-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dXyMVimuz9JUmwa9sMZJGfGlyEfr7X0arvJt5Run0hEJ5b2a4qmaGou5zbn+RxJB WVFUxtA5ElpknmyccxuSQA== 0000950128-95-000089.txt : 19950501 0000950128-95-000089.hdr.sgml : 19950501 ACCESSION NUMBER: 0000950128-95-000089 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00977 FILM NUMBER: 95532705 BUSINESS ADDRESS: STREET 1: WESTINGHOUSE BLDG STREET 2: 11 STANWIX STREET CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122442000 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-Q 1 WESTINGHOUSE 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ Commission file number 1-977 WESTINGHOUSE ELECTRIC CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-0877540 ------------ ---------- (State of Incorporation) (I.R.S. Employer Identification No.) Westinghouse Building, 11 Stanwix Street, Pittsburgh, Pa. 15222-1384 -------------------------------------------------------------------- (Address of principal executive offices, zip code) (412) 244-2000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Common stock 358,007,780 shares outstanding at March 31, 1995 ------------------------------------------------------------- 2 WESTINGHOUSE ELECTRIC CORPORATION INDEX ---------------------------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Income 3 Condensed Consolidated Balance Sheet 4 Condensed Consolidated Statement of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-25 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26-27 Item 6. Exhibits and Reports on Form 8-K 27-28 SIGNATURE 29
-2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME ------------------------------------------ (in millions except per share amounts) (unaudited)
Three Months Ended March 31 --------------------------- 1995 1994 ---- ---- Sales of products and services $ 2,024 $ 1,743 Costs of products and services (1,530) (1,349) Marketing, administration and general expenses (407) (329) Other income and expenses, net (note 2) (2) 39 Interest expense (58) (47) ------- ------- Income from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries 27 57 Income taxes (10) (22) Minority interest in (income) loss of consolidated subsidiaries (2) 1 ------- ------- Net income $ 15 $ 36 ======= ======= Earnings per common share $ 0.01 $ 0.07 ======= ======= Cash dividends per common share $ 0.05 $ 0.05 ======= =======
See Notes to the Condensed Consolidated Financial Statements -3- 4 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET ------------------------------------ (in millions)
March 31, 1995 December 31, 1994 ASSETS -------------- ----------------- - ------ (unaudited) Cash and cash equivalents $ 291 $ 338 Customer receivables 1,462 1,553 Inventories (note 3) 1,516 1,541 Uncompleted contracts costs over related billings 738 555 Deferred income taxes 543 524 Prepaid and other current assets 267 209 ------- ------- Total current assets 4,817 4,720 Plant and equipment, net 1,768 1,898 Intangible and other noncurrent assets (note 4) 3,561 3,572 Net assets of Discontinued Operations (note 6) 434 434 ------- ------- Total assets $10,580 $10,624 ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Revolving credit borrowings and other short-term debt $ 814 $ 662 Current maturities of long-term debt 17 17 Accounts payable 704 831 Uncompleted contracts billings over related costs 471 473 Other current liabilities (note 5) 1,668 1,726 ------- ------- Total current liabilities 3,674 3,709 Long-term debt 1,884 1,886 Other noncurrent liabilities (note 5) 3,208 3,207 ------- ------- Total liabilities 8,766 8,802 ------- ------- Contingent liabilities and commitments (note 7) Minority interest in equity of consolidated subsidiaries 33 30 Shareholders' equity (note 8): Preferred stock, $1.00 par value (25 million shares authorized): Series A preferred (no shares issued) - - Series B conversion preferred (8 million shares issued) 8 8 Series C conversion preferred (4 million shares issued) 4 4 Common stock, $1.00 par value (480 million shares authorized, 393 million shares issued) 393 393 Capital in excess of par value 1,924 1,932 Common stock held in treasury (845) (870) Other (1,001) (1,000) Retained earnings 1,298 1,325 ------- ------- Total shareholders' equity 1,781 1,792 ------- ------- Total liabilities and shareholders' equity $10,580 $10,624 ======= =======
See Notes to the Condensed Consolidated Financial Statements -4- 5 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- (in millions) (unaudited)
Three Months Ended March 31 --------------------------- 1995 1994 ---- ---- Cash used by operating activities of Continuing Operations $ (112) $ (168) Cash used by operating activities of Discontinued Operations (25) (75) Cash flows from investing activities: Business divestitures 6 50 Business acquisitions (22) - Liquidation of assets of Discontinued Operations 97 1,505 Capital expenditures (38) (35) Other - (1) ------- ------- Cash provided by investing activities 43 1,519 ------- ------- Cash flows from financing activities: Bank revolver borrowings 175 - Bank revolver repayments (117) (2,155) Net change in other short-term debt 15 10 Repayments of long-term debt (5) (9) Sale of equity securities - 505 Treasury stock reissued 17 17 Dividends paid (42) (30) Other - 14 ------- ------- Cash provided (used) by financing activities 43 (1,648) ------- ------- Decrease in cash and cash equivalents (51) (372) Cash and cash equivalents at beginning of period 344 1,248 ------- ------- Cash and cash equivalents at end of period $ 293 $ 876 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid -- Continuing Operations $ 47 $ 44 ======= ======= Interest paid -- Discontinued Operations $ 22 $ 53 ======= ======= Income taxes paid $ 29 $ 58 ======= =======
See Notes to the Condensed Consolidated Financial Statements -5- 6 WESTINGHOUSE ELECTRIC CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------- 1. GENERAL The condensed consolidated financial statements include the accounts of Westinghouse Electric Corporation (Westinghouse) and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. In the opinion of the management of the Corporation, the Condensed Consolidated Financial Statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year. When reading the financial information contained in this Quarterly Report, reference should be made to the financial statements, schedules and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. Certain amounts pertaining to the three months ended March 31, 1994 and year ended December 31, 1994 have been reclassified for comparative purposes. 2. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended March 31 --------------------------- 1995 1994 ---- ---- Net gain (loss) on disposition of assets $ (7) $ 35 Miscellaneous other income and expenses, net 5 4 ---- ---- Other income (expenses), net $ (2) $ 39 ==== ====
The net gain on disposition of assets for the three months ended March 31, 1994 includes a gain of $32 million from the sale of two Sacramento radio stations. 3. INVENTORIES (in millions)
March 31, 1995 December 31, 1994 -------------- ----------------- (unaudited) Raw materials $ 169 $ 158 Work in process 1,093 1,065 Finished goods 139 156 ------- ------- 1,401 1,379 Long-term contracts in process 943 877 Progress payments to subcontractors 95 97 Recoverable engineering and development costs 484 437 Less: Inventoried costs related to contracts with progress billing terms (1,407) (1,249) ------- ------- Inventories $ 1,516 $ 1,541 ======= =======
-6- 7 4. INTANGIBLE AND OTHER NONCURRENT ASSETS (in millions)
March 31, 1995 December 31, 1994 -------------- ----------------- (unaudited) Deferred income taxes $ 1,520 $ 1,516 Goodwill and other intangible assets 1,023 1,119 Intangible pension asset 114 114 Undeveloped land 250 244 Joint ventures, affiliates, and other 189 100 Noncurrent receivables 127 147 Other 338 332 --------- --------- Total intangible and other noncurrent assets $ 3,561 $ 3,572 ========= =========
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
March 31, 1995 December 31, 1994 -------------- ----------------- (unaudited) Other current liabilities: - ------------------------- Accrued employee compensation $ 178 $ 198 Income taxes currently payable 200 241 Accrued product warranty 79 82 Accrued taxes, interest and insurance 320 270 Accrued restructuring costs 154 180 Liability for business dispositions 110 112 Other 627 643 --------- --------- Total other current liabilities $ 1,668 $ 1,726 ========= ========= Other noncurrent liabilities: - ---------------------------- Postretirement and postemployment benefits $ 1,270 $ 1,265 Pension liability 1,248 1,174 Accrued restructuring costs 8 8 Liability for business dispositions 75 75 Other 607 685 --------- --------- Total other noncurrent liabilities $ 3,208 $ 3,207 ========= =========
6. DISCONTINUED OPERATIONS In November 1992, the Corporation announced a Plan (the Plan) that included exiting the financial services business and the sales of the Distribution and Control Business Unit (DCBU) and Westinghouse Electric Supply Company (WESCO). In the first quarter of 1994, the Corporation completed the sales of DCBU and WESCO for proceeds in excess of $1.1 billion and approximately $340 million, respectively. -7- 8 OPERATING RESULTS OF DISCONTINUED OPERATIONS
(in millions) (unaudited) Three Months Ended March 31 --------------------------- 1995 1994* Sales of Products and Services ---- ---- - ------------------------------ Financial Services $ 8 $ 14 DCBU and WESCO - 319 ----- ----- Sales of Products and Services $ 8 $ 333 ===== ===== Net Earnings (Losses) - --------------------- Financial Services $ (18) $ (69) DCBU and WESCO - 4 ----- ----- Net Losses $ (18) $ (65) ===== =====
*Operating results of Discontinued Operations for DCBU and WESCO for the three months ended March 31, 1994 included the operating results of DCBU for the one month ended January 31, 1994 and the operating results of WESCO for the two months ended February 28, 1994, their respective dates of sale. The assets and liabilities of Discontinued Operations have been separately classified in the Condensed Consolidated Balance Sheet as net assets of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS OF DISCONTINUED OPERATIONS
(in millions) March 31, 1995 December 31, 1994* -------------- ----------------- (unaudited) ASSETS: Cash and cash equivalents $ 2 $ 6 Portfolio investments 1,140 1,230 Deferred income taxes 385 340 Other assets 186 221 ------ ------ Total assets -- Discontinued Operations 1,713 1,797 ------ ------ LIABILITIES: Revolving credit facilities borrowings 298 374 Current maturities of long-term debt 299 230 Liability for estimated loss on disposal 112 145 Long-term debt 493 568 Other liabilities 77 46 ------ ------ Total liabilities -- Discontinued Operations 1,279 1,363 ------ ------ Net assets of Discontinued Operations $ 434 $ 434 ====== ======
*Certain amounts have been reclassified for comparative purposes. -8- 9 PORTFOLIO INVESTMENTS Portfolio investments by category of investment and financing at March 31, 1995 and December 31, 1994 are summarized in the following table.
