-----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, FKwjp7bmVnjLQ1SKpICUE2X7r3Fot9W2aoHKt5rVh0AicV96nBkIWrHS2dfnX+Wq jP0kpEl9tRE5pl0SSiHhhg== 0000950128-99-000942.txt : 19990817 0000950128-99-000942.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950128-99-000942 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99693860 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 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 ---------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 704,687,465 SHARES OUTSTANDING AT JULY 31, 1999 ================================================================================ 2 CBS CORPORATION INDEX ---------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 16 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 28 SIGNATURE 32
-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 JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- --------------------------- 1999 1998 1999 1998 ================================================================================================================================ Revenues $ 1,678 $ 1,484 $ 3,446 $ 3,433 Operating expenses (891) (956) (2,051) (2,261) Marketing, administration, and general expenses (296) (227) (597) (567) Depreciation and amortization (152) (136) (301) (266) Residual costs of discontinued businesses (45) (38) (85) (76) - -------------------------------------------------------------------------------------------------------------------------------- Operating profit 294 127 412 263 Other income, net (note 4) (19) 12 (6) 17 Interest expense, net (46) (85) (97) (160) - -------------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations before income taxes and minority interest in income of consolidated subsidiaries 229 54 309 120 Income tax expense (130) (48) (176) (95) Minority interest in income of consolidated subsidiaries (21) (2) (30) (2) - -------------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 78 4 103 23 Gain on disposal of Discontinued Operations, net of income taxes (note 7) 18 -- 384 -- Extraordinary item: Loss on extinguishment of debt, net of income taxes (note 1) (1) -- (5) -- - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 95 $ 4 $ 482 $ 23 ================================================================================================================================ Basic earnings per common share (note 10): Continuing Operations $ .11 $ .01 $ .15 $ .03 Discontinued Operations .03 -- .55 -- Extraordinary item -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------------------------- Basic earnings per common share $ .14 $ .01 $ .69 $ .03 ================================================================================================================================ Diluted earnings per common share (note 10): Continuing Operations $ .11 $ .01 $ .15 $ .03 Discontinued Operations .02 -- .54 -- Extraordinary item -- -- (.01) -- - -------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ .13 $ .01 $ .68 $ .03 ================================================================================================================================ Cash dividends per common share $ -- $ -- $ -- $ .05 ================================================================================================================================ Comprehensive income (loss): Net income $ 95 $ 4 $ 482 $ 23 - -------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss), net of taxes (note 11): Unrealized gains (losses) on marketable securities (17) 1 23 18 Minimum pension liability adjustment 20 (27) 117 (52) - -------------------------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 3 (26) 140 (34) - -------------------------------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ 98 $ (22) $ 622 $ (11) ================================================================================================================================
See Notes to the Condensed Consolidated Financial Statements. -3- 4 CBS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in millions except share and per-share amounts)
(UNAUDITED) JUNE 30, DECEMBER 31, 1999 1998 =========================================================================================================================== ASSETS: Cash and cash equivalents $ 742 $ 798 Customer receivables (net of allowance for doubtful accounts of $59 and $48, respectively) 1,127 1,180 Program rights 516 533 Deferred income taxes 303 138 Prepaid and other current assets 163 140 - --------------------------------------------------------------------------------------------------------------------------- Total current assets 2,851 2,789 Property and equipment, net 1,132 1,149 FCC licenses, net 4,310 4,308 Goodwill, net 10,260 10,357 Other intangible and noncurrent assets (note 5) 1,805 1,536 - --------------------------------------------------------------------------------------------------------------------------- Total assets $ 20,358 $ 20,139 =========================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Current maturities of long-term debt $ 79 $ 159 Accounts payable 323 336 Liabilities for talent and program rights 374 290 Other current liabilities (note 6) 932 820 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,708 1,605 Long-term debt 2,111 2,506 Net liabilities of Discontinued Operations (note 7) 985 1,284 Pension liability 846 945 Postretirement benefit liability 1,020 1,046 Other noncurrent liabilities (note 6) 2,368 2,081 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 9,038 9,467 - --------------------------------------------------------------------------------------------------------------------------- Contingent liabilities and commitments (note 9) Minority interest in equity of consolidated subsidiaries 1,625 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, 743 million and 734 million shares issued, respectively) 743 734 Capital in excess of par value 9,176 8,914 Common stock held in treasury, at cost (1,467) (1,215) Retained earnings 1,910 1,428 Accumulated other comprehensive loss (note 11) (667) (807) - --------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 9,695 9,054 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 20,358 $ 20,139 ===========================================================================================================================
See Notes to the Condensed Consolidated Financial Statements. -4- 5 CBS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited, in millions)
SIX MONTHS ENDED JUNE 30, 1999 1998 ========================================================================================================================= Cash flows from operating activities of Continuing Operations: Income from Continuing Operations $ 103 $ 23 Adjustments to reconcile income from Continuing Operations to net cash provided by operating activities: Depreciation and amortization 301 266 Gain on asset dispositions (9) (5) Other noncash adjustments (46) (122) Changes in assets and liabilities, net of effects of acquisitions and divestitures of businesses: Receivables, current and noncurrent 83 52 Accounts payable (46) 18 Deferred and current income taxes 116 (14) Program rights 130 95 Pensions and postretirement benefits (46) (51) Other assets and liabilities (71) 10 - ------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities of Continuing Operations 515 272 - ------------------------------------------------------------------------------------------------------------------------- Cash used by operating activities of Discontinued Operations (note 7) (169) (343) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Business acquisitions and investments (133) (1,397) Business divestitures and other asset liquidations 350 330 Capital expenditures - Continuing Operations (55) (45) Capital expenditures - Discontinued Operations (4) (18) - ------------------------------------------------------------------------------------------------------------------------- Cash provided (used) by investing activities 158 (1,130) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Bank revolver borrowings -- 3,043 Bank revolver repayments -- (2,134) Issuance of senior notes -- 493 Net increase in short-term debt -- 169 Long-term debt repayments (480) (133) Stock issued 189 231 Purchase of treasury stock (255) (339) Purchase of treasury stock of subsidiary (34) -- Bank fees paid and other costs (3) (6) Dividends paid -- (36) - ------------------------------------------------------------------------------------------------------------------------- Cash provided (used) by financing activities (583) 1,288 - ------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (79) 87 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 $ 746 $ 154 ========================================================================================================================= Supplemental disclosure of cash flow information: Interest paid - Continuing Operations $ 112 $ 148 Interest paid - Discontinued Operations 20 31 - ------------------------------------------------------------------------------------------------------------------------- Total interest paid $ 132 $ 179 ========================================================================================================================= Total income taxes paid - Continuing and Discontinued Operations $ 58 $ 108 =========================================================================================================================
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, as amended by Form 10-K/A. Reference also should be made to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, as amended by Form 10-Q/A. Certain prior period amounts have been reclassified for comparative purposes. On March 31, 1999, the Corporation entered into a definitive merger agreement with King World Productions, Inc. (King World) under which CBS 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. The King World stockholders meeting is scheduled for September 7, 1999. Assuming stockholder approval is secured, the Corporation expects to close the transaction shortly thereafter. During the quarter, the Corporation entered into definitive agreements to acquire two CBS affiliate television stations in Texas. 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 from Granite Broadcasting Corporation for $160 million in cash. The Corporation believes these acquisitions will close during the second half of 1999. In addition, on April 30, 1999, Infinity Broadcasting Corporation (Infinity Broadcasting), 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. On May 27, 1999, Infinity Broadcasting, a majority-owned subsidiary of the Corporation, entered into a definitive agreement to acquire Outdoor Systems, Inc., (Outdoor Systems) for approximately $8.7 billion, which includes the assumption of $1.9 billion in Outdoor Systems debt, at fair value. The terms of the agreement call for each outstanding Outdoor Systems common share to be exchanged for 1.25 shares of Infinity Broadcasting Class A common stock. Outdoor Systems is the largest out-of-home advertising company in North America, operating bulletin, poster, mall and transit advertising display faces in the United States, Canada, and Mexico. The consummation of the merger is subject to certain conditions, including approval by Outdoor Systems and Infinity Broadcasting shareholders and review by certain regulatory bodies. In connection with the Hart-Scott-Rodino Act filing, the Corporation has received a second request for information from the Department of Justice, which it is responding to. The Corporation believes that the transaction will close in the fourth quarter of 1999. The consummation of this transaction will cause a dilution in the Corporation's ownership interest in Infinity Broadcasting from approximately 82 percent to approximately 62 percent, including all dilutive securities. The Corporation's voting interest, on a fully diluted basis will also decline from approximately 96 percent to approximately 90 percent as a result of the transaction. During the second quarter of 1999, the Corporation purchased, at market value, debt securities of Continuing Operations with a face value of approximately $70 million. The Corporation also repaid its 7.75 percent notes which became due during the second quarter, for approximately $120 million. As a result of these second quarter extinguishments of $70 million and first quarter extinguishments of approximately $190 million as well as the write-off of certain credit facility fees, the Corporation recorded an extraordinary loss, net of taxes of $1 million, and $5 million, during the three and six months ended June 30, 1999, respectively. 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. The effective date for this standard has been revised by the Financial Accounting Standards Board to all fiscal quarters and fiscal years beginning after June 15, 2000. 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. -6- 7 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. 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. 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 and six months ended June 30, 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 JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- -------------------------- 1999 1998 1999 1998 ===================================================================================================================== Revenues $ 1,678 $ 1,563 $ 3,446 $ 3,601 Income (loss) from Continuing Operations 78 (13) 103 (26) Basic and diluted earnings (loss) per common share - Continuing Operations .11 (.02) .15 (.04) =====================================================================================================================
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. INVESTMENTS IN INTERNET BASED COMPANIES Investments in joint ventures and other companies that the Corporation controls are consolidated in these condensed consolidated financial statements. Investments in joint ventures and other companies that the Corporation does not control but has the ability to exercise significant influence over operating and financial policies are accounted for by the equity method. Equity method investments are stated at their cost of acquisition adjusted for the Corporation's equity in undistributed net income (loss) since the date of acquisition. The change in the equity in net income (loss) of these investments is included in other income, net in the condensed consolidated statement of income. Investments that the Corporation does not control and does not have the ability to exercise significant influence over operating and financial policies are accounted for by the cost method. Cost method investments are carried at their cost of acquisition. Cost method investments in publicly traded companies are subsequently marked to market, with unrealized gains and losses, net of income taxes, reported as a component of accumulated other comprehensive income (loss) within shareholders' equity in the condensed consolidated balance sheet. During the second quarter 1999 the Corporation closed on a number of strategic investments focused on growing its Internet based operations. These investments provide the Corporation with equity ownership interests in the Internet based companies in exchange for $23 million in cash and a $281 million commitment to provide future advertising and promotional time. The advertising commitments included in these arrangements will be met over a period of up to seven years. The Internet based companies that the Corporation has invested in include two public companies Sportsline USA, Inc. and MarketWatch.com, Inc. Other Internet investments include Storerunnner, Inc., Office.com, Inc., Switchboard, Inc., ThirdAge Media, Inc. and Webvan. The shares evidencing the Corporation's equity ownership interest typically contain restrictions that may limit the Corporation's ability to sell or otherwise -7- 8 dispose of its investment. The Corporation has also announced that a letter of intent has been signed for a 35 percent ownership interest in hollywood.com in exchange for $100 million in future advertising and promotional time. At the date of acquisition, the Corporation records its investment at cost, an amount typically equal to the cash consideration paid plus the fair value of the advertising and promotional time to be provided. These investments are presented in the accompanying condensed consolidated balance sheet as other intangible and noncurrent assets (see note 5 to the condensed consolidated financial statements). The associated obligation to provide future advertising and promotion is recorded as deferred revenue in the accompanying condensed consolidated balance sheet as other current and noncurrent liabilities (see note 6 to the condensed consolidated financial statements) and is recorded at an amount equal to the fair value of the advertising and promotional time to be provided. Barter revenue is then recognized as the related advertising and promotional time is delivered. Where an agreement provides the Corporation with a licensing fee based on a percentage of gross revenues earned by the Internet based company in exchange for a license to use the CBS name and logo, licensing revenues are recorded by the Corporation as the Internet based company earns the revenues on which the license fees are based. Subsequent to the acquisition of investments, the Corporation evaluates whether later events and circumstances indicate that the carrying amount of such investment is impaired. If a decline in fair value of the investment below its cost basis is judged to be other than temporary, the investment is considered to be impaired, and the carrying amount of the investment is written down to fair value as a new cost basis and recognized in other income, net. The new cost basis is not changed for subsequent recovery, if any, in the fair value of the investment. 4. OTHER INCOME, NET Other income, net during the three and six months ended June 30, 1999 reflects net expense of $19 million and $6 million, respectively, compared to income, net of expenses, of $12 million and $17 million, respectively, for the same periods in 1998. Other income and expense items primarily include miscellaneous gains and losses on dispositions of non-strategic assets and operating results of non-consolidated affiliates. In 1998, the Corporation divested a majority stake in TeleNoticias, its Spanish language cable news network. Financial difficulties have led TeleNoticias to file for Bankruptcy protection under Chapter 11. Because of these financial difficulties, it is probable that certain obligations that were assumed by the venture in connection with the divestiture will revert back to the Corporation. As a result, the Corporation recorded a $24 million provision for these obligations. These obligations are expected to be satisfied over the next several years. For the six months ended June 30, 1999 this charge is partially offset by a net gain of $8 million recognized during the first quarter of 1999 on the disposal of corporate aircraft. 5. OTHER INTANGIBLE AND NONCURRENT ASSETS (in millions)
