<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549-1004


                                  FORM 10-K/A

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
    OF 1934

    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       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
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             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                              <C>
                  PENNSYLVANIA                                      25-0877540
------------------------------------------------ ------------------------------------------------
            (State of Incorporation)                   (I.R.S. Employer Identification No.)

              51 WEST 52ND STREET
            NEW YORK, NEW YORK 10019                              (212) 975-4321
------------------------------------------------ ------------------------------------------------
    (Address of Principal Executive Offices)                     (Telephone No.)
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
             TITLE OF EACH CLASS                               NAME OF EACH EXCHANGE ON WHICH REGISTERED
---------------------------------------------         ------------------------------------------------------------
<S>                                                   <C>                          <C>
Common Stock, par value $1.00 per Share               New York Stock Exchange      Boston Stock Exchange
                                                      Pacific Stock Exchange       Philadelphia Stock Exchange
                                                      Chicago Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None

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

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  X

CBS Corporation had 707,422,490 shares of common stock outstanding at January
31, 1999. As of that date, the aggregate market value of common stock held by
non-affiliates was $23.0 billion.

DOCUMENT INCORPORATED BY REFERENCE INTO THE PARTS OF THIS REPORT INDICATED:

1. Portions of CBS Corporation's Notice of 1999 Annual Meeting and Proxy
   Statement to be filed with the Commission pursuant to Regulation 14A of the
   Securities Exchange Act of 1934 (the Proxy Statement). (Parts I and III)
--------------------------------------------------------------------------------
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<PAGE>   2


The Corporation hereby amends the following items of its Annual Report on Form
10-K for the year ended December 31, 1998 (the Original Filing). Each of the
below referenced Items in Part I and II and the Exhibit referenced in Part IV,
Item 14 are hereby amended by deleting the Items or Exhibits in their entirety
and replacing them with the Items or Exhibits set forth herein. Any Items or
Exhibits in the Original Filing not expressly changed hereby shall be as set
forth in the Original Filing.



PART I



ITEM 1. BUSINESS.



PART II



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



PART IV



ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K



Exhibit 23(a)  Consent of Independent Auditors


The terms "CBS" and "Corporation" as used in this Report on Form 10-K refer to
CBS Corporation and its consolidated subsidiaries unless the context indicates
otherwise.

PART I

ITEM 1. BUSINESS.

GENERAL


CBS Corporation (formerly Westinghouse Electric Corporation) is one of the
largest radio and television broadcasters in the United States. The Corporation
operates its businesses primarily in the United States through its Radio and
Outdoor Advertising (Radio or out-of-home media), its Television and its Cable
business segments. The Radio segment consists of 160 AM and FM radio stations
operated under licenses from the Federal Communications Commission (FCC) and the
Corporation's outdoor advertising business. The Television segment consists of
the Corporation's 14 owned and operated television stations and the television
network. The Cable segment consists of the Corporation's cable networks,
including The Nashville Network (TNN), Country Music Television (CMT), two
regional sports networks, and an equity interest in a Spanish language cable
news network.



During recent years, the Corporation dramatically redefined its business
portfolio. The Corporation acquired CBS Inc. in November 1995; Infinity Media
Broadcasting Corporation, formerly known as Infinity Broadcasting Corporation
(Old Infinity), in December 1996; Gaylord Entertainment Company's two major
cable networks, TNN and CMT, in September 1997; and the radio broadcasting
operations of American Radio Systems Corporation (American Radio) in June 1998.


In August 1998, the Corporation announced that it would form a new company to be
named Infinity Broadcasting Corporation (Infinity) comprising the Radio segment
of the Corporation and that Infinity would issue up to 20 percent of the new
company's common stock in an initial public offering. In December 1998, the
offering was completed and, after giving effect to the offering, the Corporation
beneficially owned approximately 81.8 percent of Infinity's equity, which
represents 95.8 percent of its combined voting power.

In 1995 and 1996, the Corporation identified a number of industrial businesses
to be divested. In 1997, the Corporation decided to divest all of its remaining
industrial businesses. The Energy Systems and Government Operations businesses
represent the majority of the Corporation's industrial businesses remaining at
December 31, 1998. In the second quarter of 1998, the Corporation announced
definitive agreements to sell these businesses. The transactions are expected to
close early in 1999. Upon completion of the sales, the remaining assets of
Discontinued Operations principally will comprise the Corporation's leasing
portfolio, which is expected to

 2        CBS CORPORATION
<PAGE>   3

liquidate in accordance with its contractual terms. The leasing portfolio
represents the assets remaining from the liquidation of the financial services
business, which began in 1992.

The Corporation was founded in 1886 and operates under a corporate charter
granted by the Commonwealth of Pennsylvania in 1872.

Financial results for 1998 and prior years include as Discontinued Operations
the Corporation's industrial businesses previously divested or expected to be
divested in early 1999 and the financial services business. For information
about principal acquisitions and divestitures, see notes 1, 3, and 10 to the
financial statements included in Part II, Item 8 of this report.

Financial and other information by segment is included in note 19 to the
financial statements included in Part II, Item 8 of this report.

BUSINESS SEGMENTS


RADIO




During 1998, the Corporation formed Infinity, a new company comprising the Radio
segment; and in December 1998, Infinity, through an initial public offering,
sold 18.2 percent of its equity. Also during 1998, the Radio segment continued
its strategy of pursuing acquisitions in the top 50 markets with the completion
of the American Radio acquisition in June.

Infinity owns and operates 160 AM and FM radio stations located in 34 markets.
Sixty-two of these radio stations are in the nation's ten largest radio markets.
Management believes that the presence of Infinity's radio stations in large
markets makes it attractive to advertisers and that the overall diversity of its
stations reduces its dependence on any single station, local economy, or
advertiser. These stations serve diverse target demographics through a broad
range of programming formats, such as rock, oldies, news/talk, adult
contemporary, sports/talk, and country, and include leading franchises in news,
sports, and personality programming. Infinity also has a minority equity
investment in Westwood One, Inc. (Westwood One), which it manages. Westwood One
is a leader in producing and distributing syndicated and network radio
programming and also manages the CBS Radio Network.

In order to take advantage of the growing opportunity in the new media market,
the vast majority of the radio stations operate web sites. These web sites focus
on the local markets, promoting the stations' talent, and programming, and
providing news, information, entertainment, as well as other services to the
stations' listeners.

Infinity also participates in the outdoor advertising business through its
wholly owned subsidiary, TDI Worldwide, Inc. (TDI). TDI is based in New York
with 18 branch offices throughout the United States, United Kingdom, and the
Republic of Ireland. TDI is one of the largest outdoor advertising companies in
the United States, operating some 100 franchises. The majority of these
franchises are located in large metropolitan areas. TDI sells space on various
media, including buses, trains, train platforms and terminals throughout
commuter rail systems, and on painted billboards, thirty-sheet billboards, and
phone kiosks.

TELEVISION


The Television segment consists of the Corporation's owned and operated
television stations and the CBS television network.



The Corporation owns and operates 14 television stations located in seven of the
nation's ten largest markets and 11 of the nation's top 20 markets reaching
approximately 31 percent of all U.S. television households. The CBS owned
stations are: WCBS-TV New York, KCBS-TV Los Angeles, WBBM-TV Chicago, WCCO-TV
Minneapolis, WFRV-TV Green Bay, WWJ-TV Detroit, WJZ-TV Baltimore, WBZ-TV Boston,
KCNC-TV Denver, WFOR-TV Miami, KYW-TV Philadelphia, KDKA-TV Pittsburgh, KUTV-TV
Salt Lake City, and KPIX-TV San Francisco. The stations produce news and
broadcast public affairs and other programming to serve their local markets and
offer CBS network and other syndicated programming. Many of the Corporation's
television stations currently operate web sites which promote the station's
talent and programming and provide news, information, entertainment as well as
other services to the stations' viewers.


                                                       CBS CORPORATION         3
<PAGE>   4


The CBS television network distributes a comprehensive schedule of news and
public affairs broadcasts, entertainment and sports programming, and feature
films to the 14 owned and operated television stations, more than 200 domestic
affiliates and to certain overseas affiliated stations. These affiliates serve,
in the aggregate, all 50 states and the District of Columbia. The television
network is responsible for sales of advertising time for the television network
broadcasts.


The CBS television network operations are subdivided into five areas: CBS
Entertainment; CBS News; CBS Sports; CBS Enterprises; and CBS New Media. CBS
Entertainment produces and otherwise acquires and schedules entertainment series
and other programming (primetime comedy and drama series, motion pictures made
for television, mini-series, theatrical films, specials, and children's
programs) broadcast on the CBS television network.

CBS Enterprises is involved in the production, distribution, and marketing of
first-run and off-network programming to broadcast, cable, home video,
in-flight, and emerging media worldwide. EYEMARK Entertainment oversees domestic
syndication, while CBS Broadcast International is responsible for selling
programming internationally.


CBS New Media consists of the Corporation's internet businesses, primarily
CBS.com and Country.com. CBS.com, launched in February 1998, offers a broad
range of informational, entertainment, news, and promotional services. More than
150 of the television network affiliates currently participate in this web site.
Country.com features the latest in country/outdoor lifestyles, entertainment,
information and news and promotes the Cable segment's TNN and CMT programming.
Also part of CBS New Media are the Corporation's minority investments in
SportsLine USA, Inc. (which publishes several sports web sites, including
CBS.SportsLine.com) and MarketWatch.com, Inc. (which publishes the web site
CBS.MarketWatch.com).


CABLE


The Cable segment consists of the Corporation's cable networks, including TNN,
CMT, and two regional sports networks, and an equity interest in a Spanish
language cable news network. These networks are distributed by cable television
and other multichannel technologies.


TNN is an advertiser-supported cable network featuring country lifestyle and
entertainment programming. The network serves approximately 73 million U.S.
homes. TNN's programming includes country music performances, interviews with
country music artists and personalities, specials, variety shows, talk shows,
news, and sports. TNN's weekend programming focuses on outdoor sports, such as
hunting, fishing, and motor sports, some of which, including a portion of the
NASCAR Winston Cup Series, is broadcast live.

CMT is an advertiser-supported, 24-hour cable network with a country music video
format. It reaches approximately 41 million U.S. homes.

In addition, the Corporation owns and operates the Midwest Sports Channel, a
regional sports network in Minneapolis, and is a majority owner of Home Team
Sports, a regional sports network serving the mid-Atlantic states.

Also part of the cable operations, Group W Network Services (GWNS) is a global
provider of satellite services to broadcast, cable, and corporate networks.
Based in Stamford, Connecticut, GWNS handles approximately 7,000 hours of
television and video programming each week, providing transmission and other
technical services to U.S. broadcast networks and to many major cable networks.

COMPETITION

The broadcast environment is highly competitive. The Telecommunications Act of
1996 (the Act) provides both new opportunities and potential new competition for
the Corporation. By deregulating station ownership limits, the Act has allowed
the Corporation to pursue strategic growth in its businesses.

The Corporation's radio stations and outdoor advertising properties compete for
audiences and advertising revenues directly with other radio stations and
outdoor advertising companies, as well as with other media, such as broadcast
television, newspapers, magazines, cable television, the Internet and direct
mail, within their respective markets.

The radio and outdoor advertising industry is also subject to competition from
new media technologies that are being developed or introduced, such as the
delivery of audio programming by cable television systems, by satellite

 4        CBS CORPORATION
<PAGE>   5

and by terrestrial delivery of digital audio broadcasting. The FCC has recently
authorized spectrum for the use of a new technology, satellite digital audio
radio services, to deliver audio programming. Satellite digital audio radio
service may provide a medium for the delivery by satellite of multiple new audio
programming formats to local and national audiences. It is not known at this
time whether digital technology also may be used in the future by existing radio
broadcast stations either on existing or alternate broadcasting frequencies.
There are also proposals before the FCC to permit a new "low power" radio or
"microbroadcasting" service which could open up opportunities for low cost
neighborhood service on frequencies which would not interfere with existing
stations. No FCC action has been taken on these proposals to date.

The CBS television network, television stations, and the cable operations
compete for audiences with other television networks, television stations, and
cable networks, as well as with other media, including satellite television
services, videocassettes, and the Internet. In recent years, broadcast
television has seen a decline in total audience viewership. In the sale of
advertising time, the CBS television network, television stations, and the cable
operations compete with other broadcast networks, other television stations,
other cable networks, the Internet, and other advertising media. The CBS
television network, television stations, and the cable operations also compete
with other video media for distribution rights to television programming. In
addition, the CBS television network competes with other television networks to
secure affiliations with independently owned television stations in markets
across the country, which are necessary to ensure the effective distribution of
network programming to a nationwide audience.

An extended conversion to digital television broadcasting has begun. Current and
future technological developments may affect competition within the television
marketplace. Developing technology to compress digital signals will increasingly
permit the same broadcast, cable, or satellite channel to carry multiple video
and data services which could result in an expanded field of competing services.
Television broadcasters will continue to operate their current stations while
gradually building and operating digital facilities concurrently on separate
channels. This transition is expected to continue well over the next decade.

In April 1997, the FCC adopted a schedule under which television stations must
build digital television transmission facilities and begin digital
transmissions. Under that schedule, CBS is required to build digital facilities
by May 1, 1999 for the stations it owns in seven of the ten largest television
markets. Construction is required by November 1, 1999 for five CBS owned
television stations in the 11th through 30th largest television markets. CBS's
two owned television stations in markets below the largest 30 must construct
digital facilities by May 1, 2002. In addition, CBS, as well as other major
station group owners, have volunteered to the FCC to make a good faith effort to
construct digital facilities for some stations in the ten largest markets on an
accelerated basis. Pursuant to that voluntary commitment, the Corporation is
currently transmitting digital broadcasts in New York, San Francisco,
Philadelphia, and Los Angeles.

All of the Corporation's television and radio stations operate under licenses
from the FCC, which is empowered by the Communications Act of 1934, as amended,
to, among other things, license and regulate television and radio broadcasting
stations. The FCC has authority to grant or renew broadcast licenses for a
maximum statutory term of eight years if it determines that the "public
convenience, interest, or necessity" will be served thereby. During a specified
period after an application for renewal of a broadcast station license has been
filed, persons objecting to the license renewal application may file petitions
to deny.

The FCC's approval of the Corporation's acquisitions of Old Infinity in 1996,
and American Radio in 1998 contained a number of temporary waivers of the FCC's
television and radio cross-ownership rules (the "One-to-a-Market" Rule). These
waivers were granted subject to the outcome of the pending ownership rulemaking
in which certain deregulation of the "One-to-a-Market" Rule has been proposed.
In the event that any station divestitures are required at the conclusion of
this rulemaking, the Corporation would be required to file applications with the
FCC for consent to the necessary divestitures within six months of the
rulemaking order.

DISCONTINUED OPERATIONS

At December 31, 1998, Discontinued Operations principally consists of the Energy
Systems and Government Operations businesses which are described below.
Discontinued Operations also includes portfolio investments from the financial
services business and certain other miscellaneous assets from its previously
divested industrial busi-

                                                       CBS CORPORATION         5
<PAGE>   6

nesses that are being managed pending liquidation or divestiture. Essentially
all of the businesses remaining in Discontinued Operations are expected to be
divested in 1999, while the leasing portfolio is generally expected to liquidate
in accordance with its contractual terms. See note 10 to the financial
statements included in Part II, Item 8 of this report.

Energy Systems serves the domestic and international electric power industry by
supplying fuel and other products and services to owners and operators of
nuclear power plants. The unit supplies operating plant services ranging from
performance-based maintenance programs, including operations and safety
upgrades, to new products and services that enhance plant performance.

Government Operations provides management services for: (1) certain
government-owned facilities under contracts with the Department of Energy in the
areas of waste management, environmental cleanup, and the safe management of the
nation's nuclear materials inventory; (2) the nuclear reactors programs for the
U.S. Navy; and (3) a chemical agent and weapons destruction program for the
Department of Defense. It also manufactures nuclear waste storage containers,
pumps, motors, generators, and other equipment for various applications.

TRADEMARKS AND PATENTS

CBS has a worldwide trademark portfolio that it considers important in the
marketing of its products and services, including, among others, the trademarks
"CBS," the CBS "Eye" logo, "WESTINGHOUSE," and the "CIRCLE W" logo. CBS believes
that its rights in these trademarks are adequately protected and of unlimited
duration.

CBS owns or is licensed under a large number of patents and patent applications
(primarily related to its industrial businesses which are classified as
Discontinued Operations) in the United States and other countries that, taken
together, are of material importance to the industrial businesses. Such patent
rights are, in the judgment of CBS, adequate for the conduct of these
businesses. No patents that CBS considers material to the industrial businesses
as a whole will expire within the next five years.

ENVIRONMENTAL MATTERS

Information with respect to Environmental Matters is incorporated herein by
reference to Management's Discussion and Analysis--Environmental Matters
included in Part II, Item 7 and in note 11 to the financial statements included
in Part II, Item 8 of this report.

RESEARCH AND DEVELOPMENT

The Corporation's Continuing Operations do not engage in any material research
and development activities.

EMPLOYEE RELATIONS

During 1998, the Corporation employed an average of 46,189 people, of whom
44,248 were located in the United States. During the same period, 8,845 domestic
employees were represented in collective bargaining by 23 labor organizations.
The 1998 average number of employees includes 27,255 employees employed by
businesses classified as Discontinued Operations.

 6        CBS CORPORATION
<PAGE>   7


PART II



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.



The information required by this item appears on pages 8 through 19 of this
report and is incorporated herein by reference.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



The information required by this item, together with the report of KPMG LLP
dated January 27, 1999, appears on pages 20 through 47 of this report and is
incorporated herein by reference.



<TABLE>
<CAPTION>
                                                              PAGE
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<S>                                                           <C>
Report of Management                                           20
Independent Auditors' Report                                   21
Consolidated Statement of Income and Comprehensive Income
  for each of the three years in the period ended December
  31, 1998                                                     22
Consolidated Balance Sheet at December 31, 1998 and 1997       23
Consolidated Statement of Cash Flows for each of the three
  years in the period ended December 31, 1998                  24
Consolidated Statement of Shareholders' Equity for each of
  the three years in the period ended
  December 31, 1998                                            25
Notes to the Financial Statements                              26
Quarterly Financial Information (unaudited)                    47
------------------------------------------------------------------
</TABLE>


                                                       CBS CORPORATION         7
<PAGE>   8

MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

CBS Corporation (formerly Westinghouse Electric Corporation) dramatically
redefined its business portfolio and strategic direction in recent years through
acquisitions and divestitures with the intent of increasing its media holdings,
divesting its industrial operations, and increasing shareholder value. A number
of significant accomplishments in 1998 contributed to the achievement of those
objectives.

- In January 1998, the Corporation and the NFL announced that CBS was awarded
  the rights to broadcast American Football Conference games. The eight-year
  agreement, subject to rebid at the end of five years at the discretion of the
  NFL, will cost approximately $4 billion. The contract began with the 1998
  football season and includes two Super Bowls.

- In June 1998, the Corporation completed the acquisition of the radio
  broadcasting operations of American Radio Systems Corporation (American Radio)
  for $1.4 billion in cash plus the assumption of debt with a fair value of
  approximately $1.3 billion.

- In September 1998, the Corporation formed a new company named Infinity
  Broadcasting Corporation (Infinity) comprising the Radio segment of the
  Corporation. In December 1998, Infinity completed an initial public offering
  of 18.2 percent of its common stock, generating proceeds of $3.2 billion.

