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 September 30, 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
-----
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
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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 711,262,160 shares outstanding at October 31, 1997
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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 6-16
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 16-32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 6. Exhibits and Reports on Form 8-K 33-35
SIGNATURE 36
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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 Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Sales and operating revenues $ 1,283 $ 910 $ 3,892 $ 3,127
Operating expenses (1,038) (772) (3,316) (2,728)
Depreciation and amortization (107) (68) (317) (210)
Pension and postretirement benefits
of divested businesses (35) (30) (106) (84)
------- ----- ------- -------
Operating profit 103 40 153 105
Other income (expenses), net (note 4) 4 22 61 35
Interest expense (102) (88) (305) (316)
------- ----- ------- -------
Income (loss) from Continuing
Operations before income taxes
and minority interest in income
of consolidated subsidiaries 5 (26) (91) (176)
Income tax benefit (expense) (25) 1 (32) 19
Minority interest in income of
consolidated subsidiaries 1 (1) 2 (1)
------- ----- ------- -------
Loss from Continuing Operations (19) (26) (121) (158)
------- ----- ------- -------
Discontinued Operations, net of
income taxes (note 8):
Income (loss) from Discontinued
Operations (143) 28 (191) (638)
Estimated gain on disposal of
Discontinued Operations -- -- -- 1,018
------- ----- ------- -------
Income (loss) from Discontinued
Operations (143) 28 (191) 380
Extraordinary Item:
Loss on early extinguishment of
debt (note 5) -- (30) -- (93)
------- ----- ------- -------
Net income (loss) $ (162) $ (28) $ (312) $ 129
======= ====== ======= =======
Earnings (loss) per common share:
Continuing Operations $ (0.03) $(0.06) $ (0.19) $ (0.36)
Discontinued Operations (0.22) 0.06 (0.29) 0.86
Extraordinary Item -- (0.06) -- (0.21)
------- ------ ------- --------
Earnings (loss) per common share $ (0.25) $(0.06) $ (0.48) $ 0.29
======= ====== ======= =======
Cash dividends per common share $ 0.05 $ 0.05 $ 0.15 $ 0.15
======= ====== ======= =======
See Notes to the Condensed Consolidated Financial Statements.
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WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(in millions)
September 30, 1997 December 31, 1996
------------------ -----------------
ASSETS (unaudited)
------
Cash and cash equivalents $ 74 $ 129
Customer receivables 886 783
Program rights 435 431
Deferred income taxes 382 377
Prepaid and other current assets 143 182
------- -------
Total current assets 1,920 1,902
Plant and equipment, net 1,052 1,017
FCC licenses, net 2,185 2,199
Goodwill, net 9,731 8,721
Net assets of Discontinued Operations (note 8) 2,055 1,646
Other intangible and noncurrent assets (note 6) 1,668 1,567
------- -------
Total assets $18,611 $17,052
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Short-term debt $ 177 $ 484
Current maturities of long-term debt 63 4
Accounts payable 161 421
Liabilities for talent and program rights 269 308
Other current liabilities (note 7) 894 1,165
------- -------
Total current liabilities 1,564 2,382
Long-term debt 5,969 5,147
Pension liability 1,284 1,061
Other noncurrent liabilities (note 7) 2,719 2,728
------- -------
Total liabilities 11,536 11,318
------- -------
Contingent liabilities and commitments (note 9)
Minority interest in equity of consolidated
subsidiaries 4 3
Shareholders' equity (note 10):
Preferred stock, $1.00 par value (25 million
shares authorized):
Series C conversion preferred (0 million
and 4 million shares issued) - 4
Common stock, $1.00 par value (1,100 million
shares authorized, 712 million and 609 million
shares issued) 712 609
Capital in excess of par value 7,026 5,376
Common stock held in treasury (530) (546)
Minimum pension liability adjustment (796) (796)
Cumulative foreign currency translation
adjustments (2) -
Retained earnings 661 1,084
------- -------
Total shareholders' equity 7,071 5,731
------- -------
Total liabilities and shareholders' equity $18,611 $17,052
======= =======
See Notes to the Condensed Consolidated Financial Statements.
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WESTINGHOUSE ELECTRIC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(in millions) (unaudited)
Nine Months Ended September 30
------------------------------
1997 1996
---- ----
Cash used for operating activities
of Continuing Operations $ (165) $ (327)
Cash used for operating activities
of Discontinued Operations (677) (552)
Cash flows from investing activities:
Business acquisitions (50) (115)
Business divestitures and other asset liquidations 163 3,735
Capital expenditures (131) (146)
------ ------
Cash (used) provided by investing activities (18) 3,474
------ ------
Cash flows from financing activities:
Bank revolver borrowings 2,690 5,813
Bank revolver repayments (1,550) (3,138)
Net change in other short-term debt (314) (336)
Repayments of long-term debt (149) (5,012)
Stock issued 211 93
Dividends paid (113) (98)
Bank fees paid and other (8) (12)
------ ------
Cash provided (used) by financing activities 767 (2,690)
------ ------
Decrease in cash and cash equivalents (93) (95)
Cash and cash equivalents at beginning of period 233 226
------ ------
Cash and cash equivalents at end of period for
Continuing and Discontinued Operations $ 140 $ 131
====== ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid:
Continuing Operations $ 290 $ 322
Discontinued Operations 71 82
------ ------
Total interest paid $ 361 $ 404
====== ======
Income taxes paid $ 47 $ 64
====== ======
See Notes to the Condensed Consolidated Financial Statements.
See note 2 for a description of noncash transactions.
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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, as amended by Form 10-K/A Amendment No. 1 dated July 14,
1997. Reference also should be made to the Quarterly Reports on Form 10-Q
for the quarter ended March 31, 1997, as amended by Form 10-Q/A Amendment
No. 1 dated July 14, 1997 and the quarter ended June 30, 1997. However,
certain financial information presented in these reports has been
subsequently reclassified for comparative purposes as discussed below.
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 as 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 8 to the financial statements.
In November 1996, Westinghouse announced that its Board of Directors had
conditionally approved a plan for a strategic restructuring whereby
Westinghouse would separate its media and industrial businesses.
Westinghouse planned to separate its industrial businesses by way of a
tax-free dividend to shareholders forming a publicly-traded company to be
called Westinghouse Electric Company (WELCO). Modifications were made to the
restructuring plan in June 1997 such that WELCO would consist primarily of
the manufacturing and services businesses for the nuclear and fossil-fueled
power generation industry and the government operations business. In
addition, WELCO would assume environmental and litigation-related
liabilities associated with its current businesses and certain divested
businesses. Westinghouse would retain the media businesses, Thermo King,
debt, and essentially all pension and postretirement benefit obligations
accrued through the date of separation for current and former employees.
A registration statement for WELCO was filed with the Securities and
Exchange Commission on August 13, 1997. A ruling was received from the
Internal Revenue Service that the separation would qualify as a tax free
spin-off to Westinghouse and its shareholders. In September 1997, the
Corporation reached a definitive agreement to sell Thermo King, its
transport temperature control business, for cash proceeds of $2.56 billion.
All of the assets and liabilities and the results of operations for WELCO as
presented in the registration statement and Thermo King were reclassified as
Discontinued Operations as of September 30, 1997 for all periods presented.
The sale of Thermo King was completed on October 31, 1997.
However, in light of consolidation in the power industry, the Corporation
considered offers by various parties to acquire certain of the industrial
businesses. On November 14, 1997, the Corporation announced a definitive
agreement to sell its Power Generation business for $1.525 billion in cash.
The remaining industrial businesses, consisting primarily of Energy Systems
and Government Operations, will be divested in the near term. Certain of
WELCO's environmental and litigation-related liabilities may not be assumed
by other parties in the divestiture transactions and, therefore, have been
separately presented as retained liabilities of discontinued businesses. See
note 9 to the financial statements.
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On December 31, 1996, the Corporation acquired Infinity Broadcasting
Corporation (Infinity). On September 30, 1997, the Corporation completed the
acquisition of Gaylord Entertainment Company's (Gaylord) two major cable
networks - The Nashville Network (TNN) and Country Music Television (CMT).