At March 31, 1995 --------------------------------------- Real (in millions) (unaudited) Leasing Estate Corporate Total ------- ------ --------- ----- Receivables $ 879 $ 17 $ 3 $ 899 Other portfolio investments 38 202 1 241 ------ ------ ------ ------ Portfolio investments $ 917 $ 219 $ 4 $1,140 ====== ====== ====== ======
At December 31, 1994 --------------------------------------- Real (in millions) Leasing Estate Corporate Total ------- ------ --------- ----- Receivables $ 886 $ 18 $ 9 $ 913 Other portfolio investments 38 279 - 317 ------ ------ ------ ------ Portfolio investments $ 924 $ 297 $ 9 $1,230 ====== ====== ====== ======
Other portfolio investments at March 31, 1995 and December 31, 1994 included the Corporation's investment in LW Real Estate Investments, L.P. (LW) of $47 million and $133 million respectively, real estate properties of $86 million and $88 million, respectively, and other investments of $108 million and $96 million, respectively, primarily consisting of investments in real estate and leasing partnerships. The remaining portfolio investments, other than the leasing assets, are expected to be substantially liquidated by the end of 1995. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms. Non-earning receivables at March 31, 1995 and December 31, 1994 totalled $25 million and $30 million, respectively. There were no reduced earning receivables at either date. Leasing receivables consist of direct financing and leveraged leases. At March 31, 1995 and December 31, 1994, 80% and 81%, respectively, related to air- craft and 19% and 18%, respectively, related to cogeneration facilities. Certain leasing receivables classified as performing and totalling $137 million at March 31, 1995 have been identified by management as potential problem receivables. This amount consists primarily of leveraged leases related to aircraft leased by major U.S. airlines. Such leasing receivables were current as to payments and performing in accordance with contractual terms at March 31, 1995. LIABILITY FOR ESTIMATED LOSS ON DISPOSAL The following table is a reconciliation of the liability for the estimated loss on disposal of Discontinued Operations from December 31, 1994 to March 31, 1995: -9- 10 LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (in millions)(unaudited)
Financial DCBU & Restruc- Services WESCO turing Total --------- ------ -------- -------- December 31, 1994 $ 80 $ 60 $ 5 $ 145 Year-to-date activity (24) (9) - (33) --------- ------ -------- -------- March 31, 1995 $ 56 $ 51 $ 5 $ 112 ========= ====== ======== ========
Management believes that the liability for the estimated loss on disposal of Discontinued Operations is adequate. Any variances from estimates which may occur for one Plan component will be considered in conjunction with those for other components in determining whether an adjustment of the total liability is necessary. The adequacy of this liability is evaluated each quarter. 7. CONTINGENT LIABILITIES AND COMMITMENTS Uranium Settlements - ------------------- The Corporation had previously provided for the estimated future costs for the resolution of all uranium supply contract suits and related litigation. The remaining uranium reserve balance includes assets required for certain settlement obligations and reserves for estimated future costs. The reserve balance at March 31, 1995 is deemed adequate considering all facts and circumstances known to management. The future obligations require providing the remainder of the fuel deliveries running through 2013 and the supply of equipment and services through approximately 1995. Variances from estimates which may occur are considered in determining if an adjustment of the liability is necessary. Litigation - ---------- Philippines In December 1988, a 15-count lawsuit was filed against the Corporation alleging bribery and other fraudulent conduct in connection with the construction of a nuclear power plant in the Philippines. Of the 15 claims, 14 were stayed pending arbitration before the International Chamber of Commerce (ICC). With respect to the remaining count alleging bribery, a jury verdict was rendered in favor of the Corporation on May 18, 1993 and was appealed by the Republic of the Philippines on March 24, 1995. A similar finding was made by the ICC in 1991. Arbitration proceedings before the ICC on issues relating to the construction of the plant were concluded in October 1994, and the parties await a decision. Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Corporation as components of nuclear steam supply systems. Settlement agreements have been entered resolving six litigation claims. These agreements generally involve providing certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration, although an appeal has been filed in one of the cases. Four lawsuits are pending. -10- 11 The Corporation is also a party to six tolling agreements with utilities or utility plant owners' groups. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussions. Securities Class Actions - Financial Services The Corporation is defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation and certain of its former subsidiaries in connection with charges to earnings of $975 million in 1990 and $1,680 million in 1991 and a public offering of Westinghouse common stock in 1991. The court dismissed both the derivative claim and the class action claims in their entirety. These dismissals have been appealed. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in each of the foregoing cases and although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above, and management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Environmental Matters - --------------------- Compliance with federal, state and local regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Corporation. While it is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, technology and information available for individual sites, management has estimated the total probable and reasonably possible remediation costs that could be incurred by the Corporation based on the facts and circumstances currently known. PRP Sites With regard to remedial actions under federal and state Superfund laws, the Corporation has been named as a potentially responsible party (PRP) at numerous sites located throughout the country. At many of these sites, the Corporation is either not a responsible party or its site involvement is very limited or de minimis. However, the Corporation may have varying degrees of cleanup responsibilities at 54 sites. With regard to cleanup costs at these sites, in many cases the Corporation will share these costs with other responsible parties and the Corporation believes that any liability incurred will be satisfied over a number of years. Management believes that the Corporation's total remaining probable costs for remediation of these sites as of March 31, 1995 are approximately $82 million, all of which has been accrued. Bloomington Sites The Corporation is a party to a 1985 Consent Decree relating to remediation of six sites in Bloomington, Indiana and has additional responsibility for two other sites in Bloomington. In the Consent Decree, the Corporation agreed to construct and operate an incinerator, which would be permitted under federal and state law, to burn excavated material. -11- 12 On February 8, 1994, the Consent Decree parties filed with the court a status report advising of the parties' intention to investigate alternatives. The Corporation believes it is probable that the Consent Decree will be modified to an alternate remedial action, which could include a combination of containment, treatment, remediation and monitoring. As a result, the Corporation estimates that its cost to implement the most reasonable and likely alternative would total approximately $70 million for the eight sites, all of which has been accrued. Approximately $18 million of this estimate represents the present value, assuming a 5% discount rate, of operating and maintenance costs which will be incurred over an approximate 30-year period. The remaining portion of the $70 million estimate represents site construction and other related costs and is valued as of the year of expenditure. Other alternatives, while considered less likely, could cause such costs to be as much as $125 million. The Corporation has received approval from the Environmental Protection Agency (EPA) to begin removal of materials from one of the additional sites not part of the Consent Decree to a commercial landfill. The Corporation anticipates this removal of materials to commence in the second quarter of 1995. The Corporation has requested approval from the EPA for removal of materials from the second site. The parties recognize that at the end of the process, they may conclude that the remedy currently provided in the Consent Decree is the most appropriate. The parties also recognize that the Consent Decree shall remain in full force during this process. Other The Corporation is involved with several administrative actions alleging violations of federal, state or local environmental regulations. For these matters, the Corporation has estimated its remaining reasonably possible costs and determined them to be insignificant. The Corporation currently manages under contract several government-owned facilities, which among other things are engaged in the remediation of hazardous and nuclear wastes. To date, under the terms of the contracts, the Corporation is not responsible for costs associated with environmental liabilities, including environmental cleanup costs, except under certain circumstances associated with negligence and willful misconduct. There are currently no material claims for which the Corporation believes it is responsible. In 1994, the U.S. Department of Energy (DOE) announced its intention to renegotiate its existing contracts for maintenance and operation of DOE facilities consistent with contract reform. The Corporation has or will have responsibilities for environmental closure activities, such as dismantling incinerators or decommissioning nuclear licensed sites. The Corporation has estimated the total potential cost to be incurred for these actions to be approximately $97 million, of which $29 million had been accrued at March 31, 1995. The Corporation's policy is to accrue these costs over the estimated life of the individual facilities, which in most cases is approximately 20 years. The anticipated annual costs currently being accrued are $5 million. As part of the agreement for the sales of certain of its businesses or sites, the Corporation has agreed to assume obligations for remediation as a result of contamination caused during the Corporation's operation of the sites. The Corporation has provided for all known environmental liabilities related to these agreements. Management believes that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity or results of operations. -12- 13 Insurance Recoveries - -------------------- The Corporation has filed actions against over 100 of its insurance carriers seeking recovery for environmental, product and property damage liabilities, and certain other matters. The Corporation has settled with several of these carriers and has received recoveries related to these actions. Amounts received to date generally have been applied to cover obligations assumed through the settlements or litigation costs. The Corporation has not accrued for any future insurance recoveries. Financing Commitments -- Continuing Operations - ---------------------------------------------- WCI Communities, Inc. (WCI) was contingently liable at March 31, 1995 under guarantees for $56 million of sewer and water district borrowings. The proceeds of the borrowings were used for sewer and water improvements on residential and commercial real estate projects of WCI. Management expects these borrowings to be repaid as the projects are completed and sold, and the guarantees for such borrowings to expire unfunded. In the ordinary course of business, standby letters of credit are issued by commercial banks on behalf of the Corporation related to performance obligations primarily under contracts with customers. Financing Commitments -- Discontinued Operations - ------------------------------------------------ Financial Services commitments with off-balance-sheet credit risk represent financing commitments to provide funds, including loan or investment commitments, guarantees, standby letters of credit and standby commitments, generally in exchange for fees. The remaining commitments have fixed expiration dates from 1995 through 2002. At March 31, 1995, Financial Services commitments totalled $79 million compared to $80 million at year-end 1994. Of this amount, $70 million were guarantees, credit enhancements and other standby agreements, and $9 million were commitments to extend credit. Of the $80 million of commitments at year-end 1994, $71 million were guarantees, credit enhancements and other standby agreements and $9 million were commitments to extend credit. Management expects the remaining commitments to either expire unfunded, be assumed by the purchaser in asset dispositions or be funded with the resulting assets being sold shortly after funding. 8. SHAREHOLDERS' EQUITY In March 1994, the Corporation issued 36,000,000 depositary shares each representing ownership of one-tenth of a share of the Corporation's Series C Conversion Preferred Stock (Series C Preferred). Each depositary share will automatically convert into one share of common stock on June 1, 1997 unless called on May 30, 1997 by the Corporation or redeemed at any time prior to June 1 by the holder. In accordance with prevalent practice at the time of issuance, these shares were treated as outstanding common stock for the calculation of earnings per share. If the Series C Preferred had been treated as common stock equivalents for the calculation of earnings per share, the Corporation's results would have been a loss of $.03 per share for the first quarter of 1995 compared to income of $.07 per share for the first quarter of 1994. -13- 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Orders in the first quarter of 1995 totalled $2.4 billion. Compared to the same quarter last year, orders increased 17 percent led by Power Generation and Electronic Systems. Backlog increased almost $900 million to $10.7 billion. Revenues for the quarter increased $281 million, or 16 percent, to $2.0 billion, led by Electronic Systems, Thermo King and Power Generation. Operating profit for the quarter increased $22 million to $87 million compared to $65 million for the first quarter of last year. The increase in operating profit was more than offset by a substantial decrease in other income and higher interest expense. Net income for the first quarter of 1995 was $15 million, or 1 cent per share, compared to net income of $36 million, or 7 cents per share, for the same period last year. During 1995, the Corporation will continue the divestitures of its non-strategic businesses as well as explore strategic opportunities to expand and grow its core businesses. The Corporation is evaluating alternative strategies for monetizing WCI in the near term. Alternatives include divesting the business, leveraging its assets, and other strategies. RESTRUCTURING ACTIONS The Corporation is committed to strengthening its core businesses and improving its profitability through certain restructuring actions including changes in business and product line strategies, as well as downsizing for process reengineering and productivity improvements. Progress continued on implementation of the Corporation's restructuring programs initiated in 1993 and 1994. These programs included the involuntary separation of approximately 4,600 employees by the end of 1995. During the first quarter of 1995, 300 employees were involuntarily separated, bringing the program-to-date separations to approximately 4,000. The remaining employees to be separated generally have been notified and are expected to be separated within the next several months. Expected costs for these programs totalled $463 million, consisting of $276 million for employee separation costs, $22 million for a noncash pension curtailment charge, $100 million for asset writedowns, and $65 million for facility closure and rationalization costs. Through March 31, 1995, expenditures totalled $301 million. Approximately half of the remaining expenditures represent employee separation costs, which generally are paid over a period of up to two years following separation. A portion of the other remaining expenditures relates to a major product line that Knoll will discontinue in June 1995. Savings resulting from implementing these programs are expected to total $170 million annually, primarily related to reduced employment costs. During the first quarter of 1995, actual savings approximated $35 million. Competitive pressures causing price compression in certain of the Corporation's markets have absorbed a significant portion of these savings. The Corporation expects to continue to identify restructuring initiatives as competitive conditions dictate in an ongoing effort to reduce its overall cost structure and improve its competitiveness. -14- 15 RESULTS OF OPERATIONS The following represents the segment results of the Corporation's Continuing Operations for the three months ended March 31, 1995 and 1994. Segment Results ($ in millions)(unaudited) ------------------------------------------
Three Months Ended March 31, 1995 1994 % Change ---- ---- -------- Broadcasting: Orders $ 202.2 $ 190.5 6.1% Backlog - - - Sales 202.2 190.5 6.1% Operating Profit (Loss) 35.0 33.7 3.9% Operating Profit Margin 17.3% 17.7% N/A Depreciation & Amortization (D&A) 9.7 9.2 5.4% Capital Expenditures 3.1 5.4 -42.6% Electronic Systems: Orders $ 553.0 $ 386.9 42.9% Backlog 3,811.0 3,773.8 1.0% Sales 607.4 449.9 35.0% Operating Profit (Loss) 36.7 39.4 -6.9% Operating Profit Margin 6.0% 8.8% N/A D&A 21.7 18.6 16.7% Capital Expenditures 6.0 7.2 -16.7% Government and Environmental Services: Orders $ 61.6 $ 67.6 -8.9% Backlog 121.6 86.3 40.9% Sales 85.9 83.8 2.5% Operating Profit (Loss) 12.2 10.0 22.0% Operating Profit Margin 14.2% 11.9% N/A D&A 4.9 5.6 -12.5% Capital Expenditures 6.0 1.4 328.6% Thermo King: Orders $ 312.3 $ 248.0 25.9% Backlog 316.4 223.2 41.8% Sales 273.3 186.8 46.3% Operating Profit (Loss) 42.9 26.8 60.1% Operating Profit Margin 15.7% 14.3% N/A D&A 4.1 3.7 10.8% Capital Expenditures 5.6 3.8 47.4% Energy Systems: Orders $ 377.1 $ 368.3 2.4% Backlog 2,782.2 2,682.1 3.7% Sales 251.5 236.0 6.6% Operating Profit (Loss) (12.4) (8.3) -49.4% Operating Profit Margin -4.9% -3.5% N/A D&A 13.2 13.6 -2.9% Capital Expenditures 5.0 7.2 -30.6%