- In February 1998, the Corporation's Board of Directors authorized the purchase
  of up to $1 billion of its common stock. The stock purchase program was
  subsequently increased to $3 billion. Through December 31, 1998, the
  Corporation had purchased 28,342,000 shares for $859 million.

- In August 1998, the Corporation sold its Power Generation business for $1.2
  billion in cash.

- In November 1998, the Corporation sold the Process Control Division of its
  Energy Systems business for approximately $260 million in cash plus the
  assumption of pension and other liabilities. Agreements to sell the remainder
  of Energy Systems and the Government Operations businesses were signed in June
  1998. Upon completion of these sales, which is expected in early 1999, the
  Corporation will have successfully completed divestitures of essentially all
  of its industrial businesses.

These significant accomplishments followed successful strategic initiatives from
the prior year. Highlights from 1997 included the acquisition of The Nashville
Network (TNN) and Country Music Television (CMT) for $1.55 billion as well as
the divestiture of Thermo King for $2.56 billion.

The Corporation has essentially completed its transformation from an industrial
company to a high growth media company. It captured strong values for its
industrial properties while building a strong portfolio of broadcasting assets.

CONSOLIDATED OPERATING RESULTS

The Corporation reported a net loss for 1998 of $21 million, or $0.03 per share,
compared to net income of $549 million, or $.84 per share, for 1997 and $95
million, or $.12 per share, for 1996. Net income (loss) includes results from
Continuing Operations, Discontinued Operations, and extraordinary losses on
early extinguishment of debt, as presented below:

COMPONENTS OF NET INCOME (LOSS)
(in millions)

<TABLE>
<CAPTION>
    YEAR ENDED DECEMBER 31,       1998   1997    1996
------------------------------------------------------
<S>                               <C>    <C>     <C>
Loss from Continuing Operations   $(12)  $(131)  $(221)
Income from Discontinued
 Operations                         --     680     409
Extraordinary loss                  (9)     --     (93)
------------------------------------------------------
Net income (loss)                 $(21)  $ 549   $  95
------------------------------------------------------
</TABLE>

The Corporation generally reported strong performances by the media businesses
in each of the last three years. The net loss from Continuing Operations
improved 91 percent during 1998 following a 41 percent improvement the prior
year.

Despite these strong performances, two primary factors more than offset the
profit from the businesses: interest expense and residual costs of discontinued
businesses. These factors reduced earnings each year by more than $500 million.
Earnings were also unfavorably affected by significant levels of amortization of
FCC licenses and non-deductible goodwill arising from recent acquisitions.

 8        CBS CORPORATION
<PAGE>   9

In addition, included in results of Continuing Operations were restructuring
costs of $62 million in 1998, $15 million in 1997, and $57 million in 1996. A
charge of $28 million related to litigation matters was also included in 1996
results.

The results of Discontinued Operations include the operating results of the
industrial businesses prior to adoption of the related disposal plan as well as
the estimated gain or loss from disposal of those businesses. In 1997, the
Corporation recorded a net gain of $871 million, primarily from the sale of
Thermo King, and in 1996, a net gain of $1,018 million, primarily from the sale
of the defense and electronic systems business.

The extraordinary losses in 1998 and 1996 primarily reflect the write-off of
debt issue costs in connection with the early extinguishment of debt. In 1998,
the Corporation purchased, at market value, debt securities with a face value of
approximately $300 million and reduced availability under its credit facility.
In 1996, the Corporation prepaid $6.8 billion of debt under its then-existing
credit facility.

SEGMENT RESULTS OF OPERATIONS--
CONTINUING OPERATIONS

The following table presents the segment results for the Corporation's
Continuing Operations for each of the years in the three-year period ended
December 31, 1998. Earnings before interest, taxes, depreciation, and
amortization (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 from
acquisitions accounted for under the purchase method of accounting. However,
EBITDA should be considered in addition to, not as a substitute for, operating
earnings, net earnings, 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 changes in assets and liabilities from period to period, and it does
not include cash flows for interest and taxes.

SEGMENT RESULTS OF OPERATIONS--CONTINUING OPERATIONS
(in millions)


<TABLE>
<CAPTION>
                                            REVENUES           OPERATING PROFIT (LOSS)            EBITDA
                                    ------------------------   ------------------------   ----------------------
     YEAR ENDED DECEMBER 31,         1998     1997     1996     1998     1997     1996     1998    1997    1996
----------------------------------------------------------------------------------------------------------------
<S>                                 <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>
Radio                               $1,893   $1,480   $  554   $ 542    $ 372    $ 140    $  798   $ 575   $ 197
Television                           4,373    3,589    3,372     138      119      189       381     339     417
Cable                                  546      302      191      50       10       40       148      73      50
Corporate and other                     (7)      (4)      26     (85)    (105)    (201)      (68)    (72)   (162)
Residual costs of discontinued
  businesses                            --       --       --    (163)    (143)    (114)     (163)   (143)   (114)
----------------------------------------------------------------------------------------------------------------
Total Continuing Operations         $6,805   $5,367   $4,143   $ 482    $ 253    $  54    $1,096   $ 772   $ 388
----------------------------------------------------------------------------------------------------------------
</TABLE>



Revenues of the Corporation's Continuing Operations increased $1,438 million, or
27 percent, in 1998 compared to 1997 and increased $1,224 million, or 30
percent, in 1997 compared to 1996. The significant factors contributing to the
1998 and 1997 increases include the acquisitions of American Radio, TNN and CMT
and Old Infinity. In addition, the Radio, Television and Cable segments reported
strong improvements for their existing properties.



Operating profit and EBITDA improved dramatically during the past three years.
In 1998, operating profit and EBITDA increased $229 million and $324 million
over 1997, and during 1997 increased $199 million and $384 million over 1996.
The increase in Radio and Cable reflects the favorable effects of recent
acquisitions as well as strong performance for these segments. Most of the
improvement in corporate and other costs resulted from a reduction in costs for
restructuring activities.


As reflected in the table above, results for Continuing Operations have been
unfavorably affected by residual costs of discontinued businesses. These costs
primarily represent pension and postretirement benefit costs for inactive and
retired employees of previously divested businesses. Although the Corporation's
objective is to reduce this earnings constraint over the next few years,
management expects that these costs will continue to negatively affect operating
results in 1999 and future years.

The reported results for each of the segments include depreciation and
amortization of specifically identifiable assets based on their fair values when
acquired. Where appropriate, the separate business discussions that follow
provide a comparison of the actual 1998 results with the pro forma results for
1997 and 1996 determined by adjusting prior-period amounts for recent
acquisitions.

                                                       CBS CORPORATION         9
<PAGE>   10

RADIO

The Radio segment owns and operates 160 radio stations and TDI Worldwide, Inc.
(TDI), its outdoor advertising business. Revenues and operating profit, as
reported, increased dramatically in 1998 compared to 1997 and in 1997 compared
to 1996. This growth was primarily driven by the inclusion of the results of
operations for American Radio and Old Infinity, which were acquired on June 4,
1998 and December 31, 1996, respectively. The overall strong performance at the
Corporation's existing stations and TDI also contributed to these dramatic
increases. On a pro forma same station basis, revenue growth continued to
outpace the industry for the Radio segment, increasing 12 percent in 1998
compared to 1997 and 20 percent in 1997 compared to 1996. These increases
reflect strong growth primarily in the top 15 markets as well as double-digit
growth at TDI during 1998.

Pro forma same station operating profit and EBITDA increased at a greater rate
than revenues resulting in improved operating profit of 36 percent and 26
percent and EBITDA of 21 percent and 29 percent for 1998 and 1997, respectively.
These increases are primarily due to the higher revenues from the strong results
at the Corporation's existing stations and TDI combined with management's
continued cost control efforts. The higher rate of growth in operating profit
and EBITDA compared to the rate of growth in revenues is attributable to the
fact that a substantial portion of the Radio segment's costs are fixed.

TELEVISION


The Television segment consists of the Corporation's 14 owned and operated
television stations and the CBS television network.



The Television segment's 1998 revenue increased over 1997 by $784 million, or 22
percent, and its 1997 revenue increased $217 million, or 6 percent, over 1996.
The 1998 increase is primarily attributable to the broadcast of the 1998 Winter
Olympics during the first quarter of 1998 and the broadcast of the 1998 NFL
American Football Conference games during the third and fourth quarters. The
1997 increase primarily reflects increased program syndication, as well as
additional revenues generated by special programs such as the Emmy Awards. While
pricing was generally higher in 1997 compared to 1996, declines in ratings on
certain dayparts partially offset these improvements.



The Television segment's 1998 operating profit compared to 1997 increased $19
million, or 16 percent, and its 1997 operating profit decreased $70 million, or
37 percent, from 1996. The increase in 1998 is primarily because of the first
quarter broadcast of the 1998 Winter Olympics. These improvements were partially
offset by a $58 million restructuring charge and a $4 million charge for asset
impairment recognized during the third quarter, as well as declines in
profitability at the CBS television network during the third and fourth
quarters.



The decrease in 1997 Television segment operating profit is driven by the
declines at the network due to lower audience levels in key demographic
categories and higher programming costs. These 1997 declines were partially
offset by a strong advertising market and management's renewed focus on revenue
growth at the television stations.



The 1998 Television segment EBITDA increased over 1997 by $42 million, or 12
percent, and the 1997 EBITDA decreased by $78 million, or 19 percent, over 1996.
These results were driven by the same factors impacting operating profit.



CABLE



The Cable segment consists of the Corporation's cable networks, including TNN,
CMT, two regional sports networks, and an equity interest in a Spanish language
cable news network. These networks are distributed by cable television and other
multichannel technologies.



In November 1998, the Corporation finalized a joint venture agreement pursuant
to which 70 percent of the Corporation's TeleNoticias cable channel business was
sold. Under the terms of the agreement, the Corporation retained a 30 percent
equity interest in the business and will continue to provide it with news
gathering resources and programming. In December 1998, the Corporation sold its
cable network, Eye On People.



Revenues during 1998 for the Cable segment increased by $244 million, or 81
percent over 1997 and during 1997 increased by $111 million, or 58 percent over
1996. These increases were primarily attributable to the September 30, 1997
acquisition of TNN and CMT. In addition, during the first three quarters of
1997, prior to the acquisition of TNN and CMT, Cable received higher commissions
than in 1996, generated by increased sales levels achieved by TNN. Also, Cable
received increased cable license fees generated by the sports programming
providers. On a pro forma basis, assuming the acquisition of TNN and CMT
occurred on January 1, 1997, Cable segment revenues for 1998 would have
increased by approximately 10 percent over 1997.


 10        CBS CORPORATION
<PAGE>   11


During 1998, operating profit increased $40 million, or 400 percent. This
increase was primarily attributable to the September 30, 1997 acquisition of TNN
and CMT. Operating profit decreased $30 million during 1997 compared to 1996,
which was the result of increased expenditures related to TeleNoticias and costs
to develop and launch Eye on People. On a pro forma basis, assuming the
acquisition of TNN and CMT occurred on January 1, 1997, 1998 operating profit
increased by approximately 80 percent, which was primarily due to the higher
advertising sales.



EBITDA increased $75 million, or 103 percent during 1998 over 1997, which was
primarily due to the inclusion of the results of TNN and CMT. During 1997,
EBITDA increased $23 million, to $73 million, over 1996, also driven by the
inclusion of TNN and CMT during the fourth quarter and a gain on the sale of a
partnership interest. On a pro forma basis, assuming the acquisition of TNN and
CMT occurred on January 1, 1997, 1998 EBITDA was flat compared to 1997 because
of increased expenditures and a loss on disposal of a 70 percent interest in
TeleNoticias.


CORPORATE AND OTHER

Corporate and other consists of two primary components: corporate overhead costs
and special charges relating to corporate restructuring and other matters. Costs
for restructuring plans charged to Corporate and other initiated in 1998, 1997,
and 1996, totaled $2 million, $15 million, and $57 million, respectively. In
1998 the Corporation also recognized special severance payments of $7 million.
In addition, during 1996, the Corporation recognized a provision of $28 million
related to litigation matters. These restructuring actions resulted in a
reduction of approximately 15 percent in corporate overhead costs from 1997 to
1998 and approximately 20 percent from 1996 to 1997.

RESIDUAL COSTS OF DISCONTINUED BUSINESSES

The Corporation's results of operations are unfavorably affected by certain
costs remaining from past divestitures of its industrial businesses. Following
those divestitures, certain liabilities arising from the 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 income statement.

For all three years, these costs primarily reflect pension and postretirement
benefit costs. The slight increase in costs during 1998 is a result of the
closing of the sale of Power Generation in August 1998 and the retention of
these benefit obligations. Following the sales of Energy Systems and Government
Operations, the quarterly costs are expected to increase by an additional $4
million. Prior to the sales, these costs are included in the respective
businesses' results of operations which are reported in Discontinued Operations.

The Corporation's objective is to reduce this earnings constraint over the next
few years by fully funding the pension plan and modifying postretirement
benefits. However, management expects that these costs will continue to
negatively affect operating results during future years.

RESTRUCTURING OF OPERATIONS

The Corporation is committed to strengthening its businesses and improving its
profitability through restructuring actions ranging from changes in business
strategies to downsizing for process reengineering and productivity
improvements. See note 17 to the financial statements.

During the last three years, the Corporation has undertaken restructuring
programs in its businesses, primarily at the network, as well as at its former
and current corporate headquarters. The majority of the restructuring costs
recognized in the last three years involved the elimination of positions and
separation of employees.

Restructuring actions have resulted in the recognition of costs totaling $62
million in 1998, $15 million in 1997, and $57 million in 1996. All costs were
reflected in operating profit of Continuing Operations in the financial
statements. Except for costs totaling $12 million in 1998 and $32 million in
1996, these restructuring costs were essentially for the separation of
employees. The 1998 and 1996 plans included asset write-downs of $2 million and
$15 million, respectively, and lease termination and other facility closure
costs of $10 million and $17 million, respectively.

Cash expenditures for these three plans totaled $117 million, of which $53
million was spent through December 31, 1998. Cash expenditures of $36 million
are projected for 1999, with the remaining $28 million occurring over the next
several years. Employee separation costs generally are paid over a period of up
to two years following the separation but can extend

                                                      CBS CORPORATION         11
<PAGE>   12

longer in certain cases. Lease cancellation costs continue over the remaining
terms of the leases.

Cost reduction initiatives are undertaken when the expected benefits are
substantial in relation to the cost of the programs and are realizable in the
near term.

OTHER INCOME (EXPENSE), NET

Other income and expense items generated income of $43 million in 1998, $74
million in 1997, and $55 million in 1996. Generally, other income (expense)
includes interest income, gains and losses on dispositions of non-strategic
assets, and operating results of non-consolidated affiliates.

Interest income totaled $19 million in 1998, $11 million in 1997, and $17
million in 1996. Other income in 1997 also included a $24 million gain on the
sale of a partnership interest.

INTEREST EXPENSE

Interest expense from Continuing Operations totaled $370 million in 1998, $386
million in 1997, and $401 million in 1996. The decrease in interest expense
during 1998 was driven by a reduction in average debt, primarily revolving
credit borrowings, compared to 1997. Average debt was affected by the proceeds
received from Infinity subsequent to its initial public offering, the timing of
major acquisition and divestiture transactions, and the repurchase of shares
under the Corporation's stock repurchase program. Interest rates also declined
from the prior year.

During 1998, the Corporation purchased, at market value, debt securities with a
face value of $298 million and reduced its availability under its credit
facility from $5.5 billion to $4.0 billion. During the first quarter of 1996,
the Corporation prepaid $3.6 billion of debt with proceeds received on the sale
of certain industrial businesses. Later in 1996, the remaining $3.2 billion of
debt under the Corporation's then-existing credit facility was prepaid and
replaced with borrowings under a new revolving credit facility with more
favorable borrowing rates (see Revolving Credit Facility). As a result of these
prepayments of debt during 1998 and 1996, the Corporation recognized
extraordinary losses of $9 million and $93 million, net of taxes of $6 million
and $60 million, respectively.

In connection with the presentation of various businesses as Discontinued
Operations, interest expense on Continuing Operations debt totaling $5 million,
$42 million and $60 million was reclassified to Discontinued Operations for the
years ended December 31, 1998, 1997, and 1996, respectively. This allocation is
based on the quarterly ratio of the net assets of Discontinued Operations to the
sum of total consolidated net assets plus consolidated debt.

Future interest expense will depend on the Corporation's financing strategy in
future acquisitions, additional activity under the Corporation's stock
repurchase program, use of proceeds from future dispositions, and payment of
pension benefits, postretirement benefits, remaining divestiture costs and
retained liabilities of discontinued businesses as well as the Corporation's
performance.

DISCONTINUED OPERATIONS

With the Corporation's decision in late 1997 to divest its remaining industrial
businesses, all of its industrial businesses are presented in the financial
statements as Discontinued Operations. In August 1998, Power Generation, the
largest of these industrial businesses, was sold to a subsidiary of Siemens A.G.
for $1.2 billion of cash. In the third quarter of 1998, the Corporation sold the
Process Control Division of its Energy Systems business for approximately $260
million in cash and the assumption of pension and other liabilities. During the
second and third quarters of 1998, the Corporation sold certain securities
remaining from previous divestitures and portions of its Communication &
Information Systems (CISCO) segment. Proceeds from these transactions totaled
more than $360 million.

Also in 1998, the Corporation announced a definitive agreement to sell the
remainder of its Energy Systems business and its Government Operations business
for $200 million in cash, subject to certain adjustments, and the assumption of
liabilities, commitments, and obligations of approximately $950 million, all in
accordance with the divestiture agreement. This transaction is scheduled to
close in early 1999 and is expected to result in a gain, which will be
recognized upon realization.

In prior years, the Corporation completed the sale of Thermo King on October 31,
1997 for $2.56 billion of cash. In the fourth quarter of 1997, the Corporation
recognized an after-tax gain totaling $871 million in connection with the
divestiture of Thermo King, the decision to divest the remaining industrial
businesses, and an adjustment of prior disposal plans. During 1996, the
Corporation completed the sales of Knoll and its defense and electronic systems
business for a combined after-tax gain of $1.2 billion. The combined purchase
price totaled $3.6 billion of cash

 12        CBS CORPORATION
<PAGE>   13

plus the assumption by the buyer of certain pension and postretirement
liabilities associated with the active employees of the defense and electronic
systems business.

Also in 1996, the Corporation adopted plans to dispose of its environmental
services businesses and its CISCO segment. The combined after-tax losses from
these disposals approximated $200 million in 1996. Various businesses comprising
these segments were divested in 1998, 1997 and 1996.

Following the divestitures of the Energy Systems and Government Operations
businesses, which are expected in early 1999, the assets of Discontinued
Operations will consist primarily of the portfolio investments remaining from
the 1992 decision to exit the financial services business. These portfolio
investments, which consist primarily of the leasing portfolio, generally are
expected to liquidate through the year 2015 in accordance with contractual
terms. Debt of Discontinued Operations, which totaled $428 million at December
31, 1998, includes only that amount which can be repaid through liquidation of
the portfolio investments. Other divestiture costs and certain contingencies
related to the industrial businesses also will remain in 1999.