See note 2 to the financial statements.
On September 19, 1997, the Corporation announced that it had reached a
definitive agreement to acquire American Radio Systems' radio broadcasting
operations for $1.6 billion of cash plus the assumption of approximately $1
billion of debt. The transaction is expected to close in the second quarter
of 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ 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 current 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 losses of $0.26 and $0.10 for the three months
ended September 30, 1997 and 1996, respectively, a loss of $0.53 for the
nine months ended September 30, 1997, and income of $0.23 for the nine
months ended September 30, 1996. The Corporation will adopt this standard as
of December 31, 1997, as required. Early adoption is not permitted.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
were issued. The Corporation will adopt these standards in 1998.
2. ACQUISITIONS
On December 31, 1996, the Corporation acquired Infinity for $3.8 billion of
equity and $.9 billion of debt. The acquisition, which was accounted for
under the purchase method, resulted in an increase in the Corporation's
shareholders' equity at year-end 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. The operating results of Infinity have
been included in the consolidated statement of income beginning January 1,
1997.
On September 30, 1997, the Corporation acquired Gaylord's two major cable
networks, TNN and CMT. The acquisition included the domestic and
international operations of TNN and the U.S. and Canadian operations of CMT,
and approximately $50 million of working capital. The total purchase price
of $1.55 billion was paid through the issuance of 59 million shares of
Westinghouse common stock. The acquisition, which was accounted for under
the
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purchase method, is reflected in the September 30, 1997 consolidated balance
sheet. Based on preliminary estimates, which may be revised at a later date,
the excess of the consideration paid over the estimated fair value of net
assets acquired of approximately $1.2 billion was recorded as goodwill and
is being amortized on a straight-line basis over 40 years. The operating
results of the Gaylord networks will be included in the consolidated
statement of income beginning October 1, 1997.
Prior to the acquisition, the Corporation provided certain services to TNN
and CMT for which it received a commission. Additionally, the Corporation
owned a 33% interest in CMT.
The following unaudited proforma information combines the consolidated
results of operations of the Corporation with those of Infinity and the
Gaylord networks as if these acquisitions had occurred at the beginning of
1996. The proforma results give effect to certain purchase accounting
adjustments, including additional amortization expense from goodwill and
other identified intangible assets, increased interest expense from Infinity
acquisition debt, related income tax effects, and the issuance of additional
shares in connection with the acquisitions.
PROFORMA RESULTS OF OPERATIONS
(in millions except per share amounts) (unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Sales and operating revenues $1,349 $1,168 $4,094 $3,845
Interest expense (102) (109) (305) (379)
Loss from Continuing Operations (19) (27) (119) (183)
Loss per common share -
Continuing Operations (0.03) (0.04) (0.17) (0.26)
This proforma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that
actually would have occurred had the Infinity and Gaylord acquisitions been
consummated on January 1, 1996. In addition, these results are not intended
to be a projection of future results and do not reflect any synergies that
might be achieved from combined operations.
3. RESTRUCTURING, LITIGATION AND OTHER MATTERS
In 1996, the Corporation took several actions to streamline its businesses
and resolve various litigation and other matters. Certain of these actions
resulted in the recognition of charges to operating profit. Most of these
charges related to businesses that subsequently were reclassified as
Discontinued Operations.
Included in Continuing Operations in the first nine months of 1996 were
charges totalling $76 million. The Corporation recognized costs for new
restructuring programs of $41 million for Westinghouse's actions to obtain
operational synergies between CBS Inc. (CBS) and Westinghouse. An additional
$7 million of restructuring costs was recognized for corporate overhead
reductions. A charge of $28 million was recognized for pending litigation
matters. No such charges were recognized in the first nine months of 1997.
Included in Discontinued Operations in the first nine months of 1996 were
costs totalling $946 million. The Corporation recognized costs for new
restructuring projects of $77 million, primarily for the consolidation of
facilities and the separation of employees. A charge of $458 million was
recognized for pending litigation matters. Other costs of $30 million were
recognized generally for
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costs associated with previously divested businesses. Following a
comprehensive review of its environmental remediation obligations, the
Corporation recognized a charge of $175 million for those matters.
In 1996, the Corporation also 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 $54 million was recognized in the first quarter of 1996. In addition, an
estimated loss of $152 million resulting from a decision to sell certain
miscellaneous non-strategic assets was recognized. These charges were
subsequently reclassified to Discontinued Operations.
No such charges were recognized in the first nine months of 1997.
4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Interest income $ 1 $ 4 $ 7 $ 12
Gain on disposition of assets 1 11 32 11
Operating results - non-consolidated
affiliates 3 4 7 7
Other (1) 3 15 5
----- ----- ----- -----
Other income and expenses, net $ 4 $ 22 $ 61 $ 35
===== ===== ===== =====
5. EXTRAORDINARY ITEM
On March 1, 1996 and August 29, 1996, the Corporation extinguished prior to
maturity $3,565 million and $3,195 million of debt, respectively, under the
then-existing $7.5 billion credit facility. These repayments represented all
outstanding borrowings under that 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 $93 million, net of a tax
benefit of $60 million for the nine months ended September 30, 1996.
6. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
Deferred income taxes $ - $ 310
Other intangible assets 889 400
Intangible pension asset 40 40
Deferred charges 45 39
Joint ventures and other affiliates 120 142
Recoverable costs of discontinued businesses
(note 9) 211 235
Noncurrent receivables 105 91
Program rights 135 142
Other 123 168
------- -------
Total other intangible and noncurrent assets $ 1,668 $ 1,567
======= =======
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7. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
Other current liabilities:
-------------------------
Accrued employee compensation $ 106 $ 127
Income taxes currently payable 160 163
Accrued interest and insurance 91 75
Accrued restructuring costs 26 64
Accrued liabilities 295 363
Retained liabilities of discontinued businesses
(note 9) 114 120
Other 102 253
------ ------
Total other current liabilities $ 894 $1,165
====== ======
Other noncurrent liabilities:
----------------------------
Postretirement benefits $1,168 $1,158
Postemployment benefits 29 28
Deferred income taxes 172 -
Accrued restructuring costs 13 53
Liabilities for talent and program rights 63 52
Accrued liabilities 232 379
Retained liabilities of discontinued businesses
(note 9) 811 806
Other 231 252
------ ------
Total other noncurrent liabilities $2,719 $2,728
====== ======
8. DISCONTINUED OPERATIONS
As discussed in note 1, as of September 30, 1997, the Corporation
reclassified as Discontinued Operations the assets, liabilities, and results
of operations for WELCO and Thermo King. The Corporation had previously
adopted several other 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 September 30, 1997.
Measurement Date Line of Business Remaining Assets
---------------- ---------------- ----------------
September 1997 WELCO All assets and liabilities
September 1997 Thermo King Sold October 31, 1997
November 1996 Communication & Information
Systems (CISCO) Several businesses
March 1996 Environmental Services Three waste incineration
plants
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
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In December 1995, Knoll and the defense and electronic systems business were
reclassified as Discontinued Operations in connection with their planned
disposition. Sales of both businesses were completed in the first quarter of
1996 for combined cash proceeds of $3.6 billion plus assumption by the buyer
of certain pension and postretirement benefit liabilities associated with
the active employees of the business. A combined after-tax gain of $1.2
billion was recognized. Exit plans for the CISCO segment and the
environmental services line of business which were adopted later in 1996
reduced the after-tax gain by $.2 billion.
