1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-977
WESTINGHOUSE ELECTRIC CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0877540
------------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
Westinghouse Building, 11 Stanwix Street, Pittsburgh, Pa. 15222-1384
--------------------------------------------------------------------
(Address of principal executive offices, zip code)
(412) 244-2000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Common stock 358,007,780 shares outstanding at March 31, 1995
-------------------------------------------------------------
2
WESTINGHOUSE ELECTRIC CORPORATION
INDEX
---------------------------------
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Condensed Consolidated Balance Sheet 4
Condensed Consolidated Statement of Cash Flows 5
Notes to the Condensed Consolidated
Financial Statements 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 14-25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26-27
Item 6. Exhibits and Reports on Form 8-K 27-28
SIGNATURE 29
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
------------------------------------------
(in millions except per share amounts) (unaudited)
Three Months Ended March 31
---------------------------
1995 1994
---- ----
Sales of products and services $ 2,024 $ 1,743
Costs of products and services (1,530) (1,349)
Marketing, administration and general expenses (407) (329)
Other income and expenses, net (note 2) (2) 39
Interest expense (58) (47)
------- -------
Income from Continuing Operations before
income taxes and minority interest in income
of consolidated subsidiaries 27 57
Income taxes (10) (22)
Minority interest in (income) loss of consolidated
subsidiaries (2) 1
------- -------
Net income $ 15 $ 36
======= =======
Earnings per common share $ 0.01 $ 0.07
======= =======
Cash dividends per common share $ 0.05 $ 0.05
======= =======
See Notes to the Condensed Consolidated Financial Statements
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WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in millions)
March 31, 1995 December 31, 1994
ASSETS -------------- -----------------
- ------ (unaudited)
Cash and cash equivalents $ 291 $ 338
Customer receivables 1,462 1,553
Inventories (note 3) 1,516 1,541
Uncompleted contracts costs over related billings 738 555
Deferred income taxes 543 524
Prepaid and other current assets 267 209
------- -------
Total current assets 4,817 4,720
Plant and equipment, net 1,768 1,898
Intangible and other noncurrent assets (note 4) 3,561 3,572
Net assets of Discontinued Operations (note 6) 434 434
------- -------
Total assets $10,580 $10,624
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Revolving credit borrowings and
other short-term debt $ 814 $ 662
Current maturities of long-term debt 17 17
Accounts payable 704 831
Uncompleted contracts billings over related costs 471 473
Other current liabilities (note 5) 1,668 1,726
------- -------
Total current liabilities 3,674 3,709
Long-term debt 1,884 1,886
Other noncurrent liabilities (note 5) 3,208 3,207
------- -------
Total liabilities 8,766 8,802
------- -------
Contingent liabilities and commitments (note 7)
Minority interest in equity of consolidated
subsidiaries 33 30
Shareholders' equity (note 8):
Preferred stock, $1.00 par value (25 million
shares authorized):
Series A preferred (no shares issued) - -
Series B conversion preferred (8 million
shares issued) 8 8
Series C conversion preferred (4 million
shares issued) 4 4
Common stock, $1.00 par value (480 million
shares authorized, 393 million shares issued) 393 393
Capital in excess of par value 1,924 1,932
Common stock held in treasury (845) (870)
Other (1,001) (1,000)
Retained earnings 1,298 1,325
------- -------
Total shareholders' equity 1,781 1,792
------- -------
Total liabilities and shareholders' equity $10,580 $10,624
======= =======
See Notes to the Condensed Consolidated Financial Statements
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WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(in millions) (unaudited)
Three Months Ended March 31
---------------------------
1995 1994
---- ----
Cash used by operating activities
of Continuing Operations $ (112) $ (168)
Cash used by operating activities
of Discontinued Operations (25) (75)
Cash flows from investing activities:
Business divestitures 6 50
Business acquisitions (22) -
Liquidation of assets of Discontinued Operations 97 1,505
Capital expenditures (38) (35)
Other - (1)
------- -------
Cash provided by investing activities 43 1,519
------- -------
Cash flows from financing activities:
Bank revolver borrowings 175 -
Bank revolver repayments (117) (2,155)
Net change in other short-term debt 15 10
Repayments of long-term debt (5) (9)
Sale of equity securities - 505
Treasury stock reissued 17 17
Dividends paid (42) (30)
Other - 14
------- -------
Cash provided (used) by financing activities 43 (1,648)
------- -------
Decrease in cash and cash equivalents (51) (372)
Cash and cash equivalents at beginning of period 344 1,248
------- -------
Cash and cash equivalents at end of period $ 293 $ 876
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid -- Continuing Operations $ 47 $ 44
======= =======
Interest paid -- Discontinued Operations $ 22 $ 53
======= =======
Income taxes paid $ 29 $ 58
======= =======
See Notes to the Condensed Consolidated Financial Statements
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WESTINGHOUSE ELECTRIC CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------
1. GENERAL
The condensed consolidated financial statements include the accounts of
Westinghouse Electric Corporation (Westinghouse) and its subsidiary companies
(together, the Corporation) after elimination of intercompany accounts and
transactions.
In the opinion of the management of the Corporation, 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.
When reading the financial information contained in this Quarterly Report,
reference should be made to the financial statements, schedules and notes
contained in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1994. Certain amounts pertaining to the three months ended March
31, 1994 and year ended December 31, 1994 have been reclassified for
comparative purposes.
2. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended March 31
---------------------------
1995 1994
---- ----
Net gain (loss) on disposition of assets $ (7) $ 35
Miscellaneous other income and expenses, net 5 4
---- ----
Other income (expenses), net $ (2) $ 39
==== ====
The net gain on disposition of assets for the three months ended March 31, 1994
includes a gain of $32 million from the sale of two Sacramento radio stations.
3. INVENTORIES (in millions)
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
Raw materials $ 169 $ 158
Work in process 1,093 1,065
Finished goods 139 156
------- -------
1,401 1,379
Long-term contracts in process 943 877
Progress payments to subcontractors 95 97
Recoverable engineering and development costs 484 437
Less: Inventoried costs related to contracts
with progress billing terms (1,407) (1,249)
------- -------
Inventories $ 1,516 $ 1,541
======= =======
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4. INTANGIBLE AND OTHER NONCURRENT ASSETS (in millions)
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
Deferred income taxes $ 1,520 $ 1,516
Goodwill and other intangible assets 1,023 1,119
Intangible pension asset 114 114
Undeveloped land 250 244
Joint ventures, affiliates, and other 189 100
Noncurrent receivables 127 147
Other 338 332
--------- ---------
Total intangible and other noncurrent assets $ 3,561 $ 3,572
========= =========
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
March 31, 1995 December 31, 1994
-------------- -----------------
(unaudited)
Other current liabilities:
- -------------------------
Accrued employee compensation $ 178 $ 198
Income taxes currently payable 200 241
Accrued product warranty 79 82
Accrued taxes, interest and insurance 320 270
Accrued restructuring costs 154 180
Liability for business dispositions 110 112
Other 627 643
--------- ---------
Total other current liabilities $ 1,668 $ 1,726
========= =========
Other noncurrent liabilities:
- ----------------------------
Postretirement and postemployment benefits $ 1,270 $ 1,265
Pension liability 1,248 1,174
Accrued restructuring costs 8 8
Liability for business dispositions 75 75
Other 607 685
--------- ---------
Total other noncurrent liabilities $ 3,208 $ 3,207
========= =========
6. DISCONTINUED OPERATIONS
In November 1992, the Corporation announced a Plan (the Plan) that included
exiting the financial services business and the sales of the Distribution and
Control Business Unit (DCBU) and Westinghouse Electric Supply Company (WESCO).