(UNAUDITED) JUNE 30, DECEMBER 31, 1999 1998 =================================================================================================================== Cable license agreements $ 416 $ 441 Other intangible assets 345 357 Investments in Internet based companies (note 3) 425 25 Other investments 117 116 Recoverable costs of discontinued businesses (note 9) 168 180 Noncurrent receivables 179 228 Program rights 94 93 Deferred charges 32 33 Other 29 63 - ------------------------------------------------------------------------------------------------------------------- Total other intangible and noncurrent assets $ 1,805 $ 1,536 ===================================================================================================================
-8- 9 6. OTHER CURRENT AND NONCURRENT LIABILITIES (IN MILLIONS)
(UNAUDITED) JUNE 30, DECEMBER 31, 1999 1998 =================================================================================================================== OTHER CURRENT LIABILITIES Accrued employee compensation $ 75 $ 108 Income taxes payable 72 24 Accrued restructuring cost 14 38 Accrued liabilities 361 318 Deferred revenue - Internet based investments (note 3) 61 -- Retained liabilities of discontinued businesses (note 9) 255 254 Accrued interest and insurance 77 67 Other 17 11 - ------------------------------------------------------------------------------------------------------------------- Total other current liabilities $ 932 $ 820 =================================================================================================================== OTHER NONCURRENT LIABILITIES Deferred income taxes $ 805 $ 795 Postemployment benefits 36 29 Liabilities for talent and program rights 119 119 Accrued liabilities 150 156 Deferred revenue - Internet based investments (note 3) 254 -- Retained liabilities of discontinued businesses (note 9) 839 766 Accrued restructuring costs 8 28 Other 157 188 - ------------------------------------------------------------------------------------------------------------------- Total other noncurrent liabilities $2,368 $2,081 ===================================================================================================================
7. 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 to be retained by the Corporation. See note 9 to the condensed consolidated financial statements. 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. In addition, during the second quarter of 1999, the Corporation sold its Plant Apparatus Division (PAD) and Machinery Apparatus Operations (MAO) to Bechtel National, Inc. for approximately $30 million in cash, subject to certain adjustments, and the assumption by the buyer, of liabilities, commitments, and obligations totaling approximately $20 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $30 million and $18 million, respectively. At June 30, 1999, the remaining assets and liabilities of Discontinued Operations generally consists of a liability for estimated loss on disposal, portfolio investments and related debt, and other miscellaneous assets including surplus properties, that are expected to be divested. Those obligations that have been retained by the Corporation are separately presented in Continuing Operations as retained liabilities of discontinued businesses. -9- 10 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) JUNE 30, DECEMBER 31, 1999 1998 ==================================================================================================================== Total assets $ 861 $1,919 Less: total liabilities 1,846 3,203 - -------------------------------------------------------------------------------------------------------------------- Net liabilities of Discontinued Operations $ 985 $1,284 ====================================================================================================================
Total liabilities for Discontinued Operations consist primarily of the liability for the estimated loss on disposal of $1,317 million at June 30, 1999, and $1,309 million at December 31, 1998, which 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 divestiture of the industrial businesses including the costs to dispose of surplus property held for sale, contractual indemnifications and unresolved purchase price adjustments. Generally, satisfaction of these liabilities is expected to occur over the next several years. The increase in the estimated loss on disposal is the result of estimated liabilities for working capital and probable purchase price adjustments associated with 1999 dispositions. Management believes that the liability for estimated loss on disposal at June 30, 1999, is adequate to cover these liabilities of Discontinued Operations. The other significant component of total liabilities for Discontinued Operations is the portfolio's related debt of $429 million and $428 million at June 30, 1999 and December 31, 1998, respectively. Total assets for Discontinued Operations consist primarily of the portfolio's direct financing and leveraged leases that totaled $626 million and $642 million at June 30, 1999 and December 31, 1998, respectively. Generally, these leases are expected to liquidate in accordance with their contractual terms, which extend to the year 2015. Cash inflows from contractual liquidation of the leasing portfolio are expected to be sufficient to repay the principal amount of the related 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. 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," 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. -10- 11 OPERATING RESULTS OF DISCONTINUED OPERATIONS (unaudited, in millions)
PRE-TAX SALES OF PRODUCTS LOSS AFTER OR SERVICES MEASUREMENT DATE ------------------------------- ----------------------------- THREE MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ==================================================================================================================== Industrial businesses $ 5 $ 808 $ -- $ (36) Financial Services 3 8 (7) (4) - -------------------------------------------------------------------------------------------------------------------- Total $ 8 $ 816 $ (7) $ (40) ==================================================================================================================== PRE-TAX SALES OF PRODUCTS LOSS AFTER OR SERVICES MEASUREMENT DATE ------------------------------- ----------------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ==================================================================================================================== Industrial businesses $ 118 $1,396 $ (20) $ (189) Financial Services 6 14 (14) (9) - -------------------------------------------------------------------------------------------------------------------- Total $ 124 $1,410 $ (34) $ (198) ====================================================================================================================
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 outflows of Discontinued Operations were $169 million and $343 million for the six months ended June 30, 1999 and 1998, respectively. These cash outflows primarily relate to operating activities of the industrial businesses prior to their disposal dates and the liquidation of the portfolio's direct financing and leveraged leases. During 1999 the cash outflows also include expenditures to close the industrial businesses former corporate headquarters, costs to dispose the industrial businesses surplus properties which are being held for sale, and purchase price adjustments arising from the sale of its industrial businesses. 8. 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 June 30, 1999 the Corporation recorded in operating expenses new restructuring charges of approximately $2 million associated with planned employee terminations. These charges were offset by the Corporation's second quarter 1999 restructuring reserve reversal of approximately $26 million. This reversal was the result of recent television programming changes and lower than expected severance costs because of higher voluntary employee terminations. The current quarter reversal is reflected in the Television segment's results of operations. Cash expenditures under the restructuring plans totaled $7 million and $19 million during the three and six months ended June 30, 1999, respectively, and are estimated to approximate $11 million for the remainder of 1999 and approximately $11 million for 2000 and beyond. 9. 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, were 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 $1.1 billion at June 30, 1999, including $572 million for accrued legal matters. Of this amount, $839 million is classified as noncurrent. A separate asset of $220 million was recorded for estimated amounts recoverable from third parties, of which $168 million is classified as noncurrent. -11- 12 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 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 to settle the derivative action. The class and derivative matters were settled for a total amount of approximately $67 million, funded in large part by CBS's liability insurers. Both the class and the derivative action settlements have been the subject of notice to the appropriate parties and are subject to fairness hearings and approval by the 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 June 30, 1999, the Corporation had approximately 117,950 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 adequately provided for costs arising from resolution of these matters and that the litigation should not have a material adverse effect on the financial condition of the Corporation. -12- 13 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 $386 million at June 30, 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 $286 million for site investigation and remediation, and $100 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 as of June 30, 1999, are environmental liabilities of $48 million that directly relate 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 June 30, 1999, the Corporation was committed to make payments under such broadcasting contracts, along with commitments for talent contracts, totaling $7.2 billion. In addition, the Corporation has received various equity ownership interests in Internet based companies that commit the Corporation to provide advertising and promotional spots over the next seven years (see note 3 to the condensed consolidated financial statements). In addition, the Corporation has commitments under operating and capital leases for certain facilities and equipment (including satellites), 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. -13- 14 10. EARNINGS PER COMMON SHARE COMPUTATION OF EARNINGS PER COMMON SHARE - CONTINUING OPERATIONS (unaudited, in millions except per-share amounts)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- -------------------------- 1999 1998 1999 1998 ==================================================================================================================== Income from Continuing Operations applicable to common stockholders $ 78 $ 4 $ 103 $ 23 ==================================================================================================================== Basic and diluted earnings per common share $.11 $.01 $ .15 $.03 - -------------------------------------------------------------------------------------------------------------------- Average number of basic common shares outstanding 696 701 694 700 Average number of diluted common shares outstanding 713 721 710 719 ====================================================================================================================
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 in basic earnings per common share. Shares outstanding are expected to increase upon the closing of the Corporation's acquisitions of King World and KTVT-TV. 11. SHAREHOLDERS' EQUITY In 1998, the Board of Directors of the Corporation authorized a multi-year stock repurchase program. The Corporation repurchased 4,704,200 and 6,692,900 of its common stock at a cost of $203 million and $273 million, respectively, during the three and six months ended June 30, 1999, bringing the total shares repurchased under the program through June 30, 1999 to 35,034,608 at a cost of $1.1 billion. At June 30, 1999 and December 31, 1998, the Corporation held common stock in treasury of 49,160,470 shares and 43,204,174 shares, respectively. At March 31, 1998, the Corporation adopted the provisions of SFAS 130, "Reporting Comprehensive Income," 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 June 30, 1999 and December 31, 1998: ACCUMULATED OTHER COMPREHENSIVE LOSS (in millions)
(UNAUDITED) JUNE 30, DECEMBER 31, 1999 1998 ==================================================================================================================== Minimum pension liability $ (691) $ (808) Unrealized gains on securities 24 1 - -------------------------------------------------------------------------------------------------------------------- Total accumulated other comprehensive loss $ (667) $ (807) ====================================================================================================================
