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, 1997
--------------
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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WESTINGHOUSE ELECTRIC CORPORATION
---------------------------------
(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.)
WESTINGHOUSE BUILDING, 11 STANWIX STREET, PITTSBURGH, PA. 15222-1384
--------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
(412) 244-2000
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(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 610,373,930 SHARES OUTSTANDING AT APRIL 30, 1997
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WESTINGHOUSE ELECTRIC CORPORATION
INDEX
---------------------------------
PAGE NO.
--------
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 14-24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24-26
SIGNATURE 27
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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
------------------
1997 1996
---- ----
SALES OF PRODUCTS AND SERVICES $ 2,223 $ 1,883
COSTS OF PRODUCTS AND SERVICES (1,590) (1,459)
RESTRUCTURING, LITIGATION AND OTHER MATTERS
(NOTES 2 AND 3) - (654)
MARKETING, ADMINISTRATION, AND
GENERAL EXPENSES (763) (584)
------- -------
OPERATING LOSS (130) (814)
OTHER INCOME (EXPENSES), NET (NOTE 4) 34 (146)
INTEREST EXPENSE (114) (146)
------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST IN
INCOME OF CONSOLIDATED SUBSIDIARIES (210) (1,106)
INCOME TAX BENEFIT 59 384
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES - (1)
------- -------
LOSS FROM CONTINUING OPERATIONS (151) (723)
------- -------
DISCONTINUED OPERATIONS, NET OF
INCOME TAXES (NOTE 9):
LOSS FROM DISCONTINUED OPERATIONS - (51)
ESTIMATED NET GAIN ON DISPOSAL OF
DISCONTINUED OPERATIONS - 1,018
------- -------
INCOME FROM DISCONTINUED OPERATIONS - 967
EXTRAORDINARY ITEM:
LOSS ON EARLY EXTINGUISHMENT OF DEBT
(NOTE 5) - (63)
------- -------
NET INCOME (LOSS) $ (151) $ 181
======= =======
EARNINGS (LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.23) $ (1.65)
DISCONTINUED OPERATIONS - 2.20
EXTRAORDINARY ITEM - (0.14)
------- -------
EARNINGS (LOSS) PER COMMON SHARE $ (0.23) $ 0.41
======= =======
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, 1997 DECEMBER 31, 1996
-------------- -----------------
ASSETS (UNAUDITED)
- ------
CASH AND CASH EQUIVALENTS $ 89 $ 220
CUSTOMER RECEIVABLES 1,686 1,561
INVENTORIES (NOTE 6) 863 783
UNCOMPLETED CONTRACTS COSTS OVER RELATED BILLINGS 661 686
PROGRAM RIGHTS 460 431
DEFERRED INCOME TAXES 792 817
PREPAID AND OTHER CURRENT ASSETS 172 289
------- -------
TOTAL CURRENT ASSETS 4,723 4,787
PLANT AND EQUIPMENT, NET 1,841 1,866
FCC LICENSES, NET 2,213 2,199
GOODWILL, NET 8,736 8,776
OTHER INTANGIBLE AND NONCURRENT ASSETS (NOTE 7) 2,318 2,261
NET ASSETS OF DISCONTINUED OPERATIONS (NOTE 9) 53 -
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TOTAL ASSETS $19,884 $19,889
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
SHORT-TERM DEBT $ 153 $ 497
CURRENT MATURITIES OF LONG-TERM DEBT 34 4
ACCOUNTS PAYABLE 561 887
UNCOMPLETED CONTRACTS BILLINGS OVER RELATED COSTS 410 334
OTHER CURRENT LIABILITIES (NOTE 8) 2,335 2,578
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TOTAL CURRENT LIABILITIES 3,493 4,300
LONG-TERM DEBT 6,128 5,149
PENSION LIABILITY 1,159 1,069
OTHER NONCURRENT LIABILITIES (NOTE 8) 3,497 3,619
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TOTAL LIABILITIES 14,277 14,137
------- -------
CONTINGENT LIABILITIES AND COMMITMENTS (NOTE 10)
MINORITY INTEREST IN EQUITY OF CONSOLIDATED
SUBSIDIARIES 12 10
SHAREHOLDERS' EQUITY (NOTE 11):
PREFERRED STOCK, $1.00 PAR VALUE (25 MILLION
SHARES AUTHORIZED):
SERIES C CONVERSION PREFERRED (4 MILLION
SHARES ISSUED) 4 4
COMMON STOCK, $1.00 PAR VALUE (1,100 MILLION
SHARES AUTHORIZED, 612 MILLION AND 609 MILLION
SHARES ISSUED) 612 609
CAPITAL IN EXCESS OF PAR VALUE 5,418 5,376
COMMON STOCK HELD IN TREASURY (533) (546)
MINIMUM PENSION LIABILITY ADJUSTMENT (796) (796)
CUMULATIVE FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS (4) 11
RETAINED EARNINGS 894 1,084
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TOTAL SHAREHOLDERS' EQUITY 5,595 5,742
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,884 $19,889
======= =======
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
------------------
1997 1996
---- ----
CASH USED FOR OPERATING ACTIVITIES
OF CONTINUING OPERATIONS $ (863) $ (502)
CASH USED FOR OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (30) (314)
CASH FLOWS FROM INVESTING ACTIVITIES:
BUSINESS ACQUISITIONS (46) (85)
BUSINESS DIVESTITURES AND OTHER ASSET LIQUIDATIONS 123 3,587
CAPITAL EXPENDITURES (41) (52)
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CASH PROVIDED BY INVESTING ACTIVITIES 36 3,450
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
BANK REVOLVER BORROWINGS 1,610 988
BANK REVOLVER REPAYMENTS (435) (57)
NET CHANGE IN OTHER SHORT-TERM DEBT (302) (92)
REPAYMENTS OF LONG-TERM DEBT (149) (3,570)
STOCK ISSUED 60 42
DIVIDENDS PAID (41) (32)
BANK FEES PAID AND OTHER (5) (8)
------ ------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 738 (2,729)
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (119) (95)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 233 226
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 114 $ 131
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID:
CONTINUING OPERATIONS $ 117 $ 105
DISCONTINUED OPERATIONS 5 17
------ ------
TOTAL INTEREST PAID $ 122 $ 122
====== ======
INCOME TAXES PAID $ 16 $ 23
====== ======
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.
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, 1996. CERTAIN AMOUNTS PERTAINING TO THE THREE MONTHS ENDED MARCH
31, 1996 HAVE BEEN RESTATED OR RECLASSIFIED FOR COMPARATIVE PURPOSES. REFERENCE
ALSO SHOULD BE MADE TO THE CORPORATION'S CURRENT REPORT ON FORM 8-K DATED
FEBRUARY 11, 1997 CONTAINING CERTAIN RESTATED FINANCIAL INFORMATION.
DURING RECENT YEARS, THE CORPORATION HAS MADE SEVERAL CHANGES TO ITS BUSINESS
PORTFOLIO. A NUMBER OF BUSINESS SEGMENTS WERE IDENTIFIED AS NON-STRATEGIC AND
WERE RECLASSIFIED TO DISCONTINUED OPERATIONS. WHEN APPROPRIATE, FINANCIAL
INFORMATION PREVIOUSLY ISSUED WAS RESTATED TO GIVE EFFECT TO THE CLASSIFICATION
OF THESE BUSINESSES AS DISCONTINUED OPERATIONS IN ACCORDANCE WITH ACCOUNTING
PRINCIPLES BOARD OPINION (APB) NO. 30, "REPORTING THE RESULTS OF
OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS AND
EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS." SEE
NOTE 9 TO THE FINANCIAL STATEMENTS.
ON DECEMBER 31, 1996, THE CORPORATION ACQUIRED INFINITY BROADCASTING
CORPORATION (INFINITY). THE ACQUISITION, WHICH WAS ACCOUNTED FOR UNDER THE
PURCHASE METHOD OF ACCOUNTING, IS REFLECTED IN THE YEAR-END 1996 CONSOLIDATED
BALANCE SHEET. EFFECTIVE JANUARY 1, 1997, OPERATING RESULTS FOR INFINITY ARE
INCLUDED IN THE CONSOLIDATED STATEMENT OF INCOME.
ON FEBRUARY 10, 1997, THE CORPORATION ANNOUNCED THAT IT REACHED A DEFINITIVE
MERGER AGREEMENT WITH GAYLORD ENTERTAINMENT COMPANY (GAYLORD) WHEREBY THE
CORPORATION WILL ACQUIRE GAYLORD'S TWO MAJOR CABLE NETWORKS - THE NASHVILLE
NETWORK (TNN) AND COUNTRY MUSIC TELEVISION (CMT). THE ACQUISITION INCLUDES
DOMESTIC AND INTERNATIONAL OPERATIONS OF TNN, THE U.S. AND CANADIAN OPERATIONS
OF CMT, AND APPROXIMATELY $50 MILLION OF WORKING CAPITAL. THE PURCHASE PRICE OF
$1.55 BILLION WILL BE PAID IN WESTINGHOUSE COMMON STOCK. THE NUMBER OF SHARES
TO BE ISSUED WILL DEPEND ON THE AVERAGE OF THE CLOSING PRICES OF THE
CORPORATION'S COMMON STOCK DURING A TRADING PERIOD JUST PRIOR TO THE EFFECTIVE
TIME OF THE TRANSACTION, SUBJECT TO CERTAIN LIMITS ON THE TOTAL NUMBER OF
SHARES TO BE ISSUED AND CERTAIN TERMINATION RIGHTS UNDER THE MERGER AGREEMENT.
THE TRANSACTION IS SUBJECT TO SEVERAL CONDITIONS, INCLUDING REGULATORY
APPROVALS, THE RECEIPT OF A FAVORABLE RULING FROM THE INTERNAL REVENUE SERVICE,
AND THE APPROVAL OF GAYLORD'S SHAREHOLDERS.
IN NOVEMBER 1996, THE BOARD OF DIRECTORS APPROVED A PLAN TO SEPARATE THE
CORPORATION'S INDUSTRIES AND TECHNOLOGY BUSINESSES BY WAY OF A TAX-FREE
DIVIDEND TO SHAREHOLDERS, FORMING A NEW PUBLICLY TRADED COMPANY TO BE CALLED
WESTINGHOUSE ELECTRIC COMPANY (WELCO). THE PLAN ALSO PROVIDES THAT THERMO KING
WILL CONDUCT A PUBLIC OFFERING OF UP TO 20% OF ITS COMMON STOCK AND WILL BECOME
A MAJORITY-OWNED SUBSIDIARY OF WELCO. COMPLETION OF THE PLAN IS SUBJECT TO A
NUMBER OF CONDITIONS, INCLUDING A FAVORABLE RULING FROM THE INTERNAL REVENUE
SERVICE AND THE REGISTRATION OF THE WELCO COMMON STOCK UNDER THE SECURITIES
EXCHANGE ACT OF 1934. MANAGEMENT CURRENTLY ANTICIPATES THE SEPARATION WILL
OCCUR LATER IN 1997. HOWEVER, THERE CAN BE NO ASSURANCE THAT THE SEPARATION
WILL OCCUR OR AS TO THE RELATED TIMING. FURTHERMORE, IF THE SEPARATION DOES
OCCUR, THERE CAN BE NO ASSURANCE THAT ALL OF THE ASSETS, LIABILITIES AND
CONTRACTUAL OBLIGATIONS WILL BE TRANSFERRED AS CURRENTLY CONTEMPLATED OR THAT
CHANGES WILL NOT BE MADE TO THE SEPARATION PLAN.
THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS
THAT AFFECT THE REPORTED AMOUNTS OF ASSETS AND LIABILITIES, THE DISCLOSURE OF
CONTINGENT ASSETS AND LIABILITIES AT THE DATE OF THE FINANCIAL STATEMENTS, AND
THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING THE REPORTING PERIOD.
ACTUAL
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RESULTS COULD DIFFER FROM THOSE ESTIMATES. ON AN ONGOING BASIS, MANAGEMENT
REVIEWS ITS ESTIMATES, INCLUDING THOSE RELATED TO LITIGATION, ENVIRONMENTAL
LIABILITIES, CONTRACTS, PENSIONS, AND DISCONTINUED OPERATIONS, BASED ON
CURRENTLY AVAILABLE INFORMATION. CHANGES IN FACTS AND CIRCUMSTANCES MAY RESULT
IN REVISED ESTIMATES. IN THE OPINION OF MANAGEMENT, THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS INCLUDE ALL MATERIAL ADJUSTMENTS NECESSARY TO PRESENT
FAIRLY THE CORPORATION'S FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CASH
FLOWS. SUCH ADJUSTMENTS ARE OF A NORMAL RECURRING NATURE. THE RESULTS FOR THIS
INTERIM PERIOD ARE NOT NECESSARILY INDICATIVE OF RESULTS FOR THE ENTIRE YEAR OR
ANY OTHER INTERIM PERIOD.
IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ISSUED STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 128, "EARNINGS PER SHARE," WHICH
REQUIRES THE DUAL PRESENTATION OF BASIC AND DILUTED EARNINGS PER SHARE. BASIC
AND DILUTED EARNINGS PER SHARE CALCULATED IN ACCORDANCE WITH THIS STANDARD
WOULD HAVE BEEN A LOSS OF $0.28 FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
INCOME OF $0.43 FOR THE THREE MONTHS ENDED MARCH 31, 1996. THE CORPORATION WILL
ADOPT THIS STANDARD AS OF DECEMBER 31, 1997, AS REQUIRED. EARLY ADOPTION IS NOT
PERMITTED.
2. RESTRUCTURING, LITIGATION AND OTHER MATTERS
DURING THE FIRST THREE MONTHS OF 1996, THE CORPORATION TOOK SEVERAL ACTIONS TO
STREAMLINE ITS BUSINESSES AND RECOGNIZE THE FINANCIAL IMPACT OF CERTAIN
MATTERS. CERTAIN OF THESE ACTIONS RESULTED IN THE RECOGNITION OF CHARGES TO
OPERATING PROFIT. COSTS FOR NEW RESTRUCTURING PROJECTS OF $123 MILLION WERE
RECOGNIZED PRIMARILY FOR THE CONSOLIDATION OF FACILITIES AND THE SEPARATION OF
EMPLOYEES. A CHARGE OF $486 MILLION WAS RECOGNIZED FOR PENDING LITIGATION
MATTERS. OTHER COSTS OF $45 MILLION RECOGNIZED IN THE FIRST QUARTER GENERALLY
RELATED TO ASSET IMPAIRMENT, AS DISCUSSED IN NOTE 3 TO THE FINANCIAL
STATEMENTS, OR TO COSTS ASSOCIATED WITH PREVIOUSLY DIVESTED BUSINESSES.
NO SUCH CHARGES WERE INCURRED IN THE FIRST THREE MONTHS OF 1997.
3. IMPAIRMENT OF LONG-LIVED ASSETS
DURING THE FIRST QUARTER OF 1996, THE CORPORATION ADOPTED SFAS 121, "ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF." SFAS 121 REQUIRES THAT LONG-LIVED ASSETS, INCLUDING RELATED
GOODWILL, BE REVIEWED FOR IMPAIRMENT AND WRITTEN DOWN TO THEIR ESTIMATED FAIR
VALUE WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES INDICATE THAT THE CARRYING
VALUE MAY NOT BE RECOVERABLE.
UPON THE ADOPTION OF SFAS 121, AN IMPAIRMENT CHARGE OF $15 MILLION WAS
RECOGNIZED IN THE 1996 FIRST QUARTER OPERATING PROFIT.
4. OTHER INCOME AND EXPENSES, NET (IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED
MARCH 31
------------------
1997 1996
---- ----
INTEREST INCOME $ 1 $ 5
GAIN ON SALE OF EQUITY INVESTMENT 24 -
LOSS ON DISPOSITION OF OTHER ASSETS - (151)
OPERATING RESULTS - NON-CONSOLIDATED AFFILIATES 2 -
FOREIGN CURRENCY TRANSACTION AND HIGH-INFLATION
TRANSLATION EFFECT 7 (2)
OTHER - 2
----- -----
OTHER INCOME (EXPENSES), NET $ 34 $(146)
===== =====
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5. EXTRAORDINARY ITEM
ON MARCH 1, 1996, THE CORPORATION EXTINGUISHED PRIOR TO MATURITY $3,565 MILLION
OF DEBT UNDER THE THEN-EXISTING $7.5 BILLION CREDIT FACILITY. AS A RESULT OF
THE EARLY EXTINGUISHMENT OF DEBT AND THE WRITE-OFF OF RELATED DEBT ISSUE COSTS,
THE CORPORATION INCURRED AN EXTRAORDINARY LOSS OF $63 MILLION, NET OF A TAX
BENEFIT OF $41 MILLION, FOR THE THREE MONTHS ENDED MARCH 31, 1996.
6. INVENTORIES (IN MILLIONS)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
RAW MATERIALS $ 120 $ 127
WORK IN PROCESS 492 493
FINISHED GOODS 133 125
------- -------
745 745
LONG-TERM CONTRACTS IN PROCESS 1,080 986
PROGRESS PAYMENTS TO SUBCONTRACTORS 51 45
RECOVERABLE ENGINEERING AND DEVELOPMENT COSTS 102 68
LESS: INVENTORIED COSTS RELATED TO CONTRACTS
WITH PROGRESS BILLING TERMS (1,115) (1,061)
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INVENTORIES, NET $ 863 $ 783
======= =======
7. OTHER INTANGIBLE AND NONCURRENT ASSETS (IN MILLIONS)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
DEFERRED INCOME TAXES $ 906 $ 774
OTHER INTANGIBLE ASSETS 418 425
INTANGIBLE PENSION ASSET 40 40
DEFERRED CHARGES 41 39
JOINT VENTURES AND OTHER AFFILIATES 222 232
NONCURRENT RECEIVABLES 313 384
PROGRAM RIGHTS 141 142
OTHER 237 225
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TOTAL OTHER INTANGIBLE AND NONCURRENT ASSETS $ 2,318 $ 2,261
======= =======
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8. OTHER CURRENT AND NONCURRENT LIABILITIES (IN MILLIONS)
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
OTHER CURRENT LIABILITIES:
- -------------------------
ACCRUED EMPLOYEE COMPENSATION $ 176 $ 248
INCOME TAXES CURRENTLY PAYABLE 179 189
LIABILITIES FOR TALENT AND PROGRAM RIGHTS 455 308
ACCRUED PRODUCT WARRANTY 56 59
ACCRUED INTEREST AND INSURANCE 209 210
ACCRUED RESTRUCTURING COSTS 80 184
LIABILITY FOR BUSINESS DISPOSITIONS 94 79
ACCRUED EXPENSES 558 875
ENVIRONMENTAL LIABILITIES 61 62
OTHER 467 364
------- -------
TOTAL OTHER CURRENT LIABILITIES $ 2,335 $ 2,578
======= =======
OTHER NONCURRENT LIABILITIES:
- ----------------------------
POSTRETIREMENT BENEFITS $ 1,198 $ 1,218
POSTEMPLOYMENT BENEFITS 67 67
ACCRUED RESTRUCTURING COSTS 86 94
LIABILITY FOR BUSINESS DISPOSITIONS 62 87
LIABILITIES FOR TALENT AND PROGRAM RIGHTS 48 51
ACCRUED EXPENSES 1,079 1,112
ENVIRONMENTAL LIABILITIES 398 404
OTHER 559 586
------- -------
TOTAL OTHER NONCURRENT LIABILITIES $ 3,497 $ 3,619
======= =======
9. DISCONTINUED OPERATIONS
IN RECENT YEARS, THE CORPORATION HAS ADOPTED SEVERAL SEPARATE PLANS TO DISPOSE
OF MAJOR SEGMENTS OF ITS BUSINESS. THESE BUSINESSES HAVE BEEN ACCOUNTED FOR AS
DISCONTINUED OPERATIONS IN ACCORDANCE WITH APB 30.
THE TABLE BELOW SUMMARIZES EACH OF THE CORPORATION'S SEGMENT DISPOSAL PLANS AS
WELL AS THE ASSETS REMAINING AS OF MARCH 31, 1997.
PLAN DATE LINE OF BUSINESS REMAINING ASSETS
- --------- ---------------- ----------------
NOVEMBER 1996 COMMUNICATION & INFORMATION
SYSTEMS (CISCO) SEVERAL BUSINESSES
MARCH 1996 ENVIRONMENTAL SERVICES SEVERAL BUSINESSES
DECEMBER 1995 THE KNOLL GROUP (KNOLL) -
DECEMBER 1995 DEFENSE AND ELECTRONIC SYSTEMS -
JULY 1995 LAND DEVELOPMENT (WCI) MORTGAGE NOTES RECEIVABLE
AND MISCELLANEOUS SECURITIES
NOVEMBER 1992 FINANCIAL SERVICES LEASING RECEIVABLES
NOVEMBER 1992 DISTRIBUTION & CONTROL (DCBU) -
NOVEMBER 1992 WESTINGHOUSE ELECTRIC SUPPLY
COMPANY (WESCO) MISCELLANEOUS SECURITIES
-9-
10
SUMMARIZED OPERATING RESULTS OF DISCONTINUED OPERATIONS, GROUPED BY MEASUREMENT
DATE, FOLLOWS:
OPERATING RESULTS OF DISCONTINUED OPERATIONS
(IN MILLIONS) (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
MEASUREMENT DATE
---------------------------------------
1996 1995 1992 TOTAL
---- ---- ---- -----
SALES OF PRODUCTS AND SERVICES $ 109 $ - $ 3 $ 112
LOSS BEFORE INCOME TAXES (18) - (6) (24)
INCOME TAX BENEFIT 6 - - 6
NET OPERATING LOSSES AFTER MEASUREMENT
DATE CHARGED TO LIABILITY FOR ESTIMATED
LOSS ON DISPOSAL (12) - (6) (18)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
MEASUREMENT DATE
---------------------------------------
1996 1995 1992 TOTAL
---- ---- ---- -----
SALES OF PRODUCTS AND SERVICES $ 138 $ 352 $ 7 $ 497
LOSS BEFORE INCOME TAXES (57) (78) (6) (141)
INCOME TAX BENEFIT (EXPENSE) 6 (4) - 2
NET LOSS PRIOR TO MEASUREMENT DATE (51) - - (51)
NET OPERATING LOSSES AFTER MEASUREMENT
DATE CHARGED TO LIABILITY FOR ESTIMATED
LOSS ON DISPOSAL - (82) (6) (88)
THE ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS HAVE BEEN SEPARATELY
CLASSIFIED ON THE 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, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
ASSETS:
CASH AND CASH EQUIVALENTS $ 25 $ 13
RECEIVABLES 71 90
INVENTORIES 29 32
PORTFOLIO INVESTMENTS 823 845
OTHER ASSETS 509 438
------ ------
TOTAL ASSETS -- DISCONTINUED OPERATIONS 1,457 1,418
------ ------
LIABILITIES:
SHORT-TERM DEBT 6 5
CURRENT MATURITIES OF LONG-TERM DEBT 13 2
LIABILITY FOR ESTIMATED LOSS ON DISPOSAL 631 672
LONG-TERM DEBT 425 417
OTHER LIABILITIES 129 142
DEFERRED INCOME TAXES 200 180
------ ------
TOTAL LIABILITIES -- DISCONTINUED OPERATIONS 1,404 1,418
------ ------
NET ASSETS OF DISCONTINUED OPERATIONS $ 53 $ -
====== ======
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AT MARCH 31, 1997, THE ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS
INCLUDED THOSE RELATED TO THE REMAINING OPERATING BUSINESSES FROM BOTH THE
CISCO SEGMENT AND THE ENVIRONMENTAL SERVICES BUSINESS, THE REMAINING SECURITIES
FROM WCI, OTHER MISCELLANEOUS SECURITIES, THE LEASING PORTFOLIO, AND DEFERRED
INCOME TAXES. LIABILITIES ALSO INCLUDED DEBT AND THE ESTIMATED LOSSES AND
DIVESTITURE COSTS ASSOCIATED WITH ALL DISCONTINUED OPERATIONS, INCLUDING
ESTIMATED RESULTS OF OPERATIONS THROUGH DIVESTITURE.
EXCEPT FOR THE LEASING PORTFOLIO, THE ASSETS GENERALLY ARE EXPECTED TO BE
DIVESTED DURING 1997. DEFERRED INCOME TAXES, WHICH RESULT FROM TEMPORARY
DIFFERENCES BETWEEN BOOK AND TAX BASES OF THE ASSETS AND LIABILITIES OF
DISCONTINUED OPERATIONS, GENERALLY WILL BE TRANSFERRED TO CONTINUING OPERATIONS
UPON REVERSAL AND WILL NOT RESULT IN THE RECEIPT OR PAYMENT OF CASH BY
DISCONTINUED OPERATIONS. LIABILITIES ASSOCIATED WITH DIVESTITURES ARE EXPECTED
TO BE SATISFIED OVER THE NEXT SEVERAL YEARS. DEBT WILL BE REPAID USING CASH
PROCEEDS FROM THE LIQUIDATION OF ASSETS OF DISCONTINUED OPERATIONS. CASH
PROCEEDS IN EXCESS OF THOSE REQUIRED TO REPAY THE DEBT AND SATISFY THE
DIVESTITURE LIABILITIES OF DISCONTINUED OPERATIONS, IF ANY, WILL BE TRANSFERRED
TO CONTINUING OPERATIONS.
