SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
--------------------------------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------------------------------
Date of Report (date of earliest event reported): March 11, 1994
VIACOM INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9553 04-2949533
- ------------------- -------------------- -------------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
Incorporation)
200 Elm Street, Dedham, Massachusetts 02026
----------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 258-6000
Page 1 of 53 Pages
Exhibit Index Appears on Page 50
Item 2. Acquisition or Disposition of Assets.
On March 11, 1994, Viacom Inc., a Delaware corporation
("Viacom"), completed its acquisition of 61,657,432 shares of
common stock, constituting a majority of the outstanding shares
of common stock, of Paramount Communications Inc. ("Paramount")
pursuant to Viacom's tender offer therefor (the "Paramount Offer").
A copy of the press release of Viacom, dated March 11, 1994, relating
to the foregoing is attached hereto as Exhibit 99.1 and is incorporated
herein by reference.
The total amount of funds needed to consummate the
tender offer and to pay related fees and expenses was
approximately $6.7 billion. Viacom obtained (i) $600 million of
such funds from the issuance and sale of 24 million shares of
Viacom Series A Preferred Stock to Blockbuster Entertainment
Corporation ("Blockbuster"), (ii) $1.2 billion from the issuance
and sale of 24 million shares of Viacom Series B Preferred Stock
to NYNEX Corporation ("NYNEX"), (iii) $3.6 billion from the Credit
Agreement dated as of November 19, 1993, as amended on January 4,
1994 and as further amended on February 15, 1994, among Viacom, the
banks named therein and The Bank of New York, Citibank, N.A. and
Morgan Guaranty Trust Company of New York, as Managing Agents,
and (iv) $1.25 billion from the issuance and sale of 22,727,273
shares of Viacom Class B Common Stock to Blockbuster.
Item 7. Financial Statements and Exhibits.
(a) The financial statements required to be filed were
previously reported in Paramount Communications Inc.'s Transition Report
on Form 10-K for the six-month period ended April 30, 1993, as amended by
Form 10-K/A Amendment No. 1 dated September 28, 1993, as further amended
by Form 10-K/A Amendment No. 2 dated September 30, 1993 and as further
amended by Form 10-K/A Amendment No. 3 dated March 21, 1994 and in
Paramount Communications Inc.'s Quarterly Reports on Form 10-Q for the three
months ended July 31, 1993, the six months ended October 31, 1993 and the nine
months ended January 31, 1994 and are incorporated herein
by reference.
(b) The following pro forma financial statements and historical
financial statements are filed as part of this report on Form 8-K:
Pro Forma:
Combined Company Unaudited Pro Forma Combined Condensed
Financial Statements.
Blockbuster, Super Club and Spelling Entertainment
Unaudited Pro Forma Condensed Consolidated Financial Statements.
Paramount, Macmillan and Other Businesses Acquired Unaudited Pro
Forma Condensed Consolidated Financial Statements.
Historical:
Viacom Inc. and subsidiaries consolidated balance sheets at
December 31, 1993 and 1992, consolidated statements of
operations, consolidated statements of cash flow and
consolidated statements of shareholders' equity for each of
the three years in the period ended December 31, 1993.
(c) The following exhibits are filed as part of this
report on Form 8-K:
23.1 Consent of Price Waterhouse
23.2 Consent of Ernst & Young
99.1 Press release by Viacom Inc. dated March 11,
1994
2
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto
duly authorized.
VIACOM INC.
(Registrant)
Date: March 28, 1994 By: /s/ Philippe P. Dauman
---------------------------
Name: Philippe P. Dauman
Title: Executive Vice
President, Chief
Administrative Officer,
General Counsel and
Secretary
3
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet at
December 31, 1993 gives effect to the completion of Viacom's tender offer for
Paramount Common Stock (the "Paramount Offer") the merger of a wholly owned
subsidiary of Viacom Inc. with and into Paramount (the "Paramount Merger")
and the merger of Blockbuster with and into Viacom Inc. (the "Blockbuster
Merger", and with the Paramount Merger, the "Mergers") as if these events had
occurred on such date, and was prepared based upon the balance sheet of Viacom
and unaudited pro forma condensed consolidated balance sheets of Blockbuster at
December 31, 1993, and Paramount at January 31, 1994. Viacom's balance sheet
also contains a pro forma adjustment for the sale of Viacom Class B Common
Stock to Blockbuster subsequent to December 31, 1993 (See Note 1 herein).
The following unaudited pro forma combined statement of operations for the
year ended December 31, 1993 gives effect to the completion of the Paramount
Offer, the Paramount Merger, the Blockbuster Merger and the issuance of Series A
Preferred Stock and Series B Preferred Stock (together, "Preferred Stock") as if
they had occurred simultaneously at the beginning of the period presented. The
unaudited pro forma combined statement of operations for the year ended December
31, 1993 was prepared based upon the statements of operations of Viacom and
Blockbuster for the year ended December 31, 1993, and of Paramount for the nine
months ended January 31, 1994 and three months ended April 30, 1993 combined.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the audited financial statements, including the notes
thereto, of Viacom which are included herein, and the audited financial
statements and unaudited interim financial statements, including the notes
thereto, of Paramount, which are incorporated by reference.
The unaudited pro forma data are not necessarily indicative of the results
of operations or financial position of either Viacom and Paramount combined or
Viacom, Paramount and Blockbuster combined (the "Combined Company") that would
have occurred if the completion of the Paramount Offer, the Paramount Merger
and the Blockbuster Merger had occurred at the beginning of the period or the
date indicated, nor are they necessarily indicative of future operating results
or financial position.
The pro forma adjustments are based upon available information and certain
assumptions set forth herein, including the notes to the unaudited pro forma
combined condensed financial statements, which Viacom, Paramount and Blockbuster
believe are reasonable under the circumstances. The pro forma adjustments
reflect the consideration offered to Paramount stockholders in the Paramount
Merger (the "Paramount Merger Consideration") and the consideration offered to
Blockbuster stockholders in the Blockbuster Merger (the "Blockbuster Merger
Consideration") (see "Notes 2 and 3", respectively). The Paramount and
Blockbuster historical information have been adjusted for certain acquisitions,
and certain significant transactions which have occurred or which may occur
(see Paramount and Blockbuster Unaudited Pro Forma Condensed Consolidated
Information.)
