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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
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CBS CORPORATION
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-0877540
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(State of Incorporation) (I.R.S. Employer Identification No.)
51 WEST 52ND STREET, NEW YORK, NY 10019
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(Address of principal executive offices, zip code)
(212) 975-4321
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(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 705,845,932 SHARES OUTSTANDING AT OCTOBER 31, 1999
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CBS CORPORATION
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income and Comprehensive Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURE 32
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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)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
=====================================================================================================================
Revenues $ 1,708 $ 1,581 $ 5,154 $ 5,014
Operating expenses (949) (980) (3,000) (3,240)
Marketing, administration and general expenses (318) (304) (915) (872)
Depreciation and amortization (150) (154) (451) (420)
Residual costs of discontinued businesses (45) (41) (130) (117)
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Operating profit 246 102 658 365
Other income, net (note 4) 10 12 4 29
Interest expense, net (46) (112) (143) (272)
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Income from Continuing Operations before income taxes,
minority interest in income of consolidated subsidiaries
and equity losses of unconsolidated affiliated companies 210 2 519 122
Income tax expense (126) (39) (302) (134)
Minority interest in income of consolidated subsidiaries (21) (1) (51) (3)
Equity losses of unconsolidated affiliated companies,
net of income taxes (note 3) (28) -- (28) --
=====================================================================================================================
Income (loss) from Continuing Operations 35 (38) 138 (15)
Gain on disposal of Discontinued Operations,
net of income taxes (note 7) 12 -- 396 --
Extraordinary loss on early extinguishment of debt,
net of income taxes -- (5) (5) (5)
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Net income (loss) $ 47 $ (43) $ 529 $ (20)
=====================================================================================================================
Basic earnings (loss) per common share (note 10):
Continuing Operations $ .05 $ (.05) $ .20 $ (.02)
Discontinued Operations .02 -- .57 --
Extraordinary item -- (.01) (.01) (.01)
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Basic earnings (loss) per common share $ .07 $ (.06) $ .76 $ (.03)
=====================================================================================================================
Diluted earnings (loss) per common share (note 10):
Continuing Operations $ .05 $ (.05) $ .19 $ (.02)
Discontinued Operations .02 -- .56 --
Extraordinary item -- (.01) (.01) (.01)
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Diluted earnings (loss) per common share $ .07 $ (.06) $ .74 $ (.03)
=====================================================================================================================
Cash dividends per common share $ -- $ -- $ -- $ .05
=====================================================================================================================
Comprehensive income (loss):
Net income (loss) $ 47 $ (43) $ 529 $ (20)
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Other comprehensive income (loss), net of taxes (note 11):
Unrealized (losses) gains on marketable securities (7) (15) 16 3
Minimum pension liability adjustment 9 15 126 (37)
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Other comprehensive income (loss) 2 -- 142 (34)
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Comprehensive income (loss) $ 49 $ (43) $ 671 $ (54)
=====================================================================================================================
See Notes to the Condensed Consolidated Financial Statements.
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CBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions except per-share amounts)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
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ASSETS:
Cash and cash equivalents $ 185 $ 798
Customer receivables (net of allowance for doubtful
accounts of $51 and $48, respectively) 1,227 1,180
Program rights 568 533
Deferred income taxes 243 138
Prepaid and other current assets 178 140
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Total current assets 2,401 2,789
Property and equipment, net 1,138 1,149
FCC licenses, net 4,282 4,308
Goodwill, net 10,637 10,357
Other intangible and noncurrent assets (note 5) 2,265 1,536
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Total assets $ 20,723 $ 20,139
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt $ 6 $ 159
Accounts payable 337 336
Liabilities for talent and program rights 426 290
Other current liabilities (note 6) 1,040 820
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Total current liabilities 1,809 1,605
Long-term debt 2,346 2,506
Net liabilities of Discontinued Operations (note 7) 966 1,284
Pension liability 761 945
Postretirement benefit liability 1,008 1,046
Other noncurrent liabilities (note 6) 2,713 2,081
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Total liabilities 9,603 9,467
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Contingent liabilities and commitments (note 9)
Minority interest in equity of consolidated subsidiaries 1,490 1,618
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Shareholders' equity:
Preferred stock, $1.00 par value (25 shares authorized, no shares issued) -- --
Common stock, $1.00 par value (1,100 shares
authorized, 745 and 734 shares issued, respectively) 745 734
Capital in excess of par value 9,276 8,914
Retained earnings 1,957 1,428
Accumulated other comprehensive loss (note 11) (665) (807)
Common stock held in treasury, at cost (1,683) (1,215)
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Total shareholders' equity 9,630 9,054
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Total liabilities and shareholders' equity $ 20,723 $ 20,139
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See Notes to the Condensed Consolidated Financial Statements.
-4-
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in millions)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
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Cash flows from operating activities of Continuing Operations:
Income (loss) from Continuing Operations $ 138 $ (15)
Adjustments to reconcile income from Continuing Operations to
net cash provided by operating activities:
Depreciation and amortization 451 420
Gain on asset dispositions (10) (6)
Other non-cash adjustments (59) (132)
Changes in assets and liabilities, net of effects of acquisitions and
divestitures of businesses:
Receivables, current and noncurrent (49) (101)
Accounts payable (15) 59
Deferred and current income taxes 347 8
Program rights 117 66
Pensions and postretirement benefits (152) (78)
Other assets and liabilities (92) 121
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Cash provided by operating activities of Continuing Operations 676 342
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Cash used by operating activities of Discontinued Operations (note 7) (162) (326)
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Cash flows from investing activities:
Business acquisitions and investments (372) (1,439)
Business divestitures and other asset liquidations 405 1,748
Capital expenditures - Continuing Operations (92) (89)
Capital expenditures - Discontinued Operations (4) (28)
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Cash provided (used) by investing activities (63) 192
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Cash flows from financing activities:
Bank revolver borrowings 250 3,674
Bank revolver repayments -- (3,635)
Issuance of senior notes -- 493
Net increase in short-term debt -- 159
Long-term debt repayments (577) (332)
Stock issued 226 324
Purchase of treasury stock (489) (777)
Purchase of treasury stock of subsidiary (439) --
Bank fees paid and other costs (6) (8)
Dividends paid -- (36)
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Cash used by financing activities (1,035) (138)
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Increase (decrease) in cash and cash equivalents (584) 70
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 $ 241 $ 137
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Supplemental disclosure of cash flow information:
Interest paid - Continuing Operations $ 162 $ 244
Interest paid - Discontinued Operations 20 40
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Total interest paid $ 182 $ 284
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Total income taxes paid (refunded), net - Continuing and
Discontinued Operations $ (51) $ 122
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See Notes to the Condensed Consolidated Financial Statements.
-5-
CBS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. GENERAL
The condensed consolidated financial statements include the accounts of CBS
Corporation and its subsidiary companies (CBS or 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. Reference also should be made to the Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1999, as amended by Form
10-Q/A, and June 30, 1999. Certain prior period amounts have been reclassified
for comparative purposes. In the opinion of management, the condensed
consolidated financial statements include all material adjustments necessary to
present fairly the Corporation's financial position, results of operations and
cash flows. Such adjustments are of a normal recurring nature. The results for
this interim period are not necessarily indicative of results for the entire
year or any other interim period.
In June 1999, Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB Statement No. 133," was issued. Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," 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. The issuance of Statement No. 137 delays the effective date for Statement
No. 133 for one year, to fiscal years beginning after June 15, 2000. 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 when adopted January 1, 2001.
2. MERGERS AND ACQUISITIONS
On September 6, 1999, Viacom Inc. (Viacom) and CBS entered into an agreement
and plan of merger, as amended. Pursuant to this merger agreement, each share of
CBS common stock, par value $1.00 per share, that is issued and outstanding
immediately prior to the effective time of the merger will be converted into the
right to receive 1.085 shares of Viacom non-voting Class B common stock and each
share of CBS series B preferred stock, par value $1.00 per share, will convert
into the right to receive 1.085 shares of Viacom series C preferred stock. The
merger will be accounted for by the purchase method of accounting. Consideration
provided by Viacom in this merger includes: approximately $36.7 billion through
the issuance of approximately 812 million shares of Viacom non-voting Class B
common stock plus, approximately $833 million of cash consideration, net of
approximately $556 million of deferred taxes, for the assumed settlement of
certain historical CBS stock options and the assumption of approximately $200
million of CBS stock options by Viacom, both of which were granted prior to the
date of the merger agreement, and approximately $3.5 billion for the assumption
of debt. The merger is contingent upon, among other things, regulatory and CBS
shareholder approval. This transaction is expected to close in the first half of
2000.
On May 27, 1999, Infinity Broadcasting Corporation (Infinity Broadcasting), a
majority-owned subsidiary of the Corporation, entered into a definitive
agreement to acquire Outdoor Systems, Inc., (Outdoor Systems) for approximately
$8.7 billion, which includes the assumption of $1.9 billion in Outdoor Systems
debt, at fair value. On November 4, 1999 the Outdoor Systems and Infinity
Broadcasting shareholders approved the transaction which is expected to close
during November 1999 subject to certain closing conditions as set forth in the
merger agreement. The terms of the agreement call for each outstanding common
share of Outdoor Systems to be exchanged for 1.25 shares of Infinity
Broadcasting Class A common stock. The closing of this transaction will cause a
dilution in the Corporation's ownership interest in Infinity Broadcasting from
approximately 83 percent at September 30, 1999 to approximately 65 percent,
excluding the dilutive effect of stock options. The Corporation's voting
interest, on a fully diluted basis, will also decline from approximately 96
percent at September 30, 1999 to approximately 90 percent as a result of the
transaction. This transaction will be accounted for by the purchase method of
accounting.
On March 31, 1999, the Corporation entered into a definitive merger agreement
with King World Productions, Inc. (King World) under which CBS 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. The transaction will be accounted for by the
purchase method of accounting. The transaction is expected to close immediately
after King World shareholders approve the transaction at a meeting scheduled for
November 15, 1999.
During 1999, the Corporation entered into definitive agreements to acquire
two CBS affiliate television stations in Texas: KEYE-TV in Austin for $160
million in cash, which closed on August 31, 1999, and KTVT-TV in Dallas-Fort
Worth for $485 million of CBS series B preferred stock, or 10,142 preferred
shares, and approximately $4 million in cash, which closed on October 12,
1999. Each share of the CBS series B preferred stock is entitled to 1,000
votes per share and is convertible at the option of the holder into 1,000
shares of CBS common stock. Each share of series B preferred stock
outstanding at the time of the CBS/Viacom merger will convert into 1.085
shares of Viacom series C preferred stock which will be entitled to 100 votes
per share. Each Viacom series C preferred share will be convertible
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into 1,000 shares of Viacom Class B common stock at the option of the holder.
Both of the above transactions are being accounted for by the purchase method
of accounting.
3. INVESTMENTS IN INTERNET BASED COMPANIES
Investments in joint ventures and other companies that the Corporation controls
are consolidated in these condensed consolidated financial statements.
Investments in joint ventures and other companies that the Corporation does not
control but has the ability to exercise significant influence over operating and
financial policies are accounted for by the equity method. Equity method
investments are stated at their cost of acquisition adjusted for the
Corporation's equity in undistributed net income (loss) since the date of
acquisition. Investments that the Corporation does not control and does not have
the ability to exercise significant influence over operating and financial
policies are accounted for by the cost method. Cost method investments are
carried at their cost of acquisition. Cost method investments in publicly traded
companies are subsequently marked to market with unrealized gains and losses,
net of income taxes, reported as a component of accumulated other comprehensive
income (loss) within shareholders' equity in the condensed consolidated balance
sheet.
