<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
------------------------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
____ EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
------------------------
CBS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
(State of Incorporation)
25-0877540
(IRS Employer Identification No.)
51 WEST 52ND STREET, NEW YORK, NY 10019
(Address of principal executive offices, zip code)
(212) 975-4321
(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 718,114,515 SHARES OUTSTANDING AT APRIL 30, 1998
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<PAGE> 2
CBS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................ 3
Condensed Consolidated Statement of Income and Comprehensive
Income...................................................... 3
Condensed Consolidated Balance Sheet........................ 4
Condensed Consolidated Statement of Cash Flows.............. 5
Notes to the Condensed Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 24
Item 6. Exhibits and Reports on Form 8-K.................... 24
SIGNATURE ............................................................ 28
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED, IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Revenues.................................................... $ 1,949 $ 1,326
Operating expenses.......................................... (1,305) (1,002)
Marketing, administration, and general expenses............. (340) (238)
Depreciation and amortization............................... (130) (105)
Residual costs of discontinued businesses................... (38) (35)
------- -------
Operating profit (loss)..................................... 136 (54)
Other income (expense), net (note 3)........................ 5 41
Interest expense............................................ (75) (101)
------- -------
Income (loss) from Continuing Operations before income taxes
and minority interest in income of consolidated
subsidiaries.............................................. 66 (114)
Income tax (expense) benefit................................ (47) 22
Minority interest in loss of consolidated subsidiaries...... -- 1
------- -------
Income (loss) from Continuing Operations.................... 19 (91)
Income (loss) from Discontinued Operations, net of income
taxes (note 6)............................................ -- (60)
------- -------
Net income (loss)........................................... $ 19 $ (151)
======= =======
Basic earnings (loss) per common share:
Continuing Operations................................... $ .03 $ (.18)
Discontinued Operations................................. -- (.10)
------- -------
Basic earnings (loss) per common share...................... $ .03 $ (.28)
======= =======
Diluted earnings (loss) per common share:
Continuing Operations................................... $ .03 $ (.18)
Discontinued Operations................................. -- (.10)
------- -------
Diluted earnings (loss) per common share.................... $ .03 $ (.28)
======= =======
Cash dividends per common share............................. $ .05 $ .05
======= =======
Comprehensive income (loss):
Net income (loss)........................................... $ 19 $ (151)
Other comprehensive income (loss), net of taxes (note 10):
Unrealized gains on marketable securities (net of taxes
of $10 million)....................................... 17 --
Minimum pension liability adjustment (net of taxes of
$14 million).......................................... (25) --
------- -------
Other comprehensive income (loss)........................... (8) --
------- -------
Comprehensive income (loss)................................. $ 11 $ (151)
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements.
3
<PAGE> 4
CBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 72 $ 8
Customer receivables (net of allowance for doubtful accounts
of $36 million and $35 million)........................... 1,089 936
Program rights.............................................. 511 502
Deferred income taxes....................................... 393 394
Prepaid and other current assets............................ 183 135
------- -------
Total current assets................................... 2,248 1,975
Property and equipment, net................................. 1,049 1,066
FCC licenses, net........................................... 2,144 2,171
Goodwill, net............................................... 9,636 9,681
Other intangible and noncurrent assets (note 4)............. 1,613 1,610
Net assets of Discontinued Operations (note 6).............. 431 212
------- -------
Total assets........................................... $17,121 $16,715
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt............................................. $ 128 $ 89
Current maturities of long-term debt........................ 33 62
Accounts payable............................................ 205 221
Liabilities for talent and program rights................... 528 309
Other current liabilities (note 5).......................... 843 868
------- -------
Total current liabilities.............................. 1,737 1,549
Long-term debt.............................................. 3,430 3,236
Pension liability........................................... 1,168 1,149
Other noncurrent liabilities (note 5)....................... 2,621 2,696
------- -------
Total liabilities...................................... 8,956 8,630
------- -------
Contingent liabilities and commitments (note 8)
Minority interest in equity of consolidated subsidiaries.... 5 5
------- -------
Shareholders' equity:
Preferred stock, $1.00 par value (25 million shares
authorized, none issued)............................... -- --
Common stock, $1.00 par value (1,100 million shares
authorized, 723 million and 718 million shares
issued)................................................ 723 718
Capital in excess of par value............................ 7,288 7,178
Common stock held in treasury, at cost.................... (540) (530)
Retained earnings......................................... 1,468 1,485
Accumulated other comprehensive loss (note 10)............ (779) (771)
------- -------
Total shareholders' equity............................. 8,160 8,080
------- -------
Total liabilities and shareholders' equity............. $17,121 $16,715
======= =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements.
4
<PAGE> 5
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
----- -------
<S> <C> <C>
Cash flows from operating activities of Continuing
Operations:
Income (loss) from Continuing Operations.................. $ 19 $ (91)
Adjustments to reconcile income (loss) from Continuing
Operations to net cash provided (used) by operating
activities:
Depreciation and amortization.......................... 130 105
Gain on asset dispositions............................. -- (24)
Other noncash adjustments.............................. (128) (28)
Changes in assets and liabilities, net of effects of
acquisitions and divestitures of businesses:
Receivables, current and noncurrent............... (136) (52)
Accounts payable.................................. (16) (286)
Deferred and current income taxes................. 17 (38)
Program rights.................................... 271 97
Other assets and liabilities...................... (96) (46)
----- -------
Cash provided (used) by operating activities of Continuing
Operations................................................ 61 (363)
----- -------
Cash used by operating activities of Discontinued Operations
(note 6).................................................. (248) (530)
----- -------
Cash flows from investing activities:
Business acquisitions and investments..................... (4) (46)
Business divestitures and other asset liquidations........ 33 123
Capital expenditures--Continuing Operations............... (18) (21)
Capital expenditures--Discontinued Operations............. (10) (20)
----- -------
Cash provided by investing activities....................... 1 36
----- -------
Cash flows from financing activities:
Bank revolver borrowings.................................. 503 1,610
Bank revolver repayments.................................. (303) (435)
Net increase (reduction) in other short-term debt......... 35 (302)
Other long-term debt repayments........................... (39) (149)
Stock issued.............................................. 107 60
Purchase of treasury stock................................ (21) --
Bank fees paid and other costs............................ (6) (5)
Dividends paid............................................ (36) (41)
----- -------
Cash provided by financing activities....................... 240 738
----- -------
Increase (decrease) in cash and cash equivalents............ 54 (119)
Cash and cash equivalents at beginning of period for
Continuing and Discontinued Operations.................... 67 233
----- -------
Cash and cash equivalents at end of period for Continuing
and Discontinued Operations............................... $ 121 $ 114
===== =======
Supplemental disclosure of cash flow information:
Interest paid--Continuing Operations...................... $ 75 $ 104
Interest paid--Discontinued Operations.................... 12 18
----- -------
Total interest paid......................................... $ 87 $ 122
===== =======
Income taxes paid........................................... $ 94 $ 16
===== =======
</TABLE>
See Notes to the Condensed Consolidated Financial Statements.
5
<PAGE> 6
CBS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements include the accounts of CBS
Corporation (CBS) 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 consolidated financial statements, schedule, and
notes contained in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997. Certain amounts pertaining to the three months ended
March 31, 1997 have been restated or reclassified for comparative purposes.
In September 1997, the Corporation announced that it had reached a
definitive agreement to acquire the radio broadcasting operations of American
Radio Systems Corporation (American Radio) for $1.6 billion in cash plus the
assumption of approximately $1 billion of debt. The transaction, which is
subject to government approval, is expected to close in the second quarter of
1998.
Under various disposal plans adopted in recent years, the Corporation has
either completed or planned the divestiture of all of its industrial businesses.
These businesses have been classified as Discontinued Operations in accordance
with Accounting Principles Board (APB) Opinion 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 6 to the financial statements.
In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information," were issued. SFAS 130, which requires
that an enterprise report by major component and as a single total the change in
its net assets from nonowner sources during the period, was adopted in the first
quarter of 1998. SFAS 131, which establishes annual reporting standards for an
enterprise's operating segments and related disclosures about its products,
geographic areas, and major customers, will be incorporated in disclosures for
1998 annual reporting purposes. Adoption of these statements does not impact the
Corporation's consolidated financial position, results of operations, or cash
flows, and any effects are limited to the form and content of its disclosures.
In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and
Other Postretirement Benefits," was issued. SFAS 132 requires additional
disclosures concerning changes in the Corporation's pension obligations and
assets and eliminates certain other disclosures no longer considered useful. The
Corporation will adopt the provisions of this standard for 1998 annual reporting
purposes. Adoption of this statement will not impact the Corporation's
consolidated financial position, results of operations, or cash flows.
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 currently 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.
2. ACQUISITIONS
On September 30, 1997, the Corporation acquired Gaylord Entertainment
Company's two major cable networks, The Nashville Network (TNN) and Country
Music Television (CMT). The acquisition included the U.S. and international
operations of TNN, the U.S. and Canadian operations of CMT, and approximately
6
<PAGE> 7
CBS CORPORATION
$50 million of working capital. The total purchase price of $1.55 billion was
paid through the issuance of 59 million shares of the Corporation's common
stock. The acquisition was accounted for under the purchase method. Based on
preliminary estimates, which may be revised at a later date, the excess of the
consideration paid over the estimated fair value of net assets acquired of
approximately $1.2 billion was recorded as goodwill and is being amortized on a
straight-line basis over 40 years.
