SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 19931994 COMMISSION FILE NUMBER 1-9553
VIACOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)(Exact Name Of Registrant As Specified In Its Charter)
Delaware 04-2949533
(STATE OR OTHER JURISDICTION OF(State Or Other Jurisdiction Of (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.Employer
Incorporation Or Organization) Identification No.)
200 Elm Street, Dedham, MA 020261515 Broadway, New York, NY 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (617) 461-1600
SECURITIES REGISTERED PURSUANT TO SECTION(212)258-6000
Securities Registered Pursuant to Section 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTEREDof the Act:
Title Of Each Class Name Of Each Exchange On Which Registered
Class A Common Stock, $0.01 par value American Stock Exchange
Class B Common Stock, $0.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTIONWarrants Expiring on July 7, 1997 American Stock Exchange
Warrants Expiring on July 7, 1999 American Stock Exchange
Contingent Value Rights American Stock Exchange
Variable Common Rights American Stock Exchange
8% Exchangeable Subordinated Debentures due 2006 American Stock Exchange
6.625% Senior Notes due 1998 New York Stock Exchange
Securities Registered Pursuant To Section 12(G) OF THE ACT:of the Act:
None
(TITLE OF CLASS)(Title Of Class)
Indicate by check mark whether 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 check mark 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/
As of March 25, 1994, 53,449,52527, 1995, 74,684,715 shares of Viacom Inc. Class A Common Stock,
$0.01 par value ("Class A Common Stock"), and 90,078,203284,965,503 shares of Viacom Inc.
Class B Common Stock, $0.01 par value ("Class B Common Stock"), were
outstanding. The aggregate market value of the shares of Class A Common Stock
(based upon the closing price of $34 of
these shares on$45.50 per share as reported by the American
Stock Exchange on that date) held by non-
affiliatesnon-affiliates was approximately
$268,187,512$1,273,335,609 and the aggregate market value of the shares of the Class B
Common Stock (based upon the closing price of $29.125 of these shares on$44.875 per share as reported
by the American Stock Exchange on that date) held by non-affiliates was
approximately $599,511,872.$10,300,917,362.
DOCUMENTS INCORPORATED BY REFERENCE
The Definitive Proxy of the Registrant for the 19941995 Annual Meeting of
Shareholders (Part III to the extent described herein).
PARTPart I
ITEMItem 1. BUSINESS.
BACKGROUNDBusiness.
Background
Viacom International Inc. (the(together with its subsidiaries and divisions, unless the
context otherwise requires, the "Company") is a diversified entertainment and
communicationspublishing company with operations in four
principalfive segments: (i) Networks and
Broadcasting, (ii) Entertainment, (iii) Video and Music/Theme Parks, (iv)
Publishing, and (v) Cable TelevisionTelevision. Through the Networks and Broadcasting.
Viacom NetworksBroadcasting
segment, the Company operates three advertiser-supported basic cable
television program services, MTV: MUSIC TELEVISION(R)TELEVISION (R), including MTV
EUROPE(TM) and MTV LATINO(TM)SHOWTIME (R), VH-1(R)/VIDEO HITS ONE(R), and
NICKELODEON(R)/NICK AT NITE(R)NITE (R) and VH1 MUSIC FIRST (TM), and three premium subscription
televisionamong other program
services, SHOWTIME(R), THE MOVIE CHANNEL(TM) and FLIX(TM). The Company, directly12 broadcast television and through Viacom Networks,
participates as a joint venturer in four additional advertiser-
supported basic cable program services: LIFETIME(R), COMEDY
CENTRAL(TM), NICKELODEON12 radio stations. Through the
Entertainment segment, which includes PARAMOUNT PICTURES (TM) (U.K.), and ALL NEWS CHANNEL(TM). On
March 29, 1994,the Company's
approximately 77%- owned subsidiary Spelling Entertainment Group Inc., the
Company agreed to sell its one-third partnership
interest in LIFETIME to its partners The Hearst Corporationproduces and Capital Cities/ABC Inc. for approximately $317.6 million; this
transactiondistributes theatrical motion pictures and television
programming. Through the Video and Music/Theme Parks segment, which includes
the BLOCKBUSTER(R) family of businesses and PARAMOUNT PARKS (TM), the Company
is expected to closethe leading worldwide owner, operator and franchisor of videocassette
rental and sales stores and a leading owner and operator of music stores in
the second quarter of 1994.
Viacom Entertainment distributes television series, feature films,
made-for-television movies, mini-seriesU.S. In addition, PARAMOUNT PARKS owns and specials for television
exhibitionoperates five theme parks
located in domesticthe U.S. and international markets, produces television
seriesCanada. Through the Publishing segment, which
includes SIMON & SCHUSTER(R), MACMILLAN PUBLISHING USA(TM) and movies for prime time broadcast network television,
acquiresPRENTICE HALL(R),
the Company publishes and distributes television series for initial exhibition on a
"first run" basis,educational, consumer, business,
technical and develops, produces, distributesprofessional books, and markets
interactiveaudio-video software forproducts.
Through the stand-alone and other multimedia
marketplaces. Viacom Cable Television owns andsegment, the Company operates cable television
systems in California, and the Pacific Northwest and
Midwest regions of the United States. Viacom Broadcasting owns and
operates five network-affiliated television stations and fourteen
radio stations.
Viacom International Inc. was originally organized in Delaware in
August 1970 as a wholly owned subsidiary of CBS Inc., and was
reincorporated in Ohio in 1975 (the "Predecessor Company"). On
June 9, 1987, the Predecessorserving approximately 1.1 million customers.
The Company became an indirect wholly owned
subsidiary of Viacom Inc. in a leveraged buyout pursuant to a merger
(the "Merger") of a subsidiary of Viacom Inc. into the Predecessor
Company, which was the surviving corporation. On April 26, 1990,
pursuant to a plan of liquidation, the Predecessor Company merged into
a direct wholly owned subsidiary of Viacom Inc., and the surviving
Delaware corporation simultaneously changed its name to "Viacom
International Inc."
All references herein to the term "Company" refer, unless the
context otherwise requires, to Viacom International Inc., its
consolidated subsidiaries and the Predecessor Company. The Company's
principal offices are located at 1515 Broadway, New York, New York
10036 (telephone (212) 258-6000).
Viacom Inc. was organized in Delaware in 1986 for the purpose of
acquiring Viacom International Inc. ("Viacom International"). On March 11,
1994, the Company acquired a majority of outstanding shares of Paramount
Communications Inc. ("Paramount Communications") by tender offer; on July 7,
1994, Paramount Communications became a wholly owned subsidiary of the Company,
and, on January 3, 1995, Paramount Communications was merged into Viacom
International. On September 29, 1994, Blockbuster Entertainment Corporation
merged with and into the Company (the "Blockbuster Merger"). On January 20,
1995, the Company agreed to sell its cable television systems to a partnership
of which Mitgo Corp., a company wholly owned by Frank Washington, is the general
partner, for approximately $2.3 billion, subject to certain conditions,
including receipt of a tax certificate from the Federal Communications
Commission ("FCC") and the availability of certain federal tax consequences of
the sale advantageous to the Company. The U.S. House of Representatives and the
U.S. Senate have each approved a similar version of legislation that would
eliminate such tax consequences. The House of Representatives has also
approved a compromise version of the bill, which is awaiting Senate approval.
The Company has announced that it will not proceed with the agreed transaction
in the event that such tax consequences are unavailable. (see "Business --
Regulation"). The Company has also announced that it is considering other
options with respect to the disposition of its cable systems and that it intends
to proceed with such disposition. On March 10, 1995, the Company sold Madison
Square Garden Corporation for closing proceeds of approximately $1.009 billion,
representing the sale price of approximately $1.075 billion, less an
approximately $66 million working capital adjustment. The net after-tax
proceeds of the sale were used to repay indebtedness.
As of December 31, 1993,March 1, 1995, National Amusements, Inc. ("NAI"), a closely held
corporation that owns and operates approximately 850more than 900 movie screens in the United StatesU.S. and
the United
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Kingdom,U.K., owned 45,547,214 shares or 85.2%approximately 61% of the Company's voting Class A Common Stock
("Class A Common Stock"), and 46,565,414 shares or 69.1%approximately 26% of the Company's outstanding
Class A Common Stock and non-voting Class B Common Stock ("Class B Common
Stock") outstanding on such date.a combined basis. NAI is not subject to the informational filing
requirements of the Securities Exchange Act of 1934, as amended. Sumner M.
Redstone, the controlling shareholder of NAI, is the Chairman of the Board of
Viacom
Inc. and the Company.
As of December 31, 1993, theThe Company's principal asset of Viacom Inc.
(together with its subsidiaries, unless the context otherwise
requires, "Viacom Inc.") was the common stock of the Company. Viacom
Inc.'s principal executive offices are located at 200 Elm Street,
Dedham, Massachusetts 02026.
As of1515 Broadway, New
York, New York 10036 (telephone 212/258-6000). At December 31, 1993,1994, the
Company and its affiliated companies employed approximately 5,000 persons.
On March 11, 1994, pursuant to a tender offer (the "Paramount
Offer") commenced in the fourth quarter70,000 people, of
1993, Viacom Inc. acquired
61,657,432 shares of Paramount Communications Inc.which approximately 30,700 were full-time salaried employees.
I-1
Business
Networks and Broadcasting
Networks. The Company, through MTV Networks ("Paramount")
common stock constituting a majority of the shares outstanding. The
Paramount Offer was made pursuant to an Amended and Restated Agreement
and Plan of Merger dated as of February 4, 1994 (the "Paramount Merger
Agreement") between Viacom Inc. and Paramount. As a result of the
Paramount Merger Agreement, a new wholly owned subsidiary of Viacom
Inc. will merge with and into Paramount (the "Paramount Merger"MTVN"), and
Paramount will become a wholly owned subsidiary of Viacom Inc. after
the effective time of the Paramount Merger, which is expected to occur
in the second quarter of 1994.
Except where expressly noted, information is given as of December
31, 1993, and does not include information on or with respect to
Paramount or its businesses. Information with respect to Paramount in
response to Item 1 is incorporated by reference herein from (i) Item 1
of Paramount's Transition Report on Form 10-K for the six-month period
ended April 30, 1993, as such report was amended in its entirety by
Form 10-K/A No. 1 dated September 28, 1993, as further amended by Form
10-K/A No. 2 dated September 30, 1993 and as further amended by Form
10-K/A No. 3 dated March 21, 1994 and (ii) Paramount's Quarterly
Reports on Form 10-Q for the quarters ended July 31, 1993, October 31,
1993 and January 31, 1994 (the documents in clauses (i) and (ii) being
hereinafter collectively referred to as the "Paramount Reports").
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein. A copy of each of the
Paramount Reports is included as an exhibit hereto. Descriptions of
all documents incorporated by reference herein or included as exhibits
hereto are qualified in their entirety by reference to the full text
of such documents so incorporated or included.
The businesses of Paramount are entertainment and publishing.
Entertainment includes the production, financing and distribution of
motion pictures, television programming and prerecorded
videocassettes, and the operation of motion picture theaters,
independent television stations, regional theme parks and Madison
Square Garden. Publishing includes the publication and distribution
of hard cover and paperback books for the general public, textbooks
for elementary schools, high schools and colleges, and the provision
of information services for business and professions.
On January 7, 1994, Viacom Inc. and Blockbuster Entertainment
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Corporation ("Blockbuster") entered into an agreement and plan of
merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger").
Blockbuster is an international entertainment company with
businesses operating in the home video, music retailing and filmed
entertainment industries. Blockbuster also has investments in other
entertainment related businesses.
The mergers pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have been
unanimously approved by the Boards of Directors of each of the
respective companies. The obligations of Viacom Inc., Blockbuster and
Paramount to consummate the mergers are subject to various conditions,
including obtaining requisite stockholder approvals. Viacom Inc.
holds sufficient shares of Paramount common stock to approve, on
behalf of Paramount, the Paramount Merger and intends to vote its
shares of Paramount in favor of the merger, and NAI has agreed to vote
its shares of Viacom Inc. in favor of the Mergers; therefore,
stockholder approval of the Paramount Merger is assured, and approval
by Viacom Inc. of the Blockbuster Merger is also assured.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The contribution to revenues and earnings from operations of each
industry segment and the identifiable assets attributable to each
industry segment for each of the last three years ending December 31,
are set forth in Note 12 ("Business Segments") to the Consolidated
Financial Statements of Viacom Inc. and the Company included elsewhere
herein.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operations
for each of the last three years ending December 31, is set forth in
Notes 11 and 12 ("Foreign Operations" and "Business Segments") to the
Consolidated Financial Statements of Viacom Inc. and the Company
included elsewhere herein.
BUSINESS
VIACOM NETWORKS
Viacom Networks operates
three advertiser-supported basic cable television program services in the
U.S.: MTV: MUSIC TELEVISION(R) ("MTV"),
including MTV EUROPE(TM) and (including the U.S feed of MTV
LATINO(TM)), VH-1(R)/VIDEO HITS ONE(R)VH1 MUSIC FIRST(TM) ("VH-1"VH1") and NICKELODEON(R)/NICK AT
NITE(R), and. The Company also operates three premium subscription television program services in
the U.S.: SHOWTIME(R), THE MOVIE CHANNEL(TM) and FLIX(TM). TheAdditionally, the
Company directly and through Viacom
Networks, participates as a joint venturerventure partner in four additional
advertiser-supported basic cable program services: LIFETIME(R) with
The Hearst Corporationservices in the U.S.: USA NETWORK(TM)
and Capital Cities/ABC Video Enterprises, Inc.the SCI-FI CHANNEL(TM) (both of which are operated by USA Networks), COMEDY
CENTRAL(TM) with Home Box Office ("HBO"), a division of Time
Warner Entertainment Company, L.P., NICKELODEON(TM)(U.K.) with a
subsidiary of British Sky Broadcasting Limited, and ALL NEWS I - 3
CHANNEL(TM) with Conus Communications. On March 29, 1994,. Internationally, the Company agreedowns and
operates MTV EUROPE(TM), MTV LATINO(TM), VH-1(TM) in the U.K. and VH-1(TM) in
Germany, and participates as a joint venture partner in NICKELODEON U.K.
The Company plans to sell its one-third partnership interest in Lifetime to its
partners The Hearst Corporation and Capital Cities/ABC Inc. for
approximately $317.6 million; this transaction is expected to closelaunch MTV ASIA(TM) in the second quarter of 1994.1995,
NICKELODEON AUSTRALIA(TM), a premium subscription television service, also in
1995, and VH-1(TM) in Latin America in 1996. The Company has also entered into
a joint venture agreement for the development and launch of MTV Networks launched two new servicesSOUTH
AFRICA(TM) in 1993, NICKELODEON (U.K.)1996, and has entered into a joint venture with Ravensburger
Film & TV GmbH, which has received a license to launch NICKELODEON(TM) in
September and MTV LATINO in October.
Viacom NetworksGermany.
The Company also distributes special events and feature films on a
pay-per-view basis through SET(TM) PAY PER VIEW and packages satellite-delivered program services for distribution
to home satellite dish owners in the U.S. through SHOWTIME SATELLITE
NETWORKS(TM).
Viacom
Networks, through its operationMTV Networks. Each of the Showtime Entertainment Group,
also arranges for the development and production of original programs
and motion pictures, including feature films under the Viacom Pictures
label. These original programs and motion pictures premiere
domestically on SHOWTIME and certain of such programming is exploited
in various media worldwide.
Basic cable program services derive revenues primarily from two
sources: the sale of advertising time to national advertisers and
per-subscriber license fees paid by cable operators and other
distributors. Basic cable services are generally offered to customers
of cable television operators and other distributors as part of a
package or packages of services for a periodic subscription fee.
Premium subscription television program services derive revenues
primarily from subscriber fees paid by cable television operators and
other distributors. Subscribers typically pay fees for each premium
service to cable television operators and other distributors.
MTV, NETWORKS. MTV Networks ("MTVN") operates MTV: MUSIC
TELEVISION, MTV EUROPE, MTV LATINO,
NICKELODEON (including the
NICKELODEON and NICKELODEON/NICK AT NITE program segments, and VH1 (including VH-1 in the U.K.
NICKELODEON network) and VH-1 which are) is a
24-hours-a-day, seven-days-a- week program service transmitted via
satellite for distribution by cable television operators and other
distributors.
The MTV, VH-1, NICKELODEON and NICK AT NITE trademarks are strongly
identified with the product lines they represent and are significant
assets of their respective businesses.
MTV: MUSIC TELEVISION is a 24-hours-a-day, seven-days-a-week
program service offering a format which consists primarily of rock
music videos, augmented by music and general lifestyle information,
promotions, news, interviews, comedy, concert tour information,
specials, documentaries and other youth-oriented programming. MTV targets young adult viewers from the ages of 12 to 34. In addition to
rock34 with
programming that consists primarily of music videos and concerts, music and
general lifestyle information, comedy and dramatic series, news specials,
interviews, documentaries and other youth-oriented programming. Additionally,
international MTV offers regularly scheduled youth-orientedprogram services are regionally customized to suit the local
tastes of their young adult viewers by the inclusion of local music,
programming, such as the animated BEAVIS & BUTT-HEAD(TM), specials such
as the Annuallanguage content and on-air personalities.
MTV Video Music Awardshas expanded its business opportunities based on its programming
to include, among other enterprises, an MTV line of home videos, merchandise,
interactive products and thebooks, and electronic retailing programs. MTV Movie Awards, public
affairs campaigns,also
pursues broadcast network and series such as UNPLUGGED(TM). MTV successfully
merchandised BEAVIS & BUTT-HEAD in 1993, featuring a BEAVIS & BUTT-
HEAD album, "THE BEAVIS & BUTT-HEAD EXPERIENCE", released in December
1993 by Geffen Records,first-run syndication television opportunities and
"MTV'S BEAVIS & BUTT-HEAD: THIS BOOK
SUCKS", which was the first book of the MTV Books imprint published by
Callaway Editions/Pocket Books, a division of Simon & Schuster, in
November 1993.
Following the conclusion of MTV's 1992 CHOOSE OR LOSE political
awareness campaignmotion picture development and continuingproduction through its emphasis on public affairs, MTV
launched the FREE YOUR MIND campaign in 1993, focusing on issues of
diversity and discrimination, which included on-air promotional spots,
news reports and specials and contests.
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UNPLUGGED features live acoustical performances by major recording
artists such as Eric Clapton, Rod Stewart and 10,000 Maniacs. MTV
licenses the distribution of UNPLUGGED home video versions of these
performances, and MTV and the applicable record labels release the
soundtracks to MTV's UNPLUGGED series. MTV Productions made its first venture into theatrical film-making
by agreeing with Geffen Pictures in 1993 to jointly develop JOE'S
APARTMENT into a feature-length film for distribution by Warner Bros.
JOE'S APARTMENT is the award-winning short film about a young man's
efforts to cope with a big dirty city and a tiny apartment full of
talking cockroaches.
At December 31, 1993,operation.
MTV was licensed to approximately 52.254.2 million domestic cable
subscribers at December 31, 1994 (based on subscriber counts provided by each
cable system). According to the December 19931994 sample reports issued by the A. C.A.C.
Nielsen Company (the "Nielsen Report"), MTV reached approximately 5958.7 million
domestic subscriber households.
MTV EUROPE is a 24-hours-a-day, seven-days-a-week video music
network distributed via cable systems and direct-to-home satellite
transmission throughout Europe, reaching over 58.3 million subscribers
as of December 31, 1993 (based on subscriber counts provided by each
distributor of the service). During 1993, MTV EUROPE expanded its
reach by entering into distribution arrangements in certain countries
in Eastern Europe, the former Soviet Union and the Middle East.
MTV EUROPE is designed to communicate with Europe's youth in their
language by providing approximately 85%a high percentage of European-sourced youth programming,
including music videos, and focusing on fashion, movie shows, MTV NEWS,movies, news, trends and social
issues. InMTV EUROPE is distributed via cable systems, direct-to-home satellite
transmission and terrestrial re-broadcast of the satellite transmission in
Europe and certain countries in the former Soviet Union and the Middle East.
According to Pan European Television Audience Research, MTV EUROPE reached
approximately 59.1 million subscribers at December 31, 1994.
MTV LATINO, launched in October 1993, MTVN launched MTV LATINO, a 24-hours-a-day,
seven-days-a-week music-based program service customized for Spanish-
speaking viewers, ages 12 to 34, in Latin America and the United
States. MTV LATINO reaches subscribers to cable,
multichannel, multidistribution systems ("MMDS"), and satellite master antenna
television systems ("SMATV") and direct-to-home satellite viewers in
approximately 20 territoriescountries in Latin America.America and in the U.S. MTV LATINO was
distributed to approximately 2.44.8 million subscribers as ofat December 31, 19931994 (based
on subscriber counts provided by authorized distributors)each distributor of the service).
MTV ASIA, which is expected to launch in the second quarter of 1995,
will reach subscribers throughout Asia via cable, terrestrial MMDS, SMATV and
direct-to-home satellite dishes. MTV ASIA will consist of two separate
satellite feeds, one primarily in Mandarin, the other primarily in English.
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MTVN has licensing arrangements covering the distribution of
regionally-specific program services called MTV: MUSIC TELEVISION in
Asia, Japan and Brazil. MTVN provides creative input and programming,
production, marketing and research expertise and support in connection
with licenses to each such licensee of the right to package and
exhibit a customized MTV program service containing MTV trademarks and
logos and a mix of MTV-owned and controlled programming and
interstitial material with locally produced programming and
interstitial material. Such arrangements include agreements with a
subsidiary of HutchVision Limited for a 24-hours-a-day MTV Asia
service, which is distributed to 42 million subscriber households via
the AsiaSat 1 satellite on the Hong Kong-based Satellite Television
Asian Region (STAR) system to 30 countries in Asia and parts of the
Middle East; the Abril Group for MTV Brazil, which airs 16-hours-a-day
in Brazil reaching 9.5 million households; and Music Channel Co.
Ltd., a joint venture of Pioneer Electronic Corp., TDK Corp. and Tokyu
Agency, Inc. for MTV Japan, which launched in December 1992 and is
distributed to approximately 810,000 subscriber households in Japan
via the Superbird B satellite.
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MTVN licenses, in international markets, the format rights and/or
broadcast television exhibition rights to MTVN-owned or controlled
programming.Japan. MTVN also licenses
the exhibition of "MTV
Internacional", a Spanish-language MTV-produced one-hour program, to
Spanish-language television stations in the U.S. and abroad. MTVN
anticipates further worldwide licensing of MTVN networks,MTV programs, merchandise and format rights.
NICKELODEON the first network for kids, is a 24-hours-a-day,
seven-days-a-week entertainment program service which combines acquired and originally produced programs in a
pro-social, non-violent format comprising two distinct program segments:units tailored to
age-specific demographic audiences. NICKELODEON, targeted to audiences ranging from the ages of 2
to 15,14 (which includes NICK JR., a program block designed for 2 to 5 year olds),
features live-action, animation and original kid game shows. NICK AT NITE
targetedprimarily attracts an audience ages 18 to family audiences49 and offers "Classic TV(TM)" shows
from various eras, including NICKELODEON'S 2 to 15
year old audienceTHE DICK VAN DYKE SHOW, THE MARY TYLER MOORE
SHOW and ranging up to age 54. Cable television
operators and other distributors typically carry both of the
NICKELODEON programming segments.
In 1993, NICKELODEON expanded its successful original animated
programming block, NICKTOONS(R), with the introduction of ROCKO'S
MODERN LIFE(TM). NICKELODEON continues to develop original animation
projects such as REAL MONSTERS(TM), in addition to THE REN & STIMPY
SHOW(TM), DOUG(TM) and RUGRATS(R). NICKELODEON also exhibits on
Saturday nights SNICK(TM), its first prime-time block of original
NICKELODEON programming. MTVN, in cooperation with MCA Inc. ("MCA"),
operates NICKELODEON STUDIOS FLORIDA at Universal Studios in Orlando,
Florida, which combines state-of-the-art television production
facilities with interactive features that demonstrate the operation of
NICKELODEON's studios from a kid's perspective.
NICKELODEON and Sony Music entered into an agreement in April 1993
for Sony to manufacture and distribute NICKELODEON home video and
audio products in the U.S. and Canada through its Sony Wonder
Children's label. In June 1993, NICKELODEON launched NICKELODEON
MAGAZINE, a bi-monthly humor-based children's publication.TAXI. At December 31, 1993 circulation was approximately 225,000 (based on
subscription and newsstand sales); distribution is handled, under
agreement with NICKELODEON, by the New York Times' The Family Circle,
Inc. (U.S.), and Worldwide Media Service, Inc. (U.K.).
At December 31, 1993,1994, NICKELODEON was licensed to
approximately 53.455.6 million cable subscribers and NICK AT NITE was licensed
to approximately 55.2 million cable subscribers (based on subscriber counts
provided by each cable system). At December 31, 1993, NICK AT NITE was licensed
to approximately 53.1 million cable subscribers (based on subscriber
counts provided bysystem for each cable system)program unit). According to the
Nielsen Report, NICKELODEON and NICK AT NITE each reached approximately 60.9
million subscriber households. In December 1992, Nickelodeon Huggings U.K. Limited, a subsidiary
of1994, NICKELODEON expanded its brand and
character licensing programs in the Company, enteredU.S. and international markets
by entering into a joint venturemerchandise agreements throughout the world and by
producing audio and video product in the U.S. and Canada for distribution
under its agreement with a subsidiary of
British Sky Broadcasting Limited for the launch and operationSony Music Entertainment, Inc. ("Sony Music").
Additionally, NICKELODEON has commenced publication of NICKELODEON
program service in the United Kingdombooks with Simon & Schuster and Ireland.has introduced "The Big Help" campaign
to encourage volunteerism among young people and "U to U", a fully
interactive television program.
NICKELODEON in the U.K. is a joint venture of the Company and British
Sky Broadcasting Limited and is a 12-hours-a-day, seven-days-a-week satellite-deliveredsatellite-
delivered children's programming service which launched in
September 1993,includes original programming
produced by NICKELODEON and it carries a mixthe joint venture.
VH1 presents music videos, long-form music-based series, original
concerts, music-based news segments, fashion, comedy and promotions and targets
an audience from the ages of programming, including
original productions from NICKELODEON25 to 44. On October 17, 1994, VH1 was relaunched
as VH1 MUSIC FIRST in the U.S. and programming
originally produced by the joint venture for the U.K. market.
Pursuant to the joint venture agreement and related parent agreements,
the Company guarantees the obligation of its subsidiary and has both
the right of first negotiation/last refusal with respect to any sale
I - 6
of, and the right to approve any purchaser of, the British Sky
Broadcasting subsidiary's interest in NICKELODEON U.K. The Company's
subsidiary is obligated to fund loans in an amount equal to 50% of
NICKELODEON U.K.'s working capital deficit. The Company funded loans
of approximately B.P.3,500,000 in 1993 and expects to fund loans of
approximately B.P.7,000,000 in 1994.
VH-1/VIDEO HITS ONE is a 24-hours-a-day, seven-days-a-week music
program service. VH-1 targets an audience of baby boomers, 25 to 49
years old, rather than the 12 to 34 year-olds targeted by MTV. The
format consists primarily of music video clips from the adult
contemporary, soft rock, classic oldies, contemporary jazz and country
genres, augmented by original animation, music and general lifestyle
information and programming, comedy, fashion, nostalgia, interviews
and promotions. VH-1 offers programs such as original and acquired
comedy programming including STAND-UP SPOTLIGHT and Gallagher
specials; FT: FASHION TELEVISION; and the ONE-TO-ONE series which
profiles pop artists. At December 31, 1993, VH-11994, VH1 was licensed to
approximately 45.547.2 million domestic cable subscribers (based on subscriber
counts provided by each cable system). According to the Nielsen Report, VH-1VH1
reached approximately 49.549.8 million domestic subscriber households. Substantially all such subscribers also receive MTV.VH-1 in the
U.K. was launched in September 1994 and is distributed to approximately 3.1
million viewers in the U.K. and Ireland via cable systems and direct-to-home
satellite transmission as of December 31, 1994 (based on subscriber counts
provided by each distributor of the service). VH-1 in Germany was launched in
March 1995. The Company has announced plans to launch VH-1 in Latin America in
1996.
MTVN, has agreements with some U.S. record companies which, in exchange for cash and advertising time licenseor promotional
consideration only, licenses from record companies the availability of
such companies' music
videos for exhibition on MTV and on MTVN's other basic cable networks; a number of other record companies provide MTVN
with music videos in exchange for promotional consideration only.networks. The
agreements generally provide that the videos are available for debut by MTVN and
in some cases, that certain videos are subject to exclusive exhibition periods on MTV. These record companies provideIn
October 1994, MTVN entered into a substantial portion
of themusic video licensing agreement with Sony
Music which licenses to MTVN international exhibition rights in key territories.
MTVN's ability to continue to obtain music videos exhibited on MTV and VH-1. MTVNfavorable terms is currently in
negotiations for the renewal and extension of certain of its record
company agreements. Although MTVN believes that these agreements will
be renewed, there can be no assurance that the terms of such renewals
will be as favorable as existing arrangements.material
to MTVN. (See "Business -- Competition")
MTVN derives revenues principally from two sources: the sale of time
on its own networks to advertisers and the license of the services to cable
television operators and other system operators.distributors. The sale of MTVN advertising time
is affected by viewer demographics, viewer ratings and market conditions for
advertising time. Adverse changes in general market conditions for advertising
may affect MTVN's revenues. MTVN also derives revenues from the license fees
paid by cable operators and other distribution systemsdistributors which deliver programming by satellite and
microwave transmissions.non-
cable technologies. In 1993,1994, MTVN derived approximately 58%59% of its revenues
from music programming and approximately 42%41% of its revenues from children's and
other programming.
MTVN also derives revenues from the sale of advertising time
within internally produced or co-produced programming distributed to
television stations and from the sale of advertising time within such
programs produced by third parties. MTVN, through its operation of
One World Entertainment, sells barter advertising time in series
licensed for distribution to television stations by the Company and
third parties, in exchange for a commission.
COMEDY CENTRAL. The Company and HBO, through a 50-50 joint
venture, operate COMEDY CENTRAL, a 24-hours-a-day, seven-days-a-week
program service targeted to audiences ranging from the ages of 18 to
I - 7
34. The format consists primarily of comedy programming, including
movies, series, situation comedies, stand-up and sketch comedy,
commentary, promotions, specials, and other original and acquired
comedy programming. Pursuant to the joint venture agreement, the
Company is obligated to make capital contributions in an amount equal
to 50% of the partnership's working capital deficit (and ViacomShowtime Networks Inc.
has guaranteed such obligation). The Company's capital contributions
for 1993 totaled $13.6 million. For 1994, the Company estimates its
contribution obligation to be approximately $9 million. COMEDY
CENTRAL reached approximately 30.3 million subscriber households
according to the Nielsen Report.
LIFETIME. The Company owns a one-third partnership interest in
LIFETIME, an advertiser-supported basic cable television network that
provides programming directed primarily toward women in the 18 to 54
age group. On March 29, 1994, the Company agreed to sell its one-
third partnership interest in LIFETIME to its partners The Hearst
Corporation and Capital Cities/ABC Inc. for approximately $317.6
million; this transaction is expected to close in the second quarter
of 1994.
SHOWTIME NETWORKS INC. Showtime Networks Inc. ("SNI") operates three
24-hours-a-day, seven-days-a-week commercial-free, premium subscription
services
offered to cable television operators and other distributors:services: SHOWTIME, offering theatrically released feature films, dramatic
series, comedy specials, boxing events, family programs and original movies; THE MOVIE CHANNEL,
offering feature films and related programming including film festivals; and
FLIX, an added valueadded-value premium subscription service featuring movies, primarily
from the 1960s, 70s and 80s which was launched on August 1, 1992.80s. SHOWTIME, THE MOVIE CHANNEL and FLIX are offered
to cable television operators and other distributors (including the Company) under affiliation
agreements which for SHOWTIME and THE MOVIE CHANNEL are generally for a term of
three to five years, and in each case are distributed to the systems they serve
by means of domestic communications satellites. AsSHOWTIME, THE MOVIE CHANNEL and
FLIX are also offered to distributors for subscription by home satellite dish
owners, including United States Satellite Broadcasting Inc., a subsidiary of
Hubbard Broadcasting, Inc., which uses high-powered Ku-Band direct broadcast
satellite technology. At December 31, 1993,1994, SHOWTIME, THE MOVIE CHANNEL and
FLIX, in the aggregate, had approximately 11,900,00013.5 million cable and other
subscribers in approximately 8,7008,800 cable systems andas well as other distribution
systems in 50 states and certain U.S. territories. In January 1995, SNI and
Robert Redford announced plans to launch, in late 1995, the Sundance Film
Channel, designed to be a commercial-free 24-hours-a-day, seven-days-a-week
premium subscription service featuring independent and foreign language films
and documentaries.
I-3
SNI also provides special events, such as sports events, and feature
films to licensees on a pay-per-view basis through its operation of SET PAY PER
VIEW. For example, SNI recently announced an exclusive multi-year agreement
among former heavyweight champion Mike Tyson, Don King Productions, Inc., SNI
and SET PAY PER VIEW a divisionfor the pay-per-view marketing and exhibition of the Company.all of
Mike Tyson's fights over three years. SNI, through its subsidiary, Showtime
Satellite Networks Inc. ("SSN"), a subsidiary of SNI, packages for distribution to home satellite dish
owners (on a direct
retail basis) SHOWTIME, THE MOVIE CHANNEL, FLIX, Viacom Networks'
basic cablethe Company's wholly owned program services ALL NEWSas well as COMEDY CENTRAL,
USA NETWORK, the SCI-FI CHANNEL, (a 24-hour satellite-
delivered news service which is a joint venture between Viacom
Satellite News Inc., a subsidiary of the Company, and Conus
Communications Company Limited Partnership, a limited partnership
whose managing general partner is Hubbard Broadcasting, Inc.) and certain third-party program services. SHOWTIME, THE MOVIE CHANNEL and
FLIX are also offered to third-party licensees for subdistribution to
home satellite dish owners.
In order to exhibit theatrical motion pictures on premium subscription
television, SNI enters into commitments to acquire rights, with an emphasis on
acquiring exclusive rights for SHOWTIME and THE MOVIE CHANNEL, from major or
independent motion picture I - 8
producers and other distributors (including the Company).distributors. SNI's exhibition
rights always cover the United StatesU.S. and may, on a contract-by-contract basis, cover
additional territories. Theatrical motion pictures are generally exhibited
first on SHOWTIME and THE MOVIE CHANNEL after an initial period for theatrical,
home video and pay-per-view exhibition and before the period has commenced for
standard broadcast television and basic cable television exhibition. FLIX primarily offersMany of
the motion pictures from the 1960s, 70s and 80s,
most of which appear on FLIX have been previously made available for
standard broadcast and other exhibitions.
SNI also arranges for the development, production and, in many cases,
distribution of original programs and motion pictures. These original programs
and motion pictures premiere on SHOWTIME and certain of such programming is
exploited in various media worldwide.
The cost of acquiring premium television rights to programming including exclusive rights, is the
principal expense of SNI. At December 31, 1993,1994, in addition to suchprogram
acquisition commitments reflected in Viacom
Inc.'s and the Company's financial statements, SNI had
commitments to acquire suchprogramming rights at aan aggregate cost of approximately
$1.8 billion. Most$1.9 billion, most of the $1.8 billionwhich is payable withinover the next seven years as part of
SNI's normal programming expenditures of SNI.expenditures. These commitments are contingent upon
delivery of motion pictures which are not yet available for premium television
exhibition and, in many cases, have not yet been produced.
In November 1993, SNIJoint Ventures. USA Networks, a joint venture of the Company and MCA,
Inc. ("MCA"), operates two national advertiser-supported basic cable television
networks: USA NETWORK, a general entertainment and sports channel, and the SCI-
FI CHANNEL, a science fiction channel. COMEDY CENTRAL, a joint venture of the
Company, through MTVN, and Home Box Office ("HBO"), is an advertiser-supported
basic cable television comedy service. ALL NEWS CHANNEL, a joint venture of a
subsidiary of the Company and Conus Communications Company Limited Partnership,
a limited partnership whose managing general partner is Hubbard Broadcasting,
Inc., consists of national and international news, weather, sports and business
news. Each of USA NETWORK, the SCI-FI CHANNEL, COMEDY CENTRAL and ALL NEWS
CHANNEL is a 24-hours-a-day, seven-days-a-week service.
Broadcasting. The Company owns and operates 12 television stations
and 12 radio stations. All of the television and radio stations operate
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"), and licenses granted by the FCC, which are renewable every five
years in the case of television stations and every seven years in the case
of radio stations.
The Company's strategy has been to acquire independent television
stations in the top 20 U.S. markets to the extent advantageous in conjunction
with the Company's formation of the United Paramount Network ("UPN") (See
"Business -- Entertainment"). The Company acquired WSBK-TV, serving Boston,
Massachusetts, on March 7, 1995 and has entered into agreements to acquire WGBS-
TV, serving Philadelphia, Pennsylvania and WBFS-TV, serving Miami, Florida. The
Company sold WLFL-TV, serving Raleigh/Durham, North Carolina, on January 17,
1995 and has entered into agreements to sell WTXF-TV, serving Philadelphia,
Pennsylvania and KRRT-TV, serving San Antonio, Texas. The table below sets
forth a seven-yearlist of the 12 television properties owned and operated by the Company
at March 31, 1995.
I-4
Station and Metropolitan Area Served Network Affiliation and Expiration
Type Date of Affiliation Agreement
--------------------------------------------------------------------------------------------
WTXF-TV *
Philadelphia, PA VHF Fox/contingent upon sale*
WSBK-TV
Boston, MA UHF UPN/January 16, 1998
WDCA-TV
Washington, DC VHF UPN/January 16, 1998
KTXA-TV
Dallas, TX VHF UPN/January 16, 1998
WKBD-TV
Detroit, MI VHF UPN/January 16, 1998
KTXH-TV
Houston, TX VHF UPN/January 16, 1998
KMOV-TV
St. Louis, MO VHF CBS/December 31, 1996
KRRT-TV *
San Antonio, TX VHF UPN/January 16, 1998
WVIT-TV
Hartford-New Haven-New Britain-Waterbury,
CT UHF NBC/July 2, 1995
WNYT-TV
Albany-Troy-Schenectady, NY VHF NBC/September 28, 1995
WHEC-TV
Rochester, NY VHF NBC/August 13, 1996
KSLA-TV
Shreveport, LA VHF CBS/June 30, 1995
*The Company has entered into agreements to sell these television stations.
The Company owns and operates the following 12 radio stations: WLTW-
FM, serving New York, New York (Adult Contemporary), KYSR-FM and KXEZ-FM,
each serving Los Angeles, California (Adult Contemporary), WLIT-FM, serving
Chicago, Illinois (Adult Contemporary), WLTI-FM, serving Detroit, Michigan
(Adult Contemporary), WMZQ-AM/FM (Country), WJZW-FM (Jazz) and WCPT-AM (CNN
Headline News), each serving Washington, D.C., KBSG-AM/FM, serving
Tacoma/Seattle, Washington (Oldies), and KNDD-FM, serving Seattle, Washington
(New Rock/AOR). The Company has undertaken to divest two stations in the
Washington, D.C. market as a result of multiple ownership issues arising
from the acquisition of Paramount Communications (See "Business
-- Regulation"). On March 22, 1995, the Company sold KSOL-FM, serving San
Francisco, California, and KYLZ-FM, serving Santa Cruz/San Jose, California.
I-5
Entertainment
The Entertainment segment's principal businesses are the production
and distribution of motion pictures and television programming as well as movie
theater operations and new media and interactive services.
Theatrical Motion Pictures. Through PARAMOUNT PICTURES(TM), the
Company produces, finances and distributes feature motion pictures. Motion
pictures are produced by PARAMOUNT PICTURES, produced by independent
producers and financed in whole or in part by PARAMOUNT PICTURES, or produced
by others and acquired by PARAMOUNT PICTURES. Each picture is a separate and
distinct product with its financial success dependent upon many factors,
among which cost and public response are of fundamental importance.
Feature motion pictures are produced or acquired for distribution, normally
for exhibition in U.S. and foreign theaters followed by videocassettes
and discs, pay-per-view television, premium subscription television,
network television, and basic cable television and syndicated television
exploitation. During 1994, PARAMOUNT PICTURES released 16 feature motion
pictures, including FORREST GUMP, winner of six Academy Awards including
"Best Picture", STAR TREK: GENERATIONS, NOBODY'S FOOL, and CLEAR AND
PRESENT DANGER. PARAMOUNT PICTURES plans to release approximately 16 to 18
films in 1995. In seeking to maximize PARAMOUNT PICTURES' output, while
decreasing its financial exposure, the Company has entered into agreements to
distribute films produced and/or financed by other parties. For example,
entities associated with the Company have agreements with companies with which
Michael Douglas and Steven Reuther are associated, for the production and/or
financing of 12 films over four years. PARAMOUNT PICTURES also has an
agreement with Metro-Goldwyn-Mayer Inc.Lakeshore Entertainment Corporation ("MGM"Lakeshore") under which SNI agreed to acquirefor the
exclusive premium television rights in the licensed territory to MGM
and United Artists feature films. The agreement includes all
qualifyingdistribution by PARAMOUNT PICTURES of 15 films theatrically released from September 1, 1994 through
August 31, 2001, up to a maximum of 150 pictures. This agreement
follows a previous agreement between SNI and Pathe Entertainment,
Inc., a predecessor-in-interest to MGM. The recent agreement also
calls for SNI and MGM to co-finance the production of certain
exclusive original movies to be produced for SNI's program services.
Also in 1993, SNI and Sony Pictures Entertainment Inc. entered
into a five-year agreement under which SNI agreed to acquire the
exclusive premium television rights in the licensed territory to
TriStar Pictures feature films. A continuation of SNI's previous
three-year arrangement with TriStar, this new agreement includes all
qualifying TriStar films theatrically released from 1994 through 1998,
up to a maximum of 75 pictures. Feature films theatrically released
by TriStar include SLEEPLESS IN SEATTLE, CLIFFHANGER and PHILADELPHIA.Lakeshore
over five years. In February 1994, SNI reached an agreement in principle with
Castle Rock Entertainment ("Castle Rock") to acquire the exclusive
premium television rights in the licensed territory to additional
Castle Rock feature films. This agreement follows SNI's previous
output arrangement with Castle Rock, which included such previously
theatrically released feature films as A FEW GOOD MEN, CITY SLICKERS,
WHEN HARRY MET SALLY, MISERY, MALICE and IN THE LINE OF FIRE. The new
agreement includes all qualifying Castle Rock motion pictures
theatrically released from 1994 through 1999, up to a maximum of 55
pictures.
In March 1994, SNIaddition, PARAMOUNT PICTURES entered into an agreement with
OrionColumbia Pictures Corporationfor PARAMOUNT PICTURES' upcoming feature film THE INDIAN IN
THE CUPBOARD, which will be co-financed by the studios and for which they will
divide distribution rights and revenues.
PARAMOUNT PICTURES distributes its motion pictures for theatrical
release outside the U.S. and Canada through United International Pictures
("Orion"UIP") under which SNI agreed to acquire, a company owned by entities associated with the Company, MGM and MCA.
PARAMOUNT PICTURES distributes its motion pictures on videocassette and disc in
the U.S. and Canada through Paramount Home Video and outside the U.S. and
Canada, through Cinema International B.V., a joint venture of entities
associated with the Company and MCA. PARAMOUNT PICTURES has an exclusive premium
subscription television rightsagreement with HBO for exhibition of PARAMOUNT PICTURES'
new releases on domestic premium subscription television, which includes new
PARAMOUNT PICTURES motion pictures released theatrically through December 1997.
PARAMOUNT PICTURES also distributes its motion pictures for premium subscription
television release outside the U.S. and Canada through UIP and is a joint
venture partner in HBO Pacific Partners C.V., Latin American Pay Television
Service, VOF, Telecine Programacao de Filmes Ltda., and Pay-TV Movies Australia,
which are premium television services in Asia, Spanish-speaking Latin America,
Brazil and Australia, respectively. PARAMOUNT PICTURES also licenses its motion
pictures to home and hotel/motel pay-per-view, airlines, schools and
universities. UIP and United Cinemas International ("UCI", as described below)
are the subject of various governmental inquiries by the Commission of the
European Community ("EC") and Monopolies and Mergers Commission of the U.K.
Such inquiries are not expected to have a material effect on the Company (See
"Business -- Competition"). Most motion pictures are also licensed for
exhibition on television, including basic cable television, with fees generally
collected in installments.
All of the above license fees for television exhibition (including
international and domestic premium television and basic cable television) are
recorded as revenue in the licensed territoryyear that the films are available for such
exhibition, which, among other reasons, may cause substantial fluctuation in
PARAMOUNT PICTURES' operating results. At December 31, 1994, the unrecognized
revenues attributable to up to 30,such licensing of completed films from PARAMOUNT
PICTURES' license agreements were approximately $574.7 million. PARAMOUNT
PICTURES has over 900 motion pictures in its library.
Television Production and Syndication. The Company also produces and
distributes series, miniseries, specials and made-for-television movies for
network television, first-run syndication, premium subscription and basic cable
television, videocassettes and video discs, and live television programming. As
a result of the Blockbuster Merger, the Company acquired approximately 77% of
Spelling Entertainment Group Inc. ("Spelling"), which includes Spelling
Television, Republic Pictures and Worldvision Enterprises ("Worldvision").
I-6
The Company's current network programming includes FRASIER, WINGS,
THE MOMMIES, THE MARSHAL, SISTER, SISTER, DIAGNOSIS: MURDER and
MATLOCK, and through Spelling, BEVERLY HILLS, 90210 and MELROSE PLACE.
Generally, a network will license a specified number of episodes for exhibition
on the network in the aggregate, motion pictures,U.S. during the license period. All other distribution
rights, including qualifying motion pictures
theatrically released from 1994foreign and off-network syndication rights, are retained by
the Company. The episodic license fee is normally less than the Company's and
Spelling's respective costs of producing each series episode; however, in many
cases, the Company has been successful in obtaining international sales through
1996its and qualifying original
motion pictures. This agreement followsSpelling's respective syndication operations. Foreign sales are
generally concurrent with U.S. network runs. Generally, a previous output agreement
between SNI and Orion.
I - 9
In 1989, SNI agreed with Walt Disney Pictures ("Disney")series must have a
network run of at least four years to acquire exclusive premiumbe successfully sold in syndication.
The Company produces television rightsprogramming for first-run syndication
which programs are sold directly to television stations in the U.S. on a market-
by-market basis. The Company sells its programs to television stations for
cash, advertising time or a combination of both. Where a product is licensed territoryin
exchange for advertising time, through what are known as "barter agreements", a
broadcaster agrees to qualifying feature films (upgive the Company a specified amount of advertising time,
which the Company subsequently sells. The Company's first-run syndicated
programming includes such shows as STAR TREK: DEEP SPACE NINE, ENTERTAINMENT
TONIGHT, HARD COPY, SIGHTINGS, THE MAURY POVICH SHOW, THE MONTEL WILLIAMS SHOW
and THE JON STEWART SHOW. PARAMOUNT PICTURES recently entered into an agreement
with Procter & Gamble Productions, Inc. ("P&G") pursuant to a maximum of 125 films)which P&G will co-
finance certain network and first-run syndicated programming produced and distributed by
Disney's major distribution labels (other than the
Disney label) and theatrically releasedPARAMOUNT PICTURES during the five-year period
commencing January 1, 1991. These films include SISTER ACT 2,
TOMBSTONE, THE JOY LUCK CLUB and WHAT'S LOVE GOT TO DO WITH IT. In
addition, SNI has agreements with (among other suppliers) New Line
Distribution, Inc., Imagine Films Entertainment, Inc., Cannon
Pictures, Inc., and Polygram Filmed Entertainment Distribution, Inc.
SNI also arranges for the development and production of original
programs and motion pictures that premiere on SHOWTIME through its
operationterm of the Showtime Entertainment Group, which was formed in
1992.agreement.
The Showtime Entertainment Group reflects SNI's increased
commitment to the development and production of original programming
and includes the operation of Viacom Pictures, a division of the
Company.
Viacom Pictures arranges for the development and production of
motion pictures that are exhibited theatrically in foreign markets and
premiere domestically on SHOWTIME. These films are then made
available for distribution to various media worldwide, with the
exception of the U.S. theatrical market. These feature films are
generally budgeted at an average cost of approximately $5 million.
During 1993, Viacom Pictures completed principal photography on two
films: PAST TENSE, starring Scott Glenn, Anthony LaPaglia and Lara
Flynn Boyle, and ROSWELL, starring Kyle MacLachlan, Martin Sheen and
Dwight Yoakam.
The Showtime Entertainment Group also has entered into commitments
to produce, distribute and/or exhibit otherCompany produces original programming, including series, films, documentary programs, comedy specialsSTAR TREK:
VOYAGER, PLATYPUS MAN, PIGSTY and boxing events. In 1993,THE WATCHER, for example, SNI televised comedy specials
featuring Tim Allen, Brett ButlerUPN. UPN launched on
January 16, 1995 in more than 95 U.S. television markets and Shelley Long, boxing matches
featuring such fighters as Julio Cesar Chavez, and the critically
acclaimed dramatic anthology series entitled FALLEN ANGELS, episodescurrently
provides to its affiliates four hours per week of which were directedprimetime programming.
UPN is currently 100% owned by Michael Mann, Steve Soderbergh, Jonathan
Kaplan and Tom Cruise and starred Gary Oldman, Laura Dern, Meg Tilly,
Gabrielle Anwar, James Woods, Joe Mantegna, Gary Busey and Alan
Rickman. In addition to exhibiting these original programs and motion
pictures on its premium subscription services, SNI distributes certainsubsidiaries of such programming for exploitation in various media worldwide.
ADDITIONAL INFORMATION ABOUT VIACOM NETWORKS. The domestic
program servicesBHC Communications, Inc.
("BHC"), an affiliate of MTVN and SNI are currently transmitted over
transponders principally on GE Americom's C-3 and C-4 and the Hughes
Galaxy I and V domestic satellites. In 1994, Viacom Networks program
services on Galaxy I will move to AT&T's Telstar 302. NICKELODEON
(U.K.) program service is transmitted over the Astra 1-C satellite.
MTV LATINO is transmitted over PanAmSat-1. MTV EUROPE is transmitted
over the Astra 1-A, Astra 1-B and Eutelsat II-F1 satellites.Chris Craft Industries, Inc. The Company has entered into pre-launch agreementsan
option exercisable through January 15, 1997 to acquire an interest in
UPN equal to that of BHC and its subsidiaries for international satellite coverage on Apstar-1 and Apstar-2, covering a broad Asian area, on PanAmSat-2 (Pacific Rim area), PanAmSat-3 (Latin
America) and PanAmSat-4 (India/Middle East and South Africa) and
Eutelsat II-F6 (greater Europe), all for service beginning in 1994 and
1995.
I - 10
price equivalent
to approximately one-half of BHC's aggregated cash contributions to UPN through
the exercise date, plus market-based interest.
The Company entered into agreements, as of August 27, 1992, with
United States Satellite Broadcasting Inc. ("USSB"), a subsidiary of
Hubbard Broadcasting, Inc., for the direct broadcast satellite
distribution using high-powered Ku-band technology ("DBS") of each of
the Company's wholly owned basic cable and premium networks. These
networks are expected to be offered by USSB to DBS customers beginning
in 1994, and will be delivered directly to dishes located at DBS
customers' homes from the first high-powered Ku-band satellite serving
the U.S., which was launched in December 1993. DBS delivery utilizes
consumer dishes significantly smaller than the C-band consumer dishes
currently in use by home satellite dish owners in the U.S.
VIACOM ENTERTAINMENT
Viacom Entertainment is comprised of (i) Viacom Enterprises,
which distributes television series, feature films, made-for-
television movies, mini-series and specials for television exhibition
in various markets throughout the world and also distributes
television series for initial United States television exhibition on a
non-network ("first run") basis and for international television
exhibition; (ii) Viacom Productions, which produces television series
and other television properties independently and in association with
others primarily for initial exhibition on U.S. prime time network
television; (iii) Viacom New Media, which was established in 1992
to develop, produce, distribute and market interactive software
for the stand alone and other multimedia marketplaces; (iv) Viacom
World Wide, which explores and develops business opportunities in
international markets primarily in cable and premium television; and
(v) Viacom MGS Services, which duplicates and distributes television
and radio commercials. Viacom Enterprises and Viacom Productions are
expected to be consolidated with Paramount's television operations
during 1994.
VIACOM ENTERPRISES. Viacom Enterprises distributes or syndicates television series, feature
films, made-for-television movies, mini-
seriesminiseries and specials and first run series for television
exhibition in domestic and/or international broadcast, cable and other
markets.marketplaces. Feature film and television properties distributed by the Company
are produced by the Company and/or Spelling or acquired from third parties
or result from the Company's own production activities, including
television properties produced by Viacom Productions and certain
television properties produced by or for MTV Networks. Third-partyparties.
Third party agreements for the acquisition of distribution rights are generally
long-term and exclusive in nature; such agreements frequently guarantee a
minimum recoupable advance payment to such third parties and generally provide
for periodic payment to such third parties based on the amount of revenues
derived from distribution activities after deduction of Viacom Enterprises'the Company's percentage
distribution fee, recoupment of distribution expenses and recoupment of any
advance payments. The Company and Worldvision together control the rights to
distribute substantially all of the pre-1971 libraries of CBS, NBC and ABC.
The receipt and recognition of revenues for license fees for completed
television programming in syndication and on basic cable is similar to that of
feature films exhibited on television and, consequently, operating results are
subject to substantial fluctuation. At December 31, 1993, Viacom Enterprises held domestic and/or
international1994, the unrecognized
revenues attributable to television distribution rights toprogram license agreements were
approximately 5,000
half-hour series episodes, 2,000 one-hour series episodes, 1,500
feature films$486.4 million.
Theatrical Exhibition. The Company's movie theater operations consist
primarily of Famous Players in Canada, UCI and television movies,Films Paramount in Europe, and
30 mini-series.
At December 31, 1993, Viacom Enterprises distributed television
product to, among other outlets, approximately 750 domestic broadcast
television stations, including stations in every principal cityCinamerica in the Western U.S., and to outlets Famous Players operates 465 screens in approximately 120 other countries
I - 11
around the world. Viacom Enterprises generally licenses product to
exhibitors for periods109
theaters throughout Canada. UCI, a 50%-owned joint venture of one to six years,entities
associated with license fee payments
due over a somewhat shorter period.
Episodes of a network television series from the first four
seasons on a broadcast network generally become available for
exhibition in domestic syndication to broadcast television stations
commencing upon the start of the fifth broadcast season on the
network; episodes from each subsequent broadcast season generally
become available for such domestic syndication at the conclusion of
each such subsequent broadcast season. Episodes of network television
series are available for exhibition by foreign stations prior to or
concurrent with their initial network runs. Generally, a network
television series must air for at least three full broadcast seasons
before it has value for such domestic syndication. Television
programs can be made available to stations and other outlets, such as
cable television services, on a first run basis without having been
exhibited on any of the networks. The Company has greater control
over the availability for exhibition in such domestic syndication of
programming developed by and for Viacom's cable networks than of
programming developed for network television. The Company has adopted
a strategy of internal development of first run programs utilizing in-
house creative resources from within Viacom Enterprises and from
elsewhere within the Company, such as MTV Networks. Feature films
which have been released theatrically generally become available for
exhibition in such domestic syndication after their theatrical, home
video, pay-per-view, and premium television exhibition periods have
expired (which is generally three to four years after domestic
theatrical release) and for network or ad hoc network exhibition
between the first and second premium television windows. Such feature
films generally become available for free television exhibition by
foreign stations after the foreign theatrical, home video, pay-per-
view (if any) and premium television (if any) exhibition periods have
expired (which is generally two to three years after theatrical
release in the applicable foreign market).