Summarized operating results of the WELCO and Thermo King businesses follow:
OPERATING RESULTS OF WELCO AND THERMO KING
(in millions) (unaudited)
Nine Months Ended
September 30
-----------------
1997 1996
---------------------- ---------------------
Thermo Thermo
WELCO King Total WELCO King Total
----- ------ ----- ----- ----- -----
Sales of products and services $2,181 $ 768 $2,949 $2,282 $ 747 $3,029
Operating costs (2,567) (617) (3,184) (3,175) (605) (3,780)
------ ----- ------ ------ ----- ------
Operating profit (loss) (386) 151 (235) (893) 142 (751)
Other income (expense) (54) (10) (64) (183) (7) (190)
------ ----- ------ ------ ----- ------
Income (loss) before income taxes (440) 141 (299) (1,076) 135 (941)
Income tax benefit (expense) 148 (40) 108 386 (27) 359
------ ----- ------ ------ ----- ------
Net income (loss) prior to
measurement date $ (292) $ 101 $ (191) $ (690) $ 108 $ (582)
====== ===== ====== ====== ===== ======
Summarized operating results of businesses included in Discontinued
Operations prior to 1997, grouped by measurement date, follow:
OPERATING RESULTS OF PRE-1997 DISCONTINUED OPERATIONS
(in millions) (unaudited)
For the nine months ended September 30, 1997
Measurement Date
---------------------------------------
1996 1995 1992 Total
---- ---- ---- -----
Sales of products and services $ 233 $ - $ 9 $ 242
Loss before income taxes (30) - (22) (52)
Income tax benefit 8 - - 8
Net operating loss after measurement
date charged to liability for
estimated loss on disposal (22) - (22) (44)
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For the nine months ended September 30, 1996
Measurement Date
---------------------------------------
1996 1995 1992 Total
---- ---- ---- -----
Sales of products and services $ 424 $ 352 $ 19 $ 795
Loss before income taxes (121) (78) (13) (212)
Income tax benefit (expense) 27 (4) - 23
Net loss prior to measurement date (56) - - (56)
Net operating loss after measurement
date charged to liability for
estimated loss on disposal (38) (82) (13) (133)
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)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 66 $ 104
Receivables 772 867
Inventories 739 816
Uncompleted contract costs over
related billings 473 677
Plant and equipment, net 787 945
Portfolio investments 803 845
Deferred income taxes 1,013 746
Other assets 549 732
------ ------
Total assets -- Discontinued Operations 5,202 5,732
------ ------
LIABILITIES:
Accounts payable 393 706
Uncompleted contract billings over
related costs 335 335
Short-term debt 17 18
Current maturities of long-term debt 96 2
Liability for estimated loss on disposal 378 829
Long-term debt 433 419
Settlements and environmental liabilities 661 757
Other liabilities 834 1,020
------ ------
Total liabilities -- Discontinued Operations 3,147 4,086
------ ------
Net assets of Discontinued Operations $2,055 $1,646
====== ======
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Inventories of Discontinued Operations consist of the following:
INVENTORIES (in millions)
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
Raw materials $ 81 $ 130
Work in process 406 518
Finished goods 125 124
------- -------
612 772
Long-term contracts in process 997 988
Progress payments to subcontractors 41 48
Recoverable engineering and development costs 76 73
Less: Inventoried costs related to contracts
with progress billing terms (987) (1,065)
------- -------
Inventories, net $ 739 $ 816
======= =======
At September 30, 1997, the assets and liabilities of Discontinued Operations
included those related to the operations of WELCO and Thermo King, the
remaining operations 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 Discontinued Operations primarily related to pre-1997 plans, including
estimated results of operations of certain businesses through divestiture.
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 September
30, 1997 and December 31, 1996, 83% and 84% of the leases, respectively,
related to aircraft and 17% and 16%, respectively, related to cogeneration
facilities.
On October 31, 1997, the Corporation completed the sale of Thermo King for
$2.56 billion in cash. The proceeds were used to repay debt of Continuing
Operations. On November 14, 1997, the Corporation announced a definitive
agreement to sell Power Generation, the largest component of WELCO, for cash
proceeds of $1.525 billion. The sale is expected to close in 1998. The
remaining businesses of WELCO, consisting primarily of Energy Systems and
Government Operations, are expected to be divested in 1998. In the fourth
quarter, the Corporation will recognize the net gain on the sale of Thermo
King, which is expected to exceed $1 billion and all of the remaining costs
or losses associated with WELCO. In the aggregate, these transactions are
not expected to result in a net loss.
Except for the leasing portfolio, the remaining assets of the businesses
discontinued prior to 1997 generally are expected to be divested in early
1998.
Net assets of Discontinued Operations at September 30, 1997 also included
$1.0 billion of net deferred income tax benefits. This amount included
approximately $700 million associated with net operating loss carryforwards
for U.S. federal income tax purposes that will be fully utilized by the
Corporation with the sale of Thermo King. Deferred income taxes resulting
from temporary differences between book and tax bases of the assets and
liabilities of Discontinued Operations generally will be included in a
divestiture transaction or transferred to Continuing Operations upon
reversal and are not expected to 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 of Discontinued Operations 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.
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9. CONTINGENT LIABILITIES AND COMMITMENTS
Certain of WELCO's environmental and litigation-related liabilities may not
be assumed by other parties in the pending divestiture transactions and,
therefore, could be retained by the Corporation. These liabilities include
environmental obligations that are not related to active properties of
operating businesses, accrued product liability claims for divested
businesses, liabilities associated with asbestos claims, and general
litigation claims not involving active businesses. Accrued liabilities
associated with these matters, which have been separately presented as
retained liabilities of discontinued businesses, totalled $925 million at
September 30, 1997, including amounts related to previously discontinued
businesses of CBS. A separate asset of $248 million has been recorded for
amounts recoverable from insurance carriers under previous settlement
arrangements. Of this amount, $211 million is classified as noncurrent.
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 Energy Systems business 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 five 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 discussions.
Accrued liabilities for previous and potential settlement agreements that
provide for costs in excess of discounted prices are included in
Discontinued Operations.
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.
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
September 30, 1997, the Corporation had approximately 114,000 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
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current costs and settlements associated with asbestos claims. The
Corporation has recorded a liability for asbestos-related losses 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. The
Corporation believes that any liability incurred for cleanup at these sites
will be satisfied over a number of years, and in many cases, the costs will
be shared with other responsible parties. These sites include certain sites
for which the Corporation, as part of an agreement for sale, has retained
obligations for remediation of environmental contamination and for other
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
issues.
Based on the costs associated with the most probable alternative remediation
strategy for the above mentioned sites, the Corporation has an accrued
liability of $442 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 $321 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. Approximately $80
million of this accrued liability has been included in the net assets of
Discontinued Operations.
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Commitments
-----------
The Corporation routinely enters into commitments to purchase the rights to
broadcast programs, including feature films and sporting events. These
contracts permit the broadcast of such properties for various periods ending
no later than April 2002. As of September 30, 1997, the Corporation was
committed to make payments under such broadcasting contracts, along with
commitments for talent contracts, totalling $3.4 billion.
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. These commitments
generally relate to the operations which have been included as Discontinued
Operations.
Financial Services commitments at September 30, 1997, consisting primarily
of guarantees, totalled $30 million compared to $38 million at year-end
1996. These commitments relate to portfolio investments classified as
Discontinued Operations. The remaining commitments have fixed expiration
dates from 1997 through 2002. Management expects these commitments to expire
unfunded.
10. SHAREHOLDERS' EQUITY
In conjunction with the Gaylord acquisition on September 30, 1997, the
Corporation issued 59 million shares of Westinghouse common stock. This
transaction resulted in an increase in shareholders' equity of $1.5 billion.
On May 30, 1997, the Corporation redeemed all outstanding shares of its
Series C Conversion Preferred Stock (Series C Preferred). In connection with
this redemption, the Corporation issued 32 million shares of Westinghouse
common stock. All accrued and unpaid dividends on the redeemed shares of
Series C Preferred were paid on May 30, 1997.
Prior to its redemption, the Series C Preferred was 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 September 30, 1997 and 1996 would have been losses of $0.25 and
$0.10, respectively, while the per-share results for the nine months ended
September 30, 1997 and 1996 would have been a loss of $0.54 and income of
$0.23, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Media Businesses
On September 30, 1997, Westinghouse Electric Corporation (Westinghouse or
the Corporation) completed the acquisition of Gaylord Entertainment
Company's (Gaylord) 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 total purchase price
of $1.55 billion was paid through the issuance of 59 million shares of
Westinghouse common stock. The assets and liabilities of the cable networks
are included in the Corporation's September 30, 1997 balance sheet along
with the resulting increase in shareholders' equity. Beginning October 1,
1997, operating results for TNN and CMT will be included as part of the
cable segment.
