-----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, L8MPmVcm/1MPFdl8Vk59eDguhCBoKBOfcZ63eUDgBi/c13Io4oe7A9Z29MtV5jqP NxuH1R6QxH8uWsPjv+D+AQ== 0000950128-98-000812.txt : 19980518 0000950128-98-000812.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950128-98-000812 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBS 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: SEC FILE NUMBER: 001-00977 FILM NUMBER: 98624668 BUSINESS ADDRESS: STREET 1: 51 WEST 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129754321 MAIL ADDRESS: STREET 1: 51 WEST 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-Q 1 CBS CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549-1004 ------------------------ FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ____ EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 ------------------------ CBS CORPORATION (Exact name of registrant as specified in its charter) PENNSYLVANIA (State of Incorporation) 25-0877540 (IRS Employer Identification No.) 51 WEST 52ND STREET, NEW YORK, NY 10019 (Address of principal executive offices, zip code) (212) 975-4321 (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 718,114,515 SHARES OUTSTANDING AT APRIL 30, 1998 ================================================================================ 2 CBS CORPORATION INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements................................ 3 Condensed Consolidated Statement of Income and Comprehensive Income...................................................... 3 Condensed Consolidated Balance Sheet........................ 4 Condensed Consolidated Statement of Cash Flows.............. 5 Notes to the Condensed Consolidated Financial Statements.... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................... 24 Item 6. Exhibits and Reports on Form 8-K.................... 24 SIGNATURE ............................................................ 28
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CBS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED, IN MILLIONS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, --------------------- 1998 1997 ------- ------- Revenues.................................................... $ 1,949 $ 1,326 Operating expenses.......................................... (1,305) (1,002) Marketing, administration, and general expenses............. (340) (238) Depreciation and amortization............................... (130) (105) Residual costs of discontinued businesses................... (38) (35) ------- ------- Operating profit (loss)..................................... 136 (54) Other income (expense), net (note 3)........................ 5 41 Interest expense............................................ (75) (101) ------- ------- Income (loss) from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries.............................................. 66 (114) Income tax (expense) benefit................................ (47) 22 Minority interest in loss of consolidated subsidiaries...... -- 1 ------- ------- Income (loss) from Continuing Operations.................... 19 (91) Income (loss) from Discontinued Operations, net of income taxes (note 6)............................................ -- (60) ------- ------- Net income (loss)........................................... $ 19 $ (151) ======= ======= Basic earnings (loss) per common share: Continuing Operations................................... $ .03 $ (.18) Discontinued Operations................................. -- (.10) ------- ------- Basic earnings (loss) per common share...................... $ .03 $ (.28) ======= ======= Diluted earnings (loss) per common share: Continuing Operations................................... $ .03 $ (.18) Discontinued Operations................................. -- (.10) ------- ------- Diluted earnings (loss) per common share.................... $ .03 $ (.28) ======= ======= Cash dividends per common share............................. $ .05 $ .05 ======= ======= Comprehensive income (loss): Net income (loss)........................................... $ 19 $ (151) Other comprehensive income (loss), net of taxes (note 10): Unrealized gains on marketable securities (net of taxes of $10 million)....................................... 17 -- Minimum pension liability adjustment (net of taxes of $14 million).......................................... (25) -- ------- ------- Other comprehensive income (loss)........................... (8) -- ------- ------- Comprehensive income (loss)................................. $ 11 $ (151) ======= =======
See Notes to the Condensed Consolidated Financial Statements. 3 4 CBS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (IN MILLIONS)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------- (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 72 $ 8 Customer receivables (net of allowance for doubtful accounts of $36 million and $35 million)........................... 1,089 936 Program rights.............................................. 511 502 Deferred income taxes....................................... 393 394 Prepaid and other current assets............................ 183 135 ------- ------- Total current assets................................... 2,248 1,975 Property and equipment, net................................. 1,049 1,066 FCC licenses, net........................................... 2,144 2,171 Goodwill, net............................................... 9,636 9,681 Other intangible and noncurrent assets (note 4)............. 1,613 1,610 Net assets of Discontinued Operations (note 6).............. 431 212 ------- ------- Total assets........................................... $17,121 $16,715 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt............................................. $ 128 $ 89 Current maturities of long-term debt........................ 33 62 Accounts payable............................................ 205 221 Liabilities for talent and program rights................... 528 309 Other current liabilities (note 5).......................... 843 868 ------- ------- Total current liabilities.............................. 1,737 1,549 Long-term debt.............................................. 3,430 3,236 Pension liability........................................... 1,168 1,149 Other noncurrent liabilities (note 5)....................... 2,621 2,696 ------- ------- Total liabilities...................................... 8,956 8,630 ------- ------- Contingent liabilities and commitments (note 8) Minority interest in equity of consolidated subsidiaries.... 5 5 ------- ------- Shareholders' equity: Preferred stock, $1.00 par value (25 million shares authorized, none issued)............................... -- -- Common stock, $1.00 par value (1,100 million shares authorized, 723 million and 718 million shares issued)................................................ 723 718 Capital in excess of par value............................ 7,288 7,178 Common stock held in treasury, at cost.................... (540) (530) Retained earnings......................................... 1,468 1,485 Accumulated other comprehensive loss (note 10)............ (779) (771) ------- ------- Total shareholders' equity............................. 8,160 8,080 ------- ------- Total liabilities and shareholders' equity............. $17,121 $16,715 ======= =======
See Notes to the Condensed Consolidated Financial Statements. 4 5 CBS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED, IN MILLIONS)
THREE MONTHS ENDED MARCH 31, ------------------- 1998 1997 ----- ------- Cash flows from operating activities of Continuing Operations: Income (loss) from Continuing Operations.................. $ 19 $ (91) Adjustments to reconcile income (loss) from Continuing Operations to net cash provided (used) by operating activities: Depreciation and amortization.......................... 130 105 Gain on asset dispositions............................. -- (24) Other noncash adjustments.............................. (128) (28) Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent............... (136) (52) Accounts payable.................................. (16) (286) Deferred and current income taxes................. 17 (38) Program rights.................................... 271 97 Other assets and liabilities...................... (96) (46) ----- ------- Cash provided (used) by operating activities of Continuing Operations................................................ 61 (363) ----- ------- Cash used by operating activities of Discontinued Operations (note 6).................................................. (248) (530) ----- ------- Cash flows from investing activities: Business acquisitions and investments..................... (4) (46) Business divestitures and other asset liquidations........ 33 123 Capital expenditures--Continuing Operations............... (18) (21) Capital expenditures--Discontinued Operations............. (10) (20) ----- ------- Cash provided by investing activities....................... 1 36 ----- ------- Cash flows from financing activities: Bank revolver borrowings.................................. 503 1,610 Bank revolver repayments.................................. (303) (435) Net increase (reduction) in other short-term debt......... 35 (302) Other long-term debt repayments........................... (39) (149) Stock issued.............................................. 107 60 Purchase of treasury stock................................ (21) -- Bank fees paid and other costs............................ (6) (5) Dividends paid............................................ (36) (41) ----- ------- Cash provided by financing activities....................... 240 738 ----- ------- Increase (decrease) in cash and cash equivalents............ 54 (119) Cash and cash equivalents at beginning of period for Continuing and Discontinued Operations.................... 67 233 ----- ------- Cash and cash equivalents at end of period for Continuing and Discontinued Operations............................... $ 121 $ 114 ===== ======= Supplemental disclosure of cash flow information: Interest paid--Continuing Operations...................... $ 75 $ 104 Interest paid--Discontinued Operations.................... 12 18 ----- ------- Total interest paid......................................... $ 87 $ 122 ===== ======= Income taxes paid........................................... $ 94 $ 16 ===== =======
