SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
Commission file number 1-2931
CBS Inc.
(Exact name of registrant as specified in its charter)
New York 13-0590730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 West 52 Street, New York, N.Y. 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 975-4321
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 .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 30, 1995
Common Stock $2.50 par value 64,843,388<PAGE>
PART I. FINANCIAL INFORMATION
CBS Inc. and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in millions, except per share amounts)
ASSETS
September 30 December 31 September 30
1995 1994 1994
------------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 38.5 $ 15.3 $ 49.7
Marketable securities (note 5) 46.3 86.9 35.9
Accounts receivable, less allowances: 415.6 423.0 391.5
$13.7 - September 1995
$12.8 - December 1994
$13.6 - September 1994
Program rights 415.0 404.4 427.1
Recoverable income taxes 26.6
Other 15.6 18.3 22.1
------- ------- -------
TOTAL CURRENT ASSETS 957.6 947.9 926.3
MARKETABLE SECURITIES (note 5) 230.6 272.6 371.0
PROPERTY, PLANT AND EQUIPMENT:
Land 79.0 81.9 81.4
Buildings, improvements and equipment 896.2 923.5 917.5
------- ------- -------
975.2 1,005.4 998.9
Less accumulated depreciation 483.6 485.6 487.2
------- ------- -------
NET PROPERTY, PLANT AND EQUIPMENT 491.6 519.8 511.7
OTHER ASSETS:
Program rights 149.5 111.1 155.0
Investments in joint ventures (note 3) 104.9
Goodwill, net of amortization (note 4) 322.4 264.3 266.6
Other 34.7 44.4 29.9
------- ------- -------
TOTAL OTHER ASSETS 611.5 419.8 451.5
------- ------- -------
TOTAL ASSETS $2,291.3 $2,160.1 $2,260.5
======= ======= =======
See accompanying notes to consolidated condensed financial statements.
-2-<PAGE>
CBS Inc. and subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in millions, except per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30 December 31 September 30
1995 1994 1994
------------ ----------- ------------
CURRENT LIABILITIES:
Accounts payable $ 33.7 $ 37.9 $ 28.7
Accrued salaries, wages and benefits 57.3 77.6 67.3
Liabilities for talent and program rights 238.7 245.2 256.7
Liabilities for securities sold under
repurchase agreements 51.5 72.8 103.6
Debt (note 4) 227.6 151.5 150.8
Income taxes 3.9 3.3
Other 209.5 204.1 193.6
------- ------- -------
TOTAL CURRENT LIABILITIES 818.3 793.0 804.0
LONG-TERM DEBT 494.8 507.3 589.8
OTHER LIABILITIES 407.7 408.5 420.8
DEFERRED INCOME TAXES 89.0 84.3 108.6
PREFERENCE STOCK, SERIES B, PAR VALUE
$1.00 PER SHARE, SUBJECT TO
REDEMPTION (note 7) 89.9 89.9
SHAREHOLDERS' EQUITY (note 7):
Common stock, par value $2.50 per share: 205.8 197.0 39.4
authorized: 100,000,000 shares
issued: 82,316,368 shares - September 1995
Additional paid-in capital 147.5 49.9 207.6
Unrealized holding gains (losses) (note 5) 4.5 (8.7) (2.9)
Retained earnings 1,261.5 1,177.7 1,141.6
------- ------- -------
1,619.3 1,415.9 1,385.7
Less shares of common stock in treasury,
at cost: 17,485,230 - September 1995 1,137.8 1,138.8 1,138.3
_______ _______ _______
TOTAL SHAREHOLDERS' EQUITY 481.5 277.1 247.4
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,291.3 $2,160.1 $2,260.5
======= ======= =======
See accompanying notes to consolidated condensed financial statements.
-3-<PAGE>
CBS Inc. and subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
---- ---- ---- ----
Net sales $732.5 $727.1 $2,519.8 $2,856.7
Cost of sales (564.9) (526.2) (1,946.4) (2,142.2)
Selling, general and
administrative expenses (note 8) (120.7) (119.3) (401.0) (359.2)
Other income, net 5.1 2.3 9.3 5.4
----- ----- ------- -------
Operating income 52.0 83.9 181.7 360.7
----- ----- ------- -------
Interest income on investments,
net (note 5) 10.4 9.9 22.8 52.2
Interest expense on debt, net (11.3) (11.5) (36.9) (33.7)
----- ----- ------- -------
Interest, net (.9) (1.6) (14.1) 18.5
----- ----- ------- -------
Income before income taxes 51.1 82.3 167.6 379.2
Income taxes (note 6) (17.7) (23.8) (60.5) (142.1)
----- ----- ------- -------
Net income $ 33.4 $ 58.5 $ 107.1 $ 237.1
===== ===== ======= =======
Earnings per common share $ .52 $ .77 $ 1.64 $ 3.00
===== ===== ======= =======
See accompanying notes to consolidated condensed financial statements.