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. Management believes that the liability for
estimated loss on disposal of Discontinued Operations of $1,309 million at
December 31, 1998 is adequate to cover future operating costs, estimated losses
on disposal, and the remaining divestiture costs associated with all
Discontinued Operations.

SEGMENT RESULTS OF OPERATIONS--DISCONTINUED OPERATIONS
(in millions)

<TABLE>
<CAPTION>
                                               SALES OF PRODUCTS
                                                   & SERVICES                   OPERATING LOSS
                                            ------------------------         ---------------------
         YEAR ENDED DECEMBER 31,             1998     1997     1996          1998    1997    1996
--------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>      <C>            <C>     <C>     <C>
Industrial businesses                       $2,235   $4,257   $5,389         $(118)  $(362)  $(881)
Financial services                              21       12       26           (20)    (29)    (16)
--------------------------------------------------------------------------------------------------
Total Discontinued Operations               $2,256   $4,269   $5,415         $(138)  $(391)  $(897)
--------------------------------------------------------------------------------------------------
</TABLE>

The segment results shown in the table above include sales and operating profit
for each segment prior to the measurement date of the plan as well as those
after the measurement date. All operating results after the measurement date are
charged directly to the liability for estimated loss on disposal.

Sales for the industrial businesses declined from $5.4 billion in 1996 to $4.3
billion in 1997 and to $2.2 billion in 1998. The decline in 1997 primarily
reflects the sale of Thermo King in October as well as several other smaller
businesses throughout the year. The continued effects of the 1997 disposals and
the sales of several businesses throughout 1998, most notably the Power
Generation business in August, resulted in the dramatic decline in 1998.
Financial services revenues reflect the continued liquidation of the remaining
portfolio investments.

The divestitures of the industrial businesses also reduced the operating losses
over the three-year period. Sales and operating profit improved in 1998 for both
Energy Systems and Government Operations, the two major industrial businesses
remaining at year-end 1998. The operating loss for financial services reflects
interest expense on the debt that supports the portfolio investments and other
administrative costs.

INCOME TAXES

The Corporation's 1998 provision for income taxes is in excess of 100 percent of
the income before taxes and minority interest. The 1998 total provision of $155
million consists of a $161 million expense from Continuing Operations and a $6
million benefit on an extraordinary item. There was no income tax provision for
Discontinued Operations in 1998. The Corporation's 1997 provision for income
taxes in total was 57 percent of the income before taxes and minority interest.
The 1997 total provision of $740 million consists of a $73 million expense from
Continuing Operations and a $667 million expense from Discontinued Operations
primarily related to the gain on the sale of Thermo King. The Corporation's 1996
provision for income taxes in total was 81 percent of the income before taxes
and minority interest. The 1996 total provision of $442 million consists of a
$71 million benefit from Continuing Operations, a $573 million expense from
Discontinued Operations primarily related to the gain on the sale of the defense
and electronic systems business, and a $60 million benefit from an extraordinary
item.

The Corporation's tax provision for Continuing Operations is significantly
higher than the U.S. federal

                                                      CBS CORPORATION         13
<PAGE>   14

statutory tax rate of 35 percent of pre-tax income. This higher tax provision
results primarily from 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 components of the income tax provision (benefit) for
Continuing Operations are set forth in note 5 to the financial statements.

The net deferred tax asset at December 31, 1998 and 1997 totaled $53 million and
$661 million, respectively. At December 31, 1998, the significant sources of the
net deferred tax asset are: (i) the cumulative net temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes representing future net income tax
deductions, and (ii) alternative minimum tax and foreign tax credit
carryforwards. The remaining net temporary differences relate to a net pension
obligation, obligations for postretirement and postemployment benefits,
liability for estimated loss on disposal, reserves for restructuring and other
matters. The temporary differences resulting in deferred income taxes are shown
in the Consolidated Deferred Income Taxes by Source table in note 5 to the
financial statements. Management believes that the Corporation will have
sufficient future taxable income to make it more likely than not that the net
deferred tax asset will be realized.

The following table shows a reconciliation of income (loss) from Continuing
Operations before income taxes to taxable income (loss) from Continuing
Operations:

RECONCILIATION OF PRE-TAX INCOME (LOSS) FROM CONTINUING OPERATIONS TO U.S.
FEDERAL TAXABLE INCOME (LOSS)
(in millions)

<TABLE>
<CAPTION>
    YEAR ENDED DECEMBER 31,      1998    1997    1996
------------------------------------------------------
<S>                              <C>     <C>     <C>
Pre-tax income (loss) from
  Continuing Operations          $ 155   $ (59)  $(292)
State income tax (benefit)         (28)    (21)     26
Stock-based compensation
  deduction                       (346)    (84)    (10)
------------------------------------------------------
Permanent differences:
  Goodwill                         253     225     120
  Other                              5      66     115
------------------------------------------------------
Net permanent differences          258     291     235
------------------------------------------------------
Temporary differences:
  Pensions                        (172)     41      94
  Depreciation and amortization     57      18       7
  Provision for restructuring
    and other actions               68    (107)    (19)
  Other                            (23)     83    (122)
------------------------------------------------------
Net temporary differences          (70)     35     (40)
------------------------------------------------------
U.S. federal taxable income
  (loss)                         $ (31)  $ 162   $ (81)
------------------------------------------------------
</TABLE>

Certain prior year balances in the table above have been reclassified to conform
with the 1998 presentation.

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 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 $15 million has been incurred through
December 31, 1998. Approximately 36 percent of the total expenditures relate to
replacement of existing systems. The Corporation expects to fund these costs
through its cash flows from operations. All modification costs are expensed as
incurred.

Several centrally managed critical systems are currently Year 2000 compliant or
will be replaced by Year 2000 compliant applications by mid-1999. A significant
portion of the Year 2000 work for the Corporation's systems has been performed
or is underway. The various businesses are currently in the process of
developing Year 2000 procedures and guidelines. The Corporation plans to have
all systems tested and compliant by the end of 1999.

 14        CBS CORPORATION
<PAGE>   15

The Year 2000 effort also includes communication with all significant third
party suppliers and customers to determine the extent to which the Corporation's
systems are vulnerable to those parties' failures to reach Year 2000 compliance.
There can be no guarantee that the Corporation's third party suppliers or
customers will be Year 2000 compliant on a timely basis and that failure to
achieve compliance would not have a material adverse impact on the Corporation's
business operations.

Overall, the Corporation believes that it will complete its Year 2000 effort and
will be compliant on time. Although there can be no assurances that this will
occur, the Corporation will continuously monitor its progress and evaluate the
need for a contingency plan. Based on its current plan, the Corporation believes
that it will have adequate time to prepare for contingency measures if the need
arises.

The Corporation believes that it is difficult to fully assess the risks of the
Year 2000 problem due to numerous uncertainties surrounding the issue.
Management believes the primary risks are external to the Corporation and relate
to the Year 2000 readiness of its suppliers and customers. The inability of the
Corporation or its suppliers and 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.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

In 1998, the Corporation formed Infinity, a new company comprising the Radio
segment of the Corporation. In December 1998, Infinity sold 18.2 percent of its
common stock in an initial public offering, generating $3.2 billion of proceeds
($3.0 billion, net of offering costs). The Corporation, as the parent company of
Infinity, received the benefit of nearly 90 percent of the proceeds from
Infinity's stock offering through the payment by Infinity of an intercompany
note and certain other intercompany transactions. These proceeds were used by
the Corporation to repay its revolving credit borrowings and for general
corporate purposes.

Because of the minority interest in Infinity following the stock offering,
certain modifications have been made to the Corporation's cash management
practices. Infinity's cash generally would be available to the Corporation under
the terms of the Tax Sharing Agreement and the intercompany agreement between
Infinity and the Corporation or if Infinity would pay a dividend on all of its
common stock. However, Infinity does not anticipate paying any dividends in the
near term. Cash generated by Infinity's operations is expected to be retained by
Infinity for use in its operations or for investing. Management does not believe
that this segregation of cash will materially impact the Corporation's
liquidity.

On June 4, 1998, the Corporation completed the acquisition of American Radio for
$1.4 billion in cash plus the assumption of debt with a fair value of
approximately $1.3 billion. The cash portion of the consideration was funded
through additional revolving credit borrowings.

In February 1998, the Corporation announced that it would suspend dividend
payments on its common stock after payment of the March 1, 1998 dividend. At
that time, the Corporation also adopted a stock repurchase program under which
the Corporation is now authorized to purchase up to $3 billion of its common
stock. During 1998, the Corporation purchased 28,342,000 shares for $859
million.

During the third quarter of 1998, the Corporation completed the sales of
Westinghouse Communications and Power Generation and during the fourth quarter
completed the sale of its Process Control Division. These divestitures combined
with other divestitures and asset liquidations resulted in cash proceeds
totaling $2.2 billion in 1998. The Corporation expects to complete the sales of
Energy Systems and Government Operations for cash proceeds of $200 million in
early 1999. In addition to the cash proceeds, these transactions include the
assumption by the buyers of various liabilities, commitments, and obligations of
approximately $950 million, all in accordance with the terms of the divestiture
agreement.

The acquisitions of TNN and CMT on September 30, 1997 and Old Infinity on
December 31, 1996 were accomplished through the issuance of additional shares of
the Corporation's common stock. As a result of these acquisitions, the
Corporation's equity increased more than $5 billion through the issuance of
nearly 250 million additional shares.

Management expects that the Corporation will have sufficient liquidity to meet
ordinary future business needs. Sources of liquidity generally available to the
Corporation include cash from operations, proceeds from sales of investments and
non-strategic assets, cash

                                                      CBS CORPORATION         15
<PAGE>   16

and cash equivalents, availability under its credit facility, borrowings from
other sources, including funds from the capital markets, and the issuance of
additional capital stock of the Corporation.

OPERATING ACTIVITIES

The operating activities of Continuing Operations provided $295 million of cash
in 1998. In 1997 and 1996, operating activities used cash of $201 million and
$95 million, respectively. The $496 million improvement in operating cash flows
in 1998 reflects significant improvements in the results of operations,
partially offset by an increase in customer receivables. In 1997, the
improvements in the operating results were more than offset by an increase in
receivables and by substantial payments of accrued liabilities.

In general, the media businesses generate significant cash through their
operations. The Corporation continues to invest in program rights in an ongoing
effort to maintain quality programming and improve ratings in key demographic
categories. In each of the last three years, the Corporation has paid
approximately $400 million for interest on debt of Continuing Operations, much
of which was incurred to substantially expand the media operations. In future
periods, the Corporation's operating cash flows from Continuing Operations will
be favorably impacted by lower interest attributable to the reduction in debt
during 1998. However, the Corporation will continue to make payments for
pensions, postretirement benefits, divestiture costs and retained liabilities
associated with the industrial businesses.

Cash contributions to all of the Corporation's pension plans totaled $296
million in 1998, $164 million in 1997, and $250 million in 1996. A $65 million
cash contribution was made in January 1999 in accordance with applicable funding
requirements. The Corporation's contribution level for 1999 is expected to
approximate $270 million (including the $65 million contribution made in January
1999), and is consistent with the Corporation's goal to fully fund its qualified
pension plans over the next several years.

At December 31, 1998, alternative minimum tax credit carryforwards of $266
million as well as foreign tax credit carryforwards of $87 million were
available for utilization against future tax liabilities. See note 5 to the
financial statements.

The operating activities of Discontinued Operations used $331 million of cash
during 1998 compared to $437 million of cash during 1997 and $312 million in
1996. The cash flows in 1998, 1997, and 1996 primarily reflect cash used in the
operations of the Power Generation and Energy Systems businesses, particularly
in 1998 and 1997. Cash used in 1996 included substantial payments related to the
sale of the defense and electronic systems business.

Future operating cash flows of Discontinued Operations will consist primarily of
operating revenues and operating costs for the Energy Systems and Government
Operations businesses until their divestiture in early 1999 as well as disposal
costs associated with the industrial businesses. These cash flows, along with
proceeds generated through divestiture of these businesses, will affect the cash
flows of Continuing Operations. Cash flows associated with the financial
services business, including interest costs 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 of
Continuing Operations.

INVESTING ACTIVITIES

Investing activities provided cash of $467 million during 1998, $2.5 billion
during 1997, and $2.9 billion during 1996. Investing cash inflows from business
divestitures and other asset liquidations totaled $2.2 billion in 1998, $2.8
billion during 1997, and $4.2 billion during 1996. Asset liquidations in 1998
primarily relate to Discontinued Operations and include the sale of Power
Generation for $1.2 billion, the sale of the Process Control Division of Energy
Systems for approximately $260 million, and the sale of other discontinued
businesses, investments, and securities for nearly $500 million. In addition,
approximately $200 million of proceeds was received from divestitures of several
media properties. Divestitures in 1997 and 1996 primarily include the sales of
Thermo King for $2.6 billion in 1997 and the sales of Knoll and the defense and
electronic systems business for $3.6 billion in 1996. The Corporation expects to
liquidate a significant portion of the remaining industrial assets of
Discontinued Operations early in 1999.

Investing cash outflows during 1998 primarily relate to the acquisition of
American Radio for $1.4 billion in cash plus the assumption of debt. For 1997,
the Corporation had investing cash outflows related to a $59 million payment in
connection with a swap of radio stations and the acquisition of a transit
advertising company in the United Kingdom. During 1997 and 1996, the
acquisitions of TNN and CMT and Old Infinity were accomplished using common
stock and, except as noted below, did not require the use of

 16        CBS CORPORATION
<PAGE>   17

cash. Acquisitions of $1.1 billion completed during 1996 included the cash
investment associated with the repayment of Old Infinity debt at the time of its
acquisition, as well as purchases of two Chicago radio stations, TeleNoticias,
and several smaller businesses and investments.

The Corporation's capital expenditures for Continuing Operations totaled $139
million in 1998 compared to $121 million in 1997 and $93 million in 1996. The
increase is primarily attributable to recent acquisitions. Over the next five
years, the Corporation expects to spend approximately $120 million for equipment
and other capital assets to meet commitments for digital multichannel and high
definition transmission capability. Capital expenditures for Discontinued
Operations will continue to decline as these businesses are sold.

In 1996, the Corporation generated $44 million of cash through the sales of
investments held in trusts that were established to fund executive benefit
plans. The trust investments were replaced with the Corporation's common stock.

FINANCING ACTIVITIES

Cash provided by financing activities during 1998 totaled $327 million compared
to cash used in financing activities of $2.0 billion in 1997 and $2.5 billion in
1996.

Financing cash inflows in 1998 include the net proceeds of $3.0 billion received
from Infinity's initial public offering and $493 million received upon the
issuance of Senior Notes due in 2005. These proceeds were primarily utilized to
repay revolver borrowings (see Revolving Credit Facility). Financing cash
outflows in 1998 include revolver and other debt repayments as well as the
purchase of 28,342,000 shares of the Corporation's common stock for $859 million
under its $3 billion multi-year stock repurchase program. Future purchases will
be guided by financial policies that are consistent with maintaining an
investment grade rating.

Financing cash outflows in 1997 include $2.56 billion of debt prepaid upon the
sale of Thermo King. Financing cash outflows in 1996 include $3.6 billion of
debt prepaid upon the sales of Knoll and the defense and electronic systems
business. Also in 1996, the Corporation prepaid the remaining outstanding debt
under its then-existing $7.5 billion credit facility and replaced it with
borrowings under a new $5.5 billion credit facility.

Cash provided by the issuance of the Corporation's stock totaled $351 million
during 1998 compared to $287 million and $130 million for 1997 and 1996,
respectively. The stock was issued in connection with certain employee
compensation and benefit plans.

After the payment of the March 1, 1998 dividend of $36 million, the Corporation
suspended dividend payments on its common stock so that cash could be used to
better enhance shareholder value. Dividends paid in 1997 include $125 million
for common stock dividends and $23 million for Series C preferred stock, which
converted into 32 million shares of common stock in the second quarter of 1997.
Dividends paid in 1996 include $80 million for common stock dividends and $47
million for Series C preferred stock. The increase in the common stock dividends
from 1996 to 1997 reflects nearly 250 million additional shares issued to
acquire TNN and CMT and Old Infinity.

As a result of the increase in equity from the TNN and CMT acquisition and the
financing activities described previously, the Corporation's net debt decreased
from 50 percent of consolidated net capitalization at December 31, 1996 to 32
percent at December 31, 1997 and to 20 percent at December 31, 1998.

REVOLVING CREDIT FACILITY

On August 29, 1996, the Corporation executed a five-year revolving credit
agreement with total commitments of $5.5 billion to replace the previous
facility. This agreement was amended on March 3, 1998 to modify the financial
covenants and to provide that, upon completion of the sale of Power Generation,
the maximum borrowing would be reduced to $4.0 billion. The availability was
reduced in August 1998 upon completion of the sale of Power Generation. Up to
$1.0 billion of the current capacity is available to Infinity. With the
completion of Infinity's initial public offering in December 1998, all remaining
revolving credit borrowings were repaid. Thus, the unused capacity under the
existing credit facility equaled $4.0 billion at December 31, 1998.

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 December 31, 1998, the
Corporation was in compliance with the financial covenants.

                                                      CBS CORPORATION         17
<PAGE>   18

Management is currently in the process of evaluating the Corporation's future
credit needs under the facility in light of the recent Infinity stock offering,
which may include a further reduction in the available borrowing capacity.


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. See note 11 to the
financial statements. The majority of the environmental matters being addressed
by the Corporation have arisen from past operation of its industrial businesses.
Although the majority of the industrial businesses were divested by year-end
1998, the Corporation has retained certain obligations relating to these past
activities. At December 31, 1998, the Corporation had an accrued liability of
$312 million. Of this amount, $228 million covers site investigation and
remediation, and $84 million is for post-closure and monitoring activities for
approximately 70 sites for which environmental responsibility remains with the
Corporation. 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. Should alternative remediation strategies be selected,
the costs related to these sites could differ from the amounts currently
accrued. The Corporation recognizes changes in estimates as new remediation
requirements are defined or as more information becomes available.

In addition, included in Discontinued Operations are environmental liabilities
directly related to sites that are expected to be assumed by buyers pursuant to
divestiture transactions or to surplus properties awaiting disposition.

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.

LEGAL MATTERS

The Corporation is defending a number of lawsuits on various matters. See notes
10 and 11 to the financial statements. The Corporation has provided for
management's best estimate of costs associated with resolution of these matters.

The Corporation is a defendant in numerous lawsuits claiming various
asbestos-related personal injuries. The Corporation was neither a manufacturer
nor a producer of asbestos and is oftentimes dismissed from these lawsuits on
this basis. In court actions resolved, the Corporation has prevailed in the
majority of these claims and has resolved others through settlement. The
Corporation is reimbursed for a substantial portion of its current costs and
settlements through its insurance carriers. The Corporation has provided for its
share of estimated costs associated with outstanding claims. 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.

Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in certain of the Corporation's pending cases and, although
management believes a significant adverse judgment is unlikely, any such
judgment could have a material adverse effect on the Corporation's results of
operations for a quarter or a year. However, based on its understanding and
evaluation of the relevant facts and circumstances, management believes that the
Corporation has meritorious defenses to the litigation referenced in notes 10
and 11 and that the Corporation has adequately provided for costs arising from
resolution of these matters. Management believes that the litigation should not
have a material adverse effect on the financial condition of the Corporation.

