-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWJTimfAFqV4MXjSrSZdRW8PnRv3yBl/HH2m7yGJjBw03jR9lgJJGgcged8dbA22 2qzJltsxV4Q3R8A4IyyZkg== 0000950128-97-000910.txt : 19970815 0000950128-97-000910.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950128-97-000910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00977 FILM NUMBER: 97663209 BUSINESS ADDRESS: STREET 1: WESTINGHOUSE BLDG STREET 2: 11 STANWIX STREET CITY: PITTSBURGH STATE: PA ZIP: 15222-1384 BUSINESS PHONE: 4122442000 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-Q 1 WESTINGHOUSE ELECTRIC CORP. 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 June 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 ---------------- (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 646,807,523 shares outstanding at July 31, 1997 -------------------------------------------------------------- 2 WESTINGHOUSE ELECTRIC CORPORATION INDEX ---------------------------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Income 3 Condensed Consolidated Balance Sheet 4 Condensed Consolidated Statement of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-27 PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 4. Submission of Matters to a Vote of Security Holders 27-28 Item 6. Exhibits and Reports on Form 8-K 28-30 SIGNATURE 31
-2- 3 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 Six Months Ended June 30 June 30 ------------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Sales of products and services $ 2,413 $ 2,148 $ 4,636 $ 4,187 Costs of products and services (1,516) (1,386) (3,106) (2,893) Restructuring, litigation and other matters (notes 2 and 3) - (175) - (829) Marketing, administration, and general expenses (751) (617) (1,514) (1,201) ------ ------ ------- ------- Operating profit (loss) 146 (30) 16 (736) Other income (expenses), net (note 4) 18 8 52 (138) Interest expense (122) (109) (236) (255) ------ ------ ------- ------- Income (loss) from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries 42 (131) (168) (1,129) Income tax benefit (expense) (40) 43 19 384 Minority interest in income of consolidated subsidiaries (1) (1) (1) (2) ------ ------ ------- ------- Income (loss) from Continuing Operations 1 (89) (150) (747) ------ ------ ------- ------- Discontinued Operations, net of income taxes (note 9): Loss from Discontinued Operations - - - (51) Estimated net gain on disposal of Discontinued Operations - - - 1,018 ------ ------ ------- ------- Income from Discontinued Operations - - - 967 Extraordinary Item: Loss on early extinguishment of debt (note 5) - - - (63) ------ ------ ------- ------- Net income (loss) $ 1 $ (89) $ (150) $ 157 ====== ====== ======= ======= Earnings (loss) per common share: Continuing Operations $ - $(0.20) $ (0.23) $ (1.70) Discontinued Operations - - - 2.20 Extraordinary Item - - - (0.14) ------ ------ ------- ------- Earnings (loss) per common share $ - $(0.20) $ (0.23) $ 0.36 ====== ====== ======= ======= Cash dividends per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10 ====== ====== ======= =======
See Notes to the Condensed Consolidated Financial Statements. -3- 4 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET ------------------------------------ (in millions)
June 30, 1997 December 31, 1996 ------------- ----------------- ASSETS (unaudited) ------ Cash and cash equivalents $ 210 $ 220 Customer receivables 1,575 1,561 Inventories (note 6) 765 783 Uncompleted contracts costs over related billings 615 686 Program rights 350 431 Deferred income taxes 733 817 Prepaid and other current assets 202 289 ------- ------- Total current assets 4,450 4,787 Plant and equipment, net 1,798 1,866 FCC licenses, net 2,210 2,199 Goodwill, net 8,660 8,776 Other intangible and noncurrent assets (note 7) 2,206 2,261 ------- ------- Total assets $19,324 $19,889 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Short-term debt $ 284 $ 497 Current maturities of long-term debt 44 4 Accounts payable 605 887 Uncompleted contracts billings over related costs 406 334 Other current liabilities (note 8) 1,971 2,578 ------- ------- Total current liabilities 3,310 4,300 Long-term debt 5,775 5,149 Net liabilities of Discontinued Operations (note 9) 43 -- Pension liability 1,211 1,069 Other noncurrent liabilities (note 8) 3,368 3,619 ------- ------- Total liabilities 13,707 14,137 ------- ------- Contingent liabilities and commitments (note 10) Minority interest in equity of consolidated subsidiaries 14 10 Shareholders' equity (note 11): 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, 649 million and 609 million shares issued) 649 609 Capital in excess of par value 5,453 5,376 Common stock held in treasury (531) (546) Minimum pension liability adjustment (796) (796) Cumulative foreign currency translation adjustments (25) 11 Retained earnings 853 1,084 ------- ------- Total shareholders' equity 5,603 5,742 ------- ------- Total liabilities and shareholders' equity $19,324 $19,889 ======= =======
See Notes to the Condensed Consolidated Financial Statements. -4- 5 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- (in millions) (unaudited)
Six Months Ended June 30 ------------------------ 1997 1996 ---- ---- Cash used for operating activities of Continuing Operations $ (577) $ (624) Cash used for operating activities of Discontinued Operations (61) (382) Cash flows from investing activities: Business acquisitions (47) (101) Business divestitures and other asset liquidations 152 3,619 Capital expenditures (80) (94) ------ ------ Cash provided by investing activities 25 3,424 ------ ------ Cash flows from financing activities: Bank revolver borrowings 1,940 2,200 Bank revolver repayments (1,025) (721) Net change in other short-term debt (210) (371) Repayments of long-term debt (149) (3,580) Stock issued 130 67 Dividends paid (82) (63) Bank fees paid and other (6) (10) ------ ------ Cash provided (used) by financing activities 598 (2,478) ------ ------ Decrease in cash and cash equivalents (15) (60) Cash and cash equivalents at beginning of period 233 226 ------ ------ Cash and cash equivalents at end of period $ 218 $ 166 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid: Continuing Operations $ 220 $ 266 Discontinued Operations 15 35 ------ ------ Total interest paid $ 235 $ 301 ====== ====== Income taxes paid $ 33 $ 64 ====== ======
See Notes to the Condensed Consolidated Financial Statements. -5- 6 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 Report 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. Certain amounts pertaining to the three months and six months ended June 30, 1996 have been restated or reclassified for comparative purposes. Reference also should be made to the Corporation's Current Report on Form 8-K dated July 28, 1997 containing certain restated financial information. During recent years, the Corporation has made several changes to its business portfolio. A number of business segments were identified as non-strategic and were reclassified 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 9 to the financial statements. On December 31, 1996, the Corporation acquired Infinity Broadcasting Corporation (Infinity). The acquisition, which was accounted for under the purchase method of accounting, is reflected in the year-end 1996 consolidated balance sheet. Effective January 1, 1997, operating results for Infinity are included in the consolidated statement of income. On a proforma basis, assuming Infinity had been acquired as of January 1, 1996, the Corporation's revenues for the second quarter of 1996 would have been $2,341 million with no material impact on loss from Continuing Operations or corresponding loss per share. For the six months ended June 30, 1996 revenues would have been $4,524 million, with a loss from Continuing Operations of $767 million, and a corresponding loss per share of $1.21. On February 10, 1997, the Corporation announced that it reached a definitive merger agreement with Gaylord Entertainment Company (Gaylord) whereby the Corporation will acquire Gaylord s two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). The acquisition includes domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The purchase price of $1.55 billion will be paid in Westinghouse common stock. The number of shares to be issued will depend on the average of the closing prices of the Corporation's common stock during a trading period just prior to the effective time of the transaction, subject to certain limits on the total number of shares to be issued and certain termination rights under the merger agreement. The transaction is subject to several conditions, including the receipt of a favorable ruling from the Internal Revenue Service and the approval of Gaylord's shareholders at the meeting to be held August 15, 1997. 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 into two separate, publicly traded companies. The Westinghouse Board of Directors modified the separation plan in June 1997 such that the industrial businesses would consist primarily of the manufacturing and services businesses for the nuclear and fossil-fueled power generation industry and the government operations business. Westinghouse will continue to own Thermo King, subject to its previously announced intention to consider various options to enhance Thermo King's value to Westinghouse shareholders. In addition, pension and -6- 7 postretirement benefit obligations accrued through the date of the separation for current and former employees, will be retained by Westinghouse. The industrial company will assume other non-debt obligations generated by the Corporation's previously divested businesses, other than those classified as Discontinued Operations, including environmental, asbestos and other litigation-related liabilities, as well as certain asbestos and toxic tort litigation-related matters associated with Discontinued Operations. Westinghouse plans 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). At the time of separation, Westinghouse would change its name to CBS Corporation and WELCO would change its name to Westinghouse Electric Corporation. WELCO, currently a wholly owned subsidiary of Westinghouse, was incorporated in July 1997. The plan provides that Westinghouse will distribute to each holder of record of Westinghouse common stock at the record date, certificates representing a specific number of shares of WELCO common stock based on a ratio to be determined, and cash in lieu of any fractional shares of WELCO common stock. Completion of the plan is subject to a number of conditions, including receipt of a favorable ruling from the Internal Revenue Service that the transaction will not be taxable for U.S. federal income tax purposes to Westinghouse or its shareholders, a credit facility being in place, and the registration statement for the WELCO stock being declared effective by the Securities and Exchange Commission. The separation is expected to be completed in the fourth quarter of 1997. However, there can be no assurance that the separation will occur or as to the related timing. Furthermore, if the separation does occur, there can be no assurance that all of the assets, liabilities, and contractual obligations will be transferred as currently contemplated or that changes will not be made to the separation plan. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual 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 a loss of $0.02 and $0.25 for the three months ended June 30, 1997 and 1996, respectively, a loss of $0.29 for the six months ended June 30, 1997, and income of $0.33 for the six months ended June 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. -7- 8 2. 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. During the second quarter of 1996, the Corporation completed a comprehensive review of its environmental remediation obligations and recorded a charge to operating profit of $175 million. During the first quarter of 1996, the Corporation recognized costs for new restructuring projects of $123 million, primarily for the consolidation of facilities and the separation of employees. A charge of $486 million was recognized for pending litigation matters. Other costs of $45 million recognized in the first quarter generally related to asset impairment, as discussed in note 3 to the financial statements, or to costs associated with previously divested businesses. No such charges were recognized in the first six months of 1997. 3. IMPAIRMENT OF LONG-LIVED ASSETS During the first quarter of 1996, the Corporation adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets, including related goodwill, be reviewed for impairment and written down to their estimated fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon the adoption of SFAS 121, an impairment charge of $15 million was recognized in the 1996 first quarter operating profit. 4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Interest income $ 1 $ 5 $ 2 $ 10 Gain on sale of equity investment - - 24 - Gain (loss) on disposition of other assets - 1 - (150) Operating results - non-consolidated affiliates 4 1 6 1 Foreign currency transaction and high-inflation translation effect 2 (2) 9 (4) Other 11 3 11 5 ----- ----- ----- ----- Other income (expenses), net $ 18 $ 8 $ 52 $(138) ===== ===== ===== =====
5. EXTRAORDINARY ITEM On March 1, 1996, the Corporation extinguished prior to maturity $3,565 million of debt under the then-existing $7.5 billion credit facility. As a result of the early extinguishment of debt and the write-off of related debt issue costs in the first quarter of 1996, the Corporation incurred an extraordinary loss of $63 million, net of a tax benefit of $41 million. -8- 9 6. INVENTORIES (in millions)
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) Raw materials $ 107 $ 127 Work in process 462 493 Finished goods 127 125 ------- ------- 696 745 Long-term contracts in process 1,317 986 Progress payments to subcontractors 44 45 Recoverable engineering and development costs 64 68 Less: Inventoried costs related to contracts with progress billing terms (1,356) (1,061) ------- ------- Inventories, net $ 765 $ 783 ======= =======
7. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) Deferred income taxes $ 842 $ 774 Other intangible assets 409 425 Intangible pension asset 40 40 Deferred charges 49 39 Joint ventures and other affiliates 260 232 Noncurrent receivables 331 384 Program rights 120 142 Other 155 225 ------- ------- Total other intangible and noncurrent assets $ 2,206 $ 2,261 ======= =======
8. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) Other current liabilities: - ------------------------- Accrued employee compensation $ 192 $ 248 Income taxes currently payable 173 189 Liabilities for talent and program rights 238 308 Accrued product warranty 47 59 Accrued interest and insurance 226 210 Accrued restructuring costs 62 184 Liability for business dispositions 78 79 Accrued expenses 558 875 Environmental liabilities 61 62 Other 336 364 ------- ------- Total other current liabilities $ 1,971 $ 2,578 ======= ======= Other noncurrent liabilities: - ---------------------------- Postretirement benefits $ 1,224 $ 1,218 Postemployment benefits 68 67 Accrued restructuring costs 59 94 Liability for business dispositions 55 87 Liabilities for talent and program rights 62 51 Settlement and other accrued liabilities 1,211 1,370 Environmental liabilities 389 404 Other 300 328 ------- ------- Total other noncurrent liabilities $ 3,368 $ 3,619 ======= =======
-9- 10 9. DISCONTINUED OPERATIONS In recent years, the Corporation has adopted several separate plans to dispose of major segments of its business. These businesses have been accounted for as Discontinued Operations in accordance with APB 30. The table below summarizes each of the Corporation's segment disposal plans as well as the assets remaining as of June 30, 1997.
