-----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, ObmGtafnYOp0XjTzpV4r8FMKjL9XKY9xHrSPLJaSQIPieFodK7D1I8ovdHCQ9NmY isENX/MkygtmPDZkOxhnQQ== 0000950128-99-000770.txt : 19990518 0000950128-99-000770.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950128-99-000770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBS CORP CENTRAL INDEX KEY: 0000106413 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 250877540 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00977 FILM NUMBER: 99627454 BUSINESS ADDRESS: STREET 1: 51 WEST 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129754321 MAIL ADDRESS: STREET 1: 51 WEST 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESTINGHOUSE ELECTRIC & MANUFACTURING CO DATE OF NAME CHANGE: 19710510 10-Q 1 CBS CORPORATION 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 ---------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________ COMMISSION FILE NUMBER 1-977 ---------------- CBS CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0877540 ----------------------- ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 51 WEST 52ND STREET, NEW YORK, NY 10019 -------------------------------------------------- (Address of principal executive offices, zip code) (212) 975-4321 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by checkmark 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 711,900,230 SHARES OUTSTANDING AT APRIL 30, 1999 ================================================================================ -1- 2 CBS CORPORATION INDEX ---------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements 3 Condensed Consolidated Statement of Income and Comprehensive Income 3 Condensed Consolidated Balance Sheet 4 Condensed Consolidated Statement of Cash Flows 5 Notes to the Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 15 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 28
-2- 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CBS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME ------------------------------------------------------------------- (unaudited, in millions except per-share amounts)
THREE MONTHS ENDED MARCH 31, -------------------------------- 1999 1998 =========================================================================================================================== Revenues $ 1,768 $ 1,949 Operating expenses (1,160) (1,305) Marketing, administration, and general expenses (301) (340) Depreciation and amortization (149) (130) Residual costs of discontinued businesses (40) (38) - --------------------------------------------------------------------------------------------------------------------------- Operating profit 118 136 Other income, net (note 3) 13 5 Interest expense, net (51) (75) - --------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries 80 66 Income tax expense (46) (47) Minority interest in income of consolidated subsidiaries (9) -- - --------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 25 19 Gain on disposal of Discontinued Operations net of income taxes (note 6) 366 -- Extraordinary item: Loss on extinguishment of debt, net of income taxes (note 1) (4) -- - --------------------------------------------------------------------------------------------------------------------------- Net income $ 387 $ 19 =========================================================================================================================== Basic earnings per common share (note 9): Continuing Operations $ .04 $ .03 Discontinued Operations .53 -- Extraordinary item (.01) -- - --------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share $ .56 $ .03 =========================================================================================================================== Diluted earnings per common share (note 9): Continuing Operations $ .04 $ .03 Discontinued Operations .52 -- Extraordinary item (.01) -- - --------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ .55 $ .03 =========================================================================================================================== Cash dividends per common share $ -- $ .05 =========================================================================================================================== Comprehensive income: Net income $ 387 $ 19 - --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss), net of taxes (note 10): Unrealized gains on marketable securities, net of taxes of $26 million and $10 million, respectively 40 17 Minimum pension liability adjustment, net of taxes of $52 million and $14 million, respectively 97 (25) - --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 137 (8) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income $ 524 $ 11 ===========================================================================================================================
See Notes to the Condensed Consolidated Financial Statements. -3- 4 CBS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET ------------------------------------ (in millions except per-share amounts)
(UNAUDITED) MARCH 31, DECEMBER 31, 1999 1998 ============================================================================================================================== ASSETS: Cash and cash equivalents $ 987 $ 798 Customer receivables (net of allowance for doubtful accounts of $54 and $48, respectively) 1,272 1,180 Program rights 562 533 Deferred income taxes 217 138 Prepaid and other current assets 170 140 - ------------------------------------------------------------------------------------------------------------------------------ Total current assets 3,208 2,789 Property and equipment, net 1,132 1,149 FCC licenses, net (note 2) 4,220 4,308 Goodwill, net 10,299 10,357 Other intangible and noncurrent assets (note 4) 1,667 1,536 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $ 20,526 $ 20,139 ============================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Current maturities of long-term debt $ 127 $ 159 Accounts payable 347 336 Liabilities for talent and program rights 592 290 Other current liabilities (note 5) 788 820 - ------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 1,854 1,605 Long-term debt 2,315 2,506 Net liabilities of Discontinued Operations (note 6) 1,078 1,284 Pension liability 878 945 Postretirement benefit liability 1,020 1,046 Other noncurrent liabilities (note 5) 2,055 2,081 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities 9,200 9,467 - ------------------------------------------------------------------------------------------------------------------------------ Contingent liabilities and commitments (note 8) Minority interest in equity of consolidated subsidiaries 1,624 1,618 - ------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity: Preferred stock, $1.00 par value (25 million shares authorized, no shares issued) -- -- Common stock, $1.00 par value (1,100 million shares authorized, 740 million and 734 million shares issued, respectively) 740 734 Capital in excess of par value 9,082 8,914 Common stock held in treasury, at cost (1,265) (1,215) Retained earnings 1,815 1,428 Accumulated other comprehensive loss (note 10) (670) (807) - ------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 9,702 9,054 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 20,526 $ 20,139 ==============================================================================================================================
See Notes to the Condensed Consolidated Financial Statements. -4- 5 CBS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ---------------------------------------------- (unaudited, in millions)
THREE MONTHS ENDED MARCH 31, 1999 1998 ========================================================================================================================== Cash flows from operating activities of Continuing Operations: Income from Continuing Operations $ 25 $ 19 Adjustments to reconcile income from Continuing Operations to net cash provided by operating activities: Depreciation and amortization 149 130 Gain on asset dispositions (9) -- Other noncash adjustments (43) (128) Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent (120) (136) Accounts payable 11 (16) Deferred and current income taxes 14 17 Program rights 283 271 Pensions and postretirement benefits (32) (17) Other assets and liabilities (48) (79) - -------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities of Continuing Operations 230 61 - -------------------------------------------------------------------------------------------------------------------------- Cash used by operating activities of Discontinued Operations (note 6) (101) (248) - -------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Business acquisitions and investments (49) (4) Business divestitures and other asset liquidations 342 33 Deposits in acquisition trust (21) -- Capital expenditures - Continuing Operations (24) (18) Capital expenditures - Discontinued Operations (12) (10) - -------------------------------------------------------------------------------------------------------------------------- Cash provided by investing activities 236 1 - -------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Bank revolver borrowings -- 503 Bank revolver repayments -- (303) Net increase in short-term debt -- 35 Long-term debt repayments (247) (39) Stock issued 128 107 Purchase of treasury stock (70) (21) Bank fees paid and other costs (1) (6) Dividends paid -- (36) - -------------------------------------------------------------------------------------------------------------------------- Cash provided (used) by financing activities (190) 240 - -------------------------------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 175 54 Cash and cash equivalents at beginning of period for Continuing and Discontinued Operations 825 67 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period for Continuing and Discontinued Operations $1,000 $ 121 ========================================================================================================================== Supplemental disclosure of cash flow information: Interest paid - Continuing Operations $ 58 $ 75 Interest paid - Discontinued Operations 1 12 - -------------------------------------------------------------------------------------------------------------------------- Total interest paid $ 59 $ 87 ========================================================================================================================== Total income taxes paid from Continuing and Discontinued Operations $ 42 $ 94 ==========================================================================================================================
See Notes to the Condensed Consolidated Financial Statements. -5- 6 CBS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------- 1. GENERAL The condensed consolidated financial statements include the accounts of CBS Corporation (CBS) and its subsidiary companies (together, the Corporation) after elimination of intercompany accounts and transactions. When reading the financial information contained in this Quarterly Report, reference should be made to the consolidated financial statements, schedule, and notes contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. Certain amounts pertaining to the three months ended March 31, 1998 have been restated or reclassified for comparative purposes. During the first quarter of 1999, the Corporation purchased, at market value, or redeemed, at redemption prices, debt securities with a face value of approximately $190 million and reduced the available borrowing capacity under its credit facility from $4.0 billion to $3.0 billion. As a result of these early extinguishments and the write-off of related debt issue costs, the Corporation recognized an extraordinary loss of $4 million, net of income taxes, during the first quarter. On March 31, 1999, the Corporation entered into a definitive merger agreement with King World Production, Inc. (King World) in which it will issue approximately $2.5 billion in common stock in exchange for all of the outstanding common stock of King World. Under the terms of the agreement, King World shareholders will receive 0.81 shares of CBS common stock for each share of King World common stock. King World is the distributor of a number of shows which include "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy!," and "Hollywood Squares." The consummation of the merger is subject to certain conditions, including approval by King World stockholders. In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. This statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. The Corporation's derivative and hedging transactions are not material and it is anticipated that adoption of this standard will not materially impact its financial results or disclosure. Under various disposal plans adopted in recent years, the Corporation has essentially disposed of the remaining industrial businesses. These businesses have been classified as Discontinued Operations in accordance with Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions." On March 22, 1999, the Corporation completed the previously announced sale of its Energy Systems and Government Operations businesses for approximately $220 million in cash, subject to certain adjustments, and the assumption by the buyer, of liabilities, commitments, and obligations totaling approximately $950 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $490 million and $366 million, respectively. See note 6 to the condensed consolidated financial statements. 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 significantly from those estimates. On an ongoing basis, management reviews its estimates, including those related to litigation, environmental liabilities, product liabilities, contracts, program rights, pensions, income taxes, and Discontinued Operations, based on currently available information. Changes in facts and circumstances may result in revised estimates. In the opinion of management, the condensed consolidated financial statements include all material adjustments necessary to present fairly the Corporation's financial position, results of operations, and cash flows. Such adjustments are of a normal recurring nature. The results for this interim period are not necessarily indicative of results for the entire year or any other interim period. -6- 7 2. ACQUISITIONS On June 4, 1998, the Corporation acquired the radio broadcasting operations of American Radio Systems Corporation (American Radio). The acquisition was accounted for under the purchase method. Based on the latest information available to the Corporation, the excess consideration paid over the estimated fair value of net assets acquired totaling approximately $0.8 billion was recorded as goodwill and is being amortized on a straight-line basis over 40 years. The following unaudited pro forma information combines the consolidated results of operations of the Corporation with those of American Radio's as if the acquisition had occurred at the beginning of 1998. The pro forma results for the three months ended March 31, 1998 give effect to certain purchase accounting adjustments, additional amortization expense from goodwill and other identifiable intangible assets, additional interest expense and related income tax effects. PRO FORMA RESULTS OF OPERATIONS (unaudited, in millions except per-share amounts)
THREE MONTHS ENDED MARCH 31, 1999 1998 ===================================================================================================================== Revenues $1,768 $ 2,038 Income (loss) from Continuing Operations 25 (13) Basic and diluted earnings (loss) per common share - Continuing Operations .04 (.02) =====================================================================================================================
This pro forma information is presented for comparative purposes only and is not necessarily indicative of the operating results that actually would have occurred had the American Radio transaction been consummated on January 1, 1998. In addition, these results are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations. 3. OTHER INCOME, NET Other income, net during the three months ended March 31, 1999 reflected income of $13 million compared to income of $5 million for the same period in 1998. Generally, other income and expense items include miscellaneous gains and losses on dispositions of non-strategic assets and operating results of non-consolidated affiliates. During the three months ended March 31, 1999, the Corporation recognized a gain of $8 million on the disposal of certain corporate aircraft which represents the majority of the activity during the period. 4. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
(UNAUDITED) MARCH 31, DECEMBER 31, 1999 1998 ==================================================================================================================== Cable license agreements $ 428 $ 441 Other intangible assets 351 357 Joint ventures and other investments 272 141 Recoverable costs of discontinued businesses (note 8) 175 180 Noncurrent receivables 231 228 Program rights 102 93 Deferred charges 23 33 Intangible pension asset 5 5 Other 80 58 - -------------------------------------------------------------------------------------------------------------------- Total other intangible and noncurrent assets $ 1,667 $ 1,536 ====================================================================================================================
-7- 8 5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
(UNAUDITED) MARCH 31, DECEMBER 31, 1999 1998 ==================================================================================================================== OTHER CURRENT LIABILITIES Accrued employee compensation $ 74 $ 108 Income taxes payable -- 24 Accrued restructuring cost 30 38 Accrued liabilities 335 318 Retained liabilities of discontinued businesses (note 8) 256 254 Accrued interest and insurance 79 67 Other 14 11 - -------------------------------------------------------------------------------------------------------------------- Total other current liabilities $ 788 $ 820 ==================================================================================================================== OTHER NONCURRENT LIABILITIES Deferred income taxes $ 475 $ 499 Postemployment benefits 29 29 Liabilities for talent and program rights 118 119 Accrued liabilities 178 156 Retained liabilities of discontinued businesses (note 8) 793 766 Accrued restructuring costs 24 28 Other 438 484 - ----------------------------------------------------------------------------- ------------------- ------------------ Total other noncurrent liabilities $ 2,055 $ 2,081 ====================================================================================================================
6. DISCONTINUED OPERATIONS In recent years, the Corporation adopted various disposal plans that, in the aggregate, provide for the disposal of all of its industrial businesses and its financial services business. The assets and liabilities and the results of operations for these businesses are classified as Discontinued Operations for all periods presented except for certain liabilities expected to be retained by the Corporation. See note 8 to the condensed consolidated financial statements. On March 22, 1999, the Corporation completed the sale of its Energy Systems and Government Operations businesses for approximately $220 million in cash, subject to certain adjustments, plus the assumption of liabilities, commitments, and obligations of approximately $950 million, all in accordance with the terms of the divestiture agreement. With the completion of this sale, the Corporation has essentially disposed of the remaining industrial businesses and recorded a pre tax and after tax gain on the disposal of Discontinued Operations of $490 million and $366 million, respectively. At March 31, 1999, the remaining assets and liabilities of Discontinued Operations generally consisted of portfolio investments and related debt and other miscellaneous assets including surplus properties, that are expected to be divested. In addition, Discontinued Operations includes a liability for estimated loss on disposal that provides for the portfolio investments' estimated results of operations through the expected date of liquidation, other obligations associated with the disposal of the industrial businesses, and transaction related costs. Those obligations that are expected to be retained by the Corporation are separately presented in Continuing Operations as retained liabilities of discontinued businesses. -8- 9 The assets and liabilities of Discontinued Operations have been classified on the consolidated balance sheet as "Net Liabilities of Discontinued Operations." A summary of these assets and liabilities follows: NET LIABILITIES OF DISCONTINUED OPERATIONS (in millions)
(UNAUDITED) MARCH 31, DECEMBER 31, 1999 1998 ==================================================================================================================== ASSETS: Cash and cash equivalents $ 13 $ 27 Customer receivables 53 224 Inventories 36 94 Costs and estimated earnings over billings on uncompleted contracts -- 87 Portfolio investments 629 642 Plant and equipment, net 52 269 Deferred income taxes 122 414 Other assets 109 162 - -------------------------------------------------------------------------------------------------------------------- Total assets $ 1,014 $ 1,919 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES: Accounts payable $ 71 $ 190 Billings over costs and estimated earnings on uncompleted contracts -- 137 Current maturities of long-term debt 56 46 Long-term debt 353 382 Liability for estimated loss on disposal 1,493 1,309 Settlements and environmental liabilities -- 569 Other liabilities 119 570 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 2,092 3,203 - -------------------------------------------------------------------------------------------------------------------- Net liabilities of Discontinued Operations $ (1,078) $ (1,284) ====================================================================================================================