-15- 16 Segment Results ($ in millions)(unaudited)(continued) -----------------------------------------------------
Three Months Ended March 31, 1995 1994 % Change ---- ---- -------- Power Generation: Orders $ 579.1 $ 463.2 25.0% Backlog 2,938.7 2,185.5 34.5% Sales 322.4 291.6 10.6% Operating Profit (Loss) (33.0) (25.9) -27.4% Operating Profit Margin -10.2% -8.9% N/A D&A 11.2 11.9 -5.9% Capital Expenditures 4.2 7.8 -46.2% Knoll: Orders $ 140.6 $ 117.3 19.9% Backlog 87.6 104.3 -16.0% Sales 147.5 117.5 25.5% Operating Profit (Loss) 6.4 (15.0) 142.7% Operating Profit Margin 4.3% -12.8% N/A D&A 6.9 7.3 -5.5% Capital Expenditures 2.2 1.2 83.3% WCI: Orders $ 57.0 $ 56.2 1.4% Backlog - - - Sales 57.0 56.2 1.4% Operating Profit (Loss) 11.9 12.9 -7.8% Operating Profit Margin 20.9% 23.0% N/A D&A 0.4 0.4 0.0% Capital Expenditures 0.7 0.2 250.0% Other Businesses: Orders $ 89.7 $ 128.3 -30.1% Backlog 647.9 758.9 -14.6% Sales 100.8 130.5 -22.8% Operating Profit (Loss) (4.4) (13.1) N/A% Operating Profit Margin -4.4% -10.0% N/A D&A 2.8 3.5 -20.0% Capital Expenditures 1.2 0.7 71.4% Corporate and Other: Orders $ 25.6 $ 25.4 0.8% Backlog 70.4 73.7 -4.5% Sales 22.2 34.5 -35.7% Operating Profit (Loss) (8.0) 4.9 N/A Operating Profit Margin -36.0% 14.2% N/A D&A 5.4 7.7 -29.9% Capital Expenditures 3.9 0.2 N/A Intersegment: Orders $ (42.0) $ (38.0) -10.5% Backlog (40.4) (33.4) -21.0% Sales (46.5) (34.6) -34.4% Total - Continuing Operations: Orders $ 2,356.2 $2,013.7 17.0% Backlog 10,735.4 9,854.4 8.9% Sales 2,023.7 1,742.7 16.1% Operating Profit (Loss) 87.3 65.4 33.5% Operating Profit Margin 4.3% 3.7% N/A D&A 80.3 81.5 -1.5% Capital Expenditures 37.9 35.1 8.0%
-16- 17 Broadcasting Broadcasting sales and operating profit were up $12 million and $1 million, respectively, in the first quarter of 1995 compared to the same period last year. Higher television and radio advertising revenues, coupled with productivity improvements from cost reduction programs, generated the increased Broadcasting revenues and profits during the first quarter of 1995. Increased costs for two new television programs under development by the production company partially offset the higher radio and television results. Group W Satellite Communications also showed a slight increase in revenues and operating profit despite the negative impact of the national baseball strike on the quarter. Electronic Systems Orders for the first quarter of 1995 were up $166 million over the same quarter of 1994. A submarine propulsion system and a classified space project were two significant orders in the quarter. Backlog at March 31, 1995 reached $3.8 billion, up slightly from the first quarter of 1994, and included approximately $196 million for Norden Systems, the unit acquired from United Technologies Corporation in May 1994. The Corporation's Norden acquisition coupled with increased revenues from air traffic control and anti-submarine warfare contracts contributed to an increase in revenues of $158 million for the first quarter of 1995 compared to the same quarter last year. Despite the higher revenues, operating profit for the first quarter of 1995 declined $3 million because of lower margins from an unfavorable product mix and a lower level of contract claims in 1995. Savings from restructuring initiatives partially offset these unfavorable factors. Government and Environmental Services Orders were down slightly for the quarter primarily due to a decrease in material orders for the U.S. Navy. Backlog was $35 million higher at March 31, 1995 compared to the prior year due to the buildup of container orders in late 1994, several government remediation contracts, and a large material order for the U.S. Navy. The early completion of milestones at a Department of Energy site caused revenues and operating profit to increase for the first quarter of 1995 compared to the same period in 1994. A Westinghouse subsidiary is a key member of the Kaiser-Hill Company team, which recently won the five-year contract to clean up the Department of Energy's Rocky Flats plant near Denver. Thermo King Thermo King posted another strong quarter. Orders rose $64 million and backlog increased $93 million reflecting the improving truck and trailer market in Europe and the continued strength of the truck and trailer market for North America. Revenues increased $87 million for the quarter due to these market improvements. In addition, sea-going container sales nearly doubled in the quarter. The volume increases and the product cost improvement programs increased operating profit $16 million, or 60 percent, for the quarter. -17- 18 Energy Systems Orders and backlog showed slight gains in the first quarter of 1995 compared to the same quarter of 1994. Backlog at March 31, 1995 reached $2.8 billion. Revenues for the quarter increased $16 million, or 7 percent. Increased service revenues from planned power plant outages were partially offset by decreased licensee income and additional price discounts from previous settlement agreements. The operating loss for the first quarter of 1995 increased by $4 million compared to the same quarter last year. Margins from increased service revenues from power plant outages and cost savings from restructuring initiatives were more than offset by the unfavorable effects of the reduced licensee income and increased discounts. Power Generation Equipment orders for China led the $116 million increase in orders for the quarter. Power Generation's backlog of $2.9 billion was up $753 million, or 35 percent, compared to the same period last year. International orders represent approximately one-third of the total backlog at March 31, 1995. Higher field service sales, partially offset by lower factory service sales, drove revenues up $31 million in the first quarter of 1995 compared to the same period last year. Although revenues improved, the operating loss for the quarter increased $7 million. Higher margins from field service sales were more than offset by lower price realization on new apparatus and reduced margins related to factory service. Cost savings from restructuring initiatives partially offset the price compression and lower margins. In addition, the start of revenue recognition on large, long-cycle orders booked in the second half of 1994 was awaiting the completion of financial closings. Knoll Knoll's new products and expanded sales force have complemented the continued strength of the North American market and an improved European market. Orders increased $23 million for the first quarter of 1995 compared to the same quarter last year. Backlog decreased $17 million compared to March 31, 1994 due to several large project orders that were completed during 1994. Revenues increased $30 million for the first quarter of 1995 compared to the same quarter last year due to the strength in the North American and European markets. The increased volume in North America and Europe and aggressive cost reduction programs begun in 1994 resulted in an operating profit increase of $21 million for the first quarter of 1995 compared to the same period of 1994. The strong orders, revenues, and improvements in operating profit are continuing signs of the turnaround Knoll began late last year. WCI Revenues were up $1 million and operating profit was down $1 million for the first quarter of 1995 compared to the same period in 1994. An unfavorable mix of sales caused the slight decrease in operating profit for the quarter. Alternative strategies for monetizing WCI are currently being evaluated. Other Businesses The sale of Controlmatic in May 1994 and Gladwin in December 1994 caused revenues for the first quarter of 1995 to decline $30 million compared to the same period in 1994. The operating loss for the same period improved about $9 million, primarily due to the Controlmatic divestiture. -18- 19 DISCONTINUED OPERATIONS In November 1992, the Corporation announced a Plan (the Plan) that included exiting the financial services business and selling both DCBU and WESCO. The portfolio investments of Financial Services have decreased from $8,967 million at year-end 1992, to $1,140 million at March 31, 1995, a decrease of $7,827 million. The Corporation completed the sales of DCBU and WESCO during the first quarter of 1994. The liability for the estimated loss on the disposal of Discontinued Operations was established in November 1992. In the fourth quarter of 1993, the Corporation recorded an additional provision for loss based on changes in various estimates. A summary of the changes in the liability for the estimated loss on the disposal of Discontinued Operations during the first quarter are presented in the following table: LIABILITY FOR ESTIMATED LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (in millions)(unaudited)
Financial DCBU & Restruc- Services WESCO turing Total --------- ------ -------- -------- December 31, 1994 $ 80 $ 60 $ 5 $ 145 Year-to-date activity (24) (9) - (33) --------- ------ -------- -------- March 31, 1995 $ 56 $ 51 $ 5 $ 112 ========= ====== ======== ========
A summary of changes in net debt of Discontinued Operations for the first quarter of 1995 is presented in the table below: CHANGES IN NET DEBT OF DISCONTINUED OPERATIONS (in millions) (unaudited) Net Debt at December 31, 1994 $ 1,166 Liquidations of Discontinued Operations assets (97) Cash used in operating activities of Discontinued Operations 25 Net cash received from Continuing Operations (6) ------- Net Debt at March 31, 1995 $ 1,088 =======
Of the remaining $1.1 billion of net debt of Discontinued Operations at March 31, 1995, approximately $675 million is expected to be repaid during the remainder of 1995. Approximately $200 million is expected to be repaid through the liquidation of portfolio investments of Financial Services. The remaining 1995 debt repayment of $475 million will occur as cash is received from Continuing Operations, the timing of which is expected to coincide with sales of non-strategic businesses and the monetization of WCI. The Corporation expects to reduce the debt of Discontinued Operations to that amount which is supportable by the leasing portfolio and can be repaid as that portfolio liquidates over its contractual terms. As a result, additional cash may be required from Continuing Operations. -19- 20 DISPOSITION OF NON-STRATEGIC BUSINESSES During the fourth quarter of 1993, the Corporation identified certain businesses as non-strategic and provided for the cost of their disposition. Non-strategic businesses generally included parts of the former Environmental Services business unit and all of the businesses in the Industrial Products and Services business unit. During 1994, the Corporation completed the sales of Controlmatic and Gladwin Corporation. On March 31, 1995, the sale of Aptus, Inc., an environmental services subsidiary, was completed. On April 12, 1995, the Corporation completed the transfer of its 75 percent equity interest in the Westinghouse Motor Company to TECO Electric & Machinery Co., Ltd. The Corporation continues to pursue the disposition of the remaining non-strategic businesses. Activity relating to the liability for disposition of non-strategic businesses for the first quarter of 1995 is summarized below: LIABILITY FOR DISPOSITION OF NON-STRATEGIC BUSINESSES (in millions)(unaudited) Balance at December 31, 1994 $187 Additional provision 7 Disposal of businesses (9) ------ Balance at March 31, 1995 $185 ======
OTHER INCOME AND EXPENSES Other income and expenses represented a net expense of $2 million for the first quarter of 1995 compared to income of $39 million for the first quarter of 1994. The 1994 period included gains on dispositions of assets, principally two Sacramento radio stations. INTEREST EXPENSE Interest expense for the first quarter of 1995 was $11 million higher than the same period of 1994 primarily related to short-term borrowings. For Continuing Operations, average borrowings under the revolving credit facilities for the first quarter of 1995 increased over $200 million compared to average borrowings for the first quarter of 1994. This increase reflected the fourth quarter 1994 transfer of debt to Continuing Operations from Discontinued Operations. Average interest rates for short-term borrowings also increased significantly over the prior-year quarter. By December 31, 1995, the Corporation expects to reduce the debt of Continuing Operations by up to $300 million compared to year-end 1994 debt levels. INCOME TAXES The Corporation's effective income tax rate for the first quarter of both 1995 and 1994 was 38%. This rate is consistent with management's expectations for the year. At March 31, 1995, the Corporation had recorded net deferred income tax benefits totalling $2,448 million compared to $2,380 million at December 31, 1994. Management believes that the Corporation will have sufficient future taxable income to make it more likely than not that the net deferred tax asset will be realized. -20- 21 LIQUIDITY AND CAPITAL RESOURCES Overview The Corporation manages its liquidity as a consolidated enterprise without regard to whether assets or debt are classified for balance sheet purposes as part of Continuing Operations or Discontinued Operations. As a result, the discussion below focuses on the Corporation's consolidated cash flows and capital structure. The Corporation seeks to ensure that it has adequate resources for reinvestment in its core businesses and for strategic acquisitions. Based on its ongoing review of the Corporation's capital structure and associated interest costs, management believes that the Corporation's operating and financial flexibility will benefit from lower leverage. During 1994, the Corporation took several actions to reduce its leverage and rebuild its capital structure. As a result, net debt (total debt less cash and cash equivalents) was reduced by $1.7 billion. The Corporation intends to continue to reduce its consolidated net debt by up to an additional $1 billion in 1995. This reduction will be achieved principally by the sale of portfolio investments of Discontinued Operations, the disposition of other non-strategic businesses of Continuing Operations, and the monetization of WCI. Management expects that cash from Continuing Operations and availability under its revolving credit facilities will continue to be sufficient to meet future business needs. Other sources of liquidity generally available to the Corporation include cash and cash equivalents, proceeds from sales of non-strategic assets and borrowings from other sources, including funds from the capital markets. Operating Activities The following table provides a reconciliation of net income to cash provided by operating activities of Continuing Operations for the three months ended March 31, 1995 and 1994: RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
Three Months Ended March 31 ----------------------------- (in millions) (unaudited) 1995 1994 ---- ---- Net income from Continuing Operations $ 15 $ 36 Noncash items included in income: Depreciation and amortization 80 81 Losses (gains) on asset dispositions 7 (35) Change in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent 99 112 Inventories 24 (113) Progress payments net of costs on uncompleted contracts (185) (56) Accounts payable (124) (74) Accrued taxes, interest and insurance 50 (23) Deferred and current income taxes (55) (43) Accrued restructuring costs (23) (29) Other assets and liabilities - (24) ------ ------ Cash used by operating activities of Continuing Operations $ (112) $ (168) ====== ======