In the first quarter of 1994, the Corporation completed the sales of DCBU and
WESCO for proceeds in excess of $1.1 billion and approximately $340 million,
respectively.
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OPERATING RESULTS OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
Three Months Ended March 31
---------------------------
1995 1994*
Sales of Products and Services ---- ----
- ------------------------------
Financial Services $ 8 $ 14
DCBU and WESCO - 319
----- -----
Sales of Products and Services $ 8 $ 333
===== =====
Net Earnings (Losses)
- ---------------------
Financial Services $ (18) $ (69)
DCBU and WESCO - 4
----- -----
Net Losses $ (18) $ (65)
===== =====
*Operating results of Discontinued Operations for DCBU and WESCO for the three
months ended March 31, 1994 included the operating results of DCBU for the one
month ended January 31, 1994 and the operating results of WESCO for the two
months ended February 28, 1994, their respective dates of sale.
The assets and liabilities of Discontinued Operations have been separately
classified in the Condensed Consolidated Balance Sheet as net assets of
Discontinued Operations. A summary of these assets and liabilities follows:
NET ASSETS OF DISCONTINUED OPERATIONS
(in millions) March 31, 1995 December 31, 1994*
-------------- -----------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 2 $ 6
Portfolio investments 1,140 1,230
Deferred income taxes 385 340
Other assets 186 221
------ ------
Total assets -- Discontinued Operations 1,713 1,797
------ ------
LIABILITIES:
Revolving credit facilities borrowings 298 374
Current maturities of long-term debt 299 230
Liability for estimated loss on disposal 112 145
Long-term debt 493 568
Other liabilities 77 46
------ ------
Total liabilities -- Discontinued Operations 1,279 1,363
------ ------
Net assets of Discontinued Operations $ 434 $ 434
====== ======
*Certain amounts have been reclassified for comparative purposes.
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PORTFOLIO INVESTMENTS
Portfolio investments by category of investment and financing at March 31, 1995
and December 31, 1994 are summarized in the following table.
At March 31, 1995
---------------------------------------
Real
(in millions) (unaudited) Leasing Estate Corporate Total
------- ------ --------- -----
Receivables $ 879 $ 17 $ 3 $ 899
Other portfolio investments 38 202 1 241
------ ------ ------ ------
Portfolio investments $ 917 $ 219 $ 4 $1,140
====== ====== ====== ======
At December 31, 1994
---------------------------------------
Real
(in millions) Leasing Estate Corporate Total
------- ------ --------- -----
Receivables $ 886 $ 18 $ 9 $ 913
Other portfolio investments 38 279 - 317
------ ------ ------ ------
Portfolio investments $ 924 $ 297 $ 9 $1,230
====== ====== ====== ======
Other portfolio investments at March 31, 1995 and December 31, 1994 included
the Corporation's investment in LW Real Estate Investments, L.P. (LW) of $47
million and $133 million respectively, real estate properties of $86 million
and $88 million, respectively, and other investments of $108 million and $96
million, respectively, primarily consisting of investments in real estate and
leasing partnerships. The remaining portfolio investments, other than the
leasing assets, are expected to be substantially liquidated by the end of 1995.
The leasing portfolio is expected to liquidate through 2015 in accordance with
contractual terms.
Non-earning receivables at March 31, 1995 and December 31, 1994 totalled $25
million and $30 million, respectively. There were no reduced earning
receivables at either date.
Leasing receivables consist of direct financing and leveraged leases. At March
31, 1995 and December 31, 1994, 80% and 81%, respectively, related to air-
craft and 19% and 18%, respectively, related to cogeneration facilities.
Certain leasing receivables classified as performing and totalling $137 million
at March 31, 1995 have been identified by management as potential problem
receivables. This amount consists primarily of leveraged leases related to
aircraft leased by major U.S. airlines. Such leasing receivables were current
as to payments and performing in accordance with contractual terms at March 31,
1995.
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL
The following table is a reconciliation of the liability for the estimated loss
on disposal of Discontinued Operations from December 31, 1994 to March 31,
1995:
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LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
(in millions)(unaudited)
Financial DCBU & Restruc-
Services WESCO turing Total
--------- ------ -------- --------
December 31, 1994 $ 80 $ 60 $ 5 $ 145
Year-to-date activity (24) (9) - (33)
--------- ------ -------- --------
March 31, 1995 $ 56 $ 51 $ 5 $ 112
========= ====== ======== ========
Management believes that the liability for the estimated loss on disposal of
Discontinued Operations is adequate. Any variances from estimates which may
occur for one Plan component will be considered in conjunction with those for
other components in determining whether an adjustment of the total liability is
necessary. The adequacy of this liability is evaluated each quarter.
7. CONTINGENT LIABILITIES AND COMMITMENTS
Uranium Settlements
- -------------------
The Corporation had previously provided for the estimated future costs for the
resolution of all uranium supply contract suits and related litigation. The
remaining uranium reserve balance includes assets required for certain
settlement obligations and reserves for estimated future costs. The reserve
balance at March 31, 1995 is deemed adequate considering all facts and
circumstances known to management. The future obligations require providing
the remainder of the fuel deliveries running through 2013 and the supply of
equipment and services through approximately 1995. Variances from estimates
which may occur are considered in determining if an adjustment of the liability
is necessary.
Litigation
- ----------
Philippines
In December 1988, a 15-count lawsuit was filed against the Corporation alleging
bribery and other fraudulent conduct in connection with the construction of a
nuclear power plant in the Philippines. Of the 15 claims, 14 were stayed
pending arbitration before the International Chamber of Commerce (ICC). With
respect to the remaining count alleging bribery, a jury verdict was rendered in
favor of the Corporation on May 18, 1993 and was appealed by the Republic of
the Philippines on March 24, 1995. A similar finding was made by the ICC in
1991. Arbitration proceedings before the ICC on issues relating to the
construction of the plant were concluded in October 1994, and the parties await
a decision.
Steam Generators
The Corporation has been defending various lawsuits brought by utilities
claiming a substantial amount of damages in connection with alleged tube
degradation in steam generators sold by the Corporation as components of
nuclear steam supply systems. Settlement agreements have been entered
resolving six litigation claims. These agreements generally involve providing
certain products and services at prices discounted at varying rates. Two cases
were resolved in favor of the Corporation after trial or arbitration, although
an appeal has been filed in one of the cases. Four lawsuits are pending.
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The Corporation is also a party to six tolling agreements with utilities or
utility plant owners' groups. The tolling agreements delay initiation of any
litigation for various specified periods of time and permit the parties time to
engage in discussions.