Prior to the acquisition, the Corporation provided certain services to TNN
and CMT for which it received a commission. Additionally, the Corporation owned
a 33 percent interest in CMT.
The following unaudited pro forma information combines the consolidated
results of operations of the Corporation with those of TNN and CMT as if the
acquisition had occurred at the beginning of 1997. The pro forma results give
effect to certain purchase accounting adjustments, additional amortization
expense from goodwill and other identifiable intangible assets, their related
income tax effects, and the issuance of additional shares in connection with the
acquisition.
PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
--------------------------------
(UNAUDITED, IN MILLIONS EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Revenues............................................. $1,387
Income (loss) from Continuing Operations............. (93)
Basic (loss) per common share--Continuing
Operations......................................... (.16)
Diluted (loss) per common share--Continuing
Operations......................................... (.16)
</TABLE>
This pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that actually
would have occurred had the TNN and CMT acquisition been consummated on January
1, 1997. In addition, these results are not intended to be a projection of
future results and do not reflect any synergies that might be achieved from
combined operations.
3. OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
---- ----
(UNAUDITED, IN
MILLIONS)
<S> <C> <C>
Interest income....................................... $2 $ 3
Gain on disposition of assets......................... -- 24
Operating results--non-consolidated affiliates........ -- 2
Other................................................. 3 12
-- ---
Other income (expense), net........................... $5 $41
== ===
</TABLE>
7
<PAGE> 8
CBS CORPORATION
4. OTHER INTANGIBLE AND NONCURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Cable license agreements........................ $ 479 $ 491
Other intangible assets......................... 378 384
Joint ventures and other affiliates............. 122 122
Recoverable costs of discontinued businesses
(note 8)...................................... 206 208
Noncurrent receivables.......................... 130 145
Program rights.................................. 136 135
Deferred charges................................ 55 48
Intangible pension asset........................ 22 22
Other........................................... 85 55
------ ------
Total other intangible and noncurrent
assets................................... $1,613 $1,610
====== ======
</TABLE>
5. OTHER CURRENT AND NONCURRENT LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- -------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
OTHER CURRENT LIABILITIES
Accrued employee compensation..................... $ 89 $ 119
Income taxes payable.............................. 47 30
Accrued liabilities............................... 272 309
Retained liabilities of discontinued businesses
(note 8)........................................ 186 191
Accrued interest and insurance.................... 75 54
Accrued restructuring costs....................... 15 28
Other............................................. 159 137
------ ------
Total other current liabilities.............. $ 843 $ 868
====== ======
OTHER NONCURRENT LIABILITIES
Postretirement benefits........................... $1,164 $1,160
Postemployment benefits........................... 28 28
Deferred income taxes............................. 213 224
Liabilities for talent and program rights......... 72 68
Accrued liabilities............................... 172 201
Retained liabilities of discontinued businesses
(note 8)........................................ 759 767
Accrued restructuring costs....................... 9 13
Other............................................. 204 235
------ ------
Total other noncurrent liabilities........... $2,621 $2,696
====== ======
</TABLE>
8
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CBS CORPORATION
6. DISCONTINUED OPERATIONS
In recent years, the Corporation has adopted various disposal plans that,
in the aggregate, provide for the disposal of all of its industrial businesses.
The assets and liabilities and the results of operations for all of the
industrial businesses are classified as Discontinued Operations except for
certain liabilities expected to be retained by the Corporation. See note 8 to
the financial statements. The following table summarizes each of the
Corporation's segment disposal plans as well as the assets remaining at March
31, 1998.
<TABLE>
<CAPTION>
MEASUREMENT DATE BUSINESS SEGMENT REMAINING ASSETS
- ---------------- ---------------- ----------------
<S> <C> <C>
September 1997 Thermo King None
All remaining industrial businesses All assets
November 1996 Communication & Information Systems Three miscellaneous operations
(CISCO)
March 1996 Environmental Services Three waste incineration plants
December 1995 The Knoll Group (Knoll) None
Defense and Electronic Systems None
July 1995 Land Development (WCI) Mortgage notes receivable and
miscellaneous securities
November 1992 Financial Services Leasing portfolio
Distribution & Control (DCBU) None
Westinghouse Electric Supply Company Miscellaneous securities
(WESCO)
</TABLE>
The primary remaining industrial businesses included in the September 1997
disposal plan are Power Generation, Energy Systems, and Government Operations.
In November 1997, the Corporation announced a definitive agreement to sell Power
Generation, the largest of those businesses, for cash proceeds of $1.525
billion. The sale, which is subject to government approval, is expected to close
in mid-1998. Energy Systems and Government Operations are expected to be
divested in 1998.
In April 1998, the Corporation sold certain securities remaining from the
disposal of WCI. In April 1998, the Corporation also reached agreement to sell
one of the remaining CISCO operations and in May completed the sale of another.
In addition, it reached agreement to sell the remaining WESCO securities.
Generally, the remaining assets are expected to be divested in 1998, except for
the leasing portfolio, which is expected to liquidate in accordance with its
contractual terms.
9
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CBS CORPORATION
The assets and liabilities of Discontinued Operations have been separately
classified on the balance sheet as net assets of Discontinued Operations. A
summary of these assets and liabilities follows:
NET ASSETS OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 49 $ 59
Customer receivables............................ 600 537
Inventories..................................... 530 560
Costs and estimated earnings over billings on
uncompleted contracts......................... 387 437
Portfolio investments........................... 779 791
Plant and equipment, net........................ 665 681
Deferred income taxes........................... 487 491
Other assets.................................... 497 545
------ ------
Total assets............................... $3,994 $4,101
====== ======
LIABILITIES
Accounts payable................................ $ 298 $ 384
Billings over costs and estimated earnings on
uncompleted contracts......................... 417 377
Short-term debt................................. 8 7
Current maturities of long-term debt............ 84 96
Long-term debt.................................. 442 440
Liability for estimated loss on disposal........ 766 989
Settlements and environmental liabilities (note
8)............................................ 572 625
Other liabilities............................... 976 971
------ ------
Total liabilities.......................... 3,563 3,889
------ ------
Net assets of Discontinued Operations........... $ 431 $ 212
====== ======
</TABLE>
Certain environmental and litigation-related liabilities are expected to be
assumed by buyers and are included in the net assets of Discontinued Operations.
Those that are not expected to be assumed by other parties in divestiture
transactions have been separately presented as retained liabilities of
discontinued businesses. See note 8 to the financial statements.
Long-term debt of Discontinued Operations is not expected to be assumed by
buyers in divestiture transactions. It is expected to be repaid using cash
proceeds from the liquidation of the portfolio investments of Discontinued
Operations.
The liability for estimated loss on disposal of $766 million at March 31,
1998 includes estimated losses and disposal costs associated with each
divestiture transaction, including estimated results of operations through the
expected closing date and other costs expected subsequent to the divestiture.
Satisfaction of these liabilities is expected to occur over the next several
years. Management believes that the liability for estimated loss on disposal at
March 31, 1998, is adequate to cover divestiture or liquidation of the remaining
assets and liabilities of Discontinued Operations.
10
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CBS CORPORATION
Cash requirements to satisfy non-debt obligations of Discontinued
Operations as well as cash proceeds from the sale or liquidation of all assets
of Discontinued Operations, except for portfolio investments, will affect cash
flows of Continuing Operations.
In accordance with APB 30, the consolidated financial statements reflect
the results of Discontinued Operations separately from those of Continuing
Operations. Pre-tax operating results after the measurement date are charged to
the liability for estimated loss on disposal. Summarized in the following table
are the operating results of Discontinued Operations:
OPERATING RESULTS
<TABLE>
<CAPTION>
NET INCOME NET LOSS
SALES OF (LOSS) BEFORE AFTER
PRODUCTS OR MEASUREMENT MEASUREMENT
SERVICES DATE DATE
------------ -------------- -------------
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Industrial businesses included in September
1997 plan................................ $ 549 $ -- $ (89)
Pre-1997 disposal plans.................... 45 -- (4)
------ ---- -----
Total...................................... $ 594 $ -- $ (93)
====== ==== =====
THREE MONTHS ENDED MARCH 31, 1997
Industrial businesses included in September
1997 plan................................ $ 650 $(92) $ --
Thermo King................................ 247 32 --
Pre-1997 disposal plans.................... 112 -- (18)
------ ---- -----
Total...................................... $1,009 $(60) $ (18)
====== ==== =====
</TABLE>
Interest expense on debt of Continuing Operations totaling $2 million and
$13 million for the three months ended March 31, 1998, and 1997, respectively,
was allocated to Discontinued Operations based on the ratio of the net assets of
Discontinued Operations to the sum of total consolidated net assets plus
consolidated debt.
Operating cash flows of Discontinued Operations are presented separately
from those of Continuing Operations in the consolidated statement of cash flows.