-4-<PAGE>
CBS Inc. and subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in millions)
Nine months ended
September 30
1995 1994
Operating activities: ---- ----
Net income $107.1 $ 237.1
Adjustments:
Depreciation and amortization 59.5 57.5
Gain on sale of marketable securities, net (5.5) (1.2)
Changes in assets and liabilities*:
Accounts receivable 7.4 63.0
Program rights, net (66.9) 4.3
Other, net (31.0) 8.5
----- -------
70.6 369.2
Investing activities:
Marketable securities:
Gross sales 406.0 1,767.8
Gross purchases (295.8) (931.7)
Liabilities for securities sold under
repurchase agreements (21.3) (271.1)
Capital expenditures (41.8) (47.6)
Major acquisitions (106.8)
Investment in joint ventures (45.5)
----- -------
(105.2) 517.4
Financing activities:
Repurchase of common stock (1,138.3)
Dividends to shareholders (23.3) (29.7)
Short-term debt 63.6 149.4
Other, net 17.5 8.3
----- -------
57.8 (1,010.3)
Net increase (decrease) in cash and cash equivalents 23.2 (123.7)
Cash and cash equivalents at beginning of period 15.3 173.4
----- -------
Cash and cash equivalents at end of period $ 38.5 $ 49.7
===== =======
See accompanying notes to consolidated condensed financial statements.
*Excludes effect of items included in Adjustments.
-5-<PAGE>
CBS Inc. and subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. The accompanying unaudited consolidated condensed financial
statements have been prepared by the Company pursuant to the rules of the
Securities and Exchange Commission (SEC) and, in the opinion of the Company,
include all adjustments necessary for a fair presentation of financial
position, results of operations and cash flows. There are no material
adjustments other than those that are normal and recurring except for the
adjustments discussed in notes 3, 8 and 9. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules. The Company believes that the disclosures made
are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's 1994 Annual
Report on Form 10-K, as amended, and subsequent quarterly filings, as amended.
Note 2. On August 1, 1995, the Company and Westinghouse Electric Corporation
(Westinghouse) announced that Westinghouse had agreed to acquire all of the
outstanding shares of the Company for a cash consideration of $81 per share.
In addition, the Company's shareholders will receive a special payment which
will be calculated at the rate of six percent per annum of the cash
consideration commencing from August 31, 1995 until the closing of the
transaction, less any dividends declared and payable by the Company for the
period after August 1, 1995. The value of the transaction is expected to
total approximately $5.4 billion. This agreement is subject to various
regulatory approvals and the approval of the Company's shareholders (a
special meeting of which is scheduled for November 16,1995).
Note 3. In September 1995, the Company and Westinghouse Broadcasting Company
(Group W) formed a television station joint venture. In connection with the
joint venture agreement, the Company transferred its interests in television
stations WCAU-TV, Philadelphia, and WCIX (TV), Miami, to the joint venture.
As a result of these transfers, the Company reclassified the net assets of
these stations, totalling $59.8 million, to investment in joint ventures. In
addition, Group W transferred its interest in KYW-TV, Philadelphia, to the
joint venture. Also, in the third quarter of 1995, pursuant to agreements
originally entered into in the fall of 1994 with the National Broadcasting
Company, Inc. (NBC), the joint venture acquired NBC's owned television station
KCNC-TV, Denver; the principal FCC licenses, broadcasting tower and certain
related assets of NBC's owned television station WTVJ (TV), Miami; and
received $30.0 million in cash, in exchange for WCAU-TV and the principal FCC
licenses, broadcasting tower and certain related assets of WCIX (TV). (The
joint venture retained certain assets and liabilities of WCIX (TV).) In
addition, as part of the agreement with NBC, the joint venture acquired an 88%
interest in television station KUTV (TV), Salt Lake City, for $109.1 million,
including the assumption of certain obligations. The Company contributed
$43.3 million as its share of the cash needed for this acquisition.