Both the Paramount Merger and the Blockbuster Merger will be accounted
for by the purchase method of accounting. Accordingly, Viacom's cost to
acquire Paramount and Blockbuster, calculated to be approximately $9.9 billion
and $5.8 billion, respectively, as of March 4, 1994, will be allocated to the
assets and liabilities acquired according to their respective fair values with
the excess to goodwill. Viacom's cost to acquire Paramount and Blockbuster
pursuant to the respective merger agreements is subject to change based
primarily upon the market value of Viacom Common Stock at the time of the
respective mergers. A change in the fair market value of Viacom Common Stock
will result in a corresponding change in the excess of unallocated acquisition
cost over the net assets acquired and the related amortization thereof. The
valuations and other studies, which will provide the basis for such an
allocation, have not yet progressed to a stage where there is sufficient
information to make an allocation in the accompanying unaudited pro forma
combined condensed financial statements. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro forma
combined condensed financial information are preliminary and have been made
solely for the purposes of developing such unaudited pro forma combined
condensed financial information. For the Paramount Merger, the approximate
$5.8 billion pro forma excess of unallocated acquisition costs as of March 4,
1994 is being amortized over 40 years at a rate of $143.8 million
per year. For the Blockbuster Merger,
4
the approximate $3.6 billion pro forma excess of unallocated acquisition costs
as of March 4, 1994 is also being amortized over 40 years at a rate of $91
million per year. Such amortization period is based on Viacom's belief that the
combined company has substantial potential for achieving long-term appreciation
as a fully integrated, global entertainment and communications company. The
Mergers will permit the continued expansion of current lines of business, as
well as the development of new businesses, via the cross-promotion of the well
known franchises, trademarks and products of Viacom, Blockbuster and Paramount.
Additionally, the combined company will have enhanced and complimentary product
distribution capabilities which can be used to strategically exploit its
franchise trademarks and products on an accelerated basis. Viacom believes that
the combined company will benefit from the Mergers for an indeterminable period
of time of at least 40 years, and, therefore, a 40 year amortization period is
appropriate.
As is the case with all of Viacom's long-term assets and liabilities,
Viacom will perform periodic reviews of the goodwill arising from the Mergers to
ensure that this goodwill is carried at the lower of cost or market in light of
current business conditions.
After the consummation of the Mergers, Viacom will arrange for independent
appraisal of the significant assets, liabilities and business operations of
Blockbuster. Using this information, Viacom will make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Viacom believes that any significant allocation of excess purchase price to
intangibles will be amortized over 40 years, and so any such allocation would
not cause a material difference in pro forma results.
5
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1993
(IN MILLIONS)
PARAMOUNT
OFFER
VIACOM AND BLOCKBUSTER
----------------------------------- PARAMOUNT VIACOM/ MERGER
PRO FORMA PRO FORMA MERGER PARAMOUNT PRO FORMA ADJUSTMENTS
HISTORICAL ADJUSTMENTS PRO FORMA PARAMOUNT* ADJUSTMENTS COMBINED BLOCKBUSTER** (3)
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
ASSETS
Cash & short term
investments............. $ 1,882.4 $ 1,250.0(1) $ 3,132.4 $ 328.7 $ (3,050.0)(2b) $411.1 $ 95.3 $ (30.0)(3a)
Other current assets.... 804.0 804.0 2,423.0 3,227.0 653.4
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
Total current
assets.............. 2,686.4 1,250.0 3,936.4 2,751.7 (3,050.0) 3,638.1 748.7 (30.0)
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
Property and equipment,
net..................... 554.2 554.2 1,239.9 1,794.1 522.8
Videocassette rental
inventory,
net................... 470.2
Intangible assets, at
amortized cost.......... 2,180.6 2,180.6 1,976.6 5,750.1(2c) 9,907.3 856.3 3,638.6(3a)
Other assets............ 995.7 995.7 1,512.5 2,508.2 2,173.0 (1,850.0)(3b)
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
$ 6,416.9 $ 1,250.0 $ 7,666.9 $ 7,480.7 $ 2,700.1 $17,847.7 $ 4,771.0 $ 1,758.6
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities..... $ 965.6 $ 965.6 $ 1,493.8 $ 2,459.4 $ 1,643.2 $(1,000.0)(3c)
Long-term debt.......... 2,378.3 2,378.3 1,000.3 $ 4,692.2(2b) 8,070.8 853.5 1,000.0(3c)
Other liabilities....... 354.9 354.9 799.8 1,154.7 150.9
Stockholders' equity:
Preferred............. 1,800.0 1,800.0 1,800.0 (600.0)(3b)
Common................ 918.1 $ 1,250.0(1) 2,168.1 4,186.8 (1,992.1)(2b,c)4,362.8 2,123.4 2,358.6(3a,b)
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
Total stockholders'
equity.............. 2,718.1 1,250.0 3,968.1 4,186.8 (1,992.1) 6,162.8 2,123.4 1,758.6
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
$ 6,416.9 $ 1,250.0 $ 7,666.9 $ 7,480.7 $ 2,700.1 $17,847.7 $ 4,771.0 $ 1,758.6
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
--------- ----------- ----------- ----------- ------------ --------- ----------- -----------
COMBINED
COMPANY
---------
ASSETS
Cash & short term
investments............. $ 476.4
Other current assets.... 3,880.4
---------
Total current
assets.............. 4,356.8
---------
Property and equipment,
net..................... 2,316.9
Videocassette rental
inventory,
net................... 470.2
Intangible assets, at
amortized cost.......... 14,402.2
Other assets............ 2,831.2
---------
$24,377.3
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities..... $ 3,102.6
Long-term debt.......... 9,924.3
Other liabilities....... 1,305.6
Stockholders' equity:
Preferred............. 1,200.0
Common................ 8,844.8
---------
Total stockholders'
equity.............. 10,044.8
---------
$24,377.3
---------
---------
See notes to unaudited pro forma combined condensed financial statements.
- ---------------
* See Unaudited Pro Forma Condensed Consolidated Financial Statements of Paramount.