Plan Date Line of Business Remaining Assets - --------- ---------------- ---------------- November 1996 Communication & Information Systems (CISCO) Several businesses March 1996 Environmental Services Miscellaneous operations 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
Summarized operating results of Discontinued Operations, grouped by measurement date, follows: OPERATING RESULTS OF DISCONTINUED OPERATIONS (in millions) (unaudited) For the six months ended June 30, 1997
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 179 $ - $ 6 $ 185 Loss before income taxes (29) - (14) (43) Income tax benefit 9 - - 9 Net operating losses after measurement date charged to liability for estimated loss on disposal (20) - (14) (34)
For the six months ended June 30, 1996
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 282 $ 352 $ 13 $ 647 Loss before income taxes (88) (78) (11) (177) Income tax benefit (expense) 16 (4) - 12 Net loss prior to measurement date (51) - - (51) Net operating losses after measurement date charged to liability for estimated loss on disposal (21) (82) (11) (114)
-10- 11 The assets and liabilities of Discontinued Operations have been separately classified on the consolidated balance sheet as net liabilities of Discontinued Operations. A summary of these assets and liabilities follows: NET LIABILITIES OF DISCONTINUED OPERATIONS (in millions)
June 30, 1997 December 31, 1996 ------------- ----------------- (unaudited) ASSETS: Cash and cash equivalents $ 8 $ 13 Receivables 43 90 Inventories 18 32 Portfolio investments 811 845 Other assets 278 438 ------ ------ Total assets -- Discontinued Operations 1,158 1,418 ------ ------ LIABILITIES: Short-term debt 7 5 Current maturities of long-term debt 96 2 Liability for estimated loss on disposal 370 672 Long-term debt 424 417 Other liabilities 84 142 Deferred income taxes 220 180 ------ ------ Total liabilities -- Discontinued Operations 1,201 1,418 ------ ------ Net liabilities of Discontinued Operations $ (43) $ - ====== ======
At June 30, 1997, the assets and liabilities of Discontinued Operations included those related to 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 all Discontinued Operations, including estimated results of operations through divestiture. Except for the leasing portfolio, the assets generally are expected to be divested during 1997. Deferred income taxes, which result from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations, generally will be transferred to Continuing Operations upon reversal and will not result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. Portfolio investments consist primarily of receivables related to the leasing portfolio of Financial Services. Also included are real estate properties and investments in leasing partnerships. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms and generally consists of direct financing and leveraged leases. At June 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. -11- 12 10. CONTINGENT LIABILITIES AND COMMITMENTS Legal Matters - ------------- Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Corporation as components of nuclear steam supply systems. Since 1993, settlement agreements have been entered resolving ten litigation claims. These agreements generally require the Corporation to provide certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration. One active steam generator lawsuit remains. The Corporation is also a party to six tolling agreements with utilities or utility plant owners groups which have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussion. Securities Class Actions - Financial Services The Corporation has been defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation and certain of its former subsidiaries in connection with charges to earnings of $975 million in 1990 and $1,680 million in 1991 and a public offering of Westinghouse common stock in 1991. The court dismissed both the derivative claim and the class action claims in their entirety. These dismissals were appealed. In July 1996, the United States Court of Appeals for the Third Circuit (the Circuit Court) affirmed the court s dismissal of the derivative claim. The Circuit Court also affirmed in part and reversed in part the dismissal of the class action claims. Those class action claims that were not dismissed by the Circuit Court have been remanded to the lower court for further proceedings. 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 June 30, 1997, the Corporation had approximately 107,000 claims outstanding against it. In court actions which have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related 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 -12- 13 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 $450 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 $329 million for site investigation and remediation and $121 million for post closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. Commitments -- Continuing Operations - ------------------------------------ In the ordinary course of business, standby letters of credit and surety bonds are issued on behalf of the Corporation related primarily to performance obligations under contracts with customers. The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such properties for various periods ending no later than April 2002. As of June 30, 1997, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totalling $3,603 million. Commitments -- Discontinued Operations - -------------------------------------- Financial Services commitments at June 30, 1997 consisting primarily of guarantees totalled $31 million compared to $38 million at year-end 1996. The remaining commitments have fixed expiration dates from 1997 through 2002. Management expects these commitments to expire unfunded. -13- 14 11. SHAREHOLDERS' EQUITY On May 30, 1997, the Corporation redeemed all outstanding shares of its Series C Conversion Preferred Stock (Series C Preferred). In accordance with the terms of the offering, each share of the Series C Preferred converted into Westinghouse common stock at the rate of 8.85 shares of Westinghouse common stock, equivalent to 0.885 of a share of Westinghouse common stock for each $1.30 depositary share. Each depositary share represented one-tenth of a share of Series C Preferred. In connection with this redemption of the Series C Preferred, the Corporation issued 31,859,026 shares of 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 June 30, 1997 and 1996 would have been losses of $0.02 and $0.25, respectively, while the per-share results for the six months ended June 30, 1997 and 1996 would have been a loss of $0.28 and income of $0.33, respectively. In conjunction with the Infinity acquisition on December 31, 1996, the Corporation issued 183 million shares of Westinghouse common stock. These shares, together with the related options outstanding, resulted in an increase in shareholders equity of $3.8 billion. -14- 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW In November 1996, Westinghouse Electric Corporation (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 into two separate, publicly traded companies. The Westinghouse Board of Directors modified the separation plan in June 1997 such that the industrial businesses would consist primarily of the manufacturing and services businesses for the nuclear and fossil-fueled power generation industry and the government operations business. Westinghouse will continue to own Thermo King, subject to its previously announced intention to consider various options to enhance Thermo King's value to Westinghouse shareholders. In addition, pension and postretirement benefit obligations accrued through the date of the separation for current and former employees, will be retained by Westinghouse. The industrial company will assume other non-debt obligations generated by the Corporation's previously divested businesses, other than those classified as Discontinued Operations, including environmental, asbestos and other litigation-related liabilities, as well as certain asbestos and toxic tort litigation-related matters associated with Discontinued Operations. Westinghouse plans 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). At the time of separation, Westinghouse would change its name to CBS Corporation and WELCO would change its name to Westinghouse Electric Corporation. WELCO, currently a wholly owned subsidiary of Westinghouse, was incorporated in July 1997. The plan provides that Westinghouse will distribute to each holder of record of Westinghouse common stock at the record date, certificates representing a specific number of shares of WELCO common stock based on a ratio to be determined, and cash in lieu of any fractional shares of WELCO common stock. Completion of the plan is subject to a number of conditions, including receipt of a favorable ruling from the Internal Revenue Service that the transaction will not be taxable for U.S. federal income tax purposes to Westinghouse or its shareholders, a credit facility being in place, and the registration statement for the WELCO stock being declared effective by the Securities and Exchange Commssion. The separation is expected to be completed in the fourth quarter of 1997. However, there can be no assurance that the separation will occur or as to the related timing. Furthermore, if the separation does occur, there can be no assurance that all of the assets, liabilities, and contractual obligations will be transferred as currently contemplated or that changes will not be made to the separation plan. On February 10, 1997, the Corporation announced that it reached a definitive merger agreement with Gaylord Entertainment Company (Gaylord) whereby the Corporation will acquire Gaylord s two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). The acquisition includes domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The purchase price of $1.55 billion will be paid in Westinghouse common stock. The number of shares to be issued will depend on the average of the closing prices of the Corporation's common stock during a trading period just prior to the effective time of the transaction, subject to certain limits on the total number of shares to be issued and certain termination rights under the merger agreement. The transaction is subject to several conditions, including the receipt of a favorable ruling from the Internal Revenue Service and the approval of Gaylord's shareholders at the meeting to be held August 15, 1997. Management currently anticipates this transaction to be completed prior to the separation of the industrial businesses as discussed above. -15- 16 The $4.7 billion acquisition of Infinity Broadcasting Corporation (Infinity) resulted in an increase in shareholders equity at December 31, 1996 of $3.8 billion from the issuance of 183 million shares of Westinghouse common stock and the conversion of Infinity options into options to acquire approximately 22 million additional shares of Westinghouse common stock. Effective January 1, 1997, operating results for Infinity are included in the Corporation's consolidated financial statements and are reported as part of the radio segment of the Media group. Subsequent to the acquisition of Infinity at year-end 1996, the Corporation's radio group continued to outpace the market. The radio group s profitability in the first half of 1997 was further enhanced by cost reduction measures at radio stations. Both net income and income from Continuing Operations for the second quarter of 1997 were $1 million compared to a loss of $89 million for the second quarter of 1996. For the first six months of 1997, both net income and income from Continuing Operations were a loss of $150 million. For the first six months of 1996, net income was $157 million reflecting a gain from Discontinued Operations, while income from Continuing Operations was a loss of $747 million. Results for the 1996 periods included a number of special items which are presented in the table below. No special items were included in the 1997 periods. Excluding the special items, income from Continuing Operations for the second quarter and first six months of 1996 would have been $25 million and a loss of $101 million, respectively. The $24 million decrease in income from Continuing Operations for the second quarter of 1997, excluding special items, reflected several factors. For the Media group, the favorable radio results were more than offset by lower performance by the television network. Results for the industries and technology group increased, however, due to higher service revenues and timing of award fees from several government contracts. Interest expense for the 1997 quarter was unfavorable, reflecting debt assumed in the December 31, 1996 Infinity acquisition. For the first six months of 1997, the increase in the loss from Continuing Operations, excluding the special items recognized in the first half of 1996, reflected the favorable radio results more than offset by lower profits at the television network. For the industries and technology group, decreased performance at Energy Systems due to a profit adjustment for a complex international power project was partially offset by increased service revenues at Power Generation. 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. On December 31, 1996, the Corporation completed the sale of Westinghouse Security Systems, part of CISCO. During the second quarter of 1997, the Corporation completed the sale of two businesses and an operating facility of the environmental services business. In the first six months of 1996, the Corporation recognized costs associated with additional restructuring actions, as well as outstanding litigation, environmental remediation, and other matters. During the three months ended June 30, 1996, a charge of $175 million, or $114 million after-tax, was recognized for environmental remediation activities. -16- 17 The special items included in the Corporation's results for the first six months of 1996 are summarized below. No special items were recognized in the first six months of 1997. SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (in millions except per share amounts) (unaudited)
Pre-Tax After-Tax Per-Share Amount Amount Impact ------- --------- --------- Continuing Operations: Operating Profit: Restructuring $ (123) Litigation matters (486) Impairment of assets (15) Environmental remediation activities (175) Other (30) ------- Total impact on operating profit (829) Other income and expense: Loss on assets held for sale (152) ------- Total impact on Continuing Operations $ (981) $ (646) $ (1.46) ======= Discontinued Operations: Net gain on disposal of businesses 1,018 2.32 Extraordinary Item: Loss on early extinguishment of debt (63) (0.14) ------ ------- Net amount of special items $ 309 $ 0.72 ====== =======