In July 1995, the Company also formed a sales representation joint venture
with Group W. The Company and Group W share equally in the profits and losses
of the sales representation joint venture as well as the television station
joint venture. However, Group W owns 51% of the voting interests of the
managing general partners of the joint ventures, with the Company owning the
remaining 49%.
-6-<PAGE>
CBS Inc. and subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
The Company and Group W formed a production and distribution joint venture on
October 31, 1995. Group W contributed its existing production and
distribution businesses to the venture (together with all assets, liabilities
and working capital relating thereto), while the Company contributed
approximately $17.2 million. The Company is obligated (until five years from
the date of formation) to make up to an aggregate amount of $25.0 million in
further contributions to the joint venture to fund its production and
development expenses, subject to Group W making equal contributions. The
voting interests of this entity are equally owned by the Company and Group W
and each such party shares equally in its profits and losses.
Note 4. In the third quarter of 1995, the Company acquired television station
WPRI-TV (Providence) from Narragansett Television L.P. and television station
WGPR-TV (Detroit) (now WWJ-TV) from WGPR, Inc., for $82.8 million and $24.0
million, respectively. These acquisitions were accounted for by the purchase
method and the results of operations from the respective dates of acquisition
are included in the accompanying financial statements. Had these acquisitions
occurred on January 1, 1994, consolidated results of operations for 1995 and
1994 would not have been materially different. These acquisitions were funded
in part by short-term borrowings. The increase in goodwill as of September
30, 1995 was due to these acquisitions.
Note 5. Investment income from marketable securities, classified as interest
income on investments, net, consisted of the following (in millions):
Three months Nine months
ended September 30 ended September 30
1995 1994 1995 1994
---- ---- ---- ----
Interest income $ 5.2 $ 16.3 $15.3 $ 54.7
Dividend income 1.7 1.4 5.0 5.1
Interest expense on repurchase
agreements (.9) (2.3) (3.0) (8.8)
Gross realized gains 5.0 11.3 7.0 24.5
Gross realized losses (.6) (16.8) (1.5) (23.3)
---- ----- ---- -----
$10.4 $ 9.9 $22.8 $ 52.2
==== ===== ==== =====
The cost of marketable securities sold was determined by specific
identification.
-7-<PAGE>
CBS Inc. and subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
During the first nine months of 1995 there were no trading securities or
securities held-to-maturity. The marketable securities as of September 30,
1995 consisted of the following (in millions):
Fair Unrealized Holding
Value Gains Losses
----- ----- ------
U.S. Government and its Agencies $118.9 $ 6.6 $ .1
Corporate securities:
Equity 54.6 3.1 .8
Debt 74.4 .2 1.8
Other securities 29.0 .7 .3
----- ---- ---
$276.9 $10.6 $3.0
===== ==== ===
The above unrealized holding gains and losses, net of income taxes of $3.1
million, are reflected as "Unrealized holding gains" in shareholders' equity.
In October 1995, the Company liquidated approximately $115.0 million of
marketable securities for working capital requirements, paying down
commercial paper and to fund the investment in the production and
distribution joint venture with Group W (note 3).
Note 6. Total tax expense on income before income taxes for the nine months
ended September 30, 1995 amounted to $60.5 million (an effective rate of
36.1%) compared with $142.1 million (an effective rate of 37.5%) for the
comparable period in 1994. A reconciliation between the statutory Federal
income tax rate and the Company's effective income tax rate as a percentage of
income before income taxes is as follows:
Nine months ended September 30
1995 1994
---- ----
Statutory Federal income tax rate 35.1% 35.1%
Income from tax preference securities (1.3) (1.4)
State and local taxes 5.4 5.3
State and local tax audit settlement (2.1)
Other, net (3.1) .6
---- ----
Effective income tax rate 36.1% 37.5%
==== ====
Note 7. As of August 1, 1995, the mandatory redemption date of Series B
Preference Stock, the remaining 280,000 shares of Series B Preference Stock
were converted into 968,100 shares of the Company's common stock. In the
first six months of 1995, the Company issued 2,143,650 shares of its common
stock for the conversion of 620,000 shares of Series B Preference Stock. The
difference between the carrying value of these converted shares and the par
value of the common stock issued was credited to additional paid-in capital.