See Notes to the Condensed Consolidated Financial Statements. 5 6 CBS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The condensed consolidated financial statements include the accounts of CBS Corporation (CBS) 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 consolidated financial statements, schedule, and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. Certain amounts pertaining to the three months ended March 31, 1997 have been restated or reclassified for comparative purposes. In September 1997, the Corporation announced that it had reached a definitive agreement to acquire the radio broadcasting operations of American Radio Systems Corporation (American Radio) for $1.6 billion in cash plus the assumption of approximately $1 billion of debt. The transaction, which is subject to government approval, is expected to close in the second quarter of 1998. Under various disposal plans adopted in recent years, the Corporation has either completed or planned the divestiture of all of its industrial businesses. These businesses have been classified as Discontinued Operations in accordance with Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions." See note 6 to the financial statements. In June 1997, Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," were issued. SFAS 130, which requires that an enterprise report by major component and as a single total the change in its net assets from nonowner sources during the period, was adopted in the first quarter of 1998. SFAS 131, which establishes annual reporting standards for an enterprise's operating segments and related disclosures about its products, geographic areas, and major customers, will be incorporated in disclosures for 1998 annual reporting purposes. Adoption of these statements does not impact the Corporation's consolidated financial position, results of operations, or cash flows, and any effects are limited to the form and content of its disclosures. In February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and Other Postretirement Benefits," was issued. SFAS 132 requires additional disclosures concerning changes in the Corporation's pension obligations and assets and eliminates certain other disclosures no longer considered useful. The Corporation will adopt the provisions of this standard for 1998 annual reporting purposes. Adoption of this statement will not impact the Corporation's consolidated financial position, results of operations, or cash flows. 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 currently available information. Changes in facts and circumstances may result in revised estimates. In the opinion of management, the condensed consolidated financial statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations, and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year or any other interim period. 2. ACQUISITIONS On September 30, 1997, the Corporation acquired Gaylord Entertainment Company's two major cable networks, The Nashville Network (TNN) and Country Music Television (CMT). The acquisition included the U.S. and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately 6 7 CBS CORPORATION $50 million of working capital. The total purchase price of $1.55 billion was paid through the issuance of 59 million shares of the Corporation's common stock. The acquisition was accounted for under the purchase method. Based on preliminary estimates, which may be revised at a later date, the excess of the consideration paid over the estimated fair value of net assets acquired of approximately $1.2 billion was recorded as goodwill and is being amortized on a straight-line basis over 40 years. Prior to the acquisition, the Corporation provided certain services to TNN and CMT for which it received a commission. Additionally, the Corporation owned a 33 percent interest in CMT. The following unaudited pro forma information combines the consolidated results of operations of the Corporation with those of TNN and CMT as if the acquisition had occurred at the beginning of 1997. The pro forma results give effect to certain purchase accounting adjustments, additional amortization expense from goodwill and other identifiable intangible assets, their related income tax effects, and the issuance of additional shares in connection with the acquisition. PRO FORMA RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 -------------------------------- (UNAUDITED, IN MILLIONS EXCEPT PER SHARE AMOUNTS) Revenues............................................. $1,387 Income (loss) from Continuing Operations............. (93) Basic (loss) per common share--Continuing Operations......................................... (.16) Diluted (loss) per common share--Continuing Operations......................................... (.16)
This pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the operating results that actually would have occurred had the TNN and CMT acquisition been consummated on January 1, 1997. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. 3. OTHER INCOME (EXPENSE), NET
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 ---- ---- (UNAUDITED, IN MILLIONS) Interest income....................................... $2 $ 3 Gain on disposition of assets......................... -- 24 Operating results--non-consolidated affiliates........ -- 2 Other................................................. 3 12 -- --- Other income (expense), net........................... $5 $41 == ===
7 8 CBS CORPORATION 4. OTHER INTANGIBLE AND NONCURRENT ASSETS
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) (IN MILLIONS) Cable license agreements........................ $ 479 $ 491 Other intangible assets......................... 378 384 Joint ventures and other affiliates............. 122 122 Recoverable costs of discontinued businesses (note 8)...................................... 206 208 Noncurrent receivables.......................... 130 145 Program rights.................................. 136 135 Deferred charges................................ 55 48 Intangible pension asset........................ 22 22 Other........................................... 85 55 ------ ------ Total other intangible and noncurrent assets................................... $1,613 $1,610 ====== ======
5. OTHER CURRENT AND NONCURRENT LIABILITIES
MARCH 31, DECEMBER 31, 1998 1997 -------------- ------------- (UNAUDITED) (IN MILLIONS) OTHER CURRENT LIABILITIES Accrued employee compensation..................... $ 89 $ 119 Income taxes payable.............................. 47 30 Accrued liabilities............................... 272 309 Retained liabilities of discontinued businesses (note 8)........................................ 186 191 Accrued interest and insurance.................... 75 54 Accrued restructuring costs....................... 15 28 Other............................................. 159 137 ------ ------ Total other current liabilities.............. $ 843 $ 868 ====== ====== OTHER NONCURRENT LIABILITIES Postretirement benefits........................... $1,164 $1,160 Postemployment benefits........................... 28 28 Deferred income taxes............................. 213 224 Liabilities for talent and program rights......... 72 68 Accrued liabilities............................... 172 201 Retained liabilities of discontinued businesses (note 8)........................................ 759 767 Accrued restructuring costs....................... 9 13 Other............................................. 204 235 ------ ------ Total other noncurrent liabilities........... $2,621 $2,696 ====== ======
8 9 CBS CORPORATION 6. DISCONTINUED OPERATIONS In recent years, the Corporation has adopted various disposal plans that, in the aggregate, provide for the disposal of all of its industrial businesses. The assets and liabilities and the results of operations for all of the industrial businesses are classified as Discontinued Operations except for certain liabilities expected to be retained by the Corporation. See note 8 to the financial statements. The following table summarizes each of the Corporation's segment disposal plans as well as the assets remaining at March 31, 1998.
MEASUREMENT DATE BUSINESS SEGMENT REMAINING ASSETS - ---------------- ---------------- ---------------- September 1997 Thermo King None All remaining industrial businesses All assets November 1996 Communication & Information Systems Three miscellaneous operations (CISCO) March 1996 Environmental Services Three waste incineration plants December 1995 The Knoll Group (Knoll) None Defense and Electronic Systems None July 1995 Land Development (WCI) Mortgage notes receivable and miscellaneous securities November 1992 Financial Services Leasing portfolio Distribution & Control (DCBU) None Westinghouse Electric Supply Company Miscellaneous securities (WESCO)
The primary remaining industrial businesses included in the September 1997 disposal plan are Power Generation, Energy Systems, and Government Operations. In November 1997, the Corporation announced a definitive agreement to sell Power Generation, the largest of those businesses, for cash proceeds of $1.525 billion. The sale, which is subject to government approval, is expected to close in mid-1998. Energy Systems and Government Operations are expected to be divested in 1998. In April 1998, the Corporation sold certain securities remaining from the disposal of WCI. In April 1998, the Corporation also reached agreement to sell one of the remaining CISCO operations and in May completed the sale of another. In addition, it reached agreement to sell the remaining WESCO securities. Generally, the remaining assets are expected to be divested in 1998, except for the leasing portfolio, which is expected to liquidate in accordance with its contractual terms. 9 10 CBS CORPORATION The assets and liabilities of Discontinued Operations have been separately classified on the balance sheet as net assets of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS OF DISCONTINUED OPERATIONS
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) (IN MILLIONS) ASSETS Cash and cash equivalents....................... $ 49 $ 59 Customer receivables............................ 600 537 Inventories..................................... 530 560 Costs and estimated earnings over billings on uncompleted contracts......................... 387 437 Portfolio investments........................... 779 791 Plant and equipment, net........................ 665 681 Deferred income taxes........................... 487 491 Other assets.................................... 497 545 ------ ------ Total assets............................... $3,994 $4,101 ====== ====== LIABILITIES Accounts payable................................ $ 298 $ 384 Billings over costs and estimated earnings on uncompleted contracts......................... 417 377 Short-term debt................................. 8 7 Current maturities of long-term debt............ 84 96 Long-term debt.................................. 442 440 Liability for estimated loss on disposal........ 766 989 Settlements and environmental liabilities (note 8)............................................ 572 625 Other liabilities............................... 976 971 ------ ------ Total liabilities.......................... 3,563 3,889 ------ ------ Net assets of Discontinued Operations........... $ 431 $ 212 ====== ======
Certain environmental and litigation-related liabilities are expected to be assumed by buyers and are included in the net assets of Discontinued Operations. Those that are not expected to be assumed by other parties in divestiture transactions have been separately presented as retained liabilities of discontinued businesses. See note 8 to the financial statements. Long-term debt of Discontinued Operations is not expected to be assumed by buyers in divestiture transactions. It is expected to be repaid using cash proceeds from the liquidation of the portfolio investments of Discontinued Operations. The liability for estimated loss on disposal of $766 million at March 31, 1998 includes estimated losses and disposal costs associated with each divestiture transaction, including estimated results of operations through the expected closing date and other costs expected subsequent to the divestiture. Satisfaction of these liabilities is expected to occur over the next several years. Management believes that the liability for estimated loss on disposal at March 31, 1998, is adequate to cover divestiture or liquidation of the remaining assets and liabilities of Discontinued Operations. 10 11 CBS CORPORATION Cash requirements to satisfy non-debt obligations of Discontinued Operations as well as cash proceeds from the sale or liquidation of all assets of Discontinued Operations, except for portfolio investments, will affect cash flows of Continuing Operations. In accordance with APB 30, the consolidated financial statements reflect the results of Discontinued Operations separately from those of Continuing Operations. Pre-tax operating results after the measurement date are charged to the liability for estimated loss on disposal. Summarized in the following table are the operating results of Discontinued Operations: OPERATING RESULTS
