-----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, FuOZTlgNi1KAxThhhtDFu/rXYBMeA0NBberIo789WA0eU+8XFY5LTH3ecJNCh4rB 97nLHY06rSMyk/uLeRxqFA== 0000950128-97-000842.txt : 19970715 0000950128-97-000842.hdr.sgml : 19970715 ACCESSION NUMBER: 0000950128-97-000842 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970714 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00977 FILM NUMBER: 97640233 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/A 1 WESTINGHOUSE ELECTRIC CORP. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549-1004 FORM 10-Q/A (Amendment No. 1) (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, 1997 -------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission file number 1-977 --------- WESTINGHOUSE ELECTRIC CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 25-0877540 ------------ ---------- (State of Incorporation) (I.R.S. Employer Identification No.) Westinghouse Building, 11 Stanwix Street, Pittsburgh, Pa. 15222-1384 -------------------------------------------------------------------- (Address of principal executive offices, zip code) (412) 244-2000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ Common stock 610,373,930 shares outstanding at April 30, 1997 ------------------------------------------------------------- -1- 2 WESTINGHOUSE ELECTRIC CORPORATION INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statement of Income 4 Condensed Consolidated Balance Sheet 5 Condensed Consolidated Statement of Cash Flows 6 Notes to the Condensed Consolidated Financial Statements 7-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-26 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 26 SIGNATURE 27
-2- 3 The Corporation hereby amends the following items of its Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 (the Original Filing). Each of the below referenced Items in Part I and the Exhibits referenced in Part II, Item 6 are hereby amended by deleting the Items or Exhibits in their entirety and replacing them with the Items or Exhibits set forth herein. Any Items or Exhibits in the Original Filing not expressly changed hereby shall be as set forth in the Original Filing. PART I Item 1. Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II Item 6. Exhibits and Reports on Form 8-K Exhibit 11 Computation of Per Share Earnings Exhibit 12(a) Computation of Ratio of Earnings to Fixed Charges Exhibit 12(b) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
-3- 4 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 ------------------ 1997 1996 ---- ---- Sales of products and services $ 2,223 $ 2,039 Costs of products and services (1,590) (1,507) Restructuring, litigation and other matters (notes 2 and 3) - (654) Marketing, administration, and general expenses (763) (584) ------- ------- Operating loss (130) (706) Other income (expenses), net (note 4) 34 (146) Interest expense (114) (146) ------- ------- Loss from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries (210) (998) Income tax benefit 59 341 Minority interest in income of consolidated subsidiaries - (1) ------- ------- Loss from Continuing Operations (151) (658) ------- ------- Discontinued Operations, net of income taxes (note 9): Loss from Discontinued Operations - (51) Estimated net gain on disposal of Discontinued Operations - 1,018 ------- ------- Income from Discontinued Operations - 967 Extraordinary Item: Loss on early extinguishment of debt (note 5) - (63) ------- ------- Net income (loss) $ (151) $ 246 ======= ======= Earnings (loss) per common share: Continuing Operations $ (0.23) $ (1.50) Discontinued Operations - 2.20 Extraordinary Item - (0.14) ------- ------- Earnings (loss) per common share $ (0.23) $ 0.56 ======= ======= Cash dividends per common share $ 0.05 $ 0.05 ======= =======
See Notes to the Condensed Consolidated Financial Statements. Certain 1996 amounts have been restated as discussed in note 12. -4- 5 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in millions)
March 31, 1997 December 31, 1996 -------------- ----------------- ASSETS (unaudited) - ------ Cash and cash equivalents $ 89 $ 220 Customer receivables 1,686 1,561 Inventories (note 6) 863 783 Uncompleted contracts costs over related billings 661 686 Program rights 460 431 Deferred income taxes 792 817 Prepaid and other current assets 172 289 ------- ------- Total current assets 4,723 4,787 Plant and equipment, net 1,841 1,866 FCC licenses, net 2,213 2,199 Goodwill, net 8,736 8,776 Other intangible and noncurrent assets (note 7) 2,318 2,261 Net assets of Discontinued Operations (note 9) 53 - ------- ------- Total assets $19,884 $19,889 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Short-term debt $ 153 $ 497 Current maturities of long-term debt 34 4 Accounts payable 561 887 Uncompleted contracts billings over related costs 410 334 Other current liabilities (note 8) 2,335 2,578 ------- ------- Total current liabilities 3,493 4,300 Long-term debt 6,128 5,149 Pension liability 1,159 1,069 Other noncurrent liabilities (note 8) 3,497 3,619 ------- ------- Total liabilities 14,277 14,137 ------- ------- Contingent liabilities and commitments (note 10) Minority interest in equity of consolidated subsidiaries 12 10 Shareholders' equity (note 11): Preferred stock, $1.00 par value (25 million shares authorized): Series C conversion preferred (4 million shares issued) 4 4 Common stock, $1.00 par value (1,100 million shares authorized, 612 million and 609 million shares issued) 612 609 Capital in excess of par value 5,418 5,376 Common stock held in treasury (533) (546) Minimum pension liability adjustment (796) (796) Cumulative foreign currency translation adjustments (4) 11 Retained earnings 894 1,084 ------- ------- Total shareholders' equity 5,595 5,742 ------- ------- Total liabilities and shareholders' equity $19,884 $19,889 ======= =======
See Notes to the Condensed Consolidated Financial Statements. Certain 1996 amounts have been restated as discussed in note 12. -5- 6 WESTINGHOUSE ELECTRIC CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) (unaudited)
Three Months Ended March 31 ------------------ 1997 1996 ---- ---- Cash used for operating activities of Continuing Operations $ (863) $ (502) Cash used for operating activities of Discontinued Operations (30) (314) Cash flows from investing activities: Business acquisitions (46) (85) Business divestitures and other asset liquidations 123 3,587 Capital expenditures (41) (52) ------ ------ Cash provided by investing activities 36 3,450 ------ ------ Cash flows from financing activities: Bank revolver borrowings 1,610 988 Bank revolver repayments (435) (57) Net change in other short-term debt (302) (92) Repayments of long-term debt (149) (3,570) Stock issued 60 42 Dividends paid (41) (32) Bank fees paid and other (5) (8) ------ ------ Cash provided (used) by financing activities 738 (2,729) ------ ------ Decrease in cash and cash equivalents (119) (95) Cash and cash equivalents at beginning of period 233 226 ------ ------ Cash and cash equivalents at end of period $ 114 $ 131 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid: Continuing Operations $ 117 $ 105 Discontinued Operations 5 17 ------ ------ Total interest paid $ 122 $ 122 ====== ====== Income taxes paid $ 16 $ 23 ====== ======
