-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJrAeBw6AJ0LyPe/frsdl3cbY32jUPYAACAGEjdGmwjWGjz7ZEg/iOy8KRt31qIf abD4mvep7pQW/6aapXt4MQ== 0000950128-96-000301.txt : 19960517 0000950128-96-000301.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950128-96-000301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 96566708 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, 1996 -------------- 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 418,824,407 shares outstanding at April 30, 1996 ------------------------------------------------------------- 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 6-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-27 PART II. OTHER INFORMATION Item 1. Legal Proceedings 28 Item 6. Exhibits and Reports on Form 8-K 29-30 SIGNATURE 31 -2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME ------------------------------------------ (in millions except per share amounts) (unaudited)
Three Months Ended March 31 ------------------ 1996 1995 ---- ---- Sales of products and services $ 1,956 $ 1,202 Costs of products and services (1,515) (862) Restructuring, litigation and other matters (note 2) (695) - Marketing, administration, and general expenses (602) (306) ------- ------- Operating profit (loss) (856) 34 Other income and expenses, net (note 4) (146) (2) Interest expense (146) (48) ------- ------- Loss from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries (1,148) (16) Income taxes 385 9 Minority interest in income of consolidated subsidiaries (1) (2) ------- ------ Loss from Continuing Operations (764) (9) Discontinued Operations, net of income taxes (note 9): Income (loss) from Discontinued Operations (10) 24 Estimated net gain on disposal of Discontinued Operations 1,018 - ------- ------ Income from Discontinued Operations 1,008 24 Extraordinary item: Loss on early extinguishment of debt (note 5) (63) - ------- ------- Net income $ 181 $ 15 ======= ======= Earnings (loss) per common share: Continuing Operations $ (1.74) $ (0.05) Discontinued Operations 2.29 0.06 Extraordinary item (0.14) - ------- ------- Earnings (loss) per common share $ 0.41 $ 0.01 ======= ======= 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, 1996 December 31, 1995 ASSETS -------------- ----------------- - ------ (unaudited) Cash and cash equivalents $ 95 $ 196 Customer receivables 1,576 1,494 Inventories (note 6) 758 852 Uncompleted contracts costs over related billings 673 584 Program rights 343 301 Deferred income taxes 612 547 Prepaid and other current assets 296 261 ------- ------- Total current assets 4,353 4,235 Plant and equipment, net 1,885 1,924 Intangible and other noncurrent assets (note 7) 9,131 8,827 Net assets of Discontinued Operations (note 9) - 1,669 ------- ------- Total assets $15,369 $16,655 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Revolving credit borrowings and other short-term debt $ 1,168 $ 309 Current maturities of long-term debt 327 330 Accounts payable 661 829 Uncompleted contracts billings over related costs 343 322 Other current liabilities (note 8) 2,080 2,123 ------- ------- Total current liabilities 4,579 3,913 Long-term debt 3,658 7,226 Net liabilities of Discontinued Operations (note 9) 178 - Other noncurrent liabilities (note 8) 5,075 3,997 ------- ------- Total liabilities 13,490 15,136 ------- ------- Contingent liabilities and commitments (note 10) Minority interest in equity of consolidated subsidiaries 10 11 Shareholders' equity (note 11): Preferred stock, $1.00 par value (25 million shares authorized): Series A preferred (no shares issued) - - Series C conversion preferred (4 million shares issued) 4 4 Common stock, $1.00 par value (630 million shares authorized, 426 million shares issued) 426 426 Capital in excess of par value 1,831 1,848 Common stock held in treasury (661) (720) Minimum pension liability adjustment (1,050) (1,220) Cumulative foreign currency translation adjustments (11) (11) Retained earnings 1,330 1,181 ------- ------- Total shareholders' equity 1,869 1,508 ------- ------- Total liabilities and shareholders' equity $15,369 $16,655 ======= =======
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 --------------------------- 1996 1995 ---- ---- Cash used for operating activities of Continuing Operations $ (530) $ (119) Cash used for operating activities of Discontinued Operations (305) (18) Cash flows from investing activities: Business acquisitions (75) (22) Business divestitures 3,565 6 Liquidation of assets of Discontinued Operations 22 97 Capital expenditures (33) (38) Other (10) - ------- ------- Cash provided by investing activities 3,469 43 ------- ------- Cash flows from financing activities: Bank revolver borrowings 988 175 Bank revolver repayments (57) (117) Net change in other short-term debt (92) 12 Repayments of long-term debt (3,570) (2) Treasury stock reissued 42 17 Dividends paid (32) (42) Debt issue costs (8) (2) Other - 2 ------- ------- Cash provided (used) by financing activities (2,729) 43 ------- ------- Decrease in cash and cash equivalents (95) (51) Cash and cash equivalents at beginning of period 226 344 ------- ------- Cash and cash equivalents at end of period $ 131 $ 293 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid: Continuing Operations $ 105 $ 37 Discontinued Operations 17 32 ------- ------- Total interest paid $ 122 $ 69 ======= ======= Income taxes paid $ 23 $ 29 ======= =======
See Notes to the Condensed Consolidated Financial Statements -5- 6 WESTINGHOUSE ELECTRIC CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------- 1. GENERAL The condensed consolidated financial statements include the accounts of Westinghouse Electric Corporation (Westinghouse) and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. When reading the financial information contained in this Quarterly Report, reference should be made to the financial statements, schedules and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. Certain amounts pertaining to the three months ended March 31, 1996 and the year ended December 31, 1995 have been restated or reclassified for comparative purposes. In March 1996, the Corporation adopted a plan to exit its environmental services line of business that was previously reported as part of the Government & Environmental Services business segment in Continuing Operations. As a result, financial information previously issued has been restated to give effect to the classification of the environmental services business as a Discontinued Operation in accordance with Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB 30). See note 9 to the financial statements. The Corporation previously classified as Discontinued Operations, WCI Communities, Inc. (WCI), The Knoll Group (Knoll), the defense and electronic systems business, the Distribution and Control Business Unit (DCBU), Westinghouse Electric Supply Company (WESCO), and the financial services business. In the opinion of management, the Condensed Consolidated Financial Statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year. 2. RESTRUCTURING AND OTHER ACTIONS During the first quarter of 1996, the Corporation took several actions to streamline its businesses and reduce the future financial impact of certain matters. Certain of these actions resulted in the recognition of charges to operating profit. Costs for restructuring plans of $125 million are discussed below. A charge of $486 million was recognized for pending litigation matters, which are described in note 10. As discussed in note 3, impairment of $54 million was recognized based on a modification of the projected recoverability of certain long-lived assets. Other costs of $30 million recognized in the quarter generally relate to previously divested businesses. During the first quarter of 1996, management approved new restructuring projects with costs totalling $125 million primarily for consolidation of facilities and the separation of employees. -6- 7 A summary of the restructuring charges by business segment follows: 1996 RESTRUCTURING PROGRAM (dollars in millions)(unaudited)
Employee Separation Other Separations Costs Costs Total Costs ----------- ---------- ----- ---------- Broadcasting 129 $ 5 $ 36 $ 41 Power Systems 1,145 44 27 71 Communication & Information Systems 24 2 - 2 Corporate & Other 6 2 9 11 ----- ----- ----- ----- Total restructuring 1,304 $ 53 $ 72 $ 125 ===== ===== ===== =====
3. IMPAIRMENT OF LONG-LIVED ASSETS During the first quarter of 1996, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets, including related goodwill, be reviewed for impairment and written down to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The adoption of SFAS No. 121 resulted in an impairment charge included in operating profit of $54 million. 4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended March 31 ------------------ 1996 1995 ---- ---- Net loss on disposition of assets $ (151) $ (5) Miscellaneous, net 5 3 ------ ------ Other income (expenses), net $ (146) $ (2) ====== ======
The net loss on disposition of assets for the three months ended March 31, 1996, includes a loss of $152 million resulting from a decision to sell certain miscellaneous non-strategic assets. -7- 8 5. EXTRAORDINARY ITEM On March 1, 1996, the Corporation extinguished prior to maturity $3,565 million of debt under the $7.5 billion credit agreement. Term Loan I was repaid in full and $1,065 million of Term Loan II was repaid. As a result of the early extinguishment of debt and the writeoff of related debt issue costs, the Corporation incurred an extraordinary loss of $63 million, net of a tax benefit of $41 million. 6. INVENTORIES (in millions)
March 31, 1996 December 31, 1995 -------------- ----------------- (unaudited) Raw materials $ 94 $ 88 Work in process 471 446 Finished goods 140 122 ------- ------- 705 656 Long-term contracts in process 802 1,002 Progress payments to subcontractors 33 21 Recoverable engineering and development costs 84 60 Less: Inventoried costs related to contracts with progress billing terms (866) (887) ------- ------- Inventories, net $ 758 $ 852 ======= =======
7. INTANGIBLE AND OTHER NONCURRENT ASSETS (in millions)
March 31, 1996 December 31, 1995 -------------- ----------------- (unaudited) Deferred income taxes $ 1,264 $ 1,209 Goodwill 5,316 5,303 FCC licenses 1,262 1,242 Other intangible assets 161 162 Intangible pension asset 54 63 Deferred charges 246 353 Joint ventures, affiliates, and other 76 70 Noncurrent receivables 414 172 Program rights 113 21 Other 225 232 ------- ------- Total intangible and other noncurrent assets $ 9,131 $ 8,827 ======= =======
-8- 9 8. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
March 31, 1996 December 31, 1995 -------------- ----------------- (unaudited) Other current liabilities: - ------------------------- Accrued employee compensation $ 172 $ 215 Income taxes currently payable 184 182 Liabilities for talent and program rights 413 254 Accrued product warranty 58 58 Accrued taxes, interest, and insurance 249 190 Accrued restructuring costs 181 153 Liability for asset dispositions 169 46 Accrued expenses 361 690 Environmental liabilities 38 47 Other 255 288 ------- ------- Total other current liabilities $ 2,080 $ 2,123 ======= ======= Other noncurrent liabilities: - ---------------------------- Postretirement and postemployment benefits $ 1,307 $ 1,311 Pension liability 1,502 1,426 Accrued restructuring 75 8 Liability for asset dispositions 80 19 Liabilities for talent and program rights 51 47 Accrued expenses 1,196 629 Environmental liabilities 237 238 Other 627 319 ------- ------- Total other noncurrent liabilities $ 5,075 $ 3,997 ======= =======
9. DISCONTINUED OPERATIONS During the first quarter of 1996, the Corporation completed the sales of Knoll and its defense and electronic systems business. These sales resulted in a combined after-tax gain of $1.2 billion. The net proceeds from these transactions were used to repay a significant portion of the debt incurred to finance the acquisition of CBS, all of which was classified as debt of Continuing Operations. In March 1996, the Corporation adopted a plan to exit its environmental services line of business included in its former Government & Environmental Services segment. The Corporation recorded an after-tax charge for the estimated loss on disposal of $146 million. During the third quarter of 1995, the Corporation sold WCI and used the proceeds to repay debt of Discontinued Operations. In November 1992, the Corporation announced a plan that included exiting Financial Services through the disposition of its $9 billion asset portfolios and selling DCBU and WESCO. The Corporation has since completed the sales of DCBU and WESCO and liquidated substantially all of Financial Services real estate and corporate portfolios. The liquidation of Financial Services leasing portfolio is expected to occur over a longer period of time in accordance with contractual terms. -9- 10 The operating results for Discontinued Operations for the quarters ended March 31, 1996 and 1995 are grouped by measurement date as follows:
Discontinued Operation Measurement Date - -------------------------------------------------------------------------------- Environmental Services March 1996 Defense and Electronic Systems December 1995 Knoll December 1995 WCI July 1995 Financial Services November 1992
Operating results for a discontinued operation subsequent to its measurement date are recorded directly to the liability for estimated loss on disposal. OPERATING RESULTS OF DISCONTINUED OPERATIONS (in millions) (unaudited) For the three months ended March 31, 1996
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 56 $ 350 $ 7 $ 413 Income (loss) before income taxes (15) (15) Income taxes 5 5 Net income (loss) (10) (10) Operating losses charged to liability for estimated loss on disposal (13) (13) (26)
For the three months ended March 31, 1995