Securities Class Actions - Financial Services
The Corporation is defending derivative and class action lawsuits alleging
federal securities law and common law violations arising out of purported
misstatements or omissions contained in the Corporation's public filings
concerning the financial condition of the Corporation and certain of its former
subsidiaries in connection with charges to earnings of $975 million in 1990 and
$1,680 million in 1991 and a public offering of Westinghouse common stock in
1991. The court dismissed both the derivative claim and the class action
claims in their entirety. These dismissals have been appealed.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in each of the foregoing cases and although
management believes a significant adverse judgment is unlikely, any such
judgment could have a material adverse effect on the Corporation's results of
operations for a quarter or a year. However, based on its understanding and
evaluation of the relevant facts and circumstances, management believes that
the Corporation has meritorious defenses to the litigation described above, and
management believes that the litigation should not have a material adverse
effect on the financial condition of the Corporation.
Environmental Matters
- ---------------------
Compliance with federal, state and local regulations relating to the discharge
of substances 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. While 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, technology and information available for
individual sites, management has estimated the total probable and reasonably
possible remediation costs that could be incurred by the Corporation based on
the facts and circumstances currently known.
PRP Sites
With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named as a potentially responsible party (PRP) at numerous
sites located throughout the country. At many of these sites, the Corporation
is either not a responsible party or its site involvement is very limited or de
minimis. However, the Corporation may have varying degrees of cleanup
responsibilities at 54 sites. With regard to cleanup costs at these sites, in
many cases the Corporation will share these costs with other responsible
parties and the Corporation believes that any liability incurred will be
satisfied over a number of years. Management believes that the Corporation's
total remaining probable costs for remediation of these sites as of March 31,
1995 are approximately $82 million, all of which has been accrued.
Bloomington Sites
The Corporation is a party to a 1985 Consent Decree relating to remediation of
six sites in Bloomington, Indiana and has additional responsibility for two
other sites in Bloomington. In the Consent Decree, the Corporation agreed to
construct and operate an incinerator, which would be permitted under federal
and state law, to burn excavated material.
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On February 8, 1994, the Consent Decree parties filed with the court a status
report advising of the parties' intention to investigate alternatives. The
Corporation believes it is probable that the Consent Decree will be modified to
an alternate remedial action, which could include a combination of containment,
treatment, remediation and monitoring. As a result, the Corporation estimates
that its cost to implement the most reasonable and likely alternative would
total approximately $70 million for the eight sites, all of which has been
accrued. Approximately $18 million of this estimate represents the present
value, assuming a 5% discount rate, of operating and maintenance costs which
will be incurred over an approximate 30-year period. The remaining portion of
the $70 million estimate represents site construction and other related costs
and is valued as of the year of expenditure. Other alternatives, while
considered less likely, could cause such costs to be as much as $125 million.
The Corporation has received approval from the Environmental Protection Agency
(EPA) to begin removal of materials from one of the additional sites not part
of the Consent Decree to a commercial landfill. The Corporation anticipates
this removal of materials to commence in the second quarter of 1995. The
Corporation has requested approval from the EPA for removal of materials from
the second site.
The parties recognize that at the end of the process, they may conclude that
the remedy currently provided in the Consent Decree is the most appropriate.
The parties also recognize that the Consent Decree shall remain in full force
during this process.
Other
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 insignificant.
The Corporation currently manages under contract several government-owned
facilities, which among other things are engaged in the remediation of
hazardous and nuclear wastes. To date, under the terms of the contracts, the
Corporation is not responsible for costs associated with environmental
liabilities, including environmental cleanup costs, except under certain
circumstances associated with negligence and willful misconduct. There are
currently no material claims for which the Corporation believes it is
responsible. In 1994, the U.S. Department of Energy (DOE) announced its
intention to renegotiate its existing contracts for maintenance and operation
of DOE facilities consistent with contract reform.
The Corporation has or will have responsibilities for environmental closure
activities, such as dismantling incinerators or decommissioning nuclear
licensed sites. The Corporation has estimated the total potential cost to be
incurred for these actions to be approximately $97 million, of which $29
million had been accrued at March 31, 1995. The Corporation's policy is to
accrue these costs over the estimated life of the individual facilities, which
in most cases is approximately 20 years. The anticipated annual costs
currently being accrued are $5 million.
As part of the agreement for the sales of certain of its businesses or sites,
the Corporation has agreed to assume obligations for remediation as a result of
contamination caused during the Corporation's operation of the sites. The
Corporation has provided for all known environmental liabilities related to
these agreements.
Management believes 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.
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Insurance Recoveries
- --------------------
The Corporation has filed actions against over 100 of its insurance carriers
seeking recovery for environmental, product and property damage liabilities,
and certain other matters. The Corporation has settled with several of these
carriers and has received recoveries related to these actions. Amounts
received to date generally have been applied to cover obligations assumed
through the settlements or litigation costs. The Corporation has not accrued
for any future insurance recoveries.
Financing Commitments -- Continuing Operations
- ----------------------------------------------
WCI Communities, Inc. (WCI) was contingently liable at March 31, 1995 under
guarantees for $56 million of sewer and water district borrowings. The
proceeds of the borrowings were used for sewer and water improvements on
residential and commercial real estate projects of WCI. Management expects
these borrowings to be repaid as the projects are completed and sold, and the
guarantees for such borrowings to expire unfunded.
In the ordinary course of business, standby letters of credit are issued by
commercial banks on behalf of the Corporation related to performance
obligations primarily under contracts with customers.
Financing Commitments -- Discontinued Operations
- ------------------------------------------------
Financial Services commitments with off-balance-sheet credit risk represent
financing commitments to provide funds, including loan or investment
commitments, guarantees, standby letters of credit and standby commitments,
generally in exchange for fees. The remaining commitments have fixed
expiration dates from 1995 through 2002.
At March 31, 1995, Financial Services commitments totalled $79 million compared
to $80 million at year-end 1994. Of this amount, $70 million were guarantees,
credit enhancements and other standby agreements, and $9 million were
commitments to extend credit. Of the $80 million of commitments at year-end
1994, $71 million were guarantees, credit enhancements and other standby
agreements and $9 million were commitments to extend credit. Management
expects the remaining commitments to either expire unfunded, be assumed by the
purchaser in asset dispositions or be funded with the resulting assets being
sold shortly after funding.
8. SHAREHOLDERS' EQUITY
In March 1994, the Corporation issued 36,000,000 depositary shares each
representing ownership of one-tenth of a share of the Corporation's Series C
Conversion Preferred Stock (Series C Preferred). Each depositary share will
automatically convert into one share of common stock on June 1, 1997 unless
called on May 30, 1997 by the Corporation or redeemed at any time prior to June
1 by the holder. In accordance with prevalent practice at the time of
issuance, these shares were treated as outstanding common stock for the
calculation of earnings per share. If the Series C Preferred had been treated
as common stock equivalents for the calculation of earnings per share, the
Corporation's results would have been a loss of $.03 per share for the first
quarter of 1995 compared to income of $.07 per share for the first quarter of
1994.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Orders in the first quarter of 1995 totalled $2.4 billion. Compared to the
same quarter last year, orders increased 17 percent led by Power Generation and
Electronic Systems. Backlog increased almost $900 million to $10.7 billion.
Revenues for the quarter increased $281 million, or 16 percent, to $2.0
billion, led by Electronic Systems, Thermo King and Power Generation.
Operating profit for the quarter increased $22 million to $87 million compared
to $65 million for the first quarter of last year. The increase in operating
profit was more than offset by a substantial decrease in other income and
higher interest expense.
Net income for the first quarter of 1995 was $15 million, or 1 cent per share,
compared to net income of $36 million, or 7 cents per share, for the same
period last year.
