SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-9553
VIACOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2949533
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 Elm Street, Dedham, MA 02026
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (617) 461-1600
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Class A Common Stock, $0.01 par value American Stock Exchange
Class B Common Stock, $0.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No ---
---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. /X/
As of March 25, 1994, 53,449,525 shares of Viacom Inc. Class A
Common Stock, $0.01 par value ("Class A Common Stock"), and 90,078,203
shares of Viacom Inc. Class B Common Stock, $0.01 par value ("Class B
Common Stock"), were outstanding. The aggregate market value of the
shares of Class A Common Stock (based upon the closing price of $34 of
these shares on the American Stock Exchange on that date) held by non-
affiliates was approximately $268,187,512 and the aggregate market
value of the shares of the Class B Common Stock (based upon the
closing price of $29.125 of these shares on the American Stock
Exchange on that date) held by non-affiliates was approximately
$599,511,872.
DOCUMENTS INCORPORATED BY REFERENCE
The Definitive Proxy of the Registrant for the 1994 Annual Meeting
of Shareholders (Part III to the extent described herein).
PART I
ITEM 1. BUSINESS.
BACKGROUND
Viacom International Inc. (the "Company") is a diversified
entertainment and communications company with operations in four
principal segments: Networks, Entertainment, Cable Television and
Broadcasting.
Viacom Networks operates three advertiser-supported basic cable
television program services, MTV: MUSIC TELEVISION(R), including MTV
EUROPE(TM) and MTV LATINO(TM), VH-1(R)/VIDEO HITS ONE(R), and
NICKELODEON(R)/NICK AT NITE(R), and three premium subscription
television program services, SHOWTIME(R), THE MOVIE CHANNEL(TM) and
FLIX(TM). The Company, directly and through Viacom Networks,
participates as a joint venturer in four additional advertiser-
supported basic cable program services: LIFETIME(R), COMEDY
CENTRAL(TM), NICKELODEON (TM) (U.K.), and ALL NEWS CHANNEL(TM). On
March 29, 1994, the Company agreed to sell its one-third partnership
interest in LIFETIME to its partners The Hearst Corporation and
Capital Cities/ABC Inc. for approximately $317.6 million; this
transaction is expected to close in the second quarter of 1994.
Viacom Entertainment distributes television series, feature films,
made-for-television movies, mini-series and specials for television
exhibition in domestic and international markets, produces television
series and movies for prime time broadcast network television,
acquires and distributes television series for initial exhibition on a
"first run" basis, and develops, produces, distributes and markets
interactive software for the stand-alone and other multimedia
marketplaces. Viacom Cable Television owns and operates cable
television systems in California, and the Pacific Northwest and
Midwest regions of the United States. Viacom Broadcasting owns and
operates five network-affiliated television stations and fourteen
radio stations.
Viacom International Inc. was originally organized in Delaware in
August 1970 as a wholly owned subsidiary of CBS Inc., and was
reincorporated in Ohio in 1975 (the "Predecessor Company"). On
June 9, 1987, the Predecessor Company became an indirect wholly owned
subsidiary of Viacom Inc. in a leveraged buyout pursuant to a merger
(the "Merger") of a subsidiary of Viacom Inc. into the Predecessor
Company, which was the surviving corporation. On April 26, 1990,
pursuant to a plan of liquidation, the Predecessor Company merged into
a direct wholly owned subsidiary of Viacom Inc., and the surviving
Delaware corporation simultaneously changed its name to "Viacom
International Inc."
All references herein to the term "Company" refer, unless the
context otherwise requires, to Viacom International Inc., its
consolidated subsidiaries and the Predecessor Company. The Company's
principal offices are located at 1515 Broadway, New York, New York
10036 (telephone (212) 258-6000).
Viacom Inc. was organized in Delaware in 1986 for the purpose of
acquiring the Company. As of December 31, 1993, National Amusements,
Inc. ("NAI"), a closely held corporation that owns and operates
approximately 850 movie screens in the United States and the United
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Kingdom, owned 45,547,214 shares or 85.2% of the Class A Common Stock
("Class A Common Stock"), and 46,565,414 shares or 69.1% of the Class
B Common Stock ("Class B Common Stock") outstanding on such date. NAI
is not subject to the informational filing requirements of the
Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the
controlling shareholder of NAI, is the Chairman of the Board of Viacom
Inc. and the Company.
As of December 31, 1993, the principal asset of Viacom Inc.
(together with its subsidiaries, unless the context otherwise
requires, "Viacom Inc.") was the common stock of the Company. Viacom
Inc.'s principal executive offices are located at 200 Elm Street,
Dedham, Massachusetts 02026.
As of December 31, 1993, the Company and its affiliated companies
employed approximately 5,000 persons.
On March 11, 1994, pursuant to a tender offer (the "Paramount
Offer") commenced in the fourth quarter of 1993, Viacom Inc. acquired
61,657,432 shares of Paramount Communications Inc. ("Paramount")
common stock constituting a majority of the shares outstanding. The
Paramount Offer was made pursuant to an Amended and Restated Agreement
and Plan of Merger dated as of February 4, 1994 (the "Paramount Merger
Agreement") between Viacom Inc. and Paramount. As a result of the
Paramount Merger Agreement, a new wholly owned subsidiary of Viacom
Inc. will merge with and into Paramount (the "Paramount Merger"), and
Paramount will become a wholly owned subsidiary of Viacom Inc. after
the effective time of the Paramount Merger, which is expected to occur
in the second quarter of 1994.
Except where expressly noted, information is given as of December
31, 1993, and does not include information on or with respect to
Paramount or its businesses. Information with respect to Paramount in
response to Item 1 is incorporated by reference herein from (i) Item 1
of Paramount's Transition Report on Form 10-K for the six-month period
ended April 30, 1993, as such report was amended in its entirety by
Form 10-K/A No. 1 dated September 28, 1993, as further amended by Form
10-K/A No. 2 dated September 30, 1993 and as further amended by Form
10-K/A No. 3 dated March 21, 1994 and (ii) Paramount's Quarterly
Reports on Form 10-Q for the quarters ended July 31, 1993, October 31,
1993 and January 31, 1994 (the documents in clauses (i) and (ii) being
hereinafter collectively referred to as the "Paramount Reports").
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein. A copy of each of the
Paramount Reports is included as an exhibit hereto. Descriptions of
all documents incorporated by reference herein or included as exhibits
hereto are qualified in their entirety by reference to the full text
of such documents so incorporated or included.
The businesses of Paramount are entertainment and publishing.
Entertainment includes the production, financing and distribution of
motion pictures, television programming and prerecorded
videocassettes, and the operation of motion picture theaters,
independent television stations, regional theme parks and Madison
Square Garden. Publishing includes the publication and distribution
of hard cover and paperback books for the general public, textbooks
for elementary schools, high schools and colleges, and the provision
of information services for business and professions.
On January 7, 1994, Viacom Inc. and Blockbuster Entertainment
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Corporation ("Blockbuster") entered into an agreement and plan of
merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger").
Blockbuster is an international entertainment company with
businesses operating in the home video, music retailing and filmed
entertainment industries. Blockbuster also has investments in other
entertainment related businesses.
The mergers pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have been
unanimously approved by the Boards of Directors of each of the
respective companies. The obligations of Viacom Inc., Blockbuster and
Paramount to consummate the mergers are subject to various conditions,
including obtaining requisite stockholder approvals. Viacom Inc.
holds sufficient shares of Paramount common stock to approve, on
behalf of Paramount, the Paramount Merger and intends to vote its
shares of Paramount in favor of the merger, and NAI has agreed to vote
its shares of Viacom Inc. in favor of the Mergers; therefore,
stockholder approval of the Paramount Merger is assured, and approval
by Viacom Inc. of the Blockbuster Merger is also assured.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The contribution to revenues and earnings from operations of each
industry segment and the identifiable assets attributable to each
industry segment for each of the last three years ending December 31,
are set forth in Note 12 ("Business Segments") to the Consolidated
Financial Statements of Viacom Inc. and the Company included elsewhere
herein.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operations
for each of the last three years ending December 31, is set forth in
Notes 11 and 12 ("Foreign Operations" and "Business Segments") to the
Consolidated Financial Statements of Viacom Inc. and the Company
included elsewhere herein.
BUSINESS
VIACOM NETWORKS
Viacom Networks operates three advertiser-supported basic cable
television program services, MTV: MUSIC TELEVISION(R) ("MTV"),
including MTV EUROPE(TM) and MTV LATINO(TM), VH-1(R)/VIDEO HITS ONE(R)
("VH-1") and NICKELODEON(R)/NICK AT NITE(R), and three premium
subscription television program services, SHOWTIME(R), THE MOVIE
CHANNEL(TM) and FLIX(TM). The Company, directly and through Viacom
Networks, participates as a joint venturer in four additional
advertiser-supported basic cable program services: LIFETIME(R) with
The Hearst Corporation and Capital Cities/ABC Video Enterprises, Inc.,
COMEDY CENTRAL(TM) with Home Box Office ("HBO"), a division of Time
Warner Entertainment Company, L.P., NICKELODEON(TM)(U.K.) with a
subsidiary of British Sky Broadcasting Limited, and ALL NEWS
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CHANNEL(TM) with Conus Communications. On March 29, 1994, the Company
agreed to sell its one-third partnership interest in Lifetime to its
partners The Hearst Corporation and Capital Cities/ABC Inc. for
approximately $317.6 million; this transaction is expected to close in
the second quarter of 1994. MTV Networks launched two new services in
1993, NICKELODEON (U.K.) in September and MTV LATINO in October.
Viacom Networks also distributes special events and feature films on a
pay-per-view basis through SET(TM) PAY PER VIEW and packages
satellite-delivered program services for distribution to home
satellite dish owners through SHOWTIME SATELLITE NETWORKS(TM). Viacom
Networks, through its operation of the Showtime Entertainment Group,
also arranges for the development and production of original programs
and motion pictures, including feature films under the Viacom Pictures
label. These original programs and motion pictures premiere
domestically on SHOWTIME and certain of such programming is exploited
in various media worldwide.
Basic cable program services derive revenues primarily from two
sources: the sale of advertising time to national advertisers and
per-subscriber license fees paid by cable operators and other
distributors. Basic cable services are generally offered to customers
of cable television operators and other distributors as part of a
package or packages of services for a periodic subscription fee.
Premium subscription television program services derive revenues
primarily from subscriber fees paid by cable television operators and
other distributors. Subscribers typically pay fees for each premium
service to cable television operators and other distributors.
MTV NETWORKS. MTV Networks ("MTVN") operates MTV: MUSIC
TELEVISION, MTV EUROPE, MTV LATINO, NICKELODEON (including the
NICKELODEON and NICK AT NITE program segments, and the U.K.
NICKELODEON network) and VH-1 which are transmitted via satellite for
distribution by cable television operators and other distributors.
The MTV, VH-1, NICKELODEON and NICK AT NITE trademarks are strongly
identified with the product lines they represent and are significant
assets of their respective businesses.
MTV: MUSIC TELEVISION is a 24-hours-a-day, seven-days-a-week
program service offering a format which consists primarily of rock
music videos, augmented by music and general lifestyle information,
promotions, news, interviews, comedy, concert tour information,
specials, documentaries and other youth-oriented programming. MTV
targets young adult viewers from the ages of 12 to 34. In addition to
rock music videos, MTV offers regularly scheduled youth-oriented
programming such as the animated BEAVIS & BUTT-HEAD(TM), specials such
as the Annual MTV Video Music Awards and the MTV Movie Awards, public
affairs campaigns, and series such as UNPLUGGED(TM). MTV successfully
merchandised BEAVIS & BUTT-HEAD in 1993, featuring a BEAVIS & BUTT-
HEAD album, "THE BEAVIS & BUTT-HEAD EXPERIENCE", released in December
1993 by Geffen Records, and "MTV'S BEAVIS & BUTT-HEAD: THIS BOOK
SUCKS", which was the first book of the MTV Books imprint published by
Callaway Editions/Pocket Books, a division of Simon & Schuster, in
November 1993.
Following the conclusion of MTV's 1992 CHOOSE OR LOSE political
awareness campaign and continuing its emphasis on public affairs, MTV
launched the FREE YOUR MIND campaign in 1993, focusing on issues of
diversity and discrimination, which included on-air promotional spots,
news reports and specials and contests.
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UNPLUGGED features live acoustical performances by major recording
artists such as Eric Clapton, Rod Stewart and 10,000 Maniacs. MTV
licenses the distribution of UNPLUGGED home video versions of these
performances, and MTV and the applicable record labels release the
soundtracks to MTV's UNPLUGGED series.
MTV Productions made its first venture into theatrical film-making
by agreeing with Geffen Pictures in 1993 to jointly develop JOE'S
APARTMENT into a feature-length film for distribution by Warner Bros.
JOE'S APARTMENT is the award-winning short film about a young man's
efforts to cope with a big dirty city and a tiny apartment full of
talking cockroaches.
At December 31, 1993, MTV was licensed to approximately 52.2
million domestic cable subscribers (based on subscriber counts
provided by each cable system). According to the December 1993 sample
reports issued by the A. C. Nielsen Company (the "Nielsen Report"),
MTV reached approximately 59 million subscriber households.
MTV EUROPE is a 24-hours-a-day, seven-days-a-week video music
network distributed via cable systems and direct-to-home satellite
transmission throughout Europe, reaching over 58.3 million subscribers
as of December 31, 1993 (based on subscriber counts provided by each
distributor of the service). During 1993, MTV EUROPE expanded its
reach by entering into distribution arrangements in certain countries
in Eastern Europe, the former Soviet Union and the Middle East. MTV
EUROPE is designed to communicate with Europe's youth in their
language by providing approximately 85% European-sourced youth
programming, including music videos, fashion, movie shows, MTV NEWS,
trends and social issues.
In October 1993, MTVN launched MTV LATINO, a 24-hours-a-day,
seven-days-a-week music-based program service customized for Spanish-
speaking viewers, ages 12 to 34, in Latin America and the United
States. MTV LATINO reaches subscribers to cable, multichannel,
multidistribution systems ("MMDS"), satellite master antenna
television ("SMATV") and direct-to-home viewers in approximately 20
territories in Latin America. MTV LATINO was distributed to
approximately 2.4 million subscribers as of December 31, 1993 (based
on subscriber counts provided by authorized distributors).
MTVN has licensing arrangements covering the distribution of
regionally-specific program services called MTV: MUSIC TELEVISION in
Asia, Japan and Brazil. MTVN provides creative input and programming,
production, marketing and research expertise and support in connection
with licenses to each such licensee of the right to package and
exhibit a customized MTV program service containing MTV trademarks and
logos and a mix of MTV-owned and controlled programming and
interstitial material with locally produced programming and
interstitial material. Such arrangements include agreements with a
subsidiary of HutchVision Limited for a 24-hours-a-day MTV Asia
service, which is distributed to 42 million subscriber households via
the AsiaSat 1 satellite on the Hong Kong-based Satellite Television
Asian Region (STAR) system to 30 countries in Asia and parts of the
Middle East; the Abril Group for MTV Brazil, which airs 16-hours-a-day
in Brazil, reaching 9.5 million households; and Music Channel Co.
Ltd., a joint venture of Pioneer Electronic Corp., TDK Corp. and Tokyu
Agency, Inc. for MTV Japan, which launched in December 1992 and is
distributed to approximately 810,000 subscriber households in Japan
via the Superbird B satellite.
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MTVN licenses, in international markets, the format rights and/or
broadcast television exhibition rights to MTVN-owned or controlled
programming. MTVN also licenses the exhibition of "MTV
Internacional", a Spanish-language MTV-produced one-hour program, to
Spanish-language television stations in the U.S. and abroad. MTVN
anticipates further worldwide licensing of MTVN networks, programs,
merchandise and format rights.
NICKELODEON, the first network for kids, is a 24-hours-a-day,
seven-days-a-week entertainment program service which combines
acquired and originally produced programs in a pro-social, non-violent
format, comprising two distinct program segments: NICKELODEON,
targeted to audiences ranging from the ages of 2 to 15, and NICK AT
NITE, targeted to family audiences including NICKELODEON'S 2 to 15
year old audience and ranging up to age 54. Cable television
operators and other distributors typically carry both of the
NICKELODEON programming segments.
In 1993, NICKELODEON expanded its successful original animated
programming block, NICKTOONS(R), with the introduction of ROCKO'S
MODERN LIFE(TM). NICKELODEON continues to develop original animation
projects such as REAL MONSTERS(TM), in addition to THE REN & STIMPY
SHOW(TM), DOUG(TM) and RUGRATS(R). NICKELODEON also exhibits on
Saturday nights SNICK(TM), its first prime-time block of original
NICKELODEON programming. MTVN, in cooperation with MCA Inc. ("MCA"),
operates NICKELODEON STUDIOS FLORIDA at Universal Studios in Orlando,
Florida, which combines state-of-the-art television production
facilities with interactive features that demonstrate the operation of
NICKELODEON's studios from a kid's perspective.
NICKELODEON and Sony Music entered into an agreement in April 1993
for Sony to manufacture and distribute NICKELODEON home video and
audio products in the U.S. and Canada through its Sony Wonder
Children's label. In June 1993, NICKELODEON launched NICKELODEON
MAGAZINE, a bi-monthly humor-based children's publication. At
December 31, 1993 circulation was approximately 225,000 (based on
subscription and newsstand sales); distribution is handled, under
agreement with NICKELODEON, by the New York Times' The Family Circle,
Inc. (U.S.), and Worldwide Media Service, Inc. (U.K.).
At December 31, 1993, NICKELODEON was licensed to approximately
53.4 million cable subscribers (based on subscriber counts provided by
each cable system). At December 31, 1993, NICK AT NITE was licensed
to approximately 53.1 million cable subscribers (based on subscriber
counts provided by each cable system). According to the Nielsen
Report, NICKELODEON and NICK AT NITE each reached approximately 60.9
million subscriber households.
In December 1992, Nickelodeon Huggings U.K. Limited, a subsidiary
of the Company, entered into a joint venture with a subsidiary of
British Sky Broadcasting Limited for the launch and operation of
NICKELODEON program service in the United Kingdom and Ireland.
NICKELODEON in the U.K. is a 12-hours-a-day, seven-days-a-week,
satellite-delivered children's programming service which launched in
September 1993, and it carries a mix of programming, including
original productions from NICKELODEON in the U.S. and programming
originally produced by the joint venture for the U.K. market.
Pursuant to the joint venture agreement and related parent agreements,
the Company guarantees the obligation of its subsidiary and has both
the right of first negotiation/last refusal with respect to any sale
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of, and the right to approve any purchaser of, the British Sky
Broadcasting subsidiary's interest in NICKELODEON U.K. The Company's
subsidiary is obligated to fund loans in an amount equal to 50% of
NICKELODEON U.K.'s working capital deficit. The Company funded loans
of approximately B.P.3,500,000 in 1993 and expects to fund loans of
approximately B.P.7,000,000 in 1994.
VH-1/VIDEO HITS ONE is a 24-hours-a-day, seven-days-a-week music
program service. VH-1 targets an audience of baby boomers, 25 to 49
years old, rather than the 12 to 34 year-olds targeted by MTV. The
format consists primarily of music video clips from the adult
contemporary, soft rock, classic oldies, contemporary jazz and country
genres, augmented by original animation, music and general lifestyle
information and programming, comedy, fashion, nostalgia, interviews
and promotions. VH-1 offers programs such as original and acquired
comedy programming including STAND-UP SPOTLIGHT and Gallagher
specials; FT: FASHION TELEVISION; and the ONE-TO-ONE series which
profiles pop artists. At December 31, 1993, VH-1 was licensed to
approximately 45.5 million cable subscribers (based on subscriber
counts provided by each cable system). According to the Nielsen
Report, VH-1 reached approximately 49.5 million subscriber households.
Substantially all such subscribers also receive MTV.
MTVN has agreements with some U.S. record companies which, in
exchange for cash and advertising time, license the availability of
such companies' music videos for exhibition on MTV and on MTVN's other
basic cable networks; a number of other record companies provide MTVN
with music videos in exchange for promotional consideration only. The
agreements generally provide that the videos are available for debut
by MTVN and, in some cases, that videos are subject to exclusive
periods on MTV. These record companies provide a substantial portion
of the music videos exhibited on MTV and VH-1. MTVN is currently in
negotiations for the renewal and extension of certain of its record
company agreements. Although MTVN believes that these agreements will
be renewed, there can be no assurance that the terms of such renewals
will be as favorable as existing arrangements.
MTVN derives revenues principally from two sources: the sale of
time on its own networks to advertisers and the license of the
services to cable television and other system operators. The sale of
MTVN advertising time is affected by viewer demographics, viewer
ratings and market conditions for advertising time. Adverse changes
in market conditions for advertising may affect MTVN's revenues. MTVN
derives revenues from license fees paid by cable operators and other
distribution systems which deliver programming by satellite and
microwave transmissions. In 1993, MTVN derived approximately 58% of
its revenues from music programming and approximately 42% of its
revenues from children's and other programming.
MTVN also derives revenues from the sale of advertising time
within internally produced or co-produced programming distributed to
television stations and from the sale of advertising time within such
programs produced by third parties. MTVN, through its operation of
One World Entertainment, sells barter advertising time in series
licensed for distribution to television stations by the Company and
third parties, in exchange for a commission.
COMEDY CENTRAL. The Company and HBO, through a 50-50 joint
venture, operate COMEDY CENTRAL, a 24-hours-a-day, seven-days-a-week
program service targeted to audiences ranging from the ages of 18 to
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34. The format consists primarily of comedy programming, including
movies, series, situation comedies, stand-up and sketch comedy,
commentary, promotions, specials, and other original and acquired
comedy programming. Pursuant to the joint venture agreement, the
Company is obligated to make capital contributions in an amount equal
to 50% of the partnership's working capital deficit (and Viacom Inc.
has guaranteed such obligation). The Company's capital contributions
for 1993 totaled $13.6 million. For 1994, the Company estimates its
contribution obligation to be approximately $9 million. COMEDY
CENTRAL reached approximately 30.3 million subscriber households
according to the Nielsen Report.
LIFETIME. The Company owns a one-third partnership interest in
LIFETIME, an advertiser-supported basic cable television network that
provides programming directed primarily toward women in the 18 to 54
age group. On March 29, 1994, the Company agreed to sell its one-
third partnership interest in LIFETIME to its partners The Hearst
Corporation and Capital Cities/ABC Inc. for approximately $317.6
million; this transaction is expected to close in the second quarter
of 1994.
SHOWTIME NETWORKS INC. Showtime Networks Inc. ("SNI") operates
three 24-hours-a-day, commercial-free, premium subscription services
offered to cable television operators and other distributors:
SHOWTIME, offering theatrically released feature films, dramatic
series, comedy specials, boxing events, family programs and original
movies; THE MOVIE CHANNEL, offering feature films and related
programming including film festivals; and FLIX, an added value premium
subscription service featuring movies primarily from the 1960s, 70s
and 80s which was launched on August 1, 1992. SHOWTIME, THE MOVIE
CHANNEL and FLIX are offered to cable television operators and other
distributors (including the Company) under affiliation agreements
which for SHOWTIME and THE MOVIE CHANNEL are generally for a term of
three to five years and in each case are distributed to the systems
they serve by means of domestic communications satellites. As of
December 31, 1993, SHOWTIME, THE MOVIE CHANNEL and FLIX, in the
aggregate, had approximately 11,900,000 cable and other subscribers in
approximately 8,700 cable systems and other distribution systems in 50
states and certain U.S. territories.
SNI also provides special events, such as sports events, and
feature films to licensees on a pay-per-view basis through its
operation of SET PAY PER VIEW, a division of the Company.
Showtime Satellite Networks Inc. ("SSN"), a subsidiary of SNI,
packages for distribution to home satellite dish owners (on a direct
retail basis) SHOWTIME, THE MOVIE CHANNEL, FLIX, Viacom Networks'
basic cable program services, ALL NEWS CHANNEL (a 24-hour satellite-
delivered news service which is a joint venture between Viacom
Satellite News Inc., a subsidiary of the Company, and Conus
Communications Company Limited Partnership, a limited partnership
whose managing general partner is Hubbard Broadcasting, Inc.) and
certain third-party program services. SHOWTIME, THE MOVIE CHANNEL and
FLIX are also offered to third-party licensees for subdistribution to
home satellite dish owners.
In order to exhibit theatrical motion pictures on premium
subscription television, SNI enters into commitments to acquire
rights, with an emphasis on acquiring exclusive rights for SHOWTIME
and THE MOVIE CHANNEL, from major or independent motion picture
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producers and other distributors (including the Company). SNI's
exhibition rights always cover the United States and may on a
contract-by-contract basis cover additional territories. Theatrical
motion pictures are generally exhibited first on SHOWTIME and THE
MOVIE CHANNEL after an initial period for theatrical, home video and
pay-per-view exhibition and before the period has commenced for
standard broadcast television and basic cable television exhibition.
FLIX primarily offers motion pictures from the 1960s, 70s and 80s,
most of which have been previously made available for standard
broadcast and other exhibitions.
The cost of acquiring premium television rights to programming,
including exclusive rights, is the principal expense of SNI. At
December 31, 1993, in addition to such commitments reflected in Viacom
Inc.'s and the Company's financial statements, SNI had commitments to
acquire such rights at a cost of approximately $1.8 billion. Most of
the $1.8 billion is 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.
In November 1993, SNI entered into a seven-year agreement with
Metro-Goldwyn-Mayer Inc. ("MGM") under which SNI agreed to acquire the
exclusive premium television rights in the licensed territory to MGM
and United Artists feature films. The agreement includes all
qualifying films theatrically released from September 1, 1994 through
August 31, 2001, up to a maximum of 150 pictures. This agreement
follows a previous agreement between SNI and Pathe Entertainment,
Inc., a predecessor-in-interest to MGM. The recent agreement also
calls for SNI and MGM to co-finance the production of certain
exclusive original movies to be produced for SNI's program services.
Also in 1993, SNI and Sony Pictures Entertainment Inc. entered
into a five-year agreement under which SNI agreed to acquire the
exclusive premium television rights in the licensed territory to
TriStar Pictures feature films. A continuation of SNI's previous
three-year arrangement with TriStar, this new agreement includes all
qualifying TriStar films theatrically released from 1994 through 1998,
up to a maximum of 75 pictures. Feature films theatrically released
by TriStar include SLEEPLESS IN SEATTLE, CLIFFHANGER and PHILADELPHIA.
In February 1994, SNI reached an agreement in principle with
Castle Rock Entertainment ("Castle Rock") to acquire the exclusive
premium television rights in the licensed territory to additional
Castle Rock feature films. This agreement follows SNI's previous
output arrangement with Castle Rock, which included such previously
theatrically released feature films as A FEW GOOD MEN, CITY SLICKERS,
WHEN HARRY MET SALLY, MISERY, MALICE and IN THE LINE OF FIRE. The new
agreement includes all qualifying Castle Rock motion pictures
theatrically released from 1994 through 1999, up to a maximum of 55
pictures.
In March 1994, SNI entered into an agreement with Orion Pictures
Corporation ("Orion") under which SNI agreed to acquire the exclusive
premium television rights in the licensed territory to up to 30, in
the aggregate, motion pictures, including qualifying motion pictures
theatrically released from 1994 through 1996 and qualifying original
motion pictures. This agreement follows a previous output agreement
between SNI and Orion.
I - 9
In 1989, SNI agreed with Walt Disney Pictures ("Disney") to
acquire exclusive premium television rights in the licensed territory
to qualifying feature films (up to a maximum of 125 films) produced
and distributed by Disney's major distribution labels (other than the
Disney label) and theatrically released during the five-year period
commencing January 1, 1991. These films include SISTER ACT 2,
TOMBSTONE, THE JOY LUCK CLUB and WHAT'S LOVE GOT TO DO WITH IT. In
addition, SNI has agreements with (among other suppliers) New Line
Distribution, Inc., Imagine Films Entertainment, Inc., Cannon
Pictures, Inc., and Polygram Filmed Entertainment Distribution, Inc.
SNI also arranges for the development and production of original
programs and motion pictures that premiere on SHOWTIME through its
operation of the Showtime Entertainment Group, which was formed in
1992. The Showtime Entertainment Group reflects SNI's increased
commitment to the development and production of original programming
and includes the operation of Viacom Pictures, a division of the
Company.
Viacom Pictures arranges for the development and production of
motion pictures that are exhibited theatrically in foreign markets and
premiere domestically on SHOWTIME. These films are then made
available for distribution to various media worldwide, with the
exception of the U.S. theatrical market. These feature films are
generally budgeted at an average cost of approximately $5 million.
During 1993, Viacom Pictures completed principal photography on two
films: PAST TENSE, starring Scott Glenn, Anthony LaPaglia and Lara
Flynn Boyle, and ROSWELL, starring Kyle MacLachlan, Martin Sheen and
Dwight Yoakam.
The Showtime Entertainment Group also has entered into commitments
to produce, distribute and/or exhibit other original programming,
including series, films, documentary programs, comedy specials and
boxing events. In 1993, for example, SNI televised comedy specials
featuring Tim Allen, Brett Butler and Shelley Long, boxing matches
featuring such fighters as Julio Cesar Chavez, and the critically
acclaimed dramatic anthology series entitled FALLEN ANGELS, episodes
of which were directed by Michael Mann, Steve Soderbergh, Jonathan
Kaplan and Tom Cruise and starred Gary Oldman, Laura Dern, Meg Tilly,
Gabrielle Anwar, James Woods, Joe Mantegna, Gary Busey and Alan
Rickman. In addition to exhibiting these original programs and motion
pictures on its premium subscription services, SNI distributes certain
of such programming for exploitation in various media worldwide.
ADDITIONAL INFORMATION ABOUT VIACOM NETWORKS. The domestic
program services of MTVN and SNI are currently transmitted over
transponders principally on GE Americom's C-3 and C-4 and the Hughes
Galaxy I and V domestic satellites. In 1994, Viacom Networks program
services on Galaxy I will move to AT&T's Telstar 302. NICKELODEON
(U.K.) program service is transmitted over the Astra 1-C satellite.
MTV LATINO is transmitted over PanAmSat-1. MTV EUROPE is transmitted
over the Astra 1-A, Astra 1-B and Eutelsat II-F1 satellites.
The Company has entered into pre-launch agreements for
international satellite coverage on Apstar-1 and Apstar-2, covering a
broad Asian area, on PanAmSat-2 (Pacific Rim area), PanAmSat-3 (Latin
America) and PanAmSat-4 (India/Middle East and South Africa) and
Eutelsat II-F6 (greater Europe), all for service beginning in 1994 and
1995.
I - 10
The Company entered into agreements, as of August 27, 1992, with
United States Satellite Broadcasting Inc. ("USSB"), a subsidiary of
Hubbard Broadcasting, Inc., for the direct broadcast satellite
distribution using high-powered Ku-band technology ("DBS") of each of
the Company's wholly owned basic cable and premium networks. These
networks are expected to be offered by USSB to DBS customers beginning
in 1994, and will be delivered directly to dishes located at DBS
customers' homes from the first high-powered Ku-band satellite serving
the U.S., which was launched in December 1993. DBS delivery utilizes
consumer dishes significantly smaller than the C-band consumer dishes
currently in use by home satellite dish owners in the U.S.
VIACOM ENTERTAINMENT
Viacom Entertainment is comprised of (i) Viacom Enterprises,
which distributes television series, feature films, made-for-
television movies, mini-series and specials for television exhibition
in various markets throughout the world and also distributes
television series for initial United States television exhibition on a
non-network ("first run") basis and for international television
exhibition; (ii) Viacom Productions, which produces television series
and other television properties independently and in association with
others primarily for initial exhibition on U.S. prime time network
television; (iii) Viacom New Media, which was established in 1992
to develop, produce, distribute and market interactive software
for the stand alone and other multimedia marketplaces; (iv) Viacom
World Wide, which explores and develops business opportunities in
international markets primarily in cable and premium television; and
(v) Viacom MGS Services, which duplicates and distributes television
and radio commercials. Viacom Enterprises and Viacom Productions are
expected to be consolidated with Paramount's television operations
during 1994.
VIACOM ENTERPRISES. Viacom Enterprises distributes or syndicates
television series, feature films, made-for-television movies, mini-
series and specials, and first run series for television exhibition in
domestic and/or international broadcast, cable and other markets.
Feature film and television properties are acquired from third parties
or result from the Company's own production activities, including
television properties produced by Viacom Productions and certain
television properties produced by or for MTV Networks. Third-party
agreements for the acquisition of distribution rights are generally
long-term and exclusive in nature; such agreements frequently
guarantee a minimum recoupable advance payment to such third parties
and generally provide for periodic payment to such third parties based
on the amount of revenues derived from distribution activities after
deduction of Viacom Enterprises' percentage distribution fee,
recoupment of distribution expenses and recoupment of any advance
payments.
At December 31, 1993, Viacom Enterprises held domestic and/or
international television distribution rights to approximately 5,000
half-hour series episodes, 2,000 one-hour series episodes, 1,500
feature films and television movies, and 30 mini-series.
At December 31, 1993, Viacom Enterprises distributed television
product to, among other outlets, approximately 750 domestic broadcast
television stations, including stations in every principal city
in the U.S., and to outlets in approximately 120 other countries
I - 11
around the world. Viacom Enterprises generally licenses product to
exhibitors for periods of one to six years, with license fee payments
due over a somewhat shorter period.
Episodes of a network television series from the first four
seasons on a broadcast network generally become available for
exhibition in domestic syndication to broadcast television stations
commencing upon the start of the fifth broadcast season on the
network; episodes from each subsequent broadcast season generally
become available for such domestic syndication at the conclusion of
each such subsequent broadcast season. Episodes of network television
series are available for exhibition by foreign stations prior to or
concurrent with their initial network runs. Generally, a network
television series must air for at least three full broadcast seasons
before it has value for such domestic syndication. Television
programs can be made available to stations and other outlets, such as
cable television services, on a first run basis without having been
exhibited on any of the networks. The Company has greater control
over the availability for exhibition in such domestic syndication of
programming developed by and for Viacom's cable networks than of
programming developed for network television. The Company has adopted
a strategy of internal development of first run programs utilizing in-
house creative resources from within Viacom Enterprises and from
elsewhere within the Company, such as MTV Networks. Feature films
which have been released theatrically generally become available for
exhibition in such domestic syndication after their theatrical, home
video, pay-per-view, and premium television exhibition periods have
expired (which is generally three to four years after domestic
theatrical release) and for network or ad hoc network exhibition
between the first and second premium television windows. Such feature
films generally become available for free television exhibition by
foreign stations after the foreign theatrical, home video, pay-per-
view (if any) and premium television (if any) exhibition periods have
expired (which is generally two to three years after theatrical
release in the applicable foreign market).
The Company controls the exclusive worldwide broadcast, basic
cable, premium, and home video television distribution rights to
ROSEANNE, now in its sixth network broadcast season on ABC, and THE
COSBY SHOW, which completed its eight-year network run at the end of
the 1991/92 network broadcast season. The start of the sixth network
season of ROSEANNE automatically triggered the first of three 26-week
extensions of individual station licenses for ROSEANNE's initial
licensing in domestic syndication, which was made on a cash plus
barter basis. The second licensing period in domestic syndication for
THE COSBY SHOW commenced in September 1993 (upon expiration of the
term for the initial licensing in domestic syndication of THE COSBY
SHOW) on an all-cash basis.
The Company also controls certain worldwide exclusive
distribution rights to classic network series such as I LOVE LUCY, THE
ANDY GRIFFITH SHOW, THE BEVERLY HILLBILLIES, HAWAII FIVE-O and THE
TWILIGHT ZONE. The Company is also offering VIACOM SEASONAL SPECIALS
FEATURING NICKTOONS which brings six one hour seasonally themed
specials, drawn from MTV Networks' critically acclaimed NICKTOONS
animation block, to broadcast television.
In addition, the Company controls the exclusive worldwide
distribution rights in all media to various network television movies
and series produced by Viacom Productions such as the PERRY MASON
I - 12
television movies starring Raymond Burr, the DIAGNOSIS MURDER
television movies and series starring Dick Van Dyke and the MATLOCK
series starring Andy Griffith. Most episodes of MATLOCK and most of
the PERRY MASON television movies are currently available for
exhibition in domestic syndication. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
The Company had accumulated a backlog of unbilled license
agreements of approximately $399 million at December 31, 1993. As the
entire license fee amount is billed during the term of various
licensing contracts, the Company will recognize as revenues that
portion of such amount representing its distribution fees. Down
payments and other accelerated payments of license fees are included
in the backlog and are recognized as revenues in accordance with the
billing terms of the license agreements. (See Note 1 to the
Consolidated Financial Statements of Viacom Inc. and the Company for
an explanation as to how license fees are billed.) Approximately 58%
of the Company's backlog is attributable to license fees for ROSEANNE
and THE COSBY SHOW. As THE COSBY SHOW becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Since the late 1970s, the Company has produced and/or acquired
television series for distribution on a first run basis. There is a
financial exposure to the Company when it acquires or produces such
series to the extent that advertising revenues derived by the Company
and/or license fees paid by television stations to the Company are not
sufficient to cover production costs. The Company typically offers to
license new episodes of a first run series on a broadcast season
basis. Generally, a first run series may be canceled by the Company
for any reason at any time; in such event, television station licenses
for such first run series are subject to termination by the Company,
and the Company may have certain financial obligations to the producer
notwithstanding cancellation. The Company is currently offering the
third season (since its national launch) of THE MONTEL WILLIAMS SHOW,
a first run one-hour strip (five times per week) talk show which
premiered in Spring 1991 and was nationally launched in September
1992, on a cash plus barter basis, and NICK NEWS, a first run half
hour weekly (one time per week) news and information show targeted for
audiences 12 years old and under, which was nationally launched in
September 1993 on an all-barter basis.
The Company licenses certain ancillary rights to third parties,
including home video, video disc and merchandising rights. These
rights can be acquired concurrently with a program acquisition,
derived from programs or characters created in-house, or directly
licensed from the holders of such rights. These activities have not
been a source of significant revenues to date.
For the year ended December 31, 1993, approximately 37% of Viacom
Enterprises' revenues were attributable to foreign operations and
export business. A substantial portion of such revenues is derived in
countries that have import quotas and other restrictions which limit
the number of foreign programs and films exhibited in such countries.
(See "BUSINESS -- Regulation -- Viacom Entertainment -- European
Community Directive")
VIACOM PRODUCTIONS. Viacom Productions Inc. ("Viacom
Productions") produces programs independently and in association with
others primarily for U.S. network prime time television.
I - 13
These programs, which include television movies, series and mini-
series, are also a source of product for the Company's distribution
activities. There is a financial exposure to the Company with respect
to such programs to the extent that revenues from distribution or
syndication in foreign or domestic broadcast, cable and/or other
markets are not sufficient to cover production deficits (i.e., the
----
difference between production costs and network license fees). For
the 1993/94 broadcast season, Viacom Productions is producing the
eighth network broadcast season of Andy Griffith's MATLOCK series
(ABC); three additional PERRY MASON mystery television movies (NBC);
the first network broadcast season of Dick Van Dyke's DIAGNOSIS MURDER
series (CBS); two television movies starring Louis Gossett, Jr. (NBC);
and several two-hour television movies, including THE ANISSA AYALA
STORY (NBC); DESPERATE JOURNEY, starring Mel Harris (ABC); and SIN AND
REDEMPTION, starring Richard Grieco (CBS). Viacom Productions also
produces movies for cable television networks, including THEY,
starring Vanessa Redgrave (SHOWTIME) and A FRIENDLY SUIT, starring
Melissa Gilbert and Marlee Matlin (LIFETIME).
VIACOM NEW MEDIA. Viacom New Media, the Company's interactive
publishing division, was formed in 1992 to develop, produce,
distribute and market interactive software for the stand-alone and
other multimedia marketplaces. ICOM Simulations, Inc., an interactive
software development company, was acquired by the Company in May 1993
and has been integrated into Viacom New Media; among other things,
ICOM Simulations, Inc. is known for its SHERLOCK HOLMES CONSULTING
DETECTIVE series of CD-ROM products. Viacom New Media released an
interactive horror movie on CD-ROM entitled DRACULA UNLEASHED in the
fourth quarter of 1993. In 1994, Viacom New Media expects to release
original video games and CD-ROM products based on certain MTV Networks
programs, including ROCKO'S MODERN LIFE (currently scheduled for
second quarter 1994 release) and BEAVIS & BUTT-HEAD. Viacom New Media
also expects to participate in the development of interactive
programming for the Viacom/AT&T Castro Valley cable system project.
(See "BUSINESS -- Viacom Cable Television")
VIACOM WORLD WIDE LTD. Viacom World Wide Ltd. ("Viacom World
Wide") explores and develops international business opportunities in
all media, focusing primarily on countries with recently deregulated
television industries. Viacom World Wide works closely with the
Company's other operating units in identifying international business
opportunities. Viacom World Wide also provides consulting services to
companies overseas. Over the past year, Viacom World Wide has
provided strategic and business planning services to corporations in
the Middle East and engineering services in Japan. None of these
services has been a source of significant revenues to date nor
required significant capital contributions by the Company.
VIACOM MGS SERVICES. Viacom MGS Services Inc. ("MGS")
distributes, duplicates and stores taped and filmed television
commercials, radio commercials, and other programs for advertisers and
agencies, production houses and industrial and educational customers.
VIACOM CABLE TELEVISION
CABLE OPERATIONS. At December 31, 1993, Viacom Cable Television
("Viacom Cable") was approximately the 13th largest multiple cable
television system operator in the United States with approximately
1,094,000 subscribers. In January 1993, the Company completed the
I - 14
sale of its suburban Milwaukee cable system, serving approximately
47,000 customers, to Warner Communications Inc., a unit of Time Warner
Entertainment Co., L.P. as part of the settlement of the Company's
antitrust lawsuit against Time Warner Inc. Viacom Cable's systems are
operated pursuant to non-exclusive franchises granted by local
governing authorities.
Viacom Cable offers two tiers of primary (i.e., non-premium)
service: "Limited Service", which consists generally of local and
distant broadcast stations and all public, educational and
governmental channels ("PEG") required by local franchise authorities;
and, the "Satellite Value Package", which provides additional channels
of satellite-delivered cable networks. Monthly service fees for these
two levels of primary service constitute the major source of the
systems' revenue.
The monthly service fees for Limited Service and the Satellite
Value Package are regulated under the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") (See
"BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation"). At
December 31, 1993, the fixed monthly fees charged to customers for
primary services varied by geographic area and ranged from $9.00 to
$14.84 per month for Limited Service and from $21.25 to $25.78 for the
combination of Limited Service plus the Satellite Value Package, in
each case for all of an individual customer's television connections.
The Company offers customers the Company's own basic programming
services, as well as third-party services such as CNN and ESPN. An
installation charge is levied in many cases but does not constitute an
important source of revenue. Customers are free to discontinue
service at will. None of Viacom Cable's systems is exempt from rate
regulation under the 1992 Cable Act.
Viacom Cable offers premium cable television programming,
including the Company's premium subscription television services, to
its customers for an additional monthly fee of up to $12.25 per
premium service. As of December 31, 1993, the Company's cable
television systems had approximately 718,000 subscriptions to premium
cable television program services.
Viacom Cable customers who elect to subscribe to Limited Service
alone are also able to purchase premium and pay-per-view services
offered by the Company without first having to "buy through" the
Satellite Value Package. The 1992 Cable Act requires cable operators
to implement this practice where no technological limitations exist.
(See "BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")
Viacom Cable also derives revenue from sales of available
advertising spots on advertiser-supported programming and sharing of
revenues from sales of products on home shopping services offered by
Viacom Cable to its customers.
Cable operators require substantial capital expenditures to
construct systems and significant annual expenditures to maintain,
rebuild and expand systems. The equipment of each cable system
consists principally of receiving apparatus, trunk lines, feeder cable
and drop lines connecting the distribution network to the premises of
the customers, electronic amplification and distribution equipment,
converters located in customers' homes and other components. System
construction and operation and quality of equipment used must conform
with federal, state and local electrical and safety codes and certain
I - 15
regulations of the FCC. Viacom Cable, like many other cable
operators, is analyzing potential business applications for its
broadband network, including interactive video, video on demand, data
services and telephony. These applications, either individually or in
combination, may require technological changes such as fiber optics
and digital compression. If these applications justify capital
spending in excess of current projections, Viacom Cable will revise
its capital needs accordingly. Although management believes the
equipment used in the cable operations is in good operating condition,
except for ordinary wear and tear, Viacom Cable invests significant
amounts each year to upgrade, rebuild and expand its cable systems.
During the last five years, Viacom Cable's capital expenditures were
as follows: 1989: $40 million; 1990: $46 million; 1991: $45 million;
1992: $55 million; and 1993: $79 million. The Company expects that
Viacom Cable's capital expenditures in 1994 will be approximately $100
million.
Viacom Cable has constructed a fiber optic cable system in Castro
Valley, California to provide more channels with significantly better
picture quality, and to accommodate testing of new services including
an interactive on-screen programming guide known as StarSight (in
which a consolidated affiliate of the Company currently has a 21.4%
equity interest which it has the right to increase to 35%), other
interactive programs with Viacom New Media, video-on-demand premium
services, multiplexed premium services, and advanced interactive video
and data services. Viacom has entered into an agreement with AT&T to
test and further develop such services.
As part of Viacom's strategic relationship with NYNEX Corporation
("NYNEX"), Viacom has granted NYNEX a right of first refusal with
respect to providing telephony service upgrade expertise to Viacom
Cable.
I - 16
AS OF DECEMBER 31, 1993
---------------------
APPLOXIMATE APPROXIMATE NUMBER OF
HOMES IN HOMES PASSED PRIMARY PRIMARY PREMIUM PREMIUM MILES OF
FRANCHISE BY CABLE CUSTOMERS PENETRATION UNITS PENETRATION CABLE
AREA DISTRIBUTION
(1) (2) (3) (4) (5) (6)
---------------------------------------------------------------------------------------
Bay Area Region
Marin (7) 81,000 79,600 61,800 78% 30,200 49% 638
Sonoma (7) 45,000 44,700 34,500 77% 17,000 49% 514
Napa (7) 33,000 32,600 22,900 70% 11,800 52% 302
East Bay/Castro 85,000 85,400 70,800 83% 53,700 76% 668
Valley(7)
Pittsburg/Pinole(7) 72,000 71,400 53,600 75% 37,900 71% 511
San Francisco 354,500 334,000 161,800 48% 117,700 73% 709
------- ------- ------- --- ------- --- ---
Total Bay Area 670,500 647,700 405,400 63% 268,300 66% 3,342
Region
Ore-Cal Region
Redding (7) 55,800 53,400 35,400 66% 17,400 49% 629
Oroville(7) 42,600 38,700 25,100 65% 8,800 35% 482
Salem 74,400 72,300 42,500 59% 21,700 51% 600
------ ------ ------ --- ------ --- ---
Total Ore-Cal 172,800 164,400 103,000 63% 47,900 47% 1,711
Region
Puget Sound Region 614,300 595,900 408,600 69% 253,200 62% 6,123
(7)
Mid-West Region
Nashville (17) 265,000 227,100 125,400 55% 99,000 79% 2,222
Dayton 98,000 94,800 51,700 55% 49,700 96% 633
------ ------ ------ --- ------ --- ---
Total Mid-West 363,000 321,900 177,100 55% 148,700 84% 2,855
Region
Total Viacom Cable 1,820,600 1,729,900 1,094,100 63% 718,100 66% 14,031
========= ========= ========= === ======= === ======
- ----------------------
(1) Homes in franchise area represents Viacom Cable's estimate based upon local sources such as city
directories, chambers of commerce, public utilities, public officials and house counts.
(2) Homes are deemed "passed by cable" if such homes can be connected without any further extension of the
transmission lines.
(3) Represents the number of homes connected, rather than the number of television outlets connected within
such homes.
(4) Represents primary customers as a percentage of homes passed by cable.
(5) The premium unit count is based on the total number of premium services subscribed to by primary
customers.
(6) Represents premium units as a percentage of primary customers.
(7) Other cable television companies have franchises and serve parts of these areas in which the Company has
franchises.
I - 17
VIACOM BROADCASTING
Viacom Broadcasting is engaged in the operation of five television
and 14 radio stations. The Company's television and radio stations
operate pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), and licenses granted by the FCC, which are
renewable every five years in the case of television stations and every
seven years in the case of radio stations.
VIACOM TELEVISION. The Company owns and operates the following
five television properties:
NETWORK
STATION AND AFFILIATION
METROPOLITAN AND EXPIRATION YEAR
AREA SERVED TYPE DATE OF AGREEMENT ACQUIRED
- --------------------------------------------------------------------
KMOV-TV
St. Louis, MO VHF CBS/December 31, 1994 1986
WVIT-TV
Hartford-New Haven-
New Britain-Waterbury, CT UHF NBC/July 2, 1995 1978
WNYT-TV
Albany-Troy-Schenectady, NY VHF NBC/September 28, 1980
1995
KSLA-TV
Shreveport, LA VHF CBS/June 30, 1995 1983
WHEC-TV
Rochester, NY VHF NBC/August 13, 1994 1983
As reflected in the table above, each of the Company's television
stations is affiliated with a national television network. Such
affiliations can be an advantage, because network programming is often
competitively stronger and results in lower programming costs than
would otherwise be necessary to obtain programming from other sources.
The Company expects that the affiliation agreements which expire in
1994 will be renewed.
I - 18
In addition to fees paid by networks to their affiliates, the
principal source of revenue for the Company's television stations is
the sale of broadcast time that has not been sold by the networks to
national, local and regional advertisers. Such sales may involve all
or part of a program or spot announcements within or between programs.
Broadcast time is sold to national advertisers through national sales
representatives who are compensated on a commission basis at normal
industry rates. Advertising is sold to local and regional advertisers
through a station's own sales force. Local and national spot
advertising is generally sold pursuant to contracts which are for short
periods and are generally cancelable upon prior notice but which are
frequently renewed for additional terms.
VIACOM RADIO. The Company owns and operates the 14 radio stations
listed below. On June 16, 1993, the Company acquired the assets of
KQLZ-FM (now KXEZ-FM), serving Los Angeles, California and on November
1, 1993, the Company acquired the assets of WCXR-FM and WCPT-AM serving
Washington, D.C., in exchange for the assets of KIKK-AM/FM serving
Houston, Texas and cash. The Company now operates multiple FM and/or
multiple AM stations in Seattle, Washington (2 FMs, 1 AM), Los Angeles,
California (2 FMs) and Washington, D.C. (2 FMs, 2 AMs) as permitted by
the FCC's recently liberalized ownership rules which permit common
ownership of two or more AM or two or more FM stations in the same
market. Pursuant to the FCC's order on March 4, 1994 consenting to the
transfer of control of Paramount's broadcast licenses to Viacom Inc.,
which licenses include a television station serving Washington, D.C.,
the Company has undertaken to dispose of one AM and one FM radio
station serving Washington, D.C. no later than September 11, 1995.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
I - 19
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- -----------------------------------------------------------------------
WLTW-FM
New York, NY 106.7 MHz 50,000 Adult 1980
Contemporary
WLIT-FM
Chicago, IL 93.9 MHz 50,000 Adult 1982
Contemporary
WLTI-FM
Detroit, MI 93.1 MHz 50,000 Adult 1988
Contemporary
WMZQ-AM-FM
Washington, (AM) 1390 KHz 5,000 Country 1984
D.C. (FM) 98.7 MHz 50,000 1980
WCXR-FM 105.4 MHz 50,000 Classic Rock 1993
WCPT-AM 730 KHz 5,000 D* CNN Headline 1993
Washington, 20 N* News
D.C.
KBSG-AM-FM
Tacoma/Seattle, (FM) 97.3 MHz 100,000 Oldies 1987
WA (AM) 1210 KHz 10,000 D* 1989
1,000 N*
KNDD-FM
Seattle, WA 107.7 MHz 100,000 New Rock (AOR) 1992
I - 20
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- -----------------------------------------------------------------------
KYSR-FM
Los Angeles, 98.7 MHz 75,000 Adult 1990
CA Contemporary
KXEZ-FM
Los Angeles, 100.3 MHz 50,000 Adult 1993
CA Contemporary
KSRY-FM
San Francisco, 98.9 MHz 50,000 Adult 1990
CA Contemporary
KSRI-FM
Santa Cruz/San 99.1 MHz 50,000 Adult 1990
Jose, CA Contemporary
_________________________
* D/N = Day/Night
As indicated in the table above, the radio stations generally have
specialized program formats targeted to specific audiences. In
addition, the stations' programming includes entertainment, news,
religion, sports, education and other topics of general interest. The
stations also provide time for public affairs, educational and cultural
programs and for discussion of local and national issues.
Radio station revenues are derived almost entirely from the sale of
advertising time. Only a small amount of such revenues is derived from
sponsored programs or non-broadcast sources. As is customary in the
industry, national representatives are engaged to obtain advertising
from and to sell broadcast time to national advertisers, and are
compensated on a commission basis. The stations' own sales forces sell
advertising time to local and regional advertisers. Local, regional
and national advertising is generally sold pursuant to contracts which
are for short periods and generally are cancelable upon prior notice,
but frequently are renewed for additional terms.
REGULATION
The Company's entertainment, cable television and broadcasting
businesses are subject to extensive regulation by federal, state and
local governmental authorities and its programming businesses are
affected thereby. The rules, regulations, policies and procedures
affecting these businesses are constantly subject to change. The
descriptions which follow are summaries and should be read in
conjunction with the texts of the statutes, rules and regulations
I - 21
described herein. The descriptions do not purport to describe all
present and proposed federal, state and local statutes, rules and
regulations affecting the Company's businesses.
VIACOM ENTERTAINMENT
The Company's first run, network and other production operations
and its distribution of off-network, first run and other programs in
domestic and foreign syndication are not directly regulated by
legislation. However, existing and proposed rules and regulations of
the FCC applicable to broadcast networks, individual broadcast stations
and cable could affect Viacom Entertainment.
FINANCIAL INTEREST AND SYNDICATION RULES. The financial interest
and syndication rules ("finsyn rules") were adopted by the FCC in 1970.
These rules significantly limited the role of broadcast television
networks in broadcast television program syndication. The financial
interest rule prohibited a network from acquiring a financial or
proprietary right or interest in the exhibition (other than its own
broadcast network exhibition), distribution or other commercial use in
connection with the broadcasting of any television program of which it
is not the sole producer. The syndication rule prohibited a network
from syndicating programming domestically to television stations for
non-network exhibition and precluded a network from reserving any
rights to participate in income derived from domestic broadcast
syndication, or from foreign broadcast syndication where the network
was not the sole producer. For the purposes of these rules, a
broadcast network was defined as any entity which offers an
interconnected program service on a regular basis for 15 or more hours
per week to at least 25 affiliated television stations in 10 or more
states.
In 1991 the FCC adopted modified finsyn rules. In 1992,
these rules were vacated by the U.S. Court of Appeals for the
Seventh Circuit (the "Seventh Circuit Appeals Court"), acting on
appeals filed by ABC, CBS, NBC and others. In 1993 the FCC
adopted a decision (the "Decision") further modifying the finsyn
rules effective as of June 5, 1993, although ABC, CBS, and NBC
could not commence operating under the modified finsyn rules until
November 10, 1993 when the antitrust consent decrees to which they
are subject were modified to eliminate certain restrictions by an
order (the "Order") of the U.S. District Court for the Central
District of California (the "District Court"). The modified
rules will expire in November 1995, absent an affirmative
FCC action retaining or further modifying them. The FCC is to
initiate a final review of the modified rules six months prior to
their November 1995 expiration date and proponents of their
continuance have the burden of proving that the public interest
requires their continued retention. The Decision has been
appealed by the networks and others, and all appeals have been
consolidated before the Seventh Circuit Appeals Court. The
Company is unable to predict what action the court will take when
it reviews the Decision or what effect, if any, the Decision will
have on the Company's distribution and production activities.
I - 22
The Decision eliminates certain restrictions on network
acquisition of financial interests and syndication rights in
network programming. With respect to first run programs, networks
may not acquire any financial interests or syndication rights
except in programs produced solely by the network and in programs
distributed only outside the U.S. The networks are also
prohibited by the modified rules from directly engaging in
syndication in the U.S. of both network prime time entertainment
programs and first run programs, but they may syndicate non-
prime time network programs and network non-entertainment
programs in the U.S. and any programs in foreign markets.
Networks must also release prime time entertainment programs
in which they hold syndication rights into the syndication
market no later than four years after the program's network
debut or within six months after the end of the network
run, whichever is earlier. In addition, networks are also
subject to certain certification and reporting requirements. A
network is defined in the modified rules as any entity that
provides more than 15 hours of prime time programming per week to
affiliates reaching 75% of television households nationwide.
Emerging networks not currently meeting the network definition are
exempt from the modified rules except for certain reporting
requirements which become applicable when they commence providing
16 hours per week of prime time programs to their affiliates. The
networks must use an independent syndicator to distribute off-
network prime time entertainment programs in which they hold
syndication rights, and there must be no contractual or other
understandings between the network and the syndicator regarding
the subsequent sale or scheduling of the syndicated program that
would have the direct or indirect effect of affiliate station
favoritism.