** See Unaudited Pro Forma Condensed Consolidated Financial Statements of Blockbuster.
6
COMBINED COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE DATA)
VIACOM
------------------------------------- PARAMOUNT OFFER VIACOM/
PRO FORMA PRO FORMA AND PARAMOUNT MERGER PARAMOUNT PRO FORMA
VIACOM ADJUSTMENTS PRO FORMA PARAMOUNT(9)* ADJUSTMENTS COMBINED BLOCKBUSTER**
--------- ------------- ----------- ------------- --------------------- ----------- -------------
Revenues.......... $ 2,004.9 $ 2,004.9 $ 5,024.0 $ 7,028.9 $ 2,595.2
Expenses
Operating....... 877.6 877.6 3,315.7 4,193.3 1,947.6
Selling, general
and
administrative 589.2 589.2 1,243.7 1,832.9 212.0
Depreciation and
amortization.... 153.1 153.1 162.5 $ 143.8(5a) 459.4
--------- ------ ----------- ------------- ------- ----------- -------------
Total
expenses...... 1,619.9 1,619.9 4,721.9 143.8 6,485.6 2,159.6
--------- ------ ----------- ------------- ------- ----------- -------------
Earnings from
operations........ 385.0 385.0 302.1 (143.8) 543.3 435.6
Interest
expense......... (145.0) (145.0) (94.3) (249.3)(5b) (488.6) (98.7)
Interest and
other
investment
income............ 43.5 43.5 7.2
Other items,
net(7).......... 61.8 61.8 (7.4) 54.4 16.3
--------- ------ ----------- ------------- ------- ----------- -------------
Total other
income
(expense)... (83.2) (83.2) (58.2) (249.3) (390.7) (75.2)
--------- ------ ----------- ------------- ------- ----------- -------------
Earnings before
income taxes...... 301.8 301.8 243.9 (393.1) 152.6 360.4
Provision for
income taxes...... 129.8 129.8 88.5 (88.1)(5c) 130.2 135.3
Equity in loss of
affiliated
companies, net
of tax.......... (2.5) (2.5) (2.5)
--------- ------ ----------- ------------- ------- ----------- -------------
Earnings before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles and
preferred stock
dividend
requirements.... 169.5 169.5 155.4 (305.0) 19.9 225.1
Preferred stock
dividend
requirements...... 12.8 $ 77.2(4) 90.0 90.0
--------- ------ ----------- ------------- ------- ----------- -------------
Earnings (loss)
attributable to
common stock
before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles...... $ 156.7 $ (77.2) $ 79.5 $ 155.4 $ (305.0) $ (70.1) $ 225.1
--------- ------ ----------- ------------- ------- ----------- -------------
--------- ------ ----------- ------------- ------- ----------- -------------
Weighted average
number of common
shares and
common share
equivalents..... 120.6 1.3 81.1
Primary earnings
per common share
before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles...... $ 1.30
BLOCKBUSTER
MERGER COMBINED
ADJUSTMENTS COMPANY
----------- ----------- .
Revenues.......... $ 9,624.1
Expenses
Operating....... $ (410.7)(6a) 5,730.2
Selling, general
and
administrative 2,044.9
Depreciation and
amortization.... 91.0(6b) 961.1
410.7(6a)
----------- -----------
Total
expenses...... 91.0 8,736.2
----------- -----------
Earnings from
operations........ (91.0) 887.9
Interest
expense......... (587.3)
Interest and
other
investment
income........ 50.7
Other items,
net(7).......... (30.0)(6c) 40.7
----------- -----------
Total other
income
(expense)... (30.0) (495.9)
----------- -----------
Earnings before
income taxes...... (121.0) 392.0
Provision for
income taxes...... (11.6)(6d) 253.9
Equity in loss of
affiliated
companies, net
of tax.......... (2.5)
----------- -----------
Earnings before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles and
preferred stock
dividend
requirements.... (109.4) 135.6
Preferred stock
dividend
requirements.... (30.0)(6c) 60.0
----------- -----------
Earnings (loss)
attributable to
common stock
before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles...... $ (79.4) $ 75.6
----------- -----------
----------- -----------
Weighted average
number of common
shares and
common share
equivalents..... 206.3 409.3(8)
Primary earnings
per common share
before
extraordinary
items and
cumulative
effect of
changes in
accounting
principles...... $ 0.18
See notes to unaudited pro forma combined condensed financial statements.
- ---------------
* See Unaudited Pro Forma Condensed Consolidated Financial Statements of Paramount.
** See Unaudited Pro Forma Condensed Consolidated Financial Statements of Blockbuster.
7
COMBINED COMPANY
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(1) Reflects the sale of Viacom Class B Common Stock to Blockbuster for
$1.25 billion.
(2) The cost to acquire Paramount pursuant to the Paramount Offer and the
Paramount Merger, the financing of such cost and the determination of the
unallocated excess of acquisition cost over the net assets acquired are as set
forth below. In furtherance of the Paramount Merger, on March 11, 1994, Viacom,
pursuant to the terms of the Paramount Offer, purchased 61,657,432 shares of
Paramount Common Stock, representing a majority of the shares of Paramount
Common Stock outstanding as of the expiration of the Paramount Offer. In the
Paramount Merger, each remaining outstanding share of Paramount Common Stock
will be converted into the right to receive the Paramount Merger Consideration.
As of March 4, 1994, the closing price of shares of Viacom Class B Common Stock
on the AMEX was $27. As of February 3, 1994 there were 121.9 million shares of
Paramount Common Stock outstanding.
(a) Total acquisition costs:
Cash.................................................................. $ 6,597.3
Viacom Merger Debentures.............................................. 1,054.9
Viacom Class B Common Stock........................................... 1,514.7
Contingent Value Rights............................................... 538.6
Viacom Three-Year Warrants............................................ 52.8
Viacom Five-Year Warrants............................................. 59.1
Paramount Merger costs................................................ 90.0
----------
Acquisition costs financed............................................ 9,907.4
Excess value of exchange ratio over exercise price of Paramount
employee stock options................................................ 29.5
----------
Total acquisition costs............................................... $ 9,936.9
----------
----------
(b) Financing of the Paramount Offer and the Paramount Merger:
Cash.................................................................. $ 3,050.0
Merger Credit Agreement............................................... 3,637.3
Viacom Merger Debentures.............................................. 1,054.9
Viacom Class B Common Stock........................................... 1,514.7
Contingent Value Rights............................................... 538.6
Viacom Three-Year Warrants............................................ 52.8
Viacom Five-Year Warrants............................................. 59.1
----------
Total financing of the Paramount Offer and the Paramount Merger....... $ 9,907.4
----------
----------
(c) The unallocated excess of acquisition costs over the net assets
acquired:
Total acquisition costs............................................... $9,936.9
Paramount pro forma net assets as of January 31, 1994................. 4,186.8
----------
Excess of acquisition costs over net assets acquired.................. $ 5,750.1
----------
----------
(3) The cost to acquire Blockbuster pursuant to the Blockbuster Merger, the
financing of such cost and the determination of the unallocated excess of
acquisition cost over the net assets acquired are set
8
forth below. Pursuant to the Blockbuster Merger, holders of shares of
Blockbuster Common Stock will be entitled to receive the Blockbuster Merger
Consideration for each of such holder's shares. As of March 4, 1994, the closing
price of shares of Viacom Class A Common Stock and Viacom Class B Common Stock
on the AMEX was $31 7/8 and $27, respectively. As of December 31, 1993, there
were 247.5 million shares of Blockbuster Common Stock outstanding.