-17- 18 RESULTS OF OPERATIONS The following represents the segment results for the Corporation's Continuing Operations for the three months and six months ended June 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 June 30 1997 1996 1997 1996 1997 1996 - ------------------ ---- ---- ---- ---- ---- ---- Media: Television $ 213 $ 226 $ 87 $ 90 $ 87 $ 90 Network 631 681 (22) 87 (22) 87 Radio 378 145 113 47 113 47 Other Media Businesses 77 58 2 9 2 9 Other Media (16) (10) (25) (41) (25) (41) ------ ------ ----- ----- ----- ----- Total Media 1,283 1,100 155 192 155 192 Industries & Technology: Power Systems: Energy Systems 309 304 17 2 17 13 Power Generation 585 465 (2) (20) (2) (20) Other Power Systems (56) (37) (14) (17) (14) (17) ------ ------ ----- ----- ----- ----- Total Power Systems 838 732 1 (35) 1 (24) Government Operations 24 26 19 13 19 13 ------ ------ ----- ----- ----- ----- Total Industries & Technology 862 758 20 (22) 20 (11) Thermo King 263 265 49 46 49 46 Corporate & Other 18 34 (78) (246) (78) (82) Intersegment sales (13) (9) - - - - ------ ------ ----- ----- ----- ----- TOTAL $2,413 $2,148 $ 146 $ (30) $ 146 $ 145 ====== ====== ===== ===== ===== =====
-18- 19 Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit (Loss) Sales of Products Operating Profit Excluding & Services (Loss) Special Charges ----------------- ---------------- ---------------- Six Months Ended June 30 1997 1996 1997 1996 1997 1996 - ------------------ ---- ---- ---- ---- ---- ---- Media: Television $ 390 $ 414 $ 143 $ 144 $ 143 $ 144 Network 1,424 1,447 (82) 87 (82) 87 Radio 691 266 160 67 160 67 Other Media Businesses 137 107 (2) 13 (2) 13 Other Media (33) (16) (60) (117) (60) (76) ------ ------ ----- ----- ----- ----- Total Media 2,609 2,218 159 194 159 235 Industries & Technology: Power Systems: Energy Systems 496 535 (43) (24) (43) 8 Power Generation 1,059 898 (41) (137) (41) (82) Other Power Systems (107) (87) (31) (323) (31) (34) ------ ------ ----- ----- ----- ----- Total Power Systems 1,448 1,346 (115) (484) (115) (108) Government Operations 47 51 29 31 29 31 ------ ------ ----- ----- ----- ----- Total Industries & Technology 1,495 1,397 (86) (453) (86) (77) Thermo King 514 522 96 91 96 91 Corporate & Other 38 68 (153) (568) (153) (156) Intersegment sales (20) (18) - - - - ------ ------ ----- ----- ----- ----- TOTAL $4,636 $4,187 $ 16 $(736) $ 16 $ 93 ====== ====== ===== ===== ===== =====
The Corporation's reported sales increased $265 million or 12% for the second quarter of 1997 compared to the 1996 second quarter. For the first six months of 1997, sales for the Corporation increased $449 million or 11% compared to the same period last year. Increases in revenues for Media and Power Generation were offset partially by higher volume of discounts for Other Power Systems and certain miscellaneous non-strategic businesses that were divested in 1996. Revenues for Energy Systems, while essentially flat for the quarter, decreased 7% for the six months of 1997 compared to the first half of 1996. The operating profit for the Corporation for the second quarter of 1997 was flat with the same period of 1996 at $146 million, excluding special items in the 1996 second quarter. While the strength of the Media group's radio business caused profits to increase significantly, the increase was more than offset by a decline in the CBS Network profits. Power Systems' operating profit increased for the quarter, excluding special items, primarily as a result of higher service and new equipment sales at Power Generation and a strong spring outage season for Energy Systems. For the first half of 1997, operating profit declined $77 million compared to the first six months of 1996, excluding special items. The increases in radio stated above were more than offset by declines in network profits. At Power Systems, despite a decrease in the operating loss at Power Generation due to increased service sales, profits for Power Systems declined due to the completion of a reevaluation of a complex international nuclear project for Energy Systems in the first quarter of 1997 which required an adjustment to sales and operating profit. -19- 20 Media Due to the acquisition of Infinity at December 31, 1996, the results for Media for the second quarter and first half of 1997 include Infinity financial data, while the same periods of 1996 do not. Where appropriate, the discussion below provides a comparison of the actual results for the second quarter and first half of 1997 with the proforma combined CBS and Infinity results for the second quarter and first half of 1996. Revenues for the television station group declined $13 million or 6% for the second quarter of 1997 and $24 million or 6% for the first six months of 1997 compared to the same periods last year. Lower ratings in certain markets contributed to the decline. The 1996 first half also had revenues from WPRI, the Providence, Rhode Island station sold in July 1996. Despite the lower revenues, operating profit decreased only slightly in the second quarter of 1997 and was flat for the first half of 1997 as cost improvements at the stations offset much of the decreased revenues. The network experienced a 7% decrease in revenues for the second quarter of 1997 and was flat for the first half of 1997 compared to the same periods last year primarily as a result of a decline in key demographics. Operating profit declined significantly as a result of higher programming costs, primarily associated with entertainment, sports, and syndication costs, and lower audience levels in key demographic categories. The decline in the favorable effect from purchase price accounting adjustments related to program rights acquired in the purchase of CBS contributed to the lower profit levels. On a proforma combined basis, sales for radio for the second quarter of 1997 increased $40 million or nearly 12% while sales for the six months ended June 30, 1997 increased $87 million or 14% compared to the same periods of 1996, continuing to outperform the radio industry. Operating profit, on a proforma combined basis, increased nearly 18% and 23%, respectively, for the same periods as a result of the increased revenues and significant benefits from cost reduction activities. Results for the radio group include amortization of goodwill and intangible assets related to the Infinity acquisition. Other Media Businesses includes operating results for CBS Cable and EYEMARK Entertainment (EYEMARK) which produces and distributes programming. Revenues for CBS Cable increased 24% and 20% for the second quarter and first six months of 1997, respectively, compared to the same periods last year, primarily as a result of increased sales for sports and other cable services and the June 1996 acquisition of TeleNoticias, a 24-hour, Spanish-language news service. Operating profit, however, declined for the same periods of 1997 compared to last year primarily due to increased expenses related to TeleNoticias and costs to develop and launch Eye On People, a new cable channel which debuted March 31, 1997. The acquisition of TNN and CMT later in the third quarter of 1997 is expected to strengthen the group s cable business. Revenues for EYEMARK increased in the second quarter and first half of 1997 compared to the same periods last year. The operating losses for EYEMARK also improved due to the mix of programming. Costs for the Media group's headquarters and amortization of all goodwill arising from the CBS acquisition comprise Other Media. In the first quarter of 1996, Other Media included a $41 million restructuring charge for Westinghouse's actions to obtain operational synergies between CBS and Westinghouse. The cost of the CBS actions was recognized in connection with the CBS acquisition. Goodwill amortization related to the CBS acquisition totals $30 million per quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) 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. For the entire Media group, EBITDA totalled $261 million for the -20- 21 second quarter of 1997 and $371 million for the first half of 1997, essentially flat with the same periods in 1996, excluding the restructuring charge recognized in the first quarter of 1996. On a proforma combined basis, EBITDA for the second quarter of 1997 and 1996 was $261 million and $340 million, respectively, while EBITDA for the first half of 1997 and 1996 was $371 million and $486 million, respectively. Power Systems Power Systems includes results for the Energy Systems and Power Generation business units. For the second quarter of 1997, sales for Power Systems increased nearly 15%, while sales for the six months ended June 30, 1997 increased 8% compared to the same periods of 1996. Excluding special items in 1996, operating profit for Power Systems increased $25 million for the second quarter of 1997 compared to the second quarter of 1996, while the operating loss for the first half of 1997 increased slightly. Energy Systems sales for the second quarter of 1997 were flat compared to the second quarter of 1996, while operating profit was up 30%, excluding an $11 million charge for environmental remediation activities in the second quarter of 1996. Increased service sales from a strong spring outage season and cost reduction activities generated the increase in operating profit for the quarter. For the six months ended June 30, 1997, sales for Energy Systems decreased 7% while the operating loss, excluding special items in the 1996 period, increased sharply. The 1996 period included the $11 million remediation charge and a $21 million restructuring charge taken in the first quarter of 1996. The primary reason for the decrease in sales and operating profit for the six month period was a $49 million adjustment to both sales and operating profit following a comprehensive reevaluation of the work scope and costs to complete a complex international nuclear project which originated in 1993. Although this $352 million contract remains profitable, management has determined that the Corporation's profit will be less than originally estimated. Orders for the second quarter and first six months of 1997 were down 32% and 28%, respectively, primarily due to several large fuel reload orders in the first and second quarters of 1996 and the delay of several 1997 fuel orders until the third quarter of 1997. Power Generation's orders for the second quarter of 1997 decreased $70 million or 10% compared to the second quarter of 1996, while orders for the first half of 1997 declined $339 million compared to the same period last year. Delays in project bookings due to timing of financial closings was the primary cause of the decreased order level. Also, although there continues to be a high level of negotiation activity, orders are expected to trail 1996's volume. Revenues in Power Generation increased $120 million or 26% for the second quarter of 1997 and $161 million or 18% for the first six months of 1997 compared to the same periods last year. Higher service and new equipment sales were the primary reasons for this revenue increase. The operating loss declined $18 million for the second quarter of 1997 and $41 million for the first half of 1997 compared to the same periods in 1996, excluding a $5 million litigation charge and a $50 million restructuring charge recognized in the first quarter of 1996. Higher service revenues and cost improvements from restructuring programs caused the decrease in the operating loss. The operating loss for the first quarter of 1996 for Other Power Systems, which primarily reflects discounts on prior litigation settlements, included a $289 million special charge for estimated losses associated with potential litigation settlements. Excluding this charge, the operating losses for the second quarter and first six months of 1997 improved $3 million from the same periods last year. -21- 22 Government Operations Revenues for the second quarter and first six months of 1997 were down 8% 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 second quarter of 1997 increased $6 million or 46% compared to the second quarter of 1996 largely due to the timing of fees from several government contracts. Operating profit for the first half of 1997 decreased $2 million or 7% compared to the first half of 1996, primarily as a result of the loss of the Hanford contract. Thermo King Thermo King orders for the second quarter of 1997 were up 12%. A strong bus air conditioning market in North America and Europe was largely responsible for this increase. Orders for the first six months of 1997 were up 8% from the 1996 period primarily due to a large container order received in the first quarter of 1997. Despite increased revenues from bus air conditioning, sales for the quarter and six months were essentially flat due primarily to the strong U. S. dollar. While the European truck and trailer market remains stagnant, the worldwide bus air conditioning markets are surging. Operating profit increased 6% for the second quarter and first six months of 1997 compared to the same periods last year as revenues from increased bus air conditioning sales, improved conditions in the North American truck and trailer industry, lower material costs, and productivity improvements enhanced profitability. Corporate and Other Corporate and Other includes the cost of corporate activities that are managed for the benefit of the entire Corporation and the results of operations for the Corporation's non-strategic and divested businesses. Sales for the second quarter and first six months of 1997 were down 47% and 44%, respectively, due primarily to the 1996 sale of several non-strategic businesses. The operating loss, excluding the first quarter 1996 charge of $248 million for restructuring, litigation, and other matters, and a second quarter 1996 charge of $164 million for environmental remediation activities, was down slightly for the 1997 second quarter and first half. Cost reductions from restructuring activities have caused corporate overhead costs to be lower than the prior year. However, costs associated with the Corporation's continuing pension obligation for retirees who were part of the defense and electronic systems business sold in March 1996 continues to unfavorably impact operating profit and offset the improvement in overheads. These pension costs for January and February of 1996 were included in Discontinued Operations as part of the results for that business prior to its disposal. RESTRUCTURING AND OTHER ACTIONS In recent years, the Corporation has restructured many businesses and its corporate headquarters in an effort to reduce costs and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the closing of facilities, the termination of leases, and the exiting of product lines. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and that provide no future benefit to the Corporation. During 1996, management approved new restructuring projects with costs totalling $273 million, $123 million in the first quarter and $150 million in the fourth quarter, primarily for consolidation of facilities and the separation of employees. As of June 30, 1997, $180 million had been expended on the 1996 programs, $124 million of which was cash. Future cash expenditures for these programs are estimated to approximate $48 million for the remainder of 1997, and $20 million for 1998 and beyond. -22- 23 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 the 1994 and 1995 plans are essentially complete. In addition, a CBS restructuring plan was adopted in conjunction with the acquisition in November 1995. Implementation of this plan will continue over the next two years. Annualized savings from the 1994 and 1995 restructuring programs other than the CBS plan are estimated to total approximately $75 million; however, competitive pressures causing price compression in certain of the Corporation's markets have absorbed a significant portion of the savings achieved through restructuring actions. Annualized savings from the 1996 plan, which will be gradually achieved over the next two years, are estimated at $100 million. The Corporation expects to continue to identify restructuring initiatives at its business units and its Corporate headquarters in an ongoing effort to reduce its overall cost structure and improve competitiveness, particularly in light of the impending separation. Additional restructuring initiatives are likely in 1997. DISCONTINUED OPERATIONS At June 30, 1997, the assets and liabilities of Discontinued Operations included those related to the remaining operations from the CISCO segment and the environmental services business, the remaining securities from the land development subsidiary, other miscellaneous securities, the leasing portfolio, and deferred income taxes. Liabilities also included debt and the estimated losses and divestiture costs associated with all Discontinued Operations, including estimated results of operations through divestiture. During the second quarter of 1997, the Corporation completed the sale of two businesses and an operating facility of the environmental services business. Other than the leasing portfolio, the Corporation is actively pursuing the sale of assets, which are generally expected to be divested during 1997. Deferred income taxes, which result from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations, generally will be transferred to Continuing Operations upon reversal and will not result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. Management believes that the net proceeds anticipated from the continued liquidation of assets of Discontinued Operations will be sufficient to fund the liabilities of Discontinued Operations, including the repayment of its debt. Management further believes that the liability for the estimated loss on disposal of Discontinued Operations of $370 million at June 30, 1997 is adequate to cover future operating costs, estimated losses, and the remaining divestiture costs associated with all discontinued businesses. OTHER INCOME AND EXPENSES Other income and expenses generated income of $18 million in the second quarter of 1997 and $52 million for the first six months of 1997 compared to income of $8 million and a loss of $138 million for the same periods of 1996. The 1997 income included the sale of an equity investment in a regional sports network. During the first quarter of 1996, a comprehensive review was undertaken by the Corporation to identify non-strategic assets. A charge of $152 million was recognized during the quarter for losses expected to be realized upon the sale of those assets. -23- 24 INTEREST EXPENSE Interest expense for Continuing Operations for the second quarter and first half of 1997 was $122 million and $236 million, respectively, compared to $109 million and $255 million, respectively, for the same periods in 1996. The increase in interest expense in the second quarter of 1997 is the result of higher average debt primarily attributable to debt assumed in the December 31, 1996 acquisition of Infinity. Average debt for the first six months of 1997 was significantly 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. INCOME TAXES The Corporation's effective income tax rate for Continuing Operations for the second quarter and first half of 1997 was a benefit of 96% and 11%, respectively, compared to a benefit of 33% and 34%, respectively, for the same periods of 1996. Because of the amortization of non-deductible goodwill for CBS and Infinity and the impact of special transactions, these rates can vary dramatically depending on the Corporation's income or loss levels. At June 30, 1997, the Corporation had recorded net deferred income tax benefits totalling $1,355 million compared to $1,411 million at December 31, 1996. As a result of these net deferred income tax benefits, cash payments for federal income taxes are minimal. Management believes that the Corporation's tax planning strategies combined with its future taxable income will make it more likely than not that the net deferred tax asset will be realized. Realization of the net deferred tax asset will be reevaluated at the time of the separation of the businesses. LIQUIDITY AND CAPITAL RESOURCES Overview The Corporation manages its liquidity as a consolidated enterprise without regard to whether assets or debt are classified for balance sheet purposes as part of Continuing Operations or Discontinued Operations. As a result, the discussion below focuses on the Corporation's consolidated cash flows and capital structure. On February 10, 1997, the Corporation announced an agreement to acquire two cable networks - TNN and CMT. The purchase price of $1.55 billion will be paid in Westinghouse common stock, which will further increase the Corporation's equity. No debt will be assumed in conjunction with this transaction. As discussed previously, the Corporation intends to separate its media and industrial businesses through a tax-free dividend of the industrial businesses to shareholders. As currently contemplated, the media company will retain all debt obligations of the current Westinghouse as well as the $1.5 billion tax net operating loss carryforward. The media company also will retain the pension and postretirement benefit obligations while the industrial businesses will assume other non-debt obligations generated by the Corporation's industrial businesses in earlier years. Management currently anticipates the separation will occur in the fourth quarter of 1997. However, there can be no assurance that all of the assets, liabilities and contractual obligations will be transferred as currently contemplated or that changes will not be made to the separation plan. The Corporation has and will continue to monetize non-strategic assets. In 1996, the Corporation adopted plans to exit its environmental services business and CISCO. In addition to the $3.6 billion of cash generated by the sale of Knoll and the defense and electronic systems business, sales of various non-strategic assets in 1996 generated cash proceeds of approximately $550 million. During 1997, sales of non-strategic assets could generate additional cash of approximately $300 million. The majority of these proceeds are anticipated to be received in the second half of the year. -24- 25 Total debt for the Corporation was $6,630 million at June 30, 1997, of which $527 million was included in Discontinued Operations and will be repaid through the liquidation of those assets. Debt of Continuing Operations of $6,103 million increased $453 million from December 31, 1996 reflecting higher working capital requirements at several of its businesses. The Corporation's debt of Continuing Operations is expected to remain at approximately this level for the remainder of the year. Management expects that the Corporation will have sufficient liquidity to meet ordinary future business needs. Sources of liquidity generally available to the Corporation include cash from operations, availability under its credit facility, cash and cash equivalents, proceeds from sales of non-strategic assets, borrowings from other sources, including funds from the capital markets, and the issuance of additional capital stock. Operating Activities The following table provides a reconciliation of net income to cash used by operating activities of Continuing Operations for the six months ended June 30, 1997 and 1996: CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS (in millions) (unaudited)
Six Months Ended June 30 ------------------------ 1997 1996 ---- ---- Loss from Continuing Operations $ (150) $ (747) Adjustments to reconcile loss from Continuing Operations to net cash used for operating activities: Depreciation and amortization 270 209 Losses (gains) on asset dispositions (24) 150 Other noncash adjustments (33) (104) Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent 36 18 Inventories 13 (38) Accounts payable (282) (252) Deferred and current income taxes 1 (145) Environmental liabilities (16) 203 Accrued restructuring costs (157) 71 Liabilities for asset dispositions (33) 98 Other assets and liabilities (202) (87) ------ ------ Cash used for operating activities of Continuing Operations $ (577) $ (624) ====== ======
The operating activities of Continuing Operations used $577 million of cash during the first six months of 1997 compared to cash used of $624 million during the first six months of 1996. The two primary factors contributing to the use of cash in the first half of 1997 were a significant reduction in accounts payable and higher restructuring expenditures. Restructuring spending increased in the first half of 1997 relative to the first half of 1996. This was primarily attributable to expenditures associated with the restructuring plans adopted in late 1996. The Corporation's pension contribution level for 1997, which is expected to be approximately $250 million to $300 million, is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. In July 1997, the Corporation began making its pension contributions quarterly pursuant to certain minimum funding requirements. -25- 26 The operating activities of Discontinued Operations used $61 million of cash during the first six months of 1997 compared to $382 million of cash used during the same period of 1996. During 1996, a significant amount of cash was used for the divestiture costs of Knoll and the defense and electronic systems business as well as in the operations of those businesses through the date of their disposal. Future cash requirements of Discontinued Operations will consist primarily of interest costs on debt, remaining costs associated with completed divestitures, and operating and disposal costs associated with the environmental services business and CISCO. Management believes that the future cash receipts of Discontinued Operations will be sufficient to satisfy the divestiture liabilities of Discontinued Operations and the remaining debt. Any cash in excess of that required to satisfy those liabilities will be transferred to Continuing Operations. Investing Activities Investing activities provided $25 million of cash during the first six months of 1997 compared to $3.4 billion of cash provided during the same period of 1996. In the first half 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 six months of 1996 included the purchase of two Chicago radio stations. Investing cash inflows from business divestitures in the first half of 1997 included proceeds from the sale of several radio stations and two businesses and an operating facility of the environmental services business. In the first half of 1996, the Corporation completed the sales of Knoll and the defense and electronic systems business, generating $3.6 billion of cash. Capital expenditures were $80 million for the first six months of 1997, a decrease of $14 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 six months of 1997 totalled $598 million compared to cash used of $2.5 billion during the same period of 1996. The cash outflows in the first half of 1997 included $149 million to extinguish the long-term debt previously issued by Infinity. The cash outflows in the first half of 1996 included $3.6 billion of debt prepaid upon the sales of Knoll and the defense and electronic systems business. Total borrowings under the Corporation's $5.5 billion revolving credit facility were $4.0 billion at June 30, 1997 (see Revolving Credit Facility). These borrowings were subject to a floating interest rate of 6.5% at June 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 six months of 1997 and 1996 included $23 million for the Series C preferred stock, which the Corporation replaced with 31,859,026 shares of common stock on May 30, 1997. Common stock dividends increased $19 million in the first half of 1997 compared to 1996 because of additional shares outstanding. At June 30, 1997, the Corporation had a shelf registration statement for debt securities with an unused amount of $400 million. Revolving Credit Facility On August 29, 1996, the Corporation executed a new five-year revolving credit agreement with total commitments of $5.5 billion. The unused capacity under the facility equaled $1.5 billion as of June 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 -26- 27 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 June 30, 1997, the Corporation was in compliance with these covenants. Legal, Environmental, and Other Matters Over the past several years, the Corporation has addressed a variety of legal, environmental, and other matters related to current operations as well as to previously divested businesses. See note 10 to the financial statements. The costs associated with resolving these matters are recognized in the period in which the costs are deemed probable and can be reasonably estimated. Management believes that the Corporation has adequately provided for the estimated costs of resolving these matters. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No reportable events. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of shareholders of the Corporation was held on April 30, 1997. (b) The following matters were submitted to a vote of the shareholders at the annual meeting. (i) In connection with the election of fourteen directors, the following votes were cast for or withheld from the following candidates.