During 1995, the Corporation will continue the divestitures of its
non-strategic businesses as well as explore strategic opportunities to expand
and grow its core businesses. The Corporation is evaluating alternative
strategies for monetizing WCI in the near term. Alternatives include divesting
the business, leveraging its assets, and other strategies.
RESTRUCTURING ACTIONS
The Corporation is committed to strengthening its core businesses and improving
its profitability through certain restructuring actions including changes in
business and product line strategies, as well as downsizing for process
reengineering and productivity improvements.
Progress continued on implementation of the Corporation's restructuring
programs initiated in 1993 and 1994. These programs included the involuntary
separation of approximately 4,600 employees by the end of 1995. During the
first quarter of 1995, 300 employees were involuntarily separated, bringing the
program-to-date separations to approximately 4,000. The remaining employees to
be separated generally have been notified and are expected to be separated
within the next several months.
Expected costs for these programs totalled $463 million, consisting of $276
million for employee separation costs, $22 million for a noncash pension
curtailment charge, $100 million for asset writedowns, and $65 million for
facility closure and rationalization costs. Through March 31, 1995,
expenditures totalled $301 million. Approximately half of the remaining
expenditures represent employee separation costs, which generally are paid over
a period of up to two years following separation. A portion of the other
remaining expenditures relates to a major product line that Knoll will
discontinue in June 1995.
Savings resulting from implementing these programs are expected to total $170
million annually, primarily related to reduced employment costs. During the
first quarter of 1995, actual savings approximated $35 million. Competitive
pressures causing price compression in certain of the Corporation's markets
have absorbed a significant portion of these savings.
The Corporation expects to continue to identify restructuring initiatives as
competitive conditions dictate in an ongoing effort to reduce its overall cost
structure and improve its competitiveness.
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RESULTS OF OPERATIONS
The following represents the segment results of the Corporation's Continuing
Operations for the three months ended March 31, 1995 and 1994.
Segment Results ($ in millions)(unaudited)
------------------------------------------
Three Months Ended March 31,
1995 1994 % Change
---- ---- --------
Broadcasting:
Orders $ 202.2 $ 190.5 6.1%
Backlog - - -
Sales 202.2 190.5 6.1%
Operating Profit (Loss) 35.0 33.7 3.9%
Operating Profit Margin 17.3% 17.7% N/A
Depreciation &
Amortization (D&A) 9.7 9.2 5.4%
Capital Expenditures 3.1 5.4 -42.6%
Electronic Systems:
Orders $ 553.0 $ 386.9 42.9%
Backlog 3,811.0 3,773.8 1.0%
Sales 607.4 449.9 35.0%
Operating Profit (Loss) 36.7 39.4 -6.9%
Operating Profit Margin 6.0% 8.8% N/A
D&A 21.7 18.6 16.7%
Capital Expenditures 6.0 7.2 -16.7%
Government and
Environmental Services:
Orders $ 61.6 $ 67.6 -8.9%
Backlog 121.6 86.3 40.9%
Sales 85.9 83.8 2.5%
Operating Profit (Loss) 12.2 10.0 22.0%
Operating Profit Margin 14.2% 11.9% N/A
D&A 4.9 5.6 -12.5%
Capital Expenditures 6.0 1.4 328.6%
Thermo King:
Orders $ 312.3 $ 248.0 25.9%
Backlog 316.4 223.2 41.8%
Sales 273.3 186.8 46.3%
Operating Profit (Loss) 42.9 26.8 60.1%
Operating Profit Margin 15.7% 14.3% N/A
D&A 4.1 3.7 10.8%
Capital Expenditures 5.6 3.8 47.4%
Energy Systems:
Orders $ 377.1 $ 368.3 2.4%
Backlog 2,782.2 2,682.1 3.7%
Sales 251.5 236.0 6.6%
Operating Profit (Loss) (12.4) (8.3) -49.4%
Operating Profit Margin -4.9% -3.5% N/A
D&A 13.2 13.6 -2.9%
Capital Expenditures 5.0 7.2 -30.6%
-15-
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Segment Results ($ in millions)(unaudited)(continued)
-----------------------------------------------------
Three Months Ended March 31,
1995 1994 % Change
---- ---- --------
Power Generation:
Orders $ 579.1 $ 463.2 25.0%
Backlog 2,938.7 2,185.5 34.5%
Sales 322.4 291.6 10.6%
Operating Profit (Loss) (33.0) (25.9) -27.4%
Operating Profit Margin -10.2% -8.9% N/A
D&A 11.2 11.9 -5.9%
Capital Expenditures 4.2 7.8 -46.2%
Knoll:
Orders $ 140.6 $ 117.3 19.9%
Backlog 87.6 104.3 -16.0%
Sales 147.5 117.5 25.5%
Operating Profit (Loss) 6.4 (15.0) 142.7%
Operating Profit Margin 4.3% -12.8% N/A
D&A 6.9 7.3 -5.5%
Capital Expenditures 2.2 1.2 83.3%
WCI:
Orders $ 57.0 $ 56.2 1.4%
Backlog - - -
Sales 57.0 56.2 1.4%
Operating Profit (Loss) 11.9 12.9 -7.8%
Operating Profit Margin 20.9% 23.0% N/A
D&A 0.4 0.4 0.0%
Capital Expenditures 0.7 0.2 250.0%
Other Businesses:
Orders $ 89.7 $ 128.3 -30.1%
Backlog 647.9 758.9 -14.6%
Sales 100.8 130.5 -22.8%
Operating Profit (Loss) (4.4) (13.1) N/A%
Operating Profit Margin -4.4% -10.0% N/A
D&A 2.8 3.5 -20.0%
Capital Expenditures 1.2 0.7 71.4%
Corporate and Other:
Orders $ 25.6 $ 25.4 0.8%
Backlog 70.4 73.7 -4.5%
Sales 22.2 34.5 -35.7%
Operating Profit (Loss) (8.0) 4.9 N/A
Operating Profit Margin -36.0% 14.2% N/A
D&A 5.4 7.7 -29.9%
Capital Expenditures 3.9 0.2 N/A
Intersegment:
Orders $ (42.0) $ (38.0) -10.5%
Backlog (40.4) (33.4) -21.0%
Sales (46.5) (34.6) -34.4%
Total - Continuing Operations:
Orders $ 2,356.2 $2,013.7 17.0%
Backlog 10,735.4 9,854.4 8.9%
Sales 2,023.7 1,742.7 16.1%
Operating Profit (Loss) 87.3 65.4 33.5%
Operating Profit Margin 4.3% 3.7% N/A
D&A 80.3 81.5 -1.5%
Capital Expenditures 37.9 35.1 8.0%
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Broadcasting
Broadcasting sales and operating profit were up $12 million and $1 million,
respectively, in the first quarter of 1995 compared to the same period last
year. Higher television and radio advertising revenues, coupled with
productivity improvements from cost reduction programs, generated the increased
Broadcasting revenues and profits during the first quarter of 1995. Increased
costs for two new television programs under development by the production
company partially offset the higher radio and television results. Group W
Satellite Communications also showed a slight increase in revenues and
operating profit despite the negative impact of the national baseball strike on
the quarter.