The Company controls the exclusive worldwide broadcast, basic
cable, premium, and home video television distribution rights to
ROSEANNE, now in its sixth network broadcast season on ABC, and THE
COSBY SHOW, which completed its eight-year network run at the end of
the 1991/92 network broadcast season. The start of the sixth network
season of ROSEANNE automatically triggered the first of three 26-week
extensions of individual station licenses for ROSEANNE's initial
licensing in domestic syndication, which was made on a cash plus
barter basis. The second licensing period in domestic syndication for
THE COSBY SHOW commenced in September 1993 (upon expiration of the
term for the initial licensing in domestic syndication of THE COSBY
SHOW) on an all-cash basis.
The Company also controls certain worldwide exclusive
distribution rights to classic network series such as I LOVE LUCY, THE
ANDY GRIFFITH SHOW, THE BEVERLY HILLBILLIES, HAWAII FIVE-O and THE
TWILIGHT ZONE. The Company is also offering VIACOM SEASONAL SPECIALS
FEATURING NICKTOONS which brings six one hour seasonally themed
specials, drawn from MTV Networks' critically acclaimed NICKTOONS
animation block, to broadcast television.
In addition, the Company controls the exclusive worldwide
distribution rights in all media to various network television movies
and series produced by Viacom Productions such as the PERRY MASON
I - 12
television movies starring Raymond Burr, the DIAGNOSIS MURDER
television movies and series starring Dick Van Dyke and the MATLOCK
series starring Andy Griffith. Most episodes of MATLOCK and most of
the PERRY MASON television movies are currently available for
exhibition in domestic syndication. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
The Company had accumulated a backlog of unbilled license
agreements of approximately $399 million at December 31, 1993. As the
entire license fee amount is billed during the term of various
licensing contracts, the Company will recognize as revenues that
portion of such amount representing its distribution fees. Down
payments and other accelerated payments of license fees are included
in the backlog and are recognized as revenues in accordance with the
billing terms of the license agreements. (See Note 1 to the
Consolidated Financial Statements of Viacom Inc. and the Company for
an explanation as to how license fees are billed.) Approximately 58%
of the Company's backlog is attributable to license fees for ROSEANNE
and THE COSBY SHOW. As THE COSBY SHOW becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Since the late 1970s, the Company has produced and/or acquired
television series for distribution on a first run basis. There is a
financial exposure to the Company when it acquires or produces such
series to the extent that advertising revenues derived by the Company
and/or license fees paid by television stations to the Company are not
sufficient to cover production costs. The Company typically offers to
license new episodes of a first run series on a broadcast season
basis. Generally, a first run series may be canceled by the Company
for any reason at any time; in such event, television station licenses
for such first run series are subject to termination by the Company and MCA, operates 247 screens in 26 theaters
in the U.K. and Ireland, 51 screens in four theaters in Germany, nine screens
in one theater in Austria and 81 screens in 25 theaters in Spain. UCI also
manages in six countries, 31 screens in 17 theaters which are owned by
Cinema International Corporation, a joint venture with MCA. Films
Paramount operates seven screens in one theater in France. Cinamerica, a
50%-owned joint venture of entities associated with the Company may have certain financial obligations to the producer
notwithstanding cancellation. The Companyand Time
Warner Inc., includes Mann and Festival Theaters and operates 349 screens in
65 theaters in California, Colorado, Arizona and Alaska.
I-7
New Media and Interactive Services. Viacom Interactive Media is
currently offering the
third season (since its national launch)comprised of THE MONTEL WILLIAMS SHOW,
a first run one-hour strip (five times per week) talk show which
premiered in Spring 1991 and was nationally launched in September
1992, on a cash plus barter basis, and NICK NEWS, a first run half
hour weekly (one time per week) news and information show targeted for
audiences 12 years old and under, which was nationally launched in
September 1993 on an all-barter basis.
The Company licenses certain ancillary rights to third parties,
including home video, video disc and merchandising rights. These
rights can be acquired concurrently with a program acquisition,
derived from programs or characters created in-house, or directly
licensed from the holders of such rights. These activities have not
been a source of significant revenues to date.
For the year ended December 31, 1993, approximately 37% of Viacom
Enterprises' revenues were attributable to foreign operations and
export business. A substantial portion of such revenues is derived in
countries that have import quotas and other restrictions which limit
the number of foreign programs and films exhibited in such countries.
(See "BUSINESS -- Regulation -- Viacom Entertainment -- European
Community Directive")
VIACOM PRODUCTIONS. Viacom Productions Inc. ("Viacom
Productions") produces programs independently and in association with
others primarily for U.S. network prime time television.
I - 13
These programs, which include television movies, series and mini-
series, are also a source of product for the Company's distribution
activities. There is a financial exposure to the Company with respect
to such programs to the extent that revenues from distribution or
syndication in foreign or domestic broadcast, cable and/or other
markets are not sufficient to cover production deficits (i.e., the
----
difference between production costs and network license fees). For
the 1993/94 broadcast season, Viacom Productions is producing the
eighth network broadcast season of Andy Griffith's MATLOCK series
(ABC); three additional PERRY MASON mystery television movies (NBC);
the first network broadcast season of Dick Van Dyke's DIAGNOSIS MURDER
series (CBS); two television movies starring Louis Gossett, Jr. (NBC);
and several two-hour television movies, including THE ANISSA AYALA
STORY (NBC); DESPERATE JOURNEY, starring Mel Harris (ABC); and SIN AND
REDEMPTION, starring Richard Grieco (CBS). Viacom Productions also
produces movies for cable television networks, including THEY,
starring Vanessa Redgrave (SHOWTIME) and A FRIENDLY SUIT, starring
Melissa Gilbert and Marlee Matlin (LIFETIME).
VIACOM NEW MEDIA. Viacom New Media the Company's interactive
publishing division, was formed in 1992 to develop, produce,
distribute and marketViacom Interactive Services. Viacom New Media
develops, produces, publishes, markets and distributes interactive software for the stand-alone and
other multimedia marketplaces. ICOM Simulations, Inc., an interactive
software development company, was acquired by the Company in May 1993
and has been integrated intoon a
wide variety of platforms. Viacom New Media; among other things,
ICOM Simulations, Inc. is known forMedia derives its SHERLOCK HOLMES CONSULTING
DETECTIVE series of CD-ROM products.content from brands and
franchises developed by Viacom's business units, including PARAMOUNT PICTURES,
MTV Networks and Paramount Television, and also secures outside licenses and
acquisitions. In 1994, Viacom New Media released an
interactive horror movie on CD-ROM entitled DRACULA UNLEASHED in12 titles, some of which were
released for multiple platforms; the fourth quarter of 1993.titles represent 16 stock keeping units
("sku's"). In 1994,1995, Viacom New Media expects to release original video games and CD-ROM products based on certain MTV Networks
programs, including ROCKO'S MODERN LIFE (currently scheduled for
second quarter 1994 release) and BEAVIS & BUTT-HEAD.12 new titles,
representing 29 sku's. Viacom New Media
also expects to participate in the development of interactive
programming for the Viacom/AT&T Castro Valley cable system project.
(See "BUSINESS -- Viacom Cable Television")
VIACOM WORLD WIDE LTD. Viacom World Wide Ltd. ("Viacom World
Wide") explores and develops international business opportunities in
all media, focusing primarily on countries with recently deregulated
television industries. Viacom World Wide works closelyInteractive Services collaborates with the
Company's other operatingvarious business units to develop their respective on-line and
interactive television environments. The Company, through Spelling, also owns
90% of Virgin Interactive Entertainment Ltd. ("Virgin"), a leading video game
producer with a library of more than 100 titles which distributes video games in
identifying international business
opportunities. Viacom World Wide also provides consulting servicesapproximately 30 countries. In 1994, Virgin released 54 titles, some of which
were released for multiple platforms; the titles represent 90 sku's. In 1995,
Virgin expects to companies overseas. Over the past year, Viacom World Wide has
provided strategicrelease 71 new titles, representing 130 sku's.
Video and business planning services to corporationsMusic/Theme Parks
The Company operates in the Middle Easthome video retailing and engineering servicesrental business,
music retailing business, and theme parks business through its Blockbuster
Entertainment Group ("Blockbuster").
Home Video Retailing. Blockbuster is the leading worldwide owner,
operator and franchisor of videocassette rental and sales stores. BLOCKBUSTER
VIDEO (R) stores range in Japan. Nonesize from approximately 3,800 square feet to 11,500
square feet, and generally carry a comprehensive selection of these
services has been a source7,000 to 13,000
prerecorded videocassettes, consisting of significant revenues to date nor
required significant capital contributions by the Company.
VIACOM MGS SERVICES. Viacom MGS Services Inc. ("MGS")
distributes, duplicates and stores taped and filmed television
commercials, radio commercials, and other programs for advertisers and
agencies, production houses and industrial and educational customers.
VIACOM CABLE TELEVISION
CABLE OPERATIONS.more than 5,000 titles.
At December 31, 1993,1994, there were 4,069 video stores in Blockbuster's
system, of which 3,067 were Blockbuster-owned and 1,002 were franchise-owned.
Blockbuster-owned video stores at December 31, 1994 included 711 stores
operating under the "Ritz" and "Blockbuster Video Express" trade names in
Europe. At December 31, 1994, the BLOCKBUSTER VIDEO system operated in all
50 states and 13 foreign countries. The Company expects to add approximately
650 stores systemwide in 1995. Also in 1995, the Company entered into
franchise agreements pursuant to which BLOCKBUSTER VIDEO stores will be
opened in Columbia, Peru and Thailand, and the Company formed a joint
venture with Burda, one of Germany's largest publishers, to develop
BLOCKBUSTER VIDEO stores in Germany. During the first quarter of 1995, 132
small video stores operating under the "Ritz" trade name in the U.K. were
closed in connection with the Company's conversion of "Ritz" stores to
"Blockbuster Video Express" stores.
The Company's home video business may be affected by a variety of
factors, including but not limited to, general economic trends, acquisitions
made by the Company, additional and existing competition, marketing programs,
weather, special or unusual events, variations in the number of store
openings, the quality of new release titles available for rental and sale,
and similar factors that may affect retailers in general. As compared to other
months of the year, revenue from BLOCKBUSTER VIDEO stores in the U.S. has been,
and the Company believes will continue to be, subject to decline during the
months of April and May, due in part to the change to Daylight Savings Time,
and during the months of September, October and November, due in part to the
start of school and the introduction of new television programs.
Music Retailing. Through music stores operating under the
"Blockbuster Music" trade name, Blockbuster is among the largest specialty
retailers of prerecorded music in the United States. At December 31, 1994,
Blockbuster owned and operated 542 music stores in 34 states. These music
stores range in size from 900 to 24,600 square feet and generally carry a
comprehensive selection of 25,000 to 135,000 compact discs and audio cassettes
consisting of up to 60,000 titles.
The Company's music business may be affected by a variety of
factors, including but not limited to, general economic trends and conditions
in the music industry, including the quality of new titles and artists, existing
and additional competition, changes in technology, and similar factors that
may affect retailers in general. The Company's music business is seasonal, with
higher than average monthly revenue experienced during the Thanksgiving and
Christmas seasons, and lower than average monthly revenue experienced in
September and October.
Theme Parks. The Company, through PARAMOUNT PARKS (TM), owns and
operates five regional theme parks in the U.S. and Canada: Paramount's
Carowinds, in Charlotte, North Carolina; Paramount's Great America, in Santa
Clara, California; Paramount's Kings Dominion located near Richmond, Virginia;
Paramount's Kings Island located near Cincinnati, Ohio; and Paramount Canada's
Wonderland located near Toronto, Ontario. Substantially all of the theme parks'
operating income is generated from May through September. In December 1994,
PARAMOUNT PARKS and Hilton Hotels Corporation agreed to launch STAR TREK: THE
EXPERIENCE, a futuristic-themed, interactive environment within the Las Vegas
Hilton which is expected to open in late 1996.
Other Entertainment. At December 31, 1994, the Company owned
approximately 49.6% of the outstanding common stock of Discovery Zone, Inc.
("Discovery Zone") (approximately 36.7% on a fully diluted basis). Discovery
Zone owns, operates and franchises large indoor recreational spaces known as
FunCenters, and operates Leaps and Bounds indoor entertainment and fitness
facilities. Blockbuster is also a partner in a joint venture with Discovery
I-8
Zone to develop up to 10 FunCenters in the U.K. The Company accounts for its
interest in Discovery Zone as an equity interest. Through joint ventures with
Sony Music and PACE Entertainment Corporation, the Company operates seven
amphitheaters in the U.S., with plans to open an eighth amphitheater in mid-
1995. Through PARAMOUNT PARKS, the Company owns five additional amphitheaters.
Through PARAMOUNT PARKS, the Company owns and operates BLOCK PARTY (TM)
entertainment centers in Indianapolis, Indiana and Albuquerque, New Mexico, each
of which were opened in January 1995. The Company also owns an approximately
35% interest in Catapult Entertainment, Inc., a company which has established a
service enabling multiple video game players to compete against one another from
different locations in "real time" by modem without requiring modification to
either hardware or software.
Publishing
The Company, principally through Simon & Schuster and affiliated
companies, publishes and distributes hardcover and paperback books, educational
textbooks, supplemental educational materials and multimedia products, and
provides information and reference services for business and professions. In
February 1994, Simon & Schuster completed the acquisition of the U.S. publishing
assets of Macmillan, Inc. for approximately $553 million. Simon & Schuster's
well-known imprints include SIMON & SCHUSTER, THE FREE PRESS, POCKET BOOKS,
MACMILLAN PUBLISHING USA, PRENTICE HALL, SCRIBNER, SILVER BURDETT GINN, ALLYN
AND BACON, COMPUTER CURRICULUM CORPORATION and EDUCATIONAL MANAGEMENT GROUP,
among others. Simon & Schuster distributes its books directly and through third
parties on a retail and wholesale basis.
Educational Publishing. The Elementary, Secondary, Higher Education
and Educational Technology divisions publish elementary, secondary and college
textbooks and related materials, computer-based educational products,
audiovisual products and vocational and technical materials under such imprints
as PRENTICE HALL, SILVER BURDETT GINN and ALLYN AND BACON, among others. In
February 1995, Simon & Schuster acquired all of the outstanding stock of
Educational Management Group Inc., an interactive telecommunications company
that develops and distributes customized instructional materials and live
interactive television services to schools and reaches more than one million
students in 3,500 schools. Computer Curriculum Corporation delivers multimedia
coursework to more than 1.5 million students in approximately 8,000 schools in
six countries. The educational marketplace is subject to seasonal fluctuations
in its business which correlate to the traditional school year. Sales to
elementary and secondary schools are dependent, in part, on the "adoption" or
selection of instructional materials by designated state agencies. 22 states
and some localities limit the textbooks that may be purchased with state funds
to those books that have been approved by the adoption authority.
Consumer Publishing. The Consumer division publishes and distributes
hardcover, trade paperback and mass market books under imprints including SIMON
& SCHUSTER, POCKET BOOKS, SCRIBNER, THE FREE PRESS, SIMON & SCHUSTER TRADE
PAPERBACK, which includes FIRESIDE, TOUCHSTONE, SCRIBNER PAPERBACK FICTION and
SIMON & SCHUSTER LIBROS AGUILAR ESPANOL as well as SIMON & SCHUSTER CHILDREN'S
PUBLISHING, which includes ALADDIN PAPERBACKS, ATHENEUM BOOKS FOR YOUNG READERS,
LITTLE SIMON, MARGARET K. McELDERRY BOOKS, and SIMON & SCHUSTER BOOKS FOR YOUNG
READERS. In 1994, the Consumer division announced the formation of Simon &
Schuster New Media, combining Simon & Schuster Audio, the world's largest
publisher of audio books, with the newly created Simon & Schuster Interactive,
which has 15 CD-ROM titles scheduled for publication in 1995. The consumer
marketplace is subject to increased periods of demand in the summer months and
during the end-of-year holiday season.
Business, Training and Healthcare Publishing. Through a wide variety
of imprints, Simon & Schuster publishes a full range of business, professional
training, and medical healthcare information products, including books,
newsletters, journals, seminars, videos, loose-leaf series and multimedia
programs. Operating units include The New York Institute of Finance, Appleton &
Lange, Jossey-Bass, The Bureau of Business Practice, and Prentice Hall Direct.
Reference Publishing - Macmillan Publishing USA. Macmillan Publishing
USA, the umbrella identity of Simon & Schuster's reference publishing
operations, is the industry leader in computer book publishing and a leader in
home/library reference publishing. The unit's imprints include MACMILLAN
I-9
COMPUTER PUBLISHING USA (QUE, SAMS, HAYDEN BOOKS, NEW RIDERS PUBLISHING, BRADY
GAMES), MACMILLAN GENERAL REFERENCE USA (ARCO, BETTY CROCKER, BURPEE, FROMMER'S
TRAVEL GUIDES, HARRAP'S BILINGUAL DICTIONARIES, HOWELL BOOK HOUSE,
MONARCH NOTES, J.K. LASSER, THE PLACES RATED ALMANAC, THE UNOFFICIAL GUIDES,
WEBSTER'S NEW WORLD), MACMILLAN LIBRARY REFERENCE USA (CHARLES SCRIBNER'S
SONS, G.K. HALL, MACMILLAN REFERENCE USA) and MACMILLAN DIGITAL USA, which
publishes computer books and reference content in electronic formats.
International. The International Group publishes approximately 650
titles each year, primarily in the areas of academic, computer, English language
training, and professional publishing in 10 languages and 34 countries outside
North America. The International Group also maintains co-publishing
partnerships in 14 countries, such as Japan (Toppan and Impress) and Hungary
(Novotrade), whose operations include distribution of U.S. product, local
language translation and adaptation of U.S. product, and indigenous publishing.
In January 1995, the Company acquired German computer book publisher Markt &
Technik, enhancing the Company's position as the world's largest computer book
publisher and providing greater opportunities for expansion into other European
markets, particularly Eastern Europe.
Cable Television
Cable Operations. At December 31, 1994, the Company, through Viacom
Cable Television ("Viacom Cable"), was approximately the 13th12th largest multiple
cable television system operator in the United StatesU.S. with approximately 1,094,0001.1 million
subscribers. InOn January 1993,20, 1995, the Company completedagreed to sell its cable
television systems to a partnership of which Mitgo Corp., a company wholly owned
by African American businessman Frank Washington, is the I - 14
general partner, for
approximately $2.3 billion, subject to certain conditions, including receipt of
a tax certificate from the FCC and the availability of certain federal tax
consequences of the sale advantageous to the Company. The U.S. House of
Representatives and the U.S. Senate have approved a similar version of
legislation that would eliminate such tax consequences. The House of
Representatives has also approved a compromise version of the bill, which is
awaiting Senate approval. The Company has announced that it will not proceed
with the agreed transaction in the event that such tax consequences are
unavailable (see "Business -- Regulation"). The Company has also announced that
it is considering other options with respect to the disposition of its suburban Milwaukee cable
system, serving approximately
47,000 customers,systems and that it intends to Warner Communications Inc., a unit of Time Warner
Entertainment Co., L.P. as part of the settlement of the Company's
antitrust lawsuit against Time Warner Inc.proceed with such disposition. Viacom Cable's
systems are operated pursuant to non-exclusive franchises granted by local
governing authorities.
In most of its systems, Viacom Cable offers two tiers of primary (i.e.,(i.e,
non-premium) service: "Limited Service", which consists generally of local and
distant broadcast stations and all public, educational and governmental channels ("PEG")
channels required by local franchise authorities; and the "Satellite Value
Package", which provides additional channels of satellite-delivered cable
networks. Monthly service fees for these two levels of primary service
constitute the major source of the systems' revenue. In addition, Viacom Cable
has introduced a third tier of non-premium service which qualifies as a non-
regulated "new product tier" under the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") in its Nashville, Tennessee,
Pittsburg, California, Puget Sound South and most of its Puget Sound North and
Central systems. Each such tier consists of five channels of advertiser-
supported cable networks.
The monthly service fees for Limited Service and the Satellite Value
Package are regulated under the 1992 Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") (See "BUSINESS"Business -- Regulation -- Viacom Cable -- Federal Regulation"). At
December 31, 1993, the fixed monthly fees charged to customers for
primary services varied by geographic area and ranged from $9.00 to
$14.84 per month for Limited Service and from $21.25 to $25.78 for the
combination of Limited Service plus the Satellite Value Package, in
each case for all of an individual customer's television connections.
The Company offers customers the Company's own basic programmingprogram services (including
joint venture program services) as well as third-party services such as CNN and ESPN. An
installation charge is levied in many cases but does not constitute an
important source of revenue. Customers are free to discontinue
service at will.services. None of Viacom
Cable's systems is presently exempt from rate regulation under the 1992 Cable
Act. The new product tiers mentioned above are not rate regulated at the
present time, but the FCC has reserved the right to reopen the issue of rate
regulation for new product tiers in the future.
Viacom Cable offers premium cable television programming, including
the Company's premium subscription television services, to its customers for an
additional monthly fee of up to $12.25$11.95 per premium service. As ofAt December 31,
1993,1994, the Company's cable television systems had approximately 718,000875,000
subscriptions to premium cable television program services.
Viacom Cable customers who elect to subscribe to Limited Service
alone are also able to purchase premium and pay-per-view services
offered by the Company without first having to "buy through" the
Satellite Value Package. The 1992 Cable Act requires cable operators
to implement this practice where no technological limitations exist.
(See "BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")I-10
Viacom Cable also derives revenuerevenues from salesthe lease of availablecertain fiber
optic capacity in three of its markets to partnerships engaged in competitive
access telephone services and in all of its markets from advertising spots on advertiser-supported programmingsales and
sharing of revenues from sales of products on home shopping services offered by
Viacom Cable to its customers.
Cable operators require substantial capital expenditures to construct
systems and significant annual expenditures to maintain, rebuild and expand
systems. The equipment of each cable system
consists principally of receiving apparatus, trunk lines, feeder cable
and drop lines connecting the distribution network to the premises of
the customers, electronic amplification and distribution equipment,
converters located in customers' homes and other components. System construction and operation and quality of equipment used must
conform with federal, state and local electrical and safety codes and certain
I - 15
regulations of the FCC. Viacom Cable, like many other cable operators, is
analyzing potential business applications for its broadband network, including
interactive video, video on demand, data services and telephony. These
applications, either individually or in combination, may require technological
changes such as fiber optics and digital compression. If these applications justify capital
spending in excess of current projections, Viacom Cable will revise
its capital needs accordingly. Although management
believes the equipment used in the cable operations is in good operating
condition, except for ordinary wear and tear, Viacom Cablethe Company invests significant
amounts each year to upgrade, rebuild and expand its cable systems. During the
last five years, Viacom Cable's capital expenditures were as follows: 1989: $40 million; 1990: $46
million; 1991: $45 million; 1992: $55 million; and 1993: $79 million; and 1994: $100
million. The Company expects that Viacom Cable's capital expenditures in 19941995
will be approximately $100$135 million. A substantial amount of the capital
expenditures for 1995 will be reimbursed by the buyer if the proposed sale of
Viacom Cable is consummated.
Viacom Cable has constructed a fiber optic cable system in Castro
Valley, California to provide more channels with significantly better picture
quality, and to accommodate testing of new services including an interactive on-screenon-
screen programming guide known as StarSight (in which a consolidated affiliateaffiliates of
the Company currently has a 21.4%have an approximately 25% equity interest which it has the right to increase to 35%)on a combined
basis), other interactive programs with Viacom NewInteractive Media, video-on-demand premiumvideo-on-
demand services, multiplexed premium services, and advanced interactive video and data
services.
Viacom has entered into an agreement with AT&T to
test and further develop such services.
As part of Viacom's strategic relationship with NYNEX Corporation
("NYNEX"), Viacom has granted NYNEX a right of first refusal with
respect to providing telephony service upgrade expertise to Viacom
Cable.
I - 16
AS OF DECEMBER
Viacom Cable
As of December 31, 1993
---------------------
APPLOXIMATE APPROXIMATE NUMBER OF
HOMES IN HOMES PASSED PRIMARY PRIMARY PREMIUM PREMIUM MILES OF
FRANCHISE BY CABLE CUSTOMERS PENETRATION UNITS PENETRATION CABLE
AREA DISTRIBUTION
(1) (2) (3) (4) (5) (6)
---------------------------------------------------------------------------------------1994
___________________________________________________________________________________________________________________________________
Approximate Approximate
Homes in Home Number of Miles of
Franchise Passed by Primary Primary Premium Premium Cable
Area(1) Cable(2) Customers(3) Penetration(4) Units(5) Penetration(6) Distribution
_________ __________ ___________ ______________ ________ ______________ ____________
Bay Area Region
Marin (7)Marin(7) 81,000 79,600 61,800 78% 30,200 49% 638
Sonoma (7) 45,000 44,700 34,500 77% 17,000 49% 51477,700 62,400 80% 35,500 57% 645
Sonoma(7) 46,000 45,300 35,800 79% 20,100 56% 533
Napa (7) 33,000 32,600 22,900 70% 11,800 52% 30232,300 23,400 72% 14,100 60% 319
East Bay/Castro 85,000 85,400 70,800 83% 53,700 76% 668
Valley(7) 86,000 87,000 72,900 84% 65,500 90% 681
Pittsburg/Pinole(7) 72,000 71,400 53,600 75% 37,900 71% 51173,000 72,700 53,900 74% 49,800 92% 565
San Francisco 354,500 334,000 161,800 48% 117,700 73% 709355,000 337,400 170,200 50% 130,400 77% 711
------- ------- ------- --- ------- --- --------
Total Bay Area 670,500 647,700 405,400 63% 268,300 66% 3,342
Region 674,000 652,400 418,600 64% 315,400 75% 3,454
Ore-Cal Region
Redding (7) 55,800 53,400Redding(7) 57,000 54,900 35,400 66% 17,400 49% 629
Oroville(7) 42,600 38,700 25,100 65% 8,800 35% 48264% 20,700 58% 654
Oroville 43,000 39,500 25,400 64% 11,000 43% 488
Salem 74,400 72,300 42,500 59% 21,700 51% 60076,000 74,100 45,000 61% 28,400 63% 613
------ ------ ------ --- ------ --- ---
Total Ore-Cal 172,800 164,400 103,000Region 176,000 168,500 105,800 63% 47,900 47% 1,711
Region60,100 57% 1,755
Puget Sound Region(7) 628,000 609,500 425,900 70% 312,000 73% 6,278
Midwest Region
614,300 595,900 408,600 69% 253,200 62% 6,123
(7)
Mid-WestNashville(7) 271,000 233,200 135,900 58% 129,500 95% 2,286
Dayton(7) 98,000 94,100 52,900 56% 58,200 110% 634
------- ------- ------- --- ------- ---- -----
Total Midwest Region Nashville (17) 265,000 227,100 125,400 55% 99,000 79% 2,222
Dayton 98,000 94,800 51,700 55% 49,700 96% 633
------ ------ ------ --- ------ --- ---
Total Mid-West 363,000 321,900 177,100 55% 148,700 84% 2,855
Region369,000 327,300 188,800 58% 187,700 99% 2,920
Total Viacom Cable 1,820,600 1,729,900 1,094,100 63% 718,100 66% 14,031
========= ========= ========= === ======= === ======
- ----------------------1,847,000 1,757,700 1,139,100 65% 875,200 77% 14,407
_________________
(1) Homes in franchise area represents Viacom Cable's estimate based upon local sources such as city directories, chambers of
commerce, public utilities, public officials and house counts.
(2) Homes are deemed "passed by cable" if such homes can be connected without any further extension of the transmission lines.
(3) Represents the number of homes connected, rather than the number of television outlets connected within such homes.
(4) Represents primary customers as a percentage of homes passed by cable.
(5) The premium unit count is based on the total number of premium services subscribed to by primary customers.
(6) Represents premium units as a percentage of primary customers.
(7) Other cable television companies have franchises and serve parts of these areas in which the Company has franchises.
I - 17Intellectual Property
It is the Company's practice to maintain U.S. and foreign legal
protection for its theatrical and television product, software, publications and
its other original and acquired works. The following logos and trademarks are
among those strongly identified with the product lines they represent and are
significant assets of the Company: VIACOM (R), the BLOCKBUSTER (R) family
of marks, MACMILLAN (R), MTV: MUSIC TELEVISION (R), NICK AT NITE (R),
NICKELODEON (R), the PARAMOUNT (R) family of marks, POCKET BOOKS (TM),
SIMON & SCHUSTER (R), SHOWTIME (R) and VH1 MUSIC FIRST (TM).
COMPETITION
Networks
MTVN. MTVN services are in competition for available channel space on
existing cable systems and for fees from cable operators and alternative media
distributors, with other cable program services, and nationally distributed and
local independent television stations. MTVN also competes for advertising
revenue with other cable and broadcast television programmers, and radio and
print media. For basic cable television programmers, such as MTVN, advertising
revenues derived by each programming service depend on the number of households
subscribing to the service through local cable operators and other distributors.
I-11
VIACOM BROADCASTING
Viacom Broadcasting is engagedAt December 31, 1994, there were 31 principal cable program
services and superstations, each with over 10 million subscribers, under
contract with A.C. Nielsen Company, including MTV, VH1, NICKELODEON (including
NICKELODEON and NICK AT NITE program segments), USA NETWORK and the SCI-FI
CHANNEL. The Nielsen Report ranked USA NETWORK fourth, NICKELODEON/NICK AT NITE
seventh, MTV twelfth, VH1 sixteenth and the SCI-FI CHANNEL twenty-sixth, in
terms of subscriber households.
Certain major record companies have announced plans to launch music-
based program services in the operationU.S. and internationally. Major worldwide record
companies have attempted to license their music videos to MTV EUROPE only on a
collective basis, the lawfulness of fivewhich is being challenged by MTV EUROPE (See
"Item 3. Legal Proceedings").
SNI. Competition among premium subscription television program
services is primarily dependent on: (1) the acquisition and 14 radio stations.packaging of an
adequate number of recently released quality motion pictures; and (2) the
offering of prices, marketing and advertising support and other incentives to
cable operators and other distributors so as to favorably position and package
SNI's premium subscription television program services to subscribers. HBO is
the dominant company in the premium subscription television category, offering
two premium subscription television program services, the HBO service and
Cinemax. SNI is second to HBO with a significantly smaller share of the premium
subscription television category. In addition, in February 1994, Encore Media
Corp. (an affiliate of Tele-Communications, Inc.) launched Starz!, a premium
subscription television program service featuring recently released motion
pictures, in competition with SNI's premium program services.
General. The Company's antitrust suit against Tele-Communications,
Inc., et al., which is pending in the Southern District of New York, is
currently suspended pending satisfaction of certain conditions, which, if
satisfied, would lead to settlement of the action. (See "Item 3. Legal
Proceedings")
The potential exists that one or more telephone companies ("telcos"),
either individually or in groups, will enter the business of creating and
distributing program services, both inside and outside their respective service
areas (See "Cable Television -- Video Dialtone Regulations" below). The Company
cannot predict the impact that telco entry into those businesses may have on the
Company's program services.
Broadcasting
The principal methods of competition in the television and radio
broadcasting field are the development of audience interest through programming
and promotions. Unlike broadcast station owners which seek network affiliates,
the Company's strategy has been to seek to acquire independent stations each of
which will be primarily affiliated with UPN. At this time, UPN has very limited
programming and, to the extent that the Company acquires independent affiliates,
there will be a need for those stations to acquire additional programming.
Television and radio stations also compete for advertising revenues with other
stations in their respective coverage areas and with all other advertising
media. They also compete with various other forms of leisure time activities,
such as cable television systems and audio players and video recorders. These
competing services, which may provide improved signal reception and offer an
increased home entertainment selection, have been in a period of rapid
development and expansion. Technological advances and regulatory policies will
have an impact upon the future competitive broadcasting environment. In
particular, recent FCC liberalization of its radio station ownership limits will
allow for increased group ownership of stations. However, the Company is unable
to predict what impact these rule changes will have on its businesses in their
markets. ("See Business -- Regulation")
Direct broadcast satellite ("DBS") distribution of programs commenced
in 1994. Additionally, the FCC has issued rules which may significantly
increase the number of multipoint distribution service systems (i.e., the
distribution of video services on microwave frequencies which can only be
received by special microwave antennas). The FCC has also authorized video uses
of certain frequencies which have not traditionally been used or permitted for
commercial video services and has issued rules which will increase the number of
FM and AM stations. The FCC is also considering authorizing digital audio
broadcasts, which could ultimately permit increased radio competition by
satellite delivery of audio stations directly to the home (or to cars) and
result in an increased spectrum being used for digital delivery of radio
signals, and it has authorized and is in the process of licensing low-power
television stations ("LPTV stations") that may serve various communities with
coverage areas smaller than those served by full conventional television
stations. Because of their coverage limitations, LPTV stations may be allocated
to communities which cannot accommodate a full-power television station because
of technical requirements.
I-12
Entertainment
The Company's entertainment businesses compete with all forms of
entertainment. The Company competes intensely with other major studios and
independent film producers in the production and distribution of motion pictures
and video cassettes. Similarly, as a producer and distributor of television
programs, the Company competes with other studios and independent producers in
the licensing of television programs to both networks and independent television
stations. PARAMOUNT PICTURES' competitive position primarily depends on the
quality of the product produced, public response and cost. The Company also
competes to obtain creative talents and story properties which are essential to
the success of all of the Company's entertainment businesses. UIP and UCI are
the subject of various governmental inquiries by the EC and the Monopolies and
Mergers Commission of the U.K. Such inquiries are not expected to have a
material effect on the Company's businesses.
In addition to the competitive factors applicable to all areas of the
entertainment industry, the marketplace for interactive entertainment is also
characterized by the rapid evolution of distribution technologies.
Video
The home video retail business is highly competitive. The Company
believes that the principal competitive factors in the business are title
selection, number of copies of titles available, the quality of customer service
and, to a lesser extent, pricing. The Company believes that it has generally
addressed the selection and service demands of consumers more adequately than
most of its competitors.
The Company and its franchise owners compete with video retail stores,
as well as supermarkets, drug stores, convenience stores, book stores, mass
merchandisers and others. The Company believes that the success of its business
depends in part on its large and attractive Company-owned and franchise-owned
BLOCKBUSTER VIDEO stores offering a wider selection of titles and larger and
more accessible inventory than its competitors, in addition to more convenient
store locations, faster and more efficient computerized check-in/check-out
procedures, extended operating hours, effective customer service and competitive
pricing.
The Company's business is also dependent on the pricing of
videocassettes by distributors since such pricing significantly influences
whether a title is marketed by retailers primarily for rental or sale (or "sell-
thru") to consumers. Since the Company has a larger share of the rental market
than the sell-thru market and since its margins are generally higher for rental
product than for sell-thru market, an increase in the number of sell-thru titles
may have an adverse impact on the Company's business.
In addition to competing with other home video retailers, the Company
and its franchise owners compete with all other forms of entertainment and
recreational activities including, but not limited to, movie theaters, network
television and other events, such as sporting events. The Company also competes
with cable television, which includes pay-per-view television. Currently, pay-
per-view television provides less viewing flexibility to the consumer than
videocassettes, and the more popular movies are generally available on
videocassette prior to appearing on pay-per-view television. However,
technological advances could result in greater viewing flexibility for pay-per-
view or in other methods of electronic delivery, and such developments could
have an adverse impact on the Company and its franchise owners' businesses.
Several consumer product companies have recently announced plans to
introduce a new product to exhibit prerecorded filmed entertainment products on
television. The product, the digital video disc player, is to be based on
digital technology and would permit a film that is recorded in digital format on
a compact disc to be exhibited on a standard television set. This new
technology is said to offer significant benefits to consumers by enabling
distributors to produce a lower cost, higher quality product than
videocassettes. The Company is unable to determine at this time whether and, if
so, when, this new format will be introduced into the marketplace, whether it
will gain significant consumer acceptance generally or among the Company's
customers. As a result, the Company is unable to determine the impact this new
format will have on the Company's business.
I-13
Music
The retail sale of prerecorded music and related products is highly
competitive among numerous chain and department stores, discount stores, mail
order clubs and specialty music stores. Some mail order clubs are affiliated
with major manufacturers of prerecorded music and may have advantageous
marketing arrangements with their affiliates. As music stores generally serve
individual or local markets, competition is fragmented and varies substantially
from one location or geographic area to another. The Company believes that its
ability to compete successfully in the music retailing business depends on its
ability to secure and maintain attractive and convenient locations, manage
merchandise efficiently, offer broad merchandise selections at competitive
prices and provide effective service to its customers.
The retailing of certain prerecorded music products has changed during
the past year. A large number of mass merchandisers have begun to sell new
releases at or, in certain cases, below cost in order to attract customers into
their stores and generate sales of other products. In an attempt to remain
competitive, the Company has reduced the price at which it sells these products,
resulting in lower revenue. The Company believes that this practice may
continue for a period of time as mass merchandisers continue to open stores and
build their customer base.
Theme Parks
The Company's theme parks compete with other theme parks in their
respective geographic regions as well as with other forms of leisure
entertainment. The profitability of the leisure-time industry is influenced by
various factors which are not directly controllable, such as economic
conditions, amount of available leisure time, oil and transportation prices and
weather patterns. The Company believes that its intellectual properties will
enhance existing attractions and facilitate the development of new attractions
to encourage visitors to PARAMOUNT PARKS.
Publishing
Competition in the elementary, secondary and higher education textbook
and the trade and paperback book fields is intense, with a number of strong
competitors. In addition, the acquisition of publication rights to important
book titles is highly competitive and the Company competes with numerous other
book publishers. In the field of elementary and secondary school textbooks, 22
states and some local jurisdictions limit the textbooks that may be bought by
school systems with state funds to those books that have been approved by
adoption or listing. In the higher education textbook field, new books compete
with used books. In addition, book piracy affects sales in certain foreign
markets. A large portion of annual sales of educational textbooks is made
during the June to September period. In certain areas of publishing, books are
usually sold on a fully-returnable basis resulting in significant product
returns to publishers. In the field of information services to businesses and
professionals, there are numerous organizations that provide competitive
materials and services.
Cable Television
The Company's cable systems operate pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), and licensesnon-exclusive
franchises granted by local governing authorities (either municipal or county)
and compete for viewers with other distribution systems which deliver
programming by microwave transmission (MDS or MMDS) and SMATV or directly to
subscribers via either "TVRO" or DBS technology. The strength of competition
depends upon the reliability, programming and pricing of such alternative
distribution systems. Digital compression may allow cable systems to
significantly increase the number of channels of programming they deliver and
thereby help cable systems meet competition from these other distribution
systems.
The Company views the future success of the cable business as being
dependent on supplying additional programming and new services to its customers
and increasing primary and premium subscriber penetrations.
I-14
As the Company's cable television systems are franchised on a non-
exclusive basis, other cable operators have been franchised and may continue to
apply for franchises in certain areas served by the Company's cable systems. In
addition, the 1992 Cable Act prohibits a franchisor from granting exclusive
franchises and from unreasonably refusing to award additional competitive
franchises.
The entry of telcos into the cable television business may provide
additional competition to the cable industry. Current prohibitions against
telcos engaging in the cable television business within their local service
areas have been held by some courts to be unconstitutional and, although these
decisions are being appealed, the FCC, which are
renewable every five yearson March 17, 1995, issued a public notice
announcing that it will no longer enforce its cross-ownership rules in the
case of television stationsFourth and every
seven years in the case of radio stations.
VIACOM TELEVISION. The Company owns and operates the following
five television properties:
NETWORK
STATION AND AFFILIATION
METROPOLITAN AND EXPIRATION YEAR
AREA SERVED TYPE DATE OF AGREEMENT ACQUIRED
- --------------------------------------------------------------------
KMOV-TV
St. Louis, MO VHF CBS/December 31, 1994 1986
WVIT-TV
Hartford-New Haven-
New Britain-Waterbury, CT UHF NBC/July 2, 1995 1978
WNYT-TV
Albany-Troy-Schenectady, NY VHF NBC/September 28, 1980
1995
KSLA-TV
Shreveport, LA VHF CBS/June 30, 1995 1983
WHEC-TV
Rochester, NY VHF NBC/August 13, 1994 1983
As reflected in the table above, eachNinth Circuits. A significant number of the Company's television
stations is affiliated with a national television network. Such
affiliations can be an advantage, because network programming is often
competitively stronger and results in lower programming costs than
would otherwise be necessary to obtain programming from other sources.
The Company expects that the affiliation agreements which expire in
1994 will be renewed.
I - 18
In addition to fees paid by networks to their affiliates, the
principal source of revenue for the Company's television stations is
the sale of broadcast time that has not been sold by the networks to
national, local and regional advertisers. Such sales may involve all
or part of a program or spot announcements within or between programs.
Broadcast time is sold to national advertisers through national sales
representatives whocable
franchise areas are compensated on a commission basis at normal
industry rates. Advertising is sold to local and regional advertisers
through a station's own sales force. Local and national spot
advertising is generally sold pursuant to contracts which are for short
periods and are generally cancelable upon prior notice but which are
frequently renewed for additional terms.
VIACOM RADIO. The Company owns and operates the 14 radio stations
listed below. On June 16, 1993, the Company acquired the assets of
KQLZ-FM (now KXEZ-FM), serving Los Angeles, California and on November
1, 1993, the Company acquired the assets of WCXR-FM and WCPT-AM serving
Washington, D.C., in exchange for the assets of KIKK-AM/FM serving
Houston, Texas and cash. The Company now operates multiple FM and/or
multiple AM stations in Seattle, Washington (2 FMs, 1 AM), Los Angeles,
California (2 FMs) and Washington, D.C. (2 FMs, 2 AMs) as permitted by
the FCC's recently liberalized ownership rules which permit common
ownership of two or more AM or two or more FM stations in the same
market. Pursuant to the FCC's order on March 4, 1994 consenting to the
transfer of control of Paramount's broadcast licenses to Viacom Inc.,
which licenses include a television station serving Washington, D.C.,
the Company has undertaken to dispose of one AM and one FM radio
station serving Washington, D.C. no later than September 11, 1995.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
I - 19
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- -----------------------------------------------------------------------
WLTW-FM
New York, NY 106.7 MHz 50,000 Adult 1980
Contemporary
WLIT-FM
Chicago, IL 93.9 MHz 50,000 Adult 1982
Contemporary
WLTI-FM
Detroit, MI 93.1 MHz 50,000 Adult 1988
Contemporary
WMZQ-AM-FM
Washington, (AM) 1390 KHz 5,000 Country 1984
D.C. (FM) 98.7 MHz 50,000 1980
WCXR-FM 105.4 MHz 50,000 Classic Rock 1993
WCPT-AM 730 KHz 5,000 D* CNN Headline 1993
Washington, 20 N* News
D.C.
KBSG-AM-FM
Tacoma/Seattle, (FM) 97.3 MHz 100,000 Oldies 1987
WA (AM) 1210 KHz 10,000 D* 1989
1,000 N*
KNDD-FM
Seattle, WA 107.7 MHz 100,000 New Rock (AOR) 1992
I - 20
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- -----------------------------------------------------------------------
KYSR-FM
Los Angeles, 98.7 MHz 75,000 Adult 1990
CA Contemporary
KXEZ-FM
Los Angeles, 100.3 MHz 50,000 Adult 1993
CA Contemporary
KSRY-FM
San Francisco, 98.9 MHz 50,000 Adult 1990
CA Contemporary
KSRI-FM
Santa Cruz/San 99.1 MHz 50,000 Adult 1990
Jose, CA Contemporary
_________________________
* D/N = Day/Night
As indicated in the table above, the radio stations generally have
specialized program formats targeted to specific audiences.Ninth Circuit. In addition, the stations'FCC has adopted
video dialtone ("VDT") regulations which allow delivery of video programming
includes entertainment, news,
religion, sports, educationover telephone lines without the requirement to obtain a franchise and other topics ofthe FCC
has proposed substantial revisions to such regulations (See "Business --
Regulation"). The Company is a general interest. The
stations also provide time for public affairs, educationalpartner in three partnerships providing
commercial competitive access services which link business customers to long
distance carriers via private networks owned by the cable television company
partners and cultural
programs and for discussion of local and national issues.
Radio station revenues are derived almost entirely fromleased to the partnerships. These interests will be sold if the
proposed sale of advertising time. Only a small amount of such revenuesthe Company's cable systems is derived from
sponsored programs or non-broadcast sources. As is customary in the
industry, national representatives are engaged to obtain advertising
from and to sell broadcast time to national advertisers, and are
compensated on a commission basis. The stations' own sales forces sell
advertising time to local and regional advertisers. Local, regional
and national advertising is generally sold pursuant to contracts which
are for short periods and generally are cancelable upon prior notice,
but frequently are renewed for additional terms.consummated.
REGULATION
The Company's networks, broadcasting, entertainment, video and music
distribution, publishing, and cable television and broadcasting businesses are subject to extensive
regulation by federal, state and local governmental authorities, and its
programming businessesbroadcast television, production and distribution operations are affected
thereby. The rules, regulations, policies and procedures affecting these
businesses are constantly subject to change. The descriptions which follow are
summaries and should be read in conjunction with the texts of the statutes,
rules and regulations I - 21
described herein. The descriptions do not purport to
describe all present and proposed federal, state and local statutes, rules and
regulations affecting the Company's businesses.
VIACOM ENTERTAINMENTIntellectual Property
The Company's first run, networkCompany conducts many of its businesses through the control and
other production operationsexploitation of the numerous copyrights and trademarks underlying its distribution of off-network, first runproducts
and other programs inlicenses; therefore, domestic and foreign syndication are not directly regulated by
legislation. However, existing and proposed rules and regulations of
the FCC applicable to broadcast networks, individual broadcast stations
and cable could affect Viacom Entertainment.
FINANCIAL INTEREST AND SYNDICATION RULES. The financial interest
and syndication rules ("finsyn rules") were adopted by the FCC in 1970.
These rules significantly limited the role of broadcast television
networks in broadcast television program syndication. The financial
interest rule prohibited a network from acquiring a financial or
proprietary right or interest in the exhibition (other than its own
broadcast network exhibition), distribution or other commercial use in
connection with the broadcasting of any television program of which it
is not the sole producer. The syndication rule prohibited a network
from syndicating programming domestically to television stations for
non-network exhibition and precluded a network from reserving any
rights to participate in income derived from domestic broadcast
syndication, or from foreign broadcast syndication where the network
was not the sole producer. For the purposes of these rules, a
broadcast network was defined as any entity which offers an
interconnected program service on a regular basis for 15 or more hours
per week to at least 25 affiliated television stations in 10 or more
states.
In 1991 the FCC adopted modified finsyn rules. In 1992,
these rules were vacated by the U.S. Court of Appeals for the
Seventh Circuit (the "Seventh Circuit Appeals Court"), acting on
appeals filed by ABC, CBS, NBC and others. In 1993 the FCC
adopted a decision (the "Decision") further modifying the finsyn
rules effective as of June 5, 1993, although ABC, CBS, and NBC
could not commence operating under the modified finsyn rules until
November 10, 1993 when the antitrust consent decrees to which they
are subject were modified to eliminate certain restrictions by an
order (the "Order") of the U.S. District Court for the Central
District of California (the "District Court"). The modified
rules will expire in November 1995, absent an affirmative
FCC action retaining or further modifying them. The FCC is to
initiate a final review of the modified rules six months prior to
their November 1995 expiration date and proponents of their
continuanceinternational laws affecting intellectual
property have the burden of proving that the public interest
requires their continued retention. The Decision has been
appealed by the networks and others, and all appeals have been
consolidated before the Seventh Circuit Appeals Court. The
Company is unable to predict what action the court will take when
it reviews the Decision or what effect, if any, the Decision will
have on the Company's distribution and production activities.
I - 22
The Decision eliminates certain restrictions on network
acquisition of financial interests and syndication rights in
network programming. With respect to first run programs, networks
may not acquire any financial interests or syndication rights
except in programs produced solely by the network and in programs
distributed only outside the U.S. The networks are also
prohibited by the modified rules from directly engaging in
syndication in the U.S. of both network prime time entertainment
programs and first run programs, but they may syndicate non-
prime time network programs and network non-entertainment
programs in the U.S. and any programs in foreign markets.
Networks must also release prime time entertainment programs
in which they hold syndication rights into the syndication
market no later than four years after the program's network
debut or within six months after the end of the network
run, whichever is earlier. In addition, networks are also
subject to certain certification and reporting requirements. A
network is defined in the modified rules as any entity that
provides more than 15 hours of prime time programming per week to
affiliates reaching 75% of television households nationwide.
Emerging networks not currently meeting the network definition are
exempt from the modified rules except for certain reporting
requirements which become applicable when they commence providing
16 hours per week of prime time programs to their affiliates. The
networks must use an independent syndicator to distribute off-
network prime time entertainment programs in which they hold
syndication rights, and there must be no contractual or other
understandings between the network and the syndicator regarding
the subsequent sale or scheduling of the syndicated program that
would have the direct or indirect effect of affiliate station
favoritism.
The FCC will consider complaints if a party can make a
showing undermining the credibility of the independence of the
syndicator, and it is unclear whether such complaints may be
directed onlysignificant importance to the network involved or whether independent
syndicators may also be subject to such complaints.
PRIME TIME ACCESS RULE. The Prime Time Access Rule ("PTAR")
prohibits network affiliates in the top 50 markets (designated by the
FCC based on survey data) from exhibiting network or off-network
programming during more than three out of the four prime time hours,
with certain limited exceptions. The Decision provided that first run
programming produced by a network will be considered network programming
for this purpose.
A number of interested parties have raised the issue of whether
PTAR should be modified or repealed. Certain programmers are seeking
modification of PTAR to permit the exhibition of off-network
programming. The licensee of WCPX-TV, Orlando, Florida, has sought
elimination of PTAR on First Amendment grounds and certain West Coast
network affiliates have obtained PTAR waivers from the FCC that
facilitated the commencement of network prime time one hour earlier.
If PTAR itself is so modified or is eliminated, the Company is
unable to predict the effect, if any, on its first run and other
I - 23
distribution activities. The Company is also unable to predict whether
earlier commencement of network prime time programming would affect the
availability of prime time for the presentation of syndicated programs
on network-affiliated stations.
EUROPEAN COMMUNITY DIRECTIVE. In October 1989, the European
Commission directed each European Community member country to adopt
broadcast quota regulations based on its guidelines by October 3, 1991.
All member countries other than Spain and the Flemish region of Belgium
have enacted legislation aimed at adopting such regulations. Such
broadcast quota regulations may limit the amount of U.S. produced
programming to be purchased by foreign customers which could have an
adverse impact on the Company's foreign syndication operations.
Similar rules are contained in a Council of Europe Convention which
went into force on May 1, 1993. This has currently been ratified by
Cyprus, Italy, Poland, San Marino, Switzerland, the Vatican and the
United Kingdom.
VIACOM CABLE
Federal Regulation
1992 CABLE ACT. On October 5, 1992,Company. Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") substantially amending the regulatory framework under which
cable television systems have operated since the Communications Act of
1934, as amended (the "Communications Act"), was amended by the Cable
Communications Policy Act of 1984 (the "1984 Act"). The FCC through
its rules and regulations began implementing the requirements of the
1992 Cable Act in 1993 and is currently
engaged in several proceedings
in order to adopt additional rules and regulations or to reconsider
and/or amend certain of the rules and regulations previously adopted.
The extent and materiality of the effects of the 1992 Cable Act on
Viacom Cable and Viacom Networks depend to a large degree on the final
form of the FCC's implementing regulations and the outcome of judicial
challenges to various provisions of the 1992 Cable Act as more fully
discussed below. The following is a summary of certain significant
issues:
Rate Regulation. Rate regulations adopted in April 1993 by the FCC
---------------
(the "April 1993 Regulations") govern rates charged to subscribers for
regulated tiers of cable service and became effective on September 1,
1993. On February 22, 1994, the FCC adopted additional rules (the
"February 22nd Regulations") which have not yet been published in
their final form. The "benchmark" formula adopted as part of the
April 1993 Regulations establishes an "initial permitted rate" which
may be charged by cable operators for specified tiers of cable
service. The regulations also establish the prices which may be
charged for equipment used to receive these services. Because the
text of the February 22nd Regulations has not been released, it is not
possible to know the extent or nature of theconsidering revisions to the April
1993 Regulations. However, from public statements made during the
FCC's February 22 meeting and news releases issued thereafter, it
appears that the February 22nd Regulations will contain a new formula
for determining permitted rates. The new formula may require up to a
I - 24
17% reductionCopyright Act of rates from those charged on September 30, 1992,
rather than the 10% reduction required by the April 1993 Regulations.
The February 22nd Regulations also adopted interim standards governing
"cost-of-service" proceedings pursuant to which a cable operator would
be permitted to charge rates in excess of rates which it would
otherwise be permitted to charge under such regulations, provided that
the operator substantiates that its costs in providing services
justify such rates.
Based on its implementation1976 (the "Copyright Act"),
including extension of the April 1993 Regulations,protection term by 20 years, and the Company estimates that it will recognizecreation of a
reductionperformance right for digital performances of sound recordings. Congress may
also consider legislation to revenues
ranging from $27 millionupdate the Copyright Act to $32 million on an annualized basis,
substantially all of which will be reflected as a reduction in
earnings from operations of its cable television division. The
Company's estimated reduction does not reflect further reductions
to revenue which would result from the lowering of the initial
permitted rates pursuanttake into account new
technological developments relating to the February 22nd Regulations. These
new and reduced initial permitted rates will apply prospectively
from a date to be announced by the FCC when it publishes precise
regulations which implement the February 22nd Regulations. Until
the February 22nd Regulations are released, it is not possible to
predict the effectsdistribution of the interim standards governing cost-of-
service proceedings; however, based on the FCC's public statements,
the Company believes it is unlikely that it will be able to utilize
such proceedings so as to charge rates in excess of rates which it
would otherwise be permitted to charge under the regulations. The
Company's ability to mitigate the effects of these new rate
regulations by employing techniques such as the pricing and
repricing of new or currently offered unregulated program services
and ancillary services may also be restricted by the new
regulations adopted as part of the February 22nd Regulations. No
such mitigating factors are reflected in the estimated reductions
to revenues. The stated reduction to revenues may be mitigated by
the higher customer growth due to lower primary service rates. The
Company also cannot predict the effect, if any, of cable system
rate regulation on license fee rates payable by cable systems to
program services such as those owned by the Company.