Measurement Date --------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 78 $ 747 $ 8 $ 833 Income (loss) before income taxes (3) 47 44 Income taxes 1 (21) (20) Net income (loss) (2) 26 24 Operating losses charged to liability for estimated loss on disposal (18) (18)
-10- 11 The assets and liabilities of Discontinued Operations have been separately classified on the consolidated balance sheet as net assets (liabilities) of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS (LIABILITIES) OF DISCONTINUED OPERATIONS
(in millions) March 31, 1996 December 31,1995 -------------- ---------------- (unaudited) ASSETS: Cash and cash equivalents $ 36 $ 30 Receivables 39 448 Inventories 10 283 Portfolio investments 895 901 Deferred income taxes - 432 Other assets 435 1,412 ------ ------ Total assets -- Discontinued Operations 1,415 3,506 ------ ------ LIABILITIES: Revolving credit facility borrowings 141 81 Current maturities of long-term debt 188 265 Liability for estimated loss on disposal 720 212 Long-term debt 155 157 Other liabilities 320 1,122 Deferred income taxes 69 - ------ ------ Total liabilities -- Discontinued Operations 1,593 1,837 ------ ------ Net assets (liabilities) of Discontinued Operations $ (178) $1,669 ====== ======
Portfolio investments by category of investment and financing at March 31, 1996 and December 31, 1995 are summarized in the following table: PORTFOLIO INVESTMENTS
At March 31, 1996 (unaudited) (in millions) --------------------------------------- Real Estate Leasing & Corporate Total ------- ----------- ----- Receivables $ 818 $ 2 $ 820 Other portfolio investments 45 30 75 ----- ----- ----- Portfolio investments $ 863 $ 32 $ 895 ===== ===== =====
At December 31, 1995 --------------------------------------- Real Estate Leasing & Corporate Total ------- ----------- ----- Receivables $ 820 $ 2 $ 822 Other portfolio investments 45 34 79 ----- ----- ----- Portfolio investments $ 865 $ 36 $ 901 ===== ===== =====
Other portfolio investments remaining at March 31, 1996 consist of real estate properties and investments in leasing partnerships. -11- 12 The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms. Leasing receivables consist of direct financing and leveraged leases. At March 31, 1996 and December 31, 1995, 83% and 84%, respectively, related to aircraft and 17% and 16%, respectively, related to cogeneration facilities. Other assets of Discontinued Operations include mortgage receivables and other notes or securities acquired or retained in divestiture transactions. These assets are generally expected to liquidate in accordance with their contractual terms. 10. CONTINGENT LIABILITIES AND COMMITMENTS Litigation - ---------- Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Corporation as components of nuclear steam supply systems. Since 1993, settlement agreements have been entered resolving nine litigation claims. These agreements generally require the Corporation to provide certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration. Two steam generator lawsuits remain. The Corporation is also a party to five tolling agreements with utilities or utility plant owners' groups which have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussion. 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. Asbestos The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant did not have exposure to the Corporation's product. At March 31, 1996, the Corporation had approximately 89,000 claims outstanding against it. On May 2, 1996, 16,500 claims pending in the Multidistrict Litigation No. 875 in the United States District Court for the Eastern District of Pennsylvania were dismissed. Plaintiffs may appeal this dismissal. -12- 13 In court actions which have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers which have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the steam generator claims, the securities class action and certain groupings of asbestos claims and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Environmental Matters - --------------------- Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Corporation. 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 made estimates of the probable and reasonably possible remediation costs that could be incurred by the Corporation based on the facts and circumstances currently known. In addition, the Corporation and its outside consultants are in the process of reviewing the Corporation's environmental remediation strategies to determine the most effective way to satisfy these obligations. Although the results of this review are not yet available, it may result in a second quarter charge. PRP Sites and Other Remedial Activities With regard to remedial actions under federal and state Superfund laws, the Corporation has been named a potentially responsible party (PRP) at numerous sites located throughout the country. At many of these sites, the Corporation is either not a responsible party or its site involvement is very limited or de minimis. However, the Corporation may have varying degrees of cleanup responsibilities at 74 sites including 18 CBS 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 cost for remedial actions of these sites as of March 31, 1996 is approximately $164 million, all of which has been accrued. As part of the agreements for the sale of certain of its businesses or sites, the Corporation has assumed obligations for remediation of contamination that may exist at these sites, other Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) issues, and compliance matters. Management believes that the total cost for these obligations is approximately $21 million, all of which has been accrued. In addition, the Corporation has accrued for the estimated remediation costs associated with Discontinued Operations. -13- 14 Bloomington Sites The Corporation is a party to a 1985 Consent Decree relating to remediation of six sites in Bloomington, Indiana. 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. 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 alternative remedial action, which could include a combination of containment, treatment, remediation, and monitoring. The parties recognize that the Consent Decree remains in full force and effect during this process. One of the six sites covered by the Consent Decree has been remediated. The Corporation estimates that its total cost to implement the most reasonable alternative for the five remaining sites covered by the Consent Decree is approximately $61 million, all of which has been accrued. Included in this amount is approximately $43 million for site construction and other related costs valued as of the year of expenditure. The remaining $18 million is the present value, assuming a 5% discount rate, of approximately $46 million of operating and maintenance costs that will be incurred during a 30-year period. Other reasonable remediation alternatives, while considered less likely, could cause the total costs to be as much as $115 million. 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 immaterial. 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 the willful misconduct or lack of good faith of its managers or their failure to exercise prudent business judgement. There are currently no material claims for which the Corporation believes it is responsible. 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 approximate $131 million, of which $29 million had been accrued at March 31, 1996. 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 annual costs currently being accrued are $6 million. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations. Commitments -- Continuing Operations - ------------------------------------ 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. -14- 15 The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such properties for various periods ending no later than April 2002. As of March 31, 1996, the Corporation was committed to make payments of $3,416 million under such broadcasting contracts. 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 1996 through 2002. At March 31, 1996, Financial Services commitments, consisting of guarantees, credit enhancements, other standby agreements, and commitments to extend credit, totalled $43 million compared to $45 million at year-end 1995. Management expects the remaining commitments to expire unfunded or be funded with the resulting assets being sold shortly after funding. 11. SHAREHOLDERS' EQUITY As a result of the first quarter sale of the defense and electronic systems business and the buyer's assumption of certain pension obligations, the Corporation's unfunded accumulated benefit obligation was reduced by approximately $400 million. This decrease in the unfunded pension liability improved shareholders' equity by $170 million by reducing the amount of minimum pension liability required to be recognized. In March 1994, the Corporation sold, in a private placement, 36,000,000 depositary shares (the $1.30 Depositary Shares) at $14.44 per share. Each of the $1.30 Depositary Shares represents ownership of one-tenth of a share of the Corporation's $1.00 par value Series C Conversion Preferred Stock (Series C Preferred). Each $1.30 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 converted at any time prior to June 1, 1997 by the holder. In accordance with prevalent practice at the time of sale, 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 earnings per share for the quarter ended March 31, 1996 would have been income of 42 cents compared to a loss of 3 cents for the same period last year. -15- 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW During the first quarter of 1996, the Corporation completed the sales of its defense and electronic systems business and The Knoll Group (Knoll), its office furnishings unit, and recorded a combined after-tax gain of $1.2 billion. The cash proceeds from these divestitures, which totalled nearly $3.6 billion, were used to repay ahead of schedule a significant portion of the debt incurred to finance the CBS acquisition. The Corporation also continued to streamline its businesses and reduce the future financial impact of legacies in the first quarter of 1996. Management adopted a plan to exit its environmental services line of business resulting in the transfer of the environmental services businesses to Discontinued Operations and the recognition of a loss on disposal. The Corporation recognized costs associated with additional restructuring actions and outstanding litigation matters. The Corporation also recognized impairment of assets that will continue to be used in the business as well as certain assets that have been identified for sale, and modified its application of contract accounting principles. The special items included in the first quarter results are summarized below: SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS FIRST QUARTER 1996 (in millions except per share amounts) (unaudited)
Pre-Tax After-Tax Per-Share Amount Amount Impact ------- --------- --------- Continuing Operations: Operating Profit: Restructuring $ (125) Litigation matters (486) Impairment of assets (54) Contract accounting adjustments (128) Other (30) ------ Total impact on operating profit (823) $(547) Other income and expense: Loss on assets held for sale (152) (101) ------ ----- Total impact on Continuing Operations (975) (648) $(1.48) Discontinued Operations: Estimated loss on disposal of environmental services business (146) Gain on disposal of the defense and electronic systems business and Knoll 1,164 ----- Net gain on disposal of businesses 1,018 2.32 Extraordinary Item: Loss on early extinguishment of debt (63) (0.14) ----- ----- Net amount of special items $ 307 $0.70 ===== =====
-16- 17 Net income for the first quarter of 1996 totalled $181 million, or $0.41 per share, compared to $15 million, or $0.01 per share, for the prior year quarter. Excluding the special items summarized above, the Corporation had a net loss of $126 million, or $0.29 per share, for the current quarter. The first quarter of 1995 did not include any special items. For Continuing Operations, the net loss was $116 million, or $0.26 per share, compared to a net loss of $9 million, or $0.05 per share, for the 1995 quarter. Interest expense was $98 million higher in the first quarter of 1996 reflecting the cost of the debt that was incurred to finance the CBS acquisition. The repayment of a significant portion of that debt in March 1996 will favorably affect future interest expense. In addition, amortization of intangible assets acquired with CBS, principally FCC licenses and goodwill, totalled approximately $40 million for the 1996 quarter. The impact of the higher amortization will continue. Net of income taxes, these two factors contributed approximately $90 million to the earnings decline. The Corporation's reported sales increased $754 million, or 63%, for the first quarter of 1996 compared to the 1995 first quarter. Excluding the effects of the CBS acquisition and the special one-time accounting adjustment at Power Generation, sales were flat. The improvements achieved by certain businesses, including Power Generation and Group W, were essentially offset by the loss of sales from miscellaneous businesses that were divested in 1995, including MICROS Systems, Inc. (MICROS). Operating profits for most of the Corporation's major businesses were generally consistent with the prior-year results. However, reduced profitability for the Power Systems segment continued to reflect the difficult market conditions under which that business is operating. Also, the Corporation's equity improved by $170 million during the quarter because of a reduction in the charge to shareholders' equity related to the Corporation's pension obligations. This improvement resulted from the assumption of certain pension liabilities by the buyer of the defense and electronic systems business. -17- 18 RESULTS OF OPERATIONS The following represents the segment results for the Corporation's Continuing Operations for the three months ended March 31, 1996 and 1995.