During the nine months ended September 30, 1999 the Corporation closed on a
number of strategic investments focused on growing its Internet based
operations. These investments provided the Corporation with equity ownership
interests in Internet based companies in exchange for $38 million in cash and
commitments to provide $566 million of future advertising and promotional
time. These advertising commitments will be met over a period of up to seven
years. The Corporation has invested in three publicly traded Internet based
companies: SportsLine USA, Inc., MarketWatch.com, Inc. and Medscape.com, Inc.
Based upon quoted market prices at September 30, 1999, the aggregate market
value of these investments would have exceeded their respective carrying
values by approximately $177 million. Other Internet investments include
Storerunnner, Inc., Office.com, Inc., Switchboard, Inc., ThirdAge Media,
Inc., Wrenchead.com, Inc., Jobs.com, Inc., Women's Consumer Network LLC and
Webvan Group, Inc., which completed its initial public offering on November
5, 1999. The Corporation also has a majority ownership interest in iWon,
Inc., which is consolidated. The shares evidencing the Corporation's equity
ownership interest typically contain restrictions that may limit the
Corporation's ability to sell or otherwise dispose of its investment. The
Corporation has also announced agreements to acquire a 20 percent ownership
interest in Rx.com, Inc., which closed on October 13, 1999, and a 35 percent
ownership interest in Big E Entertainment in exchange for future advertising
and promotional time and cash.
At the date of acquisition, for equity investments with ownership interests
ranging from 22 percent to 50 percent, the Corporation typically records its
investment at an amount equal to the cash consideration paid plus the fair value
of the advertising and promotional time to be provided. These investments that
have closed are presented in other intangible and noncurrent assets (see note 5)
in the condensed consolidated balance sheet. The associated obligation to
provide future advertising and promotion is non-cash and is recorded as deferred
revenue at an amount equal to the fair value of the advertising and promotional
time to be provided. Deferred revenue is presented in other current and
noncurrent liabilities (see note 6) in the condensed consolidated balance sheet.
Barter revenue is then recognized as the related advertising and promotional
time is delivered. No significant barter revenue has been recognized through
September 30, 1999 as only limited advertising and promotional time has been
delivered. A difference exists between CBS's initial investment and its
proportionate share in the underlying net assets of these companies. This
difference is $558 million of goodwill and is being amortized over a five year
period. The Corporation's third quarter 1999 proportionate share of losses in
these Internet based investments and the amortization totaled $28 million, net
of taxes. This non-cash amount is presented as equity losses of unconsolidated
affiliated companies, net of income taxes in the condensed consolidated
statement of income.
Where an agreement provides the Corporation with a licensing fee based on a
percentage of gross revenues earned by the Internet based company in exchange
for a license to use the CBS name and logo, licensing revenues are recorded by
the Corporation as the Internet based company earns the revenues on which the
license fees are based.
Subsequent to the acquisition of an investment, the Corporation evaluates
whether later events and circumstances indicate that the carrying amount of
such investment is impaired. If a decline in fair value of the investment
below its cost basis is judged to be other than temporary, the investment is
considered to be impaired, and the carrying amount of the investment is
written down to fair value as a new cost basis and recognized in equity
losses of unconsolidated affiliated companies. The new cost basis is not
changed for subsequent recovery, if any, in the fair value of the investment.
The Corporation's future results of operations for a quarter or a year could
be materially affected by a non-cash write down in the carrying amount of
these investments to recognize an impairment loss due to an other than
temporary decline in the value of these investments. The advertising and
promotional agreements entered into in exchange for the Corporation's equity
interest in these investees contain termination provisions in the event of
failure or inability of the investee to perform. Generally, pursuant to these
above termination provisions, the Corporation is released from delivering any
remaining unfulfilled advertising commitments. Upon termination of the
unfulfilled advertising and promotional commitments, the remaining deferred
revenue, if any, recorded as a liability will be reversed and recognized as a
component of equity losses of unconsolidated affiliated companies.
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4. OTHER INCOME, NET
Other income, net during the three and nine months ended September 30, 1999
reflects income, net of expenses, of $10 million and $4 million, respectively,
compared to $12 million and $29 million, respectively, for the same periods in
1998. Other income and expense items primarily include miscellaneous gains and
losses on dispositions of non-strategic assets and income from royalties. Also
included in the 1999 nine month results was a $24 million provision, as
discussed below, and an $8 million gain on the disposal of a corporate aircraft.
In 1998, the Corporation divested a majority stake in TeleNoticias, its Spanish
language cable news network. Financial difficulties have led TeleNoticias to
file for Bankruptcy protection under Chapter 11. Because of these financial
difficulties, it is probable that certain obligations that were assumed by the
venture in connection with the divestiture will revert back to the Corporation.
As a result, in the second quarter of 1999 the Corporation recorded a $24
million provision for these obligations.
5. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
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Investments in Internet based companies (note 3) $ 772 $ 25
Cable license agreements 403 441
Other intangible assets 339 357
Noncurrent receivables 244 228
Recoverable costs of discontinued businesses (note 9) 168 180
Other investments 159 116
Program rights 118 93
Other 62 96
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Total other intangible and noncurrent assets $2,265 $1,536
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6. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
============================================================================================
OTHER CURRENT LIABILITIES
Accrued liabilities $ 310 $ 318
Retained liabilities of discontinued businesses (note 9) 296 254
Deferred revenue - Internet based investments (note 3) 113 --
Income taxes payable 106 24
Accrued restructuring cost 14 38
Other 201 186
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Total other current liabilities $1,040 $ 820
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OTHER NONCURRENT LIABILITIES
Deferred income taxes $ 952 $ 795
Retained liabilities of discontinued businesses (note 9) 768 766
Deferred revenue - Internet based investments (note 3) 485 --
Accrued liabilities 167 156
Liabilities for talent and program rights 139 119
Postemployment benefits 36 29
Accrued restructuring costs 7 28
Other 159 188
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Total other noncurrent liabilities $2,713 $2,081
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-8-
7. 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 to be retained by the
Corporation. See note 9.
During the first and second quarters of 1999 several businesses were sold for
$250 million in cash plus the assumption, by the buyers, of liabilities and
commitments totaling approximately $970 million, all in accordance with the
terms of the divestiture agreements. The pre-tax and after-tax gains on these
disposals totaled $520 million and $384 million, respectively, which were
subsequently increased during the third quarter by $20 million and $12 million
on a pre-tax and after-tax basis, respectively, due to the favorable resolution
of a purchase price adjustment associated with a business divested in the second
quarter of 1999.
At September 30, 1999, the remaining assets and liabilities of Discontinued
Operations generally consist of a liability for estimated loss on disposal,
portfolio investments and related debt, and other miscellaneous assets including
surplus properties, that are expected to be divested. Those obligations that
have been retained by the Corporation are separately presented in Continuing
Operations as retained liabilities of discontinued businesses.
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)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
=====================================================================================
Total assets $ 811 $1,919
Less: total liabilities 1,777 3,203
- -------------------------------------------------------------------------------------
Net liabilities of Discontinued Operations $ 966 $1,284
=====================================================================================
Total liabilities for Discontinued Operations consist primarily of the
liability for the estimated loss on disposal of $1,284 million at September
30, 1999, and $1,309 million at December 31, 1998, which 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 divestiture of
the industrial businesses including the costs to dispose of surplus property
held for sale, contractual indemnifications and unresolved purchase price
adjustments. Generally, satisfaction of these liabilities is expected to
occur over the next several years. The decrease in the estimated loss on
disposal is the result of the settlement of certain working capital and
purchase price adjustments associated with certain industrial businesses
disposed of in 1999. Management believes that the liability for estimated
loss on disposal at September 30, 1999, is adequate to cover these
liabilities of Discontinued Operations. Portfolio related debt of $418
million and $428 million at September 30, 1999 and December 31, 1998,
respectively, is also reflected in total liabilities as presented in the
table above.
Total assets for Discontinued Operations consist primarily of the portfolio's
direct financing and leveraged leases that totaled $574 million and $642 million
at September 30, 1999 and December 31, 1998, respectively. Generally, these
leases are expected to liquidate in accordance with their contractual terms,
which extend to the year 2015. Cash inflows from contractual liquidation of the
leasing portfolio are expected to be sufficient to repay the principal amount of
the related debt as well as interest costs associated with the portfolio. Assets
of Discontinued Operations also include cash and cash equivalents of $56 million
and $27 million as of September 30, 1999 and December 31, 1998, respectively.
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 into 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.
-9-
In accordance with Accounting Principles Board 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," 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)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- --------------------------------------
SALES OF PRE-TAX LOSS PRE-TAX LOSS
PRODUCTS AND AFTER MEASUREMENT SALES OF PRODUCTS AFTER MEASUREMENT
SERVICES DATE AND SERVICES DATE
1999 1998 1999 1998 1999 1998 1999 1998
=====================================================================================================================
Industrial businesses $4 $465 $(2) $(11) $122 $1,861 $(22) $(200)
Financial Services 3 5 (7) (5) 9 18 (21) (14)
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Total $7 $470 $(9) $(16) $131 $1,879 $(43) $(214)
=====================================================================================================================
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 used by Discontinued
Operations were $162 million and $326 million for the nine months ended
September 30, 1999 and 1998, respectively. These cash outflows primarily
relate to operating activities of the industrial businesses prior to their
disposal dates and the liquidation of the portfolio's direct financing and
leveraged leases. During 1999, the cash outflows also include expenditures to
close the industrial businesses former corporate headquarters, costs to
dispose of the industrial businesses surplus properties which are being held
for sale and purchase price adjustments arising from the sale of its
industrial businesses.
8. 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.
Cash expenditures under the restructuring plans totaled $2 million and $21
million during the three and nine months ended September 30, 1999,
respectively, and are estimated to approximate $10 million for the remainder
of 1999 and approximately $11 million for 2000 and beyond. During the second
quarter of 1999, the Corporation reversed a restructuring reserve of
approximately $26 million and recorded a restructuring charge of
approximately $2 million related to employee terminations. The reversal was
the result of recent television programming changes and lower than expected
severance costs because of higher voluntary employee terminations. This
activity was reflected in the Television segment's results of operations.
9. CONTINGENT LIABILITIES AND COMMITMENTS
Certain litigation, environmental and other liabilities associated with the
industrial businesses were not assumed by other parties in the divestiture
transactions and, therefore, were retained by the Corporation. These liabilities
include general litigation, environmental 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 $1.1 billion at September 30, 1999, including
$559 million for accrued legal matters. Of the total liability of $1.1 billion,
$768 million is classified as noncurrent. A separate asset of $216 million was
recorded for estimated amounts recoverable from third parties, of which $168
million is classified as noncurrent.
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
-10-
proceedings. The parties to the class actions and a derivative action (which
was refiled subsequent to its dismissal) reached an agreement to settle the
matters for a total cost of approximately $67 million, funded in large part
by the Corporation's liability insurers. On October 19, 1999, the district court
approved the settlements.