During the first half of 1999, the Corporation disposed of essentially all the industrial businesses with the sale of its Energy Systems and Government Operations businesses during the first quarter and the sale of its PAD and MAO businesses during the second quarter. The minimum pension liability declined during 1999 primarily as a result of the assumption of certain pension obligations by the buyers as well as the recognition of actuarial losses upon sale of the businesses. Other comprehensive income for the three and six months ended June 30, 1999 totaled $3 million and $140 million, respectively, net of income tax of less than $1 million and $78 million, respectively. During the same periods in 1998 other comprehensive loss totaled $26 million and $34 million, respectively, net of income tax benefits of $12 million and $16 million, respectively. -14- 15 12. SEGMENT INFORMATION The Corporation's Continuing Operations are aligned into three reporting segments: Infinity (formerly Radio), Television, and Cable. These reporting segments are consistent with the Corporation's management of these businesses and its financial reporting structure and the operating focus. SEGMENT RESULTS OF OPERATIONS (unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA ---------------------- ---------------------- -------------------- THREE MONTHS ENDED JUNE 30, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Infinity $ 597 $ 456 $ 191 $ 141 $ 265 $ 198 Television 927 880 119 21 174 83 Cable 156 150 44 24 46 50 Corporate and Other (2) (2) (15) (21) (13) (18) Residual costs of discontinued businesses -- -- (45) (38) (45) (38) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 1,678 $ 1,484 $ 294 $ 127 $ 427 $ 275 ====================================================================================================================== REVENUES OPERATING PROFIT (LOSS) EBITDA ----------------------- ---------------------- -------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Infinity $ 1,071 $ 786 $ 289 $ 205 $ 435 $ 311 Television 2,092 2,375 167 144 277 266 Cable 286 275 69 28 96 79 Corporate and Other (3) (3) (28) (38) (16) (34) Residual costs of discontinued businesses -- -- (85) (76) (85) (76) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 3,446 $ 3,433 $ 412 $ 263 $ 707 $ 546 ======================================================================================================================
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. As EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, this measure may not be comparable to similarly titled measures employed by other companies. The Corporation's consolidated income from Continuing Operations before taxes and minority interest for the three and six months ended June 30, 1999, totaled $229 million and $309 million, respectively. During the same periods in 1998 income from Continuing Operations before taxes and minority interest totaled $54 million and $120 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 the results of operations that are not identifiable to a specific operating segment. These include 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 Infinity, Television, or Cable segment results. Residual costs of discontinued businesses primarily include certain costs, such as pension and post-retirement benefit costs, remaining from divestitures of the Corporation's industrial businesses. 13. SUBSEQUENT EVENTS Subsequent to the close of the quarter, the Corporation continued to pursue strategic investments with Internet based companies by acquiring 35 percent of Medscape, Inc., a leading provider of authoritative health and medical information on the Internet, and 22 percent of Wrenchead.com, Inc., an Internet based automotive parts supplier, and entering into a definitive agreement to acquire 20 percent of Rx.com, Inc., a leading Internet retail pharmacy, in exchange for future advertising and promotional commitments in the aggregate amount of $218 million. -15- 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Corporation reported revenues for the three months ended June 30, 1999 of $1,678 million, a 13 percent increase over the same period of the prior year. For the six months ended June 30, 1999, revenues climbed to $3,446 million representing a slight increase over the six months ended June 30, 1998, in spite of the fact that 1998 results included the Winter Olympics. Excluding the effect of the Winter Olympics from the 1998 results, revenues for the six months ended June 30, 1999 increased 16 percent. Earnings before interest, taxes, minority interest, depreciation and amortization (EBITDA) also increased dramatically, excluding the impact of the Olympics, up over 50 percent for the six months ended June 30, 1999. The Corporation reported net income, for the three and six months ended June 30, 1999, of $95 million, or $0.13 per share, and $482 million, or $0.68 per share, on a diluted basis, respectively. Included in these results were gains on the disposal of Discontinued Operations of $18 million and $384 million, net of income tax, respectively. Income from Continuing Operations totaled $78 million, or $0.11 per share, and $103 million, or $0.15 per share, for the three and six months ended June 30, 1999, respectively. On March 31, 1999, the Corporation entered into a definitive merger agreement with King World Productions, Inc. (King World) under which CBS 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. The King World stockholder meeting is set for September 7, 1999. Assuming stockholder approval is secured, the Corporation expects to close the transaction shortly thereafter. During the quarter, the Corporation entered into definitive agreements to acquire two CBS affiliate television stations in Texas. 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 from Granite Broadcasting Corporation for $160 million in cash. The Corporation believes these acquisitions will close during the second half of 1999. In addition, on April 30, 1999, Infinity Broadcasting Corporation (Infinity Broadcasting), 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. On May 27, 1999, Infinity Broadcasting, a majority-owned subsidiary of the Corporation, entered into a definitive agreement to acquire Outdoor Systems, Inc., (Outdoor Systems) for approximately $8.7 billion, which includes the assumption of $1.9 billion in Outdoor Systems debt, at fair value. The terms of the agreement call for each outstanding Outdoor Systems common share to be exchanged for 1.25 shares of Infinity Broadcasting Class A common stock. Outdoor Systems is the largest out-of-home advertising company in North America, operating bulletin, poster, mall and transit advertising display faces in the United States, Canada, and Mexico. The consummation of the merger is subject to certain conditions, including approval by Outdoor Systems and Infinity Broadcasting shareholders and review by certain regulatory bodies. In connection with the Hart-Scott-Rodino Act filing, the Corporation has received a second request for information from the Department of Justice, which it is responding to. The Corporation believes that the transaction will be completed in the fourth quarter of 1999. The consummation of this transaction will cause a dilution in the Corporation's ownership interest in Infinity Broadcasting from approximately 82 percent to approximately 62 percent, including all dilutive securities. The Corporation's voting interest, on a fully diluted basis, will also decline from approximately 96 percent to approximately 90 percent as a result of the transaction. During the second quarter of 1999, the Corporation purchased, at market value, debt securities of Continuing Operations with a face value of approximately $70 million. The Corporation also repaid its 7.75 percent notes which became due during the second quarter, for approximately $120 million. As a result of these second quarter extinguishments of $70 million and first quarter extinguishments of approximately $190 million as well as the write-off of certain credit facility fees, the Corporation recorded an extraordinary loss, net of taxes of $1 million, and $5 million, during the three and six months ended June 30, 1999, respectively. -16- 17 During the third quarter of 1998, the Corporation recognized restructuring costs totaling $62 million. In the second quarter of 1999, the Corporation reversed approximately $26 million of this reserve. This reversal was the result of recent television programming changes and lower than expected severance costs because of higher voluntary employee terminations. The current quarter reversal is reflected in the Television segment's results of operations. Also in the second quarter of 1999, the Corporation recorded new restructuring charges of approximately $2 million associated with planned employee terminations. In 1998 the Corporation divested a majority stake in TeleNoticias, its Spanish language cable news network. Financial difficulties have led TeleNoticias to file for Bankruptcy protection under Chapter 11. Because of these financial difficulties, it is probable that certain obligations that were assumed by the venture in connection with the divestiture will revert back to the Corporation. As a result, the Corporation's Cable segment recorded a $24 million provision for these obligations. These obligations are expected to be satisfied in the next few years. During the second quarter of 1999, the Corporation closed on a number of strategic investments focused on growing its Internet based operations whereby the Corporation received an equity interest in these Internet based companies in exchange for $23 million in cash and $281 million in advertising and promotional time. The advertising commitments included in these arrangements will be met over a period of up to seven years. The Internet based companies that the Corporation has invested in include two public companies Sportsline USA, Inc. and MarketWatch.com, Inc. Other Internet investments include Storerunnner, Inc., Office.com, Inc., Switchboard, Inc., ThirdAge Media, Inc., and Webvan. The commitment to provide future advertising and promotional time has been recorded as a liability totaling $315 million in other current and noncurrent liabilities on the Corporation's condensed consolidated balance sheet at June 30, 1999. The shares evidencing the Corporation's equity ownership interest typically contain restrictions that may limit the Corporation's ability to sell or otherwise dispose of its investment. The Corporation has also announced that a letter of intent was signed for a 35 percent ownership interest in hollywood.com in exchange for $100 million in future advertising and promotion time. Subsequent to the close of the quarter the Corporation continued to pursue strategic investments with other Internet based companies including acquiring 35 percent of Medscape, Inc., a leading provider of authoritative health and medical information on the Internet, and 22 percent of Wrenchead.com, Inc., an Internet based automotive parts supplier, and entering into a definitive agreement to acquire 20 percent of Rx.com, Inc., a leading Internet retail pharmacy, in exchange for future advertising and promotional commitments in the aggregate amount of approximately $218 million. The majority of these Internet based investments represent newly formed enterprises that will require access to capital markets to fund their future start-up losses. There can be no assurance that these companies will be successful in raising the necessary capital to finance their operations. These companies may also face intense competition as more traditional "brick-and-mortar" companies respond to changes in the market place, including launching their own Internet sites. As a result, the Corporation's future results of operations for a quarter or a year could be materially affected by a non-cash write down in the carrying amount of these investments to recognize an impairment loss due to an other than temporary decline in the value of these investments. The advertising and promotional agreements entered into in exchange for the Corporation's equity interest in these investees contain termination provisions in the event of failure or inability of the investee to perform. Generally, pursuant to these above termination provisions, the Corporation is released from delivering any remaining unfulfilled advertising commitments. Upon termination of the unfulfilled advertising and promotional commitments, the remaining deferred revenue, if any, recorded as a liability will be reversed and recognized as other income. The Corporation's future results of operations may also be subject to significant volatility arising from recording its proportionate share of the respective investee's losses and the related amortization of the difference between the Corporation's investment in the investee and its proportionate share in the underlying equity in net assets of the respective investees. The Corporation is currently evaluating the period over which this difference will be amortized against earnings, but tentatively expects the period to range between 3 and 7 years. 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. In addition, during the second quarter of 1999, the Corporation sold its Plant Apparatus Division (PAD) and its Machinery Apparatus Operations (MAO) to Bechtel National, Inc. for approximately $30 million in cash, subject to certain adjustments, and the assumption by the -17- 18 buyer, of liabilities, commitments, and obligations totaling approximately $20 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $30 million and $18 million, respectively. See note 7 to the condensed consolidated financial statements. SEGMENT RESULTS OF OPERATIONS The following table presents the segment results for the Corporation's Continuing Operations for the three and six months ended June 30, 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 Federal Communications Commissions (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. As EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principle, this measure may not be comparable to similarly titled measures employed by other companies. SEGMENT RESULTS OF OPERATIONS - CONTINUING OPERATIONS (unaudited, in millions)
REVENUES OPERATING PROFIT (LOSS) EBITDA ---------------------- ---------------------- -------------------- THREE MONTHS ENDED JUNE 30, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Infinity $ 597 $ 456 $ 191 $ 141 $265 $198 Television 927 880 119 21 174 83 Cable 156 150 44 24 46 50 Corporate and Other (2) (2) (15) (21) (13) (18) Residual costs of discontinued businesses -- -- (45) (38) (45) (38) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 1,678 $ 1,484 $ 294 $ 127 $427 $275 ====================================================================================================================== REVENUES OPERATING PROFIT (LOSS) EBITDA ---------------------- ---------------------- -------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 1999 1998 ====================================================================================================================== Infinity $ 1,071 $ 786 $ 289 $ 205 $435 $311 Television 2,092 2,375 167 144 277 266 Cable 286 275 69 28 96 79 Corporate and Other (3) (3) (28) (38) (16) (34) Residual costs of discontinued businesses -- -- (85) (76) (85) (76) - ---------------------------------------------------------------------------------------------------------------------- Total Continuing Operations $ 3,446 $ 3,433 $ 412 $ 263 $707 $546 ======================================================================================================================