Segment Results ($ in millions)(unaudited) ------------------------------------------ Operating Profit (Loss) Sales of Products Operating Profit Excluding & Services (Loss) Special Charges ----------------- ---------------- ---------------- Three Months Ended March 31 1996 1995 1996 1995 1996 1995 - ------------------ ---- ---- ---- ---- ---- ---- Broadcasting: Television $ 188 $ 74 $ 54 $ 26 $ 54 $ 26 Network 766 0 0 0 0 0 Radio 121 43 20 7 20 7 Other Broadcasting 43 34 (72) 0 (31) 0 ------ ------ ------ ------ ------ ------ Total Broadcasting 1,118 151 2 33 43 33 Power Systems: Energy Systems 231 284 (26) 6 (5) 6 Power Generation* 277 322 (225) (31) (42) (31) Other Power Systems (50) (37) (306) (14) (17) (14) ------ ------ ------ ------ ------ ------ Total Power Systems* 458 569 (557) (39) (64) (39) Thermo King 257 273 45 44 45 44 Government Operations 25 27 18 15 18 15 Communication & Information Systems 82 70 (42) 2 (1) 2 Corporate & Other 33 133 (322) (21) (74) (21) Intersegment sales (17) (21) - - - - ------ ------ ------ ------ ------ ------ Total* $1,956 $1,202 $ (856) $ 34 $ (33) $ 34 ====== ====== ====== ====== ====== ====== *First quarter 1996 sales were reduced by a $180 million one-time adjustment to previous accounting for certain long-term contracts.
Broadcasting The first quarter 1996 results for Broadcasting include a full quarter of CBS financial data for the first time. Where appropriate, the discussion below provides a comparison of the actual first quarter 1996 results with the combined Group W and CBS actual first quarter 1995 results. Reported revenues for the television group reflect the ownership of 15 television stations during the first quarter of 1996 compared to five stations during the same 1995 quarter. On a comparable basis, revenues for the stations declined slightly as a result of lower ratings and a weak advertising market. Operating profit on a comparable basis also declined reflecting the lower revenues although cost -18- 19 improvements at the stations were beginning to become evident. Operating profit for 1996 included a benefit related to the writedown of CBS program rights in purchase accounting, but that benefit was essentially offset by amortization of FCC licenses arising from the acquisition. Network revenues, all of which were acquired with CBS, increased 9% for the first quarter of 1996 compared to the same period of 1995. The addition of college football bowl games and the timing of the NCAA Final Four Basketball Tournament were the primary driving factors. Operating profit increased slightly as the favorable effects of purchase accounting were essentially offset by increased costs for affiliate compensation, sports rights, and advertising. The first-quarter 1996 benefit from the writedown of program rights in purchase accounting totalled $57 million. The reported results for the radio group included 39 radio stations for the 1996 period, including two Chicago stations acquired January 2, 1996, compared to 16 stations for the 1995 period. On a comparable basis, results for the radio group were strong. Revenues increased 8% while operating profit increased 25%, reflecting early benefits from the integration of the Group W and CBS stations. Amortization of FCC licenses totalled $3 million for the first quarter of 1996. Other Broadcasting includes operating results for Group W Satellite Communications and Group W Productions, including MAXAM, a production company acquired in February 1996, costs for the Broadcasting group's headquarters, and amortization of all goodwill arising from the CBS acquisition. For the first quarter of 1996, Other Broadcasting also includes a $41 million restructuring charge for Group W's actions to obtain operational synergies between CBS and Group W. The cost of the CBS actions was recognized on the opening balance sheet at the date of the CBS acquisition. Revenues and operating profit for Group W Satellite Communications showed significant increases over the prior-year period due to certain services acquired from CBS coupled with improved advertising revenues. Results for production operations were consistent with the prior year. Goodwill amortization totalled $30 million for the first quarter of 1996. For the entire Broadcasting group, earnings before interest, taxes, depreciation, and amortization (EBITDA) and excluding the restructuring charge totalled $110 million for the first quarter of 1996. On a combined basis, EBITDA for the 1995 period was $101 million. EBITDA differs from operating cash flows for the group primarily because it includes $62 million of benefits in the 1996 period from purchase accounting adjustments related to program rights, and it does not consider changes in assets and liabilities from period to period. Power Systems In Energy Systems, sales and operating profit for the first quarter of 1996 decreased compared to the same period in 1995 primarily in the fuel and service businesses due to a less favorable utility outage season. In 1996 the outage season began later than in 1995, causing a lower percentage of the work to occur in the first quarter. There are fewer outages this spring compared to last year, and the average work scope for outage services to be performed this year is smaller due to fewer major repair initiatives at power plants. The first quarter of 1996 also includes a $21 million restructuring charge primarily for employee separation costs. Power Generation's orders declined nearly 16% in the first quarter of 1996 compared to the same period last year primarily as a result of large orders for China and Korea booked in the first quarter of 1995. In light of changing market conditions and pricing pressures in the Power Generation business, the business unit modified its application of contract accounting principles to reflect a more conservative approach. Had the new approach been applied previously, the effect on any individual quarter's results would not have been material. A one-time accounting adjustment was made to reduce sales by $180 million and operating profit by $128 million. Excluding this adjustment, sales increased $135 million or 42% in the first quarter of 1996 as increased project and new apparatus sales were partially offset by lower field service sales. -19- 20 The business unit's operating loss, excluding the one-time accounting adjustment and a $50 million restructuring charge, which was primarily required due to the decision to close the Pensacola, Florida manufacturing facility, increased $9 million compared to last year as price compression on new apparatus continued to overshadow the higher margin field service business. Operating loss for Other Power Systems for the first quarter of 1996 included a $289 million charge for litigation and other matters. The impact of discounts on goods and services resulting from prior steam generator settlements was consistent in both periods. Thermo King Orders and revenues for the first quarter of 1996 declined 8% and 6%, respectively, primarily due to decreased container volume. Operating profit, however, remained flat as a favorable sales mix and cost improvements offset the effects of the lower volume. Government Operations Sales for the first quarter of 1996 were essentially flat compared to the same period last year. Operating profit increased due to a bonus related to a cost saving program and the timing of fee billings at one of the Department of Energy facilities. Communication & Information Systems Increased sales in the residential security and wireless communications businesses accounted for the 17% sales growth in the first quarter of 1996 compared to the same period last year. Excluding a first quarter 1996 charge of $41 million for restructuring and asset impairment, operating profit declined slightly as additional strategic spending for sales branches offset the effects of the higher volume. Corporate & Other Revenues declined in the first quarter of 1996 compared to last year as non-strategic businesses, including MICROS, were sold in 1995. The operating loss for the quarter included $248 million of special charges for restructuring, litigation contingencies, and asset impairment. Corporate costs also include costs associated with obligations retained in certain recent divestitures. RESTRUCTURING AND OTHER ACTIONS In recent years, the Corporation has restructured many businesses and its corporate headquarters in an effort to reduce costs and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the closing of facilities, the termination of leases, and the exiting of product lines. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and that provide no future benefit to the Corporation. During the first quarter of 1996, management approved new restructuring projects with costs totalling $125 million primarily for consolidation of facilities and the separation of employees. Cash expenditures, which are primarily tied to announced facility consolidations, are estimated to approximate $20 million for the remainder of 1996, $35 million for 1997, and $40 million for 1998. -20- 21 A summary of the restructuring charges by business segment follows: 1996 RESTRUCTURING PROGRAM (dollars in millions)(unaudited)
Employee Separation Other Total Separations Costs Costs Costs ---------- ---------- ----- -------- Broadcasting 129 $ 5 $ 36 $ 41 Power Systems: Energy Systems 351 18 3 21 Power Generation 794 26 24 50 Communication & Information Systems 24 2 - 2 Corporate & Other 6 2 9 11 ----- ----- ---- ----- Total restructuring 1,304 $ 53 $ 72 $ 125 ===== ===== ==== =====
In addition to the reserve established in the first quarter of 1996, restructuring reserves were also established in each of the years 1993 through 1995. The following is a reconciliation of the restructuring liability for Continuing Operations: RECONCILIATION OF RESTRUCTURING LIABILITY FOR CONTINUING OPERATIONS (in millions) (unaudited) Balance at January 1, 1993 $ - Provision for restructuring 244 Noncash expenditures (22) ---- Balance at December 31, 1993 222 ---- Provision for restructuring 19 Cash expenditures (129) Noncash expenditures (31) ---- Balance at December 31, 1994 81 ---- Provision for restructuring 86 CBS acquisition plan 100 Cash expenditures (101) Noncash expenditures (5) ---- Balance at December 31, 1995 161 ---- Provision for restructuring 125 Cash expenditures (30) ---- Balance at March 31, 1996 $256 ====
The employee separations included in the plans for the years 1993 and 1994 are complete. Remaining costs under those plans of approximately $10 million represent 1996 cash expenditures for exit costs. The employee separations included in the 1995 plan are 80% complete with the remainder of separations to occur during 1996. Remaining total costs under this plan of approximately $30 million represent cash expenditures, the majority of which will occur in 1996. Implementation of the CBS restructuring plan is expected to continue over the next two years. -21- 22 Annualized savings from the 1993, 1994, and 1995 restructuring programs other than the CBS plan are estimated to total approximately $140 million; however, competitive pressures causing price compression in certain of the Corporation's markets have absorbed a significant portion of the savings achieved through restructuring actions. Annualized savings from the 1996 plan, which generally will not be realized in the near term, are estimated at $50 million. The Corporation expects to continue to identify restructuring initiatives in an ongoing effort to reduce its overall cost structure and improve its competitiveness. DISCONTINUED OPERATIONS During the first quarter of 1996, the Corporation completed the sales of Knoll and its defense and electronic systems business in accordance with a December 1995 plan and recognized a combined after-tax gain of $1,164 million. The Corporation also adopted a new plan to exit its environmental services line of business and recorded a $146 million after-tax provision for the estimated loss on disposal of these businesses. In November 1992, the Corporation announced a plan that included exiting the financial services business and selling both the Distribution and Control Business Unit (DCBU) and Westinghouse Electric Supply Company (WESCO). The portfolio investments of Financial Services have decreased from $8,967 million at year-end 1992, to $895 million at March 31, 1996, a decrease of $8,072 million. The remaining assets, consisting primarily of the leasing portfolio, are expected to liquidate through 2015 in accordance with contractual terms. The Corporation completed the sales of DCBU and WESCO in 1994. Under a July 1995 plan, the Corporation sold WCI Communities, Inc. (WCI), its land development subsidiary, in 1995. The liability for the estimated loss on the disposal of Discontinued Operations, totalling $720 million at March 31, 1996, represents amounts necessary to cover remaining costs and obligations associated with the 1992, 1995 and 1996 plans. Remaining costs include interest on debt, estimated credit losses on the portfolio investments of financial services, and future disposition costs and obligations relating to the environmental services businesses, Knoll, the defense and electronic systems business, DCBU and WESCO. These costs and related items include purchase price adjustments, transaction costs, insurance liabilities, and potential environmental remediation costs. Management believes that the total liability for the estimated loss on disposal of Discontinued Operations is adequate. Any variances from estimates which may occur for one component will be considered in conjunction with other components in determining whether an adjustment of the total liability is necessary. The adequacy of the liability is evaluated each quarter. The Corporation believes that the debt of Discontinued Operations at March 31, 1996 is supportable by the assets of Discontinued Operations and can be repaid as the portfolio liquidates over its contractual terms. OTHER INCOME AND EXPENSES Other income and expenses netted to a loss of $146 million for the first quarter of 1996 compared to a loss of $2 million for the first quarter of 1995. During the first quarter of 1996, a comprehensive review was undertaken by the Corporation to identify for sale non-strategic assets. A charge of $152 million was recognized during the quarter for losses expected upon sale of those assets. -22- 23 INTEREST EXPENSE Interest expense for Continuing Operations for the first quarter of 1996 was $146 million compared to $48 million for the same period of 1995. The increase in interest expense is primarily a result of $5.4 billion of debt incurred for the acquisition of CBS in the fourth quarter of 1995. The Corporation repaid $3,565 million of this debt in the first quarter of 1996 through proceeds from the divestitures of Knoll and the defense and electronic systems business. This decrease in debt was offset somewhat by additional borrowings to cover working capital requirements. INCOME TAXES The Corporation's effective income tax rate for the first three months of 1996 was a benefit of 34% compared to a benefit of 57% for the first three months of 1995 because of the amortization of non-deductible goodwill for CBS as well as the impact of certain special transactions in the first quarter of 1996. These rates can vary dramatically depending on the Corporation's income levels. At March 31, 1996, the Corporation had recorded net deferred income tax benefits totalling $1,807 million compared to $2,188 million at December 31, 1995. As a result of these net deferred income tax benefits, cash payments for federal income taxes are minimal. Management believes that the Corporation will have sufficient future taxable income to make it more likely than not that the net deferred tax asset will be realized. 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. Late in 1995, the Corporation acquired CBS for $5.4 billion and financed the entire purchase price with debt. In the first quarter of 1996, the Corporation completed the sales of Knoll and the defense and electronic systems business and repaid approximately 65% of the acquisition debt. In an effort to improve liquidity, the Corporation has and will continue to monetize non-strategic assets. In March 1996, the Corporation adopted a plan to sell its environmental services businesses. The Corporation also completed a comprehensive review and identified additional non-strategic assets for sale. In total, sales of various non-strategic assets are expected to generate cash proceeds of $300 million to $500 million in 1996. Operating activities of Continuing Operations required substantial cash outflows in the first quarter of 1996. Management is focusing significant attention on minimizing working capital requirements and improving cost structures. Management expects that cash from Continuing Operations and availability under its $2.5 billion revolving credit facility 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 borrowing from other sources, including funds from the capital markets. -23- 24 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, 1996 and 1995: CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS (in millions) (unaudited)