The FCC will consider complaints if a party can make a
showing undermining the credibility of the independence of the
syndicator, and it is unclear whether such complaints may be
directed only to the network involved or whether independent
syndicators may also be subject to such complaints.
PRIME TIME ACCESS RULE. The Prime Time Access Rule ("PTAR")
prohibits network affiliates in the top 50 markets (designated by the
FCC based on survey data) from exhibiting network or off-network
programming during more than three out of the four prime time hours,
with certain limited exceptions. The Decision provided that first run
programming produced by a network will be considered network programming
for this purpose.
A number of interested parties have raised the issue of whether
PTAR should be modified or repealed. Certain programmers are seeking
modification of PTAR to permit the exhibition of off-network
programming. The licensee of WCPX-TV, Orlando, Florida, has sought
elimination of PTAR on First Amendment grounds and certain West Coast
network affiliates have obtained PTAR waivers from the FCC that
facilitated the commencement of network prime time one hour earlier.
If PTAR itself is so modified or is eliminated, the Company is
unable to predict the effect, if any, on its first run and other
I - 23
distribution activities. The Company is also unable to predict whether
earlier commencement of network prime time programming would affect the
availability of prime time for the presentation of syndicated programs
on network-affiliated stations.
EUROPEAN COMMUNITY DIRECTIVE. In October 1989, the European
Commission directed each European Community member country to adopt
broadcast quota regulations based on its guidelines by October 3, 1991.
All member countries other than Spain and the Flemish region of Belgium
have enacted legislation aimed at adopting such regulations. Such
broadcast quota regulations may limit the amount of U.S. produced
programming to be purchased by foreign customers which could have an
adverse impact on the Company's foreign syndication operations.
Similar rules are contained in a Council of Europe Convention which
went into force on May 1, 1993. This has currently been ratified by
Cyprus, Italy, Poland, San Marino, Switzerland, the Vatican and the
United Kingdom.
VIACOM CABLE
Federal Regulation
1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") substantially amending the regulatory framework under which
cable television systems have operated since the Communications Act of
1934, as amended (the "Communications Act"), was amended by the Cable
Communications Policy Act of 1984 (the "1984 Act"). The FCC through
its rules and regulations began implementing the requirements of the
1992 Cable Act in 1993 and is currently engaged in several proceedings
in order to adopt additional rules and regulations or to reconsider
and/or amend certain of the rules and regulations previously adopted.
The extent and materiality of the effects of the 1992 Cable Act on
Viacom Cable and Viacom Networks depend to a large degree on the final
form of the FCC's implementing regulations and the outcome of judicial
challenges to various provisions of the 1992 Cable Act as more fully
discussed below. The following is a summary of certain significant
issues:
Rate Regulation. Rate regulations adopted in April 1993 by the FCC
---------------
(the "April 1993 Regulations") govern rates charged to subscribers for
regulated tiers of cable service and became effective on September 1,
1993. On February 22, 1994, the FCC adopted additional rules (the
"February 22nd Regulations") which have not yet been published in
their final form. The "benchmark" formula adopted as part of the
April 1993 Regulations establishes an "initial permitted rate" which
may be charged by cable operators for specified tiers of cable
service. The regulations also establish the prices which may be
charged for equipment used to receive these services. Because the
text of the February 22nd Regulations has not been released, it is not
possible to know the extent or nature of the revisions to the April
1993 Regulations. However, from public statements made during the
FCC's February 22 meeting and news releases issued thereafter, it
appears that the February 22nd Regulations will contain a new formula
for determining permitted rates. The new formula may require up to a
I - 24
17% reduction of rates from those charged on September 30, 1992,
rather than the 10% reduction required by the April 1993 Regulations.
The February 22nd Regulations also adopted interim standards governing
"cost-of-service" proceedings pursuant to which a cable operator would
be permitted to charge rates in excess of rates which it would
otherwise be permitted to charge under such regulations, provided that
the operator substantiates that its costs in providing services
justify such rates.
Based on its implementation of the April 1993 Regulations, the
Company estimates that it will recognize a reduction to revenues
ranging from $27 million to $32 million on an annualized basis,
substantially all of which will be reflected as a reduction in
earnings from operations of its cable television division. The
Company's estimated reduction does not reflect further reductions
to revenue which would result from the lowering of the initial
permitted rates pursuant to the February 22nd Regulations. These
new and reduced initial permitted rates will apply prospectively
from a date to be announced by the FCC when it publishes precise
regulations which implement the February 22nd Regulations. Until
the February 22nd Regulations are released, it is not possible to
predict the effects of the interim standards governing cost-of-
service proceedings; however, based on the FCC's public statements,
the Company believes it is unlikely that it will be able to utilize
such proceedings so as to charge rates in excess of rates which it
would otherwise be permitted to charge under the regulations. The
Company's ability to mitigate the effects of these new rate
regulations by employing techniques such as the pricing and
repricing of new or currently offered unregulated program services
and ancillary services may also be restricted by the new
regulations adopted as part of the February 22nd Regulations. No
such mitigating factors are reflected in the estimated reductions
to revenues. The stated reduction to revenues may be mitigated by
the higher customer growth due to lower primary service rates. The
Company also cannot predict the effect, if any, of cable system
rate regulation on license fee rates payable by cable systems to
program services such as those owned by the Company.
Vertical Integration. Certain pricing and other restrictions are
--------------------
imposed on vertically integrated cable programmers (such as the
Company) with respect to their dealings with multichannel distributors
of programming, such as cable systems, SMATV systems, MMDS operators
and TVRO and DBS distributors (as defined in "BUSINESS--Competition--
Viacom Cable Television"). The FCC's implementing regulations
governing access by multichannel distributors to the programming of
vertically integrated cable programmers limit the extent to which a
vertically integrated cable programmer can differentiate in pricing or
other terms and conditions of carriage between and among multichannel
distributors. Because the application of these new regulations is
subject to numerous uncertainties, the Company is currently unable to
determine their impact, if any, on the Company. The FCC's
implementing regulations also limit the number of channels on a cable
system which may be used to carry the programming of such system's
affiliated (vertically integrated) cable programmers. These
regulations provide generally that no more than 40% of such a system's
channels can be used to carry the programming of the system's
I - 25
affiliated cable programmers. These channel occupancy limits apply
only up to 75 channels of a given system. The FCC also considered
whether limits should be placed on a multichannel distributor's right
to participate in the production or creation of programming, and
concluded that no such limits are appropriate at this time. The FCC's
implementing regulations governing access by multichannel distributors
to the programming of vertically integrated cable programmers and
regarding channel occupancy limits are subject to pending petitions
for reconsideration at the FCC.
Must Carry/Retransmission Consent. Commercial television stations
---------------------------------
which are "local" to communities served by a cable system can elect to
require either (a) carriage (and with certain restrictions, channel
position) on the cable system ("Must Carry"), or (b) payment (monetary
or in-kind) in consideration for their consent to the retransmission
of their signal by the cable system ("Retransmission Consent"). In
addition, a cable system may not carry any commercial non-satellite-
delivered television station which is "distant" to communities served
by such system or any radio station without obtaining the consent of
such station for such retransmission; however, such television and
radio stations do not have Must Carry rights. Such stations may
require payment in consideration for Retransmission Consent. Viacom
Cable has negotiated retransmission rights for a number of commercial
stations which it carries. Some of these agreements are on an interim
basis and may be canceled by the stations. Viacom Cable carries other
stations pursuant to their exercise of their Must Carry rights. Local
non-commercial television stations have Must Carry rights, but may not
elect Retransmission Consent. The Must Carry rules were challenged by
cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted
review; oral argument was heard in January 1994 and a decision is
expected by July 1994. (See "BUSINESS -- Regulation -- Viacom
Broadcasting -- Must Carry/Retransmission Consent")
Limits on Number of Subscribers. The FCC's implementing
-------------------------------
regulations generally impose a 30% horizontal ownership limit on the
number of homes passed by cable that any one cable operator can serve
nationwide through systems in which it has an attributable interest
(the Company serves approximately 2% of "homes passed" nationwide).
In view of a recent federal district court decision holding that this
imposition of horizontal ownership limits is unconstitutional, the FCC
has stayed the effectiveness of this 30% limit until final judicial
resolution of the constitutional issue.
Buy Through to Premium Services. Pursuant to the 1992 Cable
-------------------------------
Act, a cable system may not require subscribers to purchase any
tier of service other than the basic service tier in order to
obtain services offered by the cable operator on a per channel
(e.g., premium services) or pay-per-view basis. A cable system
----
which is not now fully addressable and which cannot utilize other
means to facilitate access to all of its programming will have up
to 10 years to fully comply with this provision through the
implementation of fully addressable technology. The Company's
cable systems have already begun to implement compliance.
I - 26
Among other things, the 1992 Cable Act and the FCC's implementing
regulations also: (i) with certain exceptions, require a three-year
holding period before the resale of cable systems; (ii) provide that
franchising authorities cannot unreasonably refuse to grant competing
franchises (all of the Company's current franchises are non-exclusive);
(iii) require that the FCC study the cost and benefits of issuing
regulations with respect to compatibility between cable system
equipment and consumer electronics such as VCRs and issue such
regulations as may be appropriate; and (iv) facilitate the manner in
which third parties can lease channel capacity from cable systems and
provide that the maximum rates which a cable system can charge for
leased channel capacity may be set by the FCC. Pursuant to the 1992
Cable Act, the FCC adopted minimum customer service standards and also
determined the circumstances under which local franchising authorities
may impose higher standards.
Lawsuits have been filed challenging the constitutionality of
various provisions of the 1992 Cable Act including the provisions
relating to rate regulation, Must Carry, Retransmission Consent, the
pricing and other restrictions imposed on vertically integrated cable
programmers with respect to their dealings with multichannel
programming distributors, and the mandated availability of cable
channels for leased access and PEG programming.
COMPETITION WITH TELEPHONE COMPANIES. In a recent decision by the
U.S. District Court for the Eastern District of Virginia, the Court
declared the restrictions contained in the Communications Act on
the provision of video programming by a telephone company in its local
service area to be unconstitutional and has enjoined enforcement of
those restrictions. The Court has held that this decision does not
apply to geographic areas outside of its jurisdiction. An appeal of
the Court's holding of the unconstitutionality of such restrictions has
been filed. Several similar suits have recently been filed in
different jurisdictions by regional Bell Operating Companies (including
NYNEX) ("BOCs") challenging the very same restrictions. In an
interpretation of the current restrictions contained in the
Communications Act, the FCC in 1992 established its "Video Dial Tone"
policy. The Video Dial Tone policy is being challenged in court by
cable interests as violating the Communications Act. It is also being
challenged by telephone interests as not being liberal enough. The
policy permits in-service-area delivery of video programming by a
telephone company (a "telco", as further defined below) and exempts
telcos from the Communications Act's franchising requirements so long
as their facilities are capable of two-way video and are used for
transmission of video programming on a common carrier basis,
i.e. use of the facilities must be available to all programmers
- ----
and program packagers on a non-discriminatory, first-come first-
served basis. Telcos are also permitted to provide to facilities
users additional "enhanced" services such as video gateways, video
processing services, customer premises equipment and billing and
collection. These can be provided on a non-common carrier basis.
There are currently pending in Congress four principal bills (in the
Senate, S. 1086, the Telecommunications Infrastructure Act of 1993, and
S. 1822, the Communications Act of 1994 (which is expected to supersede
S. 1086) and in the House, H.R. 3626, the Antitrust Reform Act 1993, and
H.R. 3636, the National Communications Competition and Information
Infrastructure Act of 1993) which would, among other things, permit a
I - 27
BOC or a Regional Holding Company ("RHC"; a BOC or RHC, a "telco") to
offer cable service under certain stated conditions including providing
safeguards and transition rules designed to protect against anti-
competitive activity by the telcos and cross-subsidization of a telco's
cable business by the telco's charges to its telephone customers.
These bills also generally eliminate state and local entry barriers
which currently either prohibit or restrict an entity's (including a
cable operator's) capacity to offer telecommunications services
(including telephone exchange service) in competition with telcos and
to interconnect on a non-discriminatory basis with telcos and utilize
certain telco facilities in order to provide service in competition
with a telco. The Clinton Administration has indicated its intention
to propose reform of federal telecommunications legislation, although
such proposal has not been finalized. At present, state and/or local
laws do not prohibit cable television companies from engaging in
certain kinds of telephony business in most states. Viacom Cable is a
general partner in three partnerships providing commercial competitive
access services which link business customers to long distance carriers
via private networks owned by the cable television company partners and
leased to the partnerships. If the pending legislation does not become
law, and the various appeals courts uphold the unconstitutionality of
the Communications Act's restrictions on telco video programming, the
telcos have stated their intent to immediately enter the video
programming business.
COMPULSORY COPYRIGHT. Cable television systems are subject to the
Copyright Act of 1976 which provides a compulsory license for carriage
of distant broadcast signals at prescribed rates. No license fee is
charged by the copyright holder for retransmission of broadcast signals
which are "local" to the communities served by the cable system. The
FCC has recommended to Congress that it eliminate the compulsory
license for retransmission of both distant and local signals, requiring
instead that approval be received from the copyright holders for
retransmission. If the compulsory license is repealed, Viacom Cable
could incur additional costs for its carriage of programming of certain
broadcast stations and if some broadcast stations are not carried,
customer satisfaction with cable service may be adversely affected
until satisfactory replacement programming is obtained.
Pending legislation in the 103rd Congress includes a bill (H.R.759)
to affirm the application of the compulsory license to MMDS and other
alternative video transmission technologies; a bill (H.R.1103) to
eliminate the sunset provision of the Satellite Home Viewer Act and
continue the application of the compulsory license to satellite
carriers that transmit to home dish owners; and a bill (H.R.12) to
provide for payment by television broadcasters to program producers
where a broadcaster exercises its Retransmission Consent rights
enacted in the 1992 Cable Act and thereby obtains payment from a cable
operator for retransmission of the broadcaster's signal.
State and Local Regulation.
State and local regulation of cable is exercised primarily through
the franchising process under which a company enters into a franchise
agreement with the appropriate franchising authority and agrees to
abide by applicable ordinances. The 1992 Cable Act permits the FCC to
I - 28
broaden the regulatory powers of the franchising authorities,
particularly in the areas of rate regulation and customer service
standards. (See "BUSINESS --- Regulation -- Viacom Cable -- Federal
Regulation")
Under the 1984 Act, franchising authorities may control only cable-
related equipment and facilities requirements and may not require the
carriage of specific program services. However, if the Must Carry
provisions of the 1992 Cable Act are upheld by the Supreme Court,
federal law (as implemented by FCC regulations) will mandate the
carriage of both commercial and non-commercial television broadcast
stations "local" to the area in which a cable system is located. (See
"BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")
The 1984 Act, as amended, guarantees cable operators due process
rights in franchise renewal proceedings and provides that franchises
will be renewed unless the cable operator fails to meet one or more
enumerated statutory criteria. The Company's current franchises expire
on various dates through 2017. During the five-year period 1994
through 1998, franchises having an aggregate of approximately 230,081
customers (as of October 31, 1993) will expire unless renewed. The
Company expects its franchises to be renewed.
VIACOM NETWORKS
1992 CABLE ACT. See "BUSINESS -- Regulation -- Viacom Cable --
Federal Regulation -- 1992 Cable Act".
MODIFICATION OF FINAL JUDGMENT. The Modification of Final Judgment
(the "MFJ") is the consent decree pursuant to which AT&T was
reorganized and was required to divest its local telephone service
monopolies. As a result, seven RHCs were formed (including NYNEX)
comprised of operating companies within their regions (the BOCs). In
addition, that portion of the continental United States served by the
BOCs was divided into geographical areas termed Local Access and
Transport Areas ("LATAs"). The MFJ restricts the RHCs, the BOCs and
their affiliates from engaging in inter-LATA telecommunications
services and from manufacturing telecommunications products. As a
result of NYNEX's investment in Viacom Inc., the Company could arguably
be considered an affiliate of an RHC for MFJ purposes. As a result,
the Company transferred certain of Viacom Networks' and other
operations and properties to an affiliated entity which will be
consolidated into the Company for financial reporting purposes.
Neither the transfer nor the operations of the affiliate as an entity
separate from the Company will have a material effect on the financial
condition or the results of operations of the Company. However, should
the MFJ restrictions be modified or waived, the Company intends to
retransfer the assets and operations and any future appreciation in the
value of such assets after such retransfer will be for the benefit of
the holders of Viacom Common Stock.
VIACOM BROADCASTING
Television and radio broadcasting are subject to the jurisdiction
of the FCC pursuant to the Communications Act.
I - 29
THE COMMUNICATIONS ACT. The Communications Act authorizes the FCC:
to issue, renew, revoke or modify broadcast licenses; to regulate the
radio frequency, operating power and location of stations; to approve
the transmitting equipment used by stations; to adopt rules and
regulations necessary to carry out the provisions of the Communications
Act; and to impose certain penalties for violations of the
Communications Act and the FCC's regulations governing the day-to-day
operations of television and radio stations.
BROADCAST LICENSES. Broadcast station licenses (both television
and radio) are ordinarily granted for the maximum allowable period of
five years in the case of television and seven years in the case of
radio, and are renewable for additional five-year or seven-year periods
upon application and approval. Such licenses may be revoked by the FCC
for serious violations of its regulations. Petitions to deny renewal
of a license or competing applications may be filed for the frequency
used by a renewal applicant. If a petition to deny is filed, the FCC
will determine whether renewal is in the public interest based upon
presentations made by the licensee and the petitioner. If a competing
application is filed, a comparative hearing is held to determine which
applicant should be granted the license. In the absence of egregious
and willful violations of FCC rules, license holders, as a practical
matter, can generally expect renewal by the FCC.
The licenses for the Company's television stations expire as
follows: WVIT-TV on April 1, 1994; each of WNYT-TV and WHEC-TV on
June 1, 1994; KSLA-TV on June 1, 1997; and KMOV-TV on February 1, 1998.
The Company's licenses for its radio stations expire as follows: WMZQ-
AM-FM, WCPT-AM and WCXR-FM on October 1, 1995; WLTI-FM on October 1,
1996; WLIT-FM on December 1, 1996; KSRI-FM and KSRY-FM on August 1,
1997; KYSR-FM and KXEZ-FM on December 1, 1997; each of KBSG-AM-FM and
KNDD-FM on February 1, 1998; and WLTW-FM on June 1, 1998. The Company
has applied for renewal of and expects that the licenses which expire
in 1994 will be renewed.
The Communications Act prohibits the assignment of a license or the
transfer of control of a license without prior approval of the FCC.
The Communications Act also provides that no license may be held by a
corporation if (1) any officer or director is an alien, or (2) more
than 20% of the voting stock is owned of record or voted by aliens or
is subject to control by aliens. In addition, no corporation may hold
the voting stock of another corporation owning broadcast licenses if
any of the officers or directors of such parent corporation are aliens
or more than 25% of the voting stock of such parent corporation is
owned of record or voted by aliens or is subject to control by aliens,
unless specific FCC authorization is obtained.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains
provisions which grant certain Must Carry rights to commercial
broadcast television stations that are "local" to communities served by
a cable system, including the right to elect either to require a cable
operator to carry the station pursuant to the Must Carry provisions of
the Act or to require that the cable operator secure the station's
Retransmission Consent on a negotiated basis before the station can be
carried (i.e., retransmitted) on the cable system. Each of the
----
Company's television stations elected in 1993 to negotiate with their
I - 30
local cable systems for the systems' right to retransmit the station's
signal. All such negotiations were successfully completed assuring
continued carriage of each station on all of their local cable systems
at least through December 1996. The Must Carry Rules were challenged
by cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted review;
oral argument was heard in January 1994 and a decision is expected by
July 1994. If the Must Carry Rules are determined to be
unconstitutional, the Company's television stations do not expect to be
materially affected since they expect to continue to obtain carriage
pursuant to Retransmission Consent negotiations. If a station is not
carried by a cable system in its area, that station could experience a
decline in revenues. The Company's television stations have
traditionally been carried prior to the institution of Retransmission
Consent and in the absence of Must Carry. (See "BUSINESS -- Regulation
- -- Viacom Cable Television -- Must Carry/Retransmission Consent and
Compulsory Copyright")
RESTRICTIONS ON BROADCAST ADVERTISING. In past Congressional
sessions, committees of Congress examined proposals for legislation
that would eliminate or severely restrict advertising of beer and wine
either through direct restrictions on content or through elimination or
reduction of the deductibility of expenses for such advertising under
federal tax laws. Such proposals generated substantial opposition, but
it is possible that similar proposals will be reintroduced in Congress.
The elimination of all beer and wine advertising would have an adverse
effect on the revenues of the Company's television and radio stations.
Congress may again take up Campaign Finance Reform legislation
similar to that which was passed by the 102nd Congress but vetoed by
President Bush. Such legislation could reduce revenues of the
Company's television and radio stations derived from political
advertising by candidates for certain public offices.
On April 9, 1991, the FCC adopted regulations to implement the
Children's Television Act of 1990 (the "Children's Television Act")
which limit the amount of advertising in children's programming,
including a prohibition on children's programming which contains
characters that are based on products advertised on such programs. The
FCC will take into account the efforts made by broadcasters to meet the
educational and informational needs of children as part of assessing
the broadcaster's record of performance in the public interest before
granting renewal of broadcast licenses. The impact, if any, of these
regulations on the Company's television stations is not material. The
FCC has instituted an inquiry into the manner in which TV stations have
been complying with the Children's Television Act. Additionally, the
FCC is considering whether to impose limits on the amount of
advertising time which a television station can sell during any
broadcast hour or part thereof.
OWNERSHIP LIMITATIONS. The FCC has placed limits on the number of
radio and television stations in which one entity can own an
"attributable interest". The Company currently owns radio stations
below those ownership limits and, with the transfer of control of
licenses held by Paramount, owns the maximum permitted number of
I - 31
television stations. The FCC has adopted a number of rules designed to
prevent monopoly or undue concentration of control of the media of mass
communications. In 1992 the FCC amended its regulations to permit a
single entity to have an "attributable" ownership or management
interest in up to 18 AM and 18 FM stations nationwide (20 AM and 20 FM
beginning in 1994), including multiple AM and/or FM stations licensed
to serve the same market. Minority-controlled broadcasters can own an
additional three AM and three FM stations. The limit on the number of
such multiple stations in a particular market which a single entity may
own or control depends upon the total number of AM and/or FM stations
in that market, provided that, at the time of purchase, the combined
audience share of such multiple stations does not exceed 25%. With
respect to television, the FCC's rules limit the maximum number of
stations nationwide in which one entity can have an "attributable"
ownership or management interest, to that number which serves up to 25%
of U.S. television households, provided, however, that (except in
limited circumstances) the total number of stations will not exceed 12.
Unlike certain of the new radio rules, there is now no allowance for
ownership of multiple television stations licensed to serve the same
market, although the FCC is examining the issue. The FCC also permits
radio stations to broker the programming and sales inventories of their
stations to other radio stations within the same area, subject to
various restrictions, so long as ultimate operational control and
ownership is retained and exercised by the licensee. Such brokerage
agreements function, as a practical matter, to effect a consolidation
of competitive radio broadcast stations within a market in much the
same manner as multiple ownership of radio facilities by one entity.
Similar brokerage agreements among television stations are being
implemented in a smaller number of markets than in radio and are not
now subject to any explicit FCC regulations.
The FCC's ownership limitations also prohibit a single entity from
owning multiple "same service" (e.g., TV, AM or FM) stations licensed
----
to serve different markets if the broadcast signals of such stations
overlap, to a specified measurable degree. The maximum number of
commonly owned stations serving neighboring markets whose signals can
overlap is the same as that maximum number of commonly owned stations
which an entity can own or control in a single market. Additional
ownership prohibitions preclude common ownership in the same market of
(i) television stations and cable systems; (ii) television or radio
stations and newspapers of general circulation; and (iii) radio and
television stations. Radio-television cross-ownership prohibitions are
subject to waiver by the FCC on a case-by-case basis. The Company
operates two AM and two FM stations as well as a television station
serving Washington, D.C. Ownership of the television station (WDCA)
was obtained when Viacom Inc. acquired majority ownership of Paramount
on March 11, 1994. Pursuant to the FCC's order consenting to the
transfer of control of the broadcast licenses of Paramount to the
Company, the Company has undertaken to dispose of one AM and one FM
radio station serving Washington, D.C. no later than September 11,
1995. The FCC's previous prohibition on a national television
network's (ABC, CBS, and NBC) owning or operating cable systems has
been repealed but with certain limits as to the number of homes which
network-owned cable systems can pass on a national and local basis.
TERRITORIAL EXCLUSIVITY. The FCC is considering changes to its
I - 32
non-network program territorial exclusivity rules which provide that a
broadcaster, with certain limited exceptions, cannot obtain exclusivity
to syndicated programming as against other broadcast stations beyond a
35-mile radius from its city of license. The proposed rule would
permit expansion of the 35-mile exclusivity area thereby increasing the
protection given the programming contracted for by a broadcaster. The
Company cannot predict the effect, if any, that any change of this rule
may have on its broadcast operations.
HDTV. The FCC is considering technical standards to be adopted for
the transmission of high definition television ("HDTV"), an advanced
television system which enhances picture and sound quality, as well as
the methods and timetable for implementation of an HDTV transmission
standard by broadcasters. A standard has been recommended to the FCC
by an advisory committee. The standard which is ultimately adopted for
HDTV transmissions and the manner in which that transmission standard
will be implemented and the development of technologies such as
"digital compression" will have an economic and competitive impact on
broadcasting and cable operations. The Company cannot predict the
effect of implementation of these technologies on its operations. The
FCC has stated its intention not to disadvantage broadcasters and it is
expected that any HDTV standard which is ultimately adopted will be
fashioned so as to accommodate the needs of broadcasters vis-a-vis
competitive video delivery technologies. The FCC has already
determined that TV stations will be given up to six years to implement
HDTV once a standard has been selected and that stations which do not
convert to the HDTV standard will lose their licenses to broadcast at
the end of a proposed 15-year period from adoption of the standard.
The cost of converting to HDTV will not have a material effect on the
Company.
COMPETITION
VIACOM NETWORKS
MTVN COMPETITION. MTVN services are in competition for available
channel space on existing cable systems and for fees from cable
operators and alternative media distributors, with other cable program
services, and nationally distributed and local independent television
stations. MTVN also competes for advertising revenue with other cable
and broadcast television programmers, and radio and print media. For
basic cable television programmers, such as MTVN, advertising revenues
derived by each programming service depend on the number of households
subscribing to the service through local cable operators and other
distributors. A number of record companies have announced plans to
launch music-based program services in the U.S. and internationally.
For example, Tele-Communications, Inc. and Bertelsmann AG announced
plans for a music video/home shopping channel and Sony Corp.'s Sony
Music and Time Warner Inc.'s Time Warner Music Group are discussing the
formation of a worldwide music video program service with such other
major record companies as EMI Music, a unit of Thorn EMI PLC, and
PolyGram.
As of December 31, 1993, there were 32 principal cable program
I - 33
services and superstations under contract with A.C. Nielsen Company,
including MTV, VH-1, NICKELODEON (including NICKELODEON and NICK AT
NITE program segments), each with over 10,000,000 subscribers. The
Nielsen Report ranked NICKELODEON/NICK AT NITE seventh, MTV eleventh,
and VH-1 sixteenth, in terms of subscriber households.
MTV EUROPE is engaged in a number of related litigations in Europe
contesting the legality of certain joint licensing activities by the
major worldwide record companies. In 1992, MTV EUROPE initiated a
proceeding before the European Commission, seeking the dissolution,
under Articles 85 and 86 of the Treaty of Rome, of the record
companies' joint licensing organizations -- Video Performance Limited
(VPL) and International Federation of Phonogram and Videogram Producers
(IFPI) -- through which the record companies exclusively license rights
to exhibit music video clips on television in Europe and elsewhere.
The EC issued a preliminary letter in 1993 stating its non-binding
opinion that the arrangements constituted an unlawful restriction of
trade under Article 85, and reserved its right to address abuse of
monopoly power under Article 86. MTVN has been informed that the EC
has issued a Statement of Objections, which commences formal legal
proceedings against VPL and IFPI, and their major record company
members. MTV EUROPE has been licensed to continue to exhibit music
video clips during the EC proceeding under an EC-assisted interim
agreement with VPL and IFPI, which expires in July 1994.
In December 1993, MTV EUROPE commenced a separate proceeding before
the European Commission, challenging the operation of VIVA, a German
language music service owned by four of the five major record
companies, as another example of illegal cartel activity.
In a separate U.K. high court action, MTV EUROPE is seeking
reimbursement of license fees paid to VPL and IFPI, on the grounds that
these fees were unlawfully extracted by the record companies' cartel
organizations.
SNI COMPETITION. The principal means of competition in the
provision of premium subscription television program services are: (1)
the acquisition and packaging of an adequate number of quality recently
released motion pictures; and (2) the offering of prices, marketing and
advertising support and other incentives to cable operators and other
distributors so as to favorably position and package SNI's premium
subscription television program services to subscribers. HBO is the
dominant company in the premium subscription television category,
offering two premium subscription television program services, the HBO
service and Cinemax. SNI is second to HBO with a significantly smaller
share of the premium subscription television category. In addition, in
February 1994, Encore Media Corp. (an affiliate of Liberty Media
Corporation and Tele-Communications, Inc.) launched Starz!, a premium
subscription television program service that will exhibit recently
released motion pictures. The Company believes that Starz! will
directly compete with SNI's premium program services.
On November 9, 1993, the Company filed an amended complaint in its
antitrust suit against Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corp., Netlink USA,
Comcast Corporation and QVC Network, Inc., which action is pending in
I - 34
the Southern District of New York. (See "Item 3 - Legal Proceedings")
VIACOM ENTERTAINMENT
Distribution and production of programming for television is a
highly competitive business. The Company competes directly with other
distributors and producers including major motion picture studios and
other companies which produce and/or distribute programs and films.
The main competitive factors in the television program distribution
business are the availability and quality of product, promotion and
marketing, and access to licensees of product. Major studios and
distributors with a history of successful programming are better
positioned to acquire and/or produce and distribute quality product.
These studios and distributors also have greater available resources
for promotion and marketing. Brand name identification is an advantage
to a distributor in promoting and marketing programs for domestic and
first run exhibition. The decline in the demand by licensees for
recent off-network series and series produced for first run exhibition
(due to renewal of existing series by stations during the past year)
and feature films (due primarily to the recent expansion of the Fox
network to supply programming to its affiliated stations seven nights
a week) has been partly offset by a resurgence in demand by stations
for first run hours and an increasing number of programming outlets,
particularly cable networks. Distributors are advantageously
positioned to obtain clearances from stations they also own. This
advantage increases with an increase in the number of stations so
owned, the size of the markets served by those stations and the
viewership of those stations. Since the successful launch of a program
for first run exhibition generally requires securing licenses in New
York, Los Angeles and Chicago, distributors owning stations serving
these markets are at the greatest advantage among distributors owning
stations.
Distribution of programming for television in international
markets is also a highly competitive business. The Company competes in
such markets with both U.S. and non-U.S. producers and distributors.
Deregulation by certain foreign countries has given rise to new
broadcast stations and cable services which, along with technological
advances such as DBS, are continuing to increase the number of
potential international customers. However, as a result of a political
directive adopted by the European Community in 1989, which became
effective in October 1991, most European Community countries have
adopted broadcast quota regulations based on the guidelines of the
directive. Such broadcast quota regulations may adversely affect the
amount of U.S. produced programming to be purchased by foreign
customers. (See "BUSINESS -- Regulation -- Viacom Entertainment --
European Community Directive")
Program production for network television, which is a source of
product for the Company's distribution operations, and program
production for first run exhibition on cable and other media are highly
competitive businesses. The Company competes with the major studios
and other production companies. A company with a program airing on a
network, which program the network deems commercially successful, is at
an advantage in getting that network and, to a lesser extent, other
I - 35
networks, to license additional programs. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
Subsequent to December 31, 1993, Viacom Inc. acquired Paramount, which
is a significantly larger distributor and producer of television
programming. It is anticipated that this acquisition and the
combination of the Company's television distribution and production
businesses with those of Paramount will significantly enhance the Company's
competitive position in these businesses.
VIACOM NEW MEDIA
The emerging market for interactive multimedia software is highly
competitive and rapidly evolving. Major competitors include hardware
manufacturers who also manufacture and publish cartridge video games,
software publishers, and interactive software publishing divisions that
have been established by diversified entertainment companies similar to
the Company.
VIACOM CABLE TELEVISION
The Company's cable systems operate pursuant to non-exclusive
franchises granted by local governing authorities (either municipal or
county) and primarily compete with over-the-air broadcast television.
Cable systems also compete with other distribution systems which
deliver programming by microwave transmission ("MDS" and "MMDS") and
satellite transmission to master antennas ("SMATV") or directly to
subscribers via either "TVRO" or "DBS" technology. A new type of
distribution system called Multichannel Local Distribution Service
("MLDS"), which is similar to but more advanced than MMDS due to
greater channel capacity, could also become competitive with cable. In
1991, the FCC concluded a proceeding aimed at eliminating a number of
technological and regulatory limitations applicable to, and thereby
supporting the potential growth of, MMDS and SMATV as competitive video
delivery technologies. Certain DBS distribution systems are expected
to commence their services in the near future, including United States
Satellite Broadcasting, Inc., with which the Company has distribution
agreements for each of the Company's wholly owned basic cable and
premium networks, and Hughes DirecTV The development of these other
distribution systems could in the future result in substantial
competition for the Company's cable systems, depending upon the
marketing plans and programming provided. However, a developing
technology called "digital compression" may allow cable systems to
significantly increase the number of channels of programming they
deliver and thereby help cable systems meet competition from these
other distribution systems.
The acquisition of new franchises has slowed as an increasingly
limited number of franchises and systems are left to be developed. The
resulting reduced rate of construction may affect the cable industry's
ability to sustain its historical subscriber growth rate. However,
cable operators have increasingly sought to expand their subscriber
bases through the acquisition of contiguous systems, which provide
increased operating efficiencies. The Company's plan to expand in the
cable business includes supplying additional services to its customers,
I - 36
increasing primary and premium subscriber penetrations, developing
existing franchise areas and, to a lesser degree, reviewing possible
acquisitions of existing systems, principally contiguous systems,
directly or through participation with others in partnerships or joint
ventures.
Since the Company's cable television systems are franchised on a
non-exclusive basis, other cable operators have been franchised and may
continue to apply for franchises in certain areas served by the
Company's cable systems. In addition, the 1992 Cable Act prohibits a
franchiser from granting exclusive franchises and from unreasonably
refusing to reward additional competitive franchises. In 1986, the U.S.
Supreme Court held that cable system operations implicate First Amendment
rights and that local franchising authorities may violate those rights
by establishing franchise requirements, unless there is a legitimate
government purpose. Since this decision, various federal district
and appellate courts have issued contradictory opinions with respect
to the enforceability of specific franchise requirements. Depending on
the resolution of these cases, competitive entry by other operators into
Viacom Cable's franchise areas and Viacom Cable's entry into other
franchise areas could be more easily achieved.
The entry of telephone companies into the cable television business
may adversely affect Viacom Cable. The FCC's Video Dial Tone
regulations (See "BUSINESS -- Regulation -- Viacom Cable Television --
Competition with Telephone Companies") are an indication of the FCC's
willingness to narrow the cross-ownership prohibitions contained in the
Communications Act to the extent that it can do so consistent with its
interpretation of the Act.
VIACOM BROADCASTING
The principal methods of competition in the television and radio
broadcasting field are the development of audience interest through
programming and promotions. Television and radio stations also compete
for advertising revenues with other stations in their respective
coverage areas and with all other advertising media. They also compete
with various other forms of leisure time activities, such as cable
television systems and audio players and video recorders. These
competing services, which may provide improved signal reception and
offer an increased home entertainment selection, have been in a period
of rapid development and expansion. Technological advances and
regulatory policies will have an impact, upon the future competitive
broadcasting environment. In particular, recent FCC liberalization of
its radio station ownership limits will allow for increased group
ownership of stations. However, the Company is unable to predict what
impact these rule changes will have on its businesses in their markets.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
DBS satellite distribution of programs is expected to commence in
1994. Additionally, the FCC has issued rules which may significantly
increase the number of multipoint distribution service stations (i.e.,
----
video services distributed on microwave frequencies which can only be
received by special microwave antennas). The FCC has also authorized
I - 37
video uses of certain frequencies which have not traditionally been
used or permitted for commercial video services and has issued rules
which will increase the number of FM and AM stations. The FCC is also
considering authorizing digital audio broadcasts ("DAB"), which could
ultimately permit increased radio competition by satellite delivery
of audio stations directly to the home (or to cars) and result in an
increased spectrum being used for digital delivery of radio signals,
and it has authorized and is in the process of licensing low power
television stations ("LPTV stations") that may serve various
communities with coverage areas smaller than those served by full
conventional television stations. Because of their coverage
limitations, LPTV stations may be allocated to communities which cannot
accommodate a full power television station because of technical
requirements.
ITEM 2. PROPERTIES.
The Company maintains its worldwide headquarters at 1515 Broadway,
New York, New York, where it rents approximately 720,000 square feet
for executive offices, including MTVN. The Company also rents
approximately 24,000 square feet at the same location for WLTW-FM and
Viacom Broadcasting headquarters. The lease runs to 2010, with four
renewal options for five years each. The lease also grants the Company
options for additional space at the then fair market value, including
sufficient space for SNI and Paramount headquarters staff, and a right
of first negotiation for other available space in the building.
The Company also leases approximately 106,000 square feet at 1775
Broadway, New York, New York. The lease expires in 1998. In 1992, the
Company sublet approximately 53,000 square feet of such space to COMEDY
CENTRAL.
The Company also operates a data processing facility in Rutherford,
New Jersey and owns a 30,000 square foot building at 140 West 43rd
Street, New York, New York, which supports office and conferencing
requirements.
Viacom MGS Services leases approximately 25,000 square feet at 619
West 54th Street, New York, New York.
During 1993, the Company leased premises in California, Ohio,
Oregon, Tennessee and Washington, the locations of Viacom Cable's
operations. Viacom Cable's operations require a large investment in
physical assets consisting primarily of receiving apparatus, trunk
lines, feeder cable and drop lines connecting the distribution network
to the premises of the customers, electronic amplification and
distribution equipment, converters located in customers' homes and
other components. Significant expenditures are also required for
replacement of and additions to such system assets as a result of
technological advances, ordinary wear and tear and regulatory
standards. Approximately 47% of the Company's cable television
systems' fixed assets have been installed within the past five years
and, except for ordinary wear and tear, the Company believes that this
equipment is in good condition.
I - 38
In addition to its leased space at 1515 Broadway, Viacom
Broadcasting owns office and studio space in Hartford, Connecticut,
occupied by television station WVIT-TV; in Menands, New York, occupied
by television station WNYT-TV; in Shreveport, Louisiana, occupied by
television station KSLA-TV; and in Rochester, New York, occupied by
television station WHEC-TV. Television station KMOV-TV, St. Louis,
Missouri, leases office and studio space for a term expiring
December 31, 2002.
WLIT-FM, Chicago, Illinois, leases office and studio space for a
term expiring in April 2002. WLTI-FM, Detroit, Michigan, leases office
and studio space for a term expiring in August 2002. WMZQ-FM,
Washington, D.C., leases office and studio space for a term expiring in
December 1998. WMZQ-AM, Arlington, Virginia, leases office and studio
space for a term expiring in August 2014. WCPT-AM and WCXR-FM lease
office and studio space in Alexandria, Virginia for a term expiring in
November 2001. KBSG-AM/FM, Tacoma/Seattle, Washington, lease office
and studio space for a term expiring in August 1999. KYSR-FM, and
KXEZ-FM, Los Angeles, California, lease office and studio space for a
term expiring in October 1999. KSRY-FM, San Francisco, California,
leases office and studio space for a term expiring in March 1997.
KSRI-FM, Santa Cruz, California, leases office and studio space for a
term expiring in July 1995. KNDD-FM, Seattle, Washington, leases
office and studio space for a term expiring in February 2001.
Viacom Broadcasting owns the broadcasting antenna equipment of its
radio and television stations and the main transmission and antenna
sites used by its five television stations and radio stations WMZQ-FM,
WCPT-AM, KYSR-FM and KNDD-FM. The other radio stations, WLTW-FM, WLIT-
FM, WLTI-FM, WCXR-FM, WMZQ-AM, KBSG-AM, KBSG-FM, KSRY-FM, KSRI-FM and
KXEZ-FM lease their transmission and antenna sites. The leases expire
in August 2005, September 2002, December 1995, February 2000, August
2014, February 2000, December 1997, February 2000, May 1999, and
November 2000, respectively.
MTVN, by agreement with MCA, leases approximately 75,000 square
feet of studio and office space for NICKELODEON STUDIOS FLORIDA, which
agreement expires (with extensions at MCA's option) in 2003. MTVN
leases approximately 58,600 square feet of other office facilities and
studios (i.e., excluding 1515 Broadway, 1775 Broadway, NICKELODEON
----
STUDIOS, Orlando and Universal City, Los Angeles).
MTVN also owns the Network Operations Center in Smithtown, New York
at which it assembles and uplinks its programming signals. The center
consists of a 15,000 square foot building housing television and
satellite transmission equipment.
In March 1993, a subsidiary of the Company entered into an
agreement to purchase approximately 50,000 square feet of office and
studio space in London, England. The Company leases the space to MTV
EUROPE.
SNI's executive offices are located at 1633 Broadway, New York, New
York, where it rents approximately 106,000 square feet. SNI leases
approximately 58,000 square feet of other office facilities (i.e.,
----
excluding 1633 Broadway, 1775 Broadway and Universal City, Los
I - 39
Angeles).
For a description of the transponders employed by MTVN and SNI, see
"BUSINESS -- Viacom Networks -- Additional Information about MTVN and
SNI."
Other than Brazil, where the office facility is owned, most of the
domestic and international television program and feature film sales
offices are held under leases aggregating approximately 9,000 square
feet. Also, the Company maintains approximately 83,000 square feet of
consolidated offices in Universal City, Los Angeles for Viacom
Entertainment, MTVN and SNI.
The Company also maintains a tape storage and operations service
center of approximately 22,500 square feet for Viacom Networks and
Viacom Enterprises in New York, New York.
The Company believes that all of its facilities are adequate for
the activities conducted at such facilities. However, the Company
anticipates that it will lease or purchase additional office space both
in the New York area as well as in other areas where the Company and
its subsidiaries are presently located.
Information with respect to Paramount in response to Item 2 is
incorporated by reference herein from the Paramount Reports.
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 3. LEGAL PROCEEDINGS.
Stockholder Litigation.
Seven putative class action complaints were filed by alleged
Blockbuster stockholders in the Delaware Court of Chancery against
Blockbuster, the members of its Board of Directors, Viacom Inc. and
Sumner M. Redstone. By Order dated January 31, 1994, the seven actions
were consolidated under the caption In re Blockbuster Entertainment
Corp. Shareholders' Litigation, Consolidated Civil Action No. 13319.
On February 18, 1994, plaintiffs filed the Consolidated and Amended
Class Action Complaint (the "Complaint"). The Complaint generally
alleges that Blockbuster's directors have violated their fiduciary
duties of loyalty and fair dealing by allegedly failing to ensure the
maximization of stockholder value in the sale of control of
Blockbuster, including the alleged failure to authorize and direct that
a process designed to secure the best value available for Blockbuster
stockholders be undertaken, and by implementing measures such as the
Subscription Agreement which allegedly were designed solely to thwart
or impede other competing transactions. Among other things, the
plaintiffs seek to (i) preliminarily and permanently enjoin the
purchase by Blockbuster of shares of Viacom Class B Common Stock
pursuant to the Subscription Agreement (see next paragraph); (ii)
preliminarily and permanently enjoin the Blockbuster Merger or any
anti-takeover devices designed to facilitate the Blockbuster Merger;
(iii) require the Blockbuster directors to maximize stockholder value
by exploring third party interest; and/or (iv) recover damages from the
I - 40
Blockbuster directors for their alleged breaches of fiduciary duty.
The defendants believe that plaintiffs' allegations are without merit
and intend to defend themselves vigorously.
On February 28, 1994, plaintiffs filed motions in the Delaware
Chancery Court seeking expedited discovery, a temporary restraining
order enjoining consummation of the Subscription Agreement and the
scheduling of a preliminary injunction hearing. On March 1, 1994, Vice
Chancellor Carolyn Berger issued an order denying plaintiffs' motions.
Following issuance of the above-described order, plaintiffs filed a
Motion for Clarification or, in the alternative, for Certification on
Interlocutory Appeal, requesting that the Chancery Court clarify
whether its order also refers to a hearing for a preliminary
injunction. Plaintiffs requested that, if the order is limited to a
hearing for a temporary restraining order, the Chancery Court schedule
a hearing on plaintiffs' motion for a preliminary injunction. On March
2, 1994, plaintiffs informed the Chancery Court that they had decided
not to seek an interlocutory appeal and indicated their understanding
that the order precluded preliminary injunctive relief as to the
Subscription Agreement.
On March 7, 1994, the plaintiffs filed a motion for a preliminary
injunction, seeking an order preliminarily enjoining the defendants
from (i) taking any steps to effectuate or enforce the Blockbuster
Merger Agreement, the Subscription Agreement and the Stockholders Stock
Option Agreement; (ii) making any payment to Viacom of its fees and
expenses pursuant to Section 8.05(b) of the Blockbuster Merger
Agreement; and (iii) entering into any competing transaction with a
party other than Viacom, which transaction includes a stock component
unless adequate price protection for the stockholders of Blockbuster is
provided. Plaintiffs have also moved for an injunction requiring the
Blockbuster defendants to investigate all bona fide offers to acquire
Blockbuster and to provide such bona fide offerors access to
information concerning Blockbuster in order to facilitate such offers.
No schedule has been set for a hearing on the motion.
On March 10, 1994, Defendant Sumner Redstone filed a motion to
dismiss the Complaint as to him, on the grounds of lack of personal
jurisdiction, insufficiency of process, and insufficiency of service of
process. Also, on March 10, 1994, defendant Viacom filed a motion to
dismiss the Complaint as to itself, for failure to state a claim
against Viacom upon which relief can be granted. No schedule has been
set for a hearing on these motions.
Antitrust Matters
On September 23, 1993, the Company filed an action in the United
States District Court for the Southern District of New York styled
Viacom International Inc. v. Tele-Communications, Inc., et al., Case
No. 93 Civ. 6658, against Tele-Communications, Inc. ("TCI"), Liberty
Media Corporation, Satellite Services, Inc. ("SSI"), Encore Media
Corp., Netlink USA, and QVC Network, Inc. The complaint alleges
violations of Sections 1 and 2 of the Sherman Act, Section 7 of the
Clayton Act, Section 12 of the Cable Act, and New York's Donnelly Act,
and tortious interference, against all defendants, and a breach of
contract claim against defendants TCI and SSI only. In addition to
I - 41
other relief, the Company seeks injunctive relief against defendants'
anticompetitive conduct and damages in an amount to be determined at
trial, including trebled damages and attorneys' fees under the Sherman
and Clayton Acts and damages resulting from QVC Network, Inc.'s
proposed acquisition of Paramount Communications Inc.
The 19 claims for relief in the complaint are based on allegations
that defendants exert monopoly power in the U.S. cable industry through
their control over approximately one in four of all cable households in
the United States. Among other things, the complaint alleges that
defendants conspired and attempted to force SNI to enter into a merger
with a TCI-controlled pay television service; defendants have attempted
to eliminate The Movie Channel from at least 28 of TCI's systems and
have plans to eliminate The Movie Channel from another 27 such systems;
defendants have conspired with General Instrument Corporation ("GI") to
entrench GI's monopoly power in the markets for digital compression and
encryption systems and to use such monopoly power to weaken and
eliminate the defendants' competitors; and TCI's construction of a
central authorization center to illegally control the distribution of
programming services through refusals to deal and denial of direct
access. On November 9, 1993, the Company amended its complaint in
Viacom International Inc. v. Tele-Communications, Inc., et al., Case
No. 93 Civ. 6658, to add Comcast Corporation as an additional defendant
and to incorporate into the allegations additional anticompetitive
activities by the defendants. Each of the defendants has answered and
has generally denied the material allegations of the Company's amended
complaint. Following the filing of its amended complaint, the Company
has agreed to voluntarily dismiss certain of its breach of contract
claims against TCI and SSI.
Viacom Cable, through a subsidiary of the Company, was one of the
original partners ("Original Partners") of Primestar Partners L.P.
("Primestar"). Primestar was launched in 1990 to deliver programming
directly to dishes located at subscribers' homes from a mid-powered Ku-
band satellite. The Company has withdrawn from Primestar by, among
other things, exercising in November 1991 the Company's contractual
right not to continue funding its share of Primestar's capital
requirements. The Department of Justice ("DOJ") has conducted an
inquiry into the structure and business of Primestar to ensure that the
Original Partners did not engage in any concerted action prohibited by
law. In addition, several state Attorneys General ("AGs") have
reviewed the structure and business plan of Primestar as well as
certain business practices of the Original Partners which reflect
business practices in the cable industry, generally. The AGs' inquiry
resulted in a final judgment entered into with the consent of the
Original Partners in September of 1993. The DOJ has concluded its
inquiry by submitting a similar consent judgment for judicial approval.
Both judgments address (i) access by multichannel distributors
competitive with cable to programming controlled by any of the Original
Partners and (ii) the extent of programming which may be licensed
exclusively by the cable operations of the Original Partners. The
provisions of the AGs' decree expire in 1997 and 1999. If approved, as
expected, the provisions of the DOJ decree will expire in 1999. The
terms of the judgments do not materially affect the Company.
Information with respect to Paramount in response to Item 3 is
I - 42
incorporated by reference herein from the Paramount Reports.
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
EXECUTIVE OFFICERS OF VIACOM INC. AND THE COMPANY
Set forth below is certain information concerning the current
executive officers of Viacom Inc. and the Company, which information is
hereby included in Part I of this report.
POSITIONS WITH VIACOM INC.
NAME AGE AND THE COMPANY
- ------------------------------------------------------------------------
Sumner M. Redstone 70 Chairman of the Board of Viacom
Inc. and the Company
Frank J. Biondi, Jr 49 President, Chief Executive Officer
and Director of Viacom Inc. and
the Company
Raymond A. Boyce 58 Senior Vice President, Corporate
Relations of Viacom Inc. and the
Company
Neil S. Braun 41 Senior Vice President of Viacom Inc.
and the Company
Vaughn A. Clarke 40 Vice President, Treasurer of Viacom
Inc. and the Company
Philippe P. Dauman 40 Executive Vice President, General
Counsel, Chief Administrative Officer
and Secretary and Director of Viacom
Inc. and the Company
Earl H. Doppelt 40 Senior Vice President, Deputy General
Counsel of Viacom Inc. and the
Company
Thomas E. Dooley 37 Executive Vice President, Finance,
Corporate Development and Communications
of Viacom Inc. and the Company
Michael D. Fricklas 34 Senior Vice President, Deputy
General Counsel of Viacom Inc. and
the Company
I - 43
John W. Goddard 52 Senior Vice President of Viacom
Inc. and the Company; President,
Chief Executive Officer of Viacom
Cable
Edward D. Horowitz 46 Senior Vice President, Technology of
Viacom Inc. and the Company;
Chairman, Chief Executive Officer
of New Media and Interactive
Television
Kevin C. Lavan 41 Vice President, Controller and Chief
Accounting Officer of Viacom Inc.
and the Company
Henry J. Leingang 44 Senior Vice President, Chief Information
Officer of Viacom Inc. and the
Company
William A. Roskin 51 Senior Vice President, Human Resources
and Administration of Viacom Inc.
and the Company
George S. Smith, Jr. 45 Senior Vice President, Chief
Financial Officer of Viacom Inc.
and the Company
Mark M. Weinstein 51 Senior Vice President, Government
Affairs of Viacom Inc. and the
Company
None of the executive officers of Viacom Inc. or the Company is
related to any other executive officer or director by blood, marriage
or adoption except that Brent D. Redstone, a Director of Viacom Inc.
and the Company, is the son of Sumner M. Redstone.
Mr. Redstone has been Chairman of the Board and a Director of the
Company since the Merger. Mr. Redstone is also Chairman of the Board
and a Director of Viacom Inc. Mr. Redstone has served as President,
Chief Executive Officer of NAI since July 1967, and continues to serve
in such capacity; he has also served as the Chairman of the Board of
NAI since 1986. Mr. Redstone became a director of Paramount in March
1994. He served as the first Chairman of the Board of the National
Association of Theater Owners, and is currently a member of the
Executive Committee of that organization. During the Carter
Administration, Mr. Redstone was appointed a member of the Presidential
Advisory Committee on the Arts for the John F. Kennedy Center for the
Performing Arts and, in 1984, he was appointed a Director of the
Kennedy Presidential Library Foundation. Since 1982, Mr. Redstone has
been a member of the faculty of Boston University Law School, where he
has lectured in entertainment law. In 1944, Mr. Redstone graduated
I - 44
from Harvard University and, in 1947, received an L.L.B. from Harvard
University School of Law. Upon graduation, he served as Law Secretary
with the United States Court of Appeals, and then as a Special
Assistant to the United States Attorney General.
Mr. Biondi has been President, Chief Executive Officer and a
Director of Viacom Inc. and the Company since July 1987. He became a
director of Paramount in March 1994. From November 1986 to July 1987,
Mr. Biondi was Chairman, Chief Executive Officer of Coca-Cola
Television and, from 1985, Executive Vice President of the
Entertainment Business Sector of The Coca-Cola Company. Mr. Biondi
joined HBO in 1978 and held various positions there until his
appointment as President, Chief Executive Officer in 1983. In 1984, he
was elected to the additional position of Chairman and continued to
serve in such capacities until October 1984.
Mr. Boyce has been an executive officer of Viacom Inc. and the
Company since January 1988 when he was elected Senior Vice President,
Corporate Relations of the Company. In April 1988, he was elected
Senior Vice President, Corporate Relations of Viacom Inc. Mr. Boyce
served as Vice President, Public Relations of the Entertainment
Business Sector of The Coca-Cola Company from 1982 to 1987. In 1979,
Mr. Boyce joined Columbia Pictures Industries, Inc. and served first as
Director, Corporate Communications and later as Vice President,
Corporate Communications until The Coca-Cola Company's acquisition of
Columbia Pictures Industries, Inc. in 1982.
Mr. Braun has been an executive officer of Viacom Inc. and the
Company since November 1987 when he was elected Senior Vice President
of each. He served as Chairman, Chief Executive Officer of Viacom
Entertainment from July 1992 to March 1994. Prior to that, Mr. Braun
served as Senior Vice President, Corporate Development and
Administration of Viacom Inc. and the Company from November 1987 to
July 1992 and from October 1989 to July 1992, he also served as
Chairman of Viacom Pictures. Mr. Braun served as President, Chief
Operating Officer of Imagine Films Entertainment from May 1986 until he
joined the Company. From 1982 until 1986, Mr. Braun held various
positions at HBO including Senior Vice President, Film Programming of
HBO and Executive Vice President of HBO Video, Inc.
Mr. Clarke was elected Vice President, Treasurer of Viacom and the
Company in April 1993. Prior to that, he spent 12 years at Gannett
Co., Inc., where he held various management positions, most recently as
Assistant Treasurer.
Mr. Dauman has been a Director of Viacom Inc. and the Company since
the Merger. In March 1994, he was elected Executive Vice President,
General Counsel, Chief Administrative Officer and Secretary of Viacom
Inc. and the Company. From February 1993 to March 1994, he served as
Senior Vice President, General Counsel and Secretary of Viacom Inc. and
the Company. Prior to that, Mr. Dauman was a partner in the law firm
of Shearman & Sterling in New York, which he joined in 1978. Mr.
Dauman became a Director of National Amusements, Inc. in 1992 and
Paramount in March 1994.
Mr. Dooley has been an executive officer of the Company since
I - 45
January 1987. In March 1994, he was elected Executive Vice President,
Finance, Corporate Development and Communications of Viacom Inc. and
the Company. From July 1992 to March 1994, Mr. Dooley served as Senior
Vice President, Corporate Development of Viacom Inc. and the Company.
From August 1993 to March 1994, he also served as President,
Interactive Television. Prior to that, he served as Vice President,
Treasurer of the Company and Viacom Inc. since 1987. In December 1990,
he was named Vice President, Finance of Viacom Inc. and the Company.
Mr. Dooley joined the Company in 1980 in the corporate finance area and
has held various positions in the corporate and divisional finance
areas, the most recent of which was Director of Business Analysis from
1985 to 1986.
Mr. Doppelt was elected Senior Vice President, Deputy General
Counsel of Viacom Inc. and the Company in March 1994. Prior to that,
he served as Senior Vice President of Paramount since 1992 and as
Deputy General Counsel of Paramount since 1985. He joined Paramount in
1983 as Associate Litigation Counsel, and in 1985 was appointed
Assistant Vice President and Deputy General Counsel. In 1986, he
became a Vice President of Paramount. From 1977 to 1983, Mr. Doppelt
was an attorney in private practice at the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison.