Electronic Systems
Orders for the first quarter of 1995 were up $166 million over the same quarter
of 1994. A submarine propulsion system and a classified space project were two
significant orders in the quarter. Backlog at March 31, 1995 reached $3.8
billion, up slightly from the first quarter of 1994, and included approximately
$196 million for Norden Systems, the unit acquired from United Technologies
Corporation in May 1994.
The Corporation's Norden acquisition coupled with increased revenues from air
traffic control and anti-submarine warfare contracts contributed to an increase
in revenues of $158 million for the first quarter of 1995 compared to the same
quarter last year. Despite the higher revenues, operating profit for the first
quarter of 1995 declined $3 million because of lower margins from an
unfavorable product mix and a lower level of contract claims in 1995. Savings
from restructuring initiatives partially offset these unfavorable factors.
Government and Environmental Services
Orders were down slightly for the quarter primarily due to a decrease in
material orders for the U.S. Navy. Backlog was $35 million higher at March 31,
1995 compared to the prior year due to the buildup of container orders in late
1994, several government remediation contracts, and a large material order for
the U.S. Navy.
The early completion of milestones at a Department of Energy site caused
revenues and operating profit to increase for the first quarter of 1995
compared to the same period in 1994.
A Westinghouse subsidiary is a key member of the Kaiser-Hill Company team,
which recently won the five-year contract to clean up the Department of
Energy's Rocky Flats plant near Denver.
Thermo King
Thermo King posted another strong quarter. Orders rose $64 million and backlog
increased $93 million reflecting the improving truck and trailer market in
Europe and the continued strength of the truck and trailer market for North
America.
Revenues increased $87 million for the quarter due to these market
improvements. In addition, sea-going container sales nearly doubled in the
quarter. The volume increases and the product cost improvement programs
increased operating profit $16 million, or 60 percent, for the quarter.
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Energy Systems
Orders and backlog showed slight gains in the first quarter of 1995 compared to
the same quarter of 1994. Backlog at March 31, 1995 reached $2.8 billion.
Revenues for the quarter increased $16 million, or 7 percent. Increased
service revenues from planned power plant outages were partially offset by
decreased licensee income and additional price discounts from previous
settlement agreements.
The operating loss for the first quarter of 1995 increased by $4 million
compared to the same quarter last year. Margins from increased service
revenues from power plant outages and cost savings from restructuring
initiatives were more than offset by the unfavorable effects of the reduced
licensee income and increased discounts.
Power Generation
Equipment orders for China led the $116 million increase in orders for the
quarter. Power Generation's backlog of $2.9 billion was up $753 million, or 35
percent, compared to the same period last year. International orders represent
approximately one-third of the total backlog at March 31, 1995.
Higher field service sales, partially offset by lower factory service sales,
drove revenues up $31 million in the first quarter of 1995 compared to the same
period last year. Although revenues improved, the operating loss for the
quarter increased $7 million. Higher margins from field service sales were
more than offset by lower price realization on new apparatus and reduced
margins related to factory service. Cost savings from restructuring
initiatives partially offset the price compression and lower margins. In
addition, the start of revenue recognition on large, long-cycle orders booked
in the second half of 1994 was awaiting the completion of financial closings.
Knoll
Knoll's new products and expanded sales force have complemented the continued
strength of the North American market and an improved European market. Orders
increased $23 million for the first quarter of 1995 compared to the same
quarter last year. Backlog decreased $17 million compared to March 31, 1994
due to several large project orders that were completed during 1994.
Revenues increased $30 million for the first quarter of 1995 compared to the
same quarter last year due to the strength in the North American and European
markets.
The increased volume in North America and Europe and aggressive cost reduction
programs begun in 1994 resulted in an operating profit increase of $21 million
for the first quarter of 1995 compared to the same period of 1994.
The strong orders, revenues, and improvements in operating profit are
continuing signs of the turnaround Knoll began late last year.
WCI
Revenues were up $1 million and operating profit was down $1 million for the
first quarter of 1995 compared to the same period in 1994. An unfavorable mix
of sales caused the slight decrease in operating profit for the quarter.
Alternative strategies for monetizing WCI are currently being evaluated.
Other Businesses
The sale of Controlmatic in May 1994 and Gladwin in December 1994 caused
revenues for the first quarter of 1995 to decline $30 million compared to the
same period in 1994. The operating loss for the same period improved about $9
million, primarily due to the Controlmatic divestiture.
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DISCONTINUED OPERATIONS
In November 1992, the Corporation announced a Plan (the Plan) that included
exiting the financial services business and selling both DCBU and WESCO. The
portfolio investments of Financial Services have decreased from $8,967 million
at year-end 1992, to $1,140 million at March 31, 1995, a decrease of $7,827
million. The Corporation completed the sales of DCBU and WESCO during the
first quarter of 1994.
The liability for the estimated loss on the disposal of Discontinued Operations
was established in November 1992. In the fourth quarter of 1993, the
Corporation recorded an additional provision for loss based on changes in
various estimates.
A summary of the changes in the liability for the estimated loss on the
disposal of Discontinued Operations during the first quarter are presented in
the following table:
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS
(in millions)(unaudited)
Financial DCBU & Restruc-
Services WESCO turing Total
--------- ------ -------- --------
December 31, 1994 $ 80 $ 60 $ 5 $ 145
Year-to-date activity (24) (9) - (33)
--------- ------ -------- --------
March 31, 1995 $ 56 $ 51 $ 5 $ 112
========= ====== ======== ========
A summary of changes in net debt of Discontinued Operations for the first
quarter of 1995 is presented in the table below:
CHANGES IN NET DEBT OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
Net Debt at December 31, 1994 $ 1,166
Liquidations of Discontinued Operations assets (97)
Cash used in operating activities of Discontinued Operations 25
Net cash received from Continuing Operations (6)
-------
Net Debt at March 31, 1995 $ 1,088
=======
Of the remaining $1.1 billion of net debt of Discontinued Operations at March
31, 1995, approximately $675 million is expected to be repaid during the
remainder of 1995. Approximately $200 million is expected to be repaid through
the liquidation of portfolio investments of Financial Services. The remaining
1995 debt repayment of $475 million will occur as cash is received from
Continuing Operations, the timing of which is expected to coincide with sales
of non-strategic businesses and the monetization of WCI. The Corporation
expects to reduce the debt of Discontinued Operations to that amount which is
supportable by the leasing portfolio and can be repaid as that portfolio
liquidates over its contractual terms. As a result, additional cash may be
required from Continuing Operations.
-19-
20
DISPOSITION OF NON-STRATEGIC BUSINESSES
During the fourth quarter of 1993, the Corporation identified certain
businesses as non-strategic and provided for the cost of their disposition.
Non-strategic businesses generally included parts of the former Environmental
Services business unit and all of the businesses in the Industrial Products and
Services business unit. During 1994, the Corporation completed the sales of
Controlmatic and Gladwin Corporation. On March 31, 1995, the sale of Aptus,
Inc., an environmental services subsidiary, was completed. On April 12, 1995,
the Corporation completed the transfer of its 75 percent equity interest in the
Westinghouse Motor Company to TECO Electric & Machinery Co., Ltd. The
Corporation continues to pursue the disposition of the remaining non-strategic
businesses.