FOR WITHHELD --- -------- Frank C. Carlucci 525,391,778 7,774,741 Robert E. Cawthorn 526,593,142 6,573,377 Gary M. Clark 526,434,862 6,731,657 George H. Conrades 526,614,341 6,552,178 William H. Gray III 525,762,438 7,404,081 Michael H. Jordan 526,300,310 6,866,209 Mel Karmazin 526,575,150 6,591,369 David K. P. Li 513,327,963 19,838,556 Peter A. Lund 526,498,423 6,668,096 David T. McLaughlin 526,160,551 7,005,968 Richard R. Pivirotto 525,957,131 7,209,388 Raymond W. Smith 526,365,765 6,800,754 Paula Stern 526,444,513 6,722,006 Robert D. Walter 526,598,665 6,567,854
(ii) A management proposal regarding the election of KPMG Peat Marwick LLP as independent accountants was presented at the meeting and 528,881,488 shares of common stock were voted for, 2,303,604 shares were voted against, and 1,981,427 shares abstained in connection with the adoption of this resolution, the text of which is set forth on pages 34 and 35 of the Corporation's Proxy Statement dated March 17, 1997, and incorporated herein by reference. -27- 28 (iii) A shareholder's resolution concerning redemption of the shareholder rights issued pursuant to the Corporation's Shareholder Rights Plan was presented at the meeting and 170,637,896 shares of common stock were voted for, 250,977,168 shares were voted against, 7,965,710 shares abstained, and there were 103,585,745 broker non-votes in connection with this resolution, the text of which is set forth on pages 35 through 38 of the Corporation's Proxy Statement dated March 17, 1997, and incorporated herein by reference. 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. (b) The Bylaws of the Corporation, as amended to September 25, 1996, are incorporated herein by reference to Exhibit 4.2 to the Corporation's Registration Statement No. 333-13219 on Form S-4 filed with the Securities and Exchange Commission on October 22, 1996. (4) RIGHTS OF SECURITY HOLDERS (a) There are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996. (10) MATERIAL CONTRACTS (a*) The Annual Performance Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 1996. (b*) The 1993 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(b) to Form 10-Q for the quarter ended September 30, 1996. (c*) The 1984 Long-Term Incentive Plan, as to amended November 1, 1996, is incorporated herein by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1996. (d*) The Westinghouse Executive Pension Plan, as amended to September 25, 1996, is incorporated herein by reference to Exhibit 10(d) to Form 10-Q for the quarter ended September 30, 1996. (e*) The Deferred Compensation and Stock Plan for Directors, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(e) to Form 10-K for the year ended 1996. (f*) The Director's Charitable Giving Program, as amended to April 30, 1996, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended June 30, 1996. -28- 29 (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. (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 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 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 February 9, 1997, among Westinghouse Electric Corporation, G Acquisition Corp., and Gaylord Entertainment Company is incorporated herein by reference to Exhibit 99.2 to Form 8-K of Westinghouse Electric Corporation, dated as of February 11, 1997. (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. -29- 30 (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. (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 April 25, 1997, filing financial information for the three months ended March 31, 1997. A Current Report on Form 8-K (Items 5 and 7) dated May 9, 1997, announcing the departure of Francis J. Harvey from the Corporation. A Current Report on Form 8-K (Items 5 and 7) dated May 27, 1997, announcing organization changes at CBS Inc. and the departure of Peter Lund. A Current Report on Form 8-K (Items 5 and 7) dated May 30, 1997, announcing Dr. Ernest H. Drew will become Chief Executive Officer of Westinghouse's Industries and Technology Group. A Current Report on Form 8-K (Items 5 and 7) dated June 18, 1997, announcing modification to the Corporation's previously announced separation plan. A Current Report on Form 8-K (Item 5) dated June 23, 1997, reporting Westinghouse's intention to redeem the Shareholder Rights Plan in January 2001. -30- 31 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 August 1997. WESTINGHOUSE ELECTRIC CORPORATION /s/ CAROL V. SAVAGE ------------------------ Vice President and Chief Accounting Officer -31- EX-3.A 2 WESTINGHOUSE ELECTRIC CORP. 1 Exhibit 3.a WESTINGHOUSE ELECTRIC CORPORATION RESTATED ARTICLES OF INCORPORATION (As amended through July 25, 1997) FIRST: The name of the corporation (hereinafter called the "Company") is WESTINGHOUSE ELECTRIC CORPORATION. SECOND: The location and post office address of the current registered office of the Company in the Commonwealth of Pennsylvania is Westinghouse Building, Gateway Center, Pittsburgh, Allegheny County, Pennsylvania 15222. THIRD: The Company is subject to the Act of the General Assembly of the Commonwealth of Pennsylvania, known as the "Business Corporation Law," approved May 5, 1933, and any act amendatory thereof, supplementary thereto or substituted therefor, and the purposes for which the Company is organized are: (1) To develop, build, manufacture, process and otherwise produce, to purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, repair, sell, lease, assign, distribute and otherwise deal in and dispose of structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes and systems for any application or purpose, whether for use for industrial, utility, transportation, broadcasting, communication, home, defense, consumer or other purposes or applications, or combinations thereof, whatsoever, including but not limited -1- 2 to the following: for the generation, conversion, transmission, utilization, storage and control of any form of energy whatsoever (including but not limited to electrical, mechanical, chemical, atomic, nuclear, steam, thermal, mineral, gas, water and solar); for the handling, conditioning, heating, cooling, treatment, application or use of air and other gases, liquids and solids; for aerial, nautical, terrestrial, spatial or celestial operations, applications or navigation; for radio, television and all other forms of transmission, reception or communication; and for incorporation into or use in, on or about any establishment, building or structure of any kind or nature whatsoever; and any and all related engines, turbines, motors, parts, tools, accessories and improvements thereof and supplies or materials pertaining or incidental to any of the above structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes and systems, of any kind or nature whatsoever. (2) To develop, build, manufacture, process and otherwise produce, to purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, repair, sell, lease, assign, distribute and otherwise deal in and dispose of structures, machinery, equipment, apparatus, appliances, devices, products, materials, articles, processes, systems, goods, wares and merchandise of every kind, nature and description, and to engage in any industrial, manufacturing, mining, mercantile, broadcasting, trading or other lawful business of any kind or character whatsoever. (3) To conduct and carry on research work in, and to engage in any activity pertaining or incidental to, any scientific, technical or other field or fields, and to render services of a scientific, technical or other nature to any person, association, firm, corporation, country, state, municipality or other governmental division or subdivision. -2- 3 (4) To purchase, lease, exchange and otherwise acquire all, or any part of, or any interest in, the properties, assets, business and goodwill of any one or more persons, associations, firms or corporations; to pay for the same in cash, property or its own or other securities; to hold, own, use, operate, reorganize and otherwise manage such properties, assets, business and goodwill; to sell, lease, assign, distribute, liquidate and otherwise deal in and dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee performance of any liabilities, obligations or contracts of such persons, associations, firms or corporations. (5) To develop, apply for, register, take licenses in respect of, purchase, lease, exchange and otherwise acquire, and to hold, own, use, operate, sell, lease, assign, grant licenses in respect of, manufacture under, exercise and otherwise deal in and dispose of any and all inventions, devices, formulae, technical or business information, including trade secrets, know-how, processes, improvements and modifications thereof, letters patent and all rights connected therewith or appertaining thereto, copyrights, trademarks, trade names, trade symbols and other indications of origin and ownership, franchises, licenses, concessions or other rights granted by or recognized under the laws of any country, state, municipality or other governmental division or subdivision. (6) To purchase, exchange and otherwise acquire, and to hold, own, sell, assign, transfer, reissue, cancel and otherwise deal in and dispose of its own shares and securities, to such extent and in such manner and upon such terms as it may determine; provided that the Company shall not use its funds or property for the purchase of its own shares when such purchase shall be prohibited by law; and provided that shares of its capital stock which belong to the Company shall not be voted directly or indirectly. -3- 4 (7) To enter into, make, perform and carry out contracts and agreements of every kind and description which may be necessary, appropriate, convenient or advisable in carrying out the purposes of the Company, with any person, association, firm, corporation, country, state, municipality or other governmental division or subdivision. (8) To carry out any of or all the foregoing purposes as principal or agent and alone or with associates; and to execute from time to time such general or special powers of attorney to such person or persons as it may determine, granting to such person or persons such powers as it may deem proper, and to revoke such powers of attorney as and when it may desire; and to conduct its business in any and all of its branches at one or more offices in the Commonwealth of Pennsylvania and elsewhere. (9) To do everything necessary, suitable, convenient or proper for, or in connection with, or incident to, the accomplishment of any of the purposes herein enumerated, or which shall at any time appear conducive to or expedient for the accomplishment of any of such purposes, not inconsistent with the laws of the Commonwealth of Pennsylvania. Except as otherwise expressly provided in this Article THIRD, none of the purposes set forth above in this Article THIRD shall be in any way limited or restricted by reference to, or inference from, any other of the purposes therein set forth, and each of said purposes shall be regarded as a separate and independent purpose. The purposes set forth above shall be construed as powers as well as purposes; but the enumeration herein of certain powers is not intended to be exclusive of, or a waiver of, but shall be in addition to, the powers, rights or privileges granted or conferred by said "Business Corporation Law" and any other laws of the Commonwealth of Pennsylvania -4- 5 applicable to the Company that may now or hereafter be in force. Without limiting the generality of the foregoing, the Company shall have and may exercise the general powers which are now or may hereafter be enumerated in Section 302 of said "Business Corporation Law," or any act amendatory thereof, supplemental thereto or substituted therefor, to the same extent as if such powers were set forth in full herein. Except as otherwise provided by law or these Restated Articles of Incorporation or the By-laws, the powers of the Company shall be exercised by its Board of Directors. Nothing herein contained shall authorize or be construed as intended to authorize the Company to carry on any business or exercise any powers in any commonwealth, state, territory, or country which a business corporation organized under the laws of such commonwealth, state, territory or country could not carry on or exercise, except to the extent permitted or authorized by the laws of such commonwealth, state, territory or country; and notwithstanding any provision herein, the Company shall not be deemed to have the power to carry on or exercise within the Commonwealth of Pennsylvania any business whatsoever the carrying on or exercising of which would prevent the Company from being classified as a business corporation under said "Business Corporation Law," or any act amendatory thereof, supplemental thereto or substituted therefor. FOURTH: The term of existence of Company shall be perpetual. FIFTH: A. The total number of shares of all classes of stock which the Company shall have authority to issue is 1,125,000,000 consisting of: (1) 25,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"), and (2) 1,100,000,000 shares of Common Stock, par value $1.00 per share ("Common Stock"). -5- 6 B. The Board of Directors is hereby expressly authorized to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock. Before any share of any such series is issued, the Board shall fix, and hereby is expressly empowered to fix, the following provisions of the shares thereof: (1) the terms of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof; (2) whether the shares of such series shall have voting rights in addition to any voting rights provided by law and, if so, the terms of such voting rights, which may be general or limited; (3) the dividends, if any, payable on such series, whether any such dividends shall be cumulative and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of Preferred Stock; (4) whether the shares of such series shall be subject to redemption at the election of the Company or the holders of such series and, if so, the times, prices and other conditions of such redemption; (5) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in the event of, voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets of the Company; (6) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares -6- 7 of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (7) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of Preferred Stock or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (8) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, or upon the purchase, redemption or other acquisition by the Company of, the Common Stock or shares of stock of any other class or any other series of Preferred Stock; (9) the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional stock, including additional shares of any other series of Preferred Stock or of any other class of stock; and (10) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. C. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series of Preferred Stock at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. -7- 8 D. Subject to the provisions of this Article FIFTH and actions taken by the Board of Directors pursuant to this Article FIFTH: (1) such dividends (whether in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time in accordance with the laws of the Commonwealth of Pennsylvania; and the holders of the Preferred Stock shall not be entitled to participate in any such dividends whether payable in cash, stock or otherwise; (2) voting power shall be exclusively vested in the Common Stock; (3) dividends upon shares of any class of the Company shall be payable only out of assets legally available for the payment of such dividends, and the rights of the holders of the Preferred Stock of all series and of the holders of the Common Stock in respect of dividends shall at all times be subject to the power of the Board of Directors, which is hereby expressly vested in said Board, from time to time to set aside such reserves and to make such other provisions, if any, as said Board shall deem to be necessary or advisable for working capital, for additions, improvements and betterments to plant and equipment, for expansion of the Company's business (including the acquisition of real and personal property for that purpose), for plans for maintaining employment at the plants of the Company and also for other plans for the benefit of employees generally, and for any other purposes of the Company whether or not similar to those herein mentioned; (4) holders of Preferred Stock and holders of Common Stock shall not have any preemptive, preferential or other right to subscribe for or purchase or acquire any shares of any class or any other securities of the Company, whether now or hereafter -8- 9 authorized, and whether or not convertible into, or evidencing or carrying the right to purchase, shares of any class or any other securities now or hereafter authorized, and whether the same shall be issued for cash, services or property, or by way of dividend or otherwise, other than such right, if any, as the Board of Directors in its discretion from time to time may determine. If the Board of Directors shall offer to the holders of the Preferred Stock or the holders of the Common Stock, or any of them, any such shares or other securities of the Company, such offer shall not in any way constitute a waiver or release of the right of the Board of Directors subsequently to dispose of other portions of said shares or securities without so offering the same to said holders; (5) the shares of Preferred Stock and the shares of Common Stock may be issued for such consideration and for such corporate purposes as the Board of Directors may from time to time determine; (6) subject to the provisions of the By-laws of the Company as from time to time amended, with respect to the closing of the transfer books or the fixing of a record date for the determination of shareholders entitled to vote, each holder of record of shares of any class of the Company shall be entitled to one vote, on each matter submitted to a vote at a meeting of shareholders and in respect of which shares of such class shall be entitled to be voted, for every share of such class standing in his name on the books of the Company; (7) in each election of directors no shareholder shall have any right to cumulate his votes and cast them for one candidate or distribute them among two or more candidates. -9- 10 E. 1. Designation and Amount. The shares of this series shall be designated as "Series A Participating Preferred Stock" (the "Series A Preferred Stock"). The par value of each share of Series A Preferred Stock shall be $1.00. The number of shares constituting the Series A Preferred Stock initially shall be 5,000,000; provided, however, that, if more than a total of 5,000,000 shares of Series A Preferred Stock shall be issuable upon the exercise of Rights (the "Rights") issued pursuant to the Rights Agreement, dated as of December 28, 1995, between the Company and First Chicago Trust Company of New York, as Rights Agent (as such agreement may be amended from time to time, the "Rights Agreement"), the Board of Directors of the Company, pursuant to Section 1914(c) and/or Section 1522(b) of the Pennsylvania Business Corporation Law of 1988, as amended (the "Pennsylvania BCL"), and in accordance with the provisions of Article FIFTH of the Restated Articles of Incorporation, shall adopt a resolution or resolutions increasing the previously determined total number of shares of Series A Preferred Stock authorized to be issued (to the extent that the Restated Articles of Incorporation then permit) to the largest number of whole shares (rounded up to the nearest whole number) issuable upon exercise of such Rights and directing that a statement or articles of amendment with respect to such increase in authorized shares for the Series A Preferred Stock be executed and filed with the Department of State of the Commonwealth of Pennsylvania. 2. Dividends and Distributions. (a) Subject to the provisions for adjustment hereinafter set forth, the holders of outstanding shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) a cash dividend in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of each cash dividend declared or paid on the Common Stock, -10- 11 $1.00 par value per share, of the Company (the "Common Stock") and any other security ranking junior to the Series A Preferred Stock, and (ii) a preferential cash dividend (the "Preferential Dividends"), if any, in preference to the holders of Common Stock and any other security ranking junior to the Series A Preferred Stock, on the first day of March, June, September and December of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, payable in an amount (except in the case of the first Quarterly Dividend Payment if the date of the first issuance of Series A Preferred Stock is a date other than a Quarterly Dividend Payment date, in which case such payment shall be a prorated amount of such amount) equal to $1.00 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In addition, in the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preferred Stock, pay any dividend or make any distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than (x) cash dividends subject to the immediately preceding sentence, (y) a distribution of shares of Common Stock or other capital stock of the Company or (z) a distribution of rights or warrants to acquire any such shares, including as such a right any debt security convertible into or exchangeable for any such shares, at a price less than the Fair Market Value (as hereinafter defined) of such shares on the date of issuance of such rights or warrants), then, and in each -11- 12 such event, the Company shall simultaneously pay on each then outstanding share of Series A Preferred Stock a distribution, in like kind, of 100 times such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Dividends" and the multiple of such cash and non-cash dividends and distributions on the Common Stock applicable to the determination of the Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Company shall declare each Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid. No cash or non-cash dividend or distribution on the Common Stock in respect of which a Dividend is required to be paid shall be paid or set aside for payment on the -12- 13 Common Stock unless a Dividend in respect of such dividend or distribution on the Common Stock shall be simultaneously paid, or set aside for payment, on the Series A Preferred Stock. (c) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. (d) Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid Preferential Dividend due with respect to shares of the Series A Preferred Stock. (e) All dividends paid with respect to shares of the Series A Preferred Stock pursuant to this paragraph 2 shall be paid pro rata on a share-by-share basis to the holders entitled thereto. (f) The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends or distributions except as provided herein. 3. Voting Rights. The holders of record of outstanding shares of Series A Preferred Stock shall have the following voting rights: (a) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the holders of the Common Stock. The number of votes which a holder of a share of Series A Preferred Stock is entitled to cast, as the same may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Vote Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend on Common Stock, payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding -13- 14 shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Vote Multiple thereafter applicable to the determination of the number of votes per share to which holders of shares of Series A Preferred Stock shall be entitled after such event shall be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided herein, in the Restated Articles of Incorporation, in the By-laws, or as otherwise provided by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (c) In the event that the Preferential Dividends payable to the holders of Series A Preferred Stock are in arrears and unpaid for the equivalent of six quarterly periods, the Board of Directors will be increased by two directors and the holders of Series A Preferred Stock, together with the holders of all other outstanding series of the Preferred Stock in respect of which such a default in payment of dividends as described hereinabove exists and is entitled to vote thereon, voting as a single class without regard to series, will be entitled to elect two directors of the expanded Board of Directors. Such entitlement shall continue until such time as all dividends in arrears on all of the Series A Preferred Stock at the time outstanding have been paid or declared and set aside for payment, whereupon such voting rights of the holders of the Series A Preferred Stock shall cease (and, unless holders of shares of other series of Preferred -14- 15 Stock shall still have the right to elect such directors, the respective terms of the two additional directors shall thereupon expire and the number of directors constituting the full board be decreased by two) subject to being again revived from time to time upon the reoccurrence of the conditions described in this paragraph (3)(c) as giving rise thereto. At any time when the rights of holders of Series A Preferred Stock to elect two additional directors shall have so vested, the Company shall, upon the written request of the holders of record of not less than 10% of the Series A Preferred Stock then outstanding (or 10% of all of the shares of Preferred Stock having the right to vote for such directors in case holders of shares of other series of Preferred Stock shall also have the right to elect directors in such circumstances), call a special meeting of holders of the Series A Preferred Stock (and other series of Preferred Stock, if applicable) for the election of directors. In the case of a written request, the special meeting shall be held within 60 days after the delivery of the request, upon the notice provided by law and in the By-laws of the Company; except that the Company shall not be required to call such a special meeting if the request is received less than 120 days before the date fixed for the next ensuing annual meeting of shareholders of the Company. Whenever the number of directors of the Company shall have been increased by two as provided in this paragraph (3)(c), the number as so increased may thereafter be further increased or decreased in such manner as may be permitted by the By-laws and without the vote of the holders of Series A Preferred Stock. No such action shall impair the right of the holders of Series A Preferred Stock to elect and to be represented by two directors as provided in this paragraph (3)(c). -15- 16 The two directors elected as provided in this paragraph (3)(c) shall serve until the next annual meeting of shareholders of the Company and until their respective successors shall be elected and qualified or the earlier expiration of their terms as provided in this paragraph (3)(c). No such director may be removed without the vote of holders of a majority of shares of Series A Preferred Stock (or holders of a majority of shares of Preferred Stock having the right to vote in the election of such director in case holders of shares of other series of Preferred Stock shall also have the right to elect such director). If, prior to the expiration of the term of any such director, a vacancy in the office of such director shall occur, such vacancy shall, until the expiration of such term, in each case be filled by the remaining director elected as provided in this paragraph (3)(c) or, if none remains in office, by vote of the holders of record of a majority of the outstanding shares of Series A Preferred Stock (or holders of a majority of shares of Preferred Stock who are then entitled to participate in the election of such directors in case holders of shares of other series of Preferred Stock shall also have the right to elect such director). (d) Except as otherwise required by the Articles of Incorporation or By-laws or set forth in this paragraph 3 or in paragraph 13 or as otherwise provided by law, holders of Series A Preferred Stock shall have no other special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. 