NET INCOME NET LOSS SALES OF (LOSS) BEFORE AFTER PRODUCTS OR MEASUREMENT MEASUREMENT SERVICES DATE DATE ------------ -------------- ------------- (UNAUDITED, IN MILLIONS) THREE MONTHS ENDED MARCH 31, 1998 Industrial businesses included in September 1997 plan................................ $ 549 $ -- $ (89) Pre-1997 disposal plans.................... 45 -- (4) ------ ---- ----- Total...................................... $ 594 $ -- $ (93) ====== ==== ===== THREE MONTHS ENDED MARCH 31, 1997 Industrial businesses included in September 1997 plan................................ $ 650 $(92) $ -- Thermo King................................ 247 32 -- Pre-1997 disposal plans.................... 112 -- (18) ------ ---- ----- Total...................................... $1,009 $(60) $ (18) ====== ==== =====
Interest expense on debt of Continuing Operations totaling $2 million and $13 million for the three months ended March 31, 1998, and 1997, respectively, was allocated to Discontinued Operations based on the ratio of the net assets of Discontinued Operations to the sum of total consolidated net assets plus consolidated debt. Operating cash flows of Discontinued Operations are presented separately from those of Continuing Operations in the consolidated statement of cash flows. Total operating cash flows of Discontinued Operations consist of the following: CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
THREE MONTHS ENDED MARCH 31, ------------------------- 1998 1997 ---- ---- (UNAUDITED, IN MILLIONS) Industrial businesses included in September 1997 plan................................................ $(219) $(514) Thermo King........................................... -- 14 Financial Services.................................... (9) (9) Other pre-1997 disposal plans......................... (20) (21) ----- ----- Cash used by operating activities..................... $(248) $(530) ===== =====
Cash flows presented in the preceding table include cash flows from the operations of the businesses as well as payments for disposition-related costs. 11 12 CBS CORPORATION 7. RESTRUCTURING In recent years, the Corporation has restructured its corporate headquarters and certain aspects of its businesses in an effort to reduce its cost structure and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the termination of leases, and similar actions. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and provide no future benefit to the Corporation. At March 31, 1998, the Corporation's accrued restructuring liability of $24 million primarily related to (a) the 1997 restructuring plan, which involved the separation of 118 employees at the Pittsburgh headquarters related to the transfer of the Corporation's overhead functions to New York, and (b) the restructuring plan adopted by the Corporation in 1996, as the acquiring company, to integrate the activities of CBS Inc. into the Corporation's existing media businesses. An additional restructuring plan was adopted at the time of the CBS Inc. acquisition in 1995 to recognize the impact of integration activities on CBS Inc. and the elimination of duplicate facilities and functions. Implementation of this plan is essentially complete. During the three months ended March 31, 1998 and 1997, no new restructuring plans were initiated. During the first quarter of 1998, expenditures relating to restructuring programs from the 1997 and 1996 plans totaled $9 million. The remaining restructuring expenditures for these plans are expected to be incurred primarily by the end of 1999, although certain expenditures for lease commitments will extend over the next several years. 8. CONTINGENT LIABILITIES AND COMMITMENTS Certain of the environmental and litigation-related liabilities associated with the industrial businesses are not expected to be assumed by other parties in the pending divestiture transactions and, therefore, would be retained by the Corporation. These liabilities include environmental obligations that are not related to active properties of operating businesses, accrued product liability claims for divested businesses, liabilities associated with asbestos claims, and general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totaled $945 million at March 31, 1998, including amounts related to previously discontinued businesses of CBS Inc. Of this amount, $759 million is classified as noncurrent. A separate asset of $241 million was recorded for estimated amounts recoverable from third parties, of which $206 million is classified as noncurrent. LEGAL MATTERS STEAM GENERATORS The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Energy Systems business unit 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 steam generator lawsuit remains. The Corporation is also a party to five tolling agreements with utilities or utility plant owners' groups that have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussions. Accrued liabilities for previous and potential settlement agreements that provide for costs in excess of discounted prices are included in Discontinued Operations. SECURITIES CLASS ACTIONS--FINANCIAL SERVICES The Corporation has been defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public 12 13 CBS CORPORATION 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 the Corporation's 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 supplied by its industrial businesses, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant did not have exposure to the Corporation's product. At March 31, 1998, the Corporation had approximately 100,000 unresolved claims pending. In court actions that have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related matters that are deemed probable and can be reasonably estimated and has separately recorded an asset equal to the amount of such estimated liabilities that will be recovered pursuant to agreements with insurance carriers. The Corporation cannot reasonably estimate costs for unasserted asbestos claims. GENERAL Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the steam generator claims, the securities class action, and certain groupings of asbestos claims, and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described previously 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 13 14 CBS CORPORATION 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 $397 million at March 31, 1998. Depending on the remediation alternatives ultimately selected, the costs related to these sites could differ from the amounts currently accrued. The accrued liability includes $279 million for site investigation and remediation, and $118 million for post closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. In addition, included in Discontinued Operations are environmental liabilities directly related to active sites that are expected to be assumed by buyers in divestiture transactions. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity, or results of operations. COMMITMENTS The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such programs for various periods. At March 31, 1998, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totaling $7.5 billion. This amount includes $4 billion for rights to broadcast certain National Football League games. In addition, the Corporation has commitments under operating and capital leases for certain facilities and equipment as well as commitments to pay for certain franchise rights entitling it to display advertising on buses, taxis, trains, bus shelters, terminals, and phone kiosks. 14 15 CBS CORPORATION 9. EARNINGS (LOSS) PER COMMON SHARE At December 31, 1997, the Corporation adopted SFAS No. 128, "Earnings Per Share," which establishes standards for computing and disclosing basic and diluted earnings per common share. The following is the computation of basic and diluted earnings per common share in accordance with the new standard: COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS
THREE MONTHS ENDED MARCH 31, ----------------------- 1998 1997 ----- ------ (UNAUDITED, IN MILLIONS EXCEPT PER-SHARE AMOUNTS) Income (loss) from Continuing Operations............ $ 19 $ (91) Less preferred stock dividends...................... -- (12) ---- ----- Income (loss) applicable to common stock............ $ 19 $(103) ==== ===== Average shares outstanding, basic................... 698 589 Average shares outstanding, diluted................. 718 589 Basic earnings (loss) per common share.............. $.03 $(.18) Diluted earnings (loss) per common share............ $.03 $(.18)
Shares of common stock issuable under deferred compensation arrangements were not included in the March 31, 1998 or 1997 computations of diluted earnings per common share because their inclusion would have been antidilutive. For these periods, average common shares issuable under deferred compensation arrangements approximated 5 million and 6 million, respectively. Preferred stock convertible into common stock and options to purchase shares of common stock were not included in the March 31, 1997 computation of diluted earnings per common share because their inclusion would have been antidilutive. 10. COMPREHENSIVE INCOME At March 31, 1998, the Corporation adopted the provisions of SFAS 130 which establishes standards for reporting and disclosure of comprehensive income in the financial statements. Comprehensive income is used to describe all changes in equity from transactions and other events and circumstances, including net income, from nonowner sources. The following table presents the accumulated components of comprehensive income other than net income reflected within shareholders' equity at March 31, 1998 and December 31, 1997: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------- (UNAUDITED) (IN MILLIONS) Unrealized gains on securities................. $ 17 $ -- Minimum pension liability adjustment........... (796) (771) ----- ----- Total accumulated other comprehensive income (loss)....................................... $(779) $(771) ===== =====