Activity relating to the liability for disposition of non-strategic businesses
for the first quarter of 1995 is summarized below:
LIABILITY FOR DISPOSITION OF NON-STRATEGIC BUSINESSES
(in millions)(unaudited)
Balance at December 31, 1994 $187
Additional provision 7
Disposal of businesses (9)
------
Balance at March 31, 1995 $185
======
OTHER INCOME AND EXPENSES
Other income and expenses represented a net expense of $2 million for the first
quarter of 1995 compared to income of $39 million for the first quarter of
1994. The 1994 period included gains on dispositions of assets, principally
two Sacramento radio stations.
INTEREST EXPENSE
Interest expense for the first quarter of 1995 was $11 million higher than the
same period of 1994 primarily related to short-term borrowings. For Continuing
Operations, average borrowings under the revolving credit facilities for the
first quarter of 1995 increased over $200 million compared to average
borrowings for the first quarter of 1994. This increase reflected the fourth
quarter 1994 transfer of debt to Continuing Operations from Discontinued
Operations. Average interest rates for short-term borrowings also increased
significantly over the prior-year quarter.
By December 31, 1995, the Corporation expects to reduce the debt of Continuing
Operations by up to $300 million compared to year-end 1994 debt levels.
INCOME TAXES
The Corporation's effective income tax rate for the first quarter of both 1995
and 1994 was 38%. This rate is consistent with management's expectations for
the year.
At March 31, 1995, the Corporation had recorded net deferred income tax
benefits totalling $2,448 million compared to $2,380 million at December 31,
1994. Management believes that the Corporation will have sufficient future
taxable income to make it more likely than not that the net deferred tax asset
will be realized.
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21
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Corporation manages its liquidity as a consolidated enterprise without
regard to whether assets or debt are classified for balance sheet purposes as
part of Continuing Operations or Discontinued Operations. As a result, the
discussion below focuses on the Corporation's consolidated cash flows and
capital structure.
The Corporation seeks to ensure that it has adequate resources for reinvestment
in its core businesses and for strategic acquisitions. Based on its ongoing
review of the Corporation's capital structure and associated interest costs,
management believes that the Corporation's operating and financial flexibility
will benefit from lower leverage.
During 1994, the Corporation took several actions to reduce its leverage and
rebuild its capital structure. As a result, net debt (total debt less cash and
cash equivalents) was reduced by $1.7 billion. The Corporation intends to
continue to reduce its consolidated net debt by up to an additional $1 billion
in 1995. This reduction will be achieved principally by the sale of portfolio
investments of Discontinued Operations, the disposition of other non-strategic
businesses of Continuing Operations, and the monetization of WCI.
Management expects that cash from Continuing Operations and availability under
its revolving credit facilities will continue to be sufficient to meet future
business needs. Other sources of liquidity generally available to the
Corporation include cash and cash equivalents, proceeds from sales of
non-strategic assets and borrowings from other sources, including funds from
the capital markets.
Operating Activities
The following table provides a reconciliation of net income to cash provided by
operating activities of Continuing Operations for the three months ended March
31, 1995 and 1994:
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
Three Months Ended March 31
-----------------------------
(in millions) (unaudited) 1995 1994
---- ----
Net income from Continuing Operations $ 15 $ 36
Noncash items included in income:
Depreciation and amortization 80 81
Losses (gains) on asset dispositions 7 (35)
Change in assets and liabilities, net of effects
of acquisitions and divestitures of businesses:
Receivables, current and noncurrent 99 112
Inventories 24 (113)
Progress payments net of costs on uncompleted
contracts (185) (56)
Accounts payable (124) (74)
Accrued taxes, interest and insurance 50 (23)
Deferred and current income taxes (55) (43)
Accrued restructuring costs (23) (29)
Other assets and liabilities - (24)
------ ------
Cash used by operating activities
of Continuing Operations $ (112) $ (168)
====== ======
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22
The operating activities of Continuing Operations used $112 million of cash
during the first three months of 1995, an improvement of $56 million from the
amount used in the first three months of 1994. The use of cash during both
periods was primarily attributable to higher working capital requirements
related to uncompleted contracts with progress billing terms. Customers
continue to delay payments under major contracts for as long as possible. The
Corporation is focusing significant effort in 1995 on reducing long-term
contract and inventory investments in an overall effort to improve working
capital turnover.
Savings from the Corporation's restructuring activities are expected to
essentially offset related cash expenditures in 1995.
Management expects to contribute approximately $300 million in cash to the
Corporation's pension plans in 1995 which is consistent with 1994 cash
contribution levels. No contributions were made in the first quarter of either
year.
The operating activities of Discontinued Operations used $25 million of cash
during the first three months of 1995 compared to cash used of $75 million for
the same period of 1994. The decrease in operating cash requirements during
the first quarter of 1995 was primarily attributable to lower interest expense
resulting from lower levels of outstanding debt, as well as lower divestiture
costs for DCBU and WESCO. The future operating cash requirements of
Discontinued Operations are primarily attributable to interest costs on debt,
operating costs and disposition costs related to DCBU and WESCO.
Investing Activities
Investing activities provided $43 million of cash during the first three months
of 1995 compared to $1,519 million of cash provided during the same period of
1994. In the first quarter of 1995, the Corporation completed the sale of
Aptus, Inc., an environmental services subsidiary. The majority of the
proceeds for Aptus consisted of notes. Also, during the quarter, approximately
$22 million was paid in connection with the 1994 acquisition of Norden Systems.
During the first quarter of 1994, the Corporation sold its DCBU and WESCO
businesses as well as two Sacramento radio stations generating cash proceeds of
$1.4 billion and $50 million, respectively. Liquidations of Financial Services
portfolio investments generated $97 million in the first three months of 1995
compared to cash generated of $147 million for the same period of 1994.
Capital expenditures were $38 million for the first three months of 1995, an
increase of $3 million from the same period of 1994. Capital spending in 1995
is expected to approximate the 1994 level.
During the remainder of 1995, the Corporation expects to generate approximately
$200 million of cash through the continued liquidation of portfolio investments
of Discontinued Operations. In addition, sales of non-strategic businesses and
the monetization of WCI are expected to generate cash proceeds to the
Corporation.
Financing Activities
Cash provided by financing activities during the first three months of 1995
totalled $43 million compared to cash used of $1,648 million during the first
three months of 1994.
Net debt of the Corporation increased $119 million at March 31, 1995 to $3,512
million from $3,393 million at December 31, 1994, primarily reflecting
increased borrowings under the revolving credit facilities. Total debt of the
Corporation was $3,805 million at March 31, 1995, an increase of $68 million
from $3,737 million at December 31, 1994. Debt reductions of $750 million to
$1 billion are expected in 1995.
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23
Two new revolving credit agreements with more favorable terms and conditions
than the previous facility were executed in August 1994 (see Revolving Credit
Facilities). Total borrowings under the revolvers were $977 million at March
31, 1995. These borrowings carried a composite interest rate of 6.7% at March
31, 1995 and were based on the London Interbank Offer Rate (LIBOR).
In March 1994, the Corporation sold in a private placement depositary shares
representing 3,600,000 shares of Series C preferred stock for net proceeds of
$505 million. These shares will convert to 36,000,000 common shares in June
1997.
Dividends paid in the 1995 first quarter included approximately $12 million for
dividends for the Series C preferred stock issued in March 1994 and $13 million
for the Series B preferred shares. The remainder represented common stock
dividends of 5 cents per share for both quarters.