4. Certain Restrictions. (a) Whenever Preferential Dividends or Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and Dividends, whether or not declared, on shares of Series A Preferred Stock -16- 17 outstanding shall have been paid or set irrevocably aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(a), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except as permitted by subparagraph (iii) of this paragraph 4(a) or in accordance with a purchase -17- 18 offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Company shall not permit any Subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under subparagraph (a) of this paragraph 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests entitled to cast at least a majority of the votes that would be entitled to be cast in an election of the board of directors of such corporation or other entity or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that is otherwise controlled by the Company. (c) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to the Rights Agreement, a copy of which is on file with the Secretary of the Company at its principal executive office and shall be made available to shareholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions of this Article FIFTH (E) shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock or, subject to the limitations set forth in paragraph 13, from creating other securities senior to, junior to or on a parity with the Series A Preferred Stock. 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled -18- 19 promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares may be redesignated and reissued as part of any series of the Preferred Stock. 6. Liquidation, Dissolution or Winding Up; Fair Value for Purposes of Pennsylvania Anti-Takeover Statute. (a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock outstanding shall have received out of the assets of the Company available for distribution to its shareholders after payment or provision for payment of any securities ranking senior to the Series A Preferred Stock, for each share of Series A Preferred Stock, subject to adjustment as hereinafter provided, (A) $100.00 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment or, (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company -19- 20 pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple." In the event the Company shall at any time after January 9, 1996 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then, in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Except as provided in this paragraph 6(a), holders of Series A Preferred Stock shall not be entitled to any distribution in the event of liquidation, dissolution or winding up of the Company. (b) For the purposes of this paragraph 6, none of the following shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company: (i) the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company; (ii) the consolidation or merger of the Company with or into one or more other corporations or other associations; -20- 21 (iii) the consolidation or merger of one or more corporations or other associations with or into the Company; (iv) the participation by the Company in a share exchange; (v) the division of the Company pursuant to sections 1951 through 1957 of the Pennsylvania BCL; (vi) the conversion of the Company pursuant to sections 1961 through 1966 of the Pennsylvania BCL; (c) Notwithstanding anything to the contrary in this Article FIFTH (E), in case any Controlling Person or Group (as defined from time to time in Section 2543 of the Pennsylvania BCL) shall be required to purchase any shares of Series A Preferred Stock pursuant to Sections 2541 through 2548 of the Pennsylvania BCL, as in effect from time to time, the amount that is determined to represent the "fair value" (as that term is used in such Section 2542 of the Pennsylvania BCL) of such shares shall be an amount per share equal to the Liquidation Multiple then in effect times the aggregate amount per share that such Controlling Person or Group is required to pay to purchase any share of Common Stock pursuant to such Sections 2541 through 2548 of the Pennsylvania BCL. 7. Certain Reclassifications and Other Events. (a) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a "Transaction"), then, and in each such event, the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be -21- 22 entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock, (ii) such additional voting rights as equal the Vote Multiple in effect immediately prior to such Transaction multiplied by the additional voting rights to which the holder of a share of Common Stock shall be entitled by virtue of the receipt in the Transaction of such capital stock and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (b) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph 7(b), any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple, the Vote Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by -22- 23 a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (c) In the event that holders of shares of Common Stock of the Company receive after January 9, 1996 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph 7(c), any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of a share of such capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction (as hereinafter defined), (ii) such additional voting rights as equal the Vote -23- 24 Multiple in effect immediately prior to such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise, and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph 7(c) immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (d) For purposes of this Article FIFTH (E), the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or -24- 25 securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock or division of the Company pursuant to Sections 1951 through 1957 of the Pennsylvania BCL, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board of Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by The Nasdaq Stock Market or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" -25- 26 shall mean the fair market value thereof per share as determined in good faith by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, division, share exchange, combination, sale of all or substantially all of the Company's assets, or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the highest of the Vote Multiple, the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event; provided, however, no fractional share or scrip representing fractional shares of any other stock or securities shall be issued. Instead of any fractional interest in a share of such other stock or securities which would otherwise be deliverable pursuant to this paragraph 8, the Company will pay to the holder thereof an amount in cash (computed to the nearest cent) equal to the same fraction of the Fair Market Value of a share of such other stock or security. 9. Effective Time of Adjustments. (a) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (b) The Company shall give prompt written notice to each holder of a share of outstanding Series A Preferred Stock of the effect of any adjustment to the voting rights, dividend rights or rights upon liquidation, dissolution or winding up of the Company of such -26- 27 shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this paragraph, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Restated Articles of Incorporation. 11. Ranking. The Series A Preferred Stock shall rank senior to the Common Stock and, unless otherwise provided in a Statement with Respect to Shares or an amendment to the Restated Articles of Incorporation relating to the determination of a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up. 12. Limitations. Except as may otherwise be required by law, the shares of Series A Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights other than those specifically set forth in this Article FIFTH (E) (as such may be amended from time to time) or otherwise in the Restated Articles of Incorporation. 13. Amendment. So long as any shares of the Series A Preferred Stock are outstanding, the Company shall not amend this Article FIFTH (E) or the Restated Articles of Incorporation in any manner which would alter or change the rights, preferences or limitations of the Series A Preferred Stock so as to affect such rights, preferences or limitations in any material respect prejudicial to the holders of the Series A Preferred Stock without, in addition to any other vote of shareholders required by law, the affirmative vote of the holders of two-thirds -27- 28 or more of the outstanding shares of Series A Preferred Stock, voting together as a single class; provided, however, that the creation of another series of the Preferred Stock ranking senior to or on a parity with the Series A Preferred Stock as to the payment of dividends or the distribution of assets or liquidation, dissolution or winding up shall not be deemed to be prejudicial to the holders of the Series A Preferred Stock for the purposes of this paragraph 13. SIXTH: A. A higher than majority shareholder vote for certain Business Combinations (as defined below) shall be required as follows: (1) In addition to any affirmative vote required by law or these Restated Articles of Incorporation or the terms of any series of Preferred Stock or any other securities of the Company and except as otherwise expressly provided in Section B. of this Article SIXTH: (a) any merger or consolidation of the Company or any Subsidiary with (i) any Interested Stockholder or with (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to an Interested Stockholder (or an Affiliate or Associate of an Interested Stockholder) of any assets of the Company or of a Subsidiary having an aggregate Fair Market Value of $10,000,000 or more; (c) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to or with the Company or a Subsidiary of any assets of an Interested Stockholder (or -28- 29 an Affiliate or Associate of an Interested Stockholder) having an aggregate Fair Market Value of $10,000,000 or more; (d) the issuance or sale by the Company or any Subsidiary (in one transaction or a series of transactions whether or not related) of any securities of the Company or of any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder in exchange for cash, securities or other consideration (or a combination thereof) having an aggregate Fair Market Value of $10,000,000 or more except an issuance of securities upon conversion of convertible securities of the Company or of a Subsidiary which were not acquired by such Interested Stockholder (or such Affiliate or Associate) from the Company or a Subsidiary; (e) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (f) any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity securities of the Company or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; shall require the affirmative vote of (i) the holders of at least eighty percent (80%) of the combined voting power of the then outstanding shares of capital stock of the -29- 30 Company entitled to vote generally in an annual election of directors (the "Voting Stock") and (ii) the holders of at least a majority of the combined voting power of the then outstanding Voting Stock held by Disinterested Stockholders, in each case voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, by any other provisions of these Restated Articles of Incorporation or by the terms of any series of Preferred Stock or any other securities of the Company; (2) The term "Business Combination" as used in this Article SIXTH shall mean any transaction which is referred to in any one or more of clauses (a) through (f) of paragraph (1) of Section A. of this Article SIXTH. B. The provisions of Section A. of this Article SIXTH shall not be applicable to any Business Combination, and such Business Combination shall require only such affirmative vote (if any) as is required by law, any other provision of these Restated Articles of Incorporation or the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, or the terms of any other securities of the Company, if all of the conditions specified in either of the following paragraphs (1) or (2) are met: (1) The Business Combination shall have been approved by a majority of the Disinterested Directors or (2) All the following six conditions shall have been met - (a) The transaction constituting the Business Combination shall provide for a consideration to be received by holders of Common Stock in exchange for -30- 31 their Common Stock, and the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher; and (iii) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to clause (ii) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Stock beneficially owned by the Interested Stockholder which were acquired within the two-year period immediately prior to the Announcement Date to -31- 32 (y) the Fair Market Value per share of Common Stock on the first day in such two-year period on which the Interested Stockholder beneficially owned any shares of Common Stock, whether or not such Stockholder was an Interested Stockholder on that day. (b) If the transaction constituting the Business Combination shall provide for a consideration to be received by holders of any class of outstanding Voting Stock other than Common Stock, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this clause (2)(b) shall be required to be met with respect to every class of outstanding Voting Stock other than Institutional Voting Stock, whether or not the Interested Stockholder beneficially owns any shares of a particular class of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Stockholder which were acquired (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher; (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in -32- 33 the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company; (iii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and (iv) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Stock determined pursuant to clause (iii) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Stock beneficially owned by the Interested Stockholder which were acquired within the two-year period immediately prior to the Announcement Date to (y) the Fair Market Value per share of such class of Voting Stock on the first day in such two-year period on which the Interested Stockholder beneficially owned any shares of such class of Voting Stock, whether or not such Stockholder was an Interested Stockholder on that day. (c) The consideration to be received by holders of a particular class of Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire shares of such class of Voting Stock which are beneficially owned by the Interested Stockholder and, if the Interested Stockholder beneficially owns shares of any class of Voting Stock which were acquired with varying forms of consideration, the form of consideration to be received by holders of such class of Voting Stock shall be either cash or the form -33- 34 used to acquire the largest number of shares of such class of Voting Stock beneficially owned by it. The prices determined in accordance with clauses (a) and (b) of paragraph (2) of this Section B. shall be subject to an appropriate adjustment in the event of any stock dividend, stock split, subdivision, combination of shares or similar event. (d) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock or other capital stock entitled to a preference over the Common Stock as to dividends or upon liquidation; (ii) except as approved by a majority of the Disinterested Directors, there shall have been (x) no reduction in the annual amount of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock) and (y) no failure to increase the annual amount of dividends as necessary to prevent any such reduction in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock; (iii) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction in which it became an Interested Stockholder; and -34- 35 (iv) there shall have always been at least three Disinterested Directors on the Board of Directors. (e) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise. (f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to shareholders at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). C. For the purposes of this Article SIXTH: (1) A "person" shall mean any individual, a partnership, a corporation, an association, a trust or other entity. (2) "Interested Stockholder" at any particular time shall mean any person (other than the Company or any Subsidiary) who or which: (a) is at such time the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Stock; -35- 36 (b) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Stock; or (c) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder (as defined in C.