15 16 CBS CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported increases in revenue and earnings across all business segments for the first quarter of 1998 compared to the first quarter of 1997. The Radio Group continued its pacesetting growth, and the Television Group reported strong performance across all owned and operated television stations, particularly in the top six markets. Network earnings improved over the prior year even without the impact of sports. The Nashville Network (TNN) and Country Music Television (CMT) made strong contributions to the Cable Group's results enabling it to report increases in revenues and earnings on a pro forma basis. For the first quarter of 1998, the Corporation reported net income of $19 million, or $.03 per share, compared to a net loss of $151 million, or $.28 per share, for the first quarter of 1997. Included in the 1997 results is a loss from Discontinued Operations of $60 million, or $.10 per share, which represents the operating results of certain industrial businesses prior to adoption of the September 1997 disposal plan. In September 1997, the Corporation announced that it had reached a definitive agreement to acquire the radio broadcasting operations of American Radio Systems Corporation (American Radio) for $1.6 billion in cash plus the assumption of approximately $1 billion of debt. The transaction, which is subject to government approval, is expected to close in the second quarter of 1998 and will add approximately 100 radio stations, subject to any required divestitures, to the Radio Group's current portfolio. In February 1998, the Corporation announced that its Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. Through March 31, 1998, the Corporation had purchased 700,000 shares for $21 million. SEGMENT RESULTS OF OPERATIONS The following table presents the segment results for the Corporation's Continuing Operations for the three months ended March 31, 1998 and 1997. EBITDA is presented in the following table because it is a widely accepted financial indicator of a company's ability to incur and service debt and is a measure used by the Corporation's management to assess the performance of the business. It is commonly used in the media industry as a surrogate for cash flows. EBITDA differs from operating cash flows primarily because it does not consider certain changes in assets and liabilities from period to period. SEGMENT RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------- OPERATING PROFIT REVENUES (LOSS) EBITDA ------------------- ----------------- --------------- 1998 1997 1998 1997 1998 1997 ------ ------ ----- ----- ---- ---- (UNAUDITED, IN MILLIONS) Radio.................................. $ 330 $ 313 $ 69 $ 47 $113 $ 91 Television............................. 263 177 118 56 130 67 Network................................ 1,245 804 30 (64) 52 (46) Cable.................................. 125 49 4 -- 29 28 Corporate and Other.................... (14) (17) (47) (58) (15) (13) Residual costs of discontinued businesses........................... -- -- (38) (35) (38) (35) ------ ------ ---- ---- ---- ---- Total............................. $1,949 $1,326 $136 $(54) $271 $ 92 ====== ====== ==== ==== ==== ====
Revenues for the first quarter of 1998 increased $623 million, or 47 percent, over the same period in 1997. This significant revenue increase is primarily attributable to the incremental revenues generated at the Network 16 17 CBS CORPORATION and Television Group in connection with CBS's coverage of the 1998 Winter Olympics. Also reflected in the increase is the favorable impact of including the first quarter 1998 results of TNN and CMT, which were acquired in September 1997. Operating profit and EBITDA increased during the first quarter of 1998 by $190 million and $179 million, respectively. This is primarily a result of the continued strength of the Radio Group, the jump in profitability of the Television Group, and the improvement in the Network's performance. As reflected in the preceding table, results of operations have been unfavorably affected by residual costs of discontinued businesses. These costs primarily represent pension and postretirement benefit costs for inactive and retired employees of previously divested businesses. Although the Corporation's objective is to reduce this earnings constraint over the next few years by fully funding the pension plan, management expects that these costs will continue to affect operating results negatively during 1998 and future years. The reported results for each of the segments include depreciation and amortization of specifically identifiable assets based on their fair values when acquired. Amortization of goodwill arising from the CBS Inc. acquisition, which approximates $120 million per year, is included in the results of Corporate and Other. Where appropriate, the separate business discussions that follow provide comparisons of actual 1998 results with the pro forma results for 1997. RADIO The Radio Group owns and operates 75 radio stations and TDI Worldwide Inc. (TDI), its outdoor advertising business. Total revenues for the Radio Group increased $17 million, or 5 percent, for the first quarter of 1998 over the prior year. On a pro forma basis, which adjusts for the 1997 transfer of the radio network to Westwood One, Inc., the Radio Group's revenues increased approximately $35 million, or 12 percent, over last year. Driving this increase was the continued strong performance of the stations operating in the top tier markets, including New York, Los Angeles, and Chicago, as well as significant growth at TDI. Total operating profit for the Radio Group during the first quarter increased $22 million, or 47 percent, over the prior year. This increase was primarily attributable to the incremental revenues recognized at the stations and TDI. Consistent with the growth in operating profit, EBITDA increased $22 million, or 24 percent, over the prior year. TELEVISION The Television Group owns and operates 14 television stations. Total revenues for the Television Group increased $86 million, or 49 percent, for the first quarter of 1998 over the prior year. Approximately one-half of this increase was attributable to station results in the major markets, including New York, Los Angeles, and Chicago. These positive first quarter results were primarily driven by the incremental revenues generated from CBS's coverage of the 1998 Winter Olympics in Nagano, Japan. A strong market and management's enhanced focus on revenue growth also contributed to the increase. Operating profit for the Television Group during the first quarter of 1998 increased $62 million, or 111 percent, over the prior year. This significant increase in the Television Group's first quarter operating profit was primarily attributable to the higher revenues, although they were partially offset by additional costs associated with the broadcast of the Olympics. EBITDA for the Television Group during the first quarter of 1998 increased $63 million, or 94 percent, over the prior year. This increase is consistent with the increase in operating profit. NETWORK The Network segment consists of CBS Entertainment, News, and Sports as well as CBS Enterprises (including EYEMARK Entertainment), which produces and distributes programming and develops and sells 17 18 CBS CORPORATION certain syndicated programming. Total revenues for the Network segment increased $441 million, or 55 percent, for the first quarter of 1998 over the prior year. This increase reflects the significant impact of CBS's coverage of the 1998 Winter Olympics. During the first quarter of 1998, operating profit for the Network was $30 million compared to an operating loss of $64 million during the first quarter of 1997. This $94 million improvement reflects the impact of the 1998 Winter Olympics, including the favorable effect of purchase accounting adjustments related to program rights acquired in the purchase of CBS Inc. Consistent with the improvement in operating profit, EBITDA for the Network increased $98 million for the first quarter of 1998. CABLE The Cable segment includes TNN and CMT, two cable networks acquired on September 30, 1997; TeleNoticias, a 24-hour Spanish-language news service; Eye on People, which debuted in March 1997; two regional sports networks; and a network services provider. Prior to the acquisition of TNN and CMT, the Cable segment received a commission to provide marketing and advertising services to those networks. In addition, the Corporation owned a 33 percent interest in CMT. Effective October 1, 1997, the results of TNN and CMT are included in full. Total revenues for the Cable segment increased $76 million, or 155 percent, for the first quarter of 1998. This increase was primarily attributable to the acquisition of TNN and CMT. On a pro forma basis, revenues for the Cable segment increased $15 million, or 14 percent, for the quarter. First quarter 1998 operating profit and EBITDA for the Cable segment were $4 million and $29 million, respectively, compared to break-even operating profit and $28 million of EBITDA for the prior-year period. Excluding a gain recognized in the first quarter of 1997 relating to the sale of an equity investment in a regional sports network and including the pro forma impact of the acquisition of TNN and CMT, EBITDA increased slightly over the prior year's first quarter. Improvements from TNN and CMT were partially offset by lower results for the network services business and higher start-up costs for Eye on People. CORPORATE AND OTHER Corporate and Other consists of corporate overhead costs and amortization of goodwill arising from the November 1995 acquisition of CBS Inc., which approximates $120 million per year. The decision to transfer the corporate overhead functions from Pittsburgh to New York may result in the recognition of certain transition costs later in 1998. EBITDA for the 1997 period includes $14 million of other income compared to $1 million for the 1998 period. RESIDUAL COSTS OF DISCONTINUED BUSINESSES Following past divestitures of the Corporation's industrial businesses, certain liabilities arising from those businesses remained with the Corporation, such as pension and postretirement benefit obligations for inactive and retired employees, environmental liabilities, and litigation-related liabilities. The pension and postretirement benefit costs associated with these former employees, as well as administration costs associated with retained liabilities, have been presented separately in the income statement. For 1998 and 1997, these costs primarily reflect pension and postretirement benefit costs. Following the sale of Power Generation, the quarterly costs will increase approximately $8 million. Prior to the sale, these costs are included in Power Generation's results of operations, which are reported in Discontinued Operations. OTHER INCOME (EXPENSES), NET Other income and expenses generated income of $5 million in the first three months of 1998 and $41 million for the first three months of 1997. In 1997, other income included a gain of $24 million on the sale of an equity investment. 