Vertical Integration. Certain pricing and other restrictions are
--------------------
imposed on vertically integrated cable programmers (such as the
Company) with respect to their dealings with multichannel distributors
of programming, such as cable systems, SMATV systems, MMDS operators
and TVRO and DBS distributors (as defined in "BUSINESS--Competition--
Viacom Cable Television"). The FCC's implementing regulations
governing access by multichannel distributors to the programming of
vertically integrated cable programmers limit the extent to which a
vertically integrated cable programmer can differentiate in pricing or
other terms and conditions of carriage between and among multichannel
distributors. Because the application of these new regulations is
subject to numerous uncertainties, the Company is currently unable to
determine their impact, if any, on the Company. The FCC's
implementing regulations also limit the number of channels on a cable
system which may be used to carry the programming of such system's
affiliated (vertically integrated) cable programmers. These
regulations provide generally that no more than 40% of such a system's
channels can be used to carry the programming of the system's
I - 25
affiliated cable programmers. These channel occupancy limits apply
only up to 75 channels of a given system. The FCC also considered
whether limits should be placed on a multichannel distributor's right
to participate in the production or creation of programming, and
concluded that no such limits are appropriate at this time. The FCC's
implementing regulations governing access by multichannel distributors
to the programming of vertically integrated cable programmers and
regarding channel occupancy limits are subject to pending petitions
for reconsideration at the FCC.
Must Carry/Retransmission Consent. Commercial television stations
---------------------------------
which are "local" to communities served by a cable system can elect to
require either (a) carriage (and with certain restrictions, channel
position) on the cable system ("Must Carry"), or (b) payment (monetary
or in-kind) in consideration for their consent to the retransmission
of their signal by the cable system ("Retransmission Consent"). In
addition, a cable system may not carry any commercial non-satellite-
delivered television station which is "distant" to communities served
by such system or any radio station without obtaining the consent of
such station for such retransmission; however, such television and
radio stations do not have Must Carry rights. Such stations may
require payment in consideration for Retransmission Consent. Viacom
Cable has negotiated retransmission rights for a number of commercial
stations which it carries. Some of these agreements are on an interim
basis and may be canceled by the stations. Viacom Cable carries other
stations pursuant to their exercise of their Must Carry rights. Local
non-commercial television stations have Must Carry rights, but may not
elect Retransmission Consent. The Must Carry rules were challenged by
cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted
review; oral argument was heard in January 1994 and a decision is
expected by July 1994. (See "BUSINESS -- Regulation -- Viacom
Broadcasting -- Must Carry/Retransmission Consent")
Limits on Number of Subscribers. The FCC's implementing
-------------------------------
regulations generally impose a 30% horizontal ownership limit on the
number of homes passed by cable that any one cable operator can serve
nationwide through systems in which it has an attributable interest
(the Company serves approximately 2% of "homes passed" nationwide).
In view of a recent federal district court decision holding that this
imposition of horizontal ownership limits is unconstitutional, the FCC
has stayed the effectiveness of this 30% limit until final judicial
resolution of the constitutional issue.
Buy Through to Premium Services. Pursuant to the 1992 Cable
-------------------------------
Act, a cable system may not require subscribers to purchase any
tier of service other than the basic service tier in order to
obtain services offered by the cable operator on a per channel
(e.g., premium services) or pay-per-view basis. A cable system
----
which is not now fully addressable and which cannot utilize other
means to facilitate access to all of its programming will have up
to 10 years to fully comply with this provision through the
implementation of fully addressable technology. The Company's
cable systems have already begun to implement compliance.
I - 26
Among other things, the 1992 Cable Act and the FCC's implementing
regulations also: (i) with certain exceptions, require a three-year
holding period before the resale of cable systems; (ii) provide that
franchising authorities cannot unreasonably refuse to grant competing
franchises (all of the Company's current franchises are non-exclusive);
(iii) require that the FCC study the cost and benefits of issuing
regulations with respect to compatibility between cable system
equipment and consumer electronics such as VCRs and issue such
regulations as may be appropriate; and (iv) facilitate the manner in
which third parties can lease channel capacity from cable systems and
provide that the maximum rates which a cable system can charge for
leased channel capacity may be set by the FCC. Pursuant to the 1992
Cable Act, the FCC adopted minimum customer service standards and also
determined the circumstances under which local franchising authorities
may impose higher standards.
Lawsuits have been filed challenging the constitutionality of
various provisions of the 1992 Cable Act including the provisions
relating to rate regulation, Must Carry, Retransmission Consent, the
pricing and other restrictions imposed on vertically integrated cable
programmers with respect to their dealings with multichannel
programming distributors, and the mandated availability of cable
channels for leased access and PEG programming.
COMPETITION WITH TELEPHONE COMPANIES. In a recent decision by the
U.S. District Court for the Eastern District of Virginia, the Court
declared the restrictions contained in the Communications Act on
the provision of video programming by a telephone company in its local
service area to be unconstitutional and has enjoined enforcement of
those restrictions. The Court has held that this decision does not
apply to geographic areas outside of its jurisdiction. An appeal of
the Court's holding of the unconstitutionality of such restrictions has
been filed. Several similar suits have recently been filed in
different jurisdictions by regional Bell Operating Companies (including
NYNEX) ("BOCs") challenging the very same restrictions. In an
interpretation of the current restrictions contained in the
Communications Act, the FCC in 1992 established its "Video Dial Tone"
policy. The Video Dial Tone policy is being challenged in court by
cable interests as violating the Communications Act. It is also being
challenged by telephone interests as not being liberal enough. The
policy permits in-service-area delivery of video programming by a
telephone company (a "telco", as further defined below) and exempts
telcos from the Communications Act's franchising requirements so long
as their facilities are capable of two-way video and are used for
transmission of video programming on a common carrier basis,
i.e. use of the facilities must be available to all programmers
- ----
and program packagers on a non-discriminatory, first-come first-
served basis. Telcos are also permitted to provide to facilities
users additional "enhanced" services such as video gateways, video
processing services, customer premises equipment and billing and
collection. These can be provided on a non-common carrier basis.
There are currently pending in Congress four principal bills (in the
Senate, S. 1086, the Telecommunications Infrastructure Act of 1993, and
S. 1822, the Communications Act of 1994 (which is expected to supersede
S. 1086) and in the House, H.R. 3626, the Antitrust Reform Act 1993, and
H.R. 3636, the National Communications Competition and Information
Infrastructure Act of 1993) which would, among other things, permit a
I - 27
BOC or a Regional Holding Company ("RHC"; a BOC or RHC, a "telco") to
offer cable service under certain stated conditions including providing
safeguards and transition rules designed to protect against anti-
competitive activity by the telcos and cross-subsidization of a telco's
cable business by the telco's charges to its telephone customers.
These bills also generally eliminate state and local entry barriers
which currently either prohibit or restrict an entity's (including a
cable operator's) capacity to offer telecommunications services
(including telephone exchange service) in competition with telcos and
to interconnect on a non-discriminatory basis with telcos and utilize
certain telco facilities in order to provide service in competition
with a telco. The Clinton Administration has indicated its intention
to propose reform of federal telecommunications legislation, although
such proposal has not been finalized. At present, state and/or local
laws do not prohibit cable television companies from engaging in
certain kinds of telephony business in most states. Viacom Cable is a
general partner in three partnerships providing commercial competitive
access services which link business customers to long distance carriers
via private networks owned by the cable television company partners and
leased to the partnerships. If the pending legislation does not become
law, and the various appeals courts uphold the unconstitutionality of
the Communications Act's restrictions on telco video programming, the
telcos have stated their intent to immediately enter the video
programming business.copyrighted
materials.
COMPULSORY COPYRIGHT. Cable television systems are subject to the
Copyright Act of 1976 which provides a compulsory license for carriage of distant
broadcast signals at prescribed rates.rates (the proceeds are divided among the
various copyright holders of the programs contained in such signals). No
license fee is charged by thepayable to any program copyright holder for retransmission of
broadcast signals which are "local" to the communities served by the cable
system.system (see "Regulation -- Cable Television").
The FCC has recommended to Congress that it eliminate theCopyright Act also provides a similar compulsory license for
retransmission of both distant and local signals, requiring
instead that approval be received fromsatellite services. Legislation adopted in the copyright holders for
retransmission. If104th Congress extended the
satellite compulsory license is repealed, Viacom Cable
could incur additional costs for its carriage of programming of certainfive years, raised the fees paid to carry
broadcast stationssignals, and, if some broadcast stations are not carried,
customer satisfaction with cable service maybeginning in 1996, requires the fees to be adversely affected
until satisfactory replacement programming is obtained.
Pending legislation in the 103rd Congressset through
negotiations and binding arbitration rather than by law, taking into account
fair market value. The law also includes a bill (H.R.759)
to affirmprovision eliminating the
application of therequirement that cable operators pay compulsory license to MMDS and other
alternative video transmission technologies; a bill (H.R.1103) to
eliminatefees for stations
located more than 35 miles away but within the sunsetsame "Area of Dominant
Influence".
FIRST SALE DOCTRINE. The "First Sale" provision of the Satellite Home ViewerCopyright Act
and
continueprovides that the applicationowner of a legitimate copy of a copyrighted work may rent or
otherwise use or dispose of that copy in such a manner as the owner sees fit.
The First Sale doctrine does not apply to sound recordings or computer software
(other than software made for a limited purpose computer, such as a video game
platform), for which the Copyright Act vests a rental right (i.e., the right to
control the rental of the compulsory license to satellite
carriers that transmit to home dish owners; and a bill (H.R.12) to
provide for payment by television broadcasters to program producers
where a broadcaster exercises its Retransmission Consent rights
enactedcopy) in the 1992 Cable Act and thereby obtains payment from a cable
operator for retransmissioncopyright holder. The repeal or
limitation of the broadcaster's signal.
StateFirst Sale doctrine (or conversely, the creation of a rental
right) for audiovisual works or for computer software made for limited purpose
computers would have an adverse impact on the Company's home video business;
however, no such legislation is pending in Congress at the present time.
I-15
Networks and Local Regulation.
State and local regulation of cable is exercised primarily through
the franchising process under which a company enters into a franchise
agreement with the appropriate franchising authority and agrees to
abide by applicable ordinances. The 1992 Cable Act permits the FCC to
I - 28
broaden the regulatory powers of the franchising authorities,
particularly in the areas of rate regulation and customer service
standards. (See "BUSINESS --- Regulation -- Viacom Cable -- Federal
Regulation")
Under the 1984 Act, franchising authorities may control only cable-
related equipment and facilities requirements and may not require the
carriage of specific program services. However, if the Must Carry
provisions of the 1992 Cable Act are upheld by the Supreme Court,
federal law (as implemented by FCC regulations) will mandate the
carriage of both commercial and non-commercial television broadcast
stations "local" to the area in which a cable system is located. (See
"BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")
The 1984 Act, as amended, guarantees cable operators due process
rights in franchise renewal proceedings and provides that franchises
will be renewed unless the cable operator fails to meet one or more
enumerated statutory criteria. The Company's current franchises expire
on various dates through 2017. During the five-year period 1994
through 1998, franchises having an aggregate of approximately 230,081
customers (as of October 31, 1993) will expire unless renewed. The
Company expects its franchises to be renewed.
VIACOM NETWORKS
1992 CABLE ACT. See "BUSINESS -- Regulation -- Viacom Cable --
Federal Regulation -- 1992 Cable Act".Broadcasting
Networks
MODIFICATION OF FINAL JUDGMENT. The Modification of Final Judgment
(the "MFJ") is the consent decree pursuant to which AT&T was reorganized and was
required to divest its local telephone service monopolies. As a result, seven
RHCsregional holding companies ("RHCs") were formed (including NYNEX) comprised of
operating companies within their regions (the BOCs)(Bell Operating Companies, or "BOCs").
In addition, that portion of the continental United States served by the BOCs
was divided into geographical areas termed Local Access and Transport Areas
("LATAs"). The MFJ restricts the RHCs, the BOCs and their affiliates from
engaging in inter-LATA telecommunications services and from manufacturing
telecommunications products. As a result of NYNEX's investment in Viacom Inc.,the Company,
the Company could arguably be considered an affiliate of an RHC for MFJ
purposes. As a result, the Company transferred certain of Viacom Networks'its Networks and
Broadcasting and other operations and properties to an affiliated entity which
will be consolidated into the Company for financial reporting purposes. Neither
the transfer nor the operations of the affiliate as an entity separate from the
Company will have a material effect on the financial condition or the results of
operations of the Company. However, shouldShould the MFJ restrictions be modified or waived,
the Companyaffiliate intends to retransfer thesuch assets and operations to the Company.
In March 1995, a U.S. District Court ruled that Bell Atlantic Corporation
("Bell Atlantic"), which is a BOC and any future appreciation intherefore is subject to the value of such assets after such retransfer will beMFJ, may
deliver movies and television programming via satellite nationally, and cleared
the way for the benefit of
the holders of Viacom Common Stock.
VIACOM BROADCASTINGBell Atlantic to buy radio and television stations, as well as to
own cable systems outside its service area.
1992 CABLE ACT. (See "Cable Television" below)
Broadcasting
Television and radio broadcasting are subject to the jurisdiction of
the FCC pursuant to the Communications Act.
I - 29
THE COMMUNICATIONS ACT. The Communications Act authorizes the FCC:FCC to
issue, renew, revoke or modify broadcast licenses; to regulate the radio
frequency, operating power and location of stations; to approve the transmitting
equipment used by stations; to adopt rules and regulations necessary to carry
out the provisions of the Communications Act; and to impose certain penalties
for violations of the Communications Act and the FCC's regulations governing the
day-to-day operations of television and radio stations.
BROADCAST LICENSES. Broadcast station licenses (both television and
radio) are ordinarily granted for the maximum allowable period of five years in
the case of television and seven years in the case of radio, and are renewable
for additional five-year or seven-year periods upon application and approval.
Such licenses may be revoked by the FCC for serious violations of its
regulations. Petitions to deny renewal of a license or competing applications
may be filed for the frequency used by a renewal applicant. If a petition to
deny is filed, the FCC will determine whether renewal is in the public interest
based upon presentations made by the licensee and the petitioner. If a competing
applicationOn March 23,
1995, the Senate Committee on Commerce, Science and Transportation approved
legislation (the "Commerce Committee Bill") which, among other things, would
lengthen television and radio station license terms to 10 years and relax
ownership restrictions with respect to aliens to the extent U.S. ownership of
broadcast stations is filed, a comparative hearingpermitted in the alien's home country. It is heldimpossible
at this time to determine which
applicant should be grantedpredict whether the license. In the absence of egregious
and willful violations of FCC rules, license holders, as a practical
matter, can generally expect renewal by the FCC.Commerce Committee Bill will become law or
what form it will take.
The licenses for the Company's television stations expire as follows:
WDCA-TV on October 1, 1996; KSLA-TV on June 1, 1997; WKBD-TV on October 1, 1997;
KMOV-TV on February 1, 1998; each of KRRT-TV, KTXA-TV and KTXH-TV on August 1,
1998; each of WVIT-TV and WSBK-TV on April 1, 1994;1999; each of WNYT-TV and WHEC-TV
on June 1, 1994; KSLA-TV1999; and WTXF-TV on JuneAugust 1, 1997; and KMOV-TV on February 1, 1998.1999. The Company's licenses for its
radio stations expire as follows: WMZQ- AM-FM,AM/FM, WCPT-AM and WCXR-FMWJZW-FM on October
1, 1995; WLTI-FM on October 1, 1996; WLIT-FM on December 1, 1996; KSRI-FM and KSRY-FM on August 1,
1997; KYSR-FM and
KXEZ-FM on December 1, 1997; each of KBSG-AM-FMKBSG-AM/FM and KNDD-FM on February 1, 1998;
and WLTW-FM on June 1, 1998. The Company has appliedwill apply for renewal of and expects
that the licenses which expire in 19941995 will be renewed.
I-16
The Communications Act prohibits the assignment of a license or the
transfer of control of a license without prior approval of the FCC. The
Communications Act also provides that no license may be held by a corporation if
(1) any officer or director is an alien or (2) more than 20% of the voting stock
is owned of record or voted by aliens or is subject to control by aliens. In
addition, no corporation may hold the voting stock of another corporation owning
broadcast licenses if any of the officers or directors of such parent
corporation are aliens or more than 25% of the voting stock of such parent
corporation is owned of record or voted by aliens or is subject to control by
aliens, unless specific FCC authorization is obtained. The FCC is currently
reviewing these regulations and legislation, such as the Commerce Committee
Bill, has been introduced to relax the foreign ownership restrictions.
The outcome of the FCC review and the legislative proposal is uncertain.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains
provisions which grant certain Must Carry"Must Carry" rights to commercial broadcast
television stations that are "local" to communities served by a cable system,
including the right to elect either to require a cable operator to carry the
station pursuant to the Must Carry provisions of the Act or to require that the
cable operator secure the station's Retransmission Consent"Retransmission Consent" on a negotiated
basis before the station can be carried (i.e., retransmitted) on the cable
system. Each of the
----
Company's television stations elected in 1993 to negotiate with their
I - 30
local cable systems for the systems' right to retransmit the station's
signal. All such negotiations were successfully completed assuring
continued carriage of each station on all of their local cable systems
at least through December 1996. The Must Carry Rules were challenged
by cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted review;
oral argument was heard in January 1994 and a decision is expected by
July 1994. If the Must Carry Rules are determined to be
unconstitutional, the Company's television stations do not expect to be
materially affected since they expect to continue to obtain carriage
pursuant to Retransmission Consent negotiations. If a station is not
carried by a cable system in its area, that station could experience a
decline in revenues. The Company's television stations have
traditionally been carried prior to the institution of Retransmission
Consent and in the absence of Must Carry. (See "BUSINESS -- Regulation
- -- Viacom Cable Television -- Must Carry/Retransmission Consent and
Compulsory Copyright")"Cable Television" below)
RESTRICTIONS ON BROADCAST ADVERTISING. In past Congressional
sessions, committees of Congress examined proposals for legislation that would
eliminate or severely restrict advertising of beer and wine either through
direct restrictions on content or through elimination or reduction of the
deductibility of expenses for such advertising under federal tax laws. Such
proposals generated substantial opposition, but it is possible that similar
proposals will be reintroduced in Congress. The elimination of all beer and
wine advertising would have an adverse effect on the revenues of the Company's
television and radio stations.
Congress may again take up Campaign Finance Reform legislation
similar to that which was passed by the 102nd Congress but vetoed by
President Bush. Such legislation could reduce revenues of the
Company's television and radio stations derived from political
advertising by candidates for certain public offices.
On April 9, 1991, the FCC adopted regulations to implement the
Children's Television Act of 1990 (the "Children's Television Act")
which limit the amount of advertising in children's programming,
including a prohibition on children's programming which contains
characters that are based on products advertised on such programs. The
FCC will take into account the efforts made by broadcasters to meet the
educational and informational needs of children as part of assessing
the broadcaster's record of performance in the public interest before
granting renewal of broadcast licenses. The impact, if any, of these
regulations on the Company's television stations is not material. The
FCC has instituted an inquiry into the manner in which TV stations have
been complying with the Children's Television Act. Additionally, the
FCC is considering whether to impose limits on the amount of
advertising time which a television station can sell during any
broadcast hour or part thereof.
OWNERSHIP LIMITATIONS. The FCC has placed limits on the number of
radio and television stations in which one entity can own an "attributable
interest". The Company currently owns radio stations below those ownership
limits and with the transfer of control of
licenses held by Paramount, owns the maximum permitted number of
I - 31
television stations. The FCC
has adopted a number of rules designed to prevent monopoly or undue
concentration of control of the media of mass communications. In 1992 the1994,
FCC amended its regulations to permitwhich permitted a single entity to have an "attributable"
ownership or management interest in up to 18 AM and 18 FM stations
nationwide (20were increased to 20 AM and 20 FM beginning in 1994),stations, including
multiple AM and/or FM stations licensed to serve the same market.
Minority-controlled broadcasters can own an additional three AM and three FM
stations. The limit on the number of such multiple stations in a particular
market which a single entity may own or control depends upon the total number of
AM and/or FM stations in that market,market; provided that, at the time of purchase,
the combined audience share of such multiple stations does not exceed 25%. With
respect to television, the FCC's rules limit the maximum number of stations
nationwide in which one entity can have an "attributable" ownership or
management interest, to that number which serves up to 25% of U.S. television
households, provided, however, that (except in limited circumstances) the total
number of stations will not exceed 12.
Unlike certain of the new radio rules, there is now no allowance for
ownership of multiple television stations licensed to serve the same
market, although the FCC is examining the issue. The FCC also permits radio stations to
broker the programming and sales inventories of their stations to other radio
stations within the same area, subject to various restrictions, so long as
ultimate operational control and ownership is retained and exercised by the
licensee. Such brokerage agreements function, as a practical matter, to effect
a consolidation of competitive radio broadcast stations within a market in much
the same manner as multiple ownership of radio facilities by one entity.
Similar brokerage agreements among television stations are being implemented in
a smaller number of markets than in radio and are not now subject to any
explicit FCC regulations.
I-17
The FCC's ownership limitations also prohibit a single entity from
owning multiple "same service" (e.g., TV, AM or FM) stations licensed
---- to serve
different markets if the broadcast signals of such stations overlap to a
specified measurable degree. The maximum number of commonly owned stations
serving neighboring markets whose signals can overlap is the same as that
maximum number of commonly owned stations which an entity can own or control in
a single market. Additional ownership prohibitions preclude common ownership in
the same market of (i) television stations and cable systems; (ii) television or
radio stations and newspapers of general circulation; and (iii) radio and
television stations. Radio-television cross-ownership prohibitions are subject
to waiver by the FCC on a case-by-case basis. The Company operates two AM and
two FM stations as well as a television station serving Washington, D.C.
Ownership of the television station (WDCA) was obtained when Viacom Inc.the Company
acquired majority ownership of Paramount Communications on March 11, 1994.
Pursuant to the FCC's order consenting to the transfer of control of the
broadcast licenses of Paramount Communications to the Company, the Company
has undertaken to dispose of one AM and one FM radio station serving
Washington, D.C. no later than September 11, 1995. The FCC's previous
prohibition on a national television network's (ABC, CBS, and NBC) owning
or operating cable systems has been repealed but with certain limits as to
the number of homes which network-owned cable systems can pass on a
national and local basis.
TERRITORIAL EXCLUSIVITY. The FCC is considering changescurrently reviewing the broadcast ownership regulations,
and the Commerce Committee Bill proposes to its
I - 32
non-network program territorial exclusivity rulesincrease the audience share ceiling
from 25% to 35%. The extent to which provide thatthese regulations will be repealed or
modified is uncertain.
HDTV. In 1993, the FCC adopted a broadcaster, with certain limited exceptions, cannot obtain exclusivity
to syndicated programming as against other broadcast stations beyond a
35-mile radius from its city of license. The proposed rule would
permit expansion of the 35-mile exclusivity area thereby increasing the
protection given the programming contracted for by a broadcaster. The
Company cannot predict the effect, if any, that any change of this rule
may have on its broadcast operations.
HDTV. The FCC is considering technical standards to be adoptedtechnological standard for the
transmission of high definition television ("HDTV"), an advanced television
system which enhances picture and sound quality, as well as the methods and
timetable for implementation of an HDTV transmission standard by broadcasters.
A standard has been recommended to the FCCThe means by an advisory committee. The standard which is ultimately adopted for
HDTV transmissions and the manner in which that transmission standard will be implemented and the
development of technologies such as "digital compression"digital compression will have an economic
and competitive impact on broadcasting and cable operations. The Company cannot
predict the effect of implementation of these technologies on its operations.
The FCC has stated its intention not to disadvantage broadcasters and it is
expected that any HDTV standard which is ultimately adopted will be fashioned so
as to accommodate the needs of broadcasters vis-a-vis competitive video delivery
technologies. The FCC has already determined that TV stations will be given up
to six years to implement HDTV once a standard has been selectedfrom commencement of the transition period and
that stations which do not convert to the HDTV standard will lose their licenses
to broadcast at the end of a proposed 15-year period from adoptioncommencement of the
standard.transition period. The cost of converting to HDTV will not have a material
effect on the Company. COMPETITION
VIACOM NETWORKS
MTVN COMPETITION. MTVN servicesBroadcasters have asked Congress and the FCC for
permission to use broadcast stations' respective forthcoming HDTV spectrum
assignments for some non-broadcasting purposes, such as advanced paging and data
delivery. The Commerce Committee Bill includes some expanded spectrum use
authority, provided that broadcasters compensate the FCC.
Entertainment
The Company's first-run, network and other production operations and
its distribution of off-network, first-run and other programs in domestic and
foreign syndication are not directly regulated by legislation. However,
existing and proposed rules and regulations of the FCC applicable to broadcast
networks, individual broadcast stations and cable could affect the Company's
Entertainment businesses.
FINANCIAL INTEREST AND SYNDICATION RULES. The financial interest and
syndication rules ("finsyn rules") were adopted by the FCC in competition1970. These rules
significantly limited the role of broadcast television networks in broadcast
television program syndication. The financial interest rule prohibited a
network from acquiring a financial or proprietary right or interest in the
exhibition (other than its own broadcast network exhibition), distribution or
other commercial use in connection with the broadcasting of any television
program of which it is not the sole producer. The syndication rule prohibited a
network from syndicating programming domestically to television stations for
available
channel spacenon-network exhibition and precluded a network from reserving any rights to
participate in income derived from domestic broadcast syndication or from
foreign broadcast syndication where the network was not the sole producer. For
the purposes of these rules, a broadcast network was defined as any entity which
offers an interconnected program service on existing cable systemsa regular basis for 15 or more hours
per week to at least 25 affiliated television stations in 10 or more states.
I-18
In 1993, the FCC modified the finsyn rules effective as of June 5,
1993, although ABC, CBS, and NBC could not commence operating under the modified
finsyn rules until November 10, 1993 when the antitrust consent decrees to which
they are subject were modified to eliminate certain restrictions by an order of
the U.S. District Court for feesthe Central District of California. The modified
rules will expire in November 1995, absent an affirmative FCC action retaining
or further modifying them. The FCC is to initiate a final review of the
modified rules six months prior to their November 1995 expiration date and
proponents of their continuation have the burden of proving that the public
interest requires their continued retention. The Company is unable to predict
what action the FCC will take when it reviews the rule. Elimination of the rule
may have an adverse affect on the Company's distribution and production of
network prime time programming.
PRIME TIME ACCESS RULE. The Prime Time Access Rule ("PTAR") prohibits
network affiliates in the top 50 markets (designated by the FCC based on survey
data) from cable
operatorsexhibiting network or off-network programming during more than three
out of the four prime time hours, with certain limited exceptions. The Decision
provided that first-run programming produced by a network will be considered
network programming for this purpose.
In October 1994, the FCC began a review on whether PTAR should be
modified, repealed, or retained. Certain programmers have sought repeal while
others are seeking modification to permit only the exhibition of off-network
programming.
The Company strongly supports PTAR and alternative media distributors,has launched an aggressive
campaign, along with other cable program
services, and nationally distributed and local independent television
stations. MTVN also competes for advertising revenue with other cable
and broadcast television programmers, and radio and print media. For
basic cable television programmers, such as MTVN, advertising revenues
derived by each programming service depend on the number of households
subscribingparties, to the service through local cable operators and other
distributors. A number of record companies have announced plans to
launch music-based program services in the U.S. and internationally.
For example, Tele-Communications, Inc. and Bertelsmann AG announced
plans for a music video/home shopping channel and Sony Corp.'s Sony
Music and Time Warner Inc.'s Time Warner Music Group are discussing the
formation of a worldwide music video program service with such other
major record companies as EMI Music, a unit of Thorn EMI PLC, and
PolyGram.
As of December 31, 1993, there were 32 principal cable program
I - 33
services and superstations under contract with A.C. Nielsen Company,
including MTV, VH-1, NICKELODEON (including NICKELODEON and NICK AT
NITE program segments), each with over 10,000,000 subscribers. The
Nielsen Report ranked NICKELODEON/NICK AT NITE seventh, MTV eleventh,
and VH-1 sixteenth, in terms of subscriber households.
MTV EUROPE is engaged in a number of related litigations in Europe
contesting the legality of certain joint licensing activities by the
major worldwide record companies. In 1992, MTV EUROPE initiated a
proceeding before the European Commission, seeking the dissolution,
under Articles 85 and 86 of the Treaty of Rome, of the record
companies' joint licensing organizations -- Video Performance Limited
(VPL) and International Federation of Phonogram and Videogram Producers
(IFPI) -- through which the record companies exclusively license rights
to exhibit music video clips on television in Europe and elsewhere.
The EC issued a preliminary letter in 1993 stating its non-binding
opinion that the arrangements constituted an unlawful restriction of
trade under Article 85, and reserved its right to address abuse of
monopoly power under Article 86. MTVN has been informed that the EC
has issued a Statement of Objections, which commences formal legal
proceedings against VPL and IFPI, and their major record company
members. MTV EUROPE has been licensed to continue to exhibit music
video clips during the EC proceeding under an EC-assisted interim
agreement with VPL and IFPI, which expires in July 1994.
In December 1993, MTV EUROPE commenced a separate proceeding before
the European Commission, challenging the operation of VIVA, a German
language music service owned by four of the five major record
companies, as another example of illegal cartel activity.
In a separate U.K. high court action, MTV EUROPE is seeking
reimbursement of license fees paid to VPL and IFPI, on the grounds that
these fees were unlawfully extracted by the record companies' cartel
organizations.
SNI COMPETITION. The principal means of competition in the
provision of premium subscription television program services are: (1)
the acquisition and packaging of an adequate number of quality recently
released motion pictures; and (2) the offering of prices, marketing and
advertising support and other incentives to cable operators and other
distributors so as to favorably position and package SNI's premium
subscription television program services to subscribers. HBO is the
dominant company in the premium subscription television category,
offering two premium subscription television program services, the HBO
service and Cinemax. SNI is second to HBO with a significantly smaller
share of the premium subscription television category. In addition, in
February 1994, Encore Media Corp. (an affiliate of Liberty Media
Corporation and Tele-Communications, Inc.) launched Starz!, a premium
subscription television program service that will exhibit recently
released motion pictures.retain PTAR intact. The Company believes
that Starz!PTAR will directlyplay an important role in helping emerging networks, including
UPN, and enables independent producers and television stations to compete with
SNI's premium program services.
On November 9, 1993, the Company filed an amended complaint in its
antitrust suit against Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corp., Netlink USA,
Comcast Corporationnetworks. Modification or elimination of PTAR could affect the Company's
first-run and QVC Network, Inc., which action is pending in
I - 34
other distribution activities and hamper the Southern Districtdevelopment of New York. (See "Item 3 - Legal Proceedings")
VIACOM ENTERTAINMENT
Distribution and production of programming for television is a
highly competitive business.UPN.
ANTITRUST. The Company, competes directly with other
distributors and producers including majorthrough PARAMOUNT PICTURES, is subject to a
consent decree, entered in 1948, which contains restrictions on certain motion
picture studios and
other companies which produce and/or distribute programs and films.
The main competitive factorstrade practices in the television program distribution
business areUnited States.
EUROPEAN UNION DIRECTIVE. In October 1989, the availabilityEuropean Union ("EU",
then the EC and quality of product, promotion and
marketing, and accesssometimes referred to licensees of product. Major studios and
distributors with a history of successful programming are better
positioned to acquire and/or produce and distribute quality product.
These studios and distributors also have greater available resources
for promotion and marketing. Brand name identification is an advantage
to a distributor in promoting and marketing programs for domestic and
first run exhibition. The decline inas the demand by licensees for
recent off-network series and series produced for first run exhibition
(due to renewal of existing series by stations during the past year)
and feature films (due primarily to the recent expansionEC) directed each of the Fox
network to supply programming to its affiliated stations seven nights
a week) has been partly offset by a resurgence in demand by stations
for first run hours and an increasing number of programming outlets,
particularly cable networks. Distributors are advantageously
positioned to obtain clearances from stations they also own. This
advantage increases with an increase in the number of stations so
owned, the size of the markets served by those stations and the
viewership of those stations. Since the successful launch of a program
for first run exhibition generally requires securing licenses in New
York, Los Angeles and Chicago, distributors owning stations serving
these markets are at the greatest advantage among distributors owning
stations.
Distribution of programming for television in international
markets is also a highly competitive business. The Company competes in
such markets with both U.S. and non-U.S. producers and distributors.
Deregulation by certain foreign countries has given rise to new
broadcast stations and cable services which, along with technological
advances such as DBS, are continuing to increase the number of
potential international customers. However, as a result of a political
directive adopted by the12
European Community in 1989, which became
effective in October 1991, most European Communitymember countries have
adoptedto adopt broadcast quota regulations based
on its guidelines by October 3, 1991. The EU is currently considering
amendments to its Television Without Frontiers directive. In March 1995, the
guidelinesExecutive Commision of the directive. SuchEU approved revisions to the directive, which
will increase the discrimination against non-European programming; however,
at this time, it is impossible to predict what changes will be adopted by
the EU, or to predict their impact on the Company's theatrical
distribution and television syndication businesses. Each of MTV EUROPE,
NICKELODEON U.K. and VH-1 in the U.K are in compliance with the EU broadcast
quotaquotas and the Company does not believe that these businesses would be
affected by the adoption of such proposals.
Video and Music Distribution
FRANCHISING. Certain states, the United States Federal Trade
Commission and certain foreign jurisdictions require a franchisor to transmit
specified disclosure statements to potential owners before issuing a franchise.
Additionally, some states and foreign jurisdictions require the franchisor to
register its franchise before its issuance. The Company believes the offering
circulars used to market its franchises comply with the Federal Trade Commission
guidelines and all applicable laws of states in the United States and foreign
jurisdictions regulating the offering and issuance of franchises. The Company's
home video and music retailing businesses, other than the franchising aspect
thereof, are not generally subject to any government regulation other than
customary laws and local zoning and permit requirements.
I-19
Cable Television
Federal Regulation
1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), substantially amending the regulatory framework under which cable
television systems have operated since the Communications Act was amended by the
Cable Communications Policy Act of 1984 (the "1984 Act"). The FCC, through its
rules and regulations, began implementing the requirements of the 1992 Cable Act
in 1993. The following is a summary of certain significant issues:
Rate Regulation. Rate regulations adopted in April 1993 by the
FCC (the "April 1993 Regulations") established a "benchmark" formula used to set
a cable operator's "initial permitted rate" for regulated tiers of cable
service. Cable systems whose rates exceeded the applicable benchmark were
required to reduce their rates either to the benchmark or by 10% from those
charged on September 30, 1992, whichever reduction was less. These regulations
also established the prices that an operator may adversely affectcharge for subscriber equipment
and installation services, based on the operator's actual cost plus an 11.25%
return.
On February 22, 1994, the FCC adopted additional rules (the
"February 1994 Regulations") that:
(1) replaced the April 1993 Regulations' 10% rollback provision with a 17%
reduction of regulated tier rates; (2) adopted interim standards governing
"cost-of service" proceedings pursuant to which a cable operator may attempt to
prove that its costs of providing regulated service justify initial permitted
rates that are higher than those produced under the benchmark approach; and (3)
established a regulatory scheme to adjust initial permitted rates on a going-
forward basis for certain "external" cost increases exceeding inflation,
providing (among other things) a pass-through of and 7.5% mark-up for increases
in an operator's programming expenses. The February 1994 Regulations also
adopted an elaborate multi-factor test for determining whether collective
offerings of "a la carte" channels (which channels may be sold individually on
an unregulated basis) are to be treated as regulated tiers. The February 1994
Regulations govern rates in effect as of May 15, 1994, while the April 1993
Regulations remain applicable to rates that were in effect between September 1,
1993 and May 14, 1994.
On November 10, 1994, the FCC adopted new "going forward" rules
("November 1994 Regulations") that increased the mark-up for channels added to
regulated tiers (other than the basic tier), established a more permissively
regulated new product tier ("NPT"), and otherwise tightened FCC regulation of
collective offerings of a la carte channels. These new rules allow operators to
pass through to subscribers the costs, plus a 20-cent per channel mark-up, for
channels newly added to regulated tiers (other than the basic tier). Through
1996, however, operators are subject to an aggregate cap of $1.50 (no more than
$1.20 of which may be mark-up) on the amount that they may increase their retail
rates for cable program service tier rates due to channel additions. In 1997,
operators will be entitled to an additional 20-cent per channel mark-up and will
no longer be subject to a license fee cap. The FCC also established NPTs to
provide operators broad pricing and packaging flexibility so long as operators
preserve the fundamental nature of U.S. produced programmingtheir preexisting regulated tiers. At the
same time, the FCC reversed its policy with respect to collective a la carte
offerings (that do not qualify for unregulated NPT treatment) and generally held
that such collective offerings would be purchased by foreign
customers. (See "BUSINESS -- Regulation -- Viacom Entertainment --
European Community Directive")
Program production for network television, which istreated as regulated tiers (other than
NPTs). In addition, the FCC proposed to eliminate the current 7.5 % operator
mark-up on increases in a source of
product forprogram service's license fees. The Company, along
with other cable industry interests, has opposed this proposal.
Several parties, including the Company's distribution operations, and program
production for first run exhibition on cableCompany and other mediacable industry
interests, have continued to challenge other elements of the FCC's rate
regulations. The Commerce Committee Bill would eliminate rate regulation of (i)
all regulated tiers (other than the basic tier) except for those cable operators
whose rates substantially exceed the national average, and (ii) all cable
systems which are highly
competitive businesses.subject to telco video competition. The Company competes withis unable to
predict the major studios
and other production companies. A company with a program airing on a
network, which program the network deems commercially successful, is at
an advantage in getting that network and, to a lesser extent, other
I - 35timing or outcome of any such pending reconsideration petitions,
judicial appeals or proposed legislation.
I-20
networks, to license additional programs. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
Subsequent to December 31, 1993, Viacom Inc. acquired Paramount, which
is a significantly larger distributor and producer of television
programming. It is anticipated that this acquisition and the
combinationThe implementation of the Company's television distributionApril 1993 and production
businesses withFebruary 1994
Regulations has had a negative effect on the Cable Television segment's revenues
and earnings from operations. The reduction in revenues in 1994 was partially
offset by customer growth and subsequent permitted rate increases. On a going
forward basis, the November 1994 Regulations will mitigate a portion of the
adverse impact of any reduction in revenues of the Cable Television segment,
although the Company cannot predict the effect of these rules or any
reconsideration proceedings regarding these rules on the license fees paid to,
or the penetration of, program services such as those of Paramount will significantly enhanceowned by the Company's
competitive positionCompany. For
example, in these businesses.
VIACOM NEW MEDIA
The emerging market for interactive multimedia software is highly
competitive and rapidly evolving. Major competitors include hardware
manufacturers who also manufacture and publish cartridge video games,
software publishers, and interactive software publishing divisionsthose systems that have been established by diversified entertainment companies similarrebuilt to expand channel capacity, one
or two programming services added subsequent to the Company.
VIACOM CABLE TELEVISION
The Company'sFebruary 1994 Regulations
have supported rate increases for the Satellite Value Package tier; in addition,
Viacom Cable has launched five channel NPTs in various systems (see "Business --
Cable Television -- Cable Operations"). Further, Viacom Cable has made cost-of-
service filings in two systems. While the Company cannot predict the outcome of
these filings, it believes that both cost-of-service proceedings justify rates
in excess of those calculated using the April 1993 Regulations and the February
1994 Regulations.
Vertical Integration. Certain pricing and other restrictions are
imposed on vertically integrated cable programmers (such as the Company) with
respect to their dealings with multichannel distributors of programming, such as
cable systems, operate pursuantSMATV systems, MMDS operators and TVRO and DBS distributors (as
defined in "Business--Competition-- Cable Television"). The FCC's implementing
regulations governing access by multichannel distributors to non-exclusive
franchises granted by local governing authorities (either municipalthe programming of
vertically integrated cable programmers limit the extent to which a vertically
integrated cable programmer can differentiate in pricing or county)other terms and
primarily competeconditions of carriage between and among multichannel distributors.
Multichannel distributors may file a complaint with over-the-air broadcast television.
Cable systems also compete with other distribution systems which
deliver programming by microwave transmission ("MDS" and "MMDS") and
satellite transmission to master antennas ("SMATV") or directly to
subscribers via either "TVRO" or "DBS" technology. A new type of
distribution system called Multichannel Local Distribution Service
("MLDS"), which is similar to but more advanced than MMDS due to
greater channel capacity, could also become competitive with cable. In
1991, the FCC concludedif they believe that
a proceeding aimed at eliminating a number of
technological and regulatory limitations applicable to, and thereby
supportingvertically integrated cable programmer has not complied with these
regulations. To date, no complaints have been filed against the potential growth of, MMDS and SMATV as competitive video
delivery technologies. Certain DBS distribution systems are expected
to commence their services in the near future, including United States
Satellite Broadcasting, Inc., with which the Company has distribution
agreements for each of the Company's wholly owned basic cable and
premium networks, and Hughes DirecTVCompany. The
development of these other
distribution systems could in the future result in substantial
competition for the Company's cable systems, depending upon the
marketing plans and programming provided. However, a developing
technology called "digital compression" may allow cable systems to
significantly increaseFCC's implementing regulations also limit the number of channels on a cable
system which may be used to carry the programming of such system's affiliated
(vertically integrated) cable programmers. These regulations provide generally
that no more than 40% of such a system's channels can be used to carry the
programming of the system's affiliated cable programmers. These channel
occupancy limits apply only up to 75 channels of a given system. The FCC also
considered whether limits should be placed on a multichannel distributor's right
to participate in the production or creation of programming, they
deliver and thereby helpconcluded that
no such limits are appropriate at this time. The FCC's implementing regulations
regarding channel occupancy limits are subject to pending petitions for
reconsideration at the FCC.
Must Carry/Retransmission Consent. Commercial television stations
which are "local" to communities served by a cable systems meet competition from these
other distribution systems.system can elect to require
either Must Carry or Retransmission Consent. In addition, a cable system may
not carry any commercial non-satellite-delivered television station which is
"distant" to communities served by such system or any radio station without
obtaining the consent of such station for such retransmission; however, such
television and radio stations do not have Must Carry rights. Such stations may
require payment in consideration for Retransmission Consent. The acquisition of new franchisesCompany has
slowed as an increasingly
limitednegotiated retransmission rights for a number of franchises and systemscommercial stations which it
carries. Some of these agreements are left to be developed. The
resulting reduced rate of construction may affect the cable industry's
ability to sustain its historical subscriber growth rate. However,
cable operators have increasingly sought to expand their subscriber
bases through the acquisition of contiguous systems, which provide
increased operating efficiencies. The Company's plan to expand in the
cable business includes supplying additional services to its customers,
I - 36
increasing primary and premium subscriber penetrations, developing
existing franchise areas and, to a lesser degree, reviewing possible
acquisitions of existing systems, principally contiguous systems,
directly or through participation with others in partnerships or joint
ventures.
Since the Company's cable television systems are franchised on a
non-exclusivean interim basis other cable operators have been franchised and may continue to apply for franchises in certain areas servedbe canceled
by the Company'sstations. The Company carries other stations pursuant to their exercise
of their Must Carry rights. Local non-commercial television stations have Must
Carry rights, but may not elect Retransmission Consent. The Must Carry Rules
were challenged by cable systems.program services and cable system operators. In addition,April
1993, a District of Columbia three-judge court upheld the 1992 Cable Act prohibitsrules against a franchiser from granting exclusive franchises and from unreasonably
refusing to reward additional competitive franchises.First
Amendment attack. In 1986,June 1994, the U.S. Supreme Court held that the rules were
content-neutral rather than unconstitutional, vacating the District Court's
decision and remanding the case back to the District Court for determination of
the impact of such rules on the broadcast and cable industries. The rules
remain in effect pending the decision of the District Court on remand. (See
"Broadcasting" above)
Buy Through to Premium Services. Pursuant to the 1992 Cable Act, a
cable system operations implicate First Amendment
rightsmay not require subscribers to purchase any tier of service other
than the basic service tier in order to obtain other tiers of service or
services offered by the cable operator on a per channel (e.g., premium services)
or pay-per-view basis. A cable system which is not now fully addressable and
which cannot utilize other means to facilitate access to all of its programming
will have up to 10 years to fully comply with this provision through the
implementation of fully addressable technology. The Company's cable systems
have already begun to implement compliance.
Among other things, the 1992 Cable Act and the FCC's implementing
regulations also: (i) with certain exceptions, require a three-year holding
period before the resale of cable systems; (ii) provide that franchising
authorities cannot unreasonably refuse to grant competing franchises (all of the
Company's current franchises are non-exclusive); (iii) require that the FCC
study the cost and benefits of issuing regulations with respect to compatibility
between cable system equipment and consumer electronics such as VCRs and issue
such regulations as may be appropriate; and (iv) facilitate the manner in which
third parties can lease channel capacity from cable systems and provide that the
maximum rates which a cable system can charge for leased channel capacity may be
set by the FCC. Pursuant to the 1992 Cable Act, the FCC adopted minimum
customer service standards and also determined the circumstances under which
local franchising authorities may violate those rights
by establishing franchise requirements, unless there is a legitimate
government purpose. Since this decision,impose higher standards.
I-21
Lawsuits have been filed challenging various federal districtprovisions of the 1992
Cable Act including the provisions relating to rate regulation, Must Carry,
Retransmission Consent, the pricing and appellate courts have issued contradictory opinionsother restrictions imposed on vertically
integrated cable programmers with respect to their dealings with multichannel
programming distributors, and the enforceabilitymandated availability of specific franchise requirements. Dependingcable channels for
leased access and PEG programming. If enacted, the Commerce Committee Bill may
affect the status of such lawsuits.
VIDEO DIALTONE REGULATIONS. A series of recent U.S. district court
decisions in Alabama, the District of Columbia, Illinois, Washington and
Virginia have declared unconstitutional and have enjoined the Communications
Act's ban on the resolutiondirect provision of video programming by a telco in its local
service area. The U.S. Court of Appeals for the Fourth and Ninth Circuits have
affirmed the district court rulings brought before them on appeal. Even prior
to these court rulings, the FCC had reinterpreted this statutory ban in its 1992
"video dialtone" decision, authorizing a broadened role for telco participation
in video distribution. The VDT policy is being challenged in court by cable
interests as violating the Communications Act. It is also being challenged by
telephone interests as not being liberal enough. The policy permits in-service-
area delivery of video programming by a telco and exempts telcos from the
Communications Act's franchising requirements so long as their facilities are
capable of two-way video and are used for transmission of video programming on a
common carrier basis, i.e., use of the facilities must be available to all
programmers and program packagers on a non-discriminatory, first-come first-
served basis. Telcos are also permitted to provide to facilities users
additional "enhanced" services such as video gateways, video processing
services, customer premises equipment and billing and collection. These can
be provided on a non-common carrier basis. In January 1995, in response to
the court rulings discussed above striking down the underlying statutory
ban, the FCC issued a Notice of Proposed Rulemaking seeking to craft rules
to govern telco provision of video programming directly to subscribers.
The FCC's pending proceeding addresses the extent to which regulations
applicable to common carriers and/or regulations applicable to cable
operators should govern telcos that provide video programming directly to
subscribers over their own VDT systems. The FCC has already approved
several VDT construction applications for market trials and/or limited
commercial deployment and has granted, in part, the first tariff filed to
govern the rates and terms of a VDT offering. In response to the court rulings
noted above, the FCC's more recent VDT authorizations have also allowed
telcos to serve as program packagers on their VDT platforms. The Commerce
Committee Bill also contemplates a relatively permissive framework for telco
entry into cable. It is expected that bills will be formally introduced later
this year. At present, state and/or local laws do not prohibit cable television
companies from engaging in certain kinds of telephony business in many states.
The Commerce Committee Bill proposes to generally eliminate state and local
entry barriers which currently either prohibit or restrict an entity's
(including a cable operator's) capacity to offer telecommunications services
(including telephone exchange service) in competition with telcos and to
interconnect on a non-discriminatory basis with telcos and utilize certain telco
facilities in order to provide service in competition with a telco after the
date of enactment of such legislation. The Company cannot predict the outcome
or impact of these cases, competitive entrylegislative and regulatory efforts although the Company
anticipates that its program services could benefit from the increased
distribution opportunities afforded by other operators into
Viacom Cable's franchise areas and Viacom Cable'sbroadened telco entry into other
franchise areas could be more easily achieved.
The entry of telephone companies intomultichannel
video distribution. If the cable television business
may adversely affect Viacom Cable. The FCC's Video Dial Tone
regulations (See "BUSINESS -- Regulation -- Viacom Cable Television --
Competition with Telephone Companies") are an indicationpending legislation does not become law, and the
various appellate courts uphold the unconstitutionality of the FCC's
willingnessCommunications
Act's restrictions on telco video programming, the telcos have stated their
intention to narrowimmediately enter the cross-ownership prohibitions contained invideo programming business.
FCC MINORITY TAX CERTIFICATE On January 20, 1995, the Communications ActCompany agreed
to the extent that it can do so consistent withsell its
interpretation of the Act.
VIACOM BROADCASTING
The principal methods of competition in the television and radio
broadcasting field are the development of audience interest through
programming and promotions. Television and radio stations also compete
for advertising revenues with other stations in their respective
coverage areas and with all other advertising media. They also compete
with various other forms of leisure time activities, such as cable television systems and audio players and video recorders. These
competing services,to a partnership which may provide improved signal reception and
offer an increased home entertainment selection, have beenis minority-owned.
Under the minority-ownership tax deferral rules adopted by the FCC in a period
of rapid development and expansion. Technological advances and
regulatory policies will have an impact, upon the future competitive
broadcasting environment. In particular, recent FCC liberalization of
its radio station ownership limits will allow for increased group
ownership of stations. However,1978, the
Company is unableentitled to predict what
impact these rule changes willreceive a tax certificate pursuant to which the Company
would be able to defer capital gains tax on the gain from the sale, provided the
Company reinvests the net proceeds of the sale in qualifying media properties
within two years of closing or reduces its tax basis in existing assets. The
U.S. House of Representatives and the U.S. Senate have oneach approved a similar
version of legislation that would eliminate such tax consequences retroactive to
January 17, 1995. The Company's current agreement to sell its businesses in their markets.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
DBS satellite distributioncable systems is
contingent upon receipt of programs is expected to commence in
1994. Additionally, the FCC has issued rulestax certificate.
I-22
State and Local Regulation.
State and local regulation of cable is exercised primarily through
the franchising process under which a company enters into a franchise agreement
with the appropriate franchising authority and agrees to abide by applicable
ordinances. The 1992 Cable Act permits the FCC to broaden the regulatory powers
of the state and local franchising authorities, particularly in the areas of
rate regulation and customer service standards. (See "Cable Television--
Federal Regulation" above)
Under the 1984 Act, franchising authorities may significantly
increasecontrol only cable-
related equipment and facilities requirements and may not require the numbercarriage
of multipoint distribution servicespecific program services. However, federal law (as implemented by FCC
regulations) mandates the carriage of both commercial and non-commercial
television broadcast stations (i.e.,
----
video services distributed on microwave frequencies which can only be
received by special microwave antennas). The FCC has also authorized
I - 37
video uses of certain frequencies which have not traditionally been
used or permitted for commercial video services and has issued rules
which will increase the number of FM and AM stations. The FCC is also
considering authorizing digital audio broadcasts ("DAB"), which could
ultimately permit increased radio competition by satellite delivery
of audio stations directly"local" to the home (orarea in which a cable system is
located. (see "Cable Television -- Must Carry/Retransmission Consent" above)
The 1984 Act, as amended, guarantees cable operators due process
rights in franchise renewal proceedings and provides that franchises will be
renewed unless the cable operator fails to cars) and result inmeet one or more enumerated statutory
criteria. The Company's current franchises expire on various dates through
2017. During the five-year period 1995 through 1999, franchises having an
increased spectrum being used for digital deliveryaggregate of radio signals,
and it has authorized and is in the process of licensing low power
television stations ("LPTV stations") that may serve various
communities with coverage areas smaller than those served by full
conventional television stations. Because of their coverage
limitations, LPTV stations mayapproximately 369,420 customers (at December 31, 1994) will
expire unless renewed. The Company expects its franchises to be allocated to communities which cannot
accommodate a full power television station because of technical
requirements.
ITEMrenewed.
Item 2. PROPERTIES.Properties
The Company maintains its worldwideworld headquarters at 1515 Broadway, New
York, New York, where it rents approximately 720,000one million square feet for
executive offices including MTVN. The Company also rents
approximately 24,000 square feet at the same location for WLTW-FM and Viacom Broadcasting headquarters.certain of its operating divisions. The lease runs to
2010, with four renewal options for five years each. The lease also grants
the Company options for additional space at the then fair market value, including
sufficient space for SNI and Paramount headquarters staff, and a right of first
negotiation for other available space in the building. The Company also
leases approximately 106,000 square feet at 1775
Broadway, New York, New York. The lease expires in 1998. In 1992, the
Company sublet approximately 53,000484,000 square feet of suchoffice space to COMEDY
CENTRAL.
The Company also operates a data processing facility in Rutherford,
New Jersey and owns a 30,000 square foot building at 140 West 43rd
Street,1633 Broadway,
New York, New York, which supports officelease runs to 2010, and conferencing
requirements.
Viacom MGS Services leases approximately 25,000237,000
square feet of office space at 619
West 54th Street,1230 Avenue of the Americas, New York, New
York.
During 1993,York, which lease runs to 2009, which leases contain options to renew,
among other terms. The Company owns the PARAMOUNT PICTURES studio at 5555
Melrose Avenue, Los Angeles, California, which consists of approximately
63 acres containing sound stages, administrative, technical and dressing
room structures, screening theatres, machinery and equipment facilities,
plus a back lot and parking lot. PARAMOUNT PARKS' operations in
the U.S. include approximately 1,640 acres owned and 295 acres leased
and in Canada include approximately 200 acres owned and 97 acres leased.
The Company owns the Blockbuster Entertainment Group headquarters at 200 South
Andrews Avenue, Fort Lauderdale, Florida, which consists of approximately
148,000 square feet of office space and regional and district offices. The
BLOCKBUSTER retail and distribution operations consist of approximately 55 owned
properties, aggregating approximately 361,000 square feet, and approximately
2,833 leased locations, aggregating approximately 19.4 million square feet.
Facilities within the Publishing segment (other than executive offices at 1230
Avenue of the Americas described above) include approximately 7,653,000 square
feet of space, of which approximately 5,070,000 square feet are leased.
The facilities are used for warehouse, distribution and administrative
functions. The Company's cable television systems include a combination
of owned and leased premises in California, Ohio, Oregon, Tennessee and
Washington the locations(the location of Viacom Cable's operations. Viacom Cable's operations require a large investment in
physical assets consisting primarily of receiving apparatus, trunk
lines, feeder cablefranchises) and drop lines connecting theeach system's
electronic distribution network
to the premises of the customers, electronic amplification and
distribution equipment, converters located in customers' homes and
other components. Significant expenditures are also required for
replacement of and additions to such system assets as a result of
technological advances, ordinary wear and tear and regulatory
standards. Approximately 47% of the Company's cable television
systems' fixed assets have been installed within the past five years
and, except for ordinary wear and tear, the Company believes that this
equipment is in good condition.
I - 38
In addition to its leased space at 1515 Broadway, Viacom
Broadcasting owns office and studio space in Hartford, Connecticut,
occupied by television station WVIT-TV; in Menands, New York, occupied
by television station WNYT-TV; in Shreveport, Louisiana, occupied by
television station KSLA-TV; and in Rochester, New York, occupied by
television station WHEC-TV. Television station KMOV-TV, St. Louis,
Missouri, leases office and studio space for a term expiring
December 31, 2002.