Certain discussions below provide a comparison of actual results with pro forma results. For the three and six months ended June 30, 1999 and 1998 comparisons, pro forma results were determined as if the American Radio Systems Corporation (American Radio) acquisition and any related divestitures and exchanges of radio stations had occurred on January 1, 1998. INFINITY Infinity Broadcasting is comprised of 163 owned and operated radio stations and TDI Worldwide, Inc. (TDI), its outdoor advertising business (collectively the Infinity segment). Revenues, as reported, increased over the prior year by $141 million, or 31 percent, and $285 million, or 36 percent, for the three and six months ended June 30, 1999, respectively. This growth was primarily driven by the overall strong performance at Infinity's existing operations and the inclusion of the results of operations of American Radio, which was acquired on June 4, 1998. On a pro forma basis, second quarter and year-to-date 1999 Infinity segment revenue growth continued to outpace the industry increasing by approximately 15 percent. These pro forma increases reflect strong station growth across the majority of the Corporation's radio markets and strong growth in outdoor advertising during 1999. Operating profit and EBITDA increased by $50 million, or 35 percent, and $67 million, or 34 percent, for the three months ended June 30, 1999, respectively. During the six months ended June 30, 1999 operating profit and EBITDA increased by $84 million, or 41 percent, and $124 million, or 40 percent, respectively. These increases in operating profit and EBITDA are due to the higher revenues at the Corporation's existing radio and outdoor -18- 19 advertising properties and the inclusion of the results of operations of American Radio subsequent to its acquisition by the Corporation in June 1998 combined with management's continued focus on cost control. On a pro forma basis operating profit and EBITDA increased by 29 percent and 20 percent for the three months ended June 30, 1999, respectively, and 37 percent and 23 percent for the six months ended June 30, 1999, respectively. 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 Infinity segment costs are fixed. TELEVISION The Television segment consists of the Corporation's 14 owned and operated television stations and the CBS television network. The segment's revenues for the three months ended June 30, 1999, totaled $927 million compared to $880 million during the prior year second quarter. This increase is primarily attributable to improved primetime ratings and higher pricing on advertising. Television revenues for the six months ended June 30, 1999, decreased by $283 million which was due to the impact of the Winter Olympics on 1998 results. Excluding the impact of the 1998 Winter Olympics, the Television segment's revenues increased by approximately 9 percent. Although the up-front sales effort continues and is subject to modification since not all agreements have been finalized, CBS Television has sold approximately 80 percent of its up-front inventory, achieving low double digit pricing increases. Additionally, ratings based on household for the first half of 1999 have remained strong with CBS Television retaining its first place position. However, broadcast television, including CBS, has experienced a decline in total audience viewership in recent years from increased competition. The segment's operating profit and EBITDA for the three months ended June 30, 1999, totaled $119 million and $174 million, respectively, compared to $21 million and $83 million, respectively, during the prior year period. This increase is primarily attributable to increased advertising revenues, lower operating costs due to recent cost containment initiatives, the net impact of changes in network programming, and the reversal of certain restructuring reserves. Television operating profit and EBITDA for the six months ended June 30, 1999, increased by $23 million and $11 million, respectively. Excluding the impact of the 1998 Winter Olympics, the Television segment's operating profit and EBITDA increased by greater than 50 percent. These improvements were also attributable to the same factors previously noted including increased advertising revenues in the primetime day-part, lower operating costs due to recent cost containment initiatives, and the net impact of changes in network programming. CABLE The Cable segment consists of the Corporation's cable networks, including The Nashville Network (TNN), Country Music Television (CMT), two regional sports networks, and a minority interest in a Spanish language cable news network. These networks are distributed by cable television and other multichannel technologies. Revenues for the three and six months ended June 30, 1999, increased by $6 million and $11 million, or 4 percent, over the same periods during 1998. These results reflect solid advertising sales increases achieved at TNN and CMT. The 1998 results for the three and six months ended June 30, 1998, included revenues of approximately $7 million and $12 million, respectively, for two cable operations, TeleNoticias and Eye on People, both of which were divested late in 1998. The Cable segment's operating profit and EBITDA for the three months ended June 30, 1999, totaled $44 million and $46 million, respectively, compared to $24 million and $50 million, respectively, during the prior year period. Operating profit and EBITDA for the six months ended June 30, 1999, totaled $69 million and $96 million, respectively, compared to $28 million and $79 million, respectively, during the prior year period. The 1999 three and six month results reflect the elimination of expenses related to its TeleNoticias operations and certain costs to develop and launch Eye on People, as both of these entities were divested late in 1998, as well as growth in its core operations led by TNN and CMT. Also, the decline during the three months ended June 30, 1999 in EBITDA reflects a $24 million provision for certain obligations of TeleNoticias that are likely to revert back to the Corporation. RESIDUAL COSTS OF DISCONTINUED BUSINESSES The Corporation's results of operations are unfavorably affected by certain costs remaining from 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 and six months ended June 30, 1999, residual costs of discontinued businesses were $45 million and $85 million, respectively, and primarily comprised of pension and postretirement benefit costs which totaled $44 million and $81 million, respectively. For the same periods during 1998, the residual cost totaled $38 million and -19- 20 $76 million, respectively, of which the combined pension and postretirement benefit costs totaled $37 million and $74 million, respectively. 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. In addition, following the sales of Energy Systems and Government Operations, the quarterly costs have increased 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 plans 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 and six months ended June 30, 1999 reflects net expense of $19 million and $6 million, respectively, compared to income, net of expenses, of $12 million and $17 million, respectively, for the same periods in 1998. Other income and expense items primarily include miscellaneous gains and losses on dispositions of non-strategic assets and operating results of non-consolidated affiliates. Included in other income, net for the three months ended June 30, 1999 is the Cable segment's $24 million provision for certain obligations of TeleNoticias that are likely to revert back to the Corporation. For the six months ended June 30, 1999, this $24 million charge is partially offset by a net gain of $8 million recognized during the first quarter of 1999 on the disposal of corporate aircraft. In future periods other income, net will include the Corporation's proportionate share in the equity in net losses of its equity investments in Internet based companies and the related amortization of the difference between the cost of the investment in the investee and the Corporation's proportionate share in the underlying equity in net assets of the respective investee. INTEREST EXPENSE, NET Interest expense from Continuing Operations for the three and six months ended June 30, 1999, totaled $46 million and $97 million, respectively, compared to $85 million and $160 million, respectively, for the same periods in 1998. The decrease in interest expense during 1999 was driven by a reduction in 1999 average debt compared to 1998. Average debt was primarily affected by the cash proceeds received from Infinity Broadcasting subsequent to its initial public offering, the timing of major acquisitions and divestiture transactions, and the repurchase of shares under the Corporation's and its subsidiaries' stock repurchase programs. During the six month period ended June 30, 1999, the Corporation had no borrowings under its credit facility and reduced available borrowing capacity under its credit facility from $4.0 billion to $3.0 billion (see Revolving Credit Facility). The Corporation also purchased, at market value, or redeemed, at redemption prices, debt securities with a face value of approximately $260 million and repaid its 7.75 percent notes and certain other debt of Continuing Operations, which had become due during the first half of 1999, for approximately $150 million. Future interest expense will depend on the Corporation's financing strategy in future acquisitions, additional activity under the Corporation's and Infinity Broadcasting's stock repurchase programs, use of proceeds from dispositions, and the funding of pension, postretirement benefit obligations, remaining divestiture costs and retained liabilities of discontinued businesses as well as the Corporation's performance. INCOME TAXES The Corporation's Continuing Operations effective tax rate was 57 percent for both the three and six months ended June 30, 1999, and 89 percent and 79 percent, respectively, during the same periods during 1998. These rates are significantly higher than the US federal statutory rate of 35 percent primarily due to the 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 decrease in the effective tax rate is due to the Corporation's higher operating profit and lower interest expense. The Corporation's net deferred tax liability at June 30, 1999 and December 31, 1998 totaled $419 million and $243 million, respectively. At June 30, 1999, the net deferred tax liability consisted of a net deferred tax liability of $502 million for Continuing Operations partially offset by a net deferred tax asset of $83 million for Discontinued Operations. At December 31, 1998, the net deferred tax liability consisted of a net deferred tax liability of $657 million for Continuing Operations offset by a net deferred tax asset of $414 million for discontinued operations. -20- 21 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES The increase in minority interest in income of consolidated subsidiaries is the result of the December 1998 initial public offering (IPO) of Infinity Broadcasting, the Corporation's then wholly-owned radio and outdoor advertising business. The IPO reduced the Corporation's ownership interest in Infinity Broadcasting to approximately 82 percent. This results in the Corporation reflecting an offset in its consolidated financial statements for the minority interest holder's proportionate interest in post-IPO results of operations of Infinity Broadcasting. 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 $27 million has been incurred through June 30, 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. The Corporation's centrally managed critical systems are currently Year 2000 compliant or will be replaced by compliant applications by the end of the third quarter of 1999. The various businesses have implemented Year 2000 procedures and guidelines, and most high-risk assets have been remedied and tested. The Corporation expects to have all systems tested and compliant before 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. Although the Corporation believes that it will complete its Year 2000 effort and will be compliant on time, there can be no assurances that this will occur. The Corporation has developed formal contingency plans to ensure continued business operations in case of Year 2000 related disruptions. The Corporation believes that, based on its current plan of identifying and scheduling the required personnel, and its ability to secure access to additional equipment necessary to meet all critical business processes, it is adequately prepared 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 suppliers and customers. The inability of the Corporation or its suppliers or customers 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. In addition, during the second quarter of 1999, the Corporation sold its PAD and MAO businesses to Bechtel National, Inc. for approximately $30 million in cash, subject to certain adjustments, and the assumption, by the buyer, of liabilities, commitments, and obligations totaling approximately $20 million, all in accordance with the terms of the divestiture agreement. The pre tax and after tax gain on disposal totaled $30 million and $18 million, respectively. See note 7 to the condensed consolidated financial statements. 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, -21- 22 which totaled $429 million at June 30, 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 with the Corporation. 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 $1,317 million at June 30, 1999 is adequate to provide for the portfolio investments' estimated results of operations through the expected date of liquidation and other obligations associated with the disposal of the industrial business including the costs to dispose of surplus property held for sale, contractual indemnifications and unresolved purchase price adjustments. RESULTS OF OPERATIONS - DISCONTINUED OPERATIONS (unaudited, in millions)
SALES OF PRODUCTS OPERATING PROFIT AND SERVICES (LOSS) - ----------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ================================================================================================================= Industrial businesses $ 5 $ 808 $ (1) $ (28) Financial Services 3 8 (7) (4) - ----------------------------------------------------------------------------------------------------------------- Total $ 8 $ 816 $ (8) $ (32) ================================================================================================================= SALES OF PRODUCTS OPERATING PROFIT AND SERVICES (LOSS) - ----------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 1999 1998 ================================================================================================================= Industrial businesses $118 $1,396 $ (18) $ (173) Financial Services 6 14 (14) (9) - ----------------------------------------------------------------------------------------------------------------- Total $124 $1,410 $ (32) $ (182) =================================================================================================================
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 and six months ended June 30, 1999 declined $803 million and $1,278 million, respectively, compared to the same periods during 1998. These declines primarily reflect the sale of several businesses throughout 1998, most notably the Power Generation business, and throughout 1999, the sale of the Energy Systems and Government Operations businesses during the first quarter and PAD and MAO during the second quarter. 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 and six months ended June 30, 1999 compared to the same periods in 1998. LIQUIDITY AND CAPITAL RESOURCES OVERVIEW In 1998, the Corporation formed Infinity Broadcasting, a new company comprising the Infinity segment of the Corporation. In December 1998, Infinity Broadcasting 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 Broadcasting, received the benefit of nearly 90 percent of the proceeds from Infinity Broadcasting's stock offering through the payment by Infinity Broadcasting 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 Broadcasting following the stock offering, certain modifications have been made to the Corporation's cash management practices. Of the $742 million in cash and cash equivalents presented on the Corporation's condensed consolidated balance sheet, the Corporation has direct access to $207 million. The remaining cash balance is available to the Corporation if Infinity Broadcasting were to pay a dividend on all of its common stock. Infinity Broadcasting does not anticipate paying any dividends in the near term. Additionally, under the terms of an intercompany agreement and a tax sharing agreement, Infinity Broadcasting reimburses the Corporation in cash for certain services provided and its standalone income tax liability. The tax payments to the Corporation will cease upon the deconsolidation of Infinity Broadcasting from the Corporation's -22- 23 consolidated US federal tax return which would result upon the consummation of the Outdoor Systems merger. For the six months ended June 30, 1999, Infinity Broadcasting paid to the Corporation approximately $100 million for its standalone income tax liability. Cash generated by Infinity Broadcasting's operations is expected to be retained by Infinity Broadcasting for use in its operations or for investing. Management does not believe that this segregation of cash will materially impact the Corporation's liquidity. 