-21- 22 The operating activities of Continuing Operations used $112 million of cash during the first three months of 1995, an improvement of $56 million from the amount used in the first three months of 1994. The use of cash during both periods was primarily attributable to higher working capital requirements related to uncompleted contracts with progress billing terms. Customers continue to delay payments under major contracts for as long as possible. The Corporation is focusing significant effort in 1995 on reducing long-term contract and inventory investments in an overall effort to improve working capital turnover. Savings from the Corporation's restructuring activities are expected to essentially offset related cash expenditures in 1995. Management expects to contribute approximately $300 million in cash to the Corporation's pension plans in 1995 which is consistent with 1994 cash contribution levels. No contributions were made in the first quarter of either year. The operating activities of Discontinued Operations used $25 million of cash during the first three months of 1995 compared to cash used of $75 million for the same period of 1994. The decrease in operating cash requirements during the first quarter of 1995 was primarily attributable to lower interest expense resulting from lower levels of outstanding debt, as well as lower divestiture costs for DCBU and WESCO. The future operating cash requirements of Discontinued Operations are primarily attributable to interest costs on debt, operating costs and disposition costs related to DCBU and WESCO. Investing Activities Investing activities provided $43 million of cash during the first three months of 1995 compared to $1,519 million of cash provided during the same period of 1994. In the first quarter of 1995, the Corporation completed the sale of Aptus, Inc., an environmental services subsidiary. The majority of the proceeds for Aptus consisted of notes. Also, during the quarter, approximately $22 million was paid in connection with the 1994 acquisition of Norden Systems. During the first quarter of 1994, the Corporation sold its DCBU and WESCO businesses as well as two Sacramento radio stations generating cash proceeds of $1.4 billion and $50 million, respectively. Liquidations of Financial Services portfolio investments generated $97 million in the first three months of 1995 compared to cash generated of $147 million for the same period of 1994. Capital expenditures were $38 million for the first three months of 1995, an increase of $3 million from the same period of 1994. Capital spending in 1995 is expected to approximate the 1994 level. During the remainder of 1995, the Corporation expects to generate approximately $200 million of cash through the continued liquidation of portfolio investments of Discontinued Operations. In addition, sales of non-strategic businesses and the monetization of WCI are expected to generate cash proceeds to the Corporation. Financing Activities Cash provided by financing activities during the first three months of 1995 totalled $43 million compared to cash used of $1,648 million during the first three months of 1994. Net debt of the Corporation increased $119 million at March 31, 1995 to $3,512 million from $3,393 million at December 31, 1994, primarily reflecting increased borrowings under the revolving credit facilities. Total debt of the Corporation was $3,805 million at March 31, 1995, an increase of $68 million from $3,737 million at December 31, 1994. Debt reductions of $750 million to $1 billion are expected in 1995. -22- 23 Two new revolving credit agreements with more favorable terms and conditions than the previous facility were executed in August 1994 (see Revolving Credit Facilities). Total borrowings under the revolvers were $977 million at March 31, 1995. These borrowings carried a composite interest rate of 6.7% at March 31, 1995 and were based on the London Interbank Offer Rate (LIBOR). In March 1994, the Corporation sold in a private placement depositary shares representing 3,600,000 shares of Series C preferred stock for net proceeds of $505 million. These shares will convert to 36,000,000 common shares in June 1997. Dividends paid in the 1995 first quarter included approximately $12 million for dividends for the Series C preferred stock issued in March 1994 and $13 million for the Series B preferred shares. The remainder represented common stock dividends of 5 cents per share for both quarters. The Corporation's net debt increased from 65% of consolidated net capitalization to 66% at March 31, 1995. As net debt begins to decline during the remainder of 1995 and equity grows through consistent earnings of Continuing Operations, this percentage is expected to improve. On August 26, 1992, the Corporation filed a registration statement on Form S-3 for the issuance of up to $1 billion of debt securities. At March 31, 1995, $400 million of this shelf registration remained unused. Revolving Credit Facilities On August 5, 1994, the Corporation replaced its December 1991 revolver with two revolving credit agreements (revolvers). These facilities have a combined commitment level of $2.5 billion, with $2.0 billion maturing on August 4, 1997 (three-year revolver) and $500 million maturing on August 4, 1995 (364-day revolver). Borrowings under the revolvers are used for general corporate purposes, including the repayment of maturing long-term debt. The interest rates for borrowings under the revolvers are determined at the time of each borrowing and are based on one of a variety of floating rate indices plus a margin based on the Corporation's long-term debt ratings. Unused capacity under the revolvers equalled $1,523 million at March 31, 1995. Borrowing availability is subject to compliance with certain covenants, representations and warranties. At March 31, 1995, the Corporation was in compliance with these covenants. Hedging Activities Prior to the adoption of the Plan, Financial Services entered into interest rate and currency exchange agreements to manage the interest rate and currency risk associated with various debt instruments. No transactions were speculative or leveraged. Given their nature, these agreements have been accounted for as hedging transactions. A summary of notional amounts outstanding at March 31, 1995 is presented in the table below: INTEREST RATE AND CURRENCY EXCHANGE AGREEMENTS NOTIONAL AMOUNTS OUTSTANDING (in millions)(unaudited)
Short-Term Long-Term At March 31, 1995 Debt Debt Total ---------- --------- ----- Continuing Operations $ 240 $ - $ 240 Discontinued Operations 25 374 399 ----- ----- ----- Notional amounts $ 265 $ 374 $ 639 ===== ===== =====
The average remaining maturity of interest rate and currency exchange agreements was 1.26 years at March 31, 1995. -23- 24 Of the total notional amount outstanding at March 31, 1995, $390 million relates to interest rate swaps with rate and maturity characteristics set forth in the table below: CONTRACTUAL MATURITIES OF INTEREST RATE SWAPS (in millions)(unaudited)
Twelve months ended March 31, Total 1996 1997 1998 1999 2000 ----- ---- ---- ---- ---- ---- Fixed rate swaps (pay fixed): Notional amount $240 $ 80 $ 55 $ 25 $ 25 $ 55 Wtd. avg. fixed rate paid 8.82% 8.88% 8.74% 8.87% 8.59% 8.87% Floating rate swaps (pay floating): Notional amount $150 $150 - - - - Wtd. avg. fixed rate received 8.74% 8.74% - - - -
Under the majority of the swap agreements, the floating rate received or paid is based on the average 30-day commercial paper rate for the relevant period. This rate was 6.1% on March 31, 1995. The floating rate received or paid on the remaining agreements is based on six month LIBOR and is set on dates specified in the agreements. This rate was 6.5% on March 31, 1995. The remaining $249 million notional amount outstanding at March 31, 1995 consists of a $25 million forward interest rate swap agreement, which is exercisable at the option of a counterparty, a $150 million interest rate floor agreement and a $74 million interest rate and currency swap. The Corporation's credit exposure under interest rate and currency exchange agreements is limited to the cost of replacing an agreement in the event of non-performance by its counterparty. To minimize this risk, Financial Services selected high credit quality counterparties. At March 31, 1995, the aggregate credit exposure to counterparties totalled approximately $95 million. This exposure resulted primarily from an interest rate and currency swap with a counterparty rated A+. The contract matures in February 1996. In the first quarter of 1995, outstanding interest rate exchange agreements resulted in a net increase in the average borrowing rate for Continuing Operations of approximately 0.3% and a net decrease for Discontinued Operations of 0.1%. These agreements resulted in a net increase in interest expense of Continuing Operations of approximately $2 million and a net decrease in interest expense of Discontinued Operations of approximately $.4 million. The Corporation continually monitors its economic exposure to changes in foreign exchange rates and enters into foreign exchange forward or option contracts to hedge its transaction exposure when appropriate. As a result, the Corporation's unhedged foreign exchange exposure is not significant. Furthermore, changes in foreign exchange rates whether favorable or unfavorable are not expected to have a significant impact on the Corporation's financial results or operating activities. With respect to the Corporation's operations in highly inflationary and unstable economies that are accounted for in accordance with SFAS No. 52, "Foreign Currency Translation," the combined total sales for those operations were less than 0.5% of the Corporation's sales for the first three months of 1995. Any translation adjustments resulting from converting the local currency balance sheets and income statements of designated hyperinflationary subsidiaries into U.S. dollars are recorded as period costs in accordance with SFAS No. 52. -24- 25 OTHER MATTERS Environmental Matters Compliance with federal, state and local regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Corporation. While it is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, technology and information available for individual sites, management has estimated the total probable and reasonably possible remediation costs that could be incurred by the Corporation based on the facts and circumstances currently known. See note 7 to the financial statements. At March 31, 1995, the Corporation had accrued liabilities totalling $82 million for sites where it has been either named a potentially responsible party (PRP) or has other remedial responsibilities, $70 million for the Bloomington sites and $29 million for decommissioning costs at facilities where the Corporation has ongoing operations. In conjunction with the sales of certain of its businesses, the Corporation has also provided for remediation costs related to past operations of such sites. Management believes that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity or results of operations. Legal Matters The Corporation is defending a number of lawsuits on various matters. See note 7 to the financial statements. Costs to defend these lawsuits are charged to operations in the period in which the services are rendered. In the last two years, the Corporation has entered into agreements to resolve six litigation claims in connection with alleged tube degradation in steam generators sold by the Corporation as components for nuclear steam supply systems. These agreements generally involve providing certain products and services at prices discounted at varying rates. The future impact of these discounts on operating results will be incurred over the next 15 years with the greatest impact occurring during the next nine years. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of these cases and although management believes a significant adverse judgment is unlikely, any such judgments could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation referenced in note 7, and management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Insurance Recoveries The Corporation has filed actions against more than 100 of its insurance carriers seeking recovery for environmental, product and property damage liabilities, and certain other matters. The Corporation has settled with several of these carriers and has received recoveries related to these actions. Amounts received to date generally have been applied to cover obligations assumed through the settlements or litigation costs. The Corporation has not accrued for any future insurance recoveries. -25- 26 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) On December 1, 1988, the Republic of the Philippines (Republic) and National Power Corporation (NPC) filed a lawsuit in the United States District Court (USDC) for the District of New Jersey asserting claims against the Corporation, Westinghouse International Projects Company and Burns and Roe Enterprises, Inc. (Burns and Roe) relating to a contract between NPC and Westinghouse for the construction of a nuclear power plant in the Philippines as well as an earlier consulting contract between NPC and Burns and Roe relating to the same project. The complaint alleges, among other things, bribery and other fraudulent conduct, tortious interference with the fiduciary duty owed by Ferdinand E. Marcos to the Republic and the people of the Philippines, common law fraud, and violations of various New Jersey and federal statues, including the Federal Racketeer Influenced and Corrupt Organization Act (RICO) statue. This action seeks recision of the Westinghouse and Burns and Roe contracts and restitution of all money and other property paid to Westinghouse and Burns and Roe or, alternatively, reformation of the NPC-Westinghouse contract. Plaintiffs requested compensatory, punitive and treble damages, costs and expenses of the lawsuit, and such other relief as the USDC deems just and proper. Also on December 1, 1988, Westinghouse filed a request for arbitration with the International Chamber of Commerce Court of Arbitration (ICC) pursuant to the NPC-Westinghouse contract, setting forth certain claims Westinghouse has against NPC and the Republic and asking for arbitration of the anticipated claims of the Republic and NPC related to the Philippines nuclear power plant. The Republic and NPC challenged the jurisdiction of the ICC, arguing that the contract between the parties, including its arbitration provision, was invalid due to alleged bribery in the procurement of the contract. In December 1991, the ICC arbitration panel issued its award finding that the Republic and NPC had failed to carry their burden of proving the alleged bribery by the Corporation. The panel thereby concluded that the arbitration clause and contract were valid and that the panel has jurisdiction over the remaining disputes between NPC and the Corporation. In January 1992, NPC filed an action for annulment of the award by the ICC arbitration panel in the Swiss Federal Supreme Court. In September 1993, the Swiss Federal Supreme Court issued an order dismissing NPC's annulment action and assessing costs against NPC. Arbitration before the ICC was concluded in October 1994 and the parties await a decision. With respect to the suit filed in the USDC, Westinghouse filed a motion requesting that the action filed there be stayed in its entirety pending arbitration of the Republic's claims. In 1989, the Court granted a motion brought by the Corporation and ordered 14 of the 15 counts in the lawsuit stayed pending arbitration. The Court retained jurisdiction over the remaining count involving an alleged intentional interference with a fiduciary relationship. Trial commenced with respect to this one count in March 1993. In May 1993, a jury verdict was rendered in favor of the Corporation with respect to all claims relating to the alleged intentional interference with a fiduciary relationship. On February 27, 1995, the USDC granted the Republic's motion for leave to appeal the verdict and on March 24, 1995, the verdict was appealed. (b) The Corporation has been defending consolidated class and derivative actions and an individual lawsuit brought by shareholders of the Corporation against the Corporation, Westinghouse Financial Services, Inc. (WFSI) and Westinghouse Credit Corporation (WCC), previously subsidiaries of the Corporation, and/or certain present and former directors and officers of the Corporation, as well as other unrelated parties. Together, these actions allege various federal securities law and common law violations arising out of alleged misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation, WFSI and WCC in connection with a $975 million charge to earnings announced on February 27, 1991, a public offering of Westinghouse common stock in May 1991, a $1,680 million charge to earnings announced on October 7, 1991, and alleged misrepresentations regarding the adequacy of internal controls at the Corporation, WFSI and WCC. The consolidated class and derivative actions are -26- 27 pending in the USDC for the Western District of Pennsylvania. In July 1993, the court dismissed in its entirety the derivative claim and dismissed most of the class action claims, with leave to replead certain claims in both actions. Both actions were subsequently replead. On September 27, 1994, the court denied plaintiffs' motion for reinstatement of certain of the dismissed class action claims against the Corporation. On January 20, 1995, the court again dismissed the derivative complaint in its entirety with prejudice. On February 8, 1995, plaintiff appealed the dismissal of these claims. Also on January 20, 1995, the court dismissed the class action claims, but granted plaintiffs the right to replead certain of the class action claims. Plaintiffs did not replead the claims and on February 28, 1995, the court dismissed the class action claims in their entirety. The plaintiffs appealed the dismissal on March 7, 1995 to the United States Court of Appeals for the Third Circuit. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the foregoing matters and although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above, and management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS (a) The Restated Articles of the Corporation are incorporated herein by reference to Exhibit 3(b) to Form 10-Q for the quarter ended March 31, 1994. (b) The Bylaws of the Corporation, as amended January 25, 1995, are incorporated herein by reference to Exhibit 3(c) to Form 10-K for the year ended December 31, 1994. (4) RIGHTS OF SECURITY HOLDERS Except as set forth below, there are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (a) Form of Senior Indenture, dated as of November 1, 1990, between the Corporation and Citibank, N.A. is incorporated herein by reference to Exhibit 4.1 to the Corporation's Registration Statement No. 33-41417. (10) MATERIAL CONTRACTS (a*) The Annual Performance Plan, is incorporated herein by reference to Exhibit 10(a) to Form 10-K/A for the year ended December 31, 1992. (b*) The 1993 Long-Term Incentive Plan, as amended. (c*) The 1984 Long-Term Incentive Plan, as amended, is incorporated herein -27- 28 by reference to Exhibit 10(b) to Form 10-Q for the quarter ended June 30, 1993. (d*) The Westinghouse Executive Pension Plan, as amended, is incorporated herein by reference to Exhibit 10(d) to Form 10-K for the year ended December 31, 1994. (e*) The Deferred Compensation and Stock Plan for Directors, as amended. (f*) The Advisory Director's Plan is incorporated herein by reference to Exhibit 10(k) to Form 10-K for the year ended December 31, 1989. (g) The Director's Charitable Giving Program is incorporated herein by reference to Exhibit 10(g) to Form 10-K for the year ended December 31, 1994. (h*) The 1991 Long-Term Incentive Plan, as amended, is incorporated herein by reference to Exhibit 10(h) to Form 10-K for the year ended December 31, 1994. (i*) Employment Agreement between the Corporation and Michael H. Jordan is hereby incorporated by reference to Exhibit 10 to the Corporation's Form 8-K, dated September 1, 1993. (j*) Employment Agreement between the Corporation and Fredric G. Reynolds is incorporated herein by reference to Exhibit 10(j) to Form 10-K for the year ended December 31, 1994. (k) 364-Day Competitive Advance and Revolving Credit Facility Agreement dated as of August 5, 1994 among the Corporation as borrower, the Co-Agents and Lenders named therein, and Chemical Bank, as Administrative Agent is incorporated herein by reference to Exhibit 10(r) to Form 10-Q for the quarter ended June 30, 1994. (l) Three-Year Competitive Advance and Revolving Credit Facility Agreement dated as of August 5, 1994 among the Corporation as Borrower, the Co-Agents and Lenders named therein, and Chemical Bank, as Administrative Agent is incorporated herein by reference to Exhibit 10(s) to Form 10-Q for the quarter ended June 30, 1994. * Identifies management contract or compensatory plan or arrangement. (11) Computation of Per Share Earnings (12)(a) Computation of Ratio of Earnings to Fixed Charges (12)(b) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends (27) Financial Data Schedule (b) REPORTS ON FORM 8-K: A Current Report on Form 8-K (Items 5 and 7) dated March 2, 1995 to report the Corporation's contract awards and anticipated 1995 financial performance. -28- 29 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of April, 1995. WESTINGHOUSE ELECTRIC CORPORATION Fredric G. Reynolds --------------------------- Executive Vice President and Chief Financial Officer -29- EX-10.B 2 WESTINGHOUSE 10-Q 1 Exhibit 10(b) 1993 LONG-TERM INCENTIVE PLAN ARTICLE I GENERAL 1.1 Purpose ------- The purposes of the 1993 Long-Term Incentive Plan ("Plan") for key management personnel of Westinghouse Electric Corporation ("Corporation") and its Subsidiaries (the Corporation and its Subsidiaries severally and collectively referred to in the Plan as the "Company") are to foster and promote the long-term financial success of the Company and materially increase stockholder value by (i) attracting and retaining key management personnel of outstanding ability, (ii) strengthening the Company's capability to develop, maintain and direct a competent management team, (iii) motivating key management personnel, by means of performance-related incentives, to achieve long-range performance goals, (iv) providing incentive compensation opportunities competitive with those of other major companies and (v) enabling key management personnel to participate in the long-term growth and financial success of the Company. 