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On September 19, 1997, the Corporation announced that it had reached a
definitive agreement to acquire American Radio Systems' radio broadcasting
operations for $1.6 billion of cash plus the assumption of approximately $1
billion of debt. The transaction, which is expected to close in the second
quarter of 1998, will add 98 radio stations to the radio group's current
portfolio of 77 stations.
The $4.7 billion acquisition of Infinity Broadcasting Corporation (Infinity)
was completed in December 1996. The acquisition resulted in an increase in
the Corporation's year-end 1996 shareholders' equity 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. Beginning January 1,
1997, operating results for Infinity are included as part of the radio
segment.
Industrial Businesses
In November 1996, Westinghouse announced that its Board of Directors had
conditionally approved a plan for a strategic restructuring whereby
Westinghouse would separate its media and industrial businesses.
Westinghouse planned to separate its industrial businesses by way of a
tax-free dividend to shareholders forming a publicly-traded company to be
called Westinghouse Electric Company (WELCO). Modifications were made to the
restructuring plan in June 1997 such that WELCO would consist primarily of
the manufacturing and services businesses for the nuclear and fossil-fueled
power generation industry and the government operations business. In
addition, WELCO would assume environmental and litigation-related
liabilities associated with its current businesses and certain divested
businesses. Westinghouse would retain the media businesses, Thermo King,
debt, and essentially all pension and postretirement benefit obligations
accrued through the date of separation for current and former employees.
A registration statement for WELCO was filed with the Securities and
Exchange Commission on August 13, 1997. A ruling was received from the
Internal Revenue Service that the separation would qualify as a tax free
spin-off to Westinghouse and its shareholders. In September 1997, the
Corporation reached a definitive agreement to sell Thermo King, its
transport temperature control business, to Ingersoll-Rand for cash proceeds
of $2.56 billion. All of the assets and liabilities and the results of
operations for WELCO as presented in the registration statement and Thermo
King were reclassified as Discontinued Operations as of September 30, 1997
for all periods presented. The sale of Thermo King was completed on October
31, 1997, and the proceeds were used to repay debt.
However, in light of consolidation in the power industry, the Corporation
considered offers by various parties to acquire certain of the industrial
businesses. On November 14, 1997, the Corporation announced a definitive
agreement to sell its Power Generation business to Siemens for $1.525
billion in cash. The remaining industrial businesses, consisting primarily
of Energy Systems and Government Operations, will be divested in the near
term. Certain environmental and litigation-related liabilities may not be
assumed by other parties in any of the divestiture transactions and,
therefore, have been separately presented as retained liabilities of
discontinued businesses. See note 9 to the financial statements.
Management's plan to separate the Corporation's media and industrial
businesses has not changed, although the method of separation has changed.
Furthermore, with the completion of the sale of Thermo King and the pending
sale of Power Generation, the Corporation has made significant progress
toward achieving that goal. In the fourth quarter of 1997, the Corporation
will recognize the gain on the sale of Thermo King and the remaining costs
or losses, if any, related to the industrial businesses. Management expects
that the remainder of the plan will be essentially complete by the end of
1998.
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Summary Results
Following the reclassification of Thermo King and WELCO to Discontinued
Operations, the major business segments comprising Continuing Operations are
radio, television, network and cable. The Corporation is taking steps to
change its name to CBS Corporation in recognition of this important
strategic redirection and expects the change to be effective December 1,
1997.
Summarized below are the Corporation's after-tax results for the three and
nine-month periods ended September 30, 1997:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(in millions) (unaudited) 1997 1997
---- ----
Continuing Operations $ (19) $ (121)
Discontinued Operations (143) (191)
------- -------
Net loss $ (162) $ (312)
======= =======
The Corporation's media businesses generally reported strong improvements in
their third quarter results led by the radio group as it continued to
outpace the industry. After-tax results for Continuing Operations continued
to be a loss, however, reflecting the majority of the Corporation's interest
expense, which for the 1997 periods approximates $100 million per quarter.
The results for Continuing Operations also include approximately $35 million
per quarter of costs associated with pension and postretirement benefit
obligations retained by the Corporation in previous business divestiture
transactions. The after-tax losses for Continuing Operations shown above
represent improvements of approximately 25% over the corresponding
prior-year periods.
The after-tax results for Discontinued Operations were significantly below
the corresponding prior-year period, reflecting disappointing results for
WELCO. As previously announced, Power Generation incurred unexpected project
startup expenses and warranty costs in the third quarter and addressed
various other contract issues. Third-quarter charges to earnings associated
with these issues totalled approximately $185 million.
SPECIAL ITEMS IN 1996
During 1996, several important strategic actions were taken. In early 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. In connection with these actions, the
Corporation recognized an after-tax loss of $.2 billion. Divestitures of the
majority of these businesses have now been completed.
In the first nine months of 1996, the Corporation recognized costs
associated with additional restructuring actions, as well as outstanding
litigation, environmental remediation activities, asset impairment, and
other matters. The majority of these charges were subsequently reclassified
as Discontinued Operations. In addition, during the nine months ended
September 30, 1996, an after-tax charge of $93 million was recognized for a
loss on the early extinguishment of debt.
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The special items included in the Corporation's results for the first nine
months of 1996 are summarized below. No special items were recognized in the
first nine months of 1997.
SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 (in millions except per share amounts)
(unaudited)
Pre-Tax After-Tax Per-Share
Amount Amount Impact
Continuing Operations: ------- --------- ---------
Restructuring $ (48)
Litigation matters (28)
-------
Total impact on Continuing Operations $ (76) $ (58) $ (0.13)
=======
Discontinued Operations:
Net gain on disposal of businesses 1,018 2.30
WELCO special items:
Restructuring $ (75)
Litigation matters (458)
Impairment of assets (15)
Environmental remediation activities (175)
Other matters (30)
Loss on assets held for sale (152)
-------
Total WELCO special items $ (905) (588) (1.33)
=======
CISCO special items:
Restructuring $ (2)
Impairment of assets (39)
-------
Total CISCO special items $ (41) (39) (0.09)
=======
Extraordinary Item:
Loss on early extinguishment of debt (93) (0.21)
------- -------
Net amount of special items $ 240 $ 0.54
======= =======
RESULTS OF OPERATIONS - CONTINUING OPERATIONS
The table below presents the segment results for the Corporation's
Continuing Operations, which consist of the media businesses, for the three
months and nine months ended September 30, 1997 and 1996.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) is
presented in the table below because it is a widely accepted financial
indicator of a company's ability to incur and service debt. It is commonly
used in the media industry as a surrogate for cash flows. EBITDA differs
from operating cash flows for the group primarily because it does not
consider certain changes in assets and liabilities from period to period.
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Segment Results (in millions)(unaudited)
----------------------------------------
Operating Profit
Sales (Loss) EBITDA
----------------- ---------------- ----------------
Three Months Ended
September 30 1997 1996 1997 1996 1997 1996
----------------- ---- ---- ---- ---- ---- ----
Radio $ 374 $ 136 $ 102 $ 42 $ 147 $ 50
Television 195 169 67 47 78 58
Network 672 560 30 17 47 33
Cable 58 50 (1) 10 2 12
Corporate & Other (16) (5) (95) (76) (64) (45)
------ ------ ------ ------ ----- ------
Total $1,283 $ 910 $ 103 $ 40 $ 210 $ 108
====== ====== ====== ====== ====== ======
Segment Results (in millions)(unaudited)
----------------------------------------
Operating Profit
Sales (Loss) EBITDA
----------------- ---------------- ----------------
Nine Months Ended
September 30 1997 1996 1997 1996 1997 1996
----------------- ---- ---- ---- ---- ---- ----
Radio $1,065 $ 402 $ 262 $ 109 $ 395 $ 135
Television 585 583 210 191 244 227
Network 2,121 2,021 (57) 87 (9) 134
Cable 170 143 2 39 11 45
Corporate & Other (49) (22) (264) (321) (171) (226)
------ ------ ------ ------ ------ ------
Total $3,892 $3,127 $ 153 $ 105 $ 470 $ 315
====== ====== ====== ====== ====== ======
The Corporation's sales, as reported, increased $373 million or 41% for the
third quarter of 1997 compared to the 1996 third quarter. For the first nine
months of 1997, sales for the Corporation increased $765 million or 24%
compared to the same period last year. Increases in revenues occurred for
all media businesses with the radio group continuing to grow at double-digit
rates over and above the increased revenues from Infinity acquired in
December 1996.