See Notes to the Condensed Consolidated Financial Statements. Certain 1996 amounts have been restated as discussed in note 12. -6- 7 WESTINGHOUSE ELECTRIC CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The condensed consolidated financial statements include the accounts of Westinghouse Electric Corporation (Westinghouse) and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. When reading the financial information contained in this Quarterly Report, reference should be made to the financial statements, schedules, and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996 as amended by Form 10-K/A. Certain amounts pertaining to the three months ended March 31, 1996 have been restated or reclassified for comparative purposes. Reference also should be made to the Corporation's Current Report on Form 8-K dated February 11, 1997 containing certain restated financial information. During recent years, the Corporation has made several changes to its business portfolio. A number of business segments were identified as non-strategic and were reclassified to Discontinued Operations. When appropriate, financial information previously issued was restated to give effect to the classification of these businesses as Discontinued Operations in accordance with Accounting Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." See note 9 to the financial statements. On December 31, 1996, the Corporation acquired Infinity Broadcasting Corporation (Infinity). The acquisition, which was accounted for under the purchase method of accounting, is reflected in the year-end 1996 consolidated balance sheet. Effective January 1, 1997, operating results for Infinity are included in the consolidated statement of income. On a pro forma basis, assuming Infinity had been acquired as of January 1, 1996, the Corporation's revenues for the first quarter of 1996 would have been $2,183 million, with a net loss of $679 million, and a loss per share of $1.07. On February 10, 1997, the Corporation announced that it reached a definitive merger agreement with Gaylord Entertainment Company (Gaylord) whereby the Corporation will acquire Gaylord's two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). The acquisition includes domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The purchase price of $1.55 billion will be paid in Westinghouse common stock. The number of shares to be issued will depend on the average of the closing prices of the Corporation's common stock during a trading period just prior to the effective time of the transaction, subject to certain limits on the total number of shares to be issued and certain termination rights under the merger agreement. The transaction is subject to several conditions, including regulatory approvals, the receipt of a favorable ruling from the Internal Revenue Service, and the approval of Gaylord's shareholders. In November 1996, the Board of Directors approved a plan to separate the Corporation's industries and technology businesses by way of a tax-free dividend to shareholders, forming a new publicly traded company to be called Westinghouse Electric Company (WELCO). The plan also provides that Thermo King will conduct a public offering of up to 20% of its common stock and will become a majority-owned subsidiary of WELCO. Completion of the plan is subject to a number of conditions, including a favorable ruling from the Internal Revenue Service and the registration of the WELCO common stock under the Securities Exchange Act of 1934. Management currently anticipates the separation will occur later in 1997. However, there can be no assurance that the separation will occur or as to the related timing. Furthermore, if the separation does occur, there can be no assurance that all of the assets, liabilities and contractual obligations will be transferred as currently contemplated or that changes will not be made to the separation plan. See note 12(a) to the financial statements for a modification of the separation plan. -7- 8 The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates, including those related to litigation, environmental liabilities, contracts, pensions, and Discontinued Operations, based on current available information. Changes in facts and circumstances may result in revised estimates. In the opinion of management, the Condensed Consolidated Financial Statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations, and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year or any other interim period. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which requires the dual presentation of basic and diluted earnings per share. Basic and diluted earnings per share calculated in accordance with this standard would have been a loss of $0.28 for the three months ended March 31, 1997 and income of $0.59 for the three months ended March 31, 1996. The Corporation will adopt this standard as of December 31, 1997, as required. Early adoption is not permitted. 2. RESTRUCTURING, LITIGATION AND OTHER MATTERS During the first three months of 1996, the Corporation took several actions to streamline its businesses and recognize the financial impact of certain matters. Certain of these actions resulted in the recognition of charges to operating profit. Costs for new restructuring projects of $123 million were recognized primarily for the consolidation of facilities and the separation of employees. A charge of $486 million was recognized for pending litigation matters. Other costs of $45 million recognized in the first quarter generally related to asset impairment, as discussed in note 3 to the financial statements, or to costs associated with previously divested businesses. No such charges were incurred in the first three months of 1997. 3. IMPAIRMENT OF LONG-LIVED ASSETS During the first quarter of 1996, the Corporation adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets, including related goodwill, be reviewed for impairment and written down to their estimated fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon the adoption of SFAS 121, an impairment charge of $15 million was recognized in the 1996 first quarter operating profit. 4. OTHER INCOME AND EXPENSES, NET (in millions) (unaudited)
Three Months Ended March 31 ------------------ 1997 1996 ---- ---- Interest income $ 1 $ 5 Gain on sale of equity investment 24 - Loss on disposition of other assets - (151) Operating results - non-consolidated affiliates 2 - Foreign currency transaction and high-inflation translation effect 7 (2) Other - 2 ----- ----- Other income (expenses), net $ 34 $(146) ===== =====
-8- 9 5. EXTRAORDINARY ITEM On March 1, 1996, the Corporation extinguished prior to maturity $3,565 million of debt under the then-existing $7.5 billion credit facility. As a result of the early extinguishment of debt and the write-off of related debt issue costs, the Corporation incurred an extraordinary loss of $63 million, net of a tax benefit of $41 million, for the three months ended March 31, 1996. 6. INVENTORIES (in millions)
March 31, 1997 December 31, 1996 -------------- ----------------- (unaudited) Raw materials $ 120 $ 127 Work in process 492 493 Finished goods 133 125 ------- ------- 745 745 Long-term contracts in process 1,080 986 Progress payments to subcontractors 51 45 Recoverable engineering and development costs 102 68 Less: Inventoried costs related to contracts with progress billing terms (1,115) (1,061) ------- ------- Inventories, net $ 863 $ 783 ======= =======
7. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
March 31, 1997 December 31, 1996 -------------- ----------------- (unaudited) Deferred income taxes $ 906 $ 774 Other intangible assets 418 425 Intangible pension asset 40 40 Deferred charges 41 39 Joint ventures and other affiliates 222 232 Noncurrent receivables 313 384 Program rights 141 142 Other 237 225 ------- ------- Total other intangible and noncurrent assets $ 2,318 $ 2,261 ======= =======
-9- 10 8. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
March 31, 1997 December 31, 1996 -------------- ----------------- (unaudited) Other current liabilities: - ------------------------- Accrued employee compensation $ 176 $ 248 Income taxes currently payable 179 189 Liabilities for talent and program rights 455 308 Accrued product warranty 56 59 Accrued interest and insurance 209 210 Accrued restructuring costs 80 184 Liability for business dispositions 94 79 Accrued expenses 558 875 Environmental liabilities 61 62 Other 467 364 ------- ------- Total other current liabilities $ 2,335 $ 2,578 ======= ======= Other noncurrent liabilities: - ---------------------------- Postretirement benefits $ 1,198 $ 1,218 Postemployment benefits 67 67 Accrued restructuring costs 86 94 Liability for business dispositions 62 87 Liabilities for talent and program rights 48 51 Accrued expenses 1,079 1,112 Environmental liabilities 398 404 Other 559 586 ------- ------- Total other noncurrent liabilities $ 3,497 $ 3,619 ======= =======
9. DISCONTINUED OPERATIONS In recent years, the Corporation has adopted several separate plans to dispose of major segments of its business. These businesses have been accounted for as Discontinued Operations in accordance with APB 30. The table below summarizes each of the Corporation's segment disposal plans as well as the assets remaining as of March 31, 1997. Plan Date Line of Business Remaining Assets - --------- ---------------- ---------------- November 1996 Communication & Information Systems (CISCO) Several businesses March 1996 Environmental Services Several businesses December 1995 The Knoll Group (Knoll) - December 1995 Defense and Electronic Systems - July 1995 Land Development (WCI) Mortgage notes receivable and miscellaneous securities November 1992 Financial Services Leasing receivables November 1992 Distribution & Control (DCBU) - November 1992 Westinghouse Electric Supply Company (WESCO) Miscellaneous securities