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 September 30, 1999, the Corporation had approximately 115,650 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 is 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 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 adequately provided for costs arising from resolution of these
matters and that the litigation should not have a material adverse effect on the
financial condition of the Corporation.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of hazardous wastes
and other related activities affecting the environment have had and will
continue to have an impact on the Corporation. It is difficult to estimate the
timing and ultimate costs to be incurred in the future due to uncertainties
about the status of laws, regulations and technology; the adequacy of
information available for individual sites; the extended time periods over which
site remediation occurs; and the identification of new sites. The Corporation
has, however, recognized an estimated liability, measured in current dollars,
for those sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. The Corporation recognizes
changes in estimates as new remediation requirements are defined or as more
information becomes available.
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named a potentially responsible party 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 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 $371 million at September 30, 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 $272 million for
site investigation and remediation, and $99 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 as of
September 30, 1999, are environmental liabilities for 20 additional sites
totaling $45 million that directly relate to properties that are held for sale.
-11-
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 September 30,
1999, the Corporation was committed to make payments under such broadcasting
contracts, along with commitments for talent contracts, totaling $7.6 billion.
In addition, the Corporation has received various equity ownership interests in
Internet-based companies that commit the Corporation to provide advertising and
promotional time over the next seven years (see note 3).
Other commitments that exist for the Corporation include commitments under
operating and capital leases for certain facilities and equipment (including
satellites), 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.
10. EARNINGS PER COMMON SHARE
COMPUTATION OF EARNINGS PER COMMON SHARE - CONTINUING OPERATIONS
(unaudited, in millions except per-share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
=====================================================================================================================
Income (loss) from Continuing Operations
applicable to common stockholders $ 35 $ (38) $ 138 $ (15)
- ---------------------------------------------------------------------------------------------------------------------
Average shares outstanding - basic 692 697 693 698
Diluted effect of stock option plans 17 -- 17 --
- ---------------------------------------------------------------------------------------------------------------------
Average shares outstanding - diluted 709 697 710 698
- ---------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share $ .05 $ (.05) $ .20 $ (.02)
Diluted earnings (loss) per common share $ .05 $ (.05) $ .19 $ (.02)
=====================================================================================================================
For the three and nine months ended September 30, 1999, the average number of
diluted common shares outstanding includes the impact of options to purchase
shares of common stock. Shares of common stock issuable under deferred
compensation arrangements approximating 3 million for the three and nine
months ended September 30, 1999, were excluded from the computation of
diluted earnings per common share because their inclusion would have been
antidilutive. For the three and nine months ended September 30, 1998, options
to purchase shares of common stock and shares issuable under deferred
compensation arrangements approximating 17 million and 21 million,
respectively, were excluded from the computation of diluted earnings per
common share because their inclusion would have been antidilutive. Shares
outstanding are expected to increase upon the closing of the Corporation's
acquisitions of King World and KTVT-TV (see note 2).
11. SHAREHOLDERS' EQUITY
In 1998, the Board of Directors of the Corporation authorized a $3 billion
multi-year stock repurchase program. The Corporation repurchased 4,773,600 and
11,466,500 shares of its common stock at a cost of $216 million and $489
million, respectively, during the three and nine months ended September 30,
1999, bringing the total shares repurchased under the program through September
30, 1999 to 39,808,208 at a cost of $1.3 billion. At September 30, 1999 and
December 31, 1998, the Corporation held common stock in treasury of 53,933,184
shares and 43,204,174 shares, respectively.
-12-
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 September 30,
1999 and December 31, 1998:
ACCUMULATED OTHER COMPREHENSIVE LOSS
(in millions)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
====================================================================================================================
Minimum pension liability $(682) $(808)
Unrealized gains on securities 17 1
- --------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive loss $(665) $(807)
====================================================================================================================
During the first half of 1999, the Corporation disposed of essentially all the
remaining industrial businesses. The minimum pension liability declined during
1999 primarily as a result of the assumption of certain pension obligations by
the buyers of the Corporation's industrial operations as well as the recognition
of actuarial losses upon sale of the businesses.
Other comprehensive income for the three and nine months ended September 30,
1999 totaled $2 million and $142 million, respectively, net of income tax of
less than $1 million and $78 million, respectively. During the same periods in
1998 other comprehensive income netted to zero and a loss of $34 million,
respectively, net of income tax benefits of $2 million and $18 million,
respectively.
12. SEGMENT INFORMATION
The Corporation's Continuing Operations are aligned into three reporting
segments: Infinity, Television and Cable. These reporting segments are
consistent with the Corporation's management of these businesses and its
financial reporting structure and operating focus.
SEGMENT RESULTS OF OPERATIONS
(unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA
----------------------- ----------------------- --------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 1999 1998 1999 1998
=======================================================================================================================
Infinity $ 619 $ 534 $ 208 $ 157 $ 282 $ 230
Television 955 912 64 (6) 121 51
Cable 137 137 35 13 61 41
Corporate and Other (3) (2) (16) (21) (13) (13)
Residual costs of discontinued businesses -- -- (45) (41) (45) (41)
- -----------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $1,708 $1,581 $ 246 $ 102 $ 406 $ 268
=======================================================================================================================
REVENUES OPERATING PROFIT (LOSS) EBITDA
----------------------- ----------------------- --------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 1999 1998 1999 1998
=======================================================================================================================
Infinity $1,690 $1,320 $ 497 $ 362 $ 717 $ 541
Television 3,047 3,287 231 138 398 317
Cable 423 412 104 41 157 120
Corporate and Other (6) (5) (44) (59) (29) (47)
Residual costs of discontinued businesses -- -- (130) (117) (130) (117)
- -----------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $5,154 $5,014 $ 658 $ 365 $1,113 $ 814
=======================================================================================================================
-13-
The Corporation evaluates its performance based on earnings before interest,
taxes, minority interest, equity losses, 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. As EBITDA is not a
measure of performance calculated in accordance with generally accepted
accounting principles, this measure may not be comparable to similarly titled
measures employed by other companies.
The Corporation's consolidated income from Continuing Operations before income
taxes, minority interest and equity losses for the three and nine months ended
September 30, 1999, totaled $210 million and $519 million, respectively, and $2
million and $122 million, respectively, during the same period in 1998.
Consolidated EBITDA noted in the preceding table varies from the consolidated
income from Continuing Operations before taxes, minority interest and equity
losses because it excludes depreciation, amortization and interest expense, net.
The category "Corporate and Other" includes the results of operations that are
not identifiable to a specific operating segment. These include 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 Infinity, Television, or Cable segment results.
Residual costs of discontinued businesses primarily include certain costs, such
as pension and post-retirement benefit costs, remaining from divestitures of the
Corporation's industrial businesses.
During 1999 total assets for the Television segment increased, due to the
completion of a number of strategic Internet based investments, from
approximately $6.7 billion at December 31, 1998 to approximately $7.5 billion at
September 30, 1999.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
CBS Corporation and its subsidiary companies (CBS or the Corporation) reported
revenues for the three months ended September 30, 1999 of $1.7 billion, an 8
percent increase over the same period of the prior year. For the nine months
ended September 30, 1999, revenues were $5.2 billion representing a slight
increase over the nine months ended September 30, 1998, even though the 1998
results included the Winter Olympics. Excluding the effect of the Winter
Olympics, revenues for the nine months ended September 30, 1999 increased 13
percent. Earnings before interest, taxes, minority interest, equity losses,
depreciation and amortization (EBITDA) also increased, up approximately 40
percent for the nine months ended September 30, 1999 excluding the impact of the
Winter Olympics and certain 1998 and 1999 special items discussed below.
Income from Continuing Operations totaled $35 million, or $0.05 per diluted
share, and $138 million, or $0.19 per diluted share, for the three and nine
months ended September 30, 1999, respectively. The Corporation reported net
income, for the three and nine months ended September 30, 1999, of $47 million,
or $0.07 per diluted share, and $529 million, or $0.74 per diluted share,
respectively. Included in the 1999 net income results were gains on the disposal
of Discontinued Operations of $12 million and $396 million, net of income tax,
for the three and nine month periods, respectively.
On September 6, 1999, Viacom Inc. (Viacom) and CBS entered into an agreement
and plan of merger, as amended. Pursuant to this merger agreement, each share of
CBS common stock, par value $1.00 per share, that is issued and outstanding
immediately prior to the effective time of the merger will be converted into the
right to receive 1.085 shares of Viacom non-voting Class B common stock and each
share of CBS series B preferred stock, par value $1.00 per share, will convert
into the right to receive 1.085 shares of Viacom series C preferred stock. The
merger will be accounted for by the purchase method of accounting. Consideration
provided by Viacom in this merger includes: approximately $36.7 billion through
the issuance of approximately 812 million shares of Viacom non-voting Class B
common stock plus, approximately $833 million of cash consideration, net of
approximately $556 million of deferred taxes, for the assumed settlement of
certain historical CBS stock options and the assumption of approximately $200
million of CBS stock options by Viacom, both of which were granted prior to the
date of the merger agreement, and approximately $3.5 billion for the assumption
of debt. Viacom is a diversified entertainment company with operations in six
segments: (1) Networks, (2) Entertainment, (3) Video, (4) Parks, (5) Publishing
and (6) Online. The merger is contingent upon, among other things, regulatory
and CBS shareholder approval. This transaction is expected to close in the first
half of 2000. In connection with the planned merger of Viacom and CBS, the
Corporation anticipates that a significant amount of merger related costs will
be incurred commencing in the fourth quarter of 1999. These costs will be
expensed as incurred.
On May 27, 1999, Infinity Broadcasting Corporation (Infinity Broadcasting), a
majority-owned subsidiary of the Corporation, entered into a definitive
agreement to acquire Outdoor Systems, Inc., (Outdoor Systems) for approximately
$8.7 billion, which includes the assumption of $1.9 billion in Outdoor Systems
debt, at fair value. On November 4, 1999 the Outdoor Systems and Infinity
Broadcasting shareholders approved the transaction which is expected to close
during November 1999 subject to certain closing conditions as set forth in the
merger agreement. The terms of the agreement call for each outstanding common
share of Outdoor Systems to be exchanged for 1.25 shares of Infinity
Broadcasting Class A common stock. The closing of this transaction will cause a
dilution in the Corporation's ownership interest in Infinity Broadcasting from
approximately 83 percent at September 30, 1999 to approximately 65 percent,
excluding the dilutive effect of stock options. The Corporation's voting
interest, on a fully diluted basis, will also decline from approximately 96
percent at September 30, 1999 to approximately 90 percent as a result of the
transaction. This transaction will be accounted for by the purchase method of
accounting.
On March 31, 1999, the Corporation entered into a definitive merger agreement
with King World Productions, Inc. (King World) under which CBS 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 transaction is expected to close immediately after King
World shareholders approve the transaction at a meeting scheduled for November
15, 1999.
-15-
During 1999, the Corporation entered into definitive agreements to acquire
two CBS affiliate television stations in Texas: KEYE-TV in Austin for $160
million in cash, which closed on August 31, 1999, and KTVT-TV in Dallas-Fort
Worth for $485 million of CBS series B preferred stock, or 10,142 preferred
shares, and approximately $4 million in cash, which closed on October 12,
1999. Each share of the CBS series B preferred stock is entitled to 1,000
votes per share and is convertible at the option of the holder into 1,000
shares of CBS common stock. Each share of series B preferred stock
outstanding at the time of the CBS/Viacom merger will convert into 1.085
shares of Viacom series C preferred stock which will be entitled to 100 votes
per share. Each Viacom series C preferred share will be convertible into
1,000 shares of Viacom Class B common stock at the option of the holder. Both
of the above transactions are being accounted for by the purchase method of
accounting.