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 $515 million during the six months ended June 30, 1999 and $272 million during the first six months of 1998. Cash contributed to all of the Corporation's pension plans totaled $116 million during the first six months of 1999 and $145 million during the same period in 1998. The Corporation's contribution level for 1999 is expected to approximate $270 million (including the $116 million contribution made in the first six months of 1999), and is consistent with the Corporation's goal to fully fund its qualified pension plans over the next several years. Over the next several years it is likely that a portion of the future advertising and promotion time exchanged for an equity interest in Internet based companies may displace advertising inventory that could otherwise be sold by the Corporation for cash. The operating activities of Discontinued Operations used cash of $169 million during the first six months of 1999 compared to $343 million during the same period in 1998. The cash flows during the first half 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, its Energy Systems and Government Operations businesses in March 1999 and its PAD and MAO businesses in May 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. Cash taxes arising from the liquidation of the Corporation's lease portfolio is expected to be funded by cash from continuing operations over the next 15 years. As a result of the Corporation's recent investments in Internet based companies cash taxes paid are expected to increase because CBS is contributing services in exchange for its ownership interests. The Corporation is required to recognize taxable income equal to the fair value of the shares received. The Corporation is, however, exploring alternatives to reduce its cash taxes by accelerating tax deductions. INVESTING ACTIVITIES Investing activities provided cash of $158 million and used cash of $1.1 billion during the first six months of 1999 and 1998, respectively. Investing cash inflows from business divestitures and other asset liquidations totaled $350 million and $330 million during the first six months 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 Business during March 1999 for approximately $220 million, subject to certain adjustments, and the sale of the PAD and MAO businesses in May 1999, for approximately $30 million, subject to certain adjustments. In addition, during the first six months 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 three radio stations and two transit advertising companies for $164 million a portion of which was funded by deposits held in acquisition trust. The Corporation's capital expenditures for Continuing Operations during the first six months of 1999 and 1998 totaled $55 million and $45 million, respectively. This increase is primarily attributed to recent acquisitions. Capital expenditures for the second half of 1999 are expected to increase from those of the first half of the year primarily because of the capital commitments associated with the launch of "The Early Show," CBS's new morning program. Additionally, during the second quarter of 1999 the Corporation entered into a satellite service arrangement that requires an advance payment of approximately $65 million, which will become payable in October 2000. With the sale of essentially all the remaining industrial businesses, future capital expenditures for Discontinued Operations will essentially be eliminated. -23- 24 FINANCING ACTIVITIES Cash used by financing activities during the first six months of 1999 totaled $583 million compared to cash provided by financing activities during the same period in 1998 of $1.3 billion. Total financing cash outflows during the first six months of 1999 primarily reflect the repurchase or redemption of certain outstanding debt for $480 million as well as the purchase of 6,692,900 shares of common stock for $273 million, of which $255 million was settled through June 30, 1999. During the first six months of 1998, 10,448,000 shares of common stock were purchased at a cost of $339 million. Funds utilized in connection with 1999 and 1998 debt repurchases and redemptions as well as the purchase of common stock were primarily derived from cash proceeds received from the December 1998 Infinity Broadcasting IPO, the Corporation's cash flow from operations and asset dispositions. 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, financing cash outflows during the first six months of 1998 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. On June 17, 1999, Infinity Broadcasting announced that its Board of Directors had authorized the repurchase of up to $500 million of its Class A common stock. As of June 30, 1999, 1,823,200 shares of Class A common stock were repurchased at a cost of $49 million, of which $34 million was settled as of June 30, 1999. Cash provided by financing activities during the first six months of 1999 and 1998 primarily reflects the issuance of the Corporation's stock in connection with certain employee compensation and benefit plans totaling $189 million and $231 million, respectively. The Corporation is considering various alternatives with respect to its Internet strategy, including pursuing a spin-off or creation of a tracking stock for its Internet interests. REVOLVING CREDIT FACILITY With the completion of Infinity Broadcasting's initial public offering in December 1998, all remaining revolving credit borrowings were repaid and no new borrowings were outstanding at June 30, 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 June 30, 1999 of which up to $1.0 billion is available to Infinity Broadcasting. The credit facility provides for short-term money market loans and revolver borrowings. Borrowing rates under the facility are determined at the time of each borrowing and are based generally on a floating rate index, the London Interbank Offer Rate, plus a margin based on the Corporation's senior unsecured debt rating and leverage. The cost of the facility includes commitment fees, which are based on the unutilized facility and vary with the Corporation's debt ratings. For financial reporting purposes, revolver borrowings are classified as long term. No facility borrowings were outstanding as of June 30, 1999. There are no compensating balance requirements under the facility. 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 June 30, 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 9 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 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 $1.1 billion at June 30, 1999. Of this amount, $839 million is classified as noncurrent. A separate asset of $220 million has been recorded for estimated amounts recoverable from third parties, of which $168 million is classified as noncurrent. See note 5 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. -24- 25 REGULATORY MATTERS Approval by the FCC of the Corporation's acquisitions of Old Infinity (formerly Infinity Media Broadcasting Corporation) in 1996, and American Radio in 1998 contained a number of temporary waivers of the FCC's rules respecting the common ownership in the same market of radio and television stations (the "radio/television cross-ownership" or "one-to-a-market" rule). These waivers were granted subject to the outcome of then pending rulemaking in which a review of the radio/television cross ownership rule had been proposed. The FCC recently issued its Report and Order with respect to the referenced rulemaking as well as to the rule prohibiting common ownership of television stations with certain overlapping signals (the "television duopoly rule"). The Orders would amend the radio/television cross-ownership rule allowing a single party to own in a market (a) up to two television stations (if permitted by the television duopoly rule) and up to six radio stations or (b) one television station and seven radio stations, in both instances under certain circumstances. With respect to the television duopoly rule, the Report and Order allows the common ownership of television stations in different markets regardless of signal overlap, and also permits ownership of two television stations in the same market, in both instances under certain circumstances. Under the Report and Order, the Corporation is to submit within sixty days a showing as to its compliance or non-compliance with the revised radio/television cross-ownership rule in those markets where it currently has temporary waivers. The Corporation anticipates being able to demonstrate compliance in all markets other than Los Angeles, Chicago, Baltimore and Dallas-Fort Worth, each of which has eight radio stations. As to those four markets the Report and Order will continue the temporary waiver until 2004, at which time the FCC will review its radio/television cross-ownership rule, and the Corporation will have an opportunity to demonstrate that its continued ownership of an eighth radio station in these markets would serve the public interest. In April 1997, the FCC adopted a schedule under which broadcasters must build digital television transmission facilities and begin digital transmission. The FCC has not expressly stated what the consequences would be if a licensee fails to meet the adopted schedule. However, the FCC has indicated that it will grant an extension of the applicable deadline where a broadcaster has been unable to complete construction due to circumstances that are either unforeseeable or beyond its control. Under the FCC's policy, two six-month extensions may be granted by the FCC staff pursuant to delegated authority, but subsequent extension requests must be referred to the full Commission. Under the FCC's schedule, the Corporation was required to build digital facilities by May 1, 1999 for the stations it owns in seven of the ten largest television markets. The Corporation began transmitting digital broadcasts on or prior to this date in New York, San Francisco, Philadelphia, and Los Angeles and has since begun transmitting a digital signal in Detroit. The Corporation has pending applications for a first extension of its digital construction permits in Chicago and Boston. Construction is required by November 1, 1999 for five of the Corporation's owned television stations in the 11th through 30th largest television markets, unless an extension is granted. The Corporation's two owned television stations in markets below the largest 30 must construct digital facilities by May 1, 2002. 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 both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, 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. These forward-looking statements are not based on 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 timing, impact, and other uncertainties related to future acquisitions by the Corporation; 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 forward-looking statements included in this document are made only as of the date of this document and the Corporation does not have any obligation under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, to publicly update any forward-looking statements to reflect subsequent events or circumstances. -25- 26 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) 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 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 to resolve all claims in the derivative and class actions. The class and derivative matters were settled for a total amount of approximately $67 million, funded in large part by the Corporation's liability insurers. Both the class and the derivative action settlements have been the subject of notice to the appropriate parties and are subject to fairness hearings, and approval by the Court of the settlements. The fairness hearings are scheduled for October 18, 1999. (b) On August 19, 1998, a former subsidiary of the Corporation known as Westinghouse International Services Corporation ("Westinghouse International") and others commenced an arbitration proceeding (the "Arbitration") against WAK Orient Power & Light Limited ("WAK"), a Pakistan corporation, in the International Court of Arbitration of the International Chamber of Commerce (the "ICC"). The Arbitration arose out of alleged WAK breaches of an engineering, procurement and construction contract (the "EPC Contract"), dated March 31, 1996 and matters connected with the related project. WAK has denied these claims and has filed counterclaims in the Arbitration. An evidentiary hearing on the merits of this dispute in arbitration is scheduled to begin on December 6, 1999. On September 7, 1998, in contravention of its Arbitration obligations, WAK commenced an action in a court in Lahore, Pakistan (the "Lahore Court") reasserting its counterclaims from the Arbitration and now naming the Corporation, Westinghouse Power Generation ("Westinghouse Power") and Westinghouse International, and seeking 60 billion Pakistan rupees (approximately $1.3 billion). On May 7, 1999, without previously ruling on the Corporation's and other defendants' jurisdictional motions, the Lahore Court entered a default decree in the amount of 60 billion Pakistan rupees (approximately $1.3 billion) against Westinghouse Power and Westinghouse International and certain other defendants. The judgment entered in the Lahore Court does not name the Corporation. The above two proceedings relate to the Corporation's sale of its Power Generation Business to Siemens Power Generation Corporation (the "Buyer"), which was completed on August 19, 1998. Pursuant to that sale and agreement, the Buyer assumed, and agreed to indemnify the Corporation with respect to liabilities relating to this dispute with WAK. Between May 26, 1999 and June 10, 1999, WAK purported to register the judgment from Pakistan in the United States and execute upon the same against the Corporation and others in the amount of approximately $1.5 billion. On June 14, 1999, the Corporation and Westinghouse International filed an action in the United States District Court for the Eastern District of Pennsylvania (the "Federal Court") seeking, among other things, a declaration that the parties' disputes are subject to arbitration under the authority of the ICC and enjoining WAK from registering, levying based upon, or otherwise attempting to execute and enforce in any manner any levy or any other execution -26- 27 action taken under the default judgment entered by the Lahore Court. On June 16, 1999, the Federal Court entered an order restraining WAK from registering or otherwise seeking to enforce any judgment based upon the judgment entered by the Lahore Court. Also, on June 17, 1999, the Lahore High Court, where the judgment is on appeal, entered an order suspending the operation and enforcement of the judgment entered by the Lahore Court pending a hearing. On July 20, 1999, the Federal Court issued an order stating that its June 16, 1999 Order "remains in full force and effect until a further Order of this court." Management believes that the Buyer has assumed any all liabilities of the Corporation with respect to this matter and, that the Arbitration should take precedence over the Lahore Court action. 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 adequately provided for resolution of these matters described above. Management believes that the litigation should not have a material adverse effect on the financial condition of the Corporation. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS (a) The annual meeting of shareholders of the Corporation was held on May 4, 1999. (b) The following matters were submitted to a vote of the shareholders at the annual meeting with the following results: (i) In connection with the election of ten directors, the following votes were cast for or withheld from the following candidates:
FOR WITHHELD --- -------- George Conrades 586,225,602 3,191,683 Martin C. Dickinson 586,233,070 3,184,215 William H. Gray III 585,585,757 3,831,528 Mel Karmazin 586,038,219 3,379,066 Jan Leschly 586,231,680 3,185,605 David T. McLaughlin 586,013,873 3,403,412 Richard R. Pivirotto 585,621,733 3,795,552 Raymond W. Smith 586,221,424 3,195,861 Paula Stern 585,964,612 3,452,673 Robert D. Walter 586,184,186 3,233,099