-10- 11 Summarized operating results of Discontinued Operations, grouped by measurement date, follows: OPERATING RESULTS OF DISCONTINUED OPERATIONS (in millions) (unaudited) For the three months ended March 31, 1997
Measurement Date -------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 109 $ - $ 3 $ 112 Loss before income taxes (18) - (6) (24) Income tax benefit 6 - - 6 Net operating losses after measurement date charged to liability for estimated loss on disposal (12) - (6) (18)
For the three months ended March 31, 1996
Measurement Date -------------------------------------- 1996 1995 1992 Total ---- ---- ---- ----- Sales of products and services $ 138 $ 352 $ 7 $ 497 Loss before income taxes (57) (78) (6) (141) Income tax benefit (expense) 6 (4) - 2 Net loss prior to measurement date (51) - - (51) Net operating losses after measurement date charged to liability for estimated loss on disposal - (82) (6) (88)
The assets and liabilities of Discontinued Operations have been separately classified on the consolidated balance sheet as net assets of Discontinued Operations. A summary of these assets and liabilities follows: NET ASSETS OF DISCONTINUED OPERATIONS (in millions)
March 31, 1997 December 31, 1996 -------------- ----------------- (unaudited) ASSETS: Cash and cash equivalents $ 25 $ 13 Receivables 71 90 Inventories 29 32 Portfolio investments 823 845 Other assets 509 438 ------ ------ Total assets -- Discontinued Operations 1,457 1,418 ------ ------ LIABILITIES: Short-term debt 6 5 Current maturities of long-term debt 13 2 Liability for estimated loss on disposal 631 672 Long-term debt 425 417 Other liabilities 129 142 Deferred income taxes 200 180 ------ ------ Total liabilities -- Discontinued Operations 1,404 1,418 ------ ------ Net assets of Discontinued Operations $ 53 $ - ====== ======
-11- 12 At March 31, 1997, the assets and liabilities of Discontinued Operations included those related to the remaining operating businesses from both the CISCO segment and the environmental services business, the remaining securities from WCI, other miscellaneous securities, the leasing portfolio, and deferred income taxes. Liabilities also included debt and the estimated losses and divestiture costs associated with all Discontinued Operations, including estimated results of operations through divestiture. Except for the leasing portfolio, the assets generally are expected to be divested during 1997. Deferred income taxes, which result from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations, generally will be transferred to Continuing Operations upon reversal and will not result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. Portfolio investments consist primarily of receivables related to the leasing portfolio of Financial Services. Also included are real estate properties and investments in leasing partnerships. The leasing portfolio is expected to liquidate through 2015 in accordance with contractual terms and generally consists of direct financing and leveraged leases. At March 31, 1997 and December 31, 1996, 83% and 84%, respectively, related to aircraft and 17% and 16%, respectively, related to cogeneration facilities. 10. CONTINGENT LIABILITIES AND COMMITMENTS Legal Matters - ------------- Steam Generators The Corporation has been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Corporation as components of nuclear steam supply systems. Since 1993, settlement agreements have been entered resolving ten litigation claims. These agreements generally require the Corporation to provide certain products and services at prices discounted at varying rates. Two cases were resolved in favor of the Corporation after trial or arbitration. One active steam generator lawsuit remains. The Corporation is also a party to six tolling agreements with utilities or utility plant owners' groups which have asserted steam generator claims. The tolling agreements delay initiation of any litigation for various specified periods of time and permit the parties time to engage in discussion. Securities Class Actions - Financial Services The Corporation has been defending derivative and class action lawsuits alleging federal securities law and common law violations arising out of purported misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation and certain of its former subsidiaries in connection with charges to earnings of $975 million in 1990 and $1,680 million in 1991 and a public offering of Westinghouse common stock in 1991. The court dismissed both the derivative claim and the class action claims in their entirety. These dismissals were appealed. In July 1996, the United States Court of Appeals for the Third Circuit (the Circuit Court) affirmed the court's dismissal of the derivative claim. The Circuit Court also affirmed in part and reversed in part the dismissal of the class action claims. Those class action claims that were not dismissed by the Circuit Court have been remanded to the lower court for further proceedings. -12- 13 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, 1997, the Corporation had approximately 101,000 claims outstanding against it. In court actions which have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related matters that are deemed probable and can be reasonably estimated, and has separately recorded an asset equal to the amount of such estimated liabilities that will be recovered pursuant to agreements with insurance carriers. The Corporation cannot reasonably estimate costs for unasserted asbestos claims. General Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the steam generator claims, the securities class action and certain groupings of asbestos claims and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described above and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Environmental Matters - --------------------- Compliance with federal, state, and local laws and regulations relating to the discharge of pollutants into the environment, the disposal of hazardous wastes, and other related activities affecting the environment have had and will continue to have an impact on the Corporation. It is difficult to estimate the timing and ultimate costs to be incurred in the future due to uncertainties about the status of laws, regulations, and technology; the adequacy of information available for individual sites; the extended time periods over which site remediation occurs; and the identification of new sites. The Corporation has, however, recognized an estimated liability, measured in current dollars, for those sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Corporation recognizes changes in estimates as new remediation requirements are defined or as more information becomes available. With regard to remedial actions under federal and state Superfund laws, the Corporation has been named a potentially responsible party (PRP) at numerous sites located throughout the country. At many of these sites, the Corporation is either not a responsible party or its site involvement is very limited or de minimis. However, the Corporation may have varying degrees of cleanup responsibilities at approximately 90 sites, including the sites located in Bloomington, Indiana. The Corporation believes that any liability incurred for cleanup at these sites will be satisfied over a number of years, and in many cases, the costs will be shared with other responsible parties. These sites include certain sites for which the Corporation, as part of an agreement for sale, has retained obligations for remediation of environmental contamination and for other Comprehensive Environmental Response Compensation and Liability Act (CERCLA) issues. -13- 14 Based on the costs associated with the most probable alternative remediation strategy for the above mentioned sites, including Bloomington, the Corporation has an accrued liability of $459 million. Depending on the remediation alternatives ultimately selected, the costs related to these sites could differ from the amounts currently accrued. The accrued liability includes $338 million for site investigation and remediation and $121 million for post closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. Commitments -- Continuing Operations - ------------------------------------ In the ordinary course of business, standby letters of credit and surety bonds are issued on behalf of the Corporation related primarily to performance obligations under contracts with customers. The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such properties for various periods ending no later than April 2002. As of March 31, 1997, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totalling $3,383 million. Commitments -- Discontinued Operations - -------------------------------------- Financial Services commitments at March 31, 1997 consisting primarily of guarantees totalled $33 million compared to $38 million at year-end 1996. The remaining commitments have fixed expiration dates from 1997 through 2002. Management expects these commitments to expire unfunded. 