<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
----------------
FORM 10-Q/A
(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, 1999
--------------
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 25-0877540
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. 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 checkmark 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 711,900,230 SHARES OUTSTANDING AT APRIL 30, 1999
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<PAGE> 2
The Corporation hereby amends the following items of its Quarterly Report on
Form 10-Q for the three months ended March 31, 1999 (the Original Filing). Each
of the below referenced Items in Part I are hereby amended by deleting the Items
in their entirety and replacing them with the Items set forth herein. Any Items
or Exhibits in the Original Filing not expressly changed hereby shall be as set
forth in the Original Filing.
PART I
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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<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,
--------------------------
1999 1998
==============================================================================================================
<S> <C> <C>
Revenues $ 1,768 $ 1,949
Operating expenses (1,160) (1,305)
Marketing, administration, and general expenses (301) (340)
Depreciation and amortization (149) (130)
Residual costs of discontinued businesses (40) (38)
- --------------------------------------------------------------------------------------------------------------
Operating profit 118 136
Other income, net (note 3) 13 5
Interest expense, net (51) (75)
- --------------------------------------------------------------------------------------------------------------
Income from Continuing Operations before income taxes
and minority interest in income of consolidated subsidiaries 80 66
Income tax expense (46) (47)
Minority interest in income of consolidated subsidiaries (9) --
- --------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 25 19
Gain on disposal of Discontinued Operations
net of income taxes (note 6) 366 --
Extraordinary item:
Loss on extinguishment of debt, net of income taxes (note 1) (4) --
- --------------------------------------------------------------------------------------------------------------
Net income $ 387 $ 19
==============================================================================================================
Basic earnings per common share (note 9):
Continuing Operations $ .04 $ .03
Discontinued Operations .53 --
Extraordinary item (.01) --
- --------------------------------------------------------------------------------------------------------------
Basic earnings per common share $ .56 $ .03
==============================================================================================================
Diluted earnings per common share (note 9):
Continuing Operations $ .04 $ .03
Discontinued Operations .52 --
Extraordinary item (.01) --
- --------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ .55 $ .03
==============================================================================================================
Cash dividends per common share $ -- $ .05
==============================================================================================================
Comprehensive income:
Net income $ 387 $ 19
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of taxes (note 10):
Unrealized gains on marketable securities,
net of taxes of $26 million and $10 million, respectively 40 17
Minimum pension liability adjustment,
net of taxes of $52 million and $14 million, respectively 97 (25)
- --------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 137 (8)
- --------------------------------------------------------------------------------------------------------------
Comprehensive income $ 524 $ 11
==============================================================================================================
</TABLE>
See Notes to the Condensed Consolidated Financial Statements.
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<PAGE> 4
CBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions except per-share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
=============================================================================================================================
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 987 $ 798
Customer receivables (net of allowance for doubtful
accounts of $54 and $48, respectively) 1,272 1,180
Program rights 562 533
Deferred income taxes 217 138
Prepaid and other current assets 170 140
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 3,208 2,789
Property and equipment, net 1,132 1,149
FCC licenses, net (note 2) 4,220 4,308
Goodwill, net 10,299 10,357
Other intangible and noncurrent assets (note 4) 1,667 1,536
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 20,526 $ 20,139
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt $ 127 $ 159
Accounts payable 347 336
Liabilities for talent and program rights 592 290
Other current liabilities (note 5) 788 820
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,854 1,605
Long-term debt 2,315 2,506
Net liabilities of Discontinued Operations (note 6) 1,078 1,284
Pension liability 878 945
Postretirement benefit liability 1,020 1,046
Other noncurrent liabilities (note 5) 2,055 2,081
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,200 9,467
- -----------------------------------------------------------------------------------------------------------------------------
Contingent liabilities and commitments (note 8)
Minority interest in equity of consolidated subsidiaries 1,624 1,618
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $1.00 par value (25 million shares authorized, no shares issued) -- --
Common stock, $1.00 par value (1,100 million shares
authorized, 740 million and 734 million shares issued, respectively) 740 734
Capital in excess of par value 9,082 8,914
Common stock held in treasury, at cost (1,265) (1,215)
Retained earnings 1,815 1,428
Accumulated other comprehensive loss (note 10) (670) (807)
- -----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,702 9,054
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 20,526 $ 20,139
=============================================================================================================================
</TABLE>
See Notes to the Condensed Consolidated Financial Statements.
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<PAGE> 5
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
=======================================================================================================================
<S> <C> <C>
Cash flows from operating activities of Continuing Operations:
Income from Continuing Operations $ 25 $ 19
Adjustments to reconcile income from Continuing Operations to
net cash provided by operating activities:
Depreciation and amortization 149 130
Gain on asset dispositions (9) --
Other noncash adjustments (43) (128)
Changes in assets and liabilities, net of effects of acquisitions and
divestitures of businesses:
Receivables, current and noncurrent (120) (136)
Accounts payable 11 (16)
Deferred and current income taxes 14 17
Program rights 283 271
Pensions and postretirement benefits (32) (17)
Other assets and liabilities (48) (79)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities of Continuing Operations 230 61
- -----------------------------------------------------------------------------------------------------------------------
Cash used by operating activities of Discontinued Operations (note 6) (101) (248)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions and investments (49) (4)
Business divestitures and other asset liquidations 342 33
Deposits in acquisition trust (21) --
Capital expenditures - Continuing Operations (24) (18)
Capital expenditures - Discontinued Operations (12) (10)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by investing activities 236 1
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Bank revolver borrowings -- 503
Bank revolver repayments -- (303)
Net increase in short-term debt -- 35
Long-term debt repayments (247) (39)
Stock issued 128 107
Purchase of treasury stock (70) (21)
Bank fees paid and other costs (1) (6)
Dividends paid -- (36)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities (190) 240
- -----------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 175 54
Cash and cash equivalents at beginning of period for Continuing and
Discontinued Operations 825 67
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period for Continuing and
Discontinued Operations $ 1,000 $ 121
=======================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid - Continuing Operations $ 58 $ 75
Interest paid - Discontinued Operations 1 12
- -----------------------------------------------------------------------------------------------------------------------
Total interest paid $ 59 $ 87
=======================================================================================================================
Total income taxes paid from Continuing and Discontinued Operations $ 42 $ 94
=======================================================================================================================
</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,
1998, as amended by Form 10-K/A. Certain amounts pertaining to the three months
ended March 31, 1998 have been restated or reclassified for comparative
purposes.
During the first quarter of 1999, the Corporation purchased, at market value, or
redeemed, at redemption prices, debt securities with a face value of
approximately $190 million and reduced the available borrowing capacity under
its credit facility from $4.0 billion to $3.0 billion. As a result of these
early extinguishments and the write-off of related debt issue costs, the
Corporation recognized an extraordinary loss of $4 million, net of income taxes,
during the first quarter.