Mr. Fricklas was elected Senior Vice President, Deputy General
Counsel of Viacom Inc. and the Company in March 1994. From June 1993
to March 1994, he served as Vice President, Deputy General Counsel of
Viacom Inc. and the Company. He served as Vice President, General
Counsel and Secretary of Minorco (U.S.A.) Inc. from 1990 to 1993.
Prior to that, Mr. Fricklas was an attorney in private practice at the
law firm of Shearman & Sterling.
Mr. Goddard has been an executive officer of the Company since
August 1980. In November 1987, Mr. Goddard was elected Senior Vice
President of Viacom Inc. and in September 1983, Mr. Goddard was elected
Senior Vice President of the Company and President, Chief Executive
Officer of Viacom Cable and continues to serve in those capacities. In
August 1980, Mr. Goddard was appointed President of Viacom Cable and,
in September 1980, he was elected Vice President of the Company. From
September 1978 through July 1980, Mr. Goddard was Executive Vice
President, Viacom Communications. From June 1971 until September 1978,
Mr. Goddard was President and General Manager of Tele-Vue Systems, a
subsidiary of the Company.
Mr. Horowitz has been an executive officer of Viacom Inc. and the
Company since April 1989. In March 1994, he was elected Senior Vice
President, Technology of Viacom Inc. and the Company and Chairman,
Chief Executive Officer of New Media and Interactive Television. Prior
to that, he served as Senior Vice President of Viacom Inc. and the
Company from April 1989 and as Chairman, Chief Executive Officer of
Viacom Broadcasting from July 1992 to March 1994. From 1974 to April
1989, Mr. Horowitz held various positions with HBO, most recently as
Senior Vice President, Technology and Operations. Mr. Horowitz held
several other management positions with HBO, including Senior Vice
President, Network Operations and New Business Development and Vice
President, Affiliate Sales.
I - 46
Mr. Lavan has been an executive officer of the Company since
December 1987. In May 1989, he was elected Vice President of Viacom
Inc. and the Company. In December 1990, he assumed the added
responsibilities of oversight of Company tax matters. From 1991 to
1992, he also served as Senior Vice President and Chief Financial
Officer of Viacom Pictures. Mr. Lavan joined Viacom in 1984 as
Assistant Controller and, in December 1987, was elected Controller,
Chief Accounting Officer of Viacom Inc. and the Company and he
continues to serve in such capacities.
Mr. Leingang was elected Senior Vice President, Chief Information
Officer in May 1993. Prior to that, he served as Vice President, Chief
Information Officer upon joining Viacom in 1990. Mr. Leingang was Vice
President, Information Services of the Train Group (formerly Triangle
Industries) from 1984 to 1990. From 1982 to 1984, he served as
Corporate Director, MIS, and Manager, MIS Planning and Control for
Interpace Corporation. Prior to that he held positions with Touche
Ross & Company, McGraw-Hill Book Company and General Electric Credit
Corp.
Mr. Roskin has been an executive officer of Viacom Inc. and the
Company since April 1988 when he became Vice President, Human Resources
and Administration of each. In July 1992, Mr. Roskin was elected
Senior Vice President, Human Resources and Administration of Viacom
Inc. and the Company. From May 1986 to April 1988, he was Senior Vice
President, Human Resources at Coleco Industries, Inc. From 1976 to
1986, he held various executive positions at Warner Communications,
Inc., serving most recently as Vice President, Industrial and Labor
Relations.
Mr. Smith has been an executive officer of the Company since May
1985. In November 1987, he was elected Senior Vice President, Chief
Financial Officer of Viacom Inc. and the Company and he continues to
serve in such capacities. In May 1985, Mr. Smith was elected Vice
President, Controller of the Company and, in October 1987, he was
elected Vice President, Chief Financial Officer of the Company. From
1983 until May 1985, he served as Vice President, Finance and
Administration of the Viacom Broadcasting Division and from 1981 until
1983, he served as Controller of Viacom Radio. Mr. Smith joined the
Company in 1977 in the Corporate Treasurer's office and until 1981
served in various financial planning capacities.
Mr. Weinstein has been an executive officer of the Company since
January 1986. In February 1993, he was elected Senior Vice President,
Government Affairs of Viacom Inc. and the Company. Prior to that, Mr.
Weinstein served as Senior Vice President, General Counsel and
Secretary of the Company and of Viacom Inc. since the fall of 1987. In
January 1986, Mr. Weinstein was appointed Vice President, General
Counsel of the Company. From 1976 through 1985, he was Deputy General
Counsel of Warner Communications Inc. and in 1980 became Vice
President. Previously, Mr. Weinstein was an attorney in private
practice at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison.
I - 47
PART II
Item 5. Market for Viacom Inc.'s Common Equity and Related Security Holder
Matters.
Viacom Inc. voting Class A Common Stock and Viacom Inc. non-voting Class B
Common Stock are listed and traded on the American Stock Exchange ("ASE")
under the symbols "VIA" and "VIAB," respectively. The following table sets
forth, for the calendar period indicated, the per share range of high and
low sales prices for Viacom Inc.'s Class A Common Stock and Class B Common
Stock, as reported on the ASE Composite Tape by the National Quotation
Bureau Incorporated. As of March 30, 1994 there were approximately 6,912
holders of Viacom Inc. Class A Common Stock, and 6,861 holders of Viacom
Inc. Class B Common Stock.
Viacom Class A Viacom Class B
Common Stock Common Stock
--------------- ----------------
High Low High Low
---- --- ---- ---
1992
1st quarter $37 1/4 $32 1/8 $36 1/2 $31 1/4
2nd quarter 38 1/2 32 3/8 36 7/8 30 1/2
3rd quarter 34 7/8 30 7/8 32 7/8 29
4th quarter 44 28 1/8 41 7/8 27
1993
1st quarter $46 1/2 $37 1/2 $44 1/8 $35 1/4
2nd quarter 52 5/8 37 1/8 49 1/2 36
3rd quarter 67 1/2 50 1/2 61 1/4 45 3/4
4th quarter 66 1/2 47 60 1/2 40 3/8
The parent, Viacom Inc., has substantially no source of funds other than
dividends paid by the Company on its stock. Under the restrictions
contained in the Credit Agreement, the Company is prohibited from (i)
paying 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.
II-1
Item 6. Selected Financial Data.
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
(Thousands of dollars, except per share amounts)
Year Ended December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Revenues $2,004,949 $1,864,683 $1,711,562 $1,599,625 $1,436,220
Earnings from operations $ 384,995 $ 347,927 $ 312,234 $ 223,831 $ 144,716
Earnings (loss) before
extraordinary items
and cumulative effect of
change in accounting
principle $ 169,481 $ 66,085 $ (46,556) $ (89,781) $ 131,080
Net earnings (loss) $ 170,952 $ 48,965 $ (49,657) $ (89,781) $ 131,080
Net earnings (loss)
attributable
to common stock $ 158,202 $ 48,965 $ (49,657) $ (89,781) $ 113,589
Net earnings (loss) per
common share:
Earnings (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ 1.30 $ .55 $ (.41) $ (.84) $ 1.06
Net earnings (loss) $ 1.31 $ .41 $ (.44) $ (.84) $ 1.06
At year end:
Total assets $6,416,868 $4,317,094 $4,188,378 $4,027,927 $3,752,962
Long-term debt $2,378,286 $2,397,014 $2,320,919 $2,537,263 $2,283,118
Shareholders' equity $2,718,114 $ 756,511 $ 699,493 $ 366,163 $ 455,944
See Notes to Consolidated Financial Statements for information on
transactions and accounting classifications which have affected the
comparability of the periods presented above. Viacom Inc. has not declared
cash dividends for any of the periods presented above.
II-2
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial
Condition.
General
-------
Management's discussion and analysis of the combined results of
operations and financial condition of Viacom Inc. and the Company
should be read in conjunction with the Consolidated Financial
Statements and related Notes. Information presented below does not
include information with respect to Paramount, which became a
subsidiary of Viacom Inc. on March 11, 1994. Information with
respect to Paramount's results of operations and financial condition
and Paramount's audited and unaudited financial statements, in
each case including the notes thereto, are incorporated by reference
herein from the Paramount Reports (as defined in Item 1). Information
in the Paramount Reports is given as of the date of each such report
and is not updated herein. A copy of each of the Paramount Reports is
included as an exhibit hereto. Descriptions of all documents incorporated
by reference herein or included as exhibits hereto are qualified in
their entirety by reference to the full text of such documents so
incorporated or included.
Viacom Inc. (together with its consolidated subsidiaries, 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. Viacom Inc. is an approximately 76.3% owned subsidiary
of National Amusements, Inc. ("NAI"), a closely held corporation that
owns and operates approximately 850 movie screens in the United
States and the United Kingdom.
In early March 1994, Viacom Inc. acquired a majority interest in
Paramount Communications Inc. ("Paramount") pursuant to the terms of
its tender offer. Paramount will become a wholly owned subsidiary of
Viacom Inc. upon the closing of the merger pursuant to the Paramount
merger agreement. Viacom Inc. has also entered into a merger
agreement with Blockbuster Entertainment Corporation ("Blockbuster")
pursuant to which Blockbuster will merge into Viacom Inc. (See
"Paramount Merger, Blockbuster Merger and Related Transactions" for
additional information regarding the mergers).
The primary differences between Viacom Inc.'s and the Company's
financial statements are as follows: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the
contribution to capital of Viacom Inc.'s exchangeable preferred
stock, which was exchanged for 15.5% Junior Subordinated Exchange
Debentures due 2006 (the "Exchange Debentures") on March 31, 1989
which in turn were fully redeemed during 1991; b) during 1993, Viacom
Inc. issued $1.8 billion of 5% cumulative convertible preferred stock
and declared related preferred stock dividends of $12.8 million, c)
certain general and administrative expenses recorded by Viacom Inc.
of $5.0 million (1993), $9.0 million (1992) and $12.9 million (1991),
which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net
interest income of $3.1 million (1993) and net interest expense of
$45.2 million (1991).
II-3
Business Segment Information
----------------------------
The following tables set forth revenues, earnings from operations,
depreciation and amortization by business segment and a reconciliation
of total earnings from operations to net earnings (loss) attributable to
common stock for the periods indicated:
Year Ended December 31, Percentage Change
----------------------------- -----------------
From From
1993 1992 1991 1992 1991
---- ---- ---- To To
1993 1992
---- ----
(Thousands of Dollars)
Revenues:
Networks $1,221,200 $1,058,831 $ 922,157 15% 15%
Entertainment 209,110 248,335 273,488 (16) (9)
Cable Television 415,953 411,087 378,026 1 9
Broadcasting 181,778 168,847 159,182 8 6
Intercompany elimination (23,092) (22,417) (21,291) (3) (5)
---------- --------- ----------
Total revenues $2,004,949 $1,864,683 $1,711,562 8 9
========== ========== ==========
Earnings from operations:
Networks $ 272,087 $ 205,576 $ 172,296 32 19
Entertainment 32,480 59,662 73,214 (46) (19)
Cable Television 110,176 122,037 103,954 (10) 17
Broadcasting 42,293 31,956 27,734 32 15
Corporate (72,041) (71,304) (64,964) (1) (10)
---------- --------- ----------
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234 11 11
========== ========== ==========
Depreciation and amortization:
Networks $ 44,747 $ 41,754 $ 30,123
Entertainment 9,549 6,792 7,160
Cable Television 71,520 68,505 66,604
Broadcasting 23,475 24,509 27,062
Corporate 3,766 3,242 1,915
---------- --------- ----------
Total depreciation and
amortization $ 153,057 $ 144,802 $ 132,864
========== ========== ==========
II-4
Reconciliation to net earnings
(loss) attributable
to common stock:
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234
Interest expense, net (144,953) (194,104) (297,451)
Other items, net 61,774 1,756 (6,536)
---------- --------- ----------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
---------- --------- ----------
Earnings (loss) before
extraordinary losses and
cumulative effect of change
in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of
tax (8,867) (17,120) (3,101)
Cumulative effect of change
in accounting principle 10,338 -- --
---------- --------- ----------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible
preferred stock dividend
requirement of Viacom Inc. 12,750 -- --
---------- --------- ----------
Net earnings (loss)
attributable to common
stock $ 158,202 $ 48,965 $ (49,657)
========== ========== ==========
II-5
Results of Operations
---------------------
1993 vs. 1992
-------------
Revenues increased 8% to $2.0 billion in 1993 from $1.9 billion in
1992. Earnings from operations increased 11% to $385.0 million in
1993 from $347.9 million in 1992. Explanations of variances in
revenues and earnings from operations for each operating segment
follow.
Net earnings attributable to common stock of $158.2 million, or $1.31
per share, for the year ended December 31, 1993, reflect net interest
expense of $145.0 million, a pre-tax gain aggregating $72.4 million
from the sale of the Wisconsin cable television system and sales of a
portion of an investment held at cost, and a provision for income
taxes of $129.8 million. Net earnings of $49.0 million, or $.41 per
share, for the year ended December 31, 1992, reflect net interest
expense of $194.1 million and a provision for income taxes of $84.8
million.
The comparability of results of operations for 1993 and 1992 has been
affected by (1) the sale of the Wisconsin cable television system,
effective January 1, 1993 and (2) the change in estimate of copyright
royalty revenues during 1992 in the Entertainment segment. (See
"Cable Television" and "Entertainment" for additional information
concerning the changes noted above.)
Networks (Basic cable and premium television networks)
The constituents of Networks are MTV Networks ("MTVN") and Showtime
Networks Inc. ("SNI"). Networks revenues increased 15% to $1.221
billion in 1993 from $1.059 billion in 1992. Networks earnings from
operations increased 32% to $272.1 million in 1993 from $205.6 million
in 1992.
MTVN revenues increased 27% to $677.9 million in 1993 from $533.4
million in 1992: 70% of the increase was attributable to increased
advertising sales; 21% was due to increased affiliate fees; and 9% was
due to other sources. The increases in advertising sales and
affiliate fees were principally due to rate increases. The increase
in other sources was principally due to revenues from new business
ventures including licensing and merchandising. Earnings from
operations of MTVN increased 39% to $239.7 million in 1993 from $172.9
million in 1992, reflecting the increased revenues, partially offset
by increased programming and marketing expenses at each of the
networks and other costs of operating the networks, including start up
losses of MTV Latino and Nickelodeon Magazine aggregating $6.5
million. The increased programming and marketing expenses at each of
the networks (including animated programming on Nickelodeon and MTV)
was to a large extent responsible for the Company's ability to
increase advertising rates.
II-6
SNI revenues increased 3% to $543.3 million in 1993 from $525.7 million
in 1992, including Viacom Pictures in each period presented, due to (i)
an increase of $13.6 million in revenues of Showtime Satellite Networks
("SSN"), primarily due to a 40% increase in SSN's subscriber base,
principally attributable to the use of upgraded scrambling technology,
partially offset by a decrease of 8% in average rates, (ii) an increase
of $4.4 million in revenues of Showtime and The Movie Channel
(excluding revenues generated by SSN), reflecting a 3% increase in the
combined subscriber base with a decrease in average rates of 2% and
(iii) a $.4 million decrease in other revenue sources. SNI's premium
movie services, Showtime, The Movie Channel and FLIX, served
approximately 11.9 million subscribers as of December 31, 1993 and 10.7
million subscribers as of December 31, 1992. SNI's overall earnings
from operations decreased 1% to $32.3 million in 1993 from $32.7
million in 1992, reflecting increased programming and marketing
expenses, partially offset by the increased revenues.
Entertainment (Television programming, syndication, production and new
media)
The Entertainment segment distributes television series, feature
films, made-for-television movies and mini-series for television
exhibition around the world, produces television series and made-for-
television movies, and also distributes television and radio
commercials. The Entertainment segment also includes Viacom New
Media, which develops, produces, distributes and markets interactive
software.
Entertainment revenues decreased 16% to $209.1 million in 1993 from
$248.3 million in 1992. The revenue variance was principally due to
lower syndication revenues, lower copyright revenues resulting from a
change in estimate which increased revenue by approximately $10 million
in 1992, and decreased network production revenues. Lower sales to the
broadcast, cable and other markets reflect lower syndication revenues
for The Cosby Show and softness in the syndication marketplace due to a
decrease in the number of independent broadcast television stations
because of new network affiliations. Revenues from the domestic
broadcast syndication of The Cosby Show were approximately 12% and 18%
of Entertainment revenues during 1993 and 1992, respectively. The
decrease was due to the ending of the first domestic syndication cycle
of The Cosby Show during the third quarter of 1993. The second
domestic broadcast syndication cycle of The Cosby Show, which began in
the third quarter of 1993, will generate significantly lower revenues.
Network license fees were lower because fewer shows were produced for
network television; however the decrease does not have a significant
impact on Entertainment earnings from operations.
Earnings from operations decreased 46% to $32.5 million in 1993 from
$59.7 million in 1992, reflecting the decreased revenues and $6.1
million of start-up losses associated with Viacom New Media, which
anticipates releasing approximately nine interactive video games based
II-7
on MTV Networks' programming by the end of 1994.
The Company had accumulated a backlog of unbilled syndication license
agreements of approximately $399.0 million at December 31, 1993. As
the license fees are billed over the term of the various licensing
contracts, the Company will recognize as revenues that portion of such
license fees representing its distribution fees. Approximately 58% of
the Company's backlog was attributable to license fees for Roseanne
and The Cosby Show. As The Cosby Show becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Cable Television (Cable television systems)
Cable Television revenues increased 1% to $416.0 million in 1993 from
$411.1 million in 1992. Earnings from operations decreased 10% to
$110.2 million in 1993 from $122.0 million in 1992.
On a comparable basis with the 1992 results (excluding the Wisconsin
cable system, which was sold effective January 1, 1993), Cable
Television revenues increased 6% to $416.0 million in 1993 from $393.6
million in 1992: 52% of this increase resulted from increases in rates
for basic services; 32% from increased basic customers; 8% from
increased pay-per-view revenues; and 8% from increases in other revenue
sources. Total revenue per basic customer per month increased 3% to
$32.03 in 1993 from $31.04 in 1992. Earnings from operations decreased
6% to $110.2 million in 1993 from $117.6 million in 1992, reflecting
increased operating expenses (which included non-recurring costs
associated with the implementation of Federal Communication Commission
("FCC") rate regulations discussed below), partially offset by
increased revenues.
The 1992 Cable Act amended the Communications Act of 1934, as amended
(the "Communications Act"). Rate regulations adopted in April 1993 by
the FCC govern rates charged to subscribers for regulated tiers of
cable service and became effective on September 1, 1993. On February
22, 1994, the FCC adopted additional rules (the "February 22nd
Regulations") which have not yet been published in their final form.
The "benchmark" formula adopted as part of the regulations in April
1993 establishes an "initial permitted rate" which may be charged by
cable operators for tiers of cable service. The regulations also
establish the prices which may be charged for equipment used to receive
these services. Because the text of the February 22nd Regulations has
not been released, it is not possible to know the extent or nature of
revisions to the April 1993 regulations. However, from public
statements made during the FCC meeting and news releases issued
thereafter, it appears that the February 22nd Regulations will contain
a new formula for determining permitted rates. The new formula will
require up to a 17% reduction of rates from those charged on September
30, 1992, rather than the 10% reduction required by the April 1993
regulations. The February 22nd Regulations also adopted interim
standards governing "cost-of-service" proceedings pursuant to which a
II-8
cable operator would be permitted to charge rates in excess of rates
which it would otherwise be permitted to charge under the regulations,
provided that the operator substantiates that its costs in providing
services justify such rates.
Based on its implementation of the April 1993 rate regulations, the
Company estimates that it will recognize a reduction to revenues
ranging from $27 million to $32 million on an annualized basis
substantially all of which will be reflected as a reduction in earnings
from operations of its cable division. The Company's estimated
reduction does not reflect further reductions to revenue which would
result from the lowering of the initial permitted rates pursuant to the
February 22nd Regulations. These new and reduced initial permitted
rates will apply prospectively from a date to be announced by the FCC
when it publishes precise regulations which implement the February 22nd
Regulations. Until the February 22nd Regulations are released, it is
not possible to predict the effects of the interim standards governing
cost-of-service proceedings; however, based on the public statements,
Viacom believes it is unlikely that it will be able to utilize such
proceedings so as to charge rates in excess of rates which it would
otherwise be permitted to charge under the regulations. The Company's
ability to mitigate the effects of these new rate regulations by
employing techniques such as the pricing and repricing of new or
currently offered unregulated program services and ancillary services
may be restricted by the new regulations adopted as part of the
February 22nd Regulations. No such mitigating factors are reflected in
the estimated reductions to revenues. The stated reduction to revenues
may be mitigated by higher customer growth due to lower basic rates.
The "must carry" provisions of the 1992 Cable Act are not material to
the Company's results of operations.
As of December 31, 1993, the Company operated systems in California,
Oregon, Washington, Ohio and Tennessee, serving approximately 1,094,000
basic customers subscribing to approximately 718,000 premium units.
Basic customers and premium units decreased 2% and 9%, respectively,
since December 31, 1992; and, excluding the Wisconsin cable system
customers in 1992, basic customers and premium units increased 2% and
decreased 5%, respectively.
As part of the settlement of the Time Warner antitrust lawsuit, the
Company entered into an agreement to sell all the stock of Viacom
Cablevision of Wisconsin, Inc. to Warner Communications Inc.
("Warner"), effective January 1, 1993. As consideration for the stock,
Warner paid the sum of $46 million, $20 million of which was received
during 1992, plus repayment of debt in the amount of $49 million,
resulting in a pre-tax gain of approximately $55 million reflected in
"Other items, net." As of December 31, 1992, the Wisconsin cable
system served approximately 47,000 basic customers subscribing to
approximately 34,000 premium units.
II-9
Broadcasting (Television and radio stations)
As of December 31, 1993, the Broadcasting segment operated five
network-affiliated television stations and 14 radio stations.
Broadcasting revenues increased 8% to $181.8 million in 1993 from
$168.8 million in 1992. Earnings from operations increased 32% to
$42.3 million in 1993 from $32.0 million in 1992.
Television revenues increased 4% to $90.3 million in 1993 from $87.1
million in 1992, reflecting an increase in national and local
advertising revenues. Earnings from operations increased 20% to
$20.3 million in 1993 from $16.9 million in 1992, primarily
reflecting the increased revenues.
Television Stations:
STATION LOCATION AFFILIATION MARKET RANK (a)
------- -------- ----------- ------ --------
KMOV-TV St. Louis, MO CBS 18 2
WVIT-TV Hartford/New NBC 25 3
Haven, CT
WNYT-TV Albany/Schenectad NBC 52 2
y, NY
WHEC-TV Rochester, NY NBC 71 2
KSLA-TV Shreveport, LA CBS 74 1
(a) Source: Nielsen, November 1993.
Radio revenues increased 12% to $91.4 million in 1993 from $81.8
million in 1992, reflecting increased national and local
advertising revenues. Earnings from operations increased 45% to
$26.6 million in 1993 from $18.3 million in 1992, primarily
reflecting the increased revenues, partially offset by increased
selling costs.
Radio Stations:
STATION LOCATION FORMAT MARKET RANK (a)
------- -------- ------ ------ -----
WLTW-FM New York, NY Adult 1 1
Contemp
KYSR-FM Los Angeles, CA Adult 2 2
Contemp
KXEZ-FM (b) Los Angeles, CA Adult 2 2
Contemp
WLIT-FM Chicago, IL Adult 3 7
Contemp
KSRY-FM San Francisco, Adult 4 24
CA Contemp (Tie)
II-10
KSRI-FM Santa Cruz/San Adult 4 24
Jose, CA Contemp (Tie)
WLTI-FM Detroit, MI Adult 6 8
Contemp
WMZQ-AM/FM Washington, DC Country 8 4
(Tie)
WCXR-FM (c) Washington, DC Classic Rock 8 9
(Tie)
WCPT-AM (c) Washington, DC Headline 8 NA(d)
News
KBSG-AM/FM Seattle/Tacoma, Oldies 13 2
WA
KNDD-FM (e) Seattle, WA Modern Rock 13 5
(AOR)
(a) Source: Arbitron, Fall 1993, based on target demographics.
(b) Acquired in June 1993.
(c) Acquired in November 1993.
(d) Rank not applicable.
(e) Acquired in December 1992.
See "Acquisition and Ventures" for disclosure of acquisitions
and exchanges of radio stations that occurred in 1993 and 1992.
Other Income and Expense Information
Corporate expenses increased 1% to $72.0 million in 1993 from
$71.3 million in 1992, reflecting increased overall expenses
offset by decreased compensation expense associated with the
Long-Term Incentive Plans (the "Plans"), which consist of the
Long-Term Incentive Plan ("LTIP") and the Long-Term Management
Incentive Plan ("LTMIP"). The Plans provide for grants of
phantom shares and stock options. The value of phantom shares
issued under the Plans is determined by reference to the fair
market value of Viacom Class A Common Stock and Viacom Class B
Common Stock (collectively, "Common Stock"). The Plans also
provide for subsequent cash payments with respect to such
phantom shares based on appreciated value, subject to certain
limits, and vesting requirements. As a result of the
fluctuation in the market value of its Common Stock, Viacom Inc.
recorded compensation expense associated with the Plans of $3.9
million in 1993 and $8.2 million in 1992. During December 1992,
a significant portion of the liability associated with the LTIP
was satisfied by the cash payment of $68.6 million and the
issuance of 177,897 shares of Viacom Class B Common Stock valued
at $6.9 million. The Plans' phantom shares currently have a
maximum potential liability of $19.5 million, all of which was
accrued as of December 31, 1993.
II-11
Net interest expense decreased 25% to $145.0 million in 1993 from
$194.1 million in 1992, reflecting improvements made to the
capital structure (as described below) and reduced interest
rates, including rates associated with the Credit Agreement (as
defined in "Capital Structure"). The Company and Viacom Inc. had
approximately $2.4 billion principal amount of debt outstanding
as of December 31, 1993 and December 31, 1992 at weighted average
interest rates of 5.3% and 6.5%, respectively. On July 15, 1993,
the Company redeemed all $298 million principal amount
outstanding of 11.80% Senior Subordinated Notes. During 1992,
the following changes to the capital structure were made: a) on
March 4, 1992, the Company issued $150 million principal amount
of 9.125% Senior Subordinated Notes ("9.125% Notes") due 1999;
b) on March 10, 1992, the Company redeemed all $193 million of
the outstanding 11.5% Senior Subordinated Extendible Reset Notes
("11.5% Reset Notes") due 1998; c) on May 28, 1992, the Company
issued $100 million principal amount of 8.75% Senior Subordinated
Reset Notes ("8.75% Reset Notes") due 2001; and d) on June 18,
1992, the Company redeemed all $356.5 million of the outstanding
14.75% Senior Subordinated Discount Debentures ("Discount
Debentures") due 2002 (see "Capital Structure"). (See "Liquidity
and Capital Resources" for additional information concerning
changes in Viacom Inc.'s and the Company's capital structure.)
For 1993, "Other items, net" reflects the pre-tax gain of
approximately $55 million on the sale of the stock of the
Wisconsin cable system (see "Cable Television"), a pre-tax gain
of $17.4 million in the aggregate from sales of a portion of an
investment held at cost, and an increase of $9.1 million to
previously established non-operating litigation reserves and
other items.
The settlement of the Time Warner antitrust lawsuit resulted in
various business arrangements, which have a positive effect on
Viacom Inc. currently and are expected to continue to have a
favorable effect on a prospective basis. "Other items, net"
reflects a gain of $35 million recorded in the third quarter of
1992; this gain represents payments received in the third quarter
of 1992 relating to certain aspects of the settlement of the
lawsuit, net of Viacom Inc.'s 1992 legal expenses related to this
lawsuit.
"Other items, net" also reflects a reserve for litigation of $33
million during the second quarter of 1992 related to a summary
judgment against Viacom Inc. in a dispute with CBS Inc. arising
under the 1970 agreement associated with the spin-off of Viacom
International Inc. by CBS Inc. On July 30, 1993, the Company
settled all disputes arising under that litigation.
"Equity in loss of affiliated companies, net of tax," consists
primarily of the Company's share of Lifetime's net earnings,
Comedy Central's net losses and Nickelodeon (UK)'s net losses in
II-12
1993. "Equity in loss of affiliated companies, net of tax"
decreased 46% to $2.5 million in 1993 from $4.6 million in 1992,
primarily reflecting improved operating results at Lifetime and
Comedy Central, partially offset by net losses on equity
investments made in 1993. (See "Acquisitions and Ventures.")
The provision for income taxes represents federal, state and
foreign income taxes on earnings before income taxes.
The annual effective tax rate of 43% for 1993 and 54.5% for 1992
(which continues to be adversely affected by amortization of
acquisition costs which are not deductible for tax purposes) is
decreased as a result of reductions of certain prior year tax
reserves of $22.0 million and $20.0 million in 1993 and 1992,
respectively. The reductions relate to management's current
opinion on several tax issues based upon the progress of
federal, state and local audits.
During the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" on a prospective basis and recognized a cumulative benefit
from a change in accounting principle of $10.3 million.
In August 1993, the Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") was signed into law. It is not
expected that the Reconciliation Act will have a significant
effect on the Company's financial position or results of
operations.
In 1993, the Company recognized an after-tax extraordinary loss
from the early extinguishment of the 11.80% Notes of $8.9 million
(net of a tax benefit of $6.1 million).
In 1993, Viacom Inc. declared dividends on its Preferred Stock
(as defined in "Capital Structure") of $12.8 million.
In 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting For Postemployment
Benefits" ("SFAS 112"), which the Company will adopt in 1994.
SFAS 112 requires that postemployment benefits be accounted for
under the accrual method versus the currently used pay-as-you-go
method. SFAS 112 is not expected to have a significant effect on
the Company's financial position or results of operations.
1992 vs. 1991
-------------
Revenues increased 9% to $1.9 billion in 1992 from $1.7 billion
in 1991. Operating expenses increased 8% to $854.0 million in
1992 from $790.8 million in 1991. Earnings from operations
increased 11% to $347.9 million in 1992 from $312.2 million in
1991. Explanations of variances in revenues and earnings from
II-13
operations for each operating segment follow.
Net earnings of $49.0 million, or $.41 per share, for the year
ended December 31, 1992, reflect net interest expense of $194.1
million and a provision for income taxes of $84.8 million. The
net loss of $49.7 million, or $.44 per share, for the year ended
December 31, 1991, reflects net interest expense of $297.5
million and a provision for income taxes of $42.1 million.
Networks (Basic cable and premium television networks)
Networks revenues increased 15% to $1.058 billion in 1992 from
$922.2 million in 1991. Earnings from operations increased 19%
to $205.6 million in 1992 from $172.3 million in 1991.
MTVN revenues increased 30% to $533.4 million in 1992 from
$411.4 million in 1991: 77% of the increase was attributable to
increased advertising sales; 19% was due to increased affiliate
fees; and 4% was due to other sources. The increases in
advertising sales and affiliate fees were principally due to
rate increases. The increase in other sources was principally
due to revenues from new business ventures including licensing
and merchandising. Earnings from operations of MTVN increased
23% to $172.9 million in 1992 from $141.0 million in 1991,
reflecting the increased revenues, partially offset by increased
programming expenses and other costs of operating the networks.
The Company increased programming expenses, particularly for new
animated programming on Nickelodeon. This new programming was
to a large extent responsible for the Company's ability to
increase advertising rates.
On August 30, 1991, Viacom Inc. increased its interest in MTV
EUROPE to 100% through the purchase of the 50.01% interest held
by an affiliate of Mirror Group Newspapers. Subsequent to
August 30, 1991, the results of operations of MTV EUROPE have
been included in MTVN's results of operations. Prior to such
date, the investment in MTV EUROPE was accounted for under the
equity method; therefore, operating results were included in
"Equity in loss of affiliated companies, net of tax." The
financial results of MTV EUROPE were not material to the
financial results of the Company or the Networks segment;
however, as the pan-European marketplace develops for both
advertising revenues and affiliate fees, the financial results
of MTV EUROPE may become material. In the aggregate, MTV
(excluding MTV EUROPE), VH-1 and Nickelodeon/Nick at Nite
revenues increased 21%, subscribers increased 3% and earnings
from operations increased 18% during 1992 versus 1991.
SNI revenues increased 3% to $515.3 million in 1992 from $501.3
million in 1991: 30% of the revenue increase was due to rate
increases for SSN; 23% was due to a higher average subscriber
II-14
base during the year for SSN principally attributable to the use
of upgraded scrambling technology in 1992; 23% was due to a
higher average cable subscriber base during the year for Showtime
and The Movie Channel; and 24% of this increase was due to other
revenue sources. SNI's premium movie services served
approximately 10.7 million subscribers as of December 31, 1992
and 10.2 million subscribers as of December 31, 1991. SNI's
overall earnings from operations increased 7% to $35.2 million in
1992 from $33.0 million in 1991, reflecting the increase in
revenues, partially offset by an increase in programming
expenses.
Entertainment (Television programming, syndication, production
and new media)
Entertainment revenues decreased 9% to $248.3 million in 1992
from $273.5 million in 1991. The revenue variance was
principally due to lower sales to broadcast, cable and other
markets, lower network license fees and lower copyright royalty
revenues. Lower sales to the broadcast, cable and other markets
reflect softness in the syndication marketplace due to a
generally weak economy and due to a decrease in the number of
independent broadcast television stations because of new network
affiliations. Network license fees were lower because there were
fewer shows produced for network television. Copyright royalties
were lower due to changes made by cable operators in the tiering
of their services, which generated lower copyright royalty
liabilities and therefore less income for program producers and
syndicators. During the first quarter of 1992, certain legal
developments indicated that the percentage of income recognized
under certain copyright royalty arrangements should be increased.
This change in estimate resulted in an increase in revenues of
approximately $10 million. During the first quarter of 1991, the
Company began to recognize copyright royalty revenue on an
accrual basis rather than a cash basis, as a sufficient pattern
had been established to make these revenues estimable; this
change resulted in an increase in revenues of approximately $13.0
million. Earnings from operations decreased 19% to $59.7 million
in 1992 from $73.2 million in 1991, reflecting the decreased
revenues and changes in estimate noted above, and expenses
associated with staff changes and the implementation of new
systems of approximately $4.0 million.
Cable Television (Cable television systems)
Cable television revenues increased 9% to $411.1 million in 1992
from $378.0 million in 1991: 68% of this increase resulted from
increases in rates for basic services; 26% from increased basic
customers; 10% from increased premium customers; partially offset
by a negative 4% from decreases in other revenue sources. Total
II-15
revenue per basic customer per month increased 5% to $31.06 in
1992 from $29.41 in 1991. Earnings from operations increased 17%
to $122.0 million in 1992 from $104.0 million in 1991, reflecting
the increased revenues, partially offset by increased operating
expenses.
As of December 31, 1992, the Company operated systems in
California, Oregon, Washington, Wisconsin, Ohio and Tennessee,
serving approximately 1,116,000 basic customers subscribing to
approximately 786,000 premium units. Basic customers and premium
units increased 3% and 1%, respectively, since December 31, 1991.
Broadcasting (Television and radio stations)
Broadcasting revenues increased 6% to $168.8 million in 1992
from $159.2 million in 1991. Earnings from operations increased
15% to $32.0 million in 1992 from $27.7 million in 1991.
Television revenues increased 9% to $87.1 million in 1992 from
$80.1 million in 1991, reflecting an increase in national and
local advertising revenues at each of the stations, primarily
due to higher rates driven by the Olympics and the political
campaign. Earnings from operations increased 38% to $16.9
million in 1992 from $12.2 million in 1991, reflecting the
increased revenues, partially offset by increased programming
and selling expenses.
Radio revenues increased 3% to $81.8 million in 1992 from $79.0
million in 1991, reflecting an increase in local advertising
revenues, partially offset by a decrease in national advertising
revenues. Earnings from operations decreased 7% to $18.3
million in 1992 from $19.6 million in 1991, driven by increased
operating, selling and promotion costs, partially offset by the
increased revenues.
Other Income and Expense Information
Corporate expenses increased 10% to $71.3 million in 1992 from
$65.0 million in 1991, primarily due to severance costs,
partially offset by decreased legal costs and decreased
compensation expense associated with the Long-Term Incentive
Plans. As a result of the fluctuation in the market value of
its Common Stock, Viacom Inc. recorded compensation expense
associated with the Plans of $8.2 million and $12.3 million in
1992 and 1991, respectively.
Net interest expense decreased 35% to $194.1 million in 1992 from
$297.5 million in 1991, reflecting improvements made to the capital
structure and reduced interest rates, including rates associated
with the Credit Agreement (as defined in "Capital Structure"). The
II-16
Company and Viacom Inc. had approximately $2.4 billion and $2.3
billion principal amount of debt outstanding as of December 31,
1992 and December 31, 1991 at weighted average interest rates of
6.5% and 9.2%, respectively. During 1991, Viacom Inc. realized net
proceeds of approximately $317.7 million from the issuance of non-
voting Class B Common Stock ("Viacom Class B Common Stock");
redeemed all $402 million of its outstanding Exchange Debentures;
the Company repurchased $43 million principal amount of the
Discount Debentures; and the Company issued $200 million principal
amount of 10.25% Senior Subordinated Notes ("10.25% Notes") due
2001. (See "Liquidity and Capital Resources" for additional
information concerning changes in Viacom Inc.'s and the Company's
capital structure.)
Viacom Inc. and the Company file a separate consolidated federal
income tax return and have done so since the period commencing
June 11, l991, the date on which NAI's percentage ownership of
Viacom was reduced to less than 80% (see "Capital Structure").
Prior to such date, Viacom Inc. and the Company filed a
consolidated federal income tax return with NAI, and participated
in a tax-sharing agreement with NAI with respect to federal
income taxes. The tax-sharing agreement obligated Viacom Inc.
and the Company to make payment to NAI to the extent that they
would have paid federal income taxes on a separate company basis,
and entitled them to receive a payment from NAI to the extent
their losses and credits reduced NAI's federal income taxes.
"Equity in loss of affiliated companies, net of tax," decreased
64% to a loss of $4.6 million in 1992 from a loss of $12.7
million in 1991, driven by improvements at Lifetime and Comedy
Central.
In 1992, the Company recognized after-tax extraordinary losses
from the early extinguishment of the Discount Debentures of $13.7
million (net of a tax benefit of $8.9 million) and the 11.50%
Reset Notes of $3.4 million (net of a tax benefit of $2.4
million).
Liquidity and Capital Resources
-------------------------------
Paramount Merger, Blockbuster Merger and Related Transactions
-------------------------------------------------------------
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 "Capital
Structure"), 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
II-17
Paramount Offer was made pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of February 4, 1994 (the
"Paramount Merger Agreement") between Viacom Inc. and Paramount.
Paramount will become a wholly owned subsidiary of Viacom Inc.
(the "Paramount Merger") at the effective time of a merger
between Paramount and a subsidiary of Viacom Inc. (the
"Paramount Effective Time") which is expected to occur in the
second quarter of 1994. Pursuant to the Paramount Merger
Agreement, each share of Paramount common stock outstanding at
the time of such merger (other than shares held in the treasury
of Paramount or owned by Viacom Inc. and other than shares held
by any stockholders who shall have demanded and perfected
appraisal rights) will be converted into the right to receive
(i) 0.93065 of a share of Viacom Class B Common Stock, (ii)
$17.50 principal amount of 8% exchangeable subordinated
debentures of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of
Viacom Class B Common Stock at any time prior to the third
anniversary of the Paramount Merger at a price of $60 per share,
and (v) 0.3 of a warrant to purchase one share of Viacom Class B
Common Stock at any time prior to the fifth anniversary of the
Paramount Merger at a price of $70 per share. If the debentures
are issued prior to the completion of the proposed merger of
Viacom Inc. and Blockbuster, the debentures will be
exchangeable, at the option of Viacom Inc., into 5% exchangeable
preferred stock of Viacom Inc. on or after January 1, 1995 if
the proposed merger with Blockbuster has not previously been
consummated.
Each CVR will represent the right to receive the amount, if any,
by which the Target Price exceeds the greater of the Current
Market Value or the Minimum Price (see defined terms in
following paragraph). The CVRs will mature on the first
anniversary of the Paramount Effective 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.
II-18
On January 7, 1994, Viacom Inc. and Blockbuster entered into an
agreement and plan of merger (the "Blockbuster Merger
Agreement") pursuant to which Blockbuster will be merged with
and into Viacom Inc. (the "Blockbuster Merger") subject to
shareholder approval. At the effective time of the Blockbuster
Merger, each share of Blockbuster common stock outstanding at
the time of the Blockbuster Merger (other than shares held in
the treasury of Blockbuster or owned by Viacom Inc. and other
than shares held by any stockholders who shall have demanded and
perfected appraisal rights, if available) will be converted into
the right to receive (i) 0.08 of a share of Viacom Class A
Common Stock, (ii) 0.60615 of a share of Viacom Class B Common
Stock, and (iii) up to an additional 0.13829 of a share of
Viacom Class B Common Stock, with the exact fraction of a share
being dependent on the market prices of Viacom Class B Common
Stock during the year following the effective time of the
Blockbuster Merger, and with the right to receive such
additional fraction of a share to be evidenced by one variable
common right ("VCR"). The VCRs mature on the first anniversary
of the Blockbuster Merger ("VCR Conversion Date").
The mergers pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have
been unanimously approved by the Boards of Directors of each of
the respective companies. The obligations of Viacom Inc.,
Blockbuster and Paramount to consummate the mergers are subject
to various conditions, including obtaining requisite stockholder
approvals. Viacom Inc. intends to vote its shares of Paramount
in favor of the merger and NAI has agreed to vote its shares of
Viacom Inc. in favor of the Mergers; therefore, stockholder
approval of the Paramount Merger is assured, and approval by
Viacom Inc. of the Blockbuster Merger is also assured.
On March 10, 1994, Blockbuster purchased approximately 22.7
million shares of Viacom Class B Common Stock for an aggregate
purchase price of $1.25 billion, or $55 per share. If (with
certain exceptions) the Blockbuster Merger Agreement is
terminated and in the event that Viacom Class B Common Stock
trades (for a specified period) at a level below $55 per share
during the one year period after such termination, Viacom Inc.
may be obligated to make certain payments of up to a maximum of
$275 million, at its option, in cash or securities, or to sell
certain assets to Blockbuster. The Viacom Class B Common Stock
purchased by Blockbuster will be canceled upon consummation of
the Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit
agreement with certain financial institutions named therein,
pursuant to which such financial institutions have advanced to
Blockbuster, on an unsecured basis, an aggregate of $1.0 billion
to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The
II-19
Blockbuster Facility contains certain events of default,
including a change of control default, which will require either
a waiver in connection with the Blockbuster Merger or the
refinancing of the indebtedness incurred by Blockbuster under
the Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7 billion under a
credit agreement dated as of November 19, 1993, as amended on
January 4, 1994 and February 15, 1994, among Viacom Inc., the
banks named therein, and The Bank of New York, Citibank, N.A.
and Morgan Guaranty Trust Company of New York, as Managing Agent
(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 rate ranging from 0.25% to
0.9375% dependent on the senior unsecured long-term debt rating
assigned to Viacom Inc. The Merger Credit Agreement provides
that Viacom Inc. will pay each bank a facility fee on such
bank's commitment until November 18, 1994.
The Merger Credit Agreement contains certain covenants which,
among other things, require Viacom Inc. to meet certain
financial ratios.
As of December 31, 1993, Viacom Inc. had promissory notes
outstanding in the aggregate amount of $26 million, in order to
finance expenses associated with the Mergers and expects to
obtain additional financing as required to finance such
expenses.
Viacom Inc. anticipates that, following the Mergers, Viacom
Inc., Paramount and Blockbuster, on a pro forma combined basis
(the "Combined Company") will have outstanding total
indebtedness of approximately $10 billion ($8 billion if the
Blockbuster Merger is not consummated) and 5% Preferred Stock
(as defined in "Capital Structure") with a liquidation
preference of $1.2 billion ($1.8 billion if the Blockbuster
Merger is not consummated). Of such $10 billion, $3.7 billion
was borrowed under the Merger Credit Agreement and must be
repaid by November 18, 1994. In addition, the $1.0 billion
II-20
borrowed under the Blockbuster Facility must be repaid by
February 14, 1995 and both the Blockbuster Facility and a
previous Blockbuster credit agreement contain certain covenants
and 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 under
such Blockbuster facilities prior to the Blockbuster Merger.
Accordingly, assuming consummation of the Blockbuster Merger,
the foregoing facilities, together with other current
maturities, may require Viacom Inc. to refinance up to $5.7
billion ($4.0 billion if the Blockbuster Merger is not
consummated) within the next 12 months. Viacom Inc. also
anticipates that, following the Mergers, the Combined Company
will fund its anticipated operating, investing and financing
activities, including the anticipated cash requirements of its
joint ventures, commitments, capital expenditures, preferred
stock dividend requirements and principal and interest payments
on outstanding indebtedness, through a variety of sources,
which may include, but may not be limited to, funds generated
internally by Viacom Inc. and its subsidiaries (including
following the Mergers funds generated by Blockbuster and
Paramount), bank refinancing, and the public or private sale of
debt or equity securities. The Blockbuster Merger is subject
to shareholder approval. In the event the Blockbuster Merger
is not consummated, Viacom Inc. believes that it will still be
capable of meeting all of its obligations.
Viacom Inc. and the Company - Liquidity and Capital Resources
-------------------------------------------------------------
(prior to the Paramount Offer and the Mergers)
----------------------------------------------
The Company's scheduled maturities of long-term debt through
December 31, 1998, assuming full utilization of the $1.9 billion
commitment under the Credit Agreement and $300 million under the
Loan Facility Agreement, are $300 million (1994), $380 million
(1995), $380 million (1996) $380 million (1997) and $380 million
(1998). On January 4, 1993, Viacom Inc. borrowed $42.2 million
from The Bank of New York ("BONY") pursuant to an unsecured
credit agreement ("Term Loan Agreement") to satisfy its
obligation under the LTIP. Viacom Inc. repaid $13.9 million of
debt under the Term Loan Agreement on January 15, 1994, the
first scheduled maturity date. The remaining $28.3 million
under the Term Loan Agreement matures on January 15, 1995. (See
"Capital Structure " for defined terms and additional
information).
The Company's joint ventures are expected to require estimated
cash contributions of approximately $20 million to $40 million
in 1994. Capital expenditures are primarily related to
additional construction and equipment upgrades for the Company's
existing cable franchises, certain transponder payments and
information system costs. Planned capital expenditures,
II-21
including information systems costs, are approximately $150
million to $170 million in 1994.
The Company was in compliance with all covenants and had
satisfied all financial ratios and tests as of December 31, 1993
under its Credit Agreement and the Company expects to remain in
compliance and satisfy all such financial ratios and tests
during 1994.
Debt as a percentage of total capitalization of Viacom Inc. was
47% at December 31, 1993 and 76% at December 31, 1992. The
decrease in debt as a percentage of total capitalization
resulted principally from the issuance of Preferred Stock (as
defined in "Capital Structure") during 1993.
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.
Net cash flow from operating activities increased 45% to $147.6
million in 1993 from $102.0 million in 1992, resulting from
increased net earnings before extraordinary items and cumulative
effect of change in accounting principle, partially offset by
increased payments for accrued expenses. Net cash expenditures
for investing activities of $128.4 million in 1993 principally
reflects capital expenditures, the acquisitions of KXEZ-FM and
ICOM Simulations, Inc. and the additional investment in
StarSight Telecast Inc. ("StarSight") and advances to Comedy
Central, partially offset by proceeds from the sale of the
Wisconsin cable system, proceeds related to the radio station
swap and proceeds from the sale of an investment held at cost.
Net cash expenditures for investing activities of $116.8 million
in 1992 principally reflect capital expenditures, advances to
II-22
Comedy Central and a deposit received on the sale of Viacom
Cablevision of Wisconsin Inc. Financing activities reflect
borrowings and repayment of debt under the Credit Agreement
during each period presented; the redemption of the 11.80 %
Notes and the issuance of the Preferred Stock during 1993, and
the redemption of the 11.50% Reset Notes and Discount
Debentures, and the issuance of the 9.125% Notes and the 8.75%
Reset Notes during 1992.
Acquisitions and Ventures
-------------------------
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston,
Texas, for Westinghouse Broadcasting Company, Inc.'s WCXR-FM and
WCPT-AM, Washington, D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-
FM), Los Angeles, California from Westwood One Stations Group-
LA, Inc. for $40 million in cash and certain other
consideration. The Company sold KXEZ-FM to Viacom Inc. in
exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately
held ICOM Simulations, Inc.
On March 31, 1993, the Company increased its percentage of
ownership in StarSight. On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock.
On September 16, 1993, the Company exercised a warrant to
purchase 833,333 shares of StarSight common stock at a cost of
$5.625 per share. In November 1993, the Company transferred its
ownership percentage in StarSight to a consolidated affiliate of
the Company. As a result of these transactions, the affiliate
of the Company's percentage ownership of StarSight is
approximately 21%. The investment in StarSight is accounted for
under the equity method.
In December 1992, the Company entered into a 50-50 joint venture
called Nickelodeon (UK) with a subsidiary of British Sky
Broadcasting Limited. Nickelodeon (UK) began airing on
September 1, 1993. The Company's investment is accounted under
the equity method and therefore the results of operations is
included in "Equity in loss of affiliated companies, net of
tax."
The Company exchanged KHOW-AM and FM, Denver, Colorado for Noble
Broadcast Group, Inc.'s KNDD-FM, Seattle, Washington effective
December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE
to 100% through the purchase of the 50.01% interest held by an
affiliate of Mirror Group Newspapers. The approximate value of the
purchase was $65.0 million, which included intangibles of
II-23
approximately $61.6 million. As consideration for the sale, Viacom
Inc. issued 2,210,884 shares of Viacom Class B Common Stock (see
"Capital Structure").
Capital Structure
-----------------
The following table and related notes set forth the capitalization
of Viacom Inc. and subsidiaries as of December 31, 1993 and December
31, 1992:
December 31, December 31,
1993 1992
----------- -----------
(Thousands of Dollars)
Current portion of long-term debt $ 55,004 $ --
=========== ============
Long-term debt:
Notes payable to banks (a) $ 1,928,271 1,648,984
11.8% Senior Subordinated Notes due -- 298,000
1998 (b)
9.125% Senior Subordinated Notes due 150,000 150,000
1999 (c)
8.75% Senior Subordinated Reset Notes 100,000 100,000
due 2001 (d)
10.25% Senior Subordinated Notes due 200,000 200,000
2001 (e)
5.75% Convertible Subordinated 15 30
Debentures due 2001
----------- ------------
Total long-term debt $ 2,378,286 $ 2,397,014
=========== ============
Shareholders' equity (f):
Preferred Stock $ 1,800,000 $ --
Common Stock and additional paid-in 922,072 918,671
capital
Accumulated deficit (3,958) (162,160)
----------- ------------
Total shareholders' equity $ 2,718,114 $ 756,511
=========== ============
II-24
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9 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.
Subsequent to December 31, 1993, Viacom Inc. borrowed approximately
$3.7 billion pursuant to the Merger Credit Agreement in connection
with the Paramount Merger (see "Paramount Merger, Blockbuster
Merger and Related Transactions").
The following is a summary description of the 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
II-25
commercial paper, (i) the aggregate face amount of commercial paper
outstanding shall not exceed $500 million less the aggregate amount
of competitive bid rate borrowings (described below), outstanding
at such time and (ii) the aggregate amount of all Facility B loans
and competitive bid rate loans outstanding, together 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
II-26
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.
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY
pursuant to the Term Loan Agreement. The interest rate in the Term
Loan Agreement is based upon BONY's prime rate or the London
Interbank Offered Rate. Viacom Inc. repaid $13.9 million of debt
under the Term Loan Agreement on January 15, 1994, the first
scheduled maturity date. The remaining $28.3 million under the
Term Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the
principal amount outstanding under the Term Loan Agreement. Any
such optional prepayments shall be applied to reduce the principal
installment due January 1995 and shall include all accrued interest
II-27
on the amount of principal prepaid. Viacom Inc. shall be obligated
to prepay the loan in the amount of any dividends received from the
Company.
The Term Loan Agreement contains certain covenants which impose
certain limitations on (i) the incurrence of indebtedness and (ii)
payment of cash dividends or the redemption or repurchase of any
capital stock of Viacom. The Term Loan Agreement also contains
certain customary events of default. The Term Loan Agreement has
been amended to allow Viacom Inc. to complete the Paramount Offer
and Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility
Agreement and Term Loan Agreement bear interest at floating rates,
causing the Company to be sensitive to changes in prevailing
interest rates. The Company enters into interest rate protection
agreements with off-balance sheet risk in order to reduce its
exposure to changes in interest rates on its variable rate long-
term debt. These interest rate protection agreements include
interest rate swaps and interest rate caps. At December 31, 1993,
the Company and Viacom Inc. had interest rate protection agreements
outstanding with commercial banks, with respect to $1.1 billion of
indebtedness under the Credit Agreement and $42.2 million under the
Term Loan Agreement. These agreements effectively change the
Company's interest exposure under the Credit Agreement to a ceiling
of 5.64% on the interest rate caps, and under the Term Loan
Agreement to a fixed weighted average rate of 6.65% on interest
rate swaps. The interest rate protection agreements are in effect
for a fixed period of time. The Company is exposed to credit loss
in the event of nonperformance by the counterparties to the
agreements. However, the Company does not anticipate
nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of
December 31, 1993.
The Company also has aggregate money market facilities of $40
million, all of which was available at December 31, 1993.
(b) -- On July 15, 1993, the Company redeemed all of the $298
million principal amount outstanding of the 11.80% Senior
Subordinated Notes ("11.80% Notes") at a redemption price equal to
103.37% of the principal amount plus accrued interest to July 15,
1993. The Company recognized an after-tax extraordinary loss from
the early extinguishment of debt of $8.9 million, net of a tax
benefit of approximately $6.1 million on the transaction. The
Company borrowed the funds necessary for the redemption under its
bank credit facilities.
(c) -- On March 4, 1992, the Company issued $150 million
aggregate principal amount of 9.125% Senior Subordinated Notes
("9.125% Notes") due August 15, 1999. Interest is payable
II-28
semiannually on February 15 and August 15, commencing August 15,
1992. The 9.125% Notes may not be redeemed prior to February 15,
1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997
at a redemption price of 102.607% of the principal amount, during
the 12 month period beginning February 15, 1998 at 101.304% of the
principal amount, and on or after February 15, 1999 at 100% of the
principal amount. Any such redemption will include accrued
interest to the redemption date. The 9.125% Notes are not subject
to any sinking fund requirements.
(d) -- On May 28, 1992, the Company issued $100 million
aggregate principal amount of 8.75% Senior Subordinated Reset Notes
("8.75% Reset Notes") due on May 15, 2001. Interest is payable
semiannually on May 15 and November 15, commencing November 15,
1992. On May 15, 1995 and May 15, 1998, unless a notice of
redemption of the 8.75% Reset Notes on such date has been given by
the Company, the interest rate on the 8.75% Reset Notes will, if
necessary, be adjusted from the rate then in effect to a rate to be
determined on the basis of market rates in effect on May 5, 1995
and on May 5, 1998, respectively, as the rate the 8.75% Reset Notes
should bear in order to have a market value of 101% of principal
amount immediately after the resetting of the rate. In no event
will the interest rate be lower than 8.75% or higher than the
average three year treasury rate (as defined in the indenture)
multiplied by two. The interest rate reset on May 15, 1995 will
remain in effect on the 8.75% Reset Notes through and including May
15, 1998 and the interest rate reset on May 15, 1998 will remain in
effect on the 8.75% Reset Notes thereafter. The 8.75% Reset Notes
are redeemable at the option of the Company, in whole but not in
part, on May 15, 1995 or May 15, 1998, at a redemption price of
101% of principal amount plus accrued interest to, but not
including, the date of redemption. The 8.75% Reset Notes are not
subject to any sinking fund requirements.
(e) -- 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.
(f) -- On December 31, 1993, there were 53,449,325 outstanding
shares of Viacom Class A Common Stock (100,000,000 shares
authorized) and 67,347,131 outstanding shares of Viacom Class B
Common Stock (150,000,000 shares authorized).
On October 22, 1993, Blockbuster purchased 24 million shares of
cumulative convertible preferred stock, par value $.01 per share,
of Viacom Inc. ("Series A Preferred Stock") for $600 million. On
November 19, 1993, NYNEX Corporation ("NYNEX") purchased 24 million
shares of cumulative convertible preferred stock, par value $.01
II-29
per share, of Viacom Inc. ("Series B Preferred Stock," collectively
with the Series A Preferred Stock, "Preferred Stock") for $1.2
billion. Series A Preferred Stock and Series B Preferred Stock
have liquidation preferences of $25 per share and $50 per share,
respectively. The Preferred Stock has an annual dividend rate of
5%, is convertible into shares of Viacom Class B Common Stock at a
conversion price of $70 and does not have voting rights other than
those required by law. The Preferred Stock is redeemable by Viacom
Inc. at declining premiums after five years. The Preferred Stock
purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger. Both NYNEX and Blockbuster may, under certain
limited circumstances, require Viacom Inc. to repurchase their
respective preferred shares, but such right does not inure to the
benefit of subsequent holders of such preferred shares.