WLIT-FM, Chicago, Illinois, leases office and studio space for a
term expiring in April 2002. WLTI-FM, Detroit, Michigan, leases office
and studio space for a term expiring in August 2002. WMZQ-FM,
Washington, D.C., leases office and studio space for a term expiring in
December 1998. WMZQ-AM, Arlington, Virginia, leases office and studio
space for a term expiring in August 2014. WCPT-AM and WCXR-FM lease
office and studio space in Alexandria, Virginia for a term expiring in
November 2001. KBSG-AM/FM, Tacoma/Seattle, Washington, lease office
and studio space for a term expiring in August 1999. KYSR-FM, and
KXEZ-FM, Los Angeles, California, lease office and studio space for a
term expiring in October 1999. KSRY-FM, San Francisco, California,
leases office and studio space for a term expiring in March 1997.
KSRI-FM, Santa Cruz, California, leases office and studio space for a
term expiring in July 1995. KNDD-FM, Seattle, Washington, leases
office and studio space for a term expiring in February 2001.
Viacom Broadcasting owns the broadcasting antenna equipment of its
radio and television stations and the main transmission and antenna
sites used by its five television stations and radio stations WMZQ-FM,
WCPT-AM, KYSR-FM and KNDD-FM. The other radio stations, WLTW-FM, WLIT-
FM, WLTI-FM, WCXR-FM, WMZQ-AM, KBSG-AM, KBSG-FM, KSRY-FM, KSRI-FM and
KXEZ-FM lease their transmission and antenna sites. The leases expire
in August 2005, September 2002, December 1995, February 2000, August
2014, February 2000, December 1997, February 2000, May 1999, and
November 2000, respectively.
MTVN, by agreement with MCA, leases approximately 75,000 square
feet of studio and office space for NICKELODEON STUDIOS FLORIDA, which
agreement expires (with extensions at MCA's option) in 2003. MTVN
leases approximately 58,600 square feet of other office facilities and
studios (i.e., excluding 1515 Broadway, 1775 Broadway, NICKELODEON
----
STUDIOS, Orlando and Universal City, Los Angeles).
MTVN also owns the Network Operations Center in Smithtown, New York
at which it assembles and uplinks its programming signals. The center
consists of a 15,000 square foot building housing television and
satellite transmission equipment.
In March 1993, a subsidiary of the Company entered into an
agreement to purchase approximately 50,000 square feet of office and
studio space in London, England. The Company leases the space to MTV
EUROPE.
SNI's executive offices are located at 1633 Broadway, New York, New
York, where it rents approximately 106,000 square feet. SNI leases
approximately 58,000 square feet of other office facilities (i.e.,
----
excluding 1633 Broadway, 1775 Broadway and Universal City, Los
I - 39
Angeles).
For a description of the transponders employed by MTVN and SNI, see
"BUSINESS -- Viacom Networks -- Additional Information about MTVN and
SNI."
Other than Brazil, where the office facility is owned, most of the
domestic and international television program and feature film sales
offices are held under leases aggregating approximately 9,000 square
feet. Also, the Company maintains approximately 83,000 square feet of
consolidated offices in Universal City, Los Angeles for Viacom
Entertainment, MTVN and SNI.
The Company also maintainsowns and leases office, studio and warehouse space in
various cities in the U.S., Canada and several countries around the world for
its businesses. The Company considers its properties adequate for its present
needs. The Company also owns approximately 1,770 acres of undeveloped land in
Southeast Florida.
I-23
Item 3. Legal Proceedings
On August 18, 1994, the District Court in and for Dallas County, Texas
entered a tape storagejudgment in favor of the plaintiffs in the action Howell v.
Blockbuster Entertainment Corporation et al. (Cause No. 91-10193-M, now pending
on appeal before the Dallas Court of Appeals as Cause No. 05-94-01823). The
defendants include Blockbuster Entertainment Corporation ("BEC"), which has been
merged into the Company, and operations service
centerVideo Superstores Master Limited Partnership, a
dissolved limited partnership that was indirectly controlled by BEC at the time
of approximately 22,500 square feetits dissolution. The judgment is based upon plaintiffs' claims of breach of
fiduciary duty, fraud, conspiracy, breach of contract and tortious interference
with contract and claims under Texas partnership law in connection with the
defendants' treatment, and ultimate acquisition, of plaintiff's interest in a
limited partnership which owned three Blockbuster stores. The court entered
judgment against all defendants, jointly and severally in the amount of
$10,884,003 as compensatory damages, $3,791,172 as pre-judgment interest and
attorneys' fees in the amount of $175,000. In addition, the Court entered
judgment totaling $108,840,030 for Viacom Networksexemplary damages and Viacom Enterprises in New York, New York.ordered that the
plaintiffs recover post-judgment interest at the rate of 10% per annum on all
amounts awarded from the date of judgment until paid. The Company believes that
all of its facilities are adequatesubstantial grounds exist for the activities conducted at such facilities. However,vacation of the judgment or its substantial
reduction and is vigorously prosecuting an appeal.
On September 27, 1994, an action captioned Murphy, et al. v.
Blockbuster Entertainment Corporation, et al. (Cause No. 94-10051-M) was filed
in the District Court in and for Dallas County, Texas by plaintiffs representing
the two other limited partners of the plaintiff in the Howell litigation
described above. Plaintiffs assert the same basic causes of action as in Howell
and have claimed they are entitled to actual damages in excess of $240 million
and punitive damages in excess of $1 billion. The Company anticipatesbelieves that it will lease or purchase additional office space bothhas
substantial defenses to these claims, including, among others, that the claims
are barred by the statute of limitations and by releases entered into by the
plaintiffs, and intends to vigorously defend the claims. Discovery in the
New York area as well as in other areas whereMurphy action has been stayed pending the Company and
its subsidiaries are presently located.
Information with respect to Paramount in response to Item 2 is
incorporated by reference herein fromoutcome of the Paramount Reports.
Informationappeal in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 3. LEGAL PROCEEDINGS.Howell
action.
Stockholder Litigation. SevenFour putative class action complaintsactions were filed by
alleged Blockbuster stockholdersSpelling shareholders in the Delaware Court of Chancery against
Blockbuster, the members of its Board of Directors, Viacom Inc. and
Sumner M. Redstone.November 1994. By Order dated January 31, 1994,February 15,
1995, the sevenfour actions were consolidated under the caption In re Blockbuster Entertainment
Corp. Shareholders'Spelling
Shareholder Litigation, Consolidated Civil Action No. 13319.
On February 18, 1994, plaintiffs filedMaster File 94-8764 (AH), Circuit Court, Palm Beach
County, Florida. Defendants in all actions include Spelling, the ConsolidatedCompany and
Amended
Class Action Complaint (the "Complaint"). The Complaint generally
allegesthe members of the Board of Directors of Spelling. All complaints alleged
that Blockbuster's directors have violated theirthe Company intends to acquire the 23% shares of Spelling it does
not currently hold for inadequate consideration and in breach of the
defendants' fiduciary dutiesduties. Two of loyaltythe actions also alleged that the
acquisition of the Company's 77% interest in Spelling was done improperly so as
to avoid payment of a control premium to the shareholders. Plaintiffs sought
declaratory and fair dealing by allegedly failing to ensure the
maximization of stockholder value in the sale of control of
Blockbuster, includinginjunctive relief preventing the alleged failure to authorizeacquisition plan and
direct that
a process designed to secure the best value available for Blockbuster
stockholders be undertaken, and by implementing measures such as the
Subscription Agreement which allegedly were designed solely to thwart
or impede other competing transactions. Among other things, the
plaintiffs seek to (i) preliminarily and permanently enjoin the
purchase by Blockbuster of shares of Viacom Class B Common Stock
pursuant to the Subscription Agreement (see next paragraph); (ii)
preliminarily and permanently enjoin the Blockbuster Merger or any
anti-takeover devices designed to facilitate the Blockbuster Merger;
(iii) require the Blockbuster directors to maximize stockholder value
by exploring third party interest; and/or (iv) recover damages from the
I - 40
Blockbuster directors for their alleged breaches of fiduciary duty.damages. The defendants believeCompany believes that plaintiffs' allegations are speculative and
without merit and intendintends to defend themselvesthe claims vigorously. On February 28, 1994,The plaintiffs filed motions in the Delaware
Chancery Court seeking expedited discovery,have
been directed to serve a temporary restraining
order enjoining consummation of the Subscription Agreement and the
scheduling of a preliminary injunction hearing. On March 1, 1994, Vice
Chancellor Carolyn Berger issued an order denying plaintiffs' motions.
Following issuance of the above-described order, plaintiffs filed a
Motion for Clarification or, in the alternative, for Certification on
Interlocutory Appeal, requesting that the Chancery Court clarify
whether its order also referssingle consolidated class action complaint to a hearing for a preliminary
injunction. Plaintiffs requested that, if the order is limited to a
hearing for a temporary restraining order, the Chancery Court schedule
a hearing on plaintiffs' motion for a preliminary injunction. On March
2, 1994, plaintiffs informed the Chancery Court that they had decided
not to seek an interlocutory appeal and indicated their understanding
that the order precluded preliminary injunctive relief as to the
Subscription Agreement.
On March 7, 1994, the plaintiffs filed a motion for a preliminary
injunction, seeking an order preliminarily enjoining the defendants
from (i) taking any steps to effectuate or enforce the Blockbuster
Merger Agreement, the Subscription Agreement and the Stockholders Stock
Option Agreement; (ii) making any payment to Viacom of its fees and
expenses pursuant to Section 8.05(b) of the Blockbuster Merger
Agreement; and (iii) entering into any competing transaction with a
party other than Viacom, which transaction includes a stock component
unless adequate price protection for the stockholders of Blockbuster is
provided. Plaintiffs have also moved for an injunction requiring the
Blockbuster defendants to investigatesupersede
all bona fide offers to acquire
Blockbusterexisting complaints and to provide such bona fide offerors access to
information concerning Blockbuster in order to facilitate such offers.
No schedule has been setmove for a hearingclass certification on the motion.
On March 10, 1994, Defendant Sumner Redstone filed a motion to
dismiss the Complaint as to him, on the grounds of lack of personal
jurisdiction, insufficiency of process, and insufficiency of service of
process. Also, on March 10, 1994, defendant Viacom filed a motion to
dismiss the Complaint as to itself, for failure to state a claim
against Viacom upon which relief can be granted. No schedule has been
set for a hearing on these motions.or before May 18,
l995.
Antitrust MattersMatters. On September 23, 1993, the Company filed an action
in the United States District Court for the Southern District of New York styled
Viacom International Inc. v. Tele-Communications, Inc., et al., Case No. 93 Civ. 6658, against Tele-Communications, Inc. ("TCI"), Liberty
Media Corporation, Satellite Services, Inc. ("SSI"), Encore Media
Corp., Netlink USA, and QVC Network, Inc.Civ
6658. The complaint (as amended on November 9, 1993) alleges violations of
Sections 1 and 2 of the Sherman Act, Section 7 of the Clayton Act, Section 12 of
the Cable Act, and New York's Donnelly Act, and tortious interference, against
all defendants, and a breach of contract claim against certain defendants,
TCI and SSI only.including Tele-Communications, Inc. ("TCI"). The claims for relief in the
complaint are based in significant part on allegations that defendants exert
monopoly power in the U.S. cable industry through their control over
approximately one in four of all cable households in the U.S. In addition to
I - 41
other relief, the Company seeks injunctive relief against defendants'
anticompetitive conduct and damages in an amount to be determined at trial,
including trebled damages and attorneys' fees underfees.
On January 20, 1995, the Sherman
and Clayton Acts and damages resulting from QVC Network, Inc.'s
proposed acquisition of Paramount Communications Inc.
The 19 claims for relief in the complaint are based on allegationsCompany announced that defendants exert monopoly power in the U.S. cable industry through
their control over approximately one in four of all cable households in
the United States. Amongit had
provisionally agreed to settle this action, subject to certain conditions,
including, among other things, the complaint alleges that
defendants conspired and attempted to force SNI to enter into a merger
with a TCI-controlled pay television service; defendants have attempted
to eliminate The Movie Channel from at least 28 of TCI's systems and
have plans to eliminate The Movie Channel from another 27 such systems;
defendants have conspired with General Instrument Corporation ("GI") to
entrench GI's monopoly power in the markets for digital compression and
encryption systems and to use such monopoly power to weaken and
eliminate the defendants' competitors; and TCI's constructioneffectiveness of a central authorization centernew affiliation agreement
covering TCI's long-term carriage of SHOWTIME and THE MOVIE CHANNEL and the
consummation of the sale of the Company's cable television systems (See
"Business -- Cable Television"). The action is currently suspended pending
satisfaction of certain conditions which, if satisfied, would lead to illegally controlsettlement
of the distributionaction.
I-24
MTV EUROPE is engaged in a number of programming services through refusals to deal and denialrelated litigations in Europe
contesting the legality of direct
access. On November 9, 1993, the Company amended its complaint in
Viacom International Inc. v. Tele-Communications, Inc., et al., Case
No. 93 Civ. 6658, to add Comcast Corporation as an additional defendant
and to incorporate into the allegations additional anticompetitivecertain joint licensing activities by the defendants. Eachmajor
worldwide record companies (See "Business -- Competition -- Networks"). In
1992, MTV EUROPE initiated a proceeding before the EC, seeking the dissolution,
under Articles 85 and 86 of the defendants has answered and
has generally denied the material allegationsTreaty of Rome, of the Company's amended
complaint. Followingrecord companies' joint
licensing organizations -- Video Performance Limited ("VPL") and International
Federation of Phonogram and Videogram Producers ("IFPI") -- through which the
filingrecord companies exclusively license rights to exhibit music video clips on
television in Europe and elsewhere. In 1994, the EC issued a Statement of
Objections which stated that the collective licensing negotiations of VPL and
IFPI, and their major record company members, constituted an unlawful
restriction of trade under Article 85, and reserved its amended complaint,right to address abuse
of monopoly power under Article 86. The VPL/IFPI and major labels were afforded
an opportunity to respond at a hearing in June 1994, and it is anticipated that
in 1995 the CompanyEC will issue a decision or take steps toward alternative resolution
of these issues. MTV EUROPE has agreedbeen licensed to voluntarily dismiss certaincontinue to exhibit music
video clips during the EC proceeding under an EC-assisted interim agreement with
VPL and IFPI, which expires in July 1995.
In December 1993, MTV EUROPE commenced a separate proceeding before
the EC, challenging the operation of its breachViva, a German language music service owned
by four of contract
claims against TCIthe five major record companies, as an example of illegal cartel
activity.
In a separate U.K. high court action, MTV EUROPE is seeking
reimbursement of license fees paid to VPL and SSI.
Viacom Cable, through a subsidiaryIFPI and/or damages on the grounds
that these fees were unlawfully extracted by the record companies' cartel
organizations.
Certain subsidiaries of the Company was onefrom time to time receive claims
from federal and state environmental regulatory agencies and other entities
asserting that they are or may be liable for environmental cleanup costs and
related damages arising out of former operations. While the outcome of these
claims cannot be predicted with certainty, on the basis of its experience and
the information currently available to it, the Company does not believe that the
claims it has received will have a material adverse effect on its financial
condition or results of operations (See "Item 6. Selected Financial Data" and
"Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.").
The Company and various of its subsidiaries are parties to certain
other legal proceedings. However, in the opinion of counsel, these proceedings
are not likely to result in judgments that will have a material adverse effect
on its financial condition or results of operations.
Financial Information About Industry Segments
The contribution to revenues and earnings from operations of each
industry segment and the identifiable assets attributable to each industry
segment for each of the original partners ("Original Partners") of Primestar Partners L.P.
("Primestar"). Primestar was launchedlast three years ending December 31, are set forth in
1990Note 12 to deliver programming
directly to dishes located at subscribers' homes from a mid-powered Ku-
band satellite. The Company has withdrawn from Primestar by, among
other things, exercising in November 1991 the Company's contractual
right not to continue funding its share of Primestar's capital
requirements. The Department of Justice ("DOJ") has conducted an
inquiry into the structure and business of Primestar to ensure that the
Original Partners did not engage in any concerted action prohibited by
law. In addition, several state Attorneys General ("AGs") have
reviewed the structure and business plan of Primestar as well as
certain business practicesConsolidated Financial Statements of the Original Partners which reflect
business practices in the cable industry, generally. The AGs' inquiry
resulted in a final judgment entered into with the consentCompany included
elsewhere herein.
Financial Information About Foreign and Domestic Operations
Financial information relating to foreign and domestic operations for
each of the Original Partnerslast three years ending December 31, is set forth in September of 1993. The DOJ has concluded its
inquiry by submitting a similar consent judgment for judicial approval.
Both judgments address (i) access by multichannel distributors
competitive with cableNotes 11 and 12
to programming controlled by anythe Consolidated Financial Statements of the Original
Partners and (ii) the extent of programming which may be licensed
exclusively by the cable operationsCompany included elsewhere
herein.
I-25
Executive Officers of the Original Partners. The
provisions of the AGs' decree expire in 1997 and 1999. If approved, as
expected, the provisions of the DOJ decree will expire in 1999. The
terms of the judgments do not materially affect the Company.
Information with respect to Paramount in response to Item 3 is
I - 42
incorporated by reference herein from the Paramount Reports.
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
EXECUTIVE OFFICERS OF VIACOM INC. AND THE COMPANYCompany
Set forth below is certain information concerning the current executive
officers of Viacom Inc. and the Company, which information is hereby included in Part I of
this report.
POSITIONS WITH VIACOM INC.
NAME AGE AND THE COMPANY
- ------------------------------------------------------------------------
Sumner M. Redstone 70 Chairman of the Board of Viacom
Inc. and the Company
Frank J. Biondi, Jr 49 President, Chief Executive Officer
and Director of Viacom Inc. and
the Company
Raymond A. Boyce 58 Senior Vice President, Corporate
Relations of Viacom Inc. and the
Company
Neil S. Braun 41 Senior Vice President of Viacom Inc.
and the Company
Vaughn A. Clarke 40 Vice President, Treasurer of Viacom
Inc. and the Company
Philippe P. Dauman 40 Executive Vice President, General
Counsel, Chief Administrative Officer
and Secretary and Director of Viacom
Inc. and the Company
Earl H. Doppelt 40 Senior Vice President, Deputy General
Counsel of Viacom Inc. and the
Company
Thomas E. Dooley 37 Executive Vice President, Finance,
Corporate Development and Communications
of Viacom Inc. and the Company
Michael D. Fricklas 34 Senior Vice President, Deputy
General Counsel of Viacom Inc. and
the Company
I - 43
John W. Goddard
Name Age Title
---- --- -----
Sumner M. Redstone 71 Chairman of the Board of Directors
H. Wayne Huizenga 57 Vice Chairman of the Board of Directors; Chairman,
Blockbuster Entertainment Group
Frank J. Biondi, Jr. 50 President, Chief Executive Officer and Director
Philippe P. Dauman 41 Executive Vice President, General Counsel,
Chief Administrative Officer and Secretary
and Director
Thomas E. Dooley 38 Executive Vice President -- Finance,
Corporate Development and Communications
Vaughn A. Clarke 41 Senior Vice President, Treasurer
Carl D. Folta 37 Senior Vice President, Corporate Relations
Michael D. Fricklas 35 Senior Vice President, Deputy General Counsel
Susan Gordon* 41 Vice President, Controller and
Chief Accounting Officer
Rudolph L. Hertlein 54 Senior Vice President
Edward D. Horowitz 47 Senior Vice President, Technology of the Company;
Chairman, Chief Executive Officer of Viacom Interactive Media
Kevin C. Lavan** 42 Senior Vice President, Controller and
Chief Accounting Officer
Henry J. Leingang 45 Senior Vice President, Chief Information Officer
William A. Roskin 52 Senior Vice President, Human Resources and Administration
George S. Smith, Jr. 46 Senior Vice President, Chief Financial Officer
Mark M. Weinstein 52 Senior Vice President of Viacom
Inc. and the Company; President,
Chief Executive Officer of Viacom
Cable
Edward D. Horowitz 46 Senior Vice President, Technology of
Viacom Inc. and the Company;
Chairman, Chief Executive Officer
of New Media and Interactive
Television
Kevin C. Lavan 41 Vice President, Controller and Chief
Accounting Officer of Viacom Inc.
and the Company
Henry J. Leingang 44 Senior Vice President, Chief Information
Officer of Viacom Inc. and the
Company
William A. Roskin 51 Senior Vice President, Human Resources
and Administration of Viacom Inc.
and the Company
George S. Smith, Jr. 45 Senior Vice President, Chief
Financial Officer of Viacom Inc.
and the Company
Mark M. Weinstein 51 Senior Vice President, Government Affairs
of Viacom Inc. and the
Company
* effective April 1, 1995
** through March 31, 1995
None of the executive officers of Viacom Inc. or the Company is related to any
other executive officer or director by blood, marriage or adoption except that
Brent D. Redstone a Directorand Shari Redstone, Directors of Viacom Inc.
and the Company, isare the
son and daughter, respectively, of Sumner M. Redstone.
I-26
Mr. Redstone has been Chairman of the Board and a Director of the Company
since the Merger. Mr. Redstone is also1986 and Chairman of the Board and a Director of Viacom Inc.since 1987. Mr.
Redstone has served as President, Chief Executive Officer of
NAI since July 1967, and continues to serve in such
capacity; he has also served as the Chairman of the Board of
NAI since 1986. Mr. Redstone became a directorDirector of ParamountSpelling
in March 1994. He served as the first Chairman of the Board of
the National Association of Theater Owners, and is currently
a member of the Executive Committee of that organization.
During the Carter Administration, Mr. Redstone was appointed
a member of the Presidential Advisory Committee on the Arts
for the John F. Kennedy Center for the Performing Arts and,
in 1984, he was appointed a Director of the Kennedy
Presidential Library Foundation. Since 1982, Mr. Redstone
has been a member of the faculty of Boston University Law
School, where he has lectured in entertainment law.law, and in
1994, he accepted a proposal from Harvard Law School to
lecture, as well as a Visiting Professorship from Brandeis
University. In 1944, Mr. Redstone graduated
I - 44
from Harvard
University and, in 1947, received an L.L.B. from Harvard
University School of Law. Upon graduation, he served as Law
Secretary with the United States Court of Appeals, and then
as a Special Assistant to the United States Attorney
General.
Mr. Huizenga has been Vice Chairman of the Board
since September 1994 and a Director of the Company since
October 1993. He served as Chairman of the Board and Chief
Executive Officer of Blockbuster from April 1987 to
September 1994, having been elected a director of
Blockbuster in February 1987. Mr. Huizenga also served as
President of Blockbuster from April 1987 to June 1988. He
is Chairman of the Board of Spelling and a Director of
Discovery Zone. From May 1984 to present, Mr. Huizenga has
been an investor in other businesses and is the sole
stockholder and Chairman of the Board of Huizenga Holdings,
Inc., a holding and management company with various business
interests. In connection with these business interests, Mr.
Huizenga has been actively involved in strategic planning
for and executive management of these businesses. He also
has a majority ownership interest in Florida Marlins
Baseball, Ltd., a Major League Baseball sports franchise,
and owns the Florida Panthers Hockey Club, Ltd., a National
Hockey League sports franchise, the Miami Dolphins, Ltd., a
National Football League sports franchise, and Joe Robbie
Stadium in South Florida.
Mr. Biondi has been President, Chief Executive
Officer and a Director of Viacom Inc. and the Company since July 1987. He
became a directorDirector of ParamountSpelling in March 1994. From November 1986
to July 1987, Mr. Biondi was Chairman, Chief Executive
Officer of Coca-Cola Television and, from 1985, Executive
Vice President of the Entertainment Business Sector of The
Coca-Cola Company. Mr. Biondi joined HBO in 1978 and held
various positions there until his appointment as President,
Chief Executive Officer in 1983. In 1984, he was elected to
the additional position of Chairman and continued to serve
in such capacities until October 1984.
Mr. Boyce has been an executive officer of Viacom Inc. and the
Company since January 1988 when he was elected Senior Vice President,
Corporate Relations of the Company. In April 1988, he was elected
Senior Vice President, Corporate Relations of Viacom Inc. Mr. Boyce
served as Vice President, Public Relations of the Entertainment
Business Sector of The Coca-Cola Company from 1982 to 1987. In 1979,
Mr. Boyce joined Columbia Pictures Industries, Inc. and served first as
Director, Corporate Communications and later as Vice President,
Corporate Communications until The Coca-Cola Company's acquisition of
Columbia Pictures Industries, Inc. in 1982.
Mr. Braun has been an executive officer of Viacom Inc. and the
Company since November 1987 when he was elected Senior Vice President
of each. He served as Chairman, Chief Executive Officer of Viacom
Entertainment from July 1992 to March 1994. Prior to that, Mr. Braun
served as Senior Vice President, Corporate Development and
Administration of Viacom Inc. and the Company from November 1987 to
July 1992 and from October 1989 to July 1992, he also served as
Chairman of Viacom Pictures. Mr. Braun served as President, Chief
Operating Officer of Imagine Films Entertainment from May 1986 until he
joined the Company. From 1982 until 1986, Mr. Braun held various
positions at HBO including Senior Vice President, Film Programming of
HBO and Executive Vice President of HBO Video, Inc.
Mr. Clarke was elected Vice President, Treasurer of Viacom and the
Company in April 1993. Prior to that, he spent 12 years at Gannett
Co., Inc., where he held various management positions, most recently as
Assistant Treasurer.
Mr. Dauman has been a Director of Viacom Inc. and the Company
since the Merger.1987. In March 1994, he was elected Executive Vice
President, General Counsel, Chief Administrative Officer and
Secretary of Viacom
Inc. and the Company. From February 1993 to March 1994,
he served as Senior Vice President, General Counsel and
Secretary of Viacom Inc. and the Company. Prior to that, Mr. Dauman was a
partner in the law firm of Shearman & Sterling in New York,
which he joined in 1978. Mr. Dauman became a Director of
National Amusements, Inc. in 1992 and Paramounta Director of Spelling
in March 1994.
Mr. Dooley has been an executive officer of the
Company since I - 45
January 1987. In March 1994, he was elected
Executive Vice President -- Finance, Corporate Development
and Communications of Viacom Inc. and the Company. From July 1992 to March
1994, Mr. Dooley served as Senior Vice President, Corporate
Development of Viacom Inc. and the Company. From August 1993 to March 1994,
he also served as President, Interactive Television. Prior
to that, he served as Vice President, Treasurer of the
Company and Viacom Inc. since 1987. In December 1990, he was named Vice
President, Finance of Viacom Inc. and the Company. Mr. Dooley joined the CompanyViacom
International Inc. in 1980 in the corporate finance area and
has held various positions in the corporate and divisional
finance areas, the most recent of which was Director of Business Analysis from
1985 to 1986.areas.
Mr. DoppeltClarke was elected Senior Vice President,
Deputy General
CounselTreasurer of Viacom Inc. and the Company in MarchJuly 1994, having joined the
Company as Vice President, Treasurer in April 1993. Prior
to that, he spent 12 years at Gannett Co., Inc., where he
held various management positions, most recently as
Assistant Treasurer.
I-27
Mr. Folta was elected Senior Vice President,
Corporate Relations of the Company in November 1994. Prior
to that, he served as Senior Vice President, Corporate Relations of
the Company from April 1994 to November 1994. From 1984
until joining the Company in April 1994, Mr. Folta held
various Corporate Communications positions at Paramount,
since 1992 andserving most recently as Deputy General Counsel of Paramount since 1985. He joined Paramount in
1983 as Associate Litigation Counsel, and in 1985 was appointed
Assistant Vice President and Deputy General Counsel. In 1986, he
became a Vice President of Paramount. From 1977 to 1983, Mr. Doppelt
was an attorney in private practice at the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison.Senior Director, Corporate
Communications.
Mr. Fricklas was elected Senior Vice President,
Deputy General Counsel of Viacom Inc. and the Company in March 1994. From
June 1993 to March 1994, he served as Vice President, Deputy
General Counsel of
Viacom Inc. and the Company. He served as Vice
President, General Counsel and Secretary of Minorco (U.S.A.)
Inc. from 1990 to 1993. Prior to that, Mr. Fricklas was an
attorney in private practice at the law firm of Shearman &
Sterling.
Mr. Goddard has been an executive officerMs. Gordon was elected Vice President, Controller
and Chief Accounting Officer effective April 1, 1995. Prior
to that, she served as Vice President, Internal Audit of the
Company since August 1980. In November 1987, Mr. Goddard was elected Senior Vice
PresidentOctober 1986. From June 1985 to October 1986,
Ms. Gordon served as Controller of Viacom Inc.Broadcasting. She
joined the Company in 1981 and held various positions in September 1983,the
corporate finance area.
Mr. GoddardHertlein was elected Senior Vice President of
the Company and President, Chief Executive
Officer of Viacom Cable and continuesin July 1994. Prior to serve in those capacities. In
August 1980, Mr. Goddard was appointed President of Viacom Cable and,
in September 1980,that, he was electedserved as
Senior Vice President and Controller of the Company. FromParamount from
September 1978 through1993 to July 1980, Mr. Goddard was Executive1994 and as Senior Vice President,
Viacom Communications. From June 1971 untilInternal Audit and Special Projects of Paramount from
September 1978,
Mr. Goddard was1992 to September 1993 and, before that, as Vice
President, Internal Audit and General ManagerSpecial Projects of Tele-Vue Systems, a
subsidiary of the Company.Paramount.
Mr. Horowitz has been an executive officer of Viacom Inc. and the
Company since April 1989. In March 1994, he was elected
Senior Vice President, Technology of Viacom Inc. and the Company and
Chairman, Chief Executive Officer of New Media andViacom Interactive
Television.Media. Prior to that, he served as Senior Vice President of Viacom Inc. and
the Company from April 1989 and as Chairman, Chief Executive
Officer of Viacom Broadcasting from July 1992 to March 1994.
From 1974 to April 1989, Mr. Horowitz held various positions
with HBO, most recently as Senior Vice President, Technology
and Operations. Mr. Horowitz held several other management
positions with HBO, including Senior Vice President, Network
Operations and New Business Development and Vice President,
Affiliate Sales.
I - 46
Mr. Lavan has been an executive officer of the
Company since December 1987. In May 1989,July 1994, he was elected
Senior Vice President, of Viacom
Inc.Controller and the Company.Chief Accounting
Officer and will serve in such capacity until March 31,
1995. Prior to that he served as Vice President, Controller
and Chief Accounting Officer since May 1989, having served
as Controller, Chief Accounting Officer since December 1987.
In December 1990, he assumed the added responsibilities of
oversight of Company tax matters. From 1991 to 1992, he
also served as Senior Vice President and Chief Financial
Officer of Viacom Pictures. Mr. Lavan joined Viacomthe Company in
1984 as Assistant Controller and, in December 1987, was elected Controller,of the Company. Mr. Lavan will
become Chief AccountingFinancial Officer of Viacom Inc. and the Company and he
continues to serve in such capacities.MTV Networks effective
April 1, 1995.
Mr. Leingang was elected Senior Vice President,
Chief Information Officer in May 1993. Prior to that, he
served as Vice President, Chief Information Officer upon
joining Viacomthe Company in 1990. Mr. Leingang was Vice
President, Information Services of the TrainTrian Group (formerly
Triangle Industries) from 1984 to 1990. From 1982 to 1984,
he served as Corporate Director, MIS, and Manager, MIS
Planning and Control for Interpace Corporation. Prior to
that he held positions with Touche Ross & Company, McGraw-HillMcGraw-
Hill Book Company and General Electric Credit Corp.
I-28
Mr. Roskin has been an executive officer of Viacom Inc. and the
Company since April 1988 when he became Vice President,
Human Resources and Administration of each.Administration. In July 1992, Mr.
Roskin was elected Senior Vice President, Human Resources
and Administration of Viacom
Inc. and the Company. From May 1986 to April
1988, he was Senior Vice President, Human Resources at
Coleco Industries, Inc. From 1976 to 1986, he held various
executive positions at Warner Communications, Inc., serving
most recently as Vice President, Industrial and Labor
Relations.
Mr. Smith has been an executive officer of the
Company since May 1985. In November 1987, he was elected
Senior Vice President, Chief Financial Officer of Viacom Inc. and the
Company and he continues to serve in such capacities. In
May 1985, Mr. Smith was elected Vice President, Controller of the Company
and, in October 1987, he was elected Vice President, Chief
Financial Officer of the Company. From 1983 until May 1985,
he served as Vice President, Finance and Administration of
the Viacom Broadcasting Division and from 1981 until 1983, he served
as Controller of Viacom Radio. Mr. Smith joined the Company
in 1977 in the Corporate Treasurer's office and until 1981
served in various financial planning capacities.
Mr. Weinstein has been an executive officer of the
Company since January 1986. In February 1993, he was
elected Senior Vice President, Government Affairs of Viacom Inc. and the
Company. Prior to that, Mr. Weinstein served as Senior Vice
President, General Counsel and Secretary of the Company and of Viacom Inc.
since the fall of 1987. In January 1986, Mr. Weinstein was
appointed Vice President, General Counsel of the Company.
From 1976 through 1985, he was Deputy General Counsel of
Warner Communications Inc. and in 1980 became Vice
President. Previously, Mr. Weinstein was an attorney in
private practice at the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison.
I - 47I-29
PART II
Item 5. Market for Viacom Inc.'s Common Equity and Related Security Holder
Matters.
Viacom Inc. voting Class A Common Stock and Viacom Inc. non-votingnon-
voting Class B Common Stock are listed and traded on the
American Stock Exchange ("ASE"AMEX") under the symbols "VIA" and
"VIAB,""VIA B", respectively.
The following table sets forth, for the calendar period
indicated, the per share range of high and low sales prices
for Viacom Inc.'s Class A Common Stock and Class B Common
Stock, as reported on the ASEAMEX Composite Tape by the National Quotation
Bureau Incorporated. As of March 30, 1994 there were approximately 6,912
holders of Viacom Inc. Class A Common Stock, and 6,861 holders of Viacom
Inc. Class B Common Stock.
Viacom Class A Viacom Class B
Common Stock Common Stock
--------------- ----------------
High Low High Low
---- --- ---- ---
1992
1st quarter $37 1/4 $32Tape.
Viacom Class A Viacom Class B
Common Stock Common Stock
----------------------- ----------------------
High Low High Low
---- --- ---- ---
1994
1st quarter $49 3/4 $28 1/2 $45 $23 3/4
2nd quarter 34 1/4 24 1/2 32 1/2 21 3/4
3rd quarter 41 3/4 33 7/8 39 3/4 30 1/4
4th quarter 42 1/8 38 41 37 1/8 $36 1/2 $31 1/4
2nd quarter 38 1/2 32 3/8 36 7/8 30 1/2
3rd quarter 34 7/8 30 7/8 32 7/8 29
4th quarter 44 28 1/8 41 7/8 27
1993
1st quarter $46 1/2 $37 1/2 $44 1/8 $35 1/4
2nd quarter 52 5/8 37 1/8 49 1/2 36
3rd quarter 67 1/2 50 1/2 61 1/4 45 3/4
4th quarter 66 1/2 47 60 1/2 40 3/8
The parent,
Viacom Inc., has substantially no source of funds other than
dividends paid by the Company on its stock. Under the restrictions
contained in the Credit Agreement, the Company is prohibited from (i)
paying anynot declared cash dividends on its stock tocommon
equity and has no present intention of so doing.
As of March 27, 1995 there were approximately 14,878
holders of Viacom Inc. for the purposeClass A Common Stock, and 25,738
holders of
enabling Viacom Inc. to pay any dividend on its common stock, or (ii)
making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes), unless its total leverage ratio is less than a
specified amount.Class B Common Stock.
II-1
Item 6. Selected Financial Data.
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
(Thousands(Millions of dollars, except per share amounts)
Year Ended December 31,
---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Revenues $2,004,949 $1,864,683 $1,711,562 $1,599,625 $1,436,220$ 7,363.2 $ 2,004.9 $ 1,864.7 $ 1,711.6 $ 1,599.6
Earnings from continuing operations
before depreciation and amortization $ 1,074.0 $ 538.1 $ 492.7 $ 445.1 $ 361.2
Depreciation and amortization $ 465.7 $ 153.1 $ 144.8 $ 132.9 $ 137.4
Earnings from continuing operations $ 384,995608.3 $ 347,927385.0 $ 312,234347.9 $ 223,831312.2 $ 144,716223.8
Earnings (loss) before extraordinary itemslosses
and cumulative effect of change in
accounting principle $ 169,481110.0 $ 66,085169.5 $ (46,556)66.1 $ (89,781)(46.6) $ 131,080(89.8)
Net earnings (loss) $ 170,95289.6 $ 48,965171.0 $ (49,657)49.0 $ (89,781)(49.7) $ 131,080(89.8)
Net earnings (loss) attributable
to common stock $ 158,20214.6 $ 48,965158.2 $ (49,657)49.0 $ (89,781)(49.7) $ 113,589
Net(89.8)
Primary and fully diluted net earnings
(loss) per common share:
Earnings (loss) from continuing
operations before extraordinary
itemslosses and cumulative effect of
change in accounting principle $ .25 $ 1.30 $ .55 $ (.41) $ (.84)
$ 1.06
Net earnings (loss) $ .07 $ 1.31 $ .41 $ (.44) $ (.84)
$ 1.06
At year end:
Total assets $6,416,868 $4,317,094 $4,188,378 $4,027,927 $3,752,962$ 28,273.7 $ 6,416.9 $ 4,317.1 $ 4,188.4 $ 4,027.9
Long-term debt, $2,378,286 $2,397,014 $2,320,919 $2,537,263 $2,283,118net of current
portion $ 10,402.4 $ 2,440.0 $ 2,397.0 $ 2,320.9 $ 2,537.3
Shareholders' equity $2,718,114 $ 756,51111,791.6 $ 699,4932,718.1 $ 366,163756.5 $ 455,944699.5 $ 366.2
See Notes to Consolidated Financial Statements for information on
transactions and accounting classifications which have affected the
comparability of the periods presented above. Viacom Inc. has not
declared cash dividends on its common equity for any of the periods
presented above.
II-2
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
General
-------
Management's discussion and analysis of the combined results of operations
and financial condition of Viacom Inc. and the Company(the "Company") should be read in
conjunction with the Consolidated Financial Statements and related Notes. Information presented below does not
include information with respect to Paramount, which became a
subsidiary of Viacom Inc. on March 11, 1994. Information with
respect to Paramount's results of operations and financial condition
and Paramount's audited and unaudited financial statements, in
each case including the notes thereto, are incorporated by reference
herein from the Paramount Reports (as defined in Item 1). Information
in the Paramount Reports is given as of the date of each such report
and is not updated herein. A copy of each of the Paramount Reports is
included as an exhibit hereto.
Descriptions of all documents incorporated by reference herein or included
as exhibits hereto are qualified in their entirety by reference to the
full text of such documents so incorporated or included.
Viacom Inc. (together with its consolidated subsidiaries, unlessDuring 1994, the context otherwise requires, "Viacom Inc.")Company made two significant acquisitions of large and
diversified businesses. Where appropriate the Company has merged, or is a holding company whose
principal asset is the common stock of Viacom International Inc.
(together with its consolidated subsidiaries, unless the context
otherwise requires, the "Company"). The Company is a diversified
entertainment and communications company with operations in four
principal segments: Networks, Entertainment, Cable Television and
Broadcasting. Viacom Inc. is an approximately 76.3% owned subsidiary
of National Amusements, Inc. ("NAI"), a closely held corporation that
owns and operates approximately 850 movie screens
in the United
Statesprocess of merging, the operations of previously existing and
acquired businesses. Comparisons of results of operations have been
significantly affected by such acquisitions and merging of operations.
On March 11, 1994, the United Kingdom.
In early March 1994, Viacom Inc.Company acquired a majority interest inof the outstanding
shares of Paramount Communications Inc. ("Paramount"Paramount Communications") pursuant to the terms of
itsby
tender offer.offer; on July 7, 1994, Paramount will becomeCommunications became a wholly
owned subsidiary of the Company (the "Paramount Merger"); and on January
3, 1995, Paramount Communications was merged into Viacom Inc. upon the closing of the merger pursuant to the Paramount
merger agreement. Viacom Inc. has also entered into a merger
agreement withInternational.
On September 29, 1994, Blockbuster Entertainment Corporation
("Blockbuster") pursuantmerged with and into the Company (the "Blockbuster
Merger"). Paramount Communications' and Blockbuster's results of
operations are included as of March 1, 1994 and October 1, 1994,
respectively.
The Company's consolidated statements of operations reflect five operating
segments:
Networks and Broadcasting - Basic Cable and Premium Television Networks,
Television and Radio Stations.
Entertainment - Production and distribution of motion pictures and
television programming as well as movie theater operations,
and new media and interactive services.
Video and Music/Theme Parks - Home Video and Music Retailing, and Theme
Parks.
Publishing - Educational; Consumer; Business, Training and Health Care;
Reference; and International Groups.
Cable Television - Cable Television Systems. (See Note 3 of Notes to
which Blockbuster will merge into Viacom Inc. (See
"Paramount Merger, Blockbuster Merger and Related Transactions" for
additional information regarding the mergers).
The primary differences between Viacom Inc.'s and the Company's
financial statements are as follows: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the
contribution to capital of Viacom Inc.'s exchangeable preferred
stock, which was exchanged for 15.5% Junior Subordinated Exchange
Debentures due 2006 (the "Exchange Debentures"Consolidated Financial Statements.) on March 31, 1989
which in turn were fully redeemed during 1991; b) during 1993, Viacom
Inc. issued $1.8 billion of 5% cumulative convertible preferred stock
and declared related preferred stock dividends of $12.8 million, c)
certain general and administrative expenses recorded by Viacom Inc.
of $5.0 million (1993), $9.0 million (1992) and $12.9 million (1991),
which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net
interest income of $3.1 million (1993) and net interest expense of
$45.2 million (1991).
II-3
Business Segment Information
----------------------------
The following tables set forth revenues, earnings from continuing
operations before depreciation and amortization ("EBITDA"), depreciation
and amortization, earnings (loss) from continuing operations, equity in
pre-tax earnings (loss) of affiliated companies and earnings (loss) from
continuing operations plus equity in pre-tax earnings (loss) by business
segment and a reconciliation
of total earnings from operations to net earnings (loss) attributable to
common stock for the periods indicated:
Year Ended December 31, Percentage Change
----------------------------- -----------------
From From
1993 1992 1991 1992 1991
---- ---- ---- To To
1993 1992
---- ----
(Thousands of Dollars)
Revenues:
Networks $1,221,200 $1,058,831 $ 922,157 15% 15%
Entertainment 209,110 248,335 273,488 (16) (9)
Cable Television 415,953 411,087 378,026 1 9
Broadcasting 181,778 168,847 159,182 8 6
Intercompany elimination (23,092) (22,417) (21,291) (3) (5)
---------- --------- ----------
Total revenues $2,004,949 $1,864,683 $1,711,562 8 9
========== ==========indicated. Prior period presentations have been
reclassified to conform to the current presentation.
II-3
Business Segment Information
----------------------------
Earnings Equity in Earnings
(loss) from pre-tax (loss) from
Depreciation continuing earnings (loss) continuing
and operations of affiliated operations
Revenues EBITDA (a) amortization (as reported) companies plus equity
-------- -------- ------------ ------------- --------- -----------
Year ended (Millions of dollars)
December 31, 1994 (b)
---------------------
Networks and Broadcasting $ 1,855.1 $ 453.3 $ 96.2 $ 357.1 $ 18.2 $ 375.3
Entertainment 2,285.2 6.0 94.4 (88.4) 9.5 (78.9)
Video and Music/
Theme Parks 1,070.4 289.9 90.4 199.5 .7 200.2
Publishing 1,786.4 296.9 103.0 193.9 -- 193.9
Cable Television 406.2 155.2 76.4 78.8 -- 78.8
Corporate -- (127.3) 5.3 (132.6) -- (132.6)
Intercompany (40.1) -- -- -- -- --
---------- -------- ------- -------- ------ --------
Totals $ 7,363.2 $1,074.0 $ 465.7 $608.3 $ 28.4 $ 636.7
========== ======== ======= ======== ====== ========
Year ended
December 31, 1993
----------------
Networks and Broadcasting $ 1,403.0 $ 382.6 $ 68.2 $ 314.4 $(2.1) $ 312.3
Entertainment 209.1 42.0 9.5 32.5 (1.0) 31.5
Cable Television 416.0 181.7 71.5 110.2 -- 110.2
Corporate -- (68.2) 3.9 (72.1) -- (72.1)
Intercompany (23.2) -- -- -- -- --
---------- -------- ------- -------- ------ --------
Totals $ 2,004.9 $ 538.1 $ 153.1 $ 385.0 $(3.1) $ 381.9
========== ======== ======= ======== ====== ========
Year ended
December 31, 1992
-----------------
Networks and Broadcasting $ 1,227.7 $ 303.8 $ 66.3 $ 237.5 $(6.9) $ 230.6
Entertainment 248.3 66.5 6.8 59.7 -- 59.7
Cable Television 411.1 190.5 68.5 122.0 -- 122.0
Corporate -- (68.1) 3.2 (71.3) -- (71.3)
Intercompany (22.4) -- -- -- -- --
---------- -------- ------- -------- ------ --------
Totals $ 1,864.7 $ 492.7 $ 144.8 $ 347.9 $(6.9) $ 341.0
========== ======== ======= ======== ====== ========
(a) Earnings from operations:
Networks $ 272,087 $ 205,576 $ 172,296 32 19
Entertainment 32,480 59,662 73,214 (46) (19)
Cable Television 110,176 122,037 103,954 (10) 17
Broadcasting 42,293 31,956 27,734 32 15
Corporate (72,041) (71,304) (64,964) (1) (10)
---------- --------- ----------
Total earnings fromcontinuing operations $ 384,995 $ 347,927 $ 312,234 11 11
========== ========== ==========
Depreciation and amortization:
Networks $ 44,747 $ 41,754 $ 30,123
Entertainment 9,549 6,792 7,160
Cable Television 71,520 68,505 66,604
Broadcasting 23,475 24,509 27,062
Corporate 3,766 3,242 1,915
---------- --------- ----------
Totalbefore depreciation
and amortization $ 153,057 $ 144,802 $ 132,864
========== ========== ==========amortization.
(b) Paramount Communications' and Blockbuster's results of
operations are included as of March 1, 1994 and October
1, 1994, respectively.
II-4
Reconciliation to net earnings
(loss) attributable
to common stock:
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234
Interest expense, net (144,953) (194,104) (297,451)
Other items, net 61,774 1,756 (6,536)
---------- --------- ----------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
---------- --------- ----------
Earnings (loss) before
extraordinary losses and
cumulative effect of change
in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of
tax (8,867) (17,120) (3,101)
Cumulative effect of change
in accounting principle 10,338 -- --
---------- --------- ----------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible
preferred stock dividend
requirement of Viacom Inc. 12,750 -- --
---------- --------- ----------
Net earnings (loss)
attributable to common
stock $ 158,202 $ 48,965 $ (49,657)
========== ========== ==========
II-5
Results of Operations
---------------------
1994 versus 1993
vs. 1992
-----------------------------
Revenues increased 8% to $7.36 billion for 1994 from $2.0 billion for 1993 (or
267%). EBITDA increased to $1.07 billion for 1994 from $538.1 million for 1993
(or 100%). Earnings from continuing operations increased to $608.3 million for
1994 from $385.0 million for 1993 (or 58%). The foregoing increases in
results of operations are principally attributable to the acquisitions of
Paramount Communications and Blockbuster, partially offset by the
merger-related charges described below.
EBITDA and earnings from continuing operations for 1994 include merger-related
charges, reflecting the integration of the Company's pre-merger businesses with
similar Paramount units, and related management and strategic changes. Such
amounts relate principally to adjustments of programming assets based upon new
management strategies and additional programming sources resulting from the
Paramount Merger and, with respect to Corporate, the combination of the
employees of the Company and Paramount Communications.
EBITDA prior
to
EBITDA Merger-Related Charges Merger-Related Charges
------ ---------------------- ----------------------
(Millions of dollars)
Networks and Broadcasting $ 453.3 $ 90.7 $ 544.0
Entertainment 6.0 224.0 230.0
Video and Music/Theme Parks 289.9 -- 289.9
Publishing 296.9 -- 296.9
Cable Television 155.2 -- 155.2
Corporate (127.3) 17.4 (109.9)
-------- -------- --------
$1,074.0 $332.1 $1,406.1
-------- -------- --------
-------- -------- --------
While many in the financial community consider EBITDA to be an important
measure of comparative operating performance, it should be considered in
addition to, but not as a substitute for or superior to, earnings from
operations, net income, cash flow and other measures of financial performance.
The comparability of results of operations for 1994 and 1993 has been affected
by (i) the Paramount Merger, (ii) the Blockbuster Merger, and (iii) the
merger-related charges all of which are non-recurring charges. The following
discussion of results of operations is exclusive of merger-related charges and
includes an analysis of changes in EBITDA, which does not reflect the effect
of significant amounts of amortization of goodwill related to the Paramount
Merger, the Blockbuster Merger and other business combinations accounted for
by the purchase method of accounting.
II-5
Networks and Broadcasting
The constituents of Networks and Broadcasting are MTV Networks ("MTVN"),
Showtime Networks Inc. ("SNI"), television stations and radio stations.
Revenues increased to $1.86 billion for 1994 from $1.9$1.40 billion in
1992.for 1993 (or
32%). EBITDA increased to $544.0 million for 1994 from $382.6 million for 1993
(or 42%). Earnings from operations increased 11% to $385.0$447.8 million infor 1994 from
$314.4 million for 1993 from $347.9 million in 1992. Explanations of variances(or 42%). The increase in revenues, EBITDA and earnings
from operations for eachresulted from increased advertising revenues of MTVN, modest
increases in operating segment
follow.
Netresults of SNI and the Company's previously existing
television and radio stations, and the acquisition of the Paramount television
stations. MTVN revenues of $852.2 million, EBITDA of $326.8 million and
earnings from operations of $284.5 million increased 26%, 20% and 19%,
respectively. The increase in MTVN's revenues was principally attributable to
common stockincreased advertising revenues due to rate increases. The increase in MTVN's
EBITDA was driven by increased advertising revenues partially offset by
increased operating costs, as well as aggregate losses of $158.2$15.0 million
or $1.31
per share,associated with the development of MTV Latino, Nickelodeon Magazine and VH-1
U.K. The Paramount television stations reported revenues of $210.4 million,
EBITDA of $83.1 million and earnings from operations of $65.8 million for the
year endedperiod subsequent to their acquisition.
Entertainment
The primary constituents of Entertainment are Paramount Pictures, Spelling
Entertainment Group ("Spelling"), which was acquired as part of the Blockbuster
Merger, and the former Viacom Entertainment. Revenues increased to $2.29
billion in 1994 from $209.1 million in 1993. EBITDA increased to $230.0 million
for 1994 from $42.0 million for 1993. Earnings from operations increased to
$135.6 million in 1994 from $32.5 million in 1993. The increase in revenues,
EBITDA and earnings from operations resulted primarily from the acquisitions of
Paramount Pictures and Spelling. Theatrical feature film and television
programming results reflect revenues of $1.9 billion, EBITDA of $227.8 million
and earnings from operations of $157.7 million. The Entertainment segment's
earnings from operations were partially offset by Viacom Interactive Media's
loss from operations of $28.6 million, including start-up costs associated with
the development of new businesses. Results of operations primarily reflect
theatrical feature film revenues, including the domestic and foreign box office
success of FORREST GUMP and CLEAR AND PRESENT DANGER, as well as television
programming revenues including network and syndication sales. Earnings from
operations benefited from a lower cost base and efficiencies associated with the
Paramount Merger.
Video and Music/Theme Parks
The constituents of Video and Music/Theme Parks are Blockbuster Video and Music,
and Paramount Parks. Revenues, EBITDA and earnings from operations were $1.07
billion, $289.9 million and $199.5 million, respectively. Video and Music
revenues, EBITDA and earnings from operations were $735.7 million, $220.3
million and $167.8 million, respectively, reflecting results of operations
beginning October 1, 1994 and the continued expansion of video and music stores.
Theme Parks revenues, EBITDA and earnings from operations were $334.7 million,
$69.6 million and $31.7 million, respectively, reflecting the full 1994
operating season (May through September) of the theme parks.
II-6
Publishing
Publishing represents Simon & Schuster which includes imprints such as Simon &
Schuster, Pocket Books, Prentice Hall and Macmillan Publishing USA. Publishing
revenues, EBITDA and earnings from operations were $1.79 billion, $296.9
million and $193.9 million, respectively, subsequent to its acquisition in
March 1994. Results of operations reflect the Simon & Schuster's Higher
Education, Consumer and International groups, and the U.S. publishing assets
of Macmillan, Inc.
Cable Television
Cable Television revenues decreased to $406.2 million for 1994 from $416.0
million for 1993 (or 2%), primarily attributable to a decrease in primary
revenues. EBITDA decreased to $155.2 million for 1994 from $181.7 million for
1993 (or 15%). Earnings from operations decreased to $78.8 million for 1994
from $110.2 million for 1993 (or 28%). The results reflect a 10% decrease in
average rates for primary services, partially offset by a 3% increase in average
primary customers. Total revenue per primary customer per month decreased 5% to
$30.30 for 1994 from $32.03 for 1993. The revenue variances reflect the effect
of the FCC rate regulations pursuant to the 1992 Cable Act governing rates in
effect as of September 1, 1993 and as of May 15, 1994. The decrease in EBITDA
and earnings from operations principally reflect the decreased revenues
attributable to the above rate regulations and increased operating, general and
administrative expenses.
As of December 31, 1994, Viacom Cable served approximately 1,139,000 primary
customers subscribing to approximately 875,000 premium units, representing an
increase of 4% and 22%, respectively, since December 31, 1993.
Corporate Expenses
Corporate expenses including depreciation increased 60% to $115.2 million in
1994 from $72.1 million in 1993 reflecting overall increased expenses
attributable to the mergers.
Other Income and Expense Information
Interest Expense
Net interest expense of $494.1 million for 1994 compared to $145.0 million
for 1993 reflects increased bank borrowing, the issuance of the 8%
exchangeable subordinated debentures and debt acquired as part of the
Mergers. The Company had approximately $10.4 billion and $2.5 billion
principal amount of debt outstanding as of December 31, 1994 and December 31,
1993 reflect netat weighted average interest expenserates of $145.0 million, a7.5% and 5.3%, respectively. (See
Note 5 of Notes to Consolidated Financial Statements.)
Other Items, Net
For 1994, "Other items, net" primarily reflects the pre-tax gain aggregating $72.4of $267.4
million, which resulted from the sale of the Company's one-third partnership
interest in Lifetime for $317.6 million in April 1994. Proceeds from the sale
were used to reduce outstanding debt.
II-7
For 1993, "Other items, net" reflects the pre-tax gain of approximately $55
million from the sale of the stock of the Wisconsin cable television system, anda pre-tax gain
of $17.4 million in the aggregate from sales of a portion of an investment held
at cost, partially offset by an increase of $9.1 million to previously
established non-operating litigation reserves and aother items.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes.
The annual effective tax rates of $129.874% for 1994 and 43% for 1993 were both
adversely affected by amortization of acquisition costs which are not deductible
for tax purposes. The 1993 effective tax rate was favorably affected as a
result of reductions of certain prior year tax reserves of $22.0 million. NetThe
reductions were based on management's view concerning the outcome of several tax
issues based upon the progress of federal, state and local audits.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" on a prospective
basis and recognized an increase in earnings of $49.0$10.4 million or $.41 per
share,in 1993 as the
cumulative effect of a change in accounting principle.