During the nine months ended September 30, 1999 the Corporation closed on a
number of strategic investments focused on growing its Internet based
operations. These investments provided the Corporation with equity ownership
interests in Internet based companies in exchange for $38 million in cash and
commitments to provide $566 million of future advertising and promotional
time. These advertising commitments will be met over a period of up to seven
years. The Corporation has invested in three publicly traded Internet based
companies: SportsLine USA, Inc., MarketWatch.com, Inc. and Medscape.com, Inc.
Other Internet investments include Storerunnner, Inc., Office.com, Inc.,
Switchboard, Inc., ThirdAge Media, Inc., Wrenchead.com, Inc., Jobs.com, Inc.,
Women's Consumer Network LLC and Webvan Group, Inc., which completed its
initial public offering on November 5, 1999. The Corporation also has a
majority ownership interest in iWon, Inc., which is consolidated. The
commitment to provide future advertising and promotional time is non-cash and
has been recorded as deferred revenue in other current and noncurrent
liabilities in the condensed consolidated balance sheet. Barter revenue is
then recognized as the related advertising and promotional time is delivered.
No significant barter revenue was recognized through September 30, 1999 as
only limited advertising and promotion time has been delivered. The shares
evidencing the Corporation's equity ownership interest typically contain
restrictions that may limit the Corporation's ability to sell or otherwise
dispose of its investment. The Corporation has also announced agreements to
acquire a 20 percent ownership interest in Rx.com, Inc. which closed on
October 13, 1999, and a 35 percent ownership interest in Big E Entertainment
in exchange for future advertising and promotional time and cash. The
majority of these Internet based investments represent newly formed
enterprises that will require access to capital markets to fund their future
start-up losses. There can be no assurance that these companies will be
successful in raising the necessary capital to finance their operations and
the Corporation has no obligation for future funding. These companies may
also face intense competition as more traditional "brick-and-mortar"
companies respond to changes in the market place, including launching their
own Internet sites. As a result, the Corporation's future results of
operations for a quarter or a year could be materially affected by a non-cash
write down in the carrying amount of these investments to recognize an
impairment loss due to an other than temporary decline in the value of these
investments. The advertising and promotional agreements entered into in
exchange for the Corporation's equity interest in these investees contain
termination provisions in the event of failure or inability of the investee
to perform. Generally, pursuant to these above termination provisions, the
Corporation is released from delivering any remaining unfulfilled advertising
commitments. Upon termination of the unfulfilled advertising and promotional
commitments, the remaining deferred revenue, if any, recorded as a liability
will be reversed and recognized as a component of equity losses of
unconsolidated affiliated companies.
SEGMENT RESULTS OF OPERATIONS
The following table presents the segment results for the Corporation's
Continuing Operations for the three and nine months ended September 30, 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 Federal Communications Commissions (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.
As EBITDA is not a measure of performance calculated in accordance with
generally accepted accounting principle, this measure may not be comparable to
similarly titled measures employed by other companies.
-16-
SEGMENT RESULTS OF OPERATIONS - CONTINUING OPERATIONS
(unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA
----------------------- ----------------------- --------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 1999 1998 1999 1998
=======================================================================================================================
Infinity $ 619 $534 $208 $157 $282 $230
Television 955 912 64 (6) 121 51
Cable 137 137 35 13 61 41
Corporate and Other (3) (2) (16) (21) (13) (13)
Residual costs of discontinued businesses -- -- (45) (41) (45) (41)
- -----------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $1,708 $1,581 $246 $102 $406 $268
=======================================================================================================================
REVENUES OPERATING PROFIT (LOSS) EBITDA
----------------------- ----------------------- --------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 1999 1998 1999 1998
=======================================================================================================================
Infinity $1,690 $1,320 $497 $362 $717 $541
Television 3,047 3,287 231 138 398 317
Cable 423 412 104 41 157 120
Corporate and Other (6) (5) (44) (59) (29) (47)
Residual costs of discontinued businesses -- -- (130) (117) (130) (117)
- -----------------------------------------------------------------------------------------------------------------------
Total Continuing Operations $5,154 $5,014 $658 $365 $1,113 $814
=======================================================================================================================
INFINITY
Certain discussions below provide a comparison of actual results with pro forma
results. For the three and nine months ended September 30, 1999 and 1998
comparisons, pro forma results were determined as if the American Radio Systems
Corporation (American Radio) acquisition and any related divestitures and
exchanges of radio stations, as well as the acquisition of Alrecon, the outdoor
advertising subsidiary of the Dutch national rail company, all had occurred on
January 1, 1998.
Infinity Broadcasting is comprised of approximately 160 owned and operated radio
stations and TDI Worldwide, Inc. (TDI), its outdoor advertising business
(collectively the Infinity segment). Revenues, as reported, for the three and
nine months ended September 30, 1999, increased over the prior year by $85
million, or approximately 16 percent, and $370 million, or approximately 28
percent, respectively. The increase for the three months was due to double-digit
revenue growth at Infinity's existing operations. On a pro forma basis, revenues
for the nine months ended September 30, 1999, increased over the prior year
period by approximately 16 percent. This increase reflects strong revenue growth
across the majority of Infinity's radio markets and TDI during 1999.
Operating profit and EBITDA for the three months ended September 30, 1999,
increased over the prior year by $51 million, or approximately 32 percent, and
$52 million, or approximately 23 percent, respectively. For the nine months
ended September 30, 1999, operating profit and EBITDA increased $135 million, or
approximately 37 percent, and $176 million, or approximately 33 percent,
respectively, over the prior year period. For the three month period, the
increases are due to higher revenues at Infinity's existing radio and outdoor
advertising properties as well as management's continued focus on cost control.
On a pro forma basis, operating profit and EBITDA for the nine months ended
September 30, 1999 increased over the prior year period by approximately 35
percent and 23 percent, respectively. These increases in pro forma results are
driven by the same factors impacting the three month period discussed above. The
higher rate of growth in operating profit and EBITDA compared to the rate of
growth in revenues is because a substantial portion of the Infinity segment
costs are fixed.
TELEVISION
The Television segment consists of the Corporation's owned and operated
television stations and the CBS television network. The segment's revenues
for the three months ended September 30, 1999 increased $43 million, or
approximately 5 percent, compared to the prior year third quarter. This
increase is primarily attributable to higher advertising pricing in primetime
as well as increased coverage of sporting events which generated higher
revenues. Television revenues for the nine months ended September 30, 1999
decreased by $240 million compared to the prior year period which included
the 1998 Winter Olympics. Excluding the impact of the 1998 Winter Olympics,
revenues increased by approximately 7 percent. This increase is primarily
attributable to strong scatter market pricing. Approximately 80 percent of
CBS Television's 1999-2000 season up-front inventory was sold at
low-double-digit price increases. Although, in general, broadcast television
has experienced a decline in total viewership from increased competition, the
Corporation believes it is still one of the few means that offers advertisers
the ability to reach mass audiences.
-17-
Operating profit and EBITDA for the three months ended September 30, 1999
each increased $70 million compared to the prior year period. The third
quarter 1998 results include a special charge of $63 million recognized for
restructuring costs and asset impairments. Excluding the impact of the 1998
special charge, operating profit and EBITDA for the three-month period
increased approximately 12 percent and 6 percent, respectively. These
increases are primarily attributable to higher revenues, lower operating
costs due to cost containment initiatives and the net impact of changes in
network programming. The increases are partially offset by higher programming
costs related to the increased coverage of certain sporting events. For the
nine months ended September 30, 1999, operating profit and EBITDA increased
$93 million and $81 million, respectively, compared to the prior year period.
Excluding the impact of the 1998 Winter Olympics, the $63 million special
charge in 1998 and the 1999 special items discussed below, operating profit
and EBITDA for the nine-month period increased by approximately 86 percent
and 29 percent, respectively. These increases are attributable to strong
pricing, cost containment initiatives and the net impact of changes in
network programming.
In the second quarter of 1999, the Corporation reversed approximately $26
million of the restructuring reserve it had established during the third
quarter of 1998. This reversal was the result of recent television
programming changes and lower than expected severance costs because of higher
voluntary employee terminations. Also in the second quarter of 1999, the
Corporation recorded restructuring charges of approximately $2 million
associated with employee terminations.
CABLE
The Cable segment consists of the Corporation's cable networks, including The
Nashville Network (TNN), Country Music Television (CMT), two regional sports
networks and a minority interest in TeleNoticias, a Spanish language cable news
network. These networks are distributed by cable television and other
multichannel technologies. Revenues were flat for the three months ended
September 30, 1999 compared to the prior year period. For the nine months ended
September 30, 1999, revenues increased by $11 million, or approximately 3
percent compared to the prior year period. Excluding the impact of two cable
divestitures, TeleNoticias and Eye on People, both of which were divested in
late 1998, revenues increased by approximately 6 percent and 8 percent for the
three and nine months ended September 30, 1999, respectively. These advances
reflect revenue growth at the Company's cable network operations despite the
continued increase in competition across the cable industry as the number of
cable channels available continues to increase providing viewers with more
options and placing more pressure on networks to attract and maintain their
audiences. The Corporation has recently lost the rights to broadcast the
NASCAR Winston Cup races in 2001. Unless these broadcast rights are replaced
with similar revenue generating events, this overall positive trend in revenue
may be adversely affected.
Operating profit and EBITDA increased over the prior year by $22 million, or
approximately 169 percent, and $20 million, or approximately 49 percent, for the
three months ended September 30, 1999, respectively. For the nine months ended
September 30, 1999, operating profit and EBITDA increased $63 million, or
approximately 154 percent, and $37 million, or approximately 31 percent,
respectively, over the prior year period. These 1999 results include a $24
million special charge recorded in other income during the second quarter for
certain obligations of TeleNoticias. TeleNoticias is a Spanish language cable
news network that the Corporation divested a majority interest in during the
latter portion of 1998. Financial difficulties led TeleNoticias to file for
Bankruptcy protection under Chapter 11. Because of these financial difficulties,
it is probable that certain obligations that were assumed by the venture in
connection with the divestiture will revert back to the Corporation. Of the $24
million charge, $3 million was satisfied during the third quarter and the
remaining balance is expected to be satisfied over the next few years. The 1998
results include a special charge related to a third quarter restructuring action
and an asset impairment totaling $3 million. Excluding the impact of the special
charges discussed above and the results of operations of the two cable
divestitures, operating profit and EBITDA increased by approximately 46 percent
and 12 percent, respectively, for the three months ended September 30, 1999, and
approximately 40 percent and 18 percent, respectively, for the nine months ended
September 30, 1999. These increases are driven by the results of the country
music and regional sports cable television networks as well as certain cost
containment efforts initiated during 1998. The decline in the third quarter
EBITDA percentage increase is explained, in part, by lower ratings for TNN.