On March 31, 1999, the Corporation entered into a definitive merger agreement
with King World Production, Inc. (King World) in which it will issue
approximately $2.5 billion in common stock in exchange for all of the
outstanding common stock of King World. Under the terms of the agreement, King
World shareholders will receive 0.81 shares of CBS common stock for each share
of King World common stock. King World is the distributor of a number of shows
which include "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy!," and
"Hollywood Squares." The consummation of the merger is subject to certain
conditions, including approval by King World stockholders.
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. The
Corporation's derivative and hedging transactions are not material and it is
anticipated that adoption of this standard will not materially impact its
financial results or disclosure.
Under various disposal plans adopted in recent years, the Corporation has
essentially disposed of the remaining 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." On
March 22, 1999, the Corporation completed the previously announced sale of its
Energy Systems and Government Operations businesses for approximately $220
million in cash, subject to certain adjustments, and the assumption by the
buyer, of liabilities, commitments, and obligations totaling approximately $950
million, all in accordance with the terms of the divestiture agreement. The pre
tax and after tax gain on disposal totaled $490 million and $366 million,
respectively. See note 6 to the condensed consolidated financial statements.
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 significantly from those estimates. On an ongoing
basis, management reviews its estimates, including those related to litigation,
environmental liabilities, product liabilities, contracts, program rights,
pensions, income taxes, 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.
-6-
<PAGE> 7
2. ACQUISITIONS
On June 4, 1998, the Corporation acquired the radio broadcasting operations of
American Radio Systems Corporation (American Radio). The acquisition was
accounted for under the purchase method. Based on the latest information
available to the Corporation, the excess consideration paid over the estimated
fair value of net assets acquired totaling approximately $0.8 billion was
recorded as goodwill and is being amortized on a straight-line basis over 40
years. The following unaudited pro forma information combines the consolidated
results of operations of the Corporation with those of American Radio's as if
the acquisition had occurred at the beginning of 1998. The pro forma results for
the three months ended March 31, 1998 give effect to certain purchase accounting
adjustments, additional amortization expense from goodwill and other
identifiable intangible assets, additional interest expense and related income
tax effects.
PRO FORMA RESULTS OF OPERATIONS
(unaudited, in millions except per-share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
=====================================================================================================================
<S> <C> <C>
Revenues $1,768 $ 2,038
Income (loss) from Continuing Operations 25 (13)
Basic and diluted earnings (loss) per common share - Continuing Operations .04 (.02)
=====================================================================================================================
</TABLE>
This pro forma information is presented for comparative purposes only and is not
necessarily indicative of the operating results that actually would have
occurred had the American Radio transaction been consummated on January 1, 1998.
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, NET
Other income, net during the three months ended March 31, 1999 reflected income
of $13 million compared to income of $5 million for the same period in 1998.
Generally, other income and expense items include miscellaneous gains and losses
on dispositions of non-strategic assets and operating results of
non-consolidated affiliates. During the three months ended March 31, 1999, the
Corporation recognized a gain of $8 million on the disposal of certain corporate
aircraft which represents the majority of the activity during the period.
4. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
=================================================================================================================
<S> <C> <C>
Cable license agreements $ 428 $ 441
Other intangible assets 351 357
Joint ventures and other investments 272 141
Recoverable costs of discontinued businesses (note 8) 175 180
Noncurrent receivables 231 228
Program rights 102 93
Deferred charges 23 33
Intangible pension asset 5 5
Other 80 58
- -----------------------------------------------------------------------------------------------------------------
Total other intangible and noncurrent assets $1,667 $1,536
=================================================================================================================
</TABLE>
-7-
<PAGE> 8
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
==============================================================================================================
<S> <C> <C>
OTHER CURRENT LIABILITIES
Accrued employee compensation $ 74 $ 108
Income taxes payable -- 24
Accrued restructuring cost 30 38
Accrued liabilities 335 318
Retained liabilities of discontinued businesses (note 8) 256 254
Accrued interest and insurance 79 67
Other 14 11
- --------------------------------------------------------------------------------------------------------------
Total other current liabilities $ 788 $ 820
==============================================================================================================
OTHER NONCURRENT LIABILITIES
Deferred income taxes $ 475 $ 499
Postemployment benefits 29 29
Liabilities for talent and program rights 118 119
Accrued liabilities 178 156
Retained liabilities of discontinued businesses (note 8) 793 766
Accrued restructuring costs 24 28
Other 438 484
- --------------------------------------------------------------------------------------------------------------
Total other noncurrent liabilities $2,055 $2,081
==============================================================================================================
</TABLE>
6. DISCONTINUED OPERATIONS
In recent years, the Corporation adopted various disposal plans that, in the
aggregate, provide for the disposal of all of its industrial businesses and its
financial services business. The assets and liabilities and the results of
operations for these businesses are classified as Discontinued Operations for
all periods presented except for certain liabilities expected to be retained by
the Corporation. See note 8 to the condensed consolidated financial statements.
On March 22, 1999, the Corporation completed the sale of its Energy Systems and
Government Operations businesses for approximately $220 million in cash, subject
to certain adjustments, plus the assumption of liabilities, commitments, and
obligations of approximately $950 million, all in accordance with the terms of
the divestiture agreement. With the completion of this sale, the Corporation has
essentially disposed of the remaining industrial businesses and recorded a pre
tax and after tax gain on the disposal of Discontinued Operations of $490
million and $366 million, respectively.
At March 31, 1999, the remaining assets and liabilities of Discontinued
Operations generally consisted of portfolio investments and related debt and
other miscellaneous assets including surplus properties, that are expected to be
divested. In addition, Discontinued Operations includes a liability for
estimated loss on disposal that provides for the portfolio investments'
estimated results of operations through the expected date of liquidation, other
obligations associated with the disposal of the industrial businesses, and
transaction related costs. Those obligations that are expected to be retained by
the Corporation are separately presented in Continuing Operations as retained
liabilities of discontinued businesses.
-8-
<PAGE> 9
The assets and liabilities of Discontinued Operations have been classified on
the consolidated balance sheet as "Net Liabilities of Discontinued Operations."