(ii) A management proposal regarding the election of KPMG LLP as independent auditors: 596,117,751 shares of common stock were voted for; 1,339,993 shares were voted against; and 1,959,541 shares abstained in connection with the adoption of this proposal. (iii) A shareholder proposal concerning the proposed expansion of executive compensation disclosure requirements: 57,597,238 shares of common stock were voted for; 426,691,785 shares were voted against; 5,603,575 shares abstained; and there were 99,524,687 broker non-votes in connection with this proposal. -27- 28 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 May 4, 1999. (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. (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. -28- 29 (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. (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. -29- 30 (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. (cc) Agreement and Plan of Merger, dated as of May 27, 1999, among Infinity Broadcasting Corporation, Burma Acquisition Corp. and Outdoor Systems, Inc., is incorporated herein by reference to Exhibit 99.1 to the report on Form 8-K of Outdoor Systems, Inc., filed with the Securities and Exchange Commission on June 3, 1999. (dd) Amendment No. 1, dated as of June 16, 1999, to the Agreement and Plan of Merger, dated as of May 27, 1999, among Infinity Broadcasting Corporation, Burma Acquisition Corp. and Outdoor Systems, Inc., is incorporated herein by reference to Exhibit 99.2 to Infinity Broadcasting Corporation's report on Form 8-K, filed with the Securities and Exchange Commission on June 25, 1999. (ee) Stockholders Agreement, dated as of May 27, 1999, among Infinity Broadcasting Corporation, William S. Levine, Arturo R. Moreno, Carole D. Moreno, Levine Investments Limited Partnership and BRN Properties Limited Partnership, is incorporated herein by reference to Exhibit 99.2 to the report on Form 8-K of Outdoor Systems, Inc., filed with the Securities and Exchange Commission on June 3, 1999. (ff) Voting Agreement, dated as of May 27, 1999, between CBS Broadcasting Inc. and Outdoor Systems, Inc., is incorporated herein by reference to Exhibit 99.3 to the report on Form 8-K of Outdoor Systems, Inc., filed with the Securities and Exchange Commission on June 3, 1999. (27) FINANCIAL DATA SCHEDULE -------- * Identifies management contract or compensatory plan or arrangement. -30- 31 B) REPORTS ON FORM 8-K A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and Exchange Commission on April 1, 1999, filing a press release announcing that the Corporation had entered into a definitive merger agreement with King World Productions, Inc. A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and Exchange Commission on April 13, 1999, filing two press releases: the first, to announce that the Corporation had entered into a definitive agreement to acquire KTVT-TV in Dallas-Ft. Worth, Texas from Gaylord Entertainment Company; the second, to announce that the Corporation had signed letters of intent to invest in two Internet companies. A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and Exchange Commission on April 30, 1999, filing a press release concerning the Corporation's earnings for the first quarter of 1999 and financial information for the three months ended March 31, 1999. A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and Exchange Commission on June 4, 1999, filing a press release announcing that Infinity Broadcasting Corporation, a majority-owned subsidiary of the Corporation, had entered into a definitive merger agreement with Outdoor Systems, Inc. A Current Report on Form 8-K (Items 5 and 7), filed with the Securities and Exchange Commission on June 28, 1999, announcing that Infinity Broadcasting Corporation, a majority-owned subsidiary of the Corporation, had entered into an amendment to the definitive merger agreement with Outdoor Systems, Inc. -31- 32 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 16th day of August 1999. CBS CORPORATION By: /s/ ROBERT G. FREEDLINE ---------------------------------- Robert G. Freedline Vice President and Controller -32- EX-3.B 2 BY-LAWS OF THE CORPORATION AS AMENDED MAY 4, 1999 1 EXHIBIT 3(b) BY-LAWS OF CBS CORPORATION ------- AS AMENDED TO MAY 4, 1999 ------- 2
TABLE OF CONTENTS ----------------- Page ---- Article I Meetings of Shareholders......................................................1 Article II Board of Directors - Committees - Their Powers and Duties.....................8 Article III Contributions................................................................11 Article IV Election and Term of Chairman of the Board and Officers......................11 Article V Meetings of Directors........................................................12 Article VI Chairman of the Board........................................................15 Article VII President; Chief Executive Officer...........................................15 Article VIII Secretary....................................................................16 Article IX Treasurer....................................................................16 Article X Assistant Secretary, Assistant Treasurer and Other Officers..................17 Article XI Corporate Seal...............................................................18 Article XII Certificates of Stock........................................................18 Article XIII Transfers of Stock...........................................................18 Article XIV Rights.......................................................................19 Article XV Fiscal Year..................................................................20 Article XVI Certain Issues of Stock.....................................................20 Article XVII Indemnification..............................................................21 Article XVIII Director Liability...........................................................28 Article XIX Pennsylvania Opt Out.........................................................29 Article XX Amendments...................................................................29 Article XXI Confidentiality in Voting....................................................30
3 BY-LAWS OF CBS CORPORATION ------- ARTICLE I MEETINGS OF SHAREHOLDERS The annual meeting of the shareholders of the Company shall be held on such date and at such hour as the Board of Directors may designate and on any subsequent day or days to which such meeting may be adjourned, for the purpose of electing directors and for the transaction of such other business as may lawfully come before the meeting. If for any reason the annual meeting shall not have been held on the day designated by the Board or on the day specified above, the Board of Directors shall cause the annual meeting to be called and held as soon thereafter as may be convenient. At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. Subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Company as to dividends or upon liquidation to elect additional directors under specified circumstances and to the other provisions of this Article I, nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Special meetings of the shareholders of the Company may be called at any time, for the purpose or purposes set forth in the call, by the Board of Directors or by the Chairman, to be held on such date as the Board or the Chairman determines. Only such -1- 4 matter or matters as are specified in the Company's notice of meeting, or any supplement thereto, delivered at the direction of the Board of Directors or the Chairman, and matters which are incidental or germane thereto, shall be acted upon at a special meeting of shareholders. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS. (i) Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Company as to dividends or upon liquidation to elect additional directors under specified circumstances, nominations of persons for election to the Board of Directors may be made at an annual meeting of shareholders or at a special meeting of shareholders at which directors are to be elected pursuant to the Company's notice of meeting and the proposal of other business to be considered by the shareholders may be made at an annual meeting of shareholders or, where proposed by the Board or the Chairman in the Company's notice of meeting, at a special meeting, (a) pursuant to the Company's notice of meeting, or any supplement thereto, delivered by or at the direction of the Board of Directors, (b) otherwise by or at the direction of the Board of Directors or (c) in the case of election of directors at an annual meeting or at a special meeting pursuant to the Company's notice of meeting and in the case of other business only at an annual meeting, by any shareholder of the Company who is entitled to vote for the election of directors or with respect to such other business, as the case may be, at the meeting, who complies with the procedures set forth in clauses (ii) and (iii) of this Notice Section, and who is a shareholder of record at the time the notice required by such procedures is delivered to the Secretary of the Company and at the time of the meeting. (ii) For nominations for the election of directors to be properly brought by a shareholder before an annual meeting or a special meeting at which directors are to be -2- 5 elected pursuant to the Company's notice of meeting or for other business to be properly brought by a shareholder before an annual meeting, in either case pursuant to (i)(c) of this Notice Section, the shareholder must have given timely notice thereof in writing to the Secretary of the Company and the shareholder must be entitled by Pennsylvania law to present such business at the meeting. To be timely, a shareholder's notice must be delivered to the Secretary at the principal executive offices of the Company: (a) in the case of an annual meeting, for receipt not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year's annual meeting; provided, however, in the event that the date of the annual meeting is advanced by more than 30 days, or delayed by more than 90 days, from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made; and (b) with respect to the nomination of a person or persons (as the case may be) for election to such position(s) as are specified in the Company's notice of meeting in the case of a special meeting, for receipt no more than 120 days prior to the date of such special meeting and no later than the 90th day prior to the date of such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event will the public announcement of an adjournment or postponement of an annual or special meeting commence a new time period for the giving of a shareholder's notice as described in this Notice Section. Such shareholder's notice shall set forth (1) as to each person whom the shareholder proposes to nominate for election or reelection as a director, a description of all arrangements or understandings -3- 6 between the shareholder and each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder, and all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest or is otherwise required in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (or any successor to such rules or regulations), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (2) as to any other business that the shareholder proposes to bring before an annual meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made, and, in the event that such business includes a proposal to amend the By-laws of the Company, the language of the proposed amendment; and (3) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Company's books, and of such beneficial owner, (ii) the class and number of shares of the Company which are owned beneficially and of record by such shareholder and such beneficial owner, and (iii) a representation that the shareholder is and intends to remain a shareholder of record of stock of the Company entitled to vote at the meeting and intends to appear in person at the meeting to make the nomination(s) or propose such business. (iii) Notwithstanding anything in (ii)(a) of this Notice Section to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased -4- 7 and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Company at least 100 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Notice Section shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary at the principal executive offices of the Company for receipt not later than the close of business on the 10th calendar day following the day on which such public announcement is first made by the Company. (iv) For purposes of this Notice Section, "public announcement" means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news serviced or in a document publicly filed by the Company with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Company as to dividends or upon liquidation to elect additional directors under specified circumstances, only persons who are nominated in accordance with the procedures set forth in the above Notice Section will be eligible to be elected as directors at a meeting of shareholders and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article I. Except as otherwise provided by law, the Restated Articles of Incorporation of the Company or these By-laws, the Chairman (or the chairman of any shareholder meeting) will have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article I and, if any proposed -5- 8 nomination or business is not in compliance with this Article I, to declare that such defective proposal or nomination will be disregarded. Notwithstanding the foregoing provisions of this Article I, a shareholder must also comply with all applicable requirements of Pennsylvania law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in the foregoing provisions. Nothing in this Article I will be deemed to affect any rights of shareholders to request inclusion of proposals in the Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act, or any successor thereto. Every meeting of the shareholders, annual or special, shall be held at such place within or without the Commonwealth of Pennsylvania as the Board of Directors may designate or, in the absence of such designation, at the registered office of the Company in the Commonwealth of Pennsylvania. Written notice of every meeting of the shareholders shall be given by, or at the direction of, the person authorized to call the meeting, to each shareholder of record entitled to vote at the meeting, at the shareholder's address appearing on the books of the Company. The notice of every meeting of the shareholders shall specify the place, day and hour of the meeting and, in the case of a special meeting, the matter or matters to be acted upon at such meeting. Only the matter or matters specified in the notice of a special meeting shall be acted upon thereat. All notices of meetings of the shareholders shall be provided in accordance with Pennsylvania law. The notice of every meeting of the shareholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such person or persons as the Board of Directors may select. -6- 9 Except as otherwise provided by law or by the Restated Articles of the Company, as from time to time amended (hereinafter called the Articles of the Company), or by these By-laws, the presence in person or by proxy of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter shall constitute a quorum at the meeting of shareholders, and all questions shall be decided by a majority of the votes cast, in person or by proxy, at a duly organized meeting by the holders of shares entitled to vote thereon. The shareholders present at any duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Any meeting of the shareholders may be adjourned from time to time, without notice other than by announcement at the meeting at which such adjournment is taken, and at any such adjourned meeting at which a quorum shall be present any action may be taken that could have been taken at the meeting originally called; provided, that any meeting at which directors are to be elected shall be adjourned only from day to day, or for such longer periods, not exceeding fifteen days each, as the holders of a majority of the shares present in person or by proxy shall direct, until such directors have been elected. If a meeting cannot be organized because of lack of a quorum, those present may, except as otherwise provided by law, adjourn the meeting to such time and place as they may determine, but in the case of any meeting called for the election of directors those who attend the second of such adjourned meetings, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors. At each meeting, each shareholder entitled to vote may vote in person or by proxy executed in writing by the shareholder or by his or her duly authorized attorney-in-fact and filed with the Secretary of the Company. Except as otherwise provided by law or the -7- 10 Articles of the Company or these By-laws, each holder of record of shares of any class of the Company shall be entitled to one vote, on each matter submitted to a vote at a meeting of the shareholders, and in respect of which shares of such class shall be entitled to be voted, for every share of such class standing in his or her name on the books of the Company. ARTICLE II BOARD OF DIRECTORS - COMMITTEES - THEIR POWERS AND DUTIES The business, affairs and property of the Company shall be managed and controlled by a Board of Directors, which, except as otherwise provided by law or the Articles of the Company, shall exercise all the powers of the Company. The number, qualifications, manner of election, time and place of meeting, compensation and powers and duties of the directors of the Company shall be fixed from time to time by or pursuant to these By-laws. Nominees for election to the Board of Directors who qualify as Independent Directors on the date of their nomination shall be such that the majority of all directors holding office immediately after such nomination, assuming the election of such nominees, shall be Independent Directors. The number of directors which shall constitute the Board of Directors shall be fixed from time to time by a vote of a majority of the Board of Directors, provided, however, that the number of directors of the Company shall be not less than three nor more than twenty-four. The shareholders shall, at each annual meeting, elect directors, each of whom shall serve until the annual meeting of shareholders next following his or her election and until his successor is elected and shall qualify; provided, however, that -8- 11 directors with terms expiring at the annual meetings of shareholders to be held in 1994 and 1995 shall serve until the expiration of their respective terms. Each election of directors by the shareholders shall be conducted by