11. SHAREHOLDERS' EQUITY The Corporation's Series C Conversion Preferred Stock (Series C Preferred) has been treated as outstanding common stock for the calculation of earnings per share, which was in accordance with prevalent practice at the time of sale. If the Series C Preferred had been treated as common stock equivalents for the calculation of earnings per share, the Corporation's per-share results for the three months ended March 31, 1997 and 1996 would have been a loss of $0.27 and income of $0.58, respectively. In April 1997, the Corporation announced its intention to redeem all outstanding shares of the Series C Preferred on May 30, 1997. In accordance with the terms of the offering, each share of the Series C Preferred will convert into Westinghouse common stock at the rate of 8.85 shares of Westinghouse common stock, equivalent to 0.885 of a share of Westinghouse common stock for each $1.30 depositary share. Each depositary share represents one-tenth of a share of Series C Preferred. In connection with this redemption of the Series C Preferred, the Corporation will issue 31,859,902 shares of common stock. All accrued and unpaid dividends on the redeemed shares of Series C Preferred will be paid on May 30, 1997. In conjunction with the Infinity acquisition on December 31, 1996, the Corporation issued 183 million new shares of Westinghouse common stock. These shares, together with the related options outstanding, resulted in an increase of shareholders' equity of $3.8 billion. 12. SUBSEQUENT EVENTS a) In June 1997, the Westinghouse Board of Directors modified the separation plan described in note 1. Under the modified separation plan, Thermo King Corporation will remain with the media company, along with the existing pension and other postretirement benefit obligations of Westinghouse. The Corporation will consider options to enhance Thermo King's value to shareholders, including a sale, public offering or spin-off to shareholders. -14- 15 b) In the first quarter of 1996, the Corporation modified its accounting practices related to certain long-term contracts. The Corporation accounts for long-term contracts to supply major apparatus and parts for major apparatus under the percentage of completion method. Previously, the Corporation recognized revenue on parts contracts when the parts were procured but now recognizes revenue when the parts are delivered to the customer. For major apparatus contracts, the Corporation previously recognized a portion of the contract revenue approximating pre-contract costs when the contract was signed. The Corporation now recognizes all of the contract revenue over the life of the contract. In connection with this modification, the Corporation recorded an adjustment to reduce pre-tax earnings by $128 million. After discussions with the SEC, the Corporation agreed to retroactively apply the modified accounting practices for all periods presented. The impact of this restatement on the Corporation's loss from Continuing Operations, net income and related per share amounts is presented below: IMPACT OF RESTATEMENT (in millions except per-share amounts)
Three Months Ended March 31, 1996 --------------------------------- Loss from Continuing Operations: As previously reported $ (723) As restated (658) Net income: As previously reported $ 181 As restated 246 Earnings (loss) per common share: Continuing Operations As previously reported $(1.65) As restated (1.50) Net income: As previously reported $ .41 As restated .56
-15- 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The $4.7 billion acquisition of Infinity Broadcasting Corporation (Infinity) resulted in an increase in shareholders' equity at December 31, 1996 of $3.8 billion from the issuance of 183 million shares of Westinghouse common stock and the conversion of Infinity options into options to acquire approximately 22 million additional shares of Westinghouse common stock. Effective January 1, 1997, operating results for Infinity are included in the Corporation's consolidated financial statements and are reported as part of the radio segment of the Media group. Subsequent to the acquisition of Infinity at year-end 1996, the Corporation's radio group continued to outpace the market. The radio group's profitability in the first quarter of 1997 was further enhanced by cost reduction measures at radio stations. Net income for the first quarter of 1997 was a loss of $151 million, or $0.23 per share, compared to income of $246 million, or $0.56 per share for the 1996 first quarter. Income from Continuing Operations for the quarter was a loss of $151 million, or $0.23 per share, compared to a loss of $658 million, or $1.50 per share for the 1996 first quarter. Results for the 1996 quarter included a number of special items which are presented in the table below. No special items were recognized in the first quarter of 1997. Excluding the 1996 special items, the first quarter 1996 loss from Continuing Operations was $126 million, or $0.29 per share. Certain 1996 amounts have been restated as discussed in note 12 to the financial statements. The $25 million increase in the loss from Continuing Operations for the quarter reflected several factors. For the Media group, the favorable radio results were more than offset by lower performance by the television network. Results for the industries and technology group also declined primarily because of a profit adjustment for a complex international power project. Interest expense for the 1997 quarter was favorable, reflecting the March 1996 debt repayments from the sale proceeds of the defense and electronic systems business and The Knoll Group (Knoll), the Corporation's office furniture business. On February 10, 1997, the Corporation announced that it reached a definitive merger agreement with Gaylord Entertainment Company (Gaylord) whereby the Corporation will acquire Gaylord's two major cable networks - The Nashville Network (TNN) and Country Music Television (CMT). The acquisition includes domestic and international operations of TNN, the U.S. and Canadian operations of CMT, and approximately $50 million of working capital. The purchase price of $1.55 billion will be paid in Westinghouse common stock. The number of shares to be issued will depend on the average of the closing prices of the Corporation's common stock during a trading period just prior to the effective time of the transaction, subject to certain limits on the total number of shares to be issued and certain termination rights under the merger agreement. The transaction is subject to several conditions, including regulatory approvals, the receipt of a favorable ruling from the Internal Revenue Service, and the approval of Gaylord's shareholders. Management currently anticipates this transaction to be completed prior to the separation of the industries and technology businesses as discussed below. In November 1996, the Board of Directors approved a plan to separate the Corporation's industries and technology businesses by way of a tax-free dividend to shareholders, forming a new publicly traded company to be called Westinghouse Electric Company (WELCO). The plan also provides that Thermo King will conduct a public offering of up to 20% of its common stock and will become a majority-owned subsidiary of WELCO. Completion of the plan is subject to a number of conditions, including a favorable ruling from the Internal Revenue Service and the registration of the WELCO