Total operating cash flows of Discontinued Operations consist of the following:
CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
1998 1997
---- ----
(UNAUDITED, IN MILLIONS)
<S> <C> <C>
Industrial businesses included in September 1997
plan................................................ $(219) $(514)
Thermo King........................................... -- 14
Financial Services.................................... (9) (9)
Other pre-1997 disposal plans......................... (20) (21)
----- -----
Cash used by operating activities..................... $(248) $(530)
===== =====
</TABLE>
Cash flows presented in the preceding table include cash flows from the
operations of the businesses as well as payments for disposition-related costs.
11
<PAGE> 12
CBS CORPORATION
7. RESTRUCTURING
In recent years, the Corporation has restructured its corporate
headquarters and certain aspects of its businesses in an effort to reduce its
cost structure and remain competitive in its markets. Restructuring activities
primarily involve the separation of employees, the termination of leases, and
similar actions. Costs for restructuring activities are limited to incremental
costs that directly result from the restructuring activities and provide no
future benefit to the Corporation.
At March 31, 1998, the Corporation's accrued restructuring liability of $24
million primarily related to (a) the 1997 restructuring plan, which involved the
separation of 118 employees at the Pittsburgh headquarters related to the
transfer of the Corporation's overhead functions to New York, and (b) the
restructuring plan adopted by the Corporation in 1996, as the acquiring company,
to integrate the activities of CBS Inc. into the Corporation's existing media
businesses. An additional restructuring plan was adopted at the time of the CBS
Inc. acquisition in 1995 to recognize the impact of integration activities on
CBS Inc. and the elimination of duplicate facilities and functions.
Implementation of this plan is essentially complete.
During the three months ended March 31, 1998 and 1997, no new restructuring
plans were initiated. During the first quarter of 1998, expenditures relating to
restructuring programs from the 1997 and 1996 plans totaled $9 million. The
remaining restructuring expenditures for these plans are expected to be incurred
primarily by the end of 1999, although certain expenditures for lease
commitments will extend over the next several years.
8. CONTINGENT LIABILITIES AND COMMITMENTS
Certain of the environmental and litigation-related liabilities associated
with the industrial businesses are not expected to be assumed by other parties
in the pending divestiture transactions and, therefore, would be retained by the
Corporation. These liabilities include environmental obligations that are not
related to active properties of operating businesses, accrued product liability
claims for divested businesses, liabilities associated with asbestos claims, and
general litigation claims not involving active businesses. Accrued liabilities
associated with these matters, which have been separately presented as retained
liabilities of discontinued businesses, totaled $945 million at March 31, 1998,
including amounts related to previously discontinued businesses of CBS Inc. Of
this amount, $759 million is classified as noncurrent. A separate asset of $241
million was recorded for estimated amounts recoverable from third parties, of
which $206 million is classified as noncurrent.
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 Energy Systems business unit 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 steam generator lawsuit remains.
The Corporation is also a party to five tolling agreements with utilities
or utility plant owners' groups that 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 discussions.
Accrued liabilities for previous and potential settlement agreements that
provide for costs in excess of discounted prices are included in Discontinued
Operations.
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
12
<PAGE> 13
CBS CORPORATION
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 the Corporation's
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 supplied by its
industrial businesses, 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 March 31, 1998, the Corporation had approximately 100,000 unresolved claims
pending.
In court actions that 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 matters 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
meritorious defenses to the litigation described previously 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
13
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CBS CORPORATION
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 $397 million at March 31, 1998. Depending on the
remediation alternatives ultimately selected, the costs related to these sites
could differ from the amounts currently accrued. The accrued liability includes
$279 million for site investigation and remediation, and $118 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. In addition, included in Discontinued
Operations are environmental liabilities directly related to active sites that
are expected to be assumed by buyers in divestiture transactions.
Management believes, based on its best estimate, that the Corporation has
adequately provided for its present environmental obligations and that complying
with existing government regulations will not materially impact the
Corporation's financial position, liquidity, or results of operations.
COMMITMENTS
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 programs for various periods. At March 31, 1998,
the Corporation was committed to make payments under such broadcasting
contracts, along with commitments for talent contracts, totaling $7.5 billion.
This amount includes $4 billion for rights to broadcast certain National
Football League games.
In addition, the Corporation has commitments under operating and capital
leases for certain facilities and equipment as well as commitments to pay for
certain franchise rights entitling it to display advertising on buses, taxis,
trains, bus shelters, terminals, and phone kiosks.
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CBS CORPORATION
9. EARNINGS (LOSS) PER COMMON SHARE
At December 31, 1997, the Corporation adopted SFAS No. 128, "Earnings Per
Share," which establishes standards for computing and disclosing basic and
diluted earnings per common share. The following is the computation of basic and
diluted earnings per common share in accordance with the new standard:
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----- ------
(UNAUDITED, IN MILLIONS
EXCEPT
PER-SHARE AMOUNTS)
<S> <C> <C>
Income (loss) from Continuing Operations............ $ 19 $ (91)
Less preferred stock dividends...................... -- (12)
---- -----
Income (loss) applicable to common stock............ $ 19 $(103)
==== =====
Average shares outstanding, basic................... 698 589
Average shares outstanding, diluted................. 718 589
Basic earnings (loss) per common share.............. $.03 $(.18)
Diluted earnings (loss) per common share............ $.03 $(.18)
</TABLE>
Shares of common stock issuable under deferred compensation arrangements
were not included in the March 31, 1998 or 1997 computations of diluted earnings
per common share because their inclusion would have been antidilutive. For these
periods, average common shares issuable under deferred compensation arrangements
approximated 5 million and 6 million, respectively. Preferred stock convertible
into common stock and options to purchase shares of common stock were not
included in the March 31, 1997 computation of diluted earnings per common share
because their inclusion would have been antidilutive.
10. COMPREHENSIVE INCOME
At March 31, 1998, the Corporation adopted the provisions of SFAS 130 which
establishes standards for reporting and disclosure of comprehensive income in
the financial statements. Comprehensive income is used to describe all changes
in equity from transactions and other events and circumstances, including net
income, from nonowner sources. The following table presents the accumulated
components of comprehensive income other than net income reflected within
shareholders' equity at March 31, 1998 and December 31, 1997:
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Unrealized gains on securities................. $ 17 $ --
Minimum pension liability adjustment........... (796) (771)
----- -----
Total accumulated other comprehensive income
(loss)....................................... $(779) $(771)
===== =====
</TABLE>
15
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CBS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported increases in revenue and earnings across all
business segments for the first quarter of 1998 compared to the first quarter of
1997. The Radio Group continued its pacesetting growth, and the Television Group
reported strong performance across all owned and operated television stations,
particularly in the top six markets. Network earnings improved over the prior
year even without the impact of sports. The Nashville Network (TNN) and Country
Music Television (CMT) made strong contributions to the Cable Group's results
enabling it to report increases in revenues and earnings on a pro forma basis.
For the first quarter of 1998, the Corporation reported net income of $19
million, or $.03 per share, compared to a net loss of $151 million, or $.28 per
share, for the first quarter of 1997. Included in the 1997 results is a loss
from Discontinued Operations of $60 million, or $.10 per share, which represents
the operating results of certain industrial businesses prior to adoption of the
September 1997 disposal plan.
In September 1997, the Corporation announced that it had reached a
definitive agreement to acquire the radio broadcasting operations of American
Radio Systems Corporation (American Radio) for $1.6 billion in cash plus the
assumption of approximately $1 billion of debt. The transaction, which is
subject to government approval, is expected to close in the second quarter of
1998 and will add approximately 100 radio stations, subject to any required
divestitures, to the Radio Group's current portfolio.
In February 1998, the Corporation announced that its Board of Directors
authorized the purchase, through open market transactions, of up to $1 billion
of its common stock. Through March 31, 1998, the Corporation had purchased
700,000 shares for $21 million.
SEGMENT RESULTS OF OPERATIONS
The following table presents the segment results for the Corporation's
Continuing Operations for the three months ended March 31, 1998 and 1997.
EBITDA is presented in the following table because it is a widely accepted
financial indicator of a company's ability to incur and service debt and is a
measure used by the Corporation's management to assess the performance of the
business. It is commonly used in the media industry as a surrogate for cash
flows. EBITDA differs from operating cash flows primarily because it does not
consider certain changes in assets and liabilities from period to period.
SEGMENT RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------
OPERATING PROFIT
REVENUES (LOSS) EBITDA
------------------- ----------------- ---------------
1998 1997 1998 1997 1998 1997
------ ------ ----- ----- ---- ----
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Radio.................................. $ 330 $ 313 $ 69 $ 47 $113 $ 91
Television............................. 263 177 118 56 130 67
Network................................ 1,245 804 30 (64) 52 (46)
Cable.................................. 125 49 4 -- 29 28
Corporate and Other.................... (14) (17) (47) (58) (15) (13)
Residual costs of discontinued
businesses........................... -- -- (38) (35) (38) (35)
------ ------ ---- ---- ---- ----
Total............................. $1,949 $1,326 $136 $(54) $271 $ 92
====== ====== ==== ==== ==== ====
</TABLE>
Revenues for the first quarter of 1998 increased $623 million, or 47
percent, over the same period in 1997. This significant revenue increase is
primarily attributable to the incremental revenues generated at the Network
16
<PAGE> 17
CBS CORPORATION
and Television Group in connection with CBS's coverage of the 1998 Winter
Olympics. Also reflected in the increase is the favorable impact of including
the first quarter 1998 results of TNN and CMT, which were acquired in September
1997.