Three Months Ended March 31 ------------------------------ 1996 1995 ---- ---- Net loss from Continuing Operations $ (764) $ (9) Adjustments to reconcile net loss from Continuing Operations to net cash provided by operating activities: Depreciation and amortization 113 48 Losses on asset dispositions 151 5 Purchase accounting benefits (62) - Noncash restructuring charges 30 - Other noncash provisions and accounting adjustments 286 - Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent (51) 60 Inventories (34) 33 Progress payments net of costs on uncompleted contracts (68) (160) Accounts payable (168) (93) Deferred and current income taxes (129) (77) Program rights 91 - Other assets and liabilities 75 74 ------ ------ Cash used for operating activities of Continuing Operations $ (530) $ (119) ====== ======
The operating activities of Continuing Operations used $530 million of cash during the first three months of 1996, an increase of $411 million from the amount used during the first quarter of 1995. Major factors contributing to the additional use of cash were higher interest payments, certain contractual prepayments for program rights, and higher required levels of working capital for the businesses. Interest payments for Continuing Operations during the first quarter of 1996 were $105 million compared to $37 million during the first quarter of 1995. This increase in interest payments was primarily attributable to the higher debt associated with the CBS acquisition. In the first quarter of 1996, the Broadcasting business segment, in its drive to improve CBS programming and ratings, successfully negotiated certain long-term contracts requiring the Corporation to make prepayments for future program rights and program development. However, these cash payments for program rights were more than offset by favorable payment terms on programming already aired. Working capital requirements increased relative to the first quarter of 1995. Increases in both receivables and inventories totalled $85 million in the first three months of 1996 compared to the reduction in receivables and inventories in the first three months of 1995 of $93 million. The Corporation's investment in long-term contracts increased in the first quarter of 1996 by $68 million. In last year's first quarter, the investment in long-term contracts increased $160 million. In addition, a significant reduction in accounts payable was a major contributor to the higher working capital. -24- 25 No cash contributions to the Corporation's pension plans were made during the first quarter of 1996 or 1995. The Corporation's contribution level for 1996 is expected to be $200 million to $250 million, which is consistent with the Corporation's goal to fully fund its qualified plans over the next several years. The operating activities of Discontinued Operations used $305 million of cash during the first three months of 1996 and used $18 million of cash for the same period of 1995. The increase in the use of cash during 1996 primarily related to divestiture costs of Knoll and the defense and electronic systems business as well as cash used in the operations of these businesses. Future cash requirements of Discontinued Operations will consist primarily of interest costs on debt, remaining costs associated with the completed divestitures, and operating and disposal costs associated with the Corporation's environmental services businesses. Investing Activities Investing activities provided $3.5 billion of cash during the first three months of 1996 compared to $43 million of cash provided during the same period of 1995. In the first three months of 1996, the Corporation completed the sales of Knoll and its defense and electronic systems business, generating $3,565 million of cash. Investing activities in the first quarter of 1996 included the purchase of two Chicago radio stations. 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, which was divested in 1996 along with the defense and electronic systems business. Liquidations of Financial Services portfolio investments generated $17 million in the first three months of 1996 compared to cash generated of $97 million for the same period of 1995. These liquidations are substantially complete except for leasing assets which will be liquidated in accordance with contractual terms. In addition, $5 million was generated from WCI mortgage maturities. Capital expenditures were $33 million for the first three months of 1996, a decrease of $5 million from the same period of 1995. Capital spending in 1996 is expected to approximate the 1995 level. Financing Activities Cash used by financing activities during the first three months of 1996 totalled $2.7 billion compared to cash provided of $43 million during the same period of 1995. The increase in financing cash outflows was primarily attributable to the early extinguishment of $3,565 million of the term loans under the $7.5 billion credit agreement. Short-term borrowings increased $813 million compared to the same period of 1995. Total debt of the Corporation was $5.6 billion at March 31, 1996, a decrease of $2.8 billion from December 31, 1995. Total borrowings under the Corporation's $2.5 billion revolving credit facility were $1,285 million at March 31, 1996 (see Revolving Credit Facilities). These borrowings carried a composite interest rate of 6.9% at March 31, 1996 and were based on the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. Dividends paid in the first quarter of 1996 included approximately $12 million for Series C preferred stock, with the remaining $20 million representing common stock dividends. Dividends paid in the same quarter last year included approximately $12 million for Series C preferred stock, $13 million for Series B preferred shares and approximately $17 million representing common stock dividends. At March 31, 1996, the Corporation had a shelf registration statement for debt securities with an unused amount of $400 million. -25- 26 Revolving Credit Facilities In September 1995, the Corporation entered into three new bank facilities under a credit agreement with a total commitment level of $7.5 billion. These credit facilities included two term loans of $2.5 billion each. The first term loan was repaid prior to its maturity. The second term loan, of which approximately $1 billion was prepaid in March 1996, is payable in quarterly installments beginning in August 1998 through November 2002. This term loan is subject to certain mandatory prepayment provisions. Amounts repaid under both term loans may not be reborrowed. In addition to these term loans, the credit agreement includes a $2.5 billion revolving credit facility with a seven-year maturity. The unused capacity under the revolving credit facility equalled $1,215 million as of March 31, 1996. Borrowing availability under the revolver is subject to compliance with certain covenants, representations and warranties, including a no material adverse change provision with respect to the Corporation taken as a whole, restrictions on the incurrence of liens, a maximum leverage ratio, minimum interest coverage ratio, and minimum consolidated net worth. Certain of these covenants become more restrictive over the term of the agreement. At March 31, 1996, the Corporation was in compliance with these covenants. Hedging Activities The Corporation has entered into interest rate exchange agreements to manage the interest rate risk associated with various debt instruments. No transactions were speculative or leveraged. Given their nature, these agreements have been accounted for as hedging transactions. The notional amount of interest rate exchange agreements outstanding at March 31, 1996 was $3,183 million, all of which was associated with long-term debt of Continuing Operations. The average remaining maturity of interest rate exchange agreements was 6 months at March 31, 1996. The total notional amount outstanding at March 31, 1996 relates to interest rate exchange agreements with rate and maturity characteristics set forth in the table below: CONTRACTUAL MATURITIES OF INTEREST RATE EXCHANGE AGREEMENTS (in millions) (unaudited)
Three months ended March 31 Total 1996 1997 1998 1999 2000 ----- ---- ---- ---- ---- ---- Notional amount $3,183 $3,053 $ - $ 50 $ 55 $ 25 Wtd. avg. fixed rate paid 5.65% 5.51% - 8.73% 8.86% 9.36%
Under the majority of the exchange agreements, the floating rate received is based on 30-day LIBOR for the relevant periods indicated in the agreements. This rate was 5.42% on March 31, 1996. The Corporation's credit exposure under these agreements is limited to the cost of replacing an agreement in the event of non-performance by its counterparty. To minimize this risk, the Corporation has selected high credit quality counterparties. As of March 31, 1996, the Corporation had no credit exposure under its interest rate exchange agreements. For the three months ended March 31, 1996, outstanding interest rate exchange agreements resulted in a net increase in interest expense of Continuing Operations of approximately $1 million with a de minimus impact on the average borrowing rate. 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. -26- 27 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 1996. OTHER MATTERS Environmental Matters Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes and other related activities affecting the environment have had and will continue to have an impact on the Corporation. 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 made estimates of the probable and reasonably possible remediation costs that could be incurred by the Corporation based on the facts and circumstances currently known. In addition, the Corporation and its outside consultants are in the process of reviewing the Corporation's environmental remediation strategies to determine the most effective way to satisfy these obligations. Although the results of the review are not yet available, it may result in a second quarter charge. See note 10 to the financial statements. At March 31, 1996, the Corporation had accrued liabilities totalling $164 million for sites where it has been either named a potentially responsible party (PRP) or has other remedial responsibilities, $21 million for sites that have been divested and the Corporation has remedial or compliance obligations, $61 million for the Bloomington sites and $29 million for environmental closure activities at facilities where the Corporation has ongoing operations. Also, in conjunction with its Discontinued Operations, the Corporation has provided for remediation costs related to past operations of such sites. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations. Legal Matters The Corporation is defending a number of lawsuits on various matters. See note 10 to the financial statements. In the first quarter of 1996, the Corporation recognized $486 million of costs for potential settlements of outstanding litigation matters. Since 1993, the Corporation has entered into agreements to resolve nine 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 require the Corporation to provide 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 the Corporation's pending 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 referenced in note 10 and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. -27- 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS a) As previously reported, the Corporation was defending against a lawsuit filed in February 1993 in the United States District Court (USDC) for the Western District of Pennsylvania by Portland General Electric Company (Portland) relating to the Corporation's design, manufacture and installation of steam generators at the Trojan Nuclear Plant, an electric generating facility located in Ranier, Oregon. Also in February 1993, the Eugene Water & Electric Board (the Board), a 30% owner of the Trojan Nuclear Plant, filed a similar suit. On April 26, 1996, the Corporation and Portland reached an agreement resolving all claims asserted in this matter. The Corporation previously reached a settlement with the Board. b) As previously reported, the Corporation was defending against a lawsuit filed in July 1993 in the USDC for the District of Minnesota by Northern States Power Company (NSP) based on the Corporation's supply of steam generators at NSP's Prairie Island Nuclear Plant. On April 23, 1996, Westinghouse and NSP reached an agreement resolving all claims asserted in this matter. c) The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant did not have exposure to the Corporation's product. At March 31, 1996, the Corporation had approximately 89,000 claims outstanding against it. On May 2, 1996, 16,500 claims pending in the Multidistrict Litigation No. 875 in the USDC for the Eastern District of Pennsylvania were dismissed. Plaintiffs may appeal this dismissal. In court actions which have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers which have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. A number of the asbestos-related cases pending against the Corporation, including those pending in Mississippi, Baltimore and West Virginia, are consolidated cases. In consolidated cases, the claims of a group of plaintiffs are tried together, and oftentimes limited findings with respect to common issues of fact and punitive damages are decided with respect to a representative grouping of plaintiffs and then applied to other individuals in the group. However, for the Corporation to be liable for damages to any particular claimant, that individual claimant must prove that he developed an asbestos-related disease, that he was exposed to a Westinghouse product, and that this exposure was a substantial factor in the development of the disease. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in each of the foregoing matters and although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described in item (c) above, and management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. -28- 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS (a) The Restated Articles of the Corporation as amended to January 8, 1996 are incorporated herein by reference to Exhibit 3(a) to Form 10-K for the year ended December 31, 1995. (b) The Bylaws of the Corporation, as amended to December 28, 1995, are incorporated herein by reference to Exhibit 3(c) to Form 10-K for the year ended December 31, 1995. (4) RIGHTS OF SECURITY HOLDERS (a) 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. (1) 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. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996. (10) MATERIAL CONTRACTS (a*) The Annual Performance Plan 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, is incorporated herein by reference to Exhibit 10(b) to Form 10-K for the year ended December 31, 1995. (c*) The 1984 Long-Term Incentive Plan, as amended. (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, is incorporated herein by reference to Exhibit 10(e) to Form 10-Q for the quarter ended March 31, 1995. (f*) The Advisory Director's Plan, as amended, 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, 1995. -29- 30 (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) $7.5 billion Credit Agreement among Westinghouse Electric Corporation, the Lenders, Morgan Guaranty Trust Company of New York, and Chemical Bank, dated September 12, 1995, is incorporated herein by reference to Exhibit 10(n) to Form 10-Q for the quarter ended September 30, 1995. (l*) Employment Agreement between CBS Inc. and Peter Lund, dated as of November 28, 1995. * 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 (Item 7) dated January 9, 1996, filing a Rights Agreement by and between Westinghouse Electric Corporation and First Chicago Trust Company of New York, dated December 28, 1995. A Current Report on Form 8-K/A (Item 7) dated February 6, 1996, amending Item 7(b) of the Current Report on Form 8-K filed November 24, 1995. A Current Report on Form 8-K (Items 5 and 7) dated February 8, 1996, filing financial information for the redefined reporting segments of the Corporation. -30- 31 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of May 1996. WESTINGHOUSE ELECTRIC CORPORATION /s/ Fredric G. Reynolds ----------------------------- Executive Vice President and Chief Financial Officer -31- EX-10.C 2 WESTINGHOUSE 10-Q 1 EXHIBIT 10(c) 1984 LONG-TERM INCENTIVE PLAN (as amended as of February 28, 1996) ARTICLE I GENERAL 1.1 Purpose: -------- The purpose of the 1984 Long-Term Incentive Plan (Plan) for key employees of Westinghouse Electric Corporation (Corporation) and its Subsidiaries (the Corporation, its operating units and its Subsidiaries severally and collectively referred to hereinafter 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 executives of outstanding ability, (ii) strengthening the company's capability to develop, maintain and direct a competent management team, (iii) motivating executives, 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 executives 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 (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(d)(3) promulgated under the -1- 2/28/96 LAW2:2339 2 Securities Exchange Act of 1934. 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 from the regular, full-time salaried employees of the Company who are exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act of 1938, as amended (Employee or Employees), those who shall participate in the Plan (Participant or Participants), (ii) to make awards 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 to adopt, amend and rescind administrative guidelines and other rules and regulations relating -2- 2/28/96 LAW2:2339 3 to the Plan and (v) to make all other determinations and to take all other actions necessary or advisable for the 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 on behalf of the Corporation as sponsor of the Plan 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. 1.3 Selection for Participation: ---------------------------- Participants shall be selected by the Committee from the employees who occupy responsible managerial or professional positions and who have the capacity to contribute to the success of the Company. 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 employee, his or her past, present and potential contributions to the Company's profitability and sound growth, the value of his or her services to the Company and other factors deemed relevant by the Committee. -3- 2/28/96 LAW2:2339 4 1.4 Types of Awards under Plan: --------------------------- 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) (options), Stock Appreciation Rights (SARs), as described in Article II, (ii) Performance Units and Performance Shares (Performance Units or Performance Shares) as described in Article III, (iii) Restricted Stock (Restricted Stock) as described in Article IV and (iv) rights to purchase Convertible Debentures (Debentures) 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 7.6 (Formula Value Stock). The maximum number of shares of Common Stock and Formula Value Stock which may be issued for all purposes under the Plan shall be 13,200,000. Any shares of Stock that are used by a Participant as full or partial payment to the Corporation of the purchase price of shares of Stock acquired upon exercise of an option shall be made available for future awards under the Plan. Further, any shares of Stock subject to an option which for any reason is cancelled (excluding shares subject to an Option cancelled upon the exercise of a related SAR) or terminated without having been exercised, or any shares of Restricted Stock or Performance Shares which are forfeited, shall again be -4- 2/28/96 LAW2:2339 5 available for awards under the Plan. Shares subject to an option cancelled upon the exercise of an SAR shall not again be available for awards under the Plan. No fractional shares shall be issued, and the Committee shall determine the manner in which fractional share value shall be treated. Common Stock, Putative Common Stock, Restricted Stock, and Formula Value Stock are collectively referred to herein as "Stock". ARTICLE II STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 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 Common Stock or Formula Value Stock. The Committee may, effective as of the date of exercise by a Participant of all or part of an option using already-owned Common Stock, grant an additional option (reload option) to purchase at the fair market value as of the date of said exercise, the number of shares of Common Stock equal to the sum of the number of whole shares used by the Participant in payment of the purchase price. A reload option shall only be available during the period the Participant is an employee of the Company. The reload option may be exercised between the date of its grant and the date of -5- 2/28/96 LAW2:2339 6 expiration of the underlying option to which the reload option relates. The reload option shall be evidenced by an agreement containing such additional terms and conditions as the Committee shall approve, which conditions may provide that upon the exercise of any reload option, an additional reload option may be granted with respect to the number of whole shares used to exercise the 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: ------------- Purchase price of Common Stock or Formula Value Stock under each Option (Option Price) shall be not less than the Fair Market Value of the Common Stock or Formula Value Stock, as the case may be, on the date the Option is awarded. 2.4 Exercise and Term of Options: ----------------------------- (a) Unless otherwise provided by the Committee in the Stock Option Agreement and subject to the limitations set forth in section 2.5, an option awarded under the Plan shall become exercisable in whole or in part after the commencement of the second year of its specified term and thereafter may be exercised -6- 2/28/96 LAW2:2339 7 in whole or in part at any time before it terminates under the provisions of the Plan. (b) The Committee shall establish procedures governing the exercise of options and shall require that notice of exercise be given. Stock purchased upon 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 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. As soon as practicable after receipt of each notice and full payment, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Common Stock or Formula Value Stock. The exercise of an Option shall cancel any related SAR. 2.5 Limitations on ISOs: -------------------- No Participant shall be awarded, in any one calendar year under this Plan and under all plans of the Company, ISOs covering stock with an aggregate Fair Market Value (determined as of the -7- 2/28/96 LAW2:2339 8 time the ISOs are granted) in excess of $100,000 plus any "unused limit carryover" to such year for such Participant, as provided in Section 422A of the Internal Revenue Code of 1954, as amended, or such other limit as may be imposed by law in substitution thereof. 2.6 Termination of Employment: -------------------------- In the event the Participant ceases to be an employee with the consent of the Committee or upon his death, retirement or disability, each of his outstanding Options shall be exercisable by the Participant (or his 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 its respective expiration date. If the Participant ceases to be an employee for any other reason, all of the Participant's then outstanding options shall terminate immediately. 2.7 Award of Stock Appreciation Rights: ----------------------------------- (a) At any time prior to six months before an option's expiration date, the Committee may award to the Participant an SAR related to the Option. (b) The SAR shall represent the right to receive payment of a sum not to exceed the amount, if any, by which the Fair Market Value of the Common Stock or Formula Value Stock, as the case may be, on the date of exercise of the SAR exceeds the Option Price. -8- 2/28/96 LAW2:2339 9 (c) SARs awarded under the Plan shall be evidenced by either the Stock option Agreement or a separate agreement between the Company and the Participant. (d) An 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, except that (i) the Committee may prescribe additional conditions and limitations on the exercise of any SAR and (ii) no SAR shall be exercisable for six months after the date of award. The exercise of an SAR shall cancel the related Option. SARs may be exercised only when the Fair Market Value of a share of Common Stock or Formula Value Stock, as the case may be, exceeds the Option Price. (e) All SARs shall automatically be exercised on the last trading day prior to the expiration of the related ISO or NSO, so long as the Fair Market Value on such date exceeds the specified option Price. (f) 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 reduced may be made to the Participant at a subsequent time. No such limitation shall require a Participant to return to -9- 2/28/96 LAW2:2339 10 the Company any amount theretofore received by him upon the exercise of an SAR. (g) Payment of the amount to which a Participant is entitled upon the exercise of an SAR shall be made in cash, Stock, or 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. (h) Each SAR shall expire on a date determined by the Committee at the time of award, or earlier upon the occurrence of the first of the following: (i) termination of the related option, (ii) expiration of a period of six months after the later of either (1) the Participant ceasing to be an employee with the consent of the Committee or upon his death, retirement or disability or (2) termination of the Participant's service as a director of the corporation or (iii) the Participant ceasing to be an employee for any other reason. 2.8 Limited Stock Appreciation Rights: ---------------------------------- (a) The Committee may award limited stock appreciation rights (Limited Rights) pursuant to the provisions of this paragraph to the holder of an Option 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 -10- 2/28/96 LAW2:2339 11 period beginning on the first day following a Change in Control, as defined in Section 7.6(g) of the Plan, and ending on the thirtieth day following such date. Each Limited Right shall be exercisable only to the same extent the related option is exercisable, and in no event after the determination 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. 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, and shall be considered to have been exercised to that extent for purposes of determining the number of shares of Common Stock available for the grant of options under the Plan. 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. -11- 2/28/96 LAW2:2339 12 (c) Except as otherwise provided in Section 7.3, the provisions of the Plan shall also be applicable to Limited Rights unless the context otherwise requires. 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. (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) 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 2.8, 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 -12- 2/28/96 LAW2:2339 13 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. ARTICLE III PERFORMANCE SHARES AND UNITS 3.1 Award of Performance Units and Performance Shares: -------------------------------------------------- The Committee may award to any Participant Performance Shares and Performance Units (Performance Award or Performance Awards). Each Performance Share shall represent, as the Committee shall determine, one Share of the Stock. Each Performance Unit shall represent the right of a Participant to receive an amount equal to the value determined in the manner established by the Committee at time of award, which value may, without limitation, be equal to the Fair Market Value of one share of Stock. 