common stock under the Securities Exchange Act of 1934. Management currently anticipates the separation will occur later in 1997. However, there can be no assurance that the separation will occur or as to the related timing. Furthermore, if the separation does occur, there can be no assurance that all of the assets, liabilities and contractual obligations will be transferred as currently contemplated or that -16- 17 changes will not be made to the separation plan. See note 12(a) to the financial statements for a modification of the separation plan. During 1996, the Corporation completed the sales of its defense and electronic systems business and Knoll, and recorded a combined after-tax gain of $1.2 billion. The cash proceeds from these divestitures, which totalled nearly $3.6 billion, were used to repay ahead of schedule a significant portion of the debt incurred to finance the 1995 $5.4 billion acquisition of CBS Inc. (CBS). The Corporation further streamlined its businesses in 1996 and adopted plans to exit its Communication & Information Systems (CISCO) segment and its environmental services line of business, resulting in the transfer of these businesses to Discontinued Operations. On December 31, 1996, the Corporation completed the sale of Westinghouse Security Systems, part of CISCO. In the first quarter of 1996, the Corporation recognized costs associated with additional restructuring actions, as well as outstanding litigation and other matters. The special items included in the Corporation's results for the first three months of 1996 are summarized below. SPECIAL ITEMS INCLUDED IN RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 (in millions except per share amounts) (unaudited)
Pre-Tax After-Tax Per-Share Amount Amount Impact ------- --------- --------- Continuing Operations: Operating Profit: Restructuring $ (123) Litigation matters (486) Impairment of assets (15) Other (30) ------- Total impact on operating profit (654) Other income and expense: Loss on assets held for sale (152) ------- Total impact on Continuing Operations $ (806) $ (532) $ (1.21) ======= Discontinued Operations: Net gain on disposal of businesses 1,018 2.32 Extraordinary Item: Loss on early extinguishment of debt (63) (0.14) ------ ------- Net amount of special items $ 423 $ 0.97 ====== =======
-17- 18 RESULTS OF OPERATIONS The following represents the segment results for the Corporation's Continuing Operations for the three months ended March 31, 1997 and 1996. Segment Results (in millions)(unaudited) ----------------------------------------
Operating Profit (Loss) Sales of Products Operating Profit Excluding & Services (Loss) Special Charges ----------------- ---------------- ---------------- Three Months Ended March 31 1997 1996 1997 1996 1997 1996 - ------------------ ---- ---- ---- ---- ---- ---- Media: Television $ 177 $ 188 $ 56 $ 54 $ 56 $ 54 Network 793 766 (60) - (60) - Radio 313 121 47 20 47 20 Other Media Businesses 60 49 (4) 4 (4) 4 Other Media (17) (6) (35) (76) (35) (35) ------ ------ ----- ----- ----- ----- Total Media 1,326 1,118 4 2 4 43 Industries & Technology: Power Systems: Energy Systems 187 231 (60) (26) (60) (5) Power Generation 474 433 (39) (117) (39) (62) Other Power Systems (51) (50) (17) (306) (17) (17) ------ ------ ----- ----- ----- ----- Total Power Systems 610 614 (116) (449) (116) (84) Thermo King 251 257 47 45 47 45 Government Operations 23 25 10 18 10 18 ------ ------ ----- ----- ----- ----- Total Industries & Technology 884 896 (59) (386) (59) (21) Corporate & Other 20 34 (75) (322) (75) (74) Intersegment sales (7) (9) - - - - ------ ------ ----- ----- ----- ----- TOTAL $2,223 $2,039 $(130) $(706) $(130) $ (52) ====== ====== ===== ===== ===== =====
The Corporation's reported sales increased $184 million, or 9%, for the first quarter of 1997 compared to the 1996 first quarter. The improvements achieved by Power Generation and Media were essentially offset by lower sales from Energy Systems, Thermo King, Government Operations, and certain miscellaneous non-strategic businesses that were divested in 1996. The operating loss for the Corporation for the first quarter of 1997 increased significantly from the first quarter of 1996, excluding special items in the 1996 first quarter. While the strength of the Media group's radio business caused profits in radio to increase significantly as a result of the addition of Infinity and improvement at the existing stations, the CBS Network profits declined primarily as a result of lower ratings and higher programming costs. Power Systems' operating loss increased for the quarter primarily as a result of the completion of a reevaluation of a complex international nuclear project at Energy Systems which required an adjustment to sales and operating profit. Government Operations' results declined for the first quarter of 1997 compared to 1996 due to the loss of a Department of Energy (DOE) contract in 1996. Thermo King, however, increased profits slightly following two fourth quarter 1996 acquisitions. -18- 19 Media Due to the acquisition of Infinity at December 31, 1996, the results for Media for the first quarter of 1997 include Infinity financial data, while the first quarter of 1996 results do not. Where appropriate, the discussion below provides a comparison of the actual results for the first quarter of 1997 with the proforma combined CBS and Infinity results for the first quarter of 1996. Revenues for the television group declined $11 million or 6% for the first quarter of 1997 compared to the same period last year. Lower ratings in certain major markets and the lack of political advertising in the 1997 first quarter contributed to the decline. The 1996 first quarter also included revenues from WPRI, the Providence, Rhode Island station sold in July 1996. Despite the lower revenues, operating profit increased nearly 4% as cost improvements at the stations more than offset the decreased revenues. The network experienced a 4% increase in revenues for the first quarter of 1997 compared to the same period last year primarily as a result of increased syndication fees and the timing of the NCAA final basketball game. The final game was played on March 31, 1997 compared to April 1, 1996. Operating profit, however, declined as a result of lower audience levels in key demographic categories and higher programming costs primarily associated with sports and special events. The favorable effect from purchase price accounting adjustments related to program rights declined $32 million in the first quarter of 1997 compared to the same period last year. On a proforma combined basis, sales for radio for the first quarter of 1997 increased nearly 18% compared to the first quarter of 1996, outpacing the market. Operating profit, on a proforma combined basis, increased 38% for the same period as a result of the increased revenues and benefits from cost reduction initiatives. Results for the radio group include amortization of goodwill and intangible assets related to the Infinity acquisition. Other Media Businesses includes operating results for CBS Cable, formerly Group W Satellite Communications, and EYEMARK Entertainment (EYEMARK) which produces and distributes programming. Revenues for CBS Cable increased nearly 16% in the first quarter of 1997 compared to the same period last year, primarily as a result of increased sales for sports and other cable services and the June 1996 acquisition of TeleNoticias, a 24-hour, Spanish-language news service. Operating profit, however, declined for the first quarter of 1997 compared to the same period last year primarily due to increased expenses related to TeleNoticias and costs to develop and launch Eye On People, a new cable channel which debuted March 31, 1997. The acquisition of TNN and CMT later in 1997 is expected to strengthen the group's cable business. Revenues for EYEMARK increased in the first quarter of 1997 compared to the first quarter of 1996. The operating loss also improved due to the mix of programming. Costs for the Media group's headquarters and amortization of all goodwill arising from the CBS acquisition comprise Other Media. For the first quarter of 1996, Other Media included a $41 million restructuring charge for Westinghouse's actions to obtain operational synergies between CBS and Westinghouse. The cost of the CBS actions was recorded in connection with the CBS acquisition. Goodwill amortization