RETAINED LIABILITIES OF DISCONTINUED BUSINESSES

Liabilities for certain environmental, litigation, and other matters, although
arising from discontinued businesses, have been or are expected to be retained
by the Corporation following the divestiture of those businesses. As a result,
liabilities totaling $1.0 billion at December 31, 1998 and related assets of
$225 million have been separately presented in Continuing

 18        CBS CORPORATION
<PAGE>   19

Operations on the Corporation's consolidated balance sheet. See notes 9 and 11
to the financial statements.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K/A, including Item 7--"Management's Discussion
and Analysis of Financial Condition and Results of Operations," contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that are not historical facts but rather reflect the Corporation's
current expectations concerning future results and events. The words "believes,"
"expects," "intends," "plans," "anticipates," "likely," "will," and similar
expressions identify such forward-looking statements. These forward-looking
statements are subject to risks, uncertainties, and other factors, some of which
are beyond the Corporation's control, that could cause actual results to differ
materially from those forecast or anticipated in such forward-looking
statements.


Such risks, uncertainties, and factors include, but are not limited to: the
Corporation's ability to develop and/or acquire television programming and to
attract and retain advertisers; the impact of significant competition from both
over-the-air broadcast stations and programming alternatives such as cable
television, wireless cable, in-home satellite distribution services, and
pay-per-view and home video entertainment services; the impact of new
technologies; 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 Annual
Report. The Corporation undertakes no obligation to publicly release the result
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

                                                      CBS CORPORATION         19
<PAGE>   20

REPORT OF MANAGEMENT

The Corporation has prepared the consolidated financial statements and related
financial information included in this report. Management has the primary
responsibility for the financial statements and other financial information and
for ascertaining that the data fairly reflect the financial position, results of
operations, and cash flows of the Corporation. The financial statements were
prepared in accordance with generally accepted accounting principles appropriate
in the circumstances, and necessarily include amounts that are based on best
estimates and judgments with appropriate consideration given to materiality.
Financial information included elsewhere in this report is presented on a basis
consistent with the financial statements.

The Corporation maintains a system of internal accounting controls, supported by
adequate documentation, to provide reasonable assurance that assets are
safeguarded and that the books and records reflect the authorized transactions
of the Corporation. Limitations exist in any system of internal accounting
controls based on the recognition that the cost of the system should not exceed
the benefits derived. The Corporation believes its system of internal accounting
controls, augmented by its corporate auditing function, appropriately balances
the cost/benefit relationship.

The independent auditors provide an objective assessment of the degree to which
management meets its responsibility for fair financial reporting. They regularly
evaluate elements of the internal control structure and perform such tests and
procedures as they deem necessary to express an opinion on the fairness of the
financial statements.

The Board of Directors pursues its responsibility for the Corporation's
financial statements through its Audit Review Committee composed of directors
who are not officers or employees of the Corporation. The Audit Review Committee
meets regularly with the independent auditors, management, and the corporate
auditors. The independent auditors and the corporate auditors have direct access
to the Audit Review Committee, with and without the presence of management
representatives, to discuss the scope and results of their audit work and their
comments on the adequacy of internal accounting controls and the quality of
financial reporting.

We believe that the Corporation's policies and procedures, including its system
of internal accounting controls, provide reasonable assurance that the financial
statements are prepared in accordance with the applicable securities laws and
with a corresponding standard of business conduct.

 20        CBS CORPORATION
<PAGE>   21

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CBS CORPORATION

We have audited the accompanying consolidated balance sheet of CBS Corporation
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income and comprehensive income, cash flows, and shareholders'
equity for each of the years in the three year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CBS Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

/s/ KPMG LLP
KPMG LLP
New York, New York
January 27, 1999

                                                      CBS CORPORATION         21
<PAGE>   22

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in millions except per-share amounts)

<TABLE>
<CAPTION>
                  YEAR ENDED DECEMBER 31,                      1998         1997         1996
-----------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>
Revenues                                                      $ 6,805      $ 5,367      $ 4,143
Operating expenses                                             (4,373)      (3,483)      (2,786)
Depreciation and amortization                                    (571)        (445)        (279)
Marketing, administration, and general expenses                (1,216)      (1,043)        (910)
Residual costs of discontinued businesses                        (163)        (143)        (114)
-----------------------------------------------------------------------------------------------
Operating profit                                                  482          253           54
Other income (expense), net (note 18)                              43           74           55
Interest expense                                                 (370)        (386)        (401)
-----------------------------------------------------------------------------------------------
Income (loss) from Continuing Operations before income taxes
 and minority interest in income of consolidated
 subsidiaries                                                     155          (59)        (292)
Income tax (expense) benefit                                     (161)         (73)          71
Minority interest in (income) loss of consolidated
  subsidiaries                                                     (6)           1           --
-----------------------------------------------------------------------------------------------
Loss from Continuing Operations                                   (12)        (131)        (221)
-----------------------------------------------------------------------------------------------
Discontinued Operations, net of income taxes (notes 1 and
  10):
  Loss from Discontinued Operations                                --         (191)        (609)
  Gain on disposal of Discontinued Operations                      --          871        1,018
-----------------------------------------------------------------------------------------------
Income from Discontinued Operations                                --          680          409
Extraordinary item, net of income taxes:
  Loss on early extinguishment of debt (note 2)                    (9)          --          (93)
-----------------------------------------------------------------------------------------------
Net income (loss)                                             $   (21)     $   549      $    95
-----------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (NOTE
  15):
Continuing Operations                                         $  (.02)     $  (.24)     $  (.67)
Discontinued Operations                                            --         1.08         1.02
Extraordinary item                                               (.01)          --         (.23)
-----------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share            $  (.03)     $   .84      $   .12
-----------------------------------------------------------------------------------------------
Cash dividends per common share                               $   .05      $   .20      $   .20
-----------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS):
Net income (loss)                                             $   (21)     $   549      $    95
-----------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of taxes (note 13)
  Unrealized gains (losses) on marketable securities, net of
     taxes of $.1 million in 1998                                   1           --           --
  Minimum pension liability adjustment, net of taxes of $19
     million, $14 million, and $229 million, respectively         (37)          25          424
-----------------------------------------------------------------------------------------------
Other comprehensive income (loss)                                 (36)          25          424
-----------------------------------------------------------------------------------------------
Comprehensive income (loss)                                   $   (57)     $   574      $   519
-----------------------------------------------------------------------------------------------
</TABLE>

The Notes to the Financial Statements are an integral part of these financial
statements.

 22        CBS CORPORATION
<PAGE>   23

CONSOLIDATED BALANCE SHEET
(in millions)

<TABLE>
<CAPTION>
                      AT DECEMBER 31,                          1998         1997
----------------------------------------------------------------------------------
<S>                                                           <C>          <C>
ASSETS:
  Cash and cash equivalents (note 2)                          $   798      $     8
  Customer receivables (net of allowance for doubtful
     accounts of $48 million
     and $35 million)                                           1,180          936
  Program rights                                                  533          502
  Deferred income taxes (note 5)                                  138          394
  Prepaid and other current assets                                140          135
----------------------------------------------------------------------------------
  Total current assets                                          2,789        1,975
  Property and equipment, net (note 6)                          1,149        1,066
  FCC licenses, net (note 7)                                    4,308        2,171
  Goodwill, net (note 7)                                       10,357        9,681
  Net assets of Discontinued Operations (note 10)                  --          212
  Other intangible and noncurrent assets (note 7)               1,536        1,610
----------------------------------------------------------------------------------
Total assets                                                  $20,139      $16,715
----------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
  Short-term debt (note 8)                                    $    --      $    89
  Current maturities of long-term debt (note 8)                   159           62
  Accounts payable                                                336          221
  Liabilities for talent and program rights                       290          309
  Other current liabilities (note 9)                              820          868
----------------------------------------------------------------------------------
  Total current liabilities                                     1,605        1,549
  Long-term debt (note 8)                                       2,506        3,236
  Pension liability (note 4)                                      945        1,149
  Postretirement benefit liability (note 4)                     1,046        1,160
  Net liabilities of Discontinued Operations (note 10)          1,284           --
  Other noncurrent liabilities (note 9)                         2,081        1,536
----------------------------------------------------------------------------------
Total liabilities                                               9,467        8,630
----------------------------------------------------------------------------------
Contingent liabilities and commitments (notes 11 and 12)
Minority interest in equity of consolidated subsidiaries
  (note 14)                                                     1,618            5
----------------------------------------------------------------------------------
Shareholders' equity (note 13):
  Preferred stock, $1.00 par value (25 million shares
     authorized, no shares issued)                                 --           --
  Common stock, $1.00 par value (1,100 million shares
     authorized, 734 million and 718 million shares issued)       734          718
  Capital in excess of par value                                8,914        7,178
  Common stock held in treasury, at cost                       (1,215)        (530)
  Retained earnings                                             1,428        1,485
  Accumulated other comprehensive loss                           (807)        (771)
----------------------------------------------------------------------------------
Total shareholders' equity                                      9,054        8,080
----------------------------------------------------------------------------------
Total liabilities and shareholders' equity                    $20,139      $16,715
----------------------------------------------------------------------------------
</TABLE>

The Notes to the Financial Statements are an integral part of these financial
statements.

                                                      CBS CORPORATION         23
<PAGE>   24

CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)

<TABLE>
<CAPTION>
                  YEAR ENDED DECEMBER 31,                      1998         1997         1996
-----------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>
Cash flows from operating activities of Continuing
  Operations:
 Loss from Continuing Operations                              $   (12)     $  (131)     $  (221)
  Adjustment to reconcile loss from Continuing Operations to
   net cash provided (used) by operating activities:
    Depreciation and amortization                                 571          445          279
    Gains on asset dispositions                                    (5)         (39)         (29)
    Other noncash adjustments                                    (150)         (81)        (164)
    Changes in assets and liabilities, net of effects of
     acquisitions and divestitures of businesses:
       Receivables, current and noncurrent                       (178)        (144)         (22)
       Accounts payable                                            94           14           67
       Program rights                                              72          (79)        (148)
       Deferred and current income taxes                           10            5           37
       Other assets and liabilities                              (107)        (191)         106
-----------------------------------------------------------------------------------------------
Cash provided (used) by operating activities of Continuing
  Operations                                                      295         (201)         (95)
-----------------------------------------------------------------------------------------------
Cash used by operating activities of Discontinued Operations
 (note 10)                                                       (331)        (437)        (312)
-----------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Business acquisitions, net of cash acquired, and
    investments                                                (1,487)         (59)      (1,110)
  Business divestitures and other asset liquidations            2,168        2,752        4,165
  Capital expenditures -- Continuing Operations                  (139)        (121)         (93)
  Capital expenditures -- Discontinued Operations                 (40)         (85)        (113)
  Asset liquidations of trust investments                          --           --           44
  Deposits in acquisition trust                                   (35)          --           --
-----------------------------------------------------------------------------------------------
Cash provided by investing activities                             467        2,487        2,893
-----------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Bank revolver borrowings                                      4,129        2,970        7,263
  Bank revolver repayments                                     (6,161)      (4,555)      (4,318)
  Issuance of subsidiary stock                                  3,047           --           --
  Net reduction in other short-term debt                          (89)        (406)        (403)
  Issuance of senior notes                                        493           --           --
  Repayments of long-term debt                                   (539)        (153)      (5,012)
  Stock issued                                                    351          287          130
  Purchase of treasury stock                                     (859)          --           --
  Bank fees and other costs                                        (9)         (10)         (12)
  Dividends paid                                                  (36)        (148)        (127)
-----------------------------------------------------------------------------------------------
Cash provided (used) by financing activities                      327       (2,015)      (2,479)
-----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                  758         (166)           7
Cash and cash equivalents at beginning of period for
 Continuing and
 Discontinued Operations (notes 2 and 10)                          67          233          226
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period for Continuing
 and
 Discontinued Operations (notes 2 and 10)                     $   825      $    67      $   233
-----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Interest paid -- Continuing Operations                      $   373      $   395      $   392
  Interest paid -- Discontinued Operations                         51           95          106
-----------------------------------------------------------------------------------------------
Total interest paid                                           $   424      $   490      $   498
-----------------------------------------------------------------------------------------------
Income taxes paid (refunded)                                  $   145      $    68      $   (34)
-----------------------------------------------------------------------------------------------
</TABLE>

The Notes to the Financial Statements are an integral part of these financial
statements and include descriptions of noncash transactions.

 24        CBS CORPORATION
<PAGE>   25

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in millions)

<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                            COMMON     CAPITAL IN                              OTHER
                              PREFERRED    STOCK AT     EXCESS OF    TREASURY   RETAINED   COMPREHENSIVE
                                STOCK     PAR VALUE     PAR VALUE     STOCK     EARNINGS   INCOME (LOSS)     TOTAL
-------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>          <C>           <C>        <C>        <C>              <C>
Balance at December 31, 1995    $  4        $ 426        $ 1,847     $  (720)   $ 1,116       $(1,220)      $ 1,453
Shares issued under various
 compensation and benefit
 plans                                                       (41)        161                                    120
Shares issued under dividend
 reinvestment plan                                            (3)         13                                     10
Shares issued for Old
 Infinity acquisition                         183          3,573                                              3,756
Comprehensive income:
  Pension liability
   adjustment, net of
   deferred taxes                                                                                 424           424
Net income                                                                           95                          95
Dividends paid                                                                     (127)                       (127)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996    $  4        $ 609        $ 5,376     $  (546)   $ 1,084       $  (796)      $ 5,731
Series C preferred shares
 converted                        (4)          32            (28)                                                --
Shares issued under various
 compensation and benefit
 plans                                         18            333          15                                    366
Shares issued under dividend
 reinvestment plan                                             7           1                                      8
Shares issued for TNN and
 CMT acquisition                               59          1,490                                              1,549
Comprehensive income:
  Pension liability
   adjustment, net of
   deferred taxes                                                                                  25            25
Net income                                                                          549                         549
Dividends paid                                                                     (148)                       (148)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997    $ --        $ 718        $ 7,178     $  (530)   $ 1,485       $  (771)      $ 8,080
Gain on issuance of
 subsidiary stock (note 14)                                1,439                                              1,439
Shares issued under various
 compensation and benefit
 plans                                         16            293         174                                    483
Shares issued under dividend
 reinvestment plan                                             4                                                  4
Shares repurchased                                                      (859)                                  (859)
Comprehensive income:
  Pension liability
   adjustment, net of
   deferred taxes                                                                                 (37)          (37)
  Unrealized gain on
   marketable securities,
   net of deferred taxes                                                                            1             1
Net loss                                                                            (21)                        (21)
Dividends paid                                                                      (36)                        (36)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998    $ --        $ 734        $ 8,914     $(1,215)   $ 1,428       $  (807)      $ 9,054
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The Notes to the Financial Statements are an integral part of these financial
statements.

                                                      CBS CORPORATION         25
<PAGE>   26

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

CONSOLIDATION

These consolidated financial statements include the accounts of CBS Corporation
and its subsidiary companies (together, the Corporation) after elimination of
intercompany accounts and transactions. Investments in joint ventures and other
companies that the Corporation does not control but has the ability to exercise
significant management influence over operating and financial policies are
accounted for by the equity method.


The Corporation's Continuing Operations include the Radio, Television, and Cable
segments. The Television segment was formed in 1998 to include the operations of
the CBS television network and the television stations. In addition, goodwill
acquired in connection with the 1995 acquisition of CBS Inc. was allocated
between the Radio and Television segments. Such goodwill and related
amortization were previously included in corporate and other costs. As a result
of these actions taken by the Corporation during 1998, certain previously
reported amounts have been restated to conform to the 1998 presentations. None
of these actions impacted the consolidated results of operations or financial
position for any current or prior period. Segment information is included in
note 19 to the financial statements.


In 1998, the Corporation formed a new company named Infinity Broadcasting
Corporation (Infinity) comprising the Radio segment of the Corporation. In
December 1998, Infinity sold 18.2 percent of its common stock in an initial
public offering, generating net proceeds of $3.0 billion. See note 14 to the
financial statements.

On June 4, 1998, the Corporation completed the acquisition of the radio
broadcasting operations of American Radio Systems Corporation (American Radio).
On September 30, 1997, the Corporation acquired two major cable networks: The
Nashville Network (TNN) and Country Music Television (CMT). On December 31,
1996, the Corporation acquired Infinity Media Corporation, formerly known as
Infinity Broadcasting Corporation (Old Infinity). The Corporation's Consolidated
Statement of Income and Comprehensive Income includes the operating results of
the acquired entities from their respective dates of acquisition. See note 3 to
the financial statements.

DISCONTINUED OPERATIONS

Under various disposal plans adopted in recent years, the Corporation has either
completed or entered into definitive agreements to divest essentially all of its
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." See note 10 to the financial statements.

Certain previously reported amounts have been reclassified to conform to the
1998 presentation.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenues are primarily derived from the sale of advertising spots and are
recognized when the spots are broadcast. The Corporation also receives
syndication revenues on sales of owned programming, cable license fees from
distribution of its cable networks, and advertising revenues on the sale of
outdoor advertising space. Syndication revenues are recognized when the
programming is available to telecast and certain other conditions are met.
Revenues from cable license fees are recorded in the period that service is
provided. Revenues on outdoor advertising space are recognized proportionately
over the contract term.

STOCK-BASED COMPENSATION

The Corporation measures compensation cost for stock-based awards using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The pro forma net income and pro
forma earnings per share disclosures using the fair value based method defined
in Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," are provided in note 16 to the financial statements.

 26        CBS CORPORATION
<PAGE>   27

ENVIRONMENTAL COSTS

The Corporation records liabilities when environmental assessments or remedial
efforts are probable and the costs can be reasonably estimated. Such estimates
are adjusted if necessary as new remediation requirements are defined or as more
information becomes available.

EXTRAORDINARY ITEM

During 1998, the Corporation purchased, at market value, debt securities with a
face value of $298 million and reduced the availability under its credit
facility from $5.5 billion to $4.0 billion. In 1996, the Corporation
extinguished prior to maturity $6.8 billion of debt under its then-existing $7.5
billion credit facility. As a result of these early extinguishments and the
write-off of related debt issue costs, the Corporation recognized extraordinary
losses of $9 million in 1998 and $93 million in 1996, net of tax benefits of $6
million and $60 million, respectively.

CASH AND CASH EQUIVALENTS

The Corporation considers all investment securities with a maturity of three
months or less when acquired to be cash equivalents. All cash and temporary
investments are placed with high credit quality financial institutions, and the
amount of credit exposure to any one financial institution is limited.

PROGRAM RIGHTS

Costs incurred in connection with the production of, or the purchase of, rights
to programs to be broadcast within one year are classified as current assets
while costs of programs to be broadcast after one year are considered
noncurrent. Program costs are amortized as the respective programs are
broadcast. Program rights are carried at the lower of unamortized cost or
estimated net realizable value.

PROPERTY AND EQUIPMENT

Property and equipment assets are recorded at cost and depreciated over their
estimated useful lives. Depreciation is generally computed on the straight-line
method based on useful lives of 27.5 to 60 years for buildings, 20 years for
land improvements, and three to 12 years for equipment. Leasehold improvements
are amortized over the shorter of the useful life or the term of the lease.
Expenditures for additions and improvements are capitalized, and costs for
repairs and maintenance are charged to operations as incurred.

INTANGIBLE ASSETS

Identifiable intangible assets primarily include Federal Communications
Commission (FCC) licenses, which are limited as to availability and have
historically appreciated in value with the passage of time, and cable license
agreements. Identifiable intangible assets and goodwill are amortized using the
straight-line method over their estimated lives but not in excess of 40 years.