The Corporation's net debt increased from 65% of consolidated net
capitalization to 66% at March 31, 1995. As net debt begins to decline during
the remainder of 1995 and equity grows through consistent earnings of
Continuing Operations, this percentage is expected to improve.
On August 26, 1992, the Corporation filed a registration statement on Form S-3
for the issuance of up to $1 billion of debt securities. At March 31, 1995,
$400 million of this shelf registration remained unused.
Revolving Credit Facilities
On August 5, 1994, the Corporation replaced its December 1991 revolver with two
revolving credit agreements (revolvers). These facilities have a combined
commitment level of $2.5 billion, with $2.0 billion maturing on August 4, 1997
(three-year revolver) and $500 million maturing on August 4, 1995 (364-day
revolver). Borrowings under the revolvers are used for general corporate
purposes, including the repayment of maturing long-term debt. The interest
rates for borrowings under the revolvers are determined at the time of each
borrowing and are based on one of a variety of floating rate indices plus a
margin based on the Corporation's long-term debt ratings.
Unused capacity under the revolvers equalled $1,523 million at March 31, 1995.
Borrowing availability is subject to compliance with certain covenants,
representations and warranties. At March 31, 1995, the Corporation was in
compliance with these covenants.
Hedging Activities
Prior to the adoption of the Plan, Financial Services entered into interest
rate and currency exchange agreements to manage the interest rate and currency
risk associated with various debt instruments. No transactions were
speculative or leveraged. Given their nature, these agreements have been
accounted for as hedging transactions. A summary of notional amounts
outstanding at March 31, 1995 is presented in the table below:
INTEREST RATE AND CURRENCY EXCHANGE AGREEMENTS NOTIONAL AMOUNTS OUTSTANDING
(in millions)(unaudited)
Short-Term Long-Term
At March 31, 1995 Debt Debt Total
---------- --------- -----
Continuing Operations $ 240 $ - $ 240
Discontinued Operations 25 374 399
----- ----- -----
Notional amounts $ 265 $ 374 $ 639
===== ===== =====
The average remaining maturity of interest rate and currency exchange
agreements was 1.26 years at March 31, 1995.
-23-
24
Of the total notional amount outstanding at March 31, 1995, $390 million
relates to interest rate swaps with rate and maturity characteristics set forth
in the table below:
CONTRACTUAL MATURITIES OF INTEREST RATE SWAPS (in millions)(unaudited)
Twelve months ended March 31, Total 1996 1997 1998 1999 2000
----- ---- ---- ---- ---- ----
Fixed rate swaps (pay fixed):
Notional amount $240 $ 80 $ 55 $ 25 $ 25 $ 55
Wtd. avg. fixed rate paid 8.82% 8.88% 8.74% 8.87% 8.59% 8.87%
Floating rate swaps (pay floating):
Notional amount $150 $150 - - - -
Wtd. avg. fixed rate received 8.74% 8.74% - - - -
Under the majority of the swap agreements, the floating rate received or paid
is based on the average 30-day commercial paper rate for the relevant period.
This rate was 6.1% on March 31, 1995. The floating rate received or paid on
the remaining agreements is based on six month LIBOR and is set on dates
specified in the agreements. This rate was 6.5% on March 31, 1995.
The remaining $249 million notional amount outstanding at March 31, 1995
consists of a $25 million forward interest rate swap agreement, which is
exercisable at the option of a counterparty, a $150 million interest rate floor
agreement and a $74 million interest rate and currency swap.
The Corporation's credit exposure under interest rate and currency exchange
agreements is limited to the cost of replacing an agreement in the event of
non-performance by its counterparty. To minimize this risk, Financial Services
selected high credit quality counterparties. At March 31, 1995, the aggregate
credit exposure to counterparties totalled approximately $95 million. This
exposure resulted primarily from an interest rate and currency swap with a
counterparty rated A+. The contract matures in February 1996.
In the first quarter of 1995, outstanding interest rate exchange agreements
resulted in a net increase in the average borrowing rate for Continuing
Operations of approximately 0.3% and a net decrease for Discontinued Operations
of 0.1%. These agreements resulted in a net increase in interest expense of
Continuing Operations of approximately $2 million and a net decrease in
interest expense of Discontinued Operations of approximately $.4 million.
The Corporation continually monitors its economic exposure to changes in
foreign exchange rates and enters into foreign exchange forward or option
contracts to hedge its transaction exposure when appropriate. As a result, the
Corporation's unhedged foreign exchange exposure is not significant.
Furthermore, changes in foreign exchange rates whether favorable or unfavorable
are not expected to have a significant impact on the Corporation's financial
results or operating activities.
With respect to the Corporation's operations in highly inflationary and
unstable economies that are accounted for in accordance with SFAS No. 52,
"Foreign Currency Translation," the combined total sales for those operations
were less than 0.5% of the Corporation's sales for the first three months of
1995. Any translation adjustments resulting from converting the local currency
balance sheets and income statements of designated hyperinflationary
subsidiaries into U.S. dollars are recorded as period costs in accordance with
SFAS No. 52.
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25
OTHER MATTERS
Environmental Matters
Compliance with federal, state and local regulations relating to the discharge
of substances 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. While 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, technology and information available for
individual sites, management has estimated the total probable and reasonably
possible remediation costs that could be incurred by the Corporation based on
the facts and circumstances currently known. See note 7 to the financial
statements.
At March 31, 1995, the Corporation had accrued liabilities totalling $82
million for sites where it has been either named a potentially responsible
party (PRP) or has other remedial responsibilities, $70 million for the
Bloomington sites and $29 million for decommissioning costs at facilities where
the Corporation has ongoing operations. In conjunction with the sales of
certain of its businesses, the Corporation has also provided for remediation
costs related to past operations of such sites.
Management believes 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.
Legal Matters
The Corporation is defending a number of lawsuits on various matters. See note
7 to the financial statements. Costs to defend these lawsuits are charged to
operations in the period in which the services are rendered.
In the last two years, the Corporation has entered into agreements to resolve
six litigation claims in connection with alleged tube degradation in steam
generators sold by the Corporation as components for nuclear steam supply
systems. These agreements generally involve providing certain products and
services at prices discounted at varying rates. The future impact of these
discounts on operating results will be incurred over the next 15 years with the
greatest impact occurring during the next nine years.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in certain of these cases and although
management believes a significant adverse judgment is unlikely, any such
judgments could have a material adverse effect on the Corporation's results of
operations for a quarter or a year. However, based on its understanding and
evaluation of the relevant facts and circumstances, management believes that
the Corporation has meritorious defenses to the litigation referenced in note
7, and management believes that the litigation should not have a material
adverse effect on the financial condition of the Corporation.
Insurance Recoveries
The Corporation has filed actions against more than 100 of its insurance
carriers seeking recovery for environmental, product and property damage
liabilities, and certain other matters. The Corporation has settled with
several of these carriers and has received recoveries related to these actions.
Amounts received to date generally have been applied to cover obligations
assumed through the settlements or litigation costs. The Corporation has not
accrued for any future insurance recoveries.