PORTFOLIO INVESTMENTS CONSIST PRIMARILY OF RECEIVABLES RELATED TO THE LEASING
PORTFOLIO OF FINANCIAL SERVICES. ALSO INCLUDED ARE REAL ESTATE PROPERTIES AND
INVESTMENTS IN LEASING PARTNERSHIPS. THE LEASING PORTFOLIO IS EXPECTED TO
LIQUIDATE THROUGH 2015 IN ACCORDANCE WITH CONTRACTUAL TERMS AND GENERALLY
CONSISTS OF DIRECT FINANCING AND LEVERAGED LEASES. AT MARCH 31, 1997 AND
DECEMBER 31, 1996, 83% AND 84%, RESPECTIVELY, RELATED TO AIRCRAFT AND 17% AND
16%, RESPECTIVELY, RELATED TO COGENERATION FACILITIES.
10. CONTINGENT LIABILITIES AND COMMITMENTS
LEGAL MATTERS
- -------------
STEAM GENERATORS
THE CORPORATION HAS BEEN DEFENDING VARIOUS LAWSUITS BROUGHT BY UTILITIES
CLAIMING A SUBSTANTIAL AMOUNT OF DAMAGES IN CONNECTION WITH ALLEGED TUBE
DEGRADATION IN STEAM GENERATORS SOLD BY THE CORPORATION AS COMPONENTS OF
NUCLEAR STEAM SUPPLY SYSTEMS. SINCE 1993, SETTLEMENT AGREEMENTS HAVE BEEN
ENTERED RESOLVING TEN LITIGATION CLAIMS. THESE AGREEMENTS GENERALLY REQUIRE THE
CORPORATION TO PROVIDE CERTAIN PRODUCTS AND SERVICES AT PRICES DISCOUNTED AT
VARYING RATES. TWO CASES WERE RESOLVED IN FAVOR OF THE CORPORATION AFTER TRIAL
OR ARBITRATION. ONE ACTIVE STEAM GENERATOR LAWSUIT REMAINS.
THE CORPORATION IS ALSO A PARTY TO SIX TOLLING AGREEMENTS WITH UTILITIES OR
UTILITY PLANT OWNERS' GROUPS WHICH HAVE ASSERTED STEAM GENERATOR CLAIMS. THE
TOLLING AGREEMENTS DELAY INITIATION OF ANY LITIGATION FOR VARIOUS SPECIFIED
PERIODS OF TIME AND PERMIT THE PARTIES TIME TO ENGAGE IN DISCUSSION.
SECURITIES CLASS ACTIONS - FINANCIAL SERVICES
THE CORPORATION HAS BEEN DEFENDING DERIVATIVE AND CLASS ACTION LAWSUITS
ALLEGING FEDERAL SECURITIES LAW AND COMMON LAW VIOLATIONS ARISING OUT OF
PURPORTED MISSTATEMENTS OR OMISSIONS CONTAINED IN THE CORPORATION'S PUBLIC
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 WERE APPEALED. IN JULY 1996,
THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT (THE CIRCUIT COURT)
AFFIRMED THE COURT'S DISMISSAL OF THE DERIVATIVE CLAIM. THE CIRCUIT COURT ALSO
AFFIRMED IN PART AND REVERSED IN PART THE DISMISSAL OF THE CLASS ACTION CLAIMS.
THOSE CLASS ACTION CLAIMS THAT WERE NOT DISMISSED BY THE CIRCUIT COURT HAVE
BEEN REMANDED TO THE LOWER COURT FOR FURTHER PROCEEDINGS.
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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, GENERALLY IN
THE PRE-1970 TIME PERIOD. TYPICALLY, THESE LAWSUITS ARE BROUGHT AGAINST
MULTIPLE DEFENDANTS. THE CORPORATION WAS NEITHER A MANUFACTURER NOR A PRODUCER
OF ASBESTOS AND IS OFTENTIMES DISMISSED FROM THESE LAWSUITS ON THE BASIS THAT
THE CORPORATION HAS NO RELATIONSHIP TO THE PRODUCTS IN QUESTION OR THE CLAIMANT
DID NOT HAVE EXPOSURE TO THE CORPORATION'S PRODUCT. AT MARCH 31, 1997, THE
CORPORATION HAD APPROXIMATELY 101,000 CLAIMS OUTSTANDING AGAINST IT.
IN COURT ACTIONS WHICH HAVE BEEN RESOLVED, THE CORPORATION HAS PREVAILED IN THE
MAJORITY OF THE ASBESTOS CLAIMS AND HAS RESOLVED OTHERS THROUGH SETTLEMENT.
FURTHERMORE, THE CORPORATION HAS BROUGHT SUIT AGAINST CERTAIN OF ITS INSURANCE
CARRIERS WITH RESPECT TO THESE ASBESTOS CLAIMS. UNDER THE TERMS OF A SETTLEMENT
AGREEMENT RESULTING FROM THIS SUIT, CARRIERS THAT HAVE AGREED TO THE SETTLEMENT
ARE NOW REIMBURSING THE CORPORATION FOR A SUBSTANTIAL PORTION OF ITS CURRENT
COSTS AND SETTLEMENTS ASSOCIATED WITH ASBESTOS CLAIMS. THE CORPORATION HAS
RECORDED A LIABILITY FOR ASBESTOS-RELATED MATTERS THAT ARE DEEMED PROBABLE AND
CAN BE REASONABLY ESTIMATED, AND HAS SEPARATELY RECORDED AN ASSET EQUAL TO THE
AMOUNT OF SUCH ESTIMATED LIABILITIES THAT WILL BE RECOVERED PURSUANT TO
AGREEMENTS WITH INSURANCE CARRIERS. THE CORPORATION CANNOT REASONABLY ESTIMATE
COSTS FOR UNASSERTED ASBESTOS CLAIMS.
GENERAL
LITIGATION IS INHERENTLY UNCERTAIN AND ALWAYS DIFFICULT TO PREDICT. SUBSTANTIAL
DAMAGES ARE SOUGHT IN THE STEAM GENERATOR CLAIMS, THE SECURITIES CLASS ACTION
AND CERTAIN GROUPINGS OF ASBESTOS CLAIMS AND, ALTHOUGH MANAGEMENT BELIEVES A
SIGNIFICANT ADVERSE JUDGMENT IS UNLIKELY, ANY SUCH JUDGMENT COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE CORPORATION'S RESULTS OF OPERATIONS FOR A
QUARTER OR A YEAR. HOWEVER, BASED ON ITS UNDERSTANDING AND EVALUATION OF THE
RELEVANT FACTS AND CIRCUMSTANCES, MANAGEMENT BELIEVES THAT THE CORPORATION HAS
MERITORIOUS DEFENSES TO THE LITIGATION DESCRIBED ABOVE AND THAT THE CORPORATION
HAS ADEQUATELY PROVIDED FOR COSTS ARISING FROM POTENTIAL SETTLEMENT OF THESE
MATTERS WHEN IN THE BEST INTEREST OF THE CORPORATION. MANAGEMENT BELIEVES THAT
THE LITIGATION SHOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL
CONDITION OF THE CORPORATION.
ENVIRONMENTAL MATTERS
- ---------------------
COMPLIANCE WITH FEDERAL, STATE, AND LOCAL LAWS AND REGULATIONS RELATING TO THE
DISCHARGE OF POLLUTANTS INTO THE ENVIRONMENT, THE DISPOSAL OF HAZARDOUS WASTES,
AND OTHER RELATED ACTIVITIES AFFECTING THE ENVIRONMENT HAVE HAD AND WILL
CONTINUE TO HAVE AN IMPACT ON THE CORPORATION. IT IS DIFFICULT TO ESTIMATE THE
TIMING AND ULTIMATE COSTS TO BE INCURRED IN THE FUTURE DUE TO UNCERTAINTIES
ABOUT THE STATUS OF LAWS, REGULATIONS, AND TECHNOLOGY; THE ADEQUACY OF
INFORMATION AVAILABLE FOR INDIVIDUAL SITES; THE EXTENDED TIME PERIODS OVER
WHICH SITE REMEDIATION OCCURS; AND THE IDENTIFICATION OF NEW SITES. THE
CORPORATION HAS, HOWEVER, RECOGNIZED AN ESTIMATED LIABILITY, MEASURED IN
CURRENT DOLLARS, FOR THOSE SITES WHERE IT IS PROBABLE THAT A LOSS HAS BEEN
INCURRED AND THE AMOUNT OF THE LOSS CAN BE REASONABLY ESTIMATED. THE
CORPORATION RECOGNIZES CHANGES IN ESTIMATES AS NEW REMEDIATION REQUIREMENTS ARE
DEFINED OR AS MORE INFORMATION BECOMES AVAILABLE.
WITH REGARD TO REMEDIAL ACTIONS UNDER FEDERAL AND STATE SUPERFUND LAWS, THE
CORPORATION HAS BEEN NAMED A POTENTIALLY RESPONSIBLE PARTY (PRP) AT NUMEROUS
SITES LOCATED THROUGHOUT THE COUNTRY. AT MANY OF THESE SITES, THE CORPORATION
IS EITHER NOT A RESPONSIBLE PARTY OR ITS SITE INVOLVEMENT IS VERY LIMITED OR DE
MINIMIS. HOWEVER, THE CORPORATION MAY HAVE VARYING DEGREES OF CLEANUP
RESPONSIBILITIES AT APPROXIMATELY 90 SITES, INCLUDING THE SITES LOCATED IN
BLOOMINGTON, INDIANA. THE CORPORATION BELIEVES THAT ANY LIABILITY INCURRED FOR
CLEANUP AT THESE SITES WILL BE SATISFIED OVER A NUMBER OF YEARS, AND IN MANY
CASES, THE COSTS WILL BE SHARED WITH OTHER RESPONSIBLE PARTIES. THESE SITES
INCLUDE CERTAIN SITES FOR WHICH THE CORPORATION, AS PART OF AN AGREEMENT FOR
SALE, HAS RETAINED OBLIGATIONS FOR REMEDIATION OF ENVIRONMENTAL CONTAMINATION
AND FOR OTHER COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY
ACT (CERCLA) ISSUES.
-12-
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BASED ON THE COSTS ASSOCIATED WITH THE MOST PROBABLE ALTERNATIVE REMEDIATION
STRATEGY FOR THE ABOVE MENTIONED SITES, INCLUDING BLOOMINGTON, THE CORPORATION
HAS AN ACCRUED LIABILITY OF $459 MILLION. DEPENDING ON THE REMEDIATION
ALTERNATIVES ULTIMATELY SELECTED, THE COSTS RELATED TO THESE SITES COULD DIFFER
FROM THE AMOUNTS CURRENTLY ACCRUED. THE ACCRUED LIABILITY INCLUDES $338 MILLION
FOR SITE INVESTIGATION AND REMEDIATION AND $121 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.
COMMITMENTS -- CONTINUING OPERATIONS
- ------------------------------------
IN THE ORDINARY COURSE OF BUSINESS, STANDBY LETTERS OF CREDIT AND SURETY BONDS
ARE ISSUED ON BEHALF OF THE CORPORATION RELATED PRIMARILY TO PERFORMANCE
OBLIGATIONS UNDER CONTRACTS WITH CUSTOMERS.
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 PROPERTIES FOR VARIOUS PERIODS ENDING NO
LATER THAN APRIL 2002. AS OF MARCH 31, 1997, THE CORPORATION WAS COMMITTED TO
MAKE PAYMENTS UNDER SUCH BROADCASTING CONTRACTS, ALONG WITH COMMITMENTS FOR
TALENT CONTRACTS, TOTALLING $3,383 MILLION.
COMMITMENTS -- DISCONTINUED OPERATIONS
- --------------------------------------
FINANCIAL SERVICES COMMITMENTS AT MARCH 31, 1997 CONSISTING PRIMARILY OF
GUARANTEES TOTALLED $33 MILLION COMPARED TO $38 MILLION AT YEAR-END 1996. THE
REMAINING COMMITMENTS HAVE FIXED EXPIRATION DATES FROM 1997 THROUGH 2002.
MANAGEMENT EXPECTS THESE COMMITMENTS TO EXPIRE UNFUNDED.