Subsequent to the acquisition of an intangible or other long-lived asset, the
Corporation evaluates whether later events and circumstances indicate the
remaining estimated useful life of that asset may warrant revision or that the
remaining carrying value of such an asset may not be recoverable. If definitive
cash flows are not available for a specific intangible or other long-lived
asset, the Corporation evaluates recoverability of the specific business to
which the asset relates. When factors indicate that an intangible or other
long-lived asset should be evaluated for possible impairment, the Corporation
uses an estimate of the related asset's undiscounted future cash flows over the
remaining life of that asset in measuring recoverability. If such an analysis
indicates that impairment has in fact occurred, the Corporation writes down the
book value of the intangible or other long-lived asset to its fair value.

GAINS AND LOSSES ON ISSUANCE OF SUBSIDIARY STOCK

Gains and losses on the issuance of subsidiary stock are recognized directly in
the Corporation's shareholders' equity through an increase or decrease to
capital in excess of par value in the period in which the sale occurs.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments, from time to time, have been utilized by the
Corporation to manage its interest rate risk. Under interest rate contracts, the
differentials to be received or paid are recognized in income over the life of
the contract as adjustments to interest expense. Gains and losses on
terminations of hedge contracts are recognized as interest expense when
terminated in conjunction with the termination of the anticipated hedged
transaction, or to the extent that such hedged transaction remains outstanding,
deferred and amortized to interest expense over the remaining life of that
transaction. As of December 31, 1998, no interest exchange contracts were
outstanding.

                                                      CBS CORPORATION         27
<PAGE>   28

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. On an ongoing basis,
management reviews its estimates, including those related to litigation,
environmental liabilities, product liabilities, program rights, contracts,
pensions, income taxes, and Discontinued Operations, based on currently
available information. Changes in facts and circumstances may result in revised
estimates.

NEW PRONOUNCEMENTS

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. SFAS 133 standardizes the accounting for derivative
instruments by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Corporation's derivative and hedging
transactions at December 31, 1998 are not material and adoption of this standard
will not materially impact its financial results or disclosure.

In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," were
issued. SFAS 130, which requires that an enterprise report by major component
and as a single total the change in its net assets from nonowner sources during
the period, was adopted in the first quarter of 1998. SFAS 131, which
establishes annual reporting standards for an enterprise's operating segments
and related disclosures about its products, geographic areas, and major
customers, is incorporated in disclosures for 1998 annual reporting purposes. In
February 1998, SFAS No. 132, "Employer's Disclosures About Pensions and Other
Postretirement Benefits," was issued. SFAS 132 requires additional disclosures
concerning changes in the Corporation's pension and other postretirement benefit
obligations and assets and eliminates certain disclosures no longer considered
useful. The Corporation has adopted the provisions of this standard for 1998
annual reporting purposes. Adoption of these statements did not impact the
Corporation's consolidated financial position, results of operations, or cash
flows, and any effects are limited to the form and content of its disclosures.

At December 31, 1997, the Corporation adopted SFAS No. 128, "Earnings per
Share," which establishes standards for computing and disclosing basic and
diluted earnings per common share. Earnings per common share for all periods
presented are computed in accordance with SFAS 128. See note 15 to the financial
statements.

NOTE 3: ACQUISITIONS

On June 4, 1998, the Corporation acquired the radio broadcasting operations of
American Radio for $1.4 billion in cash plus the assumption of debt with a fair
value of approximately $1.3 billion. The acquisition was accounted for under the
purchase method. Based on preliminary estimates, which may be revised at a later
date, 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.

On September 30, 1997, the Corporation acquired TNN and CMT, Gaylord
Entertainment Company's (Gaylord) two major cable networks. The total purchase
price of $1.55 billion was paid through the issuance of 59 million shares of the
Corporation's common stock. The acquisition was accounted for under the purchase
method. The excess of the consideration paid over the estimated fair value of
net assets acquired of $1.2 billion was recorded as goodwill and is being
amortized on a straight-line basis over 40 years. Prior to the acquisition, the
Corporation provided certain services to TNN and CMT for which it received a
commission. Additionally, the Corporation owned a 33 percent interest in CMT.

 28        CBS CORPORATION
<PAGE>   29

The estimated fair values of assets acquired and liabilities assumed are
summarized in the following table:

FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
(in millions)

<TABLE>
<CAPTION>
                               AMERICAN
                                 RADIO         TNN AND CMT
                              AT JUNE 4,     AT SEPTEMBER 30,
                                 1998              1997
--------------------------------------------------------------
<S>                           <C>           <C>
Cash                            $   18            $    8
Receivables                         88                63
Program rights                      --                22
Property and equipment             129                49
Identifiable intangible
  assets:
  FCC licenses                   2,346                --
  Cable license agreements          --               506
Goodwill                           825             1,196
Other assets                        53                 4
Liabilities for talent,
 program rights, and similar
 contracts                          --               (39)
Debt                            (1,316)               --
Deferred income taxes             (654)             (182)
Other liabilities                  (89)              (77)
--------------------------------------------------------------
Total purchase price            $1,400            $1,550
--------------------------------------------------------------
</TABLE>

The following unaudited pro forma information combines the consolidated results
of operations of the Corporation with those of American Radio and TNN and CMT as
if these acquisitions had occurred on January 1, 1997. The pro forma results
give effect to certain purchase accounting adjustments, including additional
depreciation expense resulting from a step-up in the basis of fixed assets,
additional amortization expense from goodwill and other identifiable intangible
assets, increased interest expense from acquisition debt, related income tax
effects, and the issuance of additional shares in connection with the
acquisitions.

PRO FORMA RESULTS
(unaudited, in millions except per-share amounts)

<TABLE>
<CAPTION>
      YEAR ENDED DECEMBER 31,          1998      1997
------------------------------------------------------
<S>                                   <C>       <C>
Revenues                              $6,973    $5,950
Interest expense                        (445)     (559)
Loss from Continuing Operations          (61)     (232)
Basic and diluted loss per common
  share -
 Continuing Operations                  (.09)     (.38)
------------------------------------------------------
</TABLE>

This pro forma financial 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 and the TNN and CMT transactions been
consummated on January 1, 1997. 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.

NOTE 4: PENSIONS, OTHER POSTRETIREMENT BENEFITS, AND POSTEMPLOYMENT BENEFITS

The Corporation has a number of defined benefit pension and other postretirement
benefit plans.

The change in benefit obligation and plan assets and the amounts recognized in
the consolidated balance sheet are presented in the following tables:

RECONCILIATION OF FUNDED STATUS
(in millions)

<TABLE>
<CAPTION>
                                               POSTRETIREMENT
                          PENSION BENEFITS        BENEFITS
                          -----------------   -----------------
    AT DECEMBER 31,        1998      1997      1998      1997
---------------------------------------------------------------
<S>                       <C>       <C>       <C>       <C>
CHANGE IN BENEFIT
  OBLIGATION:
Benefit obligation at
 beginning of year        $ 5,276   $ 5,194   $ 1,425   $ 1,405
Service cost                   60        62        10        11
Interest cost                 359       384        98       104
Plan participants'
 contributions                 13        16         3         3
Actuarial loss                463       386        58        54
Foreign currency
 exchange rate change         (13)      (11)       (1)       (2)
Benefits paid                (644)     (706)     (114)     (114)
Plan amendments                --       (69)     (112)      (14)
Divestitures                 (136)      (59)      (52)      (22)
Special termination
  benefits                     52        79        --        --
---------------------------------------------------------------
Benefit obligation at
 end of year              $ 5,430   $ 5,276   $ 1,315   $ 1,425
---------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan
 assets at beginning of
 year                     $ 4,014   $ 3,930   $    69   $    68
Actual return on plan
  assets                      705       636         6         6
Employer contributions        296       164        97       106
Plan participants'
 contributions                 13        16         3         3
Benefits paid                (644)     (706)     (114)     (114)
Foreign currency
 exchange rate change         (13)       --        --        --
Divestitures                 (118)      (26)       --        --
---------------------------------------------------------------
Fair value of plan
 assets at end of year    $ 4,253   $ 4,014   $    61   $    69
---------------------------------------------------------------
FUNDED STATUS:
Net amount recognized     $   128   $    76   $(1,144)  $(1,195)
Unrecognized actuarial
  loss                     (1,366)   (1,385)     (247)     (197)
Unrecognized prior
 service benefit              105       135       137        36
Unrecognized net
 transition obligation        (44)      (88)       --        --
---------------------------------------------------------------
Funded status             $(1,177)  $(1,262)  $(1,254)  $(1,356)
---------------------------------------------------------------
</TABLE>

                                                      CBS CORPORATION         29
<PAGE>   30

AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET
(in millions)

<TABLE>
<CAPTION>
                                               POSTRETIREMENT
                          PENSION BENEFITS        BENEFITS
                          -----------------   -----------------
    AT DECEMBER 31,        1998      1997      1998      1997
---------------------------------------------------------------
<S>                       <C>       <C>       <C>       <C>
Prepaid benefit cost      $     5   $    36   $    --   $    --
Accrued benefit
  liability                (1,105)   (1,149)   (1,144)   (1,195)
Intangible asset                5        22        --        --
Accumulated other
 comprehensive income         808       771        --        --
Deferred tax effects of
 accumulated other
 comprehensive income         415       396        --        --
---------------------------------------------------------------
Net amount recognized     $   128   $    76   $(1,144)  $(1,195)
---------------------------------------------------------------
</TABLE>

Of the amounts above, the following are included in the balance sheet of
Discontinued Operations. All other amounts are included in the balance sheet of
Continuing Operations.

AMOUNTS RECOGNIZED IN DISCONTINUED OPERATIONS
(in millions)

<TABLE>
<CAPTION>
                               PENSION      POSTRETIREMENT
                              BENEFITS         BENEFITS
                            -------------   ---------------
     AT DECEMBER 31,        1998    1997     1998     1997
-----------------------------------------------------------
<S>                         <C>     <C>     <C>      <C>
Prepaid benefit cost        $   5   $  36   $  --    $  --
Accrued benefit liability    (160)     --     (98)     (35)
-----------------------------------------------------------
Total                       $(155)  $  36   $ (98)   $ (35)
-----------------------------------------------------------
</TABLE>

The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $4,495 million, $4,316 million, and $3,234 million,
respectively, as of December 31, 1998, and $4,292 million, $4,104 million, and
$2,991 million, respectively, as of December 31, 1997.

Included in plan assets at December 31, 1998 are 5,614,600 shares of the
Corporation's common stock with a market value of $184 million.

The assumptions used to measure the present value of benefit obligations and net
periodic benefit cost are shown in the following table:

SIGNIFICANT ASSUMPTIONS

<TABLE>
<CAPTION>
                                              POSTRETIREMENT
                        PENSION BENEFITS         BENEFITS
                       ------------------   ------------------
   AT DECEMBER 31,     1998   1997   1996   1998   1997   1996
--------------------------------------------------------------
<S>                    <C>    <C>    <C>    <C>    <C>    <C>
Discount rate          6.75%  7.25%  7.75%  6.75%  7.25%  7.75%
Expected return on
 plan assets            9.5    9.5    9.5    7.0    7.0    7.0
Compensation increase
 rate                   4.0    4.0    4.0    4.0    4.0    4.0
--------------------------------------------------------------
</TABLE>

For measurement purposes, an 8.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 4.75 percent for 2007 and remain at that level
thereafter.

COMPONENTS OF NET PERIODIC BENEFIT COST
(in millions)

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS          POSTRETIREMENT BENEFITS
                                                               ---------------------       ------------------------
                  YEAR ENDED DECEMBER 31,                      1998    1997    1996         1998     1997     1996
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>     <C>     <C>         <C>      <C>      <C>
Service cost                                                   $  60   $  62   $  70        $ 10     $ 11     $ 11
Interest cost                                                    359     384     371          98      104       97
Expected return on plan assets                                  (342)   (346)   (347)         (5)      (5)      (5)
Amortization of unrecognized net transition obligation            22      27      25          --       --       --
Amortization of unrecognized prior service benefit               (14)    (10)     (7)         (3)      (3)      (3)
Recognized actuarial loss                                         93      83     108           5        4        7
-------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                      $ 178   $ 200   $ 220        $105     $111     $107
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF NET PERIODIC BENEFIT COST:
Continuing Operations                                          $ 106   $ 117   $  99        $ 80     $ 69     $ 52
Discontinued Operations                                           72      83     121          25       42       55
-------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                      $ 178   $ 200   $ 220        $105     $111     $107
-------------------------------------------------------------------------------------------------------------------
</TABLE>

A one percentage point increase or decrease in the assumed health care cost
trend rates would have an approximate effect of a $3 million increase or
decrease on the total of service and interest cost components and a $32 million
increase or decrease on the postretirement benefit obligation.

The Corporation also participates in various multi-employer, union-administered
defined benefit plans that cover certain broadcast employees. Pension expense
related to these multi-employer plans for 1998, 1997 and 1996 was $12 million,
$11 million and $10 million, respectively.

 30        CBS CORPORATION
<PAGE>   31

The Corporation also provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 31, 1998 and 1997, the
Corporation's liability for postemployment benefits totaled $55 million and $66
million, respectively. The portion of this liability included in the net assets
of Discontinued Operations was $26 million and $38 million at December 31, 1998
and 1997, respectively.

NOTE 5: INCOME TAXES

Income tax expense (benefit) included in the consolidated financial statements
follows:

COMPONENTS OF CONSOLIDATED INCOME TAX EXPENSE (BENEFIT)
(in millions)

<TABLE>
<CAPTION>
       YEAR ENDED DECEMBER 31,         1998   1997   1996
---------------------------------------------------------
<S>                                    <C>    <C>    <C>
Continuing Operations                  $161   $ 73   $(71)
Discontinued Operations                  --    667    573
Extraordinary item                       (6)    --    (60)
---------------------------------------------------------
Income tax expense                     $155   $740   $442
---------------------------------------------------------
</TABLE>

The tax provision for Discontinued Operations includes tax expense of $779
million in 1997 and $868 million in 1996 related to the gain on disposal of
Discontinued Operations.

INCOME TAX EXPENSE (BENEFIT) FROM CONTINUING OPERATIONS
(in millions)

<TABLE>
<CAPTION>
       YEAR ENDED DECEMBER 31,         1998   1997   1996
---------------------------------------------------------
<S>                                    <C>    <C>    <C>
Current:
  Federal                              $119   $ 37   $(17)
  State                                  28     19    (19)
  Foreign                                 9      1     --
---------------------------------------------------------
Total current income tax expense
  (benefit)                             156     57    (36)
---------------------------------------------------------
Deferred:
  Federal                                 5     14    (28)
  State                                  --      2     (7)
---------------------------------------------------------
Total deferred income tax expense
  (benefit)                               5     16    (35)
---------------------------------------------------------
Income tax expense (benefit)           $161   $ 73   $(71)
---------------------------------------------------------
</TABLE>

CONSOLIDATED INCOME TAX EXPENSE (BENEFIT)
(in millions)

<TABLE>
<CAPTION>
       YEAR ENDED DECEMBER 31,         1998   1997   1996
---------------------------------------------------------
<S>                                    <C>    <C>    <C>
Current:
  Federal                              $127   $ 79   $ 88
  State                                  28     73     52
  Foreign                                 9     46     27
---------------------------------------------------------
Total current income tax expense        164    198    167
---------------------------------------------------------
Deferred:
  Federal                                (9)   553    269
  State                                  --    (41)    (2)
  Foreign                                --     30      8
---------------------------------------------------------
Total deferred income tax expense
  (benefit)                              (9)   542    275
---------------------------------------------------------
Income tax expense                     $155   $740   $442
---------------------------------------------------------
</TABLE>

The tax benefit associated with stock based compensation plans reduced taxes
currently payable by $121 million for 1998, $29 million for 1997, and $4 million
for 1996.

During 1998, 1997, and 1996, $19 million, $14 million, and $229 million of
deferred tax effects, respectively, were recorded in shareholders' equity
(comprehensive income) as part of the minimum pension liability adjustment. See
note 4 to the financial statements.

Deferred income taxes result from temporary differences in the financial bases
and tax bases of assets and liabilities. The types of differences that give rise
to significant portions of deferred income tax liabilities or assets are shown
in the following table:

CONSOLIDATED DEFERRED INCOME TAXES BY SOURCE
(in millions)

<TABLE>
<CAPTION>
           AT DECEMBER 31,               1998      1997
---------------------------------------------------------
<S>                                     <C>       <C>
Deferred tax assets:
  Provision for expenses and losses     $ 1,514   $ 1,204
  Postretirement and postemployment
   benefits                                 421       442
  Minimum pension liability                 415       396
  Tax credit carryforwards                  353       316
  Long-term contracts in process              9        91
  Other                                     362       267
---------------------------------------------------------
Total deferred tax assets                 3,074     2,716
Valuation allowance                         (84)     (137)
---------------------------------------------------------
Net deferred tax asset                    2,990     2,579
---------------------------------------------------------
Deferred tax liabilities:
  Property, equipment, and intangibles
    assets                               (1,768)   (1,176)
  Leasing activities                       (526)     (572)
  Other                                    (643)     (170)
---------------------------------------------------------
Total deferred tax liabilities           (2,937)   (1,918)
---------------------------------------------------------
Deferred income taxes, net asset        $    53   $   661
---------------------------------------------------------
</TABLE>

                                                      CBS CORPORATION         31
<PAGE>   32

At December 31, 1998 and 1997, included in the balance sheet of Continuing
Operations and net assets of Discontinued Operations are the following deferred
tax assets and liabilities:

BALANCE SHEET STATUS
(in millions)

<TABLE>
<CAPTION>
           AT DECEMBER 31,              1998     1997
-----------------------------------------------------
<S>                                     <C>      <C>
Continuing Operations                   $(361)   $170
Discontinued Operations                   414     491
-----------------------------------------------------
Deferred income taxes, net asset        $  53    $661
-----------------------------------------------------
</TABLE>

The valuation allowance for deferred taxes primarily reflects foreign tax
credits not anticipated to be utilized as a result of the reduction in foreign
source income caused by the divestiture of foreign subsidiaries principally
related to Discontinued Operations.

Management believes that the Corporation will have sufficient future taxable
income to make it more likely than not that the net deferred tax asset will be
realized.

At December 31, 1998, there were alternative minimum tax credit carryforwards of
$266 million that have no expiration date and foreign tax credit carryforwards
of $87 million that will expire through 2003.

INCOME TAX EXPENSE (BENEFIT) FROM CONTINUING OPERATIONS
(in millions)

<TABLE>
<CAPTION>
    YEAR ENDED DECEMBER 31,       1998   1997    1996
------------------------------------------------------
<S>                               <C>    <C>     <C>
Federal income tax expense
 (benefit) at statutory rate      $ 54   $ (21)  $(102)
Increase (decrease) in tax resulting
 from:
  Amortization of goodwill          88      78      42
  State income tax expense
   (benefit), net of federal
   effect                           18      13     (17)
  Lower tax rate on income of
   foreign sales corporation        (5)     (5)     (2)
  Nondeductible expenses             4       3       4
  Other differences, net             2       5       4
------------------------------------------------------
Income tax expense (benefit)
 from Continuing Operations       $161   $  73   $ (71)
------------------------------------------------------
</TABLE>

The foreign portion of income or loss from Continuing Operations before income
taxes and minority interest in income of consolidated subsidiaries consisted of
income of $26 million in 1998, $13 million in 1997, and $0 million in 1996. Such
income consists of profits and losses generated from foreign operations that can
be subject to both U.S. and foreign income taxes.