NAI holds approximately 76.3% and the public holds approximately
23.7% of outstanding Viacom Inc. Common Stock as of December 31,
1993. NAI's percentage of ownership consists of 85.2% of the
outstanding Viacom Class A Common Stock and 69.1% of the
outstanding Viacom Class B Common Stock, as of December 31, 1993.
Pursuant to a purchase program initiated in August 1987, NAI
announced its intention to buy, from time to time, up to an
additional 3,000,000 shares of Viacom Class A Common Stock and
2,423,700 shares of Viacom Class B Common Stock. As of December
31, 1993, NAI had acquired an aggregate of 3,374,300 shares of
Common Stock, consisting of 1,466,200 shares of Viacom Class A
Common Stock and 1,908,100 shares of Viacom Class B Common Stock,
pursuant to this buying program. On August 20, 1993, NAI ceased
making purchases of Common Stock.
_____________________
The Company and Viacom Inc. filed a shelf registration statement
with the Securities and Exchange Commission ("SEC") registering
$800 million of debt securities (or, if such debt securities are
issued at an original issue discount, such greater principal amount
as shall result in an aggregate offering price equal to $800
million) guaranteed by Viacom Inc. The registration statement was
declared effective by the SEC on March 11, 1993. Some or all of
the debt securities may be issued by the Company in one or more
offerings.
During April 1993, the Company and Viacom Inc. terminated the
prior shelf registration statement, under which an aggregate of
$300 million principal amount of additional debt securities
remained available.
NAI, Sumner M. Redstone and the Company each have purchased on
the open market and may in the future continue to purchase on the
open market or in privately negotiated transactions certain debt
securities of the Company. During 1993, there were no purchases
of debt securities made by NAI, Sumner M. Redstone or the
II-30
Company. During 1992, Sumner M. Redstone purchased directly or
beneficially $350,000, $605,000, $15,000 and $200,000 of 11.50%
Senior Subordinated Extendible Reset Notes, 9.125% Senior
Subordinated Notes, 10.25% Senior Subordinated Notes and 8.75%
Senior Subordinated Reset Notes, respectively. During 1991, NAI
and Sumner M. Redstone purchased $3,110,000 and $869,000 of
11.80% Senior Subordinated Notes, respectively. During 1991, NAI
purchased $311,000 of the 11.50% Senior Subordinated Extendible
Reset Notes. During December 1991, the Company purchased $43
million of Discount Debentures at an average price of 107.375% of
their principal amount plus accrued interest.
II-31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Boards of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Viacom Inc. and its subsidiaries and of Viacom International Inc., a wholly-
owned subsidiary of Viacom Inc., and its subsidiaries, at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of Viacom Inc. and Viacom International Inc.;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 7 to the financial statements, Viacom Inc. and Viacom
International Inc. adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes" in 1993.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 4, 1994, except as to Note 2, which is as of March 11, 1994
II-32
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
- ----------------------------------------------------------------
Management has prepared and is responsible for the consolidated financial
statements and related notes of Viacom Inc. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All financial
information in this annual report is consistent with the consolidated
financial statements.
The Company maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by Price
Waterhouse, independent public accountants, who have expressed their opinion
with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with
management, to review accounting, auditing, internal accounting controls and
financial reporting matters. The Audit Committee is also responsible for
recommending to the Board of Directors the independent accounting firm to be
retained for the coming year, subject to stockholder approval. The independent
accountants and the internal auditors have full and free access to the Audit
Committee with and without management's presence.
VIACOM INC.
By: /s/Frank J. Biondi, Jr.
-----------------------------------------
Frank J. Biondi, Jr.
President, Chief Executive Officer
By: /s/George S. Smith, Jr.
------------------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
By: /s/Kevin C. Lavan
------------------------------------------
Kevin C. Lavan
Vice President, Controller
and Chief Accounting Officer
II-33
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Thousands of dollars, except per share amounts)
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Revenues $2,004,949 $1,864,683 $1,711,562
Expenses:
Operating 877,609 853,977 790,816
Selling, general and administrative 589,288 517,977 475,648
Depreciation and amortization 153,057 144,802 132,864
--------- ---------- ----------
Total expenses 1,619,954 1,516,756 1,399,328
--------- ---------- ---------
Earnings from operations 384,995 347,927 312,234
Other income (expense):
Interest expense, net (144,953) (194,104) (297,451)
Other items, net (See Note 14) 61,774 1,756 (6,536)
--------- ---------- ---------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
--------- ---------- ---------
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of tax (See
Note 4) (8,867) (17,120) (3,101)
Cumulative effect of change in
accounting principle 10,338 -- --
--------- ---------- ---------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible preferred stock
dividend requirement of Viacom Inc. 12,750 -- --
--------- ---------- ---------
Net earnings (loss) attributable to
common stock $ 158,202 $ 48,965 $ (49,657)
========= ========= ==========
Weighted average number of common
shares 120,607 120,235 113,789
Net earnings (loss) per common share:
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle $ 1.30 $ .55 $ (.41)
Extraordinary losses (.07) (.14) (.03)
Cumulative effect of change in
accounting principle .08 -- --
--------- ---------- ---------
Net earnings (loss) $ 1.31 $ .41 $ (.44)
========= ========= =========
See notes to consolidated financial statements.
II-34
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars)
December 31,
-------------------------
1993 1992
---- ----
Assets
Current Assets:
Cash and cash equivalents $1,882,381 $ 48,428
Receivables, less allowances of $33,889
and $25,779 351,765 319,804
Distribution fees advanced and
committed, current 18,620 19,631
Program rights and deferred program
costs, current 264,212 215,109
Prepaid distribution costs 73,722 89,723
Other current assets 95,693 65,793
---------- ----------
Total current assets 2,686,393 758,488
Property and Equipment:
Land 16,486 17,869
Buildings 41,627 37,486
Cable television systems 414,918 388,170
Broadcasting facilities 52,100 50,665
Equipment and other 349,332 258,565
Construction in progress 26,982 10,858
----------- ----------
901,445 763,613
Less accumulated depreciation 347,243 306,548
---------- ----------
Net property and equipment 554,202 457,065
---------- ----------
Distribution fees advanced and committed,
non-current 263,281 228,784
Program rights and deferred program
costs, non-current 526,247 462,122
Intangibles, at amortized cost 2,180,571 2,195,936
Other assets 206,174 214,699
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-35
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars, except per share amounts)
December 31,
-----------------------
1993 1992
---- ----
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 96,579 $ 71,199
Accrued interest 20,684 38,229
Deferred income, current 50,930 68,295
Other accrued expenses 264,921 290,937
Income taxes 140,453 96,529
Owners' share of distribution revenue 139,081 158,351
Program rights, current 197,966 187,956
Current portion of long-term debt 55,004 --
---------- ----------
Total current liabilities 965,618 911,496
---------- ----------
Long-term debt 2,378,286 2,397,014
Program rights, non-current 86,752 92,886
Other liabilities 268,098 159,187
Commitments and contingencies (See Note 10)
Shareholders' Equity of Viacom Inc. (See
Notes 1 and 6):
Preferred Stock, par value $.01 per share;
100,000,000 shares authorized;
48,000,000 shares issued
and outstanding; stated at liquidation
value 1,800,000 --
A Common Stock, par value $.01 per share;
100,000,000 shares authorized;
53,449,325 (1993) and 53,380,390
(1992) shares issued and outstanding 535 534
B Common Stock, par value $.01 per share;
150,000,000 shares authorized;
67,347,131 (1993) and 67,069,688
(1992) shares issued and outstanding 673 671
Additional paid-in capital 920,864 917,466
Accumulated deficit (3,958) (162,160)
---------- ----------
Total shareholders' equity 2,718,114 756,511
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-36
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Net cash flow from operating activities:
Net earnings (loss) $170,952 $ 48,965 $ (49,657)
Adjustments to reconcile net earnings
(loss) to net cash flow from operating
activities:
Depreciation and amortization 153,057 144,802 132,864
Interest accretion and interest in kind
on debentures -- -- 59,196
Reserve for litigation (See Note 14) -- 33,000 --
Equity in loss of affiliated companies,
net of tax 2,520 4,646 12,743
Gain on the sale of the cable system,
net of tax (45,873) -- --
Gain on the sale of investment held at
cost, net of tax (10,882) -- --
Extraordinary losses, net of tax 8,867 17,120 3,101
Deferred compensation . 3,924 8,202 12,328
Provision (benefit) for deferred income
taxes 24,364 15,068 (8,756)
(Decrease) increase in accounts payable
and accrued expenses (17,189) 53,400 6,831
Increase in receivables (31,881) (49,756) (61,929)
Increase in programming related assets
and liabilities, net (137,549) (138,568) (66,391)
Increase in income taxes payable 58,501 7,389 37,732
(Decrease) increase in deferred income (8,999) 22,933 (2,384)
(Increase) decrease in unbilled
receivables (6,516) 17,749 (27,630)
Payment of LTIP liability (3,606) (68,599) --
Other, net (12,080) (14,362) 21,819
---------- --------- ---------
Net cash flow from operating activities 147,610 101,989 69,867
---------- --------- ---------
Investing activities:
Capital expenditures (135,011) (110,222) (72,157)
Investments in and advances to
affiliated companies. (21,618) (23,708) (44,372)
Advances from affiliated companies 13,441 9,447 5,546
Proceeds from sale of cable system and
radio station 93,739 20,000 --
Proceeds from sale of investment held at
cost 18,140 -- --
Proceeds from sale of transponders 51,000 -- --
Acquisitions (82,197) -- --
Deposits on transponders (49,934) (9,723) --
Payment of deferred merger costs (15,382) -- --
Other, net (616) (2,636) (4,120)
---------- --------- ---------
Net cash flow from investing activities (128,438) (116,842) (115,103)
---------- --------- ---------
Financing activities:
Borrowings from banks under credit
facilities 334,291 8,343,967 6,695,048
Repayments to banks under credit
facilities -- (7,968,466) (6,764,593)
Issuance of notes -- 250,000 200,000
Redemption of notes and debentures (298,015) (549,454) (407,580)
Issuance of Preferred Stock 1,800,000 -- --
Issuance of B Common Stock -- -- 317,987
Payment of deferred financing costs (18,106) (22,659) (5,869)
Payment of premium on redemption of notes (10,054) (19,753) (4,078)
Other, net 6,665 924 (18)
---------- --------- ---------
Net cash flow from financing activities 1,814,781 34,559 30,897
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 1,833,953 19,706 (14,339)
Cash and cash equivalents at beginning of
year 48,428 28,722 43,061
---------- --------- ---------
Cash and cash equivalents at end of year $1,882,381 $ 48,428 $ 28,722
========== ========= =========
See notes to consolidated financial statements.
II-37
--
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
-----------------------
OF SHAREHOLDERS' EQUITY
-----------------------
(Thousands of dollars)
Preferred A Common Stock B Common Stock Paid-in Accumulated
Stock Shares Amount Shares Amount Capital Deficit
----- ------ ------ ------ ------ ------- -------
Viacom Inc:
- -----------
December 31, 1990 -- 53,365,870 $ 534 53,365,870 $ 534 $526,563 $(161,468)
Issuance of B Common
Stock -- -- -- 13,492,484 135 382,780 --
Exercise of stock
options -- 583 -- 583 -- 33 --
Conversion of 5.75%
debentures -- 700 -- 700 -- 39 --
Net loss -- -- -- -- -- -- (49,657)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1991 -- 53,367,153 534 66,859,637 669 909,415 (211,125)
---------- ---------- ------ ---------- ------ -------- ---------
B Common Stock issued
as satisfaction of
LTIP liability -- -- -- 177,897 2 6,892 --
Exercise of stock
options -- 13,187 -- 32,104 -- 1,157 --
Conversion of 5.75%
debentures -- 50 -- 50 -- 2 --
Net earnings -- -- -- -- -- -- 48,965
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1992 -- 53,380,390 534 67,069,688 671 917,466 (162,160)
---------- ---------- ------ ---------- ------ -------- ---------
Issuance of Series A
and Series B Preferred
Stock $1,800,000 -- -- -- -- (5,363) --
Exercise of stock
options -- 68,935 1 277,443 2 8,761 --
Net earnings -- -- -- -- -- -- 170,952
Preferred Stock
dividend requirements -- -- -- -- -- -- (12,750)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1993 $1,800,000 53,449,325 $535 63,347,131 $673 $920,864 $ (3,958)
========== ========= ====== ========== ====== ======== =========
See notes to consolidated financial statements.
II-38
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1) SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation -Viacom Inc. (together with its consolidated
subsidiaries, unless the context otherwise requires, "Viacom Inc.") is a
holding company whose principal asset is the common stock of Viacom
International Inc. (together with its consolidated subsidiaries, unless the
context otherwise requires, the "Company"). The Company is a diversified
entertainment and communications company with operations in four principal
segments: Networks, Entertainment, Cable Television and Broadcasting.
The primary differences between Viacom Inc.'s and the Company's financial
statements include the following factors: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the contribution to
capital of Viacom Inc.'s exchangeable preferred stock, which was exchanged for
15.5% Junior Subordinated Exchange Debentures due 2006 (the "Exchange
Debentures") on March 31, 1989 which in turn were fully redeemed during 1991;
b) during 1993, Viacom Inc. issued $1.8 billion of 5% cumulative convertible
preferred stock (see Note 6) and declared related preferred stock dividends of
$12.8 million, c) certain general and administrative expenses recorded by
Viacom Inc. of $5.0 million (1993), $9.0 million (1992) and $12.9 million
(1991), which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net interest income
of $3.1 million (1993) and net interest expense of $45.2 million (1991).
Certain amounts reported on the balance sheet and statements of cash flows for
prior years have been reclassified to conform with the current presentation.
Principles of Consolidation - The consolidated financial statements include the
accounts of Viacom Inc., the Company and all investments of more than 50% in
subsidiaries and other entities. All significant intercompany transactions
have been eliminated. Investments in affiliated companies of more than 20% but
less than or equal to 50% are accounted for under the equity method.
Investments of 20% or less are accounted for under the cost method. In 1993,
the fiscal year end for certain foreign operations was changed from October 31
to December 31.
Cash Equivalents - Cash equivalents are defined as short-term (3 months or
less) highly liquid investments.
Program Rights - The Company acquires rights to exhibit programming on its
broadcast stations or cable networks, and produces its own programs. The costs
incurred in acquiring and producing programs are capitalized and amortized over
the license period or over the estimated exhibition life of the program. Costs
related to the production of programs are either charged to earnings or
capitalized to the extent they are estimated to be recoverable from future
revenue. Program rights and the related liabilities are recorded at the gross
amount of the liabilities when the license period has begun, the cost of the
program is determinable and the program is accepted and available for airing.
Program Distribution - Fees for distributing television shows and feature films
are recognized upon billing over contractual periods generally ranging from
one to five years, except that such fees for internally produced programs are
recognized when such programs are delivered and fees for barter advertising
revenue are recognized when the programs are available and a noncancellable
contract has been executed. Receivables reflect gross billings, which include
the owners' share. Amounts due to owners are recorded as liabilities in
"Owners' share of distribution revenue" or are deducted from "Distribution fees
advanced and committed, current."
Minimum guarantees to owners are recorded as liabilities and are liquidated by
payments in accordance with contract terms. A corresponding asset is recorded
as "Distribution fees advanced and committed" and is reduced by the owners'
share of billings until fully recovered or amortized as operating expenses
against the Company's share of total estimated billings based on the ratio of
total estimated costs to total estimated billings.
Prepaid distribution costs incurred on behalf of the owners are recovered from
the owners' share of billings or amortized as operating expenses against the
Company's share of total estimated billings based on the ratio of total
estimated costs to total estimated billings.
II-39
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All amortization estimates are reviewed periodically by management and are
adjusted prospectively. Minimum guarantees or other costs estimated not to be
recoverable from total estimated billings are expensed in the period any
shortfall is determined.
Depreciation and Amortization - Depreciation is computed principally by the
straight-line method over estimated useful lives ranging principally from 3 to
15 years. Capitalized lease amortization of $5.5 million (1993) and $3.0
million (1992) is included in depreciation expense. Depreciation expense was
$92.8 million (1993), $81.5 million (1992) and $70.1 million (1991).
Intangibles resulting from business acquisitions are generally amortized over
40 years. Accumulated amortization relating to intangibles at December 31 was
$412.5 million (1993) and $361.1 million (1992) .
Equity in Loss of Affiliated Companies - Equity in loss of affiliated companies
is primarily comprised of the Company's one-third interest in Lifetime, the 50%
interest in Comedy Central, the 50% interest in Nickelodeon (UK) during 1993
and the 49.99% interest in MTV EUROPE prior to August 30, 1991. (See Note 3.)
Provision for Doubtful Accounts - The provision for doubtful accounts charged
to expense was $16.7 million (1993), $9.4 million (1992) and $15.9 million
(1991).
Net Earnings (Loss) per Common Share - Earnings (loss) per share is calculated
based on the weighted average number of shares outstanding during the year.
The effect of the assumed exercise of stock options and conversion of
convertible debentures is not material for each of the years presented. For
1993, the assumed conversion of the Preferred Stock (as defined in Note 2)
would have an antidilutive effect on fully-diluted earnings per common share.
Therefore, the effects of such assumption are not reflected in net earnings
(loss) per common share.
Interest Rate Protection Agreements - The amount to be paid or received is
accrued as interest rates change and is recognized over the life of the
agreements as an adjustment to interest expense.
2) SUBSEQUENT EVENTS
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer (the
"Paramount Offer"), 61,657,432 shares of Paramount common stock, constituting a
majority of the shares outstanding, at a price of $107 per share in cash. The
Paramount Offer was financed by (i) the sale of Preferred Stock (see "Note 6"),
proceeds of which are reflected as cash and cash equivalents on the balance
sheet as of December 31, 1993, (ii) the sale of Viacom Class B Common Stock to
Blockbuster and (iii) borrowings under a credit agreement (as described below).
The Paramount Offer was made pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of February 4, 1994 (the "Paramount Merger Agreement")
between Viacom Inc. and Paramount. Paramount will become a wholly owned
subsidiary of Viacom Inc. (the "Paramount Merger") at the effective time of a
merger between Paramount and a subsidiary of Viacom Inc. (the "Paramount
Effective Time") which is expected to occur in the second quarter of 1994.
Pursuant to the Paramount Merger Agreement, each share of Paramount common
stock outstanding at the time of such merger (other than shares held in the
treasury of Paramount or owned by Viacom Inc. and other than shares held by
any stockholders who shall have demanded and perfected appraisal rights) will
be converted into the right to receive (i) 0.93065 of a share of Viacom
Class B Common Stock, (ii) $17.50 principal amount of 8% exchangeable
subordinated debentures of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of Viacom Class B
Common Stock at any time prior to the third 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.
II-40
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each CVR will represent the right to receive the amount, if any, by which the
Target Price exceeds the greater of the Current Market Value and the Minimum
Price (see defined terms in following paragraph). The CVRs will mature on the
first anniversary of the Paramount Effective Time (the "Maturity Date");
provided, however, that Viacom Inc. may, at its option, (i) extend the Maturity
Date to the second anniversary of the Paramount Effective Time (the "First
Extended Maturity Date") or (ii) extend the First Extended Maturity Date to the
third anniversary or the Paramount Effective Time (the "Second Extended
Maturity Date"). Viacom Inc., at its option, may pay any amount due under the
terms of the CVRs in cash or in the equivalent value of registered securities
of Viacom Inc., including without limitation, common stock, preferred stock,
notes, or other securities.
The "Minimum Price" means (a) at the Maturity Date, $36, (b) at the First
Extended Maturity Date, $37 and (c) at the Second Extended Maturity Date, $38.
Target Price means (a) at the Maturity Date, $48, (b) at the First Extended
Maturity Date, $51, and (c) at the Second Extended Maturity Date, $55. The
"Current Market Value" means the average market price of Viacom Class B Common
Stock for a specified period.
On January 7, 1994, Viacom Inc. and Blockbuster entered into an agreement and
plan of merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger") subject to approval. At the effective time of the Blockbuster
Merger, each share of Blockbuster common stock outstanding at the time of the
Blockbuster Merger (other than shares held in the treasury of Blockbuster or
owned by Viacom Inc. and other than shares held by any stockholders who shall
have demanded and perfected appraisal rights, if available) will be converted
into the right to receive (i) 0.08 of a share of Viacom Class A Common Stock,
(ii) 0.60615 of a share of Viacom Class B Common Stock, and (iii) up to an
additional 0.13829 of a share of Viacom Class B Common Stock, with the exact
fraction of a share being dependent on the market prices of Viacom Class B
Common Stock during the year following the effective time of the Blockbuster
Merger, and with the right to receive such additional fraction of a share to
be evidenced by one variable common right ("VCR"). The VCRs mature on the
first anniversary of the Blockbuster Merger ("VCR Conversion Date").
The mergers pursuant to the Paramount Merger Agreement and Blockbuster Merger
Agreement (collectively, the "Mergers") have been unanimously approved by the
Boards of Directors of each of the respective companies. The obligations of
Viacom Inc., Blockbuster and Paramount to consummate the mergers are subject to
various conditions, including obtaining requisite stockholder approvals.
Viacom Inc. intends to vote its shares of Paramount in favor of the merger and
NAI has agreed to vote its shares of Viacom Inc. in favor of the Mergers;
therefore, stockholder approval of the Paramount Merger is assured, and
approval by Viacom Inc. of the Blockbuster Merger is also assured.
The Mergers will be accounted for under the purchase method of accounting. The
unaudited condensed pro forma data for the year ended or at December 31, 1993
presented below assumes the Mergers occurred on January 1, 1993 for statement
of operations data or at December 31, 1993 for balance sheet data. Intangible
assets are expected to be amortized over 40 years on a straight-line basis.
The unaudited pro forma information is not necessarily indicative of the
combined results of operations or financial position of Viacom Inc., Paramount
and Blockbuster (the "Combined Company") following the Mergers that would have
occurred if the completion of the Mergers had occurred on the dates previously
indicated nor are they necessarily indicative of future operating results of
the Combined Company.
II-41
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended or at
December 31, 1993
----------------
(Millions of dollars)
(Unaudited)
Results of operations data:
Revenues $9,624.1
Earnings from operations $ 887.9
Net earnings before extraordinary items, cumulative effect
of changes in accounting principles and preferred stock
dividends $ 135.6
Net earnings attributable to common stock before
extraordinary items and cumulative effect of changes in
accounting principles $ 75.6
Primary earnings per common share before
extraordinary items and cumulative effect of changes in
accounting principles $ .18
Balance sheet data:
Total assets $24,377.3
Long-term debt, including current maturities $ 9,998.8
Shareholders' equity:
Preferred $ 1,200.0
Common $ 8,844.8
On March 10, 1994, Blockbuster purchased approximately 22.7 million shares of
Viacom Class B Common Stock for an aggregate purchase price of $1.25 billion,
or $55 per share. If (with certain exceptions) the Blockbuster Merger
Agreement is terminated and in the event that Viacom Class B Common Stock
trades (for a specified period) at a level below $55 per share during the one
year period after such termination, Viacom Inc. may be obligated to make
certain payments of up to a maximum of $275 million, at its option, in cash or
securities, or to sell certain assets to Blockbuster. The Viacom Class B
Common Stock purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit agreement with certain
financial institutions named therein, pursuant to which such financial
institutions have advanced to Blockbuster, on an unsecured basis, an aggregate
of $1.0 billion to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The Blockbuster Facility
contains certain events of default, including a change of control default,
which will require either a waiver in connection with the Blockbuster Merger or
the refinancing of the indebtedness incurred by Blockbuster under the
Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7 billion under a credit agreement
dated as of November 19, 1993, as amended on January 4, 1994 and February 15,
1994, among Viacom Inc., the banks named therein, and The Bank of New York,
Citibank, N.A. and Morgan Guaranty Trust Company of New York, as Managing Agents
(the "Merger Credit Agreement").
The Merger Credit Agreement provides that, in 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
II-42
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
rate ranging from 0.25% to 0.9375% dependent on the senior unsecured long-term
debt rating assigned to Viacom Inc. The Merger Credit Agreement provides that
Viacom Inc. will pay each bank a facility fee on such bank's commitment until
November 18, 1994.
The Merger Credit Agreement contains certain covenants which, among other
things require Viacom Inc. to meet certain financial ratios.
As of December 31, 1993, Viacom Inc. has promissory notes outstanding in the
aggregate amount of $26 million, in order to finance expenses associated with
the Mergers and expects to obtain additional financing as required to finance
such expenses.
3) ACQUISITIONS AND VENTURES
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston, Texas, for
Westinghouse Broadcasting Company, Inc.'s WCXR-FM and WCPT-AM, Washington,
D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-FM), Los
Angeles, California from Westwood One Stations Group-LA, Inc. for $40 million
in cash and certain other consideration. The Company sold KXEZ-FM to Viacom
Inc. in exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately held ICOM
Simulations, Inc.
On March 31, 1993, the Company increased its percentage of ownership in
StarSight Telecast Inc. ("StarSight"). On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock. On September
16, 1993, the Company exercised a warrant to purchase 833,333 shares of
StarSight common stock at a cost of $5.625 per share. In November 1993, the
Company transferred its ownership percentage in StarSight to a consolidated
affiliate of the Company. As a result of these transactions, the affiliate's
of the Company's percentage ownership of StarSight is approximately 21%. The
investment in StarSight is accounted for under the equity method.
In December 1992, the Company entered into a 50-50 joint venture called
Nickelodeon (UK) with a subsidiary of British Sky Broadcasting Limited.
Nickelodeon (UK) began airing on September 1, 1993. The Company's investment
is accounted for under the equity method.
The Company exchanged KHOW-AM and FM, Denver, Colorado for Noble Broadcast
Group, Inc.'s KNDD-FM, Seattle, Washington effective December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE to 100%
through the purchase of the 50.01% interest held 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).
II-43
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of the
following:
December 31, December 31,
1993 1992
------------ ------------
(Thousands of dollars)
Notes payable to banks (a) $1,983,275 $1,648,984
11.80% Senior Subordinated Notes due 1998 -- 298,000
9.125% Senior Subordinated Notes due 1999 (b) 150,000 150,000
8.75% Senior Subordinated Reset Notesdue 2001 (c) 100,000 100,000
10.25% Senior Subordinated Notes due 2001 (d) 200,000 200,000
5.75% Convertible Subordinated Debentures
due 2001 15 30
---------- ----------
2,433,290 2,397,014
Less current portion 55,004 --
---------- ----------
$2,378,286 $2,397,014
========== ==========
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9 billion and $300 million under (i) an unsecured credit
agreement guaranteed by Viacom Inc. (amended and restated as of January 17,
1992, (as amended, the "Credit Agreement") among the Company the named banks
("Banks"), Citibank, N.A. ("Citibank") as agent and The Bank of New York
("BONY") as co-agent and (ii) an unsecured credit agreement, dated June 2,
1993, among the Company and the named banks and BONY and Citibank as agents
(the "Loan Facility Agreement"). The Loan Facility Agreement has a 364-day
term and is identical to the Credit Agreement in all other material terms and
conditions. Borrowings of $1.765 billion were outstanding under the Credit
Agreement as of December 31, 1993, including $274 million aggregate principal
amount assumed by five subsidiaries of the Company ("Subsidiary Obligors").
Borrowings of $150 million were outstanding under the Loan Facility Agreement
as of December 31, 1993, $135 million of which were classified as long-term.
The following is a summary description of the amended and restated Credit
Agreement. The description does not purport to be complete and should be read
in conjunction with the Credit Agreement.
The Credit Agreement provides for three facilities:
Facility A - $700 million under a term loan having a final
maturity of June 30, 1999;
Facility B - $926 million under a revolver, which converts on
January 1, 1995 into a term loan having a final
maturity of June 30, 1999; and
Facility B-1 - $274 million under a term loan having a final
maturity of June 30, 1999.
The interest rate on all loans made under the three facilities is based upon
Citibank, N.A.'s base rate, the domestic certificate of deposit rate or the
London Interbank Offered Rate and is affected by the Company's leverage ratio.
At December 31, 1993, the London Interbank Offered Rates (upon which the
Company's borrowing rate was based) for borrowing periods of one month and two
months were 3.25% and 3.3125%, respectively. The Company is permitted to issue
commercial paper with a maturity at the time of issuance not to exceed nine
months, provided that following each issuance of commercial paper, (i) the
aggregate face amount of commercial paper outstanding shall not exceed $500
million less the aggregate amount of competitive bid rate borrowings (described
II-44
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
below), outstanding at such time and (ii) the aggregate amount of all Facility
B loans and competitive bid rate loans outstanding, together with the aggregate
face amount of commercial paper outstanding, shall not exceed $926 million.
The Company is also permitted to make short-term competitive bid rate
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.
II-45
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY pursuant to
the Term Loan Agreement. The interest rate in the Term Loan Agreement is based
upon BONY's prime rate or the London Interbank Offered Rate. Viacom Inc.
repaid $13.9 million of debt under the Term Loan Agreement on January 15, 1994,
the first scheduled maturity date. The remaining $28.3 million under the Term
Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the principal amount
outstanding under the Term Loan Agreement. Any such optional prepayments shall
be applied to reduce the principal installment due January 1995 and shall
include all accrued interest on the amount of principal prepaid. Viacom Inc.
shall be obligated to prepay the loan in the amount of any dividends received
from the Company.
The Term Loan Agreement contains certain covenants which impose certain
limitations on (i) the incurrence of indebtedness and (ii) payment of cash
dividends or the redemption or repurchase of any capital stock of Viacom. The
Term Loan Agreement also contains certain customary events of default. The
Term Loan Agreement has been amended to allow Viacom Inc. to complete the
Paramount Offer and the Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility Agreement and Term
Loan Agreement bear interest at floating rates, causing the Company to be
sensitive to changes in prevailing interest rates. The Company enters into
interest rate protection agreements with off-balance sheet risk in order
to reduce its exposure to changes in interest rates on its variable rate
long-term debt. These interest rate protection agreements include interest
rate swaps and interest rate caps. At December 31, 1993, the Company and
Viacom Inc. had interest rate protection agreements outstanding with
commercial banks, with respect to $1.1 billion of indebtedness under the
Credit Agreement and $42.2 million under the Term Loan Agreement. These
agreements effectively change the Company's interest exposure under the Credit
Agreement to a ceiling of 5.64% on the interest rate caps, and under the Term
Loan Agreement to a fixed weighted average rate of 6.65% on interest rate
swaps. The interest rate protection agreements are in effect for a fixed
period of time. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of December
31, 1993.
The Company also has aggregate money market facilities of $40 million, all of
which was available at December 31, 1993.
(b) -- On March 4, 1992, the Company issued $150 million aggregate
principal amount of 9.125% Senior Subordinated Notes ("9.125% Notes") due
August 15, 1999. Interest is payable semiannually on February 15 and August 15,
commencing August 15, 1992. The 9.125% Notes may not be redeemed prior to
February 15, 1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997 at a
redemption price of 102.607% of the principal amount, during the 12 month
period beginning February 15, 1998 at 101.304% of the principal amount, and on
or after February 15, 1999 at 100% of the principal amount. Any such
redemption will include accrued interest to the redemption date. The 9.125%
Notes are not subject to any sinking fund requirements.
(c) -- On May 28, 1992, the Company issued $100 million aggregate
principal amount of 8.75% Senior Subordinated Reset Notes ("8.75% Reset Notes")
due on May 15, 2001. Interest is payable semiannually on May 15 and November
15, commencing November 15, 1992. On May 15, 1995 and May 15, 1998, unless a
notice of redemption of the 8.75% Reset Notes on such date has been given by
the Company, the interest rate on the 8.75% Reset Notes will, if necessary, be
adjusted from the rate then in effect to a rate to be determined on the basis
of market rates in effect on May 5, 1995 and on May 5, 1998, respectively, as
the rate the 8.75% Reset Notes should bear in order to have a market value of
101% of principal amount immediately after the resetting of the rate. In no
event will the interest rate be lower than 8.75% or higher than the average
three year treasury rate (as defined in the indenture) multiplied by two. The
interest rate reset on May 15, 1995 will remain in effect on the 8.75% Reset
Notes through and including May 15, 1998 and the interest rate reset on May 15,
1998 will remain in effect on the 8.75% Reset Notes thereafter. The 8.75%
Reset Notes are redeemable at the option of the Company, in whole but not in
part, on May 15, 1995 or May 15, 1998, at a redemption price of 101% of
II-46
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
principal amount plus accrued interest to, but not including, the date of
redemption. The 8.75% Reset Notes are not subject to any sinking fund
requirements.
(d) -- On September 15, 1991, the Company issued $200 million
aggregate principal amount of 10.25% Senior Subordinated Notes ("10.25% Notes")
due September 15, 2001. Interest is payable semiannually on March 15 and
September 15, commencing March 15, 1992. The 10.25% Notes are not redeemable
by the Company prior to maturity and are not subject to any sinking fund
requirements.
_____________________
II-47
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The extraordinary losses and related tax benefits associated with the
extinguishment of certain debt of Viacom Inc. and the Company are summarized as
follows:
11.50%
11.80% Reset Discount Exchange
Notes Notes Debentures Debentures Total
------ ------ ---------- ---------- -----
(Thousands of dollars)
Year ended December 31, 1993:
- ----------------------------
Extraordinary loss (a) $14,953 $ -- $ -- $ -- $14,953
Tax benefit 6,086 -- -- -- 6,086
------- ------ ------- ------ -------
Extraordinary loss, 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
II-48
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.
II-49
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On June 11, 1991, Viacom Inc. completed the sale of 10,781,600 shares of Viacom
Class B Common Stock in a registered public offering and the private
placement of an additional 500,000 shares of Viacom Class B Common Stock with
NAI. Viacom Inc. realized proceeds, net of underwriting discounts and other
related expenses, of approximately $317.7 million from the sale and private
placement.
NAI holds approximately 76.3% 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.
II-50
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.
II-51
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings before income taxes are attributable to the following jurisdictions:
Year Ended December 31,
------------------------------
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
======== ======= =======
II-52
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.
II-53
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)
======= ========
II-54
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
There are no significant temporary differences relating to foreign
undistributed earnings or investments in foreign subsidiaries for 1993, 1992 or
1991. Thus, no related deferred taxes have been recorded by the Company for
these years.
Viacom Inc. and its subsidiaries file a consolidated federal income tax return
and have done so since the period commencing June 11, 1991, the date on which
NAI's percentage of ownership of Viacom Inc. was reduced to less than 80%.
Prior to such date, Viacom Inc. and the Company filed a consolidated federal
income tax return with NAI, and also participated in a tax-sharing agreement
with NAI with respect to federal income taxes. The tax-sharing agreement
obligated Viacom Inc. and the Company to make payment to NAI to the extent they
would have paid federal income taxes on a separate company basis, and entitled
them to receive a payment from NAI to the extent losses and credits reduced
NAI's federal income taxes.
8) 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
====== ====== ======
II-55
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).
II-56
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancellable lease commitments for office space and
equipment, transponders, studio facilities and vehicles.
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).
II-57
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.
II-58
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
========== ========== ==========
II-59
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13) QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1993 and 1992 appears below:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total Year
------- ------- ------- ------- ----------
(Thousands 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).
II-60
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."
II-61
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
II-62
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
II-63
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements and schedules
of the registrant and its subsidiaries are submitted herewith
as part of this report:
Reference
(Page/s)
--------
1. Report of Independent Accountants.................. II-32
2. Management's Statement of Responsibility for
Financial Reporting................................ II-33
3. Consolidated Statements of Operations for the years
ended December 31, 1993, 1992, and 1991........... II-34
4. Consolidated Balance Sheets as of December 31, 1993
and 1992........................................... II-35-II-36
5. Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991........... II-37
6. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1993, 1992 and 1991... II-38
7. Notes to Consolidated Financial Statements......... II-39-II-62
Report of Independent Accountants on Financial
Statement Schedules................................... F-2
Financial Statement Schedules:
II. Amounts receivable from related parties. F-3
VIII. Valuation and qualifying accounts.......... F-4
IX. Short-term borrowings...................... F-5
X. Supplementary statement of operations
information................................ F-6
All other Schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements
and notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Boards of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 4, 1994, except as to Note 2, which is as of
March 11, 1994, appearing on page II-32 of this annual report on Form
10-K also included an audit of the Financial Statement Schedules
listed in Item 14(a) of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 4, 1994
F-2
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
(Thousands of Dollars)
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance at End of
Deductions Period
-------------------------- -----------------
Balance at Amounts
Beginning of Amounts Written Non-
Name of Debtor Period Additions Collected Off Other Current Current
-------------- ----------- --------- --------- ------- ----- ------- -------
Year ended December 31, 1993:
National Amusements, Inc. -- $ 855 $ 855 -- -- -- --
Year Ended December 31, 1992:
National Amusements, Inc. -- $1,307 $1,307 -- -- -- --
Year Ended December 31, 1991:
National Amusements, Inc. -- $2,885 $2,885 -- -- -- --
F-3
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
Col. A Col. B Col. C Col. D Col. E
------ ------ ----------------------- ------------- ------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts(A) Deductions(B) Period
----------- ----------- --------- ----------- ------------- ----------
Allowance for
doubtful accounts:
Year ended December $25,779 $16,733 $3,459 $12,082 $33,889
31, 1993
Year ended December $28,603 $ 9,355 $ (155) $12,024 $25,779
31, 1992
Year ended December $23,593 $15,855 $1,933(C) $12,778 $28,603
31, 1991
Notes:
-----
(A) Charged (credited) to the balance sheet account "Owners' share of
distribution revenue."
(B) Includes amounts written off, net of recoveries.
(C) Includes the allowance for doubtful accounts of MTV EUROPE,
previously accounted for under the equity method, of $689 thousand
F-4
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Thousands of Dollars)
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate Beginning of Interest During the During the During the
Short-term Borrowings Period Rate Period Period(A) Period(A)
- --------------------- ----------- -------- ---------- ----------- -------------
Year ended December 31, 1993
Money Market $ -- -- $ 23,000 $ 305 3.68%
Commercial Paper $ 60,879 3.68% $ 174,257 $122,744 3.64%
Year ended December 31, 1992:
Money Market $ -- -- $ 6,000 $ 1,684 4.66%
Commercial Paper $ 9,984 3.83% $ 144,638 $ 74,214 4.51%
Year ended December 31, 1991:
Money Market $ -- -- $ 20,000 $ 1,293 6.28%
Commercial Paper $ 73,425 5.51% $ 188,975 $108,985 6.58%
NOTE:
----
(A) Calculated on a monthly basis.
F-5
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(Thousands of Dollars)
Col. A Col. B
------ -----------------------------
Charged to Costs and Expenses
-----------------------------
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
ITEM
Maintenance and repairs $21,104 $25,649 $20,145
Advertising costs $79,827 $51,124 $68,858
Amortization $60,278 $63,256 $62,795
Taxes, other than payroll and $30,362 $21,000 $19,805
income taxes
NOTE:
----
Items not presented above are less than 1% of revenues or are
presented elsewhere in the consolidated financial statements.
F-6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The information contained in the Viacom Inc. Definitive Proxy
Statement under the caption "Information Concerning Directors and
Nominees" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the Viacom Inc. Definitive Proxy
Statement under the captions "Directors' Compensation" and "Executive
Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained in the Viacom Inc. Definitive Proxy
Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the Viacom Inc. Definitive Proxy
Statement under the caption "Related Transactions" is incorporated
herein by reference.
III - 1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) and (d) Financial Statements and Schedules (see
Index on Page F-1)
(b) Reports on Form 8-K
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of October 5, 1993
relating to the agreement dated as of October 4, 1993
between Viacom Inc. and NYNEX Corporation ("NYNEX") pursuant
to which NYNEX subscribed for and agreed to purchase from
Viacom Inc. 24 million shares of newly issued Series B
Cumulative Convertible Preferred Stock of Viacom Inc. for an
aggregate purchase price of $1.2 billion.
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of October 27, 1993
relating to the completion of the issuance and sale to
Blockbuster Entertainment Corporation ("Blockbuster") by
Viacom Inc. of 24 million shares of new issued Series A
Cumulative Convertible Preferred Stock and the election of
H. Wayne Huizenga, Chairman and Chief Executive Officer of
Blockbuster, as a director of Viacom Inc. and Viacom
International Inc.
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of November 19, 1993
relating to the completion of the issuance and sale to NYNEX
Corporation ("NYNEX") of 24 million shares of newly issued
Series B Cumulative Convertible Preferred Stock for an
aggregate purchase price of $1.2 billion and the election of
William C. Ferguson, Chairman and Chief Executive Officer of
NYNEX, as a director of Viacom Inc. and Viacom International
Inc.
(c) Exhibits (see index on Page E-1)
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the
Securities Exchange Act of 1934, Viacom Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereto duly
authorized.
VIACOM INC.
By /s/Frank J. Biondi, Jr.
---------------------------------
Frank J. Biondi, Jr., President,
Chief Executive Officer
By /s/George S. Smith, Jr.
---------------------------------
George S. Smith, Jr., Senior Vice
President, Chief Financial Officer
By /s/Kevin C. Lavan
---------------------------------
Kevin C. Lavan, Vice President,
Controller, Chief Accounting Officer
Date: March 31, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of
Viacom Inc. and in the capacities and on the dates indicated:
By * March 31, 1994
--------------------------------
George S. Abrams, Director
By /s/Frank J. Biondi, Jr. March 31, 1994
--------------------------------
Frank J. Biondi, Jr., Director
By /s/Philippe P. Dauman March 31, 1994
--------------------------------
Philippe P. Dauman, Director
By * March 31, 1994
--------------------------------
William C. Ferguson, Director
By * March 31, 1994
--------------------------------
H. Wayne Huizenga, Director
By * March 31, 1994
--------------------------------
Ken Miller, Director
By * March 31, 1994
--------------------------------
Brent D. Redstone, Director
By * March 31, 1994
--------------------------------
Sumner M. Redstone, Director
By * March 31, 1994
--------------------------------
Frederic V. Salerno, Director
By * March 31, 1994
--------------------------------
William Schwartz, Director
* By /s/Philippe P. Dauman March 31, 1994
--------------------------------
Philippe P. Dauman
Attorney-in-Fact
for the Directors
VIACOM INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM 14(C)
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(2) Plan of Acquisition
(a) Certificate of Ownership and Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. as filed with the Office of Secretary of
State of Delaware and effective on April 26,
1990 (incorporated by reference to
Exhibit 2(1) to the Current Report on Form 8-K
of Viacom International Inc. with a report
date of April 26, 1990) (File No. 1-9554).
(b) Certificate and Agreement of Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. filed with the Office of the Secretary of
State of Ohio and effective April 26, 1990
(incorporated by reference to Exhibit 2(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(c) Agreement and Plan of Merger dated as of
January 7, 1994 between Viacom Inc. and
Blockbuster Entertainment Corporation
(incorporated by reference to Exhibit 99(c)(9)
to Viacom Inc. Schedule 14D-1 Tender Offer
Statement (Amendment No. 20) dated January 7,
1994).
(d) Voting Agreement dated as of January 7, 1994
between National Amusements, Inc. and
Blockbuster Entertainment Corporation (filed
herewith).
(e) Amended and Restated Stockholders Stock Option
Agreement dated as of January 7, 1994 among
Viacom Inc. and each person listed on the
signature pages thereto (filed herewith).
(f) Amended and Restated Proxy Agreement dated as
of January 7, 1994 among Viacom Inc. and each
person listed on the signature pages thereto
(filed herewith).
(g) Voting Agreement dated as of January 21, 1994
between National Amusements, Inc. and
Paramount Communications Inc. (incorporated by
reference to Exhibit 99(a)(66) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 29) dated January 24, 1994).
(h) Amended and Restated Agreement and Plan of
Merger dated as of February 4, 1994 between
Viacom Inc. and Paramount Communications Inc.
(incorporated by reference to Exhibit
99(a)(92) to Viacom Inc. Schedule 14D-1 Tender
Offer Statement (Amendment No. 38) dated
February 7, 1994).
E-1
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(3) Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation of
Viacom Inc. (incorporated by reference to
Exhibit 3(a) to the Annual Reports on Form 10-
K of Viacom Inc. and Viacom International Inc.
for the fiscal year ended December 31, 1992,
as amended by Form 10-K/A Amendment No. 1
dated November 29, 1993 and as further amended
by Form 10-K/A Amendment No. 2 dated December
9, 1993) (File Nos. 1-9553/1-9554).
(b) Certificate of the Designations, Powers,
Preferences and Relative, Participating or
other Rights, and the Qualifications,
Limitations or Restrictions thereof, of Series
A Cumulative Convertible Preferred Stock
($0.01 par value) of Viacom Inc. (incorporated
by reference to Exhibit 4.1 to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended
September 30, 1993) (File Nos. 1-9553/1-9554).
(c) Certificate of the Designations, Powers,
Preferences and Relative, Participating or
other Rights, and the Qualifications,
Limitations or Restrictions thereof, of Series
B Cumulative Convertible Preferred Stock
($0.01 par value) of Viacom Inc. (filed
herewith).
(d) By-laws of Viacom Inc. (incorporated by
reference to Exhibit 3.3 to the Registration
Statement on Form S-4 filed by Viacom Inc.)
(File No. 33-13812).
(e) Certificate of Incorporation of Viacom
International Inc. (formerly Arsenal Holdings
II, Inc.) (incorporated by reference to
Exhibit 3(e) to the Annual Reports on Form 10-
K of Viacom Inc. and Viacom International Inc.
for the fiscal year ended December 31, 1990,
as amended on Form 8, dated June 3, 1991)
(File Nos. 1-9553/1-9554).
(f) By-laws of Viacom International Inc. (formerly
Arsenal Holdings II, Inc.) (incorporated by
reference to Exhibit 3(f) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990, as amended on Form 8, dated
June 3, 1991) (File Nos. 1-9553/1-9554).
E-2
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(4) Instruments defining the rights of security
holders, including indentures:
(a) Specimen certificate representing the Viacom
Inc. Voting Common Stock (currently Class A
Common Stock) (incorporated by reference to
Exhibit 4.1 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 33-
13812).
(b) Specimen certificate representing Viacom Inc.
Class B Non-Voting Common Stock (incorporated
by reference to Exhibit 4(a) to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended
June 30, 1990) (File Nos. 1-9553/1-9554).
(c) Specimen certificate representing Viacom Inc.
Series A Cumulative Convertible Preferred
Stock of Viacom Inc. (filed herewith).
(d) Specimen certificate representing Viacom Inc.
Series B Cumulative Convertible Preferred
Stock of Viacom Inc. (filed herewith).
(e) Indenture, dated as of September 15, 1991,
among Viacom International Inc., as Issuer,
Viacom Inc., as Guarantor, and The Bank of New
York, as Trustee, relating to Viacom
International Inc.'s Guarantied Senior
Subordinated Debt Securities (incorporated by
reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
September 20, 1991) (File Nos. 1-9553/1-9554)
as supplemented by the First Supplemental
Indenture dated as of September 15, 1991 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 10.25% Senior Subordinated Notes due
September 15, 2001 (incorporated by reference
to Exhibit 4.2 to the Current Reports on Form
8-K of Viacom Inc. and Viacom International
Inc. with a report date of September 20, 1991)
(File Nos. 1-9553/1-9554) as further
supplemented by the Second Supplemental
Indenture dated as of March 4, 1992 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 9.125% Senior Subordinated Notes due
August 15, 1999 and relating to Viacom
International Inc.'s 8.75% Senior Subordinated
Reset Notes due May 15, 2001 (incorporated by
reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
March 4, 1992) (File Nos. 1-9553/1-9554).
(f) Specimen of Note evidencing the 10.25% Senior
Subordinated Notes due September 15, 2001
(incorporated by reference to Exhibit 4.3 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of September 20, 1991) (File Nos. 1-
9553/1-9554).
(g) Specimen of Note evidencing the 9.125% Senior
Subordinated Notes due August 15, 1999
(incorporated by reference to Exhibit 4.2 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of March 4, 1992) (File Nos. 1-9553/1-
9554).
E-3
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(h) Specimen of Note evidencing the 8.75% Senior
Subordinated Reset Notes due May 15, 2001
(incorporated by reference to Exhibit 4.1 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of May 28, 1992) (File Nos. 1-9553/1-
9554).
(i) Indenture, dated as of July 15, 1988, between
Viacom International Inc. and Bankers Trust
Company, Trustee, relating to Viacom
International Inc.'s 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit 4.1 to the Registration
Statement on Form S-2 filed by Viacom
International Inc.) (File No. 33-21280) and
the First Supplement to Indenture dated April
27, 1990 between Viacom International Inc. and
Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(j) Form of Note evidencing the 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit A to the Indenture filed
as Exhibit 4.1 to the Registration Statement
on Form S-2 filed by Viacom International
Inc.) (File No. 33-21280).
(k) Indenture, dated as of June 15, 1986, between
Viacom International Inc. and Morgan Guaranty
Trust Company of New York, Trustee, relating
to Viacom International Inc.'s 5 3/4%
Convertible Subordinated Debentures Due 2001
(incorporated by reference to Exhibit 4.5(b)
to the Annual Report on Form 10-K of Viacom
International Inc. for the fiscal year ended
December 31, 1986) (File No. 1-6514), and the
First Supplement to Indenture, dated June 9,
1987, among Viacom International Inc., Viacom
Inc. and Morgan Guaranty Trust Company of New
York, Trustee (incorporated by reference to
Exhibit 4.5(b) to the Registration Statement
on Form S-4 filed by Viacom Inc.) (File No.
33-13812).
(l) Credit Agreement, dated as of September 26,
1989 (the "Credit Agreement"), among Viacom
International Inc., the banks listed therein
(the "Banks"), and Citibank, N.A. as Agent and
The Bank of New York as Co-Agent, as amended
and restated as of January 17, 1992 among
Viacom Inc., as Guarantor, Viacom
International Inc., the Subsidiary Obligors,
the Banks, Citibank, N.A. as Agent, and The
Bank of New York as Co-Agent (incorporated by
reference to Exhibits 10(1) and 10(2) to the
Current Reports on Form 8-K of Viacom Inc. and
Viacom International Inc. with a report date
of January 22, 1992) as amended by Letter
Agreements dated as of May 13, 1993 and April
7, 1993 (incorporated by reference to Exhibits
4.1 and 4.2 to the Current Reports on Form 10-
Q of Viacom Inc. and Viacom International Inc.
for the quarter ended June 30, 1993) (File
Nos. 1-9553/1-9554)
(m) Loan Facility Agreement dated as of June 2,
1993 among the Company and the banks named
therein and The Bank of New York as
Administrative Managing Agent, and The Bank of
New York and Citibank as Managing Agents
(incorporated by reference to Exhibit 10.1 to
the Quarterly Reports on Form 10-Q of Viacom
Inc. and Viacom International Inc. for the
quarter ended June 30, 1993)(File Nos. 1-
9553/1-9554).
E-4
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(n) Credit Agreement dated as of November 19,
1993, as amended as of January 4, 1994 and as
further amended as of February 15, 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 (incorporated by reference to
Exhibit 99(a)(11) to Viacom Inc. Schedule 14D-
1 Tender Offer Statement (Amendment No. 46)
dated March 3, 1994).
(10) Material Contracts
(a) Viacom Inc. 1989 Long-Term Management
Incentive Plan (as amended and restated
through April 23, 1990) (incorporated by
reference to Exhibit A to Viacom Inc.'s
Definitive Proxy Statement dated April 27,
1990).*
(b) Viacom Inc. Long-Term Incentive Plan
(incorporated by reference to Exhibit A to
Viacom Inc.'s Definitive Proxy Statement dated
April 29, 1988), and amendment thereto
(incorporated by reference to Exhibit 10(d) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 21, 1991) (File Nos. 1-
9553/1-9554), and as further amended by
amendment dated December 17, 1992
(incorporated by reference to Exhibit 10(d) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554).*
(c) Viacom Inc. Long-Term Incentive Plan
(Divisional) (incorporated by reference to
Exhibit 10.2 to the Quarterly Reports on Form
10-Q of Viacom Inc. and Viacom International
Inc. for the quarter ended June 30, 1993)(File
Nos. 1-9553/1-9554).*
(d) Viacom International Inc. Deferred
Compensation Plan for Non-Employee Directors
(as amended and restated through December 17,
1992) (incorporated by reference to Exhibit
10(e) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(e) Viacom Inc. and Viacom International Inc.
Retirement Income Plan for Non-Employee
Directors (incorporated by reference to
Exhibit 10(f) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1989) (File Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-5
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -------------------------------------------------------------------
(f) Viacom Inc. Stock Option Plan for Non-Employee
Directors (incorporated by reference to
Exhibit 10.2 to the Quarterly Reports on Form
10-Q of Viacom Inc. and Viacom International
Inc. for the quarter ended June 30, 1993)(File
Nos. 1-9553/1-9554).*
(g) Excess Benefits Investment Plan for Certain
Key Employees of Viacom International Inc.
(effective April 1, 1984 and amended as of
January 1, 1990) (incorporated by reference to
Exhibit 10(h) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(h) Excess Pension Plan for Certain Key Employees
of Viacom International Inc. (incorporated by
reference to Exhibit 10(i) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(i) Employment Agreement, dated as of August 1,
1987, between Viacom International Inc. and
Frank J. Biondi, Jr. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (File No. 1-9553/1-9554).
Guarantee Agreement, dated as of August 1,
1987, from Viacom Inc. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (Files Nos. 1-9553/1-9554).
Agreement under the Viacom Inc. Long-Term
Incentive Plan, dated March 7, 1989, between
Viacom Inc. and Frank J. Biondi, Jr.
(incorporated by reference to Exhibit 10(e) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1988) (File Nos. 1-
9553/1-9554).*
(j) Agreement, dated as of January 1, 1990,
between Viacom International Inc. and Neil S.
Braun (incorporated by reference to
Exhibit 10(l) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554)
as amended by an Agreement dated as of October
1, 1992 (incorporated by reference to Exhibit
10(k) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(k) Amended and Restated Employment Agreement,
dated as of October 1, 1987, between Viacom
International Inc. and John W. Goddard
(incorporated by reference to Exhibit 10(l) to
the Annual Reprints on Form 10-K of Viacom
Inc. and Viacom International Inc. for the
fiscal year ended December 31, 1991) (File
Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-6
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(l) Agreement, dated as of August 1, 1990, between
Viacom International Inc. and George S. Smith,
Jr. (incorporated by reference to
Exhibit 10(o) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(m) Agreement, dated as of August 1, 1990, between
Viacom International Inc. and Mark M.
Weinstein (incorporated by reference to
Exhibit 10(p) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554)
as amended by an Agreement dated as of
February 1, 1993 (incorporated by reference to
Exhibit 10(n) to the Annual Reports on Form
10-K of Viacom Inc. and Viacom International
Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554).*
(n) Agreement, dated as of August 1, 1992, between
Viacom International Inc. and Thomas E. Dooley
(incorporated by reference to Exhibit 10(o) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554) as amended by an Agreement
dated as of October 1, 1992 (incorporated by
reference to Exhibit 10(o) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as
further amended by Form 10-K/A Amendment No. 2
dated December 9, 1993) (File Nos. 1-9553/1-
9554).*
(o) Agreement, dated as of January 1, 1992,
between Viacom International Inc. and Edward
Horowitz (incorporated by reference to
Exhibit 10(p) to the Annual Reports on Form
10-K of Viacom Inc. and Viacom International
Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554) as
amended by an Agreement dated as of October 1,
1992 (incorporated by reference to Exhibit
10(p) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(p) Agreement dated as of February 1, 1993 between
Viacom International Inc. and Philippe P.
Dauman (incorporated by reference to Exhibit
10(q) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-7
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- -----------------------------------------------------------------
(q) Partnership Agreement between Viacom HA!
Holding Company and The Comedy Channel Corp.
dated as of December 17, 1990 (incorporated by
reference to Exhibit 10.2 to the Registration
Statement on Form S-3 filed by Viacom
International Inc.) (File No. 33-40170).
(r) Lease Agreement between First Security Bank of
Utah, N.A., as owner trustee and Viacom
International Inc. dated as of August 12, 1992
(incorporated by reference to Exhibit 10(t) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554).
(s) Lease Agreement dated as of June 22, 1993
between Mellon Financial Services Corporation
and Viacom International Inc. (incorporated by
reference to Exhibit 10.2 to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended June
30, 1993)(File Nos. 1-9553/1-9554).
(t) Stock Purchase Agreement dated as of October
4, 1993 between Viacom Inc. and NYNEX
Corporation, as amended as of November 19,
1993 (filed herewith).
(u) Amended and Restated Stock Purchase Agreement
dated October 21, 1993 between Viacom Inc. and
Blockbuster Entertainment Corporation (filed
herewith).
(v) Subscription Agreement, dated January 7, 1994
between Viacom Inc. and Blockbuster
Entertainment Corporation (incorporated by
reference to Exhibit 99(c)(8) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 20) dated January 7, 1994).
(12) Statements re Computation of Ratios
(a) Computation of Ratio of Earnings to Fixed
Changes of Viacom International Inc. (filed
herewith).
(b) Computation of Ratio of Earnings to Fixed of
Viacom Inc. (filed herewith).
(21) Subsidiaries of Viacom Inc. and Viacom
International Inc. (filed herewith).