Equity in Earnings (Loss) of Affiliates
"Equity in earnings (loss) of affiliated companies, net of tax" was $18.6
million for 1994 as compared to a loss of $2.5 million for 1993, primarily
reflecting the inclusion of the net earnings of affiliated companies that were
acquired as part of the Mergers, improved operating results of Comedy Central,
partially offset by the absence of Lifetime's earnings due to the sale of the
Company's one-third partnership interest. (See Note 1 of Notes to Consolidated
Financial Statements.)
Minority Interest
Minority interest primarily represents the minority ownership of Paramount
Communications' outstanding common stock, for the year ended December 31,period March through June
1994, and the 23% minority ownership of Spelling's common stock for fourth
quarter 1994.
Discontinued Operations
Discontinued operations reflect the results of operations of Madison Square
Garden Corporation ("MSG"), which was sold March 10, 1995. The Company
acquired MSG during March 1994 as part of the Paramount Merger. (See Note 3
of Notes to Consolidated Financial Statements.)
Extraordinary Losses
During 1994, the Company refinanced its existing credit facilities and therefore
recognized an after-tax extraordinary loss from the extinguishment of debt of
$20.4 million, net of a tax benefit of $11.9 million.
On July 15, 1993, Viacom International redeemed all of the $298 million
principal amount outstanding of the 11.80% Senior Subordinated Notes at a
redemption price equal to 103.37% of the principal amount plus accrued interest
to July 15, 1993. Viacom International recognized an after-tax extraordinary
loss of $8.9 million, net of a tax benefit of $6.1 million. Viacom International
borrowed the funds necessary for the redemption under bank credit agreements
existing at the time.
II-8
1993 versus 1992
reflect net interest
expense----------------
Revenues increased to $2.0 billion in 1993 from $1.9 billion in 1992 (or 8%).
EBITDA increased to $538.1 million for 1993 from $492.7 million for 1992 (or
9%). Earnings from continuing operations increased to $385.0 million in 1993
from $347.9 million in 1992 (or 11%). Explanations of $194.1 millionvariances in revenues,
EBITDA and a provisionearnings from continuing operations for income taxes of $84.8
million.each segment follow.
The comparability of results of operations for 1993 and 1992 has been affected
by (1) the sale of the Wisconsin cable television system,
effective January 1, 1993 and (2)(i) the change in estimate of copyright royalty revenues during 1992 in the
Entertainment segment.segment and (ii) the sale of the Wisconsin cable television
system, effective January 1, 1993. (See "Entertainment" and "Cable Television"
and "Entertainment" for additional information
concerning the changes noted above.information.)
Networks (Basic cable and premium television networks)
The constituents of Networks are MTV Networks ("MTVN") and Showtime
Networks Inc. ("SNI"). Networks revenuesBroadcasting
Revenues increased 15% to $1.221$1.40 billion infor 1993 from $1.059$1.23 billion for 1992 (or
14%). EBITDA increased to $382.6 million for 1993 from $303.8 million for 1992
(or 26%). Earnings from operations increased to $314.4 million from $237.5
million (or 32%). The increase in 1992. Networksrevenues and earnings from operations
resulted primarily from increased 32% to $272.1 million in 1993 from $205.6 million
in 1992.advertising sales of MTVN. MTVN revenues increased 27% toof
$677.9 million, EBITDA of $272.7 million, and earnings from operations of $239.7
million increased 27%, 33% and 39%, respectively. The increase in 1993 from $533.4
million in 1992: 70% of the increaseMTVN's
advertising revenues was attributable to increased
advertising sales; 21% was due to increased affiliate fees; and 9% was
due to other sources. The increases in advertising sales and
affiliate fees were principally dueattributable to rate increases. The
increase in other sources was principally due to revenues from new business
ventures including licensing and merchandising. Earnings from
operations of MTVN increased 39% to $239.7 million in 1993 from $172.9
million in 1992, reflectingMTVN's EBITDA reflects the increased revenues, partially offset by
increased programming and marketing expenses at each of the networks and other
costs of operating the networks, including start upstart-up losses of MTV Latino and
Nickelodeon Magazine aggregating $6.5 million. The increasedincrease in programming and
marketing expenses at each of the networks (including animated programming on
Nickelodeon and MTV) was to a large extent responsible for the Company's ability
to increase advertising rates. II-6
Revenues of the television stations, radio
stations and SNI revenueseach increased 3% to $543.3 million in 1993 from $525.7 million
in 1992, including Viacom Pictures in each period presented, due to (i)
an increase of $13.6 million in revenues of Showtime Satellite Networks
("SSN"), primarily due to a 40% increase in SSN's subscriber base,
principally attributable to the use of upgraded scrambling technology,
partially offset by a decrease of 8% in average rates, (ii) an increase
of $4.4 million in revenues of Showtimemodestly. EBITDA and The Movie Channel
(excluding revenues generated by SSN), reflecting a 3% increase in the
combined subscriber base with a decrease in average rates of 2% and
(iii) a $.4 million decrease in other revenue sources. SNI's premium
movie services, Showtime, The Movie Channel and FLIX, served
approximately 11.9 million subscribers as of December 31, 1993 and 10.7
million subscribers as of December 31, 1992. SNI's overall earnings from operations
decreased 1% to $32.3 million in 1993 from $32.7
million in 1992, reflecting increased programming and marketing
expenses, partially offset byof the increased revenues.
Entertainment (Television programming, syndication, production and new
media)
The Entertainment segment distributes television series, feature
films, made-for-television movies and mini-series for television
exhibition around the world, produces television series and made-for-
television movies, and also distributes televisionstations and radio commercials. Thestations increased, and SNI's EBITDA and
earnings from operations were constant.
Entertainment segment also includes Viacom New
Media, which develops, produces, distributes and markets interactive
software.
Entertainment revenues decreased 16% to $209.1 million infor 1993 from $248.3 million
in 1992.for 1992 (or 16%). EBITDA decreased to $42.0 million for 1993 from $66.5
million for 1992 (or 37%). Earnings from operations decreased to $32.5 million
for 1993 from $59.7 million for 1992 (or 46%). The revenue variance was
principally due to lower syndication revenues, lower copyright revenues
resulting from a change in estimate which increased revenue by approximately $10
million in 1992, and decreased network production revenues. Lower sales to the
broadcast, cable and other marketsmarket places reflect lower syndication revenues for
The Cosby Show and softness in the syndication marketplacemarket place due to a decrease in
the number of independent broadcast television stations because of new network
affiliations. Revenues from the domestic broadcast syndication of The Cosby
Show were approximately 12% and 18% of Entertainment revenues during 1993 and
1992, respectively. The decrease was due to the ending of the first domestic
syndication cycle of The Cosby Show during the third quarter of 1993. The second
domestic broadcast syndication cycle of The Cosby Show, which began in
the third quarter of 1993, will generate significantly lower revenues.
Network
license fees were lower because fewer shows were produced for network
television; however, the decrease doesdid not have a significant impact on
Entertainment earnings from operations.
Earnings from operations decreased 46% to $32.5 million in 1993 from
$59.7 million in 1992, reflectingEBITDA. The EBITDA variance reflects the decreased revenues and
$6.1 million of start-up losses associated with Viacom New Media, which
anticipates releasing approximately nine interactive video games based
II-7Media.
II-9
on MTV Networks' programming by the end of 1994.
The Company had accumulated a backlog of unbilled syndication license
agreements of approximately $399.0 million at December 31, 1993. As
the license fees are billed over the term of the various licensing
contracts, the Company will recognize as revenues that portion of such
license fees representing its distribution fees. Approximately 58% of
the Company's backlog was attributable to license fees for Roseanne
and The Cosby Show. As The Cosby Show becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Cable Television (Cable television systems)
Cable Television revenues increased 1% to $416.0 million in 1993 from $411.1
million in 1992.1992 (or 1%). EBITDA decreased to $181.7 million for 1993 from
$190.5 million for 1992 (or 5%). Earnings from operations decreased 10% to $110.2
million in 1993 from $122.0 million in 1992.1992 (or 10%).
On a comparable basis with the 1992 results (excluding the Wisconsin cable
system, which was sold effective January 1, 1993), Cable Television revenues
increased 6% to $416.0 million in 1993 from $393.6 million in 1992: 52% of this1992 (or 6%); EBITDA
decreased to $181.7 million in 1993 from $182.5 million in 1992; and earnings
from operations decreased to $110.2 million for 1993 from $117.6 million for
1992 (or 6%). The results reflect a 4% increase resulted from increases in average rates for basic services; 32% from increased basic customers; 8% from
increased pay-per-view revenues;primary
services and 8% from increasesa 2% increase in other revenue
sources.average primary customers. Total revenue per
basicprimary customer per month increased 3% to $32.03 in 1993 from $31.04 in 1992.
Earnings from operations decreased
6% to $110.2 millionThe decrease in 1993 from $117.6 million in 1992, reflectingEBITDA reflects increased operating expenses (which included
non-recurring costs associated with the implementation of Federal Communication Commission
("FCC")FCC rate regulations discussed below),regulations)
partially offset by increased revenues.
The 1992 Cable Act amended the Communications Act of 1934, as amended
(the "Communications Act"). Rate regulations adopted in April 1993 by
the FCC govern rates charged to subscribers for regulated tiers of
cable service and became effective on September 1, 1993. On February
22, 1994, the FCC adopted additional rules (the "February 22nd
Regulations") which have not yet been published in their final form.
The "benchmark" formula adopted as part of the regulations in April
1993 establishes an "initial permitted rate" which may be charged by
cable operators for tiers of cable service. The regulations also
establish the prices which may be charged for equipment used to receive
these services. Because the text of the February 22nd Regulations has
not been released, it is not possible to know the extent or nature of
revisions to the April 1993 regulations. However, from public
statements made during the FCC meeting and news releases issued
thereafter, it appears that the February 22nd Regulations will contain
a new formula for determining permitted rates. The new formula will
require up to a 17% reduction of rates from those charged on September
30, 1992, rather than the 10% reduction required by the April 1993
regulations. The February 22nd Regulations also adopted interim
standards governing "cost-of-service" proceedings pursuant to which a
II-8
cable operator would be permitted to charge rates in excess of rates
which it would otherwise be permitted to charge under the regulations,
provided that the operator substantiates that its costs in providing
services justify such rates.
Based on its implementation of the April 1993 rate regulations, the
Company estimates that it will recognize a reduction to revenues
ranging from $27 million to $32 million on an annualized basis
substantially all of which will be reflected as a reduction in earnings
from operations of its cable division. The Company's estimated
reduction does not reflect further reductions to revenue which would
result from the lowering of the initial permitted rates pursuant to the
February 22nd Regulations. These new and reduced initial permitted
rates will apply prospectively from a date to be announced by the FCC
when it publishes precise regulations which implement the February 22nd
Regulations. Until the February 22nd Regulations are released, it is
not possible to predict the effects of the interim standards governing
cost-of-service proceedings; however, based on the public statements,
Viacom believes it is unlikely that it will be able to utilize such
proceedings so as to charge rates in excess of rates which it would
otherwise be permitted to charge under the regulations. The Company's
ability to mitigate the effects of these new rate regulations by
employing techniques such as the pricing and repricing of new or
currently offered unregulated program services and ancillary services
may be restricted by the new regulations adopted as part of the
February 22nd Regulations. No such mitigating factors are reflected in
the estimated reductions to revenues. The stated reduction to revenues
may be mitigated by higher customer growth due to lower basic rates.
The "must carry" provisions of the 1992 Cable Act are not material to
the Company's results of operations.
As of December 31, 1993, the Company operated systems in California,
Oregon, Washington, Ohio and Tennessee, serving approximately
1,094,000 basicprimary customers subscribing to approximately 718,000 premium units.
BasicExcluding the Wisconsin cable system customers in 1992, primary customers and
premium units increased 2% and decreased 5%, respectively, since December 31,
1992. Including the Wisconsin cable system customers in 1993, primary
customers and premium units decreased 2% and 9%, respectively, since December
31, 1992; and, excluding the Wisconsin cable system
customers in 1992, basic customers and premium units increased 2% and
decreased 5%, respectively.
As part of the settlement of the Time Warner antitrust lawsuit, the
Company entered into an agreement to sell all the stock of Viacom
Cablevision of Wisconsin, Inc. to Warner Communications Inc.
("Warner"), effective January 1, 1993. As consideration for the stock,
Warner paid the sum of $46 million, $20 million of which was received
during 1992, plus repayment of debt in the amount of $49 million,
resulting in a pre-tax gain of approximately $55 million reflected in
"Other items, net." As of December 31, 1992, the Wisconsin cable
system served approximately 47,000 basic customers subscribing to
approximately 34,000 premium units.
II-9
Broadcasting (Television and radio stations)
As of December 31, 1993, the Broadcasting segment operated five
network-affiliated television stations and 14 radio stations.
Broadcasting revenues increased 8% to $181.8 million in 1993 from
$168.8 million in 1992.
Earnings from operations increased 32% to
$42.3 million in 1993 from $32.0 million in 1992.
Television revenues increased 4% to $90.3 million in 1993 from $87.1
million in 1992, reflecting an increase in national and local
advertising revenues. Earnings from operations increased 20% to
$20.3 million in 1993 from $16.9 million in 1992, primarily
reflecting the increased revenues.
Television Stations:
STATION LOCATION AFFILIATION MARKET RANK (a)
------- -------- ----------- ------ --------
KMOV-TV St. Louis, MO CBS 18 2
WVIT-TV Hartford/New NBC 25 3
Haven, CT
WNYT-TV Albany/Schenectad NBC 52 2
y, NY
WHEC-TV Rochester, NY NBC 71 2
KSLA-TV Shreveport, LA CBS 74 1
(a) Source: Nielsen, November 1993.
Radio revenues increased 12% to $91.4 million in 1993 from $81.8
million in 1992, reflecting increased national and local
advertising revenues. Earnings from operations increased 45% to
$26.6 million in 1993 from $18.3 million in 1992, primarily
reflecting the increased revenues, partially offset by increased
selling costs.
Radio Stations:
STATION LOCATION FORMAT MARKET RANK (a)
------- -------- ------ ------ -----
WLTW-FM New York, NY Adult 1 1
Contemp
KYSR-FM Los Angeles, CA Adult 2 2
Contemp
KXEZ-FM (b) Los Angeles, CA Adult 2 2
Contemp
WLIT-FM Chicago, IL Adult 3 7
Contemp
KSRY-FM San Francisco, Adult 4 24
CA Contemp (Tie)
II-10
KSRI-FM Santa Cruz/San Adult 4 24
Jose, CA Contemp (Tie)
WLTI-FM Detroit, MI Adult 6 8
Contemp
WMZQ-AM/FM Washington, DC Country 8 4
(Tie)
WCXR-FM (c) Washington, DC Classic Rock 8 9
(Tie)
WCPT-AM (c) Washington, DC Headline 8 NA(d)
News
KBSG-AM/FM Seattle/Tacoma, Oldies 13 2
WA
KNDD-FM (e) Seattle, WA Modern Rock 13 5
(AOR)
(a) Source: Arbitron, Fall 1993, based on target demographics.
(b) Acquired in June 1993.
(c) Acquired in November 1993.
(d) Rank not applicable.
(e) Acquired in December 1992.
See "Acquisition and Ventures" for disclosure of acquisitions
and exchanges of radio stations that occurred in 1993 and 1992.
Other Income and Expense InformationCorporate Expenses
Corporate expenses increased 1% to $72.0$72.1 million in 1993 from $71.3 million in 1992
(or 1%), reflecting increased overall expenses offset by decreased compensation
expense associated with the Long-Term Incentive Plans (the "Plans"), which
consist of the Long-Term Incentive Plan ("LTIP") and the Long-Term Management
Incentive Plan ("LTMIP"). The Plans provide for grants of phantom shares and
stock options. The value of phantom shares issued under the Plans is determined
by reference to the fair market value of Viacom Class A Common Stock and
Viacom Class B Common Stock (collectively, "Common Stock"). The Plans also
provide for subsequent cash payments with respect to such phantom shares based
on appreciated value, subject to certain limits, and vesting requirements. As
a result of the fluctuation in the market value of its Common Stock, Viacom Inc.the
Company recorded compensation expense associated with the Plans of $3.9
million in 1993 and $8.2 million in 1992. During December 1992, a significant
portion of the liability associated with the LTIP was satisfied by the cash
payment of $68.6 million and the issuance of 177,897 shares of Viacom Class B
Common Stock valued at $6.9 million.
The Plans' phantom shares currently have a
maximum potential liability of $19.5 million, all of which was
accrued as of December 31, 1993.
II-11II-10
Other Income and Expense Information
Interest Expense, Net
Net interest expense decreased 25% to $145.0 million in 1993 from $194.1 million in
1992 (or 25%), reflecting improvements made to the capital structure (as
described below) and reduced interest rates, including rates associated with the
Credit Agreement (as
defined in "Capital Structure").credit agreement. The Company and Viacom Inc. had approximately $2.4$2.5 billion principal amount
of debt outstanding as of December 31, 1993 and December 31, 1992 at weighted
average interest rates of 5.3% and 6.5%, respectively. On July 15, 1993, the
Company redeemed all $298 million principal amount outstanding of 11.80% Senior
Subordinated Notes.Notes ("11.80% Notes"). During 1992, the following changes to the
capital structure were made: a) on March 4, 1992, the Company issued $150
million principal amount of 9.125% Senior Subordinated Notes ("9.125% Notes") due 1999; b) on
March 10, 1992, the Company redeemed all $193 million of the outstanding 11.5%
Senior Subordinated Extendible Reset Notes ("11.5% Reset Notes") due 1998; c)
on May 28, 1992, the Company issued $100 million principal amount of 8.75%
Senior Subordinated Reset Notes ("8.75% Reset Notes") due 2001; and d) on June 18, 1992, the Company
redeemed all $356.5 million of the outstanding 14.75% Senior Subordinated
Discount Debentures ("Discount Debentures") due 2002 (see "Capital Structure"). (See "Liquidity
and Capital Resources" for additional information concerning
changes in Viacom Inc.'s and the Company's capital structure.)
For 1993, "Other items, net" reflects the pre-tax gain of
approximately $55 million on the sale of the stock of the
Wisconsin cable system (see "Cable Television"), a pre-tax gain
of $17.4 million in the aggregate from sales of a portion of an
investment held at cost, and an increase of $9.1 million to
previously established non-operating litigation reserves and
other items.2002.
Other Items, Net
The settlement of the Time Warner antitrust lawsuit resulted in various business
arrangements, which have a positive effect on Viacom Inc.the Company currently and are
expected to continue to have a favorable effect on a prospective basis. "Other
items, net" reflects a gain of $35 million recorded in the third quarter of
1992; this gain representsrepresenting payments received in the third quarter of 1992 relating to
certain aspects of the settlement of the lawsuit, net of Viacom Inc.'sthe Company's 1992
legal expenses related to this lawsuit. "Other items, net" also reflects a
reserve for litigation of $33 million during the second quarter of 1992
related to a summary judgment against Viacom Inc.the Company in a dispute with CBS Inc.
arising under the 1970 agreement associated with the spin-off of Viacom
International Inc. by CBS Inc. On July 30, 1993, the Company settled all
disputes arising under that litigation.
Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes.
The annual effective tax rates of 43% for 1993 and 54.5% for 1992 were adversely
affected by amortization of acquisition costs which are not deductible for tax
purposes. The 1993 and 1992 effective tax rates were favorably affected as a
result of reductions of certain prior year tax reserves of $22.0 million and
$20.0 million, respectively. The reductions were based on management's view
concerning the outcome of several tax issues based upon the progress of
federal, state and local audits.
Equity in Earnings (Loss) of Affiliates
"Equity in loss of affiliated companies, net of tax," consists
primarily of the Company's share of Lifetime's net earnings Comedy Central's net losses and Nickelodeon (UK)'s net losses in
II-12
1993. "Equity in loss(loss) of affiliated companies, net of tax" decreased 46% to
$2.5 million in 1993 from $4.6$4.7 million in 1992, primarily reflecting improved
operating results at Lifetime and Comedy Central, partially offset by net losses
on equity investments made in 1993.
(See "Acquisitions and Ventures.")
The provision for income taxes represents federal, state and
foreign income taxes on earnings before income taxes.
The annual effective tax rate of 43% for 1993 and 54.5% forII-11
Extraordinary Losses
On June 18, 1992,
(which continues to be adversely affected by amortization of
acquisition costs which are not deductible for tax purposes) is
decreased as a result of reductions of certain prior year tax
reserves of $22.0 million and $20.0 million in 1993 and 1992,
respectively. The reductions relate to management's current
opinion on several tax issues based upon the progress of
federal, state and local audits.
During the first quarter of 1993, the Company adopted Statementredeemed all of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" onthe $356.5 million principal
amount outstanding of the Discount Debentures at a prospective basis and recognizedredemption price equal to
105% of the principal amount plus accrued interest to June 18, 1992. On March
10, 1992, the Company redeemed all of the $193 million principal amount
outstanding of its 11.50% Reset Notes at a cumulative benefit
from a change in accounting principleredemption price equal to 101% of
$10.3 million.
In August 1993, the Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") was signed into law. It is not
expected thatprincipal amount plus accrued interest to the Reconciliation Act will have a significant
effect on the Company's financial position or results of
operations.
In 1993, theredemption date. The
Company recognized an after-tax extraordinary loss from the early extinguishment of the 11.80% Notes of $8.9$17.1 million, (netnet of a tax
benefit of $6.1 million).
In 1993, Viacom Inc. declared dividends on its Preferred Stock
(as defined in "Capital Structure") of $12.8$11.3 million. In 1992,The Company borrowed the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting For Postemployment
Benefits" ("SFAS 112"), which the Company will adopt in 1994.
SFAS 112 requires that postemployment benefits be accounted for
under the accrual method versus the currently used pay-as-you-go
method. SFAS 112 is not expected to have a significant effect on
the Company's financial position or results of operations.
1992 vs. 1991
-------------
Revenues increased 9% to $1.9 billion in 1992 from $1.7 billion
in 1991. Operating expenses increased 8% to $854.0 million in
1992 from $790.8 million in 1991. Earnings from operations
increased 11% to $347.9 million in 1992 from $312.2 million in
1991. Explanations of variances in revenues and earnings from
II-13
operationsfunds necessary for each
operating segment follow.
Net earnings of $49.0 million, or $.41 per share, for the year
ended December 31, 1992, reflect net interest expense of $194.1
million and a provision for income taxes of $84.8 million. The
net loss of $49.7 million, or $.44 per share, for the year ended
December 31, 1991, reflects net interest expense of $297.5
million and a provision for income taxes of $42.1 million.
Networks (Basic cable and premium television networks)
Networks revenues increased 15% to $1.058 billion in 1992 from
$922.2 million in 1991. Earnings from operations increased 19%
to $205.6 million in 1992 from $172.3 million in 1991.
MTVN revenues increased 30% to $533.4 million in 1992 from
$411.4 million in 1991: 77% of the increase was attributable to
increased advertising sales; 19% was due to increased affiliate
fees; and 4% was due to other sources. The increases in
advertising sales and affiliate fees were principally due to
rate increases. The increase in other sources was principally
due to revenues from new business ventures including licensing
and merchandising. Earnings from operations of MTVN increased
23% to $172.9 million in 1992 from $141.0 million in 1991,
reflecting the increased revenues, partially offset by increased
programming expenses and other costs of operating the networks.
The Company increased programming expenses, particularly for new
animated programming on Nickelodeon. This new programming was
to a large extent responsible for the Company's ability to
increase advertising rates.
On August 30, 1991, Viacom Inc. increasedthese redemptions under its interest in MTV
EUROPE to 100% through the purchase of the 50.01% interest held
by an affiliate of Mirror Group Newspapers. Subsequent to
August 30, 1991, the results of operations of MTV EUROPE have
been included in MTVN's results of operations. Prior to such
date, the investment in MTV EUROPE was accounted for under the
equity method; therefore, operating results were included in
"Equity in loss of affiliated companies, net of tax." The
financial results of MTV EUROPE were not material to the
financial results of the Company or the Networks segment;
however, as the pan-European marketplace develops for both
advertising revenues and affiliate fees, the financial results
of MTV EUROPE may become material. In the aggregate, MTV
(excluding MTV EUROPE), VH-1 and Nickelodeon/Nick at Nite
revenues increased 21%, subscribers increased 3% and earnings
from operations increased 18% during 1992 versus 1991.
SNI revenues increased 3% to $515.3 million in 1992 from $501.3
million in 1991: 30% of the revenue increase was due to rate
increases for SSN; 23% was due to a higher average subscriber
II-14
base during the year for SSN principally attributable to the use
of upgraded scrambling technology in 1992; 23% was due to a
higher average cable subscriber base during the year for Showtime
and The Movie Channel; and 24% of this increase was due to other
revenue sources. SNI's premium movie services served
approximately 10.7 million subscribers as of December 31, 1992
and 10.2 million subscribers as of December 31, 1991. SNI's
overall earnings from operations increased 7% to $35.2 million in
1992 from $33.0 million in 1991, reflecting the increase in
revenues, partially offset by an increase in programming
expenses.
Entertainment (Television programming, syndication, production
and new media)
Entertainment revenues decreased 9% to $248.3 million in 1992
from $273.5 million in 1991. The revenue variance was
principally due to lower sales to broadcast, cable and other
markets, lower network license fees and lower copyright royalty
revenues. Lower sales to the broadcast, cable and other markets
reflect softnessbank credit facilities existing in the
syndication marketplace due to a
generally weak economy and due to a decrease in the number of
independent broadcast television stations because of new network
affiliations. Network license fees were lower because there were
fewer shows produced for network television. Copyright royalties
were lower due to changes made by cable operators in the tiering
of their services, which generated lower copyright royalty
liabilities and therefore less income for program producers and
syndicators. During the first quarter of 1992, certain legal
developments indicated that the percentage of income recognized
under certain copyright royalty arrangements should be increased.
This change in estimate resulted in an increase in revenues of
approximately $10 million. During the first quarter of 1991, the
Company began to recognize copyright royalty revenue on an
accrual basis rather than a cash basis, as a sufficient pattern
had been established to make these revenues estimable; this
change resulted in an increase in revenues of approximately $13.0
million. Earnings from operations decreased 19% to $59.7 million
in 1992 from $73.2 million in 1991, reflecting the decreased
revenues and changes in estimate noted above, and expenses
associated with staff changes and the implementation of new
systems of approximately $4.0 million.
Cable Television (Cable television systems)
Cable television revenues increased 9% to $411.1 million in 1992
from $378.0 million in 1991: 68% of this increase resulted from
increases in rates for basic services; 26% from increased basic
customers; 10% from increased premium customers; partially offset
by a negative 4% from decreases in other revenue sources. Total
II-15
revenue per basic customer per month increased 5% to $31.06 in
1992 from $29.41 in 1991. Earnings from operations increased 17%
to $122.0 million in 1992 from $104.0 million in 1991, reflecting
the increased revenues, partially offset by increased operating
expenses.
As of December 31, 1992, the Company operated systems in
California, Oregon, Washington, Wisconsin, Ohio and Tennessee,
serving approximately 1,116,000 basic customers subscribing to
approximately 786,000 premium units. Basic customers and premium
units increased 3% and 1%, respectively, since December 31, 1991.
Broadcasting (Television and radio stations)
Broadcasting revenues increased 6% to $168.8 million in 1992
from $159.2 million in 1991. Earnings from operations increased
15% to $32.0 million in 1992 from $27.7 million in 1991.
Television revenues increased 9% to $87.1 million in 1992 from
$80.1 million in 1991, reflecting an increase in national and
local advertising revenues at each of the stations, primarily
due to higher rates driven by the Olympics and the political
campaign. Earnings from operations increased 38% to $16.9
million in 1992 from $12.2 million in 1991, reflecting the
increased revenues, partially offset by increased programming
and selling expenses.
Radio revenues increased 3% to $81.8 million in 1992 from $79.0
million in 1991, reflecting an increase in local advertising
revenues, partially offset by a decrease in national advertising
revenues. Earnings from operations decreased 7% to $18.3
million in 1992 from $19.6 million in 1991, driven by increased
operating, selling and promotion costs, partially offset by the
increased revenues.
Other Income and Expense Information
Corporate expenses increased 10% to $71.3 million in 1992 from
$65.0 million in 1991, primarily due to severance costs,
partially offset by decreased legal costs and decreased
compensation expense associated with the Long-Term Incentive
Plans. As a result of the fluctuation in the market value of
its Common Stock, Viacom Inc. recorded compensation expense
associated with the Plans of $8.2 million and $12.3 million in
1992 and 1991, respectively.
Net interest expense decreased 35% to $194.1 million in 1992 from
$297.5 million in 1991, reflecting improvements made to the capital
structure and reduced interest rates, including rates associated
with the Credit Agreement (as defined in "Capital Structure"). The
II-16
Company and Viacom Inc. had approximately $2.4 billion and $2.3
billion principal amount of debt outstanding as of December 31,
1992 and December 31, 1991 at weighted average interest rates of
6.5% and 9.2%, respectively. During 1991, Viacom Inc. realized net
proceeds of approximately $317.7 million from the issuance of non-
voting Class B Common Stock ("Viacom Class B Common Stock");
redeemed all $402 million of its outstanding Exchange Debentures;
the Company repurchased $43 million principal amount of the
Discount Debentures; and the Company issued $200 million principal
amount of 10.25% Senior Subordinated Notes ("10.25% Notes") due
2001. (See "Liquidity and Capital Resources" for additional
information concerning changes in Viacom Inc.'s and the Company's
capital structure.)
Viacom Inc. and the Company file a separate consolidated federal
income tax return and have done so since the period commencing
June 11, l991, the date on which NAI's percentage ownership of
Viacom was reduced to less than 80% (see "Capital Structure").
Prior to such date, Viacom Inc. and the Company filed a
consolidated federal income tax return with NAI, and participated
in a tax-sharing agreement with NAI with respect to federal
income taxes. The tax-sharing agreement obligated Viacom Inc.
and the Company to make payment to NAI to the extent that they
would have paid federal income taxes on a separate company basis,
and entitled them to receive a payment from NAI to the extent
their losses and credits reduced NAI's federal income taxes.
"Equity in loss of affiliated companies, net of tax," decreased
64% to a loss of $4.6 million in 1992 from a loss of $12.7
million in 1991, driven by improvements at Lifetime and Comedy
Central.
In 1992, the Company recognized after-tax extraordinary losses
from the early extinguishment of the Discount Debentures of $13.7
million (net of a tax benefit of $8.9 million) and the 11.50%
Reset Notes of $3.4 million (net of a tax benefit of $2.4
million).
Liquidity and Capital Resources
-------------------------------
Paramount Merger, Blockbuster Merger and Related Transactions
-------------------------------------------------------------respective periods.
Acquisitions
------------
On March 11, 1994, Viacom Inc.the Company acquired pursuant to a tender
offer (the "Paramount Offer"), 61,657,432 shares of Paramount
common stock, constituting a majority of the shares of Paramount
Communications' common stock outstanding at a price of $107 per share in cash.
On July 7, 1994, Paramount Communications became a wholly owned subsidiary of
the Company. The total cost to acquire Paramount OfferCommunications of $9.9
billion was financed through $3.7 billion of borrowing from banks, $3.1
billion of cash and $3.1 billion of securities. (See Note 2 of Notes to
Consolidated Financial Statements.) Such cash was obtained through
the issuance of $1.8 billion of Preferred Stock (of which $600 million
and $1.2 billion were issued to Blockbuster and NYNEX Corporation, respectively)
and $1.25 billion of Viacom Class B Common Stock to Blockbuster. The
securities issued to Blockbuster were canceled upon consummation of the
Blockbuster Merger.
On September 29, 1994, Blockbuster was merged with and into the Company. The
total cost to acquire Blockbuster of $7.6 billion was financed through the
issuance of equity securities to Blockbuster shareholders. (See Note 2 of Notes
to Consolidated Financial Statements.)
Liquidity and Capital Resources
-------------------------------
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures, joint ventures,
commitments and payments of principal, interest and dividends on its outstanding
indebtedness and preferred stock) with internally generated funds and from
various external sources, which may include the Company's existing Credit
Agreements, co-financing arrangements by (i)the Company's various divisions,
additional financings and the sale of non-strategic assets as opportunities
may arise.
The Company's scheduled maturities of long-term debt, through December 31, 1999
assuming full utilization of the credit agreements (after giving effect to the
reduction in commitments resulting from the sale of MSG), are $1.9 billion
(1996), $163 million (1997), $1.0 billion (1998) and $1.5 billion (1999).
(See Note 5 of Notes to Consolidated Financial Statements.) The Company's
Preferred Stock (see "Capital
Structure"), proceedsdividend requirement is $60 million per year.
The Company's joint ventures are expected to require estimated net cash
contributions of approximately $20 million to $40 million in 1995. Planned
capital expenditures, including information systems costs, are approximately
$600 million to $700 million in 1995. Capital expenditures are primarily
related to capital additions for new and existing video and music stores and
theme parks, and additional construction and equipment upgrades for the
Company's existing cable franchises.
II-12
The Company was in compliance with all debt covenants and had satisfied all
financial ratios and tests as of December 31, 1994 under its Credit Agreement
and the Company expects to remain in compliance and satisfy all such financial
ratios and tests during 1995.
Debt as a percentage of total capitalization of the Company was 47% at
December 31, 1994 and 48% at December 31, 1993.
See Note 2 of Notes to Consolidated Financial Statements for a description of
the Company's commitments related to the contingent value rights and variable
common rights. See Note 10 of Notes to Consolidated Financial Statements for
a description of the Company's future minimum lease commitments.
The commitments of the Company for program license fees, which are not
reflected as cash and cash
equivalents onin the balance sheet as of December 31, 1994 and are estimated to
aggregate approximately $2.0 billion, principally reflect commitments under
SNI's exclusive arrangements with several motion picture companies. This
estimate is based upon a number of factors. A majority of such fees are
payable over several years, as part of normal programming expenditures of SNI.
These commitments are contingent upon delivery of motion pictures which are not
yet available for premium television exhibition and, in many cases, have not
yet been produced.
There are various lawsuits and claims pending against the Company. Management
believes that any ultimate liability resulting from those actions or claims
will not have a material adverse effect on the Company's results of operations
or financial position.
Certain subsidiaries and affiliates of the Company from time to time receive
claims from Federal and state environmental regulatory agencies and other
entities asserting that they are or may be liable for environmental cleanup
costs and related damages, principally relating to discontinued operations
conducted by its former mining and manufacturing businesses (acquired as part of
the mergers). The Company has recorded a liability at approximately the mid-
point of its estimated range of environmental exposure. Such liability was not
reduced by potential insurance recoveries and reflects management's estimate of
cost sharing at multiparty sites. The estimated range of the potential
liability was calculated based upon currently available facts, existing
technology and presently enacted laws and regulations. On the basis of its
experience and the information currently available to it, the Company believes
that the claims it has received will not have a material adverse effect on its
results of operations or financial position.
Net cash flow from operating activities increased 130% to $339.2 million in 1994
from $147.6 million for 1993 (ii)principally due to the inclusion of Paramount
Communications' and Blockbuster's results of operations since the effective time
of the respective mergers and increased earnings from operations of Viacom's
pre-merger businesses, prior to merger-related charges. Net cash expenditures
from investing activities of $6.3 billion for 1994, principally reflect the
acquisition of the majority of the shares of Paramount Communications and
capital expenditures, partially offset by proceeds from the sale of the
Company's one-third partnership in Lifetime. Net cash expenditures from
investing activities of $128.4 million for 1993 principally reflect capital
expenditures, acquisitions, an additional investment in StarSight Telecast,
Inc. and advances to Comedy Central, partially offset by proceeds from the
sale of the Wisconsin cable system, proceeds related to the radio station swap
and proceeds from the sale of an investment held at cost. Financing activities
reflect borrowings and repayment of debt under the credit agreements during
each period presented; the issuance of Viacom Class B Common Stock to
Blockbuster during 1994 and (iii)
borrowings under a credit agreement (as described below). The
II-17the redemption of the 11.80% Notes and the
issuance of the Preferred Stock during 1993.
II-13
Paramount Offer was made pursuant toItem 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
To the AmendedBoard of Directors and Restated
AgreementShareholders of
Viacom Inc.
In our opinion, the accompanying consolidated balance sheets and Planthe related
consolidated statements of Merger dated asoperations, of February 4, 1994 (the
"Paramount Merger Agreement") betweencash flows and of shareholders' equity
present fairly, in all material respects, the financial position of Viacom Inc.
and Paramount.its subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the management of Viacom
Inc.; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 10, 1995
II-14
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
Management has prepared and is responsible for the consolidated financial
statements and related notes of Viacom Inc. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All financial
information in this annual report is consistent with the consolidated financial
statements.
The Company maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by Price
Waterhouse LLP, independent accountants, who have expressed their opinion
with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with management,
to review accounting, auditing, internal accounting controls and financial
reporting matters. The Audit Committee is also responsible for recommending to
the Board of Directors the independent accounting firm to be retained for the
coming year, subject to stockholder approval. The independent accountants and
the internal auditors have full and free access to the Audit Committee with and
without management's presence.
VIACOM INC.
By: /s/Frank J. Biondi, Jr.
-----------------------------------
Frank J. Biondi, Jr.
President, Chief Executive Officer
By: /s/George S. Smith, Jr.
-----------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
By: /s/ Kevin C. Lavan
-----------------------------------
Kevin C. Lavan
Senior Vice President,
Controller and Chief
Accounting Officer
II-15
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------
(In millions, except per share amounts)
Year Ended December 31,
--------------------------------------
1994 1993 1992
---- ---- ----
Revenues $ 7,363.2 $ 2,004.9 $ 1,864.7
Expenses:
Operating 4,401.0 877.6 854.0
Selling, general and administrative 1,888.2 589.2 518.0
Depreciation and amortization 465.7 153.1 144.8
--------- --------- ---------
Total expenses 6,754.9 1,619.9 1,516.8
--------- --------- ---------
Earnings from continuing operations 608.3 385.0 347.9
Other income (expense):
Interest expense, net (494.1) (145.0) (194.1)
Other items, net (See Note 14) 262.5 61.8 1.8
--------- --------- ---------
Earnings from continuing operations before income taxes 376.7 301.8 155.6
Provision for income taxes 279.7 129.8 84.8
Equity in earnings (loss) of affiliated companies, net of tax 18.6 (2.5) (4.7)
Minority interest 14.9 -- --
--------- --------- ---------
Net earnings from continuing operations 130.5 169.5 66.1
Loss from discontinued operations, net of tax (See Note 3) (20.5) -- --
--------- --------- ---------
Earnings before extraordinary losses and
cumulative effect of change in accounting principle 110.0 169.5 66.1
Extraordinary losses, net of tax (See Note 5) (20.4) (8.9) (17.1)
Cumulative effect of change in accounting principle -- 10.4 --
--------- --------- ---------
Net earnings 89.6 171.0 49.0
Cumulative convertible preferred stock dividend requirement 75.0 12.8 --
--------- --------- ---------
Net earnings attributable to common stock $ 14.6 $ 158.2 $ 49.0
========= ========= =========
Primary and fully diluted net earnings per common share:
Net earnings from continuing operations $ .25 $ 1.30 $ .55
Loss from discontinued operations, net of tax (.09) -- --
Extraordinary losses, net of tax (.09) (.07) (.14)
Cumulative effect of change in accounting principle -- .08 --
--------- --------- ---------
Net earnings $ .07 $ 1.31 $ .41
========= ========= =========
Weighted average number of common shares and common share
equivalents:
Primary 220.0 120.6 120.2
Fully diluted 220.4 120.6 120.2
See notes to consolidated financial statements.
II-16
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
----------------------------
December 31,
---------------------------
1994 1993
---- ----
Assets
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 597.7 $1,882.4
Receivables, less allowances of $75.8 and $33.9 . . . . . . . . . . . . 1,638.8 351.8
Inventory (See Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . 830.9 --
Theatrical and television inventory (See Note 4) . . . . . . . . . . . . 986.9 356.5
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 503.5 95.7
Net assets of discontinued operations (See Note 3) . . . . . . . . . . . 697.4 --
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 5,255.2 2,686.4
Property and Equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470.3 16.5
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798.8 41.6
Cable television systems . . . . . . . . . . . . . . . . . . . . . . . 465.4 414.9
Equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . 1,365.1 428.4
------- -----
3,099.6 901.4
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . 516.5 347.2
------- -----
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . 2,583.1 554.2
------- -----
Inventory (See Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . 1,944.5 789.5
Intangibles, at amortized cost . . . . . . . . . . . . . . . . . . . . . . 16,111.7 2,180.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,379.2 206.2
--------- --------
$28,273.7 $6,416.9
--------- --------
--------- --------
See notes to consolidated financial statements.
II-17
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
----------------------------
(In millions, except per share amounts)
December 31,
--------------------
1994 1993
---- ----
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 770.9 $ 96.6
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 234.9 20.7
Accrued compensation . . . . . . . . . . . . . . . . . . . . . 340.6 52.5
Deferred income, current . . . . . . . . . . . . . . . . . . . 250.9 50.9
Merger consideration payable . . . . . . . . . . . . . . . . . 261.7 --
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 1,436.8 200.4
Participants' share, residuals and royalties payable . . . . . 630.0 139.1
Program rights, current . . . . . . . . . . . . . . . . . . . 184.4 198.0
Current portion of long-term debt . . . . . . . . . . . . . . 21.0 58.5
-------- -------
Total current liabilities . . . . . . . . . . . . . . . 4,131.2 816.7
-------- -------
Long-term debt (See Note 5) . . . . . . . . . . . . . . . . . . . . 10,402.4 2,440.0
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,948.5 442.1
Commitments and contingencies (See Note 10)
Shareholders' Equity:
Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 24.0 (1994) and 48.0 (1993) shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 1,200.0 1,800.0
Class A Common Stock, par value $.01 per share; 200.0 shares
authorized; 74.6 (1994) and 53.4 (1993) shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.5
Class B Common Stock, par value $.01 per share; 1,000.0 shares
authorized; 284.1 (1994) and 67.3 (1993) shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 0.7
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 10,579.5 920.9
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . 10.6 (4.0)
Cumulative translation adjustments . . . . . . . . . . . . . . . . (2.0) --
-------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . 11,791.6 2,718.1
-------- -------
$28,273.7 $6,416.9
========= ========
See notes to consolidated financial statements.
II-18
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
(In millions)
Year Ended December 31,
----------------------------------------
1994 1993 1992
---- ---- ----
Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $89.6 $171.0 49.0
Adjustments to reconcile net earnings to net cash flow from
operating activities:
Merger -related charges (See Note 2) . . . . . . . . . . . . . . 332.1 -- --
Depreciation and amortization . . . . . . . . . . . . . . . . . 465.7 153.1 144.8
Reserve for litigation (See Note 14) . . . . . . . . . . . . . . -- -- 33.0
Gain on sale of Lifetime, net of tax (See Note 14) . . . . . . . (164.4) -- --
Gain on the sale of cable system, net of tax (See Note 14) . . . -- (45.9) --
Extraordinary losses, net of tax. (See Note 5) . . . . . . . . . 20.4 8.9 17.1
Increase (decrease) in accounts payable and accrued expenses . . 164.7 (17.2) 53.4
Increase in receivables . . . . . . . . . . . . . . . . . . . . (152.6) (31.9) (49.8)
Increase in inventory and related liabilities, net . . . . . . . (557.0) (137.5) (138.6)
Increase in income taxes payable and deferred income taxes, net 28.8 82.9 22.5
Increase (decrease) in deferred income . . . . . . . . . . . . . 9.8 (9.0) 22.9
Increase in prepublication costs, net . . . . . . . . . . . . . (47.0) -- --
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . 110.1 -- --
Payment of LTIP liability . . . . . . . . . . . . . . . . . . . -- (3.6) (68.6)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.0 (23.2) 16.3
--------- -------- --------
Net cash flow from operating activities . . . . . . . . . . . . . . 339.2 147.6 102.0
--------- -------- --------
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (364.9) (135.0) (110.2)
Investments in and advances to affiliated companies . . . . . . . (51.3) (21.6) (23.7)
Distribution from affiliated companies . . . . . . . . . . . . . 37.7 13.4 9.4
Proceeds from dispositions . . . . . . . . . . . . . . . . . . . 317.6 144.7 20.0
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . (6,254.6) (82.2) --
Proceeds from sale of short-term investments . . . . . . . . . . 156.2 -- --
Payments for purchase of short-term investments . . . . . . . . . (102.2) -- --
Deposits on transponders . . . . . . . . . . . . . . . . . . . . (1.1) (49.9) (9.7)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (36.1) 2.2 (2.6)
--------- -------- --------
Net cash flow from investing activities . . . . . . . . . . . . . (6,298.7) (128.4) (116.8)
--------- -------- --------
Financing activities:
Short-term borrowings from banks under credit facilities, net . . 3,560.0 334.3 --
Borrowings from banks under credit facilities . . . . . . . . . . -- -- 8,344.0
Repayments to banks under credit facilities . . . . . . . . . . . (13.9) -- (7,968.5)
Proceeds from the issuance of notes . . . . . . . . . . . . . . . -- -- 250.0
Redemption of notes and debentures . . . . . . . . . . . . . . . -- (298.0) (549.5)
Proceeds from the issuance of Class B Common Stock . . . . . . . 1,250.0 -- --
Payment of Preferred Stock dividends . . . . . . . . . . . . . . (72.7) -- --
Proceeds from the issuance of Preferred Stock . . . . . . . . . . -- 1,800.0 --
Payment of deferred financing costs . . . . . . . . . . . . . . . (87.1) (18.1) (22.7)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.5 (3.4) (18.8)
--------- -------- --------
Net cash flow from financing activities . . . . . . . . . . . . 4,674.8 1,814.8 34.5
--------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . (1,284.7) 1,834.0 19.7
Cash and cash equivalents at beginning of year . . . . . . . . . 1,882.4 48.4 28.7
--------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . $ 597.7 $1,882.4 $ 48.4
========= ======== ========
See notes to consolidated financial statements.
II-19
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EOUITY
(In millions)
Year ended December 31,
-----------------------------------------------------------------------
1994 1993 1992
----------------- ------------------ ---------------------
Shares Amounts Shares Amounts Shares Amounts
------ ------- ------ ------- ------ -------
Preferred Stock
---------------
Balance, beginning of year ........... 48.0 $ 1,800.0 -- $ -- -- $ --
Issuance of Series A and Series B
Preferred Stock ...................... -- -- 48.0 1,800.0 -- --
Cancellation of Series A Preferred (24.0) (600.0) -- -- -- --
------- --------- ------- --------- ----- -------
Balance, end of year .................. 24.0 $ 1,200.0 48.0 $ 1,800.0 -- $ --
------- --------- ------- --------- ----- -------
------- --------- ------- --------- ----- -------
Class A Common Stock
--------------------
Balance, beginning of year ............ 53.4 $ .5 53.4 $ .5 53.4 $ .5
Exercise of stock options ............. .2 -- -- -- -- --
Blockbuster Merger Consideration ...... 21.0 .2 -- -- -- --
------- --------- ------- --------- ----- -------
Balance, end of year .................. 74.6 $ .7 53.4 $ .5 53.4 $ .5
------- --------- ------- --------- ----- -------
------- --------- ------- --------- ----- -------
Class B Common Stock
--------------------
Balance, beginning of year ............ 67.3 $ .7 67.1 $ .7 66.9 $ .7
Exercise of stock options ............. 1.2 -- .2 -- .2 --
Paramount Merger Consideration ........ 56.7 .5 -- -- -- --
Blockbuster Merger Consideration ...... 158.9 1.6 -- -- -- --
Issuance of Class B Common Stock ...... 22.7 .2 -- -- -- --
Cancellation of Class B Common Stock... (22.7) (.2) -- -- -- --
------- --------- ------- --------- ----- -------
Balance, end of year .................. 284.1 $ 2.8 67.3 $ .7 67.1 $ .7
------- --------- ------- --------- ----- -------
------- --------- ------- --------- ----- -------
Additional Paid-In Capital
--------------------------
Balance, beginning of year ............ $ 920.9 $ 917.5 $ 909.4
Exercise of stock options, net of tax
benefit ............................ 65.8 3.4 1.2
Paramount Merger Consideration ........ 2,190.9 -- --
Blockbuster Merger Consideration ...... 7,412.1 -- --
Issuance of Class B Common Stock ...... 1,250.0 -- 6.9
Cancellation of Class B Common Stock .. (1,250.0) -- --
Expenses associated with stock
issuances ........................ (10.2) -- --
--------- ----------- -------
Balance, end of year .................. $10.579.5 $ 920.9 $ 917.5
--------- ----------- -------
--------- ----------- -------
Retained Earnings (Accumulated Deficit)
---------------------------------------
Balance, beginning of year ............ $ (4.0) $ (162.2) $(211.2)
Net earnings .......................... 89.6 171.0 49.0
Preferred stock dividend requirements . (75.0) (12.8) --
--------- ----------- -------
Balance, end of year .................. $ 10.6 $ (4.0) $(162.2)
--------- ----------- -------
--------- ----------- -------
Cumulative Translation Adiustments
----------------------------------
Balance, beginning of year ............ -- -- --
Translation adjustments ............... $ (2.0) $ -- $ --
--------- ----------- -------
Balance, end of year .................. $ (2.0) $ -- $ --
--------- ----------- -------
--------- ----------- -------
Total Shareholders' Equity ............ $11,791.6 $ 2,718.1 $ 756.5
--------- ----------- -------
--------- ----------- -------
See notes to consolidated financial statements.
II-20
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation - The Company is a diversified entertainment and
publishing company with operations in five segments: (i) Networks and
Broadcasting, (ii) Entertainment, (iii) Video and Music/Theme Parks, (iv)
Publishing and (v) Cable Television. Paramount Communications Inc.
("Paramount Communications") and Blockbuster Entertainment Corporation
("Blockbuster") results of operations are included in the Company's
consolidated results of operations effective March 1, 1994 and
October 1, 1994, respectively. (See Note 2).
Certain amounts reported on the balance sheet and statements of cash flows for
prior years have been reclassified to conform with the current presentation.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and all investments of more than 50% in subsidiaries and
other entities. Investments in affiliated companies over which the Company has a
significant influence or ownership of more than 20% but less than or equal to
50% are accounted for under the equity method. All significant intercompany
transactions have been eliminated. Investments of 20% or less are accounted for
under the cost method. In 1993, the fiscal year end for certain foreign
operations was changed from October 31 to December 31.
Cash Equivalents - Cash equivalents are defined as short-term (3 months or less)
highly liquid investments.
Inventories - Publishing related inventories are generally determined using the
lower of cost (first-in, first-out method) or net realizable value. Prerecorded
music and videocassette inventories costs are determined using the moving
weighted average method, the use of which approximates the first-in, first-out
basis. Videocassette rental inventory is recorded at cost and amortized over
its estimated economic life with no provision for salvage value. Videocassettes
which are considered base stock are amortized over 36 months on a straight-line
basis. Videocassettes which are considered new release feature films are
frequently ordered in large quantities to satisfy initial demand ("hits"). For
each store, the fifth and any succeeding copies of hit titles purchased are
amortized over six months on a straight-line basis.
Theatrical and Television Inventories - Inventories related to theatrical and
television product (which include direct production costs, production overhead,
capitalized interest, acquisition costs, prints and certain exploitation costs)
are stated at the lower of amortized cost or net realizable value. Inventories,
residuals and participations are amortized on an individual product basis based
on the proportion that current revenues bear to the estimated remaining total
lifetime revenues. Domestic syndication and basic cable revenue estimates are
not included in the estimated lifetime revenues of network series until such
sales are probable. Estimates of total lifetime revenues and expenses are
periodically reviewed. The costs of feature and television films are
classified as
II-21
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
current assets to the extent such costs are expected to be recovered through
their respective primary markets. Other costs related to film production are
classified as noncurrent. A portion of the cost to acquire Paramount
Communications and Blockbuster was allocated to theatrical and television
inventories based upon estimated revenues from certain films less related
costs of distribution and a reasonable profit allowance for the selling
effort. The cost allocated to films is being amortized over their estimated
economic lives not to exceed 20 years.
The Company estimates that approximately 66% of unamortized film costs
(including amounts allocated under purchase accounting) at December 31, 1994
will becomebe amortized within the next three years.
Program Rights - The Company acquires rights to exhibit programming on its
broadcast stations or cable networks. The costs incurred in acquiring programs
are capitalized, to the extent they are estimated to be recovered from future
revenues, and amortized over the license period. Program rights and the related
liabilities are recorded at the gross amount of the liabilities when the license
period has begun, the cost of the program is determinable, and the program is
accepted and available for airing.
Property and Equipment - Property and equipment is stated at cost. Depreciation
is computed principally by the straight-line method over estimated useful lives
ranging from 3 to 40 years. Depreciation expense, including capitalized lease
amortization, was $215.9 million (1994), $92.8 million (1993) and $81.5 million
(1992).
Intangible Assets - Intangible assets, which primarily consist of the cost of
acquired businesses in excess of the market value of tangible assets and
liabilities acquired, are generally amortized by the straight-line method over
estimated useful lives of up to 40 years. The Company evaluates the
amortization period of intangibles on an ongoing basis in light of changes in
any business conditions, events or circumstances that may indicate the
potential impairment of intangible assets. Accumulated amortization of
intangible assets at December 31 was $663.2 million (1994) and $412.5 million
(1993).
Revenue Recognition - Subscriber fees for Networks and Cable Television are
recognized in the period the service is provided. Advertising revenues for
Networks and Broadcasting are recognized in the period during which the spots
are aired. Revenues from the Company owned video and music stores are
recognized at the time of rental or sale. The publishing segment recognizes
revenue when merchandise is shipped and billed.
Theatrical and Television Revenues - Feature motion pictures are produced or
acquired for distribution, normally, for exhibition in U.S. and foreign theaters
followed by videocassettes and discs, pay-per-view, premium subscription
television, network television, basic cable television and syndicated television
exploitation. On average, the length of the initial revenue cycle for feature
films approximates four to seven years. Theatrical revenues from domestic and
foreign markets are recognized as films are exhibited; revenues from the sale of
videocassettes are recognized upon delivery of the merchandise; and revenues
from all television sources are recognized upon availability of the film for
telecast.
II-22
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Television series initially produced for the networks and first-run syndication
are generally licensed to domestic and foreign markets concurrently. The more
successful series are later syndicated in domestic markets and in certain
foreign markets. The length of the revenue cycle for television series will
vary depending on the number of seasons a series remains in active production.
Revenues arising from television license agreements are recognized in the year
that the films or television series are available for telecast.
Interest - Costs associated with the refinancing or issuance of debt, as well as
with debt discount, are expensed as interest over the term of the related debt.
The Company enters into interest rate exchange agreements; the amount to be paid
or received under such agreements is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.
Amounts paid for purchased interest rate cap agreements are amortized into
interest over the term of the agreement (See Note 6).
Equity In Earnings (Loss) of Affiliated Companies - Equity in earnings (loss)
of affiliated companies in the Consolidated Statement of Operations is
primarily comprised of the Company's interest in Lifetime (33% owned), Comedy
Central (50% owned), Nickelodeon (UK) (50% owned) and All News Channel (50%
owned), as well as, in 1994, investments that were acquired as part of the
Mergers (as defined in Note 2). Such investments were USA Networks (50%
owned), Cinamerica (50% owned), United Cinemas International Multiplex B.V.