The federal income tax returns of the Corporation and its wholly owned
subsidiaries are settled through the year ended December 31, 1989. The
Corporation has reached an agreement with the Internal Revenue Service regarding
certain issues for the years 1990 through 1992 and a tentative agreement for
1993. Management believes that adequate provisions for taxes have been made
through December 31, 1998.

NOTE 6: PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT
(in millions)

<TABLE>
<CAPTION>
           AT DECEMBER 31,              1998      1997
-------------------------------------------------------
<S>                                    <C>       <C>
Land and buildings                     $  613    $  642
Equipment                                 932       802
Construction in progress                   77        37
-------------------------------------------------------
Property and equipment, at cost         1,622     1,481
Accumulated depreciation                 (473)     (415)
-------------------------------------------------------
Property and equipment, net            $1,149    $1,066
-------------------------------------------------------
</TABLE>

For the years ended December 31, 1998, 1997, and 1996, depreciation expense
totaled $137 million, $120 million, and $105 million, respectively.

NOTE 7: OTHER INTANGIBLE AND NONCURRENT ASSETS

OTHER INTANGIBLE AND NONCURRENT ASSETS
(in millions)

<TABLE>
<CAPTION>
           AT DECEMBER 31,              1998      1997
-------------------------------------------------------
<S>                                    <C>       <C>
Cable license agreements               $  441    $  491
Other intangible assets                   357       384
Intangible pension asset (note 4)           5        22
Deferred charges                           33        48
Joint ventures and other affiliates       116       122
Recoverable costs of discontinued
 businesses (note 11)                     180       208
Noncurrent receivables                    228       145
Program rights                             93       135
Other                                      83        55
-------------------------------------------------------
Other intangible and noncurrent
  assets                               $1,536    $1,610
-------------------------------------------------------
</TABLE>

Cable license agreements and other intangible assets are presented in the
preceding table net of accumulated amortization of $122 million at December 31,
1998 and $70 million at December 31, 1997.

Joint ventures and other affiliates include investments in companies over which
the Corporation exercises significant influence but does not control.

FCC licenses and goodwill are shown on the consolidated balance sheet net of
accumulated amortization. At December 31, 1998 and 1997, accumulated
amortization for FCC licenses is $173 million and $105 million and for goodwill
is $721 million and $435 million, respectively.

 32        CBS CORPORATION
<PAGE>   33

NOTE 8: DEBT

SHORT-TERM DEBT
(in millions)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       1998                                             1997
                                   ---------------------------------------------    ---------------------------------------------
                                     AT DECEMBER 31          DURING THE YEAR          AT DECEMBER 31          DURING THE YEAR
                                   -------------------   -----------------------    -------------------   -----------------------
                                             COMPOSITE   AVG. OUT-     WEIGHTED               COMPOSITE   AVG. OUT-     WEIGHTED
                                   BALANCE     RATE       STANDING    AVG. RATE     BALANCE     RATE       STANDING    AVG. RATE
---------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>         <C>          <C>           <C>       <C>         <C>          <C>
Credit facility                      $--         --%        $367         5.9%         $--         --%        $362         6.0%
Short-term foreign bank loans         --         --           19         5.7           96        4.8           81         5.9
Other                                 --         --           16         6.0           --         --           19         5.9
---------------------------------------------------------------------------------------------------------------------------------
Total short-term debt                $--                                              $96
Less amount directly attributable
 to Discontinued Operations           --                                               (7)
---------------------------------------------------------------------------------------------------------------------------------
Short-term debt - Continuing
  Operations                         $--                                              $89
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Average outstanding borrowings were determined based on daily amounts
outstanding for the credit facilities and on monthly balances outstanding for
short-term foreign bank loans.

LONG-TERM DEBT
(in millions)

<TABLE>
<CAPTION>
          AT DECEMBER 31,              1998      1997
------------------------------------------------------
<S>                                   <C>       <C>
Revolver                              $   --    $1,465
7.15% senior notes due 2005              498        --
8 3/8% notes due 2002                    322       348
6 7/8% notes due 2003                    275       275
8 5/8% debentures due 2012               272       273
7 7/8% debentures due 2023               267       325
8 7/8% notes due 2001                    229       250
9% senior subordinated notes due
  2006                                   165        --
9 3/4% senior notes due 2005             163        --
7 5/8% notes due 2002                    143       150
7 3/4% notes due 1999                    125       125
11 3/8% subordinated exchange
 debentures due 2009                     115        --
8 7/8% notes due 2014                    112       150
8 7/8% debentures due 2022                91        92
7 1/8% notes due 2023                     80        97
7% convertible subordinated
 debentures due 2011                      79        --
Medium-term notes due through 2001        77       230
Other                                     80        54
------------------------------------------------------
                                       3,093     3,834
Less current maturities:
  Continuing Operations                 (159)      (62)
  Discontinued Operations (note 10)      (46)      (96)
------------------------------------------------------
Total long-term debt                   2,888     3,676
Long-term debt -- Discontinued
 Operations (note 10)                   (382)     (440)
------------------------------------------------------
Long-term debt -- Continuing
  Operations                          $2,506    $3,236
------------------------------------------------------
</TABLE>

In connection with the acquisition of American Radio on June 4, 1998, the
Corporation assumed American Radio debt with a fair value of approximately $1.3
billion. Revolver borrowings under American Radio's revolving credit agreement
of $567 million were repaid shortly after the acquisition. The remaining debt
assumed consisted of 9% and 9 3/4% senior notes with a combined face value of
$325 million, 11 3/8% Cumulative Exchangeable Preferred Stock (exchanged to
11 3/8% Subordinated Exchange Debentures on July 15, 1998) with a face value of
$211 million, and 7% Convertible Exchangeable Preferred Stock (exchanged to 7%
Convertible Subordinated Debentures on September 30, 1998) with a redemption
value of $142 million. The Senior Subordinated Notes and the 11 3/8% Cumulative
Exchangeable Preferred Stock were recorded at their fair market value as of the
acquisition date, which resulted in an increase in the carrying value of
approximately $73 million.

The indentures for each of these obligations contain covenants applicable to
American Radio including, among others, limitations on sales of assets, dividend
payments, and future indebtedness. As a result of the change in control related
to the acquisition of American Radio by the Corporation, an offer to purchase
the outstanding securities was made in June 1998, and $8 million of the Senior
Subordinated Notes were redeemed. Another offer was made in December 1998 as a
result of the transfer of American Radio to Infinity. Under the most restrictive
of the indentures relating to the American Radio long-term debt, approximately
$2 billion of American Radio's net assets at December 31, 1998 are restricted.
This, in turn, limits the ability of American Radio to pay dividends.

During the third and fourth quarters of 1998, the Corporation also redeemed $64
million of the 7% Convertible Subordinated Debentures. The debentures may be
redeemed at any time at the option of the holder for cash and certain securities
held by the Corporation for the purpose of the redemption.

In addition to the redemptions noted above, during the year the Corporation
purchased, at market value, $298 million face value of debt securities
consisting of both debt assumed in the American Radio acquisition

                                                      CBS CORPORATION         33
<PAGE>   34

and other Corporation debt. This purchase of debt resulted in an extraordinary
loss of $9 million, net of a $6 million tax benefit, on the early extinguishment
of debt.

On May 20, 1998, the Corporation issued, under Securities and Exchange
Commission Rule 144A, $500 million of Senior Notes due in 2005. Interest on the
Notes will accrue at a rate of 7.15 percent per annum and is payable
semiannually commencing November 20, 1998. During the third quarter, the
Corporation exchanged the restricted securities for registered notes, which have
the same interest rate and have other terms and conditions similar to the
restricted notes.

The Corporation executed a five-year revolving credit agreement with total
commitments of $5.5 billion in August 1996. This agreement was amended in 1998
to modify the financial covenants and reduce the maximum borrowing to $4.0
billion. Of the $4.0 billion of borrowing capacity, up to $1.0 billion is
available to Infinity. 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 (LIBOR), 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 December 31, 1998. There are no compensating balance
requirements under the facility.

The 8 7/8% debentures due 2022, the 11 3/8% Subordinated Exchange Debentures due
2009, the 9 3/4% and 9% senior notes due 2005 and 2006, respectively, and the 7%
Convertible Subordinated Debentures due 2011 may be redeemed at specified
redemption prices plus accrued and unpaid interest after June 1, 2002, January
15, 2002, December 1, 2000, February 1, 2001, and July 15, 1999, respectively.
The 7.15% Senior Notes due 2005 may be redeemed by the Corporation at specified
redemption prices at any time. The 8 7/8% notes due 2014 are redeemable at 100%
of principal plus accrued interest at the election of the holder on June 14,
1999 or June 14, 2004. The Corporation may redeem the notes only if the total
outstanding principal is $10 million or less. Except for these debentures and
notes, the remaining long-term debt outstanding at December 31, 1998 may not be
redeemed prior to maturity.

At December 31, 1998, medium-term notes had interest rates ranging from 8.75% to
9.44%, with an average interest rate of 9.1%. During 1999, $46 million of the
medium term notes will mature.

The scheduled maturities of long-term debt outstanding at December 31, 1998 for
each of the next five years are as follows:

SCHEDULED MATURITIES OF LONG-TERM DEBT
(in millions)

<TABLE>
<CAPTION>
                                  YEAR OF MATURITY
                          --------------------------------
 AT DECEMBER 31, 1998     1999   2000   2001   2002   2003
----------------------------------------------------------
<S>                       <C>    <C>    <C>    <C>    <C>
Continuing Operations     $159   $ 6    $  4   $348   $279
Discontinued Operations     46    11     250    121     --
----------------------------------------------------------
Total long-term debt      $205   $17    $254   $469   $279
----------------------------------------------------------
</TABLE>

NOTE 9: OTHER CURRENT AND NONCURRENT LIABILITIES

OTHER CURRENT LIABILITIES
(in millions)

<TABLE>
<CAPTION>
          AT DECEMBER 31,              1998      1997
------------------------------------------------------
<S>                                   <C>       <C>
Accrued employee compensation         $  108    $  119
Income taxes payable                      24        30
Accrued restructuring costs               38        28
Accrued interest and insurance            67        54
Accrued liabilities                      318       309
Retained liabilities of discontinued
 businesses (note 11)                    254       191
Other                                     11       137
------------------------------------------------------
Total other current liabilities       $  820    $  868
------------------------------------------------------
</TABLE>

OTHER NONCURRENT LIABILITIES
(in millions)

<TABLE>
<CAPTION>
          AT DECEMBER 31,              1998      1997
------------------------------------------------------
<S>                                   <C>       <C>
Deferred income taxes (note 5)        $  499    $  224
Accrued restructuring costs               28        13
Liabilities for talent and program
  rights                                 119        68
Accrued liabilities                      156       201
Retained liabilities of discontinued
 businesses (note 11)                    766       767
Postemployment benefits (note 4)          29        28
Other                                    484       235
------------------------------------------------------
Total other noncurrent liabilities    $2,081    $1,536
------------------------------------------------------
</TABLE>

 34        CBS CORPORATION
<PAGE>   35

NOTE 10: 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 all of these businesses are classified as Discontinued Operations
for all periods presented except for certain liabilities expected to be retained
by the Corporation. See note 11 to the financial statements.

In connection with the adoption of a plan in 1997 to divest all of the
industrial businesses remaining at that time, the Corporation recognized a net
gain of $871 million. The adoption of two separate disposal plans in 1996
combined with realization of a gain from a 1995 disposal plan resulted in the
recognition of a net gain of $1,018 million in 1996.

In connection with these disposal plans, during 1998, the Corporation sold
several businesses as well as certain securities and other assets. The most
significant of these divestitures was the August 1998 sale of the Power
Generation business for $1.2 billion in cash. At December 31, 1998, the
remaining assets and liabilities of Discontinued Operations generally consist of
(a) the Energy Systems and Government Operations businesses, (b) portfolio
investments and related debt, and (c) other miscellaneous assets, including
surplus properties, that are expected to be divested. In addition, Discontinued
Operations includes a liability for estimated loss on disposal that covers
transaction related costs, results of operations through the estimated date of
disposal, and other obligations associated with the disposal of the industrial
businesses.

The Energy Systems and Government Operations businesses are currently under
agreement to be sold for $200 million in cash, subject to certain adjustments,
plus the assumption of liabilities, commitments, and obligations of
approximately $950 million, all in accordance with the terms of the divestiture
agreement. The transaction is expected to be completed in early 1999 and is
expected to result in a gain, which will be recognized upon realization.

The assets and liabilities of Discontinued Operations have been separately
classified on the consolidated balance sheet as net assets of Discontinued
Operations. A summary of these assets and liabilities follows:

NET ASSETS OF DISCONTINUED OPERATIONS
(in millions)

<TABLE>
<CAPTION>
          AT DECEMBER 31,             1998       1997
------------------------------------------------------
<S>                                  <C>        <C>
Assets:
  Cash and cash equivalents          $    27    $   59
  Customer receivables                   224       537
  Inventories                             94       560
  Costs and estimated earnings over
   billings on uncompleted
   contracts                              87       437
  Portfolio investments                  642       791
  Plant and equipment, net               269       681
  Deferred income taxes (note 5)         414       491
  Other assets                           162       545
------------------------------------------------------
Total assets                         $ 1,919    $4,101
------------------------------------------------------
Liabilities:
  Accounts payable                   $   190    $  384
  Billings over costs and estimated
   earnings on uncompleted
   contracts                             137       377
  Short-term debt                         --         7
  Current maturities of long-term
   debt                                   46        96
  Long-term debt                         382       440
  Settlements and environmental
   liabilities                           569       625
  Liability for estimated loss on
   disposal                            1,309       989
  Other liabilities                      570       971
------------------------------------------------------
Total liabilities                      3,203     3,889
------------------------------------------------------
Net assets (liabilities) of
 Discontinued Operations             $(1,284)   $  212
------------------------------------------------------
</TABLE>

PORTFOLIO INVESTMENTS

Portfolio investments, which remain from the financial services business,
consist of direct financing and leveraged lease receivables of $615 million and
$761 million at December 31, 1998 and 1997, respectively. Generally, these
leases are expected to liquidate in accordance with their contractual terms,
which extend to 2015. At December 31, 1998 and 1997, 81 percent and 83 percent
of the leases, respectively, related to aircraft while the remainder primarily
related to cogeneration facilities. Other portfolio investments, totaled $27
million and $30 million at December 31, 1998 and 1997, respectively. The
Corporation has provided for all of the estimated costs associated with
liquidation of this portfolio. Cash inflows from contractual liquidation of the
leasing portfolio are expected to be sufficient to repay the principal amount of
the debt as well as interest and other costs associated with the portfolio.

                                                      CBS CORPORATION         35
<PAGE>   36

The following table presents the Corporation's net investment in leases:

NET INVESTMENT IN LEASES
(in millions)

<TABLE>
<CAPTION>
           AT DECEMBER 31,             1998     1997
-----------------------------------------------------
<S>                                    <C>      <C>
Rental payments receivable (net of
 principal and interest on
 non-recourse loans)                   $ 465    $ 689
Estimated residual value of leased
  assets                                 324      366
Unearned and deferred income            (174)    (294)
-----------------------------------------------------
Investment in leases (leasing
  receivables)                           615      761
Deferred taxes and deferred
 investment tax credits arising from
 leases                                 (526)    (572)
-----------------------------------------------------
Investment in leases, net              $  89    $ 189
-----------------------------------------------------
</TABLE>

At December 31, 1998 and 1997, deferred investment tax credits totaled $19
million and $20 million, respectively. These deferred investment tax credits are
amortized over the contractual terms of the respective leases.

Contractual maturities for the Corporation's leasing rental payments receivable
at December 31, 1998 are as follows:

CONTRACTUAL MATURITIES FOR LEASING RENTAL PAYMENTS RECEIVABLE AT
DECEMBER 31, 1998
(in millions)

<TABLE>
<CAPTION>
                   YEAR OF MATURITY
       ----------------------------------------
                                          AFTER
TOTAL  1999   2000   2001   2002   2003   2003
-----------------------------------------------
<S>    <C>    <C>    <C>    <C>    <C>    <C>
$465   $26    $33    $42    $36    $40    $288
-----------------------------------------------
</TABLE>

SETTLEMENTS AND ENVIRONMENTAL LIABILITIES

Certain environmental and litigation-related liabilities are expected to be
assumed by buyers pursuant to divestiture agreements or relate directly to
surplus properties and are included in the net assets (liabilities) of
Discontinued Operations. Those obligations that are expected to be retained by
the Corporation are separately presented in Continuing Operations as retained
liabilities of discontinued businesses. See note 11 to the financial statements.

The Corporation has been defending various lawsuits brought by utilities
claiming a substantial amount of damages in connection with alleged tube
degradation in steam generators sold by the Energy Systems business as
components of nuclear steam supply systems. Since 1993, settlement agreements
have been entered resolving ten litigation claims. These agreements generally
require the Corporation to provide certain products and services at prices
discounted at varying rates. Two cases were resolved in favor of the Corporation
after trial or arbitration. In the one remaining steam generator lawsuit, the
Corporation's motion for summary judgment was recently granted, in significant
part. The plaintiffs have appealed this decision.

The Corporation is also a party to three tolling agreements with utilities or
utility plant owners' groups that have asserted steam generator claims. The
tolling agreements delay initiation of any litigation for various specified
periods of time and permit the parties time to engage in discussions.

The Corporation has provided for estimated costs for previous and potential
settlement agreements that provide for costs in excess of discounted prices.
These obligations will be assumed by the buyer of the Energy Systems business in
accordance with the terms of the divestiture agreement.

LIABILITY FOR ESTIMATED LOSS ON DISPOSAL

The liability for estimated loss on disposal of $1,309 million at December 31,
1998, includes estimated losses and disposal costs associated with each
divestiture transaction, including estimated results of operations through the
expected date of disposition and certain contingencies related to the industrial
businesses, as well as interest and other costs associated with the liquidation
of portfolio investments. Satisfaction of these liabilities is expected to occur
over the next several years. Management believes that the liability for
estimated loss on disposal at December 31, 1998, is adequate to cover
divestiture or liquidation of the remaining assets and liabilities of
Discontinued Operations.

RESULTS OF OPERATIONS

In accordance with APB 30, the consolidated financial statements reflect the
operating results of Discontinued Operations separately from Continuing
Operations.