A summary of these assets and liabilities follows:
NET LIABILITIES OF DISCONTINUED OPERATIONS
(in millions)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
=================================================================================================================
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 13 $ 27
Customer receivables 53 224
Inventories 36 94
Costs and estimated earnings over billings on uncompleted contracts -- 87
Portfolio investments 629 642
Plant and equipment, net 52 269
Deferred income taxes 122 414
Other assets 109 162
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 1,014 $ 1,919
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable $ 71 $ 190
Billings over costs and estimated earnings on uncompleted contracts -- 137
Current maturities of long-term debt 56 46
Long-term debt 353 382
Liability for estimated loss on disposal 1,493 1,309
Settlements and environmental liabilities -- 569
Other liabilities 119 570
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 2,092 3,203
- -----------------------------------------------------------------------------------------------------------------
Net liabilities of Discontinued Operations $(1,078) $(1,284)
=================================================================================================================
</TABLE>
Portfolio investments, which remain from the financial services business,
primarily consist of direct financing and leveraged lease receivables.
Generally, these leases are expected to liquidate in accordance with their
contractual terms, which extend to 2015. The Corporation has provided for all of
the estimated costs associated with liquidation of this portfolio. Cash inflows
from contractual liquidation of the leasing portfolio are expected to be
sufficient to repay the principal amount of the debt as well as interest costs
associated with the portfolio.
Prior to the disposition of its Energy Systems business, the Corporation had
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 as components of nuclear steam
supply systems. Settlement agreements had been entered resolving a number of the
litigation claims which generally required that the Corporation provide certain
products and services at prices discounted at varying rates. In addition, the
Corporation was a party to three tolling agreements with utilities or utility
plant owners' groups that asserted steam generator claims. The obligations
associated with these previous settlement agreements, the tolling agreements and
such litigation were assumed by the buyer of the Energy Systems business, all in
accordance with the terms of the divestiture agreement.
The liability for estimated loss on disposal of $1,493 million at March 31,
1999, includes estimated losses and disposal costs associated with the
divestiture transactions, the portfolio investments' estimated results of
operations through the expected date of liquidation, and certain contingencies
related to the industrial businesses. 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, 1999, is adequate to cover
these liabilities of Discontinued Operations.
-9-
<PAGE> 10
In accordance with APB 30, the condensed consolidated financial statements
reflect the operating results of Discontinued Operations separately from
Continuing Operations. The operating results of the Corporation's Discontinued
Operations as presented in the table below occurred after the measurement date
and therefore have been charged to the liability for estimated loss on disposal.
OPERATING RESULTS OF DISCONTINUED OPERATIONS (unaudited, in millions)
<TABLE>
<CAPTION>
PRE-TAX
SALES OF PRODUCTS LOSS AFTER
OR SERVICES MEASUREMENT DATE
--------------------- -----------------------
THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998
=================================================================================================================
<S> <C> <C> <C> <C>
Industrial businesses $ 113 $ 588 $ (20) $ (153)
Financial Services 3 6 (7) (5)
- -----------------------------------------------------------------------------------------------------------------
Total $ 116 $ 594 $ (27) $ (158)
=================================================================================================================
</TABLE>
Cash proceeds from the sale or liquidation of all assets of Discontinued
Operations except for portfolio investments, as well as cash requirements to
satisfy non-debt obligations of Discontinued Operations, will affect cash flows
of Continuing Operations. Operating cash flows of Discontinued Operations, which
include cash flows from the operations of the businesses as well as payments for
disposition-related costs, are presented separately from Continuing Operations
in the condensed consolidated financial statements and consist of the following:
CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
(unaudited, in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
=================================================================================================================
<S> <C> <C>
Industrial businesses $ (101) $ (236)
Financial Services -- (9)
Other -- (3)
- -----------------------------------------------------------------------------------------------------------------
Cash used by operating activities $ (101) $ (248)
=================================================================================================================
</TABLE>
7. RESTRUCTURING
In recent years, the Corporation has restructured its corporate headquarters and
certain 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, termination of leases, and other similar actions. Costs
for restructuring activities are limited to incremental costs that directly
result from restructuring activities and provide no future benefit to the
Corporation.
During the three months ended March 31, 1999 and 1998, no new restructuring
plans were initiated. Restructuring plans initiated during 1998 and 1997
totaling $62 million and $15 million, respectively, are anticipated to be
completed by the end of 1999, although certain expenditures for lease
commitments will extend over the next several years. Cash expenditures under
these plans totaled $12 million during the quarter and are estimated to
approximate $23 million for the remainder of 1999 and approximately $30 million
for 2000 and beyond.
8. CONTINGENT LIABILITIES AND COMMITMENTS
Certain environmental, litigation, and other liabilities associated with the
industrial businesses were not assumed by other parties in the divestiture
transactions and, therefore, will be retained by the Corporation. These
liabilities include certain environmental, general litigation, and other matters
not involving active businesses. Accrued liabilities associated with these
matters, which have been separately presented in Continuing Operations as
retained liabilities of discontinued businesses, totaled $1.0 billion at March
31, 1999, including amounts related to previously discontinued businesses of CBS
Inc. Of this amount, $793 million is classified as noncurrent. A separate asset
of $227 million was recorded for estimated amounts recoverable from third
parties, of which $175 million is classified as noncurrent.
-10-
<PAGE> 11
LEGAL MATTERS
SECURITIES CLASS ACTIONS - FINANCIAL SERVICES
The Corporation has been defending class action lawsuits alleging federal
securities law and common law violations arising out of purported misstatements
or omissions contained in the Corporation's public filings and in a Prospectus
and Registration Statement for a public offering of the Corporation's common
stock in 1991, arising out of charges to earnings of $975 million in 1990 and
$1,680 million in 1991. The Corporation and certain directors and former
officers were also the subject of derivative litigation arising out of these
same events. The district 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
were remanded to the lower court for further proceedings. The parties to the
class actions have reached an agreement in principle to resolve all claims. In
March 1999, the attorneys who filed the derivative action described herein,
filed a new derivative action based on the same allegations previously asserted
and dismissed. The parties to that derivative action have also reached an
agreement in principle to settle the derivative action. Both the class and the
derivative action settlements are subject to execution of definitive
documentation, notice to the shareholders and class upon whose behalf the
actions were brought, fairness hearings and approval by Court of the settlement.
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, 1999, the Corporation had approximately 106,050 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 liability that will be recovered pursuant to agreements
with insurance carriers. Factors considered in evaluating this litigation
include: claimed product involvement, alleged exposure to product, alleged
disease, validity of medical claims, number of resolved claims, available
insurance proceeds, and status of litigation in multiple jurisdictions. The
Corporation has not been able to reasonably estimate costs for unasserted
asbestos claims. However, the Corporation reviews asbestos claims on an ongoing
basis and adjusts its liability as appropriate.
GENERAL
Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in 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 resolution of these matters. Management believes that the
litigation should not have a material adverse effect on the financial condition
of the Corporation.