The Blockbuster Merger has been unanimously approved by the Boards of Directors
of each of the companies. The obligations of Viacom Inc. and Blockbuster to
consummate the merger is subject to various conditions, including obtaining
requisite stockholder approvals. NAI has agreed to vote its shares of Viacom
Inc. in favor of the Blockbuster Merger; therefore, approval by Viacom Inc.
of the Blockbuster Merger is assured.
(a) Total acquisition costs and financing:
Viacom Class A Common Stock........................................... $ 631.1
Viacom Class B Common Stock........................................... 4,050.4
Variable Common Rights................................................ 924.1
----------
Acquisition costs financed............................................ 5,605.6
Excess value of exchange ratio over exercise price of Blockbuster
stock options and warrants............................................ 126.4
Blockbuster Merger costs.............................................. 30.0
----------
Total acquisition costs............................................... 5,762.0
Blockbuster pro forma net assets as of December 31, 1993.............. 2,123.4
----------
Excess of acquisition costs over net assets acquired.................. $ 3,638.6
----------
----------
(b) Eliminates Blockbuster's $600 million investment in Series A Preferred
Stock and $1.25 billion investment in Viacom Class B Common Stock.
(c) Assumes additional borrowings incurred by Blockbuster, which were used
to finance the purchase of Viacom Class B Common Stock, will be
refinanced on a long-term basis as part of an overall refinancing of
indebtedness of the combined company.
(4) Pro forma adjustments made to Viacom's historical results reflect the
additional 5% cumulative dividend requirement of the $1.8 billion of Viacom
Preferred Stock sold to NYNEX and Blockbuster in the amount of $77.2 million for
the year ended December 31, 1993 as if the transactions had occurred at the
beginning of the year.
(5) Other pro forma adjustments related to the Paramount Offer and the
Paramount Merger reflect the following:
(a) An increase in amortization expense of $143.8 million for the year
ended December 31, 1993 resulting from an increase in intangibles of
approximately $5.8 billion amortized over 40 years.
(b) Reflects an increase in interest expense of $241.4 million for the year
ended December 31, 1993 resulting from additional debt financing of
approximately $3.6 billion under the Merger Credit Agreement, the
issuance of Viacom Merger Debentures and a decrease of interest income
of $7.9 million resulting from the use of cash to finance the Paramount
Offer. The assumed interest rate on the debt financing under the Merger
Credit Agreement of 4.3% for the year ended December 31, 1993 was
calculated based on average historical London Interbank Offered Rates.
A change in the assumed interest rate of 1/8% will result in a change
in interest expense of $4.5 million on an annual basis.
(c) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period
presented. The effective income tax rate on a pro forma basis is
adversely affected by amortization of excess acquisition costs, which
are assumed to be not deductible for tax purposes.
(d) Intercompany transactions were immaterial in each of the statements
presented.
9
(6) Other pro forma adjustments related to the Blockbuster Merger reflect
the following:
(a) Reclassification of the historical presentation of depreciation and
amortization of $410.7 million for the year ended December 31, 1993 to
conform the presentations of Viacom and Blockbuster financial
statements.
(b) An increase in amortization expense of $91 million for the year ended
December 31, 1993, resulting from an increase in intangible assets of
approximately $3.6 billion amortized over 40 years.
(c) Eliminates the 5% cumulative annual dividend on the $600 million
intercompany Series A Preferred Stock investment by Blockbuster in the
amount of $30.0 million for the year ended December 31, 1993.
(d) Reflects the income tax effects of certain pro forma adjustments
calculated at the statutory tax rate in effect during the period
presented. The effective income tax rate on a pro forma basis is
adversely affected by amortization of excess acquisition costs, which
are assumed to be not deductible for tax purposes.
(e) Intercompany transactions were immaterial in each of the statements
presented.
(7) Other items, net, of Viacom for the year ended December 31, 1993
reflects a net gain of $61.8 million due to the sale of the Viacom Cablevision
of Wisconsin, Inc. system and other non-recurring transactions.
(8) Pro forma primary earnings per common share is calculated based on the
weighted average number of shares of Viacom Common Stock outstanding, the number
of shares of Viacom Common Stock to be issued in connection with the Blockbuster
Merger and Paramount Merger and respective common share equivalents as if these
transactions occurred at the beginning of the period presented. Conversion of
the Series B Preferred Stock would have an antidilutive effect on earnings per
common share and therefore fully diluted earnings per common share is not
presented.
(9) Reflects operating losses at USA Networks, Paramount's 50%-owned cable
networks, due largely to a $78 million pre-tax charge, the majority of which was
recorded in December 1993, to adjust the carrying value of certain broadcast
rights to net realizable value because of the under-performance of certain
series programming of which Paramount recorded its share.
10
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The historical financial statements of Blockbuster include the financial
position and results of operations of WJB Video Limited Partnership and certain
of its affiliates ("WJB"), with which Blockbuster consolidated in August 1993.
This transaction has been accounted for under the pooling of interests method
of accounting and, accordingly, all of Blockbuster's historical financial data
has been restated as if the companies had operated as one entity since
inception.
The following unaudited pro forma condensed consolidated balance sheet
presents the pro forma financial position of Blockbuster as of December 31,
1993. The balance sheet contains pro forma adjustments for certain significant
transactions which occurred in 1994, in connection with the Paramount Offer and
the Paramount Merger. These transactions include a $1.25 billion investment in
Viacom and additional borrowings of $1.25 billion and are reflected in the
balance sheet as if these transactions had been completed as of December 31,
1993. Spelling Entertainment Group Inc. (together with its subsidiary "Spelling
Entertainment") and Super Club Retail Entertainment Corporation and
subsidiaries ("Super Club") are included in Blockbuster's historical balance
sheet at December 31, 1993.
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1993 presents the pro forma results
of continuing operations of Blockbuster as if the acquisition of Super Club and
the majority of the outstanding common stock of Spelling Entertainment had been
consummated at January 1, 1993. The following unaudited pro forma statement of
operations also contains pro forma adjustments for certain significant
transactions which occurred during 1993 or 1994 in connection with the Paramount
Offer and the Paramount Merger. These transactions include a $600 million and a
$1.25 billion investment in Viacom, additional borrowings of $600 million and
$1.25 billion, and the sale of 14,650,000 shares of Blockbuster Common Stock,
and are reflected in the pro forma condensed consolidated statement of
operations as if these transactions had been consummated as of January 1, 1993.