RESIDUAL COSTS OF DISCONTINUED BUSINESSES
The Corporation's results of operations are unfavorably affected by certain
costs remaining from divestitures of its industrial businesses. Following those
divestitures, certain liabilities arising from these businesses remained with
the Corporation, such as pension and postretirement benefit obligations for
inactive and retired employees and certain environmental 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 and nine months ended September 30, 1999, residual costs of
discontinued businesses were $45 million and $130 million, respectively, and
were primarily comprised of pension and postretirement benefit costs which
totaled $44 million and $125 million, respectively. For the same periods during
1998, the residual cost totaled $41
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million and $117 million, respectively, of which the combined pension and
postretirement benefit costs totaled $41 million and $115 million,
respectively. The increase in costs during 1999 is a result of the sale of
Power Generation in August 1998 and the retention of certain benefit
obligations. In addition, following the 1999 first quarter sale of Energy
Systems and Government Operations, the quarterly costs have increased by an
additional $5 million. Prior to the sales, these costs were included in the
respective businesses' results of operations which were reported in
Discontinued Operations.
The Corporation's objective is to reduce this earnings constraint over the next
few years by fully funding the pension plans 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 and nine months ended September 30, 1999
decreased, compared to the prior year, by $2 million and $25 million,
respectively. The decrease in the nine month period primarily reflects the
previously discussed $24 million special charge recorded in the second quarter
of 1999 for certain obligations associated with TeleNoticias and a reduction in
income from various other sources. This decline was partially offset by a net
gain of $8 million recognized during the first quarter of 1999 on the disposal
of a corporate aircraft.
INTEREST EXPENSE, NET
Interest expense, net from Continuing Operations for the three and nine
months ended September 30, 1999, decreased by $66 million, or 59 percent, and
$129 million, or 47 percent, respectively. The decrease was driven by a
reduction in 1999 average debt compared to 1998. Average debt was primarily
affected by cash proceeds received from Infinity Broadcasting for the
repayment of an intercompany note subsequent to its December 1998 initial
public offering (IPO), which was used by CBS to pay down debt, the timing of
major acquisitions and divestiture transactions and the repurchase of shares
under the Corporation's and Infinity Broadcasting's stock repurchase programs.
During the nine month period ended September 30, 1999, the Corporation had only
minimal levels of borrowings under its credit facility and reduced available
borrowing capacity under its credit facility from $4.0 billion to $3.0 billion
(see Revolving Credit Facility in Liquidity and Capital Resources). The
Corporation also redeemed and purchased debt securities totaling approximately
$577 million.
Future interest expense will be dependent on the Corporation's financing
strategy in future acquisitions, additional activity under the Corporation's and
Infinity Broadcasting's stock repurchase programs, use of proceeds from
dispositions, and the funding of pension, postretirement benefit obligations,
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 rate was 60 percent and 58
percent for the three and nine months ended September 30, 1999, respectively,
and during the same periods in 1998, the effective tax rate was in excess of 100
percent. The decrease in the effective tax rate is due to the Corporation's
higher operating profit and lower interest expense. These rates are
significantly higher than the US federal statutory rate of 35 percent primarily
due to the amortization of non-deductible goodwill associated with the media
acquisitions of 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.
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES
The increase in minority interest in income of consolidated subsidiaries is
the result of the December 1998 IPO of Infinity Broadcasting, the
Corporation's then wholly-owned radio and outdoor advertising business. The
IPO reduced the Corporation's ownership interest in Infinity Broadcasting to
approximately 82 percent. This results in the Corporation reflecting an
offset in its consolidated financial statements for the minority interest
holder's proportionate interest in post-IPO results of operations of Infinity
Broadcasting. The Corporation's ownership interest subsequently increased to
approximately 83 percent during the third quarter of 1999 as a result of
Infinity Broadcasting's repurchase of its Class A common stock under a $500
million stock repurchase program announced late in the second quarter. The
closing of the Outdoor Systems transaction will cause a dilution in the
Corporation's ownership interest in Infinity Broadcasting from approximately
83 percent at September 30, 1999 to approximately 65 percent, excluding the
dilutive effect of stock options.
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EQUITY LOSSES OF UNCONSOLIDATED AFFILIATED COMPANIES
At the end of the second quarter and throughout the third quarter of 1999,
the Corporation closed on a number of strategic investments focused on
growing its Internet based operations. The Corporation received an equity
interest in these Internet companies, in exchange for cash and future
advertising and promotion time on CBS's and Infinity Broadcasting's media
properties. During the third quarter of 1999, the Corporation recognized its
proportionate share of losses in these Internet based companies and the
amortization of the difference between CBS's investment in these entities and
its proportionate ownership share in the underlying net assets of these
companies, which totaled $28 million, net of taxes. See note 3. Future equity
losses in Internet based companies the Corporation has invested in are
expected to increase dramatically as the number of such equity investments
expands and as the full year impact of such losses is recognized.
Additionally, these Internet based companies will recognize marketing and
promotional expenses as the Corporation delivers its advertising and
promotional time. Therefore, future losses for the Internet based companies
are expected to grow significantly, which in turn will increase the equity
losses for which the Corporation must recognize its proportionate share.
Because of the expected growing significance of these non-cash equity losses
and amortization commencing in the third quarter 1999, the Corporation
reported this amount as a separate line item in the condensed consolidated
statement of income.
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 $31 million has been incurred through
September 30, 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.
The Corporation's centrally managed mission-critical systems are essentially
Year 2000 compliant with remediation and testing approximately 98 percent
complete on all high-risk assets and systems and approximately 90 percent
complete on all medium-risk assets and systems. The Corporation expects to have
the remaining high-risk and medium-risk assets and systems tested and compliant
before the end of 1999.
The Corporation believes that it will complete its Year 2000 effort and will be
compliant on time. The Corporation has also developed formal contingency plans,
implementation of which is substantially complete, to ensure continued business
operations in case of Year 2000 related disruptions. The Corporation has
established a center to monitor performance, identify and prioritize issues and
communicate with its senior management team throughout the most critical
crossover period. The Corporation also believes that, based on its current plan
of identifying and scheduling the required personnel and its ability to secure
access to additional equipment necessary to meet all mission-critical business
processes, it will be adequately prepared for contingency measures if the need
arises.
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.
Management believes that it is difficult to fully assess the risks of the Year
2000 problem due to numerous uncertainties surrounding the issue and that the
primary risks are external to the Corporation and relate to the Year 2000
readiness of its suppliers and customers.
The inability of the Corporation or its suppliers or customers 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 has devoted and continues to
devote the resources it concludes are appropriate to address all significant
Year 2000 issues in a timely manner.
DISCONTINUED OPERATIONS
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 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." During the first and second
quarter several businesses were sold for $250 million in cash and the assumption
by the buyer of liabilities and commitments totaling approximately $970 million,
all in accordance with the terms of the
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divestiture agreements. The pre-tax and after-tax gains on these disposals
totaled $520 million and $384 million, respectively, which was subsequently
increased during the third quarter by $20 million and $12 million on a
pre-tax and after-tax basis, respectively, due to the favorable resolution of
a purchase price adjustment associated with a business divested in the second
quarter of 1999. See note 7.
Following the divestitures discussed above, net liabilities of Discontinued
Operations declined. At September 30, 1999, assets primarily consist 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. At September 30, 1999, liabilities
of Discontinued Operations primarily consist of the liability for estimated
loss on disposal of $1,284 million and debt of $418 million. Management
believes that the liability for estimated loss on disposal of Discontinued
Operations is adequate to provide for the portfolio investments' estimated
results of operations through the expected date of liquidation and other
obligations associated with the disposal of the industrial business including
the costs to dispose of surplus property held for sale, contractual
indemnifications and unresolved purchase price adjustments. During the fourth
quarter of 1999 the Corporation expects to resolve the purchase price
adjustments arising from the divestiture of its industrial businesses that
were sold in the first quarter of 1999. The resolution of these adjustments
will reduce the liability for estimated losses on disposals and is expected
to use approximately $50 million to $125 million in cash flow from Continuing
Operations in the fourth quarter of 1999. Debt of Discontinued Operations
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 with the Corporation.
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.
RESULTS OF OPERATIONS - DISCONTINUED OPERATIONS
(unaudited, in millions)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- ------------------------------------
SALES OF
PRODUCTS AND OPERATING PROFIT SALES OF PRODUCTS OPERATING PROFIT
SERVICES (LOSS) AND SERVICES (LOSS)
1999 1998 1999 1998 1999 1998 1999 1998
=====================================================================================================================
Industrial businesses $4 $465 $(2) $(6) $122 $1,861 $(20) $(180)
Financial Services 3 5 (7) (5) 9 18 (21) (14)
- ---------------------------------------------------------------------------------------------------------------------
Total $7 $470 $(9) $(11) $131 $1,879 $(41) $(194)
=====================================================================================================================
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 and nine months ended
September 30, 1999 declined $461 million and $1,739 million, respectively,
compared to the same periods during 1998. These declines primarily reflect the
sale of several of the Corporation's industrial operations throughout 1998 and
1999. 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 and nine months ended September 30, 1999 compared to the same
periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
In 1998, the Corporation formed Infinity Broadcasting, a new company comprising
the Infinity segment of the Corporation. In December 1998, Infinity Broadcasting
sold 18.2 percent of its common stock in an IPO, generating $3.2 billion of
proceeds ($3.0 billion, net of offering costs). The Corporation, as the parent
company of Infinity Broadcasting, received the benefit of nearly 90 percent of
the proceeds from Infinity Broadcasting's stock offering through the payment by
Infinity Broadcasting 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 Broadcasting following the stock
offering, certain modifications have been made to the Corporation's cash
management practices. Of the $185 million in cash and cash equivalents presented
on the Corporation's condensed consolidated balance sheet, the Corporation, as
the parent company of Infinity Broadcasting, has direct access to $56 million.
The remaining cash balance is available to the Corporation if Infinity
Broadcasting were to pay a dividend on all of its common stock. Infinity
Broadcasting does not anticipate paying any
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dividends in the near term. Additionally, under the terms of an intercompany
agreement and a tax sharing agreement, Infinity Broadcasting reimburses the
Corporation in cash for certain services provided and its standalone income tax
liability. The tax payments to the Corporation will cease upon the
deconsolidation of Infinity Broadcasting from the Corporation's consolidated
U.S. federal tax return which would result upon the consummation of the Outdoor
Systems merger. For the nine months ended September 30, 1999, Infinity
Broadcasting paid to the Corporation approximately $200 million for its
standalone income tax liability. Cash generated by Infinity Broadcasting's
operations is expected to be retained by Infinity Broadcasting for use in its
operations or for investing. Management does not believe that this segregation
of cash will materially impact the Corporation's liquidity.
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 $676 million
during the nine months ended September 30, 1999 and $342 million during the nine
months of 1998. This increase relates primarily to the improved operating
results of the Infinity and Television segments during 1999.
Cash contributed to the Corporation's pension plans totaled $199 million during
the first nine months of 1999 and $198 million during the same period in 1998.
The Corporation's contribution level for 1999 is expected to approximate $270
million (including the $199 million contribution made in the first nine months
of 1999) and is consistent with the Corporation's goal to fully fund its
qualified pension plans over the next several years.
Over the next several years it is likely that a portion of the future
advertising and promotion time exchanged for an equity interest in Internet
based companies may displace advertising inventory that could otherwise be sold
by the Corporation for cash.
The operating activities of Discontinued Operations used cash of $162 million
during the first nine months of 1999 compared to $326 million during the same
period in 1998. The cash flows during the first nine months of 1999 primarily
reflect cash used in the operations of the Energy Systems and Government
Operations businesses through their date of disposition in March 1999 while the
cash flows during the same period in 1998 primarily reflect the cash used in the
operations of its Power Generation business through its disposition in August
1998 as well as the Energy Systems and Government Operations businesses.