-11-
<PAGE> 12
ENVIRONMENTAL MATTERS
Compliance with federal, state, and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of hazardous wastes,
and other related activities affecting the environment have had and will
continue to have an impact on the Corporation. It is difficult to estimate the
timing and ultimate costs to be incurred in the future due to uncertainties
about the status of laws, regulations, and technology; the adequacy of
information available for individual sites; the extended time periods over which
site remediation occurs; and the identification of new sites. The Corporation
has, however, recognized an estimated liability, measured in current dollars,
for those sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. The Corporation recognizes
changes in estimates as new remediation requirements are defined or as more
information becomes available.
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named a potentially responsible party (PRP) at numerous
sites located throughout the country. At many of these sites, the Corporation is
either not a responsible party or its site involvement is very limited or de
minimis. However, the Corporation may have varying degrees of cleanup
responsibilities at approximately 70 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 $310 million at March 31, 1999. Depending on the remediation alternatives
ultimately selected, the actual costs related to these sites could differ from
the amounts currently accrued. The accrued liability includes $227 million for
site investigation and remediation, and $83 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 properties that are held for sale.
The Corporation is involved with several administrative actions alleging
violations of federal, state, or local environmental regulations. For these
matters, the Corporation has estimated its remaining reasonably possible costs
and determined them to be immaterial.
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, 1999,
the Corporation was committed to make payments under such broadcasting
contracts, along with commitments for talent contracts, totaling $7.3 billion.
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.
-12-
<PAGE> 13
9. EARNINGS PER COMMON SHARE
COMPUTATION OF EARNINGS PER COMMON SHARE - CONTINUING OPERATIONS
(unaudited, in millions except per-share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
====================================================================================================================
<S> <C> <C>
Income from Continuing Operations applicable to common stockholders $ 25 $ 19
====================================================================================================================
Basic and diluted earnings per common share $ .04 $ .03
- --------------------------------------------------------------------------------------------------------------------
Average number of basic common shares outstanding 693 698
Average number of diluted common shares outstanding 708 718
====================================================================================================================
</TABLE>
Shares of common stock issuable under deferred compensation arrangements were
excluded from the computation of diluted earnings per common share for the
periods presented above because their inclusion would have resulted in an
increase from basic earnings per common share.
10. SHAREHOLDERS' EQUITY
During 1998, the Corporation's Board of Directors authorized a $3 billion
multi-year stock repurchase program. For the three months ended March 31, 1999,
the Corporation purchased 1,988,700 shares of common stock at cost of $70
million under the program bringing total shares repurchased during 1998 and 1999
to 30,330,408 at a cost of $929 million. At March 31, 1999, and December 31,
1998, 44,464,867 shares and 43,204,000 shares, respectively, of the
Corporation's common stock were held in treasury.
At March 31, 1998, the Corporation adopted the provisions of SFAS 130 which
establishes standards for reporting and disclosing 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, 1999 and December 31, 1998:
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
====================================================================================================================
<S> <C> <C>
Minimum pension liability $ (711) $(808)
Unrealized gains on securities 41 1
- --------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive loss $ (670) $(807)
====================================================================================================================
</TABLE>
During the three months ended March 31, 1999, the Corporation disposed of
essentially the remaining industrial businesses with the sale of its Energy
Systems and Government Operations businesses. The minimum pension liability
declined in the quarter primarily as a result of these disposals and the
assumption of certain pension obligations by the buyer.
11. SEGMENT INFORMATION
The Corporation's Continuing Operations are aligned into three business
segments: Radio, Television, and Cable. These business segments are consistent
with the Corporation's management of these businesses and its financial
reporting structure and the operating focus.
-13-
<PAGE> 14
SEGMENT RESULTS OF OPERATIONS
(unaudited, in millions)
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT(LOSS) EBITDA
---------------------- ---------------------- ---------------------
THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 1999 1998
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Radio $ 474 $ 330 $ 98 $ 64 $ 170 $ 113
Television 1,165 1,495 48 123 103 183
Cable 130 125 25 4 50 29
Corporate and Other (1) (1) (13) (17) (3) (16)
Residual costs of discontinued businesses -- -- (40) (38) (40) (38)
- --------------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $ 1,768 $ 1,949 $ 118 $ 136 $ 280 $ 271
==========================================================================================================================
</TABLE>
The Corporation evaluates its performance, based on earnings before interest,
minority interest, taxes, depreciation and amortization (EBITDA). Management
believes that EBITDA is an appropriate measure for evaluating the operating
performance of the Corporation's businesses. EBITDA eliminates the effect of
depreciation and amortization of tangible and intangible assets, most of which
arises from acquisitions accounted for under the purchase method of accounting.
The exclusion of amortization expense eliminates variations in results caused by
the timing of acquisitions. However, EBITDA should be considered in addition to,
not as a substitute for, operating profit, net income, cash flows, and other
measures of financial performance reported in accordance with generally accepted
accounting principles.
The Corporation's consolidated income from Continuing Operations before taxes
and minority interest for the quarters ended March 31 1999, and 1998 totaled $80
million, and $66 million, respectively. Consolidated EBITDA noted in the
preceding table varies from the consolidated income from Continuing Operations
before taxes and minority interest because it excludes depreciation,
amortization, and interest expense, net.
The category "Corporate and other" includes certain assets and results of
operations that are not identifiable to a specific operating segment. These
assets primarily include cash and cash equivalents, deferred income taxes,
property, equipment and other assets associated with corporate headquarters as
well as certain receivables. Included in the results of operations are certain
intersegment eliminations, non-allocated income and costs related to interest,
taxes and employee benefits as well as certain other headquarter related income
and expenses. Intersegment sales and transfers are not material to the
Corporation's Radio, Television, or Cable segment results.
Residual costs of discontinued businesses primarily include certain costs, such
as pension and post-retirement benefit costs, remaining from past divestitures
of the Corporation's industrial businesses.
12. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Corporation entered into the following
definitive agreements to acquire two television stations. On April 12, 1999, the
Corporation announced its agreement with Gaylord Entertainment Company pursuant
to which the Corporation will issue $485 million of its common stock in exchange
for the KTVT-TV Dallas-Fort Worth television station and on April 29, 1999, the
Corporation announced its agreement to purchase KEYE-TV in Austin, Texas from
Granite Broadcasting Corporation for $160 million in cash. In addition, on April
30, 1999, Infinity Broadcasting Corporation (Infinity), the Corporation's radio
and outdoor advertising business, acquired two radio stations in Tampa, Florida,
and one in Cleveland, Ohio, from Clear Channel Communications for $123 million
in cash.