related to the CBS acquisition totals $30 million per quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a widely accepted financial indicator of a company's ability to incur and service debt. It is commonly used in the media industry as a surrogate for cash flows. For the entire Media group, EBITDA totalled $110 million for the first quarter of 1997, flat with the same period in 1996, excluding the restructuring charge in 1996. On a proforma combined basis, EBITDA for the first quarter of 1996 was $146 million. EBITDA differs from operating cash flows for the group primarily because it does not consider changes in assets and liabilities from period to period. -19- 20 Power Systems Power Systems includes results for the Energy Systems and Power Generation business units. Excluding special items in the 1996 first quarter, sales for Power Systems were flat in the 1997 first quarter, while the operating loss increased significantly. Energy Systems' sales and operating profit decreased for the first quarter of 1997 compared to the first quarter of 1996. Sales decreased $44 million or 19% for the first quarter of 1997 compared to the same period last year, while the operating loss increased $55 million for the same period, excluding last year's $21 million restructuring charge. The primary reason for the decrease in sales and operating profit for the period was a $49 million adjustment to both sales and operating profit following a comprehensive reevaluation of the work scope and costs to complete a complex international nuclear project which originated in 1993. Although this $352 million contract remains profitable, management has determined that the Corporation's profit will be less than originally estimated. Orders for the quarter were down 24%, primarily due to a large fuel reload order in the first quarter of 1996. Power Generation's orders for the first quarter of 1997 decreased $269 million or 55% compared to the first quarter of 1996. Delays in the closing of certain project orders was the primary cause of the decreased order level. Also, the 1996 first quarter contained a number of large international and domestic orders. Revenues in Power Generation increased $41 million or 9% for the first quarter of 1997 compared to the same period last year. Higher service sales was the primary reason for this revenue increase. The operating loss declined 37%, excluding a $5 million litigation charge and a $50 million restructuring charge, which were recognized in the first quarter of 1996. Higher service revenues and cost improvements from restructurings caused the improvements in the operating loss. The operating loss for the first quarter of 1996 for Other Power Systems, which primarily reflects discounts on prior litigation settlements, included a $289 million charge for litigation and other matters. Excluding this charge, the operating loss for the first quarter of 1997 was flat with the same period last year. Thermo King Thermo King continues to post positive results in the face of soft markets in North America and Europe. Orders for the first quarter of 1997 were up 5%, primarily as a result of a large container order and increases in service parts business. Sales were down slightly due primarily to the strong U.S. dollar and weak North American truck and trailer sales. Revenues from two fourth quarter 1996 acquisitions, Sabroe and Thermal, partially offset the lower truck and trailer sales. Operating profit increased 4% in the first quarter of 1997 compared to the same period last year as revenues from the two acquisitions and substantial focus on material cost and productivity improvements offset the effect of lower truck and trailer sales. -20- 21 Government Operations Revenues for the first quarter of 1997 were down 8% and operating profit was down $8 million, or 44%, compared to the first quarter of 1996. The decrease in sales was attributable to the loss of a DOE contract at Hanford, Washington, in late 1996, partially offset by increased pass-through sales at the DOE Savannah River site. Operating profit decreased as a result of the loss of the Hanford contract performance fee. Corporate and Other Sales for the first quarter of 1997 were down 41% due primarily to the 1996 sale of several non-strategic businesses. The operating loss, excluding the first quarter 1996 charge of $248 million for restructuring, litigation and other matters, was flat. Despite cost reductions from restructuring activities, Corporate costs are consistent with the prior year. Costs associated with the Corporation's continuing pension obligation for retired individuals who were part of the defense and electronic systems business sold in March 1996 continues to unfavorably impact operating profit. These costs for January and February of 1996 were included in Discontinued Operations as part of the results for that business prior to its disposal. RESTRUCTURING AND OTHER ACTIONS In recent years, the Corporation has restructured many businesses and its corporate headquarters in an effort to reduce costs and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, the closing of facilities, the termination of leases, and the exiting of product lines. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and that provide no future benefit to the Corporation. During 1996, management approved new restructuring projects with costs totalling $273 million, $123 million in the first quarter and $150 million in the fourth quarter, primarily for consolidation of facilities and the separation of employees. As of March 31, 1997, $162 million had been expended on the 1996 programs, $106 million of which was cash. Future cash expenditures for these programs are estimated to approximate $71 million for the remainder of 1997, and $10 million for 1998 and beyond. In addition to the reserves established in 1996, restructuring reserves were also established in 1994 and 1995. The employee separations included in the 1994 plan are complete. The employee separations included in the 1995 plan are 85% complete with the remainder of separations to occur during 1997. Remaining total costs under this plan of approximately $6 million represent primarily cash expenditures, all of which will occur in 1997. In addition, a CBS restructuring plan was adopted in conjunction with the acquisition in November 1995. Implementation of this plan will continue over the next two years. Annualized savings from the 1994 and 1995 restructuring programs other than the CBS plan are estimated to total approximately $75 million; however, competitive pressures causing price compression in certain of the Corporation's markets have absorbed a significant portion of the savings achieved through restructuring actions. Annualized savings from the 1996 plan, which will be gradually achieved over the next two years, are estimated at $100 million. The Corporation expects to continue to identify restructuring initiatives at its business units and its Corporate headquarters in an ongoing effort to reduce its overall cost structure and improve competitiveness. DISCONTINUED OPERATIONS At March 31, 1997, the assets and liabilities of Discontinued Operations included those related to the remaining operating businesses from the CISCO segment and the environmental services business, the remaining securities from -21- 22 the land development subsidiary, other miscellaneous securities, the leasing portfolio, and deferred income taxes. Liabilities also included debt and the estimated losses and divestiture costs associated with all Discontinued Operations, including estimated results of operations through divestiture. In April 1997, the Corporation completed the sale of two of the remaining environmental services businesses. Other than the leasing portfolio, the Corporation is actively pursuing the sale of assets, which are generally expected to be divested during 1997. Deferred income taxes, which result from temporary differences between book and tax bases of the assets and liabilities of Discontinued Operations, generally will be transferred to Continuing Operations upon reversal and will not result in the receipt or payment of cash by Discontinued Operations. Liabilities associated with divestitures are expected to be satisfied over the next several years. Debt will be repaid using cash proceeds from the liquidation of assets of Discontinued Operations. Cash proceeds in excess of those