With the completion of the sale of essentially all of the Corporation's
remaining industrial operations in 1998 and 1999, future operating cash flows of
Discontinued Operations will consist primarily of disposal and other costs
associated with the industrial businesses. During the fourth quarter of 1999 the
Corporation expects to resolve the purchase price adjustments arising from the
divestiture of its industrial businesses that were sold in the first quarter of
1999. The resolution of these adjustments is expected to use approximately $50
million to $125 million in cash flow from Continuing Operations in the fourth
quarter of 1999. 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. Cash taxes arising from the liquidation of the Corporation's lease
portfolio are expected to be funded by cash from Continuing Operations over the
next 15 years.
As a result of the Corporation's recent investments in Internet based companies
cash taxes paid are expected to increase because CBS is contributing services in
exchange for its ownership interests. The Corporation is required to recognize
taxable income equal to the fair value of the shares received. The Corporation
is, however, exploring alternatives to reduce its cash taxes by accelerating tax
deductions.
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INVESTING ACTIVITIES
Investing activities used cash of $63 million and provided cash of $192 million
during the first nine months of 1999 and 1998, respectively. Investing cash
inflows from business divestitures and other asset liquidations totaled $405
million and $1.7 billion during the first nine months of 1999 and 1998,
respectively. Asset liquidations in 1999 primarily relate to the sale of certain
of the Corporation's industrial operations for approximately $250 million in
cash. In addition, during 1999, approximately $59 million was received from the
divestiture of several media properties. Investing cash outflows during 1999
primarily relate to the acquisition of three radio stations, a television
station, two transit advertising companies and a radio dating service for $321
million, a portion of which was funded by deposits held in acquisition trust. In
addition, investing cash outflows included payments for Internet based and other
investments totaling approximately $70 million. For the same period during 1998,
the Corporation had investing cash inflows primarily related to the sale of
Power Generations for $1.2 billion and cash outflows related to the acquisition
of American Radio for $1.4 billion in cash plus the assumption of debt.
The Corporation's capital expenditures for Continuing Operations during the
first nine months of 1999 and 1998 totaled $92 million and $89 million,
respectively. During the second quarter of 1999 the Corporation entered into a
satellite service arrangement that requires an advance payment of approximately
$65 million, which will become payable in October 2000. The Corporation has
committed to contribute approximately $50 million to a fund aimed at providing
minorities and women with access to capital to acquire and operate radio and
television stations. With the sale of essentially all the remaining industrial
businesses, future capital expenditures for Discontinued Operations will
essentially be eliminated.
FINANCING ACTIVITIES
Cash used by financing activities during the first nine months of 1999 totaled
$1,035 million compared to $138 million during the same period in 1998.
Total financing cash outflows during the first nine months of 1999 primarily
reflect the repurchase or redemption of certain outstanding debt for $577
million as well as the purchase of 11,466,500 shares of CBS common stock for
$489 million. During the same period in 1998 total financing outflows primarily
reflect the purchase of 25,273,000 shares of CBS common stock for $777 million
partially offset by the issuance of long-term debt. In addition, with Infinity
Broadcasting's June 17, 1999 announcement of its $500 million stock repurchase
plan, 16,561,200 shares of Infinity Broadcasting's Class A common stock for $453
million had been repurchased through September 30, 1999, of which $439 million
was settled.
Funds utilized in connection with 1999 and 1998 debt repurchases and redemptions
as well as the purchase of common stock were primarily derived from cash
proceeds received from the December 1998 Infinity Broadcasting IPO, the
Corporation's cash flow from operations and asset dispositions. Future purchases
of common stock under the programs will be guided by financial policies that are
consistent with maintaining an investment grade rating. In addition, financing
cash outflows during the first nine months of 1998 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 inflows from financing activities during the first nine months of 1999 and
1998 primarily reflect the issuance of the Corporation's stock in connection
with certain employee compensation and benefit plans totaling $226 million and
$324 million, respectively.
The Corporation is considering various alternatives with respect to its Internet
strategy, including pursuing a spin-off or creation of a tracking stock for its
Internet interests.
REVOLVING CREDIT FACILITY
On March 15, 1999, the Corporation amended its revolving credit agreement
reducing the total available borrowings from $4.0 billion to $3.0 billion of
which, effective November 2, 1999, up to $1.5 billion was available to Infinity
Broadcasting. The Corporation is in the process of amending its credit agreement
to allocate $1.5 billion of the $3.0 billion facility to Infinity Broadcasting
for its exclusive use. The amendment is generally not expected to modify the
terms existing under the credit facility agreement. At September 30, 1999,
borrowings under the credit facility totaled $250 million.
The credit facility provides for short-term money market loans and revolver
borrowings. Borrowing rates under the facility are determined at the time of
each borrowing and are based generally on a floating rate index, the London
Interbank Offer Rate, plus a margin based on the Corporation's senior unsecured
debt rating and leverage. The cost of the facility includes commitment fees,
which are based on the unutilized facility and vary with the Corporation's debt
ratings. For financial reporting purposes, revolver borrowings are classified as
long term. There are no compensating balance requirements under the facility.
-23-
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 September 30, 1999, the
Corporation was in compliance with the financial covenants.
REGULATORY MATTERS
Approval by the FCC of the Corporation's acquisitions of Old Infinity (formerly
Infinity Media Corporation) in 1996 and American Radio in 1998 contained a
number of temporary conditional waivers of the FCC's rules respecting the common
ownership in the same market of radio and television stations (formerly known as
the "one-to-a-market" rule). These waivers were granted subject to the outcome
of then pending rulemaking in which a review of the one-to-a-market rule had
been proposed.
The FCC recently issued its Report and Order with respect to the referenced rule
as well as to the rule prohibiting common ownership of television stations with
certain overlapping signals (the "television duopoly" rule). The Orders adopted
a new radio/television cross-ownership rule allowing a single party to own in a
market (a) up to two television stations (if permitted by the television duopoly
rule) and up to six radio stations or (b) one television station and seven radio
stations, in both instances under certain circumstances. With respect to the
television duopoly rule, the Report and Order allows the common ownership of
television stations located in different Designated Market Areas (DMAs)
regardless of signal overlap and also permits ownership of two television
stations in the same market, in both instances under certain circumstances.
Under the Report and Order, the Corporation is to submit within sixty days of
the Order, a showing as to its compliance or non-compliance with the new
radio/television cross-ownership rule in those markets where it currently has
temporary conditional waivers. The Corporation anticipates being able to
demonstrate compliance with the new rule in all markets other than Los
Angeles, Chicago and Dallas-Fort Worth, in each of which the Corporation owns
attributable interests in eight radio stations and one television station,
and in Baltimore/Washington D.C. area where the Corporation has attributable
interests in one television station and eleven radio stations. As to those
four markets the Report and Order will continue temporary conditional waivers
until 2004, at which time the FCC will review its radio/television
cross-ownership rule, and the Corporation will have an opportunity to
demonstrate that the continued ownership of an eighth radio station in these
markets would serve the public interest.
In connection with the Viacom/CBS merger, FCC approval will be requested on
November 16, 1999 for the transfer of control to Viacom of the television and
radio station licenses currently controlled by the Corporation. The combined
company will be required to divest some of its broadcasting assets in order
to obtain such FCC approval. In particular, the television stations currently
held by both entities together reach more of the maximum percentage of U.S.
television households permitted by the FCC. Accordingly, in the absence of
changes to this "national cap" rule, the combined company will have to
reduce the overall audience reach, calculated for FCC purposes, from
approximately 41 percent to less than 35 percent of U.S. television
households.
In addition, the combined company would not be permitted to continue the
temporary conditional waivers of the radio television cross-ownership rule until
2004, and the addition of certain Viacom television stations will obligate the
combined company to divest additional radio stations. In total, subject to
clarification of the radio television cross-ownership rule as it applies to
circumstances in which radio stations are located in a separate DMA from a
commonly-owned television station, which is the case in Baltimore and
Sacramento, the combined company may be required to divest as many as ten radio
stations (Los Angeles (1), Chicago (1), Dallas (2), Washington/Baltimore (4)
and Sacramento (2)) in order to comply with the radio television cross-ownership
rule.
The combined company would hold licenses for two television stations in six
markets -- Philadelphia, Boston, Dallas, Detroit, Miami and Pittsburgh. In the
event that the common ownership of two television stations in each of these
markets does not comply with newly-adopted FCC rules permitting in-market TV
duopolies in certain circumstances, the combined company could be required to
divest a television station in one or more of these markets. The combined
company may also be required to divest additional broadcast stations in the
event that the Commission's recent relaxation of its multiple ownership
restrictions fails to become effective, or is stayed, reconsidered or modified
by the FCC or by a court. The combined company may also have to reduce or divest
its interest in the United Paramount Network to comply with the rules limiting
the common ownership of certain television networks.
In order to consummate the Viacom/CBS merger on an orderly and timely basis,
Viacom and CBS may request deferred enforcement of FCC rules or seek other
regulatory relief.
In April 1997, the FCC adopted a schedule under which broadcasters must build
digital television transmission facilities and begin digital transmission.
The FCC has not expressly stated what the consequences would be if a licensee
fails to meet the adopted schedule. However, the FCC has indicated that it
will grant an extension of the applicable deadline where a broadcaster has
been unable to complete construction due to circumstances that are either
-24-
unforeseeable or beyond its control. Under the FCC's policy, two six-month
extensions may be granted by the FCC staff pursuant to delegated authority,
but subsequent extension requests must be referred to the full Commission.
Under the FCC's schedule, the Corporation was required to build digital
facilities by May 1, 1999 for the eight stations it owns in the ten largest
television markets, and by November 1, 1999 for the five television stations it
owns in television markets 11-30. The Corporation has begun transmitting digital
broadcasts in New York, San Francisco, Philadelphia, Los Angeles, Detroit and
Dallas. The Corporation has pending applications for a second extension of its
digital construction permits in Chicago and Boston, and applications for a first
extension in Minneapolis, Miami, Denver, Pittsburgh and Baltimore. The
Corporation's three television stations in markets below the largest 30 must
construct digital facilities by May 1, 2002. Timely applications for
construction permit have been filed with respect to those stations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contains both
historical and forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, 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. These
forward-looking statements are not based on 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
timing, impact and other uncertainties related to future acquisitions by the
Corporation; 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 including the magnitude of equity losses and
other uncertainties related to the Corporation's Internet based investments;
the impact of the year 2000 transition; changes in Federal Communications
Commission regulations; uncertainties related to certain litigation,
environmental and other liabilities associated with the Corporation's former
industrial businesses; and such other competitive and business risks as from
time to time may be detailed in the Corporation's Securities and Exchange
Commission reports.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Report on
Form 10-Q. The forward-looking statements included in this document are made
only as of the date of this document and the Corporation does not have any
obligation under Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, to publicly
update any forward-looking statements to reflect subsequent events or
circumstances.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) The Corporation has been defending, in the USDC for the Western
District of Pennsylvania (the District Court), consolidated class and
derivative actions and an individual lawsuit brought by shareholders
against the Corporation, Westinghouse Financial Services, Inc. (WFSI)
and Westinghouse Credit Corporation (WCC), previously subsidiaries of
the Corporation, and/or certain present and former directors and
officers of the Corporation, as well as other unrelated parties.