Portfolio investments, which remain from the financial services business, primarily consist of direct financing and leveraged lease receivables. Generally, these leases are expected to liquidate in accordance with their contractual terms, which extend to 2015. The Corporation has provided for all of the estimated costs associated with liquidation of this portfolio. Cash inflows from contractual liquidation of the leasing portfolio are expected to be sufficient to repay the principal amount of the debt as well as interest costs associated with the portfolio. Prior to the disposition of its Energy Systems business, the Corporation had been defending various lawsuits brought by utilities claiming a substantial amount of damages in connection with alleged tube degradation in steam generators sold by the Energy Systems business as components of nuclear steam supply systems. Settlement agreements had been entered resolving a number of the litigation claims which generally required that the Corporation provide certain products and services at prices discounted at varying rates. In addition, the Corporation was a party to three tolling agreements with utilities or utility plant owners' groups that asserted steam generator claims. The obligations associated with these previous settlement agreements, the tolling agreements and such litigation were assumed by the buyer of the Energy Systems business, all in accordance with the terms of the divestiture agreement. The liability for estimated loss on disposal of $1,493 million at March 31, 1999, includes estimated losses and disposal costs associated with the divestiture transactions, the portfolio investments' estimated results of operations through the expected date of liquidation, and certain contingencies related to the industrial businesses. Satisfaction of these liabilities is expected to occur over the next several years. Management believes that the liability for estimated loss on disposal at March 31, 1999, is adequate to cover these liabilities of Discontinued Operations. -9- 10 In accordance with APB 30, the condensed consolidated financial statements reflect the operating results of Discontinued Operations separately from Continuing Operations. The operating results of the Corporation's Discontinued Operations as presented in the table below occurred after the measurement date and therefore have been charged to the liability for estimated loss on disposal. OPERATING RESULTS OF DISCONTINUED OPERATIONS (unaudited, in millions)
PRE-TAX SALES OF PRODUCTS LOSS AFTER OR SERVICES MEASUREMENT DATE ------------------------------- ----------------------------- THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 ==================================================================================================================== Industrial businesses $ 113 $ 588 $ (20) $ (153) Financial Services 3 6 (7) (5) - -------------------------------------------------------------------------------------------------------------------- Total $ 116 $ 594 $ (27) $ (158) ====================================================================================================================
Cash proceeds from the sale or liquidation of all assets of Discontinued Operations except for portfolio investments, as well as cash requirements to satisfy non-debt obligations of Discontinued Operations, will affect cash flows of Continuing Operations. Operating cash flows of Discontinued Operations, which include cash flows from the operations of the businesses as well as payments for disposition-related costs, are presented separately from Continuing Operations in the condensed consolidated financial statements and consist of the following: CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS (unaudited, in millions)
THREE MONTHS ENDED MARCH 31, 1999 1998 ==================================================================================================================== Industrial businesses $ (101) $ (236) Financial Services -- (9) Other -- (3) - -------------------------------------------------------------------------------------------------------------------- Cash used by operating activities $ (101) $(248) ====================================================================================================================
7. RESTRUCTURING In recent years, the Corporation has restructured its corporate headquarters and certain of its businesses in an effort to reduce its cost structure and remain competitive in its markets. Restructuring activities primarily involve the separation of employees, termination of leases, and other similar actions. Costs for restructuring activities are limited to incremental costs that directly result from restructuring activities and provide no future benefit to the Corporation. During the three months ended March 31, 1999 and 1998, no new restructuring plans were initiated. Restructuring plans initiated during 1998 and 1997 totaling $62 million and $15 million, respectively, are anticipated to be completed by the end of 1999, although certain expenditures for lease commitments will extend over the next several years. Cash expenditures under these plans totaled $12 million during the quarter and are estimated to approximate $23 million for the remainder of 1999 and approximately $30 million for 2000 and beyond. 8. CONTINGENT LIABILITIES AND COMMITMENTS Certain environmental, litigation, and other liabilities associated with the industrial businesses were not assumed by other parties in the divestiture transactions and, therefore, will be retained by the Corporation. These liabilities include certain environmental, general litigation, and other matters not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented in Continuing Operations as retained liabilities of discontinued businesses, totaled $1.0 billion at March 31, 1999, including amounts related to previously discontinued businesses of CBS Inc. Of this amount, $793 million is classified as noncurrent. A separate asset of $227 million was recorded for estimated amounts recoverable from third parties, of which $175 million is classified as noncurrent. -10- 11 LEGAL MATTERS SECURITIES CLASS ACTIONS - FINANCIAL SERVICES The Corporation has been defending 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 and in a Prospectus and Registration Statement for a public offering of the Corporation's common stock in 1991, arising out of charges to earnings of $975 million in 1990 and $1,680 million in 1991. The Corporation and certain directors and former officers were also the subject of derivative litigation arising out of these same events. The district 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 were remanded to the lower court for further proceedings. The parties to the class actions have reached an agreement in principle to resolve all claims. In March 1999, the attorneys who filed the derivative action described herein, filed a new derivative action based on the same allegations previously asserted and dismissed. The parties to that derivative action have also reached an agreement in principle to settle the derivative action. Both the class and the derivative action settlements are subject to execution of definitive documentation, notice to the shareholders and class upon whose behalf the actions were brought, fairness hearings and approval by Court of the settlement. ASBESTOS The Corporation is a defendant in numerous lawsuits claiming various asbestos-related personal injuries, which allegedly occurred from use or inclusion of asbestos in certain of the Corporation's products supplied by its industrial businesses, generally in the pre-1970 time period. Typically, these lawsuits are brought against multiple defendants. The Corporation was neither a manufacturer nor a producer of asbestos and is oftentimes dismissed from these lawsuits on the basis that the Corporation has no relationship to the products in question or the claimant did not have exposure to the Corporation's product. At March 31, 1999, the Corporation had approximately 106,050 unresolved claims pending. In court actions that have been resolved, the Corporation has prevailed in the majority of the asbestos claims and has resolved others through settlement. Furthermore, the Corporation has brought suit against certain of its insurance carriers with respect to these asbestos claims. Under the terms of a settlement agreement resulting from this suit, carriers that have agreed to the settlement are now reimbursing the Corporation for a substantial portion of its current costs and settlements associated with asbestos claims. The Corporation has recorded a liability for asbestos-related matters that are deemed probable and can be reasonably estimated and has separately recorded an asset equal to the amount of such estimated liability that will be recovered pursuant to agreements with insurance carriers. Factors considered in evaluating this litigation include: claimed product involvement, alleged exposure to product, alleged disease, validity of medical claims, number of resolved claims, available insurance proceeds, and status of litigation in multiple jurisdictions. The Corporation has not been able to reasonably estimate costs for unasserted asbestos claims. However, the Corporation reviews asbestos claims on an ongoing basis and adjusts its liability as appropriate. GENERAL Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in the securities class action and certain groupings of asbestos claims, and, although management believes a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation described previously and that the Corporation has adequately provided for costs arising from resolution of these matters. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. -11- 12 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 70 sites. The Corporation believes that any liability incurred for cleanup at these sites will be satisfied over a number of years, and in many cases, the costs will be shared with other responsible parties. These sites include certain sites for which the Corporation, as part of an agreement for sale, has retained obligations for remediation of environmental contamination and for other Comprehensive Environmental Response Compensation and Liability Act (CERCLA) issues. Based on the costs associated with the most probable alternative remediation strategy for the above mentioned sites, the Corporation has an accrued liability of $310 million at March 31, 1999. Depending on the remediation alternatives ultimately selected, the actual costs related to these sites could differ from the amounts currently accrued. The accrued liability includes $227 million for site investigation and remediation, and $83 million for post closure and monitoring activities. Management anticipates that the majority of expenditures for site investigation and remediation will occur during the next five to ten years. Expenditures for post-closure and monitoring activities will be made over periods up to 30 years. In addition, included in Discontinued Operations are environmental liabilities directly related to properties that are held for sale. 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. Management believes, based on its best estimate, that the Corporation has adequately provided for its present environmental obligations and that complying with existing government regulations will not materially impact the Corporation's financial position, liquidity, or results of operations. COMMITMENTS The Corporation routinely enters into commitments to purchase the rights to broadcast programs, including feature films and sporting events. These contracts permit the broadcast of such programs for various periods. At March 31, 1999, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totaling $7.3 billion. In addition, the Corporation has commitments under operating and capital leases for certain facilities and equipment as well as commitments to pay for certain franchise rights entitling it to display advertising on buses, taxis, trains, bus shelters, terminals, and phone kiosks. -12- 13 9. EARNINGS PER COMMON SHARE COMPUTATION OF EARNINGS PER COMMON SHARE - CONTINUING OPERATIONS (unaudited, in millions except per-share amounts)
THREE MONTHS ENDED MARCH 31, 1999 1998 ==================================================================================================================== Income from Continuing Operations applicable to common stockholders $ 25 $ 19 ==================================================================================================================== Basic and diluted earnings per common share $ .04 $ .03 - -------------------------------------------------------------------------------------------------------------------- Average number of basic common shares outstanding 693 698 Average number of diluted common shares outstanding 708 718 ====================================================================================================================
Shares of common stock issuable under deferred compensation arrangements were excluded from the computation of diluted earnings per common share for the periods presented above because their inclusion would have resulted in an increase from basic earnings per common share. 10. SHAREHOLDERS' EQUITY During 1998, the Corporation's Board of Directors authorized a $3 billion multi-year stock repurchase program. For the three months ended March 31, 1999, the Corporation purchased 1,988,700 shares of common stock at cost of $70 million under the program bringing total shares repurchased during 1998 and 1999 to 30,330,408 at a cost of $929 million. At March 31, 1999, and December 31, 1998, 44,464,867 shares and 43,204,000 shares, respectively, of the Corporation's common stock were held in treasury. At March 31, 1998, the Corporation adopted the provisions of SFAS 130 which establishes standards for reporting and disclosing comprehensive income in the financial statements. Comprehensive income is used to describe all changes in equity from transactions and other events and circumstances, including net income, from nonowner sources. The following table presents the accumulated components of comprehensive income other than net income reflected within shareholders' equity at March 31, 1999 and December 31, 1998: ACCUMULATED OTHER COMPREHENSIVE LOSS (in millions)
(UNAUDITED) MARCH 31, DECEMBER 31, 1999 1998 ==================================================================================================================== Minimum pension liability $ (711) $(808) Unrealized gains on securities 41 1 - -------------------------------------------------------------------------------------------------------------------- Total accumulated other comprehensive loss $ (670) $(807) ====================================================================================================================
During the three months ended March 31, 1999, the Corporation disposed of essentially the remaining industrial businesses with the sale of its Energy Systems and Government Operations businesses. The minimum pension liability declined in the quarter primarily as a result of these disposals and the assumption of certain pension obligations by the buyer. 11. SEGMENT INFORMATION The Corporation's Continuing Operations are aligned into two business segments: Radio and Television. These business segments are consistent with the Corporation's management of these businesses and its financial reporting structure and generally reflect the operating focus on out-of-home media and in-home media. -13- 14 SEGMENT RESULTS OF OPERATIONS (unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA ---------------------- ----------------------- -------------------- THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Radio $ 474 $ 330 $ 98 $ 64 $170 $113 Television 1,295 1,620 73 127 153 212 Corporate and Other (1) (1) (13) (17) (3) (16) Residual costs of discontinued businesses -- -- (40) (38) (40) (38) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 1,768 $ 1,949 $ 118 $ 136 $280 $271 ======================================================================================================================
The Corporation evaluates its performance, based on earnings before interest, minority interest, taxes, depreciation and amortization (EBITDA). Management believes that EBITDA is an appropriate measure for evaluating the operating performance of the Corporation's businesses. EBITDA eliminates the effect of depreciation and amortization of tangible and intangible assets, most of which arises from acquisitions accounted for under the purchase method of accounting. The exclusion of amortization expense eliminates variations in results caused by the timing of acquisitions. However, EBITDA should be considered in addition to, not as a substitute for, operating profit, net income, cash flows, and other measures of financial performance reported in accordance with generally accepted accounting principles. The Corporation's consolidated income from Continuing Operations before taxes and minority interest for the quarters ended March 31 1999, and 1998 totaled $80 million, and $66 million, respectively. Consolidated EBITDA noted in the preceding table varies from the consolidated income from Continuing Operations before taxes and minority interest because it excludes depreciation, amortization, and interest expense, net. The category "Corporate and other" includes certain assets and results of operations that are not identifiable to a specific operating segment. These assets primarily include cash and cash equivalents, deferred income taxes, property, equipment and other assets associated with corporate headquarters as well as certain receivables. Included in the results of operations are certain intersegment eliminations, non-allocated income and costs related to interest, taxes and employee benefits as well as certain other headquarter related income and expenses. Intersegment sales and transfers are not material to the Corporation's Radio or Television segment results. Residual costs of discontinued businesses primarily include certain costs, such as pension and post-retirement benefit costs, remaining from past divestitures of the Corporation's industrial businesses. 