The following unaudited pro forma condensed consolidated statement of operations
do not give effect to the estimated cost savings to be realized from the
consolidation of certain Super Club operational and administrative functions,
including the elimination of duplicate facilities and personnel, and management
fees previously charged by related affiliates. These unaudited pro forma
condensed consolidated financial statements should be read in conjunction with
the respective historical financial statements and notes thereto of Blockbuster,
Super Club and Spelling Entertainment.
Income from continuing operations per common and common equivalent share is
based on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
or conversion of warrants and options. In computing income from continuing
operations per common and common equivalent share, Blockbuster utilizes the
treasury stock method.
The unaudited pro forma condensed consolidated financial statements were
prepared utilizing the accounting policies of the respective entities as
outlined in their historical financial statements except as described in the
accompanying notes. The unaudited pro forma condensed consolidated financial
statements reflect Blockbuster's preliminary allocations of purchase prices
which will be subject to further adjustments as Blockbuster finalizes the
allocations of the purchase prices in accordance with generally accepted
accounting principles. All of the aforementioned acquisitions, excluding WJB,
were accounted for under the purchase method of accounting. The unaudited pro
forma condensed consolidated results of operations do not necessarily reflect
actual results which would have occurred if the aforementioned acquisitions had
taken place on the assumed dates, nor are they indicative of the results of
future combined operations. If either the Paramount Merger or the Blockbuster
Merger were not to occur, certain pro forma adjustments included in these
unaudited pro forma condensed consolidated financial statements would change
significantly.
11
BLOCKBUSTER
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1993
(IN THOUSANDS)
PRO FORMA
ADJUSTMENTS
----------------------------
BLOCKBUSTER DEBIT CREDIT PRO FORMA
------------- ------------- ------------- -------------
Current Assets:
Cash and cash equivalents................. $ 95,254 $ 95,254
Accounts receivable, less allowance....... 135,172 135,172
Merchandise inventories................... 350,763 350,763
Film costs and program rights, net........ 117,324 117,324
Other..................................... 50,210 50,210
------------- ------------- ------------- -------------
Total Current Assets................. 748,723 748,723
Videocassette rental inventory, net......... 470,223 470,223
Property and equipment, net................. 522,745 522,745
Intangible assets, net...................... 856,318 856,318
Investment in Viacom........................ 600,000 $ 1,250,000(a) 1,850,000
Other assets................................ 322,958 322,958
------------- ------------- ------------- -------------
$ 3,520,967 $ 1,250,000 $ 4,770,967
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Current Liabilities:
Current portion of long-term debt......... $ 9,083 $ 1,000,000(b) $ 1,009,083
Accounts payable.......................... 369,815 369,815
Accrued liabilities....................... 177,695 177,695
Accrued participation expenses............ 43,013 43,013
Income taxes payable...................... 43,632 43,632
------------- ------------- ------------- -------------
Total Current Liabilities............ 643,238 1,000,000 1,643,238
Long-term debt.............................. 603,496 250,000(b) 853,496
Other liabilities........................... 59,999 59,999
Minority interest in subsidiaries........... 90,834 90,834
Shareholders' Equity:
Common stock.............................. 24,738 24,738
Capital in excess of par value............ 1,564,685 1,564,685
Cumulative foreign currency translation
adjustment.............................. (38,143) (38,143)
Retained earnings (deficit)............... 572,120 572,120
------------- ------------- ------------- -------------
Total Shareholders' Equity........... 2,123,400 2,123,400
------------- ------------- ------------- -------------
$ 3,520,967 $ 1,250,000 $ 4,770,967
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
The accompanying notes are an integral part of this statement.
12
BLOCKBUSTER, SUPER CLUB AND SPELLING ENTERTAINMENT
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUPER CLUB SPELLING PRO FORMA
ELEVEN MONTHS ENTERTAINMENT ADJUSTMENTS
ENDED THREE MONTHS -------------------- PRO
BLOCKBUSTER 11/20/93 ENDED 3/31/93 COMBINED DEBIT CREDIT FORMA
---------- ------------- ------------- ---------- --------- --------- ---------
Revenue:
Rental revenue...................... $1,285,412 $ 58,702 $1,344,114 $1,344,114
Product sales....................... 658,097 254,544 912,641 912,641
Other revenue....................... 283,494 3,441 $ 51,509 338,444 338,444
---------- ------------- ------------- ---------- --------- --------- ----------
2,227,003 316,687 51,509 2,595,199 2,595,199
Operating Costs and Expenses:
Cost of product sales............... 430,171 185,760 615,931 615,931
Operating expenses.................. 1,195,483 119,317 38,049 1,352,849 $ 21,254(d-h) 1,331,595
Selling, general and
administrative.................... 178,322 26,029 7,737 212,088 212,088
---------- ------------- ------------- ---------- --------- --------- ----------
Operating income (loss)............... 423,027 (14,419) 5,723 414,331 21,254 435,585
Interest expense...................... (33,773) (2,612) (2,437) (38,822) $ 60,381(j) 551(i) (98,652)
Interest income....................... 6,818 179 210 7,207 7,207
Other income (expense), net........... (6,238) 81 (883) (7,040) 914(c) 24,250(k) 16,296
---------- ------------- ------------- ---------- --------- --------- ----------
Income (loss) before taxes............ 389,834 (16,771) 2,613 375,676 61,295 46,055 360,436
Provision for income taxes............ 146,188 87 1,674 147,949 12,677(l) 135,272
---------- ------------- ------------- ---------- --------- --------- ----------
Income (loss) from continuing
operations.......................... $ 243,646 $ (16,858) $ 939 $ 227,727 $ 61,295 $ 58,732 $ 225,164
---------- ------------- ------------- ---------- --------- --------- ----------
---------- ------------- ------------- ---------- --------- --------- ----------
Weighted average common and common
equivalent shares outstanding....... 220,195 242,766
---------- ----------
---------- ----------
Income from continuing operations per
common and common equivalent
share............................... $ 1.11 $ 0.93
---------- ----------
---------- ----------
Weighted average common and common
equivalent shares outstanding--
assuming full dilution.............. 221,476 244,047
---------- ----------
---------- ----------
Income from continuing operations per
common and common equivalent
share--assuming full dilution....... $ 1.10 $ 0.92
---------- ----------
---------- ----------
The accompanying notes are an integral part of this statement.
13
BLOCKBUSTER, SUPER CLUB AND
SPELLING ENTERTAINMENT
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) Represents Blockbuster's $1.25 billion investment in Viacom.