Operating profit and EBITDA increased during the first quarter of 1998 by
$190 million and $179 million, respectively. This is primarily a result of the
continued strength of the Radio Group, the jump in profitability of the
Television Group, and the improvement in the Network's performance.
As reflected in the preceding table, results of operations have been
unfavorably affected by residual costs of discontinued businesses. These costs
primarily represent pension and postretirement benefit costs for inactive and
retired employees of previously divested businesses. Although the Corporation's
objective is to reduce this earnings constraint over the next few years by fully
funding the pension plan, management expects that these costs will continue to
affect operating results negatively during 1998 and future years.
The reported results for each of the segments include depreciation and
amortization of specifically identifiable assets based on their fair values when
acquired. Amortization of goodwill arising from the CBS Inc. acquisition, which
approximates $120 million per year, is included in the results of Corporate and
Other. Where appropriate, the separate business discussions that follow provide
comparisons of actual 1998 results with the pro forma results for 1997.
RADIO
The Radio Group owns and operates 75 radio stations and TDI Worldwide Inc.
(TDI), its outdoor advertising business. Total revenues for the Radio Group
increased $17 million, or 5 percent, for the first quarter of 1998 over the
prior year. On a pro forma basis, which adjusts for the 1997 transfer of the
radio network to Westwood One, Inc., the Radio Group's revenues increased
approximately $35 million, or 12 percent, over last year. Driving this increase
was the continued strong performance of the stations operating in the top tier
markets, including New York, Los Angeles, and Chicago, as well as significant
growth at TDI.
Total operating profit for the Radio Group during the first quarter
increased $22 million, or 47 percent, over the prior year. This increase was
primarily attributable to the incremental revenues recognized at the stations
and TDI. Consistent with the growth in operating profit, EBITDA increased $22
million, or 24 percent, over the prior year.
TELEVISION
The Television Group owns and operates 14 television stations. Total
revenues for the Television Group increased $86 million, or 49 percent, for the
first quarter of 1998 over the prior year. Approximately one-half of this
increase was attributable to station results in the major markets, including New
York, Los Angeles, and Chicago. These positive first quarter results were
primarily driven by the incremental revenues generated from CBS's coverage of
the 1998 Winter Olympics in Nagano, Japan. A strong market and management's
enhanced focus on revenue growth also contributed to the increase.
Operating profit for the Television Group during the first quarter of 1998
increased $62 million, or 111 percent, over the prior year. This significant
increase in the Television Group's first quarter operating profit was primarily
attributable to the higher revenues, although they were partially offset by
additional costs associated with the broadcast of the Olympics.
EBITDA for the Television Group during the first quarter of 1998 increased
$63 million, or 94 percent, over the prior year. This increase is consistent
with the increase in operating profit.
NETWORK
The Network segment consists of CBS Entertainment, News, and Sports as well
as CBS Enterprises (including EYEMARK Entertainment), which produces and
distributes programming and develops and sells
17
<PAGE> 18
CBS CORPORATION
certain syndicated programming. Total revenues for the Network segment increased
$441 million, or 55 percent, for the first quarter of 1998 over the prior year.
This increase reflects the significant impact of CBS's coverage of the 1998
Winter Olympics.
During the first quarter of 1998, operating profit for the Network was $30
million compared to an operating loss of $64 million during the first quarter of
1997. This $94 million improvement reflects the impact of the 1998 Winter
Olympics, including the favorable effect of purchase accounting adjustments
related to program rights acquired in the purchase of CBS Inc. Consistent with
the improvement in operating profit, EBITDA for the Network increased $98
million for the first quarter of 1998.
CABLE
The Cable segment includes TNN and CMT, two cable networks acquired on
September 30, 1997; TeleNoticias, a 24-hour Spanish-language news service; Eye
on People, which debuted in March 1997; two regional sports networks; and a
network services provider. Prior to the acquisition of TNN and CMT, the Cable
segment received a commission to provide marketing and advertising services to
those networks. In addition, the Corporation owned a 33 percent interest in CMT.
Effective October 1, 1997, the results of TNN and CMT are included in full.
Total revenues for the Cable segment increased $76 million, or 155 percent,
for the first quarter of 1998. This increase was primarily attributable to the
acquisition of TNN and CMT. On a pro forma basis, revenues for the Cable segment
increased $15 million, or 14 percent, for the quarter.
First quarter 1998 operating profit and EBITDA for the Cable segment were
$4 million and $29 million, respectively, compared to break-even operating
profit and $28 million of EBITDA for the prior-year period. Excluding a gain
recognized in the first quarter of 1997 relating to the sale of an equity
investment in a regional sports network and including the pro forma impact of
the acquisition of TNN and CMT, EBITDA increased slightly over the prior year's
first quarter. Improvements from TNN and CMT were partially offset by lower
results for the network services business and higher start-up costs for Eye on
People.
CORPORATE AND OTHER
Corporate and Other consists of corporate overhead costs and amortization
of goodwill arising from the November 1995 acquisition of CBS Inc., which
approximates $120 million per year. The decision to transfer the corporate
overhead functions from Pittsburgh to New York may result in the recognition of
certain transition costs later in 1998. EBITDA for the 1997 period includes $14
million of other income compared to $1 million for the 1998 period.
RESIDUAL COSTS OF DISCONTINUED BUSINESSES
Following past divestitures of the Corporation's industrial businesses,
certain liabilities arising from those businesses remained with the Corporation,
such as pension and postretirement benefit obligations for inactive and retired
employees, environmental liabilities, and litigation-related liabilities. The
pension and postretirement benefit costs associated with these former employees,
as well as administration costs associated with retained liabilities, have been
presented separately in the income statement. For 1998 and 1997, these costs
primarily reflect pension and postretirement benefit costs. Following the sale
of Power Generation, the quarterly costs will increase approximately $8 million.
Prior to the sale, these costs are included in Power Generation's results of
operations, which are reported in Discontinued Operations.
OTHER INCOME (EXPENSES), NET
Other income and expenses generated income of $5 million in the first three
months of 1998 and $41 million for the first three months of 1997. In 1997,
other income included a gain of $24 million on the sale of an equity investment.
18
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CBS CORPORATION
INTEREST EXPENSE
Interest expense for Continuing Operations for the first three months of
1998 was $75 million compared to $101 million for the same period in 1997. The
$26 million, or 26 percent, decrease in interest expense is primarily driven by
the reduction in revolver borrowings during the first quarter of 1998 compared
to the first quarter of 1997.
In connection with the September 1997 plan to dispose of the remaining
industrial businesses, interest expense on Continuing Operations debt totaling
$2 million and $13 million was reclassified to Discontinued Operations for the
three months ended March 31, 1998 and 1997, respectively.
INCOME TAXES
The Corporation's results for the first quarter of 1998 reflect a 71
percent effective tax rate primarily because of the amortization of
non-deductible goodwill associated with the CBS Inc., Infinity, and TNN and CMT
acquisitions. Depending on the level of the Corporation's income or losses and
the effect of any special transactions, these differences can dramatically
impact the resulting tax provision or benefit in relation to pre-tax results.
For the first quarter of 1997, the income tax benefit was 19 percent of the
pre-tax loss from Continuing Operations.
At March 31, 1998, the Corporation had recorded net deferred income tax
benefits totaling $667 million compared to $661 million at December 31, 1997. Of
this amount, $180 million at March 31, 1998, and $170 million at December 31,
1997, were presented in Continuing Operations, with the remainder in
Discontinued Operations.
YEAR 2000
The Corporation is addressing the issues associated with its existing
computer systems and their ability to operate effectively as the millennium
(year 2000) approaches. Both internal and external resources are being utilized
to address these matters throughout the Corporation. For the Corporation's
Continuing Operations, the assessment and planning phases of the project are
essentially complete. The Corporation believes that, based on available
information, its year 2000 transition will not have a material adverse effect on
its business, operations, or financial results.
For the businesses that the Corporation expects to divest in 1998, the
assessment phase of the project is complete and the planning phase is well under
way. These matters are not anticipated to materially affect the disposition of
the businesses or the sale proceeds.
DISCONTINUED OPERATIONS
With the Corporation's decision in late 1997 to divest its remaining
industrial businesses, all of its industrial businesses are presented in the
financial statements as Discontinued Operations. As of December 31, 1997, Power
Generation, the largest of the remaining industrial businesses, was under
agreement to be sold to a subsidiary of Siemens A.G. for $1.525 billion of cash.
The sale, which is subject to government approval, is expected to close in
mid-1998. Energy Systems, Government Operations, and any other remaining assets
except for the leasing portfolio are also expected to be divested in 1998.
Since year end, progress has been made in the divestiture process although
the transactions will not be reflected in the financial statements until they
are completed. In April 1998, the Corporation sold certain securities remaining
from the divestiture of WCI, its land development subsidiary. Also in April, the
Corporation reached a definitive agreement to sell Westinghouse Communications.
In early May, the Corporation sold a security electronics business and reached
agreement to sell miscellaneous securities remaining from a previous segment
disposal. Proceeds from these transactions are expected to total more than $350
million.