11. SHAREHOLDERS' EQUITY
THE CORPORATION'S SERIES C CONVERSION PREFERRED STOCK (SERIES C PREFERRED) HAS
BEEN TREATED AS OUTSTANDING COMMON STOCK FOR THE CALCULATION OF EARNINGS PER
SHARE, WHICH WAS IN ACCORDANCE WITH PREVALENT PRACTICE AT THE TIME OF SALE. IF
THE SERIES C PREFERRED HAD BEEN TREATED AS COMMON STOCK EQUIVALENTS FOR THE
CALCULATION OF EARNINGS PER SHARE, THE CORPORATION'S PER-SHARE RESULTS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 WOULD HAVE BEEN A LOSS OF $0.27 AND
INCOME OF $0.42, RESPECTIVELY.
IN APRIL 1997, THE CORPORATION ANNOUNCED ITS INTENTION TO REDEEM ALL OUTSTANDING
SHARES OF THE SERIES C PREFERRED ON MAY 30, 1997. IN ACCORDANCE WITH THE TERMS
OF THE OFFERING, EACH SHARE OF THE SERIES C PREFERRED WILL CONVERT INTO
WESTINGHOUSE COMMON STOCK AT THE RATE OF 8.85 SHARES OF WESTINGHOUSE COMMON
STOCK, EQUIVALENT TO 0.885 OF A SHARE OF WESTINGHOUSE COMMON STOCK FOR EACH
$1.30 DEPOSITARY SHARE. EACH DEPOSITARY SHARE REPRESENTS ONE-TENTH OF A SHARE OF
SERIES C PREFERRED. IN CONNECTION WITH THIS REDEMPTION OF THE SERIES C
PREFERRED, THE CORPORATION WILL ISSUE 31,859,902 SHARES OF COMMON STOCK. ALL
ACCRUED AND UNPAID DIVIDENDS ON THE REDEEMED SHARES OF SERIES C PREFERRED WILL
BE PAID ON MAY 30, 1997.
IN CONJUNCTION WITH THE INFINITY ACQUISITION ON DECEMBER 31, 1996, THE
CORPORATION ISSUED 183 MILLION NEW SHARES OF WESTINGHOUSE COMMON STOCK. THESE
SHARES, TOGETHER WITH THE RELATED OPTIONS OUTSTANDING, RESULTED IN AN INCREASE
OF SHAREHOLDERS' EQUITY OF $3.8 BILLION.
-13-
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
THE $4.7 BILLION ACQUISITION OF INFINITY BROADCASTING CORPORATION (INFINITY)
RESULTED IN AN INCREASE IN SHAREHOLDERS' EQUITY AT DECEMBER 31, 1996 OF $3.8
BILLION FROM THE ISSUANCE OF 183 MILLION SHARES OF WESTINGHOUSE COMMON STOCK
AND THE CONVERSION OF INFINITY OPTIONS INTO OPTIONS TO ACQUIRE APPROXIMATELY 22
MILLION ADDITIONAL SHARES OF WESTINGHOUSE COMMON STOCK. EFFECTIVE JANUARY 1,
1997, OPERATING RESULTS FOR INFINITY ARE INCLUDED IN THE CORPORATION'S
CONSOLIDATED FINANCIAL STATEMENTS AND ARE REPORTED AS PART OF THE RADIO SEGMENT
OF THE MEDIA GROUP.
SUBSEQUENT TO THE ACQUISITION OF INFINITY AT YEAR-END 1996, THE CORPORATION'S
RADIO GROUP CONTINUED TO OUTPACE THE MARKET. THE RADIO GROUP'S PROFITABILITY IN
THE FIRST QUARTER OF 1997 WAS FURTHER ENHANCED BY COST REDUCTION MEASURES AT
RADIO STATIONS.
NET INCOME FOR THE FIRST QUARTER OF 1997 WAS A LOSS OF $151 MILLION, OR $0.23
PER SHARE, COMPARED TO INCOME OF $181 MILLION, OR $0.41 PER SHARE FOR THE 1996
FIRST QUARTER. INCOME FROM CONTINUING OPERATIONS FOR THE QUARTER WAS A LOSS OF
$151 MILLION, OR $0.23 PER SHARE, COMPARED TO A LOSS OF $723 MILLION, OR $1.65
PER SHARE FOR THE 1996 FIRST QUARTER. RESULTS FOR THE 1996 QUARTER INCLUDED A
NUMBER OF SPECIAL ITEMS WHICH ARE PRESENTED IN THE TABLE BELOW. NO SPECIAL
ITEMS WERE RECOGNIZED IN THE FIRST QUARTER OF 1997. EXCLUDING THE 1996 SPECIAL
ITEMS, THE FIRST QUARTER 1996 LOSS FROM CONTINUING OPERATIONS WAS $114 MILLION,
OR $0.26 PER SHARE.
THE $37 MILLION INCREASE IN THE LOSS FROM CONTINUING OPERATIONS FOR THE QUARTER
REFLECTED SEVERAL FACTORS. FOR THE MEDIA GROUP, THE FAVORABLE RADIO RESULTS
WERE MORE THAN OFFSET BY LOWER PERFORMANCE BY THE TELEVISION NETWORK. RESULTS
FOR THE INDUSTRIES AND TECHNOLOGY GROUP ALSO DECLINED PRIMARILY BECAUSE OF A
PROFIT ADJUSTMENT FOR A COMPLEX INTERNATIONAL POWER PROJECT. INTEREST EXPENSE
FOR THE 1997 QUARTER WAS FAVORABLE, REFLECTING THE MARCH 1996 DEBT REPAYMENTS
FROM THE SALE PROCEEDS OF THE DEFENSE AND ELECTRONIC SYSTEMS BUSINESS AND THE
KNOLL GROUP (KNOLL), THE CORPORATION'S OFFICE FURNITURE BUSINESS.
ON FEBRUARY 10, 1997, THE CORPORATION ANNOUNCED THAT IT REACHED A DEFINITIVE
MERGER AGREEMENT WITH GAYLORD ENTERTAINMENT COMPANY (GAYLORD) WHEREBY THE
CORPORATION WILL ACQUIRE GAYLORD'S TWO MAJOR CABLE NETWORKS - THE NASHVILLE
NETWORK (TNN) AND COUNTRY MUSIC TELEVISION (CMT). THE ACQUISITION INCLUDES
DOMESTIC AND INTERNATIONAL OPERATIONS OF TNN, THE U.S. AND CANADIAN OPERATIONS
OF CMT, AND APPROXIMATELY $50 MILLION OF WORKING CAPITAL. THE PURCHASE PRICE OF
$1.55 BILLION WILL BE PAID IN WESTINGHOUSE COMMON STOCK. THE NUMBER OF SHARES
TO BE ISSUED WILL DEPEND ON THE AVERAGE OF THE CLOSING PRICES OF THE
CORPORATION'S COMMON STOCK DURING A TRADING PERIOD JUST PRIOR TO THE EFFECTIVE
TIME OF THE TRANSACTION, SUBJECT TO CERTAIN LIMITS ON THE TOTAL NUMBER OF
SHARES TO BE ISSUED AND CERTAIN TERMINATION RIGHTS UNDER THE MERGER AGREEMENT.
THE TRANSACTION IS SUBJECT TO SEVERAL CONDITIONS, INCLUDING REGULATORY
APPROVALS, THE RECEIPT OF A FAVORABLE RULING FROM THE INTERNAL REVENUE SERVICE,
AND THE APPROVAL OF GAYLORD'S SHAREHOLDERS. MANAGEMENT CURRENTLY ANTICIPATES
THIS TRANSACTION TO BE COMPLETED PRIOR TO THE SEPARATION OF THE INDUSTRIES AND
TECHNOLOGY BUSINESSES AS DISCUSSED BELOW.
IN NOVEMBER 1996, THE BOARD OF DIRECTORS APPROVED A PLAN TO SEPARATE THE
CORPORATION'S INDUSTRIES AND TECHNOLOGY BUSINESSES BY WAY OF A TAX-FREE
DIVIDEND TO SHAREHOLDERS, FORMING A NEW PUBLICLY TRADED COMPANY TO BE CALLED
WESTINGHOUSE ELECTRIC COMPANY (WELCO). THE PLAN ALSO PROVIDES THAT THERMO KING
WILL CONDUCT A PUBLIC OFFERING OF UP TO 20% OF ITS COMMON STOCK AND WILL BECOME
A MAJORITY-OWNED SUBSIDIARY OF WELCO. COMPLETION OF THE PLAN IS SUBJECT TO A
NUMBER OF CONDITIONS, INCLUDING A FAVORABLE RULING FROM THE INTERNAL REVENUE
SERVICE AND THE REGISTRATION OF THE WELCO COMMON STOCK UNDER THE SECURITIES
EXCHANGE ACT OF 1934. MANAGEMENT CURRENTLY ANTICIPATES THE SEPARATION WILL
OCCUR LATER IN 1997. HOWEVER, THERE CAN BE NO ASSURANCE THAT THE SEPARATION
WILL OCCUR OR AS TO THE RELATED TIMING. FURTHERMORE, IF THE SEPARATION DOES
OCCUR, THERE CAN BE NO ASSURANCE THAT ALL OF THE ASSETS, LIABILITIES AND
CONTRACTUAL OBLIGATIONS WILL BE TRANSFERRED AS CURRENTLY CONTEMPLATED OR THAT
CHANGES WILL NOT BE MADE TO THE SEPARATION PLAN.
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15
DURING 1996, THE CORPORATION COMPLETED THE SALES OF ITS DEFENSE AND ELECTRONIC
SYSTEMS BUSINESS AND KNOLL, AND RECORDED A COMBINED AFTER-TAX GAIN OF $1.2
BILLION. THE CASH PROCEEDS FROM THESE DIVESTITURES, WHICH TOTALLED NEARLY $3.6
BILLION, WERE USED TO REPAY AHEAD OF SCHEDULE A SIGNIFICANT PORTION OF THE DEBT
INCURRED TO FINANCE THE 1995 $5.4 BILLION ACQUISITION OF CBS INC. (CBS).
THE CORPORATION FURTHER STREAMLINED ITS BUSINESSES IN 1996 AND ADOPTED PLANS TO
EXIT ITS COMMUNICATION & INFORMATION SYSTEMS (CISCO) SEGMENT AND ITS
ENVIRONMENTAL SERVICES LINE OF BUSINESS, RESULTING IN THE TRANSFER OF THESE
BUSINESSES TO DISCONTINUED OPERATIONS. ON DECEMBER 31, 1996, THE CORPORATION
COMPLETED THE SALE OF WESTINGHOUSE SECURITY SYSTEMS, PART OF CISCO.
IN THE FIRST QUARTER OF 1996, THE CORPORATION RECOGNIZED COSTS ASSOCIATED WITH
ADDITIONAL RESTRUCTURING ACTIONS, AS WELL AS OUTSTANDING LITIGATION AND OTHER
MATTERS. THE SPECIAL ITEMS INCLUDED IN THE CORPORATION'S RESULTS FOR THE FIRST
THREE MONTHS OF 1996 ARE SUMMARIZED BELOW.
SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 (IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
PRE-TAX AFTER-TAX PER-SHARE
AMOUNT AMOUNT IMPACT
------- --------- ---------
CONTINUING OPERATIONS:
OPERATING PROFIT:
RESTRUCTURING $ (123)
LITIGATION MATTERS (486)
IMPAIRMENT OF ASSETS (15)
CONTRACT ACCOUNTING ADJUSTMENTS (128)
OTHER (30)
-------
TOTAL IMPACT ON OPERATING PROFIT (782)
OTHER INCOME AND EXPENSE:
LOSS ON ASSETS HELD FOR SALE (152)
-------
TOTAL IMPACT ON CONTINUING OPERATIONS $ (934) $ (609) $ (1.39)
=======
DISCONTINUED OPERATIONS:
NET GAIN ON DISPOSAL OF BUSINESSES 1,018 2.32
EXTRAORDINARY ITEM:
LOSS ON EARLY EXTINGUISHMENT OF DEBT (63) (0.14)
------ -------
NET AMOUNT OF SPECIAL ITEMS $ 346 $ 0.79
====== =======
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RESULTS OF OPERATIONS
THE FOLLOWING REPRESENTS THE SEGMENT RESULTS FOR THE CORPORATION'S CONTINUING
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
SEGMENT RESULTS (IN MILLIONS)(UNAUDITED)
----------------------------------------
OPERATING PROFIT
(LOSS)
SALES OF PRODUCTS OPERATING PROFIT EXCLUDING
& SERVICES (LOSS) SPECIAL CHARGES
----------------- ---------------- ----------------
THREE MONTHS ENDED
MARCH 31 1997 1996 1997 1996 1997 1996
- ------------------ ---- ---- ---- ---- ---- ----
MEDIA:
TELEVISION $ 177 $ 188 $ 56 $ 54 $ 56 $ 54
NETWORK 793 766 (60) - (60) -
RADIO 313 121 47 20 47 20
OTHER MEDIA BUSINESSES 60 49 (4) 4 (4) 4
OTHER MEDIA (17) (6) (35) (76) (35) (35)
------ ------ ----- ----- ----- -----
TOTAL MEDIA 1,326 1,118 4 2 4 43
INDUSTRIES & TECHNOLOGY:
POWER SYSTEMS:
ENERGY SYSTEMS 187 231 (60) (26) (60) (5)
POWER GENERATION (a) 474 277 (39) (225) (39) (42)
OTHER POWER SYSTEMS (51) (50) (17) (306) (17) (17)
------ ------ ----- ----- ----- -----
TOTAL POWER SYSTEMS 610 458 (116) (557) (116) (64)
THERMO KING 251 257 47 45 47 45
GOVERNMENT OPERATIONS 23 25 10 18 10 18
------ ----- ----- ----- ----- -----
TOTAL INDUSTRIES &
TECHNOLOGY (a) 884 740 (59) (494) (59) (1)
CORPORATE & OTHER 20 34 (75) (322) (75) (74)
INTERSEGMENT SALES (7) (9) - - - -
------ ------ ----- ----- ----- -----
TOTAL (a) $2,223 $1,883 $(130) $(814) $(130) $ (32)
====== ====== ===== ===== ===== =====
(a) FIRST QUARTER 1996 SALES WERE REDUCED BY A $180 MILLION ONE-TIME ADJUSTMENT
TO PREVIOUS ACCOUNTING FOR CERTAIN LONG-TERM CONTRACTS.