(49% owned), Cinema International Corporation N.V. (49% owned) and Discovery
Zone (50% owned). The Company's interest in Lifetime was sold in 1994 (See
Note 14).
The Company, through the normal course of business, is involved in transactions
with affiliated companies that have not been material in any of the periods
presented.
Foreign Currency Translation and Transactions - The Company's foreign
subsidiaries' assets and liabilities are translated at exchange rates in effect
at the balance sheet date, while results of operations are translated at average
exchange rates for the respective periods. The resulting translation gains or
losses are included as a separate component of shareholders' equity. Foreign
currency transaction gains and losses have been included in results of
operations and have not been material in any of the years presented.
Provision for Doubtful Accounts - The provision for doubtful accounts charged
to expense was $61.6 million (1994), $16.7 million (1993) and $9.4 million
(1992).
Net Earnings per Common Share - Primary net earnings per common share is
calculated based on the weighted average number of common shares outstanding
during each period and for 1994, the effects of common shares potentially
issuable in connection with the contingent value rights ("CVRs"), variable
common rights ("VCRs"), stock options and warrants. For 1993 and 1992, the
effect of contingently issuable common shares from stock options was
immaterial and, therefore, the effect is not reflected in primary net earnings
per common share for those periods. For 1994 and 1993, the effect of the
assumed conversion of Preferred Stock is antidilutive and, therefore, not
reflected in fully diluted net earnings per common share.
II-23
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2) PARAMOUNT MERGER, BLOCKBUSTER MERGER AND
RELATED TRANSACTIONS
On March 11, 1994, the Company acquired a majority of the shares of Paramount
Communications common stock outstanding at a price of $107 per share in cash. On
July 7, 1994, Paramount Communications became a wholly owned subsidiary of Viacom Inc.the
Company (the "Paramount Merger") at the effective time of a merger
between Paramount and a subsidiary of Viacom Inc. (the
"Paramount Effective Time") which is expected to occur in the
second quarter of 1994. Pursuant to the Paramount Merger
Agreement, each. Each share of Paramount Communications
common stock outstanding at the time of such mergerthe Paramount Merger (other
than shares held in the treasury of Paramount Communications or owned
by Viacom Inc.the Company and other than shares held by any stockholders who shall have demanded
and perfected appraisal rights) will bewas converted into the right to receive
(i) 0.93065 of a share of Viacom Class B Common Stock, (ii) $17.50 principal amount
of 8% exchangeable subordinated debentures of Viacom Inc.("8% Merger Debentures"),
(iii) 0.93065 of a contingent value
right ("CVR"),CVR (iv) 0.5 of a warrant to purchase one share of Viacom
Class B Common Stock at any time prior to the third anniversary of the
Paramount Merger at a price of $60 per share, and (v) 0.3 of a warrant to
purchase one share of Viacom Class B Common Stock at any time prior to the
fifth anniversary of the Paramount Merger at a price of $70 per share.
If the debentures
are issued prior to the completion of the proposed merger of
Viacom Inc. and Blockbuster, the debentures will be
exchangeable, at the option of Viacom Inc., into 5% exchangeable
preferred stock of Viacom Inc. on or after January 1, 1995 if
the proposed merger with Blockbuster has not previously been
consummated.
Each CVR will representrepresents the right to receive the amount, if any, by which the Target
Price exceeds the greater of the Current Market Value or the Minimum Price (see
defined terms in following paragraph). The CVRs will mature on the first
anniversary of the Paramount Effective TimeMerger (the "Maturity Date");, provided, however,
that Viacom Inc.the Company may, at its option, (i) extend the Maturity Date to the second
anniversary of the Paramount Effective Time (the "First Extended Maturity Date")
or (ii) extend the First Extended Maturity Date to the third anniversary or the
Paramount Effective Time (the "Second Extended Maturity Date"). Viacom Inc.,The Company, at
its option, may pay any amount due under the terms of the CVRs in cash or in the
equivalent value of registered securities of Viacom Inc.,the Company, including, without
limitation, common stock, preferred stock, notes or other securities.
The "Minimum Price" means (a) at the Maturity Date, $36, (b) at the First
Extended Maturity Date, $37 and (c) at the Second Extended Maturity Date, $38.
Target Price"Target Price" means (a) at the Maturity Date, $48, (b) at the First Extended
Maturity Date, $51, and (c) at the Second Extended Maturity Date, $55. The
"Current Market Value" means the average market price of Viacom Class B Common
Stock for a specified period.
II-18
period prior to the respective maturity dates.
On January 7,September 29, 1994, Viacom Inc. and Blockbuster entered into an
agreement and plan of merger (the "Blockbuster Merger
Agreement") pursuant to which Blockbuster will bewas merged with and into Viacom Inc.the Company (the
"Blockbuster Merger") subject to
shareholder approval. At the effective time of the Blockbuster
Merger, each. Each share of Blockbuster common stockCommon Stock outstanding at
the time of the Blockbuster Merger (other than shares held in the treasury of
Blockbuster or owned by Viacom Inc. and other
than shares held by any stockholders who shall have demanded and
perfected appraisal rights, if available) will bethe Company) was converted into the right to receive (i)
0.08 of a share of Viacom Class A Common Stock, (ii) 0.60615 of a share of
Viacom Class B Common Stock, and (iii) upone VCR.
The VCRs represent the right to an additional 0.13829receive a fraction of a share of Viacom
Class B Common Stock, with the exact fraction of a share
being dependent on the market pricesprice of
Viacom Class B Common Stock during the year following the effective time of the
Blockbuster Merger, and with the right to receive such
additional fraction of a share to be evidenced by one variable
common right ("VCR").Merger. The VCRs mature on the first anniversary date of the
Blockbuster Merger. Based upon the market price of Viacom Class B Common Stock,
following the Blockbuster Merger ("VCR Conversion Date").
The mergersthe maximum fraction of a share issuable
pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have
been unanimously approved by the BoardsVCRs was reduced from 0.13829 of Directors of each of
the respective companies. The obligationsa share of Viacom Inc.,
Blockbuster and ParamountClass B
Common Stock to consummate the mergers are subject
to various conditions, including obtaining requisite stockholder
approvals. Viacom Inc. intends to vote its shares0.05929 of Paramount
in favor of the merger and NAI has agreed to vote its sharesa share of Viacom Inc. in favorClass B Common Stock, or a
maximum issuable potential of the Mergers; therefore, stockholder
approval of the Paramount Merger is assured, and approval by
Viacom Inc. of the Blockbuster Merger is also assured.
On March 10, 1994, Blockbuster purchased approximately 22.716.7 million shares of Viacom
Class B Common Stock for an aggregate
purchase price of $1.25 billion, or $55 per share. If (with
certain exceptions)Stock.
II-24
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Paramount Merger and the Blockbuster Merger Agreement is
terminated(collectively, the "Mergers")
have been accounted for under the purchase method of accounting. Accordingly,
the total cost to acquire Paramount Communications of $9.9 billion and
inBlockbuster of $7.6 billion has been allocated to the event that Viacom Class B Common Stock
trades (for a specified period)respective assets and
liabilities acquired based on their fair values at a level below $55 per share
during the one year period after such termination, Viacom Inc.
may be obligated to make certain payments of up to a maximum of
$275 million, at its option, in cash or securities, or to sell
certain assets to Blockbuster. The Viacom Class B Common Stock
purchased by Blockbuster will be canceled upon consummationtime of the Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit
agreement with certain financial institutions named therein,
pursuant to which such financial institutions have advanced to
Blockbuster, on an unsecured basis, an aggregate of $1.0 billion
to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The
II-19
Blockbuster Facility contains certain events of default,
including a change of control default, which will require either
a waiver in connectionMergers with
the Blockbuster Merger oraggregate excess cost over the refinancingfair value of the indebtedness incurred by Blockbuster under
the Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7net tangible assets acquired
of $7.9 billion under a
credit agreement dated asand $6.8 billion, respectively, allocated to goodwill.
The unaudited condensed pro forma results of November 19, 1993, as amended on
January 4, 1994 and February 15, 1994, among Viacom Inc., the
banks named therein, and The Bank of New York, Citibank, N.A.
and Morgan Guaranty Trust Company of New York, as Managing Agent
(the "Merger Credit Agreement").
The Merger Credit Agreement providesoperations data presented below
assumes that in order to pay for
the Paramount Offer and related expenses, up to $3.7 billion may
be borrowed, repaid and reborrowed until November 18, 1994, at
which time all amounts outstanding will become due and payable.
The Merger Credit Agreement provides that Viacom Inc. may elect
to borrow at either the Base Rate or the Eurodollar Rate (each
as defined below), subject to certain limitations. The "Base
Rate" will be the higher of (i) the Citibank N.A., Base Rate and
(ii) the Federal Funds Rate plus 0.50%. The "Eurodollar Rate"
will be the London Interbank Offered Rate plus (i) 0.9375%,
until Viacom Inc.'s senior unsecured long-term debt is rated by
Standard & Poor's Corporation or Moody's Investors Service,
Inc., and (ii) thereafter, a variable rate ranging from 0.25% to
0.9375% dependent on the senior unsecured long-term debt rating
assigned to Viacom Inc. The Merger Credit Agreement provides
that Viacom Inc. will pay each bank a facility fee on such
bank's commitment until November 18, 1994.
The Merger Credit Agreement contains certain covenants which,
among other things, require Viacom Inc. to meet certain
financial ratios.
As of December 31, 1993, Viacom Inc. had promissory notes
outstanding in the aggregate amount of $26 million, in order to
finance expenses associated with the Mergers and expects to
obtain additional financing as required to finance such
expenses.
Viacom Inc. anticipates that, followingrelated transactions, the Mergers, Viacom
Inc., Paramountsale of the one-third
partnership interest in Lifetime and Blockbuster, on a pro forma combined basis
(the "Combined Company") will have outstanding total
indebtednessthe sale of approximately $10 billion ($8 billion if the
Blockbuster Merger is not consummated) and 5% Preferred StockMSG (as defined in "Capital Structure") with a liquidation
preferenceNote 3)
occurred at the beginning of $1.2 billion ($1.8 billion ifeach period presented. The unaudited condensed
pro forma results of operations data was prepared based upon the Blockbuster
Merger is not consummated). Of such $10 billion, $3.7 billion
was borrowed under the Merger Credit Agreement and must be
repaid by November 18, 1994. In addition, the $1.0 billion
II-20
borrowed under the Blockbuster Facility must be repaid by
February 14, 1995 and both the Blockbuster Facility and a
previous Blockbuster credit agreement contain certain covenants
and eventshistorical
consolidated results of default, including a change of control default,
which will require either a waiver in connection with the
Blockbuster Merger or the refinancingoperations of the indebtedness under
such Blockbuster facilities prior toCompany for the Blockbuster Merger.
Accordingly, assuming consummation of the Blockbuster Merger,
the foregoing facilities, together with other current
maturities, may require Viacom Inc. to refinance up to $5.7
billion ($4.0 billion if the Blockbuster Merger is not
consummated) within the next 12 months. Viacom Inc. also
anticipates that, following the Mergers, the Combined Company
will fund its anticipated operating, investing and financing
activities, including the anticipated cash requirements of its
joint ventures, commitments, capital expenditures, preferred
stock dividend requirements and principal and interest payments
on outstanding indebtedness, through a variety of sources,
which may include, but may not be limited to, funds generated
internally by Viacom Inc. and its subsidiaries (including
following the Mergers funds generated by Blockbuster and
Paramount), bank refinancing, and the public or private sale of
debt or equity securities. The Blockbuster Merger is subject
to shareholder approval. In the event the Blockbuster Merger
is not consummated, Viacom Inc. believes that it will still be
capable of meeting all of its obligations.
Viacom Inc. and the Company - Liquidity and Capital Resources
-------------------------------------------------------------
(prior to the Paramount Offer and the Mergers)
----------------------------------------------
The Company's scheduled maturities of long-term debt throughyears ended December
31, 1998, assuming full utilization of the $1.9 billion
commitment under the Credit Agreement1994 and $300 million under the
Loan Facility Agreement, are $300 million (1994), $380 million
(1995), $380 million (1996) $380 million (1997) and $380 million
(1998). On January 4, 1993, Viacom Inc. borrowed $42.2 million
from The Bank of New York ("BONY") pursuant to an unsecured
credit agreement ("Term Loan Agreement") to satisfy its
obligation under the LTIP. Viacom Inc. repaid $13.9 million of
debt under the Term Loan Agreement on January 15, 1994, the
first scheduled maturity date. The remaining $28.3 million
under the Term Loan Agreement matures on January 15, 1995. (See
"Capital Structure " for defined terms and additional
information).
The Company's joint ventures are expected to require estimated
cash contributions of approximately $20 million to $40 million
in 1994. Capital expenditures are primarily related to
additional construction and equipment upgradesParamount for the Company's
existing cable franchises, certain transponder paymentstwo months ended February 28, 1994 and
information system costs. Planned capital expenditures,
II-21
including information systems costs, are approximately $150
million to $170 million in 1994.
The Company was in compliance with all covenants and had
satisfied all financial ratios and tests as of December 31, 1993
under its Credit Agreement and the Company expects to remain in
compliance and satisfy all such financial ratios and tests
during 1994.
Debt as a percentage of total capitalization of Viacom Inc. was
47% atyear ended December 31, 1993, and 76% atBlockbuster for the nine months ended
September 30, 1994 and year ended December 31, 1992.1993, adjusted to exclude the
non-recurring merger-related charges of $332.1 million (as described below).
Financial information for Paramount Communications and Blockbuster subsequent
to the date of acquisition is included in the Company's historical information.
Intangible assets are amortized principally over 40 years on a straight-line
basis. The decrease in debt as a percentagefollowing unaudited pro forma information is not necessarily
indicative of total capitalization
resulted principally from the issuancecombined results of Preferred Stock (as
defined in "Capital Structure") during 1993.
The commitmentsoperations of the Company, Paramount
Communications and Blockbuster that would have occurred if the completion of
the transactions had occurred on the dates previously indicated nor are they
necessarily indicative of future operating results of the combined company.
Year ended December 31,
-----------------------
1994 1993
---- ----
(Millions of dollars, except per share amounts)
Revenues $10,121.6 $ 9,235.5
Earnings from continuing operations 1,040.0 758.7
Net earnings from continuing operations before
extraordinary loss, cumulative effect of a change in
accounting principle and preferred stock dividends 111.6 10.9
Net earnings (loss) attributable to common stock
before extraordinary loss and cumulative
effect of a change in accounting principle 51.6 (49.1)
Earnings (loss) per common share before extraordinary
loss and cumulative effect of change in
accounting principle .13 (.14)
Pro forma earnings from continuing operations for program license fees which
are not reflected in the balance sheet as ofyear ended December 31,
1993,
which are estimated to aggregate approximately $1.9 billion,1994 exclude $332.1 million of non-recurring merger-related charges reflecting
the integration of the Company's pre-merger businesses with similar Paramount
Communications units, and related management and strategic changes principally reflect commitments under SNI's exclusive
arrangements with several motion picture companies. This
estimate is based upon a number of factors. A majority of such
fees are payable within the next seven years, as part of normal
programming expenditures of SNI. These commitments are
contingent upon delivery of motion pictures which are not yet
available for premium television exhibition and, in many cases,
have not yet been produced.
During July 1991, the Company received reassessments from 10
California counties of its Cable Division's real and personal
property,
related to the June 1987 acquisition by NAI, which
could resultmerger with Paramount Communications.
II-25
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During each of the three years presented, the Company has also acquired or
sold certain other businesses. The contributions of these businesses in
substantially higher California property tax
liabilities. The Company is appealing the reassessments and
believes thataggregate were not significant to the reassessments as issuedCompany's results of operations
for the periods presented, nor are unreasonable and
unsupportable under California law. The Company believes that
the final resolution of this matter will notthey expected to have a material effect
on the Company's results on a continuing basis.
3) SUBSEQUENT EVENTS
On January 20, 1995, the Company agreed to sell its consolidated financial position orcable television systems to
a partnership of which Mitgo Corp., a company wholly owned by Frank Washington,
is a general partner, for approximately $2.3 billion, subject to certain
conditions, including, receipt of a tax certificate from the Federal
Communications Commission and the availability of certain federal tax
consequences of the sale advantageous to the Company. The U. S. House of
Representatives and U. S. Senate have each approved a similar version of
legislation that would eliminate such tax consequences. The House of
Representatives has also approved a compromise version of the bill, which
is awaiting Senate approval. The Company has announced that it will not proceed
with the agreed transaction in the event that such tax consequences are
unavailable. The Company has also announced that it is considering other
options with respect to the disposition of its cable systems and that it
intends to proceed with such disposition. Until a formal plan for the
disposition is established, operating results for Cable Television will be
included in earnings from continuing operations.
During March 1995, the Company sold Madison Square Garden Corporation (which
includes the Madison Square Garden Arena, The Paramount theater, the New York
Knickerbockers, the New York Rangers and the Madison Square Garden Network,
collectively "MSG") to a joint venture of operations.
Net cash flow from operating activities increased 45% to $147.6ITT Corporation and Cablevision
Systems Corporation for closing proceeds of $1.009 billion, representing the
sale price of approximately $1.075 billion, less approximately $66 million in
1993 from $102.0 millionworking capital adjustments. The sale of MSG resulted in 1992, resulting from
increased net earnings before extraordinary items and cumulative
effect of change in accounting principle, partially offset by
increased payments for accrued expenses. Net cash expenditures
for investing activities of $128.4 million in 1993 principally
reflects capital expenditures, the acquisitions of KXEZ-FM and
ICOM Simulations, Inc. and the additional investment in
StarSight Telecast Inc. ("StarSight") and advances to Comedy
Central, partially offset by proceedsno after-tax book
gain. Proceeds from the sale were used to pay down notes payable to banks.
The Company acquired MSG as part of the Wisconsin cable system, proceeds related toParamount Merger.
MSG has been accounted for as a discontinued operation and, accordingly, its
operating results and net assets have been separately disclosed in the
radio station
swapConsolidated Financial Statements.
II-26
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Summarized results of operations for the year ended December 31, 1994 and
proceedsfinancial position data as of December 31, 1994 for MSG are as follows
(millions of dollars).
Results of operations:
Revenues $273.4
Loss from the saleoperations before income tax benefit $(25.4)
Income tax benefit $ 4.9
Net loss $(20.5)
Financial position:
Current assets $107.8
Net property, plant and equipment 312.9
Other assets 409.4
Total liabilities (132.7)
------
Net assets of an investment held at cost.
Net cash expenditures for investing activities of $116.8 million
in 1992 principally reflect capital expenditures, advances to
II-22discontinued operations $697.4
======
4) INVENTORIES
Inventories consist of the following:
December 31,
-----------------
1994 1993
---- ----
(Millions of dollars)
Prerecorded music and video cassettes $ 509.2 $ --
Videocassette rental inventory 297.6 --
Publishing:
Finished goods 218.9 --
Work in process 35.8 --
Materials and supplies 27.1 --
Other 73.8 .5
-------- --------
1,162.4 .5
Less current portion 830.9 --
-------- --------
$ 331.5 $ .5
======== ========
Theatrical and television inventory:
Theatrical and television productions:
Released $1,488.0 $ 166.2
Completed, not released 12.8 --
In process and other 260.8 --
Program rights 838.3 979.3
-------- --------
2,599.9 1,145.5
Less current portion 986.9 356.5
-------- --------
$1,613.0 $ 789.0
======== ========
Total non-current inventory $1,944.5 $ 789.5
======== ========
II-27
Comedy Central and a deposit received on the saleVIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5) BANK FINANCING AND DEBT
Long-term debt consists of the following:
December 31,
------------------------
1994 1993
---- ----
(Millions of dollars)
Notes payable to banks (a) $7,709.4 $1,983.2
6.625% Senior Notes due 1998 150.0 --
5.875% Senior Notes due 2000* 149.5 --
7.5% Senior Notes due 2002* 247.0 --
8.25% Senior Debentures due 2022* 247.0 --
7.5% Senior Debentures due 2023* 149.5 --
9.125% Senior Subordinated Notes due 1999* 150.0 150.0
8.75% Senior Subordinated Reset Notes due 2001 (b)* 100.0 100.0
10.25% Senior Subordinated Notes due 2001* 200.0 200.0
7.0% Senior Subordinated Debentures due 2003, net of
unamortized discount of $48.4 million* 183.1 --
8.0% Merger Debentures due 2006,
net of unamortized discount of $131.3 million (c) 938.6 --
Other Notes due 1995 to 1996 71.8 --
Obligations under capital leases 127.5 65.3
-------- --------
10,423.4 2,498.5
Less current portion 21.0 58.5
--------- --------
$10,402.4 $2,440.0
========= ========
* Issues of Viacom Cablevision of Wisconsin Inc. Financing activities reflect
borrowings and repayment of debt under the Credit Agreement
during each period presented; the redemption of the 11.80 %
Notes and the issuance of the Preferred Stock during 1993, and
the redemption of the 11.50% Reset Notes and Discount
Debentures, and the issuance of the 9.125% Notes and the 8.75%
Reset Notes during 1992.
Acquisitions and Ventures
-------------------------
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston,
Texas, for Westinghouse Broadcasting Company, Inc.'s WCXR-FM and
WCPT-AM, Washington, D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-
FM), Los Angeles, California from Westwood One Stations Group-
LA, Inc. for $40 million in cash and certain other
consideration. The Company sold KXEZ-FM to Viacom Inc. in
exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately
held ICOM Simulations, Inc.
On March 31, 1993, the Company increased its percentage of
ownership in StarSight. On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock.
On September 16, 1993, the Company exercised a warrant to
purchase 833,333 shares of StarSight common stock at a cost of
$5.625 per share. In November 1993, the Company transferred its
ownership percentage in StarSight to a consolidated affiliate ofInternational guaranteed by the Company.
As a result of these transactions, the affiliate
of the Company's percentage ownership of StarSight is
approximately 21%. The investment in StarSight is accounted for
under the equity method.
In December 1992,(a) -- On July 1, 1994, the Company entered into a 50-50 joint venture
called Nickelodeon (UK) with a subsidiary of British Sky
Broadcasting Limited. Nickelodeon (UK) began airing on
September 1, 1993. The Company's investment is accounted under
the equity method and therefore the results of operations is
included in "Equity in loss of affiliated companies, net of
tax."
The Company exchanged KHOW-AM and FM, Denver, Colorado for Noble
Broadcast Group, Inc.'s KNDD-FM, Seattle, Washington effective
December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE
to 100% through the purchase of the 50.01% interest held by an affiliate of Mirror Group Newspapers. The approximate value of the
purchase was $65.0 million, which included intangibles of
II-23
approximately $61.6 million. As consideration for the sale, Viacom
Inc. issued 2,210,884 shares of Viacom Class B Common Stock (see
"Capital Structure").
Capital Structure
-----------------
The following table and related notes set forth the capitalization
of Viacom Inc. and subsidiaries as of December 31, 1993 and December
31, 1992:
December 31, December 31,
1993 1992
----------- -----------
(Thousands of Dollars)
Current portion of long-term debt $ 55,004 $ --
=========== ============
Long-term debt:
Notes payable to banks (a) $ 1,928,271 1,648,984
11.8% Senior Subordinated Notes due -- 298,000
1998 (b)
9.125% Senior Subordinated Notes due 150,000 150,000
1999 (c)
8.75% Senior Subordinated Reset Notes 100,000 100,000
due 2001 (d)
10.25% Senior Subordinated Notes due 200,000 200,000
2001 (e)
5.75% Convertible Subordinated 15 30
Debentures due 2001
----------- ------------
Total long-term debt $ 2,378,286 $ 2,397,014
=========== ============
Shareholders' equity (f):
Preferred Stock $ 1,800,000 $ --
Common Stock and additional paid-in 922,072 918,671
capital
Accumulated deficit (3,958) (162,160)
----------- ------------
Total shareholders' equity $ 2,718,114 $ 756,511
=========== ============
II-24
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9$6.489
billion and $300 million under (i) an unsecured credit agreement guaranteed by(the "Viacom Credit Agreement"), and Viacom
International Inc. (amended("Viacom International") and restated ascertain of January 17, 1992 (as amended,its subsidiaries
(the "Subsidiary Obligors") entered into a $311 million credit agreement (the
"Viacom International Credit Agreement," together with the Viacom Credit
Agreement, collectively the "Credit Agreement"Agreements") amongeach with certain banks, the
Company,proceeds of which were used to refinance debt related to the named banks ("Banks"), Citibank, N.A. ("Citibank") as
agent and The Bank of New York ("BONY") as co-agent and (ii) an
unsecured credit agreement, dated June 2, 1993, among the CompanyParamount Merger
and the named banks and BONY and Citibank as agents (the "Loan
Facility Agreement"). The Loan Facility Agreement has a 364-day
term and is identical to the Credit Agreement in all other material
terms and conditions. Borrowings of $1.765 billion were
outstanding under the Credit Agreement as of December 31, 1993,
including $274 million aggregate principal amount assumed by five
subsidiariespreviously existing bank debt of the Company, ("Subsidiary Obligors"). Borrowings of
$150 million were outstanding underViacom International and
Paramount. On September 29, 1994, the Loan Facility Agreement as
of December 31, 1993, $135 millionCompany entered into an aggregate $1.8
billion credit agreement (the "$1.8 billion Credit Agreement") with certain
banks, the proceeds of which were classified as
long-term.
Subsequentused to December 31, 1993,refinance the previously existing
bank debt of Blockbuster.
The Company guarantees the Viacom Inc. borrowed approximately
$3.7 billion pursuant to the MergerInternational Credit Agreement in connection
withand notes and
debentures issued by Viacom International. Viacom International guarantees
Viacom's Credit Agreement, the Paramount Merger (see "Paramount Merger, Blockbuster
Merger$1.8 billion Credit Agreement and Related Transactions").notes and
debentures issued by the Company.
II-28
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary description of the Credit Agreement.credit agreements. The
description does not purport to be complete and should be read in conjunction
with each of the Credit Agreement.credit agreements.
The Viacom Credit Agreement provides for three facilities:
Facility A - $700 million underis comprised of (i) a $2.5 billion senior
unsecured 2-1/2 year revolving short term loan having(the "Short-Term Loan")
maturing December 31, 1996, (ii) a final
maturity of June 30, 1999;
Facility B - $926 million under$1.8 billion senior unsecured 8 year
reducing revolving loan (the "Revolving Loan") maturing July 1, 2002 and (iii)
a revolver, which converts
on January 1, 1995 into a$2.189 billion 8 year term loan havingmaturing July 1, 2002 (the "Term Loan").
The Viacom International Credit Agreement is comprised of a final maturity of June 30, 1999; and
Facility B-1 - $274$311 million under a8-year
term loan havingto Viacom International and certain of its subsidiaries maturing
July 1, 2002. The $1.8 billion Credit Agreement is comprised of a final
maturity of June 30, 1999.$1.8
billion senior unsecured reducing revolving loan to the Company maturing
July 1, 2002.
The interest rate on all loans made under the three facilities is based upon
Citibank, N.A.'s base rate the domestic certificate of
deposit rate or the London Interbank Offered Rate and is affected
by the Company's leverage ratio.credit rating. At December 31, 1993,1994, the London Interbank
Offered Rates ("LIBOR") (upon which the Company's borrowing rate was based) for
borrowing periods of one month and two months were 6.0% and 6.25%, respectively.
At December 31, 1993, LIBOR for borrowing periods of one and two months were
3.25% and 3.3125%, respectively.
The Company is permitted to issue
commercial paper with a maturity atmay prepay the time of issuance not to
exceed nine months, provided that following each issuance of
II-25
commercial paper, (i) the aggregate face amount of commercial paper
outstanding shall not exceed $500 million less the aggregate amount
of competitive bid rate borrowings (described below), outstanding
at such time and (ii) the aggregate amount of all Facility B loans and competitive bid rate loans outstanding, together withreduce commitments under the aggregate face amount of commercial paper outstanding, shall not
exceed $926 million. The Company is also permitted to make short-
term competitive bid rate borrowings fromViacom Credit
Agreement and the Banks until December
1, 1994, provided that following the making of each proposed
competitive bid rate borrowing, (i) the aggregate amount of the
competitive bid rate loans outstanding shall not exceed $500
million less the aggregate face amount of commercial paper
outstanding and (ii) the aggregate amount of all Facility B loans
and competitive bid rate loans outstanding, together with the
aggregate face amount of commercial paper outstanding, shall not
exceed $926 million.
The Company and Subsidiary Obligors are required to repay the
principal outstanding under the$1.8 billion Credit Agreement in quarterly
payments equal to percentages of the original aggregate principal
amount with respect to the Facility A loans and Facility B-1 loans,
and of the outstanding principal amount with respect to the
Facility B loans, under the Credit Agreement,whole or in the amount of 5%
for the period commencing January 2, 1995 through and including
January 2, 1999; and 7.5% on April 1, 1999 and on June 30, 1999.
The Company may prepaypart at any time a portion or all of the
principal outstanding under the Credit Agreement. Any such
optional prepayments shall be applied to the remaining installments
of Facility A and Facility B loans in the order that the Company
designates.time.
The Company is required, subject to certain conditions, to make mandatory prepayments
uponunder the Short-Term Loan resulting from receipt of the first $2.5 billion in
the aggregate of net cash sale proceeds in connection with permittedfrom asset sales of assets notother than in the ordinary
course of business. All such
prepayments shall be applied until December 31, 1994 to reduce the
Facility B loans outstanding; provided, however, that any amounts
so repaid may be reborrowed prior to December 31, 1994. All such
prepayments after December 31, 1994 shall be applied pro rata
against the remaining installments of first, the Facility A loans
and second, the Facility B loans.business or from capital market transactions. In the event ofthat a
saleSubsidiary Obligor ceases to be a wholly owned subsidiary of the stockCompany or
substantially all ofViacom International, the assets of any Subsidiary Obligor,
the Facility B-1 loanloans of such Subsidiary Obligor shall be repaid in
full; provided, however, that upondue and
payable on the date on which such prepaymentsubsidiary ceases to be a wholly owned
subsidiary. If such event occurs prior to December 31, 1994,1996 or the Facility B commitmentrepayment
in full of each Facility B
Bank shall be increased byall Short-Term Loans, the Company may elect to convert any
outstanding portion of the Short-Term Loan into additional Term Loans in an
amount equal to the principal amount of such Facility B Bank's Facility B-1 loan prepaid as a result of
such prepayment and such amounts may be borrowed by the Company
prior to December 31, 1994.Subsidiary Obligor's loan.
The Company is required to prepay
principal outstanding under the Credit Agreement with the proceeds
of certain issuances of unsecured senior debt in an amount equal to
the proceeds so received, together with accrued interest to the
date of such prepayment on the principal amount prepaid, with such
prepayments applied against remaining installments of first, the
II-26
Facility A loans and second, the Facility B loans.
The Credit Agreement containscredit agreements contain certain covenants which, among other things,
require that the Company to maintain certain financial ratios and impose on the
Company and its subsidiaries certain limitations on (i) the incurrence of indebtedness or the guarantee or
assumption of indebtedness of another; (ii) the creation or
incurrence of mortgages, pledges or security interests on the
property or assets ofsubstantial asset sales
and mergers with any other company in which the Company or any of its subsidiaries in
order to secure debt oris not the sale of assets of the Company or its
subsidiaries; (iii) the merger or consolidation of the Company with
any person or other entity; (iv) the incurrence of capitalized
leases and purchase money indebtedness; (v) the payment of cash
dividends or the redemption or repurchase of any capital stock of
the Company; and (vi) investments and acquisitions.surviving
entity.
The Credit Agreement also containscredit agreements contain certain customary events of default. The Credit Agreement also providesdefault and provide
that it is an event of default if National Amusements, Inc. ("NAI") fails to
own at least 51% of the outstanding voting stock of Viacom Inc. or Viacom Inc.
fails to own at least 67% of the outstanding voting stock of the Company.
Under the restrictions contained in the Credit Agreement, the
Company is prohibited from (i) paying any dividends on its stock to
Viacom Inc. for the purpose of enabling Viacom Inc. to pay any
dividend on its common stock, or (ii) making any other dividend
payments to Viacom Inc. (other than for certain limited specified
purposes, including the satisfaction of Viacom Inc.'s obligations
under the LTIP), unless its total leverage ratio is less than a
specified amount.
The Company is required to pay a commitment fee based on the aggregate average daily
unborrowed portion of the Facility B
commitment, with any amounts outstanding under competitive bid rate
loans and commercial paper being deemed unborrowed forloan commitments. As of December 31, 1994, the
purposeCompany had $957 million of calculating the commitment fee.available loan commitments. The Company also is required to
pay certain agency fees to the agent. The Credit Agreement doescredit agreements
do not require compensating balances.
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY
pursuant to the Term Loan Agreement. The interest rate in the Term
Loan Agreement is based upon BONY's prime rate or the London
Interbank Offered Rate. Viacom Inc. repaid $13.9 million of debt
under the Term Loan Agreement on January 15, 1994, the first
scheduled maturity date. The remaining $28.3 million under the
Term Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the
principal amount outstanding under the Term Loan Agreement. Any
such optional prepayments shall be applied to reduce the principal
installment due January 1995 and shall include all accrued interest
II-27II-29
on the amount of principal prepaid. Viacom Inc. shall be obligated
to prepay the loan in the amount of any dividends received from the
Company.
The Term Loan Agreement contains certain covenants which impose
certain limitations on (i) the incurrence of indebtedness and (ii)
payment of cash dividends or the redemption or repurchase of any
capital stock of Viacom. The Term Loan Agreement also contains
certain customary events of default. The Term Loan Agreement has
been amended to allow Viacom Inc. to complete the Paramount Offer
and Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility
Agreement and Term Loan Agreement bear interest at floating rates,
causing the Company to be sensitive to changes in prevailing
interest rates. The Company enters into interest rate protection
agreements with off-balance sheet risk in order to reduce its
exposure to changes in interest rates on its variable rate long-
term debt. These interest rate protection agreements include
interest rate swaps and interest rate caps. At December 31, 1993,
the Company and Viacom Inc. had interest rate protection agreements
outstanding with commercial banks, with respect to $1.1 billion of
indebtedness under the Credit Agreement and $42.2 million under the
Term Loan Agreement. These agreements effectively change the
Company's interest exposure under the Credit Agreement to a ceiling
of 5.64% on the interest rate caps, and under the Term Loan
Agreement to a fixed weighted average rate of 6.65% on interest
rate swaps. The interest rate protection agreements are in effect
for a fixed period of time. The Company is exposed to credit loss
in the event of nonperformance by the counterparties to the
agreements. However, the Company does not anticipate
nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of
December 31, 1993.
The Company also has aggregate money market facilities of $40
million, all of which was available at December 31, 1993.VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(b) -- On July 15, 1993, the Company redeemed all of the $298
million principal amount outstanding of the 11.80% Senior
Subordinated Notes ("11.80% Notes") at a redemption price equal to
103.37% of the principal amount plus accrued interest to July 15,
1993. The Company recognized an after-tax extraordinary loss from
the early extinguishment of debt of $8.9 million, net of a tax
benefit of approximately $6.1 million on the transaction. The
Company borrowed the funds necessary for the redemption under its
bank credit facilities.
(c) -- On March 4, 1992, the Company issued $150 million
aggregate principal amount of 9.125% Senior Subordinated Notes
("9.125% Notes") due August 15, 1999. Interest is payable
II-28
semiannually on February 15 and August 15, commencing August 15,
1992. The 9.125% Notes may not be redeemed prior to February 15,
1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997
at a redemption price of 102.607% of the principal amount, during
the 12 month period beginning February 15, 1998 at 101.304% of the
principal amount, and on or after February 15, 1999 at 100% of the
principal amount. Any such redemption will include accrued
interest to the redemption date. The 9.125% Notes are not subject
to any sinking fund requirements.
(d) -- On May 28, 1992, the Company issued $100 million aggregate principal amount of 8.75% Senior
Subordinated Reset Notes ("8.75% Reset Notes") are due on May 15, 2001. Interest is payable
semiannually on May 15 and November 15, commencing November 15,
1992. On May
15, 1995 and May 15, 1998, unless a notice of redemption of the 8.75% Reset
Notes on such date has been given by the Company, the interest rate on the
8.75% Reset Notes will, if necessary, be adjusted from the rate then in effect
to a rate to be determined on the basis of market rates in effect on May 5,
1995 and on May 5, 1998, respectively, as the rate the 8.75% Reset Notes
should bear in order to have a market value of 101% of principal amount
immediately after the resetting of the rate. In no event will the interest
rate be lower than 8.75% or higher than the average three year treasury rate
(as defined in the indenture) multiplied by two. The interest rate reset on
May 15, 1995 will remain in effect on the 8.75% Reset Notes through and
including May 15, 1998 and the interest rate reset on May 15, 1998 will remain
in effect on the 8.75% Reset Notes thereafter. The 8.75% Reset Notes are
redeemable at the option of the Company, in whole but not in part, on May 15,
1995 or May 15, 1998, at a redemption price of 101% of principal amount plus
accrued interest to, but not including, the date of redemption.
The 8.75% Reset Notes are not
subject to any sinking fund requirements.
(e)(c) -- On September 15, 1991, theThe Company issued $200 millionan aggregate principal amount of 10.25% Senior Subordinated Notes
("10.25% Notes") due September 15, 2001. Interest is payable
semiannually on March 15 and September 15, commencing March 15,
1992. The 10.25% Notes are not redeemable by the Company prior to
maturity and are not subject to any sinking fund requirements.
(f) -- On December 31, 1993, there were 53,449,325 outstanding
shares of Viacom Class A Common Stock (100,000,000 shares
authorized) and 67,347,131 outstanding shares of Viacom Class B
Common Stock (150,000,000 shares authorized).
On October 22, 1993, Blockbuster purchased 24 million shares of
cumulative convertible preferred stock, par value $.01 per share,
of Viacom Inc. ("Series A Preferred Stock") for $600 million. On
November 19, 1993, NYNEX Corporation ("NYNEX") purchased 24 million
shares of cumulative convertible preferred stock, par value $.01
II-29
per share, of Viacom Inc. ("Series B Preferred Stock," collectively
with the Series A Preferred Stock, "Preferred Stock") for $1.2
billion. Series A Preferred Stock and Series B Preferred Stock
have liquidation preferences of $25 per share and $50 per share,
respectively. The Preferred Stock has an annual dividend rate of
5%, is convertible into shares of Viacom Class B Common Stock at a
conversion price of $70 and does not have voting rights other than
those required by law. The Preferred Stock is redeemable by Viacom
Inc. at declining premiums after five years. The Preferred Stock
purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger. Both NYNEX and Blockbuster may, under certain
limited circumstances, require Viacom Inc. to repurchase their
respective preferred shares, but such right does not inure to the
benefit of subsequent holders of such preferred shares.
NAI holds approximately 76.3% and the public holds approximately
23.7% of outstanding Viacom Inc. Common Stock as of December 31,
1993. NAI's percentage of ownership consists of 85.2% of the
outstanding Viacom Class A Common Stock and 69.1% of the
outstanding Viacom Class B Common Stock, as of December 31, 1993.
Pursuant to a purchase program initiated in August 1987, NAI
announced its intention to buy, from time to time, up to an
additional 3,000,000 shares of Viacom Class A Common Stock and
2,423,700 shares of Viacom Class B Common Stock. As of December
31, 1993, NAI had acquired an aggregate of 3,374,300 shares of
Common Stock, consisting of 1,466,200 shares of Viacom Class A
Common Stock and 1,908,100 shares of Viacom Class B Common Stock,
pursuant to this buying program. On August 20, 1993, NAI ceased
making purchases of Common Stock.
_____________________
The Company and Viacom Inc. filed a shelf registration statement
with the Securities and Exchange Commission ("SEC") registering
$800$1,069.9
million of debt securities (or, if such debt securities are
issued at an original issue discount, such greater principal amount8% Merger Debentures as shall result in an aggregate offering price equal to $800
million) guaranteed by Viacom Inc. The registration statement was
declared effective by the SEC on March 11, 1993. Some or all of
the debt securities may be issued by the Company in one or more
offerings.
During April 1993, the Company and Viacom Inc. terminated the
prior shelf registration statement, under which an aggregate of
$300 million principal amount of additional debt securities
remained available.
NAI, Sumner M. Redstone and the Company each have purchased on
the open market and may in the future continue to purchase on the
open market or in privately negotiated transactions certain debt
securities of the Company. During 1993, there were no purchases
of debt securities made by NAI, Sumner M. Redstone or the
II-30
Company. During 1992, Sumner M. Redstone purchased directly or
beneficially $350,000, $605,000, $15,000 and $200,000 of 11.50%
Senior Subordinated Extendible Reset Notes, 9.125% Senior
Subordinated Notes, 10.25% Senior Subordinated Notes and 8.75%
Senior Subordinated Reset Notes, respectively. During 1991, NAI
and Sumner M. Redstone purchased $3,110,000 and $869,000 of
11.80% Senior Subordinated Notes, respectively. During 1991, NAI
purchased $311,000 of the 11.50% Senior Subordinated Extendible
Reset Notes. During December 1991, the Company purchased $43
million of Discount Debentures at an average price of 107.375% of
their principal amount plus accrued interest.
II-31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Boards of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Viacom Inc. and its subsidiaries and of Viacom International Inc., a wholly-
owned subsidiary of Viacom Inc., and its subsidiaries, at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of Viacom Inc. and Viacom International Inc.;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 7 to the financial statements, Viacom Inc. and Viacom
International Inc. adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes" in 1993.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 4, 1994, except as to Note 2, which is as of March 11, 1994
II-32
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
- ----------------------------------------------------------------
Management has prepared and is responsible for the consolidated financial
statements and related notes of Viacom Inc. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All financial
information in this annual report is consistent with the consolidated
financial statements.
The Company maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by Price
Waterhouse, independent public accountants, who have expressed their opinion
with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with
management, to review accounting, auditing, internal accounting controls and
financial reporting matters. The Audit Committee is also responsible for
recommending to the Board of Directors the independent accounting firm to be
retained for the coming year, subject to stockholder approval. The independent
accountants and the internal auditors have full and free access to the Audit
Committee with and without management's presence.
VIACOM INC.
By: /s/Frank J. Biondi, Jr.
-----------------------------------------
Frank J. Biondi, Jr.
President, Chief Executive Officer
By: /s/George S. Smith, Jr.
------------------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
By: /s/Kevin C. Lavan
------------------------------------------
Kevin C. Lavan
Vice President, Controller
and Chief Accounting Officer
II-33
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Thousands of dollars, except per share amounts)
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Revenues $2,004,949 $1,864,683 $1,711,562
Expenses:
Operating 877,609 853,977 790,816
Selling, general and administrative 589,288 517,977 475,648
Depreciation and amortization 153,057 144,802 132,864
--------- ---------- ----------
Total expenses 1,619,954 1,516,756 1,399,328
--------- ---------- ---------
Earnings from operations 384,995 347,927 312,234
Other income (expense):
Interest expense, net (144,953) (194,104) (297,451)
Other items, net (See Note 14) 61,774 1,756 (6,536)
--------- ---------- ---------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
--------- ---------- ---------
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of tax (See
Note 4) (8,867) (17,120) (3,101)
Cumulative effect of change in
accounting principle 10,338 -- --
--------- ---------- ---------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible preferred stock
dividend requirement of Viacom Inc. 12,750 -- --
--------- ---------- ---------
Net earnings (loss) attributable to
common stock $ 158,202 $ 48,965 $ (49,657)
========= ========= ==========
Weighted average number of common
shares 120,607 120,235 113,789
Net earnings (loss) per common share:
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle $ 1.30 $ .55 $ (.41)
Extraordinary losses (.07) (.14) (.03)
Cumulative effect of change in
accounting principle .08 -- --
--------- ---------- ---------
Net earnings (loss) $ 1.31 $ .41 $ (.44)
========= ========= =========
See notes to consolidated financial statements.
II-34
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars)
December 31,
-------------------------
1993 1992
---- ----
Assets
Current Assets:
Cash and cash equivalents $1,882,381 $ 48,428
Receivables, less allowances of $33,889
and $25,779 351,765 319,804
Distribution fees advanced and
committed, current 18,620 19,631
Program rights and deferred program
costs, current 264,212 215,109
Prepaid distribution costs 73,722 89,723
Other current assets 95,693 65,793
---------- ----------
Total current assets 2,686,393 758,488
Property and Equipment:
Land 16,486 17,869
Buildings 41,627 37,486
Cable television systems 414,918 388,170
Broadcasting facilities 52,100 50,665
Equipment and other 349,332 258,565
Construction in progress 26,982 10,858
----------- ----------
901,445 763,613
Less accumulated depreciation 347,243 306,548
---------- ----------
Net property and equipment 554,202 457,065
---------- ----------
Distribution fees advanced and committed,
non-current 263,281 228,784
Program rights and deferred program
costs, non-current 526,247 462,122
Intangibles, at amortized cost 2,180,571 2,195,936
Other assets 206,174 214,699
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-35
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars, except per share amounts)
December 31,
-----------------------
1993 1992
---- ----
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 96,579 $ 71,199
Accrued interest 20,684 38,229
Deferred income, current 50,930 68,295
Other accrued expenses 264,921 290,937
Income taxes 140,453 96,529
Owners' share of distribution revenue 139,081 158,351
Program rights, current 197,966 187,956
Current portion of long-term debt 55,004 --
---------- ----------
Total current liabilities 965,618 911,496
---------- ----------
Long-term debt 2,378,286 2,397,014
Program rights, non-current 86,752 92,886
Other liabilities 268,098 159,187
Commitments and contingencies (See Note 10)
Shareholders' Equity of Viacom Inc. (See
Notes 1 and 6):
Preferred Stock, par value $.01 per share;
100,000,000 shares authorized;
48,000,000 shares issued
and outstanding; stated at liquidation
value 1,800,000 --
A Common Stock, par value $.01 per share;
100,000,000 shares authorized;
53,449,325 (1993) and 53,380,390
(1992) shares issued and outstanding 535 534
B Common Stock, par value $.01 per share;
150,000,000 shares authorized;
67,347,131 (1993) and 67,069,688
(1992) shares issued and outstanding 673 671
Additional paid-in capital 920,864 917,466
Accumulated deficit (3,958) (162,160)
---------- ----------
Total shareholders' equity 2,718,114 756,511
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-36
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Net cash flow from operating activities:
Net earnings (loss) $170,952 $ 48,965 $ (49,657)
Adjustments to reconcile net earnings
(loss) to net cash flow from operating
activities:
Depreciation and amortization 153,057 144,802 132,864
Interest accretion and interest in kind
on debentures -- -- 59,196
Reserve for litigation (See Note 14) -- 33,000 --
Equity in loss of affiliated companies,
net of tax 2,520 4,646 12,743
Gain on the sale of the cable system,
net of tax (45,873) -- --
Gain on the sale of investment held at
cost, net of tax (10,882) -- --
Extraordinary losses, net of tax 8,867 17,120 3,101
Deferred compensation . 3,924 8,202 12,328
Provision (benefit) for deferred income
taxes 24,364 15,068 (8,756)
(Decrease) increase in accounts payable
and accrued expenses (17,189) 53,400 6,831
Increase in receivables (31,881) (49,756) (61,929)
Increase in programming related assets
and liabilities, net (137,549) (138,568) (66,391)
Increase in income taxes payable 58,501 7,389 37,732
(Decrease) increase in deferred income (8,999) 22,933 (2,384)
(Increase) decrease in unbilled
receivables (6,516) 17,749 (27,630)
Payment of LTIP liability (3,606) (68,599) --
Other, net (12,080) (14,362) 21,819
---------- --------- ---------
Net cash flow from operating activities 147,610 101,989 69,867
---------- --------- ---------
Investing activities:
Capital expenditures (135,011) (110,222) (72,157)
Investments in and advances to
affiliated companies. (21,618) (23,708) (44,372)
Advances from affiliated companies 13,441 9,447 5,546
Proceeds from sale of cable system and
radio station 93,739 20,000 --
Proceeds from sale of investment held at
cost 18,140 -- --
Proceeds from sale of transponders 51,000 -- --
Acquisitions (82,197) -- --
Deposits on transponders (49,934) (9,723) --
Payment of deferred merger costs (15,382) -- --
Other, net (616) (2,636) (4,120)
---------- --------- ---------
Net cash flow from investing activities (128,438) (116,842) (115,103)
---------- --------- ---------
Financing activities:
Borrowings from banks under credit
facilities 334,291 8,343,967 6,695,048
Repayments to banks under credit
facilities -- (7,968,466) (6,764,593)
Issuance of notes -- 250,000 200,000
Redemption of notes and debentures (298,015) (549,454) (407,580)
Issuance of Preferred Stock 1,800,000 -- --
Issuance of B Common Stock -- -- 317,987
Payment of deferred financing costs (18,106) (22,659) (5,869)
Payment of premium on redemption of notes (10,054) (19,753) (4,078)
Other, net 6,665 924 (18)
---------- --------- ---------
Net cash flow from financing activities 1,814,781 34,559 30,897
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 1,833,953 19,706 (14,339)
Cash and cash equivalents at beginning of
year 48,428 28,722 43,061
---------- --------- ---------
Cash and cash equivalents at end of year $1,882,381 $ 48,428 $ 28,722
========== ========= =========
See notes to consolidated financial statements.
II-37
--
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
-----------------------
OF SHAREHOLDERS' EQUITY
-----------------------
(Thousands of dollars)
Preferred A Common Stock B Common Stock Paid-in Accumulated
Stock Shares Amount Shares Amount Capital Deficit
----- ------ ------ ------ ------ ------- -------
Viacom Inc:
- -----------
December 31, 1990 -- 53,365,870 $ 534 53,365,870 $ 534 $526,563 $(161,468)
Issuance of B Common
Stock -- -- -- 13,492,484 135 382,780 --
Exercise of stock
options -- 583 -- 583 -- 33 --
Conversion of 5.75%
debentures -- 700 -- 700 -- 39 --
Net loss -- -- -- -- -- -- (49,657)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1991 -- 53,367,153 534 66,859,637 669 909,415 (211,125)
---------- ---------- ------ ---------- ------ -------- ---------
B Common Stock issued
as satisfaction of
LTIP liability -- -- -- 177,897 2 6,892 --
Exercise of stock
options -- 13,187 -- 32,104 -- 1,157 --
Conversion of 5.75%
debentures -- 50 -- 50 -- 2 --
Net earnings -- -- -- -- -- -- 48,965
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1992 -- 53,380,390 534 67,069,688 671 917,466 (162,160)
---------- ---------- ------ ---------- ------ -------- ---------
Issuance of Series A
and Series B Preferred
Stock $1,800,000 -- -- -- -- (5,363) --
Exercise of stock
options -- 68,935 1 277,443 2 8,761 --
Net earnings -- -- -- -- -- -- 170,952
Preferred Stock
dividend requirements -- -- -- -- -- -- (12,750)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1993 $1,800,000 53,449,325 $535 63,347,131 $673 $920,864 $ (3,958)
========== ========= ====== ========== ====== ======== =========
See notes to consolidated financial statements.
II-38
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1) SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation -Viacom Inc. (together with its consolidated
subsidiaries, unless the context otherwise requires, "Viacom Inc.") is a
holding company whose principal asset is the common stock of Viacom
International Inc. (together with its consolidated subsidiaries, unless the
context otherwise requires, the "Company"). The Company is a diversified
entertainment and communications company with operations in four principal
segments: Networks, Entertainment, Cable Television and Broadcasting.
The primary differences between Viacom Inc.'s and the Company's financial
statements include the following factors: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the contribution to
capital of Viacom Inc.'s exchangeable preferred stock, which was exchanged for
15.5% Junior Subordinated Exchange Debentures due 2006 (the "Exchange
Debentures") on March 31, 1989 which in turn were fully redeemed during 1991;
b) during 1993, Viacom Inc. issued $1.8 billion of 5% cumulative convertible
preferred stock (see Note 6) and declared related preferred stock dividends of
$12.8 million, c) certain general and administrative expenses recorded by
Viacom Inc. of $5.0 million (1993), $9.0 million (1992) and $12.9 million
(1991), which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net interest income
of $3.1 million (1993) and net interest expense of $45.2 million (1991).
Certain amounts reported on the balance sheet and statements of cash flows for
prior years have been reclassified to conform with the current presentation.
Principles of Consolidation - The consolidated financial statements include the
accounts of Viacom Inc., the Company and all investments of more than 50% in
subsidiaries and other entities. All significant intercompany transactions
have been eliminated. Investments in affiliated companies of more than 20% but
less than or equal to 50% are accounted for under the equity method.
Investments of 20% or less are accounted for under the cost method. In 1993,
the fiscal year end for certain foreign operations was changed from October 31
to December 31.
Cash Equivalents - Cash equivalents are defined as short-term (3 months or
less) highly liquid investments.
Program Rights - The Company acquires rights to exhibit programming on its
broadcast stations or cable networks, and produces its own programs. The costs
incurred in acquiring and producing programs are capitalized and amortized over
the license period or over the estimated exhibition life of the program. Costs
related to the production of programs are either charged to earnings or
capitalized to the extent they are estimated to be recoverable from future
revenue. Program rights and the related liabilities are recorded at the gross
amount of the liabilities when the license period has begun, the cost of the
program is determinable and the program is accepted and available for airing.
Program Distribution - Fees for distributing television shows and feature films
are recognized upon billing over contractual periods generally ranging from
one to five years, except that such fees for internally produced programs are
recognized when such programs are delivered and fees for barter advertising
revenue are recognized when the programs are available and a noncancellable
contract has been executed. Receivables reflect gross billings, which include
the owners' share. Amounts due to owners are recorded as liabilities in
"Owners' share of distribution revenue" or are deducted from "Distribution fees
advanced and committed, current."
Minimum guarantees to owners are recorded as liabilities and are liquidated by
payments in accordance with contract terms. A corresponding asset is recorded
as "Distribution fees advanced and committed" and is reduced by the owners'
share of billings until fully recovered or amortized as operating expenses
against the Company's share of total estimated billings based on the ratio of
total estimated costs to total estimated billings.
Prepaid distribution costs incurred on behalf of the owners are recovered from
the owners' share of billings or amortized as operating expenses against the
Company's share of total estimated billings based on the ratio of total
estimated costs to total estimated billings.
II-39
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All amortization estimates are reviewed periodically by management and are
adjusted prospectively. Minimum guarantees or other costs estimated not to be
recoverable from total estimated billings are expensed in the period any
shortfall is determined.
Depreciation and Amortization - Depreciation is computed principally by the
straight-line method over estimated useful lives ranging principally from 3 to
15 years. Capitalized lease amortization of $5.5 million (1993) and $3.0
million (1992) is included in depreciation expense. Depreciation expense was
$92.8 million (1993), $81.5 million (1992) and $70.1 million (1991).
Intangibles resulting from business acquisitions are generally amortized over
40 years. Accumulated amortization relating to intangibles at December 31 was
$412.5 million (1993) and $361.1 million (1992) .
Equity in Loss of Affiliated Companies - Equity in loss of affiliated companies
is primarily comprised of the Company's one-third interest in Lifetime, the 50%
interest in Comedy Central, the 50% interest in Nickelodeon (UK) during 1993
and the 49.99% interest in MTV EUROPE prior to August 30, 1991. (See Note 3.)
Provision for Doubtful Accounts - The provision for doubtful accounts charged
to expense was $16.7 million (1993), $9.4 million (1992) and $15.9 million
(1991).