(23) Consents of Experts and Counsel
(a) Consent of Price Waterhouse (filed herewith).
(b) Consent of Ernst & Young (filed herewith).
(24) Powers of Attorney (filed herewith).
(99) Additional Exhibits
(a) Item 1, Item 2 and Item 3 of Paramount's
Transition Report on Form 10-K for the six-
month period ended April 30, 1993, as such
report was amended in its entirety by Form
10-K/A No. 1 dated September 28, 1993, as
further amended by Form 10-K/A No. 2 dated
September 30, 1993 and as further amended
by Form 10-K/A No. 3 dated March 21, 1994
(filed herewith).
(b) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended July
31, 1993 (filed herewith).
(c) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
October 31, 1993 (filed herewith).
(d) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
January 31, 1994 (filed herewith).
E-8
[CONFORMED COPY]
VOTING AGREEMENT
VOTING AGREEMENT, dated as of January 7, 1994 (this
"Agreement"), between NATIONAL AMUSEMENTS, INC., a Maryland
---------
corporation (the "Stockholder"), and BLOCKBUSTER ENTERTAINMENT
-----------
CORPORATION, a Delaware corporation ("Blockbuster").
-----------
WHEREAS, Viacom Inc., a Delaware corporation
("Viacom"), and Blockbuster propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), which provides, among other things,
-----------------
that Blockbuster will merger with Viacom pursuant to the
merger contemplated by the Merger Agreement (the "Merger");
------
WHEREAS, as of the date hereof, the Stockholder owns
(i) 45,547,214 shares of Class A Common Stock, par value $.01
per share, of Viacom ("Viacom Class B Common Stock") and
---------------------------
(ii) 46,565,414 shares of Class B Common Stock, par value
$.01 per share, of Viacom ("Viacom Class B Common Stock";
---------------------------
together with the Viacom Class A Common Stock, the "Viacom
------
Common Stock"); and
- ------------
WHEREAS, as a condition to the willingness of
Blockbuster to enter into the Merger Agreement, Blockbuster
has required that the Stockholder agree, and in order to
induce Blockbuster to enter into the Merger Agreement, the
Stockholder has agreed, to enter into this Agreement with
respect to all the shares of Viacom Class A Common Stock now
owned and which may hereafter be acquired by the Stockholder
(the "Shares").
------
NOW, THEREFORE, in consideration of the foregoing
and the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
VOTING OF SHARES
----------------
SECTION 1.01. Voting Agreement. The Stockholder
----------------
hereby agrees that during the time this Agreement is in
effect, at any meeting of the stockholders of Viacom, however
called, and in any action by consent of the stockholders of
Viacom, the Stockholder shall vote the Shares: (a) in favor of
the Merger, the Merger Agreement (as amended from time to
time) and the transactions contemplated by the Merger
2
Agreement, including, but not limited to, the amendments to
the Certificate of Incorporation of Viacom contemplated
thereby, and (b) against any proposal for any
recapitalization, merger, sale of assets or other business
combination between Viacom and any person or entity (other
than the Merger) or any other action or agreement that would
result in a breach of any covenant, representation or warranty
or any other obligation or agreement of Viacom under the
Merger Agreement or which could result in any of the
conditions to Viacom's obligations under the Merger Agreement
not being fulfilled. The Stockholder acknowledges receipt
and review of a copy of the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
-------------------------------------------------
The Stockholder hereby represents and warrants to
Blockbuster as follows:
SECTION 2.01. Authority Relative to This Agreement.
------------------------------------
The Stockholder has all necessary power and authority to
execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the
Stockholder and the consummation by the Stockholder of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Stockholder, and
no other corporate proceedings on the part
of the Stockholder are necessary to authorize this Agreement
or to consummate such transactions. This Agreement has been
duly and validly executed and delivered by the Stockholder
and, assuming the due authorization, execution and delivery
by Blockbuster, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms.
SECTION 2.02. No Conflict. (a) The execution and
-----------
delivery of this Agreement by the Stockholder do not, and the
performance of this Agreement by the Stockholder shall not,
(i) conflict with or violate the Certificate of Incorporation
or By-Laws or equivalent organizational documents of the
Stockholder, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the
Stockholder or by which the Shares are bound or affected or
(iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become
a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the
3
Shares pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Stockholder is a
party or by which the Stockholder or the Shares are bound or
affected, except, in the case of clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay the performance
by the Stockholder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by
the Stockholder do not, and the performance of this Agreement
by the Stockholder shall not, require any consent, approval,
authorization or permit of, or filing with or notification
to, any Governmental Entity (as such term is defined in the
Merger Agreement) except for applicable requirements, if any,
of the Securities Exchange Act of 1934, as amended, and
except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would prevent or delay the performance by
the Stockholder of its obligations under this Agreement.
SECTION 2.03. Title to the Shares. As of the date
-------------------
hereof, the Stockholder is the record and beneficial owner of
45,547,214 shares of Viacom Class A Common Stock. Other than
46,565,414 shares of Viacom Class B Common Stock of which the
Stockholder is the record and beneficial owner, such Shares
are all the securities of Viacom owned, either of record or
beneficially, by the Stockholder. The Shares are owned free
and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on
the Stockholder's voting rights, charges and other
encumbrances of any nature whatsoever. The Stockholder has
not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Shares.
ARTICLE III
COVENANTS OF THE STOCKHOLDER
-----------------------------
SECTION 3.01. No inconsistent Agreements. The
--------------------------
Stockholder hereby covenants and agrees that, except as
contemplated by this Agreement, the Merger Agreement and the
Voting Agreement, dated as of September 12, 1993, as amended,
between the Stockholder and Paramount Communications Inc.,
the Stockholder shall not enter into any voting agreement or
grant a proxy or power of attorney with respect to the Shares
which is inconsistent with this Agreement.
SECTION 3.02. Transfer of Title. The Stockholder
-----------------
hereby covenants and agrees that the Stockholder shall not
4
transfer record or beneficial ownership of any of the Shares
unless the transferee agrees in writing to be bound by the
terms and conditions of this Agreement.
ARTICLE IV
MISCELLANEOUS
-------------
SECTION 4.01. Termination. This Agreement shall
-----------
terminate upon the termination of the Merger Agreement.
SECTION 4.02. Specific Performance. The parties
--------------------
hereto agree that irreparable damage would occur in the event
any provision of this Agreement was not performed in
accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
SECTION 4.03. Entire Agreement. This Agreement
----------------
constitutes the entire agreement between Blockbuster and the
Stockholder with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both
written and oral, between Blockbuster and the Stockholder
with respect to the subject matter hereof.
SECTION 4.04. Amendment. This Agreement may not be
---------
amended except by an instrument in writing signed by the
parties hereto.
SECTION 4.05. Severability. If any term or other
------------
provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law, or public policy, all
other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the
economic or legal substance of this Agreement is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in
a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest
extent possible.
SECTION 4.06. Governing Law. Except to the extent
-------------
that the General Corporation Law of the State of Delaware is
mandatorily applicable to the rights of the stockholders of
Viacom, this Agreement shall be governed by, and construed in
5
accordance with, the laws of the State of New York regardless
of the laws that might otherwise govern under applicable
principles of conflicts of law.
IN WITNESS WHEREOF, the Stockholder and Blockbuster
have caused this Agreement to be duly executed on the date
hereof.
NATIONAL AMUSEMENTS, INC.
By /s/ Sumner M. Redstone
-----------------------------
Name: Sumner M. Redstone
Title: Chairman of the Board,
President and Chief
Executive Officer
BLOCKBUSTER ENTERTAINMENT
CORPORATION
By: /s/ H. Wayne Huizenga
-----------------------------
Name: H. Wayne Huizenga
Title: Chairman of the Board
and Chief Executive
Officer
[CONFORMED COPY]
AMENDED AND RESTATED
STOCKHOLDERS STOCK OPTION AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS STOCK OPTION AGREEMENT,
dated as of January 7, 1994, among VIACOM INC., a Delaware
corporation ("Viacom"), and each other person and entity listed on
the signature pages hereof (each, a "Stockholder").
WHEREAS, as of the date hereof each Stockholder owns
(either beneficially or of record) the number of shares of common
stock, par value $0.10 per share ("Blockbuster Common Stock"), of
Blockbuster Entertainment Corporation, a Delaware corporation
("Blockbuster"), set forth opposite such Stockholder's name on
Exhibit A hereto (all such shares and any shares hereafter acquired
by the Stockholders prior to the termination of this Agreement
being referred to herein as the "Shares");
WHEREAS, Viacom and Blockbuster propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (as the
same may be amended from time to time, the "Merger Agreement"),
which provides, upon the terms and subject to the conditions
thereof, for the merger of Blockbuster with and into Viacom (the
"Merger"); and
WHEREAS, as a condition to the willingness of Viacom to
enter into the Merger Agreement, Viacom has requested that each
Stockholder agree, and, in order to induce Viacom to enter into the
Merger Agreement, each Stockholder has agreed, severally and not
jointly, to grant Viacom options to purchase such Stockholder's
Shares;
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements and covenants set forth herein and in the
Merger Agreement, the parties hereto agree as follows:
ARTICLE I
THE OPTIONS
SECTION 1.01. Grant of Options. Each Stockholder hereby
grants to Viacom an irrevocable option (each, an "Option") to
purchase such Stockholder's Shares at a price per Share equal to
$30.125 (the "Purchase Price"). Each Option shall expire if not
exercised prior to the close of business on the 120th day following
termination of the Merger Agreement. Each Option shall also expire
if the Merger Agreement is terminated pursuant to Section 8.01(c)
thereof.
SECTION 1.02. Exercise of Options. Provided that (a) to
the extent necessary, any applicable waiting periods (and any
extension thereof) under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 and the rules and regulations promulgated
thereunder (the "HSR Act") with respect to the exercise of an
Option shall have expired or been terminated and (b) no preliminary
or permanent injunction or other order, decree or ruling issued by
any court or governmental or regulatory authority, domestic or
foreign, of competent jurisdiction prohibiting the exercise of an
Option or the delivery of Shares shall be in effect, Viacom may
exercise any or all of the Options at any time following
termination of the Merger Agreement (other than a termination
pursuant to Section 8.01(c) thereof) until the expiration of such
Options, provided that at the time of exercise of the Options there
exists a Competing Transaction (as defined in the Merger Agreement)
with respect to Blockbuster. In the event that Viacom wishes to
exercise an Option, Viacom shall give written notice (the date of
such notice being herein called the "Notice Date"), to the
Stockholder who granted such Option specifying a place and date
(not later than ten Business Days (as defined below) and not
earlier than three Business Days following the Notice Date) for
closing such purchase (the "Closing"). For the purposes of this
Agreement, the term "Business Day" shall mean a Saturday, a Sunday
or a day on which banks are not required or authorized by law or
executive order to be closed in the City of New York.
SECTION 1.03. Payment for and Delivery of Certificates.
At the Closing, (a) Viacom shall pay the aggregate Purchase Price
for the Shares being purchased from each Stockholder by wire
transfer in immediately available funds of the total amount of the
Purchase Price for such Shares to an account designated by such
Stockholder by written notice to Viacom, and (b) each Stockholder
whose Shares are being purchased shall deliver to Viacom a
certificate or certificates evidencing such Stockholder's Shares,
and such Stockholder agrees that such Shares shall be transfered
free and clear of all liens. All such certificates shall be duly
endorsed in blank, or with appropriate stock powers, duly executed
in blank, attached thereto, in proper form for transfer, with the
signature of such Stockholder thereon guaranteed, and with all
applicable taxes paid or provided for.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby
represents and warrants to Viacom as follows:
SECTION 2.01. Due Organization, etc. Such Stockholder
(if it is a corporation, partnership or other legal entity) is duly
organized and validly existing under the laws of the jurisdiction
of its incorporation or organization. Such Stockholder has full
power and authority (corporate or otherwise) to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on the
part of such Stockholder. This Agreement has been duly executed
and delivered by or on behalf of such Stockholder and, assuming its
due authorization, execution and delivery by Viacom, constitutes a
legal, valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 2.02. No Conflicts; Required Filings and
Consents. (a) The execution and delivery of this Agreement by
such Stockholder do not, and the performance of this Agreement by
such Stockholder will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws or similar organizational
document of such Stockholder (in the case of a Stockholder that is
a corporation, partnership or other legal entity), (ii) conflict
with or violate any law, rule, regulation, order, judgment or
decree applicable to such Stockholder or by which it or any of its
properties is bound or affected, or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or encumbrance on any of the
property or assets of such Stockholder or (if such Stockholder
purports to be a corporation) any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which such Stockholder is a party or by which such Stockholder or
any of its properties is bound or affected, except for any such
breaches, defaults or other occurrences that would not cause or
create a material risk of non-performance or delayed performance by
such Stockholder of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by such
Stockholder do not, and the performance of this Agreement by such
Stockholder will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and the HSR Act and (ii) where the failure to
obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay the
performance by such Stockholder of its obligations under this
Agreement.
SECTION 2.03. Title to Shares. At the Closing such
Stockholder will deliver good and valid title to its Shares free
and clear of any pledge, lien, security interest, charge, claim,
equity, option, proxy, voting restriction, right of first refusal
or other limitation on disposition or encumbrance of any kind,
other than pursuant to this Agreement. Subject to Permitted Liens
(as defined below), which will be eliminated prior to or at the
Closing, such Stockholder has full right, power and authority to
sell, transfer and deliver its Shares pursuant to this Agreement.
Upon delivery of such Shares and payment of the Purchase Price
therefor as contemplated herein, Viacom will receive good and valid
title to such Shares, free and clear of any pledge, lien, security
interest, charge, claim, equity, option, proxy, voting restriction
or encumbrance of any kind.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIACOM
Viacom hereby represents and warrants to each Stockholder
as follows:
SECTION 3.01. Due Organization, etc. Viacom is a
corporation duly organized and validly existing under the laws of
the State of Delaware. Viacom has all necessary corporate power
and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by Viacom have been duly authorized by all
necessary corporate action on the part of Viacom. This Agreement
has been duly executed and delivered by Viacom and, assuming its
due authorization, execution and delivery by each Stockholder,
constitutes a legal, valid and binding obligation of Viacom,
enforceable against Viacom in accordance with its terms.
SECTION 3.02. No Conflict; Required Filings and
Consents. (a) The execution and delivery of this Agreement by
Viacom do not, and the performance of this Agreement by Viacom will
not, (i) conflict with or violate the Certificate of Incorporation
or By-laws of Viacom, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Viacom or by
which Viacom or any of its properties is bound or affected, or
(iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the property or assets of Viacom
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Viacom is a party or by which it or any of its
properties is bound or affected, except for any such breaches,
defaults or other occurrences that would not cause or create a
material risk of non-performance or delayed performance by Viacom
of its obligations under this Agreement.
(b) The execution and delivery of this Agreement by
Viacom do not, and the performance of this Agreement by Viacom will
not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act and the HSR Act and (ii)
where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not prevent or delay the performance by Viacom
of its obligations under this Agreement.
SECTION 3.03. Investment Intent. The purchase of Shares
from any Stockholder pursuant to this Agreement is for the account
of Viacom for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof within the
meaning of the Securities Act, and the rules and regulations
promulgated thereunder.
ARTICLE IV
TRANSFER AND VOTING OF SHARES
SECTION 4.01. Transfer of Shares. During the term of
the Options, and except as otherwise provided herein, each
Stockholder shall not (a) sell, pledge (other than Permitted Liens
(as defined below)) or otherwise dispose of any of its Shares, (b)
deposit its Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares or grant any
proxy with respect thereto or (c) enter into any contract, option
or other arrangement or undertaking with respect to the direct or
indirect acquisition or sale, assignment, transfer or other
disposition of any Blockbuster Common Stock (other than, in the
case of John J. Melk and Donald F. Flynn, the Amended and Restated
Proxy Agreement, dated as of January 7, 1994, among Viacom and each
other person and entity listed on the signature pages thereof).
Exercise of rights or remedies pursuant to bona fide pledges of
Shares to banks or other financial institutions ("Permitted Liens")
are not restricted by this Agreement; provided that in the case of
Permitted Liens granted after the date of this Agreement, such
Shares continue to be subject to the Options.
SECTION 4.02. Voting of Shares; Further Assurances.
(a) Each Stockholder, by this Agreement, with respect to those Shares
that it owns of record, does hereby constitute and appoint Viacom,
or any nominee of Viacom, with full power of substitution, during
and for the term of the Option granted by such Stockholder
hereunder (or, following termination of the Merger Agreement,
during such periods as the Options are exercisable), as its true
and lawful attorney and proxy, for and in its name, place and
stead, to vote each of such Shares as its proxy, at every annual,
special or adjourned meeting of the stockholders of Blockbuster
(including the right to sign its name (as stockholder) to any
consent, certificate or other document relating to Blockbuster that
the law of the State of Delaware may permit or require) (i) in
favor of the adoption of the Merger Agreement and approval of the
Merger and the other transactions contemplated by the Merger
Agreement, (ii) against any proposal for any recapitalization,
merger, sale of assets or other business combination between
Blockbuster and any person or entity (other than the Merger) or any
other action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or
agreement of Blockbuster under the Merger Agreement or which could
result in any of the conditions to Blockbuster's obligations under
the Merger Agreement not being fulfilled, and (iii) in favor of any
other matter relating to consummation of the transactions
contemplated by the Merger Agreement. Each Stockholder further
agrees to cause the Shares owned by it beneficially to be voted in
accordance with the foregoing. Each Stockholder acknowledges
receipt and review of a copy of the Merger Agreement.
(b) If Viacom shall exercise any Option in accordance
with the terms of this Agreement, and without additional
consideration, the Stockholder who granted such Option shall
execute and deliver further transfers, assignments, endorsements,
consents and other instruments as Viacom may reasonably request for
the purpose of effectively carrying out the transactions
contemplated by this Agreement and the Merger Agreement, including
the transfer of any and all of such Stockholder's Shares to Viacom
and the release of any and all liens, claims and encumbrances
covering such Shares.
(c) Each Stockholder shall perform such further acts and
execute such further documents and instruments as may reasonably be
required to vest in Viacom the power to carry out the provisions of
this Agreement.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.01. Notices. All notices and other
communications given or made pursuant hereto shall be in writing
and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified
mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as
shall be specified by like changes of address) or sent by
electronic transmission to the telecopier number specified below:
(a) If to Viacom:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: Senior Vice President,
General Counsel and Secretary
Telecopier No.: 212-258-6134
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Stephen R. Volk, Esq.
Telecopier No.: (212) 848-7179
(b) If to a Stockholder, to the address set forth
below such Stockholder's name on the signature
pages hereof.
with a copy to:
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301
Attention: Vice President, General
Counsel and Secretary
Telecopier No.: 305-832-3929
SECTION 5.02. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 5.03. Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate
in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 5.04. Entire Agreement. This Agreement
constitutes the entire agreement of the parties and supersedes all
prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter
hereof.
SECTION 5.05. Assignment. This Agreement shall not be
assigned by operation of law or otherwise.
SECTION 5.06. Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any person any right, benefit or
remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 5.07. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at
law or in equity.
SECTION 5.08. Governing Law. Except to the extent that
Delaware Law is mandatorily applicable to the rights of the
stockholders of Blockbuster, this Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York
applicable to contracts executed and to be performed entirely
within that state.
SECTION 5.09. Counterparts. This Agreement may be
executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed shall
be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
VIACOM INC.
By /s/ Sumner M. Redstone
-----------------------------
Name: Sumner M. Redstone
Title: Chairman of the Board
/s/ H. Wayne Huizenga
-----------------------------
H. Wayne Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Steven R. Berrard
-----------------------------
Steven R. Berrard
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ John J. Melk
-----------------------------
John J. Melk
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Donald F. Flynn
-----------------------------
Donald F. Flynn
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ G. Harry Huizenga
-----------------------------
G. Harry Huizenga
for G. Harry Huizenga
and Jean Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
EXHIBIT A
List of Stockholders
Number of Shares of
Name of Stockholder Blockbuster Common Stock
H. Wayne Huizenga 10,905,885
Steven R. Berrard 4,970
John J. Melk 1,547,058
Donald F. Flynn 1,547,057
Harry and Jean Huizenga 1,572,241
[CONFORMED COPY]
AMENDED AND RESTATED PROXY AGREEMENT
AMENDED AND RESTATED PROXY AGREEMENT, dated as of January
7, 1994, among VIACOM INC., a Delaware corporation ("Viacom"), and
each other person and entity listed on the signature pages hereof
(each, a "Stockholder").
WHEREAS, as of the date hereof each Stockholder owns
(either beneficially or of record) the number of shares of common
stock, par value $0.10 per share ("Blockbuster Common Stock"), of
Blockbuster Entertainment Corporation, a Delaware corporation
("Blockbuster"), set forth opposite such Stockholder's name on
Exhibit A hereto (all such shares and any shares hereafter acquired
by the Stockholders prior to the termination of this Agreement
being referred to herein as the "Shares");
WHEREAS, Viacom and Blockbuster propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (as the
same may be amended from time to time, the "Merger Agreement"),
which provides, upon the terms and subject to the conditions
thereof, for the merger of Blockbuster with and into Viacom (the
"Merger"); and
WHEREAS, as a condition to the willingness of Viacom to
enter into the Merger Agreement, Viacom has requested that each
Stockholder agree, and, in order to induce Viacom to enter into the
Merger Agreement, each Stockholder has agreed, severally and not
jointly, to grant Viacom proxies to vote such Stockholder's Shares;
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements and covenants set forth herein and in the
Merger Agreement, the parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby
represents and warrants to Viacom as follows:
SECTION 1.01. Due Organization, etc. Such Stockholder
(if it is a corporation, partnership or other legal entity) is duly
organized and validly existing under the laws of the jurisdiction
of its incorporation or organization. Such Stockholder has full
power and authority (corporate or otherwise) to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action (corporate or otherwise) on the
part of such Stockholder. This Agreement has been duly executed
and delivered by or on behalf of such Stockholder and, assuming its
due authorization, execution and delivery by Viacom, constitutes a
legal, valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to the effect of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 1.02. Title to Shares. Such Stockholder is the
record or beneficial owner of its Shares free and clear of any
proxy or voting restriction other than pursuant to this Agreement.
ARTICLE II
TRANSFER AND VOTING OF SHARES
SECTION 2.01. Transfer of Shares. During the Proxy Term
(as defined below), and except as otherwise provided herein, each
Stockholder shall not (a) sell, pledge (other than Permitted Liens
(as defined below)) or otherwise dispose of any of its Shares, (b)
deposit its Shares into a voting trust or enter into a voting
agreement or arrangement with respect to such Shares or grant any
proxy with respect thereto or (c) enter into any contract, option
or other arrangement or undertaking with respect to the direct or
indirect acquisition or sale, assignment, transfer or other
disposition of any Blockbuster Common Stock (other than, in the
case of John J. Melk and Donald F. Flynn, the Amended and Restated
Stockholders Stock Option Agreement, dated as of January 7, 1994,
among Viacom and each other person and entity listed on the
signature pages thereof). Exercise of rights or remedies pursuant
to bona fide pledges of Shares to banks or other financial
institutions ("Permitted Liens") are not restricted by this
Agreement. Viacom acknowledges that 575,000 of the Shares owned by
Dean L. Buntrock are subject to a pre-existing option and related
pledge agreement granted to an unrelated third party.
SECTION 2.02. Voting of Shares; Further Assurances.
(a) Each Stockholder, by this Agreement, with respect to those Shares
that it owns of record, does hereby constitute and appoint Viacom,
or any nominee of Viacom, with full power of substitution, during
and for the Proxy Term, as its true and lawful attorney and proxy,
for and in its name, place and stead, to vote each of such Shares
as its proxy, at every annual, special or adjourned meeting of the
stockholders of Blockbuster (including the right to sign its name
(as stockholder) to any consent, certificate or other document
relating to Blockbuster that the law of the State of Delaware may
permit or require) (i) in favor of the adoption of the Merger
Agreement and approval of the Merger and the other transactions
contemplated by the Merger Agreement, (ii) against any proposal for
any recapitalization, merger, sale of assets or other business
combination between Blockbuster and any person or entity (other
than the Merger) or any other action or agreement that would result
in a breach of any covenant, representation or warranty or any
other obligation or agreement of Blockbuster under the Merger
Agreement or which could result in any of the conditions to
Blockbuster's obligations under the Merger Agreement not being
fulfilled, and (iii) in favor of any other matter relating to
consummation of the transactions contemplated by the Merger
Agreement. Each Stockholder further agrees to cause the Shares
owned by it beneficially to be voted in accordance with the
foregoing.
(b) For the purposes of this Agreement, "Proxy Term"
shall mean the period from the execution of this Agreement until
the termination of the Merger Agreement, and following termination
of the Merger Agreement (other than a termination pursuant to
Section 8.01(c) thereof), during such time as a Competing
Transaction (as defined in the Merger Agreement) exists with
respect to Blockbuster; provided that in no event shall the Proxy
Term extend beyond the close of business on the 120th day following
termination of the Merger Agreement.
(c) Each Stockholder shall perform such further acts and
execute such further documents and instruments as may reasonably be
required to vest in Viacom the power to carry out the provisions of
this Agreement.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.01. Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate
in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 3.02. Entire Agreement. This Agreement
constitutes the entire agreement of the parties and supersedes all
prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter
hereof.
SECTION 3.03. Assignment. This Agreement shall not be
assigned by operation of law or otherwise.
SECTION 3.04. Parties in Interest. This Agreement shall
be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any person any right, benefit or
remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 3.05. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at
law or in equity.
SECTION 3.06. Governing Law. Except to the extent that
Delaware Law is mandatorily applicable to the rights of the
stockholders of Blockbuster, this Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York
applicable to contracts executed and to be performed entirely
within that state.
SECTION 3.07. Counterparts. This Agreement may be
executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed shall
be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
VIACOM INC.
By /s/ Sumner M. Redstone
-------------------------
Name: Sumner M. Redstone
Title: Chairman of the
Board
PHILIPS ELECTRONICS N.V.
By /s/ D.G. Eustace
-------------------------
Name: D.G. Eustace
Title: Executive Vice
President
Groenewoudseweg 1
5621 BA
Eindhoven, The Netherlands
WESTBURY (BERMUDA) LTD.
By /s/ James Watt
-------------------------
Name: James Watt
Title: Vice President
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton HM EX
Bermuda
/s/ John J. Melk
-------------------------
John J. Melk
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Donald F. Flynn
-------------------------
Donald F. Flynn
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ George D. Johnson, Jr.
--------------------------
George D. Johnson, Jr.
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Scott A. Beck
--------------------------
Scott A. Beck
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Harris W. Hudson
--------------------------
Harris W. Hudson
529 Bontana Avenue
Fort Lauderdale, FL 33301
/s/ Bonnie J. Hudson
--------------------------
Bonnie J. Hudson
529 Bontana Avenue
Fort Lauderdale, FL 33301
/s/ Peter Huizenga
---------------------------
Peter Huizenga Trustee,
Peter H. Huizenga Sr.
Testamentary Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Peter Huizenga
---------------------------
Peter Huizenga
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Peter Huizenga
---------------------------
Peter Huizenga Trustee,
Elizabeth I. Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Peter Huizenga
---------------------------
Peter Huizenga Trustee,
Betsy Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Peter Huizenga
---------------------------
Peter Huizenga Trustee,
Greta Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Heidi Huizenga
---------------------------
Heidi Huizenga Trustee,
Peter Huizenga Jr. Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Heidi Huizenga
---------------------------
Heidi Huizenga Trustee,
Timothy Huizenga Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Dean L. Buntrock
---------------------------
Dean L. Buntrock
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Rosemarie Buntrock
---------------------------
Rosemarie Buntrock
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
/s/ Rosemarie Buntrock
---------------------------
Rosemarie Buntrock Trustee,
Buntrock Family Video Trust
c/o Blockbuster Entertainment
Corporation
One Blockbuster Plaza
Fort Lauderdale, FL 33301
EXHIBIT A
List of Stockholders
Number of Shares of
Name of Stockholder Blockbuster Common Stock
Philips Electronics N.V. 17,245,211
Westbury (Bermuda) Inc. 1,400,000
John J. Melk 5,217,196
Donald F. Flynn 4,398,119
George D. Johnson, Jr. 2,827,465
Scott A. Beck 3,290,819
Harris W. Hudson and
Bonnie J. Hudson 821,388
Peter Huizenga, as trustee
for Peter H. Huizenga
Sr. Testamentary Trust 1,771,296
Peter Huizenga 431,390
Peter Huizenga, as trustee
for Elizabeth I. Huizenga Trust 50,000
Peter Huizenga, as trustee
for Betsy Huizenga Trust 20,800
Peter Huizenga, as trustee
for Greta Huizenga Trust 20,800
Heidi Huizenga, as trustee
for Peter Huizenga Jr. Trust 20,800
Heidi Huizenga, as trustee
for Timothy Huizenga Trust 20,800
Dean L. Buntrock 1,993,984
Rosemarie Buntrock 382,150
Rosemarie Buntrock, as
trustee for Buntrock
Family Video Trust 355,506
State of Delaware
Office of the Secretary of State
________________________________
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE CERTIFICATE OF STOCK DESIGNATION OF "VIACOM INC."
FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF NOVEMBER, A.D.
1993, AT 10:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
* * * * * * * * * * *
________________________________________
William T. Quillen, Secretary of State
AUTHENTICATION: *4153016
DATE: 11/18/1993
CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING OR OTHER RIGHTS, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.01 Par Value)
OF
VIACOM INC.
-----------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-----------------
VIACOM, INC., a Delaware corporation (the "Corporation"),
does hereby certify that the following resolutions were duly
adopted by the Board of Directors of the Corporation pursuant to
authority conferred upon the Board of Directors by Article IV of
the Restated Certificate of Incorporation of the Corporation,
which authorizes the issuance of up to 100,000,000 shares of
preferred stock, and by the Securities Committee of the Board of
Directors pursuant to authority conferred upon such Committee by
the Board of Directors in accordance with Section 141(c) of the
General Corporation Law of the State of Delaware and Article
Section 11 of the By-Laws of the Corporation at a meeting of the
Board of Directors duly held on September 28, 1993:
RESOLVED, that the issue of a series of preferred stock,
$0.01 par value, of the Corporation is hereby authorized and the
designation, powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations
or restrictions thereof, in addition to those set forth in the
Restated Certificate of Incorporation of the Corporation, are
hereby fixed as follows:
(1) Number of Shares and Designation. 24,000,000 shares of
--------------------------------
the preferred stock, $0.01 par value, of the Corporation are
hereby constituted as a series of the preferred stock designated
as Series B Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock"). The number of shares of Series B Preferred
Stock may not be increased and may not be decreased below the
number of then currently outstanding shares of Series B Preferred
Stock.
(2) Definitions. For purposes of the Series B Preferred
-----------
Stock, the following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors
of the Corporation or any committee authorized by such Board
of Directors to perform any of its responsibilities with
respect to the Series B Preferred Stock.
"Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or
executive order to close.
"Class A Stock" shall mean the Class A Common Stock of
the Corporation, par value $0.01 per share.
"Common Stock" shall mean the Class B Common Stock of
the Corporation, par value $0.01 per share.
"Conversion Price" shall mean the conversion price per
share of Common Stock for which the Series B Preferred Stock
is convertible, as such Conversion Price may be adjusted
pursuant to Section (7). The initial Conversion Price will
be $70.00 (equivalent to the rate of .7143 of a share of
Common Stock for each share of Series B Preferred Stock).
"Current Market Price" shall mean, as of a particular
date, the closing sale price at which Common Stock shall
have been sold regular way on the American Stock Exchange or
such other exchange or inter-dealer quotation system on
which the Common Stock is principally traded or authorized
to be quoted.
"Dividend Periods" shall mean quarterly dividend
periods commencing on the first day of October, January,
April and July of each year and ending on and including the
day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period which shall
commence on the Issue Date and end on and include December
31, 1993).
"Issue Date" shall mean the first date on which shares
of Series B Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Securities" shall have the meaning set forth in
paragraph (d)(iii) of Section (7) hereof.
"Trading Day" means a day on which the American Stock
Exchange, or such other exchange or inter-dealer quotation
system on which the Common Stock is principally traded or
authorized to be quoted, is open for the transaction of
business.
"Transaction" shall have the meaning set forth in
paragraph (e) of Section (7) hereof.
"Transfer Agent" means the First Chicago Trust Company
of New York or such other agent or agents of the Corporation
as may be designated by the Board of Directors of the
Corporation as the transfer agent for the Series B Preferred
Stock.
(3) Dividends. (a) The holders of shares of the Series B
---------
Preferred Stock shall be entitled to receive, when and if
declared by the Board of Directors out of funds legally available
therefor, cash dividends at the rate per annum of $2.50 per share
of Series B Preferred Stock. Such dividends shall be cumulative
from the Issue Date, whether or not in any Dividend Period or
Periods there shall be funds of the Company legally available for
the payment of such dividends, and shall be payable quarterly,
when and as declared by the Board of Directors, on the first
Business Day of January, April, July and October of each year,
commencing on January 1, 1994 or at such additional times and for
such interim periods, if any, as determined by the Board of
Directors. Each such dividend shall be payable in arrears to the
holders of record of shares of the Series B Preferred Stock, as
they appear on the stock records of the Corporation at the close
of business on such record dates, not more than 60 days preceding
the payment dates thereof, as shall be fixed by the Board of
Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without reference
to any regular dividend payment date, to holders of record on
such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors. Accrued and
unpaid dividends for any past Dividend Periods shall accrue
interest at the Base Rate as announced from time to time by
Citibank, N.A., which interest, until paid, shall be treated for
all purposes of this Certificate of Designation as accrued and
unpaid dividends.
(b) The amount of dividends payable for each full Dividend
Period for the Series B Preferred Stock shall be computed by
dividing the annual dividend rate by four. The amount of
dividends payable for the initial Dividend Period on the Series B
Preferred Stock, or any other period shorter or longer than a
full Dividend Period on the Series B Preferred Stock shall be
computed on the basis of twelve 30-day months and a 360-day year.
Except as provided in Section 5(a), holders of shares of Series B
Preferred Stock called for redemption on a redemption date
between a dividend payment record date and the dividend payment
date shall not be entitled to receive the dividend payable on
such dividend payment date. Holders of shares of Series B
Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of cumulative
dividends, as herein provided, on the Series B Preferred Stock.
(c) So long as any shares of the Series B Preferred Stock
are outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for
payment on any class or series of stock of the Corporation
ranking, as to dividends, on a parity with the Series B Preferred
Stock, for any period, nor shall any shares ranking on a parity
with the Series B Preferred Stock be redeemed or purchased by the
Corporation or any Subsidiary, unless full cumulative dividends
have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such
payment on the Series B Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such full
cumulative dividends. When dividends are not paid in full or a
sum sufficient for such payment is not set apart, as aforesaid,
upon the shares of the Series B Preferred Stock and any other
class or series of stock ranking on a parity as to dividends with
the Series B Preferred Stock, all dividends declared upon shares
of the Series B Preferred Stock and all dividends declared upon
such other stock shall be declared pro rata so that the amounts
of dividends per share declared on the Series B Preferred Stock
and such other stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the shares of the
Series B Preferred Stock and such other stock bear to each other.
(d) So long as any shares of the Series B Preferred Stock
are outstanding, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights
to subscribe for or purchase shares of Common Stock, Class A
Stock or other stock ranking junior to the Series B Preferred
Stock, as to dividends and upon liquidation) shall be declared or
paid or set apart for payment or other distribution declared or
made upon the Common Stock, Class A Stock or any other stock of
the Corporation ranking junior to the Series B Preferred Stock,
as to dividends or upon liquidation nor shall any Common Stock,
nor any Class A Stock nor any other such stock of the Corporation
ranking junior to the Series B Preferred Stock, as to dividends
or upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such
stock) by the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to the Series B
Preferred Stock, as to dividends and upon liquidation) or any
Subsidiary unless, in each case (i) the full cumulative dividends
on all outstanding shares of the Series B Preferred Stock and any
other stock of the Corporation ranking on a parity with the
Series B Preferred Stock, as to dividends or upon liquidation
shall have been paid or set apart for payment for all past
Dividend Periods and dividend periods with respect to such other
stock and (ii) sufficient funds shall have been set apart for the
payment of the dividend for the current Dividend Period with
respect to the Series B Preferred Stock and the dividend period
with respect to any other stock of the Corporation ranking on a
parity with the Series B Preferred Stock, as to dividends or upon
liquidation.
(4) Liquidation Preference. (a) In the event of any
----------------------
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of Common
Stock, Class A Stock or any other series or class or classes of
stock of the Corporation ranking junior to the Series B Preferred
Stock, upon liquidation, dissolution or winding up, the holders
of the shares of Series B Preferred Stock shall be entitled to
receive $50.00 per share plus an amount equal to all dividends
(whether or not earned or declared) accrued and accumulated and
unpaid thereon to the date of final distribution to such holders;
but such holders shall not be entitled to any further payment.
If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the shares of Series B
Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any
other shares of stock ranking, as to liquidation, dissolution or
winding up, on a parity with the Series B Preferred Stock, then
such assets, or the proceeds thereof, shall be distributed among
the holders of shares of Series B Preferred Stock and any such
other stock ratably in accordance with the respective amounts
which would be payable on such shares of Series B Preferred Stock
and any such other stock if all amounts payable thereon were paid
in full. For the purposes of this Section (4), (i) a
consolidation or merger of the Corporation with one or more
corporations, (ii) a sale or transfer of all or substantially all
of the Corporation's assets or (iii) a statutory share exchange
shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary.
(b) Subject to the rights of the holders of shares of any
series or class or classes of stock ranking on a parity with or
prior to Series B Preferred Stock, upon liquidation, dissolution
or winding up, upon any liquidation, dissolution of winding up of
the Corporation, after payment shall have been made in full to
the holders of Series B Preferred Stock, as provided in this
Section (4), any other series or class or classes of stock
ranking junior to Series B Preferred Stock, upon liquidation,
dissolution or winding up shall, subject to the respective terms
and provisions (if any) applying thereto, be entitled to receive
any and all assets remaining to be paid or distributed, and the
holders of Series B Preferred Stock shall not be entitled to
share therein.
(5) Redemption at the Option of the Corporation. (a)
-------------------------------------------
Series B Preferred Stock may not be redeemed by the Corporation
prior to October 1, 1998, after which the Corporation, at its
option, may redeem the shares of Series B Preferred Stock, in
whole or in part, for an aggregate redemption price of at least
$100,000,000 (provided that no partial redemption shall reduce
--------
the Series A Preferred Stock outstanding below $100,000,000
aggregate liquidation value) out of funds legally available
therefor, at any time or from time to time, subject to the notice
provisions and provisions for partial redemption described below,
during the 359-day period beginning on October 1, 1998 and during
the twelve-month periods beginning on October 1 of the years
beginning with 1998 shown below at the following redemption
prices plus an amount equal to accrued and unpaid dividends, if
any, to the date fixed for redemption, whether or not earned or
declared:
Year Price
---- -------
1998 . . . . . . . . . . . . . . . $52.50
1999 . . . . . . . . . . . . . . . $52.00
2000 . . . . . . . . . . . . . . . $51.50
2001 . . . . . . . . . . . . . . . $51.00
2002 . . . . . . . . . . . . . . . $50.50
2004 and thereafter . . . . . . . . $50.00
(b) In the event that full cumulative dividends on the
Series B Preferred Stock and any other class or series of stock
of the Corporation ranking, as to dividends, on a parity with the
Series B Preferred Stock have not been paid or declared and set
apart for payment, the Series B Preferred Stock may not be
redeemed in part and the Corporation may not purchase or acquire
shares of Series B Preferred Stock or such other stock otherwise
than pursuant to a purchase or exchange offer made on the same
terms to all holders of shares of Series B Preferred Stock and
such other stock.
(c) In the event the Corporation shall redeem shares of
Series B Preferred Stock, notice of such redemption shall be
given by first class mail, postage prepaid, mailed not less than
10 nor more than 60 days prior to the redemption date, to each
holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the
Corporation, which notice shall be unconditional and irrevocable.
Each such notice shall state: (1) the redemption date; (2) the
number of shares of Series B Preferred Stock to be redeemed and,
if less than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such
holder; (3) the redemption price; (4) the place or places where
certificates for such shares are to be surrendered for payment of
the redemption price; (5) the then current conversion price; and
(6) that dividends on the shares to be redeemed shall cease to
accrue on such redemption date. Notice having been mailed as
aforesaid, from and after the redemption date (unless default
shall be made by the Corporation in providing money for the
payment of the redemption price), (i) dividends on the shares of
the Series B Preferred Stock so called for redemption shall cease
to accrue, (ii) said shares shall no longer be deemed to be
outstanding, and (iii) all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from
the Corporation the redemption price without interest thereon
after the redemption date) shall cease. The Corporation's
obligation to provide moneys in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the
redemption date, the Corporation shall deposit with a bank or
trust company (which may be an affiliate of the Corporation)
having an office in the Borough on Manhattan, City of New York,
and having a capital and surplus of at least $50,000,000, funds
necessary for such redemption, in trust, with irrevocable
instructions that such funds after the redemption date be applied
to the redemption of the shares of Series B Preferred Stock so
called for redemption. Any interest accrued on such funds after
the redemption date shall be paid to the Corporation from time to
time. Any funds so deposited and unclaimed at the end of two
years from such redemption date shall be released or repaid to
the Corporation, after which, subject to any applicable laws
relating to escheat or unclaimed property, the holder or holders
of such shares of Series B Preferred Stock so called for
redemption shall look only to the Corporation for payment of the
redemption price.
Upon surrender in accordance with said notice of the
certificates for any such shares so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), such shares shall be
redeemed by the Corporation at the applicable redemption price
aforesaid. If fewer than all the outstanding shares of Series B
Preferred Stock are to be redeemed, shares to be redeemed shall
be selected by the Corporation from outstanding shares of Series
B Preferred Stock not previously called for redemption by lot or
pro rata (as nearly as may be) or by any other method determined
by the Corporation in its sole discretion to be equitable. If
fewer than all the shares represented by any certificate are
redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(6) Shares to be Retired. All shares of Series B Preferred
--------------------
Stock purchased or redeemed by the Corporation or converted shall
be retired and cancelled and shall be restored to the status of
authorized but unissued shares of preferred stock, without
designation as to series.
(7) Conversion. Holders of shares of Series B Preferred
----------
Stock shall have the right to convert all or a portion of such
shares into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of
this Section (7), a holder of shares of series B Preferred Stock
shall have the right, at his or her option, at any time to
convert such shares into the number of fully paid and
nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) obtained by
dividing the aggregate liquidation preference of such shares by
the Conversion Price and by surrender of such shares so to be
converted, such surrender to be made in the manner provided in
paragraph (b) of this Section (7); provided, however, that the
right to convert shares called for redemption pursuant to Section
(5) shall terminate at the close of business on the date fixed
for such redemption, unless the Corporation shall default in
making payment of the amount payable upon such redemption. Any
share of Series B Preferred Stock may be converted, at the
request of its holder, in part into Common Stock. If a part of a
share of Series B Preferred Stock is converted, then the
Corporation will convert such share into the requested shares of
Common Stock (subject to paragraph (c) of this Section (7)) and
issue a fractional share of Series B Preferred Stock evidencing
the remaining interest of such holder.
(b) In order to exercise the conversion right, the holder
of each share of Series B Preferred Stock to be converted shall
surrender the certificate representing such share, duly endorsed
or assigned to the Corporation or in blank, at the office of the
Transfer Agent in the Borough of Manhattan, City of New York,
accompanied by written notice to the Corporation that the holder
thereof elects to convert Series B Preferred Stock or a specified
portion thereof. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such share of
Series B Preferred Stock is registered, each share surrendered
for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the
holder or such holder's duly authorized attorney and an amount
sufficient to pay any transfer or similar tax (or evidence
reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid).
Holders of shares of Series B Preferred Stock at the close
of business on a dividend payment record date shall be entitled
to receive the dividend payable on such shares (except that
holders of shares called for redemption on a redemption date
between such record date and the dividend payment date shall not
be entitled to receive such dividend on such dividend payment
date) on the corresponding dividend payment date notwithstanding
the conversion thereof following such dividend payment record
date and prior to such dividend payment date. However, shares of
Series B Preferred Stock surrendered for conversion during the
period between the close of business on any dividend record date
and the opening of business on the corresponding dividend payment
date (except shares called for redemption on a redemption date
during such period) must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend
payment date. A holder of shares of Series B Preferred Stock on
a dividend record date who (or whose transferee) tenders any such
shares for conversion into shares of Common Stock on such
dividend payment date will receive the dividend payable by the
Corporation on such shares of Series B Preferred Stock on such
date, and the converting holder need not include payment of the
amount of such dividend upon surrender of shares of Series B
Preferred Stock for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for
dividends on the shares of Common Stock issued upon such
conversion.
As promptly as practicable after the surrender of
certificates for shares of Series B Preferred Stock as aforesaid,
the Corporation shall issue and shall deliver at such office to
such holder, or on his or her written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this Section (7), and any fractional interest
in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in paragraph (c) of this
Section (7).
Each conversion shall be deemed to have effected immediately
prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock shall have
been surrendered and such notice received by the Corporation as
aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby at
such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date, unless the
stock transfer books of the Corporation shall be closed on that
date, in which event such person or persons shall be deemed to
have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer
books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such shares shall have
been surrendered and such notice received by the Corporation.
All shares of Common Stock delivered upon conversions of the
Series B Preferred Stock will upon delivery be duly and validly
issued and fully paid and nonassessable.
(c) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional interest in
a share of Common Stock which would otherwise be deliverable upon
the conversion for a share of Series B Preferred Stock, the
Corporation shall pay to the holder of such share an amount in
cash (computed to the nearest cent) based upon the Current Market
Price of Common Stock on the Trading Day immediately preceding
the date of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder, the
number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of
shares of Series B Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to
time as follows:
(i) In case the Corporation shall after the Issue Date
(A) pay a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (b) subdivide its
outstanding Common Stock into a greater number of shares,
(C) combine its outstanding Common Stock into a smaller
number of shares or (D) issue any shares of capital stock by
reclassification of its Common Stock, the Conversion Price
in effect immediately prior thereto shall be adjusted so
that the holder of any share of Series B Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock of the
Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such share been converted immediately
prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately
after the close of business on the record date (except as
provided in paragraph (h) below).
(ii) In case the Corporation shall issue after the
Issue Date (a) rights or warrants to all holders of Class A
Stock or Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to
subscribe for or purchase Class A Stock or Common Stock at a
price per share less than the Conversion Price at the record
date for the determination of stockholders entitled to
receive such rights or warrants or (b) shares of Class A
Stock or Common Stock or securities exercisable for
(including rights or warrants other than those referred to
in (a) above and subparagraph (iii) below) or exchangeable
or convertible into shares of Class A Stock or Common Stock
at a price per share (or having an exercise, exchange or
conversion price per share) less than the then current
Conversion Price (other than securities issued in a
transaction in which a pro rata share of such securities
have been reserved by the Corporation for distribution to
the holders of Series B Preferred Stock up conversion), then
in each such case the Conversion Price in effect immediately
prior thereto shall be adjusted to equal the price
determined by multiplying (I) the Conversion Price in effect
immediately prior to the date of issuance of such rights,
warrants or shares of Class A Stock or Common Stock (or
securities exercisable for or exchangeable or convertible
into shares of Class A Stock or Common Stock) by (II) a
fraction, the numerator of which shall be the sum of (A) the
number of shares of Class A Stock or Common Stock
outstanding on the date of issuance of such rights, warrants
or shares of Class A Stock or Common Stock (or securities
exercisable for or exchangeable or convertible into shares
of Class A Stock or Common Stock) (without giving effect to
any such issuance) and (B), in the case of (a) above, the
number of shares which the aggregate proceeds from the
exercise of such rights or warrants for Class A Stock and
Common Stock or, in the case of (b) above, the number of
shares which the aggregate consideration receivable by the
Corporation for the total number of shares of Class A Stock
and Common Stock (or securities exercisable for or
exchangeable or convertible into shares of Class A Stock or
Common Stock) so issued would purchase at the Conversion
Price in effect immediately prior to the date of issuance,
and the denominator of which shall be the sum of (A) the
number of shares of Class A Stock and Common Stock
outstanding on the date of issuance of such rights, warrants
or shares of Class A Stock or Common Stock (or securities
exercisable for or exchangeable or convertible into Class A
Stock or Common Stock) (without giving effect to any such
issuance) and (B), in the case of (a) above, the number of
additional shares of Class A Stock or Common Stock offered
for subscription or purchase or,in the case of (b) above,
the number of shares of Class A Stock and Common Stock so
issued or into which the exercisable, exchangeable or
convertible securities may be exercised, exchanged or
converted. Such adjustment shall be made successively
whenever any such rights, warrants or shares of Class A
Stock or Common Stock (or securities exercisable for or
exchangeable or convertible into Class A Stock or Common
Stock) are issued, and shall become effective immediately
after such record date or, in the case of the issuance of
Class A Stock or Common Stock after the date of issuance
thereof (or in the case of securities exercisable for or
exchangeable or convertible into shares of class A Stock or
Common Stock, the date on which holders may first exercise,
exchange or convert the same in accordance with the
respective terms thereof). In determining whether any
rights or warrants entitled the holders of Class A Stock or
Common Stock to subscribe for or purchase shares of Class A
Stock or Common Stock at less than the Conversion Price in
effect immediately prior to the date of such issuance, and
in determining the aggregate offering price of shares of
Class A Stock or Common Stock (or securities exercisable for
or exchangeable or convertible into shares of Class A Stock
or Common Stock), there shall be taken into account any net
consideration received or receivable by the Corporation upon
issuance and upon exercise of such rights or warrants or
upon issuance of shares of Class A Stock or Common Stock (or
securities exercisable for or exchangeable or convertible
into shares of Class A Stock or Common Stock), the value of
such consideration, if other than cash, to be determined by
the Board of Directors or, if higher, the aggregate
exercise, exchange or conversion price set forth in such
exercisable, exchangeable or convertible securities.
(iii) In case the Corporation shall distribute to
all holders of its Common Stock any shares of capital stock
of the Corporation (other than Common Stock) or evidences of
its indebtedness or assets (other than a regular cash
dividend that the Board of Directors determines, in good
faith, can be maintained by the company for at least four
consecutive periods covering not less than one year and that
the Board of Directors intends to maintain for at least four
consecutive periods covering not less than one year or a
dividend that, together with all dividends paid in the prior
twelve months, does not exceed one percent (1%) of the
aggregate fair market value of the Series B Preferred Stock
and the Common Stock on the date such dividend is declared,
in each case, out of profits or surplus) or rights or
warrants to subscribe for or purchase any of its securities
(excluding those referred to in subparagraph (ii)(a) above)
(any of the foregoing being hereinafter in this subparagraph
(iii) called the "Securities"), then in each such case,
unless the Corporation elects to reserve shares or other
units of such Securities for distribution to the holders of
the Series B Preferred Stock upon the conversion of the
shares of Series b Preferred Stock so that any such holder
converting shares of the Series B Preferred Stock will
receive upon such conversion, in addition to the shares of
the Common Stock to which such holder is entitled, the
amount and kind of such Securities which such holder would
have received if such holder had, immediately prior to the
record date for the distribution of the Securities,
converted his or her shares of Series B Preferred Stock into
Common Stock (such election to be based upon a determination
by the Board of Directors that such reservation will not
materially adversely affect the interests of any holder of
Series B Preferred Stock in any such reserved Securities),
the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying (I) the
Conversion Price in effect immediately prior to the date of
such distribution by (II) a fraction, the numerator of which
shall be the Current Market Price per share of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive)
of the portion of the capital stock or assets or evidences
of indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator
of which shall be the Current Market Price per share of the
Common Stock. Such adjustment shall become effective
immediately, except as provided in paragraph (h) below,
after the record date for the determination of stockholders
entitled to receive such distribution.
(iv) Notwithstanding anything in subparagraphs (ii) and
(iii) above, if such exercisable, exchangeable or
convertible securities, rights or warrants shall by their
terms provide for an increase or increases with the passage
of time or otherwise in the price payable to the Corporation
upon the exercise thereof, the Conversion Price upon any
such increase becoming effective shall forthwith be
readjusted (but to no greater extent than originally
adjusted by reason of such issuance or sale) to reflect the
same. Upon the expiration or termination of such rights or
warrants, if any such rights or warrants shall not have been
exercised, and upon the expiration or termination of the
exercise, exchange or conversion rights under such
exercisable, exchangeable or convertible securities, if any
such exercisable, exchangeable or convertible securities
shall not have been exercised, exchange or converted, then
the Conversion Price thereof shall forthwith be readjusted
and thereafter be the rate which it would have been had an
adjustment been made on the basis that (x) the only rights
or warrants so issued or sold were those so exercised and
they were issued or sold for the consideration actually
received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation
upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such
options, rights or warrants whether or not exercised and (y)
the Corporation issued and sold a number of shares of Common
Stock equal to those actually issued upon exercise of such
exercise, exchange or conversion rights, and such shares
were issued and sold for a consideration equal to the
aggregate exercise, exchange or conversion price in effect
under the exercise, exchange or conversion rights actually
exercised at the respective dates of their exercise. An
adjustment made pursuant to this subparagraph (iv) shall be
made on the next Business Day following the date on which
any such issuance is made and shall be effective immediately
after the close of business on such date, but shall not
affect the Conversion Price applicable to shares of Series B
Preferred Stock converted prior to the date notice of such
adjustment is given to the holders of Series B Preferred
Stock. For purposes of subparagraphs (ii) and (iv), the
aggregate consideration received by the Corporation in
connection with the issuance of shares of Common Stock or of
rights, warrants or securities exercisable for or
exchangeable or convertible into shares of Common Stock
shall be deemed to be equal to the sum of the aggregate net
offering price of all such securities plus the minimum
aggregate amount, if any, payable upon exercise of such
rights or warrants and conversion of any such exercisable,
exchangeable or convertible securities into shares of Common
Stock.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however,
that any adjustments which by reason of this subparagraph
(v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; and,
provided further any adjustment shall be required and made
in accordance with the provisions of this Section (7) (other
than this subparagraph (v)) not later than such time as may
be required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. All
calculations under this Section (7) shall be made to the
nearest cent (with $.005 being rounded upward) or to the
nearest 1/100 of a share (with .005 of a share being rounded
upward), as the case may be. Anything in this paragraph (d)
to the contrary notwithstanding, the Corporation shall be
entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those
required by this paragraph (d), as it in its discretion
shall determine to be advisable in order that any stock
dividends, subdivision of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution
of other assets (other than cash dividends) hereafter made
by the Corporation to its stockholders shall not be taxable.
(e) In case the Corporation shall be a party to any
transaction (including without limitation a merger,
consolidation, sale of all or substantially all of the
Corporation's assets or recapitalization of the Common Stock and
excluding any transaction as to which paragraph (d)(i) of this
Section (7) applies) (each of the foregoing being referred to as
a "Transaction"), in each case as a result of which shares of
Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination
thereof), each share of Series B Preferred Stock which is not
converted into the right to receive stock, securities or other
property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock and other
securities and property receivable (including cash) upon the
consummation of such Transaction by a holder of that number of
shares or fraction thereof of Common Stock into which one share
of Series B Preferred Stock was convertible immediately prior to
such Transaction. The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent
with the provisions of this paragraph (e) and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the
holders of the Series B Preferred Stock which will contain
provisions enabling the holders of the Series B Preferred Stock
which remains outstanding after such Transaction to convert into
the consideration received by holders of Common Stock at the
Conversion Price immediately after such Transaction. The
provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock (other than a
regular cash dividend that the Board of Directors determines
can be maintained by the Company for at least four
consecutive periods and that the Board of Directors intends
to maintain for at least four consecutive periods, or a
dividend that, together with all dividends paid in the prior
twelve months, does not exceed one percent (1%) of the
aggregate fair market value of the Series A Preferred Stock
and the Common Stock on the date such dividend is declared,
in each case, out of profits or surplus); or
(ii) the Corporation shall authorize the granting to
the holders of the Common Stock of rights or warrants to
subscribe for or purchase any shares of any class or any
other rights or warrants; or
(iii) there shall be any reclassification of the Common
Stock (other than an event to which paragraph (d)(i) of this
Section (7) applies) or any consolidation or merger to which
the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the
Corporation,
then the Corporation shall cause to be filed with the Transfer
Agent and shall cause to be mailed to the holders of shares of
the Series B Preferred Stock at their addresses as shown on the
stock records of the Corporation, as promptly as possible, but at
least 15 days prior to the applicable date specified in clauses
(A) and (B) below, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights or
warrants, are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale or transfer is
expected, that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale or transfer. Failure to give such
notice or any defect therein shall not affect the legality or
validity of the proceedings described in this Section (7).
(g) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly file with the Transfer
Agent an officers' certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the
facts requiring such adjustment. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which such adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Series B
Preferred Stock at his or her last address as shown on the stock
records of the Corporation.
(h) In any case in which paragraph (d) of this Section (7)
provides that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer until
the occurrence of such event (A) issuing to the holder of any
share of Series B Preferred Stock converted after such record
date and before the occurrence of such event the additional
shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common
Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount in cash in
lieu of any fraction pursuant to paragraph (c) of this Section
(7).