THE CORPORATION'S REPORTED SALES INCREASED $340 MILLION, OR 18%, FOR THE FIRST
QUARTER OF 1997 COMPARED TO THE 1996 FIRST QUARTER. ADJUSTING FOR THE IMPACT OF
THE INFINITY ACQUISITION AND EXCLUDING THE EFFECTS OF THE SPECIAL ONE-TIME
ACCOUNTING ADJUSTMENT AT POWER GENERATION IN 1996, SALES WERE FLAT FOR THE
QUARTER. THE IMPROVEMENTS ACHIEVED BY POWER GENERATION AND MEDIA WERE
ESSENTIALLY OFFSET BY LOWER SALES FROM ENERGY SYSTEMS, THERMO KING, GOVERNMENT
OPERATIONS, AND CERTAIN MISCELLANEOUS NON-STRATEGIC BUSINESSES THAT WERE
DIVESTED IN 1996.
THE OPERATING LOSS FOR THE CORPORATION FOR THE FIRST QUARTER OF 1997 INCREASED
SIGNIFICANTLY FROM THE FIRST QUARTER OF 1996, EXCLUDING SPECIAL ITEMS IN THE
1996 FIRST QUARTER. WHILE THE STRENGTH OF THE MEDIA GROUP'S RADIO BUSINESS
CAUSED PROFITS IN RADIO TO INCREASE SIGNIFICANTLY AS A RESULT OF THE ADDITION OF
INFINITY AND IMPROVEMENT AT THE EXISTING STATIONS, THE CBS NETWORK PROFITS
DECLINED PRIMARILY AS A RESULT OF LOWER RATINGS AND HIGHER PROGRAMMING COSTS.
POWER SYSTEMS' OPERATING LOSS INCREASED FOR THE QUARTER PRIMARILY AS A RESULT
OF THE COMPLETION OF A REEVALUATION OF A COMPLEX INTERNATIONAL NUCLEAR PROJECT
AT ENERGY SYSTEMS WHICH REQUIRED AN ADJUSTMENT TO SALES AND OPERATING PROFIT.
GOVERNMENT OPERATIONS' RESULTS DECLINED FOR THE FIRST QUARTER OF 1997 COMPARED
-16-
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TO 1996 DUE TO THE LOSS OF A DEPARTMENT OF ENERGY (DOE) CONTRACT IN 1996.
THERMO KING, HOWEVER, INCREASED PROFITS SLIGHTLY FOLLOWING TWO FOURTH QUARTER
1996 ACQUISITIONS.
MEDIA
DUE TO THE ACQUISITION OF INFINITY AT DECEMBER 31, 1996, THE RESULTS FOR MEDIA
FOR THE FIRST QUARTER OF 1997 INCLUDE INFINITY FINANCIAL DATA, WHILE THE FIRST
QUARTER OF 1996 RESULTS DO NOT. WHERE APPROPRIATE, THE DISCUSSION BELOW
PROVIDES A COMPARISON OF THE ACTUAL RESULTS FOR THE FIRST QUARTER OF 1997 WITH
THE PROFORMA COMBINED CBS AND INFINITY RESULTS FOR THE FIRST QUARTER OF 1996.
REVENUES FOR THE TELEVISION GROUP DECLINED $11 MILLION OR 6% FOR THE FIRST
QUARTER OF 1997 COMPARED TO THE SAME PERIOD LAST YEAR. LOWER RATINGS IN CERTAIN
MAJOR MARKETS AND THE LACK OF POLITICAL ADVERTISING IN THE 1997 FIRST QUARTER
CONTRIBUTED TO THE DECLINE. THE 1996 FIRST QUARTER ALSO INCLUDED REVENUES FROM
WPRI, THE PROVIDENCE, RHODE ISLAND STATION SOLD IN JULY 1996. DESPITE THE LOWER
REVENUES, OPERATING PROFIT INCREASED NEARLY 4% AS COST IMPROVEMENTS AT THE
STATIONS MORE THAN OFFSET THE DECREASED REVENUES.
THE NETWORK EXPERIENCED A 4% INCREASE IN REVENUES FOR THE FIRST QUARTER OF 1997
COMPARED TO THE SAME PERIOD LAST YEAR PRIMARILY AS A RESULT OF INCREASED
SYNDICATION FEES AND THE TIMING OF THE NCAA FINAL BASKETBALL GAME. THE FINAL
GAME WAS PLAYED ON MARCH 31, 1997 COMPARED TO APRIL 1, 1996. OPERATING PROFIT,
HOWEVER, DECLINED AS A RESULT OF LOWER AUDIENCE LEVELS IN KEY DEMOGRAPHIC
CATEGORIES AND HIGHER PROGRAMMING COSTS PRIMARILY ASSOCIATED WITH SPORTS AND
SPECIAL EVENTS. THE FAVORABLE EFFECT FROM PURCHASE PRICE ACCOUNTING ADJUSTMENTS
RELATED TO PROGRAM RIGHTS DECLINED $32 MILLION IN THE FIRST QUARTER OF 1997
COMPARED TO THE SAME PERIOD LAST YEAR.
ON A PROFORMA COMBINED BASIS, SALES FOR RADIO FOR THE FIRST QUARTER OF 1997
INCREASED NEARLY 18% COMPARED TO THE FIRST QUARTER OF 1996, OUTPACING THE
MARKET. OPERATING PROFIT, ON A PROFORMA COMBINED BASIS, INCREASED 38% FOR THE
SAME PERIOD AS A RESULT OF THE INCREASED REVENUES AND BENEFITS FROM COST
REDUCTION INITIATIVES. RESULTS FOR THE RADIO GROUP INCLUDE AMORTIZATION OF
GOODWILL AND INTANGIBLE ASSETS RELATED TO THE INFINITY ACQUISITION.
OTHER MEDIA BUSINESSES INCLUDES OPERATING RESULTS FOR CBS CABLE, FORMERLY GROUP
W SATELLITE COMMUNICATIONS, AND EYEMARK ENTERTAINMENT (EYEMARK) WHICH PRODUCES
AND DISTRIBUTES PROGRAMMING. REVENUES FOR CBS CABLE INCREASED NEARLY 16% IN THE
FIRST QUARTER OF 1997 COMPARED TO THE SAME PERIOD LAST YEAR, PRIMARILY AS A
RESULT OF INCREASED SALES FOR SPORTS AND OTHER CABLE SERVICES AND THE JUNE 1996
ACQUISITION OF TELENOTICIAS, A 24-HOUR, SPANISH-LANGUAGE NEWS SERVICE.
OPERATING PROFIT, HOWEVER, DECLINED FOR THE FIRST QUARTER OF 1997 COMPARED TO
THE SAME PERIOD LAST YEAR PRIMARILY DUE TO INCREASED EXPENSES RELATED TO
TELENOTICIAS AND COSTS TO DEVELOP AND LAUNCH EYE ON PEOPLE, A NEW CABLE CHANNEL
WHICH DEBUTED MARCH 31, 1997. THE ACQUISITION OF TNN AND CMT LATER IN 1997 IS
EXPECTED TO STRENGTHEN THE GROUP'S CABLE BUSINESS. REVENUES FOR EYEMARK
INCREASED IN THE FIRST QUARTER OF 1997 COMPARED TO THE FIRST QUARTER OF 1996.
THE OPERATING LOSS ALSO IMPROVED DUE TO THE MIX OF PROGRAMMING.
COSTS FOR THE MEDIA GROUP'S HEADQUARTERS AND AMORTIZATION OF ALL GOODWILL
ARISING FROM THE CBS ACQUISITION COMPRISE OTHER MEDIA. FOR THE FIRST QUARTER OF
1996, OTHER MEDIA INCLUDED A $41 MILLION RESTRUCTURING CHARGE FOR
WESTINGHOUSE'S ACTIONS TO OBTAIN OPERATIONAL SYNERGIES BETWEEN CBS AND
WESTINGHOUSE. THE COST OF THE CBS ACTIONS WAS RECORDED IN CONNECTION WITH THE
CBS ACQUISITION. GOODWILL AMORTIZATION RELATED TO THE CBS ACQUISITION TOTALS
$30 MILLION PER QUARTER.
FOR THE ENTIRE MEDIA GROUP, EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND
AMORTIZATION (EBITDA) TOTALLED $110 MILLION FOR THE FIRST QUARTER OF 1997, FLAT
WITH THE SAME PERIOD IN 1996, EXCLUDING THE RESTRUCTURING CHARGE IN 1996. ON A
PROFORMA COMBINED BASIS, EBITDA FOR THE FIRST QUARTER OF 1996 WAS $146 MILLION.
EBITDA DIFFERS FROM OPERATING CASH FLOWS FOR THE GROUP PRIMARILY BECAUSE IT
DOES NOT CONSIDER CHANGES IN ASSETS AND LIABILITIES FROM PERIOD TO PERIOD.
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POWER SYSTEMS
POWER SYSTEMS INCLUDES RESULTS FOR THE ENERGY SYSTEMS AND POWER GENERATION
BUSINESS UNITS. EXCLUDING SPECIAL ITEMS IN THE 1996 FIRST QUARTER, SALES FOR
POWER SYSTEMS DECREASED SLIGHTLY IN THE 1997 FIRST QUARTER, WHILE THE OPERATING
LOSS INCREASED SIGNIFICANTLY.
ENERGY SYSTEMS' SALES AND OPERATING PROFIT DECREASED FOR THE FIRST QUARTER OF
1997 COMPARED TO THE FIRST QUARTER OF 1996. SALES DECREASED $44 MILLION OR 19%
FOR THE FIRST QUARTER OF 1997 COMPARED TO THE SAME PERIOD LAST YEAR, WHILE THE
OPERATING LOSS INCREASED $55 MILLION FOR THE SAME PERIOD, EXCLUDING LAST YEAR'S
$21 MILLION RESTRUCTURING CHARGE. THE PRIMARY REASON FOR THE DECREASE IN SALES
AND OPERATING PROFIT FOR THE PERIOD WAS A $49 MILLION ADJUSTMENT TO BOTH SALES
AND OPERATING PROFIT FOLLOWING A COMPREHENSIVE REEVALUATION OF THE WORK SCOPE
AND COSTS TO COMPLETE A COMPLEX INTERNATIONAL NUCLEAR PROJECT WHICH ORIGINATED
IN 1993. ALTHOUGH THIS $352 MILLION CONTRACT REMAINS PROFITABLE, MANAGEMENT HAS
DETERMINED THAT THE CORPORATION'S PROFIT WILL BE LESS THAN ORIGINALLY
ESTIMATED. ORDERS FOR THE QUARTER WERE DOWN 24%, PRIMARILY DUE TO A LARGE FUEL
RELOAD ORDER IN THE FIRST QUARTER OF 1996.
POWER GENERATION'S ORDERS FOR THE FIRST QUARTER OF 1997 DECREASED $269 MILLION
OR 55% COMPARED TO THE FIRST QUARTER OF 1996. DELAYS IN THE CLOSING OF CERTAIN
PROJECT ORDERS WAS THE PRIMARY CAUSE OF THE DECREASED ORDER LEVEL. ALSO, THE
1996 FIRST QUARTER CONTAINED A NUMBER OF LARGE INTERNATIONAL AND DOMESTIC
ORDERS.