12. SUBSEQUENT EVENTS Subsequent to March 31, 1999, the Corporation entered into the following definitive agreements to acquire two television stations. On April 12, 1999, the Corporation announced its agreement with Gaylord Entertainment Company pursuant to which the Corporation will issue $485 million of its common stock in exchange for the KTVT-TV Dallas-Fort Worth television station and on April 29, 1999, the Corporation announced its agreement to purchase KEYE-TV in Austin, Texas from Granite Broadcasting Corporation for $160 million in cash. In addition, on April 30, 1999, Infinity Broadcasting Corporation (Infinity), the Corporation's radio and outdoor advertising business, acquired two radio stations in Tampa, Florida, and one in Cleveland, Ohio, from Clear Channel Communications for $123 million in cash. The Corporation also entered into or announced a number of strategic alliances focused on growing its New Media operations. In January the Corporation announced a cross promotional alliance, making CBS News the sole branded broadcast news partner on America Online and CompuServe news channels. In February, CBS and SportsLine USA, Inc. announced the extension of their equity-for-promotion agreement. The Corporation signed letters of intent to exchange promotion and advertising for equity in two companies establishing online services and information sites; hollywood.com and storerunner.com. In connection with the hollywood.com transaction, the Corporation expects to receive a 35 percent ownership interest in the company for approximately $100 million of promotion and content support over a period of seven years. In the storerunner.com transaction, which closed on April 29, 1999, the Corporation received a 50 percent ownership interest in the company for approximately $100 million of promotion and branding support, over a period of six years. In addition, the Corporation entered into a definitive agreement with a subsidiary of WinStar Communications, Inc., to acquire a one-third equity stake in Office.com for $42 million of promotion and advertising over a term of six years. Office.com is designed to provide a comprehensive information website directed towards small and medium-sized businesses. -14- 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported $1.8 billion in revenues for the three months ended March 31, 1999 which was a slight decline from the same period during 1998 due to the impact of the broadcast of the 1998 Winter Olympics on the prior year first quarter results. Excluding the effect of the Winter Olympics from the 1998 results, revenues for the first three months ended March 31, 1999 increased 18 percent. Earnings before interest, taxes, minority interest, depreciation and amortization (EBITDA) also increased dramatically, excluding the impact of the Olympics, up over 50 percent during the first quarter when compared to the prior year first quarter. The Corporation reported net income, for the three months ended March 31, 1999, of $387 million, or $0.55 per share, on a diluted basis which included a gain on the disposal of Discontinued Operations of $366 million, net of income tax. Income from Continuing Operations totaled $25 million, or $0.04 per-share, for the three months ended March 31, 1999, compared to $19 million, or $0.03 per-share, during the three months ended March 31, 1998. The Corporation purchased, at market value, or redeemed, at redemption prices, debt securities with a face value of approximately $190 million and reduced the available borrowing capacity under its credit facility from $4.0 billion to $3.0 billion. As a result of these early extinguishments and the write-off of related debt issue costs, the Corporation recognized an extraordinary loss of $4 million, net of income taxes, during the first quarter. On March 22, 1999, the Corporation completed the previously announced sale of its Energy Systems and Government Operations businesses for approximately $220 million in cash, subject to certain adjustments, and the assumption by the buyer, of liabilities, commitments, and obligations totaling approximately $950 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $490 million and $366 million, respectively. With the completion of this sale, the Corporation has essentially disposed of the remaining industrial businesses. On March 31, 1999, the Corporation entered into a definitive merger agreement with King World Production, Inc. (King World) in which it will issue approximately $2.5 billion in common stock in exchange for all of the outstanding common stock of King World. Under the terms of the agreement, King World shareholders will receive 0.81 shares of CBS common stock for each share of King World common stock. King World is the distributor of a number of shows which include "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy!," and "Hollywood Squares." The consummation of the merger is subject to certain conditions, including approval by King World stockholders. In addition, subsequent to March 31, 1999, the Corporation entered into the following definitive agreements to acquire two television stations. On April 12, 1999, the Corporation announced its agreement with Gaylord Entertainment Company pursuant to which the Corporation will issue $485 million of its common stock in exchange for the KTVT-TV Dallas-Fort Worth television station and on April 29, 1999, the Corporation announced its agreement to purchase KEYE-TV in Austin, Texas from Granite Broadcasting Corporation for $160 million in cash. In addition, on April 30, 1999, Infinity Broadcasting Corporation (Infinity), the Corporation's radio and outdoor advertising business, acquired two radio stations in Tampa, Florida, and one in Cleveland, Ohio, from Clear Channel Communications for $123 million in cash. The Corporation also entered into or announced a number of strategic alliances focused on growing its New Media operations. In January the Corporation announced a cross promotional alliance, making CBS News the sole branded broadcast news partner on America Online and CompuServe news channels. In February, CBS and SportsLine USA, Inc. announced the extension of their equity-for-promotion agreement. The Corporation signed letters of intent to exchange promotion and advertising for equity in two companies establishing online services and information sites; hollywood.com and storerunner.com. In connection with the hollywood.com transaction, the Corporation expects to receive a 35 percent ownership interest in the company for approximately $100 million of promotion and content support over a period of seven years. In the storerunner.com transaction, which closed on April 29, 1999, the Corporation received a 50 percent ownership interest in the company for approximately $100 million of promotion and branding support, over a period of six years. In addition, the Corporation entered into a definitive agreement with a subsidiary of WinStar Communications, Inc., to acquire a one-third equity stake in Office.com for $42 million of promotion and advertising over a term of six years. Office.com is designed to provide a comprehensive information website directed towards small and medium-sized businesses. -15- 16 SEGMENT RESULTS OF OPERATIONS The following table presents the segment results for the Corporation's Continuing Operations for the three months ended March 31, 1999 and 1998. EBITDA is presented in the table because management believes that EBITDA is an appropriate measure for evaluating the operating performance of the Corporation's businesses. EBITDA eliminates the effect of depreciation and amortization of tangible and intangible assets, most of which were acquired in acquisitions accounted for under the purchase method of accounting. The exclusion of amortization expense eliminates variations in results among stations and other businesses caused by the timing of acquisitions. More recent acquisitions reflect higher amortization expense due to the increasing prices paid for FCC licenses, goodwill and other identifiable intangibles. However, EBITDA should be considered in addition to, not as a substitute for, operating profit, net income, cash flows and other measures of financial performance reported in accordance with generally accepted accounting principles. EBITDA differs from cash flows from operating activities primarily because it does not consider certain changes in assets and liabilities from period to period and it does not include cash flows for interest and taxes. SEGMENT RESULTS OF OPERATIONS - CONTINUING OPERATIONS (unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA ---------------------- ----------------------- -------------------- THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Radio $ 474 $ 330 $ 98 $ 64 $170 $113 Television 1,295 1,620 73 127 153 212 Corporate and Other (1) (1) (13) (17) (3) (16) Residual costs of discontinued businesses -- -- (40) (38) (40) (38) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 1,768 $ 1,949 $ 118 $136 $280 $271 ======================================================================================================================
Certain discussions below provide a comparison of actual results with pro forma results. For the three months ended March 31, 1999 and 1998 comparisons, pro forma results were determined as if the American Radio Systems Corporation (American Radio) and related divestitures and exchanges of radio stations had occurred on January 1, 1998. RADIO AND OUTDOOR ADVERTISING Infinity Broadcasting Corporation (Infinity), which is comprised of the radio and outdoor advertising operations (Radio) of the Corporation, owns and operates more than 160 radio stations and TDI Worldwide, Inc. (TDI), its outdoor advertising business. Revenues, as reported, increased by $144 million, or 44 percent, during the first three months of 1999 compared to the same period in 1998. This growth was primarily driven by the overall strong performance at the Corporation's existing radio stations and TDI and the inclusion of the results of operations of American Radio, which was acquired on June 4, 1998. On a pro forma basis, first quarter 1999 Radio segment revenue growth continued to outpace the industry increasing by approximately 16 percent over the prior year first quarter. These pro forma increases reflect strong station growth across the majority of the Corporation's radio markets as well as double digit growth at TDI during 1999. Operating profit and EBITDA for the three months ended March 31, 1999, increased over the prior year quarter by $34 million, or 53 percent, and $57 million, or 51 percent, respectively. On a pro forma basis operating profit and EBITDA increased by approximately 56 percent and 27 percent, respectively. The increases in pro forma operating profit and EBITDA are primarily due to the higher revenues at the Corporation's existing stations and TDI combined with management's continued cost control efforts. On an as-reported basis, the increases in operating profit and EBITDA are driven by the same factors as the pro forma increases, as well as the inclusion of the results of operations of American Radio subsequent to its acquisition by the Corporation in June 1998. The higher rate of growth in operating profit and EBITDA compared to the rate of growth in revenues is attributable to the fact that a substantial portion of the Radio segment costs are fixed. TELEVISION The television segment consists of the Corporation's 14 owned and operated television stations, the CBS television network, and the cable television operations. The segment's revenues for the first three months of 1999 totaled $1,295 million compared to $1,620 million during the prior year first quarter. This decline is primarily due to the effect of the Winter Olympics on the first quarter of 1998 results. Excluding the impact of the Winter Olympics, the television segment revenues increased at a double digit rate. This increase in first quarter revenues for the Television segment, excluding the effect of the Olympics, is due to stronger 1999 primetime pricing on network advertising and primetime ratings share growth. -16- 17 The Television segment's operating profit and EBITDA for the three months ended March 31, 1999 totaled $73 million and $153 million, respectively, compared to $127 million and $212 million, respectively, for the same period during 1998. These declines are due to the effect of the Winter Olympics on the first quarter of 1998 results. Excluding the impact of the Olympics from the 1998 results, operating profit and EBITDA increased greater than 25 percent. These improvements were attributable to the revenue growth at the television network due to higher pricing on primetime network advertising and primetime ratings share growth during 1999, as well as lower operating costs due to recent cost reduction initiatives and the benefit of the elimination of start-up losses associated with certain cable operations divested late in 1998. RESIDUAL COSTS OF DISCONTINUED BUSINESSES The Corporation's results of operations are unfavorably affected by certain costs remaining from past divestitures of its industrial businesses. Following those divestitures, certain liabilities arising from these businesses remained with the Corporation, such as pension and postretirement benefit obligations for inactive and retired employees, environmental liabilities, and litigation-related liabilities. The pension and postretirement benefit costs associated with these former employees, as well as, administration costs associated with managing the retained liabilities, have been presented separately in the condensed consolidated statement of income. For the three months ended March 31, 1999 and 1998, these costs primarily reflect pension and postretirement benefit costs. The slight increase in costs during 1999 is a result of the closing of the sale of Power Generation in August 1998 and the retention of these benefit obligations. Following the sales of Energy Systems and Government Operations, the quarterly costs will increase by an additional $5 million. Prior to the sales, these costs are included in the respective businesses' results of operations which are reported in Discontinued Operations. The Corporation's objective is to reduce this earnings constraint over the next few years by fully funding the pension plan and modifying postretirement benefits. However, management expects that these costs will continue to negatively affect operating results during future years. OTHER INCOME, NET Other income, net during the three months ended March 31, 1999 reflected income of $13 million compared to income of $5 million for the same period in 1998. Generally, other income and expense items include miscellaneous gains and losses on dispositions of non-strategic assets and operating results of non-consolidated affiliates. During the three months ended March 31, 1999, the Corporation recognized a net gain of $8 million on the disposal of certain corporate aircraft which represents the majority of the activity during the period. INTEREST EXPENSE, NET Interest expense from Continuing Operations totaled $51 million for the three months ended March 31, 1999, compared to $75 million for the same period in 1998. The decrease in interest expense during 1999 was driven by a reduction in average debt, primarily revolving credit borrowings, compared to the first quarter of 1998. Average debt was primarily affected by the proceeds received from Infinity subsequent to its initial public offering, the timing of major acquisitions and divestiture transactions, and the repurchase of shares under the Corporation's stock repurchase program. During 1999, the Corporation purchased, at market value, or redeemed, at redemption prices, debt securities with a face value of approximately $190 million and reduced the available borrowing capacity under its credit facility from $4.0 billion to $3.0 billion (see Revolving Credit Facility). In addition, the Corporation paid off approximately $35 million of other debt and notes payable. Future interest expense will depend on the Corporation's financing strategy in future acquisitions, additional activity under the Corporation's stock repurchase program, use of proceeds from dispositions, and payment of pension benefits, postretirement benefits, remaining divestiture costs and retained liabilities of discontinued businesses as well as the Corporation's performance. -17- 18 INCOME TAXES The Corporation's Continuing Operations effective tax rates for the three months ended March 31, 1999 and 1998 are 58 percent and 71 percent, respectively, and therefore, significantly higher than the U.S. federal statutory tax rate of 35 percent of pre tax income. The higher effective tax rate is primarily resulting from amortization of non-deductible goodwill associated with the media acquisitions in recent years. Such permanent differences between book income and taxable income can significantly impact the provision and, depending upon the Corporation's level of income or loss and the effect of non-recurring transactions, can cause dramatic fluctuations in the Corporation's effective tax rate. The Corporation's net deferred tax liability at March 31, 1999 totaled $136 million and its net deferred tax assets as of December 31, 1998 totaled $53 million. At March 31, 1999, the net liability of $136 million consisted of a net deferred tax liability of $258 million for Continuing Operations partially offset by a net deferred tax asset of $122 million for Discontinued Operations. At December 31, 1998, the net deferred tax asset consisted of a net deferred tax liability of $361 million for Continuing Operations offset by a net deferred tax asset of $414 million for Discontinued Operations. YEAR 2000 The Year 2000 issue results from the development of computer programs and computer chips using two digits rather than four digits to define the applicable year. Computer programs and/or equipment with time-sensitive software or computer chips may recognize the date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations and cause disruptions to business operations. To address the Year 2000 issue, the Corporation has undertaken efforts to identify, modify or replace, and test systems that may not be Year 2000 compliant. The Corporation estimates its cost to achieve Year 2000 compliance to be approximately $36 million, of which $20 million has been incurred through March 31, 1999. Approximately 36% of the total expenditures relate to replacement of existing systems. The Corporation has and expects to continue funding these costs through its cash flows from operations and expense modification costs as incurred. Several centrally managed critical systems are currently Year 2000 compliant or will be replaced by Year 2000 compliant applications by mid-1999. A significant portion of the Year 2000 work for the Corporation's systems has been performed or is underway. The various businesses are currently in the process of developing Year 2000 procedures and guidelines. The Corporation plans to have all systems tested and compliant by the end of 1999. The Year 2000 effort also includes communication with all significant third party suppliers and customers to determine the extent to which the Corporation's systems are vulnerable to those parties' failures to reach Year 2000 compliance. There can be no guarantee that the Corporation's third party suppliers or customers will be Year 2000 compliant on a timely basis and that failure to achieve compliance would not have a material adverse impact on the Corporation's business operations. Overall, the Corporation believes that it will complete its Year 2000 effort and will be compliant on time. Although there can be no assurances that this will occur, the Corporation will continuously monitor its progress and evaluate the need for a contingency plan. Based on its current plan, the Corporation believes that it will have adequate time to prepare for contingency measures if the need arises. The Corporation believes that it is difficult to fully assess the risks of the Year 2000 problem due to numerous uncertainties surrounding the issue. Management believes the primary risks are external to the Corporation and relate to the Year 2000 readiness of its third party business partners. The inability of the Corporation or its third party business partners to adequately address the Year 2000 issues on a timely basis could result in a material financial risk, including loss of revenue, substantial unanticipated costs and service interruptions. Accordingly, the Corporation plans to devote the resources it concludes are appropriate to address all significant Year 2000 issues in a timely manner. DISCONTINUED OPERATIONS On March 22, 1999, the Corporation completed the previously announced sale of its Energy Systems and Government Operations businesses for approximately $220 million in cash, subject to certain adjustments, and the assumption, by the buyer, of liabilities, commitments and obligations totaling approximately $950 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $490 million and $366 million, respectively. With the completion of this sale, the Corporation has essentially disposed of the remaining industrial businesses. -18- 19 Following the divestiture of the Energy Systems and Government Operations business, the assets of Discontinued Operations consist primarily of the portfolio investments remaining from the 1992 decision to exit the financial services business. These portfolio investments, which consist primarily of the leasing portfolio, generally are expected to liquidate through the year 2015 in accordance with contractual terms. Debt of Discontinued Operations, which totaled $409 million at March 31, 1999, includes only the amount that will be repaid through the liquidation of the portfolio investments. Certain other divestiture costs and contingencies that related to the industrial businesses also will remain. Except for cash flows related to the portfolio investments and the associated debt, all future cash inflows and outflows of Discontinued Operations will affect Continuing Operations liquidity and interest expense. Management believes that the liability for estimated loss on disposal of Discontinued Operations of $1,493 million at March 31, 1999 is adequate to provide for the portfolio investments' estimated results of operations through the expected date of liquidation, other obligations associated with the disposal of the industrial business, and transaction related costs. RESULTS OF OPERATIONS - DISCONTINUED OPERATIONS (unaudited, in millions)
SALE OF PRODUCTS OPERATING PROFIT AND SERVICES (LOSS) - ----------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 1999 1998 1999 1998 ================================================================================================================= Industrial businesses $ 113 $ 588 $ (17) $ (154) Financial Services 3 6 2 4 - ----------------------------------------------------------------------------------------------------------------- Total $ 116 $ 594 $ (15) $ (150) =================================================================================================================