The Corporation also entered into or announced a number of strategic alliances
focused on growing its New Media operations. In January the Corporation
announced a cross promotional alliance, making CBS News the sole branded
broadcast news partner on America Online and CompuServe news channels. In
February, CBS and SportsLine USA, Inc. announced the extension of their
equity-for-promotion agreement. The Corporation signed letters of intent to
exchange promotion and advertising for equity in two companies establishing
online services and information sites; hollywood.com and storerunner.com. In
connection with the hollywood.com transaction, the Corporation expects to
receive a 35 percent ownership interest in the company for approximately $100
million of promotion and content support over a period of seven years. In the
storerunner.com transaction, which closed on April 29, 1999, the Corporation
received a 50 percent ownership interest in the company for approximately $100
million of promotion and branding support, over a period of six years. In
addition, the Corporation entered into a definitive agreement with a subsidiary
of WinStar Communications, Inc., to acquire a one-third equity stake in
Office.com for $42 million of promotion and advertising over a term of six
years. Office.com is designed to provide a comprehensive information website
directed towards small and medium-sized businesses.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation reported $1.8 billion in revenues for the three months ended
March 31, 1999 which was a slight decline from the same period during 1998 due
to the impact of the broadcast of the 1998 Winter Olympics on the prior year
first quarter results. Excluding the effect of the Winter Olympics from the 1998
results, revenues for the first three months ended March 31, 1999 increased 18
percent. Earnings before interest, taxes, minority interest, depreciation and
amortization (EBITDA) also increased dramatically, excluding the impact of the
Olympics, up over 50 percent during the first quarter when compared to the prior
year first quarter.
The Corporation reported net income, for the three months ended March 31, 1999,
of $387 million, or $0.55 per share, on a diluted basis which included a gain on
the disposal of Discontinued Operations of $366 million, net of income tax.
Income from Continuing Operations totaled $25 million, or $0.04 per-share, for
the three months ended March 31, 1999, compared to $19 million, or $0.03
per-share, during the three months ended March 31, 1998.
The Corporation purchased, at market value, or redeemed, at redemption prices,
debt securities with a face value of approximately $190 million and reduced the
available borrowing capacity under its credit facility from $4.0 billion to $3.0
billion. As a result of these early extinguishments and the write-off of related
debt issue costs, the Corporation recognized an extraordinary loss of $4
million, net of income taxes, during the first quarter.
On March 22, 1999, the Corporation completed the previously announced sale of
its Energy Systems and Government Operations businesses for approximately $220
million in cash, subject to certain adjustments, and the assumption by the
buyer, of liabilities, commitments, and obligations totaling approximately $950
million, all in accordance with the terms of the divestiture agreement. The pre
tax and after tax gain on disposal totaled $490 million and $366 million,
respectively. With the completion of this sale, the Corporation has essentially
disposed of the remaining industrial businesses.
On March 31, 1999, the Corporation entered into a definitive merger agreement
with King World Production, Inc. (King World) in which it will issue
approximately $2.5 billion in common stock in exchange for all of the
outstanding common stock of King World. Under the terms of the agreement, King
World shareholders will receive 0.81 shares of CBS common stock for each share
of King World common stock. King World is the distributor of a number of shows
which include "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy!," and
"Hollywood Squares." The consummation of the merger is subject to certain
conditions, including approval by King World stockholders.
In addition, subsequent to March 31, 1999, the Corporation entered into the
following definitive agreements to acquire two television stations. On April 12,
1999, the Corporation announced its agreement with Gaylord Entertainment Company
pursuant to which the Corporation will issue $485 million of its common stock in
exchange for the KTVT-TV Dallas-Fort Worth television station and on April 29,
1999, the Corporation announced its agreement to purchase KEYE-TV in Austin,
Texas from Granite Broadcasting Corporation for $160 million in cash. In
addition, on April 30, 1999, Infinity Broadcasting Corporation (Infinity), the
Corporation's radio and outdoor advertising business, acquired two radio
stations in Tampa, Florida, and one in Cleveland, Ohio, from Clear Channel
Communications for $123 million in cash.
The Corporation also entered into or announced a number of strategic alliances
focused on growing its New Media operations. In January the Corporation
announced a cross promotional alliance, making CBS News the sole branded
broadcast news partner on America Online and CompuServe news channels. In
February, CBS and SportsLine USA, Inc. announced the extension of their
equity-for-promotion agreement. The Corporation signed letters of intent to
exchange promotion and advertising for equity in two companies establishing
online services and information sites; hollywood.com and storerunner.com. In
connection with the hollywood.com transaction, the Corporation expects to
receive a 35 percent ownership interest in the company for approximately $100
million of promotion and content support over a period of seven years. In the
storerunner.com transaction, which closed on April 29, 1999, the Corporation
received a 50 percent ownership interest in the company for approximately $100
million of promotion and branding support, over a period of six years. In
addition, the Corporation entered into a definitive agreement with a subsidiary
of WinStar Communications, Inc., to acquire a one-third equity stake in
Office.com for $42 million of promotion and advertising over a term of six
years. Office.com is designed to provide a comprehensive information website
directed towards small and medium-sized businesses.
-15-
<PAGE> 16
SEGMENT RESULTS OF OPERATIONS
The following table presents the segment results for the Corporation's
Continuing Operations for the three months ended March 31, 1999 and 1998. EBITDA
is presented in the table because management believes that EBITDA is an
appropriate measure for evaluating the operating performance of the
Corporation's businesses. EBITDA eliminates the effect of depreciation and
amortization of tangible and intangible assets, most of which were acquired in
acquisitions accounted for under the purchase method of accounting. The
exclusion of amortization expense eliminates variations in results among
stations and other businesses caused by the timing of acquisitions. More recent
acquisitions reflect higher amortization expense due to the increasing prices
paid for FCC licenses, goodwill and other identifiable intangibles. However,
EBITDA should be considered in addition to, not as a substitute for, operating
profit, net income, cash flows and other measures of financial performance
reported in accordance with generally accepted accounting principles. EBITDA
differs from cash flows from operating activities primarily because it does not
consider certain changes in assets and liabilities from period to period and it
does not include cash flows for interest and taxes.
SEGMENT RESULTS OF OPERATIONS - CONTINUING OPERATIONS
(unaudited, in millions)
<TABLE>
<CAPTION>
REVENUES OPERATING PROFIT (LOSS) EBITDA
--------------------- ----------------------- ---------------------
THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 1999 1998
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Radio $ 474 $ 330 $ 98 $ 64 $ 170 $ 113
Television 1,165 1,495 48 123 103 183
Cable 130 125 25 4 50 29
Corporate and Other (1) (1) (13) (17) (3) (16)
Residual costs of discontinued businesses -- -- (40) (38) (40) (38)
- --------------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $ 1,768 $ 1,949 $ 118 $ 136 $ 280 $ 271
==========================================================================================================================
</TABLE>
Certain discussions below provide a comparison of actual results with pro forma
results. For the three months ended March 31, 1999 and 1998 comparisons, pro
forma results were determined as if the American Radio Systems Corporation
(American Radio) and related divestitures and exchanges of radio stations had
occurred on January 1, 1998.