19
<PAGE> 20
CBS CORPORATION
Following the divestitures of the remaining industrial businesses, the
assets of Discontinued Operations will consist primarily of the remaining
leasing portfolio, which is expected to liquidate through the year 2015. Debt of
Discontinued Operations, which totaled $526 million at March 31, 1998, will
include only that amount which can be repaid through liquidation of the leasing
portfolio. Other liabilities, lagging divestiture costs, or unresolved issues
related to the industrial businesses also may remain at year-end 1998.
Except for cash flows related to the leasing portfolio and the associated
debt, all future cash inflows and outflows of Discontinued Operations will
affect Continuing Operations. Management believes that the liability for
estimated loss on disposal of Discontinued Operations of $766 million at March
31, 1998 is adequate to cover future operating costs, estimated losses on
disposal, and the remaining divestiture costs associated with all Discontinued
Operations.
The following represents the segment results for all Discontinued
Operations for the three months ended March 31, 1998 and 1997.
SEGMENT RESULTS OF OPERATIONS--DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
SALE OF PRODUCTS OPERATING PROFIT
AND SERVICES (LOSS)
----------------- -----------------
1998 1997 1998 1997
---- ------ ----- -----
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C>
Industrial businesses included in September 1997
plan................................................ $549 $ 650 $(143) $(123)
Thermo King........................................... -- 247 -- 47
Pre-1997 disposal plans............................... 45 112 (7) (25)
---- ------ ----- -----
Total Discontinued Operations......................... $594 $1,009 $(150) $(101)
==== ====== ===== =====
</TABLE>
The 1997 segment results shown in the table above include sales and
operating profit prior to the measurement date of the plan as well as those
after the measurement date. Pre-tax operating results after the measurement
date, including all results for 1998, are charged to the liability for estimated
loss on disposal.
The industrial businesses included in the September 1997 disposal plan
include Power Generation, Energy Systems, Government Operations, and other
miscellaneous operations. Sales and operating profit for Power Generation
declined in the first quarter of 1998 reflecting delays in projects partially
due to uncertainty concerning deregulation of the U.S. utility market. Energy
Systems reported improved results over the prior-year quarter following an
unfavorable contract adjustment in the first quarter of 1997.
Thermo King was sold in October 1997. Divestitures of certain Communication
& Information Systems and environmental services businesses resulted in lower
sales and reduced operating losses associated with operations included in
pre-1997 disposal plans. Results for pre-1997 disposal plans also include income
related to the leasing portfolio as well as interest on the debt of Discontinued
Operations.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Corporation generally manages its liquidity as a consolidated
enterprise without regard to whether assets or liabilities 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 resources.
In September 1997, the Corporation announced that it had reached a
definitive agreement to acquire American Radio Systems' radio broadcasting
operations for $1.6 billion in cash plus the assumption of approximately $1
billion of debt. The transaction, which is subject to government approval, is
expected to close
20
<PAGE> 21
CBS CORPORATION
in the second quarter of 1998. American Radio Systems will add approximately 100
radio stations to the Radio Group's current portfolio, subject to required
divestitures.
In November 1997, the Corporation announced a definitive agreement to sell
Power Generation, the largest of its remaining industrial businesses for cash
proceeds of $1.525 billion. The sale of Power Generation, which is subject to
government approval, is expected to close in mid-1998. Agreements reached in
April and early May 1998 for sales of certain other remaining businesses or
assets are expected to result in proceeds in the near term totaling more than
$350 million. The remaining industrial businesses are expected to be divested in
1998. Proceeds from these asset sales will be used to repay debt of Continuing
Operations.
In January 1998, the Corporation and the National Football League (NFL)
announced that CBS was awarded the rights to broadcast American Football
Conference games. The eight-year agreement, subject to rebid at the end of five
years at the discretion of the NFL, will include rights fees of $4 billion. The
contract begins with the 1998 football season and includes two Super Bowls.
In February 1998, the Corporation announced that its Board of Directors
authorized the purchase, through open market transactions, of up to $1 billion
of its common stock. At the same time, the Corporation announced that it would
suspend dividend payments on its common stock after payment of the March 1, 1998
dividend so that cash could be used to better enhance shareholder value. Through
March 31, 1998, the Corporation had purchased 700,000 shares for $21 million.
Management expects that the Corporation will have sufficient liquidity to
meet ordinary business needs. Sources of liquidity generally available to the
Corporation include cash from operations, proceeds from sales of non-strategic
assets, cash and cash equivalents, availability under its credit facility,
borrowings from other sources, including funds from the capital markets, and the
issuance of additional capital stock.
OPERATING ACTIVITIES
The operating activities of Continuing Operations provided $61 million of
cash during the first three months of 1998 compared to cash used of $363 million
during the first three months of 1997. The $424 million improvement in operating
cash flow reflects improved operating results as well as favorable payment terms
for certain program rights. These favorable factors were partially offset by
increases in accounts receivable at March 31, 1998 due to significant increases
in revenues. Also, first quarter 1997 cash flows included substantial payments
to reduce accounts payable.
The Corporation's pension contribution level for 1998, which is expected to
approximate $300 million, is consistent with the Corporation's goal to fully
fund its qualified pension plans over the next several years. In January and
April 1998, the Corporation contributed $73 million and $72 million,
respectively, to the plan pursuant to certain quarterly minimum funding
requirements. No pension contributions were made in the first quarter of 1997.
The operating activities of Discontinued Operations used $248 million of
cash during the first three months of 1998 compared to $530 million of cash used
during the same period of 1997 principally related to the Power Generation and
Energy Systems businesses. The primary factors contributing to the larger use of
cash in 1997 were reductions in accounts payable and settlement liabilities.
Future operating cash flows of Discontinued Operations will consist
primarily of operating revenues, operating costs, and disposal costs associated
with the remaining industrial businesses. These cash flows, along with proceeds
generated through divestiture of these businesses, will affect the cash flows of
Continuing Operations. Interest costs on debt of Discontinued Operations, as
well as the repayment of that debt, will be paid through the continued
liquidation of the leasing portfolio and are not expected to impact future cash
flows of Continuing Operations.
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CBS CORPORATION
INVESTING ACTIVITIES
Investing activities provided $1 million of cash during the first three
months of 1998 compared to $36 million of cash provided during the same period
of 1997. In the first three months of 1998, the Corporation had no material cash
outflows for acquisitions while for the same period 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
connection with a swap of radio stations.
Investing cash inflows from business divestitures and other asset
liquidations in the first three months of 1998 totaled $33 million from
miscellaneous asset liquidations compared to $123 million in the prior year
period from sales of several radio stations, various operations from the
environmental services business, an equity investment in a regional sports
network, and other non-strategic assets.
Capital expenditures for Continuing Operations were $18 million for the
first three months of 1998 compared to $21 million for the same period of 1997.
Capital spending for Continuing Operations during 1998 is expected to be
slightly higher than 1997. For Discontinued Operations, capital spending will
continue to decline as the businesses are divested.
FINANCING ACTIVITIES
Cash provided by financing activities during the first three months of 1998
totaled $240 million compared to cash provided of $738 million during the same
period of 1997. Net short-term and long-term borrowings totaled $196 million
during the first quarter of 1998 compared to $724 million during the 1997
period. The net borrowings in the first quarter of 1997 included a $149 million
cash outflow to extinguish the long-term debt previously issued by Infinity.
In February 1998, the Corporation's Board of Directors authorized the
purchase, through open market transactions, of up to $1 billion of its common
stock. Through March 31, 1998, the Corporation had purchased 700,000 shares for
$21 million.
Cash provided by the issuance of stock totaled $107 million during the
first quarter of 1998 compared to $60 million for the 1997 quarter. The stock
was issued in connection with certain employee stock plans.
Total borrowings under the Corporation's $5.5 billion revolving credit
facility were $1.8 billion at March 31, 1998 (see Revolving Credit Facility).
These borrowings were subject to a floating interest rate of 6.4 percent at
March 31, 1998, 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 three months of 1997 included $12 million for
the Series C preferred stock, which converted into 32 million shares of CBS
common stock on May 30, 1997. Common stock dividends increased $7 million in the
first three months of 1998 compared to 1997 because of additional shares issued
to replace the Series C preferred stock and shares issued in connection with the
September 1997 acquisition of TNN and CMT. After payment of the March 1, 1998
dividend, the Corporation suspended dividend payments on its common stock so
that cash could be used to better enhance shareholder value.
REVOLVING CREDIT FACILITY
On August 29, 1996, the Corporation executed a five-year revolving credit
agreement with total commitments of $5.5 billion. This agreement was amended on
March 3, 1998 to modify the financial covenants and to provide that, upon
completion of the sale of Power Generation, the maximum borrowing would be
reduced to $4.0 billion. The unused capacity under the facility equaled $3.6
billion at March 31, 1998. 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, restrictions on liens incurred, a maximum leverage ratio, minimum
interest coverage ratio, and minimum consolidated net worth.
22
<PAGE> 23
CBS CORPORATION
Certain of the financial covenants become more restrictive over the term of the
agreement. At March 31, 1998, the Corporation was in compliance with the
financial covenants.
LEGAL, ENVIRONMENTAL, AND OTHER MATTERS
The Corporation is addressing a number of environmental and litigation
matters, including those discussed in note 8 to the financial statements.
Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in certain of the Corporation's pending cases and, although
management believes that a significant adverse judgment is unlikely, any such
judgment could have a material adverse effect on the Corporation's results of
operations for a quarter or a year. However, based on its understanding and
evaluation of the relevant facts and circumstances, management believes that the
Corporation has meritorious defenses to the litigation referenced in note 8 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.
Liabilities for certain of the Corporation's environmental matters as well
as certain litigation matters, although arising from discontinued businesses,
are expected to be retained by the Corporation following the divestiture of the
remaining industrial businesses. These liabilities include environmental
obligations that are not related to active properties of operating businesses,
accrued product liability claims for divested businesses, liabilities associated
with asbestos claims, and general litigation claims not involving active
businesses. Accrued liabilities associated with these matters, which have been
separately presented as retained liabilities of discontinued businesses, totaled
$945 million at March 31, 1998, including amounts related to previously
discontinued businesses of CBS Inc. Of this amount, $759 million is classified
as noncurrent. A separate asset of $241 million has been recorded for amounts
recoverable from insurance carriers under previous settlement arrangements, of
which $206 million is classified as noncurrent. See note 8 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.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are not historical facts but rather reflect the Corporation's
current expectations concerning future results and events. The words "believes,"
"expects," "intends," "plans," "anticipates," "likely," "will," and similar
expressions identify such forward-looking statements. These forward-looking
statements are subject to risks, uncertainties, and other factors, some of which
are beyond the Corporation's control, that could cause actual results to differ
materially from those forecast or anticipated in such forward-looking
statements.
Such risks, uncertainties, and factors include, but are not limited to: the
Corporation's ability to develop and/ or acquire television programming and to
attract and retain advertisers; the impact of significant competition from both
over-the-air broadcast stations and programming alternatives such as cable
television, wireless cable, in-home satellite distribution services, and
pay-per-view and home video entertainment services; the Corporation's ability to
complete its transition from a multi-faceted industrial conglomerate to a pure
media company in a timely and cost-effective manner; the impact of new
technologies; the impact of the year 2000 transition; changes in Federal
Communications Commission regulations; and such other competitive and business
risks as from time to time may be detailed in the Corporation's Securities and
Exchange Commission reports.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Report on
Form 10-Q. The Corporation undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
23
<PAGE> 24
CBS CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable events.
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
December 11, 1997 are incorporated herein by reference to
Exhibit 3(b) to Form 10-K for the year ended December 31,
1997.
(b) The Bylaws of the Corporation, as amended to December 1,
1997 are incorporated herein by reference to Exhibit 3(c) to
Form 10-K for the year ended December 31, 1997.
(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 percent 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 January 28,
1998 is incorporated herein by reference to Exhibit 10(b) to
Form 10-K for the year ended December 31, 1997.
(c*) The 1984 Long-Term Incentive Plan, as amended to 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
December 1, 1997 is incorporated herein by reference to
Exhibit 10(d) to Form 10-K for the year ended December 31,
1997.
(e*) The Deferred Compensation and Stock Plan for Directors, as
amended to January 1, 1998 is incorporated herein by
reference to Exhibit 10(e) to Form 10-K for the year ended
December 31, 1997.
(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.
(g*) The 1991 Long-Term Incentive Plan, as amended to January 28,
1998 is incorporated herein by reference to Exhibit 10(g) to
Form 10-K for the year ended December 31, 1997.
24
<PAGE> 25
CBS CORPORATION
(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 the 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 December 31,
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 December 31,
1996.
(n) First Amendment, dated as of January 29, 1997 to the Credit
Agreement, dated as of August 29, 1996, among the
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,
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
the 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 Guaranty
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) Amended and Restated Agreement and Plan of Merger, dated as
of December 18, 1997, by and among American Radio Systems
Corporation, the Corporation, and R Acquisition Corp, is
incorporated herein by reference to the Corporation's Form
8-K dated January 7, 1998.
(q) First Amendment, dated December 19, 1997, to the Amended and
Restated Agreement and Plan of Merger, dated as of December
18, 1997, by and among American Radio Systems Corporation,
the Corporation, and R Acquisition Corp, is incorporated
herein by reference to the Corporation's Form 8-K dated
January 7, 1998.
(r*) 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.
25
<PAGE> 26
CBS CORPORATION
(s*) 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.
(t*) 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.
(u*) 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.
(v*) Employment Agreement between a subsidiary of the
Corporation, CBS Broadcasting Inc. (formerly CBS Inc.) and
Leslie Moonves entered into as of May 17, 1995, and amended
as of January 20, 1998 is incorporated herein by reference
to Exhibit 10(v) to Form 10-K for the year ended December
31, 1997.
(w) Asset Purchase Agreement between the Corporation and Siemens
Power Generation Corporation, a subsidiary of Siemens A.G.,
dated as of November 14, 1997 is incorporated herein by
reference to Exhibit 10(w) to Form 10-K for the year ended
December 31, 1997.
(x) Third Amendment dated as of March 3, 1998, to the Credit
Agreement, dated as of August 29, 1996, as amended by the
First Amendment thereto dated as of January 29, 1997, as
amended by the Second Amendment thereto dated as of March
21, 1997 among the Corporation, the Subsidiaries 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
Guaranty Trust Company of New York as Administrative Agent.
(y) Amendment No. 1 to the Asset Purchase Agreement, dated
January 23, 1998, to the Asset Purchase Agreement, dated
November 14, 1997, between the Corporation and Siemens Power
Generation Corporation, a subsidiary of Siemens A.G.
(27) FINANCIAL DATA SCHEDULE
- ---------------
* Identifies management contract or compensatory plan or arrangement.
26
<PAGE> 27
CBS CORPORATION
B) REPORTS ON FORM 8-K
A Current Report on Form 8-K (Items 5 and 7) dated January 7, 1998,
regarding an amendment to the American Radio plan of merger.
A Current Report on Form 8-K (Items 5 and 7) dated February 4, 1998, filing
a press release concerning the Corporation's earnings for the fourth quarter of
1997 and year-end results for 1997.
A Current Report on Form 8-K (Items 5 and 7) dated February 5, 1998,
regarding the Corporation's announcement of date of its Annual Meeting.
27
<PAGE> 28
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 15th day of May, 1998.
CBS CORPORATION
/s/ CAROL V. SAVAGE
--------------------------------------
Vice President and Chief Accounting
Officer
28
<PAGE> 1
Exhibit (10)(x)
THIRD AMENDMENT, dated as of March 3, 1998 (this "Third Amendment"), to
the Credit Agreement, dated as of August 29, 1996 as amended by the First
Amendment thereto dated as of January 29, 1997 and the Second Amendment thereto
dated as of March 21, 1997 (the "Credit Agreement"), among WESTINGHOUSE ELECTRIC
CORPORATION, now known as CBS CORPORATION ("CBS"), 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 GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent. Unless otherwise specified herein, all capitalized terms
defined in the Credit Agreement and used herein are so used as so defined.
WITNESSETH:
WHEREAS, CBS wishes to amend the Credit Agreement in the manner set
forth herein; and
WHEREAS, each of the parties hereto is willing to enter into this Third
Amendment on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1--AMENDMENTS TO THE CREDIT AGREEMENT
1. Section 1. 1. (a) The definitions of "Consolidated Interest Expense"
"Consolidated Net Worth", "Discontinued Operations " and "Net Worth Commencement
Date" contained in Section 1.1 of the Credit Agreement are hereby amended and
restated in their entirety as follows:
"Consolidated Interest Expense" shall mean, for any period,
the gross interest expense of CBS and its Consolidated Subsidiaries for
such period, computed and consolidated in accordance with GAAP, but
excluding (a) the amortization of deferred financing charges for such
period, (b) the gross interest expense of the Discontinued Operations
for such period and (c) in connection with any calculation of
"Consolidated Interest Expense" made as of the last day of "any period
ending prior to December 31, 1998, the gross interest expense for such
period on Allocated Indebtedness (computed pursuant to an appropriate
averaging method determined in good faith by a Financial Officer of
CBS).
"Consolidated Net Worth " shall mean the total shareholders'
equity of CBS and its Consolidated Subsidiaries determined without
giving effect to any changes in such total shareholders' equity
resulting from (a) changes in pension liabilities after the Net Worth
Commencement Date pursuant to SFAS 87 and SFAS 88, (b) non-cash losses
on the Disposition of businesses after the Net Worth Commencement Date,
(c) changes made in accordance with GAAP to the amortization periods of
separately identified intangible assets and goodwill attributable to
the acquisition of CBS, Infinity or American Radio Systems, as the case
may be, from the 40-year amortization utilized in the projections
contained in the Confidential Information Memorandum (in the case of
CBS and Infinity) or in the projections separately furnished to the
Lenders (in the case of American Radio
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<PAGE> 2
Systems) or (d) provisions for restructuring reserves (but not
environmental or litigation reserves) established after the Net Worth
Commencement Date and not exceeding $50,000,000 in the aggregate, net
of cash payments made in respect of such reserves, all net of tax
effect and computed and consolidated in accordance with GAAP.