1.2 Administration -------------- (a) The Plan shall be administered by a committee of the Board of Directors of the Corporation ("Committee") which shall consist of three or more members. Each member shall be a "disinterested person," as that term is defined by Rule 16b-3 promulgated under - 1 - 2 the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director," as that term is defined by Section 162(m) of the Internal Revenue Code of 1986, as amended. The members shall be appointed by the Board of Directors, and any vacancy on the Committee shall be filled by the Board of Directors. The Committee shall keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present shall be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the members of the Committee. The Committee shall make appropriate reports to the Board of Directors concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee shall have the sole and complete authority: (i) to select in accordance with Section 1.3 persons who shall participate in the Plan ("Participant" or "Participants"), (ii) to make Awards and payments in such forms and amounts as it shall determine, (iii) to impose such limitations, restrictions and conditions upon such Awards as it shall deem appropriate, (iv) to interpret the Plan and the terms of any document relating to the Plan and to adopt, amend and rescind administrative guidelines and other rules and - 2 - 3 regulations relating to the Plan, (v) to amend or cancel an existing Award in whole or in part, except that the Committee may not, unless otherwise provided in the Plan, or unless the Participant affected thereby consents, take any action under this clause that would adversely affect the rights of such Participant with respect to the Award and except that the Committee may not take any action to amend any outstanding Option under the Plan in order to decrease the Option Price under such Option or to cancel and replace any such Option with an Option with a lower Option Price unless such action is approved by the common stockholders of the Corporation and (vi) to make all other determinations and to take all other actions necessary or advisable for the interpretation, implementation and administration of the Plan. The Committee's determinations on matters within its authority shall be conclusive and binding upon the company and all other persons. (c) The Committee shall act with respect to the Plan on behalf of the Corporation and on behalf of any subsidiary issuing stock under the Plan, subject to appropriate action by the board of directors of any such Subsidiary. All expenses associated with the Plan shall be borne by the Corporation subject to such allocation to its Subsidiaries and operating units as it deems appropriate. - 3 - 4 1.3 Selection for Participation --------------------------- Participants selected by the Committee shall be Eligible Persons (as defined below) who occupy key management positions and have the capacity to contribute to the success of the Company. "Eligible Persons" are persons who are regular, full-time salaried employees of the Company exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act of 1938, as amended ("Employee" or "Employees"). In addition, Participants selected by the Committee for Awards of options, SARs or Limited Rights under Article II or III of the Plan shall be elected officers of the Corporation or business unit general managers or shall hold comparable-level positions. In making this selection and in determining the form and amount of Awards, the Committee may give consideration to the functions and responsibilities of the Eligible Person, his or her past, present and potential contributions to the Company and other factors deemed relevant by the Committee. 1.4 Types of Awards under Plan -------------------------- Awards ("Awards") under the Plan may be in the form of any one or more of the following: (i) Incentive Stock Options ("ISOs") and Non-statutory Stock options ("NSOs") (Incentive Stock Options and Non-statutory Stock Options severally and collectively referred to in the Plan as "Options"), as described in Article II, (ii) Stock Appreciation Rights ("SARs") and Limited Stock Appreciation Rights ("Limited Rights"), as - 4 - 5 described in Article III, (iii) Performance Awards ("Performance Awards") as described in Article IV, and (iv) Restricted Stock ("Restricted Stock") as described in Article V. 1.5 Shares Subject to the Plan -------------------------- Shares of stock issued under the Plan may be in whole or in part authorized and unissued or treasury shares of the Corporation's common stock, par value $1.00 ("Common Stock"), or "Formula Value Stock" as defined in Section 8.12(d) (Common Stock and Formula Value Stock severally and collectively referred to in the Plan as "Stock"). The maximum number of shares of Stock which may be issued for all purposes under the Plan shall be 4,000,000 increased on January 1 of each calendar year from and including 1994 to and including 2003 by a number of shares equal to one percent (1%) of the number of shares of Stock outstanding on December 31 of the preceding year. The maximum number of such shares which may be issued pursuant to the exercise of ISOs shall be 1,000,000 increased on January 1 of each calendar year from and including 1994 to and including 2003 by 1,000,000 shares. The maximum number of shares subject to options to purchase Stock, SARs and Limited Rights under the Plan awarded to any one Participant may not exceed one percent (1%) of the number of shares of Stock outstanding at the time of option, SAR or Limited Rights grant. -5- 6 Except as otherwise provided below, any shares of Stock subject to an Option or other Award which is canceled or terminates without having been exercised shall again be available for Awards under the Plan. Shares subject to an option canceled upon the exercise of an SAR shall not again be available for Awards under the Plan except to the extent the SAR is settled in cash. To the extent that an Award is settled in cash, shares of Stock subject to that Award shall again be available for Awards. Shares of Stock tendered by a Participant or withheld by the Company to pay the exercise price of an Option or to satisfy the tax withholding obligations of the exercise or vesting of an Award shall be available again for Awards under the Plan, but only to persons who are not required to file reports ("nonreporting Persons") pursuant to Section 16(a) under the Exchange Act. Shares of Restricted Stock forfeited to the Company in accordance with the Plan and the terms of the particular Award shall be available again for Awards under the Plan unless the Participant has received the benefits of ownership (within the applicable interpretation under Rule 16b-3 under the Exchange Act), in which case such shares may only be available for Awards to nonreporting Persons. No fractional shares shall be issued, and the Committee shall determine the manner in which fractional share value shall be treated. - 6 - 7 ARTICLE II STOCK OPTIONS 2.1 Award of Stock Options ---------------------- The Committee may, from time to time, subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award to any Participant ISOs and NSOs to purchase Stock. The Committee may provide with respect to any option to purchase Stock that, if the Participant, while an Eligible Person, exercises the option in whole or in part using already-owned Stock, the Participant will, subject to this Section 2.1 and such other terms and conditions as may be imposed by the Committee, receive an additional option ("Reload Option"). The Reload Option will be to purchase, at Fair Market Value as of the date the original option was exercised, a number of shares of Stock equal to the number of whole shares used by the Participant to exercise the original option. The Reload Option will be exercisable only between the date of its grant and the date of expiration of the original option. A Reload Option shall be subject to such additional terms and conditions as the Committee shall approve, which terms may provide that the Committee may cancel the Participant's right to receive the Reload Option and that the Reload Option will be - 7 - 8 granted only if the Committee has not canceled such right prior to the exercise of the original option. Such terms may also provide that, upon the exercise by a Participant of a Reload Option while an Eligible Person, an additional Reload Option will be granted with respect to the number of whole shares used to exercise the first Reload Option. 2.2 Stock Option Agreements ----------------------- The award of an option shall be evidenced by a signed written agreement ("Stock Option Agreement") containing such terms and conditions as the Committee may from time to time determine. 2.3 Option Price ------------ The purchase price of Stock under each Option ("Option Price") shall be not less than the Fair Market Value of such Stock on the date the Option is awarded. 2.4 Exercise and Term of Options ---------------------------- (a) Except as otherwise provided in the Plan, Options shall become exercisable at such time or times as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. (b) The Committee shall establish procedures governing the - 8 - 9 exercise of options and shall require that written notice of exercise be given. Stock purchased on exercise of an option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2) if so provided by the Committee (not later than the time of grant, in the case of an ISO) (i) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the last business day preceding the date of exercise equal to the exercise price, (ii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iii) by any combination of the permissible forms of payment. 2.5 Termination of Eligibility -------------------------- In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee or as a result of his or her death, retirement or disability, each of his or her outstanding Options shall be exercisable by the Participant (or his or her legal representative or designated beneficiary), to the extent that such Option was then exercisable, at any time prior to an expiration date established by the Committee at the time of award, but in no event after such expiration date. If the Participant ceases to be an Eligible Person for any other - 9 - 10 reason, all of the Participant's then outstanding Options shall terminate immediately. ARTICLE III STOCK APPRECIATION RIGHTS AND LIMITED RIGHTS 3.1 Award of Stock Appreciation Right --------------------------------- (a) An SAR is an Award entitling the recipient on exercise to receive an amount, in cash or Stock or a combination thereof (such form to be determined by the Committee), determined in whole or in part by reference to appreciation in Stock value. (b) In general, an SAR entitles the Participant to receive, with respect to each share of Stock as to which the SAR is exercised, the excess of the share's Fair Market Value on the date of exercise over its Fair Market Value on the date the SAR was granted. (c) SARs may be granted in tandem with options granted under the Plan ("Tandem SARS") or independently of Options ("Independent SARs"). An SAR granted in tandem with an NSO may be granted either at or after the time the option is granted. An SAR granted in tandem with an ISO may be granted only at the time the option is granted. (d) SARs awarded under the Plan shall be evidenced by either a - 10 - 11 Stock Option Agreement (when SARs are granted in tandem with an Option) or a separate agreement between the Company and the Participant. (e) Except as otherwise provided herein, a Tandem SAR shall be exercisable only at the same time and to the same extent and subject to the same conditions as the option related thereto is exercisable, and the Committee may prescribe additional conditions and limitations on the exercise of the SAR. The exercise of a Tandem SAR shall cancel the related Option. Tandem SARs may be exercised only when the Fair Market Value of Stock to which it relates exceeds the Option Price. (f) Except as otherwise provided herein, an Independent SAR will become exercisable at such time or times, and on such conditions, as the Committee may specify, and the Committee may at any time accelerate the time at which all or any part of the SAR may be exercised. The Committee may provide, under such terms and conditions as it may deem appropriate, for the automatic grant of additional SARs upon the full or partial exercise of an Independent SAR. Any exercise of an Independent SAR must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Committee. - 11 - 12 (g) Except as otherwise provided herein, all SARs shall automatically be exercised on the last trading day prior to the expiration date established by the Committee at the time of the award for the SAR, or, in the case of a Tandem SAR, for the related Option, so long as exercise on such date will result in a payment to the Participant. (h) Unless otherwise provided by the Committee, no SAR shall become exercisable or shall be automatically exercised for six months following the date on which it was granted or the effective date of the Plan, whichever is later. (i) At the time of award of an SAR, the Committee may limit the amount of the payment that may be made to a Participant upon the exercise of the SAR. The Committee may further determine that, if the amount to be received by a Participant in any year is limited pursuant to this provision, payment of all or a portion of the amount that is unpaid as a result of the limitation may be made to the Participant at a subsequent time. No such limitation shall require a Participant to return to the Company any amount theretofore received by him or her upon the exercise of an SAR. (j) Payment of the amount to which a Participant is entitled upon the exercise of an SAR shall be made in cash, Stock, or - 12 - 13 partly in cash and partly in Stock, as the Committee shall determine. To the extent that payment is made in Stock, the shares shall be valued at their Fair Market Value on the date of exercise of the SAR. (k) Each SAR shall expire on a date determined by the Committee or earlier upon the occurrence of the first of the following: (i) in the case of a Tandem SAR, termination of the related option, (ii) expiration of a period of six months after the Participant's ceasing to be an Eligible Person as a result of termination of service to the Company with the consent of the Committee or as a result of his or her death, retirement or disability, or (iii) the Participant ceasing to be an Eligible Person for any other reason. 3.2 Limited Rights -------------- (a) The Committee may award Limited Rights pursuant to the provisions of this Section 3.2 to the holder of an Option to purchase Common Stock granted under the Plan (a "Related Option") with respect to all or a portion of the shares subject to the Related Option. A Limited Right may be exercised only during the period beginning on the first day following a Change in Control, as defined in Section 7.2 of the Plan, and ending on the thirtieth day following such date. Each Limited Right shall be exercisable only to the same extent that the Related Option is - 13 - 14 exercisable, and in no event after the termination of the Related Option. In no event shall a Limited Right be exercised during the first six months after the date of grant of the Limited Right or the effective date of the Plan, whichever is later. Limited Rights shall be exercisable only when the Fair Market Value (determined as of the date of exercise of the Limited Rights) of each share of Common Stock with respect to which the Limited Rights are to be exercised shall exceed the Option Price per share of Common Stock subject to the Related option. (b) Upon the exercise of Limited Rights, the Related Option shall be considered to have been exercised to the extent of the number of shares of Common Stock with respect to which such Limited Rights are exercised. Upon the exercise or termination of the Related Option, the Limited Rights with respect to such Related Option shall be considered to have been exercised or terminated to the extent of the number of shares of Common Stock with respect to which the Related Option was so exercised or terminated. (c) The effective date of the grant of a Limited Right shall be the date on which the Committee approves the grant of such Limited Right. Each grantee of a Limited Right shall be notified promptly of the grant of the Limited Right in such manner as the Committee shall prescribe. - 14 - 15 (d) Upon the exercise of Limited Rights, the holder thereof shall receive in cash an amount equal to the product computed by multiplying (i) the excess of (a) the higher of (x) the Minimum Price Per Share (as hereinafter defined), or (y) the highest reported closing sales price of a share of Common Stock on the New York Stock Exchange at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised, over (b) the Option Price per share of Common Stock subject to the Related Option, by (ii) the number of shares of Common Stock with respect to which such Limited Rights are being exercised. (e) For purposes of this Section 3.2, the term "Minimum Price Per Share" shall mean the highest gross price (before brokerage commissions and soliciting dealers' fees) paid or to be paid for a share of Common Stock (whether by way of exchange, conversion, distribution upon liquidation or otherwise) in any Change in Control which is in effect at any time during the period beginning on the sixtieth day prior to the date on which such Limited Rights are exercised and ending on the date on which such Limited Rights are exercised. For purposes of this definition, if the consideration paid or to be paid in any such Change in Control shall consist, in whole or in part, of consideration other than cash, the Board shall take such action, as in its judgement it deems appropriate, to establish the cash value of such consideration. - 15 - 16 ARTICLE IV PERFORMANCE AWARDS 4.1 Nature of Performance Awards ---------------------------- A Performance Award provides for the recipient to receive an amount in cash or Stock or a combination thereof (such form to be determined by the Committee) following the attainment of Performance Goals. Performance Goals may be related to personal performance, corporate performance (including corporate stock performance), departmental performance or any other category of performance deemed by the Committee to be important to the success of the Company. The Committee shall determine the Performance Goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award. Regardless of the degree to which Performance Goals are attained, a Performance Award shall be paid only when, if and to the extent that the Committee determines to make such payment. 