(b) Represents additional debt incurred by Blockbuster which was used to fund Blockbuster's investment in Viacom.
(c) Represents the recording of the minority interest resulting from Blockbuster's purchase of the majority of
the outstanding common stock of Spelling Entertainment.
(d) Represents a net adjustment related to the elimination of the historical amortization of intangible assets
and the recording of amortization, on a straight-line basis, on the intangible assets resulting from the
preliminary purchase price allocations of the acquired entities. Intangible assets resulting from the
purchase of Super Club and Spelling Entertainment are being amortized over a 40 year life which approximates
the useful life.
(e) Represents a reduction to videocassette rental inventory expense due to adjustments to the carrying value of
Super Club's videocassette rental inventory as a result of the preliminary purchase price allocation and the
assignment of remaining useful lives.
(f) Represents a reduction to property and equipment depreciation expense resulting from adjustments to the
carrying value of Super Club's property and equipment as a result of the preliminary purchase price
allocation and the assignment of remaining useful lives.
(g) Represents reductions to occupancy expense resulting from preliminary purchase price allocations which
reflect the fair market value of certain lease liabilities related to Super Club.
(h) Represents reductions to programming and distribution, depreciation and occupancy expenses resulting from
preliminary purchase price allocations which reflect the fair market value of various assets and liabilities
related to Spelling Entertainment.
(i) Represents the reduction in interest expense resulting from the revaluation of outstanding indebtedness of
Spelling Entertainment by Blockbuster at current interest rates.
(j) Represents additional interest expense resulting from Blockbuster's additional borrowings used to fund its
investment in Viacom.
(k) Represents dividend income related to a portion of Blockbuster's investment in Viacom.
(l) Represents the incremental change in the combined entity's provision for income taxes as a result of the
pretax earnings of Super Club and Spelling Entertainment and all pro forma adjustments as described above.
14
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma Paramount statement of operations and balance
sheet for the twelve months ended or at January 31, 1994 give effect, on a
purchase accounting basis, to the acquisition of Macmillan Publishing Company
and certain other publishing assets of Macmillan Inc. (together, "Macmillan").
The pro forma statement of operations also include the acquisitions of
television station WKBD-TV in Detroit ("WKBD") in September 1993 and the
remaining 80% interest in Paramount Canada's Wonderland ("PCW") theme park in
May 1993. The acquisitions of WKBD and PCW are included in the applicable
unaudited pro forma statement of operations in "Other Businesses Acquired and
Pro Forma Adjustments."
The unaudited pro forma Paramount statement of operations and balance sheet for
the twelve months ended or at January 31, 1994 include the historical
consolidated statement of operations and balance sheet information of Paramount
for the twelve months ended or at January 31, 1994 and of Macmillan for the
twelve months ended or at December 31, 1993. The pro forma statement of
operations also includes the historical statement of operations of WKBD for the
seven months ended August 31, 1993; and of PCW for the three months ended April
30, 1993. Financial information of WKBD and PCW subsequent to their acquisitions
are included in Paramount's historical financial statements. Macmillan's fiscal
year-end was March 31, PCW's fiscal year-end was February 28, and WKBD's fiscal
year-end was December 31; their pro forma periods described above have been
derived by accumulating monthly and quarterly financial information for the
respective entities.
The unaudited pro forma Paramount combined financial statements are not
necessarily indicative of the results which actually would have occurred if the
acquisitions had been in effect since February 1, 1993, nor are they necessarily
indicative of future results.
Adjustments have been made to reflect the acquisitions, on a purchase accounting
basis, as if such transactions had taken place on January 31, 1994, for the
purpose of presenting the unaudited pro forma condensed Paramount balance sheet,
and February 1, 1993, for the purpose of presenting the unaudited pro forma
Paramount statements of operations.
15
PARAMOUNT AND MACMILLAN
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JANUARY 31, 1994
(IN MILLIONS)
MACMILLAN
ACQUISITION PRO FORMA
AND PRO FORMA COMBINED
PARAMOUNT ADJUSTMENTS(1) PARAMOUNT
----------- ------------- -----------
ASSETS
Current assets............................................................ $ 3,181.1 $ (429.4) $ 2,751.7
Property and equipment, net............................................... 1,209.3 30.6 1,239.9
Intangible assets, at amortized cost...................................... 1,567.9 408.7 1,976.6
Other assets.............................................................. 1,458.5 54.0 1,512.5
----------- ------------- -----------
$ 7,416.8 $ 63.9 $ 7,480.7
----------- ------------- -----------
----------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities....................................................... $ 1,429.9 $ 63.9 $ 1,493.8
Long-term debt............................................................ 1,000.3 1,000.3
Other liabilities......................................................... 799.8 799.8
Stockholders' equity:
Common.................................................................. 4,186.8 4,186.8
----------- -----------
Total stockholders' equity............................................ 4,186.8 4,186.8
----------- ------------- -----------
$ 7,416.8 $ 63.9 $ 7,480.7
----------- ------------- -----------
----------- ------------- -----------
See notes to unaudited pro forma condensed consolidated financial statements.
16
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
HISTORICAL OTHER
-------------------------------- MACMILLAN BUSINESSES
NINE THREE ACQUISITION ACQUIRED AND
MONTHS ENDED MONTHS ENDED AND PRO FORMA PRO FORMA PRO FORMA
JANUARY 31, 1994 APRIL 30, 1993 ADJUSTMENTS(2) ADJUSTMENTS(2) PARAMOUNT
---------------- -------------- -------------- --------------- -----------
Revenues................................. $ 3,757.0 $ 954.4 $ 287.7 $ 24.9 $ 5,024.0
Expenses:
Operating.............................. 2,499.1 628.3 167.0 21.3 3,315.7
Selling, general and administrative.... 835.4 315.8 92.5 1,243.7
Depreciation and amortization.......... 124.5 22.2 13.7 2.1 162.5
---------------- -------------- -------------- ------- -----------
Total expenses.................... 3,459.0 966.3 273.2 23.4 4,721.9
---------------- -------------- -------------- ------- -----------
Earnings (loss) from operations.......... 298.0 (11.9) 14.5 1.5 302.1
---------------- -------------- -------------- ------- -----------
Other income (expense):
Interest expense....................... (70.6) (23.7) (94.3)
Interest and other investment income... 53.1 22.2 (26.8) (5.0) 43.5
Other items, net....................... (2.7) (2.2) (2.6) 0.1 (7.4)
---------------- -------------- -------------- ------- -----------
Total other expense............... (20.2) (3.7) (29.4) (4.9) (58.2)
---------------- -------------- -------------- ------- -----------
Earnings (loss) before income taxes...... 277.8 (15.6) (14.9) (3.4) 243.9
Provision (benefit) for income taxes..... 97.2 (6.4) (1.6) (0.7) 88.5
---------------- -------------- -------------- ------- -----------
Net earnings (loss)...................... $ 180.6 $ (9.2) $ (13.3) $ (2.7) $ 155.4
---------------- -------------- -------------- ------- -----------
---------------- -------------- -------------- ------- -----------
Weighted average number of common
shares................................... 120.3 118.8 119.9
Net earnings (loss) per common share..... $ 1.50 $ (0.08) $ 1.30
See notes to unaudited pro forma condensed consolidated financial statements.