Net Earnings (Loss) per Common Share - Earnings (loss) per share is calculated
based on the weighted average number of shares outstanding during the year.
The effect of the assumed exercise of stock options and conversion of
convertible debentures is not material for each of the years presented. For
1993, the assumed conversion of the Preferred Stock (as defined in Note 2)
would have an antidilutive effect on fully-diluted earnings per common share.
Therefore, the effects of such assumption are not reflected in net earnings
(loss) per common share.
Interest Rate Protection Agreements - The amount to be paid or received is
accrued as interest rates change and is recognized over the life of the
agreements as an adjustment to interest expense.
2) SUBSEQUENT EVENTS
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer (the
"Paramount Offer"), 61,657,432 shares of Paramount common stock, constituting a
majority of the shares outstanding, at a price of $107 per share in cash. The
Paramount Offer was financed by (i) the sale of Preferred Stock (see "Note 6"),
proceeds of which are reflected as cash and cash equivalents on the balance
sheet as of December 31, 1993, (ii) the sale of Viacom Class B Common Stock to
Blockbuster and (iii) borrowings under a credit agreement (as described below).
The Paramount Offer was made pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of February 4, 1994 (the "Paramount Merger Agreement")
between Viacom Inc. and Paramount. Paramount will become a wholly owned
subsidiary of Viacom Inc. (the "Paramount Merger") at the effective time of a
merger between Paramount and a subsidiary of Viacom Inc. (the "Paramount
Effective Time") which is expected to occur in the second quarter of 1994.
Pursuant to the Paramount Merger Agreement, each share of Paramount common
stock outstanding at the time of such merger (other than shares held in the
treasury of Paramount or owned by Viacom Inc. and other than shares held by
any stockholders who shall have demanded and perfected appraisal rights) will
be converted into the right to receive (i) 0.93065 of a share of Viacom
Class B Common Stock, (ii) $17.50 principal amount of 8% exchangeable
subordinated debentures of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of Viacom Class B
Common Stock at any time prior to the third anniversarypart of the Paramount Merger at a price of $60 per share, and (v) 0.3 of a warrant to purchase one share of
Viacom Class B Common Stock at any time prior toconsideration.
The balance sheet reflects the fifth anniversaryfair value of the Paramount8% Merger at a price of $70 per share. If the debentures are issued
prior to the completionDebentures plus
amortization of the purposed merger ofrelated discount.
_____________________
Extraordinary Losses
During 1994, the proceeds from the Viacom Inc. and Blockbuster,
the debentures will be exchangeable, at the option of Viacom Inc., into 5%
exchangeable preferred stock of Viacom Inc. on or after January 1, 1995 if the
proposed merger with Blockbuster has not previously been consummated.
II-40
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each CVR will represent the right to receive the amount, if any, by which the
Target Price exceeds the greater of the Current Market Value and the Minimum
Price (see defined terms in following paragraph). The CVRs will mature on the
first anniversary of the Paramount Effective Time (the "Maturity Date");
provided, however, that Viacom Inc. may, at its option, (i) extend the Maturity
Date to the second anniversary of the Paramount Effective Time (the "First
Extended Maturity Date") or (ii) extend the First Extended Maturity Date to the
third anniversary or the Paramount Effective Time (the "Second Extended
Maturity Date"). Viacom Inc., at its option, may pay any amount due under the
terms of the CVRs in cash or in the equivalent value of registered securities
of Viacom Inc., including without limitation, common stock, preferred stock,
notes, or other securities.
The "Minimum Price" means (a) at the Maturity Date, $36, (b) at the First
Extended Maturity Date, $37 and (c) at the Second Extended Maturity Date, $38.
Target Price means (a) at the Maturity Date, $48, (b) at the First Extended
Maturity Date, $51, and (c) at the Second Extended Maturity Date, $55. The
"Current Market Value" means the average market price of Viacom Class B Common
Stock for a specified period.
On January 7, 1994, Viacom Inc. and Blockbuster entered into an agreement and
plan of merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger") subject to approval. At the effective time of the Blockbuster
Merger, each share of Blockbuster common stock outstanding at the time of the
Blockbuster Merger (other than shares held in the treasury of Blockbuster or
owned by Viacom Inc. and other than shares held by any stockholders who shall
have demanded and perfected appraisal rights, if available) will be converted
into the right to receive (i) 0.08 of a share of Viacom Class A Common Stock,
(ii) 0.60615 of a share of Viacom Class B Common Stock, and (iii) up to an
additional 0.13829 of a share of Viacom Class B Common Stock, with the exact
fraction of a share being dependent on the market prices of Viacom Class B
Common Stock during the year following the effective time of the Blockbuster
Merger, and with the right to receive such additional fraction of a share to
be evidenced by one variable common right ("VCR"). The VCRs mature on the
first anniversary of the Blockbuster Merger ("VCR Conversion Date").
The mergers pursuant to the Paramount Merger Agreement and Blockbuster Merger
Agreement (collectively, the "Mergers") have been unanimously approved by the
Boards of Directors of each of the respective companies. The obligations of
Viacom Inc., Blockbuster and Paramount to consummate the mergers are subject to
various conditions, including obtaining requisite stockholder approvals.
Viacom Inc. intends to vote its shares of Paramount in favor of the merger and
NAI has agreed to vote its shares of Viacom Inc. in favor of the Mergers;
therefore, stockholder approval of the Paramount Merger is assured, and
approval by Viacom Inc. of the Blockbuster Merger is also assured.
The Mergers will be accounted for under the purchase method of accounting. The
unaudited condensed pro forma data for the year ended or at December 31, 1993
presented below assumes the Mergers occurred on January 1, 1993 for statement
of operations data or at December 31, 1993 for balance sheet data. Intangible
assets are expected to be amortized over 40 years on a straight-line basis.
The unaudited pro forma information is not necessarily indicative of the
combined results of operations or financial position of Viacom Inc., Paramount
and Blockbuster (the "Combined Company") following the Mergers that would have
occurred if the completion of the Mergers had occurred on the dates previously
indicated nor are they necessarily indicative of future operating results of
the Combined Company.
II-41
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended or at
December 31, 1993
----------------
(Millions of dollars)
(Unaudited)
Results of operations data:
Revenues $9,624.1
Earnings from operations $ 887.9
Net earnings before extraordinary items, cumulative effect
of changes in accounting principles and preferred stock
dividends $ 135.6
Net earnings attributable to common stock before
extraordinary items and cumulative effect of changes in
accounting principles $ 75.6
Primary earnings per common share before
extraordinary items and cumulative effect of changes in
accounting principles $ .18
Balance sheet data:
Total assets $24,377.3
Long-term debt, including current maturities $ 9,998.8
Shareholders' equity:
Preferred $ 1,200.0
Common $ 8,844.8
On March 10, 1994, Blockbuster purchased approximately 22.7 million shares of
Viacom Class B Common Stock for an aggregate purchase price of $1.25 billion,
or $55 per share. If (with certain exceptions) the Blockbuster Merger
Agreement is terminated and in the event that Viacom Class B Common Stock
trades (for a specified period) at a level below $55 per share during the one
year period after such termination, Viacom Inc. may be obligated to make
certain payments of up to a maximum of $275 million, at its option, in cash or
securities, or to sell certain assets to Blockbuster. The Viacom Class B
Common Stock purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit agreement with certain
financial institutions named therein, pursuant to which such financial
institutions have advanced to Blockbuster, on an unsecured basis, an aggregate
of $1.0 billion to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The Blockbuster Facility
contains certain events of default, including a change of control default,
which will require either a waiver in connection with the Blockbuster Merger or
the refinancing of the indebtedness incurred by Blockbuster under the
Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7 billion under a credit agreement
dated as of November 19, 1993, as amended on January 4, 1994 and February 15,
1994, among Viacom Inc., the banks named therein, and The Bank of New York,
Citibank, N.A. and Morgan Guaranty Trust Company of New York, as Managing Agents
(the "Merger Credit Agreement").
The Merger Credit Agreement provides that, in orderwere used to
pay forrefinance the Paramount
Offer and related expenses, up to $3.7 billion may be borrowed, repaid and
reborrowed until November 18, 1994, at which time all amounts outstanding will
become due and payable.
The Merger Credit Agreement provides that Viacom Inc. may elect to borrow at
either the Base Rate or the Eurodollar Rate (each as defined below), subject to
certain limitations. The "Base Rate" will be the higher of (i) the Citibank
N.A., Base Rate and (ii) the Federal Funds Rate plus 0.50%. The "Eurodollar
Rate" will be the London Interbank Offered Rate plus (i) 0.9375%, until Viacom
Inc.'s senior unsecured long-termpreviously existing bank debt is rated by Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (ii) thereafter, a variable
II-42
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
rate ranging from 0.25% to 0.9375% dependent on the senior unsecured long-term
debt rating assigned to Viacom Inc. The Merger Credit Agreement provides that
Viacom Inc. will pay each bank a facility fee on such bank's commitment until
November 18, 1994.
The Merger Credit Agreement contains certain covenants which, among other
things require Viacom Inc. to meet certain financial ratios.
As of December 31, 1993, Viacom Inc. has promissory notes outstanding in the
aggregate amount of $26 million, in order to finance expenses associated with
the Mergers and expects to obtain additional financing as required to finance
such expenses.
3) ACQUISITIONS AND VENTURES
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston, Texas, for
Westinghouse Broadcasting Company, Inc.'s WCXR-FM and WCPT-AM, Washington,
D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-FM), Los
Angeles, California from Westwood One Stations Group-LA, Inc. for $40 million
in cash and certain other consideration. The Company sold KXEZ-FM to Viacom
Inc. in exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately held ICOM
Simulations, Inc.
On March 31, 1993, the Company increased its percentage of ownership in
StarSight Telecast Inc. ("StarSight"). On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock. On September
16, 1993, the Company exercised a warrant to purchase 833,333 shares of
StarSight common stock at a cost of $5.625 per share. In November 1993, the
Company transferred its ownership percentage in StarSight to a consolidated
affiliate of the Company. As a result of these transactions, the affiliate's
of the Company's percentage ownership of StarSight is approximately 21%. The
investment in StarSight is accounted for under the equity method.
In December 1992, the Company entered into a 50-50 joint venture called
Nickelodeon (UK) with a subsidiary of British Sky Broadcasting Limited.
Nickelodeon (UK) began airing on September 1, 1993. The Company's investment
is accounted for under the equity method.
The Company
exchanged KHOW-AM and FM, Denver, Colorado for Noble Broadcast
Group, Inc.'s KNDD-FM, Seattle, Washington effective December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE to 100%
through the purchase of the 50.01% interest held byrecognized an affiliate of Mirror
Group Newspapers. The approximate value of the purchase was $65.0 million,
which included intangibles of approximately $61.6 million. As consideration
for the sale, Viacom Inc. issued 2,210,884 shares of Viacom Class B Common
Stock (See Note 6).
II-43
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of the
following:
December 31, December 31,
1993 1992
------------ ------------
(Thousands of dollars)
Notes payable to banks (a) $1,983,275 $1,648,984
11.80% Senior Subordinated Notes due 1998 -- 298,000
9.125% Senior Subordinated Notes due 1999 (b) 150,000 150,000
8.75% Senior Subordinated Reset Notesdue 2001 (c) 100,000 100,000
10.25% Senior Subordinated Notes due 2001 (d) 200,000 200,000
5.75% Convertible Subordinated Debentures
due 2001 15 30
---------- ----------
2,433,290 2,397,014
Less current portion 55,004 --
---------- ----------
$2,378,286 $2,397,014
========== ==========
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9 billion and $300 million under (i) an unsecured credit
agreement guaranteed by Viacom Inc. (amended and restated as of January 17,
1992, (as amended, the "Credit Agreement") among the Company the named banks
("Banks"), Citibank, N.A. ("Citibank") as agent and The Bank of New York
("BONY") as co-agent and (ii) an unsecured credit agreement, dated June 2,
1993, among the Company and the named banks and BONY and Citibank as agents
(the "Loan Facility Agreement"). The Loan Facility Agreement has a 364-day
term and is identical to the Credit Agreement in all other material terms and
conditions. Borrowings of $1.765 billion were outstanding under the Credit
Agreement as of December 31, 1993, including $274 million aggregate principal
amount assumed by five subsidiaries of the Company ("Subsidiary Obligors").
Borrowings of $150 million were outstanding under the Loan Facility Agreement
as of December 31, 1993, $135 million of which were classified as long-term.
The following is a summary description of the amended and restated Credit
Agreement. The description does not purport to be complete and should be read
in conjunction with the Credit Agreement.
The Credit Agreement provides for three facilities:
Facility A - $700 million under a term loan having a final
maturity of June 30, 1999;
Facility B - $926 million under a revolver, which converts on
January 1, 1995 into a term loan having a final
maturity of June 30, 1999; and
Facility B-1 - $274 million under a term loan having a final
maturity of June 30, 1999.
The interest rate on all loans made under the three facilities is based upon
Citibank, N.A.'s base rate, the domestic certificate of deposit rate or the
London Interbank Offered Rate and is affected by the Company's leverage ratio.
At December 31, 1993, the London Interbank Offered Rates (upon which the
Company's borrowing rate was based) for borrowing periods of one month and two
months were 3.25% and 3.3125%, respectively. The Company is permitted to issue
commercial paper with a maturity at the time of issuance not to exceed nine
months, provided that following each issuance of commercial paper, (i) the
aggregate face amount of commercial paper outstanding shall not exceed $500
million less the aggregate amount of competitive bid rate borrowings (described
II-44
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
below), outstanding at such time and (ii) the aggregate amount of all Facility
B loans and competitive bid rate loans outstanding, together with the aggregate
face amount of commercial paper outstanding, shall not exceed $926 million.
The Company is also permitted to make short-term competitive bid rate
borrowingsextraordinary loss from the Banks until December 1, 1994, provided that following the
making of each proposed competitive bid rate borrowing, (i) the aggregate
amount of the competitive bid rate loans outstanding shall not exceed $500
million less the aggregate face amount of commercial paper outstanding and (ii)
the aggregate amount of all Facility B loans and competitive bid rate loans
outstanding, together with the aggregate face amount of commercial paper
outstanding, shall not exceed $926 million.
The Company and Subsidiary Obligors are required to repay the principal
outstanding under the Credit Agreement in quarterly payments equal to
percentages of the original aggregate principal amount with respect to the
Facility A loans and Facility B-1 loans, and of the outstanding principal
amount with respect to the Facility B loans, under the Credit Agreement, in the
amount of 5% for the period commencing January 2, 1995 through and including
January 2, 1999; and 7.5% on April 1, 1999 and on June 30, 1999.
The Company may prepay at any time a portion or all of the principal
outstanding under the Credit Agreement. Any such optional prepayments shall be
applied to the remaining installments of Facility A and Facility B loans in the
order that the Company designates. The Company is required to make mandatory
prepayments upon receipt of net cash sale proceeds in connection with permitted
sales of assets not in the ordinary course of business. All such prepayments
shall be applied until December 31, 1994 to reduce the Facility B loans
outstanding; provided, however, that any amounts so repaid may be reborrowed
prior to December 31, 1994. All such prepayments after December 31, 1994 shall
be applied pro rata against the remaining installments of first, the Facility A
loans and second, the Facility B loans. In the event of a sale of the stock or
substantially all of the assets of any Subsidiary Obligor, the Facility B-1
loan of such Subsidiary Obligor shall be repaid in full; provided, however,
that upon such prepayment prior to December 31, 1994, the Facility B commitment
of each Facility B Bank shall be increased by an amount equal to the principal
amount of such Facility B Bank's Facility B-1 loan prepaid as a result of such
prepayment and such amounts may be borrowed by the Company prior to December
31, 1994. The Company is required to prepay principal outstanding under the
Credit Agreement with the proceeds of certain issuances of unsecured senior
debt in an amount equal to the proceeds so received, together with accrued
interest to the date of such prepayment on the principal amount prepaid, with
such prepayments applied against remaining installments of first, the Facility
A loans and second, the Facility B loans.
The Credit Agreement contains certain covenants which, among other things,
require the Company to maintain certain financial ratios and impose on the
Company and its subsidiaries certain limitations on (i) the incurrence of
indebtedness or the guarantee or assumption of indebtedness of another; (ii)
the creation or incurrence of mortgages, pledges or security interests on the
property or assets of the Company or any of its subsidiaries in order to secure
debt or the sale of assets of the Company or its subsidiaries; (iii) the merger
or consolidation of the Company with any person or other entity; (iv) the
incurrence of capitalized leases and purchase money indebtedness; (v) the
payment of cash dividends or the redemption or repurchase of any capital stock
of the Company; and (vi) investments and acquisitions.
The Credit Agreement also contains certain customary events of default. The
Credit Agreement also provides that it is an event of default if National
Amusements, Inc. ("NAI") fails to own at least 51% of the outstanding voting
stock of Viacom Inc. or Viacom Inc. fails to own at least 67% of the
outstanding voting stock of the Company.
Under the restrictions contained in the Credit Agreement, the Company is
prohibited from (i) paying any dividends on its stock to Viacom Inc. for the
purpose of enabling Viacom Inc. to pay any dividend on its common stock, or
(ii) making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes, including the satisfaction of Viacom Inc.'s
obligations under the LTIP), unless its total leverage ratio is less than a
specified amount.
The Company is required to pay a commitment fee based on the aggregate average
daily unborrowed portion of the Facility B commitment, with any amounts
outstanding under competitive bid rate loans and commercial paper being deemed
unborrowed for the purpose of calculating the commitment fee. The Company also
is required to pay certain agency fees to the agent. The Credit Agreement does
not require compensating balances.
II-45
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY pursuant to
the Term Loan Agreement. The interest rate in the Term Loan Agreement is based
upon BONY's prime rate or the London Interbank Offered Rate. Viacom Inc.
repaid $13.9 million of debt under the Term Loan Agreement on January 15, 1994,
the first scheduled maturity date. The remaining $28.3 million under the Term
Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the principal amount
outstanding under the Term Loan Agreement. Any such optional prepayments shall
be applied to reduce the principal installment due January 1995 and shall
include all accrued interest on the amount of principal prepaid. Viacom Inc.
shall be obligated to prepay the loan in the amount of any dividends received
from the Company.
The Term Loan Agreement contains certain covenants which impose certain
limitations on (i) the incurrence of indebtedness and (ii) payment of cash
dividends or the redemption or repurchase of any capital stock of Viacom. The
Term Loan Agreement also contains certain customary events of default. The
Term Loan Agreement has been amended to allow Viacom Inc. to complete the
Paramount Offer and the Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility Agreement and Term
Loan Agreement bear interest at floating rates, causing the Company to be
sensitive to changes in prevailing interest rates. The Company enters into
interest rate protection agreements with off-balance sheet risk in order
to reduce its exposure to changes in interest rates on its variable rate
long-term debt. These interest rate protection agreements include interest
rate swaps and interest rate caps. At December 31, 1993, the Company and
Viacom Inc. had interest rate protection agreements outstanding with
commercial banks, with respect to $1.1 billion of indebtedness under the
Credit Agreement and $42.2 million under the Term Loan Agreement. These
agreements effectively change the Company's interest exposure under the Credit
Agreement to a ceiling of 5.64% on the interest rate caps, and under the Term
Loan Agreement to a fixed weighted average rate of 6.65% on interest rate
swaps. The interest rate protection agreements are in effect for a fixed
period of time. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of December
31, 1993.
The Company also has aggregate money market facilities of $40 million, all of
which was available at December 31, 1993.
(b) -- On March 4, 1992, the Company issued $150 million aggregate
principal amount of 9.125% Senior Subordinated Notes ("9.125% Notes") due
August 15, 1999. Interest is payable semiannually on February 15 and August 15,
commencing August 15, 1992. The 9.125% Notes may not be redeemed prior to
February 15, 1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997 at a
redemption price of 102.607% of the principal amount, during the 12 month
period beginning February 15, 1998 at 101.304% of the principal amount, and on
or after February 15, 1999 at 100% of the principal amount. Any such
redemption will include accrued interest to the redemption date. The 9.125%
Notes are not subject to any sinking fund requirements.
(c) -- On May 28, 1992, the Company issued $100 million aggregate
principal amount of 8.75% Senior Subordinated Reset Notes ("8.75% Reset Notes")
due on May 15, 2001. Interest is payable semiannually on May 15 and November
15, commencing November 15, 1992. On May 15, 1995 and May 15, 1998, unless a
notice of redemption of the 8.75% Reset Notes on such date has been given by
the Company, the interest rate on the 8.75% Reset Notes will, if necessary, be
adjusted from the rate then in effect to a rate to be determined on the basis
of market rates in effect on May 5, 1995 and on May 5, 1998, respectively, as
the rate the 8.75% Reset Notes should bear in order to have a market value of
101% of principal amount immediately after the resetting of the rate. In no
event will the interest rate be lower than 8.75% or higher than the average
three year treasury rate (as defined in the indenture) multiplied by two. The
interest rate reset on May 15, 1995 will remain in effect on the 8.75% Reset
Notes through and including May 15, 1998 and the interest rate reset on May 15,
1998 will remain in effect on the 8.75% Reset Notes thereafter. The 8.75%
Reset Notes are redeemable at the option of the Company, in whole but not in
part, on May 15, 1995 or May 15, 1998, at a redemption price of 101% of
II-46
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
principal amount plus accrued interest to, but not including, the date of
redemption. The 8.75% Reset Notes are not subject to any sinking fund
requirements.
(d) -- On September 15, 1991, the Company issued $200 million
aggregate principal amount of 10.25% Senior Subordinated Notes ("10.25% Notes")
due September 15, 2001. Interest is payable semiannually on March 15 and
September 15, commencing March 15, 1992. The 10.25% Notes are not redeemable
by the Company prior to maturity and are not subject to any sinking fund
requirements.
_____________________
II-47
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The extraordinary losses and related tax benefits associated with the extinguishment of certain debt of Viacom Inc. and the Company are summarized as
follows:
11.50%
11.80% Reset Discount Exchange
Notes Notes Debentures Debentures Total
------ ------ ---------- ---------- -----
(Thousands of dollars)
Year ended December 31, 1993:
- ----------------------------
Extraordinary loss (a) $14,953 $ -- $ -- $ -- $14,953
Tax benefit 6,086 -- -- -- 6,086
------- ------ ------- ------ -------
Extraordinary loss,$20.4
million, net of a tax $ 8,867 $ -- $ -- $ -- $ 8,867
======= ====== ======= ====== =======
Year ended December 31, 1992:
- ----------------------------
Extraordinary loss (b) $ -- $5,800 $22,600 $ -- $28,400
Tax benefit -- 2,361 8,919 -- 11,280
------- ------ ------- ------ -------
Extraordinary loss, net of tax $ -- $3,439 $13,681 $ -- $17,120
======= ====== ======= ====== =======
Year ended December 31, 1991:
- ----------------------------
Extraordinary loss (c) $ -- $ -- $ 3,761 $ 947 $ 4,708
Tax benefit -- -- 1,284 323 1,607
------- ------ ------- ------ -------
Extraordinary loss, net of tax $ -- $ -- $ 2,477 $ 624 $ 3,101
======= ====== ======= ====== =======
(a)$11.9 million.
On July 15, 1993, the CompanyViacom International redeemed all of the $298 million
principal amount outstanding of the 11.80% Senior Subordinated Notes ("11.80%
Notes") at a
redemption price equal to 103.37% of the principal amount plus accrued
interest to July 15,1993.
(b)15, 1993. Viacom International recognized an extraordinary
loss from the extinguishment of debt of $8.9 million, net of a tax benefit of
$6.1 million.
On June 18, 1992, the Company redeemed all of the $356.5 million principal
amount outstanding of the 14.75% Senior Subordinated Discount Debentures ("Discount Debentures") at a
redemption price equal to 105% of the principal amount plus accrued interest
to June 18, 1992. On March 10, 1992, the Company redeemed all of the $193
million principal amount outstanding of its 11.50% Senior Subordinated
Extendible Reset Notes ("11.50% Reset Notes") at a redemption price equal to 101% of the principal
amount plus accrued interest to the redemption date. (c) During December 1991, theThe Company purchased $43recognized
an extraordinary loss of $17.1 million, net of Discount Debentures at an average pricea tax benefit of 107.375% of their principal amount
plus accrued interest.
On August 30, 1991 and October 31, 1991, Viacom Inc. redeemed $250 million and
$152 million, respectively, constituting the entire principal amount of the
Exchange Debentures.$11.3 million.
The Company borrowed the funds necessary for each of these redemptions under
its bank credit facilities existing in the respective periods.
_____________________
NAI, Sumner M. Redstone and the Company each have purchased on the open market
and may in the future continue to purchase on the open market or in privately
negotiated transactions certain debt securities of the Company. During 1993,
there were no purchases of debt securities made by NAI, Sumner M. Redstone or
the Company. During 1992, Sumner M. Redstone purchased directly and
beneficially $350,000, $605,000, $15,000 and $200,000 of 11.50% Senior
II-48II-30
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subordinated Extendible Reset Notes, 9.125% Senior Subordinated Notes, 10.25%
Senior Subordinated Notes and 8.75% Senior Subordinated Reset Notes,
respectively. During 1991, NAI and Sumner M. Redstone purchased $3,110,000 and
$869,000 of 11.80% Senior Subordinated Notes, respectively. During 1991, NAI
purchased $311,000 of the 11.50% Senior Subordinated Extendible Reset Notes.
During December 1991, the Company purchased $43 million of Discount Debentures
at an average price of 107.375% of their principal amount plus accrued
interest.
Interest costs incurred, interest income and capitalized interest are
summarized below:
Year Ended December 31,
------------------------------------------------------------
(Millions of dollars)
1994 1993 1992 1991
---- ---- ----
(Thousands of dollars)
Interest Incurred $154,509 $195,725 $298,591$ 536.3 $154.5 $195.7
Interest Income $ 9,18432.6 $ 1,1199.1 $ 6261.1
Capitalized Interest $ 3729.6 $ 502.4 $ 513.5
Scheduled maturities of long-term debt of the Company through December 31, 1998,1999,
assuming full utilization of the commitments under the credit agreements (after
giving effect to the reduction in commitments resulting from the sale of MSG),
are $1.9 billion commitment under the Credit
Agreement(1996), $163 million (1997), $1.0 billion (1998) and $300 million commitment under the Loan Facility, are $300 million
(1994), $380 million (1995), $380 million (1996), $380 million (1997) and $380
million (1998)$1.5
billion (1999).
Scheduled maturities of debt of Viacom Inc. under the Term Loan
Agreement are $13.9 million (repaid on January 15, 1994) and $28.3 million
(1995). (See Note 2 regarding Paramount Merger financing and scheduled maturity
of debt.)
5) FAIR VALUE OF6) FINANCIAL INSTRUMENTS
The Company's carrying value of the financial instruments approximates fair
value, except for differences with respect to the senior subordinated debt and
certain differences related to other financial instruments which are not
significant. The carrying value of the senior and senior subordinated debt is
$450
million$2.5 billion and the fair value, which is estimated based on quoted market
prices, is $486 million.
6)approximately $2.4 billion.
The Company enters into interest rate exchange agreements with off-balance sheet
risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt and/or take advantage of changes in interest rates.
These interest rate exchange agreements include interest rate swaps and interest
rate caps. At December 31, 1994, the Company had $2.1 billion of interest rate
exchange agreements outstanding with commercial banks. $1.6 billion of these
agreements, which expire over the next three years, effectively change the
Company's interest rate on an equivalent amount of variable rate borrowings to
a fixed rate of 6.8%. The remaining $500 million of interest rate exchange
agreements, which expire during 1995, effectively convert $500 million of its
debt from an average fixed rate of 7.9% to a variable rate (8.0% at
December 31). The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company enters into foreign currency exchange contracts in order to reduce
its exposure to changes in foreign currency exchange rates. To date, the
hedges have been purchased options and forward contracts. A forward contract
is an agreement between parties to purchase and sell a foreign currency, for a
price specified at the contract date, with delivery and settlement in the
future. An option contract provides the right, but not the obligation, to buy
or sell currency at a fixed rate on a future date. At December 31, 1994, the
Company had outstanding contracts with a notional value of approximately $36
million, which hedge the European Currency Unit and Japanese Yen, and expire
in 1995 and 1996. Realized gains and losses on contracts that hedge expected
future cash flows are recognized in "Other Items, Net" and were not material
in the current period.
II-31
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7) SHAREHOLDERS' EQUITY
On July 7, 1994 and September 29, 1994, the Company issued equity securities to
holders of Paramount Communications and Blockbuster common stock, respectively
(See Note 2).
During March 1994, Blockbuster purchased 22.7 million shares of Viacom Class B
Common Stock at a price of $55 per share. The common stock was canceled upon
consummation of the Blockbuster Merger.
On October 22, 1993, Blockbuster purchased 24 million shares of cumulative
convertible preferred stock, par value $.01 per share, of Viacom Inc.the Company ("Series A
Preferred Stock") for $600 million. The Preferred Stock purchased by
Blockbuster was canceled upon consummation of the Blockbuster Merger. On
November 19, 1993, NYNEX Corporation ("NYNEX") purchased 24 million shares of
cumulative convertible preferred stock, par value $.01 per share, of Viacom Inc.the
Company ("Series B Preferred Stock," collectively with the Series A Preferred
Stock, "Preferred Stock") for $1.2 billion. Series A Preferred Stock and Series B Preferred Stock havehas a
liquidation preferencespreference of $25 per share and $50 per share, respectively. The
Preferred Stock has an annual dividend rate of 5%, is
convertible into shares of Viacom Class B Common Stock at a conversion price
of $70 and does not have voting rights other than those required by law. The
Series B Preferred Stock is redeemable by Viacom Inc.the Company at declining premiums
after five years.
The
Preferred Stock purchased by Blockbuster will be canceled upon consummation of
the Blockbuster Merger.
On August 30, 1991, Viacom Inc. issued 2,210,884 shares of Viacom Class B
Common Stock to an affiliate of Mirror Group Newspapers in exchange for the
remaining 50.01% interest in MTV EUROPE (See Note 3). On September 17, 1991,
all such shares of B Common Stock were sold by Mirror Group Newspapers in an
underwritten public offering.
II-49
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On June 11, 1991, Viacom Inc. completed the sale of 10,781,600 shares of Viacom
Class B Common Stock in a registered public offering and the private
placement of an additional 500,000 shares of Viacom Class B Common Stock with
NAI. Viacom Inc. realized proceeds, net of underwriting discounts and other
related expenses, of approximately $317.7 million from the sale and private
placement.
NAI holds approximately 76.3%26% and the public holds approximately 23.7%74% of the
Company's outstanding Viacom Inc. Common Stock as of December 31, 1993. NAI's percentage
of ownership consists of 85.2%1994. NAI owns 61% of
the outstanding Viacom Class A Common Stock and 69.1% of the outstanding Viacom Class B Common Stock, as of December 31, 1993. Pursuant to a purchase program initiated in August 1987, NAI announced
its intention to buy, from time to time, up to an additional 3,000,000 shares
of Viacom Class A Common Stock and 2,423,700 shares of Viacom Class B Common
Stock. As of December 31, 1993, NAI had acquired an aggregate of 3,374,300
shares of Common Stock, consisting of 1,466,200 shares of Viacom Class A Common
Stock and 1,908,100 shares of Viacom Class B Common Stock, pursuant to this
buying program. On August 20, 1993, NAI ceased making purchases of Common
Stock.
Under the restrictions contained in the Credit Agreement, the Company is
prohibited from (i) paying any dividends on its stock to Viacom Inc. for the
purpose of enabling Viacom Inc. to pay any dividend on its common stock, or
(ii) making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes), unless its total leverage ratio is less than a
specified amount.1994.
Long-Term Incentive Plans - The purpose of the Long-Term Incentive Plans (the
"Plans"), which consist of the Long-Term Incentive Plan ("LTIP") and the Long-
Term Management Incentive Plan ("LTMIP"), is to benefit and advance the interests of Viacom Inc.the Company by rewarding
certain key employees for their contributions to the financial success of the
Company and thereby motivating them to continue to make such contributions in
the future. The Plans provide for grants of equity-based interests pursuant to
awards of phantom shares, stock options, stock appreciation rights, restricted
shares or other equity-
basedequity-based interests ("Awards"), and for subsequent payments
of cash with respect to phantom shares or stock appreciation rights based,
subject to certain limits, on their appreciation in value over stated periods of
time.
During December 1992, a significant portion of the liability associated with the
LTIPphantom shares was satisfied through the cash payment of $68.6 million and the
issuance of 177,897 shares of Viacom Class B Common Stock valued at $6.9
million.
The LTMIP provides that an aggregate of 7,000,000In addition to the 25.0 million stock option Awards may be granted over
five years. Asoutstanding under various
plans, as of December 31, 1993,1994 there were 1,994,020 Awards available for
future grant, and 4,616,155 Awards outstanding consisting ofare phantom shares for 643,098 shares of
common stock all of which are vested, at an average grant price of $29 and vestingvest
over a three years from the date of grant, and stock options for 3,973,057 shares
of common stock with exercise prices ranging from $20.75 to $55.25 and vesting
over four yearsyear period from the date of grant. The stock options generally
vest over a four to six year period from the date of grant and expire 10 years
after the date of grant.
II-50II-32
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summaryEach of the unexercised stock options to purchase Paramount or Blockbuster
common stock that was outstanding at the time of the respective mergers,
automatically became options to purchase the merger consideration applicable to
the stock option under the same price and terms, except that, for employees of
Paramount Communications who were employees on the date of the Paramount Merger,
additional Viacom Class B Common Stock valued July 1995, will be issued on
exercise of such options as consideration for the cash portion of the blended
purchase price per share of Paramount Communications that was not reflected in
the Merger consideration because of the transaction structure. These options
generally became vested upon the effective date of the Merger, and are
exercisable over a three to five year period and expire 10 years after the date
of grant.
The following table summarizes the stock activity follows:
Number of Option
Shares Price range
------- -----------
Balance at December 31, 1991 3,148,357 $20.75 to $29.375
Granted 643,740 31.875
Exercised (45,291) 20.75 to 29.00
Canceled (189,215) 20.75 to 29.375
---------
Balance at December 31, 1992 3,557,591 20.75 to 31.875
Granted 856,990 43.25 to 55.25
Exercised (346,378) 20.75 to 31.875
Canceled (95,146) 20.75 to 55.25
---------
Balance at December 31, 1993 3,973,057 $20.75 to $55.25
=========
Available for future grant:
December 31, 1993 1,994,020
December 31, 1992 2,752,854
Exercisable:under the various plans:
Per Share
Number of Option
Shares Price range
------ -----------
Balance at December 31, 1992 3,557,591 $ 20.75 to $31.875
Granted 856,990 43.25 to 55.25
Exercised (346,378) 20.75 to 31.875
Canceled (95,146) 20.75 to 55.25
-----------
Balance at December 31, 1993 3,973,057 20.75 to 55.25
Granted 3,931,562 34.75 to 52.125
Assumed in connection with the Mergers 19,955,783 1.45 to 44.94
Exercised (1,336,751) 6.67 to 37.07
Canceled (1,508,535) 11.74 to 55.25
-----------
Balance at December 31, 1994 25,015,116 $ 1.45 to $55.25
-----------
-----------
Stock options available for future grant:
December 31, 1994 6,143,638
December 31, 1993 1,994,020
Shares issuable under exercisable stock
options:
December 31, 1994 18,110,234
December 31, 1993 1,448,570
December 31, 1992 775,040
Viacom Inc.
The Company has reserved 224,4101,847,302 shares of Viacom Class A Common Stock and
29,462,93357,577,294 shares of Viacom Class B Common Stock principally for exercise of
stock options and warrants, the conversion of the Preferred Stock.
7)Stock, CVRs and
VCRs. Such shares are based on the average market value of Viacom Class B
Common Stock as of March 27, 1995.
II-33
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8) INCOME TAXES
The provision for income taxes shown below for the years ended December 31,
1994, 1993 1992 and 19911992 represents federal, state and foreign income taxes on
earnings before income taxes. The tax benefits relating to lossesEarnings (loss) accounted for under the equity
method of accounting which are shown net of tax on the Company's statementStatement of
operations,Operations. The tax provision (benefit) relating to earnings (loss) from equity
investments in 1994, 1993 and 1992 are $.6$9.8 million, (1993), $2.2$(.6) million (1992)
and $6.4$(2.2)
million, (1991).respectively. See Note 43 and 5 for tax benefits relating to the
Discontinued Operations and Extraordinary Losses.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") on a
prospective basis and recognized an increase to earnings of $10.3$10.4 million in
1993 as the cumulative effect of a change in accounting principle. SFAS 109
mandates the liability method for computing deferred income taxes.
II-51
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings before income taxes are attributable to the following jurisdictions:
Year Ended December 31,
------------------------------1994 1993 1991 1992
---- ---- ----
(Thousands------ ------ ------
(Millions of dollars)
United States $267,804 $138,215 $ (2,716)$179.4 $267.8 $138.2
Foreign 34,012 17,364 10,963
-------- -------- --------197.3 34.0 17.4
------ ------ ------
Total $301,816 $155,579 $ 8,247
======== ======== ========$376.7 $301.8 $155.6
------ ------ ------
------ ------ ------
Components of the provision for income taxes on earnings before income taxes are
as follows:
Year Ended December 31,
----------------------------1994 1993 1992
1991
---- ---- ----
(Thousands------ ------ ------
(Millions of dollars)
Current:
Federal $89,484 $47,347 $29,039$139.1 $89.5 $47.3
State and local 10,357 17,851 16,61878.3 10.4 17.9
Foreign 5,610 4,582 5,159
-------- ------- -------
105,451 69,780 50,81665.8 5.6 4.6
------ ------ ------
283.2 105.5 69.8
Deferred 24,364 15,068 (8,756)
-------- ------- -------
$129,815 $84,848 $42,060
======== ======= =======
II-52(3.5) 24.3 15.0
------ ------ ------
$279.7 $129.8 $84.8
------ ------ ------
------ ------ ------
II-34
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is summarized as
follows:
Year Ended December 31,
-----------------------1994 1993 1992
1991
---- ---- ---------- ------ ------
Statutory U.S. tax rate 35.0% 34.0%35.0% 34.0%
State and local taxes, net
of federal tax benefit 6.6 5.7 4.7
10.8
Foreign taxes, netEffect of federal
tax benefitforeign operations .2 .5 1.9 41.3
Amortization of intangibles 25.9 7.1 18.2
405.3
Divestiture gain - nontaxable portiontax versus book 1.5 (3.2) -- --
Property and equipment basis
difference -- 7.2 150.0
Other purchase accounting
adjustments -- -- (46.8)
Alternative minimum tax -- (88.7)7.2
Income tax reserve adjustment -- (5.0) (12.9) --
Effect of changes in statutory rate -- .5 -- --
Other, net 5.1 2.4 1.4
4.2
----- ----- ----------- ---- ----
Effective tax rate 74.3% 43.0% 54.5%
510.1%
===== ===== ===========
The annual effective tax rate of 43% for 1993 and 54.5% for 1992 includes a
reduction of certain prior year tax reserves in the amount of $22 million and
$20 million, respectively. The reduction is based on management's view
concerning the outcome of several tax issues based upon the progress of
federal, state and local audits.
As of December 31, 1993, after having given effect to SFAS 109, the Company had
total non-current deferred net tax liabilities of $85.2 million and current
deferred net tax assets of $16.3 million. The deferred net tax assets are
deemed to be fully realizable and therefore no valuation allowance has been
established. At December 31, 1993, the Company had no net operating loss or
investment tax credit carryovers.
II-53II-35
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of the deferred tax accounts in accordance with SFAS
109 for the year ended December 31, 1994 and 1993.
(Thousands
Year Ended December 31,
-------------------
1994 1993
---- ----
(Millions of dollars)
Current deferred tax assets and (liabilities):
Recognition of revenue $ 22.5 $ 17.8
Sales return and allowances 96.6 --
Publishing costs 72.2 --
Employee compensation and other payroll related expenses 24.1 --
Other differences between tax and financial statement values (21.6) (1.5)
----- ----
Gross current deferred net tax assets 193.8 16.3
----- ----
Noncurrent deferred tax assets and (liabilities):
Depreciation/amortization of fixed assets and intangibles (9.8) (102.1)
Reserves including restructuring and relocation charges 334.4 39.3
Program costs (67.9) (18.4)
Acquired net operating loss and tax credit carryforwards 100.3 --
Amortization of discount on 8% Merger Debentures 85.7 --
Recognition of revenue 89.9 (3.5)
Other differences between tax and financial statement values 72.8 (.5)
----- ----
Gross noncurrent deferred net tax assets 605.4 (85.2)
----- ----
Valuation allowance (75.7) --
------- -------
Total net deferred tax assets (liabilities) $ 723.5 $ (68.9)
------- -------
------- -------
As of December 31, 1994 and December 31, 1993, the Company had total non-current
deferred net tax assets (liabilities) of $605.4 million and (liabilities):
Differences between book($85.2) million, and tax recognition of
revenue $ 17,826
Differences between book and tax expense for
program costs (4,127)
Other differences between tax and financial
statement values 2,591
--------
Gross
current deferred net tax assets 16,290
--------
Noncurrentof $193.8 million and $16.3 million,
respectively. The 1994 net deferred tax assets and (liabilities):
Tax depreciation in excessinclude a valuation allowance
of book depreciation (69,118)
Reserves in excess of tax expense 39,336
Tax amortization in excess of book amortization (32,985)
Differences between book$75.7 million, principally relating to acquired net operating loss and tax
expense for program
costs (18,442)
Differences between bookcredit carryforwards which are subject to statutory limitations.
As of December 31, 1994, the Company had net operating loss carryforwards of
approximately $239 million, capital loss carryforwards of approximately $10
million and tax recognitioncredit carryforwards of revenue (3,505)
Other differences betweenapproximately $12 million, which were
acquired by the Company as a result of its 1994 mergers with Paramount
Communications and Blockbuster. The carryforwards are subject to statutory
limitations which resulted from a change of ownership. The carryforward periods
expire in years 1995 through 2009.
II-36
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company's share of the undistributed earnings of foreign subsidiaries not
included in its consolidated Federal income tax return that could be subject to
additional income taxes if remitted, was approximately $881 million at December
31, 1994. No provision has been made for additional U.S. or foreign taxes that
could result from the remittance of such undistributed earnings since the
Company intends to reinvest these earnings indefinitely, and financial
statement values (497)
----------
Gross noncurrent deferred net tax liabilities (85,211)
----------
Total net deferred tax liabilities $ (68,921)
==========it is not
practicable to estimate the amount of any such additional taxes.
The following table identifies the deferred tax items which were part of the
Company's tax provision under previously applicable accounting principles for
the yearsyear ended December 31, 1992 and 1991:
Year Ended December 31,
-----------------------
1992 1991
---- ----
(Thousands(millions of dollars):
Deferred compensation $22,682 $(3,044)$22.7
Depreciation 7,594 4,3207.6
Syndication advance payments 4,118 (771)
Alternative minimum tax - (7,821)4.1
Litigation accrual (13,324) -(13.3)
Sale of cable system (6,850) -(6.9)
Other, net 848 (1,440)
------- ------
$15,068 $(8,756)
======= ========
II-54
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
There are no significant temporary differences relating to foreign
undistributed earnings or investments in foreign subsidiaries for 1993, 1992 or
1991. Thus, no related deferred taxes have been recorded by the Company for
these years.
Viacom Inc. and its subsidiaries file a consolidated federal income tax return
and have done so since the period commencing June 11, 1991, the date on which
NAI's percentage of ownership of Viacom Inc. was reduced to less than 80%.
Prior to such date, Viacom Inc. and the Company filed a consolidated federal
income tax return with NAI, and also participated in a tax-sharing agreement
with NAI with respect to federal income taxes. The tax-sharing agreement
obligated Viacom Inc. and the Company to make payment to NAI to the extent they
would have paid federal income taxes on a separate company basis, and entitled
them to receive a payment from NAI to the extent losses and credits reduced
NAI's federal income taxes.
8).9
-----
$15.1
-----
-----
9) PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND
POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries have non-contributory pension plans
covering substantially allspecific groups of employees. The Company continues to maintain the
pension plans of the former Paramount Communications. The benefits for these
plans are based primarily on an employee's years of service and pay near
retirement. AllParticipant employees are vested in the plans after five years of
service. The Company's policy for all pension plans is to fund amounts in
accordance with the Employee Retirement Income and Security Act of 1974. Plan
assets consist principally of common stocks, marketable bonds and United States
government securities.
Net periodic pension cost for the periods indicated includedconsists of the following components:
Year Ended December 31,
--------------------------------------------------
1994 1993 1992 1991
---- ---- ----
(Thousands(Millions of dollars)
Service cost - benefits earned during
the period $5,442 $4,581 $3,919$ 22.1 $ 5.4 $ 4.6
Interest cost on projected benefit
obligation 4,106 3,300 2,76133.4 4.1 3.3
Return on plan assets:
Actual (1,777) (1,421) (4,434)2.9 (1.8) (1.4)
Deferred (gain) loss (1,134) (752) 2,952
Unrecognized prior service cost 480 454 450(37.7) (1.1) (.8)
Net amortizations .6 .5 .5
-------- ------- ------------- ------
Net pension cost $7,117 $6,162 $5,648
====== ====== ======
II-55$ 21.3 $ 7.1 $ 6.2
-------- ------ ------
-------- ------ ------
II-37
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The funded status of the pension plans for the periods indicated is as follows:
Year Ended
December 31,
---------------------------------------------------------
1994 1993
------------------------------------- ----------------
Accumulated Assets Exceed Accumulated
Benefits Exceed Accumulated Benefits Exceed
Assets Benefits Assets
------ -------- ------
(Millions of dollars)
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $ (414.8) $ (4.1) $ (34.4)
Non-vested (28.5) -- (3.2)
------------ ------------- ------------
Total $ (443.3) $ (4.1) $ (37.6)
============ ============= ============
Projected benefit obligation $ (519.7) $ (5.9) $ (58.8)
Plan assets at fair value 442.2 5.8 32.6
------------ ------------- ------------
Projected Benefit Obligation in excess of
Plan assets (77.5) (.1) (26.2)
Unrecognized net (gain) losses (13.4) .8 8.1
Unrecognized prior service cost 3.8 -- 3.7
Unrecognized transition obligation 1.8 -- --
Adjustment to recognize minimum liability (.9) -- (.5)
------------ ------------- ------------
(Pension liability) Prepaid pension cost
at year end $ (86.2) $ .7 $ (14.9)
============ ============= ============
The following assumptions were used in accounting for the pension plans:
1994 1993 1992
---- ---- ----
Discount rate 8.5% 7.5% 8.25%
Return on plan assets 9-10% 9% 9%
Rate of increase in future compensation 5-6% 6% 6%
In addition, during 1994, certain of the Company's employees participated in
multiemployer pension plans, for which the Company had other pension expense of
$10.9 million.
The Company sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to substantially all of the Paramount
Communications employees and their covered dependents who generally have worked
10 years and are eligible for early or normal retirement under the provisions of
the Paramount Communications retirement plan. The welfare plan is contributory
and contains cost-sharing features such as deductible and coinsurance which are
adjusted annually. The plan is not funded. The Company continues to fund these
benefits as claims are paid.
II-38
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The components of the amount recognized as of December 31, -----------------------
1993 1992
---- ----
(Thousands of dollars)
Actuarial present value of benefit obligations:1994 are as follows
(in millions):
Accumulated benefit obligation:
Vested $34,440 $ 24,095
Non-vested 3,177 1,740
--------- --------
Total $37,617 $ 25,835
======= ========
Projectedpostretirement benefit obligation $58,845attributable to:
Current retirees $ 43,626
Plan assets at fair value 32,649 28,282
--------- --------
Plan assets less than the
projected88.9
Fully eligible active plan participants 17.8
Other active plan participants 35.1
Unrecognized net gain 21.4
-------
Accumulated postretirement benefit obligation (26,196) (15,344)
Unrecognized loss during$ 163.2
-------
-------
The components of net periodic postretirement benefit cost for the
year 8,104 476
Unrecognized prior serviceended December 31, 1994 are as follows (in millions):
Service costs-benefits earned $ 4.4
Interest cost 3,743 4,384
Adjustment to recognize minimum liability (576) (768)
--------- --------
Pension liability at year end $(14,925) $(11,252)
========= ========on accumulated postretirement benefit obligation 9.5
------
Net periodic postretirement benefit cost $13.9
------
------
For purposes of valuing the 1993 and 1992 projectedaccumulated postretirement benefit obligation, the
discount rate was 7.5% (1993)8.5%, the assumed weighted average health care cost trend
rates are 12% grading down to 5.5% over 8 years for retired both over and 8.25% (1992)under
age 65, and the rate of10% grading down to 5.5% over 7 years for managed care under age 65.
A one percentage point increase in future compensation was 6% for each year of these health care cost trend
rates would increase the accumulated postretirement benefit obligation at
December 31, 1994 by $19.9 million, and increase the sum of the years. For determiningservice and
interest cost components of net period postretirement benefit cost by $2.6
million.
In addition the pension
expense for eachCompany contributed to multiemployer plans which provide health
and welfare benefits to active as well as retired employees. The Company had
costs of $10.0 million related to these benefits during 1994.
In 1994, the years, the long-term rate of return on plan assets was
9%.
In 1992, the FASB issuedCompany adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting For Postemployment Benefits" ("SFAS 112") which the
Company will be required to adopt in 1994.. SFAS
112 requires that
postemployment benefits be accounted for under the accrual method versus the
currently used pay-as-you-go method. The Company is evaluating the impact of
SFAS 112 and it isdid not expected that SFAS 112 will have a significant effect on the Company's consolidated financial
position or results of operations.
9) RELATED PARTY TRANSACTIONS
The Company, through the normal course of business, is involved in transactions
with affiliated companies. The Company sold programming to affiliates
amounting to $5.5 million (1993), $3.3 million (1992) and $.9 million (1991)
and paid subscriber fees of $6.1 million (1993), $5.4 million (1992) and $2.0
million (1991). In addition, rent and other expenses of $5.8 million, $4.7
million and $4.0 million were charged to affiliated companies during 1993, 1992
and 1991, respectively. Related party accounts receivable and accounts payable
were immaterial for each period.
The Company received approximately $.9 million (1993) and $1.3 million (1992)
under its tax-sharing agreement with NAI and paid approximately $.9 million
(1991).
II-56
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancellable lease commitments for office space and
equipment, transponders, studio facilities and vehicles.
II-39
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 1993,1994, minimum rental payments under noncancellable leases are
as follows:
Operating Capital
Leases Leases
------ ------
(Thousands(Millions of dollars)
19941995 $ 59,746487.1 $ 9,632
1995 58,946 10,66028.9
1996 56,795 11,689407.9 23.7
1997 53,125 12,717367.7 21.4
1998 55,373 13,746323.6 23.1
1999 270.6 20.6
2000 and thereafter 390,181 38,7641,373.9 65.0
--------- -------- -------
Total minimum lease payments $674,166 97,208
========$ 3,230.8 182.7
Less amounts representing interest 34,121
-------========= 55.2
--------
Present value of net minimum payments $63,087
=======$127.5
========
The Company has also entered into capital leases for transponders with future
minimum commitments commencing in future periods of approximately $207.9
million payable over the next eleven years Such commitments are contingent
upon the successful operation of satellites. Future minimum capital lease payments and operating lease
payments have not been reduced by future minimum sublease rentals of $26.0 million and $.5
million, respectively.$23.7
million. Rent expense amounted to $240.2 million (1994), $74.2 million (1993),
$67.9
million (1992) and $64.6 million (1991).
Capital leases represent the financing of transponders of $67.0 million (1993)
and $26.2 million (1992), net of accumulated amortization of $7.8 million
(1993) and $3.0$67.9 million (1992).
The commitments of the Company for program license fees, which are not
reflected in the balance sheet as of December 31, 1993, which1994 and are estimated to
aggregate approximately $1.9$2.0 billion, principally reflect commitments under
SNI'sShowtime Networks Inc.'s ("SNI's") exclusive arrangements with several motion
picture companies. This estimate is based upon a number of factors. A
majority of such fees are payable within the
next sevenover several years, as part of normal
programming expenditures of SNI. These commitments are contingent upon
delivery of motion pictures which are not yet available for premium television
exhibition and, in many cases, have not yet been produced.
During July 1991, the Company received reassessments from 10 California
counties of its Cable Division's real and personal property, related to the
June 1987 acquisition by NAI, which could result in substantially higher
California property tax liabilities. The Company is appealing the
reassessments and believes that the reassessments as issued are unreasonable
and unsupportable under California law. The Company believes that the final
resolution of this matter will not have a material effect on its consolidated
financial position or results of operations.
There are various lawsuits and claims pending against the Company. Management
believes that any ultimate liability resulting from those actions or claims
will not have a material adverse effect on the Company's financial position or
results of operations
(See Note 14)or financial position.
Certain subsidiaries and affiliates of the Company from time to time receive
claims from Federal and state environmental regulatory agencies and other
entities asserting that they are or may be liable for environmental cleanup
costs and related damages, principally relating to discontinued operations
conducted by its former mining and manufacturing businesses (acquired as part of
the Mergers). II-57The Company has recorded a liability at approximately the mid-
point of its estimated range of environmental exposure. Such liability was not
reduced by potential insurance recoveries and reflects management's estimate of
cost sharing at multiparty sites. The estimated range of the potential
liability was calculated based upon currently available facts, existing
technology and presently enacted laws and regulations. On the basis of
II-40
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
its experience and the information currently available to it, the Company
believes that the claims it has received will not have a material adverse
effect on its results of operations or financial position.
11) FOREIGN OPERATIONS
The consolidated financial statements include the following amounts applicable
to foreign subsidiaries:
Year Ended December 31,
----------------------------------------------------
1994 1993 1992 1991
---- ---- ----
(Thousands(Millions of dollars)
Revenues $ 122,200 $68,193 $31,7861,223.2 $122.2 $68.2
Earnings before income taxes $ 34,012 $17,364 $10,963197.3 $ 34.0 $17.4
Net earnings $ 33,747 $16,384170.9 $ 9,29433.7 $16.4
Current assets $ 54,190 $47,769 $38,4521,021.3 $ 54.2 $47.8
Total assets $ 115,744 $73,817 $40,4222,397.6 $115.7 $73.9
Total liabilities $ 68,728 $57,441 $30,897784.9 $ 68.7 $57.4
Total export revenues were $137.4 million (1994), $25.2 million (1993), and
$34.9 million (1992) and $26.7
million (1991).
Foreign currency transaction gains and losses were immaterial in each period
presented.