4.2 Other Awards Subject to Performance Condition --------------------------------------------- The Committee may, at the time any Award described in this Plan is granted, impose the condition (in addition to any conditions specified or authorized in the Plan) that Performance Goals be met prior to the Participant's realization of any payment or benefit under the Award. - 16 - 17 ARTICLE V RESTRICTED STOCK 5.1 Award of Restricted Stock The Committee may award to any Participant shares of Stock subject to this Article V and such other terms and conditions as the Committee may prescribe, such Stock referred to herein as "Restricted Stock." Each certificate for Restricted Stock shall be registered in the name of the Participant and deposited by him or her, together with a stock power endorsed in blank, with the Corporation. 5.2 Restricted Stock Agreement -------------------------- Shares of Restricted Stock awarded under the Plan shall be evidenced by a signed written agreement containing such terms and conditions as the Committee may determine. 5.3 Restriction Period ------------------ At the time of award, there shall be established for each Participant a "Restriction Period" of such length as shall be determined by the Committee. The Restriction Period may be waived by the Committee. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, - 17 - 18 except as hereinafter provided, during the Restriction Period. Subject to such restriction on transfer, the Participant as owner of such shares of Restricted Stock shall have the rights of the holder of such Restricted Stock, except that the Committee may provide at the time of the Award that any dividends or other distributions paid on such Stock during the Restriction Period shall be accumulated and held by the Company and shall be subject to forfeiture under Section 5.4. Upon the expiration or waiver by the Committee of the Restriction Period, the Corporation shall redeliver to the Participant (or his or her legal representative or designated beneficiary) the shares deposited pursuant to Section 5.1. 5.4 Termination of Eligibility -------------------------- In the event the Participant is no longer an Eligible Person and ceased to be such as a result of termination of service to the Company with the consent of the Committee, or as a result of his or her death, retirement or disability, the restrictions imposed under this Article V shall lapse with respect to such number of shares theretofore awarded to him or her as shall be determined by the Committee. All other shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividends or other distributions thereon that have been accumulated and held by the Company, shall be forfeited, and the Corporation shall have the right to complete the blank stock power. - 18 - 19 In the event the Participant ceases to be an Eligible Person for any other reason, all shares of Restricted Stock theretofore awarded to him or her which are still subject to restrictions, along with any dividend or other distributions thereon that have been accumulated and held by the Company, shall be forfeited, and the Corporation shall have the right to complete the blank stock power. ARTICLE VI DEFERRAL OF PAYMENTS 6.1 Deferral of Amounts ------------------- If the Committee makes a determination to designate Awards or, from time to time, groups or types of Awards, eligible for deferral hereunder, a Participant may, subject to such terms and conditions and within such limits as the Committee may from time to time establish, elect to defer the receipt of amounts due to him or her under the Plan. Amounts so deferred are referred to herein as "Deferred Amounts." The Committee may also permit amounts now or hereafter deferred or available for deferral under any present or future incentive compensation program or deferral arrangement of the Company to be deemed Deferred Amounts and to become subject to the provisions of this Article. Awards which are so deferred will be deemed to have been awarded in cash and the cash deferred as Deferred Amounts. - 19 - 20 The period between the date on which the Participant's Deferred Amount would have been payable absent deferral and the final payment of such Deferred Amount shall be referred to herein as the "Deferral Period." 6.2 Investment During Deferral Period --------------------------------- Unless otherwise determined by the Committee, and subject to such changes as the Committee may determine, the Deferred Amount will be treated during the Deferral Period as if it were invested in putative convertible debentures with a fixed interest rate, compounded annually, for the entire Deferral Period. For purposes of determining the value of the Deferred Amount at the time of payment, each putative debenture will be deemed to be convertible into Common Stock at a conversion rate computed by reference to the Fair Market Value of the Common Stock on the last trading day prior to the regular January meeting of the Board of Directors on or preceding the date of deferral. Payment of Deferred Amounts may be made in cash, Stock, or partly in cash and partly in Stock, in the Committee's sole discretion. 6.3 Participant Reports ------------------- Annually, each Participant who has a Deferred Amount will receive a report setting forth all of his or her then Deferred Amounts and the yield thereon to date. - 20 - 21 6.4 Payment of Deferred Amounts --------------------------- Payment of Deferred Amounts will be made at such time or times, and may be in cash, Stock, or partly in cash and partly in Stock, as the Committee shall from time to time determine. The limitations respecting the issuance of Stock or other limitations on aggregate awards payable contained in the Annual Performance Plan of the Corporation, Article XVI of the by-laws of the Corporation, the 1974 Stock Option Plan, the 1979 Stock Option and Long-Term Incentive Plan, the 1984 Long-Term Incentive Plan, the Plan and in any plan hereafter adopted by the stockholders shall be limitations applicable to the payment of any Deferred Amounts under this Article VI. 6.5 Alternative Valuation Election ------------------------------ Unless otherwise determined by the Committee, a Participant may, at a time established by the committee, but prior to such Participant's ceasing to be an Eligible Person, elect to establish the ultimate payable value of each Deferred Amount by reference to the Fair Market Value of the Common Stock as of the day on which an alternate valuation election is received by the corporation in accordance with procedures established by the Committee. Notwithstanding the establishment of the ultimate payable value resulting from the alternate valuation election by the Participant, the yield will continue as though no such election - 21 - 22 had been made and will continue to be subject to the limitations set forth in Section 6.2, and Deferred Amounts and the yield thereon will be paid as otherwise provided in this Article. ARTICLE VII CHANGES IN CONTROL 7.1 Effect of Change in Control --------------------------- Notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control, as defined in Section 7.2: (i) all Options and, subject to the exercise provisions of Section 3.2(a) of the Plan, Limited Rights, but not SARS, outstanding and unexercised on the date of the Change in Control shall become immediately exercisable; (ii) all Performance Awards shall be deemed to have been earned on such basis as the Committee may prescribe and then paid on such basis, at such time and in such form as the Committee may prescribe, or deferred in accordance with the elections of Participants; (iii) all Restricted Stock shall be deemed to be earned and the Restriction Period shall be deemed expired on such terms and conditions as the Committee may determine; and (iv) all amounts deferred under this Plan shall be paid to a trustee or otherwise on such terms as the Committee may prescribe or permit. 7.2 Definition of Change in Control ------------------------------- The term "Change in Control" means the occurrence of one or - 22 - 23 more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Corporation, or (b) the stockholders of the Corporation shall approve any plan or proposal for the liquidation or dissolution of the Corporation, or (c) (i) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall purchase any Common Stock of the Corporation (or securities convertible into Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Common Stock (or securities convertible into Common Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Corporation or any benefit plan sponsored by the Corporation or any of its subsidiaries) shall be the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange - 23 - 24 Act), directly or indirectly, of securities of the Corporation representing twenty percent or more of the combined voting power of the Corporation's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control, or (d) at any time during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. ARTICLE VIII GENERAL PROVISIONS 8.1 Non-Transferability ------------------- No Option, SAR, Performance Award or share of Restricted Stock or Deferred Amount under the Plan shall be transferable by the Participant other than by will or the applicable laws of descent and distribution. All Awards and Deferred Amounts shall - 24 - 25 be exercisable or received during the Participant's lifetime only by such Participant or his or her legal representative. Any transfer contrary to this Section 8.1 will nullify the option, SAR, Performance Award or share of Restricted Stock, and any attempted transfer of a Deferred Amount contrary to this Section 8.1 will be void and of no effect. 8.2 Beneficiaries ------------- The Committee may establish procedures not inconsistent with Section 8.1 under which a Participant may designate a beneficiary or beneficiaries to receive amounts due under an Award or with respect to Deferred Amounts in the event of the Participant's death. 8.3 Adjustments Upon Changes in Stock --------------------------------- If there shall be any change in the Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, split up, dividend in kind or other change in the corporate structure or distribution to the stockholders, appropriate adjustments may be made by the Board of Directors of the Company (or if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares and the price per share subject to outstanding Options or which may be issued under outstanding Performance Awards or Awards of - 25 - 26 Restricted Stock. Appropriate adjustments may also be made by the Board of Directors or the Committee in the terms of any Awards under the Plan to reflect such changes and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance targets and changes in the length of Performance Periods. 8.4 Conditions of Awards -------------------- (a) The rights of a Participant with respect to any Award received under this Plan shall be subject to the conditions that, until the Participant has fully received all payments, transfers and other benefits under the Award, he or she shall (i) not engage, either directly or indirectly, in any manner or capacity as advisor, principal, agent, partner, officer, director, employee, member of any association or otherwise, in any business or activity which is at the time competitive with any business or activity conducted by the Company and (ii) be available, unless he or she shall have died, at reasonable times for consultations at the request of the Company's management with respect to phases of the business with which he or she is or was actively connected during his or her employment, but such consultations shall not (except in the case of a Participant whose active service was outside the United States) be required to be performed at any place or places outside of the United States of America or during usual vacation periods or periods of illness or other incapacity. In the event that either of the above conditions is not - 26 - 27 fulfilled, the Participant shall forfeit all rights to any unexercised option or SAR, or any Performance Award or Stock held which has not yet been determined by the Committee to be payable or unrestricted (and any unpaid amounts equivalent to dividends or other distributions or amounts equivalent to interest relating thereto) as of the date of the breach of condition. Any determination by the Board of Directors of the Corporation, which shall act upon the recommendation of the Chief Executive Officer, that the Participant is, or has, engaged in a competitive business or activity as aforesaid or has not been available for consultations as aforesaid shall be conclusive. (b) This Section 8.4 shall not apply to Limited Rights. 8.5 Use of Proceeds --------------- All cash proceeds from the exercise of options shall constitute general funds of the Company. 8.6 Tax Withholding --------------- The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an Award pursuant to which Stock may be delivered, the Committee will have the right to require that the - 27 - 28 Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Participant or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. In the alternative, the Committee may, at the time of grant of any such Award, require that the Company withhold from any shares to be delivered Stock with a value calculated to satisfy applicable tax withholding requirements. If at the time an ISO is exercised the Committee determines that the Company could be liable for withholding requirements with respect to a disposition of the Stock received upon exercise, the Committee may require as a condition of exercise that the person exercising the ISO agree (i) to inform the Company promptly of any disposition of Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding requirements and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. - 28 - 29 8.7 Non-Uniform Determinations -------------------------- The Committee's determinations under the Plan, including without limitation, (i) the determination of the Participants to receive Awards, (ii) the form, amount, timing and payment of such Awards, (iii) the terms and provisions of such Awards and (iv) the agreements evidencing the same, need not be uniform and may be made by it selectively among Participants who receive, or who are eligible to receive, Awards under the Plan, whether or not such Participants are similarly situated. 8.8 Leaves of Absence; Transfers ---------------------------- The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect to any leave of absence from the Company granted to a Participant. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall be treated as if the Participant ceased to be an employee and (ii) the impact, if any, of any such leave of absence on Awards under the Plan. In the event a Participant transfers within the Company, such Participant shall not be deemed to have ceased to be an employee for purposes of the Plan. - 29 - 30 8.9 General Restriction ------------------- (a) Each Award under the Plan shall be subject to the condition that, if at any time the Committee shall determine that (i) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law, (ii) the consent or approval of any government or regulatory body or (iii) an agreement by the Participant with respect thereto, is necessary or desirable, then such Award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free from any conditions not acceptable to the Committee. (b) Shares of Common Stock for use under the provisions of this Plan shall not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board of Directors of the Corporation shall determine, and a registration statement under the Securities Act of 1933 with respect to such shares shall have become, and be, effective. 8.10 Effective Date -------------- The Plan shall be effective on the date on which it is approved by the common stockholders of the Corporation. Grants of Awards under the Plan may be made prior to that date (but not before the date on which the Plan is adopted by the Board of Directors), subject to such approval. - 30 - 31 No Award may be granted under the Plan after May 25, 2003, but Awards previously made may extend beyond that date and Reload Options and additional Reload Options provided for with respect to original options outstanding prior to that date may continue unless the Committee otherwise provides and subject to such additional terms and conditions as the Committee may provide except that all Reload Options issued after that date shall be NSOs, and the provisions of Article VI of the Plan shall survive and remain effective as to all present and future Deferred Amounts until such later date as the Committee or the Board of Directors shall determine. The adoption of the Plan shall not preclude the adoption by appropriate means of any other stock option or other incentive plan for employees. 