required to repay the debt and satisfy the divestiture liabilities of Discontinued Operations, if any, will be transferred to Continuing Operations. Management believes that the net proceeds anticipated from the continued liquidation of assets of Discontinued Operations will be sufficient to fund the liabilities of Discontinued Operations, including the repayment of its debt. Management further believes that the liability for the estimated loss on disposal of Discontinued Operations of $631 million at March 31, 1997 is adequate to cover future operating costs, estimated losses, and the remaining divestiture costs associated with all discontinued businesses. OTHER INCOME AND EXPENSES Other income and expenses for the first quarter of 1997 was income of $34 million compared to a loss of $146 million for the first quarter of 1996. The 1997 income included the sale of an equity investment in a regional sports network. During the first quarter of 1996, a comprehensive review was undertaken by the Corporation to identify non-strategic assets. A charge of $152 million was recognized during the quarter for losses expected to be realized upon the sale of those assets. INTEREST EXPENSE Interest expense for Continuing Operations for the first quarter of 1997 was $114 million compared to $146 million for the same period in 1996. The decrease in interest expense is primarily the result of the repayment of $3.6 billion of debt in March 1996 through proceeds from the divestitures of Knoll and the defense and electronic systems business, and favorable interest rates under the new bank credit agreement completed in August 1996 (see Revolving Credit Facility). This decrease in interest expense is offset somewhat by the increase in debt associated with the acquisition of Infinity and increased working capital requirements. INCOME TAXES The Corporation's effective income tax rate for Continuing Operations for the first quarter of 1997 and 1996 was a benefit of 28% and 34%, respectively for continuing operations. Because of the amortization of non-deductible goodwill for CBS and Infinity and the impact of special transactions, these rates can vary dramatically depending on the Corporation's income or loss levels. At March 31, 1997, the Corporation had recorded net deferred income tax benefits totalling $1,498 million compared to $1,411 million at December 31, 1996. As a result of these net deferred income tax benefits, cash payments for federal income taxes are minimal. Management believes that the Corporation will have sufficient future taxable income to make it more likely than not that the net deferred tax asset will be realized. -22- 23 LIQUIDITY AND CAPITAL RESOURCES Overview The Corporation manages its liquidity as a consolidated enterprise without regard to whether assets or debt are classified for balance sheet purposes as part of Continuing Operations or Discontinued Operations. As a result, the discussion below focuses on the Corporation's consolidated cash flows and capital structure. On February 10, 1997, the Corporation announced an agreement to acquire two cable networks - TNN and CMT. The purchase price of $1.55 billion will be paid in Westinghouse common stock, which will further increase the Corporation's equity. No debt will be assumed in conjunction with this transaction. As discussed previously, the Corporation intends to separate its media businesses from its industries and technology businesses through a tax-free dividend of the industries and technology businesses to shareholders. As currently contemplated, the media company will retain all debt obligations of the current Westinghouse as well as the $1.5 billion tax net operating loss carryforward. The industries and technology company will assume most of the unfunded pension obligation and other non-debt obligations generated by the Corporation's industrial businesses in earlier years. Management currently anticipates the separation will occur later in 1997. However, there can be no assurance that all of the assets, liabilities and contractual obligations will be transferred as currently contemplated or that changes will not be made to the separation plan. See note 12(a) to the financial statements for a modification of the separation plan. The Corporation has and will continue to monetize non-strategic assets. In 1996, the Corporation adopted plans to exit its environmental services business and CISCO. In addition to the $3.6 billion of cash generated by the sale of Knoll and the defense and electronic systems business, sales of various non-strategic assets in 1996 generated cash proceeds of approximately $550 million. During 1997, sales of non-strategic assets are expected to generate additional cash of $300 to $400 million. The majority of these proceeds are anticipated to be received in the second half of the year. Total debt for the Corporation was $6,759 million at March 31, 1997, of which $444 million was included in Discontinued Operations and will be repaid through the liquidation of those assets. Debt of Continuing Operations of $6,315 million increased $665 million from December 31, 1996 reflecting higher working capital requirements. The Corporation's debt of Continuing Operations is expected to remain at approximately this level for the remainder of the year. Management expects that the Corporation will have sufficient liquidity to meet ordinary future business needs. Sources of liquidity generally available to the Corporation include cash from operations, availability under its credit facility, cash and cash equivalents, proceeds from sales of non-strategic assets, borrowings from other sources, including funds from the capital markets, and the issuance of additional capital stock. Operating Activities The following table provides a reconciliation of net income to cash used by operating activities of Continuing Operations for the three months ended March 31, 1997 and 1996: -23- 24 CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS (in millions) (unaudited)
Three Months Ended March 31 --------------------------- 1997 1996 ---- ---- Loss from Continuing Operations $ (151) $ (658) Adjustments to reconcile loss from Continuing Operations to net cash used for operating activities: Depreciation and amortization 134 104 Losses (gains) on asset dispositions (24) 151 Noncash restructuring charges - 30 Other noncash provisions and accounting adjustments (28) 57 Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent (127) (55) Inventories (80) 10 Accounts payable (326) (172) Deferred and current income taxes (117) (78) Accrued restructuring costs (112) 93 Other assets and liabilities (32) 16 ------ ------ Cash used for operating activities of Continuing Operations $ (863) $ (502) ====== ======
The operating activities of Continuing Operations used $863 million of cash during the first three months of 1997 compared to cash used of $502 million during the first three months of 1996. The two primary factors contributing to the additional use of cash in the 1997 quarter were a significant increase in working capital requirements and higher restructuring expenditures. Working capital requirements increased relative to the first quarter of 1996. Increases in both receivables and inventories totalled $207 million in the first three months of 1997 compared to an increase of $45 million in the first three months of 1996. In addition, a significant reduction in accounts payable contributed substantially to the higher working capital at March 31, 1997. Restructuring spending increased in the first quarter of 1997 relative to the first quarter of 1996. This was primarily attributable to expenditures associated with the restructuring plans adopted in late 1996. The Corporation's pension contribution level for 1997, which is expected to be approximately $250 million to $300 million, is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. In July 1997, the Corporation will begin making its pension contributions quarterly pursuant to certain minimum funding requirements. The operating activities of Discontinued Operations used $30 million of cash during the first three months of 1997 compared to $314 million of cash used during the same period of 1996. During 1996, a significant amount of cash was used for the divestiture costs of Knoll and the defense and electronic systems business as well as in the operations of those businesses through the date of their