II-58II-41
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12) BUSINESS SEGMENTS
Year Ended December 31,
-----------------------------
12) BUSINESS SEGMENTS
Year Ended December 31,
-------------------------------------------------
1994 1993 1992
---- ---- ----
(Millions of dollars)
Revenues:
Networks and Broadcasting $ 1,855.1 $ 1,403.0 $ 1,227.7
Entertainment 2,285.2 209.1 248.3
Video and Music/Theme Parks 1,070.4 -- --
Publishing 1,786.4 -- --
Cable Television 406.2 416.0 411.1
Intercompany elimination (40.1) (23.2) (22.4)
------------ ----------- ------------
Total revenues $ 7,363.2 $ 2,004.9 $ 1,864.7
------------ ----------- ------------
------------ ----------- ------------
Earnings (loss) from continuing operations:
Networks and Broadcasting $ 357.1 $ 314.4 $ 237.5
Entertainment (88.4) 32.5 59.7
Video and Music/Theme Parks 199.5 -- --
Publishing 193.9 -- --
Cable Television 78.8 110.2 122.0
Corporate (132.6) (72.1) (71.3)
------------ ----------- ------------
Total earnings from operations $ 608.3 $ 385.0 $ 347.9
------------ ----------- ------------
------------ ----------- ------------
Depreciation and amortization:
Networks and Broadcasting $ 96.2 $ 68.2 $ 66.3
Entertainment 94.4 9.5 6.8
Video and Music/Theme Parks 90.4 -- --
Publishing 103.0 -- --
Cable Television 76.4 71.5 68.5
Corporate 5.3 3.9 3.2
------------ ----------- ------------
Total depreciation and amortization $ 465.7 $ 153.1 $ 144.8
------------ ----------- ------------
------------ ----------- ------------
Identifiable assets at year end:
Networks and Broadcasting $ 3,939.3 $ 2,538.6 $ 2,326.5
Entertainment 7,402.0 845.6 829.6
Video and Music/Theme Parks 10,135.3 -- --
Publishing 5,194.7 -- --
Cable Television 1,030.1 963.0 972.1
Corporate 572.3 2,069.7 188.9
------------ ----------- ------------
Total identifiable assets at year end $ 28,273.7 $ 6,416.9 $ 4,317.1
------------ ----------- ------------
------------ ----------- ------------
Capital expenditures:
Networks and Broadcasting $ 53.8 $ 40.7 $ 31.2
Entertainment 19.6 4.9 7.1
Video and Music/Theme Parks 145.9 -- --
Publishing 34.5 -- --
Cable Television 99.8 79.5 54.6
Corporate 11.3 9.9 17.3
------------ ----------- ------------
Total capital expenditures $ 364.9 $ 135.0 $ 110.2
------------ ----------- ------------
------------ ----------- ------------
II-42
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13) QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1994 and 1993 1992 1991
---- ---- ----
(Thousands of dollars)
Revenues:
Networks $1,221,200 $1,058,831 $ 922,157
Entertainment 209,110 248,335 273,488
Cable Television 415,953 411,087 378,026
Broadcasting 181,778 168,847 159,182
Intercompany elimination (23,092) (22,417) (21,291)
---------- ---------- ----------
Total revenues $2,004,949 $1,864,683 $1,711,562
========== ========== ==========
Earnings from operations:
Networks $ 272,087 $ 205,576 $ 172,296
Entertainment 32,480 59,662 73,214
Cable Television 110,176 122,037 103,954
Broadcasting 42,293 31,956 27,734
Corporate (72,041) (71,304) (64,964)
---------- ---------- ----------
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234
========== ========== ==========
Depreciation and amortization:
Networks $ 44,747 $ 41,754 $ 30,123
Entertainment 9,549 6,792 7,160
Cable Television 71,520 68,505 66,604
Broadcasting 23,475 24,509 27,062
Corporate 3,766 3,242 1,915
---------- ---------- ----------
Total depreciation and amortization $ 153,057 $ 144,802 $ 132,864
========== ========== ==========
Identifiable assets at year end:
Networks $1,794,418 $1,604,504 $1,453,643
Entertainment 845,620 829,607 855,357
Cable Television 963,047 972,066 979,668
Broadcasting 744,208 722,023 742,650
Corporate 2,069,575 188,894 157,060
---------- ---------- ----------
Total identifiable assets at year end $6,416,868 $4,317,094 $4,188,378
========== ========== ==========
Capital expenditures:
Networks $ 35,786 $ 26,076 $ 6,170
Entertainment 4,933 7,102 916
Cable Television 79,482 54,596 44,967
Broadcasting 4,886 5,102 3,101
Corporate 9,924 17,346 2,275
---------- ---------- ----------
Total capital expenditures $ 135,011 $ 110,222 $ 57,429
========== ========== ==========
II-59
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13) QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1993 and 1992 appears below:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total Year
------- ------- ------- ------- ----------
(Thousands
First Second Third Fourth
Quarter Quarter Quarter Quarter Total Year
------- ------- ------- ------- ----------
(In millions, except per share amounts)
1994
Revenue (1) .......................................... $ 837.8 $ 1,612.6 $ 2,135.4 $ 2,777.4 $ 7,363.2
Earnings (loss) from continuing operations (1) ....... $ (306.7) $ 185.8 $ 422.8 $ 306.4 $ 608.3
Net earnings (loss) from continuing operations
before extraordinary losses and cumulative
effect of change in accounting principle (1) (2) ..... $ (435.5) $ 265.6 $ 335.1 $ (34.7) $ 130.5
Net earnings (loss) (1) (2) .......................... $ (431.6) $ 244.1 $ 327.3 $ (50.2) $ 89.6
Net earnings (loss) attributable to common
stock (1) (2) ........................................ $ (454.1) $ 221.6 $ 312.3 $ (65.2) $ 14.6
Net earnings per common share:
Primary:
Net earnings (loss) from continuing operations
before extraordinary losses and cumulative
effect of change in accounting principle .............. $ (3.62) $ 1.69 $ 1.45 $ (.14) $ .25
Net earnings (loss) ................................... $ (3.59) $ 1.54 $ 1.41 $ (.18) $ .07
Weighted average number of common shares .............. 126.4 143.5 221.1 358.2 220.0
Fully diluted:
Net earnings (loss) from continuing operations
before extraordinary losses and cumulative
effect of change in accounting principle .............. $ (3.62) $ 1.43 $ 1.36 $ (.14) $ .25
Net earnings (loss) ................................... $ (3.59) $ 1.30 $ 1.32 $ (.18) $ .07
Weighted average number of common shares .............. 126.4 169.7 247.2 358.2 220.4
1993
Revenues .............................................. $ 470.7 $ 495.8 $ 508.1 $ 530.3 $ 2,004.9
Earnings from continuing operations ................... $ 90.2 $ 106.6 $ 110.1 $ 78.1 $ 385.0
Net earnings before extraordinary losses
and cumulative effect of changes in
accounting principle (3) .......................... $ 70.6 $ 41.6 $ 30.9 $ 26.4 $ 169.5
Net earnings .......................................... $ 81.0 $ 41.6 $ 22.0 $ 26.4 $ 171.0
Net earnings attributable to commmon stock ............ $ 81.0 $ 41.6 $ 22.0 $ 13.6 $ 158.2
Net earnings per common share:
Net earnings (loss) before extraordinary losses
and cumulative effect of changes in
accounting principle .................................. $ .59 $ .35 $ .25 $ .11 $ 1.30
Net earnings .......................................... $ .67 $ .35 $ .18 $ .11 $ 1.31
Weighted average number of common shares ....... 120.5 120.5 120.6 120.8 120.6
(1) The first quarter of dollars, except per share amounts)
1993
- ----
Revenues $470,650 $495,799 $508,122 $530,378 $2,004,949
Earnings from1994 reflects Paramount Communications' results of
operations $ 90,182 $106,562 $110,153 $ 78,098 $ 384,995
Earnings before
extraordinary lossescommencing March 1, 1994 and cumulative effectmerger-related charges of changes$332.1
million. Results of operations of MSG have been restated to discontinued
operations. The fourth quarter of 1994 reflects Blockbuster's results of
operations commencing October 1, 1994. (See Notes 2 and 3.)
(2) The second quarter of 1994 reflects the pre-tax gain on the sale of the
one-third partnership interest in accounting principle (1) $ 70,626 $ 41,628 $ 30,901 $ 26,326 $ 169,481
Net earnings $ 80,964 $ 41,628 $ 22,034 $ 26,326 $ 170,952
Net earnings
attributable to
common stock (2) $ 80,964 $ 41,628 $ 22,034 $ 13,576 $ 158,202
Net earnings per
common share:
Earnings before
extraordinary losses
and cumulative effectLifetime of changes in
accounting principle $ .59 $ .35 $ .25 $ .11 $ 1.30
Net earnings $ .67 $ .35 $ .18 $ .11 $ 1.31
Average number of
common shares 120,479 120,517 120,645 120,782 120,607
1992
- ----
Revenues $430,568 $451,053 $471,498 $511,564 $1,864,683
Earnings from
operations$267.4 million. (See
Note 14.)
(3) $ 83,399 $ 96,873 $100,010 $ 67,645 $ 347,927
Earnings (loss) before
extraordinary losses (4) $ 10,527 $ (1,145) $ 45,049 $ 11,654 $ 66,085
Net earnings (loss) $ 7,088 $(14,826) $ 45,049 $ 11,654 $ 48,965
Net earnings (loss)
per common share:
Earnings (loss) before
extraordinary losses $ .09 $ (.01) $ .37 $ .10 $ .55
Net earnings (loss) $ .06 $ (.12) $ .37 $ .10 $ .41
Average number of
common shares 120,228 120,229 120,230 120,250 120,235
(1) The first quarter of 1993 reflects a pre-tax gain of $55 million related
to the sale of the stock of Viacom Cablevision of Wisconsin, Inc. (See
Note 14).
(2) The fourth quarter of 1993 reflects Preferred Stock dividends of $12.8
million (See Note 6).
(3) The third quarter of 1992 reflects a reversal of compensation expense
associated with the Long-Term Incentive Plans. The fourth quarter of 1992
reflects a significant expense associated with the Long-Term Incentive
Plans. The fluctuations in compensation expense associated with the Long-
Term Incentive Plans for the third and fourth quarter of 1992 resulted
primarily from the fluctuations in market value of Viacom Inc.'s Common
Stock (See Note 6).
(4) The second quarter of 1992 reflects the reserve for litigation of $33
million related to a summary judgment against the Company in a dispute
with CBS Inc. The third quarter of 1992 reflects a gain of $35 million
related to certain aspects of the settlement of the Time Warner antitrust
lawsuit (See Note 14).
II-6014.)
II-43
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14) OTHER ITEMS, NET
On April 4, 1994, Viacom International sold its one-third partnership interest
in Lifetime for approximately $317.6 million, which resulted in a pre-tax gain
of approximately $267.4 million in the second quarter of 1994. Proceeds from
the sale were used to reduce outstanding debt of Viacom International.
As part of the settlement of the Time Warner antitrust lawsuit, the Company
sold all the stock of Viacom Cablevision of Wisconsin, Inc. to Warner
Communications Inc. ("Warner"). This transaction was effective on January 1,
1993. As consideration for the stock, Warner paid the sum of $46 million plus
repayment of debt under the Credit Agreement in the amount of $49 million,
resulting in a pre-tax gain of approximately $55 million reflected in "Other
items, net." Also reflected in this line item is the net gain on the sale of a
portion of an investment held at cost and adjustments to previously established
non-operating litigation reserves, and other items.
"Other items, net" reflects a gain of $35 million recorded in the third quarter
of 1992; this gain representsrepresenting payments received in the third quarter relating to certain
aspects of the settlement of the Time Warner antitrust lawsuit, net of the
Company's 1992 legal expenses related to this lawsuit. "Other items, net" also
reflects a reserve for litigation of $33 million during the second quarter of
1992 related to a summary judgment against Viacomthe Company in a dispute with CBS
Inc. arising under the 1970 agreement associated with the spin-off of Viacom
International Inc. by CBS Inc. On July 30, 1993, the Company settled all
disputes arising under the abovesuch litigation.
In September 1991, the Company recorded a reserve for its investment in a
start-up joint venture. On August 16, 1991, the Company sold 129,837 shares of
Turner Broadcasting System, Inc. Class B Common Stock for approximately $1.9
million. These transactions resulted in a pre-tax loss of approximately $6.5
million, which is reflected in "Other items, net."
II-6115) SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
----------------------------------------
1994 1993 1992
---- ---- ----
(Millions of dollars)
Cash payments for interest net of amounts capitalized $ 293.6 $167.4 $194.9
Cash payments for income taxes 135.2 32.7 50.7
Supplemental schedule of non-cash financing and
investing activities:
Paramount Merger Consideration 3,175.0 -- --
Blockbuster Merger Consideration 7,622.8 -- --
Class B Common Stock issued as satisfaction for LTIP liability -- -- 6.9
Equipment acquired under capitalized leases 47.6 44.4 26.2
Cancellation of Preferred Stock and Viacom
Class B Common Stock issued to Blockbuster 1,850.0 -- --
II-44
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15) SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
------------------------16) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International is a wholly owned subsidiary of Viacom. Viacom's
guarantees of the Viacom International debt securities are full and
unconditional (See Note 5). Viacom has determined that separate financial
statements and other disclosures concerning Viacom International are not
material to investors. On January 3, 1995, Paramount Communications was
merged into Viacom International and, therefore, the net assets of
Paramount Communications (reflected in non-guarantor affiliates) which
includes approximately $1.0 billion of issuances of long-term debt
became obligations of Viacom International.
The following condensed consolidating financial statements present the
results of operations, financial position and cash flows of Viacom, Viacom
International (carrying any investments in non-guarantor affiliates under
the equity method), and non-guarantor affiliates of Viacom, and the
eliminations necessary to arrive at the information for the Company on a
consolidated basis. Financial statements of Viacom International for 1993 and
1992 1991
---- ----- ----
(Thousands of dollars)
Cash payments for interest net of $167,383 $194,879 $233,904
amounts capitalized
Cash payments for income taxes 32,675 50,738 24,539
Cash received for income taxes 1,074 1,470 3,301
Supplemental schedule of non-cash financing
and investing activities:
B Common stock issued as satisfaction for LTIP liability -- 6,894 --
Equipment acquired under capitalized leases 44,381 26,192 --
B Common Stock issued to acquire the remaining
50.01% interest in MTV EUROPE -- -- 65,000
II-62
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
II-63previously filed on Form 10-K are incorporated by reference herein.
1994
---------------------------------------------------------------------
Non- The
Viacom Guarantor Company
Viacom International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
(In millions)
Revenues ................................. $1,031.1 $ 988.6 $5,356.7 $ (13.2) $7,363.2
Expenses:
Operating ............................ 691.7 601.0 3,121.5 (13.2) 4,401.0
Selling, general and
administrative ....................... 73.8 414.8 1,399.6 -- 1,888.2
Depreciation and amortization ........ 59.8 47.6 358.3 -- 465.7
-------- -------- -------- -------- --------
Total expenses ................ 825.3 1,063.4 4,879.4 (13.2) 6,754.9
-------- -------- -------- -------- --------
Earnings (loss) from continuing
operations ............................... 205.8 (74.8) 477.3 -- 608.3
Other income (expense):
Interest expense, net .................... (325.6) (78.7) (89.8) -- (494.1)
Other items, net ......................... (1.6) 267.1 (3.0) -- 262.5
-------- -------- -------- -------- --------
Earnings (loss) from continuing
operations before income taxes ........... (121.4) 113.6 384.5 -- 376.7
Provision (benefit) for income taxes ..... (14.8) 61.3 233.2 -- 279.7
Equity in earnings (loss) of
affiliated companies, net of tax ...... 207.6 167.0 24.4 (380.4) 18.6
Minority interest ........................ (3.0) (.2) 18.1 -- 14.9
-------- -------- -------- -------- --------
Net earnings from continuing operations .. 98.0 219.1 193.8 (380.4) 130.5
Loss from discontinued operations,
net of tax ............................... -- -- (20.5) -- (20.5)
-------- -------- -------- -------- --------
Net earnings before extraordinary loss
and cumulative effect of change
in accounting principle .................. 98.0 219.1 173.3 (380.4) 110.0
Extraordinary loss, net of tax ........... (8.4) (12.0) -- -- (20.4)
-------- -------- -------- -------- --------
Net earnings ............................. 89.6 207.1 173.3 (380.4) 89.6
Cumulative convertible preferred
stock dividend requirement ........ 75.0 -- -- -- 75.0
-------- -------- -------- -------- --------
Net earnings attributable to
common stock ............................. $ 14.6 $ 207.1 $ 173.3 $ (380.4) $ 14.6
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
II-45
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1994
------------------------------------------------------------------------
Non- The
Viacom Guarantor Company
Viacom International Affiliates Elimination Consolidated
------ ------------- ---------- ------------ ------------
(In millions)
Assets
Current Assets:
Cash and cash equivalents ................ $ 135.6 $ 63.4 $ 398.7 $ -- $ 597.7
Receivables, less allowances ............. 279.0 236.8 1,138.0 (15.0) 1,638.8
Inventory ................................ 515.7 10.8 304.4 -- 830.9
Theatrical and television inventory ...... 178.4 133.5 675.0 -- 986.9
Other current assets ..................... 59.8 49.6 394.1 -- 503.5
Net assets of discontinued
operations ........................... -- -- 697.4 -- 697.4
-------- -------- -------- -------- --------
Total current assets ................. 1,168.5 494.1 3,607.6 (15.0) 5,255.2
-------- -------- -------- -------- --------
Property and equipment .......................... 667.0 170.8 2,261.8 -- 3,099.6
Less accumulated depreciation ................... (17.2) (46.7) (452.6) -- (516.5)
-------- -------- -------- -------- --------
Net property and equipment ...................... 649.8 124.1 1,809.2 -- 2,583.1
-------- -------- -------- -------- --------
Inventory ....................................... 419.1 282.4 1,243.0 -- 1,944.5
Intangibles, at amortized cost .................. 6,787.5 801.6 8,522.6 -- 16,111.7
Investment in consolidated subsidiaries.......... 3,577.0 176.2 -- (3,753.2) --
Other assets .................................... 712.8 348.8 1,458.1 (140.5) 2,379.2
-------- -------- -------- -------- --------
$ 13,314.7 $2,227.2 $ 16,640.5 $ (3,908.7) $ 28,273.7
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ........................... $ 450.9 $ 23.4 $ 296.6 $ -- $ 770.9
Accrued interest ........................... 131.5 14.9 88.5 -- 234.9
Accrued compensation........................ 42.0 83.4 215.2 -- 340.6
Deferred income, current ................... -- 9.8 241.1 250.9
Merger consideration payable ............... 261.7 -- -- -- 261.7
Other accrued expenses ..................... 323.5 183.4 938.6 (8.7) 1,436.8
Participants share, residuals and
royalties payable .......................... 11.4 104.8 513.8 -- 630.0
Program rights, current .................... -- 20.3 180.5 (16.4) 184.4
Current portion of long-term debt .......... 3.8 7.4 9.8 -- 21.0
-------- -------- -------- --------- --------
Total current liabilities .............. 1,224.8 447.4 2,484.1 (25.1) 4,131.2
-------- -------- -------- --------- --------
Long-term debt .................................. 8,583.0 560.1 1,496.7 (237.4) 10,402.4
Other liabilities ............................... (8,299.6) (192.0) 2,585.3 7,854.8 1,948.5
Shareholders' equity
Preferred Stock ............................ 1,200.0 -- -- -- 1,200.0
Common Stock ............................... 3.5 .1 -- (.1) 3.5
Additional paid-in capital ................. 10,576.0 787.6 9,973.1 (10,757.2) 10,579.5
Retained earnings .......................... 31.7 627.6 95.0 (743.7) 10.6
Cumulative translation adjustment .......... (4.7) (3.6) 6.3 -- (2.0)
-------- -------- -------- --------- --------
Total shareholders' equity ...... 11,806.5 1,411.7 10,074.4 (11,501.0) 11,791.6
-------- -------- -------- --------- --------
$ 13,314.7 $ 2,227.2 $ 16,640.5 $ (3,908.7) $ 28,273.7
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
II-46
VIACOM INTERNATIONALINC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1994
--------------------------------------------------------------------
Non- The
Viacom Guarantor Company
Viacom International Affiliates Elimination Consolidated
------ ------------- ---------- ----------- ------------
(In millions)
Net cash flow from operating
activities ...................................... $ (25.5) $ 22.4 $ 376.8 $ (34.5) $ 339.2
-------- ------ ------- ------- -------
Investing Activities:
Capital expenditures ............................ (112.2) (39.5) (213.2) -- (364.9)
Investments in and advances to
affiliated companies ............................ -- (26.5) (24.8) -- (51.3)
Distribution from affiliated companies .......... -- 4.5 33.2 -- 37.7
Proceeds from disposition ....................... -- 317.6 -- 317.6
Acquisitions, net of cash acquired .............. (6,609.1) -- 354.5 -- (6,254.6)
Proceeds from sale of short-term
investments ..................................... -- -- 156.2 -- 156.2
Payments for purchase of short-term
investments ..................................... -- -- (102.2) -- (102.2)
Deposits on transponders ........................ -- (1.1) -- -- (1.1)
Other, net ...................................... (19.2) (5.8) (3.3) (7.8) (36.1)
-------- ------ ------- ------- -------
Net cash flow from investing
activities ...................................... (6,740.5) 249.2 200.4 (7.8) (6,298.7)
-------- ------ ------- ------- -------
Financing Activities:
Short-term borrowings (repayments)
from banks, net ................................. 5,175.9 (1,541.1) (74.8) -- 3,560.0
Repayment to banks under credit facilities ...... (13.9) -- -- -- (13.9)
Increase (decrease) in intercompany
payables ........................................ (1,202.1) 1,271.2 (111.4) 42.3 --
Proceeds from issuance of Class B
Common Stock .................................... 1,250.0 -- -- -- 1,250.0
Payment of Preferred Stock
dividends ....................................... (72.7) -- -- -- (72.7)
Payment of deferred financing costs ............. (86.8) (.3) -- -- (87.1)
Other, net ...................................... 42.8 (.9) (3.4) -- 38.5
-------- ------ ------- ------- -------
Net cash flow from financing
activities ...................................... 5,093.2 (271.1) (189.6) 42.3 4,674.8
-------- ------ ------- ------- -------
Net increase (decrease) in cash and
cash equivalents ................................ (1,672.8) .5 387.6 -- (1,284.7)
Cash and cash equivalents at beginning
of year ......................................... 1,808.4 62.9 11.1 -- 1,882.4
-------- ------ ------- ------- -------
Cash and cash equivalents at end
of year ......................................... $ 135.6 $ 63.4 $ 398.7 $ -- $ 597.7
-------- ------ ------- ------- -------
-------- ------ ------- ------- -------
Item 9. Disagreements on Accounting and Financial Disclosure - Not applicable.
II-47
VIACOM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULESSCHEDULE
The following consolidated financial statements and schedulesschedule of the
registrant and its subsidiaries are submitted herewith as part of this
report:
Reference
(Page/s)
--------
1. Report of Independent Accountants.................. II-32
2. Management's Statement of Responsibility for
Financial Reporting................................ II-33
3. Consolidated Statements of Operations for the years
ended December 31, 1993, 1992, and 1991........... II-34
4. Consolidated Balance Sheets as of December 31, 1993
and 1992........................................... II-35-II-36
5. Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991........... II-37
6. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1993, 1992 and 1991... II-38
7. Notes to Consolidated Financial Statements......... II-39-II-62
Report of Independent Accountants on Financial
Statement Schedules................................... F-2
Financial Statement Schedules:
II. Amounts receivable from related parties.
Reference
(Page/s)
1. Report of Independent Accountants ................................... II-14
2. Management's Statement of Responsibility for Financial Reporting .... II-15
3. Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 .................................... II-16
4. Consolidated Balance Sheets as of December 31, 1994 and 1993 ........ II-17-II-18
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 .................................... II-19
6. Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1993 and 1992 ........................ II-20
7. Notes to Consolidated Financial Statements .......................... II-21-II-47
Report of Independent Accountants on Financial Statement Schedule ...... F-2
Financial Statement Schedule:
II. Valuation and qualifying accounts ............................. F-3
VIII. Valuation and qualifying accounts.......... F-4
IX. Short-term borrowings...................... F-5
X. Supplementary statement of operations
information................................ F-6
All other Schedules are omitted since the required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements
and notes thereto.present.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the BoardsBoard of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
Our audits of the consolidated financial statements referred to in
our report dated February 4, 1994, except as to Note 2, which is as of
March 11, 1994, 10, 1995,appearing on page II-32II-14 of this
annual report on Form 10-K also included an audit of the Financial
Statement SchedulesSchedule listed in Item 14(a) of this Form 10-K. In our
opinion, thesethe Financial Statement Schedules presentSchedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 4, 199410, 1995
F-2
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
(Thousands of Dollars)VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
Col. A Col. B Col. C Col. D Col. ECol.E
------ ------ ------ ------ ------
Balance at End of
Deductions Period
-------------------------- -----------------
Balance at Amounts
Beginning of Amounts Written Non-
Name of Debtor Period Additions Collected Off Other Current Current
-------------- ----------- --------- --------- ------- ----- ------- -------
Year ended December 31, 1993:
National Amusements, Inc. -- $ 855 $ 855 -- -- -- --
Year Ended December 31, 1992:
National Amusements, Inc. -- $1,307 $1,307 -- -- -- --
Year Ended December 31, 1991:
National Amusements, Inc. -- $2,885 $2,885 -- -- -- --
F-3
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
Col. A Col. B Col. C Col. D Col. E
------ ------ ----------------------- ------------- ------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts(A) Deductions(B)Accounts Deductions Period
----------- ----------- --------- ----------- ------------------- -------- -------- ---------- ------
Allowance for doubtful accounts:
Year ended December $25,779 $16,733 $3,459 $12,082 $33,889
31, 1993
Year ended December $28,603 $ 9,355 $ (155) $12,024 $25,779
31, 1992
Year ended December $23,593 $15,855 $1,933(C) $12,778 $28,603
31, 1991
Notes:
-----1994 ........... $33.9 $61.6 $46.1 (A) Charged (credited) to the balance sheet account "Owners' share of
distribution revenue."
(B) Includes amounts written off, net of recoveries.
(C) Includes the allowance for doubtful accounts of MTV EUROPE,
previously accounted for under the equity method, of $689 thousand
F-4
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Thousands of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate Beginning of Interest During the During the During the
Short-term Borrowings Period Rate Period Period(A) Period(A)
- --------------------- ----------- -------- ---------- ----------- -------------
$65.8 $75.8
Year ended December 31, 1993 Money Market........... $25.8 $16.7 $ -- -- $ 23,000 $ 305 3.68%
Commercial Paper $ 60,879 3.68% $ 174,257 $122,744 3.64%3.5 (B) $12.1 $33.9
Year ended December 31, 1992:
Money Market1992 ........... $28.6 $ -- --9.4 $ 6,000 $ 1,684 4.66%
Commercial Paper $ 9,984 3.83% $ 144,638 $ 74,214 4.51%(.2)(B) $12.0 $25.8
Valuations allowance on deferred
tax assets:
Year ended December 31, 1991:
Money Market $1994 ........... -- $75.7 -- -- $ 20,000 $ 1,293 6.28%
Commercial Paper $ 73,425 5.51% $ 188,975 $108,985 6.58%
NOTE:
----$75.7
Reserves for inventory obsolescence:
Year ended December 31, 1994 ........... -- $32.3 $119.9 (A) Calculated on a monthly basis.$26.9 $125.3
F-5
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(ThousandsNotes:
(A) Primarily represents adjustments made as part of Dollars)
Col. A Col. B
------ -----------------------------
Chargedthe Mergers.
(B) Represents balance sheet reclassifications related to Costs and Expenses
-----------------------------
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
ITEM
Maintenance and repairs $21,104 $25,649 $20,145
Advertising costs $79,827 $51,124 $68,858
Amortization $60,278 $63,256 $62,795
Taxes, other than payroll and $30,362 $21,000 $19,805
income taxes
NOTE:
----
Items not presented above are less than 1%certain entertainment
receivables.
(C) Includes amounts written off, net of revenues or are
presented elsewhere in the consolidated financial statements.
F-6recoveries.
F-3
PART III
ITEMItem 10. DIRECTORS AND EXECUTIVE OFFICERS.Directors and Executive Officers.
The information contained in the Viacom Inc.
Definitive Proxy Statement under the caption "Information
Concerning Directors and Nominees" is incorporated herein by
reference.
ITEMItem 11. EXECUTIVE COMPENSATION.Executive Compensation.
The information contained in the Viacom Inc.
Definitive Proxy Statement under the captions "Directors'
Compensation" and "Executive Compensation" is incorporated
herein by reference.
ITEMItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.Security Ownership of Certain Beneficial Owners
and Management.
The information contained in the Viacom Inc.
Definitive Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" is
incorporated herein by reference.
ITEMItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.Certain Relationships and Related Transactions.
The information contained in the Viacom Inc.
Definitive Proxy Statement under the caption "Related
Transactions" is incorporated herein by reference.
III - 1III-1
PART IV
ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORMExhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a) and (d) Financial Statements and Schedules
(see Index on Page F-1)
(b) Reports on Form 8-K
Current ReportsReport on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report
date of October 5, 199318, 1994
relating to the agreement dated ascommencement of October 4, 1993
between Viacom Inc. and NYNEX Corporation ("NYNEX") pursuant
to which NYNEX subscribed for and agreed to purchase from
Viacom Inc. 24 million sharesa litigation
concerning Blockbuster's acquisition of newly issued Series B
Cumulative Convertible Preferred Stock of Viacom Inc. for an
aggregate purchase price of $1.2 billion.the
plaintiffs' interests in a limited partnership.
Current ReportsReport on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report
date of October 27, 1993December 15, 1994
relating to the completioninstitution of the issuance and sale to
Blockbuster Entertainment Corporation ("Blockbuster")cross-guarantees by
Viacom Inc. of 24 million shares of new issued Series A
Cumulative Convertible Preferred Stock and the election of
H. Wayne Huizenga, Chairman and Chief Executive Officer of
Blockbuster, as a directoreach of Viacom Inc. and, Viacom International Inc. Current Reports on Form 8-K of Viacom Inc. and
Viacom
International Inc. with a report date of November 19, 1993
relating to the completion of the issuance and sale to NYNEX
Corporation ("NYNEX") of 24 million shares of newly issued
Series B Cumulative Convertible Preferred Stock for an
aggregate purchase price of $1.2 billion and the election of
William C. Ferguson, Chairman and Chief Executive Officer of
NYNEX, as a director of Viacom Inc. and Viacom InternationalParamount Communications Inc.
(c) Exhibits (see index on Page E-1)
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or
15(D) of the Securities Exchange Act of 1934, Viacom Inc.
has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
VIACOM INC.
By /s/Frank J. Biondi, Jr.
---------------------------------------------------------------
Frank J. Biondi, Jr., President,
Chief Executive Officer
By /s/George S. Smith, Jr.
---------------------------------------------------------------
George S. Smith, Jr., Senior Vice
President, Chief Financial Officer
By /s/Kevin C. Lavan
---------------------------------------------------------------
Kevin C. Lavan, Senior Vice President,
Controller, Chief Accounting Officer
Date: March 31, 19941995
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons on behalf of Viacom Inc. and in the
capacities and on the dates indicated:
By * March 31, 1994
--------------------------------1995
-------------------------------------
George S. Abrams, Director
By * March 31, 1995
-------------------------------------
Steven R. Berrard, Director
By /s/Frank J. Biondi, Jr.Jr . March 31, 1994
--------------------------------1995
-------------------------------------
Frank J. Biondi, Jr., Director
By /s/Philippe P. Dauman March 31, 1994
--------------------------------1995
-------------------------------------
Philippe P. Dauman, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
William C. Ferguson, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
H. Wayne Huizenga, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
George D. Johnson, Jr., Director
By * March 31, 1995
-------------------------------------
Ken Miller, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
Brent D. Redstone, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
Sumner M. Redstone, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
Shari Redstone, Director
By * March 31, 1995
-------------------------------------
Frederic V. Salerno, Director
By * March 31, 1994
--------------------------------1995
-------------------------------------
William Schwartz, Director
* By /s/Philippe P. Dauman March 31, 1994
--------------------------------1995
---------------------------------------
Philippe P. Dauman
Attorney-in-Fact
for the Directors
VIACOM INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM 14(C)
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(2) Plan of Acquisition
(a) Certificate of Ownership and Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. as filed with the Office of Secretary of
State of Delaware and effective on April 26,
1990 (incorporated by reference to
Exhibit 2(1) to the Current Report on Form 8-K
of Viacom International Inc. with a report
date of April 26, 1990) (File No. 1-9554).
(b) Certificate and Agreement of Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. filed with the Office of the Secretary of
State of Ohio and effective April 26, 1990
(incorporated by reference to Exhibit 2(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(c) Agreement and Plan of Merger dated as of
January 7, 1994, as amended as of June 15, 1994, between
Viacom Inc. and Blockbuster Entertainment Corporation
(incorporated by reference to Exhibit 99(c)(9)2 1 to the Registration
Statement on Form S-4 filed by Viacom Inc. Schedule 14D-1 Tender Offer
Statement (Amendment) (File No. 20) dated January 7,
1994)33-
55271).
(d) Voting Agreement dated as of January 7, 1994
between National Amusements, Inc. and
Blockbuster Entertainment Corporation (filed
herewith).
(e) Amended and Restated Stockholders Stock Option
Agreement dated as of January 7, 1994 among
Viacom Inc. and each person listed on the
signature pages thereto (filed herewith).
(f) Amended and Restated Proxy Agreement dated as
of January 7, 1994 among Viacom Inc. and each
person listed on the signature pages thereto
(filed herewith).
(g) Voting Agreement dated as of January 21, 1994
between National Amusements, Inc. and
Paramount Communications Inc. (incorporated by
reference to Exhibit 99(a)(66) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 29) dated January 24, 1994).
(h)(b) Amended and Restated Agreement and Plan of
Merger dated as of February 4, 1994 between Viacom Inc.
and Paramount Communications Inc., as further amended as
of May 26, 1994, among Viacom, Viacom Sub Inc. and
Paramount Communications Inc. (incorporated by reference
to Exhibit 99(a)(92)2.1, included as Annex I, to the Registration
Statement on Form S-4 filed by Viacom Inc. Schedule 14D-1 Tender
Offer Statement (Amendment) (File No. 38) dated
February 7, 1994)33-
53977).
E-1
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(3) Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation of Viacom
Inc. (incorporated by reference to Exhibit 3(a) to the
Annual ReportsReport on Form 10-
K10-K of Viacom Inc. and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as
further amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554)No. 1-9553).
(b) Amendment to Restated Certificate of the Designations, Powers,
Preferences and Relative, Participating or
other Rights, and the Qualifications,
Limitations or Restrictions thereof, of Series
A Cumulative Convertible Preferred Stock
($0.01 par value)Incorporation of
Viacom Inc. (incorporated by reference to Exhibit 4.13.2 to the
Quarterly
ReportsRegistration Statement on Form 10-Q ofS-4 filed by Viacom Inc.
and Viacom
International Inc. for the quarter ended
September 30, 1993) (File Nos. 1-9553/1-9554)No. 33-55271).
(c) Certificate of Merger merging Blockbuster Entertainment
Corporation with and into Viacom Inc. (incorporated by
reference to Exhibit 4.3 to the Registration Statement on
Form S-3 filed by Viacom Inc. ) (File No. 33-55785).
E-1
(d) Certificate of the Designations, Powers,
Preferences and Relative, Participating or other Rights, and
the Qualifications, Limitations or Restrictions thereof, of
Series B Cumulative Convertible Preferred Stock ($0.01 par
value) of Viacom Inc. (filed
herewith).
(d)(incorporated by reference to Exhibit
4.1 to the Quarterly Report on Form 10-Q of Viacom Inc.
for the quarter ended September 30, 1993) (File No. 1-
9553)
(e) By-laws of Viacom Inc. (incorporated by
reference to Exhibit 3.3 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 33-13812).
(e) Certificate of Incorporation of Viacom
International Inc. (formerly Arsenal Holdings
II, Inc.) (incorporated by reference to
Exhibit 3(e) to the Annual Reports on Form 10-
K of Viacom Inc. and Viacom International Inc.
for the fiscal year ended December 31, 1990,
as amended on Form 8, dated June 3, 1991)
(File Nos. 1-9553/1-9554).
(f) By-laws of Viacom International Inc. (formerly
Arsenal Holdings II, Inc.) (incorporated by
reference to Exhibit 3(f) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990, as amended on Form 8, dated
June 3, 1991) (File Nos. 1-9553/1-9554).
E-2
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(4) Instruments defining the rights of security holders, including indentures:
(a) Specimen certificate representing the Viacom
Inc. Voting Common Stock (currently Class A Common
Stock) (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 filed by Viacom Inc.)
(File No. 33-
13812)33-13812).
(b) Specimen certificate representing Viacom Inc.
Class B Non-Voting Common Stock (incorporated by
reference to Exhibit 4(a) to the Quarterly ReportsReport on Form
10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended June 30, 1990)
(File Nos. 1-9553/1-9554)No. 1-9553).
(c) Specimen certificate representing Viacom Inc.
Series A Cumulative Convertible Preferred
Stock of Viacom Inc. (filed herewith).
(d) Specimen certificate representing Viacom Inc.
Series B Cumulative Convertible Preferred Stock of Viacom
Inc. (filed herewith).
(e) Indenture, dated as of September 15, 1991,
among Viacom International Inc., as Issuer,
Viacom Inc., as Guarantor, and The Bank of New
York, as Trustee, relating to Viacom
International Inc.'s Guarantied Senior
Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
September 20, 1991) (File Nos. 1-9553/1-9554)
as supplemented by the First Supplemental
Indenture dated as of September 15, 1991 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 10.25% Senior Subordinated Notes due
September 15, 2001 (incorporated by reference
to Exhibit 4.2 to the Current Reports on Form
8-K of Viacom Inc. and Viacom International
Inc. with a report date of September 20, 1991)
(File Nos. 1-9553/1-9554) as further
supplemented by the Second Supplemental
Indenture dated as of March 4, 1992 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 9.125% Senior Subordinated Notes due
August 15, 1999 and relating to Viacom
International Inc.'s 8.75% Senior Subordinated
Reset Notes due May 15, 2001 (incorporated by
reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
March 4, 1992) (File Nos. 1-9553/1-9554).
(f) Specimen of Note evidencing the 10.25% Senior
Subordinated Notes due September 15, 2001
(incorporated by reference to Exhibit 4.3 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of September 20, 1991) (File Nos. 1-
9553/1-9554).
(g) Specimen of Note evidencing the 9.125% Senior
Subordinated Notes due August 15, 1999
(incorporated by reference to Exhibit 4.2 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of March 4, 1992) (File Nos. 1-9553/1-
9554).
E-3
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(h) Specimen of Note evidencing the 8.75% Senior
Subordinated Reset Notes due May 15, 2001
(incorporated by reference to Exhibit 4.1 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of May 28, 1992) (File Nos. 1-9553/1-
9554).
(i) Indenture, dated as of July 15, 1988, between
Viacom International Inc. and Bankers Trust
Company, Trustee, relating to Viacom
International Inc.'s 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit 4.1 to the Registration
Statement on Form S-2 filed by Viacom
International Inc.) (File No. 33-21280) and
the First Supplement to Indenture dated April
27, 1990 between Viacom International Inc. and
Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(j) Form of Note evidencing the 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit A to the Indenture filed
as Exhibit 4.1 to the Registration Statement
on Form S-2 filed by Viacom International
Inc.) (File No. 33-21280).
(k) Indenture, dated as of June 15, 1986, between
Viacom International Inc. and Morgan Guaranty
Trust Company of New York, Trustee, relating
to Viacom International Inc.'s 5 3/4%
Convertible Subordinated Debentures Due 2001
(incorporated by reference to Exhibit 4.5(b)4(d) to the
Annual Report on Form 10-K of Viacom International Inc. for the fiscal
year ended December 31, 1986)1993, as amended by Form 10-
K/A Amendment No. 1 dated May 2, 1994) (File No. 1-6514), and the
First Supplement to Indenture, dated June 9,
1987, among Viacom International Inc.,1-
9533).
(d) Form of Contingent Value Rights Agreement between
Viacom Inc. and Morgan GuarantyHarris Trust Companyand Savings Bank, as Trustee
(including the Form of New
York, TrusteeContingent Value Right)
(incorporated by reference to Exhibit 4.5(b)4.6 to the Registration
Statement on Form S-4 filed by Viacom Inc. ) (File No. 33-
53977).
(e) Form of Warrant Agreement between Viacom Inc.
and Harris Trust and Savings Bank, as Warrant Agent with
respect to the Warrants expiring July 1, 1997 of Viacom
Inc. (including the Form of Warrant expiring July 1, 1997)
(incorporated by reference to Exhibit 4.7 to the Registration
Statement on Form S-4 filed by Viacom Inc.) (File No. 33-13812)33-
53977).
(l)E-2
(f) Form of Warrant Agreement between Viacom Inc.
and Harris Trust and Savings Bank, as Warrant Agent with
respect to the Warrants expiring July 1, 1999 of Viacom
Inc. (including the Form of Warrant expiring July 1, 1999)
(incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-4 filed by Viacom Inc.) (File No. 33-
53977).
(g) Form of Certificate representing the Variable Common
Rights of Viacom Inc. (incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-4 filed by
Viacom Inc.) (File No. 33-55271).
(h) Credit Agreement dated as of July 1, 1994 among Viacom
Inc.; the Bank parties thereto; The Bank of New York
("BNY"), Citibank N.A. ("Citibank"), Morgan Guaranty
Trust Company of New York and Bank of America
NT&SA, as Managing Agents; BNY, as Documentation
Agent; Citibank, as Administrative Agent: JP Morgan
Securities Inc., as Syndication Agent: and the Agents and
Co-Agents named therein (incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K of Viacom
Inc. dated July 22, 1994) (File No. 1-9553).
(i) Credit Agreement dated as of September 26,
1989 (the "Credit Agreement"), among Viacom
International Inc., the banks listed therein
(the "Banks"), and Citibank, N.A. as Agent and
The Bank of New York as Co-Agent, as amended
and restated as of January 17, 1992 among
Viacom Inc., as Guarantor, Viacom
International Inc., the Subsidiary Obligors,
the Banks, Citibank, N.A. as Agent, and The
Bank of New York as Co-Agent (incorporated by
reference to Exhibits 10(1) and 10(2) to the
Current Reports on Form 8-K of Viacom Inc. and
Viacom International Inc. with a report date
of January 22, 1992) as amended by Letter
Agreements dated as of May 13, 1993 and April
7, 1993 (incorporated by reference to Exhibits
4.1 and 4.2 to the Current Reports on Form 10-
Q of Viacom Inc. and Viacom International Inc.
for the quarter ended June 30, 1993) (File
Nos. 1-9553/1-9554)
(m) Loan Facility Agreement dated as of June 2,
1993 among the Company and the banks named
therein and The Bank of New York as
Administrative Managing Agent, and The Bank of
New York and Citibank as Managing Agents
(incorporated by reference to Exhibit 10.1 to
the Quarterly Reports on Form 10-Q of Viacom
Inc. and Viacom International Inc. for the
quarter ended June 30, 1993)(File Nos. 1-
9553/1-9554).
E-4
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(n) Credit Agreement dated as of November 19,
1993, as amended as of January 4, 1994 and as
further amended as of February 15,29, 1994,
among Viacom Inc., the Banks named therein, and Theparties thereto, the Bank of
New York, as a Managing Agent and as the Documentation
Agent, Citibank, N.A.N.A, as a Managing Agent and as the
Administrative Agent, Morgan Guaranty Trust Company of
New York, as a Managing Agent, JP Morgan Securities
Inc., as the Syndication Agent, The Bank of America
NT&SA, as a Managing Agent, and the Banks named as
Agents therein (incorporated by reference to Exhibit 99(a)(11)99.2 to
the Current Report on Form 8-K of Viacom Inc. Schedule 14D-
1 Tender Offer Statement (Amendmentdated
September 29, 1994) (File No. 46)
dated March 3, 1994)1-9553).
(j) The instruments defining the rights of holders of the
long-term debt securities of Viacom Inc. and its subsidiaries
are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of
Regulation S-K. Viacom Inc. hereby agrees to furnish
copies of these instruments to the Securities and Exchange
Commission upon request.
E-3
(10) Material Contracts
(a) Viacom Inc. 1989 Long-Term Management
Incentive Plan (as amended and restated through April 23,
1990) (incorporated by reference to Exhibit A to Viacom
Inc.'s Definitive Proxy Statement dated April 27,27. 1990).
(b) Viacom Inc. 1994 Long-Term Management
Incentive Plan (incorporated by reference to Exhibit B to
Viacorn Inc.'s Proxy Statement/Prospectus dated June 6,
1994). *
(b)(c) Viacom Inc. Senior Executive Short-Term Incentive
Plan (incorporated by reference to Exhibit A to Viacom
Inc.'s Proxy Statement/Prospectus dated June 6, 1994). *
(d) Viacom Inc. Long-Term Incentive Plan
(incorporated by reference to Exhibit A to Viacom Inc.'s
Definitive Proxy Statement dated April 29, 1988), and
amendment thereto (incorporated by reference to Exhibit
10(d) to the Annual ReportsReport on Form 10-K of Viacom Inc.
and Viacom International Inc.
for the fiscal year ended December 21, 1991)1991 ) (File Nos. 1-
9553/1-9554)No. 1 -
9553), and as further amended by amendment dated
December 17, 1992 (incorporated by reference to Exhibit
10(d) to the Annual ReportsReport on Form 10-K of Viacom Inc.
and Viacom International Inc.
for the fiscal year ended December 31, 1992, as amended
by Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A Amendment
No. 2 dated December 9, 1993) (File Nos. 1-9553/1-9554)No. 1-9553).*
(c)(e) Viacom Inc. Long-Term Incentive Plan (Divisional)
(incorporated by reference to Exhibit 10.2 to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom International
Inc. for the quarter ended
June 30, 1993)(File
Nos. 1-9553/1-9554) (File No. 1-9553).*
(d)(f) Viacom International Inc. Deferred
Compensation Plan for Non-Employee Directors (as
amended and restated through December 17, 1992)
(incorporated by reference to Exhibit 10(e) to the Annual
ReportsReport on Form 10-K of Viacom Inc. and Viacom International Inc. for the fiscal year
ended December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554)No. 1-9553).*
(e)(g) Viacom Inc. and Viacom International Inc.
Retirement Income Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10(f) to the Annual
Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1989) (File Nos. 1-9553/1-9554).*---------------
* Management contract or compensatory plan required to be
filed as an exhibit to this form pursuant to Item 14(c).
E-5E-4
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -------------------------------------------------------------------
(f)Reports on Form 10-K of Viacom Inc. for the fiscal year
ended December 31, 1989) (File No. 1-9553).*
(h) Viacom Inc. Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit 10.2 to the
Quarterly ReportsReport on Form 10-Q of Viacom Inc. and Viacom International Inc. for the
quarter ended June 30, 1993)(File Nos. 1-9553/1-9554)No. 1-9553).
(i) Viacom Inc. 1994 Stock Option Plan for Non-Employee
Directors (filed herewith). *
(g)(j) Excess Benefits Investment Plan for Certain
Key Employees of Viacom International Inc. (effective April
1, 1984 and amended as of January 1, 1990) (incorporated
by reference to Exhibit 10(h) to the Annual ReportsReport on Form
10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended December 31,
1990) (File Nos. 1-9553/1-9554)No. 1-9553).*
(h)(k) Excess Pension Plan for Certain Key Employees
of Viacom International Inc. (incorporated by reference to
Exhibit 10(i) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for the fiscal
year ended December 31, 1990) (File Nos. 1-9553/1-9554)1-
9554).*
(i)(l) Employment Agreement, dated as of August 1,
1987, between Viacom International Inc. and
Frank J. Biondi, Jr. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (File No. 1-9553/1-9554).
Guarantee Agreement, dated as of August 1,
1987, from Viacom Inc. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (Files Nos. 1-9553/1-9554).
Agreement under the Viacom Inc. Long-Term
Incentive Plan, dated March 7, 1989,1994, between Viacom Inc. and Frank J. Biondi, Jr.
(incorporated by reference to Exhibit 10(e)10.1 to the Annual ReportsQuarterly
Report on Form 10-K10-Q of Viacom Inc. and Viacom International Inc. for the fiscal
yearquarter ended
December 31, 1988)September 30, 1994) (File Nos. 1-
9553/1-9554)No. 1-9533).*
(j) Agreement dated as of January 1, 1990,
between Viacom International Inc. and Neil S.
Braun (incorporated by reference to
Exhibit 10(l) tounder
the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554)
as amended by an Agreement dated as of October
1, 1992 (incorporated by reference to Exhibit
10(k) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(k) Amended and Restated Employment Agreement,
dated as of October 1, 1987, between Viacom
International Inc. and John W. Goddard
(incorporated by reference to Exhibit 10(l) to
the Annual Reprints on Form 10-K of Viacom
Inc. and Viacom International Inc. for the
fiscal year ended December 31, 1991) (File
Nos. 1-9553/1-9554).*
*1994 Long-Term Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-6
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(l) Agreement,Incentive
Plan, dated as of August 1, 1990,18, 1994, between Viacom International Inc.
and George S. Smith,Frank J. Biondi, Jr. (incorporated by reference to
Exhibit 10(o)10.1 to the Annual ReportsQuarterly Report on Form 10-K10-Q of
Viacom Inc. and Viacom
International Inc. for the fiscal yearquarter ended December 31, 1990)September 30, 1994)
(File Nos. 1-9553/1-9554).No. 1-9533)*
(m) Agreement, dated as of August 1, 1990, between
Viacom International Inc. and Mark M. Weinstein
(incorporated by reference to Exhibit 10(p) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended December 31,
1990) (File Nos. 1-9553/1-9554), as amended by an
Agreement dated as of February 1, 1993 (incorporated by
reference to Exhibit 10(n) to the Annual ReportsReport on Form
10-K of Viacom Inc. and Viacom International Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554).*
(n) Agreement, dated as of August 1, 1992, between
Viacom International Inc. and Thomas E. Dooley
(incorporated by reference to Exhibit 10(o) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554) as amended by an Agreement
dated as of October 1, 1992 (incorporated by
reference to Exhibit 10(o) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as
further amended by Form 10-K/A Amendment No. 2
dated December 9, 1993) (File Nos. 1-9553/1-
9554).*
(o) Agreement, dated as of January 1, 1992,
between Viacom International Inc. and Edward
Horowitz (incorporated by reference to
Exhibit 10(p) to the Annual Reports on Form
10-K of Viacom Inc. and Viacom International
Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554) as
amended by an Agreement dated as of October 1,
1992 (incorporated by reference to Exhibit
10(p) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(p) Agreement dated as of February 1, 1993 between
Viacom International Inc. and Philippe P.
Dauman (incorporated by reference to Exhibit
10(q) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*----------------------
* Management contract or compensatory plan required to be
filed as an exhibit to this form pursuant to Item 14(c).
E-7E-5
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(q) Partnership1992, as amended by Form 10-K/A Amendment No. 1
dated November 29. 1993 and as further amended by Form
10-K/A Amendment No. 2 dated December 9. 1993) (File
No. 1-9553), and as further amended by an Agreement
between Viacom HA!
Holding Company and The Comedy Channel Corp.dated February 7, 1995 (filed herewith). *
(n) Agreement, dated as of December 17, 1990April 1, 1994, between
Viacom Inc. and Thomas E. Dooley (filed herewith)*.
Letter Agreement, dated as of April 1, 1994, between
Viacom Inc. and Thomas E. Dooley (filed herewith).*
(o) Agreement, dated as of July 1, 1994, between
Viacom Inc. and Edward D. Horowitz (filed herewith).*
Letter Agreement, dated as of July 1, 1994, between
Viacom Inc. and Edward D. Horowitz (filed herewith). *
(p) Agreement, dated as of February 1, 1993. between
Viacom International Inc. and Philippe P. Dauman
(incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form S-3 filed by Viacom
International Inc.) (File No. 33-40170).
(r) Lease Agreement between First Security Bank of
Utah, N.A., as owner trustee and Viacom
International Inc. dated as of August 12, 1992
(incorporated by reference to Exhibit 10(t)10(q) to the Annual
ReportsReport on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal year
ended December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29,December 29. 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554).
(s) LeaseNo. 1-9553), as amended by an
Agreement, dated as of June 22, 1993April 1, 1994, between Mellon Financial Services CorporationViacom
Inc., Viacom International Inc. and Philippe P. Dauman
(filed herewith). * Letter Agreement, dated as of April 1,
1994, between Viacom Inc. and Philippe P. Dauman (filed
herewith). *
(q) Service Agreement, dated as of March 1. 1994.
between George S. Abrams and Viacom International Inc. (filed
herewith). *
(r) Blockbuster Entertainment Corporation ("BEC") stock
option plans* assumed by Viacom Inc. after the Blockbuster
Merger consisting of the following:
(i) BEC's 1989 Stock Option Plan (incorporated by
reference to BEC's Proxy Statement dated March 31,
1989)
(ii) Amendments to BEC's 1989 Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 3, 1991 )
--------------------
* Management contract or compensatory plan required to be
filed as an exhibit to this form pursuant to Item 14(c).
E-6
(iii) BECs 1990 Stock Option Plan (incorporated by
reference to BEC's Proxy Statement dated March 29.
1990)
(iv) Amendments to BEC's 1990 Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 15.1991 )
(v) BEC's 1991 Employee Director Stock Option
Plan (incorporated by reference to BEC's Proxy
Statement dated April 15.1991 )
(vi) BEC's 1991 Non-Employee Director Stock
Option Plan (incorporated by reference to BEC's Proxy
Statement dated April 15, 1991 )
(vii) BEC's 1994 Stock Option Plan (incorporated
by reference to Exhibit 10.210.35 to the Quarterly
ReportsAnnual Report on
Form 10-Q10-K of Viacom Inc. and Viacom
International Inc.BEC for the quarterfiscal year ended June
30,December
31, 1993)(File Nos. 1-9553/1-9554).
(t) StockNo. 0-12700)
(s) Asset Purchase Agreement dated as of October
4, 1993 betweenJanuary. 20,
1995 among Tele-Vue Systems, Inc., Viacom International
Inc., Intermedia Partners, IV. L.P. and NYNEX
Corporation, as amended as of November 19,
1993RCS Pacific, L.P.
(filed herewith).
(u) Amended and Restated Stock Purchase Agreement
dated October 21, 1993 between Viacom Inc. and
Blockbuster Entertainment Corporation (filed
herewith).
(v) Subscription Agreement, dated January 7, 1994
between Viacom Inc. and Blockbuster
Entertainment Corporation (incorporated by
reference to Exhibit 99(c)(8) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 20) dated January 7, 1994).
(12)(11) Statements re Computation of Ratios
(a) Computation of Ratio ofNet Earnings to Fixed
Changes of Viacom International Inc. (filed
herewith).
(b) Computation of Ratio of Earnings to Fixed of
Viacom Inc. (filed herewith).Per Share
(21) Subsidiaries of Viacom Inc. and Viacom
International Inc. (filed herewith).
(23) Consents of Experts and Counsel
(a) Consent of Priceprice Waterhouse (filed herewith).
(b) Consent of Ernst & Young (filed herewith).
(24) Powers of Attorney
(filed herewith).
(99) Additional Exhibits
(a) Item 1, Item 2 and Item 3 of Paramount's
Transition Report on Form 10-K for the six-
month period ended April 30, 1993, as such
report was amended in its entirety by Form
10-K/A No. 1 dated September 28, 1993, as
further amended by Form 10-K/A No. 2 dated
September 30, 1993 and as further amended
by Form 10-K/A No. 3 dated March 21, 1994
(filed herewith).
(b) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended July
31, 1993 (filed herewith).
(c) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
October 31, 1993 (filed herewith).
(d) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
January 31, 1994 (filed herewith).
E-8(27) Financial Data Schedule
E-7