Together, these actions allege various federal securities law and
common law violations arising out of alleged misstatements or omissions
contained in the Corporation's public filings concerning the financial
condition of the Corporation, WFSI, and WCC in connection with a $975
million charge to earnings announced on February 27, 1991; a public
offering of the Corporation's common stock in May 1991; a $1,680
million charge to earnings announced on October 7, 1991; and alleged
misrepresentations regarding the adequacy of internal controls at the
Corporation, WFSI, and WCC. In July 1993, the court dismissed in its
entirety the derivative claim and dismissed most of the class action
claims with leave to replead certain claims in both actions. Both
actions were subsequently repled. On January 20, 1995, the District
Court again dismissed the derivative complaint in its entirety. Also on
January 20, 1995, the court dismissed class action claims but granted
plaintiffs the right to replead certain of the claims. Plaintiffs in
the class action did not replead the claims, and on February 28, 1995,
the court dismissed these claims in their entirety. Plaintiffs in both
the derivative and class action suits appealed the rulings and
dismissals of their claims by the District Court to the Third Circuit.
(In the derivative action, the Third Circuit affirmed the dismissal of
this action by the District Court.) In July 1996, the Third Circuit
affirmed in part and reversed in part the class action claims. Pursuant
to this ruling, the class action claims have been remanded to the
District Court. In 1997, two similar class action suits were brought
against the Corporation in the District Court. These cases allege
similar facts and include the same defendants as in the previous class
action complaint filed in the District Court. In November 1997, the
District Court dismissed both of these actions. 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 the class actions and a derivative action
reached an agreement to settle the matters for a total cost of
approximately $67 million, funded in large part by the Corporation's
liability insurers. On October 19, 1999, the district court approved
the settlements.
(b) On August 19, 1998, a former subsidiary of the Corporation known as
Westinghouse International Services Corporation ("Westinghouse
International") and others commenced an arbitration proceeding (the
"Arbitration") against WAK Orient Power & Light Limited ("WAK"), a
Pakistan corporation, in the International Court of Arbitration of the
International Chamber of Commerce (the "ICC"). The Arbitration arose
out of alleged WAK breaches of an engineering, procurement and
construction contract (the "EPC Contract"), dated March 31, 1996 and
matters connected with the related project. WAK has denied these claims
and has filed counterclaims in the Arbitration. An evidentiary hearing
on the merits of this dispute in arbitration is scheduled to begin on
December 6, 1999.
On September 7, 1998, in contravention of its Arbitration obligations,
WAK commenced an action in a court in Lahore, Pakistan (the "Lahore
Court") reasserting its counterclaims from the Arbitration and now
naming the Corporation, Westinghouse Power Generation ("Westinghouse
Power") and Westinghouse International, and seeking 60 billion Pakistan
rupees (approximately $1.3 billion). On May 7, 1999, without previously
ruling on the Corporation's and other defendants' jurisdictional
motions, the Lahore Court entered a default decree in the amount of 60
billion Pakistan rupees (approximately $1.3 billion) against
Westinghouse Power and Westinghouse International and certain other
defendants. The judgment entered in the Lahore Court does not name the
Corporation.
The above two proceedings relate to the Corporation's sale of its Power
Generation Business to Siemens Power Generation Corporation (the
"Buyer"), which was completed on August 19, 1998. Pursuant to that sale
and agreement, the Buyer assumed, and agreed to indemnify the
Corporation with respect to liabilities relating to this dispute with
WAK.
Between May 26, 1999 and June 10, 1999, WAK purported to register the
judgment from Pakistan in the United States and execute upon the same
against the Corporation and others in the amount of approximately $1.5
billion. On June 14, 1999, the Corporation and Westinghouse
International filed an action in the United States District Court for
the Eastern District of Pennsylvania (the "Federal Court") seeking,
among other things, a declaration that the parties' disputes are
subject to arbitration under the authority of the ICC and enjoining WAK
from registering, levying based upon, or otherwise attempting to
execute and enforce in any manner any levy or any other execution
action taken under the default judgment entered by the Lahore Court. On
June 16, 1999, the Federal Court entered an order restraining WAK from
registering or otherwise seeking to enforce any judgment based upon the
judgment entered by the Lahore Court. Also, on June 17, 1999, the
Lahore High Court, where the judgment is on appeal, entered an order
suspending operation and enforcement of the judgment entered by the
Lahore Court pending a hearing. On July 20, 1999, the Federal Court
issued an order stating that its June 16,
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1999 Order "remains in full force and effect until a further Order of
this court." On September 15, 1999, a hearing was held before the
Lahore High Court on the Corporation's appeal on the default judgement
and plaintiff's appeal on the suspension of enforcement of the
judgement. A ruling has not yet been issued.
Management believes that the Buyer has assumed all liabilities of the
Corporation with respect to this matter and, that the Arbitration
should take precedence over the Lahore Court Action.
(c) The Corporation and the individual members of its Board of Directors
have been named as defendants in actions filed in Pennsylvania in the
Philadelphia County Court of Common Pleas Trial Division and in New
York in the Supreme Court of New York County of New York in connection
with the contemplated merger of the Corporation with Viacom. The action
in Pennsylvania is entitled RYWELL V. CBS CORP. (No. 9909-0139, filed
September 7, 1999) and the action in New York is entitled ROBERT H.
SHENKER MONEY PURCHASE TRUST V. CONRADES (No. 99118708, filed September
7, 1999). Counsel for the plaintiffs in each of these actions has
advised the Court in Philadelphia that they intend to file an amended
complaint in that Court and to seek to stay the New York action. In
these proceedings, the plaintiffs, purportedly on behalf of themselves
and other shareholders of the Corporation, primarily assert that (i)
the individual members of the Corporation's Board of Directors have
failed to act to maximize shareholder value, including by failing to
properly consider or solicit other bids for the Corporation, to hold a
public auction for the Corporation or to conduct a market check, and
have acted according to their own personal interests, rather than to
their fiduciary obligations, and (ii) the merger of the Corporation
with Viacom does not provide sufficient value to the Corporation and
its shareholders, especially in light of the Corporation's current and
prospective financial condition and the trading prices for the
Corporation's common stock immediately prior to the announcement of the
merger of the Corporation into Viacom. The plaintiffs seek to enjoin
the merger with Viacom, unquantified damages, costs and disbursements,
and other remedies, and seek to have the defendants conduct an auction
to maximize shareholder value.
(d) On December 15, 1998, John F. Gritzer, along with six other
individuals, brought suit against the Corporation and the Westinghouse
Pension Plan (the "Plan") in the federal district court for the Western
District of Pennsylvania (the "Court"). The suit alleges that the
Corporation violated the terms of the Plan and breached its fiduciary
duty as Plan Administrator. Plaintiffs were employees of the
Corporation until the Corporation sold the division in which the
plaintiffs were employed. Plaintiffs continued their employment with
the buyer of the business until plaintiffs were involuntary terminated
in 1995. Plaintiffs claim that as a result of their termination, they
are entitled to special retirement benefits under the Plan by virtue of
the terms of the Plan and a reciprocal service agreement contained in
the asset purchase agreement between the Corporation and the buyer. On
October 14, 1999, the Court certified as a class all persons in the
Plan who were (i) transferred to another corporation in connection with
a transfer of assets, (ii) under a purchase agreement that included a
reciprocal service agreement, (iii) who were terminated through no
fault of their own, and (iv) who met the requisite age-service
combination for special early retirement pensions. The Corporation
opposed class certification. The Court declined to grant class status
with respect to the claims for breach of fiduciary duty. A case
involving similar facts was recently tried before the Court. The Court
in that case granted the Corporation's motion for a directed verdict.
Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in certain of the foregoing matters and although management
believes a significant adverse judgment is unlikely, any such judgment could
have a material adverse effect on the Corporation's results of operations for a
quarter or a year. However, based on its understanding and evaluation of the
relevant facts and circumstances, management believes that the Corporation has
adequately provided for resolution of these matters described above. Management
believes that the litigation should not have a material adverse effect on the
financial condition of the Corporation.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of Incorporation of the Corporation, as
amended to October 27, 1999.
(b) The Bylaws of the Corporation, as amended to May 4, 1999, are
incorporated by reference to Exhibit 3(b) to Form 10-Q for the
quarter ended June 30, 1999.
(4) RIGHTS OF SECURITY HOLDERS
(a) There are no instruments with respect to long-term debt of the
Corporation that involve securities authorized thereunder
exceeding 10 percent of the total assets of the Corporation
and its subsidiaries on a consolidated basis. The Corporation
agrees to provide to the Securities and Exchange Commission,
upon request, a copy of instruments defining the rights of
holders of long-term debt of the Corporation and its
subsidiaries.
(b) Rights Agreement is incorporated herein by reference to
Exhibit 1 to Form 8-A filed with the Securities and Exchange
Commission on January 9, 1996.
(10) MATERIAL CONTRACTS
(a*) The CBS Corporation 1998 Executive Annual Incentive Plan is
incorporated herein by reference to Exhibit A to the
Corporation's Definitive Proxy Statement for the Annual
Meeting of Shareholders held on May 6, 1998, as filed with the
Commission on March 25, 1998.
(b*) The CBS Corporation Annual Performance Plan, as amended to
July 28, 1999, is incorporated herein by reference to Exhibit
10.19 to the report on Form 10-Q of Infinity Broadcasting
Corporation for the quarter ended September 30, 1999.
(c*) The CBS Corporation 1993 Long-Term Incentive Plan, as amended
to July 28, 1999, is incorporated herein by reference to
Exhibit 10.16 to the report on Form 10-Q of Infinity
Broadcasting Corporation for the quarter ended September 30,
1999.
(d*) The CBS Corporation 1991 Long-Term Incentive Plan, as amended
to July 28, 1999, is incorporated herein by reference to
Exhibit 10.15 to the report on Form 10-Q of Infinity
Broadcasting Corporation for the quarter ended September 30,
1999.
(e*) The CBS Corporation 1984 Long-Term Incentive Plan, as amended
to November 1, 1996, is incorporated herein by reference to
Exhibit 10(c) to Form 10-Q for the quarter ended September 30,
1996.
(f*) Amended and Restated Infinity Broadcasting Corporation Stock
Option Plan is incorporated herein by reference to Exhibit 4.4
to the Corporation's Registration Statement No. 333-13219 on
Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed
with the Securities and Exchange Commission on January 2,
1997.
(g*) The Westinghouse Executive Pension Plan, as amended as of July
28, 1999, is incorporated by reference to Exhibit 10.20 to the
report on Form 10-Q of Infinity Broadcasting Corporation for
the quarter ended September 30, 1999.
(h*) CBS Supplemental Executive Retirement Plan, as amended to
April 1, 1999.
(i*) CBS Bonus Supplemental Executive Retirement Plan, as amended
to April 1, 1999.
(j*) CBS Supplemental Employee Investment Fund, as amended as of
January 1, 1998.
(k*) The CBS Corporation Deferred Compensation and Stock Plan for
Directors, as amended as of July 28, 1999.
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(l*) The Corporation's Director's Charitable Giving Program, as
amended to April 30, 1996, is incorporated herein by reference
to Exhibit 10(g) to Form 10-Q for the quarter ended June 30,
1996.