IN LIGHT OF CHANGING MARKET CONDITIONS AND PRICING PRESSURES AT POWER
GENERATION, EFFECTIVE JANUARY 1, 1996, THE BUSINESS UNIT MODIFIED ITS
APPLICATION OF CONTRACT ACCOUNTING PRINCIPLES TO REFLECT A MORE CONSERVATIVE
APPROACH. A ONE-TIME ACCOUNTING ADJUSTMENT WAS RECOGNIZED IN THE FIRST QUARTER
OF 1996 TO REDUCE SALES BY $180 MILLION AND OPERATING PROFIT BY $128 MILLION.
REVENUES IN POWER GENERATION INCREASED $17 MILLION OR 4% FOR THE FIRST QUARTER
OF 1997 COMPARED TO THE SAME PERIOD LAST YEAR, EXCLUDING THE EFFECTS OF THE
1996 ONE-TIME ADJUSTMENT. HIGHER SERVICE SALES WAS THE PRIMARY REASON FOR THIS
REVENUE INCREASE. THE OPERATING LOSS DECLINED 7%, EXCLUDING THE CONTRACT
ACCOUNTING ADJUSTMENT, A $5 MILLION LITIGATION CHARGE, AND A $50 MILLION
RESTRUCTURING CHARGE, ALL OF WHICH WERE RECOGNIZED IN THE FIRST QUARTER OF
1996. HIGHER SERVICE REVENUES AND COST IMPROVEMENTS FROM RESTRUCTURINGS CAUSED
THE IMPROVEMENTS IN THE OPERATING LOSS.
THE OPERATING LOSS FOR THE FIRST QUARTER OF 1996 FOR OTHER POWER SYSTEMS, WHICH
PRIMARILY REFLECTS DISCOUNTS ON PRIOR LITIGATION SETTLEMENTS, INCLUDED A $289
MILLION CHARGE FOR LITIGATION AND OTHER MATTERS. EXCLUDING THIS CHARGE, THE
OPERATING LOSS FOR THE FIRST QUARTER OF 1997 WAS FLAT WITH THE SAME PERIOD LAST
YEAR.
THERMO KING
THERMO KING CONTINUES TO POST POSITIVE RESULTS IN THE FACE OF SOFT MARKETS IN
NORTH AMERICA AND EUROPE. ORDERS FOR THE FIRST QUARTER OF 1997 WERE UP 5%,
PRIMARILY AS A RESULT OF A LARGE CONTAINER ORDER AND INCREASES IN SERVICE PARTS
BUSINESS. SALES WERE DOWN SLIGHTLY DUE PRIMARILY TO THE STRONG U.S. DOLLAR AND
WEAK NORTH AMERICAN TRUCK AND TRAILER SALES. REVENUES FROM TWO FOURTH QUARTER
1996 ACQUISITIONS, SABROE AND THERMAL, PARTIALLY OFFSET THE LOWER TRUCK AND
TRAILER SALES. OPERATING PROFIT INCREASED 4% IN THE FIRST QUARTER OF 1997
COMPARED TO THE SAME PERIOD LAST YEAR AS REVENUES FROM THE TWO ACQUISITIONS AND
SUBSTANTIAL FOCUS ON MATERIAL COST AND PRODUCTIVITY IMPROVEMENTS OFFSET THE
EFFECT OF LOWER TRUCK AND TRAILER SALES.
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GOVERNMENT OPERATIONS
REVENUES FOR THE FIRST QUARTER OF 1997 WERE DOWN 8% AND OPERATING PROFIT WAS
DOWN $8 MILLION, OR 44%, COMPARED TO THE FIRST QUARTER OF 1996. THE DECREASE IN
SALES WAS ATTRIBUTABLE TO THE LOSS OF A DOE CONTRACT AT HANFORD, WASHINGTON, IN
LATE 1996, PARTIALLY OFFSET BY INCREASED PASS-THROUGH SALES AT THE DOE SAVANNAH
RIVER SITE. OPERATING PROFIT DECREASED AS A RESULT OF THE LOSS OF THE HANFORD
CONTRACT PERFORMANCE FEE.
CORPORATE AND OTHER
SALES FOR THE FIRST QUARTER OF 1997 WERE DOWN 41% DUE PRIMARILY TO THE 1996
SALE OF SEVERAL NON-STRATEGIC BUSINESSES. THE OPERATING LOSS, EXCLUDING THE
FIRST QUARTER 1996 CHARGE OF $248 MILLION FOR RESTRUCTURING, LITIGATION AND
OTHER MATTERS, WAS FLAT. DESPITE COST REDUCTIONS FROM RESTRUCTURING ACTIVITIES,
CORPORATE COSTS ARE CONSISTENT WITH THE PRIOR YEAR. COSTS ASSOCIATED WITH THE
CORPORATION'S CONTINUING PENSION OBLIGATION FOR RETIRED INDIVIDUALS WHO WERE
PART OF THE DEFENSE AND ELECTRONIC SYSTEMS BUSINESS SOLD IN MARCH 1996
CONTINUES TO UNFAVORABLY IMPACT OPERATING PROFIT. THESE COSTS FOR JANUARY AND
FEBRUARY OF 1996 WERE INCLUDED IN DISCONTINUED OPERATIONS AS PART OF THE
RESULTS FOR THAT BUSINESS PRIOR TO ITS DISPOSAL.
RESTRUCTURING AND OTHER ACTIONS
IN RECENT YEARS, THE CORPORATION HAS RESTRUCTURED MANY BUSINESSES AND ITS
CORPORATE HEADQUARTERS IN AN EFFORT TO REDUCE COSTS AND REMAIN COMPETITIVE IN
ITS MARKETS. RESTRUCTURING ACTIVITIES PRIMARILY INVOLVE THE SEPARATION OF
EMPLOYEES, THE CLOSING OF FACILITIES, THE TERMINATION OF LEASES, AND THE
EXITING OF PRODUCT LINES. COSTS FOR RESTRUCTURING ACTIVITIES ARE LIMITED TO
INCREMENTAL COSTS THAT DIRECTLY RESULT FROM THE RESTRUCTURING ACTIVITIES AND
THAT PROVIDE NO FUTURE BENEFIT TO THE CORPORATION.
DURING 1996, MANAGEMENT APPROVED NEW RESTRUCTURING PROJECTS WITH COSTS
TOTALLING $273 MILLION, $123 MILLION IN THE FIRST QUARTER AND $150 MILLION IN
THE FOURTH QUARTER, PRIMARILY FOR CONSOLIDATION OF FACILITIES AND THE
SEPARATION OF EMPLOYEES. AS OF MARCH 31, 1997, $162 MILLION HAD BEEN EXPENDED
ON THE 1996 PROGRAMS, $106 MILLION OF WHICH WAS CASH. FUTURE CASH EXPENDITURES
FOR THESE PROGRAMS ARE ESTIMATED TO APPROXIMATE $71 MILLION FOR THE REMAINDER
OF 1997, AND $10 MILLION FOR 1998 AND BEYOND.
IN ADDITION TO THE RESERVES ESTABLISHED IN 1996, RESTRUCTURING RESERVES WERE
ALSO ESTABLISHED IN 1994 AND 1995. THE EMPLOYEE SEPARATIONS INCLUDED IN THE
1994 PLAN ARE COMPLETE. THE EMPLOYEE SEPARATIONS INCLUDED IN THE 1995 PLAN ARE
85% COMPLETE WITH THE REMAINDER OF SEPARATIONS TO OCCUR DURING 1997. REMAINING
TOTAL COSTS UNDER THIS PLAN OF APPROXIMATELY $6 MILLION REPRESENT PRIMARILY
CASH EXPENDITURES, ALL OF WHICH WILL OCCUR IN 1997. IN ADDITION, A CBS
RESTRUCTURING PLAN WAS ADOPTED IN CONJUNCTION WITH THE ACQUISITION IN NOVEMBER
1995. IMPLEMENTATION OF THIS PLAN WILL CONTINUE OVER THE NEXT TWO YEARS.
ANNUALIZED SAVINGS FROM THE 1994 AND 1995 RESTRUCTURING PROGRAMS OTHER THAN THE
CBS PLAN ARE ESTIMATED TO TOTAL APPROXIMATELY $75 MILLION; HOWEVER, COMPETITIVE
PRESSURES CAUSING PRICE COMPRESSION IN CERTAIN OF THE CORPORATION'S MARKETS
HAVE ABSORBED A SIGNIFICANT PORTION OF THE SAVINGS ACHIEVED THROUGH
RESTRUCTURING ACTIONS. ANNUALIZED SAVINGS FROM THE 1996 PLAN, WHICH WILL BE
GRADUALLY ACHIEVED OVER THE NEXT TWO YEARS, ARE ESTIMATED AT $100 MILLION.
THE CORPORATION EXPECTS TO CONTINUE TO IDENTIFY RESTRUCTURING INITIATIVES AT
ITS BUSINESS UNITS AND ITS CORPORATE HEADQUARTERS IN AN ONGOING EFFORT TO
REDUCE ITS OVERALL COST STRUCTURE AND IMPROVE COMPETITIVENESS.
DISCONTINUED OPERATIONS
AT MARCH 31, 1997, THE ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS
INCLUDED THOSE RELATED TO THE REMAINING OPERATING BUSINESSES FROM THE CISCO
SEGMENT AND THE ENVIRONMENTAL SERVICES BUSINESS, THE REMAINING SECURITIES FROM
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THE LAND DEVELOPMENT SUBSIDIARY, OTHER MISCELLANEOUS SECURITIES, THE LEASING
PORTFOLIO, AND DEFERRED INCOME TAXES. LIABILITIES ALSO INCLUDED DEBT AND THE
ESTIMATED LOSSES AND DIVESTITURE COSTS ASSOCIATED WITH ALL DISCONTINUED
OPERATIONS, INCLUDING ESTIMATED RESULTS OF OPERATIONS THROUGH DIVESTITURE. IN
APRIL 1997, THE CORPORATION COMPLETED THE SALE OF TWO OF THE REMAINING
ENVIRONMENTAL SERVICES BUSINESSES.
OTHER THAN THE LEASING PORTFOLIO, THE CORPORATION IS ACTIVELY PURSUING THE SALE
OF ASSETS, WHICH ARE GENERALLY EXPECTED TO BE DIVESTED DURING 1997. DEFERRED
INCOME TAXES, WHICH RESULT FROM TEMPORARY DIFFERENCES BETWEEN BOOK AND TAX
BASES OF THE ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS, GENERALLY WILL
BE TRANSFERRED TO CONTINUING OPERATIONS UPON REVERSAL AND WILL NOT RESULT IN
THE RECEIPT OR PAYMENT OF CASH BY DISCONTINUED OPERATIONS. LIABILITIES
ASSOCIATED WITH DIVESTITURES ARE EXPECTED TO BE SATISFIED OVER THE NEXT SEVERAL
YEARS. DEBT WILL BE REPAID USING CASH PROCEEDS FROM THE LIQUIDATION OF ASSETS
OF DISCONTINUED OPERATIONS. CASH PROCEEDS IN EXCESS OF THOSE REQUIRED TO REPAY
THE DEBT AND SATISFY THE DIVESTITURE LIABILITIES OF DISCONTINUED OPERATIONS, IF
ANY, WILL BE TRANSFERRED TO CONTINUING OPERATIONS.
MANAGEMENT BELIEVES THAT THE NET PROCEEDS ANTICIPATED FROM THE CONTINUED
LIQUIDATION OF ASSETS OF DISCONTINUED OPERATIONS WILL BE SUFFICIENT TO FUND THE
LIABILITIES OF DISCONTINUED OPERATIONS, INCLUDING THE REPAYMENT OF ITS DEBT.
MANAGEMENT FURTHER BELIEVES THAT THE LIABILITY FOR THE ESTIMATED LOSS ON
DISPOSAL OF DISCONTINUED OPERATIONS OF $631 MILLION AT MARCH 31, 1997 IS
ADEQUATE TO COVER FUTURE OPERATING COSTS, ESTIMATED LOSSES, AND THE REMAINING
DIVESTITURE COSTS ASSOCIATED WITH ALL DISCONTINUED BUSINESSES.
OTHER INCOME AND EXPENSES
OTHER INCOME AND EXPENSES FOR THE FIRST QUARTER OF 1997 WAS INCOME OF $34
MILLION COMPARED TO A LOSS OF $146 MILLION FOR THE FIRST QUARTER OF 1996. THE
1997 INCOME INCLUDED THE SALE OF AN EQUITY INVESTMENT IN A REGIONAL SPORTS
NETWORK. DURING THE FIRST QUARTER OF 1996, A COMPREHENSIVE REVIEW WAS
UNDERTAKEN BY THE CORPORATION TO IDENTIFY NON-STRATEGIC ASSETS. A CHARGE OF
$152 MILLION WAS RECOGNIZED DURING THE QUARTER FOR LOSSES EXPECTED TO BE
REALIZED UPON THE SALE OF THOSE ASSETS.
