million, $1,130 million, and $1,199 million, respectively.
(b) Dividend requirement divided by 100% minus the effective income tax
rate or the statutory rate, whichever is more appropriate.
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 1,609
<ALLOWANCES> 34
<INVENTORY> 765
<CURRENT-ASSETS> 4,450
<PP&E> 3,552
<DEPRECIATION> 1,754
<TOTAL-ASSETS> 19,324
<CURRENT-LIABILITIES> 3,310
<BONDS> 5,775
0
0
<COMMON> 649
<OTHER-SE> 4,954
<TOTAL-LIABILITY-AND-EQUITY> 19,324
<SALES> 4,636
<TOTAL-REVENUES> 4,636
<CGS> 3,106
<TOTAL-COSTS> 3,106
<OTHER-EXPENSES> 1,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236
<INCOME-PRETAX> (168)
<INCOME-TAX> (19)
<INCOME-CONTINUING> (150)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