RADIO AND OUTDOOR ADVERTISING
Infinity Broadcasting Corporation (Infinity), which is comprised of the radio
and outdoor advertising operations (Radio) of the Corporation, owns and operates
more than 160 radio stations and TDI Worldwide, Inc. (TDI), its outdoor
advertising business. Revenues, as reported, increased by $144 million, or 44
percent, during the first three months of 1999 compared to the same period in
1998. This growth was primarily driven by the overall strong performance at the
Corporation's existing radio stations and TDI and the inclusion of the results
of operations of American Radio, which was acquired on June 4, 1998. On a pro
forma basis, first quarter 1999 Radio segment revenue growth continued to
outpace the industry increasing by approximately 16 percent over the prior year
first quarter. These pro forma increases reflect strong station growth across
the majority of the Corporation's radio markets as well as double digit growth
at TDI during 1999.
Operating profit and EBITDA for the three months ended March 31, 1999, increased
over the prior year quarter by $34 million, or 53 percent, and $57 million, or
51 percent, respectively. On a pro forma basis operating profit and EBITDA
increased by approximately 56 percent and 27 percent, respectively. The
increases in pro forma operating profit and EBITDA are primarily due to the
higher revenues at the Corporation's existing stations and TDI combined with
management's continued cost control efforts. On an as-reported basis, the
increases in operating profit and EBITDA are driven by the same factors as the
pro forma increases, as well as the inclusion of the results of operations of
American Radio subsequent to its acquisition by the Corporation in June 1998.
The higher rate of growth in operating profit and EBITDA compared to the rate of
growth in revenues is attributable to the fact that a substantial portion of the
Radio segment costs are fixed.
TELEVISION
The Television segment consists of the Corporation's 14 owned and operated
television stations and the CBS television network. The segment's revenues for
the first three months of 1999 totaled $1,165 million compared to $1,495 million
during the prior year first quarter. This decline is primarily due to the effect
of the Winter Olympics on the first quarter of 1998 results. Excluding the
impact of the Winter Olympics, the Television segment revenues increased at a
double digit rate. This increase in first quarter revenues for the Television
segment, excluding the effect of the Olympics, is due to stronger 1999 primetime
pricing on network advertising and primetime ratings share growth.
-16-
<PAGE> 17
The Television segment's operating profit and EBITDA for the three months ended
March 31, 1999 totaled $48 million and $103 million, respectively, compared to
$123 million and $183 million, respectively, for the same period during 1998.
These declines are due to the effect of the Winter Olympics on the first quarter
of 1998 results. Excluding the impact of the Olympics from the 1998 results,
operating profit and EBITDA increased at a double-digit rate. These improvements
were attributable to the revenue growth at the television network due to higher
pricing on primetime network advertising and primetime ratings share growth
during 1999, as well as lower operating costs due to recent cost reduction
initiatives.
CABLE
The Cable segment consists of the Corporation's cable networks, including TNN,
CMT and two regional sports networks, and a minority interest in a Spanish
language cable news network. These networks are distributed by cable television
and other multichannel technologies. The segment's revenues for the first three
months of 1999 totaled $130 million which was flat when compared to the prior
year's first quarter. The 1998 results included revenues of approximately $5
million for two cable operations, TeleNoticias and Eye on People, both of which
were divested late in 1998.
The Cable segment's operating profit and EBITDA for the first three months ended
March 31, 1999 totaled $25 million and $50 million, respectively, compared to $4
million and $29 million, respectively, for the same period during 1998. These
improvements were primarily attributable to the elimination of expenses related
to TeleNoticias operations and certain costs to develop and launch Eye on People
as both of these entities were divested late in 1998 and growth in its core
unit.
RESIDUAL COSTS OF DISCONTINUED BUSINESSES
The Corporation's results of operations are unfavorably affected by certain
costs remaining from past divestitures of its industrial businesses. Following
those divestitures, certain liabilities arising from these businesses remained
with the Corporation, such as pension and other 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 managing the retained liabilities, have been presented
separately in the condensed consolidated statement of income.
For the three months ended March 31, 1999 and 1998, these costs primarily
reflect pension and postretirement benefit costs. The slight increase in costs
during 1999 is a result of the closing of the sale of Power Generation in August
1998 and the retention of these benefit obligations. Following the sales of
Energy Systems and Government Operations, the quarterly costs will increase by
an additional $5 million. Prior to the sales, these costs are included in the
respective businesses' results of operations which are reported in Discontinued
Operations.
The Corporation's objective is to reduce this earnings constraint over the next
few years by fully funding the pension plan and modifying postretirement
benefits. However, management expects that these costs will continue to
negatively affect operating results during future years.
OTHER INCOME, NET
Other income, net during the three months ended March 31, 1999 reflected income
of $13 million compared to income of $5 million for the same period in 1998.
Generally, other income and expense items include miscellaneous gains and losses
on dispositions of non-strategic assets and operating results of
non-consolidated affiliates. During the three months ended March 31, 1999, the
Corporation recognized a net gain of $8 million on the disposal of certain
corporate aircraft which represents the majority of the activity during the
period.
INTEREST EXPENSE, NET
Interest expense from Continuing Operations totaled $51 million for the three
months ended March 31, 1999, compared to $75 million for the same period in
1998. The decrease in interest expense during 1999 was driven by a reduction in
average debt, primarily revolving credit borrowings, compared to the first
quarter of 1998. Average debt was primarily affected by the proceeds received
from Infinity subsequent to its initial public offering, the timing of major
acquisitions and divestiture transactions, and the repurchase of shares under
the Corporation's stock repurchase program.
During 1999, the Corporation purchased, at market value, or redeemed, at
redemption prices, debt securities with a face value of approximately $190
million and reduced the available borrowing capacity under its credit facility
from $4.0 billion to $3.0 billion (see Revolving Credit Facility). In addition,
the Corporation paid off approximately $35 million of other debt and notes
payable.
-17-
<PAGE> 18
Future interest expense will depend on the Corporation's financing strategy in
future acquisitions, additional activity under the Corporation's stock
repurchase program, use of proceeds from dispositions, and payment of pension
benefits, postretirement benefits, remaining divestiture costs and retained
liabilities of discontinued businesses as well as the Corporation's performance.