(i) For purposes of this Section (7), the number of shares
of Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(j) Notwithstanding any other provision herein to the
contrary, the issuance of any shares of Common Stock pursuant to
any plan providing for the reinvestment of dividends or interest
payable on securities of the Corporation and the investment of
additional optional amounts in shares of Common Stock under any
such plan at a price per share of at least 95% of Current Market
Price, and the issuance of any shares of Common Stock or options
or rights to purchase such shares pursuant to any employee
benefit plan or program of the Corporation or pursuant to any
option, warrant, right or exercisable, exchangeable or
convertible security (including, but not limited to, Class A
Stock) outstanding as of the date the Series B Preferred Stock
was first designated, shall not be deemed to constitute an
issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Corporation to which this Section
(7) applies. There shall be no adjustment of the Conversion
Price in case of the issuance of any stock of the Corporation in
a reorganization, acquisition other similar transaction except as
specifically set forth in this Section (7). If any action or
transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section (7), only one
adjustment shall be made and such adjustment shall be the amount
of adjustment which has the highest absolute value.
(k) In case the Corporation shall take any action affecting
the Common Stock, other than action described in this Section
(7), which in the opinion of the Board of Directors would
materially adversely affect the conversion rights of the holders
of the shares of Series B Preferred Stock, the Conversion Price
for the Series B Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as
the Board of Directors may determine to be equitable in the
circumstances.
(l) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued shares of Common
Stock or its issued shares of Common Stock held in its treasury,
or both, for the purpose of effecting conversion of the Series B
Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of
Series B Preferred Stock not theretofore converted. For purposes
of this paragraph (l), the number of shares of Common Stock which
shall be deliverable upon the conversion of all outstanding
shares of Series B Preferred Stock shall be computed as if at the
time of computation all such outstanding shares were held by a
single holder.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the
shares of Common Stock deliverable upon conversion of the Series
B Preferred Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully-paid and
nonassessable shares of Common Stock at such adjusted Conversion
Price.
The Corporation will use all reasonable efforts to list the
shares of Common Stock required to be delivered upon conversion
of the Series B Preferred Stock prior to such delivery, upon the
American Stock Exchange or such other exchange or inter-dealer
quotation system on which the Common Stock is principally traded
or authorized to be quoted.
Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of the
Series B Preferred Stock, the Corporation will use all reasonable
efforts to comply with all federal and state laws and regulations
thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any
governmental authority.
(m) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the
Series B Preferred Stock pursuant hereto; provided, however, that
the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of
the holder of the Series B Preferred Stock to be converted and no
such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Corporation the
amount of any such tax or has established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
(8) Ranking. Any class or classes of stock of the
-------
Corporation shall be deemed to rank:
(i) prior to the Series B Preferred Stock, as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in preference or priority to the holders
of Series B Preferred Stock;
(ii) on a parity with the Series B Preferred Stock, as
to dividends or as to distribution of assets upon
liquidation, dissolution or winding up, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those
of the Series B Preferred Stock, if the holders of such
class of stock and the Series B Preferred Stock shall be
entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective
amounts of accrued and unpaid dividends per share or
liquidation prices, without preference or priority one over
the other; and
(iii) junior to the Series B Preferred Stock, as to
dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such stock shall
be Common Stock or Class A Stock or if the holders of Series
B Preferred Stock shall be entitled to receipt of dividends
or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to
the holders of shares of such stock.
(9) Voting. Except as herein provided or as otherwise
------
from time to time required by law, holders of Series B Preferred
Stock shall have no voting rights. Whenever, at any time or
times, dividends payable on the shares of Series B Preferred
Stock at the time outstanding shall be in arrears for such number
of Dividend Periods, which Dividend Periods need not be
consecutive, which shall in the aggregate contain not less than
360 days, the holders of Series B Preferred Stock shall have the
exclusive right, voting separately as a class with holders of
shares of any one or more other series of preferred stock ranking
on a parity with the Series B Preferred Stock as to dividends, or
on the distribution of assets upon liquidation, dissolution or
winding up and upon which like voting rights have been conferred
and are exercisable, to elect two directors of the Corporation at
the Corporation's next annual meeting of stockholders and at each
subsequent annual meeting of stockholders. At elections for such
directors, each holder of Series B Preferred Stock shall be
entitled to one vote for each share held (the holders of shares
of any other series of preferred stock ranking on such a parity
being entitled to such number of votes, if any, for each share of
stock held as may be granted to them). Upon the vesting of such
right of the holders of Series B Preferred Stock, the maximum
authorized number of members of the Board of Directors shall
automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of outstanding
Series B Preferred Stock (either alone or together with the
holders of shares of any one or more other series of preferred
stock ranking on such a parity and having like voting rights) as
hereinafter set forth. The right of holders of Series B
Preferred Stock, voting separately as a class, to elect (either
alone or together with the holders of shares of any one or more
other series of preferred stock ranking on such a parity and
having like voting rights) members of the Board of Directors as
aforesaid shall continue until such time as all dividends
accumulated on Series B Preferred Stock shall have been paid in
full, at which time such right shall terminate, except as herein
or by law expressly provided, subject to revesting in the event
of each and every subsequent default of the character above
mentioned.
If the office of any director elected by the holders of
Series B Preferred Stock, voting as a class, becomes vacant by
reason of death, resignation, retirement, disqualification or
removal from office or otherwise, the remaining director elected
by the holders of Series B Preferred Stock, voting as a class,
may choose a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred. Upon any
termination of the right of the holders of Series B Preferred
Stock to vote for directors as herein provided, the term of
office of all directors then in office elected by Series B
Preferred Stock, voting as a class, shall terminate immediately.
Whenever the term of office of the directors elected by the
holders of Series B Preferred Stock, voting as a class, shall so
terminate and the special voting powers vested in the holders of
Series B Preferred Stock shall have expired, the number of
directors shall be such number as may be provided for in the By-
laws irrespective of any increase made pursuant to the provisions
of this Section (9).
So long as any shares of the Series B Preferred Stock remain
outstanding, the consent of the holders of at least two-thirds of
the shares of Series B Preferred Stock outstanding at the time
given in person or by proxy, either in writing or at any special
or annual meeting, shall be necessary to permit, effect or
validate any one or more of the following:
(a) The authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or
series of stock ranking prior to Series B Preferred Stock as to
dividends or the distribution or assets upon liquidation,
dissolution or winding up, or
(b) The amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of the
Restated Certificate of Incorporation of the Corporation which
would materially and adversely affect any right, preference or
voting power of Series B Preferred Stock or of the holders
thereof; provided, however, that any increase in the amount of
authorized preferred stock or the creation and issuance of other
series of preferred stock, or any increase in the amount of
authorized shares of such series or of any other series of
preferred stock, in each case ranking on a parity with or junior
to the Series B Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and
adversely affect such rights, preferences or voting powers.
The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote
would otherwise be required shall be effected, all outstanding
shares of Series B Preferred Stock shall have been redeemed or
sufficient funds shall have been deposited in trust to effect
such redemption, scheduled to be consummated within three months
after such time.
(10) Record Holders. The Corporation and the Transfer Agent
--------------
may deem and treat the record holder of any shares of Series B
Preferred Stock as the true and lawful owner thereof for all
purposes, and neither the Corporation nor the Transfer Agent
shall be affected by any notice to the contrary.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be made under the seal of the Corporation and
signed by Philippe P. Dauman, its Senior Vice President, General
Counsel and Secretary, and attested by Katherine B. Rosenberg,
its Assistant Secretary, this 17th day of November, 1993.
VIACOM INC.
By /s/ Philippe P. Dauman
-------------------------------
Philippe P. Dauman
Senior Vice President,
General Counsel and
Secretary
(Corporate Seal)
Attest:
By /s/ Katherine B. Rosenberg
----------------------------
Katherine B. Rosenberg
Assistant Secretary
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH THE ACT AND SUCH LAWS.
NUMBER SHARES
R 1 *24,000,000*
SERIES A CUMULATIVE SEE REVERSE FOR CERTAIN
CONVERTIBLE PREFERRED STOCK DEFINITIONS AND A STATEMENT
PAR VALUE $0.01 PER SHARE AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
AND RESTRICTIONS OF SHARES
VIACOM
VIACOM INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
BLOCKBUSTER ENTERTAINMENT CORPORATION
is the owner of Twenty-Four Million (24,000,000)----------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK OF VIACOM INC. (the
"Corporation"), transferable on the books of the Corporation in
person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of
the provisions of the Restated Certificate of Incorporation, as
amended, the Certificate of Designation of the Series A
Cumulative Convertible Preferred Stock and the Bylaws, as
amended, of the Corporation, to all of which the holder by
acceptance hereof assents.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated: October 22, 1993
VIACOM INC.
CORPORATE SEAL
1986 /s/ Frank J. Biondi, Jr. /s/ Philippe P. Dauman
------------------------ ------------------------
DELAWARE President Secretary
VIACOM INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE, TO EACH
STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTION OF
SUCH PREFERENCES AND/OR RIGHTS.
RESTRICTIONS ON TRANSFER AND VOTING THE RESTATED CERTIFICATE
OF INCORPORATION, AS AMENDED, OF THE CORPORATION PROVIDES THAT,
SO LONG AS THE CORPORATION OR ANY OF ITS SUBSIDIARIES HOLDS ANY
AUTHORIZATION FROM THE FEDERAL COMMUNICATIONS COMMISSION (OR ANY
SUCCESSOR THERETO), IF THE CORPORATION HAS REASON TO BELIEVE THAT
THE OWNERSHIP, OR PROPOSED OWNERSHIP, OF SHARES OF CAPITAL STOCK
OF THE CORPORATION BY ANY STOCKHOLDER OR ANY PERSON PRESENTING
ANY SHARES OF CAPITAL STOCK OF THE CORPORATION FOR TRANSFER INTO
HIS NAME (A "PROPOSED TRANSFEREE") MAY BE INCONSISTENT WITH, OR
IN VIOLATION OF, ANY PROVISION OF THE FEDERAL COMMUNICATIONS LAWS
(AS HEREINAFTER DEFINED), SUCH STOCKHOLDER OR PROPOSED TRANSFEREE
UPON REQUEST OF THE CORPORATION, SHALL FURNISH PROMPTLY TO THE
CORPORATION SUCH INFORMATION (INCLUDING, WITHOUT LIMITATION,
INFORMATION WITH RESPECT TO CITIZENSHIP, OTHER OWNERSHIP
INTERESTS AND AFFILIATIONS) AS THE CORPORATION SHALL REASONABLY
REQUEST TO DETERMINE WHETHER THE OWNERSHIP OF, OR THE EXERCISE OF
ANY RIGHTS WITH RESPECT TO, SHARES OF CAPITAL STOCK OF THE
CORPORATION BY SUCH STOCKHOLDER OR PROPOSED TRANSFEREE IS
INCONSISTENT WITH, OR IN VIOLATION OF, THE FEDERAL COMMUNICATIONS
LAWS AS USED HEREIN. THE TERM "FEDERAL COMMUNICATIONS LAWS"
SHALL MEAN ANY LAW OF THE UNITED STATES NOW OR HEREAFTER IN
EFFECT (AND ANY REGULATION THEREUNDER) PERTAINING TO THE
OWNERSHIP OF OR THE EXERCISE OF RIGHTS OF OWNERSHIP WITH RESPECT
TO, CAPITAL STOCK OF CORPORATIONS HOLDING, DIRECTLY OR
INDIRECTLY, FEDERAL COMMUNICATIONS COMMISSION AUTHORIZATIONS,
INCLUDING, WITHOUT LIMITATION, THE COMMUNICATIONS ACT OF 1934 AS
AMENDED (THE "COMMUNICATIONS ACT"), AND REGULATIONS THEREUNDER
PERTAINING TO THE OWNERSHIP OR THE EXERCISE OF THE RIGHTS OF
OWNERSHIP OF CAPITAL STOCK OF CORPORATIONS HOLDING, DIRECTLY OR
INDIRECTLY, FEDERAL COMMUNICATIONS COMMISSION AUTHORIZATIONS BY
(i) ALIENS, AS DEFINED IN OR UNDER THE COMMUNICATIONS ACT, AS IT
MAY BE AMENDED FROM TIME TO TIME, (ii) PERSONS AND ENTITIES
HAVING INTERESTS IN TELEVISION OR RADIO STATIONS, DAILY
NEWSPAPERS AND CABLE TELEVISION SYSTEMS OR (iii) PERSONS OR
ENTITIES, UNILATERALLY OR OTHERWISE, SEEKING DIRECT OR INDIRECT
CONTROL OF THE CORPORATION, AS CONSTRUED UNDER THE COMMUNICATIONS
ACT, WITHOUT HAVING OBTAINED ANY REQUISITE PRIOR FEDERAL
REGULATORY APPROVAL OF SUCH CONTROL. IF ANY STOCKHOLDER OR
PROPOSED TRANSFEREE FROM WHOM INFORMATION IS REQUESTED AS
DESCRIBED ABOVE SHOULD FAIL TO RESPOND TO SUCH REQUEST OR THE
CORPORATION SHALL CONCLUDE THAT THE OWNERSHIP OF, OR THE EXERCISE
OF ANY RIGHTS OF OWNERSHIP WITH RESPECT TO, SHARES OF CAPITAL
STOCK OF THE CORPORATION BY SUCH STOCKHOLDER OR PROPOSED
TRANSFEREE COULD RESULT IN ANY INCONSISTENCY WITH, OR VIOLATION
OF, THE FEDERAL COMMUNICATIONS LAWS, THE CORPORATION MAY REFUSE
TO PERMIT THE TRANSFER OF SHARES OF CAPITAL STOCK OF THE
CORPORATION TO SUCH PROPOSED TRANSFEREE, OR MAY SUSPEND THOSE
RIGHTS OF STOCK OWNERSHIP THE EXERCISE OF WHICH WOULD RESULT IN
ANY INCONSISTENCY WITH, OR VIOLATION OF, THE FEDERAL
COMMUNICATIONS LAWS, SUCH REFUSAL OF TRANSFER OR SUSPENSION TO
REMAIN IN EFFECT UNTIL THE REQUESTED INFORMATION HAS BEEN
RECEIVED AND THE CORPORATION HAS DETERMINED THAT SUCH TRANSFER,
OR THE EXERCISE OF SUCH SUSPENDED RIGHTS, AS THE CASE MAY BE, IS
PERMISSIBLE UNDER THE FEDERAL COMMUNICATIONS LAWS, AND THE
CORPORATION MAY EXERCISE AND ALL APPROPRIATE REMEDIES AT LAW OR
IN EQUITY, IN ANY COURT OF COMPETENT JURISDICTION, AGAINST ANY
SUCH STOCKHOLDER OR PROPOSED TRANSFEREE WITH A VIEW TOWARDS
OBTAINING SUCH INFORMATION OR PREVENTING OR CURING ANY SITUATION
WHICH WOULD CAUSE ANY INCONSISTENCY WITH, OR VIOLATION OF, ANY
PROVISION OF THE FEDERAL COMMUNICATIONS LAWS AS USED HEREIN. THE
WORD "PERSON" SHALL INCLUDE NOT ONLY NATURAL PERSONS BUT
PARTNERSHIPS, ASSOCIATIONS, CORPORATIONS, JOINT VENTURES AND
OTHER ENTITIES, AND THE WORD "REGULATION" SHALL INCLUDE NOT ONLY
REGULATIONS BUT RULES, PUBLISHED POLICIES AND PUBLISHED
CONTROLLING INTERPRETATIONS BY AN ADMINISTRATIVE AGENCY OR BODY
EMPOWERED TO ADMINISTER A STATUTORY PROVISION OF THE FEDERAL
COMMUNICATIONS LAWS.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ..................Custodian..................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.......................
(State)
Additional abbreviations may also be used through not in the
above list.
For value received..........hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
...................
---------------------------------------------
.................................................................
Please print or typewrite name and address including postal zip
code of assignee
.................................................................
...........................................................Shares
of the capital stock represented by the within Certificate, and
do
hereby irrevocably constitute and appoint........................
.................................................................
Attorney to transfer the said stock on the books of the within-
named Corporation with full power of substitution in the
premises.
Notice: The signature to this assignment must correspond with
the name as written upon the face of the Certificate, in every
particular, without alteration or enlargement or any change
whatever.
Dated.....................................
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH THE ACT AND SUCH LAWS.
NUMBER SHARES
R 1 *24,000,000*
SERIES B CUMULATIVE SEE REVERSE FOR CERTAIN
CONVERTIBLE PREFERRED STOCK DEFINITIONS AND A STATEMENT
PAR VALUE $0.01 PER SHARE AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
AND RESTRICTIONS OF SHARES
VIACOM
VIACOM INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
NYNEX CORPORATION
is the owner of Twenty-Four Million (24,000,000)----------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES B
CUMULATIVE CONVERTIBLE PREFERRED STOCK OF VIACOM INC. (the
"Corporation"), transferable on the books of the Corporation in
person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be held subject to all of
the provisions of the Restated Certificate of Incorporation, as
amended, the Certificate of Designation of the Series B
Cumulative Convertible Preferred Stock and the Bylaws, as
amended, of the Corporation, to all of which the holder by
acceptance hereof assents.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated: November 19, 1993
VIACOM INC.
CORPORATE SEAL
1986 /s/ Frank J. Biondi, Jr. /s/ Philippe P. Dauman
------------------------ ------------------------
DELAWARE President Secretary
VIACOM INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE, TO EACH
STOCKHOLDER WHO SO REQUESTS, THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTION OF
SUCH PREFERENCES AND/OR RIGHTS.
RESTRICTIONS ON TRANSFER AND VOTING THE RESTATED CERTIFICATE
OF INCORPORATION, AS AMENDED, OF THE CORPORATION PROVIDES THAT,
SO LONG AS THE CORPORATION OR ANY OF ITS SUBSIDIARIES HOLDS ANY
AUTHORIZATION FROM THE FEDERAL COMMUNICATIONS COMMISSION (OR ANY
SUCCESSOR THERETO), IF THE CORPORATION HAS REASON TO BELIEVE THAT
THE OWNERSHIP, OR PROPOSED OWNERSHIP, OF SHARES OF CAPITAL STOCK
OF THE CORPORATION BY ANY STOCKHOLDER OR ANY PERSON PRESENTING
ANY SHARES OF CAPITAL STOCK OF THE CORPORATION FOR TRANSFER INTO
HIS NAME (A "PROPOSED TRANSFEREE") MAY BE INCONSISTENT WITH, OR
IN VIOLATION OF, ANY PROVISION OF THE FEDERAL COMMUNICATIONS LAWS
(AS HEREINAFTER DEFINED), SUCH STOCKHOLDER OR PROPOSED TRANSFEREE
UPON REQUEST OF THE CORPORATION, SHALL FURNISH PROMPTLY TO THE
CORPORATION SUCH INFORMATION (INCLUDING, WITHOUT LIMITATION,
INFORMATION WITH RESPECT TO CITIZENSHIP, OTHER OWNERSHIP
INTERESTS AND AFFILIATIONS) AS THE CORPORATION SHALL REASONABLY
REQUEST TO DETERMINE WHETHER THE OWNERSHIP OF, OR THE EXERCISE OF
ANY RIGHTS WITH RESPECT TO, SHARES OF CAPITAL STOCK OF THE
CORPORATION BY SUCH STOCKHOLDER OR PROPOSED TRANSFEREE IS
INCONSISTENT WITH, OR IN VIOLATION OF, THE FEDERAL COMMUNICATIONS
LAWS AS USED HEREIN. THE TERM "FEDERAL COMMUNICATIONS LAWS"
SHALL MEAN ANY LAW OF THE UNITED STATES NOW OR HEREAFTER IN
EFFECT (AND ANY REGULATION THEREUNDER) PERTAINING TO THE
OWNERSHIP OF OR THE EXERCISE OF RIGHTS OF OWNERSHIP WITH RESPECT
TO, CAPITAL STOCK OF CORPORATIONS HOLDING, DIRECTLY OR
INDIRECTLY, FEDERAL COMMUNICATIONS COMMISSION AUTHORIZATIONS,
INCLUDING, WITHOUT LIMITATION, THE COMMUNICATIONS ACT OF 1934 AS
AMENDED (THE "COMMUNICATIONS ACT"), AND REGULATIONS THEREUNDER
PERTAINING TO THE OWNERSHIP OR THE EXERCISE OF THE RIGHTS OF
OWNERSHIP OF CAPITAL STOCK OF CORPORATIONS HOLDING, DIRECTLY OR
INDIRECTLY, FEDERAL COMMUNICATIONS COMMISSION AUTHORIZATIONS BY
(i) ALIENS, AS DEFINED IN OR UNDER THE COMMUNICATIONS ACT, AS IT
MAY BE AMENDED FROM TIME TO TIME, (ii) PERSONS AND ENTITIES
HAVING INTERESTS IN TELEVISION OR RADIO STATIONS, DAILY
NEWSPAPERS AND CABLE TELEVISION SYSTEMS OR (iii) PERSONS OR
ENTITIES, UNILATERALLY OR OTHERWISE, SEEKING DIRECT OR INDIRECT
CONTROL OF THE CORPORATION, AS CONSTRUED UNDER THE COMMUNICATIONS
ACT, WITHOUT HAVING OBTAINED ANY REQUISITE PRIOR FEDERAL
REGULATORY APPROVAL OF SUCH CONTROL. IF ANY STOCKHOLDER OR
PROPOSED TRANSFEREE FROM WHOM INFORMATION IS REQUESTED AS
DESCRIBED ABOVE SHOULD FAIL TO RESPOND TO SUCH REQUEST OR THE
CORPORATION SHALL CONCLUDE THAT THE OWNERSHIP OF, OR THE EXERCISE
OF ANY RIGHTS OF OWNERSHIP WITH RESPECT TO, SHARES OF CAPITAL
STOCK OF THE CORPORATION BY SUCH STOCKHOLDER OR PROPOSED
TRANSFEREE COULD RESULT IN ANY INCONSISTENCY WITH, OR VIOLATION
OF, THE FEDERAL COMMUNICATIONS LAWS, THE CORPORATION MAY REFUSE
TO PERMIT THE TRANSFER OF SHARES OF CAPITAL STOCK OF THE
CORPORATION TO SUCH PROPOSED TRANSFEREE, OR MAY SUSPEND THOSE
RIGHTS OF STOCK OWNERSHIP THE EXERCISE OF WHICH WOULD RESULT IN
ANY INCONSISTENCY WITH, OR VIOLATION OF, THE FEDERAL
COMMUNICATIONS LAWS, SUCH REFUSAL OF TRANSFER OR SUSPENSION TO
REMAIN IN EFFECT UNTIL THE REQUESTED INFORMATION HAS BEEN
RECEIVED AND THE CORPORATION HAS DETERMINED THAT SUCH TRANSFER,
OR THE EXERCISE OF SUCH SUSPENDED RIGHTS, AS THE CASE MAY BE, IS
PERMISSIBLE UNDER THE FEDERAL COMMUNICATIONS LAWS, AND THE
CORPORATION MAY EXERCISE AND ALL APPROPRIATE REMEDIES AT LAW OR
IN EQUITY, IN ANY COURT OF COMPETENT JURISDICTION, AGAINST ANY
SUCH STOCKHOLDER OR PROPOSED TRANSFEREE WITH A VIEW TOWARDS
OBTAINING SUCH INFORMATION OR PREVENTING OR CURING ANY SITUATION
WHICH WOULD CAUSE ANY INCONSISTENCY WITH, OR VIOLATION OF, ANY
PROVISION OF THE FEDERAL COMMUNICATIONS LAWS AS USED HEREIN. THE
WORD "PERSON" SHALL INCLUDE NOT ONLY NATURAL PERSONS BUT
PARTNERSHIPS, ASSOCIATIONS, CORPORATIONS, JOINT VENTURES AND
OTHER ENTITIES, AND THE WORD "REGULATION" SHALL INCLUDE NOT ONLY
REGULATIONS BUT RULES, PUBLISHED POLICIES AND PUBLISHED
CONTROLLING INTERPRETATIONS BY AN ADMINISTRATIVE AGENCY OR BODY
EMPOWERED TO ADMINISTER A STATUTORY PROVISION OF THE FEDERAL
COMMUNICATIONS LAWS.
The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or
regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - ..................Custodian..................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.......................
(State)
Additional abbreviations may also be used through not in the
above list.
For value received..........hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
...................
---------------------------------------------
.................................................................
Please print or typewrite name and address including postal zip
code of assignee
.................................................................
...........................................................Shares
of the capital stock represented by the within Certificate, and
do
hereby irrevocably constitute and appoint........................
.................................................................
Attorney to transfer the said stock on the books of the within-
named Corporation with full power of substitution in the
premises.
Notice: The signature to this assignment must correspond with
the name as written upon the face of the Certificate, in every
particular, without alteration or enlargement or any change
whatever.
Dated.....................................
[CONFORMED COPY]
VIACOM INC.
1515 Broadway
New York, New York
October 4, 1993
NYNEX Corporation
335 Madison Avenue
New York, New York 10017
Dear Sirs:
1. Subject to the terms and conditions set forth herein,
NYNEX Corporation, a Delaware corporation (the "Purchaser"),
---------
hereby subscribes for, and agrees to purchase, and Viacom Inc., a
Delaware corporation (the "Company") agrees to issue and sell,
-------
24,000,000 shares of a new series of convertible preferred stock
of the Company designated Series B Convertible Preferred Stock,
par value $0.01 per share (the "Preferred Stock"), for an
---------------
aggregate purchase price of $1,200,000,000, representing a
purchase price of $50.00 per share. The terms of the Preferred
Stock are set forth in the form of Certificate of Designation
attached as Annex I hereto (the "Certificate of Designation"),
--------------------------
which terms are subject to amendment in accordance with the
provisions hereof.
2. (a) The closing (the "Closing") of the purchase
-------
provided for in paragraph 1 shall take place five Business Days
after satisfaction of the conditions specified in paragraph 5 at
the offices of Shearman & Sterling, 599 Lexington Avenue, New
York, New York. The date and time of the Closing are referred to
herein as the "Closing Date". The Company and the Purchaser
------------
currently anticipate that the Closing Date shall be on or about
November 30, 1993.
(b) At the Closing, the Purchaser shall deliver to the
Company $1,200,000,000 in cash by wire transfer in immediately
available funds to an account of the Company designated by the
Company, by notice to the Purchaser prior to the Closing Date, and
the Company shall deliver to the Purchaser a certificate
representing the shares of Preferred Stock, registered in the
name of the Purchaser.
3. (a) The Purchaser represents and warrants to the
Company that: (i) the execution and delivery of this Agreement
by the Purchaser and the performance of its obligations hereunder
have been duly and validly authorized
by all necessary corporate action on the part of the Purchaser;
(ii) this Agreement had been duly and validly executed and
delivered by the Purchaser and, assuming the due authorization,
execution and delivery by the Company and subject to compliance
with the MFJ (as defined in paragraph 24 hereof), constitutes a
legal, valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other
similar laws relating to or affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity at law); (iii) the
execution, delivery and performance of this Agreement by the
Purchaser and the purchase of Preferred Stock by the Purchaser do
not conflict with or violate or result in any breach of or
constitute a default (or an event which with notice or lapse of
time or both would become a default) under the Certificate of
Incorporation or By-Laws or equivalent organizational documents
of the Purchaser; (iv) the execution, delivery and, subject to
compliance with the MFJ, performance of this Agreement by the
Purchaser do not, and the consummation of the transactions
contemplated hereby by the Purchaser will not, require any
consent, approval, authorization or permit of, or
filing with or notification to, any governmental authority with
respect to the Purchaser, except under the 1934 Act; (v) the
Purchaser is acquiring the Preferred Stock and the Common Stock
of the Company issuable upon conversion of the Preferred Stock
for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof;
and (vi) the Purchaser is an "accredited investor" within the
meaning of Rule 501 under the 1933 Act.
(b) Except as set forth in this paragraph 3, the Purchaser
makes no other representation, express or implied, to the
Company.
4. (a) The Company represents and warrants to the
Purchaser that (i) each of the Company and each Subsidiary (as
defined below) is a corporation, partnership or other legal
entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization and has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing
or in good standing or to have such power, authority and
governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below);
(ii) the execution and delivery of this Agreement by the Company
and the issuance of the Preferred Stock in accordance with the
terms of this Agreement and the Certificate of Designation have
been duly and validly authorized by all necessary corporate
action on the part of the Company; (iii) this Agreement has been
duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the
Purchaser, constitutes a legal, valid an binding obligation of
the Company, enforceable against the Company in accordance with
its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or their similar laws relating to or affecting
enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding
in equity or at law); (iv) the execution, delivery and
performance of this Agreement by the Company do not, and the
issuance of the Preferred Stock and the performance of the
Company's obligations in accordance with the terms of this
Agreement and the Certificate of Designation will not, conflict
with or violate or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under (A) the Certificate of
Incorporation or By-Laws or equivalent organizational documents
of the Company or any Subsidiary, (B) any law, rule, regulation,
order, judgment or decree applicable to the Company or any
Subsidiary, or (C) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or any Subsidiary is a party
or by which the Company or any Subsidiary or any property or
asset of the Company or any Subsidiary is bound or affected,
except in the case of subclauses (B) and (C) above, for any such
conflicts, violations, breaches, defaults or other occurrences
which would not prevent or delay the issuance of the Preferred
Stock in accordance with the terms of this Agreement and the
Certificate of Designation in any material respect, or otherwise
prevent the Company from performing its obligations under this
Agreement and the Certificate of Designation in any material
respect, and would not, individually or in the aggregate, have a
Material Adverse Effect; (v) the execution, delivery and
performance of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with
or notification to, any governmental authority with respect to
the Company, except for the filing with the Secretary of State of
the State of Delaware of the Certificate of Designation, filings
after the Closing of the Certificate of Designation with
appropriate authorities in states in which the Company is
qualified as a foreign corporation, any filings required to
effect the registration pursuant to paragraph 8 and any filings
pursuant to federal and state securities laws which will be
timely made after the Closing hereunder; (vi) the Preferred Stock
to be issued hereunder has been duly authorized and, upon
issuance at the Closing, will be validly issued, fully paid and
nonassessable, and free and clear of all security interests,
liens, claims, encumbrances, pledges, options and charges of any
nature whatsoever, and the issuance of such Preferred Stock will
not be subject to preemptive rights of any other stockholder of
the Company; (vii) prior to the Closing, the Certificate of
Designation will have been filed with the Secretary of State of
the State of Delaware in accordance with the Delaware
General Corporation Law; (viii) the shares of Class B Common
Stock, par value $0.01 per share ("Class B Common Stock"), of the
--------------------
Company issuable upon conversion of the Preferred Stock have been
duly authorized and reserved for issuance upon such conversion
and, upon issuance of such shares in accordance with the
Certificate of Designation, will be validly issued, fully paid
and nonassessable; (ix) the authorized capital stock of the
Company consists of 100,000,000 shares of the Company's Class A
Common Stock, 150,000,000 shares of Class B Common Stock and
100,000,000 shares of Preferred Stock, par value $0.01 per share
("Common Preferred Stock"); (x) as of August 31, 1993, (A)
----------------------
53,431,699 shares of the Company's Class A Common Stock and
67,282,799 shares of Class B Common Stock were issued and
outstanding, all of which were validly issued, fully paid and
nonassessable, (B) no shares were held in the treasury of the
Company, (C) no shares were held by the Subsidiaries, and (D)
3,843,000 shares were reserved for future issuance pursuant to
employee stock options or stock incentive rights granted pursuant
to the Company's 1989 Long-Term Management Incentive Plan and the
Company's Stock Option Plan for Outside Directors; (xi) as of the
date hereof, no shares of Company Preferred Stock are issued and
outstanding and there are no agreements, arrangements or
understandings with respect to the issuance of any Company
Preferred Stock other than the Stock Purchase Agreement dated
September 29, 1993 between the Company and Blockbuster
Entertainment Corporation; (xii) the Company has filed all forms,
reports and documents required to be filed by it with the
Securities and Exchange Commission ("Commission") since December
----------
31, 1990, and has heretofore made available to the Purchaser, in
the form filed with the Commission (excluding any exhibits
thereto), (A) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1990, 1991 and 1992, respectively, (B)
its Quarterly Reports on Form 10-Q for the periods ended March
31, 1993 and June 30, 1993, (C) all proxy statements relating to
the Company's meetings of stockholders (whether annual or special)
held since January 1, 1991 and (D) all other forms, reports and
other registration statements (other than Quarterly Reports on
Form 10-Q not referred to in clause (B) above and preliminary
materials) filed by the Company with the Commission since
December 31, 1990 (the forms, reports and other documents
referred to in clauses (A), (B), (C), and (D) above being
referred to herein, collectively, as the "SEC Reports"); (xiii)
-----------
the SEC Reports and any other forms, reports and other documents
filed by the Company with the Commission after the date of this
Agreement (A) were or will be prepared in accordance with the
requirements of the 1933 Act and the 1934 Act, as the case may
be, and the rules and regulations thereunder and (B) did not at
the time they were filed, or will not at the time they are filed,
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading; (xiv)
the consolidated financial statements (including, in each case,
any notes thereto) contained in the SEC Reports were prepared in
accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated (except as
may be indicated in the notes thereto) and each fairly presented
the consolidated financial position, results of operations and
cash flows of the Company and its consolidated subsidiaries as at
the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements,
to normal and recurring year-end adjustments which were not and
are not expected, individually or in the aggregate, to be
material in amount); (xv) since December 31, 1992 there has not
been any change, occurrence or circumstance in the business,
results of operations or financial condition of the Company or
any Subsidiary having, individually or in the aggregate, a
Material Adverse Effect, other than changes, occurrences and
circumstances referred to in any subsequently filed SEC Reports;
(xvi) there is no claim, action, proceeding or investigation
pending or, to the best knowledge of the Company, threatened by
any public official or governmental authority, against the
Company or any Subsidiary, or any of their respective property or
assets before any court, arbitrator or administrative,
governmental or regulatory authority or body, which challenges
the validity of this Agreement, the Certificate of Designation or
the Preferred Stock or any action taken or to be taken pursuant
hereto or, except as set forth in the SEC Reports, which is
reasonably likely to have a Material Adverse Effect; and (xvii)
neither the Company nor any Subsidiary is in conflict with, or in
default or violation of, (A) any law, rule, regulation, order,
judgment or decree applicable to the Company or any Subsidiary or
by which any property or asset of the Company or any Subsidiary
is bound or affected, or (B) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary or any
property or asset of the Company or any Subsidiary is bound or
affected, except for any such conflicts, defaults or violations
that would not, individually or in the aggregate, have a Material
Adverse Effect.
(b) Except as set forth in this paragraph 4, the Company
makes no representation, express or implied, to the Purchaser.
(c) "Subsidiary" means a "significant subsidiary" of the
----------
Company, as such term is defined in Regulation S-X promulgated
under the 1933 Act.
(d) The term "Material Adverse Effect" means any change or
-----------------------
effect that is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of
the Company and its Subsidiaries, taken as a whole.
(e) Notwithstanding anything to the contrary in this
paragraph 4, any change to or effect on the business, results of
operations or financial condition of the Company and its
Subsidiaries that results, directly or indirectly, from (a)
regulations adopted by the Federal Communications Commission,
whether before or after the date hereof, governing financial
interest in and syndication of broadcast programming or
implementing the Cable Television Consumer Protection and
Competition Act of 1992 or (b) the subject matter contemplated by
the Company's Current Report on Form 8-K, dated September 13,
1993 (the "Paramount Transaction"), shall not be considered for
---------------------
purposes of determining whether a breach has occurred of any
representation or warranty, covenant or agreement of the Company
contained herein.
5. (a) The obligation of the Purchaser to consummate the
Closing is subject to the satisfaction (or waiver by the
Purchaser, at its sole discretion, except for clause (iv) below,
which may not be waived by the Purchaser without the Company's
consent) of the following conditions:
(i) (A) the Company shall have performed in all
material respects all of its obligations hereunder required
to be performed by it at or prior to the Closing Date, (B)
the representations and warranties of the Company contained
in this Agreement shall be true in all material respects
(other than those contained in Paragraph 4(a)(xv), which
shall be true in all respects) as of the Closing Date, as if
made at and as of such date (except for any such
representations and warranties that are expressly stated to
be as of a different date) and (C) the Purchaser shall have
received a certificate signed by an executive officer of the
Company to the foregoing effect;
(ii) no judgment, injunction, order or decree shall
materially restrict, prevent or prohibit the consummation of
the Closing;
(iii) the Purchaser shall have received an opinion
of Shearman & Sterling, dated the Closing Date,
substantially in the form of Exhibit A hereto; and
(iv) as of the Closing, in the Purchaser's judgment,
neither the Company nor any Company Affiliate (as defined in
paragraph 24) shall be engaged in any Restricted Activity
(as defined in paragraph 24).
(b) The obligation of the Company to consummate the
Closing is subject to the satisfaction (or waiver by the Company
at its sole discretion) of the following conditions:
(i) (A) the Purchaser shall have performed in all
material respects all of its obligations hereunder required
to be performed by it at or prior to the Closing Date, (B)
the representations and warranties of the Purchaser
contained in this Agreement shall be true in all material
respects at and as of the Closing Date, as if made at and as
of such date (except for any such representations and
warranties that are expressly stated to be as of a different
date) and (C) the Company shall have received a certificate
signed by an executive officer of the Purchaser to the
foregoing effect;
(ii) no judgment, injunction, order or decree shall
materially restrict, prevent or prohibit the consummation of
the Closing; and
(iii) the Company shall have received an opinion of
Raymond F. Burke, Esq., Executive Vice President, General
Counsel and Secretary of the Purchaser, dated the Closing
Date, substantially in the form of Exhibit B hereto.
6. Effective as of the Closing and for so long as the
Purchaser and its Affiliates Beneficially Own at least 6,000,000
shares of Preferred Stock or the equivalent in number of shares
of Preferred Stock and shares of Class B Common Stock issuable
upon conversion of the Preferred Stock, the Purchaser shall be
entitled to one representative on the Board of Directors of the
Company, who shall serve in such capacity in accordance with the
Restated Certificate of Incorporation and the By-Laws of the
Company. Such representative shall initially be William C.
Ferguson, who shall become a member of the Company's Board of
Directors simultaneously with the Closing, and the Purchaser
shall receive satisfactory evidence of this action.
7. (a) The Purchaser acknowledges that the shares of
Preferred Stock and Class B Common Stock into which such
Preferred Stock is convertible have not been registered under the
1933 Act or any state securities law, and hereby agrees not to
offer, sell or otherwise transfer, pledge or hypothecate such
shares unless and until registered under the 1933 Act and any
applicable state securities law or unless, in the opinion of
counsel reasonably satisfactory to the Company, such offer, sale,
transfer, pledge or hypothecation is exempt from registration or
is otherwise in compliance with the 1933 Act and such laws.
(b) Upon issuance of the Preferred Stock, and until
such time as the same is no longer required under the applicable
requirements of the 1933 Act, the certificates evidencing the
Preferred Stock (and all securities issued in exchange therefor
or substitution thereof) shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE,
TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM
REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND
SUCH LAWS.
8. Effective at the Closing, the Purchaser shall have
the registration rights, and the Company shall have the
obligations, set forth in Annex II.
9. (a) During the Put/Call Period (as defined
below), the Company, at its option, shall have the right to
purchase from the Purchaser and the Purchaser, at its option,
shall have the right to sell to the Company, in each case at the
Put/Call Price (as defined below), 12,000,000 shares of Preferred
Stock.
(b) The Company or the Purchaser may each exercise the
right granted to it in paragraph 9(a) by written notice to the
other party at any time during the Put/Call Period and in the
event such a notice is so delivered, the repurchase of the
12,000,000 shares of Preferred Stock by the Company (the
"Put/Call Closing") shall occur at 10:00 a.m. at the place
----------------
specified in paragraph 2 hereof on the twentieth Business Day
following the date such written notice is delivered.
(c) At the Put/Call Closing, the Company shall deliver
to the Purchaser the Put/Call Price in cash by wire transfer in
immediately available funds to an account of the Purchaser
designated by the Purchaser by notice to the Company at least two
Business Days prior to the date of the Put/Call Closing, and the
Purchaser shall deliver to the Company a certificate representing
the 12,000,000 shares of Preferred Stock, duly endorsed to the
Company or accompanied by a stock power duly executed to the
Company, in proper form for transfer, which shares shall be
transferred by the Purchaser to the Company free and clear of any
encumbrances or adverse claims.
(d) For the purposes of this paragraph 9, the
following terms shall have the following meanings:
(i) "Put/Call Period" shall mean the period of 120
---------------
days following the earlier of (A) August 31, 1994, if, and
only if, the Company or any of its Affiliates has not
acquired Beneficial Ownership of a majority of the
outstanding voting capital stock of Paramount Communications
Inc. ("PCI") prior to August 31, 1994 or (B) the date on
---
which any party other than the Company or any of its
Affiliates acquires Beneficial Ownership of a majority of
the voting capital stock of PCI; and
(ii) "Put/Call Price" shall mean $600,000,000,
--------------
representing the aggregate liquidation preference of the
12,000,000 shares of Preferred Stock, plus the aggregate amount
----
of accrued and unpaid dividends on such shares of Preferred
Stock to the date of the Put/Call Closing (whether or not
earned or declared).
(e) The Company agrees not to enter into any contract,
agreement, arrangement or understanding, nor to take or omit to
take any action, that would restrict or impair the performance of
its obligations under this paragraph 9, and the Company
represents and warrants that it is neither a party to nor bound
by any such contract, agreement, arrangement or understanding on
the date hereof.
10. In the event that, until the earlier of (a) the
date of the expiration of the Put/Call Period or (b) the
consummation of the acquisition by the Company or any of its
Affiliates of Beneficial Ownership of a majority of the outstanding
voting capital stock of PCI, the Company issues new shares of
preferred stock (other than through an offering intended to
result in a distribution thereof to more than 35 non-accredited
investors, which shall be on market terms) the terms of the
Preferred Stock and the terms of Annex II hereto shall be amended
in order to be at least as favorable to the holders of such Stock
as those of such new shares.
11. (a) In the event of a Change of Control (as
defined below) of the Company, the Purchaser, at its option,
shall have the right to sell to the Company or its assignee, at
the Designated Price (as defined below), all shares of the
Preferred Stock then held by the Purchaser and its Affiliates.
(b) The Purchaser may exercise the right granted to it
in paragraph 11(a) by written notice to the Company at any time
during the 30-day period following public announcement of such Change
of Control and in the event such a notice is so delivered, the
repurchase of such shares of Preferred Stock by the Company
(the "Paragraph 11 Closing") shall occur at 10:00 a.m. at the
--------------------
place specified in paragraph 2 hereof on the twentieth Business
Day following the date such written notice is delivered.
(c) At the Paragraph 11 Closing, the Company or its
assignee shall deliver to the Purchaser the Designated Price in
cash by wire transfer in immediately available funds to an
account of the Purchaser designated by the Purchaser by notice to
the Company at least two Business Days prior to the date of the
Paragraph 11 Closing, and the Purchaser shall deliver to the
Company a certificate representing the shares of Preferred Stock
referred to in paragraph 11(a), duly endorsed to the Company
or accompanied by a stock power duly executed to the
Company, in proper form for transfer, which shares shall be
transferred by the Purchaser to the Company free and clear of any
encumbrances or adverse claims.
(d) For the purposes of this paragraph 11, the
following terms shall have the following meanings:
(i) A "Change of Control" of the Company shall occur
-----------------
if a Person Beneficially Owns more voting capital stock, on
a fully diluted basis, of the Company than National
Amusements, Inc., Sumner M. Redstone, any trust established
by Mr. Redstone or of which he is the settlor, beneficiary
or trustee and any heir, executor, administrator, or
personal representative of Mr. Redstone or his estate, and
any person or entity in any similar capacity, or any
Affiliate of any of the foregoing (collectively, the
"Group"), or the Group Beneficially Owns 30% or less of the
-----
voting capital stock, on a fully diluted basis, of the
Company.
(ii) "Designated Price" shall mean the sum of (A)
110% multiplied by the aggregate liquidation preference of the
shares of Preferred Stock referred to in paragraph 11(a), plus
----
(B) the aggregate amount of accrued and unpaid dividends on such
shares of Preferred Stock to the date of the Paragraph 11
Closing.
12. (a) From and after the Closing and for so long as
the Purchaser is a significant investor in the Company (which is
understood to mean Beneficial Ownership by the Purchaser and its
Affiliates of at least 10,000,000 shares of the Preferred Stock
or the equivalent in number of shares of Preferred Stock
and shares of Class B Common Stock issuable on conversion of the
Preferred Stock), subject to any conflicting arrangements
existing on the date hereof and applicable laws, (i) the Company
agrees to provide the Purchaser and the Purchaser's Affiliates
access to video programming and programming packages originated
(or supplied, if the Company has the to provide such access) by
the Company or any controlled Affiliates of the Company, and (ii)
the Purchaser agrees to provide the Company and the Company's
Affiliates access to the distribution systems of the Purchaser
and any controlled Affiliates of the Purchaser for video
programming and programming packages originated (or supplied, if
the Company has the right to provide such access) by the Company
or any Affiliates of the Company, in the case of both (i) and
(ii) on aggregate terms negotiated in good faith by the Company
and the Purchaser to permit the Purchaser to effectively compete
in the delivery of video programming.
(b) From and after the Closing and for so long as the
Purchaser is a significant investor in the Company (as specified
in paragraph 12 (a) above), subject to any conflicting
arrangements existing on the date hereof and applicable laws, (a)
the Purchaser shall have a right of first refusal, exercisable
within 60 days of written notice by the Company, with respect to
providing telephony service upgrade expertise to the Company's
controlled cable systems and (b) with respect to any non-
controlled cable systems of the Company, the Company shall use
its reasonable best efforts to offer the Purchaser an opportunity
to provide telephony service upgrade expertise to such non-
controlled cable systems.
(c) The Purchaser and the Company agree, for a period
of 24 months following the Closing, in good faith to explore and
pursue appropriate strategic partnership opportunities in the
domestic and international media, entertainment, video transport
and telecommunications sectors (including, without limitation,
domestic and international cable systems); provided that the
--------
provisions of this paragraph 12(c) shall terminate, at the option
of either the Company or the Purchaser, in the event that
paragraph 24(g) shall become applicable, unless and until the
Purchaser reinvests in Preferred Stock and/or Class B Common
Stock as contemplated by paragraph 24(g)(iv).
13. (a) The representations and warranties contained
in this Agreement shall survive the Closing until the first
anniversary of the Closing Date.
(b) The Purchaser and its Affiliates, officers,
directors, employees, agents, successors and assigns shall be
indemnified and held harmless by the Company for any and all
liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' fees and expenses) (a "Loss")
----
actually suffered or incurred by them, arising out of or
resulting from the breach of any representation or warranty or
covenant of the Company contained in this Agreement.
(c) The Company and its Affiliates, officers,
directors, employees, agents, successors and assigns shall be
indemnified and held harmless by the Purchaser for any and all
Losses actually suffered or incurred by them, arising out of or
resulting from the breach of any representation or warranty or
covenant of the Purchaser contained in this Agreement.
14. (a) The Purchaser agrees that neither the
Purchaser nor any of its Affiliates shall participate in any
transaction that, directly or indirectly, would have the effect
of precluding or competing with the Paramount Transaction.
(b) The Company agrees that in the event the
Company intends to engage in additional equity financing in
connection with the Paramount Transaction (other than equity to
be issued to stockholders of PCI as consideration in such
transaction), the Company shall consult with the Purchaser.
(c) The Company agrees that prior to consummation
of the Paramount Transaction, the Company shall receive an
opinion from Smith Barney Shearson Inc. that the consideration
actually to be paid by the Company in such transaction is fair,
from a financial point of view, to the stockholders of the
Company.
15. The Purchaser, on the one hand, and the Company,
on the other, acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the
parties shall be entitled to equitable relief (including
injunction and specific performance) in any action instituted in
any court of the United States or any state thereof having
subject matter jurisdiction, as a remedy for any such breach or
to prevent any breach of this Agreement. Such remedies shall not
be deemed to be the exclusive remedies for a breach or
anticipatory breach of this Agreement, but shall be in addition
to all other remedies available at law or equity to the parties
hereto. To the extent permitted by applicable law, the parties
hereto irrevocably submit to the exclusive jurisdiction of the
courts of the State of New York and the United States of America
located in the State of New York for any suits, actions or
proceedings arising out of or relating to this Agreement.
Notwithstanding the foregoing, any dispute as to the matters
specified in the proviso to paragraph 24(g)(i)(A) as being
subject to arbitration shall be subject to arbitration in the
Borough of Manhattan in the City of New York in accordance with
the commercial arbitration rules of the American Arbitration
Association, and judgment upon the award returned by the
arbitrators may be entered in any court having jurisdiction
thereof. The expenses of arbitration shall be borne by the party
against whom the decision is rendered.
16. This Agreement, its Annexes and Exhibits contain
the entire understandings of the parties with respect to the
subject matter hereof, thereby superseding all prior agreements
of the parties relating to the subject matter hereof (other than
the Confidentiality Agreement entered into between the Purchaser
and the Company dated September 24, 1993), and may not be amended
except by a writing signed by the parties. Except as otherwise
provided herein, this Agreement is not assignable by any of the
parties; provided that the Purchaser may assign its rights and
--------
obligations under this Agreement to a wholly owned subsidiary of
the Purchaser, so long as the Purchaser shall remain liable for
all financial and performance obligations of the Purchaser
hereunder. This Agreement shall be binding upon, and inure to
the benefit of, the respective successors of the parties. This
Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together will constitute one
and the same instrument.
17. Any notices and other communications required to
be given pursuant to this Agreement shall be in writing and shall
be given by delivery by hand, by mail (registered or certified
mail, postage prepaid, return receipt requested) or by facsimile
transmission or telex, as follows:
If to the Company:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: Philippe P. Dauman
Facsimile No.: 212-258-6134
With a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Stephen R. Volk
Facsimile No.: 212-848-7179
If to the Purchaser:
NYNEX Corporation
1113 Westchester Avenue
White Plains, New York 10604-3510
Attention: Frederic V. Salerno
Facsimile No.: 914-644-7649
With copies to:
NYNEX Corporation
1113 Westchester Avenue
White Plains, New York 10604-3510
Attention: Raymond F. Burke
Facisimile No.: 914-644-6604
and
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Roger S. Aaron
Facsimile No.: 212-735-2001
or to such other addresses as either the Company or the Purchaser
shall designate to the other by notice in writing.
18. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Affiliate" shall mean any Person that (i)
-----------
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
the Person specified or (ii) is (A) the specified Person's
spouse, parent, child, brother or sister or any issue of the
foregoing (for purposes of the definition of Affiliate, issue
shall include Persons legally adopted into the line of descent),
(B) any corporation or organization of which the Person specified
or such specified Persons's spouse, parent, child, brother or
sister or any issue of the foregoing is an officer or partner or
is, directly or indirectly, the beneficial owner of ten percent
or more of any class of voting stock, and (C) any trust or other
estate in which the specified Person or such specified Person's
spouse, parent, child, brother or sister or any issue of the
foregoing serves as trustee or in a similar fiduciary capacity
and (D) the heirs or legatees of the specified Person by will or
under the laws of descent and distribution.
(b) "Beneficially Own" with respect to any securities
----------------
and "Beneficial Ownership" shall mean having beneficial ownership
--------------------
as determined pursuant to Rule 13d-3 under the 1934 Act including
pursuant to any agreement, arrangement or understanding, whether
or not in writing.
(c) "Business Day" has the meaning specified in the
------------
Certificate of Designation.
(d) "Person" shall mean any individual, partnership,
------
joint venture, corporation, trust, incorporated organization,
government or department or agency of a government, or any entity
that would be deemed to be a "person" under Section 13(d)(3) of
the 1934 Act.
(e) "1933 Act" means the Securities Act of 1933, as
--------
amended.
(f) "1934 Act" means the Securities Exchange Act of
--------
1934, as amended.
19. Subject to the terms and conditions of this
Agreement, each of the parties hereby agrees to use all
reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, rules and regulations to
consummate and make effective the transactions contemplated by
this Agreement, including using its best efforts to obtain all
necessary waivers, consents and approvals. In case at any time
after the execution of this Agreement, further action is
necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each of the
parties shall take all such necessary action.
20. (a) For so long as the Purchaser and its
Affiliates shall Beneficially Own all of the outstanding
Preferred Stock, the provisions of this paragraph 20 shall apply.
(b) In case the Company shall distribute (in one
distribution or a series of related distributions) to all holders
of its Class A and Class B Common Stock any Securities (as
defined in Section 7(d)(iii) of the Certificate of Designation)
with an aggregate fair market value (as determined by the Board
of Directors of the Company, whose determination shall, if made
in good faith, be conclusive) of more than $300,000,000, then in
each such case, unless the Company elects to reserve shares or
other units of such Securities for distribution to the holders of
the Preferred Stock as described in Section 7(d)(iii) of the
Certificate of Designation, the following provisions shall apply,
at the election of the Purchaser by written notice to the Company
as provided in paragraph 20(f) below (the "Election Notice"):
---------------
(i) Securities shall be distributed to the Purchaser
in the amount and kind which the Purchaser would have
received if the Purchaser had, immediately prior to the
record date for the distribution of the Securities,
converted its shares of Preferred Stock into Class B
Common Stock;
(ii) The Purchaser shall be deemed to have consented by
delivery of the Election Notice, without the need for
further vote or action on the part of the Purchaser, to
amend the Certificate of Designation, effective on the
date of the distribution of the Securities, to change
the terms of the Preferred Stock to reflect the terms
of the Redesignated Preferred Stock (as defined below)
as determined by the Redesignation Agent (as defined
below) in accordance with the provisions of paragraph
20(c) below; and
(iii) Prior to the date of distribution of the
Securities, the Company shall file with the Secretary
of State of the State of Delaware the Certificate of
Designation as amended as provided in clause (b)(ii)
above.
(c) The terms of the Redesignated Preferred Stock
shall be determined by the Redesignation Agent as follows:
(i) The Redesignation Agent shall determine the
Trading Price (as defined below) for the twenty trading days
immediately prior to the record date for the distribution of
the Securities and the Trading Price for the twenty trading
days immediately after the record date for the distribution
of the Securities and shall determine the difference, stated
as a dollar amount, in the per share Trading Price between
such two periods (the "Dollar Trading Difference");
-------------------------
(ii) The Redesignation Agent shall then multiply the
Dollar Trading Difference by the total number of shares of
Class B Common Stock that the Preferred Stock would be
convertible into immediately prior to the record date for
the distribution of the Securities (the product of such
multiplication, the "Aggregate Dollar Trading Difference");
-----------------------------------
and
(iii) The Redesignation Agent shall then adjust the
dividend rate, redemption prices, liquidation preference
and/or conversion price (without affecting the number of
underlying shares of Class B Common Stock) of the Preferred
Stock as specified in the Certificate of Designation, but no
other terms of the Preferred Stock, as necessary so that the
difference in the fair market value, in the aggregate, of
the Preferred Stock prior to the distribution of the
Securities and after the distribution of Securities shall be
as closely as possible equivalent to the Aggregate Dollar
Trading Difference (the Preferred Stock with the terms so
adjusted, the "Redesignated Preferred Stock").
----------------------------
(d) "Trading Price" for the Class B Common Stock
-------------
for any given period shall be the average of the closing prices
for the Class B Common Stock for the trading days included in
such period on the American Stock Exchange or, if the American
Stock Exchange is not the exchange on which the Class B Common
Stock is principally traded, such exchange.
(e) (i) "Redesignation Agent" shall mean an
-------------------
investment banking firm of national standing chosen in the
following manner: the Purchaser shall propose three such
investment banking firms to the Company in writing within
five Business Days of the delivery of the Election Notice by
the Purchaser to the Company and within five Business Days
of such firms being so proposed, the Company shall select by
written notice to the Purchaser one such firm to serve as
the Redesignation Agent.
(ii) All determinations of the Redesignation
Agent shall, if made in good faith, be conclusive.
(iii) All fees of the Redesignation Agent
shall be paid by the Company.
(f) If at any time the Board of Directors of
the Company determines to make a distribution of Securities to
which the provisions of this paragraph 20 would apply, the
Company shall notify the Purchaser in writing as soon as
practicable and, if the Purchaser decides to elect to have the
provisions of this paragraph 20 apply to such distribution, the
Purchaser shall so notify the Company within 15 Business Days of
such notice from the Company. The record date for any such
distribution of Securities shall not be before the earlier of 15
Business Days after the Purchaser gives such notice to the
Company and the expiration of the 15 Business Day period for the
giving of such notice.
(g) If the Purchaser elects to have the
provisions of this paragraph 20 apply in the case of a
distribution of Securities, (i) the Purchaser shall thereby waive
compliance with the provisions of Section 7 of the Certificate of
Designation that would otherwise apply in such case; (ii) the
put/call provisions of paragraph 9 of this Agreement shall apply
to the Redesignated Preferred Stock and the Put/Call Price shall
be appropriately adjusted; and (iii) the Purchaser agrees that it
shall not trade in the Class B Common Stock during either of the
Trading Periods referred to in paragraph 20(c)(i) above.