The results presented in the table above include sales and operating profit for the Corporation's industrial and financial services businesses after the measurement date and are charged directly to the liability for estimated loss on disposal. Sales for the industrial businesses during the three months ended March 31, 1999 and 1998 declined from $594 million to $116 million. The decline primarily reflects the sale of several businesses throughout 1998, most notably the Power Generation business in August. These results will continue to decline with the sale of the Energy Systems and Government Operations businesses. Financial services sales reflect the continued liquidation of the remaining portfolio investments. The divestiture of the industrial businesses also reduced the operating losses during the three months ended March 31, 1999 compared to the same period in 1998. The operating profit for financial services reflects yield income on the portfolio investments. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW In 1998, the Corporation formed Infinity, a new company comprising the Radio segment of the Corporation. In December 1998, Infinity sold 18.2 percent of its common stock in an initial public offering, generating $3.2 billion of proceeds ($3.0 billion, net of offering costs). The Corporation, as the parent company of Infinity, received the benefit of nearly 90 percent of the proceeds from Infinity's stock offering through the payment by Infinity of an intercompany note and certain other intercompany transactions. These proceeds were used by the Corporation to repay its revolving credit borrowings and for general corporate purposes. Because of the minority interest in Infinity following the stock offering, certain modifications have been made to the Corporation's cash management practices. Under certain circumstances, Infinity's cash generally would be available to the Corporation under the terms of an intercompany agreement (pursuant to which Infinity reimburses CBS for certain services provided to Infinity) and a tax sharing agreement between Infinity and the Corporation, or if Infinity would pay a dividend on all of its common stock. However, Infinity does not anticipate paying any dividends in the near term. Cash generated by Infinity's operations is expected to be retained by Infinity for use in its operations or for investing. Management does not believe that this segregation of cash will materially impact the Corporation's liquidity. During the first quarter of 1999, the Corporation purchased or redeemed debt securities for $247 million and reduced the available borrowing capacity under its credit facility from $4.0 billion to $3.0 billion. As a result of these early extinguishments and the write-off of related debt issue costs, the Corporation recognized an extraordinary loss of $4 million net of income taxes during the first quarter. -19- 20 On March 22, 1999, the Corporation completed the previously announced sale of its Energy Systems and Government Operations businesses for approximately $220 million in cash, subject to certain adjustment, and the assumption, by the buyer, of liabilities, commitments, and obligations totaling approximately $950 million, all in accordance with the terms of the divestiture agreement. Management expects that the Corporation will have sufficient liquidity to meet its ordinary future business needs. Sources of liquidity generally available to the Corporation include cash from operations, proceeds from sales of investments and non-strategic assets, cash and cash equivalents, availability of debt under its credit facility, borrowings from other sources, including funds from capital markets, and issuance of additional capital stock of the Corporation. OPERATING ACTIVITIES The operating activities of Continuing Operations provided cash of $230 million during the first three months of 1999 and $61 million during the first three months of 1998. Cash contributed to all of the Corporation's pension plans totaled $65 million during the first three months of 1999 and $73 million during the same period in 1998. The Corporation's contribution level for 1999 is expected to approximate $270 million (including the $65 million contribution made in the first three months of 1999), and is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. The operating activities of Discontinued Operations used cash of $101 million during the first three months of 1999 compared to $248 million during the same period in 1998. The cash flows during the first quarter of 1999 primarily reflect cash used in the operations of the Energy Systems and Government Operations businesses while the cash flows during the same period in 1998 primarily reflect the cash used in the operations of its Power Generation business as well as the Energy Systems and Government Operations businesses. With the completion of the sale of the Corporation's Power Generation business in August 1998 and its Energy Systems and Government Operations businesses in March 1999, future operating cash flows of Discontinued Operations will consist primarily of disposal and other costs associated with the industrial businesses. These cash flows will affect the cash flows of Continuing Operations. Cash flows associated with the financial services business, including interest cost on debt of Discontinued Operations and the repayment of that debt, will be paid through the continued liquidation of portfolio investments and are not expected to impact future cash flows from Continuing Operations. INVESTING ACTIVITIES Investing activities provided cash of $236 million and $1 million during the first three months 1999 and 1998, respectively. Investing cash inflows from business divestitures and other asset liquidations totaled $342 million and $33 million during the first quarter of 1999 and 1998, respectively. Asset liquidations in 1999 primarily relate to Discontinued Operations and include the sale of the Energy Systems and Government Operations businesses during March 1999 for approximately $220 million, subject to certain adjustments. In addition, during the first quarter of 1999, approximately $59 million was received from the divestiture of several media properties. Investing cash outflows during 1999 primarily relate to the acquisition of a transit advertising company for $34 million. The Corporation's capital expenditures for Continuing Operations during the first three months of 1999 and 1998 totaled $24 million and $18 million, respectively. This increase is primarily attributable to recent acquisitions. With the sale of the Energy Systems and Government Operations businesses, future capital expenditures for Discontinued Operations will essentially be eliminated. FINANCING ACTIVITIES Cash used by financing activities during the first three months of 1999 totaled $190 million compared to cash provided by financing activities during the same period in 1998 of $240 million. -20- 21 Total financing cash outflows during the first quarter of 1999 primarily reflect the repurchase or redemption of certain outstanding debt for $247 million as well as the purchase of 1,988,700 shares of common stock for $70 million under the Corporation's $3 billion multi-year stock repurchase program. During the first quarter of 1998, 700,000 shares of common stock were purchased at a cost of $21 million. Future purchases of common stock under the program will be guided by financial policies that are consistent with maintaining an investment grade rating. In addition, total 1998 financing cash outflows during the first quarter, reflect the Corporation's payment of a $36 million dividend on its common stock. Subsequent to March 1, 1998, the Corporation suspended dividend payments on its common stock so that cash could be used to better enhance shareholder value. Cash provided by financing activities during the first three months of 1999 and 1998 primarily reflect the issuance of the Corporation's stock in connection with certain employee compensation and benefit plans totaling $128 million and $107 million, respectively. REVOLVING CREDIT FACILITY With the completion of Infinity's initial public offering in December 1998, all remaining revolving credit borrowings were repaid and no new borrowings were outstanding at March 31, 1999. On March 15, 1999, the Corporation amended its revolving credit agreement which resulted in the reduction of total available borrowings from $4.0 billion to $3.0 billion. The unused capacity under the existing credit facility was therefore equal to $3.0 billion at March 31, 1999 of which up to $1.0 billion is available to Infinity. Borrowing availability under the credit agreement is subject to compliance with certain covenants, a maximum leverage ratio, minimum interest coverage ratio, and minimum consolidated net worth. Certain of the financial covenants become more restrictive over the term of the agreement. At March 31, 1999, the Corporation was in compliance with the financial covenants. LEGAL, ENVIRONMENTAL, AND OTHER MATTERS The Corporation is addressing a number of environmental and litigation matters, including those discussed in note 8 to the condensed consolidated financial statements. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain of the Corporation's pending cases and, although management believes that a significant adverse judgment is unlikely, any such judgment could have a material adverse effect on the Corporation's results of operations for a quarter or a year. However, based on its understanding and evaluation of the relevant facts and circumstances, management believes that the Corporation has meritorious defenses to the litigation referenced in note 8 and that the Corporation has adequately provided for costs arising from potential settlement of these matters when in the best interest of the Corporation. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. Liabilities for certain of the Corporation's environmental, litigation, and other matters, although arising from discontinued businesses, have been retained by the Corporation following the divestiture of the remaining industrial businesses. These liabilities include certain environmental obligations, liabilities associated with asbestos claims, and certain general litigation claims not involving active businesses. Accrued liabilities associated with these matters, which have been separately presented as retained liabilities of discontinued businesses, totaled $1.0 billion at March 31, 1999, including amounts related to previously discontinued businesses of CBS Inc. Of this amount, $793 million is classified as noncurrent. A separate asset of $227 million has been recorded for estimated amounts recoverable from third parties, of which $175 million is classified as noncurrent. See note 4 to the condensed consolidated 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. -21- 22 INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts but rather reflect the Corporation's current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will," and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors, some of which are beyond the Corporation's control, that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. Such risks, uncertainties, and factors include, but are not limited to: the Corporation's ability to develop and/or acquire television programming and to attract and retain advertisers; the impact of significant competition from both over-the-air broadcast stations and programming alternatives such as cable television, wireless cable, in-home satellite distribution services, and pay-per-view and home video entertainment services; the impact of new technologies; the impact of the year 2000 transition; changes in Federal Communications Commission regulations; and such other competitive and business risks as from time to time may be detailed in the Corporation's Securities and Exchange Commission reports. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management's view only as of the date of this Report on Form 10-Q. The Corporation undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. -22- 23 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) In August 1988, the Pennsylvania Department of Environmental Resources (PDER) filed a complaint against the Corporation alleging violations of the Pennsylvania Clean Streams Law at the Corporation's Gettysburg, Pennsylvania, elevator plant. PDER requested that the Environmental Hearing Board assess a penalty in the amount of $9 million. The Corporation denied these allegations. In November 1996, the Board assessed a civil penalty of approximately $5.5 million. The Corporation appealed the Board's decision to the Commonwealth Court. On January 2, 1998, the Commonwealth Court upheld the Board's findings with respect to violations of the Pennsylvania Clean Streams Law but not with respect to the amount of the penalty assessed. The Commonwealth Court returned the matter to the Board for a reassessment of the penalty. The Corporation's application for a rehearing before the Commonwealth Court was denied. Also, on October 9, 1998, the Corporation's petition for a rehearing before the Pennsylvania Supreme Court was denied. Oral arguments were completed in February 1999. The Board has reduced the penalty to $3.3 million. The Corporation is pursuing a Petition for Review by the Commonwealth Court to further reduce the penalty. (b) The Corporation has been defending, in the USDC for the Western District of Pennsylvania (the District Court), consolidated class and derivative actions and an individual lawsuit brought by shareholders against the Corporation, Westinghouse Financial Services, Inc. (WFSI) and Westinghouse Credit Corporation (WCC), previously subsidiaries of the Corporation, and/or certain present and former directors and officers of the Corporation, as well as other unrelated parties. Together, these actions allege various federal securities law and common law violations arising out of alleged misstatements or omissions contained in the Corporation's public filings concerning the financial condition of the Corporation, WFSI, and WCC in connection with a $975 million charge to earnings announced on February 27, 1991; a public offering of the Corporation's common stock in May 1991; a $1,680 million charge to earnings announced on October 7, 1991; and alleged misrepresentations regarding the adequacy of internal controls at the Corporation, WFSI, and WCC. In July 1993, the court dismissed in its entirety the derivative claim and dismissed most of the class action claims with leave to replead certain claims in both actions. Both actions were subsequently repled. On January 20, 1995, the District Court again dismissed the derivative complaint in its entirety. Also on January 20, 1995, the court dismissed the class action claims but granted plaintiffs the right to replead certain of the claims. Plaintiffs in the class action did not replead the claims, and on February 28, 1995, the court dismissed these claims in their entirety. Plaintiffs in both the derivative and class action suits appealed the rulings and dismissals of their claims by the District Court to the Third Circuit. (In the derivative action, the Third Circuit affirmed the dismissal of this action by the District Court.) In July 1996, the Third Circuit affirmed in part and reversed in part the class action claims. Pursuant to this ruling, the class action claims have been remanded to the District Court. In 1997, two similar class action suits were brought against the Corporation in the District Court. These cases allege similar facts and include the same defendants as in the previous class action complaint filed in the District Court. In November 1997, the District Court dismissed both of these actions. In March 1999, the attorneys who filed the derivative action described herein filed a new derivative action based on the same allegations previously asserted and dismissed. The Corporation has reached an agreement in principle to resolve all claims in the derivative and class actions. The settlements are subject to the execution of definitive documentation, notice to the shareholders and class upon whose behalf the actions were brought, fairness hearings, and approval by the Court of the settlements. Litigation is inherently uncertain and always difficult to predict. Substantial damages are sought in certain 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 items (a) and (b) above, and that the Corporation has adequately provided for resolution of these matters. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. -23- 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS (a) The Restated Articles of the Corporation, as amended to December 11, 1997, are incorporated herein by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 1997. (b) The Bylaws of the Corporation, as amended to March 11, 1999, are incorporated herein by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 1998. (4) RIGHTS OF SECURITY HOLDERS (a) There are no instruments with respect to long-term debt of the Corporation that involve securities authorized thereunder exceeding 10 percent of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide to the Securities and Exchange Commission, upon request, a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries. (b) Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the Securities and Exchange Commission on January 9, 1996. (10) MATERIAL CONTRACTS (a*) The CBS Corporation 1998 Executive Annual Incentive Plan is incorporated herein by reference to Exhibit A to the Corporation's Definitive Proxy Statement for the Annual Meeting of Shareholders held on May 6, 1998, as filed with the Commission on March 25, 1998. (b*) The Annual Performance Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(a) to Form 10-Q for the quarter ended September 30, 1996. (c*) The 1993 Long-Term Incentive Plan, as amended to January 28, 1998, is incorporated herein by reference to Exhibit 10(b) to Form 10-K for the year ended December 31, 1997. (d*) The 1991 Long-Term Incentive Plan, as amended to January 28, 1998, is incorporated herein by reference to Exhibit 10(g) to Form 10-K for the year ended December 31, 1997. (e*) The 1984 Long-Term Incentive Plan, as amended to November 1, 1996, is incorporated herein by reference to Exhibit 10(c) to Form 10-Q for the quarter ended September 30, 1996. (f*) Amended and restated Infinity Broadcasting Corporation Stock Option Plan is incorporated herein by reference to Exhibit 4.4 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. (g*) The Westinghouse Executive Pension Plan, as amended as of August 19, 1998, is incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended December 31, 1998. (h*) CBS Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(n) to Form 10-K for the year ended December 31, 1996. (i*) CBS Bonus Supplemental Executive Retirement Plan, as amended to November 15, 1995, is incorporated herein by reference to Exhibit 10(o) to Form 10-K for the year ended December 31, 1996. (j*) CBS Supplemental Employee Investment Fund is incorporated by reference to Exhibit 10(j) to Form 10-K for the year ended December 31, 1998. -24- 25 (k*) The Deferred Compensation and Stock Plan for Directors, as amended as of January 27, 1999, is incorporated by reference to Exhibit 10(k) to Form 10-K for the year ended December 31, 1998. (l*) The Director's Charitable Giving Program, as amended to April 30, 1996, is incorporated herein by reference to Exhibit 10(g) to Form 10-Q for the quarter ended June 30, 1996. (m*) Advisory Director's Plan Termination Fee Deferral Terms and Conditions, dated April 30, 1996, is incorporated herein by reference to Exhibit 10(i) to Form 10-Q for the quarter ended June 30, 1996. (n*) Employment Agreement between the Corporation and Mel Karmazin, made as of June 20, 1996 and effective as of December 31, 1996, is hereby incorporated by reference to Exhibit 10(s) to Form 10-Q for the quarter ended March 31, 1997. (o*) Infinity Broadcasting Corporation Warrant Certificate No. 3 to Mel Karmazin is incorporated herein by reference to Exhibit 4.6 to the Corporation's Registration Statement No. 333-13219 on Post-Effective Amendment No. 1 on Form S-8 to Form S-4 filed with the Securities and Exchange Commission on January 2, 1997. (p*) Employment agreement between a subsidiary of the Corporation, CBS Broadcasting Inc. (formerly CBS Inc.) and Leslie Moonves entered into as of May 17, 1995, and amended as of January 20, 1998 is incorporated herein by reference to Exhibit 10(u) to Form 10-K for the year ended December 31, 1997. (q*) Agreement between the Corporation and Fredric G. Reynolds dated March 2, 1999. (r*) Agreement between the Corporation and Louis J. Briskman dated March 2, 1999. (s) The $5.5 billion Credit Agreement among the Corporation, the Lenders parties thereto, NationsBank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, dated August 29, 1996, is incorporated herein by reference to Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1996. (t) First Amendment, dated as of January 29, 1997 to the Credit Agreement, dated as of August 29, 1996, among CBS Corporation, the Lenders parties thereto, NationsBank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(p) to Form 10-Q for the quarter ended March 31, 1997. (u) Second Amendment, dated as of March 21, 1997, to the Credit Agreement, dated as of August 29, 1996, as amended by the First Amendment thereto dated as of January 29, 1997, among the Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, NationsBank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent, is hereby incorporated by reference to Exhibit 10(q) to Form 10-Q for the quarter ended March 31, 1997. (v) Third Amendment dated as of March 3, 1998, to the Credit Agreement dated as of August 29, 1996, as amended by the First Amendment thereto dated as of January 29, 1997, as amended by the Second Amendment thereto dated as of March 21, 1997 among the Corporation, the Subsidiaries Borrowers parties thereto, the Lenders parties thereto, NationsBank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent is incorporated by reference to Exhibit 10(x) to Form 10-Q for the quarter ended March 31, 1998. -25- 26 (w) Fourth Amendment, dated as of February 26, 1999, to the CBS Corporation Credit Agreement, dated as of August 29, 1996, as amended by the First, Second, and Third Amendments, dated January 29, 1997, March 21, 1997 and March 3, 1999, respectively, among CBS Corporation, the Subsidiary Borrowers parties thereto, the Lenders parties thereto, Nationsbank, N.A. and The Toronto-Dominion Bank as Syndication Agents, The Chase Manhattan Bank as Documentation Agent, and Morgan Guaranty Trust Company of New York as Administrative Agent is incorporated by reference to Exhibit 10.9 to Form 10-Q of Infinity Broadcasting Corporation for the quarter ended March 31, 1999. (x) Asset Purchase Agreement, dated June 25, 1998, between the