3.2 Performance Unit and Performance Share Agreements: -------------------------------------------------- Each Performance Award under the Plan shall be evidenced by a signed written agreement containing such terms and conditions as the committee may determine. -13- 2/28/96 LAW2:2339 14 3.3 Establishment of Performance Accounts: -------------------------------------- At the time of award, the Company shall establish an account (Performance Account) for each Participant. Performance Units and Performance Shares awarded to a Participant shall be credited to the Participant's Performance Account. Performance Shares in the form of Restricted Stock shall be registered in the name of the Participant and deposited, together with a stock power endorsed in blank, with the Corporation; at such time the Participant's Performance Account will be credited. 3.4 Performance Period and Targets: ------------------------------- (a) The performance period for each award of Performance Shares and Performance Units shall be of such duration as the Committee shall establish at the time of award (Performance Period). There may be more than one award in existence at any one time, and Performance Periods may differ. (b) At the time of each Performance Award, the Committee shall establish superior and satisfactory performance targets to be achieved within the Performance Period. The superior and satisfactory performance targets shall be determined by the Committee using such measures of the performance of the Company over the Performance Period as it shall select. Attainment of superior performance target in respect of a Performance Period shall earn 100% of the related Performance Award. Failure to meet the satisfactory performance target will earn no Performance -14- 2/28/96 LAW2:2339 15 Award. Performance Awards will be earned as determined by the Committee in respect of a Performance Period in relation to the degree of attainment of performance between the superior and satisfactory performance targets. 3.5 Rights and Benefits During Performance Period: ---------------------------------------------- (a) The Committee may provide that amounts equivalent to dividends paid shall be payable with respect to each Performance Share awarded, and that amounts equivalent to interest at such rates as the Committee may determine shall be payable with respect to amounts equivalent to dividends previously credited to the Participant's Performance Account. (b) The Committee may provide that amounts equivalent to interest at such rates as the Committee may determine shall be payable with respect to Performance Units. (c) All amounts payable pursuant to this section shall be credited to the Participant's Performance Account. 3.6 Payment Respecting Performance Awards: -------------------------------------- (a) Performance Awards shall be earned to the extent that the terms and conditions of the Plan are met. Notwithstanding the foregoing, Performance Shares, Performance Units and any other amounts credited to the Participant's Performance Account shall be -15- 2/28/96 LAW2:2339 16 payable to the Participant only when, if and to the extent that the Committee determines to make such payment. (b) All payment determinations shall be made by the Committee during the first four months following the end of the Performance Period. If such determinations are not made during such four-month period, the Performance Shares and Performance Units awarded in connection with that Performance Period shall terminate and be canceled and related dividends or amounts equivalent to dividends and any amounts equivalent to interest shall be forfeited. (c) The Participant may, other than with respect to those Performance Shares or Performance Units awarded in the form of Restricted Stock, elect, not later than October 31 of the last year of the Performance Period applicable to such Performance Shares or Performance Units, to defer any payment respecting an award of Performance Shares or Performance units pursuant to Article VI hereof. 3.7 Forms of Payment: ----------------- (a) Payment for Performance Shares and any related dividends, amounts equivalent to dividends and amounts equivalent to interest may be made in a lump sum or in installments, in cash, Stock, Debentures or in a combination thereof as the Committee may -16- 2/28/96 LAW2:2339 17 determine. Performance Shares paid in the form of Restricted Stock shall be redelivered to the Participant. (b) Payment for Performance Units and any related amounts equivalent to interest may be made in a lump sum or in installments, in cash, Stock, Debentures or in a combination thereof as the Committee may determine. 3.8 Termination of Employment: -------------------------- In the event the Participant ceases to be an employee before the end of any Performance Period with the consent of the committee, or upon his death, retirement or disability before the end of any Performance Period, the Committee, taking into consideration the performance of such Participant and the performance of the Company over the Performance Period, may authorize the payment to such Participant (or his legal representative or designated beneficiary) of all or a portion of the amount which would have been paid to him had he continued as an employee to the end of the Performance Period. In the event a Participant ceases to be an employee for any other reason, all Performance Shares, Performance Units and all amounts credited to his Performance Account shall be forfeited. -17- 2/28/96 LAW2:2339 18 ARTICLE IV RESTRICTED STOCK 4.1 Award of Restricted Stock: -------------------------- The Committee may award to any Participant shares of Common Stock, Putative Common Stock or Formula Value Stock subject to this Article IV and such other terms and conditions as the Committee may prescribe, such shares being herein called "Restricted Stock". Each certificate for Restricted Stock shall be registered in the name of the Participant and deposited by him, together with a stock power endorsed in blank, with the Corporation. 4.2 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. 4.3 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. Shares of Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as hereinafter provided, during the Restriction Period. Except for such restriction on transfer, the Participant as owner -18- 2/28/96 LAW2:2339 19 of such shares of Restricted stock shall have all the rights of a holder of such Restricted Stock. At the expiration of the Restriction Period, the Corporation shall redeliver to the Participant (or his legal representative or designated beneficiary) the shares deposited pursuant to Section 4.1. 4.4 Termination of Employment: -------------------------- In the event the Participant ceases to be an employee with the consent of the Committee, or upon his death, retirement or disability, the restrictions imposed under this Article IV shall lapse with respect to such number of shares theretofore awarded to him as shall be determined by the Committee, but, in no event less than a number equal to the product of (i) a fraction the numerator of which is the number of completed months elapsed after the date of award of the Restricted Stock to the Participant to the date of termination and the denominator of which is the number of months in the Restriction Period and (ii) the number of shares of Restricted Stock. In the event the Participant ceases to be an employee for any other reason, all shares of Restricted Stock theretofore awarded to him which are still subject to restrictions shall be forfeited and the Corporation shall have the right to complete the blank stock power. -19- 2/28/96 LAW2:2339 20 ARTICLE V CONVERTIBLE DEBENTURES 5.1 Award of Rights to Purchase Convertible Debentures: --------------------------------------------------- Convertible Debentures on such terms and conditions as the Committee shall determine. The purchase price per Debenture shall be its face amount, which shall equal its Fair Market Value. The Participant shall retain the right to purchase Debentures for such period as the Committee shall determine at the time of award, but in no event for longer than four years from date of award. 5.2 Convertible Debenture Agreements: --------------------------------- The Debentures are to be issued pursuant to a signed written agreement and any agreement supplemental thereto (collectively, a Convertible Debenture Agreement) containing such terms and conditions as the Committee may determine. The Debentures are to be issued in series; each series may be issued under a separate Convertible Debenture Agreement, or two or more series may be issued under a single Convertible Debenture Agreement. The Convertible Debenture Agreement may provide that a Participant may pledge Debentures as security to provide all or a part of the financing necessary to purchase the Debentures upon providing the Company with written notice of the pledge. The -20- 2/28/96 LAW2:2339 21 conversion privilege will not be exercisable during such times as the Debenture is pledged, and at all other times shall be exercisable only by the Participant (or his legal representative or designated beneficiary). 5.3 Terms and Conditions of the Debentures: --------------------------------------- (a) Each Debenture will be due upon the earliest of (i) five years from the date of issuance, (ii) such date as the Committee shall determine at time of award or (iii) such date as the Company redeems a series of Debentures or prepays an individual Debenture (Due Date). The Committee may extend the term of a series for any period of time up to ten years without stockholder approval, as shall be set forth in the Convertible Debenture Agreement for that series. The Debentures shall be issued in denominations equal to fair market value and will accrue interest, from the date of issuance, at the rate, which may be fixed or variable, set by the Committee at the time of award. (b) Debentures will be convertible into fully paid and nonassessable shares Of Common Stock or Formula Value Stock or such other type of securities, which may immediately be convertible into Common Stock, as the Committee shall determine at time of award, at any time after one year from the date of issuance and to the extent the terms and conditions of the award and the Plan are met, but in no event later than the Due Date. The conversion rate of a Debenture shall be set by reference to -21- 2/28/96 LAW2:2339 22 the Fair Market Value of the Common Stock or Formula Value Stock on the last trading day prior to the date of issuance (and not thereafter adjusted). 5.4 Termination of Employment: -------------------------- In the event the Participant ceases to be an employee with the consent of the Committee, or upon his death, retirement or disability, the Participant (or his legal representative or designated beneficiary) may convert all or a part of the Debentures, to the extent such Debentures were then convertible, for such period as the Committee shall determine at the time of award. In the event a Debenture is not converted within the time allowed under this Section 5.4, the Company may prepay the Debenture. In the event the Participant ceases to be an employee for any other reason, all of the Participant's then outstanding conversion rights shall terminate immediately. ARTICLE VI DEFERRAL OF PAYMENTS 6.1 Election to Defer: ------------------ A Participant may elect, no later than October 31 of the last year of the Performance Period, to defer all or a portion of his Performance Award within deferral limits established by the Committee (Deferred Amount). The Committee may permit amounts now or hereafter deferred or available for deferral under any -22- 2/28/96 LAW2:2339 23 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. All Deferred Amounts will be subject to such terms and conditions as the Committee may from time to time establish. 6.2 Deferral Period: ---------------- The Participant may elect to receive payment of Deferred Amounts and any yield thereon either before or after retirement in a lump sum or in installments. Upon the death of a Participant, payment of any amounts hereunder shall be made to the Participant's designated beneficiary or estate (in the absence of a designated beneficiary) in the manner elected by the Participant or (in the event the Participant made no election) in the manner determined by the Committee. The period between the date the Participant's Deferred Amount becomes payable and the final payment of such Deferred Amount hereunder shall be known as the "Deferral Period." 6.3 Investment During Deferral Period: ---------------------------------- Unless otherwise determined by the Committee, the Deferral Amount will be treated as if it had been invested in putative debentures. Each putative debenture will be deemed to be -23- 2/28/96 LAW2:2339 24 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. The yield to be paid by the Company on Deferred Amounts, whatever the form of investment selected by the Committee, shall not exceed the higher of (i) the market rate available from time to time on such investment or (ii) the rate of return on equity of the Corporation or any relevant Subsidiary as determined by the Committee. 6.4 Participant Reports: -------------------- Annually, each Participant who has a Deferred Amount will receive a report setting forth all then Deferred Amounts and the yield thereon to date. 6.5 Payment of Deferred Amounts: ---------------------------- Unless otherwise agreed by the Company and the Participant, 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 determine. The limitations respecting the issuance of Stock or other limitations on aggregate awards payable contained in Article XVI of the by-laws of the Corporation, in the 1974 Stock Option Plan, 1979 Stock Option and 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. -24- 2/28/96 LAW2:2339 25 6.6 Alternate Valuation Election: ----------------------------- A Participant may, at a time established by the Committee but prior to such Participant ceasing to be an Employee, elect to establish the ultimate payable value of each Deferred Amount by reference to the Fair Market Value of the Stock as of the day on which notice of the alternate valuation election is received by the Corporation in accordance with the 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 has been made and will continue to be subject to the limitations set forth in Section 6.3, and Deferred Amounts and the yield thereon will be paid as otherwise provided in this Article. ARTICLE VII MISCELLANEOUS PROVISIONS 7.1 Non-Transferability: -------------------- No Option, SAR, Performance Share, Performance Unit, share of Restricted Stock or Debenture award under the Plan shall be transferable by the Participant otherwise than by will or, if the Participant dies intestate, by the laws of descent and distribution. All awards shall be exercisable or received during the Participant's lifetime only by such Participant or his legal -25- 2/28/96 LAW2:2339 26 representative. Any transfer contrary to this Section 7.1 will nullify the Option, SAR, Performance Share, Performance Unit or share of Restricted Stock and will nullify the conversion right of a Debenture. 