The operating profit for the Corporation for the third quarter of 1997
increased significantly from the same period of 1996 to $103 million. The
strength of the group's radio business drove the increased profit. The
television stations' profit also significantly improved. EBITDA increased
nearly 100% for the third quarter of 1997 compared to the same period of
1996 driven by the higher operating profit.
For the first nine months of 1997, operating profit increased $48 million
compared to the first nine months of 1996. The increase in radio's profit
was offset to a large extent by declines in network profit. EBITDA increased
nearly 50% for the same period.
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Radio
Sales and operating profit as reported for the radio group, including TDI
Worldwide (TDI), its outdoor advertising business, increased dramatically
for the three and nine months ended September 30, 1997 compared to the same
periods of 1996. The increase was due, in part, to the year-end 1996
acquisition of Infinity because the current year's results include Infinity
financial data while 1996 results do not. The discussion below provides a
comparison of the actual 1997 current quarter and year-to-date results with
the proforma combined CBS and Infinity results for the same periods of 1996.
On a proforma combined basis, sales for the radio group continued to outpace
the industry increasing $39 million or 12% for the quarter and $126 million
or 13% for the first nine months. These results reflect strong markets for
radio and outdoor advertising combined with management's continued focus on
improving revenue growth.
Proforma combined operating profit increased at a greater rate than sales
resulting in improved profit of $14 million or 16% for the quarter and $44
million or 20% for the first nine months. Higher revenues from the strong
demand for advertising, combined with management's continued cost control
efforts, drove the increased profit.
Proforma combined EBITDA for the radio group increased 24% for the quarter
and 26% for the nine-month period. This increase exceeds the increase in
operating profit because it eliminates the amortization of goodwill arising
from the Infinity acquisition.
Television
Revenues for the television stations rebounded during the third quarter as
sales improved over 1996 by $26 million or 15%. This strong quarterly
increase brought the year-to-date revenues of $585 million in line with
1996. The increase is attributable to broad based improvements across the
television station group. The television stations continue to benefit from
the momentum of strong advertising markets and a renewed focus on revenue
growth.
Improvements in operating profit for the quarter and year to date
significantly outpaced the revenue growth resulting in profit increases of
$20 million or 43% for the quarter and $19 million or 10% for the nine-month
period. The strength in the television station group's performance reflects
management focus as well as the positive impact of cost reduction
initiatives.
Consistent with operating profit performance, EBITDA for the television
group increased $20 million for the third quarter and $17 million for the
nine months ended September 30, 1997.
Network
The network segment consists of CBS entertainment, news, and sports, as well
as CBS Enterprises (including Eyemark Entertainment), which produces and
distributes programming and develops and sells certain syndicated
programming.
The network reported an increase in revenues of $112 million or 20% for the
quarter and $100 million or 5% for the year to date. The quarterly and
year-to-date results reflect increased program syndication revenues as well
as additional revenues generated by special programs such as the Country
Music Awards, which were held in the fourth quarter of last year, and the
Emmy Awards. While higher ratings and pricing were achieved on certain
programs, declines in ratings on other dayparts had an unfavorable effect on
year-to-date revenues.
Operating profit increased $13 million for the quarter but decreased $144
million for the nine months ended September 30, 1997 as a result of higher
programming costs primarily associated with entertainment and sports and
higher syndication costs. Lower audience levels in key demographic
categories contributed to the decline. Furthermore, results for 1996 were
more favorably impacted by purchase accounting adjustments related to
program rights acquired in the purchase of CBS.
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EBITDA for the network increased $14 million for the quarter but decreased
$143 million year to date, which is consistent with the operating profit
performance.
Cable
The cable segment primarily includes TeleNoticias, a 24-hour,
Spanish-language news service acquired in 1996, Eye on People, which debuted
March 31, 1997, two sports programming providers, and a network services
provider. Prior to the acquisition of TNN and CMT on September 30, 1997, CBS
Cable received a commission to provide the marketing and advertising
services to those networks. In addition, the Corporation owned a 33%
interest in CMT. Effective October 1, 1997, the results of these networks
will be included in full.
Revenues for CBS Cable increased $8 million or 16% for the quarter and $27
million or 19% for the nine months ended September 30, 1997. These increases
were primarily attributable to the acquisition of TeleNoticias, the
increased commissions generated by higher sales levels achieved by TNN, and
increased subscriber fees generated by the sports programming providers.
Operating profit decreased $11 million to an operating loss of $1 million
for the third quarter. Year to date operating profit decreased $37 million
to a profit of $2 million. Increased expenses related to TeleNoticias and
costs to develop and launch Eye on People precipitated the decline in
profit. Those increased costs and expenses caused EBITDA to decline $10
million for the quarter and $34 million for the nine months ended September
30, 1997.
Corporate & Other
Corporate & Other includes (a) costs related to the media group's
headquarters; (b) amortization of all goodwill arising from the CBS
acquisition of $30 million per quarter; (c) costs for the Corporation's
overhead functions; and (d) pension and postretirement benefit costs
associated with obligations retained in prior business divestitures. In
addition, results for the nine months ended September 30, 1996 include
special charges of $48 million for restructuring programs and $28 million
for Westinghouse corporate litigation matters. Of the total restructuring
costs of $48 million, $41 million related to Westinghouse actions to obtain
operational synergies between Westinghouse and CBS following its
acquisition. The remaining $7 million was for corporate restructuring
actions.
Costs for the Corporation's overhead functions in the 1997 periods include
significant expenditures related to the separation of the media and
industrial businesses. With the sale of the remaining industrial businesses,
further downsizing of the overhead structure in Pittsburgh, Pennsylvania is
expected to begin in the fourth quarter of 1997 to combine certain functions
with the media group's headquarters.
In various business divestiture transactions over the years, the Corporation
has retained pension and postretirement benefit obligations as of the date
of the divestiture for current and retired employees. Costs associated with
these obligations, which consist primarily of interest costs, currently
total $35 million per quarter. The level of these costs in the future will
depend on a number of factors, including the amount of any obligations
retained in future divestiture transactions.
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.
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In Continuing Operations during 1996, management approved new restructuring
projects with costs totalling $57 million, $48 million in the first quarter
and $9 million in the fourth quarter, primarily for consolidation of
facilities and the separation of employees. As of September 30, 1997, $37
million had been expended on the 1996 programs, $23 million of which was
cash. Future cash expenditures for these programs are estimated to
approximate $5 million for the remainder of 1997, and $15 million for 1998
and beyond. In addition, a CBS restructuring plan was adopted in conjunction
with the acquisition in November 1995. Implementation of this plan is
continuing.
Also during 1996, management approved new restructuring projects with costs
totalling $218 million for businesses that subsequently were reclassified as
Discontinued Operations. Costs of $77 million recognized in the first
quarter and $141 million in the fourth quarter were primarily for
consolidation of facilities and the separation of employees. As of September
30, 1997, $157 million had been expended on the 1996 programs, $115 million
of which was cash. Future cash expenditures for these programs are estimated
to approximate $29 million for the remainder of 1997, and $32 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 and
restructuring expenditures included in these plans are essentially complete.
Annualized savings from the 1994 and 1995 restructuring programs other than
the CBS acquisition plan are estimated to total approximately $75 million,
of which $15 million relates to Continuing Operations and $60 million
relates to Discontinued Operations. However, competitive pressures causing
price compression in certain of the Power Systems' 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, of which $20 million
relates to Continuing Operations and $80 million relates to Discontinued
Operations.
On an ongoing basis, the Corporation expects to review its overall cost
structure and, when appropriate, identify restructuring initiatives.