8.11 Amendment, Suspension and Termination of Plan --------------------------------------------- The Board of Directors may at any time or times amend the Plan for any purpose which may at the time be permitted by law, or may at any time suspend or terminate the Plan as to any further grants of Awards, provided that (except to the extent expressly required or permitted by the Plan) no such amendment shall, without the approval of the stockholders of the Corporation, effectuate a change for which stockholder approval - 31 - 32 is required in order for the Plan to continue to qualify under Rule 16b-3 promulgated under Section 16 of the Exchange Act. 8.12 Certain Definitions ------------------- (a) Unless otherwise determined by the Committee, the terms "retirement" and "disability" as used under the Plan shall be construed by reference to the provisions of the Westinghouse Pension Plan or other similar plan or program of the Company applicable to a Participant. (b) The term "Fair Market Value" as it relates to Common Stock means the mean of the high and low prices of the Common Stock as reported by the Composite Tape of the New York Stock Exchange (or such successor reporting system as shall be selected by the Committee) on the relevant date or, if no sale of the Common Stock shall have been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. The term "Fair Market Value" as it relates to Formula Value Stock shall mean the value determined by the Committee. (c) The term "Subsidiary" shall mean, unless the context otherwise requires, any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the corporation if each of the corporations other than the last corporation in such chain owns stock possessing at least 50% of - 32 - 33 the voting power in one of the other corporations in such chain. (d) "Formula Value Stock" means shares of a class or classes of stock the value of which is derived from a formula established by the Committee which reflects such financial measures as the Committee shall determine. Such shares shall have such other characteristics as shall be determined at time of their authorization. - 33 - EX-10.E 3 WESTINGHOUSE 10-Q 1 Exhibit 10(e) DEFERRED COMPENSATION AND STOCK PLAN FOR DIRECTORS (AS AMENDED AS OF APRIL 26, 1995) SECTION 1. INTRODUCTION 1.1 Establishment. Westinghouse Electric Corporation, a Pennsylvania corporation (the "Company"), has established the Deferred Compensation and Stock Plan for Directors as amended as of April 26, 1995 (the "Plan") for those directors of the Company who are neither officers nor employees of the Company. The Plan provides (i) for the grant of awards in the form of Common Stock Equivalents to Directors prior to April 26, 1995 and in the form of Stock Options to Directors beginning April 26, 1995, and (ii) the opportunity for the Directors to defer receipt of all or a part of their cash compensation through a tax effective investment mechanism. Unless otherwise provided for herein, the term Company includes Westinghouse Electric Corporation and its subsidiaries. 1.2 Purposes. The purposes of the Plan are to encourage the Directors to own shares of the Company's stock and thereby to align their interests more closely with the interests of the other shareholders of the Company, to encourage the highest level of Director performance by providing the Directors with a direct 1 2 interest in the Company's attainment of its financial goals, and to provide a financial incentive that will help attract and retain the most qualified Directors. 1.3 Effective Date of Amendment. This Plan shall be effective on the date on which the amendment to the Deferred Stock and Compensation Plan for Directors is approved by the common shareholders of the Corporation. In the event that this amendment is not so approved, the Deferred Stock and Compensation Plan for Directors as in effect prior to the amendment shall remain in full force and effect. SECTION 2. DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. (b) "CASH ACCOUNT" means the account established by the Company in respect of each Director pursuant to Section 6.3 hereof and to which will be credited annual retainer and/or fees and other amounts deferred pursuant to the Plan. 2 3 (c) "CAUSE" means any act of (a) fraud or intentional misrepresentation, or (b) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its direct or indirect majority-owned subsidiaries. (d) "CHANGE IN CONTROL" shall have the meaning assigned to it in Section 8.2 hereof. (e) "COMMITTEE" means the Compensation Committee of the Board or any successor established by the Board. (f) "COMMON STOCK EQUIVALENT" means a hypothetical share of Stock which shall have a value on any date equal to the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange on that date. (g) "COMMON STOCK EQUIVALENT AWARD" means an award of Common Stock Equivalents granted to a Director pursuant to Section 5 of the Plan. (h) "DEBENTURE" means a hypothetical debenture of the Company that has a face value of $100, bears interest at a rate equal to the seven year U.S. Treasury Bond rate (beginning January 1, 1995, the ten year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading 3 4 day of the New York Stock Exchange in February) in the year in respect of which deferred amounts are earned, and is convertible into Stock at a conversion rate determined by dividing $100 by the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange on the date the Debenture is credited to the Deferred Debenture Account pursuant to Section 6.3 hereof. (i) "DEFERRED DEBENTURE ACCOUNT" means the account established by the Company in respect of each Director pursuant to Section 6.3 hereof and to which will be credited Debentures and other amounts pursuant to the Plan. (j) "DEFERRED STOCK ACCOUNT" means the account established by the Company in respect of each Director pursuant to Section 5.2 hereof and to which will be credited Common Stock Equivalents pursuant to the Plan. (k) "DIRECTOR" means a member of the Board who is neither an officer nor an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under section 3401 of the Internal Revenue Code, and an officer is an individual elected or appointed by the Board or chosen in such other manner as may be prescribed in the By-laws of the Company to serve as such. 4 5 (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. (m) "FAIR MARKET VALUE" means the mean of the high and low prices of the Stock as reported by the composite tape of the New York Stock Exchange (or such successor reporting system as shall be selected by the Committee) on the relevant date or, if no sale of the Stock shall have been reported for that day, the average of such prices on the next preceding day and the next following day for which there were reported sales. (n) "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time. (o) "STOCK" means the $1.00 par value Common Stock of the Company. (p) "STOCK OPTION" means a non-statutory stock option to purchase shares of Stock for a purchase price per share equal to the "Exercise Price" (as defined in Section 7.2(a) below) in accordance with the provisions of the Plan. 5 6 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3. PLAN ADMINISTRATION (a) The Plan shall be administered by the Committee. The members of the Committee shall be members of the Board appointed by the Board, and any vacancy on the Committee shall be filled by the Board. The Committee shall keep minutes of its meetings and of any action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present shall be the acts of the Committee. Any action that may be taken at a meeting of the Committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the members of the Committee. The Committee shall make appropriate reports to the Board concerning the operations of the Plan. (b) Subject to the limitations of the Plan, the Committee shall have the sole and complete authority: (i) to impose such limitations, restrictions and conditions upon such awards as it shall deem appropriate, (ii) to interpret the Plan 6 7 and to adopt, amend and rescind administrative guidelines and other rules and regulations relating to the Plan and (iii) to make all other determinations and to take all other actions necessary or advisable for the implementation and administration of the Plan. Notwithstanding the foregoing, the Committee shall have no authority, discretion or power to select the Directors who will receive awards pursuant to the Plan, determine the awards to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder or the price thereof or the time at which such awards are to be granted, establish the duration and nature of awards or alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. The Committee's determinations on matters within its authority shall be conclusive and binding upon the Company and all other persons. The Plan shall be interpreted and implemented in a manner so that Directors will not fail, by reason of the Plan or its implementation, to be "disinterested persons" within the meaning of Rule 16b-3 under Section 16 of the Exchange Act, as such rule may be amended. (c) The Committee shall act on behalf of the Company as sponsor of the Plan. All expenses associated with the Plan shall be borne by the Company. 7 8 SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. 500,000 shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan, subject to adjustment and substitution as set forth in this Section 4. This authorization may be increased from time to time by approval of the Board and by the shareholders of the Company if such shareholder approval is required. The Company shall at all times during the term of the Plan retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to a Common Stock Equivalent Award, a Stock Option Award or a Debenture and which are forfeited, any shares of Stock that for any other reason are not issued to a Director, and any shares of Stock tendered by a Director to pay the Exercise Price of a Stock Option shall automatically become available again for use under the Plan if Rule 16b-3 under the Exchange Act and interpretations of the Securities and Exchange Commission or its Staff thereunder permit such share replenishment. 8 9 4.3 Adjustments Upon Changes in Stock. If there shall be any change in the Stock of the Company, through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, spinoff, split up, dividend in kind or other change in the corporate structure or distribution to the shareholders, appropriate adjustments may be made by the Committee (or if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) in the aggregate number and kind of shares subject to the Plan, and the number and kind of shares which may be issued under the Plan. Appropriate adjustments may also be made by the Committee in the terms of any awards or Debentures under the Plan to reflect such changes and to modify any other terms of outstanding awards on an equitable basis as the Committee in its discretion determines. SECTION 5. COMMON STOCK EQUIVALENT AWARDS 5.1 Grants of Common Stock Equivalent Awards. Common Stock Equivalents equal to 400 shares of Stock shall be granted automatically each year, immediately following the Annual Meeting (as described in the Company's By-laws) up to but not including the Annual Meeting held in 1995, to each Director elected at such meeting or then continuing to serve on the Board subsequent to such meeting. In addition, if a person is elected to the Board at any time other than at an Annual Meeting and prior to the Annual Meeting held in 1995, whether by action of the shareholders of the Company or the Board, such person upon 9 10 becoming a Director shall be granted automatically (i) if such election shall occur after the Annual Meeting and prior to July 1, Common Stock Equivalents equal to 300 shares of Stock, (ii) if such election shall occur on or after July 1 and prior to October 1, Common Stock Equivalents equal to 200 shares of Stock, and (iii) if such election shall occur on or after October 1 and prior to January 1 of the following year, Common Stock Equivalents equal to 100 shares of Stock. All Common Stock Equivalents granted pursuant to this Section 5.1 shall be adjusted as provided in Section 4.3. 5.2 Deferred Stock Account. A Deferred Stock Account shall be established for each Director elected prior to the Annual Meeting held in 1995. The Deferred Stock Account shall consist of compensation in the form of Common Stock Equivalents awarded to the Director hereunder by the Company plus Common Stock Equivalents credited to the Deferred Stock Account in respect of dividends and other distributions on the Stock pursuant to Sections 5.3 and 5.4. 5.3 Hypothetical Investment. Compensation awarded hereunder in the form of Common Stock Equivalents is assumed to be a hypothetical investment in shares of Stock, and will be adjusted to reflect stock dividends, splits and reclassifications and as otherwise set forth in Section 4.3. 10 11 5.4 Hypothetical Dividends. Dividends and other distributions on Common Stock Equivalents shall be deemed to have been paid as if such Common Stock Equivalents were actual shares of Stock issued and outstanding on the respective record or distribution dates. Common Stock Equivalents shall be credited to the Deferred Stock Account in respect of cash dividends and any other securities or property issued on the Stock in connection with reclassifications, spinoffs and the like on the basis of the value of the dividend or other asset distributed and the value of the Common Stock Equivalents on the date of the announcement of the dividend or asset distribution, all at the same time and in the same amount as dividends or other distributions are paid or issued on the Stock. Fractional shares shall be credited to a Director's Deferred Stock Account cumulatively but the balance of shares of Common Stock Equivalents in a Director's Deferred Stock Account shall be rounded to the next highest whole share for any payment to such Director pursuant to Section 5.6 hereof. 5.5 Statement of Account. A statement will be sent to each Director as to the balance of his Deferred Stock Account at least once each calendar year. 5.6 Payment of Deferred Stock. Upon termination of services as a Director, the balance of the Director's Deferred 11 12 Stock Account shall be paid to such director in Stock in January of the year following the year of termination of services as a Director on the basis of one share of Stock for each Common Stock Equivalent in such Director's Deferred Stock Account. 5.7 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his Deferred Stock Account is fully paid to him, payment of the balance of the Director's Deferred Stock Account shall then be made to his estate in the time and manner selected by the Committee in the absence of a designation of a beneficiary pursuant to Section 5.8 hereof. The Committee may take into account the application of any duly appointed administrator or executor of a Director's estate and direct that the balance of the Director's Deferred Stock Account be paid to his estate in the manner requested by such application. 5.8 Designation of Beneficiary. A Director may designate a beneficiary in a form approved by the Committee. SECTION 6. DEFERRAL OF COMPENSATION 6.1 Amount of Deferral. A Director may elect to defer receipt of all or a specified portion of the cash annual retainers and/or cash meeting fees otherwise payable to the Director for serving on the Board or any committee thereof. 12 13 6.2 Manner of Electing Deferral. A Director shall make elections permitted hereunder by giving written notice to the Company in a form approved by the Committee. The notice shall include: (i) the percentage of meeting fees and/or annual retainer to be deferred which amount must be stated in whole increments of 5 percent; and (ii) the time as of which deferral is to commence. Notwithstanding the foregoing, the election by a Director to participate in the Company's Deferral Program for Directors, which this Plan amends, shall continue in full force and effect with respect to this Plan without any action required to be taken by such Director and such election shall be deemed to be an election by a Director to defer such Director's cash compensation paid by the Company in respect of annual retainers and meeting fees. 6.3 Accounts. A Cash Account and a Deferred Debenture Account shall be established for each Director electing to defer hereunder. Each Cash Account shall be credited with the amounts deferred on the date such compensation is otherwise payable. Such deferred amounts shall accrue interest from time to time at a rate equal to the seven year U.S. Treasury Bond rate (beginning January 1, 1995, the ten year U.S. Treasury Bond rate) in effect the week prior to the regular January meeting of the Board (or, if no such meeting is held, the week prior to the first trading day of the New York Stock Exchange in February) in the year in 13 14 respect of which such deferred amounts are earned until the last trading day of the New York Stock Exchange prior to the regular January meeting of the Board (or, if no such meeting is held, until the first trading day of February) in the year following the year in respect of which deferred amounts are earned, at which time such deferred amounts, including interest, shall be invested in Debentures and credited to the Deferred Debenture Account. Deferred amounts shall be credited to the Deferred Debenture Account only in $100 amounts. Fractional amounts of $100 shall remain in the Cash Account and continue to accrue interest. 6.4 Time for Electing Deferral. Any election to (i) defer cash annual retainer and/or cash meeting fees, (ii) alter the portion of such amounts deferred, or (iii) revoke an election to defer such amounts, must be made no later than six months prior to the time such compensation is earned by the Director or, if permitted by the rules under Section 16 of the Exchange Act, no later than six months prior to the time such deferred compensation is invested in Debentures and credited to the Deferred Debenture Account pursuant to Section 6.3 hereof. An election to commence a deferral may be made at any time in accordance with the procedures set forth in Section 6.2. Any election so made shall remain in effect beginning six months from the date of election until the Director ceases to be a Director 14 15 or six months from the date the Director elects in writing to change his election. 