"Discontinued Operations" shall mean in the operations
classified as "discontinued operations" pursuant to Accounting
Principles Board Opinion No. 30 as presented in the quarterly report of
CBS on Form 10-Q for the quarter ended September 30, 1997 and filed
with the SEC on November 14, 1997.
"Net Worth Commencement Date" shall mean December 31, 1997.
(b) All text following the word minus in the definition of
"Consolidated EBITDA" contained in Section 1.1 of the Credit Agreement is,
hereby amended and restated in its entirety as follows:
"cash payments made during such period in respect of non-cash
charges taken during any previous period (excluding (x) cash payments
in respect of non-cash charges taken prior to December 31, 1997 and (y)
up to $50,000,000 of cash payments made on or prior to March 31, 1999
in respect of employee separation costs which relate to restructuring
charges taken on or prior to September 30, 1998)"
(c) The proviso at the end of the definition of "Consolidated Total
Funded Indebtedness" contained in Section 1.1 of the Credit Agreement is hereby
amended and restated in its entirety as follows:
"; provided, that, (i) in no event shall Indebtedness attributable to
Discontinued Operations be included in Consolidated Total Funded
Indebtedness and (ii) prior to December 3 1, 1998, in no event shall
Allocated Indebtedness be included in Consolidated Total Funded
Indebtedness, except, in the case of Allocated Indebtedness, in
connection with calculations of the Consolidated Leverage Ratio for the
purpose of determining the applicability of the Leverage Margin"
(d) The following new definitions are hereby added to Section 1.1 of
the Credit Agreement in the appropriate alphabetical order:
"Allocated Indebtedness" shall mean Indebtedness of CBS and
its Subsidiaries in an aggregate principal amount equal to, on any
date, $1,558,000,000 minus the aggregate amount of Net Cash Proceeds
(up to $1,558, 000,000) received by CBS and its Subsidiaries on or
prior to such date from any one or more Dispositions of the Allocated
Units (whether or not such Net Cash Proceeds have been applied to repay
any Indebtedness).
"Allocated Units" shall mean the collective reference to (a)
the power generation business unit, (b) the government and
environmental services company, (c) the energy systems business unit
and (d) the process control division; each, an "Allocated Unit".
"CBS" shall mean CBS Corporation, a Pennsylvania corporation.
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<PAGE> 3
"Net Cash Proceeds" shall mean, in connection with any
Disposition of all or any material part of any Allocated Unit, the
proceeds thereof in the form of cash and cash equivalents (including
any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of
such Disposition, net of (1) attorneys' fees, accountants' fees,
investment banking fees and other customary fees and expenses actually
incurred in connection therewith, (ii) taxes paid or reasonably
estimated to be payable on a current basis as a result thereof (after
taking into account any available tax credits or deductions) and (iii)
any cash purchase price adjustments paid in connection therewith (but
only as and when paid).
'PGBU Sale Date" shall mean the date on which CBS or any of
its Subsidiaries receives cash proceeds from the Disposition of the
power generation business unit.
2. Section 1.2(d). Clause (ii) of Section 1.2(d) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(ii) the businesses classified as Discontinued Operations shall be
limited to those businesses treated as such in the financial statements
of CBS referred to in the definition of "Discontinued Operations" and
the accounting treatment of Discontinued Operations shall be consistent
with the accounting treatment thereof in such financial statements"
3. Section 2.13. Section 2.13 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
"SECTION 2.13. Termination and Reduction of Commitments. (a)
Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, CBS may at any time in
whole permanently terminate, or from time to time in part permanently
reduce, the Commitments; provided, however, that (i) each partial
reduction of the Commitments shall be in a minimum principal amount of
$10,000,000 and in integral multiples of $1,000,000 in excess thereof
and (ii) no such termination or reduction shall be made if, after
giving effect thereto and to any prepayments of the Loans made on the
effective date thereof, (x) the Outstanding Revolving Extensions of
Credit of any Lender would exceed such Lender's Commitment then in
effect or (y) the Total Facility Exposure would exceed the Total
Commitment then in effect. The Administrative Agent shall I promptly
advise the Lenders of any notice given pursuant to this Section
2.13(a).
(b) On the Business Day it immediately following the PGBU Sale
Date, the Total Commitment shall automatically be permanently reduced
to $4,000,000,000. If, after giving effect to such reduction, (x) the
Outstanding Revolving Extensions of Credit of any Lender exceed such
Lender's Commitment then in effect or (y) the Total Facility Exposure
exceeds the Total Commitment then in effect, the Borrowers shall on
such date prepay the Revolving Credit Loans to the extent necessary to
eliminate any such excess.
(c) Except as otherwise provided in Section 2.21, each
reduction in the Commitments hereunder shall be made ratably among the
Lenders in
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<PAGE> 4
accordance with their respective Commitments. CBS agrees to pay to the
Administrative Agent for the account of the Lenders, on the date of
termination or reduction of the Commitments, the Commitment Fees on the
amount of the Commitments so terminated or reduced accrued through the
date of such termination or reduction."
4. Section 5.7. Section 5.7 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
"SECTION 5.7. Consolidated Leverage Ratio. CBS will not permit
the Consolidated Leverage Ratio at the end of any period of four
consecutive fiscal quarters ending on any date set forth below to be
greater than the ratio set forth below opposite such date:
Date Ratio
3/31/98 5.25 to 1
6/30/98 5.00 to 1
9/30/98, 12/31/98 and 3/31/99 4.75 to 1
6/30/99 4.50 to 1
9/30/99 4.25 to 1
12/31/99 and 3/31/00 4.00 to 1
6/30/00 and 9/30/00 3.75 to 1
12/31/00 and thereafter 3.50 to 1
5. Section 5.8. Section 5.8 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
"SECTION 5.8. Consolidated Coverage Ratio. CBS will not permit
the Consolidated Coverage Ratio for any period of four consecutive
fiscal quarters ending on any date set forth below to be less than the
ratio set forth below opposite such date:
Date Ratio
"3/31/98 and 6/30/98 2.5 0 to 1
9/30/98, 12/31/98,
3/31/99 and 6/30/99 2.75 to 1
9/30/99 and thereafter 3.50 to 1"
6. Section 5.9. Section 5.9 of the Credit Agreement is hereby amended
and restated in its entirety as follows:
"SECTION 5.9. Minimum Consolidated Net Worth. CBS will not
permit Consolidated Net Worth on the last day of any fiscal quarter to
be less than the sum of (a) $6,060,800,000, (b) 50% of cumulative
Consolidated Net Income for each fiscal quarter of CBS ending after the
Net Worth Commencement Date for which Consolidated Net Income is
positive and (c) 100% of the amount by which total shareholders' equity
of CBS and its Consolidated Subsidiaries increases after the Net Worth
Commencement Date as a result of the Infinity Merger, including,
without
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<PAGE> 5
limitation, as a result of the issuance of Capital Stock of CBS
in connection with the exercise of warrants, options and similar
deferred issuances of common stock (determined at the time of the
exercise thereof)."
7. References to "Westinghouse". All references to "Westinghouse"
contained in the Credit Agreement are hereby changed to "CBS".
ARTICLE 11--MISCELLANEOUS
1. Representations and Warranties. CBS and each Subsidiary Borrower (to
the extent specifically applicable to such Subsidiary Borrower) hereby
represents and warrants, on and as of the Third Amendment Effective Date (as
defined below), that (a) the execution and delivery of this Third Amendment and
the performance of this Third Amendment and the Credit Agreement as amended by
this Third Amendment (the "Amended Credit Agreement") will not conflict with or
result in a breach of, or require any consent under, the charter or By-laws (or
other equivalent organizational documents) of CBS or any Subsidiary Borrower, or
any applicable law or regulation, or any order, writ, injunction or decree of
any Governmental Authority, or any material agreement or instrument to which CBS
or any of its Material Subsidiaries is a party or by which any of them is bound
or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of CBS or any of its Material Subsidiaries
pursuant to the terms of any such agreement or instrument; (b) CBS and each
Subsidiary Borrower has all necessary corporate power and authority to execute
and deliver this Third Amendment and to perform its obligations under this Third
Amendment and the Amended Credit Agreement; (c) the execution and delivery of
this Third Amendment and the performance of this Third Amendment and the Amended
Credit Agreement have been duly authorized by all necessary corporate action on
the part of CBS and each Subsidiary Borrower; (d) this Third Amendment has been
duly and validly executed and delivered by CBS and each Subsidiary Borrower and
each of this Third Amendment and the Amended Credit Agreement constitutes a
legal, valid and binding obligation of CBS and each Subsidiary Borrower,
enforceable in accordance with its terms except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or similar laws of general applicability affecting the enforcement of
creditors' rights and (ii) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law); (e) no authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority are necessary for the
execution and delivery by CBS and each Subsidiary Borrower of this Third
amendment, for the performance by CBS and each Subsidiary Borrower of this Third
Amendment and the Amended Credit Agreement or for the validity or enforceability
hereof or thereof, and (f) each of the representations of CBS and each
Subsidiary Borrower set forth in Article III of the Amended Credit Agreement is
true and correct in all material respects on and as of the Third Amendment
Effective Date with the same effect as though made on and as of such date,
except to the extent such representations and warranties expressly relate to an
earlier date in which case such representations and warranties were true and
correct in all material respects as of such earlier date.