17
PARAMOUNT, MACMILLAN AND OTHER BUSINESSES ACQUIRED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) UNAUDITED PRO FORMA CONDENSED PARAMOUNT BALANCE SHEET--JANUARY 31, 1994
Use of cash and cash equivalents and short-term investments for the purchase
price of the acquisition of Macmillan for $552.8 million (the "Macmillan
Acquisition").
Estimated excess purchase price of the Macmillan Acquisition of $408.7 million
over the net assets acquired. Pending a further study of the estimated fair
values of the assets and liabilities, any excess cost over the estimated value
of the net assets acquired has been included in intangible assets.
(2) UNAUDITED PRO FORMA CONDENSED PARAMOUNT STATEMENT OF OPERATIONS--
TWELVE MONTHS ENDED JANUARY 31, 1994
The Macmillan Acquisition includes the following pro forma adjustments:
Estimated amortization of intangible assets of $10.2 million over a 40 year
life.
Estimated reduction of interest income of $26.8 million at Paramount's average
interest rates in effect during the twelve-month period, due to the use of cash
and cash equivalents and short-term investments for the acquisition.
Estimated income tax benefit of $(1.6) million based upon pro forma adjustments,
along with an adjustment to provide for Macmillan Federal income taxes, at the
statutory rate.
Other Businesses Acquired include the following pro forma adjustments:
Decrease estimated combined annual amortization of intangible assets over a 40
year life and depreciation expense, based on a preliminary purchase price
allocation analysis, of $(0.2) million.
Elimination of historical interest expense related to debt not acquired from, or
prepaid upon acquisition of, the Other Businesses.
Estimated reduction to interest income, at Paramount's average interest rates in
effect during the twelve-month period, of $5.0 million due to the use of cash
and cash equivalents and short-term investments for the acquisitions.
Conform the Other Businesses' accounting policies related to the accrual of
certain operating expenses to that of Paramount and to eliminate the effect of
intercompany transactions between the Other Businesses and Paramount. The effect
of these adjustments is to reduce operating expenses by $2.9 million.
Estimated income tax benefit of $(2.4) million based upon pro forma
adjustments, along with an adjustment to provide for Federal income taxes at
the statutory rate.
18
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
19
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 report on Form 8-K 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
20
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.
21
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.
22
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.
23
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.
24
--
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.
25
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.
26
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. Subject to certain conditions, 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 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 purposed 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.
27
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"). 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.
28
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended or at
December 31, 1993
----------------
(Millions of dollars)
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 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 $3.6 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 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
29
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 by 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).
30
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
31
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
borrowings 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.
32
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 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
33
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.
_____________________
34
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, net of 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) 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.
(b) 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, the Company purchased $43 million of
Discount Debentures at an average price 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.
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
35
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,
--------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Interest Incurred $154,509 $195,725 $298,591
Interest Income $ 9,184 $ 1,119 $ 626
Capitalized Interest $ 372 $ 502 $ 513
Scheduled maturities of long-term debt of the Company through December 31,
1998, assuming full utilization of the $1.9 billion commitment under the Credit
Agreement 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). 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 OF 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 subordinated debt is $450
million and the fair value, which is estimated based on quoted market prices,
is $486 million.
6) SHAREHOLDERS' EQUITY
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 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.
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.
36
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% 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.
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.
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. 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-
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 LTIP 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 7,000,000 Awards may be granted over
five years. As of December 31, 1993, there were 1,994,020 Awards available for
future grant, and 4,616,155 Awards outstanding consisting of phantom shares for
643,098 shares of common stock at an average grant price of $29 and vesting
over 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 years from the date of grant. The stock options expire 10 years
after the date of grant.
37
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of stock option 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:
December 31, 1993 1,448,570
December 31, 1992 775,040
Viacom Inc. has reserved 224,410 shares of Viacom Class A Common Stock and
29,462,933 shares of Viacom Class B Common Stock, principally for exercise of
stock options and the conversion of the Preferred Stock.
7) INCOME TAXES
The provision for income taxes shown below for the years ended December 31,
1993, 1992 and 1991 represents federal, state and foreign income taxes on
earnings before income taxes. The tax benefits relating to losses accounted
for under the equity method of accounting, which are shown net of tax on the
Company's statement of operations, are $.6 million (1993), $2.2 million (1992)
and $6.4 million (1991). See Note 4 for tax benefits relating to the
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 million in
1993 as the cumulative effect of a change in accounting principle. SFAS 109
mandates the liability method for computing deferred income taxes.
38
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,
------------------------------
1993 1991 1992
---- ---- ----
(Thousands of dollars)
United States $267,804 $138,215 $ (2,716)
Foreign 34,012 17,364 10,963
-------- -------- --------
Total $301,816 $155,579 $ 8,247
======== ======== ========
Components of the provision for income taxes on earnings before income taxes
are as follows:
Year Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Current:
Federal $89,484 $47,347 $29,039
State and local 10,357 17,851 16,618
Foreign 5,610 4,582 5,159
-------- ------- -------
105,451 69,780 50,816
Deferred 24,364 15,068 (8,756)
-------- ------- -------
$129,815 $84,848 $42,060
======== ======= =======
39
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 as follows:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
Statutory U.S. tax rate 35.0% 34.0% 34.0%
State and local taxes, net
of federal tax benefit 5.7 4.7 10.8
Foreign taxes, net of federal
tax benefit .5 1.9 41.3
Amortization of intangibles 7.1 18.2 405.3
Divestiture gain - nontaxable portion (3.2) -- --
Property and equipment basis
difference -- 7.2 150.0
Other purchase accounting
adjustments -- -- (46.8)
Alternative minimum tax -- (88.7)
Income tax reserve adjustment (5.0) (12.9) --
Effect of changes in statutory rate .5 -- --
Other, net 2.4 1.4 4.2
----- ----- -------
Effective tax rate 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.