21. The Company agrees that, for so long as the
Purchaser holds Preferred Stock, the term "ratably", as used in
the Company's Restated Certificate of Incorporation with respect
to the rights of holders of the Company's common stock to receive
dividends and distributions of assets upon liquidation, will be
interpreted to mean treating Class A Common Stock and Class B
Common Stock as a single class.
22. The Company agrees that, for so long as the
Purchaser and its Affiliates Beneficially Own all of the
outstanding Preferred Stock, upon the conversion of any shares of
Preferred Stock the Purchaser shall be entitled to receive an
amount equal to dividends accrued during the Dividend Period in
which such conversion occurs and up to the date of the
conversion, less any amounts previously paid with respect to any
portion of such Dividend Period. Such amounts shall be paid
promptly after such conversion.
23. The parties agree to consult with each other
before taking any action that would require the issuance of, or
issuing, any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby
and, except as may be required by applicable law or any listing
agreement with any securities exchange, will not take any such action,
issue any such press release or make any such public statement prior
to such consultation.
24. (a) The Company agrees that it shall take, and
shall cause its Affiliates to take, Corrective Action (as defined
in paragraph 24(d)) so that, in the Purchaser's judgment, as of
and from and after the Closing, neither the Company nor any
Company Affiliate, shall, directly or indirectly and whether by
acquisition or otherwise, engage in any Restricted Activity.
(b) Both before and after the Closing, in
performing its obligations under this paragraph 24, the Company
shall consult with the Purchaser in good faith regarding which
activities are Restricted Activities and which Persons are
Company Affiliates, and the Company and the Purchaser shall
consult in good faith and cooperate with respect to any
Corrective Action.
(c) For the purposes of this paragraph 24 and
paragraph 5(a)(iv):
(i) an activity shall be a Restricted Activity
-------------------
if, in the Purchaser's judgment, such activity would be
reasonably likely to violate the "Modification of Final
Judgment" consent decree entered in United States v.
----------------
American Telephone and Telegraph Co., 552 F. Supp. 131
-------------------------------------
(1982) (the "MFJ"); and
---
(ii) a person shall be a Company Affiliate if, in the
-----------------
Purchaser's judgment, such Person would be reasonably likely
to be considered a "Bell Operating Company" or an
"affiliated enterprise" of the Purchaser because of a
relationship with the Company (as such terms in quotes are
defined in or interpreted under the MFJ).
(d) "Corrective Action" shall mean any and all action
-----------------
necessary to assure that neither the Company nor any Company
Affiliate is engaged in any Restricted Activity, including but
not limited to discontinuing, modifying or transferring ownership
of activities, deferring commencement of proposed activities or
proposing alternative structures of the Purchaser's investment
that, in the Purchaser's judgment, are of the same kind and
magnitude (including aggregate strategic and economic rights and
benefits) as the investment contemplated by this Agreement, all
within the framework of not materially and adversely affecting
the business or strategic objectives of the Company.
(e) (i) The Purchaser agrees to deal in good faith
with the Company under this paragraph 24 and the Purchaser
agrees to consider in good faith any request by the Company
that the Purchaser apply for waivers, clarifications or
other relief from the relevant competent authority that
would permit the Company and Company Affiliated to engage in
activities that would or might constitute Restricted
Activities in the absence of such waivers, clarifications or
other relief and the Company acknowledges that the Purchaser
is not required to file such applications if, in the
Purchaser's judgment, such applications could materially and
adversely affect matters affecting the Purchaser or its
Affiliates pending before such authority.
(ii) The Purchaser also agrees to consider in good
faith the restructuring of the Purchaser's investment
contemplated by this Agreement so as to permit activities by
the Company and its Affiliates that would otherwise
constitute Restricted Activities, while maintaining for the
Purchaser, in its judgment, an investment of the same kind
and magnitude (including aggregate strategic and economic
rights and benefits) as the investment contemplated by this
Agreement.
(f) If after the Closing, the Company or any Company
Affiliate proposes to , directly or indirectly and whether by
acquisition or otherwise, engage in an activity that may fall
within the MFJ, the Company shall notify the Purchaser as soon as
practicable but in no event less than 30 days in advance of doing
so and the Company and the Purchaser shall, as provided in
paragraph (b) above, consult in good faith regarding whether such
activity is a Restricted Activity. If the Company and the
Purchaser mutually agree in writing that such activity is not a
Restricted Activity, such activity shall be an "Agreed
------
Unrestricted Activity". If the Company and the Purchaser
---------------------
mutually agree in writing that such activity is a Restricted
Activity, such activity shall be an "Agreed Restricted Activity".
--------------------------
If the Company determines that such activity is not a Restricted
Activity and the Purchaser determines that such activity is a
Restricted Activity, such activity shall be a "Disputed
--------
Restricted Activity".
-------------------
(g) (i) If, after the Closing, in the Purchaser's
judgment, the Company or any Company Affiliate, directly or
indirectly and whether by acquisition or otherwise, engages in
any Restricted Activity, and the Company fails or is unable to
take Corrective Action that, in the Purchaser's judgment, is
reasonably likely to eliminate the Restricted Activity on a
timely basis, then the Purchaser, at its option and by written
----
notice to the Company, shall have the right to elect to do one or
more of the following: (x) require the Company to purchase (the
"Put Right") all or part of the Preferred Stock and any Class B
---------
Common Stock issued upon conversion of the Preferred Stock then
Beneficially Owned by the Purchaser (together, the "Subject
-------
Stock") at a price (the "Put Price") specified below; (y) require
----- ---------
the Company to promptly register all or part of the Subject Stock
pursuant to the registration rights provided in paragraph 8 (a
"Registered Offering"); and (z) sell all or part of the Subject
-------------------
Stock privately (a "Private Sale:). If the Purchaser exercises
------------
the Put Right because (x) the MFJ was judicially modified after
the date hereof so as to cause an activity that was not
previously a Restricted Activity to become a Restricted Activity
or (y) a court having jurisdiction over the interpretation and
enforcement of the MFJ determines that an Agreed Unrestricted
Activity is a Restricted Activity, then the Put Price shall be
the Market Price. If the Purchaser exercises the Put Right
because of (x) an activity which the Company did not previously
notify the Purchaser of in accordance with paragraph (f) above,
(y) an Agreed Restricted Activity, or (z) a Disputed Restricted
Activity, then the Put Price shall be the Default Price.
(A) The "Default Price" shall mean:
-------------
(1) With respect to Preferred Stock, the aggregate
liquidation preference of all shares of Preferred Stock
purchased by the Company (the "Aggregate Liquidation
---------------------
Preference"), plus accrued and unpaid dividends through the
----------
date of such purchase (whether or not earned or declared),
plus an amount equal to a 7% annual compounded rate of
----
return on the Aggregate Liquidation Preference from the date
of Closing to the date of purchase by the Company; provided
--------
that if (a) the activity (other than Agreed Restricted
Activity) with respect to which the Purchaser exercised the
Put Right is later determined by the arbitration provided
for in paragraph 15 not to be a Restricted Activity or (b)
if the activity with respect to which the Purchaser
exercised the Put Right is an activity of which the Company
did not previously notify the Purchaser in accordance with
paragraph (f) above and it is determined by the arbitration
provided for in paragraph 15 that, notwithstanding such
failure, the Company was exercising reasonable due diligence
to identify Restricted Activities and to notify the
Purchaser thereof pursuant to paragraph (f) above, then, the
annual compounded rate of return on the Aggregate
Liquidation Preference shall be 2%, instead of 7% (and any
payments made on the basis of the 7% rate shall be subject
to refund to implement such adjustment); and
(2) With respect to Class B Common Stock, the price
per share equal to 100% of the Trading Price (as defined in
paragraph 20(d)) for the 20 trading days immediately prior
to the date of purchase by the Company.
(B) The "Market Price" shall mean:
(1) With respect to the Preferred Stock, the price per
share equal to its stated liquidation preference, plus
accrued and unpaid dividends to the date of purchase by the
Company (whether or not earned or declared); and
(2) With respect to Class B Common Stock, the price
per share equal to 100% of the Trading Price for the 20
trading days immediately prior to the date of purchase by
the Company.
(iii) In any instance in which the Purchaser or its
Affiliates would be entitled to receive the Default Price
under this paragraph 24(g) and elects to dispose of the
Preferred Stock to which such Default Price would be
applicable either in a Registered Offering or a Private
Sale, the Company shall be obligated to pay to the Purchaser
or such Affiliates the amount, if any, by which the gross
proceeds to the Purchaser or such Affiliates, after
deducting underwriting commissions and discounts or agency
fees, realized in such disposition is less than the
aggregate Default Price that would have been payable to the
Purchaser and such Affiliates by the Company had the Purchaser
or such Affiliates elected to require the Company
to purchase such Preferred Stock under this paragraph 24(g);
provided, however, that the Company shall not be obligated
-------- -------
to make any such payment in any instance in which the
Purchaser or any Affiliate rejects the Company's written
request, if such a request is made by the Company by written
notice to the Purchaser within 5 Business Days of receipt by
the Company of Purchaser's notice pursuant to (g)(i) above
(and which the Company shall be entitled to make in its
discretion), to purchase such Preferred Stock from the
Purchaser or such Affiliate at the Default Price, which
right the Purchaser shall have in its discretion.
(iv) In any instance in which (A) the Company has
purchased Preferred Stock or Class B Common Stock from the
Purchaser or its Affiliates pursuant to this paragraph 24(g)
and (B) the Company has taken Corrective Action within 180
days after the date of such purchase so that the Company and
Company Affiliates are not engaged, in the Purchaser's
judgment, in any Restricted Activity, the Purchaser shall be
obligated to reinvest as soon as commercially possible in
such number of shares of Preferred Stock and of Class B
Common Stock as were so purchased by the Company for a
purchase price, in cash, equal to the amount paid to the
Purchaser by the Company pursuant to this paragraph 24(g).
From and after any purchase by the Company of Preferred
Stock or Class B Common Stock from the Purchaser or its
Affiliates pursuant to this paragraph 24(g), at the option
of either the Company or the Purchaser by written notice to
the other, the Company and the Purchaser shall continue to
take Corrective Action in accordance with this paragraph 24
for a period of 180 day after the date of such purchase by
the Company.
(v) In recognition of time being of the essence with
respect to any purchase by the Company of Preferred Stock or
Class B Common Stock pursuant to this paragraph 24(g), such
purchase shall occur as soon as commercially possible, but
in no event more than 20 Business Days, after receipt of a
written notice by the Purchaser to the Company requesting
such purchase in accordance with the terms of this paragraph
24(g). Unless otherwise agreed by the Purchaser, all
payments due to the Purchaser from the Company under this
paragraph 24(g) shall be in cash.
(h) The Purchaser agrees that paragraph 5(a)(iv) and
this paragraph 24 embody the Purchaser's exclusive remedies
against the Company under this Agreement with respect to the
MFJ.
25. The Company agrees that, for so long as the
Purchaser and its Affiliates Beneficially Own all of the
outstanding Preferred Stock, the Purchaser shall not amend,
alter or repeal any of the provisions of the Certificate of
Designation without the consent of the Purchaser.
26. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York
applicable to contracts executed in and to be performed in
that state.
Very truly yours,
VIACOM INC.
By /s/ Sumner M. Redstone
------------------------
Accepted and agreed on
the date written above:
NYNEX CORPORATION
By /s/ W.C. Ferguson
------------------
VIACOM INC.
1515 Broadway
New York, New York
November 19, 1993
NYNEX Corporation
335 Madison Avenue
New York, New York 10017
Dear Sirs:
Reference is made to the Agreement between NYNEX
Corporation and Viacom Inc., dated october 4, 1993 (the
"Agreement"). Terms defined in the Agreement are used herein as
therein defined, unless otherwise defined herein.
1. The Agreement is hereby amended as follows:
(a) Paragraph 2 is amended by deleting paragraph 2(a)
in its entirety and by replacing it with the following:
"(a) The closing (the "Closing") of the purchase
--------
provided for in paragraph 1 shall take place as soon as
practicable, but in no event more than five Business Days,
after satisfaction of the conditions specified in paragraph
5 at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York. The date and time of the
Closing are referred to herein as the "Closing Date". The
------------
Company and the Purchaser currently anticipate that the
Closing Date shall be on or about November 19, 1993."
(b) Paragraph 5(a) is amended by deleting the word
"and" at the end of paragraph 5(a)(iii) and by adding after
paragraph 5(a)(iv) the following new paragraphs 5(a)(v), (vi),
(vii), and (viii):
"(v) PVI Transmission Inc. ("Transco") shall have
been duly and validly incorporated under the laws of
the State of Delaware, the Identified Activities (as
hereinafter defined) shall have been transferred to
Transco as described in the certificate referred to in
paragraph 5(a)(i)(C) above, and the shares of common
stock and Non-Participating Preferred Stock (as
hereinafter defined) of Transco shall have been issued,
all as provided in paragraph 25 hereof;
(vi) No claims, proceedings, suits or
investigations shall have been initiated or threatened
by or before any court, governmental department,
commission, bureau, board, agency or instrumentality,
against the Purchaser or any other "Bell Operating
Company" or any "affiliated enterprise" of a "Bell
Operating Company" (as such terms in quotes are defined
in or interpreted under the MFJ (as defined in
paragraph 24)) that challenge or otherwise call into
question the effectiveness, as a means of insuring from
and after the Closing the Purchaser's compliance with
the MFJ, of the transfer of the Identified Activities
and the PCI Activities (as hereinafter defined) to
Transco in consideration of the issuance of the Transco
Non-Participating Preferred Stock to the Company (or
its subsidiaries) or, in the case of the PCI
Activities, to PCI (or its subsidiaries);
(vii) There shall exist no writ, judgement,
order, ruling decree or interpretation by a court,
governmental department, commission, bureau, board,
agency or instrumentality that changes or modifies
prior interpretations of the MFJ or other precedent
involving the MFJ such that the ownership of the
Preferred Stock by the Purchaser, in the Purchaser's
judgment, would cause the Company or any Company
Affiliate to be engaged in a Restricted Activity,
notwithstanding the formation of Transco, the transfer
thereto of the Identified Activities and the PCI
Activities and the issuance to the Company (or its
subsidiaries) or, in the case of the PCI Activities, to
PCI (as hereinafter defined) (or its subsidiaries) of
the Non-Participating Preferred Stock of Transco, all
as provided in paragraph 25 hereof; and
(viii) The certificate referred to in paragraph
5(a)(i)(C) above shall describe procedures and
undertakings by the Company and PCI to provide for the
implementation of the provisions of paragraph 25 hereof
as regards the PCI Activities, which procedures and
undertakings, and the proposed implementation thereof,
shall be reasonably satisfactory to the Purchaser."
(c) Paragraph 11 is amended by deleting paragraph
11(d)(i) in its entirety and by replacing it with the following:
"(i) A "Change of Control" of the Company shall
-----------------
occur if a Person Beneficially Owns more voting capital
stock, on a fully diluted basis, of the Company than
National Amusements, Inc. ("NAI"), Sumner M. Redstone,
any trust established by Mr. Redstone or of which he is
the settlor, beneficiary or trustee and any heir,
executor, administrator, or personal representative of
Mr. Redstone or his estate, and any person or entity in
any similar capacity, or any Affiliate of any of the
foregoing, (collectively, the "Group"), or the Group
-----
Beneficially Owns 30% or less of the voting capital
stock, on a fully diluted basis, of the Company;
provided, however, that NAI shall no longer be included
in the Group if a Person Beneficially Owns more voting
capital stock, on a fully diluted basis, of NAI than
the Group, or the Group Beneficially Owns 30% or less
of the voting capital stock, on a fully diluted basis,
of NAI."
(d) Paragraph 15 is amended by inserting in the
penultimate sentence thereof, after "paragraph 24(g)(i)(A)", the
following:
"or paragraph 25(g)".
(e) Paragraph 16 is amended by inserting in the
first sentence thereof, after "Annexes", the following:
", the Disclosure Schedule (as hereinafter
defined)".
(f) Paragraph 24 is amended by deleting the first
sentence of paragraph 24(c) and replacing it with the following:
"(c) For the purposes of this paragraph 24,
paragraph 25 and paragraphs 5(a)(iv) and 5(a)(vii):",
and is further amended by deleting paragraph 24(h) in its
entirety and by replacing it with the following:
"(h) The Purchaser agrees that paragraph 5(a)(iv),
this paragraph 24 and paragraph 25 embody the
Purchaser's exclusive remedies against the Company
under this Agreement with respect to the MFJ."
(g) The Agreement is amended by adding new paragraph
25 as set forth below:
"25. (a) The Company agrees that it shall take, and
shall cause its Affiliates to take, as promptly as
practicable, all action necessary (i) to duly and validly
incorporate Transco as a Delaware corporation having a
certificate of incorporation and by-laws substantially in
the form of Annex III hereto, (ii) to contribute (or cause
its subsidiaries to contribute) to the capital of Transco
the several assets identified in the disclosure schedule
(the "Disclosure Schedule") delivered by the Company to the
Purchaser on November 19, 1993 (the "Identified
Activities"), subject to the liabilities associated
therewith, in consideration of the issuance to the
transferor(s) of the Identified Activities of a number of
shares of non-participating preferred stock of Transco, with
the rights and preferences specified in the certificate of
designation included in Annex III (the "Non-Participating
Preferred Stock"), determined pursuant to paragraph (c)
below. Such contribution shall be made concurrently with
the contribution by NAI (or a subsidiary of NAI) of
$1,850,000 in consideration of the issuance to NAI (or such
subsidiary) of 100 shares of common stock of Transco.
(b) Notwithstanding any other provision in paragraph
24 to the contrary, (i) the Company and the Purchaser, in
anticipation of the acquisition by the Company and/or its
Affiliates of more than 50% of the outstanding shares of
common stock of PCI (the "Acquisition"), shall continue good
faith discussions with each other so as to identify the
specific assets and operations of PCI which constitute
Restricted Activities (the "PCI Activities") (which assets
and operations, based on such discussions to date, are
described in the Disclosure Schedule), it being understood
that in the case of disagreement, the Purchaser ultimately
shall have the right to determine, in the Purchaser's
judgment, which assets and operations of PCI constitute
Restricted Activities, and (ii) the Company agrees that it
shall take, and cause its Affiliates to take, all action
necessary to contribute (or cause to be contributed) the PCI
Activities, subject to the liabilities associated therewith,
to Transco in consideration of the issuance to the
transferor(s) of the PCI Activities of a number of shares of
Non-Participating Preferred Stock of Transco determined
pursuant to paragraph (c) below. The contribution of the
PCI Activities to Transco provided for in this paragraph (b)
shall be made concurrently with the consummation of the
Acquisition; except, that, if approval of the Acquisition
------ ----
shall not have been obtained from the Federal Communications
Commission prior to the consummation of the Acquisition and
as a result the shares of PCI acquired by the Company are
deposited at the time of the Acquisition in a voting trust
pursuant to a special temporary authorization granted by the
Federal Communications Commission, which voting trust
prevents the Company and its Affiliates from directly or
indirectly influencing the trustee under such voting trust
concerning the operation or management of the PCI
Activities, then such contribution of the PCI Activities to
Transco need not be made until the date of termination of
such voting trust.
(c) The contributions to Transco of the Identified
Activities and the PCI Activities as described in (a) and
(b) above shall be in consideration of the issuance to the
respective transferors of such number of shares of Non-
Participating Preferred stock of Transco having an aggregate
liquidation preference equalling the fair value of the
activities contributed, determined on an arms-length basis,
the fairness of which from a financial point of view shall
be evidenced by the opinion of an investment bank reasonably
satisfactory to the Company, NAI and the Purchaser.
(d) Notwithstanding any other provision of this
Agreement to the contrary, if, at any time, in the
Purchaser's judgment, the continued ownership by the Company
or its subsidiaries of an interest in Transco would cause
the Company or any Company Affiliate to be engaged in a
Restricted Activity by virtue of Transco's ownership of
Identified Activities and/or PCI Activities, and the
Purchaser determines in good faith that it would be
detrimental to the Purchaser's best interests either to
initiate efforts or to continue pursuing existing efforts to
confirm the propriety under the MFJ of the ownership by the
Company or its subsidiaries of shares of Non-Participating
Preferred Stock in Transco or any other interest in Transco,
the Company shall take any and all action necessary to cause
the Company (and all of its subsidiaries) to dispose of all
interests in Transco owned by the Company (or any of its
subsidiaries), and/or take such other action as, in the
Purchaser's judgment, is necessary so that neither the
Company nor any Company Affiliate will be engaged in a
Restricted Activity (such obligation to divest and take
other action being collectively referred to as the
"Divestment Action"). The Divestment Action shall be taken
as promptly as practicable, but in no event later than
thirty (30) Business Days after the Purchaser notifies the
Company in writing of such determination.
(e) In the event the Purchaser determines, in its
judgment, that the direct ownership by the Company (or any
of its subsidiaries) of all or any portion of the Identified
Activities or the PCI Activities would not result in the
Purchaser's being in violation of the MFJ, the Company will,
upon written notice from the Purchaser, acquire (or cause a
wholly-owned subsidiary to acquire), for fair value
determined on an arm's-length basis, the fairness of which
from a financial point of view shall be evidenced by the
opinion of an investment bank reasonably satisfactory to the
Company, NAI and the Purchaser, (i) all of the capital stock
of Transco not then owned by the Company and its
subsidiaries, or (ii) specific Identified Activities or PCI
Activities identified in writing by the Purchaser, as
determined by the Purchaser; provided that the Company shall
be entitled to defer, for a reasonable period of time, any
such acquisition if the Company determines in good faith,
and so notifies the Purchaser in writing, that consummating
such acquisition at such time would be detrimental to the
Company's best interests.
(f) If the Company fails or is unable to implement the
Divestment Action within the period set forth in (d) above,
then the Purchaser, at its option, by written notice to the
Company, shall have the right to elect to do one or more of
the following: (i) exercise the Put Right with respect to
all or part of the Subject Stock at the Divestment Price (as
defined below); (ii) require the Company to promptly
register all or part of the Subject Stock in a Registered
Offering; and/or (iii) sell all or part of the Subject Stock
privately in a Private Sale. If the Purchaser is entitled
to receive the Divestment Price under this paragraph 25(f)
and elects to dispose of the Preferred Stock or any portion
thereof either in a Registered Offering or a Private Sale,
the Company agrees to pay to the Purchaser the amount, if
any, by which the gross proceeds to the Purchaser, after
deducting underwriting commissions and discounts or agency
fees, realized in such disposition is less than the
aggregate Divestment Price that would have been payable to
the Purchaser by the Company had the Purchaser elected to
require the Company to purchase such Preferred Stock under
this paragraph 25(f); provided, however, that the Company
-------- -------
shall not be obligated to make any such payment in any
instance in which the Purchaser rejects the Company's
written request, if such a request is made by the Company by
written notice to the Purchaser within 5 Business Days of
receipt by the Company of the Purchaser's notice pursuant to
this paragraph 25(f) (and which the Company shall be
entitled to make in its discretion), to purchase such
Preferred Stock from the Purchaser at the Divestment Price,
which right the Purchaser shall have in its discretion. The
Purchaser's rights under this paragraph 25 shall be
enforceable by any Affiliate to which it has transferred
Subject Stock. For purposes of this paragraph 25, the
"Divestment Price" shall mean (A) with respect to Preferred
----------------
Stock, the Aggregate Liquidation Preference plus accrued and
----
unpaid dividends through the date of such purchase (whether
or not earned or declared), plus an amount equal to a 7%
----
annual compounded rate of return on the Aggregate
Liquidation Preference from the date of Closing to the date
of purchase by the Company, and (B) with respect to Class B
Common Stock, the price per share equal to 100% of the
Trading Price for the 20 trading days immediately prior to
the date of purchase by the Company.
(g) Notwithstanding any other provision of this
Agreement, the remedy provided in (f) above is in addition
to any and all other remedies that may be available to the
Purchaser, at law or in equity, including, without
limitation, the right to seek damages, unless it is
determined by the arbitration provided for in paragraph 15
that the Company and its Affiliates shall have acted
reasonably in failing to implement the Divestment Action as
set forth in (d) above, in which event such remedy in (f)
above shall be the exclusive remedy available to the
Purchaser. In the event that the Purchaser is entitled to
seek damages as provided above in this paragraph 25(g), such
damages shall be offset by an amount equal to the 7% annual
compounded rate of return on the Aggregate Liquidation
Preference included in the Divestment Price if (but only if)
the Divestment Price both was determined by reference to
Preferred Stock and already has been paid to the Purchaser."
(h) ANNEX II of the Agreement is amended by deleting
the second sentence of the first paragraph, which currently
reads "In addition, at any time that the Purchaser shall
have the right to require the Company to purchase shares of
Preferred Stock and Class B Common Stock pursuant to
paragraph 24(g) of the Agreement, the Purchaser shall have
the right to make a request to register under the 1933 Act
any or all of such shares of Preferred Stock and Class B
Common Stock (the "Paragraph 24(g) Stock")", and by
---------------------
replacing it with the following:
"In addition, at any time that the Purchaser shall
have the right to require the Company to purchase
shares of Preferred Stock and Class B Common Stock
pursuant to paragraph 24(g) and/or paragraph 25(f) of
the Agreement, the Purchaser shall have the right to
make a request to register under the 1933 Act any or
all of such shares of Preferred Stock and Class B
Common Stock (in the case of either paragraph 24(g) or
paragraph 25(f), the "Paragraph 24(g) Stock")".
---------------------
(i) Paragraph 25 is deleted in its entirety and is
hereby replaced with the following new paragraph 26:
"The Company agrees that, for so long as the
Purchaser and its Affiliates Beneficially Own all of
the outstanding Preferred Stock, the Company shall not
amend, alter or repeal any of the provisions of the
Certificate of Designation without the consent of the
Purchaser."
(j) The Agreement is amended to change current
paragraph number "26" to "27".
(k) The Agreement is hereby amended to add thereto as
"Annex III" the attached forms of the certificate of
incorporation, by-laws and certificate of designation of
Transco.
2. This Amendment Agreement may be executed in multiple
counterparts, each of which when so executed shall be deemed to
be an original, and such counterparts together shall constitute
and be one and the same instrument.
3. This amendment to the Agreement shall be governed and
construed in accordance with the laws of the State of New York
applicable to contracts executed in and to be performed in that
state.
Very truly yours,
VIACOM INC.
By:_______________________
Accepted and agreed on
the date written above:
NYNEX CORPORATION
By:_________________
VIACOM INC.
1515 Broadway [Conformed Copy]
New York, New York
October 21, 1993
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301-1860
Dear Sirs:
Viacom Inc., a Delaware corporation (the "Company"),
and Blockbuster Entertainment Corporation, a Delaware
corporation (the "Purchaser"), are parties to a letter
agreement dated September 29, 1993. The Company and the
Purchaser hereby amend and restate such letter agreement in its
entirety as follows:
1. Subject to the terms and conditions set forth
herein, the Purchaser hereby subscribes for, and agrees to
purchase, and the Company agrees to issue and sell, 24,000,000
shares of a new series of convertible preferred stock of the
Company designated Series A Convertible Preferred Stock, par
value $0.01 per share (the "Preferred Stock"), for an aggregate
purchase price of $600,000,000, representing a purchase price
of $25.00 per share. The terms of the Preferred Stock are set
forth in the form of Certificate of Designation attached as
Annex I hereto (the "Certificate of Designation"), which terms
are subject to amendment in accordance with the provisions
hereof.
2. (a) The closing (the "Closing") of the purchase
provided for in paragraph 1 shall take place at a date mutually
agreed by the parties (but in any event no later than October
22, 1993) upon satisfaction of the conditions specified in
paragraph 5 at the offices of Shearman & Sterling, 599
Lexington Avenue, New York, New York. The date and time of the
Closing are referred to herein as the "Closing Date".
(b) At the Closing, the Purchaser shall deliver to
the Company $600,000,000 in cash by wire transfer in
immediately available funds to an account of the Company
designated by the Company, by notice to the Purchaser prior to
the Closing Date, and the Company shall deliver to the
Purchaser a certificate representing the shares of Preferred
Stock, registered in the name of the Purchaser.
2
3. (a) The Purchaser represents and warrants to the
Company that: (i) the execution and delivery of this Agreement
by the Purchaser and the performance of its obligations
hereunder have been duly and validly authorized by all
necessary corporate action on the part of the Purchaser; (ii)
this Agreement has been duly and validly executed and delivered
by the Purchaser and, assuming the due authorization, execution
and delivery by the Company, constitutes a legal, valid and
binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other
similar laws relating to or affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law);
(iii) the execution, delivery and performance of this Agreement
by the Purchaser and the purchase of Preferred Stock by the
Purchaser do not conflict with or violate or result in any
breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under
the Certificate of Incorporation or By-Laws or equivalent
organizational documents of the Purchaser; (iv) the execution,
delivery and performance of this Agreement by the Purchaser do
not, and the consummation of the transactions contemplated
hereby by the Purchaser will not, require any consent,
approval, authorization or permit of, or filing with or
notification to, any governmental authority with respect to the
Purchaser, except under the 1934 Act; (v) the Purchaser is
acquiring the Preferred Stock and the Common Stock of the
Company issuable upon conversion of the Preferred Stock for its
own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof; and
(vi) the Purchaser is an "accredited investor" within the
meaning of Rule 501 under the 1933 Act.
(b) Except as set forth in this paragraph 3, the
Purchaser makes no other representation, express or implied, to
the Company.
4. (a) The Company represents and warrants to the
Purchaser that (i) each of the Company and each Subsidiary (as
defined below) is a corporation, partnership or other legal
entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization and has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its
properties and to carry on its business
3
as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or
in the aggregate, have a Material Adverse Effect (as defined
below); (ii) the execution and delivery of this Agreement by
the Company and the issuance of the Preferred Stock in
accordance with the terms of this Agreement and the Certificate
of Designation have been duly and validly authorized by all
necessary corporate action on the part of the Company; (iii)
this Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution
and delivery by the Purchaser, constitutes a legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other
similar laws relating to or affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law);
(iv) the execution, delivery and performance of this Agreement
by the Company do not, and the issuance of the Preferred Stock
and the performance of the Company's obligations in accordance
with the terms of this Agreement and the Certificate of
Designation will not, conflict with or violate or result in any
breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under
(A) the Certificate of Incorporation or By-Laws or equivalent
organizational documents of the Company or any Subsidiary, (B)
any law, rule, regulation, order, judgment or decree applicable
to the Company or any Subsidiary, or (C) any note, bond,
mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which
the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any property or asset of the
Company or any Subsidiary is bound or affected, except in the
case of subclauses (B) and (C) above, for any such conflicts,
violations, breaches, defaults or other occurrences which would
not prevent or delay the issuance of the Preferred Stock in
accordance with the terms of this Agreement and the Certificate
of Designation in any material respect, or otherwise prevent
the Company from performing its obligations under this
Agreement and the Certificate of Designation in any material
respect, and would not, individually or in the aggregate, have a
Material Adverse Effect; (v) the execution, delivery and
performance of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing
with or notification to, any
4
governmental authority with respect to the Company, except for
the filing with the Secretary of State of the State of Delaware
of the Certificate of Designation, filings after the Closing of
the Certificate of Designation with appropriate authorities in
states in which the Company is qualified as a foreign
corporation, any filings required to effect the registration
pursuant to paragraph 8 and any filings pursuant to federal and
state securities laws which will be timely made after the
Closing hereunder; (vi) the Preferred Stock to be issued
hereunder has been duly authorized and, upon issuance at the
Closing, will be validly issued, fully paid and nonassessable,
and free and clear of all security interests, liens, claims,
encumbrances, pledges, options and charges of any nature
whatsoever, and the issuance of such Preferred Stock will not
be subject to preemptive rights of any other stockholder of the
Company; (vii) prior to the Closing, the Certificate of
Designation will have been filed with the Secretary of State of
the State of Delaware in accordance with the Delaware General
Corporation Law; (viii) the shares of Class B Common Stock,
par value $0.01 per share ("Class B Common Stock"), of the
Company issuable upon conversion of the Preferred Stock have
been duly authorized and reserved for issuance upon such
conversion and, upon issuance of such shares in accordance with
the Certificate of Designation, will be validly issued, fully
paid and nonassessable; (ix) the authorized capital stock of
the Company consists of 100,000,000 shares of the Company's
Class A Common Stock, 150,000,000 shares of Class B Common
Stock and 100,000,000 shares of Preferred Stock, par value
$0.01 per share ("Company Preferred Stock"); (x) as of August
31, 1993, (A) 53,431,699 shares of the Company's Class A Common
Stock and 67,282,799 shares of Class B Common Stock were issued
and outstanding, all of which were validly issued, fully paid
and nonassessable, (B) no shares were held in the treasury of
the Company, (C) no shares were held by the Subsidiaries, and
(D) 3,843,000 shares were reserved for future issuance pursuant
to employee stock options or stock incentive rights granted
pursuant to the Company's 1989 Long-Term Management Incentive
Plan and the Company's Stock Option Plan for Outside Directors;
(xi) as of the date hereof, no shares of Company Preferred
Stock are issued and outstanding and there are no agreements,
arrangements or understandings with respect to the issuance of
any Company Preferred Stock other than the Stock Purchase
Agreement dated October 4, 1993 between the Company and NYNEX
Corporation; (xii) the Company has filed all forms, reports and
documents required to be filed by it with the Securities and
Exchange Commission ("Commission") since December 31, 1990, and
has heretofore made available to the Purchaser, in the form
filed with the Commission (excluding any exhibits thereto),
(A) its
5
Annual Reports on Form 10-K for the fiscal years ended December
31, 1990, 1991 and 1992, respectively, (B) its Quarterly
Reports on Form 10-Q for the periods ended March 31, 1993 and
June 30, 1993, (C) all proxy statements relating to the
Company's meetings of stockholders (whether annual or special)
held since January 1, 1991 and (D) all other forms, reports and
other registration statements (other than Quarterly Reports on
Form 10-Q not referred to in clause (B) above and preliminary
materials) filed by the Company with the Commission since
December 31, 1990 (the forms, reports and other documents
referred to in clauses (A), (B), (C), and (D) above being
referred to herein, collectively, as the "SEC Reports"); (xiii)
the SEC Reports and any other forms, reports and other
documents filed by the Company with the Commission after the
date of this Agreement (A) were or will be prepared in
accordance with the requirements of the 1933 Act and the 1934
Act, as the case may be, and the rules and regulations
thereunder and (B) did not at the time they were filed, or will
not at the time they are filed, contain any untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which
they were made, not misleading; (xiv) the consolidated
financial statements (including, in each case, any notes
thereto) contained in the SEC Reports were prepared in
accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each
fairly presented the consolidated financial position, results
of operations and cash flows of the Company and its
consolidated subsidiaries as at the respective dates thereof
and for the respective periods indicated therein (subject, in
the case of unaudited statements, to normal and recurring
year-end adjustments which were not and are not expected,
individually or in the aggregate, to be material in amount);
(xv) since December 31, 1992 there has not been any change,
occurrence or circumstance in the business, results of
operations or financial condition of the Company or any
Subsidiary having, individually or in the aggregate, a Material
Adverse Effect, other than changes, occurrences and
circumstances referred to in any subsequently filed SEC
Reports; (xvi) there is no claim, action, proceeding or
investigation pending or, to the best knowledge of the Company,
threatened by any public official or governmental authority,
against the Company or any Subsidiary, or any of their
respective property or assets before any court, arbitrator or
administrative, governmental or regulatory authority or body,
which challenges the validity of this Agreement, the
Certificate of Designation or the Preferred Stock or any action
taken or to be taken
6
pursuant hereto or, except as set forth in the SEC Reports,
which is reasonably likely to have a Material Adverse Effect;
and (xvii) neither the Company nor any Subsidiary is in
conflict with, or in default or violation of, (A) any law,
rule, regulation, order, judgment or decree applicable to the
Company or any Subsidiary or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (B) any
note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any property or asset of the
Company or any Subsidiary is bound or affected, except for any
such conflicts, defaults or violations that would not,
individually or in the aggregate, have a Material Adverse
Effect.
(b) Except as set forth in this paragraph 4 and in
paragraph 9(e), the Company makes no representation, express or
implied, to the Purchaser.
(c) "Subsidiary" means a "significant subsidiary" of
the Company, as such term is defined in Regulation S-X
promulgated under the 1933 Act.
(d) The term "Material Adverse Effect" means any
change or effect that is or is reasonably likely to be
materially adverse to the business, results of operations or
financial condition of the Company and its Subsidiaries, taken
as a whole.
(e) Notwithstanding anything to the contrary in this
paragraph 4, any change to or effect on the business, results
of operations or financial condition of the Company and its
Subsidiaries that results, directly or indirectly, from (a)
regulations adopted by the Federal Communications Commission,
whether before or after the date hereof, governing financial
interest in and syndication of broadcast programming or
implementing the Cable Television Consumer Protection and
Competition Act of 1992 or (b) the subject matter contemplated
by the Company's Current Report on Form 8-K, dated September
13, 1993 (the "Paramount Transaction"), shall not be considered
for purposes of determining whether a breach has occurred of
any representation or warranty, covenant or agreement of the
Company contained herein.
5. (a) The obligation of the Purchaser to
consummate the Closing is subject to the satisfaction (or
waiver by the Purchaser, at its sole discretion) of the
following conditions:
7
(i) (A) the Company shall have performed in all
material respects all of its obligations hereunder required
to be performed by it at or prior to the Closing Date, (B)
the representations and warranties of the Company contained
in this Agreement shall be true in all material respects
(other than those contained in Paragraph 4(a)(xv), which
shall be true in all respects) as of the Closing Date, as
if made at and as of such date (except for any such
representations and warranties that are expressly stated to
be as of a different date) and (C) the Purchaser shall have
received a certificate signed by an executive officer of
the Company to the foregoing effect;
(ii) no judgment, injunction, order or decree shall
materially restrict, prevent or prohibit the consummation
of the Closing; and
(iii) the Purchaser shall have received an opinion of
Shearman & Sterling, dated the Closing Date, substantially
in the form of Exhibit A hereto.
(b) The obligation of the Company to consummate the
Closing is subject to the satisfaction (or waiver by the
Company, at its sole discretion) of the following conditions:
(i) (A) the Purchaser shall have performed in all
material respects all of its obligations hereunder required
to be performed by it at or prior to the Closing Date, (B)
the representations and warranties of the Purchaser
contained in this Agreement shall be true in all material
respects at and as of the Closing Date, as if made at and
as of such date (except for any such representations and
warranties that are expressly stated to be as of a
different date) and (C) the Company shall have received a
certificate signed by an executive officer of the Purchaser
to the foregoing effect;
(ii) no judgment, injunction, order or decree shall
materially restrict, prevent or prohibit the consummation
of the Closing;
(iii) the Company shall have received an opinion of
Thomas W. Hawkins, General Counsel of the Purchaser, dated
the Closing Date, substantially in the form of Exhibit B
hereto; and
(iv) the Company shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom, dated the Closing
Date, substantially in the form of Exhibit C hereto.
8
6. Effective as of the Closing and for so long as the
Purchaser and its Affiliates Beneficially Own at least
12,000,000 shares of Preferred Stock or the equivalent in
number of shares of Preferred Stock and shares of Class B
Common Stock issuable upon conversion of the Preferred Stock,
the Purchaser shall be entitled to one representative on the
Board of Directors of the Company, who shall serve in such
capacity in accordance with the Restated Certificate of
Incorporation and the By-Laws of the Company. Such
representative shall initially be H. Wayne Huizenga, who shall
become a member of the Company's Board of Directors
simultaneously with the Closing, and the Purchaser shall
receive satisfactory evidence of this action.
7. (a) The Purchaser acknowledges that the shares
of Preferred Stock and Class B Common Stock into which such
Preferred Stock is convertible have not been registered under
the 1933 Act or any state securities law, and hereby agrees not
to offer, sell or otherwise transfer, pledge or hypothecate
such shares unless and until registered under the 1933 Act and
any applicable state securities law or unless, in the opinion
of counsel reasonably satisfactory to the Company, such offer,
sale, transfer, pledge or hypothecation is exempt from
registration or is otherwise in compliance with the 1933 Act
and such laws.
(b) Upon issuance of the Preferred Stock, and until
such time as the same is no longer required under the
applicable requirements of the 1933 Act, the certificates
evidencing the Preferred Stock (and all securities issued in
exchange therefor or substitution thereof) shall bear the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER, SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION
IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE
WITH THE ACT AND SUCH LAWS.
8. Effective at the Closing, the Purchaser shall have
the registration rights, and the Company shall have the
obligations, set forth in Annex II.
9
9. (a) During the Put/Call Period (as defined
below), the Company, at its option, shall have the right to
purchase from the Purchaser and the Purchaser, at its option,
shall have the right to sell to the Company, in each case at
the Put/Call Price (as defined below), 12,000,000 shares of the
Preferred Stock.
(b) The Company or the Purchaser may each exercise
the right granted to it in paragraph 9(a) by written notice to
the other party at any time during the Put/Call Period and in
the event such a notice is so delivered, the repurchase of the
12,000,000 shares of Preferred Stock by the Company (the
"Put/Call Closing") shall occur at 10:00 a.m. at the place
specified in paragraph 2 hereof on the twentieth Business Day
following the date such written notice is delivered.
(c) At the Put/Call Closing, the Company shall
deliver to the Purchaser the Put/Call Price in cash by wire
transfer in immediately available funds to an account of the
Purchaser designated by the Purchaser by notice to the Company
at least two Business Days prior to the date of the Put/Call
Closing, and the Purchaser shall deliver to the Company a
certificate representing the 12,000,000 shares of Preferred
Stock, duly endorsed to the Company or accompanied by a stock
power duly executed to the Company, in proper form for
transfer, which shares shall be transferred by the Purchaser to
the Company free and clear of any encumbrances or adverse
claims.
(d) For the purposes of this paragraph 9, the
following terms shall have the following meanings:
(i) "Put/Call Period" shall mean the period of 120
days following the earlier of (A) August 31, 1994, if, and
only if, the Company or any of its Affiliates has not
acquired Beneficial Ownership of a majority of the
outstanding voting capital stock of Paramount
Communications Inc. ("PCI") prior to August 31, 1994 or (B)
the date on which any party other than the Company or any
of its Affiliates acquires Beneficial Ownership of a
majority of the voting capital stock of PCI; and
(ii) "Put/Call Price" shall mean $300,000,000,
representing the aggregate liquidation preference of the
12,000,000 shares of Preferred Stock, plus the aggregate
amount of accrued and unpaid dividends on such shares of
Preferred Stock to the date of the Put/Call Closing
(whether or not earned or declared).
10
(e) The Company agrees not to enter into any
contract, agreement, arrangement or understanding, nor to take
or omit to take any action, that would restrict or impair the
performance of its obligations under this paragraph 9, and the
Company represents and warrants that it is not a party to nor
bound by any such contract, agreement, arrangement or
understanding on the date hereof.
(f) With respect to any put rights granted by the
Company to any other investors (each, an "Investor") with
respect to the Company's capital stock similar to the put right
granted to the Purchaser pursuant to paragraph 9(a), the
Company shall notify the Purchaser in writing within two
Business Days after receipt of written notice of the exercise
of such put right by each such Investor, and in the event the
Purchaser also exercises the put right granted pursuant to
paragraph 9(a) in accordance with this paragraph 9 within two
Business Days of its receipt of such notice (but not later than
the expiration of the Put/Call Period), the Company shall use
its reasonable best efforts to cause the Put/Call Closing to be
held on the same day as the closing under the put right of the
other Investor or Investors.
10. In the event that, until the earlier of (a) the
date of the expiration of the Put/Call Period or (b) the
consummation of the acquisition by the Company or any of its
Affiliates of Beneficial Ownership of a majority of the
outstanding voting capital stock of PCI, the Company issues new
shares of preferred stock (other than through an offering
intended to result in a distribution thereof to more than 35
non-accredited investors, which shall be on market terms) the
terms of the Preferred Stock and the terms of Annex II shall be
amended in order to be at least as favorable to the holders of
such Stock as those of such new shares.
11. (a) In the event of a Change of Control (as
defined below) of the Company, the Purchaser, at its option,
shall have the right to sell to the Company or its assignee, at
the Designated Price (as defined below), all shares of the
Preferred Stock then held by the Purchaser and its Affiliates.
(b) The Purchaser may exercise the right granted to
it in paragraph 11(a) by written notice to the Company at any
time during the 30 day period following public announcement of
such Change of Control and in the event such a notice is so
delivered, the repurchase of such shares of Preferred Stock by
the Company (the "Paragraph 11 Closing") shall occur at 10:00
a.m. at the place specified in paragraph 2 hereof on the
twentieth Business Day following the date such written notice
is delivered.
11
(c) At the Paragraph 11 Closing, the Company or its
assignee shall deliver to the Purchaser the Designated Price in
cash by wire transfer in immediately available funds to an
account of the Purchaser designated by the Purchaser by notice
to the Company at least two Business Days prior to the date of
the Paragraph 11 Closing, and the Purchaser shall deliver to
the Company a certificate representing the shares of Preferred
Stock referred to in paragraph 11(a), duly endorsed to the
Company or accompanied by a stock power duly executed to the
Company, in proper form for transfer, which shares shall be
transferred by the Purchaser to the Company free and clear of
any encumbrances or adverse claims.
(d) For the purposes of this paragraph 11, the
following terms shall have the following meanings:
(i) A "Change of Control" of the Company shall occur
if a Person Beneficially Owns more voting capital stock, on
a fully diluted basis, of the Company than
National Amusements, Inc., Sumner M. Redstone, any trust
established by Mr. Redstone or of which he is the settlor,
beneficiary or trustee and any heir, executor,
administrator, or personal representative of Mr. Redstone
or his estate, and any person or entity in any similar
capacity, or any Affiliate of any of the foregoing
(collectively, the "Group"), or the Group Beneficially Owns
30% or less of the voting capital stock, on a fully diluted
basis, of the Company.
(ii) "Designated Price" shall mean the sum of (A) 110%
multiplied by the aggregate liquidation preference of the
shares of Preferred Stock referred to in paragraph 11(a),
plus (B) the aggregate amount of accrued and unpaid
dividends on such shares of Preferred Stock to the date of
the Paragraph 11 Closing.
12. The Company and the Purchaser agree that after
the Closing they shall in good faith discuss and explore
forming a joint venture to exploit potential opportunities and
synergies among their existing businesses and to pursue
additional entertainment and technology opportunities employing
the assets of each. The parties intend that any such joint
venture will be formed within two years.
13. (a) The representations and warranties contained
in this Agreement shall survive the Closing until the first
anniversary of the Closing Date.
(b) The Purchaser and its Affiliates, officers,
directors, employees, agents, successors and assigns shall be
12
indemnified and held harmless by the Company for any and all
liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' fees and expenses) (a "Loss")
actually suffered or incurred by them, arising out of or
resulting from the breach of any representation or warranty or
covenant of the Company contained in this Agreement.
(c) The Company and its Affiliates, officers,
directors, employees, agents, successors and assigns shall be
indemnified and held harmless by the Purchaser for any and all
Losses actually suffered or incurred by them, arising out of or
resulting from the breach of any representation or warranty or
covenant of the Purchaser contained in this Agreement.
14. (a) The Purchaser agrees that neither the
Purchaser nor any of its Affiliates shall participate in any
transaction that, directly or indirectly, would have the effect
of precluding or competing with the Paramount Transaction.
(b) The Company agrees that in the event the
Company intends to engage in additional equity financing in
connection with the Paramount Transaction (other than equity to
be issued to stockholders of PCI as consideration in such
transaction), the Company shall consult with the Purchaser.
(c) The Company agrees that prior to
consummation of the Paramount Transaction, the Company shall
receive an opinion from Smith Barney Shearson Inc. that the
consideration actually to be paid by the Company in such
transaction is fair, from a financial point of view, to the
stockholders of the Company.
15. The Purchaser, on the one hand, and the Company,
on the other, acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to equitable relief
(including injunction and specific performance) in any action
instituted in any court of the United States or any state
thereof having subject matter jurisdiction, as a remedy for any
such breach or to prevent any breach of this Agreement. Such
remedies shall not be deemed to be the exclusive remedies for a
breach or anticipatory breach of this Agreement, but shall be
in addition to all other remedies available at law or equity to
the parties hereto. To the
13
extent permitted by applicable law, the parties hereto
irrevocably submit to the exclusive jurisdiction of the courts
of the State of New York and the United States of America
located in the State of New York for any suits, actions or
proceedings arising out of or relating to this Agreement.
16. This Agreement, its Annexes and Exhibits contain
the entire understandings of the parties with respect to the
subject matter hereof, thereby superseding all prior agreements
of the parties relating to the subject matter hereof (other
than the Confidentiality Agreement entered into between the
Purchaser and Viacom International Inc. dated July 1, 1993),
and may not be amended except by a writing signed by the
parties. Except as otherwise provided herein, this Agreement
is not assignable by any of the parties; provided that the
Purchaser may assign its rights and obligations under this
Agreement to a wholly owned subsidiary of the Purchaser, so
long as the Purchaser shall remain liable for all financial and
performance obligations of the Purchaser hereunder. This
Agreement shall be binding upon, and inure to the benefit of,
the respective successors of the parties. This Agreement may
be executed in counterparts, each of which shall be deemed an
original, but all of which together will constitute one and the
same instrument.
17. Any notices and other communications required to
be given pursuant to this Agreement shall be in writing and
shall be given by delivery by hand, by mail (registered or
certified mail, postage prepaid, return receipt requested) or
by facsimile transmission or telex, as follows:
If to the Company:
Viacom Inc.
1515 Broadway
New York, New York 10036
Attention: Philippe P. Dauman
Facsimile No.: 212-258-6134
With a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Stephen R. Volk
Facsimile No.: 212 848-7179
14
If to the Purchaser:
Blockbuster Entertainment Corporation
One Blockbuster Plaza
Fort Lauderdale, Florida 33301-1860
Attention: Thomas W. Hawkins
Facsimile No.: 305-852-3939
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Stephen Hamilton/Thomas Casey
Facsimile No.: 202-393-5760
or to such other addresses as either the Company or the
Purchaser shall designate to the other by notice in writing.
18. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Affiliate" shall mean any Person that (i)
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
the Person specified or (ii) is (A) the specified Person's
spouse, parent, child, brother or sister or any issue of the
foregoing (for purposes of the definition of Affiliate, issue
shall include Persons legally adopted into the line of
descent), (B) any corporation or organization of which the
Person specified or such specified Person's spouse, parent,
child, brother or sister or any issue of the foregoing is an
officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of voting
stock, and (C) any trust or other estate in which the specified
Person or such specified Person's spouse, parent, child,
brother or sister or any issue of the foregoing serves as
trustee or in a similar fiduciary capacity and (D) the heirs or
legatees of the specified Person by will or under the laws of
descent and distribution.
(b) "Beneficially Own" with respect to any securities
and "Beneficial Ownership" shall mean having beneficial
ownership as determined pursuant to Rule 13d-3 under the 1934
Act including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
(c) "Business Day" has the meaning specified in the
Certificate of Designation.
15
(d) "Person" shall mean any individual, partnership,
joint venture, corporation, trust, incorporated organization,
government or department or agency of a government, or any
entity that would be deemed to be a "person" under Section
13(d)(3) of the 1934 Act.
(e) "1933 Act" means the Securities Act of 1933, as
amended.
(f) "1934 Act" means the Securities Exchange Act of
1934, as amended.
19. Subject to the terms and conditions of this
Agreement, each of the parties hereby agrees to use all
reasonable efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws, rules and regulations to
consummate and make effective the transactions contemplated by
this Agreement, including using its best efforts to obtain all
necessary waivers, consents and approvals. In case at any time
after the execution of this Agreement, further action is
necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each of the
parties shall take all such necessary action.
20. (a) For so long as the Purchaser and its
Affiliates shall Beneficially Own all of the outstanding
Preferred Stock, the provisions of this paragraph 20 shall
apply.
(b) In case the Company shall distribute (in one
distribution or a series of related distributions) to all
holders of its Class A and Class B Common Stock any Securities
(as defined in Section 7(d)(iii) of the Certificate of
Designation) with an aggregate fair market value (as determined
by the Board of Directors of the Company, whose determination
shall, if made in good faith, be conclusive) of more than
$300,000,000, then in each such case, unless the Company elects
to reserve shares or other units of such Securities for
distribution to the holders of the Preferred Stock as described
in Section 7(d)(iii) of the Certificate of Designation, the
following provisions shall apply, at the election of the
Purchaser by written notice to the Company as provided in
paragraph 20(f) below (the "Election Notice"):
(i) Securities shall be distributed to the Purchaser
in the amount and kind which the Purchaser would have
received if the Purchaser had, immediately
16
prior to the record date for the distribution of the
Securities, converted its shares of Preferred Stock into
Class B Common Stock;
(ii) The Purchaser shall be deemed to have consented
by delivery of the Election Notice, without the need for
further vote or action on the part of the Purchaser, to
amend the Certificate of Designation, effective on the date
of the distribution of the Securities, to change the terms
of the Preferred Stock to reflect the terms of the
Redesignated Preferred Stock (as defined below) as
determined by the Redesignation Agent (as defined below) in
accordance with the provisions of paragraph 20(c) below;
and
(iii) Prior to the date of distribution of the
Securities, the Company shall file with the Secretary of
State of the State of Delaware the Certificate of
Designation as amended as provided in clause (b)(ii) above.
(c) The terms of the Redesignated Preferred Stock
shall be determined by the Redesignation Agent as follows:
(i) The Redesignation Agent shall determine the
Trading Price (as defined below) for the twenty trading
days immediately prior to the record date for the
distribution of the Securities and the Trading Price for
the twenty trading days immediately after the record date
for the distribution of the Securities and shall determine
the difference, stated as a dollar amount, in the per share
Trading Price between such two periods (the "Dollar Trading
Difference");
(ii) The Redesignation Agent shall then multiply the
Dollar Trading Difference by the total number of shares of
Class B Common Stock that the Preferred Stock would be
convertible into immediately prior to the record date for
the distribution of the Securities (the product of such
multiplication, the "Aggregate Dollar Trading Difference");
and
(iii) The Redesignation Agent shall then adjust the
dividend rate, redemption prices, liquidation preference
and/or conversion price (without affecting the number of
underlying shares of Class B Common Stock) of the Preferred
Stock as specified in the Certificate of Designation, but
no other terms of the Preferred Stock, as necessary so that
the difference in the fair market value, in the aggregate,
of the Preferred Stock prior to
17
the distribution of the Securities and after the
distribution of Securities shall be as closely as possible
equivalent to the Aggregate Dollar Trading Difference (the
Preferred Stock with the terms so adjusted, the
"Redesignated Preferred Stock").
(d) "Trading Price" for the Class B Common Stock for
any given period shall be the average of the closing prices for
the Class B Common Stock for the trading days included in such
period on the American Stock Exchange or, if the American Stock
Exchange is not the exchange on which the Class B Common Stock
is principally traded, such exchange.
(e) (i) "Redesignation Agent" shall mean an
investment banking firm of national standing chosen in the
following manner: the Purchaser shall propose three such
investment banking firms to the Company in writing within
five Business Days of the delivery of the Election Notice
by the Purchaser to the Company and within five Business
Days of such firms being so proposed, the Company shall
select by written notice to the Purchaser one such firm to
serve as the Redesignation Agent.
(ii) All determinations of the Redesignation Agent
shall, if made in good faith, be conclusive.
(iii) All fees of the Redesignation Agent shall be paid
by the Company.
(f) If at any time the Board of Directors of the
Company determines to make a distribution of Securities to
which the provisions of this paragraph 20 would apply, the
Company shall notify the Purchaser in writing as soon as
practicable and, if the Purchaser decides to elect to have the
provisions of this paragraph 20 apply to such distribution, the
Purchaser shall so notify the Company within 15 Business Days
of such notice from the Company. The record date for any such
distribution of Securities shall not be before the earlier of
15 Business Days after the Purchaser gives such notice to the
Company and the expiration of the 15 Business Day period for
the giving of such notice.
(g) If the Purchaser elects to have the provisions of
this paragraph 20 apply in the case of a distribution of
Securities, (i) the Purchaser shall thereby waive compliance
with the provisions of Section 7 of the Certificate of
Designation that would otherwise apply in such case; (ii) the
put/call provisions of paragraph 9 of this Agreement shall
apply to the Redesignated Preferred Stock and the Put/Call
Price shall be appropriately adjusted; and (iii) the
18
Purchaser agrees that it shall not trade in the Class B Common
Stock during either of the Trading Periods referred to in
paragraph 20(c)(i) above.
21. The Company agrees that, for so long as the
Purchaser holds Preferred Stock, the term "ratably", as used in
the Company's Restated Certificate of Incorporation with
respect to the rights of holders of the Company's common stock
to receive dividends and distributions of assets upon
liquidation, will be interpreted to mean treating Class A
Common Stock and Class B Common Stock as a single class.