In 1994, the Company issued 1,037,250 shares of its common stock from its
treasury shares for the conversion of 300,000 shares of Series B Preference
Stock. The difference between the carrying value of the shares converted in
1994 and the average cost of the treasury shares issued was charged to
additional paid-in capital.
-8-<PAGE>
CBS Inc. and subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
In addition, in 1994, the Company purchased the rights to receive principal
and dividends on 50,000 shares of Series B Preference Stock which was
accounted for as a redemption of these shares. However, the right of
conversion related to these shares held by outside investors was exercised on
August 1, 1995 and the Company received $5.0 million for such exercise, and
issued 172,875 shares of its common stock.
Note 8. In the second quarter of 1995, the Company recorded a pretax charge
of $32.3 million for staff reduction costs which included the costs related to
an early retirement program (a special one-time opportunity for certain
eligible employees to voluntarily retire early with increased benefits),
contractual termination benefits for certain talent and staff employees who
had pre-existing personal contracts, and other severance benefits. In the
third quarter of 1995, the Company incurred $4.2 million in costs related to
the plan of merger with Westinghouse.
Note 9. In the third quarter of 1995, the Company's operating income included
a one-time benefit, related to program syndication, of approximately $8.0
million due to increased revenues reported to the Company by Viacom, Inc., as
a result of Viacom's conforming its accounting policies related to libraries
of television programming in connection with its merger with Paramount.
Viacom distributes in the United States and abroad certain television programs
owned by the Company.
-9-<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On August 1, 1995, the Company and Westinghouse Electric Corporation
(Westinghouse) announced that Westinghouse had agreed to acquire all of the
outstanding shares of the Company for a cash consideration of $81 per share plus
certain additional consideration depending upon the timing of the closing. The
value of the transaction is expected to total approximately $5.4 billion. The
agreement is subject to various regulatory approvals and the approval of the
Company's shareholders at a special meeting to be held November 16, 1995
(note 2).
Operations
The Company's net sales in the third quarter of 1995 increased slightly compared
with the prior year's third quarter. As a result of a decline in audience
ratings, the Television Network's unit pricing fell in the primetime daypart.
The decline in primetime sales was partially offset by improved unit pricing in
the late night, daytime and sports dayparts. Net sales derived from program
syndication increased significantly, reflecting in part a stepped-up level of
internally produced television programming. Net sales decreased 12 percent for
the first nine months of 1995 compared with the same period in 1994, due mainly
to the absence of the Television Network's broadcast of the Olympic Winter Games
and the National Football League post-season games, both of which aired in the
first quarter of 1994, and a decline in primetime audience delivery in 1995.
The increase in cost of sales in the third quarter of 1995 compared with the
same quarter in 1994 was due largely to costs related to the Television
Network's higher revenues from program syndication and an increase in
compensation paid to its affliated television stations. The decrease in cost
of sales for the first nine months of 1995 compared with the same period in 1994
was due primarily to the broadcast of the Olympic Winter Games in 1994.
The increase in selling, general and administrative expenses in the first nine
months of 1995, compared with the same period in 1994, resulted mainly from a
pretax charge in 1995 of $32.3 million for staff reduction costs, which included
the costs related to an early retirement program (a special one-time opportunity
for certain eligible employees to voluntarily retire early with increased
benefits), contractual termination benefits for certain talent and staff
employees who had pre-existing personal contracts, and other severance
benefits. In the third quarter of 1995, the Company incurred $4.2 million in
costs related to the plan of merger with Westinghouse.
In the third quarter of 1995 and for the first nine months of 1995, operating
income at the Television Network Division decreased from the same periods in
1994 for the reasons noted above. At the Television Stations Division,
operating income also declined in the third quarter of 1995 compared with the
third quarter of 1994, due primarily to slowing demand for local television
advertising in several major markets and weaker ratings performance,
particularly in the primetime daypart. For the first nine months of 1995,
compared with the same period in 1994, operating income declined as a result of
the absence of the Network's coverage of the Olympic Winter Games which aired
in 1994. During the third quarter of 1995, compared with the same period in
1994, the Radio Division reported lower operating earnings, despite an increase
in sales, mainly as a result of sports rights fees. For the first nine months
of 1995, compared with the same period in 1994, sales at the Radio Division
increased, principally at the FM Radio Group, but operating income remained
essentially the same. The Company's operating income also included a one-time
-10-<PAGE>
benefit, related to program syndication, of approximately $8.0 million due to
increased revenues reported to the Company by Viacom, Inc., in the third quarter
of 1995, as a result of Viacom's conforming its accounting policies related to
libraries of television programming in connection with its merger with
Paramount. Viacom distributes in the United States and abroad certain
television programs owned by the Company.