(m*) The Corporation's Advisory Director's Plan Termination Fee
Deferral Terms and Conditions, dated April 30, 1996, is
incorporated herein by reference to Exhibit 10(i) to Form 10-Q
for the quarter ended June 30, 1996.
(n*) Employment Agreement between the Corporation and Mel Karmazin,
made as of June 20, 1996 and effective as of December 31,
1996, is hereby incorporated by reference to Exhibit 10(s) to
Form 10-Q for the quarter ended March 31, 1997.
(o*) Infinity Broadcasting Corporation Warrant Certificate No. 3 to
Mel Karmazin is incorporated herein by reference to Exhibit
4.6 to the Corporation's Registration Statement No. 333-13219
on Post-Effective Amendment No. 1 on Form S-8 to Form S-4
filed with the Securities and Exchange Commission on January
2, 1997.
(p*) Employment agreement between a subsidiary of the Corporation,
CBS Broadcasting Inc. (formerly CBS Inc.) and Leslie Moonves
entered into as of May 17, 1995, and amended as of January 20,
1998, is incorporated herein by reference to Exhibit 10(u) to
Form 10-K for the year ended December 31, 1997.
(q*) Amendment entered into as of July 5, 1999 to employment
agreement between CBS Broadcasting Inc. and Leslie Moonves
entered into as of May 17, 1995 as amended as of January 20,
1998.
(r*) Agreement between the Corporation and Fredric G. Reynolds
dated March 2, 1999 is incorporated herein by reference to
Exhibit 10(q) to Form 10-Q for the quarter ended March 31,
1999.
(s*) Agreement between the Corporation and Louis J. Briskman dated
March 2, 1999 is incorporated by reference to Exhibit 10(r) to
Form 10-Q for the quarter ended March 31, 1999.
(t*) The Infinity Broadcasting Corporation 1998 Long-Term Incentive
Plan, as amended to April 1, 1999, is incorporated by
reference to Exhibit 10.17 to the Infinity report on Form 10-Q
for the quarter ended September 30, 1999.
(u*) The Infinity Broadcasting Corporation Executive Annual
Incentive Plan is incorporated by reference to Exhibit 10.18
to the Infinity Registration Statement No. 333-63727 on Form
S-1, Amendment No. 4 filed with the SEC on December 4, 1998.
(v) The $5.5 billion Credit Agreement among the Corporation, the
Lenders parties thereto, NationsBank, N.A. and The
Toronto-Dominion Bank as Syndication Agents, The Chase
Manhattan Bank as Documentation Agent, and Morgan Guaranty
Trust Company of New York as Administrative Agent, dated
August 29, 1996, is incorporated herein by reference to
Exhibit 10(l) to Form 10-Q for the quarter ended September 30,
1996.
(w) First Amendment, dated as of January 29, 1997 to the Credit
Agreement, dated as of August 29, 1996, among CBS Corporation,
the Lenders parties thereto, NationsBank, N.A. and The
Toronto-Dominion Bank as Syndication Agents, The Chase
Manhattan Bank as Documentation Agent, and Morgan Guaranty
Trust Company of New York as Administrative Agent, is hereby
incorporated by reference to Exhibit 10(p) to Form 10-Q for
the quarter ended March 31, 1997.
(x) Second Amendment, dated as of March 21, 1997, to the Credit
Agreement, dated as of August 29, 1996, as amended by the
First Amendment thereto dated as of January 29, 1997, among
the Corporation, the Subsidiary Borrowers parties thereto, the
Lenders parties thereto, NationsBank, N.A. and The
Toronto-Dominion Bank as Syndication Agents, The Chase
Manhattan Bank as Documentation Agent, and Morgan Guaranty
Trust Company of New York as Administrative Agent, is hereby
incorporated by reference to Exhibit 10(q) to Form 10-Q for
the quarter ended March 31, 1997.
(y) Third Amendment dated as of March 3, 1998, to the Credit
Agreement dated as of August 29,
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1996, as amended by the First Amendment thereto dated as of
January 29, 1997, as amended by the Second Amendment thereto
dated as of March 21, 1997 among the Corporation, the
Subsidiaries Borrowers parties thereto, the Lenders parties
thereto, NationsBank, N.A. and The Toronto-Dominion Bank as
Syndication Agents, The Chase Manhattan Bank as Documentation
Agent, and Morgan Guaranty Trust Company of New York as
Administrative Agent is incorporated by reference to
Exhibit 10(x) to Form 10-Q for the quarter ended March 31,
1998.
(z) Fourth Amendment, dated as of February 26, 1999, to the CBS
Corporation Credit Agreement, dated as of August 29, 1996, as
amended by the First, Second, and Third Amendments, dated
January 29, 1997, March 21, 1997 and March 3, 1999,
respectively, among CBS Corporation, the Subsidiary Borrowers
parties thereto, the Lenders parties thereto, Nationsbank,
N.A. and The Toronto-Dominion Bank as Syndication Agents, The
Chase Manhattan Bank as Documentation Agent, and Morgan
Guaranty Trust Company of New York as Administrative Agent is
incorporated by reference to Exhibit 10.9 to Form 10-Q of
Infinity Broadcasting Corporation for the quarter ended March
31, 1999.
(aa) Asset Purchase Agreement, dated June 25, 1998, between the
Corporation and WGNH Acquisition, LLC, an entity owned 60
percent by Morrison Knudson Corporation and 40 percent by BNFL
USA Group, Inc., relating to the Corporation's Energy Systems
Business Unit is incorporated by reference to Exhibit 10(w) to
Form 10-Q for the quarter ended June 30, 1998.
(bb) Asset Purchase Agreement, dated June 25, 1998, between the
Corporation and WGNH Acquisition, LLC, an entity owned 60
percent by Morrison Knudson Corporation and 40 percent by BNFL
USA Group, Inc., relating to the Corporation's Government and
Environmental Services Company is incorporated by reference to
Exhibit 10(x) to Form 10-Q for the quarter ended June 30,
1998.
(cc) Intercompany Agreement between the Corporation and Infinity
Broadcasting Corporation dated as of December 15, 1998 is
incorporated by reference to Exhibit 10(x) to Form 10-K for
the year ended December 31, 1998.
(dd) Tax Sharing Agreement between the Corporation and Infinity
Broadcasting Corporation dated as of December 15, 1998 is
incorporated by reference to Exhibit 10(y) to Form 10-K for
the year ended December 31, 1998.
(ee) Agreement and Plan of Merger, dated as of March 31, 1999, by
and among King World Productions, Inc., the Corporation and K
Acquisition Corp. is incorporated herein by reference to
Exhibit 2.1 to the report on Form 8-K of King World
Productions, Inc. filed with the SEC on April 1, 1999.
(ff) Amendment No. 1, dated as of September 8, 1999, to the
Agreement and Plan of Merger, dated as of March 31, 1999, by
and among King World Productions, Inc., the Corporation and K
Acquisition Corp., is incorporated herein by reference to
Exhibit 2.1 to the report on Form 8-K filed with the SEC on
September 15, 1999.
(gg) Stockholders Agreement dated as of March 31, 1999, among the
Corporation and the stockholders named therein, is
incorporated by reference to the Registration Statement No.
333-84761 on Form S-4 filed with the SEC on August 9, 1999.
(hh) Amendment No. 1, dated as of June 1, 1999, to the Stockholders
Agreement dated as of March 31, 1999, among the Corporation
and the stockholders named therein, is incorporated by
reference to the Registration Statement No. 333-84761 on Form
S-4 filed with the SEC on August 9, 1999.
(ii) Amendment No. 2, dated as of October 5, 1999, to the
Stockholders Agreement dated as of March 31, 1999, among the
Corporation and the stockholders named therein, is
incorporated by reference to Post-Effective Amendment No. 1 to
the Registration Statement No. 333-84761 on Form S-4 filed
with the SEC on November 5, 1999.
(jj) Voting Agreement, dated as of September 6, 1999, between
National Amusements, Inc. and the Corporation, is incorporated
by reference to Exhibit 99.2 to the report on Form 8-K filed
with the SEC on September 8, 1999.
(kk) Stockholder Agreement, dated as of September 6, 1999, between
National Amusements, Inc. and the Corporation, is incorporated
by reference to Exhibit 99.3 to the report on Form 8-K filed
with the SEC on September 8, 1999.
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(ll) Agreement and Plan of Merger, dated as of May 27, 1999, among
Infinity Broadcasting Corporation, Burma Acquisition Corp. and
Outdoor Systems, Inc., is incorporated herein by reference to
Exhibit 99.1 to the report on Form 8-K of Outdoor Systems,
Inc., filed with the SEC on June 3, 1999.
(mm) Amendment No. 1, dated as of June 16, 1999, to the Agreement
and Plan of Merger, dated as of May 27, 1999, among Infinity
Broadcasting Corporation, Burma Acquisition Corp. and Outdoor
Systems, Inc., is incorporated herein by reference to Exhibit
99.2 to Infinity Broadcasting Corporation's report on Form
8-K, filed with the SEC on June 25, 1999.
(nn) Stockholders Agreement, dated as of May 27, 1999, among
Infinity Broadcasting Corporation, William S. Levine, Arturo
R. Moreno, Carole D. Moreno, Levine Investments Limited
Partnership and BRN Properties Limited Partnership, is
incorporated herein by reference to Exhibit 99.2 to the report
on Form 8-K of Outdoor Systems, Inc., filed with the SEC on
June 3, 1999.
(oo) Amendment No. 1, dated July 15, 1999, to the Stockholders
Agreement dated May 27, 1999 among the Corporation and the
stockholders named in the agreement is incorporated by
reference to Exhibit 24 to Registration Statement No.
333-88363 on Form S-4 filed by Infinity Broadcasting
Corporation with the SEC on October 4, 1999.
(pp) Voting Agreement, dated as of May 27, 1999, between CBS
Broadcasting Inc. and Outdoor Systems, Inc., is incorporated
herein by reference to Exhibit 99.3 to the report on Form 8-K
of Outdoor Systems, Inc., filed with the SEC on June 3, 1999.
(qq) Amended and Restated Agreement and Plan of Merger dated as of
October 8, 1999 between the Corporation and Viacom Inc. is
incorporated herein by reference to Exhibit 2 to Form 8-K
dated October 12, 1999.
(rr*) Letter Agreement, dated as of September 6, 1999, between
Viacom Inc. and Mel Karmazin, is incorporated by reference to
Exhibit 99.4 to the report on Form 8-K filed with the SEC on
September 8, 1999.
(27) FINANCIAL DATA SCHEDULE
- --------
* Identifies management contract or compensatory plan or arrangement.
B) REPORTS ON FORM 8-K
A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and
Exchange Commission on July 30, 1999, filing a press release announcing the
election of Leslie Moonves to the Board of Directors, effective July 28, 1999.
A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and
Exchange Commission on August 4, 1999, filing a press release concerning the
Corporation's earnings for the second quarter of 1999 and financial information
for the three months ended June 30, 1999.
A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and
Exchange Commission on September 8, 1999, filing an Agreement and Plan of Merger
between Viacom Inc., and CBS Corporation.
A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and
Exchange Commission on September 15, 1999, filing Amendment No. 1 to an
Agreement and Plan of Merger between King World Productions, Inc. and CBS
Corporation.
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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 12th day of November 1999.
CBS CORPORATION
By: /s/ ROBERT G. FREEDLINE
--------------------------------------
ROBERT G. FREEDLINE
VICE PRESIDENT AND
CONTROLLER
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