Corporation and WGNH Acquisition, LLC, an entity owned 60 percent by Morrison Knudson Corporation and 40 percent by BNFL USA Group, Inc., relating to the Corporation's Energy Systems Business Unit is incorporated by reference to Exhibit 10(w) to Form 10-Q for the quarter ended June 30, 1998. (y) Asset Purchase Agreement, dated June 25, 1998, between the Corporation and WGNH Acquisition, LLC, an entity owned 60 percent by Morrison Knudson Corporation and 40 percent by BNFL USA Group, Inc., relating to the Corporation's Government and Environmental Services Company is incorporated by reference to Exhibit 10(x) to Form 10-Q for the quarter ended June 30, 1998. (z) Intercompany Agreement between CBS and Infinity Broadcasting Corporation dated as of December 15, 1998 is incorporated by reference to Exhibit 10(x) to Form 10-K for the year ended December 31, 1998. (aa) Tax Sharing Agreement between CBS Corporation and Infinity Broadcasting Corporation dated as of December 15, 1998 is incorporated by reference to Exhibit 10(y) to Form 10-K for the year ended December 31, 1998. (bb) Agreement and Plan of Merger dated as of March 31, 1999 by and among King World Productions, Inc., CBS Corporation and K Acquisition Corp. is incorporated herein by reference to Exhibit 2.1 to the report on Form 8-K dated March 31, 1999 of King World Productions, Inc. (27) FINANCIAL DATA SCHEDULE - -------- * Identifies management contract or compensatory plan or arrangement. -26- 27 B) REPORTS ON FORM 8-K A Current Report on Form 8-K (Items 5 and 7), dated January 29, 1999, regarding the Corporation's announcement of the date of its 1999 Annual Meeting. A Current Report on Form 8-K (Items 5 and 7), dated February 5, 1999, filing a press release concerning the Corporation's earnings for the fourth quarter of 1998 and year-end results for 1998. -27- 28 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 17 day of May 1999. CBS CORPORATION By: /s/ ROBERT G. FREEDLINE ----------------------------- Robert G. Freedline Vice President and Controller -28- EX-10.Q 2 COMPENSATION AGREEMENT 1 Exhibit 10(R) [CBS LOGO] CBS CORPORATION David T. McLaughlin 51 West 52nd Street Chairman New York, NY 10019 CONFIDENTIAL AND PROPRIETARY March 2, 1999 Mr. Louis J. Briskman Executive Vice President and General Counsel CBS Corporation 51 West 52nd Street New York, New York 10019 Dear Lou: CBS Corporation (the "Company") recognizes the importance of maintaining a high level of executive performance and expertise and of retaining the services of certain Company executives, such as yourself, who are key to the execution of corporate strategy. The purpose of this letter agreement ("Agreement") is to provide an incentive for you to remain with the Company as an executive by providing you with assurances that you will receive certain payments and/or other benefits in the event that your employment with the Company terminates under the circumstances set forth herein, as long as you comply with all of the terms and conditions of the Agreement. The Agreement is intended to set forth the terms and conditions to which you and the Company have agreed regarding the termination of your employment under certain circumstances, and supersedes all prior agreements and understandings with respect to the subject matter hereof. Certain capitalized terms and phrases used in the Agreement are defined in Section 10(c) below. 2 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 2 1. Eligibility for Payments and Other Benefits (a) Limitations and Conditions. In addition to any further limitations and/or conditions that may be set forth in the Agreement with respect to a particular payment or other benefit, your receipt of any and all payments and other benefits under the Agreement is subject to the limits set forth in Section 7 and subject to your compliance with all of the provisions of Section 8 and the terms and conditions of any applicable plans or programs, as they may be modified hereby, pursuant to which you receive such payments or other benefits. (b) Eligibility for Separation Pay and Financial Counseling Benefits Pursuant to Section 2. You will be eligible to receive the separation payment and other separation benefits set forth in Section 2, in lieu of any and all other separation/severance payments or salary continuation payments, if your employment is Terminated after the Effective Date and on or before the fifth anniversary of the Effective Date or such later anniversary of the Effective Date as may be determined from time to time pursuant to the following paragraph (the "Section 2 Final Anniversary Date"). On March 2 of each year, beginning in 2000, the Section 2 Final Anniversary Date will be automatically extended for one additional year unless, prior to such March 2, the Company notifies you to the contrary in writing. (c) Eligibility for Supplemental Pension Payments Pursuant to Section 3. You will be eligible to receive the applicable Supplemental Pension Payments set forth in Section 3(b) or 3(c) if your employment is Terminated at any time after the Effective Date. If, after the Effective Date, you die while an employee of any CBS Company and leave a surviving spouse, your spouse will be eligible to receive the applicable Supplemental Pension Payments set forth in Section 3(e). (d) Eligibility for Certain Welfare Benefits Pursuant to Section 4. You will be eligible to receive the welfare benefits set forth in Section 4 if your employment is Terminated at any time after the Effective Date. (e) Eligibility for Stock Option Benefits Pursuant to Section 5. You will be eligible to receive the stock option benefits set forth in Section 5, subject to your compliance with all of the provisions of your Company stock option agreement(s), as modified by the Agreement, if your employment is Terminated at any time after the Effective Date. (f) Eligibility for Home Sale Payment Pursuant to Section 6. You will be eligible to receive the home sale payment set forth in Section 6 if (1) your employment is Terminated after the Effective Date and prior to the third anniversary of the Effective 3 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 3 Date and (2) within the twenty-four (24) month period after your Termination you either relocate your primary residence out of the New York, New York commuting area or you change your primary residence in the New York, New York commuting area to another residence in the New York, New York commuting area with a price lower than your Cost (as defined in Section 6). (g) Mitigation. You will not be required to mitigate the amount of any payment or other benefit provided for in Sections 2, 3, 4, 5 and/or 6, and except as otherwise set forth in Section 4 with respect to certain welfare benefits, the amount of any payments and/or other benefits which would otherwise be provided to you pursuant to Sections 2, 3, 4, 5 and/or 6 will not be reduced by any compensation earned by you, or any retirement or other benefits provided to you, as the result of your employment by another employer after your Termination Date. In the event that you receive payments or other benefits in accordance with Section 9(c) and/or 9(d), you will not be required to mitigate the amount of such payments or other benefits, and the amount of such payments and other benefits will not be reduced by any compensation earned by you, or any retirement or other benefits provided to you, as the result of your employment by the Company or another employer after the Succession Effective Date. 2. Separation Pay and Financial Counseling Benefits Upon Termination on or before the Section 2 Final Anniversary Date, as in effect on your Termination Date, you will be entitled to receive the following payment and other benefits. (a) Separation Pay. After Termination, you will be entitled to receive as Separation Pay an amount equal to the greater of the two amounts calculated pursuant to Section 2(a)(1) and 2(a)(2) below: (1) two times the sum of: (x) an amount equal to your annual base salary in effect on the Termination Date (or, if higher, an amount equal to your highest annual base salary in effect at any time on or after the Effective Date and before your Termination Date) (the higher of such two annual base salary amounts hereafter the "Termination Date Annual Base Salary"); and (y) an amount equal to your target annual incentive award opportunity, if any, for the year in which your employment is Terminated (or, if higher, an amount equal to the average of your actual annual incentive awards for the two years immediately preceding the year in which your employment is Terminated) (the higher of such two annual incentive amounts hereafter the "Termination Date Annual Incentive"); and 4 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 4 (2) an amount equal to the aggregate of all severance/separation or salary continuation payments, under any CBS Company plan(s) or program(s) or otherwise, that you would otherwise be entitled to receive on Termination. Whether your Separation Pay is calculated pursuant to Section 2(a)(1) or 2(a)(2), such payment will be provided solely pursuant to the terms of the Agreement and not pursuant to any CBS Company plan or program. This Separation Pay will be in lieu of any and all other severance/separation or salary continuation payments you might otherwise have been entitled to receive under any CBS Company plan or program or otherwise. Your Separation Pay will be payable to you in a single lump sum payment within 30 days after your Termination Date. If you should die after your Termination Date but before you receive your Separation Pay, such Separation Pay will be payable (at the same time and in the same amount that would have been payable to you) to your surviving spouse, if any, or, if you do not have a spouse or if your spouse predeceases you, to your estate. (b) Financial Counseling. You will be entitled to AYCO financial counseling, or to similar financial counseling services provided by another financial advisor selected by the Company, up to a cost to the Company of $5,000, for a period of up to six (6) months after your Termination Date. 3. Supplemental Pension Payments (a) Supplemental Pension Payments. Upon Termination, you will be entitled to receive Supplemental Pension Payments, determined in accordance with Section 3(b) if you are receiving Separation Pay pursuant to Section 2(a) or determined in accordance with Section 3(c) if you are not receiving Separation Pay pursuant to Section 2(a). (b) Supplemental Pension Payments if Separation Pay is Applicable. If, upon Termination, you are entitled to receive Separation Pay pursuant to Section 2(a), then you will receive Supplemental Pension Payments beginning in the month immediately following the second anniversary of your Termination Date calculated as set forth in the following paragraph and in the form you elect pursuant to Section 3(d) below: 5 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 5 Supplemental Pension Calculation. Your annual Supplemental Pension Payment will be the larger of the two amounts calculated pursuant to Section 3(b)(1) and 3(b)(2) below, respectively, and will, in either case, be paid to you net of the aggregate of any payments or other benefits you actually receive under any CBS Company executive pension and/or executive retirement plans apart from the Agreement (expressed as an annual amount calculated on the basis of a single life annuity commencing on the second anniversary of your Termination Date): (1) an annual amount equal to your base amount (determined by multiplying (x) 1.47%, times (y) your Section 3(b) Average Annual Compensation, times (z) your number of years of Section 3(b) Credited Service (including any fraction of a whole year)) minus your Section 3(b) Qualified Plan Benefit; and (2) the aggregate annual supplemental pension amount (expressed as a single life annuity) that would be payable to you under the terms of all CBS Company executive pension and/or other executive retirement plans that you are eligible to participate in as in effect on your Termination Date as if you had remained an employee of the Company until the second anniversary of your Termination Date with an annual base salary equal to your Termination Date Annual Base Salary and had received two additional annual incentive awards, each in an amount equal to your Termination Date Annual Incentive, and as if you had met all of the requirements/qualifications for benefits under said plans and your employment had terminated on the second anniversary of your Termination Date. (c) Supplemental Pension Payments if Separation Pay is Not Applicable. If your employment is Terminated but you are not eligible to receive Separation Pay pursuant to Section 2(a), then you will receive Supplemental Pension Payments beginning in the month immediately following your Termination Date calculated as set forth in the following paragraph and in the form you elect pursuant to Section 3(d) below: Supplemental Pension Calculation. Your annual Supplemental Pension Payment will be the larger of the two amounts calculated pursuant to Section 3(c)(1) and 3(c)(2) below, respectively, and will, in either case, be paid to you net of the aggregate of any payments or other benefits you actually receive under any CBS Company executive pension and/or executive retirement plans apart from the Agreement (expressed as an annual amount calculated on the basis of a single life annuity commencing on your Termination Date): (1) an annual amount equal to your base amount (determined by multiplying (x) 1.47%, times (y) your Section 3(c) Average Annual Compensation, times (z) your number of years of Section 3(c) Credited Service (including any fraction of a whole year)) minus your Section 3(c) Qualified Plan Benefit; and 6 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 6 (2) the aggregate annual supplemental pension amount (expressed as a single life annuity) that would be payable to you under the terms of all CBS Company executive pension and/or other executive retirement plans that you are eligible to participate in as in effect on your Termination Date as if you had met all of the requirements/qualifications for benefits under said plans on your Termination Date. (d) Form of Payment of Supplemental Pension. (1) The Supplemental Pension amount calculation pursuant to Section 3(b)(1) or 3(c)(1) is expressed as a single life annuity. However, if you are receiving Supplemental Pension Payments pursuant to Section 3(b)(1) or 3(c)(1), you may elect instead to receive your Supplemental Pension in accordance with any one of the optional forms of payment available with respect to your Section 3(b) or 3(c) Qualified Plan Benefit, as applicable (other than as a lump sum), subject to the same reductions or other provisions that would have applied with respect to such form of payment had you elected such form of payment with respect to your Section 3(b) or 3(c) Qualified Plan Benefit, as applicable. Such payments will be made in monthly installments, each equal to one-twelfth (1/12th) of the annual amount determined for the form of payment you select. Regardless of the form of payment you elect, once you begin to receive a Supplemental Pension calculated pursuant to Section 3(b)(1) or 3(c)(1), a minimum of sixty (60) times the monthly payment you would have received on a single life annuity basis (the "Guaranteed Amount") will be guaranteed as follows. If you elected a single life annuity payment option and die before receiving monthly payments which in the aggregate at least equal the Guaranteed Amount, then an amount equal to the Guaranteed Amount less the aggregate of the monthly Supplemental Pension Payments you received will be paid in a lump sum to your properly designated beneficiary, or, if none, to your estate or otherwise pursuant to the laws of descent and distribution. If you elected a survivor annuity and both you and your spouse or other joint annuitant die before the two of you have received monthly payments which in the aggregate at least equal the Guaranteed Amount, then an amount equal to the Guaranteed Amount less the aggregate of the monthly Supplemental Pension Payments you and your spouse or other joint annuitant received will be paid in a lump sum to (i) your properly designated beneficiary, or, if none, to your estate or otherwise pursuant to the laws of descent and distribution, if your spouse or other joint annuitant predeceases you, or (ii) your spouse's or other joint annuitant's properly designated beneficiary, or, if none, to their estate or otherwise pursuant to the laws of descent and distribution, if you die first. 7 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 7 A properly designated beneficiary is one that is so designated on a form to be supplied to you or your surviving spouse or other joint annuitant by the Company on request, which form is properly executed and delivered to the Company. (2) If your Supplemental Pension is calculated pursuant to Section 3(b)(2) or 3(c)(2), you may elect to receive your Supplemental Pension in any form then available under the applicable CBS Company plan or plans, subject to any reductions or other provisions that would apply to your elected form of payment under such CBS Company plan(s). (3) The form of payment must be elected prior to commencement of payment of your Supplemental Pension. (e) Death in Active Service: Surviving Spouse Payments. In the event that, after the Effective Date, you die while an employee of any CBS Company and leave a surviving spouse, your spouse will receive Supplemental Pension Payments pursuant to the Agreement in the amount of 55% of the single life annuity amount that would have been calculated pursuant to Section 3(c) if your employment had Terminated on the date of your death, such payments to be made to your surviving spouse net of the aggregate of any payments or other benefits your surviving spouse actually receives as a surviving spouse under any CBS Company executive pension and/or executive retirement plan(s) apart from the Agreement (expressed as an annual amount calculated on the basis of a single life annuity for your spouse commencing on the date of your death). In calculating the amount of the Supplemental Pension you would have received pursuant to Section 3(c) had your employment Terminated on the date of your death, the aggregate of the amounts that your surviving spouse is entitled to receive under all CBS Company pension plans as your surviving spouse (expressed as an annual amount calculated on the basis of a single life annuity for your spouse commencing on your Termination Date) will be substituted for the amounts you would have been entitled to receive under such plans. Surviving spouse Supplemental Pension Payments pursuant to Section 3(e) will commence in the second month after your death and continue for the life of your surviving spouse and will be payable in monthly installments, each equal to one-twelfth (1/2th) of the annual amount determined as set forth in the immediately preceding paragraph. An additional payment will be made with the first monthly payment equal to the regular monthly payment amount, as payments commence in the second month after your death rather than the first such month. Once your surviving spouse begins receiving Supplemental Pension Payments pursuant to Section 3(e), a minimum of sixty (60) payments will be guaranteed. In the event that your surviving spouse dies before she has received at least sixty (60) of such payments, then an amount equal to sixty (60) such payments less the aggregate of the monthly Supplemental Pension Payments your surviving spouse received will be paid in a lump sum to your spouse's properly designated beneficiary, or, if none, to her estate or otherwise pursuant to the laws of descent and distribution. 8 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 8 A properly designated beneficiary is one that is so designated on a form to be supplied to your surviving spouse by the Company on request, which form is properly executed and delivered to the Company. (f) No Actuarial Reduction for Early Commencement. There will be no actuarial reduction for commencement of Supplemental Pension Payments at the time specified in the Agreement rather than at any later time. (g) Supplemental Pension Payments, whether calculated pursuant to Section 3(b), 3(c) or 3(e), will be provided solely pursuant to the terms of the Agreement and not pursuant to any CBS Company plan or program, including, without limitation, the Westinghouse Executive Pension Plan. (h) In no event will the value of any stock options or any 401(k) plan benefits be considered in any way when determining the amount of any payments to be made pursuant to Section 3. 4. Certain Welfare Benefits (a) Upon Termination after the Effective Date, subject to Section 4(c) below, you will be eligible for continued participation in all CBS Company health care, dental, vision care and life insurance programs in which you are participating on your Termination Date as such programs are in effect from time to time, and at employee contribution levels for the coverage selected that are applicable to senior-level executives from time to time, until the earlier of (1) the date on which you attain age 55 or (2) the date on which you receive, or are eligible to receive, comparable or greater benefits under the plans and programs of a subsequent employer (such comparability to be determined by the Company on the basis of aggregate welfare benefits). (b) Further, subject to Section 4(c) below, after Termination and after you attain the age of 55, you will be eligible to participate in such Company retiree welfare benefits, if any, as may be in effect from time to time, and at the retiree contribution levels for the coverage selected, as if you were a Company retiree until the earlier of (1) the date on which you attain age 65 or (2) the date on which you receive, or are eligible to receive, comparable or greater benefits under the plans and programs of a subsequent employer (such comparability to be determined by the Company on the basis of aggregate welfare benefits). 