disposal. Future cash requirements of Discontinued Operations will consist primarily of interest costs on debt, remaining costs associated with completed divestitures, and operating and disposal costs associated with the environmental services business and CISCO. Management believes that the future cash receipts of Discontinued Operations will be sufficient to satisfy the divestiture liabilities of Discontinued Operations and the remaining debt. Any cash in excess of that required to satisfy those liabilities will be transferred to Continuing Operations. -24- 25 Investing Activities Investing activities provided $36 million of cash during the first three months of 1997 compared to $3.5 billion of cash provided during the same period of 1996. In the first quarter of 1997, the Corporation had investing cash outflows related to the acquisition of Buspack, a transit advertising company in the United Kingdom, and a $20 million payment in conjunction with a swap of three radio stations in Orlando for two radio stations in Chicago. Acquisition cash outflows in the 1996 quarter included the purchase of two Chicago radio stations. Investing cash inflows from business divestitures in the first quarter of 1997 included proceeds from the sales of one radio station in Chicago, two radio stations in Dallas, and an equity investment. In the 1996 quarter, the Corporation completed the sales of Knoll and the defense and electronic systems business, generating $3.6 billion of cash. Liquidations of other assets generated approximately $20 million in the first quarter of both years. Capital expenditures were $41 million for the first three months of 1997, a decrease of $11 million from the same period of 1996. Capital spending during 1997 is expected to be approximately $50 million higher than 1996 primarily driven by the Media group. Financing Activities Cash provided by financing activities during the first three months of 1997 totalled $738 million compared to cash used of $2.7 billion during the same period of 1996. The cash outflows in the first quarter of 1997 included $149 million to extinguish the long-term debt previously issued by Infinity. The cash outflows in the first quarter of 1996 included $3.6 billion of debt prepaid upon the sales of Knoll and the defense and electronic systems business. Total borrowings under the Corporation's $5.5 billion revolving credit facility were $4.2 billion at March 31, 1997 (see Revolving Credit Facility). These borrowings were subject to a floating interest rate of 6.1% at March 31, 1997, which was based on the London Interbank Offer Rate (LIBOR), plus a margin based on the Corporation's senior unsecured debt rating and leverage. Dividends paid in the first three months of 1997 and 1996 included $12 million for the Series C preferred stock, which the Corporation expects to replace with 31,859,902 shares of common stock on May 30, 1997. Common stock dividends increased from $20 million in the first quarter of 1996 to $29 million in the first quarter of 1997 because of additional shares outstanding. At March 31, 1997, the Corporation had a shelf registration statement for debt securities with an unused amount of $400 million. Revolving Credit Facility On August 29, 1996, the Corporation executed a new five-year revolving credit agreement with total commitments of $5.5 billion. The unused capacity under the facility equaled $1.3 billion as of March 31, 1997. Borrowing availability under the revolver is subject to compliance with certain covenants, representations and warranties, including a no material adverse change provision with respect to the Corporation taken as a whole, and restrictions on liens incurred. During the first quarter of 1997, this agreement was amended twice. The Corporation is subject to financial covenants including a maximum leverage ratio, a minimum interest coverage ratio, and minimum consolidated net worth. These covenants become more restrictive over the remaining term of the agreement. At March 31, 1997, the Corporation was in compliance with these covenants. -25- 26 Legal, Environmental, and Other Matters Over the past several years, the Corporation has addressed a variety of legal, environmental, and other matters related to current operations as well as to previously divested businesses. See note 10 to the financial statements. The costs associated with resolving these matters are recognized in the period in which the costs are deemed probable and can be reasonably estimated. Management believes that the Corporation has adequately provided for the estimated costs of resolving these matters. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS (11) Computation of Per Share Earnings (12)(a) Computation of Ratio of Earnings to Fixed Charges (12)(b) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends -26- 27 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 14th day of July 1997. WESTINGHOUSE ELECTRIC CORPORATION /s/ Carol V. Savage ------------------------ Vice President and Chief Accounting Officer -27- EX-11 2 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (11) COMPUTATION OF PER SHARE EARNINGS (unaudited)
Three Months Ended March 31 ------------------ 1997 1996 ---- ---- EQUIVALENT SHARES: Average shares outstanding 588,523,744 397,459,976 Additional Shares due to: Stock options (a) 17,037,916 5,949,398 Series C Preferred Shares 36,000,000 36,000,000 ----------- ----------- Total equivalent shares 641,561,660 439,409,374 =========== =========== ADJUSTED EARNINGS (in millions): Loss from Continuing Operations $ (151) $ (658) Income from Discontinued Operations - 967 Extraordinary Item - (63) -------- -------- Adjusted net income (loss) $ (151) $ 246 ======== ======== EARNINGS (LOSS) PER SHARE: From Continuing Operations $ (0.23) $ (1.50) From Discontinued Operations - 2.20 From Extraordinary Item - (0.14) -------- -------- Earnings (loss) per share (b) $ (0.23) $ 0.56 ======== ========
(a) The 1997 stock options amount includes approximately 10,368,000 options which were assumed as a result of the Infinity acquisition. (b) 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. -28- EX-12.A 3 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(a) COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in millions) (unaudited)
Three Months Ended Year Ended March 31 December 31 ------------------- ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (210) $ (998) $(1,190) Less: Equity in income of 50 percent or less owned affiliates 1 - 9 Add: Fixed charges 124 152 484 ------- ------- ------- Earnings as adjusted $ (87) $ (846) $ (715) ======= ======= ======= Fixed charges: Interest expense $ 114 $ 146 $ 456 Rental expense 10 6 28 ------- ------- ------- Total fixed charges $ 124 $ 152 $ 484 ======= ======= ======= Ratio of earnings to fixed charges (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the three months ended March 31, 1997, March 31, 1996, and the year ended December 31, 1996 would be $211 million, $998 million, and $1,199 million, respectively. -29- EX-12.B 4 WESTINGHOUSE ELECTRIC CORP. 1 EXHIBIT (12)(b) COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (in millions) (unaudited)
Three Months Ended Year Ended March 31 December 31 ------------------ ----------- 1997 1996 1996 ---- ---- ---- Loss before income taxes and minority interest $ (210) $ (998) $(1,190) Less: Equity in income of 50 percent or less owned affiliates 1 - 9 Add: Combined fixed charges and preferred dividends 140 170 557 ------- ------- ------- Earnings as adjusted $ (71) $ (828) $ (642) ======= ======= ======= Combined fixed charges and preferred dividends: Interest expense $ 114 $ 146 $ 456 Rental expense 10 6 28 Pre-tax earnings required to cover preferred dividend requirements (b) 16 18 73 ------- ------- ------- Total combined fixed charges and preferred dividends $ 140 $ 170 $ 557 ======= ======= ======= Ratio of earnings to combined fixed charges and preferred dividends (a) (a) (a) ======= ======= =======
(a) Additional income before income taxes and minority interest necessary to attain a ratio of 1.00x for the three months ended March 31, 1997, March 31, 1996, and the year ended December 31, 1996 would be $211 million, $998 million, and $1,199 million, respectively. (b) Dividend requirement divided by 100% minus the effective income tax rate or the statutory rate, whichever is more appropriate. -30- -----END PRIVACY-ENHANCED MESSAGE-----