one or three judges of election appointed by the Board of Directors in advance of the meeting to act at that meeting and at any adjournment thereof. If any or all of such appointees shall fail to appear or fail or refuse to act, the vacancy or vacancies shall be filled by the Board of Directors or the presiding officer of the meeting. No person who is a candidate for office to be filled at the meeting shall act as a judge. Except as the law may otherwise provide, the shareholders shall not remove any director from office without assigning any cause (as such term is defined in the Articles) prior to the expiration of the term of office unless holders of at least 80% of the shares of capital stock of the Company entitled to vote thereon, vote to remove the director from office. In case of any vacancy in the Board of Directors through death, resignation, disqualification, removal, increase in the number of directors or other cause, the remaining directors, though less than a quorum, by affirmative vote of a majority thereof or by a sole remaining director, may fill such vacancy to serve for the balance of the unexpired term and until his or her successor shall have been elected and qualified; provided, however, that any director elected to fill a vacancy for a director having a term expiring at the annual meeting of shareholders to be held in 1994 or 1995 shall serve only until the annual election of shareholders next following his or her election. There shall be a Compensation Committee, an Audit Review Committee, and a Nominating and Governance Committee. The Compensation Committee may determine to retain an independent compensation consultant to assist it in carrying out its duties. -9- 12 Each of these committees shall consist of not less than two members of the Board of Directors, at least two of whom, on the date of their appointment to the committee, are Independent Directors. All members of the Compensation Committee and the Nominating and Governance Committee must, on the date of their appointment to said committee, be Independent Directors. With respect to each such committee, the Board of Directors shall, by one or more resolutions adopted by a majority of the whole Board, determine the duties and responsibilities, determine the number of members, appoint the members and the committee chair and fill each vacancy occurring in the membership. The Board of Directors may from time to time appoint such further standing or special committees as it may deem in the best interest of the Company, but no such committee shall have any powers, except such as are expressly conferred upon it by the Board. Each committee referred to in this Article II shall act only as a committee and the individual members shall have no power as such. Each director shall be entitled to receive from the Company such annual and other fees and compensation as the Board of Directors shall from time to time determine and to be reimbursed for his reasonable expenses in connection with attendance at meetings. Nothing herein contained shall preclude any director from serving the Company or its subsidiaries in any other capacity and receiving compensation therefor. For purposes of this Article II, the term "Independent Director" shall mean a director who: (a) is not and has not been employed by the Company or a subsidiary in an executive capacity within the five years immediately prior to the annual meeting at which he or she will be voted upon; (b) is not an employee or five percent or more owner of an entity that is a regular advisor or consultant to the Company or its subsidiaries; (c) is not an employee or five percent or more owner of a significant customer or supplier of the -10- 13 Company or its subsidiaries; (d) does not have a personal services contract with the Company or its subsidiaries; (e) is not employed by a tax-exempt organization that receives significant contributions from the Company or its subsidiaries; and (f) is not a spouse, parent, sibling, child, parent-in-law, brother or sister-in-law or son or daughter-in-law of an officer of the Company. The Board of Directors shall have the exclusive right and power to interpret and apply the provisions of this Article II, including, without limitation, the adoption of written definitions of terms used in and guidelines for its application (any such definitions and guidelines shall be filed with the Secretary, and such definitions and guidelines as may prevail shall be made available to any shareholder upon written request). Any such definitions or guidelines and any other interpretation or application of the provisions of this Article II made in good faith shall be binding and conclusive. ARTICLE III CONTRIBUTIONS The Board of Directors shall have the power, at any time and from time to time, to make contributions and donations for the public welfare or for religious, charitable, scientific or educational purposes. ARTICLE IV ELECTION AND TERM OF CHAIRMAN OF THE BOARD AND OFFICERS The Board of Directors shall elect a Chairman of the Board, who may be designated an officer of the Company, a President or a Chief Executive Officer or both, such Vice Presidents as may from time to time be necessary or desirable, a Secretary and a -11- 14 Treasurer. There shall also be one or more assistant secretaries and treasurers and such other officers and assistant officers as the Board may deem appropriate. The Board of Directors shall elect all officers, except assistant officers. The term of office for all officers shall be until the organization meeting of the Board of Directors following the next annual meeting of shareholders and until their respective successors are elected or appointed and shall qualify, or until their earlier death, resignation or removal. The Chairman of the Board or any officer may be removed from office, either with or without cause, at any time by the affirmative vote of the majority of the members of the Board then in office. A vacancy in any office arising from any cause may be filled for the unexpired term by the Board. ARTICLE V MEETINGS OF DIRECTORS Regular meetings of the Board of Directors shall be held without notice at such place or places either within or without the Commonwealth of Pennsylvania, at such hour and on such day as may be fixed by resolution of the Board of Directors. The Board of Directors shall meet for organization at its first regular meeting after the annual meeting of shareholders or at a special meeting of the Board of Directors called after the annual meeting of shareholders and prior to said first regular meeting. If no special meeting of the Board of Directors for organization shall be called, all provisions of these By-laws in respect of notice of special meetings of the Board of Directors shall apply to the first regular meeting of the Board of Directors held after the annual meeting of shareholders. -12- 15 Special meetings of the Board of Directors shall be held, whenever called by the Chairman or by four directors or by resolution adopted by the Board of Directors, at such place or places either within or without the Commonwealth of Pennsylvania as may be stated in the notice of the meeting. Notice of the time and place of all special meetings of the Board of Directors, and notice of any change in the time or place of holding the regular meetings of the Board of Directors, shall be given to each director in person, by telephone, or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, or by any type of electronic communication to the address (or to the telephone, telex, TWX, fax or other number or address) supplied by the director to the Corporation for the purpose of notice at least one day before the day of the meeting; provided, however, that notice of any meeting need not be given to any director if waived by such director in writing, whether before or after the time stated therein, or if such director shall be present at the beginning of such meeting and does not object to the transaction of business because the meeting was not lawfully called or convened. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the director when deposited in the United States mail or with a telegraph office or courier service for delivery to the director or, in the case of telex, TWX, fax or other electronic communication, it shall be deemed to have been given to the director when dispatched. In the absence of any resolution of the Board of Directors or any committee governing rules of procedure to the contrary, notice of meetings of any committee referred to or provided for in these By-laws shall follow the same procedures as those set forth in these By-laws for meetings of the Board of Directors. -13- 16 Except as otherwise provided in these By-laws, a majority of the directors in office shall constitute a quorum of the Board competent to transact business; but a lesser number may adjourn from day to day until a quorum is present. Except as otherwise provided in these By-laws, all questions shall be decided by a vote of a majority of the directors present. All or any number less than all of the directors may participate in a meeting of the Board of Directors or of a committee of the Board of Directors by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Each committee referred to or provided for in these By-laws shall have authority, except as may otherwise be required by law or by resolution of the Board of Directors, to fix its own rules of procedure and to meet where and as provided by such rules. The presence at any meeting of any such committee of a majority of the members, including alternate members thereof, shall be necessary to constitute a quorum for the transaction of business and in every case the affirmative vote of a majority of such members present at any meeting shall be necessary for the adoption of any resolution of such committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof, including alternate members, present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. -14- 17 ARTICLE VI CHAIRMAN OF THE BOARD The Chairman of the Board shall preside at all meetings of the Board of Directors at which he or she is present and shall call meetings of the Board and Board committees when he or she deems them necessary. Unless otherwise precluded from doing so by these By-laws, the Chairman of the Board may be a member of the committees of the Board. He or she shall act as chairman at all meetings of the shareholders at which he or she is present unless he or she elects that the Chief Executive Officer shall so preside. The Chairman of the Board may be designated by the Board as an officer of the Company and may be elected by the Board as the Chief Executive Officer. The Chairman of the Board shall perform all duties as may be assigned to him or her by the Board of Directors. ARTICLE VII PRESIDENT; CHIEF EXECUTIVE OFFICER The President shall have such powers and duties as may, from time to time, be prescribed by the Board of Directors or the Chairman of the Board. Unless the Board of Directors shall otherwise direct, the President shall be the Chief Executive Officer of the Company. In the absence of the Chairman of the Board, the President or, if none, the Chief Executive Officer shall perform the duties and have the powers of the Chairman of the Board, as determined by the Board of Directors. The Chief Executive Officer shall have general charge of the affairs of the Company, subject to the control of the Board of Directors. He or she may appoint all officers and employees of the Company for whose election no other provision is made in these By-laws, and may discharge or remove any officer or employee, subject to action thereon -15- 18 by the Board of Directors as required by these By-laws. The Chief Executive Officer shall be the officer through whom the Board delegates authority to corporate management, and shall be responsible to see that all orders and resolutions of the Board are carried into effect by the proper officers or other persons. The Chief Executive Officer shall also perform all duties as may be assigned to him or her by the Board of Directors. ARTICLE VIII SECRETARY The Secretary shall attend meetings of the shareholders and the Board of Directors, shall keep minutes thereof in suitable books, and shall send out all notices of meetings as required by law or by these By-laws. He or she shall, in general, perform all duties incident to the office of the Secretary and perform such other duties as may be assigned to him or her by the Board, the Chairman of the Board or the President. ARTICLE IX TREASURER The Treasurer shall have custody of, and shall manage and invest, all moneys and securities of the Company, and shall have such powers and duties as generally pertain to the office of Treasurer. To the extent not invested, the Treasurer shall deposit all moneys in such banks or other places of deposit as the Board of Directors may from time to time designate or as may be designated by any officer or officers of the Company so authorized by resolution of the Board of Directors. Unless otherwise provided by the Board of Directors, all checks, drafts, notes and other orders for the payment of money from a disbursing account shall -16- 19 be signed by the Treasurer or such person or persons as may be designated by name by the Treasurer in writing. The Treasurer's signature and, if authorized by the Treasurer in writing, the signature of such person or persons as may be designated by the Treasurer as provided above, to a check, draft, note or other order for the payment of money from a disbursing account may be by facsimile or other means. Procedures for withdrawal of moneys from accounts other than disbursing accounts shall be established from time to time by the Treasurer. The Treasurer shall have such other powers and perform such other duties as may be assigned by the Board of Directors. The Chief Financial Officer of the Company shall have all of the powers granted to the Treasurer under these By-laws, including the power to sign any check, draft, note or other order for the payment of money from a disbursing account, including by facsimile signature or other means. ARTICLE X ASSISTANT SECRETARY, ASSISTANT TREASURER AND OTHER OFFICERS In the event of the absence or inability to serve of the Secretary, an assistant secretary shall perform all the duties of the Secretary; and in the event of the absence or inability to serve of the Treasurer, an assistant treasurer shall perform all the duties of the Treasurer. The powers and duties of other officers of the Company shall be such as may, from time to time, be prescribed by the Board of Directors, the Chairman of the Board, the President or the Chief Executive Officer. In case of the absence of any officer of the Company, or for any other reason that the Board of Directors may deem sufficient, the Board, or in the absence of action by the Board, the Chief Executive Officer, or in his or her -17- 20 absence, the President, or in his or her absence, the Chairman of the Board, may delegate for the time being the powers and duties of any officer to any other officer or to any director. ARTICLE XI CORPORATE SEAL The Company shall have a corporate seal, which shall contain within a circle the name of the Company, together with the following: "Incorporated 1872". ARTICLE XII CERTIFICATES OF STOCK The shares of stock of the Company shall be represented by certificates of stock, signed by the President or one of the Vice Presidents or other officer designated by the Board of Directors, countersigned by the Treasurer or an assistant treasurer and sealed with the corporate seal of the Company; and if such certificates of stock are signed or countersigned by a corporate transfer agent or a corporate registrar of this Company, such signature of the President, Vice President or other officer, such counter-signature of the Treasurer or assistant treasurer, and such seal, or any of them, may be executed in facsimile, engraved or printed. ARTICLE XIII TRANSFERS OF STOCK Transfers of shares of stock of the Company shall be made on the books of the Company by the holder of record thereof or his or her legal representative, acting by his or her attorney-in-fact duly authorized by written power of attorney filed with the Secretary of -18- 21 the Company, or with one of its transfer agents, and on surrender for cancellation of the certificate or certificates for such shares. Except as otherwise provided in these By-laws, the person in whose name shares of stock stand on the books of the Company shall be deemed the owner thereof for all purposes as regards the Company. The Company may have one or more transfer offices or agencies and/or registrars for the transfer and/or registration of shares of stock of the Company. The Board of Directors may fix in advance a time, which shall not be more