INTEREST EXPENSE
INTEREST EXPENSE FOR CONTINUING OPERATIONS FOR THE FIRST QUARTER OF 1997 WAS
$114 MILLION COMPARED TO $146 MILLION FOR THE SAME PERIOD IN 1996. THE DECREASE
IN INTEREST EXPENSE IS PRIMARILY THE RESULT OF THE REPAYMENT OF $3.6 BILLION OF
DEBT IN MARCH 1996 THROUGH PROCEEDS FROM THE DIVESTITURES OF KNOLL AND THE
DEFENSE AND ELECTRONIC SYSTEMS BUSINESS, AND FAVORABLE INTEREST RATES UNDER THE
NEW BANK CREDIT AGREEMENT COMPLETED IN AUGUST 1996 (SEE REVOLVING CREDIT
FACILITY). THIS DECREASE IN INTEREST EXPENSE IS OFFSET SOMEWHAT BY THE INCREASE
IN DEBT ASSOCIATED WITH THE ACQUISITION OF INFINITY AND INCREASED WORKING
CAPITAL REQUIREMENTS.
INCOME TAXES
THE CORPORATION'S EFFECTIVE INCOME TAX RATE FOR THE FIRST QUARTER OF 1997 AND
1996 WAS A BENEFIT OF 28% AND 35%, RESPECTIVELY. BECAUSE OF THE AMORTIZATION OF
NON-DEDUCTIBLE GOODWILL FOR CBS AND INFINITY AND THE IMPACT OF SPECIAL
TRANSACTIONS, THESE RATES CAN VARY DRAMATICALLY DEPENDING ON THE CORPORATION'S
INCOME OR LOSS LEVELS.
AT MARCH 31, 1997, THE CORPORATION HAD RECORDED NET DEFERRED INCOME TAX
BENEFITS TOTALLING $1,498 MILLION COMPARED TO $1,411 MILLION AT DECEMBER 31,
1996. AS A RESULT OF THESE NET DEFERRED INCOME TAX BENEFITS, CASH PAYMENTS FOR
FEDERAL INCOME TAXES ARE MINIMAL. 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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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.
ON FEBRUARY 10, 1997, THE CORPORATION ANNOUNCED AN AGREEMENT TO ACQUIRE TWO
CABLE NETWORKS - TNN AND CMT. THE PURCHASE PRICE OF $1.55 BILLION WILL BE PAID
IN WESTINGHOUSE COMMON STOCK, WHICH WILL FURTHER INCREASE THE CORPORATION'S
EQUITY. NO DEBT WILL BE ASSUMED IN CONJUNCTION WITH THIS TRANSACTION.
AS DISCUSSED PREVIOUSLY, THE CORPORATION INTENDS TO SEPARATE ITS MEDIA
BUSINESSES FROM ITS INDUSTRIES AND TECHNOLOGY BUSINESSES THROUGH A TAX-FREE
DIVIDEND OF THE INDUSTRIES AND TECHNOLOGY BUSINESSES TO SHAREHOLDERS. AS
CURRENTLY CONTEMPLATED, THE MEDIA COMPANY WILL RETAIN ALL DEBT OBLIGATIONS OF
THE CURRENT WESTINGHOUSE AS WELL AS THE $1.5 BILLION TAX NET OPERATING LOSS
CARRYFORWARD. THE INDUSTRIES AND TECHNOLOGY COMPANY WILL ASSUME MOST OF THE
UNFUNDED PENSION OBLIGATION AND OTHER NON-DEBT OBLIGATIONS GENERATED BY THE
CORPORATION'S INDUSTRIAL BUSINESSES IN EARLIER YEARS. MANAGEMENT CURRENTLY
ANTICIPATES THE SEPARATION WILL OCCUR LATER IN 1997. HOWEVER, THERE CAN BE NO
ASSURANCE THAT ALL OF THE ASSETS, LIABILITIES AND CONTRACTUAL OBLIGATIONS WILL
BE TRANSFERRED AS CURRENTLY CONTEMPLATED OR THAT CHANGES WILL NOT BE MADE TO
THE SEPARATION PLAN.
THE CORPORATION HAS AND WILL CONTINUE TO MONETIZE NON-STRATEGIC ASSETS. IN
1996, THE CORPORATION ADOPTED PLANS TO EXIT ITS ENVIRONMENTAL SERVICES BUSINESS
AND CISCO. IN ADDITION TO THE $3.6 BILLION OF CASH GENERATED BY THE SALE OF
KNOLL AND THE DEFENSE AND ELECTRONIC SYSTEMS BUSINESS, SALES OF VARIOUS
NON-STRATEGIC ASSETS IN 1996 GENERATED CASH PROCEEDS OF APPROXIMATELY $550
MILLION. DURING 1997, SALES OF NON-STRATEGIC ASSETS ARE EXPECTED TO GENERATE
ADDITIONAL CASH OF $300 TO $400 MILLION. THE MAJORITY OF THESE PROCEEDS ARE
ANTICIPATED TO BE RECEIVED IN THE SECOND HALF OF THE YEAR.
TOTAL DEBT FOR THE CORPORATION WAS $6,759 MILLION AT MARCH 31, 1997, OF WHICH
$444 MILLION WAS INCLUDED IN DISCONTINUED OPERATIONS AND WILL BE REPAID THROUGH
THE LIQUIDATION OF THOSE ASSETS. DEBT OF CONTINUING OPERATIONS OF $6,315
MILLION INCREASED $665 MILLION FROM DECEMBER 31, 1996 REFLECTING HIGHER WORKING
CAPITAL REQUIREMENTS. THE CORPORATION'S DEBT OF CONTINUING OPERATIONS IS
EXPECTED TO REMAIN AT APPROXIMATELY THIS LEVEL FOR THE REMAINDER OF THE YEAR.
MANAGEMENT EXPECTS THAT THE CORPORATION WILL HAVE SUFFICIENT LIQUIDITY TO MEET
ORDINARY FUTURE BUSINESS NEEDS. SOURCES OF LIQUIDITY GENERALLY AVAILABLE TO THE
CORPORATION INCLUDE CASH FROM OPERATIONS, AVAILABILITY UNDER ITS CREDIT
FACILITY, CASH AND CASH EQUIVALENTS, PROCEEDS FROM SALES OF NON-STRATEGIC
ASSETS, BORROWINGS FROM OTHER SOURCES, INCLUDING FUNDS FROM THE CAPITAL
MARKETS, AND THE ISSUANCE OF ADDITIONAL CAPITAL STOCK.
OPERATING ACTIVITIES
THE FOLLOWING TABLE PROVIDES A RECONCILIATION OF NET INCOME TO CASH USED BY
OPERATING ACTIVITIES OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MARCH
31, 1997 AND 1996:
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CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
(IN MILLIONS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31
---------------------------
1997 1996
---- ----
LOSS FROM CONTINUING OPERATIONS $ (151) $ (723)
ADJUSTMENTS TO RECONCILE LOSS FROM
CONTINUING OPERATIONS TO NET CASH USED FOR
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 134 104
LOSSES (GAINS) ON ASSET DISPOSITIONS (24) 151
NONCASH RESTRUCTURING CHARGES - 30
OTHER NONCASH PROVISIONS AND ACCOUNTING
ADJUSTMENTS (28) 185
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECTS
OF ACQUISITIONS AND DIVESTITURES OF BUSINESSES:
RECEIVABLES, CURRENT AND NONCURRENT (127) (55)
INVENTORIES (80) (10)
ACCOUNTS PAYABLE (326) (172)
DEFERRED AND CURRENT INCOME TAXES (117) (121)
ACCRUED RESTRUCTURING COSTS (112) 93
OTHER ASSETS AND LIABILITIES (32) 16
------ ------
CASH USED FOR OPERATING ACTIVITIES
OF CONTINUING OPERATIONS $ (863) $ (502)
====== ======
THE OPERATING ACTIVITIES OF CONTINUING OPERATIONS USED $863 MILLION OF CASH
DURING THE FIRST THREE MONTHS OF 1997 COMPARED TO CASH USED OF $502 MILLION
DURING THE FIRST THREE MONTHS OF 1996. THE TWO PRIMARY FACTORS CONTRIBUTING TO
THE ADDITIONAL USE OF CASH IN THE 1997 QUARTER WERE A SIGNIFICANT INCREASE IN
WORKING CAPITAL REQUIREMENTS AND HIGHER RESTRUCTURING EXPENDITURES.
WORKING CAPITAL REQUIREMENTS INCREASED RELATIVE TO THE FIRST QUARTER OF 1996.
INCREASES IN BOTH RECEIVABLES AND INVENTORIES TOTALLED $207 MILLION IN THE
FIRST THREE MONTHS OF 1997 COMPARED TO AN INCREASE OF $65 MILLION IN THE FIRST
THREE MONTHS OF 1996. IN ADDITION, A SIGNIFICANT REDUCTION IN ACCOUNTS PAYABLE
CONTRIBUTED SUBSTANTIALLY TO THE HIGHER WORKING CAPITAL AT MARCH 31, 1997.
RESTRUCTURING SPENDING INCREASED IN THE FIRST QUARTER OF 1997 RELATIVE TO THE
FIRST QUARTER OF 1996. THIS WAS PRIMARILY ATTRIBUTABLE TO EXPENDITURES
ASSOCIATED WITH THE RESTRUCTURING PLANS ADOPTED IN LATE 1996.
THE CORPORATION'S PENSION CONTRIBUTION LEVEL FOR 1997, WHICH IS EXPECTED TO BE
APPROXIMATELY $250 MILLION TO $300 MILLION, IS CONSISTENT WITH THE
CORPORATION'S GOAL TO FULLY FUND ITS QUALIFIED PENSION PLANS OVER THE NEXT
SEVERAL YEARS. IN JULY 1997, THE CORPORATION WILL BEGIN MAKING ITS PENSION
CONTRIBUTIONS QUARTERLY PURSUANT TO CERTAIN MINIMUM FUNDING REQUIREMENTS.
THE OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS USED $30 MILLION OF CASH
DURING THE FIRST THREE MONTHS OF 1997 COMPARED TO $314 MILLION OF CASH USED
DURING THE SAME PERIOD OF 1996. DURING 1996, A SIGNIFICANT AMOUNT OF CASH WAS
USED FOR THE DIVESTITURE COSTS OF KNOLL AND THE DEFENSE AND ELECTRONIC SYSTEMS
BUSINESS AS WELL AS IN THE OPERATIONS OF THOSE BUSINESSES THROUGH THE DATE OF
THEIR DISPOSAL.
FUTURE CASH REQUIREMENTS OF DISCONTINUED OPERATIONS WILL CONSIST PRIMARILY OF
INTEREST COSTS ON DEBT, REMAINING COSTS ASSOCIATED WITH COMPLETED DIVESTITURES,
AND OPERATING AND DISPOSAL COSTS ASSOCIATED WITH THE ENVIRONMENTAL SERVICES
BUSINESS AND CISCO. MANAGEMENT BELIEVES THAT THE FUTURE CASH RECEIPTS OF
DISCONTINUED OPERATIONS WILL BE SUFFICIENT TO SATISFY THE DIVESTITURE
LIABILITIES OF DISCONTINUED OPERATIONS AND THE REMAINING DEBT. ANY CASH IN
EXCESS OF THAT REQUIRED TO SATISFY THOSE LIABILITIES WILL BE TRANSFERRED TO
CONTINUING OPERATIONS.
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INVESTING ACTIVITIES
INVESTING ACTIVITIES PROVIDED $36 MILLION OF CASH DURING THE FIRST THREE MONTHS
OF 1997 COMPARED TO $3.5 BILLION OF CASH PROVIDED DURING THE SAME PERIOD OF
1996. IN THE FIRST QUARTER OF 1997, THE CORPORATION HAD INVESTING CASH OUTFLOWS
RELATED TO THE ACQUISITION OF BUSPACK, A TRANSIT ADVERTISING COMPANY IN THE
UNITED KINGDOM, AND A $20 MILLION PAYMENT IN CONJUNCTION WITH A SWAP OF THREE
RADIO STATIONS IN ORLANDO FOR TWO RADIO STATIONS IN CHICAGO. ACQUISITION CASH
OUTFLOWS IN THE 1996 QUARTER INCLUDED THE PURCHASE OF TWO CHICAGO RADIO
STATIONS.