9 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 9 (c) In the event that you are precluded from so continuing your participation in these CBS Company employee benefit plans or programs or are precluded from participating in such Company retiree programs, in either case by the terms of such plans or programs, then, at the election of the Company, the Company will either (1) provide you with an equivalent benefit, (2) reimburse you for the cost of obtaining an equivalent benefit (based on the lowest available cost), or (3) pay you a lump sum amount as determined by a reputable consultant in the employee benefits area selected by the Company as a reasonable estimate of the amount that would be sufficient, on a present value basis using such actuarial assumptions as such consultant deems appropriate, for you to obtain such benefits, less your applicable contribution level as set forth in Section 4(a) and/or 4(b) above. 5. Stock Option Benefits If, at any time after the Effective Date, your employment is Terminated, then notwithstanding the terms of any of your Company stock option agreement(s) that may be to the contrary, any Company stock options you may have that are outstanding on your Termination Date ("Stock Options") will not automatically terminate when you cease to be an employee of the Company and/or its Subsidiaries upon your Termination. Such of your Stock Options, if any, as are not yet exercisable as of your Termination Date will become exercisable ("vest") by you beginning on their normal vesting date(s) (i.e., the date(s) on which the Stock Options would have vested had you still been an employee) as long as they do not terminate earlier for some reason other than termination of employment. Those Stock Options, once vested, together with your then outstanding Stock Options, if any, that are vested and have not yet been exercised at the time of your Termination, will be exercisable by you in accordance with their terms as set forth in your Company stock option agreement(s) as modified hereby. Once your Company Stock Options vest, they will be exercisable by you at any time prior to the time when the option term(s) expire (or such earlier time as may be provided in the relevant Company long-term incentive plan in the event that you fail to comply with any condition or conditions that may be set forth in such plan). If, after the Effective Date, you should die either while an employee of any CBS Company or after your Termination Date but in either case before your Company Stock Options cease to be exercisable by you as set forth above, any nonvested Stock Options outstanding on the date of your death will vest immediately, and those Stock Options, together with your then outstanding Stock Options that are vested and have not yet been exercised at the time of your death, will be exercisable (but only to the extent that the Stock Options would have been exercisable by you) by a properly designated beneficiary 10 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 10 or by your estate until the earlier of (1) the time when they would have ceased to be exercisable by you had you not died, and (2) two years after the date of your death; provided, however, that if the terms of any Stock Options outstanding on the date of your death provide for a longer exercise period than two years after the date of your death, that longer exercise period will apply to those options. Any reload feature of your Company Stock Options which may have been available prior to your Termination will cease to be available effective as of your Termination. If your employment with the Company and/or its Subsidiaries is terminated for Cause, all of your Company stock options will be canceled upon such termination. All of your Company Stock Options are subject to the terms of your Company stock option agreement(s), as modified hereby. You should note that under certain of your Company Stock Option agreement(s), those Stock Options are also subject to early termination in the event that you fail to comply with certain conditions regarding competition and availability for consultation. In the event that, for any reason, your Company Stock Options cannot be modified so as to give effect to the provisions of the Agreement, whether because of the terms of the plan or plans pursuant to which they are granted or otherwise, then you (or your properly designated beneficiary or your estate, as applicable) will be granted replacement options, upon surrender of such Company Stock Options, such that the replacement options will provide the stock option benefits intended to be provided pursuant to the Agreement. 6. Home Sale Payment If (a) your employment is Terminated after the Effective Date and prior to the third anniversary of the Effective Date and (b) within the twenty-four (24) month period after your Termination you relocate your primary residence out of the New York, New York commuting area (or you change your primary residence in the New York, New York commuting area to another residence in the New York, New York commuting area with a price lower than your Cost (as defined below)), then you will be entitled to receive the payment set forth in the following paragraph. In the event that, after putting and maintaining such residence in marketable condition and after using reasonable efforts to sell such residence for a period of at least sixty (60) days, you are unable to sell your primary residence in the New York, New York commuting area at a price which, after payment of brokerage fees, would be at least 11 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 11 equal to the price at which you purchased such residence plus the cost of any capital improvements which you have made to such residence (together, the "Cost"), the Company will purchase said residence from you for an amount equal to said Cost (less any amount you receive from a new employer as a housing benefit related to the Cost) upon reasonable substantiation of said Cost and of your selling efforts. In order to receive this home sale payment, you must (1) notify the Company within the 24 month period after such Termination that you are relocating or changing your primary residence as set forth in the first paragraph of Section 6 above and that you have initiated the 60 day sale process described in the second paragraph of Section 6 above and (2) present to the Company, no later than ninety (90) days after the date of such notice, your request that the Company purchase said residence from you, together with reasonable substantiation of your Cost and of your selling efforts. 7. Certain Limitations (a) In the event that the payments and other benefits conferred pursuant to the Agreement, taken together with all other payments made and other benefits provided to you, would result in any of such payments or other benefits being deemed an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or other similar provision, then the financial counseling and welfare benefits, if any, conferred under Section 2(b) and Section 4, respectively, will be reduced to the maximum amount which, if paid, would not result in any of such payments or other benefits being deemed an "excess parachute payment." (b) In the event that after reduction pursuant to Section 7(a) above, if any, the payments and other benefits conferred pursuant to the Agreement would still, when taken together with all other payments made and other benefits provided to you, result in any of such payments or other benefits being deemed an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or other similar provision, then the Company will compare the following two tentative amounts: (1) the total of (x) all other payments and other benefits to be made to you, plus (y) the payments and other benefits conferred pursuant to the Agreement reduced to the maximum amount which, if paid, would not result in any of such payments or other benefits being deemed an "excess parachute payment;" and (2) the total of all payments and other benefits to be made to you, including those conferred pursuant to the Agreement, less the amount of tax which would be incurred by you on all such payments and other benefits under Section 4999(a) of the Internal Revenue Code of 1986, as amended. 12 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 12 If the tentative amount calculated as set forth in Section 7(b)(2) above is less than the tentative amount calculated as set forth in Section 7(b)(1) above, then the payments and other benefits conferred pursuant to the Agreement will be reduced to the maximum amount which, if paid, would not result in any of such payments or other benefits being deemed an "excess parachute payment." If, however, the tentative amount calculated as set forth in Section 7(b)(2) above is greater than the tentative amount calculated as set forth in Section 7(b)(1) above, then the payments and other benefits conferred pursuant to the Agreement will not be subject to reduction pursuant to the provisions of this Section 7(b). (c) In the event that the payments or other benefits to be received under the Agreement are reduced by reason of Section 7(b), then in determining the priority of the payments and other benefits to be provided hereunder, the Company will: (i) first vest all of the stock options possible under the terms of Section 5, and only then (ii) provide for Supplemental Pension Payments as set forth in Section 3(b) or 3(c), as applicable, and only then (iii) pay any Separation Pay to be paid pursuant to Section 2(a), and only then (iv) provide for any home sale payment pursuant to the terms of Section 6, in each case to the extent possible within the limits imposed by Section 7(b). 8. Certain Conditions (a) Payments under the Agreement will be made less all applicable tax withholdings and deductions authorized by you. (b) You acknowledge and agree that the consideration provided by the Company to you under the Agreement, including without limitation payments or other benefits to be made or provided by the Company to you pursuant to Sections 2, 3(b) or 3(c), 4, 5, 6 and/or 9, if any, is greater than and in addition to anything of value that you otherwise would be entitled to receive from the Company, and that the obligations assumed by you under the Agreement and in the Release are given and undertaken in consideration of, and are adequately supported by, the payments to be made and/or other payments to be provided to you by the Company under and pursuant to the Agreement. (c) In addition to compliance with the terms and provisions of any applicable plans or programs, as they may be modified hereby, pursuant to which any of such payments and/or other payments are provided, payment of any of the amounts and the providing of any of the other payments referred to or set forth in Sections 2, 3(b) or 3(c), 4, 5 and/or 6 is also subject to the following: 13 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 13 (i) your granting the CBS Companies and any Spin-off Companies a general release (the "Release") substantially in the form attached to the Agreement (with such changes, if any, as may be appropriate in light of any intervening changes in law to provide the CBS Companies and any Spin-off Companies with the same level of protection as provided in the form attached); (ii) your not revoking the Release within the period provided therein; and (iii) your complying with all of your other obligations as set forth in the Agreement and in the Release. No payment will be made, or other payment provided, by the Company pursuant to Sections 2, 3(b) or 3(c), 4, 5 and/or 6 until the conditions set forth in Section 8(c)(i) and (ii) above have been met. (d) Payments and other payments provided in accordance with Section 9 will be subject to your complying with all of your obligations as set forth in the Agreement. However, notwithstanding anything in the Agreement to the contrary, payments and other payments provided in accordance with Section 9(c) and/or 9(d) will not be subject to the conditions set forth in Section 8(c)(i) and (ii) above or to the portion of Section 8(c)(iii) above relating to a Release. 9. Successors and Assigns (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly, in a form acceptable to you, and to perform the Agreement. (b) Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of the Agreement. Upon any such breach of the Agreement by the Company, in addition to any other remedies which may be available to you (including but not limited to equitable remedies), you will be entitled to receive payments and other benefits from the Company pursuant to the Agreement as if your employment with the Company had been Terminated on the date on which any such succession becomes effective (the "Succession Effective Date"). The provisions of this Section 9(b) will be implemented as set forth in Section 9(c) with respect to stock options and as set forth in Section 9(d) with respect to payments and other benefits pursuant to the Agreement. 14 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 14 (c) For the purpose of implementing Section 9(b), any Company stock options that you may have that are outstanding immediately prior to the time such succession becomes effective (the "Succession Effective Time") will, if they are not already exercisable, become exercisable by you beginning immediately prior to the Succession Effective Time, and those stock options, together with your Company stock options that were already exercisable, will remain exercisable in accordance with their terms as modified by Section 5. Further, in the event that any adjustments favorable to the employee-holder are made to any Company stock options with respect to or in connection with such succession (including but not limited to the conversion of such stock options to, or replacement of such stock options with, stock options of such successor), your Company stock options will be treated in the same manner as those of the employee or employees who receive the adjustments most favorable to the employee(s). (d) Further, for the purpose of implementing your entitlement to receive payments and other benefits from the Company pursuant to the Agreement as set forth in Section 9(b), except as otherwise provided in Section 9(c) with respect to your Company stock options, you will be deemed to be entitled to all of such payments and other payments from the Company immediately prior to the Succession Effective Time; and notwithstanding anything in the Agreement to the contrary, upon written demand by you to the Chief Executive Officer of the Company, at your sole discretion, the Company will deliver such payments and other benefits to you immediately prior to the Succession Effective Time in the form of a lump sum, cash payment in immediately available funds consisting of the following: (i) an amount equal to your Separation Pay pursuant to Section 2(a), if the Succession Effective Date is on or before the Section 2 Final Anniversary Date; (ii) the amount of $5,000 in lieu of financial counseling benefits pursuant to Section 2(b), if the Succession Effective Date is on or before the Section 2 Final Anniversary Date; (iii) an amount equal to the actuarial equivalent on a lump sum basis (determined in accordance with Section 9(e)) of the Supplemental Pension Payments which you would otherwise be entitled to receive pursuant to Section 3(b) or 3(c), as applicable, on a single life annuity basis if your employment with the Company had been Terminated on the Succession Effective Date; (iv) an amount equal to the lump sum amount determined in accordance with Section 4(c)(3) in lieu of any welfare benefits pursuant to Section 4; and (v) an amount equal to (a) your Cost (as defined in Section 6), minus (b) the 15 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 15 fair market value of your primary residence in the New York, New York commuting area immediately prior to the Succession Effective Time, as determined by two real estate appraisers selected by you at the Company's expense. (e) For purposes of Section 9(d)(iii), the actuarial equivalent of your Supplemental Pension Payments on a lump sum basis will be determined based on (i) your age on the Succession Effective Date, (ii) the prevailing Internal Revenue Commissioner's standard table (described in Section 807(d)(5)(A) (or its successor provision) of the Internal Revenue Code of 1986, as amended from time to time, or any successor statute or statutes (the "Internal Revenue Code"), and without regard to any other subparagraph of such Internal Revenue Code Section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the Succession Effective Date that is prescribed by the Internal Revenue Commissioner in guidance published in the Internal Revenue Bulletin, and (iii) the rate of interest equal to the annual interest rate on 30-year Treasury securities as specified by the Internal Revenue Commissioner for the first full month preceding the calendar month in which the Succession Effective Date occurs. (f) For purposes of Section 9(d)(iii), there will be no actuarial reduction applied for the early deemed commencement of your Supplemental Pension Payments at the Succession Effective Date rather than at any later time prior to determining the actuarial equivalent of such payments on a lump sum basis in accordance with Section 9(e). (g) In no event will the value of any stock options or any 401(k) plan benefits be considered in any way when determining the amount of any payments to be made pursuant to Section 9(d)(iii). 10. General (a) By your signature accepting the Agreement you resign, effective as of the Termination Date, from any and all offices and positions with CBS Corporation and any of its Subsidiaries or affiliates to which you have been elected or appointed and from all administrative, fiduciary or other positions you may hold with respect to arrangements or plans for, of or relating to, CBS Corporation or any of its Subsidiaries or affiliates. (b) You acknowledge and agree that the separation payment set forth in the Agreement is the only severance/separation or salary continuation payment that you will receive from the CBS Company(ies), and that you will be waiving any retention incentive payments and any other separation/severance or salary continuation payments that you 16 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 16 might otherwise be entitled to receive from CBS Corporation or its Subsidiaries or affiliates, including but not limited to separation payments under any and all CBS Company plans or programs or otherwise. (c) Certain Definitions. These terms or phrases will have the following meanings when used in the Agreement. (i) "Cause" will mean either of the following on your part: (1) being convicted in a court of law of (i) a felony or (ii) any lesser crime or offense than a felony which has caused demonstrable and serious injury to the Company and involves the property of the Company or any of its Subsidiaries: or (2) being guilty of willful gross neglect of duties or other willful grave misconduct in carrying out your duties with the CBS Companies; provided, however, that no act or failure to act will be deemed "Cause" if done, or omitted to be done, in good faith with a reasonable belief that the action or inaction was in the best interests of the Company. (ii) "CBS Company" will mean the Company or any Subsidiary of the Company or any Parent of the Company. (iii) "Company" will mean CBS Corporation and any successor to its business and/or assets as described in Section 9 which assumes and agrees to perform the Agreement, by operation of law or otherwise. (iv) "Effective Date" will mean the effective date of the Agreement as set forth in Section 12. (v) "Good Reason" will mean: (1) the occurrence without your express written consent of any of the following, when considered on the basis of a comparison to your overall job situation immediately prior to such event: (a) a material change or reduction in your title or the scope of your responsibilities and duties, a change in your reporting relationship such that you report to someone other than the Chairman or the Chief Executive Officer of the Company, or a substantial reduction in your authority with respect to policy decisions or financial approvals; provided, however, that a change that increases the scope of your responsibilities and duties or results in your having a more senior title will not itself be considered such a change; (b) requiring you to be based at any location that is different from the location where the most senior executives officers of the Company are based; or (c) except in each case as part of an across-the-board reduction applicable to all senior-level executives of the Company and its major Subsidiaries that is proportionate as applied to you, (i) a reduction in your base salary; (ii) a reduction in your target annual or long-term incentive award 17 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 17 opportunity; or (iii) the termination or material reduction of your participation in otherwise applicable executive benefit plans or programs; or (2) the failure by the Company or any of its Subsidiaries to make any payments or provide any other benefits to you when due and such default by the Company and/or its Subsidiaries continues unremedied for a period of 15 days after notice of such default is given by you to the Chief Executive Officer of the Company. (vi) "Parent of the Company" will mean any corporation that owns stock possessing at least 50% of the voting power of the Company, either directly or through one or more of its Subsidiaries. (vii) "Release" will have the meaning set forth in Section 8(c)(i). (viii) "Section" will refer to a section of the Agreement unless otherwise indicated. (ix) "Section 2 Final Anniversary Date" will have the meaning set forth in Section 1(a). (x) "Section 3(b) Average Annual Compensation" will mean the amount equal to the sum of: (x) 12 times the amount equal to the average of the five highest numbers out of the following 10 numbers: the first eight numbers, respectively, being the numbers equal to your respective monthly base salaries on the eight consecutive December 1sts which immediately precede your Termination Date, and the ninth and tenth numbers each being the number equal to one-twelfth (1/12th) of the number which equals the amount of your Termination Date Annual Base Salary; and (y) the amount equal to the average of the five highest numbers out of the following 10 numbers: the first eight numbers, respectively, being your annual incentive compensation awards, if any, paid under the Company's annual incentive program(s) during the eight year period immediately preceding your Termination Date, and the ninth and tenth numbers each being the number equal to the amount of your Termination Date Annual Incentive; provided, however, if your base salary is reduced during the 12 month period immediately preceding your Termination Date, then for purposes of calculating your Section 3(b) Average Annual Compensation, the most recent December 1 monthly base salary number and the most recent annual incentive compensation award number in the eight year period immediately preceding your Termination Date will be replaced by the same number that is used for the ninth and tenth numbers in such series, if higher. 