Additional restructuring actions related to its Corporate headquarters are
expected in the fourth quarter of 1997. In light of the recent change in the
disposition strategy for the industrial businesses, the Corporation is
reevaluating the previously announced tentative restructuring plans
associated with those businesses.
DISCONTINUED OPERATIONS
As of September 30, 1997, the Corporation reclassified the assets,
liabilities, and results of operations for WELCO and Thermo King as
Discontinued Operations for all periods presented. The Corporation completed
the sale of Thermo King on October 31, 1997 for $2.56 billion in cash and
repaid debt of Continuing Operations. On November 14, 1997, the Corporation
announced that it had reached a definitive agreement to sell its Power
Generation business, the largest component of WELCO, to Siemens for $1.525
billion in cash. The remaining businesses of WELCO, consisting primarily of
Energy Systems and Government Operations, are expected to be divested in
1998. In the fourth quarter of 1997, the Corporation will recognize the net
gain on the sale of Thermo King, which is expected to exceed $1 billion, and
all of the remaining costs and losses associated with WELCO. In the
aggregate, these transactions are not expected to result in a net loss.
At September 30, 1997, the remaining assets and liabilities of Discontinued
Operations included those related to the operations of WELCO and Thermo
King, the remaining operations 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 certain debt and the estimated losses and
divestiture costs associated with Discontinued Operations primarily related
to pre-1997 plans, including estimated results of operations of certain
businesses through their estimated divestiture date.
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Portfolio investments, which totalled $803 million at September 30, 1997,
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 September 30, 1997 and December
31, 1996, 83% and 84% of the leases, respectively, related to aircraft and
17% and 16%, respectively, related to cogeneration facilities.
Except for the leasing portfolio, the remaining assets of the businesses
discontinued prior to 1997 generally are expected to be divested in early
1998.
Net assets of Discontinued Operations at September 30, 1997 also included
$1.0 billion of net deferred income tax benefits. This amount included
approximately $700 million associated with net operating loss carryforwards
for U.S. federal income tax purposes that will be fully utilized by the
Corporation with the sale of Thermo King. Deferred income taxes resulting
from temporary differences between book and tax bases of the assets and
liabilities of Discontinued Operations generally will be included in a
divestiture transaction or transferred to Continuing Operations upon
reversal and are not expected to 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 of Discontinued Operations 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 $378 million at September 30, 1997
is adequate to cover future operating costs, estimated losses, and the
remaining divestiture costs associated with discontinued businesses for
pre-1997 plans. Liabilities for divestitures under the 1997 plan will be
recognized in the fourth quarter of 1997 in conjunction with the gain on the
sale of Thermo King.
The following represents the segment results for WELCO and Thermo King for
the three months and nine months ended September 30, 1997 and 1996.
Segment Results (in millions)(unaudited)
----------------------------------------
Operating Profit
(Loss)
Sales of Products Operating Profit Excluding
& Services (Loss) Special Charges
----------------- ---------------- ----------------
Three Months Ended
September 30 1997 1996 1997 1996 1997 1996
----------------- ---- ---- ---- ---- ---- ----
WELCO:
Power Generation $ 405 $ 527 $ (232) $ 5 $ (232) $ 5
Energy Systems 265 280 7 15 7 15
Other Power Systems (48) (38) (21) (20) (21) (20)
------ ------ ------ ------ ------ ------
Power Systems 622 769 (246) - (246) -
Government Operations 25 27 13 18 13 18
Corporate & Other 13 28 (21) (17) (21) (17)
------ ------ ------ ------ ------ ------
Total WELCO $ 660 $ 824 $ (254) $ 1 $ (254) $ 1
====== ====== ====== ====== ====== ======
Thermo King $ 262 $ 234 $ 53 $ 49 $ 53 $ 49
====== ====== ====== ====== ====== ======
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Segment Results (in millions)(unaudited)
----------------------------------------
Operating Profit
(Loss)
Sales of Products Operating Profit Excluding
& Services (Loss) Special Charges
----------------- ---------------- ----------------
Nine Months Ended
September 30 1997 1996 1997 1996 1997 1996
----------------- ---- ---- ---- ---- ---- ----
WELCO:
Power Generation $1,464 $1,425 $ (273) $ (132) $ (273) $ (77)
Energy Systems 761 815 (36) (9) (36) 23
Other Power Systems (155) (125) (52) (343) (52) (54)
------ ------ ----- ------ ----- ------
Power Systems 2,070 2,115 (361) (484) (361) (108)
Government Operations 72 78 42 49 42 49
Corporate & Other 39 89 (67) (458) (67) (81)
------ ------ ------ ------ ------ ------
Total WELCO $2,181 $2,282 $ (386) $ (893) $ (386) $ (140)
====== ====== ====== ====== ====== ======
Thermo King $ 768 $ 747 $ 151 $ 142 $ 151 $ 142
====== ====== ====== ====== ====== ======
Power Generation
Power Generation's orders for the third quarter of 1997 decreased $334
million or 62% compared to the third quarter of 1996, while orders for the
first nine months of 1997 declined $673 million compared to the same period
last year. Delays in project orders due to timing of financial closings was
the primary cause of this decline. Although a high level of negotiation
activity continues, orders are expected to trail 1996's volume.
Revenues for Power Generation decreased $122 million or 23% for the third
quarter of 1997 and were essentially flat for the first nine months of 1997
compared to the same periods last year. A lower volume of orders with short
cycle times drove this revenue decline for the quarter. Additional sales
from the backlog and increased sales to China offset this sales decline in
the nine-month period.
The operating loss for the third quarter increased $237 million from a $5
million profit in the third quarter of 1996. Power Generation incurred
expenses during the quarter for unexpected startup costs with two combined
cycle projects and higher than anticipated warranty expenses. The issues
that gave rise to these startup delays have been addressed and the two
projects are now in commercial operation. Provisions for delay costs,
warranty costs and product modifications, including modifications to backlog
units, totalled $111 million. Additional costs of $75 million were
recognized to complete various contracts, write down inventory, and resolve
commercial issues.
For the nine-month period of 1997, the operating loss increased $196
million, excluding a $5 million litigation charge and a $50 million
restructuring charge recognized in the first quarter of 1996. The decline in
volume and the additional charges described above are the predominant
reasons for the increased operating loss. Cost improvements from
restructuring programs have partially offset the decline in profit.
Energy Systems
Energy Systems sales for the third quarter of 1997 were down slightly
compared to the third quarter of 1996, with operating profit down $8 million
for the same period. Customer delays in fuel shipments were the primary
cause of the third quarter decline. For the first nine months of 1997, sales
for Energy Systems decreased 7% while the operating loss, excluding special
items in the
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1996 period, increased sharply. The 1996 nine-month period included an $11
million environmental remediation charge and a $21 million restructuring
charge. The primary reasons for the decrease in sales and operating profit
for the nine-month period were the customer delays in fuel shipments
discussed above and 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.
During the first quarter of 1997, management determined that the
Corporation's profit on this $352 million contract would be less than
originally estimated.
Orders for the third quarter of 1997 were up compared to the same period
last year despite the customer delays in fuel orders. Increased outage and
engineering service work and a higher volume of U.S. Navy orders were the
primary reasons for the third quarter improvement. For the first nine months
of 1997, orders declined 16% compared to the same period last year, as the
increased Navy, outage, and service orders were more than offset by the
delay in fuel orders to later in 1997 and 1998. The first nine months of
1996 also had several large fuel reload orders.
Other Power Systems
The operating loss for the first nine months of 1996 for Other Power
Systems, which primarily reflects discounts on prior litigation settlements,
included a $289 million special charge taken in the first quarter of 1996
for estimated losses associated with potential litigation settlements.
Excluding this charge, the operating losses for the third quarter and first
nine months of 1997 were essentially flat from the same periods last year.