INCOME TAXES
The Corporation's Continuing Operations effective tax rates for the three months
ended March 31, 1999 and 1998 are 58 percent and 71 percent, respectively, and
therefore, significantly higher than the U.S. federal statutory tax rate of 35
percent of pre tax income. The higher effective tax rate is primarily resulting
from amortization of non-deductible goodwill associated with the media
acquisitions in recent years. Such permanent differences between book income and
taxable income can significantly impact the provision and, depending upon the
Corporation's level of income or loss and the effect of non-recurring
transactions, can cause dramatic fluctuations in the Corporation's effective tax
rate.
The Corporation's net deferred tax liability at March 31, 1999 totaled $136
million and its net deferred tax assets as of December 31, 1998 totaled $53
million. At March 31, 1999, the net liability of $136 million consisted of a net
deferred tax liability of $258 million for Continuing Operations partially
offset by a net deferred tax asset of $122 million for Discontinued Operations.
At December 31, 1998, the net deferred tax asset consisted of a net deferred tax
liability of $361 million for Continuing Operations offset by a net deferred tax
asset of $414 million for Discontinued Operations.
YEAR 2000
The Year 2000 issue results from the development of computer programs and
computer chips using two digits rather than four digits to define the applicable
year. Computer programs and/or equipment with time-sensitive software or
computer chips may recognize the date using "00" as the year 1900 rather than
the year 2000. This could result in system failure or miscalculations and cause
disruptions to business operations.
To address the Year 2000 issue, the Corporation has undertaken efforts to
identify, modify or replace, and test systems that may not be Year 2000
compliant. The Corporation estimates its cost to achieve Year 2000 compliance to
be approximately $36 million, of which $20 million has been incurred through
March 31, 1999. Approximately 36% of the total expenditures relate to
replacement of existing systems. The Corporation has and expects to continue
funding these costs through its cash flows from operations and expense
modification costs as incurred.
Several centrally managed critical systems are currently Year 2000 compliant or
will be replaced by Year 2000 compliant applications by mid-1999. A significant
portion of the Year 2000 work for the Corporation's systems has been performed
or is underway. The various businesses are currently in the process of
developing Year 2000 procedures and guidelines. The Corporation plans to have
all systems tested and compliant by the end of 1999.
The Year 2000 effort also includes communication with all significant third
party suppliers and customers to determine the extent to which the Corporation's
systems are vulnerable to those parties' failures to reach Year 2000 compliance.
There can be no guarantee that the Corporation's third party suppliers or
customers will be Year 2000 compliant on a timely basis and that failure to
achieve compliance would not have a material adverse impact on the Corporation's
business operations.
Overall, the Corporation believes that it will complete its Year 2000 effort and
will be compliant on time. Although there can be no assurances that this will
occur, the Corporation will continuously monitor its progress and evaluate the
need for a contingency plan. Based on its current plan, the Corporation believes
that it will have adequate time to prepare for contingency measures if the need
arises.
The Corporation believes that it is difficult to fully assess the risks of the
Year 2000 problem due to numerous uncertainties surrounding the issue.
Management believes the primary risks are external to the Corporation and relate
to the Year 2000 readiness of its third party business partners. The inability
of the Corporation or its third party business partners to adequately address
the Year 2000 issues on a timely basis could result in a material financial
risk, including loss of revenue, substantial unanticipated costs and service
interruptions. Accordingly, the Corporation plans to devote the resources it
concludes are appropriate to address all significant Year 2000 issues in a
timely manner.
-18-
<PAGE> 19
DISCONTINUED OPERATIONS
On March 22, 1999, the Corporation completed the previously announced sale of
its Energy Systems and Government Operations businesses for approximately $220
million in cash, subject to certain adjustments, and the assumption, by the
buyer, of liabilities, commitments and obligations totaling approximately $950
million, all in accordance with the terms of the divestiture agreement. The pre
tax and after tax gain on disposal totaled $490 million and $366 million,
respectively. With the completion of this sale, the Corporation has essentially
disposed of the remaining industrial businesses.
Following the divestiture of the Energy Systems and Government Operations
business, the assets of Discontinued Operations consist primarily of the
portfolio investments remaining from the 1992 decision to exit the financial
services business. These portfolio investments, which consist primarily of the
leasing portfolio, generally are expected to liquidate through the year 2015 in
accordance with contractual terms. Debt of Discontinued Operations, which
totaled $409 million at March 31, 1999, includes only the amount that will be
repaid through the liquidation of the portfolio investments. Certain other
divestiture costs and contingencies that related to the industrial businesses
also will remain.
Except for cash flows related to the portfolio investments and the associated
debt, all future cash inflows and outflows of Discontinued Operations will
affect Continuing Operations liquidity and interest expense. Management believes
that the liability for estimated loss on disposal of Discontinued Operations of
$1,493 million at March 31, 1999 is adequate to provide for the portfolio
investments' estimated results of operations through the expected date of
liquidation, other obligations associated with the disposal of the industrial
business, and transaction related costs.
RESULTS OF OPERATIONS - DISCONTINUED OPERATIONS
(unaudited, in millions)
<TABLE>
<CAPTION>
SALE OF PRODUCTS OPERATING PROFIT
AND SERVICES (LOSS)
- -----------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998
=================================================================================================================
<S> <C> <C> <C> <C>
Industrial businesses $ 113 $ 588 $ (17) $ (154)
Financial Services 3 6 2 4
- -----------------------------------------------------------------------------------------------------------------
Total $ 116 $ 594 $ (15) $ (150)
=================================================================================================================
</TABLE>
The results presented in the table above include sales and operating profit for
the Corporation's industrial and financial services businesses after the
measurement date and are charged directly to the liability for estimated loss on
disposal.
Sales for the industrial businesses during the three months ended March 31, 1999
and 1998 declined from $594 million to $116 million. The decline primarily
reflects the sale of several businesses throughout 1998, most notably the Power
Generation business in August. These results will continue to decline with the
sale of the Energy Systems and Government Operations businesses. Financial
services sales reflect the continued liquidation of the remaining portfolio
investments.
The divestiture of the industrial businesses also reduced the operating losses
during the three months ended March 31, 1999 compared to the same period in
1998. The operating profit for financial services reflects yield income on the
portfolio investments.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
In 1998, the Corporation formed Infinity, a new company comprising the Radio
segment of the Corporation. In December 1998, Infinity sold 18.2 percent of its
common stock in an initial public offering, generating $3.2 billion of proceeds
($3.0 billion, net of offering costs). The Corporation, as the parent company of
Infinity, received the benefit of nearly 90 percent of the proceeds from
Infinity's stock offering through the payment by Infinity of an intercompany
note and certain other intercompany transactions. These proceeds were used by
the Corporation to repay its revolving credit borrowings and for general
corporate purposes.