18 19 CBS CORPORATION INTEREST EXPENSE Interest expense for Continuing Operations for the first three months of 1998 was $75 million compared to $101 million for the same period in 1997. The $26 million, or 26 percent, decrease in interest expense is primarily driven by the reduction in revolver borrowings during the first quarter of 1998 compared to the first quarter of 1997. In connection with the September 1997 plan to dispose of the remaining industrial businesses, interest expense on Continuing Operations debt totaling $2 million and $13 million was reclassified to Discontinued Operations for the three months ended March 31, 1998 and 1997, respectively. INCOME TAXES The Corporation's results for the first quarter of 1998 reflect a 71 percent effective tax rate primarily because of the amortization of non-deductible goodwill associated with the CBS Inc., Infinity, and TNN and CMT acquisitions. Depending on the level of the Corporation's income or losses and the effect of any special transactions, these differences can dramatically impact the resulting tax provision or benefit in relation to pre-tax results. For the first quarter of 1997, the income tax benefit was 19 percent of the pre-tax loss from Continuing Operations. At March 31, 1998, the Corporation had recorded net deferred income tax benefits totaling $667 million compared to $661 million at December 31, 1997. Of this amount, $180 million at March 31, 1998, and $170 million at December 31, 1997, were presented in Continuing Operations, with the remainder in Discontinued Operations. YEAR 2000 The Corporation is addressing the issues associated with its existing computer systems and their ability to operate effectively as the millennium (year 2000) approaches. Both internal and external resources are being utilized to address these matters throughout the Corporation. For the Corporation's Continuing Operations, the assessment and planning phases of the project are essentially complete. The Corporation believes that, based on available information, its year 2000 transition will not have a material adverse effect on its business, operations, or financial results. For the businesses that the Corporation expects to divest in 1998, the assessment phase of the project is complete and the planning phase is well under way. These matters are not anticipated to materially affect the disposition of the businesses or the sale proceeds. DISCONTINUED OPERATIONS With the Corporation's decision in late 1997 to divest its remaining industrial businesses, all of its industrial businesses are presented in the financial statements as Discontinued Operations. As of December 31, 1997, Power Generation, the largest of the remaining industrial businesses, was under agreement to be sold to a subsidiary of Siemens A.G. for $1.525 billion of cash. The sale, which is subject to government approval, is expected to close in mid-1998. Energy Systems, Government Operations, and any other remaining assets except for the leasing portfolio are also expected to be divested in 1998. Since year end, progress has been made in the divestiture process although the transactions will not be reflected in the financial statements until they are completed. In April 1998, the Corporation sold certain securities remaining from the divestiture of WCI, its land development subsidiary. Also in April, the Corporation reached a definitive agreement to sell Westinghouse Communications. In early May, the Corporation sold a security electronics business and reached agreement to sell miscellaneous securities remaining from a previous segment disposal. Proceeds from these transactions are expected to total more than $350 million. 19 20 CBS CORPORATION Following the divestitures of the remaining industrial businesses, the assets of Discontinued Operations will consist primarily of the remaining leasing portfolio, which is expected to liquidate through the year 2015. Debt of Discontinued Operations, which totaled $526 million at March 31, 1998, will include only that amount which can be repaid through liquidation of the leasing portfolio. Other liabilities, lagging divestiture costs, or unresolved issues related to the industrial businesses also may remain at year-end 1998. Except for cash flows related to the leasing portfolio and the associated debt, all future cash inflows and outflows of Discontinued Operations will affect Continuing Operations. Management believes that the liability for estimated loss on disposal of Discontinued Operations of $766 million at March 31, 1998 is adequate to cover future operating costs, estimated losses on disposal, and the remaining divestiture costs associated with all Discontinued Operations. The following represents the segment results for all Discontinued Operations for the three months ended March 31, 1998 and 1997. SEGMENT RESULTS OF OPERATIONS--DISCONTINUED OPERATIONS
THREE MONTHS ENDED MARCH 31, ------------------------------------------- SALE OF PRODUCTS OPERATING PROFIT AND SERVICES (LOSS) ----------------- ----------------- 1998 1997 1998 1997 ---- ------ ----- ----- (UNAUDITED, IN MILLIONS) Industrial businesses included in September 1997 plan................................................ $549 $ 650 $(143) $(123) Thermo King........................................... -- 247 -- 47 Pre-1997 disposal plans............................... 45 112 (7) (25) ---- ------ ----- ----- Total Discontinued Operations......................... $594 $1,009 $(150) $(101) ==== ====== ===== =====
The 1997 segment results shown in the table above include sales and operating profit prior to the measurement date of the plan as well as those after the measurement date. Pre-tax operating results after the measurement date, including all results for 1998, are charged to the liability for estimated loss on disposal. The industrial businesses included in the September 1997 disposal plan include Power Generation, Energy Systems, Government Operations, and other miscellaneous operations. Sales and operating profit for Power Generation declined in the first quarter of 1998 reflecting delays in projects partially due to uncertainty concerning deregulation of the U.S. utility market. Energy Systems reported improved results over the prior-year quarter following an unfavorable contract adjustment in the first quarter of 1997. Thermo King was sold in October 1997. Divestitures of certain Communication & Information Systems and environmental services businesses resulted in lower sales and reduced operating losses associated with operations included in pre-1997 disposal plans. Results for pre-1997 disposal plans also include income related to the leasing portfolio as well as interest on the debt of Discontinued Operations. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW The Corporation generally manages its liquidity as a consolidated enterprise without regard to whether assets or liabilities 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 resources. In September 1997, the Corporation announced that it had reached a definitive agreement to acquire American Radio Systems' radio broadcasting operations for $1.6 billion in cash plus the assumption of approximately $1 billion of debt. The transaction, which is subject to government approval, is expected to close 20 21 CBS CORPORATION in the second quarter of 1998. American Radio Systems will add approximately 100 radio stations to the Radio Group's current portfolio, subject to required divestitures. In November 1997, the Corporation announced a definitive agreement to sell Power Generation, the largest of its remaining industrial businesses for cash proceeds of $1.525 billion. The sale of Power Generation, which is subject to government approval, is expected to close in mid-1998. Agreements reached in April and early May 1998 for sales of certain other remaining businesses or assets are expected to result in proceeds in the near term totaling more than $350 million. The remaining industrial businesses are expected to be divested in 1998. Proceeds from these asset sales will be used to repay debt of Continuing Operations. In January 1998, the Corporation and the National Football League (NFL) announced that CBS was awarded the rights to broadcast American Football Conference games. The eight-year agreement, subject to rebid at the end of five years at the discretion of the NFL, will include rights fees of $4 billion. The contract begins with the 1998 football season and includes two Super Bowls. In February 1998, the Corporation announced that its Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. At the same time, the Corporation announced that it would suspend dividend payments on its common stock after payment of the March 1, 1998 dividend so that cash could be used to better enhance shareholder value. Through March 31, 1998, the Corporation had purchased 700,000 shares for $21 million. Management expects that the Corporation will have sufficient liquidity to meet ordinary business needs. Sources of liquidity generally available to the Corporation include cash from operations, proceeds from sales of non-strategic assets, cash and cash equivalents, availability under its credit facility, borrowings from other sources, including funds from the capital markets, and the issuance of additional capital stock. OPERATING ACTIVITIES The operating activities of Continuing Operations provided $61 million of cash during the first three months of 1998 compared to cash used of $363 million during the first three months of 1997. The $424 million improvement in operating cash flow reflects improved operating results as well as favorable payment terms for certain program rights. These favorable factors were partially offset by increases in accounts receivable at March 31, 1998 due to significant increases in revenues. Also, first quarter 1997 cash flows included substantial payments to reduce accounts payable. The Corporation's pension contribution level for 1998, which is expected to approximate $300 million, is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. In January and April 1998, the Corporation contributed $73 million and $72 million, respectively, to the plan pursuant to certain quarterly minimum funding requirements. No pension contributions were made in the first quarter of 1997. The operating activities of Discontinued Operations used $248 million of cash during the first three months of 1998 compared to $530 million of cash used during the same period of 1997 principally related to the Power Generation and Energy Systems businesses. The primary factors contributing to the larger use of cash in 1997 were reductions in accounts payable and settlement liabilities. Future operating cash flows of Discontinued Operations will consist primarily of operating revenues, operating costs, and disposal costs associated with the remaining industrial businesses. These cash flows, along with proceeds generated through divestiture of these businesses, will affect the cash flows of Continuing Operations. Interest costs on debt of Discontinued Operations, as well as the repayment of that debt, will be paid through the continued liquidation of the leasing portfolio and are not expected to impact future cash flows of Continuing Operations. 