 36        CBS CORPORATION
<PAGE>   37

Summarized in the following table are the operating results of Discontinued
Operations:

OPERATING RESULTS OF DISCONTINUED OPERATIONS
(in millions)

<TABLE>
<CAPTION>
                                   SALE OF PRODUCTS
                                     OR SERVICES
                               ------------------------
   YEAR ENDED DECEMBER 31,      1998     1997     1996
-------------------------------------------------------
<S>                            <C>      <C>      <C>
Industrial businesses          $2,235   $4,257   $5,389
Financial services                 21       12       26
-------------------------------------------------------
Total Discontinued Operations  $2,256   $4,269   $5,415
-------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                  NET INCOME (LOSS)
                               BEFORE MEASUREMENT DATE
                               ------------------------
   YEAR ENDED DECEMBER 31,      1998     1997     1996
-------------------------------------------------------
<S>                            <C>      <C>      <C>
Industrial businesses          $   --   $ (191)  $ (609)
Financial services                 --       --       --
-------------------------------------------------------
Total Discontinued Operations  $   --   $ (191)  $ (609)
-------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                               NET INCOME (LOSS) AFTER
                                   MEASUREMENT DATE
                               ------------------------
   YEAR ENDED DECEMBER 31,      1998     1997     1996
-------------------------------------------------------
<S>                            <C>      <C>      <C>
Industrial businesses          $ (100)  $  (45)  $ (134)
Financial services                (12)     (18)      (9)
Other                              (3)     (25)     (36)
-------------------------------------------------------
Total Discontinued Operations  $ (115)  $  (88)  $ (179)
-------------------------------------------------------
</TABLE>

All operating results after the measurement date are charged to the liability
for estimated loss on disposal.

In connection with the presentation of various businesses as Discontinued
Operations, interest expense on Continuing Operations debt totaling $5 million,
$42 million and $60 million was reclassified to Discontinued Operations for the
years ended December 31, 1998, 1997, and 1996, respectively. This allocation is
based on the quarterly ratio of the net assets of Discontinued Operations to the
sum of total consolidated net assets plus consolidated debt.

CASH FLOWS

Cash proceeds from the sale or liquidation of all assets of Discontinued
Operations except for portfolio investments, as well as cash requirements to
satisfy non-debt obligations of Discontinued Operations will affect cash flows
of Continuing Operations. Operating cash flows of Discontinued Operations, which
include cash flows from the operations of the businesses as well as payments for
disposition-related costs, are presented separately from Continuing Operations
in the consolidated financial statements and consist of the following:

CASH FLOWS FROM OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS
(in millions)

<TABLE>
<CAPTION>
  YEAR ENDED DECEMBER 31,     1998    1997    1996
---------------------------------------------------
<S>                           <C>     <C>     <C>
Industrial businesses         $(286)  $(382)  $(279)
Financial services              (42)    (30)      3
Other                            (3)    (25)    (36)
---------------------------------------------------
Cash used by operating
 activities                   $(331)  $(437)  $(312)
---------------------------------------------------
</TABLE>

NOTE 11: CONTINGENT LIABILITIES

Certain environmental, litigation, and other liabilities associated with the
industrial businesses were not or are not expected to be assumed by other
parties in the divestiture transactions and, therefore, would be retained by the
Corporation. These liabilities include certain environmental, general
litigation, and other matters not involving active businesses. Accrued
liabilities associated with these matters, which have been separately presented
in Continuing Operations as retained liabilities of discontinued businesses,
totaled $1.0 billion at December 31, 1998, including amounts related to
previously discontinued businesses of CBS Inc. Of this amount, $766 million is
classified as non-current. A separate asset of $225 million was re-corded for
estimated amounts recoverable from third parties, of which $180 million is
classified as noncurrent.

LEGAL MATTERS

SECURITIES CLASS ACTIONS--FINANCIAL SERVICES

The Corporation has been defending derivative and class action lawsuits alleging
federal securities law and common law violations arising out of purported
misstatements or omissions contained in the Corporation's public filings
concerning the financial condition of the Corporation and certain of its former
subsidiaries in connection with charges to earnings of $975 million in 1990 and
$1,680 million in 1991 and a public offering of the Corporation's common stock
in 1991. The court dismissed both the derivative claim and the class action
claims in their entirety. These dismissals were appealed. In July 1996, the
United States Court of Appeals for the Third Circuit (the Third Circuit)
affirmed the court's dismissal of the derivative claim. The Third Circuit 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 Third Circuit have been
remanded to the lower court for further proceedings. The parties to the class
actions have reached an agreement in principle to resolve all claims.

                                                      CBS CORPORATION         37
<PAGE>   38

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 was not exposed to the Corporation's product. At
December 31, 1998, the Corporation had approximately 113,200 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 reimbursing the Corporation for a substantial portion of its current costs
and settlements associated with asbestos claims. The Corporation has recorded a
liability for asbestos-related matters that are deemed probable and can be
reasonably estimated, and has separately recorded an asset equal to the amount
of such estimated liabilities that will be recovered pursuant to agreements with
insurance carriers. Factors considered in evaluating this litigation include:
claimed product involvement, alleged exposure to product, alleged disease,
validity of medical claims, number of resolved claims, available insurance
proceeds, and status of litigation in multiple jurisdictions. The Corporation
has not been able to reasonably estimate costs for unasserted asbestos claims.
However, the Corporation reviews asbestos claims on an ongoing basis and adjusts
its liability as appropriate.

GENERAL

Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in the securities class action and certain groupings of
asbestos claims, and, although management believes a significant adverse
judgment is unlikely, any such judgment could have a material adverse effect on
the Corporation's results of operations for a quarter or a year. However, based
on its understanding and evaluation of the relevant facts and circumstances,
management believes that the Corporation has meritorious defenses to the
litigation described previously, and that the Corporation has adequately
provided for costs arising from potential resolution of these matters.
Management believes that the litigation should not have a material adverse
effect on the financial condition of the Corporation.

ENVIRONMENTAL MATTERS

Compliance with federal, state, and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of hazardous wastes,
and other related activities affecting the environment have had and will
continue to have an impact on the Corporation. It is difficult to estimate the
timing and ultimate costs to be incurred in the future due to uncertainties
about the status of laws, regulations, and technology; the adequacy of
information available for individual sites; the extended time periods over which
site remediation occurs; and the identification of new sites. The Corporation
has, however, recognized an estimated liability, measured in current dollars,
for those sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. The Corporation recognizes
changes in estimates as new remediation requirements are defined or as more
information becomes available.

With regard to remedial actions under federal and state Superfund laws, the
Corporation has been named a potentially responsible party (PRP) at numerous
sites located throughout the country. At many of these sites, the Corporation is
either not a responsible party or its site involvement is very limited or de
minimis. However, the Corporation may have varying degrees of cleanup
responsibilities at approximately 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 previously mentioned sites, the Corporation has an accrued
liability of $312 million at December 31, 1998. Depending on the remediation
alternatives ultimately selected, the costs related to these sites could differ
from the amounts currently accrued. The accrued liability includes $228 million
for site investigation and remediation, and $84 million for post-closure and

 38        CBS CORPORATION
<PAGE>   39

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
during periods of up to 30 years. In addition, included in Discontinued
Operations are environmental liabilities directly related to sites that are
expected to be assumed by buyers in divestiture transactions.

OTHER

The Corporation is involved with several administrative actions alleging
violations of federal, state, or local environmental regulations. For these
matters, the Corporation has estimated its remaining reasonably possible costs
and determined them to be immaterial.

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.

NOTE 12: LEASES AND OTHER COMMITMENTS

LEASES

The Corporation has commitments under operating and capital leases for certain
facilities and equipment. Rental expense for Continuing Operations in 1998,
1997, and 1996 was $85 million, $64 million, and $51 million, respectively.
These amounts include immaterial amounts for contingent rentals and sublease
income.

Additionally, the Corporation's outdoor advertising business has franchise
rights entitling it to display advertising on such media as buses, taxis,
trains, bus shelters, terminals, billboards, and phone kiosks. Under most of
these franchise agreements, the franchiser is entitled to receive the greater of
a percentage of the relevant advertising revenues, net of advertising agency
fees, or a specified guaranteed minimum annual payment. Franchise payments
totaled $222 million in 1998 and $192 million in 1997.

MINIMUM RENTAL PAYMENTS
(in millions)

<TABLE>
<CAPTION>
                                                GUARANTEED
                               LEASES             MINIMUM
                        ---------------------    FRANCHISE
 AT DECEMBER 31, 1998   CAPITAL    OPERATING     PAYMENTS
-----------------------------------------------------------
<S>                     <C>       <C>           <C>
1999                      $ 6        $ 73          $161
2000                        5          64           147
2001                        5          56           120
2002                        5          50            53
2003                        5          39            14
Thereafter                 23         103            20
-----------------------------------------------------------
Minimum rental payments   $49        $385          $515
-----------------------------------------------------------
Less: interest and
  executory cost           15
-----------------------------------------------------------
Present value of
  minimum rental
  payments                $34
-----------------------------------------------------------
</TABLE>

OTHER COMMITMENTS

The Corporation routinely enters into commitments to purchase the rights to
broadcast programs, including feature films and sports events. These contracts
permit the broadcast of such properties for various periods. At December 31,
1998, the Corporation was committed to make payments under such broadcasting
contracts, along with commitments for talent contracts, of $7.7 billion. At
December 31, 1998, aggregate payments related to these commitments during the
next five years and thereafter are as follows:

OTHER COMMITMENTS
(in millions)

<TABLE>
<CAPTION>
                                              AGGREGATE
           AT DECEMBER 31, 1998                PAYMENTS
--------------------------------------------------------
<S>                                           <C>
1999                                            $1,349
2000                                             1,401
2001                                             1,178
2002                                             1,150
2003                                               845
Thereafter                                       1,786
--------------------------------------------------------
Total other commitments                         $7,709
--------------------------------------------------------
</TABLE>

NOTE 13: SHAREHOLDERS' EQUITY

In 1998, the Corporation's Board of Directors authorized a $3 billion multi-year
stock repurchase program. During the year, the Corporation purchased 28,342,000
shares of common stock under the program at a cost of $859 million. At December
31, 1998 and 1997, 43,204,000 shares and 21,673,000 shares, respectively, of the
Corporation's common stock were held in treasury. Of the common stock held in
treasury on these dates, 16 million and 18 million shares, respectively, were
held by the Corporation's rabbi trusts for the payment of benefits under
executive benefit plans.

                                                      CBS CORPORATION         39
<PAGE>   40

On May 30, 1997, the Corporation redeemed all outstanding shares of its Series C
Conversion Preferred Stock (Series C Preferred) and, in connection with the
redemption, issued 32 million shares of common stock. All accrued and unpaid
dividends on the redeemed shares of Series C Preferred were paid on May 30,
1997.

COMMON SHARES
(shares in thousands)

<TABLE>
<CAPTION>
                                      IN
                         ISSUED    TREASURY   OUTSTANDING
----------------------------------------------------------
<S>                      <C>       <C>        <C>
Balance at January 1,
  1996                   425,970    29,952      396,018
Shares issued for
  dividend reinvestment
  plan                        --    (1,071)       1,071
Shares issued for
  employee plans              --    (6,254)       6,254
Shares issued for
  Infinity acquisition   183,002        --      183,002
----------------------------------------------------------
Balance at December 31,
  1996                   608,972    22,627      586,345
Shares issued for
  dividend reinvestment
  plan                       384       (29)         413
Shares issued for
  employee plans          17,245      (925)      18,170
Shares issued for TNN
  and CMT acquisition     59,058        --       59,058
Shares issued for
  conversion of Series
  C Preferred             31,859        --       31,859
----------------------------------------------------------
Balance at December 31,
  1997                   717,518    21,673      695,845
Shares used for
  dividend reinvestment
  plan                       132        --          132
Shares issued for
  employee plans          15,881    (6,811)      22,692
Shares repurchased            --    28,342      (28,342)
----------------------------------------------------------
BALANCE AT DECEMBER 31,
  1998                   733,531    43,204      690,327
----------------------------------------------------------
</TABLE>

On December 29, 1995, the Board of Directors adopted a shareholder rights plan
providing for the distribution of one right for each share of common stock
outstanding on January 9, 1996 or issued thereafter until the occurrence of
certain events. The rights become exercisable only in the event, with certain
exceptions, that an acquiring party accumulates 15 percent or more of the
Corporation's voting stock or a party announces an offer to acquire 30 percent
or more of the voting stock. The rights have an exercise price of $64 per share
and expire on January 9, 2006. The Board of Directors has adopted a resolution
affirming its intention to redeem the rights in January 2001 (if still
outstanding). Upon the occurrence of certain events, holders of the rights will
be entitled to purchase either CBS Corporation preferred shares or shares in an
acquiring entity at half of market value. The Corporation is entitled to redeem
the rights at a value of $.01 per right at any time until the tenth day
following the acquisition of a 15 percent position in its voting stock.

OTHER COMPREHENSIVE INCOME

At March 31, 1998, the Corporation adopted the provisions of SFAS 130 which
establishes standards for reporting and disclosing comprehensive income in the
financial statements. Comprehensive income is used to describe all changes in
equity from transactions and other events and circumstances, including net
income, from nonowner sources. The following table presents the accumulated
components of comprehensive income other than net income reflected within
shareholders' equity at December 31, 1998 and December 31, 1997:

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(in millions)

<TABLE>
<CAPTION>
     AT DECEMBER 31,             1998              1997
------------------------------------------------------------
<S>                         <C>               <C>
Unrealized gains on
  securities                    $   1             $  --
Minimum pension liability
  adjustment                     (808)             (771)
------------------------------------------------------------
Total accumulated other
  comprehensive loss            $(807)            $(771)
------------------------------------------------------------
</TABLE>

NOTE 14: ISSUANCE OF SUBSIDIARY STOCK

In December 1998, Infinity, the Corporation's wholly owned subsidiary, issued
155,250,000 shares of its class A common stock in an initial public offering.
The Corporation owns all of the 700,000,000 outstanding shares of Infinity's
class B common stock. Holders of class A common stock generally have identical
rights to the holders of class B common stock except that the holders of class A
common stock are entitled to one vote per share, while holders of class B common
stock are entitled to five votes per share on matters submitted to a vote of
Infinity stockholders and the shares of class B common stock maintain certain
conversion rights and transfer restrictions. As a result of the initial public
offering, at December 31, 1998, the Corporation beneficially owned 81.8 percent
of Infinity's equity, which represented 95.8 percent of the voting power.

Proceeds from the offering, based on the offering price of $20.50 per share,
totaled $3.2 billion ($3.0 billion, net of offering expenses). A gain of $1.4
billion was recognized by the Corporation in shareholders' equity as a direct
increase in capital in excess of par value.

Under an intercompany agreement, the Corporation provides to Infinity a number
of services, including executive, human resources, legal, finance, information
management, internal audit, tax, and treasury services. The costs of these
services are allocated according to established methodologies determined by the
Corpora-

 40        CBS CORPORATION
<PAGE>   41

tion on an annual basis. In addition, a tax sharing agreement generally provides
that, for any taxable period in which Infinity is included in the Corporation's
consolidated tax return, the amount of income taxes to be paid by Infinity will
be determined as if Infinity had filed separate income tax returns.

NOTE 15: EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS

The following is the computation of basic and diluted earnings per common share:

COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE--CONTINUING OPERATIONS
(in millions except per-share amounts)

<TABLE>
<CAPTION>
      AT DECEMBER 31,         1998    1997    1996
---------------------------------------------------
<S>                           <C>     <C>     <C>
Loss from Continuing
  Operations                  $ (12)  $(131)  $(221)
Less: preferred stock
  dividends                      --     (23)    (47)
---------------------------------------------------
Loss applicable to common
  stock                       $ (12)  $(154)  $(268)
Average shares outstanding      696     629     401
Basic and diluted loss per
  common share                $(.02)  $(.24)  $(.67)
---------------------------------------------------
</TABLE>

For the year ended December 31, 1998, 1997 and 1996, options to purchase shares
of common stock as well as shares of common stock issuable under deferred
compensation arrangements and preferred stock of 20 million, 33 million and 43
million, respectively, were not included in the computation of diluted earnings
per common share because their inclusion would result in a smaller loss per
common share. During 1998, 1997, and 1996, common shares issuable under deferred
compensation arrangements approximated 5 million, 6 million and 6 million,
respectively. See note 16 to the financial statements for additional information
on stock options.

NOTE 16: STOCK-BASED COMPENSATION PLANS

At December 31, 1998, the Corporation had several stock-based compensation plans
that provide for the granting of stock options, restricted stock, and other
performance awards to employees or directors of the Corporation. At December 31,
1998 and 1997, shares authorized for awards under these plans totaled 59.9
million and 49.5 million, respectively. Of these amounts, 9.7 million and 8.1
million, respectively, remained available for award. Generally, stock option
awards are granted for terms of 10 years or less. Pre-1998 grants generally
become exercisable in whole or in part after the commencement of the second year
of the term, and 1998 grants generally become exercisable in thirds after the
first, second, and third anniversaries of the grant date. Certain exceptions to
the general rule exist with respect to stock options granted in 1998 to
employees of the industrial businesses, which are generally exercisable
beginning after the first anniversary of the grant date and for 90 days
subsequent to the latter of such date or termination of their employment with
the Corporation.

In addition to the stock options shown in the following table, the Corporation
granted 9,493 and 9,449 shares of restricted stock to employees and directors in
1998 and 1997, respectively. These shares had a weighted-average fair value at
date of grant of $29.96 and $18.52, respectively, with a weighted-average
vesting period of one year for the 1998 and 1997 grants.

In connection with the acquisitions of TNN and CMT and Old Infinity, the
Corporation assumed options outstanding under the Gaylord and Old Infinity plans
as of the date of the acquisition. The then-outstanding options were converted
to options to acquire the Corporation's common stock and are included in the
following table as awards assumed. Exercise prices for awards assumed in the
1997 TNN and CMT acquisition, which generally have ten-year terms and become
exercisable ratably in years two through five, range from $9.45 to $25.41.
Exercise prices for awards assumed in the 1996 Old Infinity acquisition, which
generally have ten-year terms and become exercisable ratably over a five-year
period, range from $.0002 to $19.66.