2. No Other Modifications. Except as expressly modified hereby, all the
provisions of the Credit Agreement are and shall continue to be in full force
and effect. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof' and words of like import referring to the Credit Agreement
shall mean the Credit Agreement as amended hereby.
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<PAGE> 6
3. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS
MADE WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS AND
PRINCIPLES OF SUCH STATE.
4. Counterparts. This Third Amendment may be executed by one or more of
the parties to this Third Amendment on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
5. Effectiveness. This Third Amendment shall become effective on and as
of the date (the "Third Amendment Effective Date") upon which (a) the
Administrative Agent shall have received (i) an executed counterpart of this
Third Amendment from CBS and each Subsidiary Borrower, (ii) executed Lender
Consent Letters (or facsimile transmissions thereof) from the Required Lenders
consenting to the execution of this Third Amendment by the Administrative Agent
and (b) CBS shall have paid to the Administrative Agent, for the benefit of each
relevant Lender, an amendment fee equal to (x) 0.070% of such Lender's
Commitment if such Lender shall have delivered its Lender Consent Letter, in
accordance with the terms thereof, no later than 12:00 Noon, New York City time,
on March 12, 1998, or (y) if clause (x) above is not applicable, 0.050% of such
Lender's Commitment if such Lender shall have delivered its Lender Consent
Letter, in accordance with the terms thereof, no later than 12:00 Noon, New York
City time, on March 18, 1998.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed by their respective authorized officers as of the day and
year first above written.
CBS CORPORATION
By Claudia E. Morf
----------------------------
C. E. Morf
Vice President and Treasurer
HEMISPHERE BROADCASTING CORPORATION
By Claudia E. Morf
----------------------------
C. E. Morf
Vice President and Treasurer
INFINITY BROADCASTING CORPORATION OF BOSTON
By Claudia E. Morf
----------------------------
C. E. Morf
Vice President and Treasurer
INFINITY BROADCASTING CORPORATION OF
NEW YORK
By Claudia E. Morf
----------------------------
C. E. Morf
Vice President and Treasurer
TRANSPORTATION DISPLAYS, INCORPORATED
By Claudia E. Morf
----------------------------
C. E. Morf
Vice President and Treasurer
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Administrative Agent
By Christopher C. Kunhardt
----------------------------
Vice President
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<PAGE> 1
Exhibit (10)(y)
AMENDMENT NO. 1 TO ASSET
PURCHASE AGREEMENT
THIS AMENDMENT is made January 23, 1998, between WESTINGHOUSE ELECTRIC
CORPORATION (now known as CBS Corporation), a Pennsylvania corporation ("WEC"),
and SIEMENS POWER GENERATION CORPORATION, a Delaware corporation ("Purchaser").
W I T N.E S S E T H:
WHEREAS, the parties hereto want to confirm the agreement and
understanding which WEC and Purchaser have reached with respect to Section
5.1(c) of the Asset Purchase Agreement between WEC and Siemens, dated November
14, 1997.
WHEREAS, Purchaser acknowledges that it has requested and that WEC has
agreed to take such action (referred to herein as "Restructuring") as described
in Schedule 5.1(c) to the Agreement as such action relates to the Business with
respect to approximately 650 employees (herein described as "Employees"), as
more fully described on Attachment A hereto.
WHEREAS, all capitalized terms contained herein shall have the meaning
to them assigned therein in the Agreement, unless expressly indicated otherwise.
This Amendment, upon execution as provided for below, shall constitute Amendment
No. 1 to the Agreement. The amendments below shall apply to the action to be
taken by WEC.
NOW, THEREFORE, the parties to this Amendment No. 1 hereby agree as
follows:
1. Section 5.1(c) shall be amended to read as follows:
"Purchaser acknowledges and agrees that WEC shall not be
deemed to be in breach of its representation and warranty contained in the first
sentence of Section 4.1(1) or its obligations under the first sentence of
Section 5.l(a) as a result of its determination not to take the actions
described in Schedule 5.l(c). WEC agrees not to take any such action without the
prior written consent of Purchaser. If Purchaser requests that WEC take such (or
similar) actions prior to the Closing and WEC agrees to take such actions,
Purchaser shall bear all costs of a cash nature incurred by WEC and its
Affiliates as a direct result of such actions (other than as set forth in
Section 5.5(d)(vi)), which costs shall be (i) reduced by all savings of cash
expenditures (calculated as set forth below) realized by WEC and its Affiliates
from the date of the Restructuring through the Closing Date as a direct result
of the action respecting the Restructuring of Employees and (ii) increased by
any incremental expenses (as described below) of cash expenditures (other than
as set forth in Section 5.5(d)(vi)) incurred by WEC and its Affiliates from the
date of the Restructuring through the Closing Date as a direct result of the
action respecting the Restructuring of Employees (such costs, to the extent so
reduced or increased, shall herein be referred to as Restructuring Costs) by
reimbursing WEC not later than
-1-
<PAGE> 2
30 days following receipt of reasonably detailed statements evidencing the
incurrence of such Restructuring Costs and the savings realized.
For purposes of reduction by savings in (i) above, such
reduction shall only act as an offset to any costs actually reimbursed by
Purchaser and under no circumstances shall WEC be required to make any payment
to Purchaser as a result of such savings, except as provided for below at the
time of Closing. Savings realized by WEC and its Affiliates shall consist of the
following: (1) with. respect to the terminated Employees, their (A) base payout
costs, (B) employment taxes, and (C) domestic employees' medical insurance costs
(prorated from the respective domestic employee's termination date to the
Closing Date measured using an estimated annual medical cost of $4,000 per
domestic employee) actually eliminated by WEC and its Affiliates for the
Employees and positions set forth per Attachment A from the Employees'
respective termination dates to the Closing Date and (2) any non-Employee exit
cost savings of cash expenditures directly resulting from the Restructuring,
such as cessation of lease payments due to Restructuring.
For purposes of incremental expenses in (ii) above, such
increase shall in any event be limited to 20% of the estimated monthly savings
calculated in (i) above, unless WEC first provides notice and reasonable detail
of requirements for a sum in excess of such amount and Purchaser consents to
such excess, which consent shall not be unreasonably withheld. Incremental
expenses incurred by WEC shall include, without limitation, all costs of
temporary assistance and independent contractors performing the duties of the
former Employees as set forth on Attachment A, as well as any exit costs of cash
expenditures directly resulting from the Restructuring, such as termination or
cancellation payments under a lease due to the Restructuring or relocation costs
for consolidation of facilities (but excluding any Environmental Liability).
WEC may invoice Purchaser each month following the
Restructuring for Restructuring Costs. At the Closing, there shall be a final
accounting of Restructuring Costs for the period from the Restructuring through
the Closing Date and any amounts due WEC for reimbursement shall be so paid by
Purchaser and any offsets due Purchaser (not to exceed costs reimbursed or to be
reimbursed by Purchaser) shall be so paid by or credited against WEC. Neither
reimbursement amounts paid to WEC nor offsets so paid to Purchaser shall be
included in the calculations for Purchase Price Adjustment under Section 2.5.
After the Closing, Purchaser, and not WEC, shall assume and be responsible for
all costs of Restructuring (other than as set forth in Section 5.5(d)(vi) and
other than Restructuring Costs which Purchaser has already reimbursed WEC
pursuant to this Section 5.1(c)). In the event this Agreement is terminated and
the transactions contemplated hereby are abandoned pursuant to Section 7.1 for
any reason, other than termination by WEC pursuant to Section 7.1 as a result of
a failure by Purchaser to satisfy any condition set forth in Section 6.3(a) or
(b), then WEC shall pay to Purchaser on demand by wire transfer an amount of
money equal to the Restructuring Costs previously reimbursed by Purchaser plus
interest on all such amounts reimbursed by Purchaser at the Rate from the date
of payment of each amount to the date of repayment by WEC."
-2-
<PAGE> 3
2. Section 7.1(d) shall be amended to read as follows:
"(d) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 7.1, this
Agreement shall become null and void and of no further force and effect, except
for the provisions of (i) Section 5.2 relating to the obligation of Purchaser to
keep confidential certain information and data obtained by it from Sellers (ii)
the Agreement relating to expenses (including Sections 5.7 and 5.14(d)), (iii)
Section 5.8 relating to finder's fees and broker's fees, (iv) this Section 7.1,
(v) Article 9 and (vi) Section 5.1(c). Nothing in this Section 7.1 shall be
deemed to release either party from any liability for any breach by such party
of the terms and provisions of this Agreement or to impair the right of either
party to compel specific performance by the other party of its obligations under
this Agreement."
IN WITNESS WHEREOF, WEC and Purchaser have caused this Amendment to be
signed by their respective officers thereunto duly authorized, as of the date
first written above.
WESTINGHOUSE ELECTRIC CORPORATION
(now known as CBS Corporation)
By: /S/ Louis J. Briskman
-----------------------------------------
Name: Louis J. Briskman
Title:
SIEMENS POWER GENERATION CORPORATION
By: /S/ Michael W. Schiefen
-----------------------------------------
Name: Michael W. Schiefen
Title: Vice President
By: /S/ E. Robert Lupone
-----------------------------------------
Name: E. Robert Lupone
Title: Secretary
-3-
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