21 22 CBS CORPORATION INVESTING ACTIVITIES Investing activities provided $1 million of cash during the first three months of 1998 compared to $36 million of cash provided during the same period of 1997. In the first three months of 1998, the Corporation had no material cash outflows for acquisitions while for the same period 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 connection with a swap of radio stations. Investing cash inflows from business divestitures and other asset liquidations in the first three months of 1998 totaled $33 million from miscellaneous asset liquidations compared to $123 million in the prior year period from sales of several radio stations, various operations from the environmental services business, an equity investment in a regional sports network, and other non-strategic assets. Capital expenditures for Continuing Operations were $18 million for the first three months of 1998 compared to $21 million for the same period of 1997. Capital spending for Continuing Operations during 1998 is expected to be slightly higher than 1997. For Discontinued Operations, capital spending will continue to decline as the businesses are divested. FINANCING ACTIVITIES Cash provided by financing activities during the first three months of 1998 totaled $240 million compared to cash provided of $738 million during the same period of 1997. Net short-term and long-term borrowings totaled $196 million during the first quarter of 1998 compared to $724 million during the 1997 period. The net borrowings in the first quarter of 1997 included a $149 million cash outflow to extinguish the long-term debt previously issued by Infinity. In February 1998, the Corporation's Board of Directors authorized the purchase, through open market transactions, of up to $1 billion of its common stock. Through March 31, 1998, the Corporation had purchased 700,000 shares for $21 million. Cash provided by the issuance of stock totaled $107 million during the first quarter of 1998 compared to $60 million for the 1997 quarter. The stock was issued in connection with certain employee stock plans. Total borrowings under the Corporation's $5.5 billion revolving credit facility were $1.8 billion at March 31, 1998 (see Revolving Credit Facility). These borrowings were subject to a floating interest rate of 6.4 percent at March 31, 1998, which was based on the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. Dividends paid in the first three months of 1997 included $12 million for the Series C preferred stock, which converted into 32 million shares of CBS common stock on May 30, 1997. Common stock dividends increased $7 million in the first three months of 1998 compared to 1997 because of additional shares issued to replace the Series C preferred stock and shares issued in connection with the September 1997 acquisition of TNN and CMT. After payment of the March 1, 1998 dividend, the Corporation suspended dividend payments on its common stock so that cash could be used to better enhance shareholder value. REVOLVING CREDIT FACILITY On August 29, 1996, the Corporation executed a five-year revolving credit agreement with total commitments of $5.5 billion. This agreement was amended on March 3, 1998 to modify the financial covenants and to provide that, upon completion of the sale of Power Generation, the maximum borrowing would be reduced to $4.0 billion. The unused capacity under the facility equaled $3.6 billion at March 31, 1998. 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, restrictions on liens incurred, a maximum leverage ratio, minimum interest coverage ratio, and minimum consolidated net worth. 22 23 CBS CORPORATION Certain of the financial covenants become more restrictive over the term of the agreement. At March 31, 1998, the Corporation was in compliance with the financial covenants. LEGAL, ENVIRONMENTAL, AND OTHER MATTERS The Corporation is addressing a number of environmental and litigation matters, including those discussed in note 8 to the financial statements. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of the Corporation's pending cases and, although management believes that a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation referenced in note 8 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. Liabilities for certain of the Corporation's environmental matters as well as certain litigation matters, although arising from discontinued businesses, are expected to be retained by the Corporation following the divestiture of the remaining industrial businesses. These liabilities include environmental obligations that are not related to active properties of operating businesses, accrued product liability claims for divested businesses, liabilities associated with asbestos claims, and general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totaled $945 million at March 31, 1998, including amounts related to previously discontinued businesses of CBS Inc. Of this amount, $759 million is classified as noncurrent. A separate asset of $241 million has been recorded for amounts recoverable from insurance carriers under previous settlement arrangements, of which $206 million is classified as noncurrent. See note 8 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. INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts but rather reflect the Corporation's current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will," and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors, some of which are beyond the Corporation's control, that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. Such risks, uncertainties, and factors include, but are not limited to: the Corporation's ability to develop and/ or acquire television programming and to attract and retain advertisers; the impact of significant competition from both over-the-air broadcast stations and programming alternatives such as cable television, wireless cable, in-home satellite distribution services, and pay-per-view and home video entertainment services; the Corporation's ability to complete its transition from a multi-faceted industrial conglomerate to a pure media company in a timely and cost-effective manner; the impact of new technologies; the impact of the year 2000 transition; changes in Federal Communications Commission regulations; and such other competitive and business risks as from time to time may be detailed in the Corporation's Securities and Exchange Commission reports. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management's view only as of the date of this Report on Form 10-Q. The Corporation undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 23 24 CBS CORPORATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No reportable events. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS (a) The Restated Articles of the Corporation, as amended to December 11, 1997 are incorporated herein by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 1997. (b) The Bylaws of the Corporation, as amended to December 1, 1997 are incorporated herein by reference to Exhibit 3(c) to Form 10-K for the year ended December 31, 1997. (4) RIGHTS OF SECURITY HOLDERS (a) There are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10 percent of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996. (10) MATERIAL CONTRACTS (a*) The 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 January 28, 1998 is incorporated herein by reference to Exhibit 10(b) to Form 10-K for the year ended December 31, 1997. (c*) The 1984 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1996. (d*) The Westinghouse Executive Pension Plan, as amended to December 1, 1997 is incorporated herein by reference to Exhibit 10(d) to Form 10-K for the year ended December 31, 1997. (e*) The Deferred Compensation and Stock Plan for Directors, as amended to January 1, 1998 is incorporated herein by reference to Exhibit 10(e) to Form 10-K for the year ended December 31, 1997. (f*) The Director's Charitable Giving Program, as amended to April 30, 1996, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended June 30, 1996. (g*) The 1991 Long-Term Incentive Plan, as amended to January 28, 1998 is incorporated herein by reference to Exhibit 10(g) to Form 10-K for the year ended December 31, 1997. 24 25 CBS CORPORATION (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 the Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, dated August 29, 1996, is incorporated herein by reference to Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1996. (l*) CBS Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 1996. (m*) CBS Bonus Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(o) to Form 10-K for the year ended December 31, 1996. (n) First Amendment, dated as of January 29, 1997 to the Credit Agreement, dated as of August 29, 1996, among the Corporation, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, 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 the Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended March 31, 1997. (p) Amended and Restated Agreement and Plan of Merger, dated as of December 18, 1997, by and among American Radio Systems Corporation, the Corporation, and R Acquisition Corp, is incorporated herein by reference to the Corporation's Form 8-K dated January 7, 1998. (q) First Amendment, dated December 19, 1997, to the Amended and Restated Agreement and Plan of Merger, dated as of December 18, 1997, by and among American Radio Systems Corporation, the Corporation, and R Acquisition Corp, is incorporated herein by reference to the Corporation's Form 8-K dated January 7, 1998. (r*) 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. 25 26 CBS CORPORATION (s*) 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. (t*) 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. (u*) 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. (v*) Employment Agreement between a subsidiary of the Corporation, CBS Broadcasting Inc. (formerly CBS Inc.) and Leslie Moonves entered into as of May 17, 1995, and amended as of January 20, 1998 is incorporated herein by reference to Exhibit 10(v) to Form 10-K for the year ended December 31, 1997. (w) Asset Purchase Agreement between the Corporation and Siemens Power Generation Corporation, a subsidiary of Siemens A.G., dated as of November 14, 1997 is incorporated herein by reference to Exhibit 10(w) to Form 10-K for the year ended December 31, 1997. (x) Third Amendment dated as of March 3, 1998, to the Credit Agreement, dated as of August 29, 1996, as amended by the First Amendment thereto dated as of January 29, 1997, as amended by the Second Amendment thereto dated as of March 21, 1997 among the Corporation, the Subsidiaries Borrowers parties thereto, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent. (y) Amendment No. 1 to the Asset Purchase Agreement, dated January 23, 1998, to the Asset Purchase Agreement, dated November 14, 1997, between the Corporation and Siemens Power Generation Corporation, a subsidiary of Siemens A.G. (27) FINANCIAL DATA SCHEDULE - --------------- * Identifies management contract or compensatory plan or arrangement. 26 27 CBS CORPORATION B) REPORTS ON FORM 8-K A Current Report on Form 8-K (Items 5 and 7) dated January 7, 1998, regarding an amendment to the American Radio plan of merger. A Current Report on Form 8-K (Items 5 and 7) dated February 4, 1998, filing a press release concerning the Corporation's earnings for the fourth quarter of 1997 and year-end results for 1997. A Current Report on Form 8-K (Items 5 and 7) dated February 5, 1998, regarding the Corporation's announcement of date of its Annual Meeting. 27 28 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 15th day of May, 1998. CBS CORPORATION /s/ CAROL V. SAVAGE -------------------------------------- Vice President and Chief Accounting Officer 28 EX-10.X 2 CBS CORPORATION 1 Exhibit (10)(x) THIRD AMENDMENT, dated as of March 3, 1998 (this "Third Amendment"), to the Credit Agreement, dated as of August 29, 1996 as amended by the First Amendment thereto dated as of January 29, 1997 and the Second Amendment thereto dated as of March 21, 1997 (the "Credit Agreement"), among WESTINGHOUSE ELECTRIC CORPORATION, now known as CBS CORPORATION ("CBS"), the Subsidiary Borrowers parties thereto, the Lenders parties thereto, NATIONSBANK, N.A. and THE TORONTO-DOMINION BANK, as Syndication Agents, THE CHASE MANHATTAN BANK, as Documentation Agent, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent. Unless otherwise specified herein, all capitalized terms defined in the Credit Agreement and used herein are so used as so defined. WITNESSETH: WHEREAS, CBS wishes to amend the Credit Agreement in the manner set forth herein; and WHEREAS, each of the parties hereto is willing to enter into this Third Amendment on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1--AMENDMENTS TO THE CREDIT AGREEMENT 1. Section 1. 