6.5 Payment of Deferred Amounts. Payments from a Deferred Debenture Account shall be made in five consecutive annual installments beginning in the January following the Director's termination of service. Payments from a Deferred Debenture Account shall consist of accumulated interest on the Debentures (which amount shall only be payable in cash) plus the greater value of (i) the face value of the Debentures or (ii) the shares of Stock into which the Debentures are convertible. In the event the value of the payment is determined by the amount referred to in clause (i), payment shall be made in cash. In the event such value is determined by clause (ii), such payment shall be made in Stock, other than the value of fractional shares which will be paid in cash. 6.6 Payments to a Deceased Director's Estate. In the event of a Director's death before the balance of his Cash Account or Deferred Debenture Account is fully paid to him, payment of the balance of the Cash Account or Deferred Debenture Account shall then be made to his estate in the time and manner selected by the Committee in the absence of a designation of a beneficiary pursuant to Section 6.7 hereof. The Committee may take into account the application of any duly appointed 15 16 administrator or executor of a Director's estate and direct that the balance of the Director's Cash Account or Deferred Debenture Account be paid to his estate in the manner requested by such application. 6.7 Designation of Beneficiary. A Director may designate a beneficiary in a form approved by the Committee. SECTION 7. STOCK OPTION AWARDS 7.1 Grants of Stock Option Awards. (a) Stock Options for 3,000 shares of Stock shall be granted automatically each year, immediately following the Annual Meeting (as described in the Company's By-laws), beginning with the Annual Meeting held in 1995, to each Director elected at such meeting or then continuing to serve on the Board subsequent to such meeting. In addition, if a person is elected to the Board at any time after the Annual Meeting held in 1995 and other than at an Annual Meeting, whether by action of the shareholders of the Company or the Board, such person upon becoming a Director shall be granted automatically (i) if such election shall occur after the Annual Meeting and prior to July 1, Stock Options for 2,250 shares of Stock, (ii) if such election shall occur on or after July 1 and prior to October 1, Stock Options for 1,500 shares of Stock, and (iii) if such election shall occur on or 16 17 after October 1 and prior to January 1 of the following year, Stock Options for 750 shares of Stock. (b) Stock Options for 750 shares of Stock shall be granted automatically each year, immediately following the Annual Meeting and the organization meeting of the Board related to such Annual Meeting, beginning with the Annual Meeting and related organization meeting held in 1995, to each Director elected at such organization meeting to serve as Chair of a standing Committee of the Board. (c) All Stock Options granted pursuant to Section 7.1 shall be adjusted as provided in Section 4.3. 7.2 Terms and Conditions of Stock Options. Stock Options granted under the Plan shall be subject to the following terms and conditions: (a) EXERCISE PRICE. The purchase price at which each Stock Option may be exercised ("Exercise Price") shall be determined as follows: on any date of grant pursuant to Section 7.1 above ("Grant Date"), (i) Stock Options for two thirds of the option shares granted on the Grant Date shall have an Exercise Price per share at 100% of Fair Market Value on the Grant Date and (ii) Stock Options for the remaining one third of the option 17 18 shares granted on the Grant Date shall have an Exercise Price per share at 125% of Fair Market Value on the Grant Date. (b) EXERCISABILITY. Subject to the terms and conditions of the Plan and of the agreement referred to in Section 7.2(i), a Stock Option may be e xercised in whole or in part upon written notice of exercise to the Company commencing on the first day after the Grant Date and until it terminates. During a Director's lifetime, a Stock Option may be exercised only by the Director or the Director's guardian or legal representative. (c) MANDATORY HOLDING OF STOCK. Except as otherwise provided in Section 7.5, any Stock acquired on exercise of a Stock Option must be held by the grantee for a minimum of (1) three years from the date of exercise, (2) two years from the date the grantee ceases to be a director of the Company, or (3) until the occurrence of a Change of Control, whichever first occurs (the "Holding Period"). (d) OPTION TERM. The term of a Stock Option (the "Option Term") shall be the period of ten years from its Grant Date or until the date the Stock Option ceases to be exercisable as provided in Section 7.2(g), whichever is earlier. 18 19 (e) PAYMENT OF EXERCISE PRICE. Stock purchased on exercise of a Stock Option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company, (2) through the delivery of shares of Stock which are then outstanding and which have a Fair Market Value on the last business day preceding the date of exercise equal to the Exercise Price, (3) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the Exercise Price, or (4) by a combination of the permissible forms of payment; provided, that any portion of the Exercise Price representing a fraction of a share must be paid in cash and no share of Stock held for less than six months may be delivered in payment of the Exercise Price of a Stock Option. (f) RIGHTS AS A SHAREHOLDER. The holder of a Stock Option will not have any of the rights of a shareholder with respect to any shares of Stock subject to the Stock Option until such shares are issued by the Company following the exercise of the Stock Option. (g) TERMINATION OF ELIGIBILITY. If a grantee ceases to be a Director for any reason, any outstanding Stock Options shall be exercisable according to the following provisions: 19 20 (1) If a grantee ceases to be a Director for any reason other than removal for Cause or death, any outstanding Stock Options held by such grantee shall be exercisable by the grantee at any time prior to the expiration of the Option Term; (2) If a grantee is removed from office as a director of the Company for Cause, any outstanding Stock Options held by such grantee shall be exercisable by the grantee at any time prior to the expiration of the Option Term or on or before the date the grantee is so removed from office, whichever first occurs; and (3) Following the death of a grantee while a Director or after the grantee ceased to be a Director for any reason other than removal for Cause, any Stock Options that are outstanding and exercisable by such grantee at the time of death shall be exercisable by the person or persons entitled to do so under the grantee's will, by a properly designated beneficiary in the event of death, or by the person or persons entitled to do so under the applicable laws of descent and distribution at any time prior to the earlier of (a) the expiration of the Option Term and (b) two years after the date of death. (h) TERMINATION OF STOCK OPTION. A Stock Option shall terminate on the earlier of (1) exercise of the Stock 20 21 Option in accordance with the terms of the Plan, and (2) the expiration of the Option Term as specified in Sections 7.2(d) and 7.2(g). (i) STOCK OPTION AGREEMENT. All Stock Options shall be confirmed by an agreement, or an amendment thereto, which shall be executed on behalf of the Company by the Chief Executive Officer, the President or any Vice President and by the grantee. (j) GENERAL RESTRICTION. (1) The obligation of the Company to issue Stock pursuant to Stock Options under the Plan shall be subject to the condition that, if at any time the Committee shall determine that (a) the listing, registration or qualification of shares of Stock upon any securities exchange or under any state or federal law or (b) the consent or approval of any government or regulatory body is necessary or desirable, then such Stock shall not be issued unless such listing, registration, qualification, consent or approval shall have been effected or obtained free from any conditions not acceptable to the Committee. (2) Shares of Stock for use under the provisions of this Section 7 shall not be issued until they have been duly listed, upon official notice of issuance, upon the New York Stock Exchange and such other exchanges, if any, as the Board of 21 22 Directors of the Company shall determine, and a registration statement under the Securities Act of 1933 with respect to such shares shall have become, and be, effective. Subject to the foregoing provisions of this Section 7.2 and the other provisions of the Plan, any Stock Option granted under the Plan shall be subject to such restrictions and other terms and conditions, if any, as shall be determined, in its discretion, by the Committee and set forth in the agreement referred to in Section 7.2(i), or an amendment thereto; provided, that in no event shall the Committee or the Board have any power or authority which would cause the Directors to cease to be "disinterested persons" or transactions pursuant to the Plan to cease to be exempt from the provisions of Section 16(b) of the Exchange Act under Rule 16b-3. 7.3 Annual Statement. A statement will be sent to each Director as to the status of his Stock Options at least once each calendar year. 7.4 Designation of a Beneficiary. A Director may designate a beneficiary to hold and exercise outstanding Stock Options in accordance with the Plan in the event of the Director's death. 22 23 7.5 Holding Period Applicable to a Deceased Grantee's Estate. As long as at least six months have elapsed since the Grant Date, a properly designated beneficiary or a person holding a Stock Option under a deceased grantee's will or under the applicable laws of descent or distribution exercising a Stock Option in accordance with Section 7.2(g) will not be subject to the Holding Period with respect to shares of Stock received on exercise of a Stock Option. SECTION 8. CHANGE OF CONTROL 8.1 Settlement of Compensation. In the event of a Change in Control of the Company as defined herein, (a) (i) to the extent not already vested, all benefits hereunder shall be vested immediately, and (ii) awards as to a period of time less than a full year may be made as the Committee may determine as of the date of such Change in Control and then paid on such basis and in such form as the Committee may prescribe; and (b) the value of all unpaid benefits and deferred amounts shall be paid in cash to PNC Bank, N.A. (formerly known as Pittsburgh National Bank), the trustee pursuant to a trust agreement dated November 24, 1987, or any successor trustee, or otherwise on such terms as the Committee may prescribe or permit. For purposes of this paragraph, the value of deferred amounts shall be equal to the sum of (i) the value of all Common Stock Equivalent Awards then held in such Director's Deferred Stock Account (the value of 23 24 which shall be based upon the highest price of the Stock as reported by the composite tape of the New York Stock Exchange during the thirty days immediately preceding the Change in Control) and (ii) the greater value of (x) the cash amount equal to the face value of the Debentures plus cash equal to accrued interest or (y) the number of shares of Stock into which the Debentures are convertible (the value of which shall be based upon the highest price of the Stock as reported by the composite tape of the New York Stock Exchange during the thirty days immediately preceding the Change in Control), plus cash equal to accrued interest. 8.2 Definition of Change in Control. A Change in Control shall mean the occurrence of one or more of the following events: (a) there shall be consummated (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Stock immediately prior to the merger have the same proportionate ownership of Common Stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the 24 25 assets of the Company, or (b) the shareholders of the Company shall approve of any plan or proposal for the liquidation or dissolution of the Company, or (c) (i) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity shall purchase any Stock of the Company (or securities convertible into the Company's Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, unless, prior to the making of such purchase of Stock (or securities convertible into Stock), the Board shall determine that the making of such purchase shall not constitute a Change in Control, or (ii) any person (as such term is defined in Section 13(d) of the Exchange Act), corporation or other entity (other than the Company or any benefit plan sponsored by the Company or any of its subsidiaries) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from any rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in Rule 13d-3(d) in the case of rights to acquire any such securities), unless, prior to such person so becoming such beneficial owner, the Board shall determine that such person so becoming such beneficial owner shall not constitute a Change in Control, or (d) at any time during any period of two consecutive 25 26 years individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least a majority thereof, unless the election or nomination for election of each new director during such two-year period is approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period. SECTION 9. ASSIGNABILITY The right to receive payments or distributions hereunder (including any "derivative security" issued pursuant to the Plan, as such term is defined by the rules promulgated under Section 16 of the Exchange Act) and any Stock Options granted hereunder shall not be transferable or assignable by a Director other than by will, by the laws of descent and distribution, to a properly designated beneficiary in the event of death, or pursuant to a domestic relations order as defined by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of that Code or the rules thereunder. In addition, Stock acquired on exercise of a Stock Option shall not be transferable prior to the end of the applicable Holding Period, if any, set forth in Sections 7.2(a) and 7.5, other than by will, by transfer to a properly designated beneficiary in the event of death, by the applicable laws of descent and distribution or pursuant to a domestic relations 26 27 order as defined by Section 414(p)(1)(B) of the Internal Revenue Code or the rules thereunder that satisfies Section 414(p)(1)(A) of that Code or the rules thereunder. SECTION 10. PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan, provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements and provided further, that no amendment or modification shall be made more than once every six months that would change the amount, price, or timing of the Common Stock Equivalent Awards or Stock Option Awards hereunder, other than to comport with changes in the Internal Revenue Code, the Employment Retirement Income Security Act, or the rules promulgated thereunder. SECTION 11. REQUIREMENTS OF LAW 11.1 Federal Securities Law Requirements. Transactions pursuant to the Plan shall be subject to all conditions required under Rule 16b-3 to qualify such transactions for any exemption from the provisions of Section 16(b) of the Exchange Act available under that Rule. 11.2 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. 27 EX-11 4 WESTINGHOUSE 10-Q 1 EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS (unaudited)
Three Months Ended March 31 --------------------------- 1995 1994 ---- ---- EQUIVALENT SHARES: Average shares outstanding 357,422,449 352,972,879 Additional shares due to: Stock options 4,378,665 3,309,018 Series C preferred shares 36,000,000 870,968 ----------- ----------- Total equivalent shares 397,801,114 357,152,865 =========== =========== ADJUSTED EARNINGS (in millions): Net income from Continuing Operations $ 15 $ 36 Less: Series B preferred stock dividends 13 13 ----------- ----------- Adjusted net income from Continuing Operations $ 2 $ 23 =========== =========== EARNINGS PER SHARE: From Continuing Operations $ 0.01 $ 0.07 ----------- ----------- Earnings per share (a) $ 0.01 $ 0.07 =========== ===========
(a) For earnings per share using an alternative treatment for the Series C Preferred Shares, see note 8 to the condensed consolidated financial statements included in Part I of this report -30- EX-12.A 5 WESTINGHOUSE 10-Q 1 EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($ in millions) (unaudited)
Three Months Ended Year Ended March 31 December 31 1995 1994 1994 ---- ---- ---- Income (loss) before income taxes and minority interest $ 27 $ 57 $ 157 Less: Equity in income (loss) of 50 percent or less owned affiliates - (1) (5) Add: Fixed charges excluding capitalized interest 66 56 212 ----- ----- ----- Earnings as adjusted $ 93 $ 114 $ 374 ===== ===== ===== Fixed charges: Interest expense $ 58 $ 47 $ 177 Rental expense 8 9 35 Capitalized interest - - - ----- ----- ----- Total fixed charges $ 66 $ 56 $ 212 ===== ===== ===== Ratio of earnings to fixed charges 1.41x 2.04x 1.76x ===== ===== =====
EX-12.B 6 WESTINGHOUSE 10-Q 1 EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS ($ in millions) (unaudited)
Three Months Ended Year Ended March 31 December 31 1995 1994 1994 ---- ---- ---- Income (loss) before income taxes and minority interest $ 27 $ 57 $ 157 Less: Equity in income (loss) of 50 percent or less owned affiliates - (1) (5) Add: Fixed charges excluding capitalized interest 105 77 369 ----- ----- ----- Earnings as adjusted $ 132 $ 135 $ 531 ===== ===== ===== Combined fixed charges and preferred dividends: Interest expense $ 58 $ 47 $ 177 Rental expense 8 9 35 Capitalized interest - - - Pre-tax earnings required to cover preferred dividend requirements (a) 39 21 157 ----- ----- ----- Total combined fixed charges and preferred dividends $ 105 $ 77 $ 369 ===== ===== ===== Ratio of earnings to combined fixed charges and preferred dividends 1.26x 1.75x 1.44x ===== ===== =====
(a) Dividend requirement divided by 100% minus effective income tax rate. -31- EX-27 7 WESTINGHOUSE 10-Q
5 1,000,000 3-MOS DEC-31-1995 MAR-31-1995 291 0 1,515 53 1,516 4,817 4,222 2,454 10,580 3,674 1,884 393 12 0 1,376 10,580 2,024 2,024 1,530 1,530 407 0 58 27 10 15 0 0 0 15 .01 .01
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