than ninety days prior to the date of any meeting of shareholders, or the date for the payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change or conversion or exchange of shares will be made or go into effect, as a record date, for the determination of the shareholders entitled to notice of, or to vote at, any such meeting, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of shares; and in such case only shareholders of record at the time so fixed as a record date shall be entitled to notice of, or to vote at, such meeting or to vote at any adjournment thereof, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of stock on the books of the Company after any such record date fixed as aforesaid. ARTICLE XIV RIGHTS Those rights having the terms provided under the Rights Agreement between CBS Corporation and First Chicago Trust Company of New York (the "Rights Agent") dated as -19- 22 of December 28, 1995, as it may be amended from time to time (the "Rights" and the Rights Agreement") and issued to or Beneficially Owned by Acquiring Persons or their Affiliates or Associates (as such terms are defined in the Rights Agreement) shall, under certain circumstances as provided in the Rights Agreement, be null and void and may not be transferred to any person. ARTICLE XV FISCAL YEAR The fiscal year of the Company shall be the calendar year. ARTICLE XVI CERTAIN ISSUES OF STOCK The Company may from time to time issue shares of its stock and may create and issue (whether or not in connection with the issuance of any of its shares or other securities) option rights or securities having conversion or option rights entitling the holders thereof to purchase or acquire shares, option rights, securities having conversion or option rights, or obligations, of any class or series, or assets of the Company, or to purchase or acquire from the Company shares, option rights, securities having conversion or option rights, or obligations, of any class or series owned by the Company and issued by any other person. Such shares, rights or securities may be issued to directors, officers (including assistant officers) or employees of the Company or any of its subsidiaries or to such other persons as the Company may determine appropriate. -20- 23 ARTICLE XVII INDEMNIFICATION A. INDEMNIFICATION PROVISIONS APPLICABLE TO PROCEEDINGS NOT COVERED BY SECTION B OF THIS ARTICLE. Every person who is or was a director, officer or employee of the Company, or of any other corporation which he or she serves or served as such at the request of the Company, shall, in accordance with this Article XVII but not if prohibited by law, be indemnified by the Company as hereinafter provided against reasonable expense and any liability paid or incurred by him or her in connection with or resulting from any threatened or actual claim, action, suit or proceeding (whether brought by or in the right of the Company or such other corporation or otherwise), civil, criminal administrative or investigative, in which he or she may be involved, as a party or otherwise, by reason of his or her being or having been a director, officer or employee of the Company or such other corporation, whether or not he or she continues to be such at the time such expense or liability shall have been paid or incurred. As used in this Article XVII, the term "expense" shall mean counsel fees and disbursements and all other expenses (except any liability) relating to any such claim, action, suit or proceeding, and the term "liability" shall mean amounts of judgments, fines or penalties against, and amounts paid in settlement by, a director, officer or employee with respect to any such claim, action, suit or proceeding. Any person referred to in the first paragraph of this Article XVII who has been wholly successful, on the merits or otherwise, with respect to any claim, action, suit or proceeding of the character described in such first paragraph shall be reimbursed by the Company for his or her reasonable expense. -21- 24 Any other person claiming indemnification under the first paragraph of this Article XVII shall be reimbursed by the Company for his or her reasonable expense and for any liability (other than any amount paid to the Company) if a Referee shall deliver to the Company his or her written finding that such person acted, in good faith, in what he or she reasonably believed to be the best interests of the Company, and in addition with respect to any criminal action or proceeding, reasonably believed that his or her conduct was lawful. The termination of any claim, action, suit or proceeding by judgment, settlement (whether with or without court approval), adverse decision or conviction after trial or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the foregoing standards of conduct. The person claiming indemnification shall at the request of the Referee appear before him or her and answer questions which the Referee deems relevant and shall be given ample opportunity to present to the Referee evidence upon which he or she relies for indemnification; and the Company shall, at the request of the Referee, make available to the Referee facts, opinions or other evidence in any way relevant for his or her finding which are within the possession or control of the Company. As used in this Article XVII, the term "Referee" shall mean independent legal counsel (who may be regular counsel of the Company), or other disinterested person or persons, selected to act as such hereunder by the Board of Directors of the Company, whether or not a disinterested quorum exists. Any expense incurred with respect to any claim, action, suit or proceeding of the character described in the first paragraph of this Article XVII may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking made by or -22- 25 on behalf of the recipient to repay such amount if it is ultimately determined that he or she is not indemnified under this Article XVII. The rights of indemnification provided in this Article XVII shall be in addition to any rights to which any such director, officer or employee may otherwise be entitled by contract or as a matter of law and, in the event of such person's death, such rights shall extend to his or her heirs and legal representatives. B. INDEMNIFICATION PROVISIONS APPLICABLE TO PROCEEDINGS BASED ON ACTS OR OMISSIONS ON OR AFTER JANUARY 27, 1987. SECTION 1. Right to Indemnification and Effect of Amendments. (a) Right to Indemnification. The Company, unless prohibited by applicable law, shall indemnify any person who is or was a director or officer of the Company and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding) (whether or not the indemnified liability arises or arose from any threatened, pending or completed Proceeding by or in the right of the Company) by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (a Covered Entity) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding; provided, however, that except as provided in Section 4(c) of this Article, the foregoing shall not apply to a director or officer of the Company with respect to a Proceeding that was commenced by such director or officer. -23- 26 Any director or officer of the Company entitled to indemnification as provided in this Section 1, is hereinafter called an "Indemnitee." Any right of an Indemnitee to indemnification shall be a contract right and shall include the right to receive, prior to the conclusion of any Proceeding, payment of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect and the other provisions of this Article. (b) Effect of Amendments. Neither the alteration, amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article (including, without limitation, this Section 1(b)) shall adversely affect the rights of any director or officer under this Article with respect to any Proceeding commenced or threatened, or any alleged act or omission, prior to such alteration, amendment, repeal or adoption of an inconsistent provision, without the written consent of such director or officer. SECTION 2. Insurance; Contracts and Funding. The Company may purchase and maintain insurance to protect itself and any indemnified person against any expenses, judgments, fines and amounts paid in settlement as specified in Section 1 or Section 5 of this Article or incurred by any indemnified person in connection with any Proceeding referred to in such Sections, to the fullest extent permitted by applicable law as then in effect. The Company may enter into contracts with any director, officer, employee or agent of the Company or of any Covered Entity in furtherance of the provisions of this Article and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to insure the payment of such amounts as may be necessary to effect indemnification as provided in this Article. SECTION 3. Indemnification and Not Exclusive Right. The right of indemnification provided in this Article shall not be exclusive of any other rights to which any indemnified -24- 27 person may otherwise be entitled, and the provisions of this Article shall inure to the benefit of the heirs and legal representatives of any indemnified person under this Article and shall be applicable to Proceedings arising from acts or omissions occurring on or after January 27, 1987. SECTION 4. Advancement of Expenses; Request for Indemnification; Remedies; Presumptions and Defenses. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article: (a) Advancement of Expenses. All reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding (including any Proceeding commenced by the Indemnitee under Section 4(c) but excluding any other Proceeding commenced by the Indemnitee) shall be advanced to the Indemnitee by the Company within 20 days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article. (b) Request for Indemnification. To obtain indemnification under this Article, an Indemnitee shall submit to the Secretary of the Company a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the Supporting Documentation). -25- 28 (c) Remedies; Presumptions and Defenses. If (i) expenses are not advanced in full within 20 days after receipt by the Company of the statement or statements and the undertaking (if an undertaking is required by law, By-law, agreement or otherwise at the time of such advance) required by Section 4(a) of this Article, or (ii) indemnification is not paid in full within 60 days after receipt by the Company of the written request for indemnification and Supporting Documentation required by Section 4(b) of this Article, then the person claiming advancement of expenses or indemnification shall be entitled to seek judicial enforcement of the Company's obligation to pay such advancement of expenses or indemnification. It shall be a defense to any Proceeding seeking judicial enforcement of the Company's obligation to pay indemnification that the conduct of the person claiming indemnification was such that under Pennsylvania law the Company is prohibited from indemnifying such person for the amount claimed. The Company shall have the burden of proving such defense. Neither the failure of the Company (including its Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such Proceeding that indemnification is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that such indemnification is prohibited by law, shall be a defense to a Proceeding seeking enforcement of the provisions of this Article or create a presumption that such indemnification is prohibited by law. The only defense to any such Proceeding to receive payment of expenses in advance shall be failure to make an undertaking to reimburse, if such an undertaking is required by law, By-law, agreement or otherwise. Notwithstanding the foregoing, the Company may bring an action, in an appropriate court in the Commonwealth of Pennsylvania or any other court of competent jurisdiction, contesting -26- 29 the right of a person claiming advancement of expenses or indemnification to receive such advancement or indemnification hereunder because such advancement or indemnification is prohibited by law; provided, however, that in any such action the Company shall have the burden of proving that such advancement or indemnification is prohibited by law. The Company shall be precluded from asserting in any action or Proceeding commenced pursuant to this Section 4(c) that the procedure and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Article. If the person claiming advancement of expenses or indemnification, pursuant to this Section 4(c), seeks to enforce his or her rights under, or to recover damages for breach of this Article, that person shall be entitled to recover from the Company, and shall be indemnified by the Company against, any expenses actually and reasonably incurred by such person if such person prevails in such Proceeding. If it shall be determined in such Proceeding that such person is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by such person in connection with such Proceeding shall be prorated accordingly. SECTION 5. Indemnification of Employees and Agents. Notwithstanding any other provision or provisions of this Article, the Company, unless prohibited by applicable law, may indemnify any person other than a director or officer of the Company who is or was an employee or agent of the Company and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of a Covered Entity against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement -27- 30 actually and reasonably incurred by such person in connection with such Proceeding. The Company may also advance expenses incurred by such employee or agent in connection with any such Proceeding, consistent with the provisions of applicable law as then in effect. SECTION 6. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including, without limitation, all portions of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, all portions of any Section of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. ARTICLE XVIII DIRECTOR LIABILITY To the fullest extent that the law of the Commonwealth of Pennsylvania, as it exists on January 27, 1987, or as it may thereafter be amended, permits the elimination of the liability of directors, no director of the Company shall be liable for monetary damages for any action taken, or any failure to take any action. This Article shall not apply to any breach of performance of duty or any failure of performance of duty by any director occurring prior to January 27, 1987. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the Company for or -28- 31 with respect to any act or failure to act on the part of such director occurring prior to such amendment or repeal. ARTICLE XIX PENNSYLVANIA OPT OUT A. "Subsections (e) through (g) of Section 1721, "Board of Directors," of Title 15 of the Pennsylvania Consolidated Statutes, or any successor subsections thereto, shall not be applicable to the Company. B. Subchapter G, "Control-Share Acquisitions," of Chapter 25, Title 15 of the Pennsylvania Consolidated Statutes, or any successor subchapter thereto, shall not be applicable to the Company. C. Subchapter H, "Disgorgement By Certain Controlling Shareholders Following Attempts to Acquire Control," of Chapter 25, Title 15 of the Pennsylvania Consolidated Statutes, or any successor subchapter thereto, shall not be applicable to the Company." ARTICLE XX AMENDMENTS The By-laws of the Company, regardless of whether adopted by the shareholders or by the Board of Directors, may be altered, amended or repealed by the Board of Directors, to the extent permitted by applicable law, or, subject to Article I hereof, by the shareholders. Such action at a meeting of the Board of Directors shall be taken by the affirmative vote of a majority of the members of the Board of Directors in office at the time; -29- 32 and such action by the shareholders shall be taken by the affirmative vote of the holders of 80% of the shares of capital stock of the Company entitled to vote thereon. These By-laws are subject to any requirements of law, any provisions of the Articles of the Company, as from time to time amended, and any terms of any series of preferred stock or any other securities of the Company. ARTICLE XXI CONFIDENTIALITY IN VOTING Shareholders shall be provided permanent confidentiality in all voting, except as necessary to meet applicable legal requirements. The Company shall engage the services of an independent third party to receive, inspect, count and tabulate proxies. A representative of the independent third party shall also act as a judge of election at the annual meeting of shareholders. -30- EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 742 0 1,186 59 0 2,851 1,639 507 20,358 1,708 2,190 0 0 743 8,952 20,358 3,446 3,446 2,051 2,051 983 0 97 309 176 103 384 (5) 0 482 0.69 0.68
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