Because of the minority interest in Infinity following the stock offering,
certain modifications have been made to the Corporation's cash management
practices. Under certain circumstances, Infinity's cash generally would be
available to the Corporation under the terms of an intercompany agreement
(pursuant to which Infinity reimburses CBS for certain services provided to
Infinity) and a tax sharing agreement between Infinity and the Corporation, or
-19-
<PAGE> 20
if Infinity would pay a dividend on all of its common stock. However, Infinity
does not anticipate paying any dividends in the near term. Cash generated by
Infinity's operations is expected to be retained by Infinity for use in its
operations or for investing. Management does not believe that this segregation
of cash will materially impact the Corporation's liquidity.
During the first quarter of 1999, the Corporation purchased or redeemed debt
securities for $247 million and reduced the available borrowing capacity under
its credit facility from $4.0 billion to $3.0 billion. As a result of these
early extinguishments and the write-off of related debt issue costs, the
Corporation recognized an extraordinary loss of $4 million net of income taxes
during the first quarter.
On March 22, 1999, the Corporation completed the previously announced sale of
its Energy Systems and Government Operations businesses for approximately $220
million in cash, subject to certain adjustment, and the assumption, by the
buyer, of liabilities, commitments, and obligations totaling approximately $950
million, all in accordance with the terms of the divestiture agreement.
Management expects that the Corporation will have sufficient liquidity to meet
its ordinary future business needs. Sources of liquidity generally available to
the Corporation include cash from operations, proceeds from sales of investments
and non-strategic assets, cash and cash equivalents, availability of debt under
its credit facility, borrowings from other sources, including funds from capital
markets, and issuance of additional capital stock of the Corporation.
OPERATING ACTIVITIES
The operating activities of Continuing Operations provided cash of $230 million
during the first three months of 1999 and $61 million during the first three
months of 1998.
Cash contributed to all of the Corporation's pension plans totaled $65 million
during the first three months of 1999 and $73 million during the same period in
1998. The Corporation's contribution level for 1999 is expected to approximate
$270 million (including the $65 million contribution made in the first three
months of 1999), and is consistent with the Corporation's goal to fully fund its
qualified pension plans over the next several years.
The operating activities of Discontinued Operations used cash of $101 million
during the first three months of 1999 compared to $248 million during the same
period in 1998. The cash flows during the first quarter of 1999 primarily
reflect cash used in the operations of the Energy Systems and Government
Operations businesses while the cash flows during the same period in 1998
primarily reflect the cash used in the operations of its Power Generation
business as well as the Energy Systems and Government Operations businesses.
With the completion of the sale of the Corporation's Power Generation business
in August 1998 and its Energy Systems and Government Operations businesses in
March 1999, future operating cash flows of Discontinued Operations will consist
primarily of disposal and other costs associated with the industrial businesses.
These cash flows will affect the cash flows of Continuing Operations. Cash flows
associated with the financial services business, including interest cost on debt
of Discontinued Operations and the repayment of that debt, will be paid through
the continued liquidation of portfolio investments and are not expected to
impact future cash flows from Continuing Operations.
INVESTING ACTIVITIES
Investing activities provided cash of $236 million and $1 million during the
first three months 1999 and 1998, respectively. Investing cash inflows from
business divestitures and other asset liquidations totaled $342 million and $33
million during the first quarter of 1999 and 1998, respectively. Asset
liquidations in 1999 primarily relate to Discontinued Operations and include the
sale of the Energy Systems and Government Operations businesses during March
1999 for approximately $220 million, subject to certain adjustments. In
addition, during the first quarter of 1999, approximately $59 million was
received from the divestiture of several media properties. Investing cash
outflows during 1999 primarily relate to the acquisition of a transit
advertising company for $34 million.
The Corporation's capital expenditures for Continuing Operations during the
first three months of 1999 and 1998 totaled $24 million and $18 million,
respectively. This increase is primarily attributable to recent acquisitions.
With the sale of the Energy Systems and Government Operations businesses, future
capital expenditures for Discontinued Operations will essentially be eliminated.
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FINANCING ACTIVITIES
Cash used by financing activities during the first three months of 1999 totaled
$190 million compared to cash provided by financing activities during the same
period in 1998 of $240 million.
Total financing cash outflows during the first quarter of 1999 primarily reflect
the repurchase or redemption of certain outstanding debt for $247 million as
well as the purchase of 1,988,700 shares of common stock for $70 million under
the Corporation's $3 billion multi-year stock repurchase program. During the
first quarter of 1998, 700,000 shares of common stock were purchased at a cost
of $21 million. Future purchases of common stock under the program will be
guided by financial policies that are consistent with maintaining an investment
grade rating. In addition, total 1998 financing cash outflows during the first
quarter, reflect the Corporation's payment of a $36 million dividend on its
common stock. Subsequent to March 1, 1998, the Corporation suspended dividend
payments on its common stock so that cash could be used to better enhance
shareholder value.
Cash provided by financing activities during the first three months of 1999 and
1998 primarily reflect the issuance of the Corporation's stock in connection
with certain employee compensation and benefit plans totaling $128 million and
$107 million, respectively.
REVOLVING CREDIT FACILITY
With the completion of Infinity's initial public offering in December 1998, all
remaining revolving credit borrowings were repaid and no new borrowings were
outstanding at March 31, 1999. On March 15, 1999, the Corporation amended its
revolving credit agreement which resulted in the reduction of total available
borrowings from $4.0 billion to $3.0 billion. The unused capacity under the
existing credit facility was therefore equal to $3.0 billion at March 31, 1999
of which up to $1.0 billion is available to Infinity.
Borrowing availability under the credit agreement is subject to compliance with
certain covenants, a maximum leverage ratio, minimum interest coverage ratio,
and minimum consolidated net worth. Certain of the financial covenants become
more restrictive over the term of the agreement. At March 31, 1999, 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 condensed consolidated 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, litigation, and
other matters, although arising from discontinued businesses, have been retained
by the Corporation following the divestiture of the remaining industrial
businesses. These liabilities include certain environmental obligations,
liabilities associated with asbestos claims, and certain 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 $1.0 billion at March 31, 1999, including
amounts related to previously discontinued businesses of CBS Inc. Of this
amount, $793 million is classified as noncurrent. A separate asset of $227
million has been recorded for estimated amounts recoverable from third parties,
of which $175 million is classified as noncurrent. See note 4 to the condensed
consolidated 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.
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INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q/A, 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 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/A. 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.
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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 4th day of August 1999.
CBS CORPORATION
By: /s/ ROBERT G. FREEDLINE
---------------------------
Robert G. Freedline
Vice President and
Controller
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