18 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 18 (xi) "Section 3(b) Credited Service" will mean the period from your first day of service as an employee of the Company to the second anniversary of your Termination Date. (xii) "Section 3(b) Qualified Plan Benefit" will mean the aggregate of the amounts that you are entitled to receive under all CBS Company defined benefit pension plans and defined contribution pension plans in which you participate or have participated prior to your Termination Date in each case expressed as an annual amount calculated on the basis of a single life annuity commencing on the second anniversary of your Termination Date, whether or not you could or do actually obtain payment of those benefits in that form. (xiii) "Section 3(c) Average Annual Compensation" will mean the amount equal to the sum of: (x) 12 times the amount equal to the average of the five highest of the ten respective numbers which are equal to your respective monthly base salaries on the ten consecutive December 1sts which immediately precede your Termination Date; and (y) the amount equal to the average of the five highest of the ten numbers equal to your annual incentive compensation awards, if any, paid under the Company's annual incentive program(s) during the ten year period immediately preceding your Termination Date; provided, however, if your base salary is reduced during the 12 month period immediately preceding your Termination Date, then for purposes of calculating your Section 3(c) Average Annual Compensation, the most recent December 1 monthly base salary number and the most recent annual incentive compensation award number in the ten year period immediately preceding your Termination Date will, in each case, be replaced by the following, if higher: in the case of the December 1 monthly base salary, the number equal to 1/12th of the number equal to your Termination Date Annual Base Salary; and in the case of the annual incentive compensation award number, the amount of your Termination Date Annual Incentive. (xiv) "Section 3(c) Credited Service" will mean the period from your first day of service as an employee of the Company to your Termination Date. (xv) "Section 3(c) Qualified Plan Benefit" will mean the aggregate of the amounts that you are entitled to receive under all CBS Company defined benefit pension plans and defined contribution pension plans in which you participate or have participated prior to your Termination Date, in each case expressed as an annual amount calculated on the basis of a single life annuity commencing on your Termination Date whether or not you could or do actually obtain payment of those benefits in that form. (xvi) "Separation Pay" will mean the payment set forth in Section 2(a). 19 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 19 (xvii) "Spin-off Companies" will mean any company or companies that the Company may spin off to its shareholders, together with such spin-off company's subsidiaries, affiliates, and their respective successors and assigns. (xviii) "Subsidiary" will mean, unless the context otherwise requires, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company 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. (xix) "Supplemental Pension Payment(s)" will mean the payment(s) set forth in Section 3. (xx) "Termination" (or your employment being "Terminated") will mean that you are no longer an employee of the Company and ceased to be so employed either because (1) your employment with the Company is terminated by the Company (other than by reason of your death or for Cause) or (2) you terminate your employment with the Company for Good Reason or (3) for purposes of the payments and other benefits set forth in Sections 3 and 5 only, you terminate your employment with the Company for any reason (other than for Good Reason, which is dealt with in Section 10(c)(xx)(2)) on or after the earlier of (i) your 58th birthday and (ii) the earliest date on which you qualify for retirement under a CBS Company pension plan in which you then participate. Your ability to terminate your employment with the Company for Good Reason will not be affected by any inability on your part to perform your regular duties with the CBS Companies due in whole or in part to any physical or mental infirmity. (xxi) "Termination Date" will mean the date on which your employment is Terminated and you are no longer an employee of the Company. (xxii) "Termination Date Annual Incentive" will have the meaning set forth in Section 2(a)(1)(y). (xxiii) "Termination Date Annual Base Salary" will have the meaning set forth in Section 2(a)(1)(x). (d) Nothing in the Agreement will operate or be construed as a contract or assurance of or a right to continued employment with the Company or any of its affiliates, or will interfere in any way with the right of the Company or any of its affiliates to terminate your employment at any time for any reason, with or without Cause. 20 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 20 11. Other agreements, obligations and understandings (a) Payments pursuant to the Agreement are not eligible for deferral under any Company Deferred Incentive Compensation Program. Payment of any incentive compensation awards that you may have deferred in the past under the terms of a Company Deferred Incentive Compensation Program that have not yet been paid as of your Termination Date will be made to you in accordance with the terms of that program as in effect from time to time, beginning in the January following your Termination Date. You should contact Mr. Anthony Kaddo at AYCO (1-800-342-2779) prior to your Termination Date to make any necessary elections regarding the payment of any deferral account or accounts you may have. (b) Receipt of any and all payments and other benefits pursuant to the Agreement will be subject to the limitations and conditions set forth in Section 1(a). Breach of the Agreement and/or the Release, where applicable, will be deemed to have occurred and payments and other benefits will be suspended immediately upon your failure to comply with any of such obligations. Payments and other benefits suspended for breach of any of your obligations will not thereafter be resumed unless the Company determines that no breach has occurred, whether or not you terminate the activity or activities which resulted in such breach. (c) If you should breach the Agreement, nothing stated in the Agreement will be construed as prohibiting the CBS Companies and/or the Spin-off Companies from pursuing all judicial legal and equitable rights and remedies available to them, including but not limited to equitable relief and the recovery of all other legal relief, such as lost profits, attorneys' fees, and compensatory damages, from you. If the Company should breach any of its obligations to you pursuant to Section 9, nothing stated in the Agreement will be construed as prohibiting you from pursuing all judicial legal and equitable rights and remedies available to them, including but not limited to equitable relief and the recovery of all other legal relief, such as attorneys' fees and compensatory damages, from the Company. (d) If for any reason any provision of the Agreement is held to be invalid, illegal or unenforceable, such provision will be deemed modified to the minimum extent necessary to make such provision consistent with applicable law and the remaining provisions of the Agreement will not be affected and will remain in full force and effect. 21 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 21 (e) Except as otherwise provided in the Agreement, your participation in and rights under any employee benefit plans (as defined in the Employee Retirement Income Security Act of 1974, as amended (ERISA)), any incentive or deferral plans of the Company, and any stock option plans of the Company will be governed by the terms and provisions of such plans. (f) The Agreement will be binding upon and inure to the benefit of you and the Company, its successors and assigns; provided, however, that the Company will require its successors and assigns to expressly assume, agree to perform, and perform the Agreement in the same manner and to the same extent that the Company would be required to perform the Agreement if no such succession and assignment had taken place. Your rights hereunder may not be transferred or assigned in any way (whether by operation of law or otherwise) and your duties hereunder may not be delegated without the prior written consent of the Company. (g) The Agreement is made and entered into in the State of New York, and will in all respects be interpreted, enforced and governed by and under the law of the State of New York without reference to principles of conflict of laws. The Agreement, together with the Release, your Employee Intellectual Property Agreement with the Company and your Company stock option agreement(s), if any, supersedes and replaces all prior commitments, negotiations, representations, agreements and understandings made to or with you, whether oral or written, with respect to the subject matter hereof. The Agreement may be amended, modified or waived only by a written agreement executed by both of the parties hereto. No waiver of any provision of the Agreement at any one time will be deemed a waiver of such provision at any subsequent time. The headings of the Sections and subsections of the Agreement are inserted for convenience only. Such headings will not affect the meaning of any of the provisions of the Agreement and will not be deemed a part of the Agreement. 12. Conditions to Effectiveness Upon execution by both you and CBS Corporation, the Agreement will be effective as of March 2, 1999 (the "Effective Date"). 22 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 22 If the Agreement is acceptable to you, please sign the original copy of the Agreement and return it to me at CBS Corporation. You should keep a copy of the Agreement for your records. By signing and returning the unmodified original copy of the Agreement, you acknowledge that you understand and accept the terms and conditions set forth above. Sincerely, CBS CORPORATION By: /s/ David T. McLaughlin --------------------------- David T. McLaughlin Chairman cc: A.C. Straka Date: April 15, 1999 K. Beldegreen ------------------------- 23 Mr. Louis J. Briskman CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 23 ACCEPTANCE I acknowledge that I have read, understand and agree with and to the terms and conditions stated in the foregoing Agreement. By my signature I acknowledge that the consideration set forth in the Agreement is adequate compensation for all of my agreements contained herein and in the Release, that I have had the opportunity to consult with counsel of my own choosing regarding the Agreement, and that in signing the Agreement, I intend to be legally bound by it. /s/ Louis J. Briskman April 8, 1999 ----------------------------- ----------------- Louis J. Briskman Date EX-10.R 3 COMPENSATION AGREEMENT 1 Exhibit 10(Q) [CBS LOGO] CBS CORPORATION Mel Karmazin 51 West 52nd Street President & Chief Executive Officer New York, NY 10019 CONFIDENTIAL AND PROPRIETARY March 2, 1999 Mr. Fredric G. Reynolds Executive Vice President and Chief Financial Officer CBS Corporation 51 West 52nd Street New York, New York 10019 Dear Fred: CBS Corporation (the "Company") recognizes the importance of maintaining a high level of executive performance and expertise and of retaining the services of certain Company executives, such as yourself, who are key to the execution of corporate strategy. The purpose of this letter agreement ("Agreement") is to provide an incentive for you to remain with the Company as an executive by providing you with assurances that you will receive certain payments and/or other benefits in the event that your employment with the Company terminates under the circumstances set forth herein, as long as you comply with all of the terms and conditions of the Agreement. The Agreement is intended to set forth the terms and conditions to which you and the Company have agreed regarding the termination of your employment under certain circumstances, and supersedes all prior agreements and understandings with respect to the subject matter hereof, including but not limited to the employment letter to you from Westinghouse Electric Corporation (which, on and after December 1, 1997 is known as CBS Corporation) dated January 31, 1994. Certain capitalized terms and phrases used in the Agreement are defined in Section 7(c) below. 2 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 2 1. Eligibility for Payments and Other Benefits (a) Limitations and Conditions. In addition to any further limitations and/or conditions that may be set forth in the Agreement with respect to a particular payment or other benefit, your receipt of any and all payments and other benefits under the Agreement is subject to the limits set forth in Section 4 and subject to your compliance with all of the provisions of Section 5 and the terms and conditions of any applicable plans or programs, as they may be modified hereby, pursuant to which you receive such payments or other benefits. (b) Eligibility for Separation Pay Pursuant to Section 2. You will be eligible to receive the separation payment set forth in Section 2, in lieu of any and all other separation/severance payments or salary continuation payments, if your employment is Terminated after the Effective Date and on or before the fifth anniversary of the Effective Date or such later anniversary of the Effective Date as may be determined from time to time pursuant to the following paragraph (the "Section 2 Final Anniversary Date"). On March 2 of each year, beginning in 2000, the Section 2 Final Anniversary Date will be automatically extended for one additional year unless, prior to such March 2, the Company notifies you to the contrary in writing. (c) Eligibility for Stock Option Benefits Pursuant to Section 3. You will be eligible to receive the stock option benefits set forth in Section 3, subject to your compliance with all of the terms and conditions of your Stock Options, as modified by the Agreement, if your employment is Terminated at any time after the Effective Date. (d) Mitigation. You will not be required to mitigate the amount of any payment or other benefit provided for in Sections 2 and/or 3, and the amount of any payments and/or other benefits which would otherwise be provided to you pursuant to Sections 2 and/or 3 will not be reduced by any compensation earned by you, or any retirement or other benefits provided to you, as the result of your employment by another employer after your Termination Date. In the event that you receive payments or other benefits in accordance with Section 6(c) and/or 6(d), you will not be required to mitigate the amount of such payments or other benefits, and the amount of such payments and other benefits will not be reduced by any compensation earned by you, or any retirement or other benefits provided to you, as the result of your employment by the Company or another employer after the Succession Effective Date. 3 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 3 2. Separation Pay Upon Termination on or before the Section 2 Final Anniversary Date, as in effect on your Termination Date, you will be entitled to receive the following payment as Separation Pay. After Termination, you will be entitled to receive as Separation Pay an amount equal to the greater of the two amounts calculated pursuant to Section 2(1) and 2(2) below: (1) two times the sum of: (x) an amount equal to your annual base salary in effect on the Termination Date (or, if higher, an amount equal to your highest annual base salary in effect at any time on or after the Effective Date and before your Termination Date); and (y) an amount equal to your target annual incentive award opportunity, if any, for the year in which your employment is Terminated (or, if higher, an amount equal to the average of your actual annual incentive awards for the two years immediately preceding the year in which your employment is Terminated); and (2) an amount equal to the aggregate of all severance/separation or salary continuation payments, under any CBS Company plan(s) or program(s) or otherwise, that you would otherwise be entitled to receive on Termination. Whether your Separation Pay is calculated pursuant to Section 2(1) or 2(2), such payment will be provided solely pursuant to the terms of the Agreement and not pursuant to any CBS Company plan or program. This Separation Pay will be in lieu of any and all other severance/separation or salary continuation payments you might otherwise have been entitled to receive under any CBS Company plan or program or otherwise. Your Separation Pay will be payable to you in a single lump sum payment within 30 days after your Termination Date. If you should die after your Termination Date but before you receive your Separation Pay, such Separation Pay will be payable (at the same time and in the same amount that would have been payable to you) to your surviving spouse, if any, or, if you do not have a spouse or if your spouse predeceases you, to your estate. 3. Stock Option Benefits (a) Any Company stock options that you may receive pursuant to the 4 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 4 Company's Fund the Future program will continue to be governed by their own terms and conditions and will not be modified or otherwise affected by the Agreement. The provisions of Section 3(b) will apply to any other Company stock options you may have that are outstanding on your Termination Date ("Stock Options"). (b) If, at any time after the Effective Date, your employment is Terminated, then notwithstanding the terms of any of your Company Stock Option agreement(s) that may be to the contrary, your Stock Options will not automatically terminate when you cease to be an employee of the Company and/or its Subsidiaries upon your Termination. Such of your Stock Options, if any, as are not yet exercisable as of your Termination Date will become exercisable ("vest") by you beginning on their normal vesting date(s) (i.e., the date(s) on which the Stock Options would have vested had you still been an employee), as long as they do not terminate earlier for some reason other than termination of employment, provided that such normal vesting date occurs no later than the second anniversary of your Termination Date. Once vested, your Stock Options will be exercisable by you in accordance with their terms as set forth in your Company Stock Option agreement(s) as modified hereby. Any Stock Options that have not yet vested will be canceled at the close of business on the second anniversary of your Termination Date. Your vested Stock Options will be exercisable by you at any time prior to the earlier of (i) the time when the option term(s) expire and (ii) the close of business on the second anniversary of your Termination Date (or, in any case, such earlier time as may be provided in the relevant Company long-term incentive plan in the event that you fail to comply with any condition or conditions that may be set forth in such plan). If, after the Effective Date, you should die either while an employee of any CBS Company or otherwise before the second anniversary of your Termination Date but in either case before your Stock Options cease to be exercisable by you as set forth above, any nonvested Stock Options outstanding on the date of your death will vest immediately, and those Stock Options, together with your then outstanding Stock Options that are vested and have not yet been exercised at the time of your death, will be exercisable (but only to the extent that the Stock Options would have been exercisable by you) by a properly designated beneficiary or by your estate until the earlier of (1) the time when they would have ceased to be exercisable by you had you not died, and (2) two years after the date of your death; provided, however, that if the terms of any Stock Options outstanding on the date of your death provide for a longer exercise period than two years after the date of your death, that longer exercise period will apply to those options. 