1. (a) The definitions of "Consolidated Interest Expense" "Consolidated Net Worth", "Discontinued Operations " and "Net Worth Commencement Date" contained in Section 1.1 of the Credit Agreement are hereby amended and restated in their entirety as follows: "Consolidated Interest Expense" shall mean, for any period, the gross interest expense of CBS and its Consolidated Subsidiaries for such period, computed and consolidated in accordance with GAAP, but excluding (a) the amortization of deferred financing charges for such period, (b) the gross interest expense of the Discontinued Operations for such period and (c) in connection with any calculation of "Consolidated Interest Expense" made as of the last day of "any period ending prior to December 31, 1998, the gross interest expense for such period on Allocated Indebtedness (computed pursuant to an appropriate averaging method determined in good faith by a Financial Officer of CBS). "Consolidated Net Worth " shall mean the total shareholders' equity of CBS and its Consolidated Subsidiaries determined without giving effect to any changes in such total shareholders' equity resulting from (a) changes in pension liabilities after the Net Worth Commencement Date pursuant to SFAS 87 and SFAS 88, (b) non-cash losses on the Disposition of businesses after the Net Worth Commencement Date, (c) changes made in accordance with GAAP to the amortization periods of separately identified intangible assets and goodwill attributable to the acquisition of CBS, Infinity or American Radio Systems, as the case may be, from the 40-year amortization utilized in the projections contained in the Confidential Information Memorandum (in the case of CBS and Infinity) or in the projections separately furnished to the Lenders (in the case of American Radio -1- 2 Systems) or (d) provisions for restructuring reserves (but not environmental or litigation reserves) established after the Net Worth Commencement Date and not exceeding $50,000,000 in the aggregate, net of cash payments made in respect of such reserves, all net of tax effect and computed and consolidated in accordance with GAAP. "Discontinued Operations" shall mean in the operations classified as "discontinued operations" pursuant to Accounting Principles Board Opinion No. 30 as presented in the quarterly report of CBS on Form 10-Q for the quarter ended September 30, 1997 and filed with the SEC on November 14, 1997. "Net Worth Commencement Date" shall mean December 31, 1997. (b) All text following the word minus in the definition of "Consolidated EBITDA" contained in Section 1.1 of the Credit Agreement is, hereby amended and restated in its entirety as follows: "cash payments made during such period in respect of non-cash charges taken during any previous period (excluding (x) cash payments in respect of non-cash charges taken prior to December 31, 1997 and (y) up to $50,000,000 of cash payments made on or prior to March 31, 1999 in respect of employee separation costs which relate to restructuring charges taken on or prior to September 30, 1998)" (c) The proviso at the end of the definition of "Consolidated Total Funded Indebtedness" contained in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows: "; provided, that, (i) in no event shall Indebtedness attributable to Discontinued Operations be included in Consolidated Total Funded Indebtedness and (ii) prior to December 3 1, 1998, in no event shall Allocated Indebtedness be included in Consolidated Total Funded Indebtedness, except, in the case of Allocated Indebtedness, in connection with calculations of the Consolidated Leverage Ratio for the purpose of determining the applicability of the Leverage Margin" (d) The following new definitions are hereby added to Section 1.1 of the Credit Agreement in the appropriate alphabetical order: "Allocated Indebtedness" shall mean Indebtedness of CBS and its Subsidiaries in an aggregate principal amount equal to, on any date, $1,558,000,000 minus the aggregate amount of Net Cash Proceeds (up to $1,558, 000,000) received by CBS and its Subsidiaries on or prior to such date from any one or more Dispositions of the Allocated Units (whether or not such Net Cash Proceeds have been applied to repay any Indebtedness). "Allocated Units" shall mean the collective reference to (a) the power generation business unit, (b) the government and environmental services company, (c) the energy systems business unit and (d) the process control division; each, an "Allocated Unit". "CBS" shall mean CBS Corporation, a Pennsylvania corporation. -2- 3 "Net Cash Proceeds" shall mean, in connection with any Disposition of all or any material part of any Allocated Unit, the proceeds thereof in the form of cash and cash equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Disposition, net of (1) attorneys' fees, accountants' fees, investment banking fees and other customary fees and expenses actually incurred in connection therewith, (ii) taxes paid or reasonably estimated to be payable on a current basis as a result thereof (after taking into account any available tax credits or deductions) and (iii) any cash purchase price adjustments paid in connection therewith (but only as and when paid). 'PGBU Sale Date" shall mean the date on which CBS or any of its Subsidiaries receives cash proceeds from the Disposition of the power generation business unit. 2. Section 1.2(d). Clause (ii) of Section 1.2(d) of the Credit Agreement is hereby amended and restated in its entirety as follows: "(ii) the businesses classified as Discontinued Operations shall be limited to those businesses treated as such in the financial statements of CBS referred to in the definition of "Discontinued Operations" and the accounting treatment of Discontinued Operations shall be consistent with the accounting treatment thereof in such financial statements" 3. Section 2.13. Section 2.13 of the Credit Agreement is hereby amended and restated in its entirety as follows: "SECTION 2.13. Termination and Reduction of Commitments. (a) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Administrative Agent, CBS may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Commitments; provided, however, that (i) each partial reduction of the Commitments shall be in a minimum principal amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof and (ii) no such termination or reduction shall be made if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, (x) the Outstanding Revolving Extensions of Credit of any Lender would exceed such Lender's Commitment then in effect or (y) the Total Facility Exposure would exceed the Total Commitment then in effect. The Administrative Agent shall I promptly advise the Lenders of any notice given pursuant to this Section 2.13(a). (b) On the Business Day it immediately following the PGBU Sale Date, the Total Commitment shall automatically be permanently reduced to $4,000,000,000. If, after giving effect to such reduction, (x) the Outstanding Revolving Extensions of Credit of any Lender exceed such Lender's Commitment then in effect or (y) the Total Facility Exposure exceeds the Total Commitment then in effect, the Borrowers shall on such date prepay the Revolving Credit Loans to the extent necessary to eliminate any such excess. (c) Except as otherwise provided in Section 2.21, each reduction in the Commitments hereunder shall be made ratably among the Lenders in -3- 4 accordance with their respective Commitments. CBS agrees to pay to the Administrative Agent for the account of the Lenders, on the date of termination or reduction of the Commitments, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction." 4. Section 5.7. Section 5.7 of the Credit Agreement is hereby amended and restated in its entirety as follows: "SECTION 5.7. Consolidated Leverage Ratio. CBS will not permit the Consolidated Leverage Ratio at the end of any period of four consecutive fiscal quarters ending on any date set forth below to be greater than the ratio set forth below opposite such date: Date Ratio 3/31/98 5.25 to 1 6/30/98 5.00 to 1 9/30/98, 12/31/98 and 3/31/99 4.75 to 1 6/30/99 4.50 to 1 9/30/99 4.25 to 1 12/31/99 and 3/31/00 4.00 to 1 6/30/00 and 9/30/00 3.75 to 1 12/31/00 and thereafter 3.50 to 1 5. Section 5.8. Section 5.8 of the Credit Agreement is hereby amended and restated in its entirety as follows: "SECTION 5.8. Consolidated Coverage Ratio. CBS will not permit the Consolidated Coverage Ratio for any period of four consecutive fiscal quarters ending on any date set forth below to be less than the ratio set forth below opposite such date: Date Ratio "3/31/98 and 6/30/98 2.5 0 to 1 9/30/98, 12/31/98, 3/31/99 and 6/30/99 2.75 to 1 9/30/99 and thereafter 3.50 to 1" 6. Section 5.9. Section 5.9 of the Credit Agreement is hereby amended and restated in its entirety as follows: "SECTION 5.9. Minimum Consolidated Net Worth. CBS will not permit Consolidated Net Worth on the last day of any fiscal quarter to be less than the sum of (a) $6,060,800,000, (b) 50% of cumulative Consolidated Net Income for each fiscal quarter of CBS ending after the Net Worth Commencement Date for which Consolidated Net Income is positive and (c) 100% of the amount by which total shareholders' equity of CBS and its Consolidated Subsidiaries increases after the Net Worth Commencement Date as a result of the Infinity Merger, including, without -4- 5 limitation, as a result of the issuance of Capital Stock of CBS in connection with the exercise of warrants, options and similar deferred issuances of common stock (determined at the time of the exercise thereof)." 7. References to "Westinghouse". All references to "Westinghouse" contained in the Credit Agreement are hereby changed to "CBS". ARTICLE 11--MISCELLANEOUS 1. Representations and Warranties. CBS and each Subsidiary Borrower (to the extent specifically applicable to such Subsidiary Borrower) hereby represents and warrants, on and as of the Third Amendment Effective Date (as defined below), that (a) the execution and delivery of this Third Amendment and the performance of this Third Amendment and the Credit Agreement as amended by this Third Amendment (the "Amended Credit Agreement") will not conflict with or result in a breach of, or require any consent under, the charter or By-laws (or other equivalent organizational documents) of CBS or any Subsidiary Borrower, or any applicable law or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any material agreement or instrument to which CBS or any of its Material Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of CBS or any of its Material Subsidiaries pursuant to the terms of any such agreement or instrument; (b) CBS and each Subsidiary Borrower has all necessary corporate power and authority to execute and deliver this Third Amendment and to perform its obligations under this Third Amendment and the Amended Credit Agreement; (c) the execution and delivery of this Third Amendment and the performance of this Third Amendment and the Amended Credit Agreement have been duly authorized by all necessary corporate action on the part of CBS and each Subsidiary Borrower; (d) this Third Amendment has been duly and validly executed and delivered by CBS and each Subsidiary Borrower and each of this Third Amendment and the Amended Credit Agreement constitutes a legal, valid and binding obligation of CBS and each Subsidiary Borrower, enforceable in accordance with its terms except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws of general applicability affecting the enforcement of creditors' rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (e) no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution and delivery by CBS and each Subsidiary Borrower of this Third amendment, for the performance by CBS and each Subsidiary Borrower of this Third Amendment and the Amended Credit Agreement or for the validity or enforceability hereof or thereof, and (f) each of the representations of CBS and each Subsidiary Borrower set forth in Article III of the Amended Credit Agreement is true and correct in all material respects on and as of the Third Amendment Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties were true and correct in all material respects as of such earlier date. 2. No Other Modifications. Except as expressly modified hereby, all the provisions of the Credit Agreement are and shall continue to be in full force and effect. Each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof' and words of like import referring to the Credit Agreement shall mean the Credit Agreement as amended hereby. -5- 6 3. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS AND PRINCIPLES OF SUCH STATE. 4. Counterparts. This Third Amendment may be executed by one or more of the parties to this Third Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 5. Effectiveness. This Third Amendment shall become effective on and as of the date (the "Third Amendment Effective Date") upon which (a) the Administrative Agent shall have received (i) an executed counterpart of this Third Amendment from CBS and each Subsidiary Borrower, (ii) executed Lender Consent Letters (or facsimile transmissions thereof) from the Required Lenders consenting to the execution of this Third Amendment by the Administrative Agent and (b) CBS shall have paid to the Administrative Agent, for the benefit of each relevant Lender, an amendment fee equal to (x) 0.070% of such Lender's Commitment if such Lender shall have delivered its Lender Consent Letter, in accordance with the terms thereof, no later than 12:00 Noon, New York City time, on March 12, 1998, or (y) if clause (x) above is not applicable, 0.050% of such Lender's Commitment if such Lender shall have delivered its Lender Consent Letter, in accordance with the terms thereof, no later than 12:00 Noon, New York City time, on March 18, 1998. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed by their respective authorized officers as of the day and year first above written. CBS CORPORATION By Claudia E. Morf ---------------------------- C. E. Morf Vice President and Treasurer HEMISPHERE BROADCASTING CORPORATION By Claudia E. Morf ---------------------------- C. E. Morf Vice President and Treasurer INFINITY BROADCASTING CORPORATION OF BOSTON By Claudia E. Morf ---------------------------- C. E. Morf Vice President and Treasurer INFINITY BROADCASTING CORPORATION OF NEW YORK By Claudia E. Morf ---------------------------- C. E. Morf Vice President and Treasurer TRANSPORTATION DISPLAYS, INCORPORATED By Claudia E. Morf ---------------------------- C. E. Morf Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By Christopher C. Kunhardt ---------------------------- Vice President -7- EX-10.Y 3 CBS CORPORATION 1 Exhibit (10)(y) AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT THIS AMENDMENT is made January 23, 1998, between WESTINGHOUSE ELECTRIC CORPORATION (now known as CBS Corporation), a Pennsylvania corporation ("WEC"), and SIEMENS POWER GENERATION CORPORATION, a Delaware corporation ("Purchaser"). W I T N.E S S E T H: WHEREAS, the parties hereto want to confirm the agreement and understanding which WEC and Purchaser have reached with respect to Section 5.1(c) of the Asset Purchase Agreement between WEC and Siemens, dated November 14, 1997. WHEREAS, Purchaser acknowledges that it has requested and that WEC has agreed to take such action (referred to herein as "Restructuring") as described in Schedule 5.1(c) to the Agreement as such action relates to the Business with respect to approximately 650 employees (herein described as "Employees"), as more fully described on Attachment A hereto. WHEREAS, all capitalized terms contained herein shall have the meaning to them assigned therein in the Agreement, unless expressly indicated otherwise. This Amendment, upon execution as provided for below, shall constitute Amendment No. 1 to the Agreement. The amendments below shall apply to the action to be taken by WEC. NOW, THEREFORE, the parties to this Amendment No. 1 hereby agree as follows: 1. Section 5.1(c) shall be amended to read as follows: "Purchaser acknowledges and agrees that WEC shall not be deemed to be in breach of its representation and warranty contained in the first sentence of Section 4.1(1) or its obligations under the first sentence of Section 5.l(a) as a result of its determination not to take the actions described in Schedule 5.l(c). WEC agrees not to take any such action without the prior written consent of Purchaser. If Purchaser requests that WEC take such (or similar) actions prior to the Closing and WEC agrees to take such actions, Purchaser shall bear all costs of a cash nature incurred by WEC and its Affiliates as a direct result of such actions (other than as set forth in Section 5.5(d)(vi)), which costs shall be (i) reduced by all savings of cash expenditures (calculated as set forth below) realized by WEC and its Affiliates from the date of the Restructuring through the Closing Date as a direct result of the action respecting the Restructuring of Employees and (ii) increased by any incremental expenses (as described below) of cash expenditures (other than as set forth in Section 5.5(d)(vi)) incurred by WEC and its Affiliates from the date of the Restructuring through the Closing Date as a direct result of the action respecting the Restructuring of Employees (such costs, to the extent so reduced or increased, shall herein be referred to as Restructuring Costs) by reimbursing WEC not later than -1- 2 30 days following receipt of reasonably detailed statements evidencing the incurrence of such Restructuring Costs and the savings realized. For purposes of reduction by savings in (i) above, such reduction shall only act as an offset to any costs actually reimbursed by Purchaser and under no circumstances shall WEC be required to make any payment to Purchaser as a result of such savings, except as provided for below at the time of Closing. Savings realized by WEC and its Affiliates shall consist of the following: (1) with. respect to the terminated Employees, their (A) base payout costs, (B) employment taxes, and (C) domestic employees' medical insurance costs (prorated from the respective domestic employee's termination date to the Closing Date measured using an estimated annual medical cost of $4,000 per domestic employee) actually eliminated by WEC and its Affiliates for the Employees and positions set forth per Attachment A from the Employees' respective termination dates to the Closing Date and (2) any non-Employee exit cost savings of cash expenditures directly resulting from the Restructuring, such as cessation of lease payments due to Restructuring. For purposes of incremental expenses in (ii) above, such increase shall in any event be limited to 20% of the estimated monthly savings calculated in (i) above, unless WEC first provides notice and reasonable detail of requirements for a sum in excess of such amount and Purchaser consents to such excess, which consent shall not be unreasonably withheld. Incremental expenses incurred by WEC shall include, without limitation, all costs of temporary assistance and independent contractors performing the duties of the former Employees as set forth on Attachment A, as well as any exit costs of cash expenditures directly resulting from the Restructuring, such as termination or cancellation payments under a lease due to the Restructuring or relocation costs for consolidation of facilities (but excluding any Environmental Liability). WEC may invoice Purchaser each month following the Restructuring for Restructuring Costs. At the Closing, there shall be a final accounting of Restructuring Costs for the period from the Restructuring through the Closing Date and any amounts due WEC for reimbursement shall be so paid by Purchaser and any offsets due Purchaser (not to exceed costs reimbursed or to be reimbursed by Purchaser) shall be so paid by or credited against WEC. Neither reimbursement amounts paid to WEC nor offsets so paid to Purchaser shall be included in the calculations for Purchase Price Adjustment under Section 2.5. After the Closing, Purchaser, and not WEC, shall assume and be responsible for all costs of Restructuring (other than as set forth in Section 5.5(d)(vi) and other than Restructuring Costs which Purchaser has already reimbursed WEC pursuant to this Section 5.1(c)). In the event this Agreement is terminated and the transactions contemplated hereby are abandoned pursuant to Section 7.1 for any reason, other than termination by WEC pursuant to Section 7.1 as a result of a failure by Purchaser to satisfy any condition set forth in Section 6.3(a) or (b), then WEC shall pay to Purchaser on demand by wire transfer an amount of money equal to the Restructuring Costs previously reimbursed by Purchaser plus interest on all such amounts reimbursed by Purchaser at the Rate from the date of payment of each amount to the date of repayment by WEC." -2- 3 2. Section 7.1(d) shall be amended to read as follows: "(d) If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this Section 7.1, this Agreement shall become null and void and of no further force and effect, except for the provisions of (i) Section 5.2 relating to the obligation of Purchaser to keep confidential certain information and data obtained by it from Sellers (ii) the Agreement relating to expenses (including Sections 5.7 and 5.14(d)), (iii) Section 5.8 relating to finder's fees and broker's fees, (iv) this Section 7.1, (v) Article 9 and (vi) Section 5.1(c). Nothing in this Section 7.1 shall be deemed to release either party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of either party to compel specific performance by the other party of its obligations under this Agreement." IN WITNESS WHEREOF, WEC and Purchaser have caused this Amendment to be signed by their respective officers thereunto duly authorized, as of the date first written above. WESTINGHOUSE ELECTRIC CORPORATION (now known as CBS Corporation) By: /S/ Louis J. Briskman ----------------------------------------- Name: Louis J. Briskman Title: SIEMENS POWER GENERATION CORPORATION By: /S/ Michael W. Schiefen ----------------------------------------- Name: Michael W. Schiefen Title: Vice President By: /S/ E. Robert Lupone ----------------------------------------- Name: E. Robert Lupone Title: Secretary -3- EX-27 4 CBS CORPORATION
5 3-MOS YEAR 3-MOS DEC-31-1998 DEC-31-1997 DEC-31-1997 MAR-31-1998 DEC-31-1997 MAR-31-1997 72 8 39 0 0 0 1,125 971 943 36 35 27 0 0 0 2,248 1,975 1,948 1,486 1,481 1,361 437 415 349 17,121 16,715 17,373 1,737 1,549 1,796 3,430 3,236 6,126 0 0 4 0 0 0 723 718 612 7,437 7,362 4,983 17,121 16,715 17,373 1,949 5,363 1,326 1,949 5,363 1,326 1,305 3,483 1,002 1,305 3,483 1,002 508 1,631 378 0 0 0 75 386 101 66 (59) (114) 47 73 (22) 19 (131) (91) 0 680 (60) 0 0 0 0 0 0 19 549 (151) .03 .84 (.28) .03 .84 (.28)
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