(2)(a) and (b) above), if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) "Disinterested Stockholder" shall mean a shareholder of the Company who is not an Interested Stockholder or an Affiliate or an Associate of an Interested Stockholder. (4) A person shall be a "beneficial owner" of any shares of Voting Stock: (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or -36- 37 (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (5) For the purpose of determining whether a person is an Interested Stockholder pursuant to paragraph (2) of this Section C., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by an Interested Stockholder through application of paragraph (4) of this Section C. but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise. (6) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1984 (the term "registrant" in such Rule 12b-2 meaning in this case the Company). (7) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Company; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (2) of this Section C. the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Company. (8) "Disinterested Director" means any member of the Board of Directors who is unaffiliated with, and not a representative or nominee of, an Interested Stockholder and (a) was a member of the Board prior to the time that the -37- 38 Interested Stockholder became an Interested Stockholder, or (b) recommended to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board. (9) "Fair Market Value" means: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotation System or any other system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. (10) In the event of any Business Combination in which the Company survives, the phrase "consideration other than cash to be received" as used in paragraph (2) of Section B. of this Article SIXTH shall include the shares of Common Stock and the shares of any other class of outstanding Voting Stock retained by the holders of such shares. -38- 39 (11) The term "class" of Voting Stock shall be deemed to refer to a series of Voting Stock where more than one series of Voting Stock is outstanding within a class of Voting Stock. (12) "Institutional Voting Stock" shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pension funds, commercial banks, savings banks or similar financial institutions or institutional investors. D. A majority of the Disinterested Directors of the Company shall have the power and duty to determine for the purposes of this Article SIXTH, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether the requirements of Section B. of this Article SIXTH have been met with respect to any Business Combination, (5) whether a class of Voting Stock is Institutional Voting Stock and (6) whether the assets which are subject to any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Company or any subsidiary in any Business Combination has, an aggregate Fair Market Value of $10,000,000 or more. Any such determination made in good faith shall be binding and conclusive on all parties. E. Nothing contained in this Article SIXTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. -39- 40 F. In addition to any requirements of law and any other provisions of these Restated Articles of Incorporation or the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, or the terms of any other securities of the Company (and notwithstanding the fact that a lesser percentage may be specified by law, these Restated Articles of Incorporation or any such terms), the affirmative vote of (1) the holders of eighty percent (80%) or more of the combined voting power of the Voting Stock, voting together as a single class, and (2) a majority of the combined voting power of the Voting Stock held by the Disinterested Stockholders, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision inconsistent with, this Article SIXTH. SEVENTH: A. Except as otherwise fixed by or pursuant to the terms of any class or series of capital stock of the Company entitled to a preference over the Common Stock as to dividends or upon liquidation, the number, qualification, terms of office, manner of election, time and place of meeting, compensation, powers and duties of the directors shall be fixed from time to time by or pursuant to the By-laws. B. If the By-laws so provide, the members of the Board (other than those who may be elected by the holders of any class or series of capital stock having a preference over the Common Stock as to dividends or upon liquidation pursuant to the terms of these Restated Articles of Incorporation or of such class or series of stock) shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, having such terms and being elected in such manner as shall be specified in the By-laws. -40- 41 EIGHTH: In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to: (1) adopt any By-laws a majority of the entire Board of Directors may deem necessary or desirable for the efficient conduct of the affairs of the Company, including, but not limited to, provisions governing the conduct of, and the matters which may properly be brought before, meetings of the shareholders and provisions specifying the manner and extent to which prior notice shall be given of the submission of proposals to be considered at any such meeting or of nominations for the election of directors to be held at any such meeting; and (2) repeal, alter or amend the By-laws by the vote of a majority of the entire Board of Directors. NINTH: In addition to any requirements of law and any other provisions of these Restated Articles of Incorporation or the terms of any series of Preferred Stock or any other securities of the Company (and notwithstanding the fact that a lesser percentage may be specified by law, these Restated Articles of Incorporation or any such terms), the affirmative vote of the holders of eighty percent (80%) or more of the combined voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in an annual election (the "Voting Stock"), voting together as a single class, shall be required to: (1) remove a director without cause (For purposes of this Article (NINTH) "cause" shall mean the willful and continuous failure of a director to substantially perform such director's duties to the Company, other than any such failure resulting from incapacity -41- 42 due to physical or mental illness, or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Company); (2) adopt, amend, alter or repeal any provision of the By-laws, except that By-law XVI may be amended or altered by a majority vote of the Voting Stock if the majority of the entire Board of Directors has first recommended the amendment or alteration for approval by the shareholders; (3) amend, alter or repeal or adopt any provision inconsistent with, Articles SEVENTH or EIGHTH or this Article NINTH; and (4) amend, alter or repeal or adopt any provisions inconsistent with any provision, other than Articles SIXTH, SEVENTH or EIGHTH or this Article NINTH, contained in these Restated Articles of Incorporation, unless otherwise first recommended and approved by a majority of the entire Board of Directors or, if there is an Interested Stockholder (as defined in Article SIXTH), by a majority of the Disinterested Directors (as defined in Article SIXTH), in which cases a majority vote of the Voting Stock is required to amend, alter or repeal such other provisions of these Restated Articles of Incorporation. TENTH: To the fullest extent that the law of the Commonwealth of Pennsylvania, as it exists on January 27, 1987, or as it may thereafter be amended, permits the elimination of the liability of directors, no director of the corporation shall be liable for monetary damages for any action taken, or any failure to take any action. This Article TENTH shall not apply to any breach of performance of duty or any failure of performance of duty by any director occurring prior to January 27, 1987. No amendment to or repeal of this Article TENTH shall apply to or have any effect on the liability or alleged liability of any director of the Company for or with -42- 43 respect to any act or failure to act on the part of such director occurring prior to such amendment or repeal. ELEVENTH: The Company may, to the fullest extent permitted by applicable law as then in effect, indemnify any person who is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) and may take such steps as may be deemed appropriate by the Company, including purchasing and maintaining insurance, entering in to contracts (including, without limitation, contracts of indemnification between the Company and its directors and officers), creating a trust fund, granting security interests or using other means (including, without limitation, a letter of credit) to insure the payment of such amount as may be necessary to effect such indemnification. This Article shall apply to any action taken, or any failure to take any action, on or after January 27, 1987. -43- EX-11 3 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS (unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- EQUIVALENT SHARES: Average shares outstanding 600,522,963 399,232,141 595,159,589 398,307,494 Additional Shares due to: Stock options 16,670,511 7,368,773 16,860,848 6,558,043 Series C Preferred Shares 27,000,000 36,000,000 30,857,143 36,000,000 ---------- ---------- ----------- ----------- Total equivalent shares 644,193,474 442,600,914 642,877,580 440,865,537 =========== =========== =========== =========== ADJUSTED EARNINGS (in millions): Income (loss) from Continuing Operations $ 1 $ (89) $ (150) $ (747) Income from Discontinued Operations - - - 967 Extraordinary Item - - - (63) -------- -------- --------- -------- Adjusted net income (loss) $ 1 $ (89) $ (150) $ 157 ======== ======== ========= ========= EARNINGS (LOSS) PER SHARE: From Continuing Operations $ - $ (0.20) $ (0.23) $ (1.70) From Discontinued Operations - - - 2.20 From Extraordinary Item - - - (0.14) -------- -------- --------- -------- Earnings (loss) per share (a) $ - $ (0.20) $ (0.23) $ 0.36 ======== ======== ========= =========
(a) For earnings per share using an alternative treatment for the Series C Preferred Shares, see note 11 to the condensed consolidated financial statements included in Part I of this report. -32- EX-12.A 4 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in millions) (unaudited)
Six Months Ended Year Ended June 30 December 31 ----------------- ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (168) $(1,129) $(1,190) Less: Equity in income of 50 percent or less owned affiliates 6 1 9 Add: Fixed charges 256 268 484 ------- ------- ------- Earnings as adjusted $ 82 $ (862) $ (715) ======= ======= ======= Fixed charges: Interest expense $ 236 $ 255 $ 456 Rental expense 20 13 28 ------- ------- ------- Total fixed charges $ 256 $ 268 $ 484 ======= ======= ======= Ratio of earnings to fixed charges (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the six months ended June 30, 1997, June 30, 1996, and the year ended December 31, 1996 would be $174 million, $1,130 million, and $1,199 million, respectively. -33- EX-12.B 5 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions) (unaudited)
Six Months Ended Year Ended June 30 December 31 ---------------- ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (168) $(1,129) $(1,190) Less: Equity in income of 50 percent or less owned affiliates 6 1 9 Add: Combined fixed charges and preferred stock dividends 282 303 557 ------- ------- ------- Earnings as adjusted $ 108 $ (827) $ (642) ======= ======= ======= Combined fixed charges and preferred stock dividends: Interest expense $ 236 $ 255 $ 456 Rental expense 20 13 28 Pre-tax earnings required to cover preferred stock dividend requirements (b) 26 35 73 ------- ------- ------- Total combined fixed charges and preferred stock dividends $ 282 $ 303 $ 557 ======= ======= ======= Ratio of earnings to combined fixed charges and preferred stock dividends (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the six months ended June 30, 1997, June 30, 1996, and the year ended December 31, 1996 would be $174 million, $1,130 million, and $1,199 million, respectively. (b) Dividend requirement divided by 100% minus the effective income tax rate or the statutory rate, whichever is more appropriate. -34- EX-27 6 WESTINGHOUSE ELECTRIC CORP.
5 1,000,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 210 0 1,609 34 765 4,450 3,552 1,754 19,324 3,310 5,775 0 0 649 4,954 19,324 4,636 4,636 3,106 3,106 1,514 0 236 (168) (19) (150) 0 0 0 (150) (.23) (.23)
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