                                                      CBS CORPORATION         41
<PAGE>   42

STOCK OPTION INFORMATION
(shares in thousands)

<TABLE>
<CAPTION>
                                          1998                        1997                        1996
                                  --------------------         -------------------         -------------------
                                            WEIGHTED-                   WEIGHTED-                   WEIGHTED-
                                             AVERAGE                     AVERAGE                     AVERAGE
                                             EXERCISE                    EXERCISE                    EXERCISE
                                  SHARES      PRICE            SHARES     PRICE            SHARES     PRICE
--------------------------------------------------------------------------------------------------------------
<S>                               <C>       <C>                <C>      <C>                <C>      <C>
Balance at January 1               60,409     $14.05           57,816     $13.15           28,384     $17.41
Options granted                     9,494      29.86           12,917      19.30           10,990      19.09
Options exercised                 (14,483)      7.90           (8,106)     14.62           (1,728)     13.22
Options forfeited                    (799)     26.45           (1,945)     10.69           (1,750)     15.93
Options expired                        (4)     26.19             (397)     30.70             (306)     27.41
Awards assumed                         --         --              124      17.06           22,226       5.18
--------------------------------------------------------------------------------------------------------------
Balance at December 31             54,617     $18.14           60,409     $14.05           57,816     $13.15
--------------------------------------------------------------------------------------------------------------
Exercisable at December 31         44,990     $15.90           45,267     $18.87           41,251     $12.07
--------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                    1998                          1997                          1996
                            ---------------------         ---------------------         ---------------------
                            WEIGHTED-   WEIGHTED-         WEIGHTED-   WEIGHTED-         WEIGHTED-   WEIGHTED-
                             AVERAGE     AVERAGE           AVERAGE     AVERAGE           AVERAGE     AVERAGE
                              FAIR      EXERCISE            FAIR      EXERCISE            FAIR      EXERCISE
                              VALUE       PRICE             VALUE       PRICE             VALUE       PRICE
-------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>               <C>         <C>               <C>         <C>
Options granted:
  Exercise price equaled
   grant date stock price    $12.85      $29.86            $ 7.92      $19.30            $ 7.41      $18.86
  Exercise price exceeded
   grant date stock price        --          --              6.51       23.46              5.92       20.74
-------------------------------------------------------------------------------------------------------------
</TABLE>

STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1998
(shares in thousands)

<TABLE>
<CAPTION>
                                                                  WEIGHTED-
                                                                   AVERAGE                               WEIGHTED-
                               OPTIONS           WEIGHTED-        REMAINING                               AVERAGE
RANGE OF                   OUTSTANDING AT         AVERAGE        CONTRACTUAL     EXERCISABLE AT           EXERCISE
EXERCISE PRICES           DECEMBER 31, 1998   EXERCISE PRICE    LIFE IN YEARS   DECEMBER 31, 1998   PRICE OF EXERCISABLE
------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                 <C>               <C>             <C>                 <C>
$.0002 --  4.99                 4,072             $ 1.81              3.2             4,072                $ 1.81
     5 --  9.99                 5,111               7.05              5.5             5,111                  7.05
    10 -- 14.99                 6,391              13.40              3.8             6,391                 13.40
    15 -- 19.99                23,409              17.82              6.6            22,850                 17.80
    20 -- 29.99                14,272              27.83              5.6             5,695                 26.01
    30 -- 36.53                 1,362              34.71              4.6               871                 36.10
------------------------------------------------------------------------------------------------------------------------
Total                          54,617                                                44,990
------------------------------------------------------------------------------------------------------------------------
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997, and 1996, respectively: risk-free
interest rates of 5.5%, 6.4%, and 6.1%; expected dividend yields of 0%, 1.0%,
and 1.1%; expected volatility of 31%, 30%, and 30% and expected lives of 6.6
years, 7.3 years, and 7.4 years.

The Corporation accounts for its stock-based compensation plans under APB 25.
For stock options granted, the option price is not less than the market value of
shares on the grant date; therefore, no compensation cost has been recognized
for stock options granted. Had compensation cost for these plans been determined
under the provisions of SFAS 123, the Corporation's net income and earnings per
share would have been reduced to the following pro forma amounts:

RESULTS OF OPERATIONS
(in millions except per share-amounts)

<TABLE>
<CAPTION>
                                               1998                        1997                        1996
                                        -------------------         -------------------         -------------------
                                              AS        PRO               AS        PRO               AS        PRO
YEAR ENDED DECEMBER 31,                 REPORTED      FORMA         REPORTED      FORMA         REPORTED      FORMA
-------------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>           <C>           <C>           <C>           <C>
Net income (loss)                         $(21)       $(55)           $549        $487            $ 95        $ 57
Basic and diluted earnings
 (loss) per common share                  (.03)       (.08)            .84         .74             .12         .02
-------------------------------------------------------------------------------------------------------------------
</TABLE>

 42        CBS CORPORATION
<PAGE>   43

NOTE 17: 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 the restructuring activities and provide no future benefit to the
Corporation.

Restructuring costs totaling $62 million in 1998, $15 million in 1997, and $57
million in 1996 are included in the Corporation's results of operations. Except
for costs totaling $12 million in 1998 and $32 million in 1996, these costs were
essentially for the separation of employees. The 1998 and 1996 plans included
asset write-downs of $2 million and $15 million, respectively, and lease
termination and other facility closure costs of $10 million and $17 million,
respectively.

Generally, separated employees receive benefits under certain plans, including
layoff income benefits, permanent job separation benefits, retraining, and/or
outplacement assistance. The amount included for these benefits in the
restructuring charge represents the incremental cost of such benefits over those
amounts previously accrued under SFAS No. 112, "Employers' Accounting for
Postemployment Benefits."

The 1998 plan primarily includes the separation of 441 employees and the
termination of leases at the Corporation's Television segment. Implementation of
the plan began in September 1998 and is generally expected to be completed in
1999. Expenditures for employee separation costs generally are paid over a
period of up to two years following the separation although payments can extend
longer in certain cases. Certain expenditures for lease commitments will extend
over the next several years.

The 1997 plan primarily involves the separation of 118 employees at the former
Pittsburgh headquarters related to the transfer of the Corporation's overhead
functions to New York. Implementation of this plan began in January 1998 and
generally is expected to be completed by the end of 1999. Of the employee
separations in the 1996 plan, the majority were completed by December 31, 1998.
Future expenditures for 1997 and 1996 plans consist primarily of remaining
separation costs and lease commitments for actions already taken.

In connection with the acquisition of CBS Inc., the Corporation developed a
restructuring plan to integrate the operations of CBS Inc. with those of the
Corporation and eliminate duplicate facilities and functions. The cost of this
plan, which approximated $100 million, was recorded in connection with the
purchase, and the plan is now complete. In addition, the costs for integration
activities for the acquiring company are included in the 1996 costs described
previously.

The following is a reconciliation of the restructuring liability for Continuing
Operations:

RECONCILIATION OF RESTRUCTURING LIABILITY
(in millions)

<TABLE>
<S>                                          <C>
-------------------------------------------------
Balance at January 1, 1996                   $117
Provision for restructuring                    57
Cash expenditures                             (50)
Noncash charges                                (7)
-------------------------------------------------
Balance at December 31, 1996                  117
Provision for restructuring                    15
Cash expenditures                             (83)
Noncash charges                                (8)
-------------------------------------------------
Balance at December 31, 1997                   41
Provision for restructuring                    62
Cash expenditures                             (37)
Noncash charges                                --
-------------------------------------------------
Balance at December 31, 1998                 $ 66
-------------------------------------------------
</TABLE>

NOTE 18: OTHER INCOME (EXPENSE), NET

OTHER INCOME (EXPENSE), NET
(in millions)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,       1998    1997    1996
--------------------------------------------------
<S>                           <C>     <C>     <C>
Interest income               $19     $11     $17
Gain on disposition of
 equity investments            --      24      12
Gain on disposition of other
  assets                        5      15      17
Operating results -- non-
 consolidated affiliates       (2)      5      10
Other                          21      19      (1)
--------------------------------------------------
Other income (expense), net   $43     $74     $55
--------------------------------------------------
</TABLE>

NOTE 19: SEGMENT INFORMATION


The Corporation's Continuing Operations is aligned into three business segments:
Radio, Television, and Cable. These business segments are consistent with the
Corporation's management of these businesses and its financial reporting
structure and operating focus.


Management characterizes its Radio segment as out-of-home because the majority
of radio listening and virtually all viewing of outdoor advertising takes place
in automobiles, transit systems, on the street and other locations outside the
consumer's home. The Radio

                                                      CBS CORPORATION         43
<PAGE>   44

segment owns and operates 160 radio stations and participates in the outdoor
advertising business through its subsidiary, TDI.


The Television segment consists of (i) the CBS television network, which
provides entertainment, sports, and news programming for approximately 200
affiliates throughout the country; (ii) the 14 CBS owned and operated television
stations; and (iii) CBS New Media, which is responsible for the Corporation's
involvement with evolving technologies, including the Internet on which the
Corporation operates web services and owns minority interests in web service
providers.



The Cable segment consists of the Corporation's cable networks, including, TNN,
CMT, two regional sports networks, and an equity interest in a Spanish language
cable news network.


The Corporation's Discontinued Operations generally consists of the remaining
industrial businesses, which are expected to be divested in 1999, and the
leasing portfolio, which is expected to liquidate in accordance with contractual
terms. Certain segment data for Discontinued Operations are provided in note 10
to the financial statements.


The Corporation's segments operate primarily in the United States. The
accounting policies as described in the summary of significant accounting
policies are applied consistently across the segments.

The Corporation evaluates performance based on earnings before interest expense,
taxes, depreciation and amortization (EBITDA). Management believes that EBITDA
is an appropriate measure for evaluating the operating performance of the
Corporation's business. 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, including
American Radio, TNN and CMT, and Old Infinity. 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 earnings, net earnings, cash flows, and other measures of financial
performance reported in accordance with generally accepted accounting
principles.

SEGMENT DATA - CONTINUING OPERATIONS
(in millions)


<TABLE>
<CAPTION>
                                                                                     DEPRECIATION
                                       REVENUES                  EBITDA            AND AMORTIZATION       UNUSUAL ITEMS
                              ------------------------    --------------------    ------------------    ------------------
YEAR ENDED DECEMBER 31,         1998     1997     1996      1998   1997   1996    1998   1997   1996    1998   1997   1996
--------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>      <C>       <C>      <C>    <C>     <C>    <C>    <C>     <C>    <C>    <C>
Radio                         $1,893   $1,480   $  554    $  798   $575   $197    $250   $197   $ 57    $ --   $ --   $ --
Television                     4,373    3,589    3,372       381    339    417     209    209    205      58     --     --
Cable                            546      302      191       148     73     50     107     35      8       2     --     --
Corporate and other               (7)      (4)      26       (68)   (72)  (162)      5      4      9       9     15     85
Residual costs of
 discontinued businesses          --       --       --      (163)  (143)  (114)     --     --     --      --     --     --
--------------------------------------------------------------------------------------------------------------------------
Total                         $6,805   $5,367   $4,143    $1,096   $772   $388    $571   $445   $279    $ 69   $ 15   $ 85
--------------------------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                                                                                             EXPENDITURES FOR
                                      LONG-LIVED ASSETS              TOTAL ASSETS           LONG-LIVED ASSETS
                                   ------------------------   ---------------------------   ------------------
YEAR ENDED DECEMBER 31,             1998     1997     1996     1998      1997      1996     1998   1997   1996
--------------------------------------------------------------------------------------------------------------
<S>                                <C>      <C>      <C>      <C>       <C>       <C>       <C>    <C>    <C>
Radio                              $  422   $  242   $  236   $10,798   $ 7,074   $ 7,262   $ 32   $ 15   $  7
Television                            971      992      883     6,693     6,610     6,531    338    364    455
Cable                                 127      140      114     1,850     1,958       156     18     17      9
Corporate and other                   362      405      601       798       861     1,457      5      4     17
--------------------------------------------------------------------------------------------------------------
Total                              $1,882   $1,779   $1,834   $20,139   $16,503   $15,406   $393   $400   $488
--------------------------------------------------------------------------------------------------------------
</TABLE>


 44        CBS CORPORATION
<PAGE>   45

The Corporation's consolidated income from Continuing Operations before taxes
and minority interest for the year ended December 31, 1998 totaled $155 million.
The losses from Continuing Operations before taxes and minority interest for the
years ended December 31, 1997 and 1996 totaled $59 million and $292 million,
respectively. Consolidated EBITDA noted in the table above varies from the
Consolidated income (loss) from Continuing Operations before taxes and minority
interest because it excludes depreciation, amortization, and interest expense.

The category "Corporate and other" includes certain assets and results of
operations that are either not identifiable to a specific operating segment or
relate to the maintenance of corporate functions. These assets primarily include
cash and cash equivalents, deferred income taxes, property, equipment and other
assets associated with corporate headquarters as well as certain receivables.
Included in the results of operations are certain intersegment eliminations,
non-allocated income and costs related to interest, taxes and employee benefits
as well as certain other headquarter related income and expenses.


Intersegment sales and transfers are not material to the Corporation's Radio,
Television or Cable segment results.


Unusual items noted above relate to certain restructuring plans initiated during
1998, 1997, and 1996 as well as other special severance costs in 1998 and
litigation costs in 1996. Long-lived assets in the preceding table include
primarily property and equipment, programming, noncurrent receivables, and
investments in joint ventures or other affiliates, and exclude such assets as
goodwill, FCC licenses, other intangible assets, financial instruments, deferred
acquisition costs, and deferred tax assets. Increases in long-lived assets
during 1998 and 1997 are due primarily to acquisitions.

Expenditures for long-lived assets are primarily related to the Corporation's
spending on programming of $232 million, $261 million, and $391 million as well
as capital spending of $139 million, $121 million, and $93 million during 1998,
1997, and 1996, respectively.

Residual costs of discontinued businesses primarily include certain costs, such
as pension and postretirement benefit costs, remaining from past divestitures of
the Corporation's industrial businesses.

NOTE 20: FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments is determined by the
Corporation using the best available market information and appropriate
valuation methodologies. However, considerable judgment is necessary in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented are not necessarily indicative of the amounts that the
Corporation could realize in a current market exchange or the value that
ultimately will be realized by the Corporation upon maturity or disposition.
Additionally, because of the variety of valuation techniques permitted under
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
comparability of fair values among entities may not be meaningful. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.

                                                      CBS CORPORATION         45
<PAGE>   46

FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUING OPERATIONS
(in millions)

<TABLE>
<CAPTION>
                                                    1998                                      1997
                                      ---------------------------------         ---------------------------------
                                      CARRYING    ESTIMATED    CONTRACT         CARRYING    ESTIMATED    CONTRACT
AT DECEMBER 31,                        AMOUNT    FAIR VALUE     AMOUNT           AMOUNT    FAIR VALUE     AMOUNT
-----------------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>           <C>              <C>        <C>           <C>
ASSETS:
Cash and cash equivalents              $  798      $  798      $  --             $    8      $    8        $ --
Investments in marketable
  securities                               30          30         --                 36          36          --
Noncurrent customer and other
  receivables                             228         228         --                145         145          --
LIABILITIES:
Short-term debt                            --          --         --                 89          89          --
Current maturities of long-term
  debt                                    159         160         --                 62          62          --
Long-term debt                          2,506       2,674         --              3,236       3,305          --
OFF-BALANCE SHEET FINANCIAL
  INSTRUMENTS:
Interest rate exchange agreements          --          --         --                 --          (5)         --
Foreign currency exchange
  contracts:
  Unrealized losses                        --          --         --                 --          (1)         --
Letters of credit                          --          --        148                 --          --         133
-----------------------------------------------------------------------------------------------------------------
</TABLE>

The following methods and assumptions were used to estimate the fair value of
financial instruments for which it was practicable to estimate that value.

CASH AND CASH EQUIVALENTS

The carrying amount for cash and cash equivalents approximates fair value.

INVESTMENTS IN MARKETABLE SECURITIES

The fair value of investments in marketable securities is based on quoted market
prices.

NONCURRENT CUSTOMER AND OTHER RECEIVABLES

The fair value of noncurrent customer and other receivables is estimated by
discounting the expected future cash flows at interest rates commensurate with
the creditworthiness of the customer or other third party.

SHORT-TERM DEBT

The carrying amount of the Corporation's borrowings under credit facilities and
other arrangements approximates fair value.

LONG-TERM DEBT

The fair value of long-term debt is estimated using quoted market prices or
discounted cash flow methods based on the Corporation's current borrowing rates
for similar types of borrowing arrangements with comparable terms and
maturities.

INTEREST RATE AND FOREIGN CURRENCY EXCHANGE CONTRACTS

The fair value of interest rate and foreign exchange contracts is based on
quoted market prices to terminate the contracts.

 46        CBS CORPORATION
<PAGE>   47

QUARTERLY FINANCIAL INFORMATION
(unaudited, in millions except per-share amounts)

<TABLE>
<CAPTION>
                                         1998 QUARTER ENDED                           1997 QUARTER ENDED
                               --------------------------------------       --------------------------------------
                               DEC 31   SEPT 30   JUNE 30   MARCH 31        DEC 31   SEPT 30   JUNE 30   MARCH 31
------------------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>       <C>       <C>             <C>      <C>       <C>       <C>
Revenues                       $1,791   $1,581    $1,484       $1,949       $1,473   $1,285    $1,283       $1,326
Gross margin                      659      601       528          644          541      513       506          324
Depreciation and
  amortization                   (151)    (154)     (136)        (130)        (128)    (107)     (105)        (105)
Marketing, administration,
 and general expenses            (345)    (304)     (227)        (340)        (278)    (266)     (261)        (238)
Residual costs of
 discontinued businesses          (46)     (41)      (38)         (38)         (37)     (35)      (36)         (35)
Operating profit (loss)(a)        117      102       127          136           98      105       104          (54)
Other income (expense), net        14       12        12            5           15        2        16           41
Income (loss) from
 Continuing Operations              3      (38)        4           19          (10)     (19)      (11)         (91)
Income (loss) from
 Discontinued Operations(b)        --       --        --           --          871     (143)       12          (60)
Extraordinary item                 (4)      (5)       --           --           --       --        --           --
Net income (loss)                  (1)     (43)        4           19          861     (162)        1         (151)
------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings
 (loss) per common share:
  Continuing Operations          (.00)    (.05)      .01          .03         (.01)    (.03)     (.04)        (.18)
  Discontinued Operations          --       --        --           --         1.25     (.23)      .02         (.10)
  Extraordinary item             (.00)    (.01)       --           --           --       --        --           --
Basic and diluted earnings
 (loss) per common share         (.00)    (.06)      .01          .03         1.24     (.26)     (.02)        (.28)
------------------------------------------------------------------------------------------------------------------
Dividends per common share         --       --        --          .05          .05      .05       .05          .05
New York Stock Exchange
 market price per share:
  High                         33 1/8   35 1/2    36 5/8      34 3/16       32 1/16  27 15/16  23 13/16     20 3/8
  Low                              18   21 7/8    29 11/16     26 3/4       23 3/8   22 3/4    16           16 3/4
------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Includes restructuring charges of $62 million in the third quarter of 1998
    and $15 million in the fourth quarter of 1997.

(b) Includes net gain of $871 million in the fourth quarter of 1997 from
    disposals of business segments.

                                                      CBS CORPORATION         47
<PAGE>   48


PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)(1) FINANCIAL STATEMENTS

The financial statements required by this item are listed under Part II, Item 8,
which list is incorporated herein by reference.




(A)(3) EXHIBITS
(23)   (a)     Consent of Independent Auditors





 48        CBS CORPORATION
<PAGE>   49

                                   SIGNATURE


Pursuant to the requirements of Section 13 or 15(d) 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 4th day of August,
1999.

                                       CBS CORPORATION

                                       By:     /s/ ROBERT G. FREEDLINE
                                         ---------------------------------------
                                                   Robert G. Freedline
                                                   Vice President and
                                                       Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

                              SIGNATURE AND TITLE

Robert E. Cawthorn, Director
George H. Conrades, Director
Martin C. Dickinson, Director
Robert G. Freedline, Vice President and Controller
  (principal accounting officer)
William H. Gray III, Director
Mel Karmazin, President and Chief Executive Officer
  and Director (principal executive officer)
Jan Leschly, Director
David T. McLaughlin, Chairman and Director
Richard R. Pivirotto, Director
Fredric G. Reynolds, Executive Vice President and
  Chief Financial Officer (principal financial officer)
Raymond W. Smith, Director
Dr. Paula Stern, Director
Robert D. Walter, Director

                                       CBS CORPORATION

                                       By:     /s/ ROBERT G. FREEDLINE
                                         ---------------------------------------
                                                   Robert G. Freedline
                                                   Vice President and
                                                       Controller

Original powers of attorney authorizing Robert G. Freedline and certain others,
individually, to sign this report on behalf of the listed directors and officers
of the Corporation and a certified copy of resolutions of the Board of Directors
of the Corporation authorizing Robert G. Freedline and certain others to sign on
behalf of the Corporation have been filed with the Securities and Exchange
Commission and are included as Exhibit 24 to this report.

                                                      CBS CORPORATION         49