Government Operations
Revenues for the third quarter and first nine months of 1997 were down 7%
and 8%, respectively, compared to the same periods of 1996. The loss of the
Hanford Department of Energy (DOE) contract in late 1996 was the primary
reason for the sales decline. The operating profit for the third quarter and
first nine months of 1997 decreased $5 million or 28% and $7 million or 14%,
respectively, compared to the same periods of 1996 primarily as a result of
the loss of the Hanford contract. The timing of fees from several government
contracts during the first nine months of 1997 partially offset the loss of
the Hanford contract.
Corporate and Other
Corporate and Other includes the cost of WELCO's headquarters activities and
the results of operations for non-strategic and divested businesses.
Sales for the third quarter and first nine months of 1997 were down 54% and
56%, respectively, due primarily to the continuing divestitures of several
non-strategic businesses. The operating loss, excluding the first quarter
1996 charge of $213 million for restructuring, litigation, and other
matters, and a second quarter 1996 charge of $164 million for environmental
remediation activities increased $4 million for the 1997 third quarter and
improved 17% for the nine-month period. Cost reductions from restructuring
activities is the primary reason for the improvement in operating costs for
the first nine months of 1997 excluding special charges.
Thermo King
Sales and operating profit for the third quarter and the first nine months
of 1997 increased compared to the same periods of 1996 reflecting continued
strength in bus air conditioning sales and improved conditions in the North
American truck and trailer industry. Material cost and productivity
improvements also contributed to increased profit. On October 31, 1997, the
Corporation completed the sale of Thermo King for $2.56 billion of cash.
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OTHER INCOME AND EXPENSES
Other income and expenses generated income of $4 million in the third
quarter of 1997 and $61 million for the first nine months of 1997 compared
to income of $22 million and $35 million for the same periods of 1996. The
1997 year-to-date income included the sale of an equity investment in a
regional sports network. The 1996 quarter and year-to-date income included
the sale of an equity investment in an advertisement tracking service.
INTEREST EXPENSE
Interest expense for Continuing Operations for the third quarter and first
nine months of 1997 was $102 million and $305 million, respectively,
compared to $88 million and $316 million, respectively, for the same periods
in 1996. The increase in interest expense in the third quarter of 1997 is
the result of higher average debt primarily attributable to debt from the
December 1996 acquisition of Infinity. Average debt for the first nine
months of 1997 was lower than the prior year because of the January and
February 1996 impact of the CBS acquisition debt prior to its repayment from
the proceeds of major divestitures.
In connection with the reclassification of Thermo King and WELCO to
Discontinued Operations, interest expense totalling $39 million was
reclassified accordingly for the nine months ended September 30, 1997 and
the corresponding prior-year period.
INCOME TAXES
Although the Corporation's pre-tax results for Continuing Operations for the
three and nine months ended September 30, 1997 are losses, the results
reflect income tax expense primarily because of the amortization of
non-deductible goodwill associated with the CBS and Infinity acquisitions.
In the aggregate, permanent differences between reported income and taxable
income approximate $225 million per year. Depending on the level of the
Corporation's income or losses and the effect of any special transactions,
these differences can dramatically impact the resulting tax provision or
benefit in relation to pre-tax results.
At September 30, 1997, the Corporation had recorded net deferred income tax
benefits totalling $1.2 billion compared to $1.4 billion at December 31,
1996. Of this amount, $.2 billion at September 30, 1997 and $.7 billion at
December 31, 1996 were presented in Continuing Operations, with the
remainder in Discontinued Operations. The reduction in the net deferred tax
benefit resulted in part from a $.2 billion deferred tax liability that was
recorded in connection with the Gaylord acquisition.
A significant component of the net deferred income tax benefit is the net
operating loss carryforward, which approximated $2.25 billion at September
30, 1997. Because of the Corporation's net operating loss carryforward, cash
payments for federal income taxes have been minimal in recent years.
However, the sale of Thermo King in October 1997 will result in a
substantial taxable gain that will essentially eliminate the Corporation's
net operating loss carryforward and reduce the net deferred income tax
benefit accordingly.
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.
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On September 30, 1997, the Corporation completed the acquisition of two
cable networks - TNN and CMT. The purchase price of $1.55 billion was paid
through the issuance of 59 million shares of Westinghouse common stock,
which further increased the Corporation's equity. No debt was assumed in
conjunction with this transaction.
On September 19, 1997, the Corporation announced that it had reached a
definitive agreement to acquire American Radio Systems' radio broadcasting
operations for $1.6 billion of cash plus the assumption of approximately $1
billion of debt. The transaction, which is expected to close in the second
quarter of 1998, will add 98 radio stations to the radio group's current
portfolio of 77 stations.
On October 31, 1997, the Corporation completed the sale of Thermo King for
$2.56 billion in cash. The proceeds were used to repay debt.
As discussed previously, the Corporation has reached an agreement to sell
its Power Generation business for $1.525 billion in cash. The sale is
expected to be completed in mid-1998. The remaining industrial businesses,
consisting primarily of Energy Systems and Government Operations, are
expected to be divested in 1998.
In general, the Corporation's non-strategic assets are included in
Discontinued Operations. In addition to WELCO's major businesses to be
divested, other miscellaneous assets await disposition, including surplus
properties. Several miscellaneous businesses remain to be divested in the
near term under the 1996 plans to exit the environmental services and CISCO
businesses. The majority of the proceeds from these sale transactions is
expected to be received in 1998.
Total debt for the Corporation was $6,755 million at September 30, 1997, of
which $546 million was included in Discontinued Operations and will be
repaid through the liquidation of those assets. Although the assets and
liabilities of WELCO and Thermo King were reclassified to Discontinued
Operations, essentially none of the Corporation's debt was reclassified.
Debt of Continuing Operations of $6,209 million increased $574 million from
December 31, 1996 reflecting higher working capital requirements at several
businesses, particularly those now included in Discontinued Operations. Upon
the sale of Thermo King on October 31, 1997, debt of Continuing Operations
was reduced by $2.56 billion.
Management expects that the Corporation will have sufficient liquidity to
meet ordinary future short-term and long-term 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 nine months ended
September 30, 1997 and 1996:
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CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
(in millions) (unaudited)
Nine Months Ended September 30
------------------------------
1997 1996
---- ----
Loss from Continuing Operations $ (121) $ (158)
Adjustments to reconcile loss from
Continuing Operations to net cash used
for operating activities:
Depreciation and amortization 317 210
Gains on asset dispositions (32) (11)
Other noncash adjustments (56) (148)
Changes in assets and liabilities, net of effects
of acquisitions and divestitures of businesses:
Receivables, current and noncurrent (25) 28
Accounts payable (261) (168)
Deferred and current income taxes (15) (83)
Program rights (73) (141)
Other assets and liabilities 101 144
------ ------
Cash used for operating activities
of Continuing Operations $ (165) $ (327)
====== ======
The operating activities of Continuing Operations used $165 million of cash
during the first nine months of 1997 compared to cash used of $327 million
during the first nine months of 1996. The $162 million decrease in the use
of cash was primarily due to increased cash flow resulting from the Infinity
acquisition.
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 contributed $55 million to the
plan pursuant to certain quarterly minimum funding requirements.
The following table provides a reconciliation of net income to cash used by
operating activities of Discontinued Operations for the nine months ended
September 30, 1997 and 1996:
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CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
(in millions) (unaudited)
Nine Months Ended September 30
------------------------------
1997 1996
---- ----
Income (loss) from Discontinued Operations $ (191) $ 380
Adjustments to reconcile income (loss) from
Discontinued Operations to net cash used
for operating activities:
Depreciation and amortization 97 118
Gain on disposal of Discontinued Operations - (1,018)
Losses on asset dispositions - 152
Asset impairment - 54
Changes in assets and liabilities, net of effects
of acquisitions and divestitures of businesses:
Receivables, current and noncurrent 47 194
Inventories 60 (147)
Accounts payable (332) (172)
Liabilities for asset dispositions (190) (418)
Other assets and liabilities (168) 305
------ ------
Cash used for operating activities
of Discontinued Operations $ (677) $ (552)
====== ======
The operating activities of Discontinued Operations used $677 million of
cash during the first nine months of 1997 compared to $552 million of cash
used during the same period of 1996. The primary factors contributing to the
use of cash in 1997 were a reduction in accounts payable and continued
expenditures related to asset dispositions. The use of cash in 1996
primarily relates to the divestiture costs of Knoll and the defense and
electronic systems business, as well as the cash used in the operations of
those businesses through the date of their disposal. Both the 1997 and the
1996 periods include cash used in the operations of the environmental
services businesses, most of which have been sold.