7.2 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 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 Shares or awards of 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. -26- 2/28/96 LAW2:2339 27 7.3 Conditions on Awards: --------------------- In the event that the employment of a Participant holding any unexercised Option or SAR, or any unearned right to purchase or conversion right under a Debenture or unearned Performance Award or Stock shall terminate with the consent of the Committee or by reason of retirement or disability, the rights of such Participant to any such Option, SAR, Debenture, Performance Award or Stock shall be subject to the conditions that until any such Option or SAR is exercised, or any such conversion right, Purchase right, Performance Award or Stock is earned, he 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 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 was actively connected during his 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 fulfilled, the Participant shall forfeit all rights to any unexercised Option or SAR, or any unearned conversion right, purchase right, Performance Award or -27- 2/28/96 LAW2:2339 28 Stock held (and any unpaid amounts equivalent to dividends 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 Chairman, 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. 7.4 Use of Proceeds: ---------------- All cash proceeds from the exercise of options or the sale of Debentures shall constitute general funds of the Company. 7.5 Amendment, Suspension and Termination of Plan: ---------------------------------------------- (a) The Board of Directors may suspend or terminate the Plan or any portion thereof at any time and may amend it from time to time in such respects as the Board of Directors may deem advisable in order that any awards thereunder shall conform to any change in applicable laws or regulations, or to permit the Company or its employees to enjoy the benefits of any change in applicable laws or regulations, or in any other respect the Board of Directors may deem to be in the best interests of the Company; provided, however, that no such amendment shall, without stockholder approval, (i) except as provided in Section 7.2, materially increase the number of shares of Stock which may be issued under the Plan, (ii) materially modify the requirements as to -28- 2/28/96 LAW2:2339 29 eligibility for participation in the Plan, (iii) materially increase the benefits accruing to Participants under the Plan, (iv) make any other change that would disqualify the Plan for purposes of the exemption provided by Rule 16b-3(d)(3), (v) reduce the Option Price below the Fair Market Value of the Common Stock or Formula Value Stock on the day the Option is awarded, (vi) permit the award of SARs other than in tandem with an Option, (vii) permit the exercise of an SAR during the first six months of its term except as otherwise provided herein, (viii) permit the exercise of an Option or SAR without surrender of the correlative rights or (ix) extend the termination date of the Plan. However, no such amendment, suspension or termination shall, unless the Participant affected thereby consents, alter or impair any outstanding Option, SAR, share of Stock, Performance Unit, Performance Share or Debenture in any way that would adversely affect the rights of such Participant with respect to such award. (b) The Committee may and, with respect to awards of persons who are not required to file reports with respect to securities of the Company pursuant to Section 16(a) of the Securities Exchange Act of 1934, may authorize its delegates, acting with within limits approved from time to time by the Committee, to amend or modify any outstanding Options, SARs, shares of Stock, Performance Units, Performance Shares or Debentures, in any manner to the extent that the Committee would have had the authority under the Plan to initially award such options, SARs, shares of Stock, Performance -29- 2/28/96 LAW2:2339 30 Units, Performance Shares or Debentures, as so modified or amended, including without limitation, to change the date or dates as of which such Options or SARs may be exercised, the restrictions on shares of Restricted Stock are removed or the Performance Units or Performance Shares are determined and paid, or may cancel any outstanding award, except that the Committee and its authorized delegates may not, unless the Participant affected thereby consents, take any action pursuant to this Section 7.5(b) that would adversely affect the rights of such Participant with respect to such award. 7.6 Definitions and other General Provisions: ----------------------------------------- (a) 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 Corporation's 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 Corporation's 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 -30- 2/28/96 LAW2:2339 31 "Fair Market Value" as it relates to Formula Value Stock and Debentures 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 the voting power in one of the other corporations in such chain. (d) The term "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. (e) The adoption of the Plan shall not preclude the adoption by appropriate means of any other stock option or other incentive plan for employees. (f) Change in Control. Notwithstanding any other provision of the Plan, upon the occurrence of a Change in Control, as defined in Section 7.6(g), (i) all Options and Limited Rights, but not SARs, outstanding and unexercised on the date of the Change in Control -31- 2/28/96 LAW2:2339 32 shall become immediately exercisable; (ii) all Performance Shares and Performance Units 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; (iv) all Convertible Debentures shall be immediately convertible on such terms and conditions as the Committee may determine; and (v) all amounts deferred under this Plan paid to a trustee or otherwise on such terms as the Committee may prescribe or permit. (g) The term 'Change in Control' means the occurrence of one or 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 Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's 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 -32- 2/28/96 LAW2:2339 33 (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 Securities Exchange Act of 1934, as amended) (the "Exchange Act"), corporation or other entity shall purchase any Common Stock of the Corporation (or securities convertible into the Corporation's 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 become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange 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 -33- 2/28/96 LAW2:2339 34 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. 7.7 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 and timing 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. 7.8 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, -34- 2/28/96 LAW2:2339 35 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. 7.9 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 the shares of Common Stock or Formula Value Stock or the Debentures subject or related thereto 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 or 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. -35- 2/28/96 LAW2:2339 36 7.10 Effective Date: --------------- The Plan shall be deemed effective as of January 1, 1984 and shall terminate on December 31, 1993. Notwithstanding the foregoing, the provisions of Article VI of the Plan shall survive and remain effective as to all present and future Deferred Amounts until such date after December 31, 1993 as the Committee or the Board of Directors shall determine. -36- 2/28/96 L AW2:2339 EX-10.L 3 WESTINGHOUSE 10-Q 1 EXHIBIT 10(l) AGREEMENT made as of the 28th day of November, 1995, by and between CBS Inc. ("CBS"), a New York corporation, having its principal office at 51 West 52 Street, New York, New York 10019, and PETER LUND ("Executive"). W I T N E S S E T H: -------------------- WHEREAS, Executive has been performing services as President of the CBS Broadcast Group of CBS pursuant to an agreement between Executive and CBS, made as of February 23, 1995 (the "Existing Agreement"); and WHEREAS, CBS desires to secure the services of Executive as President and Chief Executive Officer of CBS and Executive is willing to perform such services, upon the terms, provisions and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter contained, it is agreed upon between CBS and Executive as follows: 1. This Agreement supersedes, cancels and replaces the Existing Agreement between CBS and Executive in all respects as of the date hereof, except that the compensation arrangement set forth in the Existing Agreement shall be superseded by the compensation arrangements set herein as of January 1, 1996, provided that the bonus payment of $350,000 due Executive in respect of "the first contract year" under paragraph 3(b) of the Existing Agreement shall be paid to Executive in February, 1996. 2. (a) CBS hereby employs Executive, and Executive hereby accepts employment as President and Chief Executive Officer of CBS for a term cornmencing as of the date hereof and ending December 31, 1999 (the "Employment Term"). (b) Executive shall be based in New York City and report directly and only to the 2 highest executive officer of Westinghouse Electric Corporation ("Westinghouse") (currently, Michael H. Jordan) and the Board of Directors of Westinghouse and will act in accordance with the requirement of Law with respect to all CBS and all applicable CBS and Westinghouse subsidiaries engaged in the Broadcasting business. Executive's authority shall include the right to hire and fire all persons employed by CBS and to approve any and all employment and similar agreements relating to such persons in accordance with CBS and Westinghouse personnel policies and practices, including the Westinghouse Compensation Committee Charter. (c) All officers, employees and other personnel of CBS shall report only to Executive either directly or through such channels as Executive in his discretion shall specify. Executive shall have full authority to manage CBS, including its personnel, business and operations in accordance with applicable policies and procedures, including those of the Westinghouse Board. (d) All entities which conduct activities or operations described below and which are owned, operated or controlled in whole or part by Westinghouse or in which Westinghouse has a direct or indirect interest will be treated as if they were part of CBS, and the presidents or other chief executive officers, as applicable, of such entities will report solely to Executive. Without limitation, the foregoing shall apply to any such domestic United States entity, regardless of where it conducts business and any foreign entity which conducts business in the United States, which Westinghouse owns, operates, controls or in which it acquires a direct or indirect interest following the date hereof, and which is engaged, directly or indirectly, in any activity or operation which the CBS Broadcast Group operated or controlled or in which it or any entity related to it had an interest on November 24, 1995. Such activities and operations include, or are deemed to include, with limitation, the following, anywhere throughout the world: (A) television network broadcast 2 3 operations and activities; (B) ownership, management and/or operation of television stations; (C) development, production, co-production, financing, distribution and exploitation of audiovisual works and any elements thereof and derivatives therefrom; (D) the ownership, management and/or operation of radio stations and/or radio networks; and, (E) commercial tie-ups and merchandising. 3. (a) CBS agrees to pay Executive, and Executive agrees to accept from CBS for his services hereunder, a base salary of $1,700,000 per annum for the first contract year (effective January 1, 1996), $1,950,000 for the second contract year (effective January 1, 1997), $2,200,000 for the third contract year (effective January 1, 1998), and $2,450,000 for the fourth contract year (effective January 1, 1999). Executive's base salary shall be paid bi-weekly or in such other manner as CBS may designate for employees generally. (b) CBS agrees that Executive's Annual Incentive target for each of 1996, 1997, 1998, and 1999 shall be $1,000,000 (100 percent of target), but that Executive shall receive no les than $1,000,000 as his Annual Incentive payment with respect to 1996 (payable in February, 1997) and no less than $600,000 (60 percent of target) as his Annual Incentive payment with respect to each of 1997, 1998, and 1999 (payable in February of 1998, 1999, and 2000, respectively). The precise amount of such payments in respect of 1996, 1997, 1998, and 1999 shall be determined on an annual basis at the sole discretion of the Compensation Committee of the Board of Directors of Westinghouse within the award range of 60% to 200% of target, subject to the foregoing guaranteed minimum payments. The full amount of the Annual Incentive payments may be deferred in accordance with the terms of the Westinghouse Deferred Incentive Compensation Program as in effect from time to time. (c) Executive shall be granted 500,000 options on December 6, 1995 at that day's -3- 4 fair market value. The options will be under and subject to the terms of Westinghouse's 1993 Long-Term Incentive Plan and the non-qualified option agreement between Executive and Westinghouse, a copy of which is annexed hereto, except to the extent that any of the terms otherwise provided in this subparagraph (c) are more favorable to Executive, in which case such more favorable terms will apply to Executive: 250,000 of the options shall vest after one year from the date of the grant, and 250,000 of the options shall vest after two years from the date of the grant. In the event of Executive's death, however, all previously granted unvested options shall vest effective on the date of Executive's death. An additional 100,000 options will be granted in December, 1998, and shall vest one year from the date of the grant so that said shares shall vest no later than the last business day of December, 1999 pursuant to the non-qualified option agreement with the same terms as the option agreement which is annexed hereto. All of the options granted shall expire ten years from the date of the grant, or upon the termination of Executive's employment with CBS, whichever occurs first, except that in the event of a change in control of Westinghouse, or in the event Executive is terminated without Cause, for disability, or resigns for Good Reason, all unvested options shall vest immediately and all options shall expire two years from the date of termination or ten (10) years from the date of grant, if earlier; if Executive retires, he shall have three years from the date of retirement in which to exercise outstanding vested options or ten (10) years from the date of grant, whichever occurs earlier. Notwithstanding the foregoing, or any other provision in agreement, or the stock option agreements, in the event that Executive should become engaged in a conflict of interest with CBS following the termination of Executive's employment because of retirement, all options shall terminate immediately upon Executive's failure to cure such conflict within fifteen (15) days after receipt of written notice specifying the alleged breach in detail. A -4- 5 conflict of interest for the purpose of this