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26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) On December 1, 1988, the Republic of the Philippines (Republic) and
National Power Corporation (NPC) filed a lawsuit in the United States District
Court (USDC) for the District of New Jersey asserting claims against the
Corporation, Westinghouse International Projects Company and Burns and Roe
Enterprises, Inc. (Burns and Roe) relating to a contract between NPC and
Westinghouse for the construction of a nuclear power plant in the Philippines
as well as an earlier consulting contract between NPC and Burns and Roe
relating to the same project. The complaint alleges, among other things,
bribery and other fraudulent conduct, tortious interference with the fiduciary
duty owed by Ferdinand E. Marcos to the Republic and the people of the
Philippines, common law fraud, and violations of various New Jersey and federal
statues, including the Federal Racketeer Influenced and Corrupt Organization
Act (RICO) statue. This action seeks recision of the Westinghouse and Burns
and Roe contracts and restitution of all money and other property paid to
Westinghouse and Burns and Roe or, alternatively, reformation of the
NPC-Westinghouse contract. Plaintiffs requested compensatory, punitive and
treble damages, costs and expenses of the lawsuit, and such other relief as the
USDC deems just and proper.
Also on December 1, 1988, Westinghouse filed a request for arbitration
with the International Chamber of Commerce Court of Arbitration (ICC) pursuant
to the NPC-Westinghouse contract, setting forth certain claims Westinghouse has
against NPC and the Republic and asking for arbitration of the anticipated
claims of the Republic and NPC related to the Philippines nuclear power plant.
The Republic and NPC challenged the jurisdiction of the ICC, arguing that the
contract between the parties, including its arbitration provision, was invalid
due to alleged bribery in the procurement of the contract. In December 1991,
the ICC arbitration panel issued its award finding that the Republic and NPC
had failed to carry their burden of proving the alleged bribery by the
Corporation. The panel thereby concluded that the arbitration clause and
contract were valid and that the panel has jurisdiction over the remaining
disputes between NPC and the Corporation. In January 1992, NPC filed an action
for annulment of the award by the ICC arbitration panel in the Swiss Federal
Supreme Court. In September 1993, the Swiss Federal Supreme Court issued an
order dismissing NPC's annulment action and assessing costs against NPC.
Arbitration before the ICC was concluded in October 1994 and the parties await
a decision.
With respect to the suit filed in the USDC, Westinghouse filed a motion
requesting that the action filed there be stayed in its entirety pending
arbitration of the Republic's claims. In 1989, the Court granted a motion
brought by the Corporation and ordered 14 of the 15 counts in the lawsuit
stayed pending arbitration. The Court retained jurisdiction over the remaining
count involving an alleged intentional interference with a fiduciary
relationship. Trial commenced with respect to this one count in March 1993.
In May 1993, a jury verdict was rendered in favor of the Corporation with
respect to all claims relating to the alleged intentional interference with a
fiduciary relationship. On February 27, 1995, the USDC granted the Republic's
motion for leave to appeal the verdict and on March 24, 1995, the verdict was
appealed.
(b) The Corporation has been defending consolidated class and derivative
actions and an individual lawsuit brought by shareholders of the Corporation
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 Westinghouse 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. The consolidated class and derivative actions are
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pending in the USDC for the Western District of Pennsylvania. 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 replead. On September 27, 1994, the court
denied plaintiffs' motion for reinstatement of certain of the dismissed class
action claims against the Corporation. On January 20, 1995, the court again
dismissed the derivative complaint in its entirety with prejudice. On February
8, 1995, plaintiff appealed the dismissal of these claims. Also on January 20,
1995, the court dismissed the class action claims, but granted plaintiffs the
right to replead certain of the class action claims. Plaintiffs did not
replead the claims and on February 28, 1995, the court dismissed the class
action claims in their entirety. The plaintiffs appealed the dismissal on
March 7, 1995 to the United States Court of Appeals for the Third Circuit.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in 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
meritorious defenses to the litigation described above, and management believes
that the litigation should not have a material adverse effect on the financial
condition of the Corporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of the Corporation are incorporated herein by
reference to Exhibit 3(b) to Form 10-Q for the quarter ended
March 31, 1994.
(b) The Bylaws of the Corporation, as amended January 25, 1995, are
incorporated herein by reference to Exhibit 3(c) to Form 10-K
for the year ended December 31, 1994.
(4) RIGHTS OF SECURITY HOLDERS
Except as set forth below, there are no instruments with respect
to long-term debt of the Corporation that involve securities
authorized thereunder exceeding 10% of the total assets of the
Corporation and its subsidiaries on a consolidated basis. The
Corporation agrees to provide to the Securities and Exchange
Commission, upon request, a copy of instruments defining the
rights of holders of long-term debt of the Corporation and its
subsidiaries.
(a) Form of Senior Indenture, dated as of November 1, 1990, between
the Corporation and Citibank, N.A. is incorporated herein by
reference to Exhibit 4.1 to the Corporation's Registration
Statement No. 33-41417.
(10) MATERIAL CONTRACTS
(a*) The Annual Performance Plan, is incorporated herein by reference
to Exhibit 10(a) to Form 10-K/A for the year ended
December 31, 1992.
(b*) The 1993 Long-Term Incentive Plan, as amended.
(c*) The 1984 Long-Term Incentive Plan, as amended, is incorporated
herein
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by reference to Exhibit 10(b) to Form 10-Q for the quarter ended
June 30, 1993.
(d*) The Westinghouse Executive Pension Plan, as amended, is
incorporated herein by reference to Exhibit 10(d) to Form 10-K for
the year ended December 31, 1994.
(e*) The Deferred Compensation and Stock Plan for Directors, as
amended.
(f*) The Advisory Director's Plan is incorporated herein by reference
to Exhibit 10(k) to Form 10-K for the year ended December 31,
1989.
(g) The Director's Charitable Giving Program is incorporated herein by
reference to Exhibit 10(g) to Form 10-K for the year ended
December 31, 1994.
(h*) The 1991 Long-Term Incentive Plan, as amended, is incorporated
herein by reference to Exhibit 10(h) to Form 10-K for the year
ended December 31, 1994.
(i*) Employment Agreement between the Corporation and Michael H. Jordan
is hereby incorporated by reference to Exhibit 10 to the
Corporation's Form 8-K, dated September 1, 1993.
(j*) Employment Agreement between the Corporation and Fredric G.
Reynolds is incorporated herein by reference to Exhibit 10(j) to
Form 10-K for the year ended December 31, 1994.
(k) 364-Day Competitive Advance and Revolving Credit Facility
Agreement dated as of August 5, 1994 among the Corporation as
borrower, the Co-Agents and Lenders named therein, and Chemical
Bank, as Administrative Agent is incorporated herein by reference
to Exhibit 10(r) to Form 10-Q for the quarter ended June 30, 1994.
(l) Three-Year Competitive Advance and Revolving Credit Facility
Agreement dated as of August 5, 1994 among the Corporation as
Borrower, the Co-Agents and Lenders named therein, and Chemical
Bank, as Administrative Agent is incorporated herein by reference
to Exhibit 10(s) to Form 10-Q for the quarter ended June 30, 1994.
* Identifies management contract or compensatory plan or arrangement.
(11) Computation of Per Share Earnings
(12)(a) Computation of Ratio of Earnings to Fixed Charges
(12)(b) Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K (Items 5 and 7) dated March 2, 1995 to
report the Corporation's contract awards and anticipated 1995
financial performance.
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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 28th day of April, 1995.
WESTINGHOUSE ELECTRIC CORPORATION
Fredric G. Reynolds
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Executive Vice President and
Chief Financial Officer
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