INVESTING CASH INFLOWS FROM BUSINESS DIVESTITURES IN THE FIRST QUARTER OF 1997
INCLUDED PROCEEDS FROM THE SALES OF ONE RADIO STATION IN CHICAGO, TWO RADIO
STATIONS IN DALLAS, AND AN EQUITY INVESTMENT. IN THE 1996 QUARTER, THE
CORPORATION COMPLETED THE SALES OF KNOLL AND THE DEFENSE AND ELECTRONIC SYSTEMS
BUSINESS, GENERATING $3.6 BILLION OF CASH. LIQUIDATIONS OF OTHER ASSETS
GENERATED APPROXIMATELY $20 MILLION IN THE FIRST QUARTER OF BOTH YEARS.
CAPITAL EXPENDITURES WERE $41 MILLION FOR THE FIRST THREE MONTHS OF 1997, A
DECREASE OF $11 MILLION FROM THE SAME PERIOD OF 1996. CAPITAL SPENDING DURING
1997 IS EXPECTED TO BE APPROXIMATELY $50 MILLION HIGHER THAN 1996 PRIMARILY
DRIVEN BY THE MEDIA GROUP.
FINANCING ACTIVITIES
CASH PROVIDED BY FINANCING ACTIVITIES DURING THE FIRST THREE MONTHS OF 1997
TOTALLED $738 MILLION COMPARED TO CASH USED OF $2.7 BILLION DURING THE SAME
PERIOD OF 1996. THE CASH OUTFLOWS IN THE FIRST QUARTER OF 1997 INCLUDED $149
MILLION TO EXTINGUISH THE LONG-TERM DEBT PREVIOUSLY ISSUED BY INFINITY. THE
CASH OUTFLOWS IN THE FIRST QUARTER OF 1996 INCLUDED $3.6 BILLION OF DEBT
PREPAID UPON THE SALES OF KNOLL AND THE DEFENSE AND ELECTRONIC SYSTEMS
BUSINESS.
TOTAL BORROWINGS UNDER THE CORPORATION'S $5.5 BILLION REVOLVING CREDIT FACILITY
WERE $4.2 BILLION AT MARCH 31, 1997 (SEE REVOLVING CREDIT FACILITY). THESE
BORROWINGS WERE SUBJECT TO A FLOATING INTEREST RATE OF 6.1% AT MARCH 31, 1997,
WHICH WAS BASED ON THE LONDON INTERBANK OFFER RATE (LIBOR), PLUS A MARGIN BASED
ON THE CORPORATION'S SENIOR UNSECURED DEBT RATING AND LEVERAGE.
DIVIDENDS PAID IN THE FIRST THREE MONTHS OF 1997 AND 1996 INCLUDED $12 MILLION
FOR THE SERIES C PREFERRED STOCK, WHICH THE CORPORATION EXPECTS TO REPLACE WITH
31,859,902 SHARES OF COMMON STOCK ON MAY 30, 1997. COMMON STOCK DIVIDENDS
INCREASED FROM $20 MILLION IN THE FIRST QUARTER OF 1996 TO $29 MILLION IN THE
FIRST QUARTER OF 1997 BECAUSE OF ADDITIONAL SHARES OUTSTANDING.
AT MARCH 31, 1997, THE CORPORATION HAD A SHELF REGISTRATION STATEMENT FOR DEBT
SECURITIES WITH AN UNUSED AMOUNT OF $400 MILLION.
REVOLVING CREDIT FACILITY
ON AUGUST 29, 1996, THE CORPORATION EXECUTED A NEW FIVE-YEAR REVOLVING CREDIT
AGREEMENT WITH TOTAL COMMITMENTS OF $5.5 BILLION. THE UNUSED CAPACITY UNDER THE
FACILITY EQUALED $1.3 BILLION AS OF MARCH 31, 1997. BORROWING AVAILABILITY
UNDER THE REVOLVER IS SUBJECT TO COMPLIANCE WITH CERTAIN COVENANTS,
REPRESENTATIONS AND WARRANTIES, INCLUDING A NO MATERIAL ADVERSE CHANGE
PROVISION WITH RESPECT TO THE CORPORATION TAKEN AS A WHOLE, AND RESTRICTIONS ON
LIENS INCURRED. DURING THE FIRST QUARTER OF 1997, THIS AGREEMENT WAS AMENDED
TWICE.
THE CORPORATION IS SUBJECT TO FINANCIAL COVENANTS INCLUDING A MAXIMUM LEVERAGE
RATIO, A MINIMUM INTEREST COVERAGE RATIO, AND MINIMUM CONSOLIDATED NET WORTH.
THESE COVENANTS BECOME MORE RESTRICTIVE OVER THE REMAINING TERM OF THE
AGREEMENT. AT MARCH 31, 1997, THE CORPORATION WAS IN COMPLIANCE WITH THESE
COVENANTS.
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LEGAL, ENVIRONMENTAL, AND OTHER MATTERS
OVER THE PAST SEVERAL YEARS, THE CORPORATION HAS ADDRESSED A VARIETY OF LEGAL,
ENVIRONMENTAL, AND OTHER MATTERS RELATED TO CURRENT OPERATIONS AS WELL AS TO
PREVIOUSLY DIVESTED BUSINESSES. SEE NOTE 10 TO THE FINANCIAL STATEMENTS. THE
COSTS ASSOCIATED WITH RESOLVING THESE MATTERS ARE RECOGNIZED IN THE PERIOD IN
WHICH THE COSTS ARE DEEMED PROBABLE AND CAN BE REASONABLY ESTIMATED. MANAGEMENT
BELIEVES THAT THE CORPORATION HAS ADEQUATELY PROVIDED FOR THE ESTIMATED COSTS
OF RESOLVING THESE MATTERS.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NO REPORTABLE EVENTS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) THE RESTATED ARTICLES OF THE CORPORATION, AS AMENDED TO DECEMBER
13, 1996, ARE INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 4.1 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.
(b) THE BYLAWS OF THE CORPORATION, AS AMENDED TO SEPTEMBER 25, 1996,
ARE INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 4.2 TO THE
CORPORATION'S REGISTRATION STATEMENT NO. 333-13219 ON FORM S-4
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22,
1996.
(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% OF THE TOTAL ASSETS OF THE CORPORATION AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS. THE CORPORATION AGREES TO
PROVIDE TO THE SECURITIES AND EXCHANGE COMMISSION, UPON REQUEST,
A COPY OF INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF
LONG-TERM DEBT OF THE CORPORATION AND ITS SUBSIDIARIES.
(b) RIGHTS AGREEMENT IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT
1 TO FORM 8-A FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JANUARY 9, 1996.
(10) MATERIAL CONTRACTS
(a*) THE ANNUAL PERFORMANCE PLAN, AS AMENDED TO NOVEMBER 1, 1996, IS
INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(a) TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
(b*) THE 1993 LONG-TERM INCENTIVE PLAN, AS AMENDED TO NOVEMBER 1,
1996, IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(b) TO
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
(c*) THE 1984 LONG-TERM INCENTIVE PLAN, AS TO AMENDED NOVEMBER 1,
1996, IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(c) TO
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
(d*) THE WESTINGHOUSE EXECUTIVE PENSION PLAN, AS AMENDED TO SEPTEMBER
25, 1996, IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(d)
TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
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(e*) THE DEFERRED COMPENSATION AND STOCK PLAN FOR DIRECTORS, AS
AMENDED TO NOVEMBER 1, 1996, IS INCORPORATED HEREIN BY REFERENCE
TO EXHIBIT 10(e) TO FORM 10-K FOR THE YEAR ENDED 1996.
(f*) THE DIRECTOR'S CHARITABLE GIVING PROGRAM, AS AMENDED TO APRIL
30, 1996, IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(g)
TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996.
(g*) THE 1991 LONG-TERM INCENTIVE PLAN, AS AMENDED TO JANUARY 29,
1997.
(h*) ADVISORY DIRECTOR'S PLAN TERMINATION FEE DEFERRAL TERMS AND
CONDITIONS, DATED APRIL 30, 1996, IS INCORPORATED HEREIN BY
REFERENCE TO EXHIBIT 10(i) TO FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996.
(i*) EMPLOYMENT AGREEMENT BETWEEN THE CORPORATION AND MICHAEL H.
JORDAN IS HEREBY INCORPORATED BY REFERENCE TO EXHIBIT 10 TO THE
CORPORATION'S FORM 8-K, DATED SEPTEMBER 1, 1993.
(j*) EMPLOYMENT AGREEMENT BETWEEN THE CORPORATION AND FREDRIC G.
REYNOLDS IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(j) TO
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994.
(k) $5.5 BILLION CREDIT AGREEMENT AMONG WESTINGHOUSE ELECTRIC
CORPORATION, THE LENDERS PARTIES THERETO, NATIONSBANK, N.A. AND
THE TORONTO-DOMINION BANK AS SYNDICATION AGENTS, THE CHASE
MANHATTAN BANK AS DOCUMENTATION AGENT, AND MORGAN GUARANTY TRUST
COMPANY OF NEW YORK AS ADMINISTRATIVE AGENT, DATED AUGUST 29,
1996, IS INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 10(l) TO
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
(l*) EMPLOYMENT AGREEMENT BETWEEN CBS INC. AND PETER LUND, DATED AS
OF NOVEMBER 28, 1995, IS HEREBY INCORPORATED BY REFERENCE TO
EXHIBIT 10(l) TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996.
(m*) EMPLOYMENT AGREEMENT BETWEEN THE CORPORATION AND F. J. HARVEY,
DATED AS OF APRIL 30, 1996, IS INCORPORATED HEREIN BY REFERENCE
TO EXHIBIT 10(n) TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1996.
(n*) CBS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, AS AMENDED TO
NOVEMBER 15, 1995, IS INCORPORATED HEREIN BY REFERENCE TO
EXHIBIT 10(n) TO FORM 10-K FOR THE YEAR ENDED 1996.
(o*) CBS BONUS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, AS AMENDED, TO
NOVEMBER 15, 1995, IS INCORPORATED HEREIN BY REFERENCE TO
EXHIBIT 10(o) TO FORM 10-K FOR THE YEAR ENDED 1996.
(p) FIRST AMENDMENT, DATED AS OF JANUARY 29, 1997 TO THE CREDIT
AGREEMENT, DATED AS OF AUGUST 29, 1996, AMONG WESTINGHOUSE
ELECTRIC 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
GUARANTEE TRUST COMPANY OF NEW YORK AS ADMINISTRATIVE AGENT.
(q) 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
WESTINGHOUSE ELECTRIC 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 GUARANTEE
TRUST COMPANY OF NEW YORK AS ADMINISTRATIVE AGENT.
(r) AGREEMENT AND PLAN OF MERGER, DATED AS OF FEBRUARY 9, 1997,
AMONG WESTINGHOUSE ELECTRIC CORPORATION, G ACQUISITION CORP.,
AND GAYLORD ENTERTAINMENT COMPANY IS INCORPORATED HEREIN BY
REFERENCE TO EXHIBIT 99.2 TO FORM 8-K OF WESTINGHOUSE ELECTRIC
CORPORATION, DATED AS OF FEBRUARY 11, 1997.
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(s*) EMPLOYMENT AGREEMENT BETWEEN THE CORPORATION AND MEL KARMAZIN,
MADE AS OF JUNE 20, 1996 AND EFFECTIVE AS OF DECEMBER 31, 1996.
(t*) 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.
(u*) THE WCK ACQUISITION CORP. STOCK OPTION PLAN IS INCORPORATED
HEREIN BY REFERENCE TO EXHIBIT 4.5 TO THE CORPORATION'S
REGISTRATION STATEMENT NO. 333-13219 ON POST-EFFECTIVE AMENDMENT
NO. 1 ON FORM S-8 TO FORM S-4 FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON JANUARY 2, 1997.
(v*) 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.
* 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 JANUARY 10, 1997
FILING A PRESS RELEASE CONCERNING THE CORPORATION'S DIVESTITURE OF
ITS RESIDENTIAL SECURITY BUSINESS.
A CURRENT REPORT ON FORM 8-K (ITEMS 5 AND 7) DATED FEBRUARY 11, 1997
FILING A PRESS RELEASE ANNOUNCING AN AGREEMENT TO ACQUIRE, THROUGH A
PLAN OF MERGER, THE NASHVILLE NETWORK (TNN) AND COUNTRY MUSIC
TELEVISION (CMT) FROM GAYLORD ENTERTAINMENT COMPANY.
A CURRENT REPORT ON FORM 8-K (ITEMS 5 AND 7) DATED FEBRUARY 11, 1997
FILING A PRESS RELEASE CONCERNING THE CORPORATION'S EARNINGS FOR THE
FOURTH QUARTER OF 1996 AND YEAR-END RESULTS FOR 1996.
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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 9TH DAY OF MAY 1997.
WESTINGHOUSE ELECTRIC CORPORATION
/s/ CAROL V. SAVAGE
---------------------------------------
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
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