Interest, net, in the third quarter and for the first nine months of 1995, was
an expense of $.9 million and $14.1 million, respectively, as compared with an
expense of $1.6 million and income of $18.5 million in the same periods of
1994. Interest income declined because of the Company's repurchase of its
common stock for $1.1 billion in cash in the third quarter of 1994.
The effective income tax rate for the third quarter of 1995 was higher than the
comparable period in 1994 due principally to a favorable state and local tax
audit settlement in 1994. The effective tax rate for the nine months ended
September 30, 1995 was 36.1% compared with 37.5% for the same period in 1994.
The tax provision for the 1995 period included anticipated tax audit benefits
while the tax provision for the 1994 period included the tax audit settlements
recorded in the third quarter of 1994, as noted above.
Net income for the third quarter and first nine months of 1995 was lower by 43
percent and 55 percent, respectively, compared with the same periods a year
earlier. However, earnings per share for the third quarter and first nine
months of 1995 were lower by only 32 percent and 45 percent, respectively, due
to lower weighted average shares outstanding in 1995, which resulted from the
Company's repurchase of 17.5 million shares of its common stock in September
1994.
Comparison of the results of the third quarter of 1995 with the second quarter
of 1995 is not meaningful because of the seasonal nature of the Company's
business.
-11-<PAGE>
Liquidity and capital resources:
During the nine months ended September 30, 1995, cash and cash equivalents
increased by $23.2 million and marketable securities, net of repurchase
agreements, decreased by $61.3 million, for a net decrease in liquid assets of
$38.1 million. This decrease resulted primarily from cash outflows related to
the acquisition of two television stations and an investment in a joint venture
with Group W, partially offset by positive cash flows from operating activities
(offset by capital expenditures and dividends paid to shareholders) and from
additional short-term debt.
Year-to-date cash flows for 1995 and 1994 varied as follows:
Operating activities:
The $298.6 million lower cash flows in 1995, compared with the same
period in 1994, were due primarily to lower earnings in 1995 and the cash
flows related to program rights. The cash flow variance in program
rights was due mainly to the broadcasts of the Olympic Winter Games and
National Football League games in 1994 (for which payments were made in
prior periods) partially offset by a lower scheduled payment made in 1995
compared with 1994 as part of the acquisition of rights to the 1998
Olympic Winter Games. Also, cash flows from accounts receivable in 1995
were lower, due primarily to lower fourth quarter sales in 1994 compared
with the fourth quarter of 1993.
Investing and financing activities:
The variance in cash flows from investing and financing activities was
due largely to the liquidation of the Company's marketable securities in
connection with the repurchase of its common stock for $1.1 billion in
the third quarter of 1994. Also, in 1995 the Company purchased two
television stations and invested in a joint venture with Group W. These
investments were funded from the liquidation of marketable securities and
the incurrence of additional short-term debt.
The Company's liquid assets include the following (in millions):
As of
September 30 December 31 September 30
1995 1994 1994
---- ---- ----
Cash and cash equivalents $ 38.5 $ 15.3 $ 49.7
Marketable securities:
Current 46.3 86.9 35.9
Noncurrent 230.6 272.6 371.0
Liabilities for securities sold
under repurchase agreements (51.5) (72.8) (103.6)
----- ----- ------
$263.9 $302.0 $ 353.0
===== ===== ======
In October 1995, the Company liquidated approximately $115.0 million of
marketable securities for working capital requirements, paying down
commercial paper and to fund the investment in the production and
distribution joint venture with Group W (note 3).
-12-<PAGE>
PART II
Item 1. Legal Proceedings.