paragraph shall be defined by the same standards as a conflict of interest that arises during the course of Executive's employment. (d) In no event will Executive be deemed to be disabled until he has been unable to render all or substantially all of his material duties for a period of twelve (12) consecutive weeks and CBS shall have given him written notice that it considers him contractually disabled. If Executive is given such notice, Executive shall continue to receive as long as he remains so disabled up to December 31, 1999 an amount equal to his base salary (in effect at the time of such notice), reduced by the maximum amount of salary which is insured and paid under the CBS Long Term Disability ("LTD") Plan (or any successor plan thereto). In addition, with respect to the year in which Executive is given such notice, he shall receive a pro rated portion of his minimum Guarantee Annual Incentive payment to the date of such notice, but no further Annual Incentive payments. (e) In the event of the death of Executive, salary payments and Annual Incentive payments to be paid pursuant to this Agreement shall cease immediately. Notwithstanding the foregoing, the estate of Executive, or his designated beneficiary in the case of insurance proceeds, shall receive all salary payments due through the date of Executive's death, a pro rated portion of his minimum guaranteed Annual Incentive payment with respect to the year of death pro rated to the date of death, and all of the proceeds under all insurance plans covering Executive pursuant to Paragraph 4 or successor plans thereto as designated by Executive on an appropriate beneficiary form. 4. (a) Executive shall be included in all plans now existing or hereafter adopted for the general benefit of CBS Employees, such as investment funds and group medical, disability or other insurance plans and benefits, subject to the provisions of such plans as the same may be in -5- 6 effect from time to time. With respect to pension benefits, Executive is a vested participant in the CBS Pension Plan and shall be entitled to the same benefit accruals as are provided under the CBS Pension Plan (and related supplemental and excess retirement plans) as of November 24, 1995 (including all provisions relating to the calculation and payment of, and eligibility to receive, benefits, with the understanding that the actuarial assumptions for the calculation of the lump sum benefit, may be modified in accordance with applicable law); provided, to the extent that the foregoing pension benefits and any other benefits to which Executive was entitled on November 28, 1995, exceed the benefits payable to Executive under any plan or plans in effect at the time Executive is to receive benefit thereunder, CBS will pay Executive in each instance on a supplemental basis the excess of the benefits to which Executive was entitled on November 28, 1995, over the benefits to which Executive then is entitled. Executive will also participate in other CBS benefit plans in which participation is limited to CBS executives in positions comparable to or lesser than Executive's, and in any Westinghouse benefit plans for which a similar type of CBS plan does not exist or does exist but with benefits that are less than the Westinghouse plan and in which participation is limited to executives in positions comparable to Executive's. To the extent Executive participates in any benefit plan, such participation shall be based upon Executive's base salary and minimum Annual Incentive payment, unless otherwise indicated in the plan document, as in the case of the Supplemental Executive Retirement Plan. (b) At all times during the Term, Executive will be covered under the Universal Life Insurance and disability policies which presently cover Executive. 5. Executive shall be entitled to four weeks vacation with pay, and vacation shall be governed in accordance with CBS policy. -6- 7 6. Executive agrees to devote all customary business time and attention to the affairs of CBS, except during vacation periods and reasonable periods of illness or other incapacity consistent with the practices of CBS for executives in comparable positions, and agrees that his services shall be completely exclusive to CBS during the term hereof 7. Executive acknowledges that he has been furnished a copy of the "Policy Notes from the President" concerning conflicts of interest ("Conflicts Policy"), dated December 13, 1989, and a copy of the "CBS Policy Summary." Executive further acknowledges that he has read and understands all the requirements thereof, and acknowledges that at all times during the Employment Period he shall perform his services hereunder in full compliance with the Conflicts Policy and the CBS Policy Summary and with any revisions thereof or additions thereto. 8. (a) If, during the term of this Agreement, CBS properly terminates the employment of Executive for Cause, then CBS's obligations hereunder, except pursuant to paragraph 10 (provided that the exception for paragraph 10 shall not apply to any claim, loss, liability, judgment or expense resulting from the Cause for which Executive has been terminated), shall terminate immediately. Nothing herein shall be deemed to affect Executive's entitlement under benefit or other plans in which he participates, it being understood that the construction or termination of such entitlement shall be as provided for in the relevant plan documents. For all purposes of Agreement, "Cause" shall mean on the part of Executive any of the following: (i) rendering business-related services for others, if such violative act is not cured within fifteen (15) days after written notice specifying the alleged breach in detail; (ii) misappropriating or embezzling assets of CBS or committing an act of fraud or other dishonesty as to CBS, (iii) being convicted in a court of law of committing any other act of misappropriation, embezzlement, fraud or dishonesty; (iv) failure to render material services under this Agreement other than by reason of disability, unless -7- 8 such failure is cured within fifteen (15) days after written notice specifying the alleged breach in detail; or (v) intentionally violating material policies and procedures of CBS, which are consistently applied to other executives of CBS and are not inconsistent with this Agreement, after Executive has received written notice that continued violation of such policies could result in his termination. (b) If, during the term of this Agreement, the employment of Executive by CBS should be terminated by CBS other than for Cause (as defined above) or it is terminated by Executive for Good Reason (as hereafter defined) Executive shall immediately receive a lump sum payment in an amount equal to the balance of all base salary payments and minimum Annual Incentive payments called for by this Agreement for the balance of the Employment Term or severance pay in accordance with CBS's present policy, whichever is greater (and in no event shall the amount of such lump-sum payment be less than the sum of one (1) year of base salary at Executive's then-existing rates and the amount of the minimum Annual Incentive payment for the year in which the termination occurs). Notwithstanding the above, if the employment of Executive is terminated by CBS for Cause or by reason of disability or death, this paragraph 8(b) shall not be applicable. The provisions of this paragraph 8(b) shall not affect the right of Executive to receive all base salary payments and a prorated portion of the minimum Annual Incentive payment called for by this Agreement through the date of termination, irrespective of the reason for termination. If the employment of Executive is terminated by CBS for Cause, the provisions of this paragraph 8(b) shall not affect the right of Executive to receive all base salary payments called for by this Agreement through the date of termination. (c) "Good Reason" shall mean a change in control of Westinghouse or any of the following (without the Executive's prior express written consent) which, on written notice received from the Executive, CBS shall not have cured within fifteen (15) days; (A) the repeated failure of -8- 9 CBS to pay Executive any compensation or benefits due and owing hereunder (it being agreed that written notice in respect of a repeated failure need be given oly one time); (B) removing the Executive from his title or position as President and Chief Executive Officer of CBS; (C) inserting any other person in the chain of authority between the Executive and the highest executive officer of Westinghouse Electric Corporation, (D) diminishing the Executive's authority for the management and operation of CBS, or (E) diminishing in any substantial way the functions of CBS, provided that this provision shall not be deemed to alter the terms of paragraph 2(d). 9. CBS and Executive agree that, beginning not later than April 1, 1999, if this Agreement is then in effect, and if both parties desire to continue their relationship, they will engage in good faith discussions looking to an extension of this Agreement, or to a successor employment agreement, to become effective on or before the expiration of this Agreement. 10. To the fullest extent permitted by the laws of the State of New York, CBS shall protect, indemnify and hold harmless Executive and any entity claiming under or through him from and against any claim, loss, liability, judgment and expense (including reasonable attorneys' fees) arising from or relating to Executive's employment by CBS. 11. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration held in New York City and administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 12. This Agreement contains the entire understanding of the parties with respect to the subject matter thereof, supersedes any and all prior agreements of the parties with respect to the subject matter thereof and cannot be changed or extended except by a writing signed by both parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties and their -9- 10 respective legal representatives, executors, heirs, administrators, successors and assigns. This Agreement and all matters and issues collateral thereto shall be governed by the laws of the State of New York applicable to contracts performed entirely therein. If any provision of this Agreement, as applied to either party or to any circumstance, shall be adjudged by a court to be void and unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability thereof. 13. All notices or other communications hereunder shall be given in writing and shall be deemed given if served personally or mailed by registered or certified mail, return receipt requested, to the parties at their respective addresses above indicated, or at such other address or address they may hereafter designate in writing. Any notice to CBS shall be sent to the attention of the Senior Vice President, Human Resources, with a copy to the General Counsel of CBS. Any notice to Executive also shall be sent in the same manner to: Franklin, Weinrib, Rudell & Vassallo, P.C. 488 Madison Avenue New York, New York 10022 Attn: Michael I. Rudell, Esq. IN WITNESS WHEREOF, the parties have executed this Agreement as of November 28, 1995. CBS INC. By MICHAEL H. JORDAN ----------------------------- PETER A. LUND ----------------------------- Executive -10- EX-11 4 WESITINGHOUSE 10-Q 1 EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS (unaudited)
Three Months Ended March 31 ------------------ 1996 1995 ---- ---- EQUIVALENT SHARES: Average shares outstanding 397,459,976 357,422,449 Additional Shares due to: Stock options 5,949,398 4,378,665 Series C Preferred Shares 36,000,000 36,000,000 ----------- ----------- Total equivalent shares 439,409,374 397,801,114 =========== =========== ADJUSTED EARNINGS (in millions): Loss from Continuing Operations $ (764) $ (9) Less: Series B preferred stock dividends - 13 ------- ------- Adjusted loss from Continuing Operations $ (764) $ (22) ------- ------- Income from Discontinued Operations $ 1,008 $ 24 Extraordinary item (63) - ------- ------- Adjusted net income $ 181 $ 2 ======= ======= EARNINGS (LOSS) PER SHARE From Continuing Operations $ (1.74) $ (0.05) From Discontinued Operations 2.29 0.06 From Extraordinary item (0.14) - ------- ------- Earnings (loss) per share (a) $ 0.41 $ 0.01 ======= =======
(a) For earnings per share using an alternative treatment for the Series C Preferred Shares, see note 11 to the condensed consolidated financial statements included in Part I of this report -32- EX-12.A 5 WESTINGHOUSE 10-Q 1 EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in millions) (unaudited)
Three Months Ended March 31 ------------------ 1996 1995 ---- ---- Income (loss) before income taxes and minority interest $(1,148) $ (16) Less: Equity in income (loss) of 50 percent or less owned affiliates - - Add: Fixed charges excluding capitalized interest 153 53 ------- ------- Earnings as adjusted $ (995) $ 37 ======= ======= Fixed charges: Interest expense $ 146 $ 48 Rental expense 7 5 Capitalized interest - - ------- ------- Total fixed charges $ 153 $ 53 ======= ======= Ratio of earnings to fixed charges (a) (b) ======= =======
(a) Additional income before income taxes and minority interest of $1,148 million would be necessary to attain a ratio of earnings to fixed charges of 1.00x for the quarter ended March 31, 1996. (b) Additional income before income taxes and minority interest of $16 million would be necessary to attain a ratio of earnings to fixed charges of 1.00x for the quarter ended March 31, 1995. -33- 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 March 31 ------------------ 1996 1995 ---- ---- Income (loss) before income taxes and minority interest $(1,148) $ (16) Less: Equity in income (loss) of 50 percent or less owned affiliates - - Add: Fixed charges excluding capitalized interest 171 109 ------- ------- Earnings as adjusted $ (977) $ 93 ======= ======= Combined fixed charges and preferred dividends: Interest expense $ 146 $ 48 Rental expense 7 5 Capitalized interest - - Pre-tax earnings required to cover preferred dividend requirements (a) 18 56 ------- ------- Total combined fixed charges and preferred dividends $ 171 $ 109 ======= ======= Ratio of earnings to combined fixed charges and preferred dividends (b) (c) ======= =======
(a) Dividend requirement divided by 100% minus effective income tax rate. (b) Additional income before income taxes and minority interest of $1,148 million would be necessary to attain a ratio of earnings to combined fixed charges and preferred dividends of 1.00x for the quarter ended March 31, 1996. (c) Additional income before income taxes and minority interest of $16 million would be necessary to attain a ratio of earnings to combined fixed charges and preferred dividends of 1.00x for the quarter ended March 31, 1995. -34- EX-27 7 WESTINGHOUSE 10-Q
5 0000106413 WESTINGHOUSE ELECTRIC 1,000,000 3-MOS DEC-31-1996 MAR-31-1996 95 0 1,614 38 758 4,353 3,638 1,753 15,369 4,579 3,658 426 4 0 1,439 15,369 1,956 1,956 1,515 1,515 1,297 0 146 (1,148) (385) (764) 1,008 (63) 0 181 .41 .41
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