40
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, 1993.
(Thousands of dollars)
Current deferred tax assets and (liabilities):
Differences between book 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
--------
Noncurrent deferred tax assets and (liabilities):
Tax depreciation in excess 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 and tax expense for program
costs (18,442)
Differences between book and tax recognition of
revenue (3,505)
Other differences between tax and financial
statement values (497)
----------
Gross noncurrent deferred net tax liabilities (85,211)
----------
Total net deferred tax liabilities $ (68,921)
==========
The following table identifies the deferred tax items which were part of the
Company's tax provision under previously applicable accounting principles for
the years ended December 31, 1992 and 1991:
Year Ended December 31,
-----------------------
1992 1991
---- ----
(Thousands of dollars)
Deferred compensation $22,682 $(3,044)
Depreciation 7,594 4,320
Syndication advance payments 4,118 (771)
Alternative minimum tax - (7,821)
Litigation accrual (13,324) -
Sale of cable system (6,850) -
Other, net 848 (1,440)
------- ------
$15,068 $(8,756)
======= ========
41
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) PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND
POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries have non-contributory pension plans
covering substantially all employees. The benefits for these plans are based
primarily on an employee's years of service and pay near retirement. All
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 included the following
components:
Year Ended December 31,
----------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Service cost - benefits earned during
the period $5,442 $4,581 $3,919
Interest cost on projected benefit
obligation 4,106 3,300 2,761
Return on plan assets:
Actual (1,777) (1,421) (4,434)
Deferred (gain) loss (1,134) (752) 2,952
Unrecognized prior service cost 480 454 450
-------- ------- -------
Net pension cost $7,117 $6,162 $5,648
====== ====== ======
42
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,
-----------------------
1993 1992
---- ----
(Thousands of dollars)
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $34,440 $ 24,095
Non-vested 3,177 1,740
--------- --------
Total $37,617 $ 25,835
======= ========
Projected benefit obligation $58,845 $ 43,626
Plan assets at fair value 32,649 28,282
--------- --------
Plan assets less than the
projected benefit obligation (26,196) (15,344)
Unrecognized loss during the year 8,104 476
Unrecognized prior service cost 3,743 4,384
Adjustment to recognize minimum liability (576) (768)
--------- --------
Pension liability at year end $(14,925) $(11,252)
========= ========
For purposes of valuing the 1993 and 1992 projected benefit obligation, the
discount rate was 7.5% (1993) and 8.25% (1992) and the rate of increase in
future compensation was 6% for each of the years. For determining the pension
expense for each of the years, the long-term rate of return on plan assets was
9%.
In 1992, the FASB issued 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 is 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).
43
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.
At December 31, 1993, minimum rental payments under noncancellable leases are
as follows:
Operating Capital
Leases Leases
------ ------
(Thousands of dollars)
1994 $ 59,746 $ 9,632
1995 58,946 10,660
1996 56,795 11,689
1997 53,125 12,717
1998 55,373 13,746
1999 and thereafter 390,181 38,764
-------- -------
Total minimum lease payments $674,166 97,208
========
Less amounts representing
interest 34,121
-------
Present value of net minimum
payments $63,087
=======
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. Rent expense amounted to $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 million (1992).
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of December 31, 1993, which are estimated to aggregate
approximately $1.9 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 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 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).
44
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11) FOREIGN OPERATIONS
The consolidated financial statements include the following amounts applicable
to foreign subsidiaries:
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Revenues $ 122,200 $68,193 $31,786
Earnings before income taxes $ 34,012 $17,364 $10,963
Net earnings $ 33,747 $16,384 $ 9,294
Current assets $ 54,190 $47,769 $38,452
Total assets $ 115,744 $73,817 $40,422
Total liabilities $ 68,728 $57,441 $30,897
Total export revenues were $25.2 million (1993), $34.9 million (1992) and $26.7
million (1991).
Foreign currency transaction gains and losses were immaterial in each period
presented.
45
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12) BUSINESS SEGMENTS
Year Ended December 31,
-----------------------------
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
========== ========== ==========
46
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 of dollars, except per share amounts)
1993
- ----
Revenues $470,650 $495,799 $508,122 $530,378 $2,004,949
Earnings from operations $ 90,182 $106,562 $110,153 $ 78,098 $ 384,995
Earnings before
extraordinary losses
and cumulative effect
of changes 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 effect
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 (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).
47
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14) OTHER ITEMS, NET
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 represents 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 Viacom 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 above 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."
48
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15) SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
------------------------
1993 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
49
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
Exhibit 23.1 Consent of Price Waterhouse 51
Exhibit 23.2 Consent of Ernst and Young 52
Exhibit 99.1 Press release by Viacom Inc. dated
March 11, 1994. 53
50
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-59356) of Viacom Inc. and Viacom International
Inc. and Form S-8 (No. 33-41934 and No. 33-56088) of Viacom Inc.,
of our report dated February 4, 1994, except as to Note 2, which
is as of March 11, 1994, which appears on page 19 of
the Current Report on Form 8-K of Viacom Inc. and Viacom
International Inc.
PRICE WATERHOUSE
New York, New York
March 28, 1994
51
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 Number 33-59356) of Viacom Inc. and Viacom
International Inc. and the Registration Statements (Form S-8
Numbers 33-41934 and 33-56088) of Viacom Inc. and in the related
Prospectuses of our reports dated August 27, 1993, except for
Notes A and I, as to which the date is September 10, 1993, with
respect to the consolidated financial statements and schedules of
Paramount Communications Inc. included in its Transition Report
(Form 10-K) for the six months ended April 30, 1993, as amended
September 28, 1993, as further amended September 30, 1993 and as
further amended March 21, 1994, which are incorporated by reference
in this Current Report (Form 8-K).
ERNST & YOUNG
New York, New York
March 28, 1994
52
VIACOM TAKES CONTROL OF PARAMOUNT
-- Pays For Paramount Shares Accepted For Payment --
New York, New York, March 11, 1994 -- Viacom Inc. (ASE: VIA
and VIAB) announced today that it has paid for the 61,657,432
shares (50.1%) of Paramount Communications Inc. (NYSE: PCI)
accepted for payment under the terms of its tender offer.
With the completion of this payment, Viacom has acquired a
majority of the outstanding shares of Paramount.
Viacom also said that it had designated a majority of the
Paramount Board of Directors to serve in that capacity until
Paramount becomes a wholly owned subsidiary of Viacom.
# # #
Contact: Viacom Inc. Edelman
Raymond A. Boyce Robert C. Hubbell
212/258-6530 212/704-8255
53