a. In Item 1 of Part I of Registrant's Form 10-K for 1994 (under the caption
"Material Licenses and Federal Regulation"), Registrant reported that it had
entered an Asset Purchase Agreement to acquire WGPR-TV, Detroit, Michigan from
WGPR Inc. ("WGPR"). On October 27, 1994, Registrant and WGPR filed an
application with the FCC for consent to the assignment of the broadcast license
for the station to Registrant. Petitions to deny that application were
separately filed on December 22, 1994 by Spectrum Detroit, Inc. ("Spectrum"),
a Michigan corporation, and Alexander Serafyn ("Serafyn"), a resident of the
Detroit area. The Spectrum petition alleged that Registrant had assumed
premature control of the station in violation of the Communications Act by
virtue of a local marketing agreement with the then-licensee of WGPR-TV pursuant
to which Registrant was at that time programming the station. The Serafyn
petition was based on claims of intentional news distortion in a segment of the
CBS News broadcast 60 MINUTES concerning anti-Semitism in the Republic of the
Ukraine. On January 17, 1995, Registrant filed a consolidated opposition to the
petitions. On July 27, 1995, the FCC approved the assignment of the broadcast
license for WGPR-TV to Registrant. Both Spectrum and Serafyn have appealed the
FCC's decision to the United States Court of Appeals for the District of
Columbia Circuit (the "D.C. Circuit"). In addition, Oleg Nikolyszyn, who
opposed FCC approval of Registrant's acquisition of WPRI-TV, Providence, Rhode
Island (see item b. below), filed an appeal of the FCC decision regarding WGPR-
TV with the D.C. Circuit. Registrant has intervened in these appeals, which
have been consolidated by the Court. On September 20, 1995, Registrant's
acquisition of WGPR-TV (now WWJ-TV) was consummated.
b. In Item 1 of Part I of Registrant's Form 10-K for 1994 (under the caption
"Material Licenses and Federal Regulation"), Registrant reported that it had
entered into an Asset Purchase Agreement to acquire WPRI-TV, Providence, Rhode
Island from Narragansett Television L.P. An application for consent to the
assignment of the broadcast license for the station to Registrant was filed with
the FCC on March 16, 1995. On April 26, 1995, Oleg Nikolyszyn, a resident of
the Providence area, filed a petition to deny that application, to which
Registrant filed an opposition. The petition was based on claims of intentional
news distortion in a segment of the CBS News broadcast 60 MINUTES concerning
anti-Semitism in the Republic of the Ukraine, and also argued that action on the
application should be delayed pending the resolution of certain issues raised
in petitions to deny Registrant's application to acquire WGPR-TV, Detroit (see
item a. above). On June 22, 1995, the FCC staff approved the assignment of the
broadcast license for WPRI-TV to Registrant, subject to whatever action, if any,
the FCC might deem appropriate in light of its consideration of the issues
raised in the WGPR proceeding. On June 29, 1995, Nikolyszyn filed with the FCC
staff a petition for reconsideration and motion for stay, to which Registrant
filed an opposition on July 6, 1995. Subsequently, in granting the WGPR-TV
assignment application described in item a. above, the FCC removed the condition
which it had previously placed on its grant of the WPRI-TV assignment
application. Registrant's acquisition of WPRI-TV was consummated on September
10, 1995.
c. On June 1, 1995, Registrant filed a timely application to renew the
broadcast license for WARW(FM), Bethesda, Maryland. On September 1, 1995, the
Ukrainian Congress Committee of America, Inc. ("UCCA") filed a competing
application for authority to operate a new non-commercial FM radio station on
WARW's frequency, which is mutually exclusive with Registrant's application to
renew the WARW(FM) broadcast license. On September 29, 1995, Registrant filed
-13-<PAGE>
a petition to dismiss the UCCA application on the ground, inter alia, that the
application failed to specify a transmitter site for UCCA's proposed station,
and did not make the showing necessary to qualify for a presumption that the
WARW site would be available. UCCA filed an opposition to Registrant's petition
on October 10, 1995, and Registrant filed a reply on October 20, 1995. In
addition, on September 20, 1995, UCCA and Alexander Serafyn filed with the FCC
a petition to revoke the broadcast licenses held by Registrant, and to deny
Registrant's application for renewal of the WARW broadcast license, based on
alleged misrepresentations by Registrant to the FCC regarding responses to
viewer mail concerning the CBS News 60 MINUTES broadcast relating to anti-
Semitism in the Republic of the Ukraine. Registrant plans shortly to file a
response to this petition.
d. The Registrant, the individual members of its Board of Directors and, in
certain instances, Westinghouse Electric Corporation ("Westinghouse") and its
Chairman and Chief Executive Officer, Michael H. Jordan, have been named as
defendants in the following eight lawsuits filed in the Supreme Court of the
State of New York, New York County: Carol B. Miller IRA Account v. CBS (date
filed: July 18, 1995); Roger B. Minkoff v. CBS (July 28, 1995); Moise Katz v.