5 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 5 Any reload feature which may have been available prior to your Termination with respect to certain of your Stock Options will cease to be available effective as of your Termination. If your employment with the Company and/or its Subsidiaries is terminated for Cause, all of your Company stock options will be canceled upon such termination. All of your Stock Options are subject to the terms of the applicable Company Stock Option agreement(s), as modified hereby. You should note that under your Company Stock Option agreement(s), Stock Options are also subject to early termination in the event that you fail to comply with certain conditions regarding competition and availability for consultation. In the event that, for any reason, your Stock Options cannot be modified so as to give effect to the provisions of the Agreement, whether because of the terms of the plan or plans pursuant to which they are granted or otherwise, then you (or your properly designated beneficiary or your estate, as applicable) will be granted replacement options, upon surrender of such Stock Options, such that the replacement options will provide the stock option benefits intended to be provided pursuant to the Agreement. 4. Certain Limitations (a) In the event that the payments and other benefits conferred pursuant to the Agreement, taken together with all other payments made and other benefits provided to you, would result in any of such payments or other benefits being deemed an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended, or other similar provision, then the Company will compare the following two tentative amounts: (1) the total of (x) all other payments and other benefits to be made to you, plus (y) the payments and other benefits conferred pursuant to the Agreement reduced to the maximum amount which, if paid, would not result in any of such payments or other benefits being deemed an "excess parachute payment;" and (2) the total of all payments and other benefits to be made to you, including those conferred pursuant to the Agreement, less the amount of tax which would be incurred by you on all such payments and other benefits under Section 4999(a) of the Internal Revenue Code of 1986, as amended. If the tentative amount calculated as set forth in Section 4(a)(2) above is less than the tentative amount calculated as set forth in Section 4(a)(1) above, then the payments 6 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 6 and other benefits conferred pursuant to the Agreement will be reduced to the maximum amount which, if paid, would not result in any of such payments or other benefits being deemed an "excess parachute payment." If, however, the tentative amount calculated as set forth in Section 4(a)(2) above is greater than the tentative amount calculated as set forth in Section 4(a)(1) above, then the payments and other benefits conferred pursuant to the Agreement will not be subject to reduction pursuant to the provisions of this Section 4(a). (b) In the event that the payments or other benefits to be received under the Agreement are reduced by reason of Section 4(a), then in determining the priority of the payments and other benefits to be provided hereunder, the Company will: (i) first provide for the exercisability of stock options under the terms of Section 3, and only then (ii) pay any Separation Pay to be paid pursuant to Section 2, in each case to the extent possible within the limits imposed by Section 4(a). 5. Certain Conditions (a) Payments under the Agreement will be made less all applicable tax withholdings and deductions authorized by you. (b) You acknowledge and agree that the consideration provided by the Company to you under the Agreement, including without limitation payments or other benefits to be made or provided by the Company to you pursuant to Sections 2, 3 and/or 6, if any, is greater than and in addition to anything of value that you otherwise would be entitled to receive from the Company, and that the obligations assumed by you under the Agreement and in the Release are given and undertaken in consideration of, and are adequately supported by, the payments to be made and/or other payments to be provided to you by the Company under and pursuant to the Agreement. (c) In addition to compliance with the terms and provisions of any applicable plans or programs, as they may be modified hereby, pursuant to which any of such payments and/or other payments are provided, payment of any of the amounts and the providing of any of the other payments referred to or set forth in Sections 2 and/or 3 is also subject to the following: (i) your granting the CBS Companies and any Spin-off Companies a general release (the "Release") substantially in the form attached to the Agreement (with such changes, if any, as may be appropriate in light of any intervening changes in law to provide the CBS Companies and any 7 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 7 Spin-off Companies with the same level of protection as provided in the form attached); (ii) your not revoking the Release within the period provided therein; and (iii) your complying with all of your other obligations as set forth in the Agreement and in the Release. No payment will be made, or other payment provided, by the Company pursuant to Sections 2 and/or 3 until the conditions set forth in Section 5(c)(i) and (ii) above have been met. (d) Payments and other payments provided in accordance with Section 6 will be subject to your complying with all of your obligations as set forth in the Agreement. However, notwithstanding anything in the Agreement to the contrary, payments and other payments provided in accordance with Section 6(c) and/or 6(d) will not be subject to the conditions set forth in Section 5(c)(i) and (ii) above or to the portion of Section 5(c)(iii) above relating to a Release. 6. Successors and Assigns (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly, in a form acceptable to you, and to perform the Agreement. (b) Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession will be a breach of the Agreement. Upon any such breach of the Agreement by the Company, in addition to any other remedies which may be available to you (including but not limited to equitable remedies), you will be entitled to receive payments and other benefits from the Company pursuant to the Agreement as if your employment with the Company had been Terminated on the date on which any such succession becomes effective (the "Succession Effective Date"). The provisions of this Section 6(b) will be implemented as set forth in Section 6(c) with respect to Stock Options and as set forth in Section 6(d) with respect to Separation Pay. (c) For the purpose of implementing Section 6(b), any Stock Options that you may have that are outstanding immediately prior to the time such succession becomes effective (the "Succession Effective Time") will, if they are not already exercisable, become exercisable by you beginning immediately prior to the Succession Effective Time, and those Stock Options, together with your Stock Options that were already 8 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 8 exercisable, will remain exercisable in accordance with their terms as modified by Section 3. Further, in the event that any adjustments favorable to the employee-holder are made to any Company stock options with respect to or in connection with such succession (including but not limited to the conversion of such stock options to, or replacement of such stock options with, stock options of such successor), your Stock Options will be treated in the same manner as those of the employee or employees who receive the adjustments most favorable to the employee(s). (d) Further, for the purpose of implementing your entitlement to receive Separation Pay pursuant to the Agreement as set forth in Section 6(b), you will be deemed to be entitled to such payment from the Company immediately prior to the Succession Effective Time provided that the Succession Effective Date is on or before the Section 2 Final Anniversary Date; and notwithstanding anything in the Agreement to the contrary, upon written demand by you to the Chief Executive Officer of the Company, at your sole discretion, the Company will deliver such payment to you immediately prior to the Succession Effective Time in the form of a lump sum, cash payment in immediately available funds consisting of an amount equal to your Separation Pay pursuant to Section 2. 7. General (a) By your signature accepting the Agreement you resign, effective as of the Termination Date, from any and all offices and positions with CBS Corporation and any of its Subsidiaries or affiliates to which you have been elected or appointed and from all administrative, fiduciary or other positions you may hold with respect to arrangements or plans for, of or relating to, CBS Corporation or any of its Subsidiaries or affiliates. (b) You acknowledge and agree that the separation payment set forth in the Agreement is the only severance/separation payment or salary continuation payment that you will receive from the CBS Company(ies), and that you will be waiving any retention incentive payments and any other separation/severance or salary continuation payments that you might otherwise be entitled to receive from CBS Corporation or its Subsidiaries or affiliates, including but not limited to separation payments under any and all CBS Company plans or programs or otherwise. (c) Certain Definitions. These terms or phrases will have the following meanings when used in the Agreement. (i) "Cause" will mean either of the following on your part: (1) being convicted in a court of law of (i) a felony or (ii) any lesser crime or offense than a felony which has caused demonstrable and serious injury to the Company and 9 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 9 involves the property of the Company or any of its Subsidiaries: or (2) being guilty of willful gross neglect of duties or other willful grave misconduct in carrying out your duties with the CBS Companies; provided, however, that no act or failure to act will be deemed "Cause" if done, or omitted to be done, in good faith with a reasonable belief that the action or inaction was in the best interests of the Company. (ii) "CBS Company" will mean the Company or any Subsidiary of the Company or any Parent of the Company. (iii) "Company" will mean CBS Corporation and any successor to its business and/or assets as described in Section 6 which assumes and agrees to perform the Agreement, by operation of law or otherwise. (iv) "Effective Date" will mean the effective date of the Agreement as set forth in Section 9. (v) "Good Reason" will mean: (1) the occurrence without your express written consent of any of the following, when considered on the basis of a comparison to your overall job situation immediately prior to such event: (a) a material change or reduction in your title or the scope of your responsibilities and duties, a change in your reporting relationship such that you report to someone other than the Chairman or the Chief Executive Officer of the Company, or a substantial reduction in your authority with respect to policy decisions or financial approvals; provided, however, that a change that increases the scope of your responsibilities and duties or results in your having a more senior title will not itself be considered such a change; (b) requiring you to be based at any location that is different from the location where the most senior executives officers of the Company are based; or (c) except in each case as part of an across-the-board reduction applicable to all senior-level executives of the Company and its major Subsidiaries that is proportionate as applied to you, (i) a reduction in your base salary; (ii) a reduction in your target annual or long-term incentive award opportunity; or (iii) the termination or material reduction of your participation in otherwise applicable executive benefit plans or programs; or (2) the failure by the Company or any of its Subsidiaries to make any payments or provide any other benefits to you when due and such default by the Company and/or its Subsidiaries continues unremedied for a period of 15 days after notice of such default is given by you to the Chief Executive Officer of the Company. (vi) "Parent of the Company" will mean any corporation that owns stock possessing at least 50% of the voting power of the Company, either directly or through one or more of its Subsidiaries. 10 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 10 (vii) "Release" will have the meaning set forth in Section 5(c)(i). (viii) "Section" will refer to a section of the Agreement unless otherwise indicated. (ix) "Section 2 Final Anniversary Date" will have the meaning set forth in Section 1(a). (x) "Separation Pay" will mean the payment set forth in Section 2. (xi) "Spin-off Companies" will mean any company or companies that the Company may spin off to its shareholders, together with such spin-off company's subsidiaries, affiliates, and their respective successors and assigns. (xii) "Stock Options" will mean any Company stock options you may have that are outstanding on your Termination Date other than Company stock options you may have received pursuant to the Company's Fund the Future program. (xiii) "Subsidiary" will mean, unless the context otherwise requires, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company 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. (xiv) "Termination" (or your employment being "Terminated") will mean that you are no longer an employee of the Company and ceased to be so employed either because (1) your employment with the Company is terminated by the Company (other than by reason of your death or for Cause) or (2) you terminate your employment with the Company for Good Reason. Your ability to terminate your employment with the Company for Good Reason will not be affected by any inability on your part to perform your regular duties with the CBS Companies due in whole or in part to any physical or mental infirmity. (xv) "Termination Date" will mean the date on which your employment is Terminated and you are no longer an employee of the Company. (d) Nothing in the Agreement will operate or be construed as a contract or assurance of or a right to continued employment with the Company or any of its affiliates, or will interfere in any way with the right of the Company or any of its affiliates 11 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 11 to terminate your employment at any time for any reason, with or without Cause. 8. Other agreements, obligations and understandings (a) Payments pursuant to the Agreement are not eligible for deferral under any Company Deferred Incentive Compensation Program. Payment of any incentive compensation awards that you may have deferred in the past under the terms of a Company Deferred Incentive Compensation Program that have not yet been paid as of your Termination Date will be made to you in accordance with the terms of that program as in effect from time to time, beginning in the January following your Termination Date. You should contact Mr. Anthony Kaddo at AYCO (1-800-342-2779) prior to your Termination Date to make any necessary elections regarding the payment of any deferral account or accounts you may have. (b) Receipt of any and all payments and other benefits pursuant to the Agreement will be subject to the limitations and conditions set forth in Section 1(a). Breach of the Agreement and/or the Release, where applicable, will be deemed to have occurred and payments and other benefits will be suspended immediately upon your failure to comply with any of such obligations. Payments and other benefits suspended for breach of any of your obligations will not thereafter be resumed unless the Company determines that no breach has occurred, whether or not you terminate the activity or activities which resulted in such breach. (c) If you should breach the Agreement, nothing stated in the Agreement will be construed as prohibiting the CBS Companies and/or the Spin-off Companies from pursuing all judicial legal and equitable rights and remedies available to them, including but not limited to equitable relief and the recovery of all other legal relief, such as lost profits, attorneys' fees, and compensatory damages, from you. If the Company should breach any of its obligations to you pursuant to Section 6, nothing stated in the Agreement will be construed as prohibiting you from pursuing all judicial legal and equitable rights and remedies available to them, including but not limited to equitable relief and the recovery of all other legal relief, such as attorneys' fees and compensatory damages, from the Company. (d) If for any reason any provision of the Agreement is held to be invalid, illegal or unenforceable, such provision will be deemed modified to the minimum extent necessary to make such provision consistent with applicable law and the remaining provisions of the Agreement will not be affected and will remain in full force and effect. 12 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 12 (e) Except as otherwise provided in the Agreement, your participation in and rights under any employee benefit plans (as defined in the Employee Retirement Income Security Act of 1974, as amended (ERISA)), any incentive or deferral plans of the Company, and any stock option plans of the Company will be governed by the terms and provisions of such plans. (f) The Agreement will be binding upon and inure to the benefit of you and the Company, its successors and assigns; provided, however, that the Company will require its successors and assigns to expressly assume, agree to perform, and perform the Agreement in the same manner and to the same extent that the Company would be required to perform the Agreement if no such succession and assignment had taken place. Your rights hereunder may not be transferred or assigned in any way (whether by operation of law or otherwise) and your duties hereunder may not be delegated without the prior written consent of the Company. (g) The Agreement is made and entered into in the State of New York, and will in all respects be interpreted, enforced and governed by and under the law of the State of New York without reference to principles of conflict of laws. The Agreement, together with the Release, your Employee Intellectual Property Agreement with the Company and the terms and conditions of your Company stock options, if any, supersedes and replaces all prior commitments, negotiations, representations, agreements and understandings made to or with you, whether oral or written, with respect to the subject matter hereof. The Agreement may be amended, modified or waived only by a written agreement executed by both of the parties hereto. No waiver of any provision of the Agreement at any one time will be deemed a waiver of such provision at any subsequent time. The headings of the Sections and subsections of the Agreement are inserted for convenience only. Such headings will not affect the meaning of any of the provisions of the Agreement and will not be deemed a part of the Agreement. 9. Conditions to Effectiveness Upon execution by both you and CBS Corporation, the Agreement will be effective as of March 2, 1999 (the "Effective Date"). 13 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 13 If the Agreement is acceptable to you, please sign the original copy of the Agreement and return it to me at CBS Corporation. You should keep a copy of the Agreement for your records. By signing and returning the unmodified original copy of the Agreement, you acknowledge that you understand and accept the terms and conditions set forth above. Sincerely, CBS CORPORATION By: /s/ Mel Karmazin ------------------------------------------- Mel Karmazin President and Chief Executive Officer Date: May 13, 1999 ----------------------------------------- cc: A.C. Straka T. Ambrosio 14 Mr. Fredric G. Reynolds CONFIDENTIAL AND PROPRIETARY March 2, 1999 Page 14 ACCEPTANCE I acknowledge that I have read, understand and agree with and to the terms and conditions stated in the foregoing Agreement. By my signature I acknowledge that the consideration set forth in the Agreement is adequate compensation for all of my agreements contained herein and in the Release, that I have had the opportunity to consult with counsel of my own choosing regarding the Agreement, and that in signing the Agreement, I intend to be legally bound by it. /s/ Fredric G. Reynolds May 13, 1999 - ----------------------------------- ------------------------- Fredric G. Reynolds Date EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 987 0 1,326 54 0 3,208 1,624 492 20,526 1,854 2,315 0 0 740 8,962 20,526 1,768 1,768 1,160 1,160 490 0 51 80 46 25 366 (4) 0 387 0.56 0.55
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