In the near term, cash from Continuing Operations may be required to support
the WELCO and other miscellaneous businesses of Discontinued Operations
until their divestiture. Longer-term cash requirements of Discontinued
Operations will consist primarily of interest costs on debt, remaining costs
associated with completed divestitures, and disposal costs for the remaining
businesses. Management believes that the future cash receipts of
Discontinued Operations will be sufficient to satisfy the liabilities of
Discontinued Operations and to repay the remaining debt. Any cash in excess
of that required to satisfy the liabilities will be transferred to
Continuing Operations.
Investing Activities
Investing activities used $18 million of cash during the first nine months
of 1997 compared to $3.5 billion of cash provided during the same period of
1996. In the first nine months 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 first nine months of 1996 included the
purchase of two Chicago radio stations and TeleNoticias, a Spanish language,
24-hour news service. Also, the Corporation invested in several joint
ventures, primarily in China.
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In addition to the cash acquisitions discussed above, the Corporation
completed two major acquisitions without investing cash. The Corporation
acquired Gaylord's two major cable networks, TNN and CMT on September 30,
1997. The total purchase price of $1.55 billion was paid through the
issuance of 59 million shares of Westinghouse common stock. In December
1996, the Corporation acquired Infinity for $4.7 billion, including $.9
billion of assumed debt, through the issuance of 183 million shares of
Westinghouse common stock and the conversion of Infinity options into
options to acquire approximately 22 million of additional shares of stock.
Investing cash inflows from business divestitures in the first nine months
of 1997 included proceeds from the sales of several radio stations, various
operations from the environmental services business, an equity investment in
a regional sports network, and other non-strategic assets. In the first nine
months of 1996, the Corporation completed the sales of Knoll and the defense
and electronic systems business, generating $3.6 billion of cash. Other
divestitures included the sales of WPRI, a Providence, Rhode Island
television station, and other non-strategic assets.
Capital expenditures for both Continuing and Discontinued Operations were
$131 million for the first nine months of 1997, a decrease of $15 million
from the same period of 1996. Capital spending during 1997 is expected to be
slightly higher than 1996 primarily driven by the media group.
Financing Activities
Cash provided by financing activities during the first nine months of 1997
totalled $767 million compared to cash used of $2.7 billion during the same
period of 1996. The cash outflows in the first nine months of 1997 included
$149 million to extinguish the long-term debt previously issued by Infinity.
The cash outflows in the first nine months of 1996 were primarily
attributable to the early extinguishment of $5.0 billion of term loans.
Total borrowings under the Corporation's $5.5 billion revolving credit
facility were $4.2 billion at September 30, 1997 (see Revolving Credit
Facility). These borrowings were subject to a floating interest rate of 6.5%
at September 30, 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 nine months of 1997 and 1996 included $23
million and $35 million, respectively, for the Series C preferred stock,
which the Corporation replaced with 32 million shares of Westinghouse common
stock on May 30, 1997. Common stock dividends increased $27 million in the
first nine months of 1997 compared to 1996 because of additional shares
outstanding primarily in connection with the year-end 1996 Infinity
acquisition.
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 September 30, 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 September 30, 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. In 1996, the Corporation
recognized special charges for environmental and litigation-related matters
totalling $661 million, of which $633 million was subsequently reclassified
to Discontinued Operations.
Certain of WELCO's environmental and litigation-related liabilities may not
be assumed by other parties in pending divestiture transactions and,
therefore, could be retained by the Corporation. These liabilities include
environmental obligations that are not related to active properties of
operating businesses, accrued product liability claims for divested
businesses, liabilities associated with asbestos claims, and general
litigation claims not involving active businesses. Accrued liabilities
associated with these matters, which have been separately presented as
retained liabilities of discontinued businesses, totalled $925 million at
September 30, 1997, including amounts related to previously discontinued
businesses of CBS. A separate asset of $248 million has been recorded for
amounts recoverable from insurance carriers under previous settlement
arrangements. Of this amount, $211 million is classified as noncurrent. See
note 9 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
(a) In February 1993, the Corporation was sued by 108 former employees who
were laid off subsequent to the cancellation by the federal government of
all contracts pertaining to the carrier-based A-12 aircraft program. The
complaint alleges age discrimination on the part of the Corporation. The
suit was filed in the United States District Court (USDC) for the District
of Maryland. The plaintiffs seek back pay with benefits and reinstatement of
jobs or front pay. In April 1993, the Equal Employment Opportunity
Commission (EEOC) filed a class-action, age discrimination suit against
Westinghouse in the USDC for the District of Maryland on behalf of 388
former Westinghouse employees (which includes the aforementioned 108
employees) who were laid off or involuntarily terminated from employment
subsequent to the federal government's cancellation of all contracts
pertaining to the carrier-based A-12 aircraft program. The suit alleges age
discrimination and discriminatory employment practices. The suit seeks back
pay, interest, liquidated damages, reinstatement of jobs, court costs and
other appropriate relief. In May 1993, these two cases were consolidated by
the court. The parties agreed to stay the proceedings while they attempted
to resolve the claims. On August 14, 1997, the parties entered into a
settlement agreement resolving the vast majority of these claims and on
October 31, 1997 a final order dismissing the case and finding the
settlement fair and reasonable was issued. Nine claims remain outstanding
with the parties attempting to reach agreement through mediation.
Litigation is inherently uncertain and always difficult to predict.
Substantial damages are sought in certain of the foregoing matters and
although management believes a significant adverse judgment is unlikely, any
such judgment could have a material adverse effect on the Corporation's
results of operations for a quarter or a year. However, based on its
understanding and evaluation of the relevant facts and circumstances,
management believes that the Corporation has 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
(a) The Restated Articles of the Corporation, as amended to July
25, 1997, are incorporated herein by reference to Exhibit
3(a) of Form 10-Q for the quarter ended June 30, 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 amended to November 1,
1996, is incorporated herein by reference to Exhibit 10(c)
to Form 10-Q for the quarter ended September 30, 1996.
(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.
(e*) The Deferred Compensation and Stock Plan for Directors, as
amended to July 29, 1997.
(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, is incorporated herein by reference to Exhibit 10(g)
to Form 10-Q for the quarter ended March 31, 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.
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(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*) 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 December 31,
1996.
(m*) 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
December 31, 1996.
(n) 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, is hereby incorporated by
reference to Exhibit 10(p) to Form 10-Q for the quarter
ended March 31, 1997.
(o) 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, is hereby incorporated by reference to Exhibit 10(q)
to Form 10-Q for the quarter ended March 31, 1997.
(p) Agreement and Plan of Merger, dated as of September 19,
1997, by and among American Radio Systems Corporation,
Westinghouse Electric Corporation and R Acquisition Corp.
(q*) Employment Agreement between the Corporation and Mel
Karmazin, made as of June 20, 1996 and effective as of
December 31, 1996, is hereby incorporated by reference to
Exhibit 10(s) to Form 10-Q for the quarter ended March 31,
1997.
(r*) 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.
(s*) 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.
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(t*) 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 Stock Dividends
(27) Financial Data Schedule
B) REPORTS ON FORM 8-K:
A Current Report on Form 8-K (Items 5 and 7) dated July 28, 1997,
filing financial information for the three months ended June 30,
1997.
A Current Report on Form 8-K (Items 5 and 7) dated September 15,
1997, announcing an agreement to sell Thermo King Corporation's
transport temperature control business.
A Current Report on Form 8-K (Items 5 and 7) dated September 19,
1997, announcing an agreement to acquire American Radio Systems'
radio broadcasting operations.
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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 14th day of November 1997.
WESTINGHOUSE ELECTRIC CORPORATION
/s/ Carol V. Savage
---------------------------------
Vice President and
Chief Accounting Officer
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