CBS (August 1, 1995); Max Grill v. CBS (August 1, 1995); William Stevens v. CBS
(August 1, 1995); John Stack v. CBS (August 2, 1995); Kenneth Steiner v. CBS
(August 2, 1995); and Ron Stern v. CBS (August 3, 1995). In these proceedings,
the plaintiffs, on behalf of themselves and other shareholders of the
Registrant, primarily assert that (i) the individual members of the Registrant's
Board of Directors have failed to act in such a manner so as to maximize
shareholder value, including by failing to properly consider and solicit other
bids for the Registrant, and have acted according to their own personal
interests, instead of consistent with the fiduciary obligations they owe to the
Registrant's shareholders, and (ii) the merger of the Registrant with
Westinghouse does not provide sufficient value to the Registrant and its
shareholders, especially in light of the Registrant's current financial
condition and prospects for future growth and the trading prices for the
Registrant's Common Stock immediately prior to announcement of the merger of the
Registrant into Westinghouse. Certain of the plaintiffs also allege that
Westinghouse and Mr. Jordan aided and abetted the foregoing alleged failures and
breaches of the Registrant's directors. The plaintiffs seek primarily to enjoin
the merger with Westinghouse and that the Registrant conduct an auction to
maximize shareholder value, as well as an order imposing a "voting trust" on the
shares controlled by the directors, unquantified damages and other equitable
relief (including certain declaratory relief and that the Registrant disclose
certain information before completing any change of control transaction). The
Registrant has consulted with counsel and believes that each of these lawsuits
is without merit and, accordingly, will have no adverse affect on the Registrant
or the merger with Westinghouse.
e. On August 3, 1995, an application (the "Application") was filed with the
Federal Communications Commission for consent to the transfer of control of all
broadcast licenses held by Registrant to Westinghouse. Timely petitions to deny
the Application were filed by the Office of Communication of the United Church
of Christ, et al. ("OCC"), Spectrum Detroit, Inc. ("Spectrum") and Alexander J.
Serafyn ("Serafyn"). The OCC petition contended, in substance, that
Westinghouse's requests for certain waivers of the FCC's national and local
broadcast ownership rules in connection with the Application should not be
granted in the absence of a commitment by Westinghouse to present at least three
hours per week of educational and informational children's programming on the
CBS Television Network and to donate five-minute blocks of prime time to
presidential candidates during national election years. On September 20, l995,
Westinghouse filed an opposition to the OCC petition. On such date, OCC and the
-14-<PAGE>
other parties to its petition also filed a request with the FCC that the
petition be dismissed, citing an announcement by Westinghouse of its plans to
increase the amount of educational and informational children's programming on
the CBS Television Network. The Spectrum and Serafyn petitions contend that the
FCC should deny or withhold action on or conditionally grant the Application
pending the disposition of appeals which they have filed with the United States
Court of Appeals for the District of Columbia Circuit from the FCC's approval
of the Registrant's acquisition of WGPR-TV, Detroit, Michigan (now WWJ-TV).
Westinghouse and Registrant have filed oppositions to the Spectrum and Serafyn
petitions.
f. Various other legal actions, governmental proceedings and other claims
(including those relating to environmental investigations and remediation
resulting from the operations of discontinued businesses) are pending or, with
respect to certain claims, unasserted.
Item 6. Exhibits and Reports on Form 8-K
a. Filed herewith as Exhibit 11 is a statement regarding the computation of
earnings per common share and as Exhibit 12 is a computation of
consolidated ratio of earnings to fixed charges.
b. Registrant filed a report on Form 8-K, dated August 1, 1995, reporting
that on such date Registrant entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Westinghouse Electric Corporation,
a Pennsylvania corporation ("Westinghouse"), and Group W Acquisition
Corp., a New York corporation ("Sub"), pursuant to which Sub will merge
with and into Registrant (the "Merger"). As a result of the Merger, the
outstanding shares of Registrant's common stock, par value $2.50 per
share ("Registrant Common Stock"), will be converted into the right to
receive $81 per share, in cash, plus an additional amount equal to 6%
per annum of such purchase price beginning on August 31, 1995, less any
dividends declared and payable by Registrant for the period after
August 1, 1995. The Merger is conditioned upon, among other things,
approval by holders of 66 2/3% of the Registrant Common Stock (a special
meeting of the Company's shareholders is scheduled for November 16, 1995)
and upon receipt of certain regulatory and governmental approvals. The
Merger Agreement is attached as Exhibit 2 to such Form 8-K.
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.
CBS Inc.
(Registrant)
Date: November 2, 1995 By: S/Peter W. Keegan
Peter W. Keegan
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
-15-<PAGE>
CBS INC. and subsidiaries
EXHIBIT 11 - COMPUTATION OF EARNINGS PER COMMON SHARE (Unaudited)
(In millions, except per share amounts)
PRIMARY
Three months Nine months
ended September 30 ended September 30
1995 1994 1995 1994
Earnings: ---- ---- ---- ----
Net Income $33.4 $ 58.5 $107.1 $237.1
Dividends on Series B preference
stock (2.4) (4.6) (9.2)
Net income applicable to common ---- ----- ----- -----
shares $33.4 $ 56.1 $102.5 $227.9
==== ===== ===== =====
Shares:
Weighted average number of common
shares outstanding 64.4 72.6 62.5 75.9
==== ==== ==== ====
Per share:
Earnings per common share $ .52 $ .77 $1.64 $ 3.00
-16-<PAGE>
CBS INC. and subsidiaries
EXHIBIT 11 (continued) - COMPUTATION OF EARNINGS PER COMMON SHARE (Unaudited)
(In millions, except per share amounts)
FULLY DILUTED
Three months Nine months
ended September 30 ended September 30
1995 1994 1995 1994
Earnings: ---- ---- ---- ----
Net Income $33.4 $58.5 $107.1 $237.1
==== ==== ===== =====
Shares:
Weighted average number of common
shares outstanding 64.4 72.6 62.5 75.9
Common stock equivalents .7 .6 .7 .6
Assumed conversion of Series B
preference stock .4 3.7 2.2 4.0
---- ---- ---- ----
Adjusted shares 65.5 76.9 65.4 80.5
==== ==== ==== ====
Per share:
Earnings per common share (a) $ .51 $ .76 $1.64 $ 2.94
(a) These calculations are submitted in accordance with Regulation S-K item
601(b)(11) although they are not required by APB Opinion No. 15 because
they result in dilution of less than 3%.
-17-<PAGE>
EXHIBIT 12
CBS Inc.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Unaudited)
(Dollars in millions)
Nine Months
Ended
September 30 YEAR ENDED DECEMBER 31,
1995 1994(1) 1993 1992 1991 1990(3)
Income (loss) from ---- ---- ---- ---- ---- ----
Continuing Operations
before Income Taxes $167.6 $437.0 $479.3 $227.0 ($178.6)$101.3
Add:
Fixed charges 50.6 64.7 65.6 89.8 78.3 88.2
Amortization of
Capitalized Interest 3.6 6.4 4.3 3.4 3.7 4.3
Less:
Capitalized Interest (2.7) (3.6) (6.4) (10.2) (8.4) (8.3)
----- ----- ----- ----- ----- -----
Adjusted Earnings $219.1 $504.5 $542.8 $310.0 ($105.0)$185.5
Interest Cost (2) $39.7 $50.6 $48.8 $71.9 $58.8 $68.5
Interest Factor
Portion of Rentals 10.9 14.1 16.8 17.9 19.5 19.7
---- ---- ---- ---- ---- ----
Fixed Charges $50.6 $64.7 $65.6 $89.8 $78.3 $88.2
Ratio of Earnings
to Fixed Charges 4.33:1 7.80:1 8.27:1 3.45:1 * 2.10:1
====== ====== ====== ====== ==== ======
(1) In connection with its $1.1 billion common stock repurchase, consummated
in September 1994, the Company included unaudited pro forma net income
and earnings per share of common stock for the year ended December 31,
1994, in footnote 12 of its 1994 Annual Report. The Ratio of Earnings to
Fixed Charges for this pro forma information was 6.92 to 1.
(2) Includes amortization of debt discount and amortization of debt issue
expenses.
(3) In connection with its $2 billion common stock repurchase, consummated in
February 1991, the Company included a 1990 Unaudited Pro Forma
Consolidated Condensed Income Statement in footnote 15 of its 1990 Annual
Report. The Ratio of Earnings to Fixed Charges for this income statement
was .34 to 1.
* The ratio of earnings to fixed charges is less than a one-to-one coverage
and the earnings are inadequate to cover fixed charges. The amount of
coverage deficiency is $183.3.
-18-<PAGE>
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