22. The Company agrees that, for so long as the
Purchaser and its Affiliates Beneficially Own all of the
outstanding Preferred Stock, upon the conversion of any shares
of Preferred Stock the Purchaser shall be entitled to receive
an amount equal to dividends accrued during the Dividend Period
in which such conversion occurs and up to the date of the
conversion, less any amounts previously paid with respect to
any portion of such Dividend Period. Such amounts shall be
paid promptly after such conversion.
23. The parties agree to consult with each other
before taking any action that would require the issuance of, or
issuing, any press release or making any public statement with
respect to this Agreement or the transactions contemplated
hereby and, except as may be required by applicable law or any
listing agreement with any securities exchange, will not take
any such action, issue any such press release or make any such
public statement prior to such consultation.
24. The Company agrees that, for so long as the
Purchaser and its Affiliates Beneficially Own all of the
outstanding Preferred Stock, the Company shall not amend, alter
or repeal any of the provisions of the Certificate of
Designation without the consent of the Purchaser.
19
25. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable
to contracts executed in and to be performed in that state.
Very truly yours,
VIACOM INC.
By /s/ Philippe P. Dauman
----------------------
Philippe P. Dauman
Senior Vice President,
General Counsel and
Secretary
Accepted and agreed on
the date written above:
BLOCKBUSTER ENTERTAINMENT CORPORATION
By /s/ Steven R. Berrard
------------------------
Steven R. Berrard
Vice Chairman, President
and Chief Operating
Officer
ANNEX I
CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING OR OTHER RIGHTS, AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.01 Par Value)
OF
VIACOM INC.
-----------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-----------------
VIACOM INC., a Delaware corporation (the
"Corporation"), does hereby certify that the following
resolutions were duly adopted by the Board of Directors of the
Corporation pursuant to authority conferred upon the Board of
Directors by Article IV of the Restated Certificate of
Incorporation of the Corporation, which authorizes the issuance
of up to 100,000,000 shares of preferred stock, at a meeting of
the Board of Directors duly held on October 21, 1993:
RESOLVED, that the issue of a series of preferred
stock, $0.01 par value, of the Corporation is hereby authorized
and the designation, powers, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, in
addition to those set forth in the Restated Certificate of
Incorporation of the Corporation, are hereby fixed as follows:
2
(1) Number of Shares and Designation. 24,000,000 shares
of the preferred stock, $0.01 par value, of the Corporation are
hereby constituted as a series of the preferred stock
designated as Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock"). The number of shares of
Series A Preferred Stock may not be increased and may not be
decreased below the number of then currently outstanding shares
of Series A Preferred Stock.
(2) Definitions. For purposes of the Series A Preferred
Stock, the following terms shall have the meanings indicated:
"Board of Directors" shall mean the board of directors
of the Corporation or any committee authorized by such
Board of Directors to perform any of its responsibilities
with respect to the Series A Preferred Stock.
"Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or
executive order to close.
"Class A Stock" shall mean the Class A Common Stock of
the Corporation, par value $0.01 per share.
"Common Stock" shall mean the Class B Common Stock of
the Corporation, par value $0.01 per share.
"Conversion Price" shall mean the conversion price per
share of Common Stock for which the Series A Preferred
Stock is convertible, as such Conversion Price may be
adjusted pursuant to Section (7). The initial Conversion
Price will be $70.00 (equivalent to the rate of .3571 of a
share of Common Stock for each share of Series A Preferred
Stock).
"Current Market Price" shall mean, as of a particular
date, the closing sale price at which Common Stock shall
have been sold regular way on the American Stock Exchange
or such other exchange or inter-dealer quotation system on
which the Common Stock is principally traded or authorized
to be quoted.
"Dividend Periods" shall mean quarterly dividend
periods commencing on the first day of October, January,
April and July of each year and ending on and including the
day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period which shall
commence on the Issue Date and end on and include December
31, 1993).
3
"Issue Date" shall mean the first date on which shares
of Series A Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Securities" shall have the meaning set forth in
paragraph (d)(iii) of Section (7) hereof.
"Trading Day" means a day on which the American Stock
Exchange, or such other exchange or inter-dealer quotation
system on which the Common Stock is principally traded or
authorized to be quoted, is open for the transaction of
business.
"Transaction" shall have the meaning set forth in
paragraph (e) of Section (7) hereof.
"Transfer Agent" means The First Chicago Trust Company
of New York or such other agent or agents of the
Corporation as may be designated by the Board of Directors
of the Corporation as the transfer agent for the Series A
Preferred Stock.
(3) Dividends. (a) The holders of shares of the Series A
Preferred Stock shall be entitled to receive, when and if
declared by the Board of Directors out of funds legally
available therefor, cash dividends at the rate per annum of
$1.25 per share of Series A Preferred Stock. Such dividends
shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Periods there shall be funds of the
Corporation legally available for the payment of such
dividends, and shall be payable quarterly, when and as declared
by the Board of Directors, on the first Business Day of
January, April, July and October of each year, commencing on
January 1, 1994 or at such additional times and for such
interim periods, if any, as determined by the Board of
Directors. Each such dividend shall be payable in arrears to
the holders of record of shares of the Series A Preferred
Stock, as they appear on the stock records of the Corporation
at the close of business on such record dates, not more than 60
days preceding the payment dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any
past Dividend Periods may be declared and paid at any time,
without reference to any regular dividend payment date, to
holders of record on such date, not exceeding 45 days preceding
the payment date thereof, as may be fixed by the Board of
Directors. Accrued and unpaid
4
dividends for any past Dividend Periods shall accrue interest
at the Base Rate as announced from time to time by
Citibank, N.A., which interest, until paid, shall be treated
for all purposes of this Certificate of Designation as accrued
and unpaid dividends.
(b) The amount of dividends payable for each full Dividend
Period for the Series A Preferred Stock shall be computed by
dividing the annual dividend rate by four. The amount of
dividends payable for the initial Dividend Period on the Series
A Preferred Stock, or any other period shorter or longer than a
full Dividend Period on the Series A Preferred Stock shall be
computed on the basis of twelve 30-day months and a 360-day
year. Except as provided in Section 5(a), holders of shares of
Series A Preferred Stock called for redemption on a redemption
date between a dividend payment record date and the dividend
payment date shall not be entitled to receive the dividend
payable on such dividend payment date. Holders of shares of
Series A Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in
excess of cumulative dividends, as herein provided, on the
Series A Preferred Stock.
(c) So long as any shares of the Series A Preferred Stock
are outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for
payment on any class or series of stock of the Corporation
ranking, as to dividends, on a parity with the Series A
Preferred Stock, for any period, nor shall any shares ranking
on a parity with the Series A Preferred Stock be redeemed or
purchased by the Corporation or any Subsidiary, unless full
cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series A
Preferred Stock for all Dividend Periods terminating on or
prior to the date of payment of such full cumulative dividends.
When dividends are not paid in full or a sum sufficient for
such payment is not set apart, as aforesaid, upon the shares of
the Series A Preferred Stock and any other class or series of
stock ranking on a parity as to dividends with the Series A
Preferred Stock, all dividends declared upon shares of the
Series A Preferred Stock and all dividends declared upon such
other stock shall be declared pro rata so that the amounts of
dividends per share declared on the Series A Preferred Stock
and such other stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the shares of
the Series A Preferred Stock and such other stock bear to each
other.
5
(d) So long as any shares of the Series A Preferred Stock
are outstanding, no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights
to subscribe for or purchase shares of Common Stock, Class A
Stock or other stock ranking junior to the Series A Preferred
Stock, as to dividends and upon liquidation) shall be declared
or paid or set apart for payment or other distribution declared
or made upon the Common Stock, Class A Stock or any other stock
of the Corporation ranking junior to the Series A Preferred
Stock, as to dividends or upon liquidation nor shall any Common
Stock, nor any Class A Stock nor any other such stock of the
Corporation ranking junior to the Series A Preferred Stock, as
to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid
to or made available for a sinking fund for the redemption of
any shares of any such stock) by the Corporation (except by
conversion into or exchange for stock of the Corporation
ranking junior to the Series A Preferred Stock, as to dividends
and upon liquidation) or any Subsidiary unless, in each case
(i) the full cumulative dividends on all outstanding shares of
the Series A Preferred Stock and any other stock of the
Corporation ranking on a parity with the Series A Preferred
Stock, as to dividends or upon liquidation shall have been paid
or set apart for payment for all past Dividend Periods and
dividend periods with respect to such other stock and (ii)
sufficient funds shall have been set apart for the payment of
the dividend for the current Dividend Period with respect to
the Series A Preferred Stock and the dividend period with
respect to any other stock of the Corporation ranking on a
parity with the Series A Preferred Stock, as to dividends or
upon liquidation.
(4) Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital
or surplus) shall be made to or set apart for the holders of
Common Stock, Class A Stock or any other series or class or
classes of stock of the Corporation ranking junior to the
Series A Preferred Stock, upon liquidation, dissolution or
winding up, the holders of the shares of Series A Preferred
Stock shall be entitled to receive $25.00 per share plus an
amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid thereon to the
date of final distribution to such holders; but such holders
shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation, or proceeds thereof, distributable
among the holders of the
6
shares of Series A Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating
payments on any other shares of stock ranking, as to
liquidation, dissolution or winding up, on a parity with the
Series A Preferred Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of shares of
Series A Preferred Stock and any such other stock ratably in
accordance with the respective amounts which would be payable
on such shares of Series A Preferred Stock and any such other
stock if all amounts payable thereon were paid in full. For
the purposes of this Section (4), (i) a consolidation or merger
of the Corporation with one or more corporations, (ii) a sale
or transfer of all or substantially all of the Corporation's
assets or (iii) a statutory share exchange shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or
involuntary.
(b) Subject to the rights of the holders of shares of any
series or class or classes of stock ranking on a parity with or
prior to Series A Preferred Stock, upon liquidation,
dissolution or winding up, upon any liquidation, dissolution or
winding up of the Corporation, after payment shall have been
made in full to the holders of Series A Preferred Stock, as
provided in this Section (4), any other series or class or
classes of stock ranking junior to Series A Preferred Stock,
upon liquidation, dissolution or winding up shall, subject to
the respective terms and provisions (if any) applying thereto,
be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of Series A Preferred Stock
shall not be entitled to share therein.
(5) Redemption at the Option of the Corporation. (a)
Series A Preferred Stock may not be redeemed by the Corporation
prior to October 1, 1998, after which the Corporation, at its
option, may redeem the shares of Series A Preferred Stock, in
whole or in part, for an aggregate redemption price of at least
$100,000,000 (provided that no partial redemption shall reduce
the Series A Preferred Stock outstanding below $100,000,000
aggregate liquidation value) out of funds legally available
therefor, at any time or from time to time, subject to the
notice provisions and provisions for partial redemption
described below, during the 359-day period beginning on October
1, 1998 and during the twelve-month periods beginning on
October 1 of the years beginning with 1998 shown below at the
following redemption prices plus an amount equal to accrued and
unpaid dividends, if any, to the date fixed for redemption,
whether or not earned or declared:
7
Year...............................Price
1998.............................$ 26.25
1999.............................$ 26.00
2000 ............................$ 25.75
2001 ............................$ 25.50
2002 ............................$ 25.25
2003 and thereafter..............$ 25.00
(b) In the event that full cumulative dividends on the
Series A Preferred Stock and any other class or series of stock
of the Corporation ranking, as to dividends, on a parity with
the Series A Preferred Stock have not been paid or declared and
set apart for payment, the Series A Preferred Stock may not be
redeemed in part and the Corporation may not purchase or
acquire shares of Series A Preferred Stock or such other stock
otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of shares of Series A Preferred
Stock and such other stock.
(c) In the event the Corporation shall redeem shares of
Series A Preferred Stock, notice of such redemption shall be
given by first class mail, postage prepaid, mailed not less
than 10 nor more than 60 days prior to the redemption date, to
each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock records of
the Corporation, which notice shall be unconditional and
irrevocable. Each such notice shall state: (1) the redemption
date; (2) the number of shares of Series A Preferred Stock to
be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be
redeemed from such holder; (3) the redemption price; (4) the
place or places where certificates for such shares are to be
surrendered for payment of the redemption price; (5) the then
current conversion price; and (6) that dividends on the shares
to be redeemed shall cease to accrue on such redemption date.
Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the
Corporation in providing money for the payment of the
redemption price), (i) dividends on the shares of the Series A
Preferred Stock so called for redemption shall cease to accrue,
(ii) said shares shall no longer be deemed to be outstanding,
and (iii) all rights of the holders thereof as stockholders of
the Corporation (except the right to receive from the
Corporation the redemption price without interest thereon after
the redemption date) shall cease. The Corporation's obligation
to provide moneys in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the redemption date,
the Corporation shall deposit with a bank or trust
8
company (which may be an affiliate of the Corporation) having
an office in the Borough of Manhattan, City of New York, and
having a capital and surplus of at least $50,000,000, funds
necessary for such redemption, in trust, with irrevocable
instructions that such funds after the redemption date be
applied to the redemption of the shares of Series A Preferred
Stock so called for redemption. Any interest accrued on such
funds shall be paid to the Corporation from time to time. Any
funds so deposited and unclaimed at the end of two years from
such redemption date shall be released or repaid to the
Corporation, after which, subject to any applicable laws
relating to escheat or unclaimed property, the holder or
holders of such shares of Series A Preferred Stock so called
for redemption shall look only to the Corporation for payment
of the redemption price.
Upon surrender in accordance with said notice of the
certificates for any such shares so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors shall so
require and the notice shall so state), such shares shall be
redeemed by the Corporation at the applicable redemption price
aforesaid. If fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, shares to be redeemed shall
be selected by the Corporation from outstanding shares of
Series A Preferred Stock not previously called for redemption
by lot or pro rata (as nearly as may be) or by any other method
determined by the Corporation in its sole discretion to be
equitable. If fewer than all the shares represented by any
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder
thereof.
(6) Shares to be Retired. All shares of Series A
Preferred Stock purchased or redeemed by the Corporation or
converted shall be retired and cancelled and shall be restored
to the status of authorized but unissued shares of preferred
stock, without designation as to series.
(7) Conversion. Holders of shares of Series A Preferred
Stock shall have the right to convert all or a portion of such
shares into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of
this Section (7), a holder of shares of Series A Preferred
Stock shall have the right, at his or her option, at any time
to convert such shares into the number of fully paid and
nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) obtained by
dividing the aggregate liquidation preference of such shares by
the Conversion Price and by surrender of such shares so to
9
be converted, such surrender to be made in the manner provided
in paragraph (b) of this Section (7); provided, however, that
the right to convert shares called for redemption pursuant to
Section (5) shall terminate at the close of business on the
date fixed for such redemption, unless the Corporation shall
default in making payment of the amount payable upon such
redemption. Any share of Series A Preferred Stock may be
converted, at the request of its holder, in part into Common
Stock. If a part of a share of Series A Preferred Stock is
converted, then the Corporation will convert such share into
the requested shares of Common Stock (subject to paragraph (c)
of this Section (7)) and issue a fractional share of Series A
Preferred Stock evidencing the remaining interest of such
holder.
(b) In order to exercise the conversion right, the holder
of each share of Series A Preferred Stock to be converted shall
surrender the certificate representing such share, duly
endorsed or assigned to the Corporation or in blank, at the
office of the Transfer Agent in the Borough of Manhattan, City
of New York, accompanied by written notice to the Corporation
that the holder thereof elects to convert Series A Preferred
Stock or a specified portion thereof. Unless the shares
issuable on conversion are to be issued in the same name as the
name in which such share of Series A Preferred Stock is
registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to
the Corporation, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to
the Corporation demonstrating that such taxes have been paid).
Holders of shares of Series A Preferred Stock at the close
of business on a dividend payment record date shall be entitled
to receive the dividend payable on such shares (except that
holders of shares called for redemption on a redemption date
between such record date and the dividend payment date shall
not be entitled to receive such dividend on such dividend
payment date) on the corresponding dividend payment date
notwithstanding the conversion thereof following such dividend
payment record date and prior to such dividend payment date.
However, shares of Series A Preferred Stock surrendered for
conversion during the period between the close of business on
any dividend record date and the opening of business on the
corresponding dividend payment date (except shares called for
redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date. A holder
of shares of Series A
10
Preferred Stock on a dividend record date who (or whose
transferee) tenders any such shares for conversion into shares
of Common Stock on such dividend payment date will receive the
dividend payable by the Corporation on such shares of Series A
Preferred Stock on such date, and the converting holder need
not include payment of the amount of such dividend upon
surrender of shares of Series A Preferred Stock for conversion.
Except as provided above, the Corporation shall make no payment
or allowance for unpaid dividends, whether or not in arrears,
on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
As promptly as practicable after the surrender of
certificates for shares of Series A Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at
such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such shares in
accordance with the provisions of this Section (7), and any
fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in
paragraph (c) of this Section (7).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series A Preferred Stock shall
have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on
the date upon which such shares shall have been surrendered and
such notice received by the Corporation. All shares of Common
Stock delivered upon conversions of the Series A Preferred
Stock will upon delivery be duly and validly issued and fully
paid and nonassessable.
(c) No fractional shares or scrip representing fractions
of shares of Common Stock shall be issued upon conversion of
the Series A Preferred Stock. Instead of any fractional
interest in a share of Common Stock which would otherwise be
11
deliverable upon the conversion of a share of Series A
Preferred Stock, the Corporation shall pay to the holder of
such share an amount in cash (computed to the nearest cent)
based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If
more than one share shall be surrendered for conversion at one
time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series A Preferred
Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to
time as follows:
(i) In case the Corporation shall after the Issue
Date (A) pay a dividend or make a distribution on its
Common Stock in shares of its Common Stock, (B) subdivide
its outstanding Common Stock into a greater number of
shares, (C) combine its outstanding Common Stock into a
smaller number of shares or (D) issue any shares of capital
stock by reclassification of its Common Stock, the
Conversion Price in effect immediately prior thereto shall
be adjusted so that the holder of any share of Series A
Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock
of the Corporation which such holder would have owned or
have been entitled to receive after the happening of any of
the events described above had such share been converted
immediately prior to the happening of such event or the
record date therefor, whichever is earlier. An adjustment
made pursuant to this subparagraph (i) shall become
effective immediately after the close of business on the record
date in the case of a dividend or distribution (except as
provided in paragraph (h) below) and shall become effective
immediately after the close of business on the record date in
the case of a subdivision, combination or reclassification.
(ii) In case the Corporation shall issue after the
Issue Date (a) rights or warrants to all holders of Class A
Stock or Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to
subscribe for or purchase Class A Stock or Common Stock at a
price per share less than the Conversion Price at the
record date for the determination of shareholders entitled
to receive such rights or warrants or (b) shares of Class A
Stock or Common Stock or securities exercisable for
(including rights or warrants other than those referred to
in (a) above and
12
subparagraph (iii) below) or exchangeable or convertible
into shares of Class A Stock or Common Stock at a price per
share (or having an exercise, exchange or conversion price
per share) less than the then current Conversion Price
(other than securities issued in a transaction in which a
pro rata share of such securities have been reserved by the
Corporation for distribution to the holders of Series A
Preferred Stock upon conversion), then in each such case
the Conversion Price in effect immediately prior thereto
shall be adjusted to equal the price determined by
multiplying (I) the Conversion Price in effect immediately
prior to the date of issuance of such rights, warrants or
shares of Class A Stock or Common Stock (or securities
exercisable for or exchangeable or convertible into shares
of Class A Stock or Common Stock) by (II) a fraction, the
numerator of which shall be the sum of (A) the number of
shares of Class A Stock or Common Stock outstanding on the
date of issuance of such rights, warrants or shares of
Class A Stock or Common Stock (or securities exercisable
for or exchangeable or convertible into shares of Class A
Stock or Common Stock) (without giving effect to any such
issuance) and (B), in the case of (a) above, the number of
shares which the aggregate proceeds from the exercise of
such rights or warrants for Class A Stock and Common Stock
or, in the case of (b) above, the number of shares which
the aggregate consideration receivable by the Corporation
for the total number of shares of Class A Stock and Common
Stock (or securities exercisable for or exchangeable or
convertible into shares of Class A Stock or Common Stock)
so issued would purchase at the Conversion Price in effect
immediately prior to the date of issuance, and the
denominator of which shall be the sum of (A) the number of
shares of Class A Stock and Common Stock outstanding on the
date of issuance of such rights, warrants or shares of
Class A Stock or Common Stock (or securities exercisable
for or exchangeable or convertible into Class A Stock or Common
Stock) (without giving effect to any such issuance) and (B), in
the case of (a) above, the number of additional shares of Class
A Stock or Common Stock offered for subscription or purchase or,
in the case of (b) above, the number of shares of Class A
Stock and Common Stock so issued or into which the
exercisable, exchangeable or convertible securities may be
exercised, exchanged or converted. Such adjustment shall
be made successively whenever any such rights, warrants or
shares of Class A Stock or Common Stock (or securities
exercisable for or exchangeable or convertible into Class A
Stock or Common Stock) are issued, and shall become
effective immediately
13
after such record date or, in the case of the issuance of
Class A Stock or Common Stock after the date of issuance
thereof (or in the case of securities exercisable for or
exchangeable or convertible into shares of Class A Stock or
Common Stock, the date on which holders may first exercise,
exchange or convert the same in accordance with the
respective terms thereof). In determining whether any
rights or warrants entitle the holders of Class A Stock or
Common Stock to subscribe for or purchase shares of Class A
Stock or Common Stock at less than the Conversion Price in
effect immediately prior to the date of such issuance, and
in determining the aggregate offering price of shares of
Class A Stock or Common Stock (or securities exercisable
for or exchangeable or convertible into shares of Class A
Stock or Common Stock), there shall be taken into account
any net consideration received or receivable by the
Corporation upon issuance and upon exercise of such rights
or warrants or upon issuance of shares of Class A Stock or
Common Stock (or securities exercisable for or exchangeable
or convertible into shares of Class A Stock or Common
Stock), the value of such consideration, if other than
cash, to be determined by the Board of Directors or, if
higher, the aggregate exercise, exchange or conversion
price set forth in such exercisable, exchangeable or
convertible securities.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock any shares of capital stock of
the Corporation (other than Common Stock) or evidences of
its indebtedness or assets (other than a regular cash
dividend that the Board of Directors determines, in good
faith, can be maintained by the Corporation for at least
four consecutive periods covering not less than one year
and that the Board of Directors intends to maintain for at
least four consecutive periods covering not less than one
year or a dividend that, together with all dividends paid
in the prior twelve months, does not exceed one percent
(1%) of the aggregate market value of the Series A
Preferred Stock and the Common Stock on the date such
dividend is declared, in each case, out of profits or
surplus) or rights or warrants to subscribe for or purchase
any of its securities (excluding those referred to in
subparagraph (ii)(a) above) (any of the foregoing being
hereinafter in this subparagraph (iii) called the
"Securities"), then in each such case, unless the
Corporation elects to reserve shares or other units of such
Securities for distribution to the holders of the Series A
Preferred Stock upon the conversion of the
14
shares of Series A Preferred Stock so that any such holder
converting shares of Series A Preferred Stock will receive
upon such conversion, in addition to the shares of the
Common Stock to which such holder is entitled, the amount
and kind of such Securities which such holder would have
received if such holder had, immediately prior to the
record date for the distribution of the Securities,
converted his or her shares of Series A Preferred Stock
into Common Stock (such election to be based upon a
determination by the Board of Directors that such
reservation will not materially adversely affect the
interests of any holder of Series A Preferred Stock in any
such reserved Securities), the Conversion Price shall be
adjusted so that the same shall equal the price determined
by multiplying (I) the Conversion Price in effect
immediately prior to the date of such distribution by (II) a
fraction, the numerator of which shall be the Current
Market Price per share of the Common Stock on the record
date mentioned below less the then fair market value (as
determined by the Board of Directors, whose determination
shall, if made in good faith, be conclusive) of the portion
of the capital stock or assets or evidences of indebtedness
so distributed or of such rights or warrants applicable to
one share of Common Stock, and the denominator of which
shall be the Current Market Price per share of the Common
Stock. Such adjustment shall become effective immediately,
except as provided in paragraph (h) below, after the record
date for the determination of stockholders entitled to
receive such distribution.
(iv) Notwithstanding anything in subparagraphs (ii)
and (iii) above, if such exercisable, exchangeable or
convertible securities, rights or warrants shall by their
terms provide for an increase or increases with the passage
of time or otherwise in the price payable to the
Corporation upon the exercise thereof, the Conversion Price
upon any such increase becoming effective shall forthwith
be readjusted (but to no greater extent than originally
adjusted by reason of such issuance or sale) to reflect the
same. Upon the expiration or termination of such rights or
warrants, if any such rights or warrants shall not have
been exercised, and upon the expiration or termination of
the exercise, exchange or conversion rights under such
exercisable, exchangeable or convertible securities, if any
such exercisable, exchangeable or convertible securities
shall not have been exercised, exchanged or converted, then
the Conversion Price thereof shall forthwith be readjusted
and thereafter be the rate which it would have been had
15
an adjustment been made on the basis that (x) the only
rights or warrants so issued or sold were those so
exercised and they were issued or sold for the
consideration actually received by the Corporation upon
such exercise, plus the consideration, if any, actually
received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation
for the granting of all such options, rights or warrants
whether or not exercised and (y) the Corporation issued and
sold a number of shares of Common Stock equal to those
actually issued upon exercise of such exercise, exchange or
conversion rights, and such shares were issued and sold
for a consideration equal to the aggregate exercise,
exchange or conversion price in effect under the exercise,
exchange or conversion rights actually exercised at the
respective dates of their exercise. An adjustment made
pursuant to this subparagraph (iv) shall be made on the
next Business Day following the date on which any such
issuance is made and shall be effective immediately after
the close of business on such date, but shall not affect
the Conversion Price applicable to shares of Series A
Preferred Stock converted prior to the date notice of such
adjustment is given to the holders of Series A Preferred
Stock. For purposes of subparagraphs (ii) and (iv), the
aggregate consideration received by the Corporation in
connection with the issuance of shares of Common Stock or
of rights, warrants or securities exercisable for or
exchangeable or convertible into shares of Common Stock
shall be deemed to be equal to the sum of the aggregate net
offering price of all such securities plus the minimum
aggregate amount, if any, payable upon exercise of such
rights or warrants and conversion of any such exercisable,
exchangeable or convertible securities into shares of
Common Stock.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase
or decrease of at least 1% in such price; provided,
however, that any adjustments which by reason of this
subparagraph (v) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment; and provided further any adjustment shall be
required and made in accordance with the provisions of this
Section (7) (other than this subparagraph (v)) not later
than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of shares
of Common Stock. All calculations under this Section (7)
shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest 1/100
16
of a share (with .005 of a share being rounded upward), as
the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be
entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those
required by this paragraph (d), as it in its discretion
shall determine to be advisable in order that any stock
dividends, subdivision of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution
of other assets (other than cash dividends) hereafter made
by the Corporation to its stockholders shall not be
taxable.
(e) In case the Corporation shall be a party to any
transaction (including without limitation a merger,
consolidation, sale of all or substantially all of the
Corporation's assets or recapitalization of the Common Stock
and excluding any transaction as to which paragraph (d)(i) of
this Section (7) applies) (each of the foregoing being referred
to as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to
receive stock, securities or other property (including cash or
any combination thereof), each share of Series A Preferred
Stock which is not converted into the right to receive stock,
securities or other property in connection with such
Transaction shall thereafter be convertible into the kind and
amount of shares of stock and other securities and property
receivable (including cash) upon the consummation of such
Transaction by a holder of that number of shares or fraction
thereof of Common Stock into which one share of Series A
Preferred Stock was convertible immediately prior to such
Transaction. The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent
with the provisions of this paragraph (e) and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the
holders of the Series A Preferred Stock which will contain
provisions enabling the holders of the Series A Preferred Stock
which remains outstanding after such Transaction to convert
into the consideration received by holders of Common Stock at
the Conversion Price immediately after such Transaction. The
provisions of this paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock (other than a
17
regular cash dividend that the Board of Directors
determines can be maintained by the Corporation for at
least four consecutive periods covering at least one year
and that the Board of Directors intends to maintain for at
least four consecutive periods covering at least one year
or a dividend that, together with all dividends paid in the
prior twelve months, does not exceed one percent (1%) of
the aggregate fair market value of the Series A Preferred
Stock and the Common Stock on the date such dividend is
declared, in each case, out of profits or surplus); or
(ii) the Corporation shall authorize the granting to
the holders of the Common Stock of rights or warrants to
subscribe for or purchase any shares of any class or any
other rights or warrants; or
(iii) there shall be any reclassification of the Common
Stock (other than an event to which paragraph (d)(i) of
this Section (7) applies) or any consolidation or merger to
which the Corporation is a party and for which approval of
any stockholders of the Corporation is required, or the
sale or transfer of all or substantially all of the assets
of the Corporation,
then the Corporation shall cause to be filed with the Transfer
Agent and shall cause to be mailed to the holders of shares of
the Series A Preferred Stock at their addresses as shown on the
stock records of the Corporation, as promptly as possible, but
at least 15 days prior to the applicable date specified in
clauses (A) and (B) below, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights
or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale or transfer is
expected, that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale or transfer.
Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in
this Section (7).
(g) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly file with the Transfer
Agent an officers' certificate setting forth the Conversion
Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
18
Promptly after delivery of such certificate, the Corporation
shall prepare a notice of such adjustment of the Conversion
Price setting forth the adjusted Conversion Price and the date
on which such adjustment becomes effective and shall mail such
notice of such adjustment of the Conversion Price to the holder
of each share of Series A Preferred Stock at his or her last
address as shown on the stock records of the Corporation.
(h) In any case in which paragraph (d) of this Section (7)
provides that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of
any share of Series A Preferred Stock converted after such
record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder
any amount in cash in lieu of any fraction pursuant to
paragraph (c) of this Section (7).
(i) For purposes of this Section (7), the number of shares
of Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(j) Notwithstanding any other provision herein to the
contrary, the issuance of any shares of Common Stock pursuant
to any plan providing for the reinvestment of dividends or
interest payable on securities of the Corporation and the
investment of additional optional amounts in shares of Common
Stock under any such plan at a price per share of at least 95%
of Current Market Price, and the issuance of any shares of
Common Stock or options or rights to purchase such shares
pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security (including,
but not limited to, Class A Stock) outstanding as of the date
the Series A Preferred Stock was first designated, shall not be
deemed to constitute an issuance of Common Stock or
exercisable, exchangeable or convertible securities by the
Corporation to which this Section (7) applies. There shall be
no adjustment of the Conversion Price in case of the issuance
of any stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically
set forth in this Section (7). If any action or transaction
would require adjustment of the Conversion Price pursuant to
more than one paragraph of this Section (7), only
19
one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value.
(k) In case the Corporation shall take any action
affecting the Common Stock, other than action described in this
Section (7), which in the opinion of the Board of Directors
would materially adversely affect the conversion rights of the
holders of the shares of Series A Preferred Stock, the
Conversion Price for the Series A Preferred Stock may be
adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as the Board of Directors may determine
to be equitable in the circumstances.
(l) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of
the aggregate of its authorized but unissued shares of Common
Stock or its issued shares of Common Stock held in its
treasury, or both, for the purpose of effecting conversion of
the Series A Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all outstanding
shares of Series A Preferred Stock not theretofore converted.
For purposes of this paragraph (l), the number of shares of
Common Stock which shall be deliverable upon the conversion of
all outstanding shares of Series A Preferred Stock shall be
computed as if at the time of computation all such outstanding
shares were held by a single holder.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the
shares of Common Stock deliverable upon conversion of the
Series A Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally
issue fully-paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.
The Corporation will use all reasonable efforts to list the
shares of Common Stock required to be delivered upon conversion
of the Series A Preferred Stock prior to such delivery, upon
the American Stock Exchange or such other exchange or
inter-dealer quotation system on which the Common Stock is
principally traded or authorized to be quoted.
Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon conversion of
the Series A Preferred Stock, the Corporation will use all
reasonable efforts to comply with all federal and state laws
and regulations thereunder requiring the registration of such
20
securities with, or any approval of or consent to the delivery
thereof by, any governmental authority.
(m) The Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of
the Series A Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in
the issue or delivery of shares of Common Stock in a name other
than that of the holder of the Series A Preferred Stock to be
converted and no such issue or delivery shall be made unless
and until the person requesting such issue or delivery has paid
to the Corporation the amount of any such tax or has
established, to the reasonable satisfaction of the Corporation,
that such tax has been paid.
(8) Ranking. Any class or classes of stock of the
Corporation shall be deemed to rank:
(i) prior to the Series A Preferred Stock, as to
dividends or as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in preference or priority to the
holders of Series A Preferred Stock;
(ii) on a parity with the Series A Preferred Stock, as
to dividends or as to distribution of assets upon
liquidation, dissolution or winding up, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from
those of the Series A Preferred Stock, if the holders of
such class of stock and the Series A Preferred Stock shall
be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up,
as the case may be, in proportion to their respective
amounts of accrued and unpaid dividends per share or
liquidation prices, without preference or priority one over
the other; and
(iii) junior to the Series A Preferred Stock, as to
dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such stock shall
be Common Stock or Class A Stock or if the holders of
Series A Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may
21
be, in preference or priority to the holders of shares of
such stock.
(9) Voting. Except as herein provided or as otherwise
from time to time required by law, holders of Series A
Preferred Stock shall have no voting rights. Whenever, at any
time or times, dividends payable on the shares of Series A
Preferred Stock at the time outstanding shall be in arrears for
such number of Dividend Periods, which Dividend Periods need
not be consecutive, which shall in the aggregate contain not
less than 360 days, the holders of Series A Preferred Stock
shall have the exclusive right, voting separately as a class
with holders of shares of any one or more other series of
preferred stock ranking on a parity with the Series A Preferred
Stock as to dividends, or on the distribution of assets upon
liquidation, dissolution or winding up and upon which like
voting rights have been conferred and are exercisable, to elect
two directors of the Corporation at the Corporation's next
annual meeting of stockholders and at each subsequent annual
meeting of stockholders. At elections for such directors, each
holder of Series A Preferred Stock shall be entitled to one
vote for each share held (the holders of shares of any other
series of preferred stock ranking on such a parity being
entitled to such number of votes, if any, for each share of
stock held as may be granted to them). Upon the vesting of
such right of the holders of Series A Preferred Stock, the
maximum authorized number of members of the Board of Directors
shall automatically be increased by two and the two vacancies
so created shall be filled by vote of the holders of
outstanding Series A Preferred Stock (either alone or together
with the holders of shares of any one or more other series of
preferred stock ranking on such a parity and having like voting
rights) as hereinafter set forth. The right of holders of
Series A Preferred Stock, voting separately as a class, to
elect (either alone or together with the holders of shares of
any one or more other series of preferred stock ranking on such
a parity and having like voting rights) members of the Board of
Directors as aforesaid shall continue until such time as all
dividends accumulated on Series A Preferred Stock shall have
been paid in full, at which time such right shall terminate,
except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of
the character above mentioned.
If the office of any director elected by the holders of
Series A Preferred Stock, voting as a class, becomes vacant by
reason of death, resignation, retirement, disqualification or
removal from office or otherwise, the remaining director
elected by the holders of Series A Preferred Stock, voting as
22
a class, may choose a successor who shall hold office for the
unexpired term in respect of which such vacancy occurred. Upon
any termination of the right of the holders of Series A
Preferred Stock to vote for directors as herein provided, the
term of office of all directors then in office elected by
Series A Preferred Stock, voting as a class, shall terminate
immediately. Whenever the term of office of the directors
elected by the holders of Series A Preferred Stock, voting as a
class, shall so terminate and the special voting powers vested
in the holders of Series A Preferred Stock shall have expired,
the number of directors shall be such number as may be provided
for in the By-Laws irrespective of any increase made pursuant
to the provisions of this Section (9).
So long as any shares of the Series A Preferred Stock
remain outstanding, the consent of the holders of at least
two-thirds of the shares of Series A Preferred Stock
outstanding at the time given in person or by proxy, either in
writing or at any special or annual meeting, shall be necessary
to permit, effect or validate any one or more of the following:
(a) The authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or
series of stock ranking prior to Series A Preferred Stock as to
dividends or the distribution of assets upon liquidation,
dissolution or winding up, or
(b) The amendment, alteration or repeal, whether by
merger, consolidation or otherwise, of any of the provisions of
the Restated Certificate of Incorporation of the Corporation
which would materially and adversely affect any right,
preference or voting power of Series A Preferred Stock or of
the holders thereof; provided, however, that any increase in
the amount of authorized preferred stock or the creation and
issuance of other series of preferred stock, or any increase in
the amount of authorized shares of such series or of any other
series of preferred stock, in each case ranking on a parity
with or junior to the Series A Preferred Stock with respect to
the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences or
voting powers.
The foregoing voting provisions shall not apply if, at or
prior to the time when the act with respect to which such vote
would otherwise be required shall be effected, all outstanding
shares of Series A Preferred Stock shall have been redeemed or
sufficient funds shall have been deposited
23
in trust to effect such redemption, scheduled to be consummated
within three months after such time.
(10) Record Holders. The Corporation and the Transfer
Agent may deem and treat the record holder of any shares of
Series A Preferred Stock as the true and lawful owner thereof
for all purposes, and neither the Corporation nor the Transfer
Agent shall be affected by any notice to the contrary.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be made under the seal of the Corporation and
signed by Philippe P. Dauman, its Senior Vice President,
General Counsel and Secretary, and attested by Katherine B.
Rosenberg, its Assistant Secretary, this 21st day of October,
1993.
VIACOM INC.
By
Philippe P. Dauman
Senior Vice President,
General Counsel
and Secretary
(Corporate Seal)
Attest:
By
Katherine B. Rosenberg
Assistant Secretary
ANNEX II
Registration Rights
(a) The Purchaser shall have the right at any time
after the earlier of (i) the date of exercise of the
Purchaser's put right under paragraph (9) of the agreement
dated as of October 21, 1993 between the Purchaser and the
Company (the "Agreement"), (ii) the acquisition by the Company
or any of its Affiliates of Beneficial Ownership of a majority
of the outstanding voting capital stock of PCI and (iii) the
expiration of the Put/Call Period to make three requests of the
Company in writing: with respect to the first such request to
register under the 1933 Act at least $25 million in value
(stated value in the case of the Preferred Stock and market
value in the case of the Class B Common Stock) of the Preferred
Stock or the Class B Common Stock (collectively, the
"Securities") Beneficially Owned by the Purchaser (the shares
subject to any such request hereunder being referred to as the
"Subject Stock"), and with each subsequent such request being
at least 6 months following such prior request which resulted
in a registration statement with respect to the Subject Stock
which was effective until the earlier of the completion of the
offering of such Subject Stock or three months. The Company
shall use all reasonable efforts to cause the Subject Stock to
be registered under the 1933 Act as soon as reasonably
practicable after receipt of a request so as to permit promptly
the sale thereof, and in connection therewith, the Company
shall prepare and file, on such appropriate form as the Company
in its discretion shall determine, a registration statement
under the 1933 Act to effect such registration. The Company
shall use all reasonable efforts to list all Subject Stock
covered by such registration statement on any national
securities exchange on which Securities of the same class and,
if applicable, series, covered by such registration statement
or on which the underlying common stock of the same class and,
if applicable, series, are then listed or, if such listing
cannot be made, to list such Subject Stock on the National
Association of Securities Dealers Automated Quotation System or
National Market System. The Purchaser hereby undertakes to
provide all such information and materials and take all such
action as may be required in order to permit the Company to
comply with all applicable requirements of the Commission and
to obtain any desired acceleration of the effective date of
such registration statement. Any registration statement filed
at the Purchaser's request hereunder will not count as a
requested registration unless effectiveness is maintained until
the earlier of completion of the offering and three
2
months. Notwithstanding the foregoing, the Company (i) shall
not be obligated to cause any special audit to be undertaken in
connection with any such registration (provided that this
provision shall not relieve the Company of its obligation to
obtain any required consents with respect to financial
statements in prior periods) and (ii) shall be entitled to
postpone for a reasonable period (not to exceed 180 days) of
time the filing of any registration statement otherwise
required to be prepared and filed by the Company if the Company
is, at such time, either (A) conducting or about to conduct an
underwritten public offering of equity securities (or
securities convertible into equity securities) or is subject to
a contracted obligation not to engage in a public offering and
is advised in writing by its managing underwriter or
underwriters (with a copy to the Purchaser) that such offering
would in its or their opinion be adversely affected by the
registration so requested or (B) subject to an existing
contractual obligation to its underwriters not to engage in a
public offering.
At any time after January 1, 1995, if the Company
proposes to file a registration statement under the Securities
Act with respect to an offering of its equity securities (i)
for its own account (other than a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by
the Commission)) or (ii) for the account of any holders of its
securities (including any pursuant to a demand registration),
then the Company shall give written notice of such proposed
filing to the Purchaser as soon as practicable (but in any
event not less than 5 Business Days before the anticipated
filing date), and such notice shall offer the Purchaser the
opportunity to register such number of shares of Securities as
the Purchaser requests. If the Purchaser wishes to register
securities of the same class or series as the Company or such
holder, such registration shall be on the same terms and
conditions as the registration of the Company's or such
holders' securities (a "Piggyback Registration").
Notwithstanding anything contained herein, if the lead
underwriter of an offering involving a Piggyback Registration
delivers a written opinion to the Company that the success of
such offering would be materially and adversely affected by
inclusion of all the securities requested to be included, then
the number of securities to be registered by each party
requesting registration rights shall be reduced in proportion
to the number of securities originally requested to be
registered by each of them. Nothing contained herein shall
require the Company to reduce the number of shares proposed to
be issued by the Company.
3
No securities may be registered on a registration
statement requested by the Purchaser under this Agreement
without the Purchaser's express written consent.
(b) In connection with any offering of shares of
Subject Stock registered pursuant to this Annex II, the Company
(i) shall furnish to the Purchaser such number of copies of any
prospectus (including any preliminary prospectus) as it may
reasonably request in order to effect the offering and sale of
the Subject Stock to be offered and sold, but only while the
Company shall be required under the provisions hereof to cause
the registration statement to remain current and (ii) take such
action as shall be necessary to qualify the shares covered by
such registration statement under such "blue sky" or other
state securities laws for offer and sale as the Purchaser shall
request; provided, however, that the Company shall not be
obligated to qualify as a foreign corporation to do business
under the laws of any jurisdiction in which it shall not then
be qualified or to file any general consent to service of
process in any jurisdiction in which such a consent has not
been previously filed. If applicable, the Company shall enter
into an underwriting agreement with a managing underwriter or
underwriters selected by it (reasonably satisfactory to the
Purchaser) containing representations, warranties, indemnities
and agreements then customarily included by an issuer in
underwriting agreements with respect to secondary
distributions; provided, however, that such underwriter or
underwriters shall agree to use their best efforts to ensure
that the offering results in a distribution of the Subject
Stock sold in accordance with the terms of the agreement. In
connection with any offering of Subject Stock registered
pursuant to this Annex II, the Company shall (x) furnish to the
underwriter, at the Company's expense, unlegended certificates
representing ownership of the Subject Stock being sold in such
denominations as requested and (y) instruct any transfer agent
and registrar of the Subject Stock to release any stop transfer
orders with respect to such Subject Stock. Upon any
registration becoming effective pursuant to this Annex II, the
Company shall use all reasonable efforts to keep such
registration statement current for such period as shall be
required for the disposition of all of said Subject Stock;
provided, however, that such period need not exceed three
months.
(c) The Purchaser shall pay all underwriting
discounts and commissions related to shares of Subject Stock
being sold by the Purchaser. The Company shall pay all other
fees and expenses in connection with any registration
statement, including, without limitation, all registration
4
and filing fees, all fees and expenses of complying with
securities or "blue sky" laws, fees and disbursements of the
Company's counsel, the counsel of the Purchaser, accountants
(including the expenses of "cold comfort" letters required by
or incident to such performance and compliance) and any fees
and disbursements of underwriters customarily paid by issuers
in secondary offerings.
(d) In the case of any offering registered pursuant
to this Annex II, the Company agrees to indemnify and hold the
Purchaser, each underwriter of Securities under such
registration and each person who controls any of the foregoing
within the meaning of Section 15 of the 1933 Act and the
directors and officers of the Purchaser, harmless against any
and all losses, claims, damages, liabilities or action to which
they or any of them may become subject under the 1933 Act or
any other statute or common law or otherwise, and to reimburse
them for any legal or other expenses reasonably incurred by
them in connection with investigating any claims and defending
any actions, insofar as any such losses, claims, damages,
liabilities or actions shall arise out of or shall be based
upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the registration statement relating
to the sale of such Subject Stock, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading
or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus (as
amended or supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto), if
used prior to the effective date of such registration
statement, or contained in the prospectus (as amended or
supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading;
provided, however, that the indemnification agreement contained
in this paragraph (d) shall not apply to such losses, claims,
damages, liabilities or actions which shall arise from the sale
of Subject Stock by the Purchaser if such losses, claims,
damages, liabilities or actions shall arise out of or shall be
based upon any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if such
statement or omission shall have been (x) made in reliance upon
and in conformity with information furnished in writing to the
Company by the Purchaser or any such underwriter specifically
for use in connection with the
5
preparation of the registration statement or any preliminary
prospectus or prospectus contained in the registration
statement or any such amendment thereof or supplement thereto
or (y) made in any preliminary prospectus, and the prospectus
contained in the registration statement in the form filed by
the Company with the Commission pursuant to Rule 424(b) under
the 1933 Act shall have corrected such statement or omission
and a copy of such prospectus shall not have been sent or given
to such person at or prior to the confirmation of such sale to
him.
(e) In the case of each offering registered pursuant
to this Annex II, the Purchaser and each underwriter
participating therein shall agree, in the same manner and to
the same extent as set forth in paragraph (d) of this Annex II
severally to indemnify and hold harmless the Company and each
person, if any, who controls the Company within the meaning of
Section 15 of the 1934 Act, and the directors and officers of
the Company, and in the case of each such underwriter, the
Purchaser, each person, if any, who controls the Purchaser
within the meaning of the 1934 Act and the directors, officers
and partners of the Purchaser, with respect to any statement in
or omission from such registration statement or any preliminary
prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) or prospectus contained in such
registration statement (as amended or as supplemented, if
amended or supplemented as aforesaid), if such statement or
omission shall have been made in reliance upon and in
conformity with information furnished in writing to the Company
by the Purchaser or such underwriter specifically for use in
connection with the preparation of such registration statement
or any preliminary prospectus or prospectus contained in such
registration statement or any such amendment thereof or
supplement thereto.
(f) Each party indemnified under paragraph (d) or (e)
of this Annex II shall, promptly after receipt of notice of the
commencement of any action against such indemnified party in
respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the commencement thereof. The
omission of any indemnified party to so notify an indemnifying
party of any such action shall not relieve the indemnifying
party from any liability in respect of such action which it may
have to such indemnified party on account of the indemnity
agreement contained in paragraph (d) or (e) of this Annex II,
unless the indemnifying party was prejudiced by such omission,
and in no event shall relieve the indemnifying party from any
other liability which it may have to such indemnified party.
In case any such action
6
shall be brought against any indemnified party and it shall
notify an indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein
and, to the extent that it may desire, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such
indemnified party under paragraph (d) or (e) of this Annex II
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other
than reasonable costs of investigation.
(g) If the indemnification provided for under
paragraph (d) or (e) shall for any reason be held by a court to
be unavailable to an indemnified party under paragraph (d) or
(e) hereof in respect of any loss, claim, damage or liability,
or any action in respect thereof, then, in lieu of the amount
paid or payable under paragraph (d) or (e) hereof, the
indemnified party and the indemnifying party under paragraph
(d) or (e) hereof shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating
the same), (i) in such proportion as is appropriate to reflect
the relative fault of the Company and the prospective seller of
Securities covered by the registration statement which resulted
in such loss, claim, damage or liability, or action in respect
thereof, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as
shall be appropriate to reflect the relative benefits received
by the Company and such prospective seller from the offering of
the securities covered by such registration statement. No
Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for
any settlement of any action or claim effected without such
Person's consent, which consent shall not be unreasonably
withheld.
(h) Capitalized terms not defined in this Annex shall
have the meanings set forth in the Agreement.
Exhibit A
1. The execution and delivery of the Agreement by
the Company and the performance of its obligations thereunder
have been duly and validly authorized by all necessary
corporate action on the part of the Company.
2. The Agreement has been duly and validly executed
and delivered by the Company and, assuming the due
authorization, execution and delivery by the Purchaser,
constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance
or other similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
3. The Preferred Stock has been validly issued, is
fully paid and nonassessable, has not been issued in violation
of or subject to any preemptive rights and has the rights set
forth in the Company's Restated Certificate of Incorporation,
as amended through the date hereof.
4. When each share of Common Stock deliverable upon
conversion of the Preferred Stock has been delivered upon such
conversion in accordance with the terms of the Company's
Restated Certificate of Incorporation, as then amended, such
shares of Common Stock will be validly issued, fully paid and
nonassessable, will not have been issued in violation of or
subject to any preemptive rights and will have the rights set
forth in the Company's Restated Certificate of Incorporation,
as then amended.
Exhibit B
1. The execution and delivery of the Agreement by
the Purchaser and the performance of its obligations thereunder
have been duly and validly authorized by all necessary
corporate action on the part of the Purchaser.
2. The Agreement has been duly and validly executed
and delivered by the Purchaser and, assuming the due
authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with
its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance
or other similar laws affecting enforcement of creditors'
rights generally and except as enforcement thereof is subject
to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
Exhibit C
Assuming the due authorization, execution and delivery
by the Company, the Agreement constitutes the valid and binding
obligation of the Company, enforceable against the Company, in
accordance with its terms, provided that (i) the enforceability
of the Agreement may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other
similar laws affecting enforcement of creditors' rights
generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law); and (ii) we express no opinion as to the
enforceability of any right to indemnity or contribution under
the Agreement which are violative of the public policy
underlying any law, rule or regulation (including any state and
Federal securities law, rule or regulation).
EXHIBIT 12(a)
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
Year Ended December 31,
---------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Earnings (loss) before income
taxes $303,665 $164,617 $66,274 ($16,046) $266,058
Add:
Distribution income of
Affiliated Companies 13,441 9,447 5,546 2,800 4,500
Interest expense, net of
capitalized interest 150,738 195,223 252,921 243,283 258,032
Capitalized interest
amortized 2,094 2,376 2,326 2,249 2,349
1/3 of rental expense 24,745 22,640 21,537 18,781 15,492
-------- -------- ------- -------- --------
Earnings $494,683 $394,303 $348,604 $251,067 $546,431
======== ======== ======== ======== ========
Fixed charges:
Interest costs on all
indebtedness $151,111 $195,725 $253,434 $244,123 $313,805
1/3 of rental expense 24,745 22,640 21,537 18,781 15,492
-------- -------- -------- -------- --------
Total fixed charges $175,856 $218,365 $274,971 $262,904 $329,297
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 2.81 1.81 1.27 Note (a) 1.66
========= ======== ======== ======== ========
(a) As a result of the interest expenses associated with the indebtedness
of the Company outstanding under the Credit Agreement and under the
1988 Existing Subordinated Debt, earnings of the Company were
insufficient to cover fixed charges for the year ended December 31,
1990. The additional amount of earnings required to cover the fixed
charges of the Company for the year ended December 31, 1990, would have
been $11,837.
EXHIBIT 12(b)
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
Year Ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Earnings (loss) before income
taxes $301,816 $155,579 $8,247 ($70,363) $144,913
Add:
Distribution income of
Affiliated Companies 13,441 9,447 5,546 2,800 4,500
Interest expense, net of
capitalized interest 154,137 195,223 298,078 295,305 313,079
Capitalized interest 2,094 2,376 2,326 2,249 2,349
amortized
1/3 of rental expense 24,745 22,640 21,537 18,781 15,492
-------- -------- -------- -------- --------
Earnings $496,233 $385,265 $335,734 $ 248,772 $480,333
======== ======== ======== ========= ========
Fixed charges:
Interest costs on all
indebtedness $154,510 $195,725 $298,591 $296,145 $313,805
1/3 of rental expense 24,745 22,640 21,537 18,781 15,492
-------- -------- -------- -------- --------
Total fixed charges $179,255 $218,365 $320,128 $314,926 $329,297
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 2.77 1.76 1.05 Note b 1.46
======== ======== ======== ======== ========
(b) As a result of the interest expense associated with the Viacom Inc.'s
consolidated indebtedness outstanding under the Credit Agreement, the
1988 Existing Subordinated Debt and the Exchange Debentures, earnings
of Viacom Inc. were insufficient to cover fixed charges for the year
ended December 31, 1990. The additional amount of earnings required to
cover fixed charges of Viacom Inc. for the year ended December 31, 1990
would have been $66,154.
Exhibit 21
SUBSIDIARIES
------------
Viacom Inc., a Delaware corporation, is approximately 76% owned by
National Amusements, Inc. The major stockholder of National Amusements, Inc. is
Sumner Redstone. Viacom International Inc., a Delaware corporation, is a
direct, wholly owned subsidiary of Viacom Inc. Paramount Communications Inc. is
50.1% owned by Viacom Inc and such ownership was acquired on March 11, 1994.
The subsidiaries of Viacom International Inc. are as follows:
Percentage
Name of Voting
---- Securities
State or Other Owned Directly
PROGRAM DISTRIBUTION AND PRODUCTION Jurisdiction of or
SUBSIDIARIES: Incorporation Indirectly
- ----------------------------------- --------------- --------------
Film Intex Corporation Delaware 100
Tele-Vu Ltee. Canada 100
VE Productions Inc. New York 100
Viacom Canada Limited Canada 100
Viacom Enterprises Canada Limited Canada 100
Viacom First Run Limited Delaware 100
Our Home Productions Inc. Delaware 100
TV Scoop Inc. Delaware 100
VE Development Company Delaware 100
VE Drive Inc. Delaware 100
VE Television Inc. Delaware 100
Viacom First Run Development Company Inc. Delaware 100
VJK Inc. Delaware 100
Viacom International Limited United Kingdom 100
Viacom International Pty. Limited Australia 100
Viacom Japan Inc. New York 100
Viacom Pacific Limited Vanuatu 100
Viacom Productions Inc. Delaware 100
Jake and the Fatman Productions Inc. Delaware 100
Low Key Productions Inc. Delaware 100
The Matlock Company Delaware 100
They Productions Inc. Delaware 100
My Shadow Productions Inc. Delaware 100
PMV Productions Inc. Delaware 100
VP Programs Inc. California 100
Viacom S. A. Switzerland 100
Viacom Video-Audio Comunicacoes
Limitada Brazil 100
VSC Productions Inc. New York 100
Percentage
of Voting
Securities
State or Other Owned Directly
Jurisdiction of or
Name Incorporation Indirectly
---- --------------- --------------
CABLE TELEVISION SUBSIDIARIES:
- ------------------------------
Cable TV of Marin, Inc. California 100
Clear View Cable Systems, Inc. California 100
Com-Cable TV, Inc. Delaware 100
H-C-G Cablevision Inc. California 100
Viacom Cablevision Inc. California 100
Marin Cable Television, Inc. California 100
Television Signal Corporation California 100
Tele-Vue Systems, Inc. Washington 100
Broadview Television Company Washington 100
Cable TV Puget Sound, Inc. Washington 100
Channel 3 Everett, Inc. Washington 100
Community Telecable of Bellevue, Inc. Washington 100
Community Telecable of Seattle, Inc. Washington 100
Contra Costa Cable Company Washington 100
Crockett Cable Systems, Inc. Washington 100
Everett Cablevision, Inc. Washington 100
Far-West Communications, Inc. Oregon 100
United Community Antenna
System, Inc. Washington 100
Vista Television Cable, Inc. Washington 100
Viacom Bay Area Sports Inc. Delaware 100
Viacom Bay Interconnect Inc. California 100
Viacom Cablevision of Dayton Inc. Delaware 100
Viacom Cablevision of Northern
California Inc. California 100
Viacom K-Band Inc. Delaware 100
Viacom Shopping Inc. Delaware 100
Viacom Telecom Inc. Delaware 100
VSC Cable Inc. Delaware 100
BROADCASTING SUBSIDIARIES:
- --------------------------
Broadcast Leasing Inc. Delaware 100
KBSG Inc. Delaware 100
KNDD Inc. Delaware 100
KYSR Inc. Delaware 100
Riverside Broadcasting Co., Inc. Delaware 100
Viacom Broadcasting of Missouri Inc. Delaware 100
Viacom Broadcasting West Inc. Delaware 100
VSC Communications Inc. Delaware 100
WMZQ Inc. Delaware 100
WNYT Inc. Delaware 100
WVIT Inc. Delaware 100
Percentage
of Voting
Securities
State or Other Owned Directly
Jurisdiction of or
Name Incorporation Indirectly
---- --------------- --------------
VIACOM NETWORKS GROUP:
- ----------------------
SHOWTIME NETWORKS INC.:
- -----------------------
Showtime Networks Inc. Delaware 100
All Media Inc. Delaware 100
Interstitial Programs Inc. Delaware 100
Part-Time Productions Inc. Delaware 100
Satellite Holdings Inc. Delaware 100
Showtime Networks Inc. (U.K.) Delaware 100
Showtime Networks Satellite California 100
Programming Company
Showtime Satellite Networks Inc. Delaware 100
SNI Development Corp. Delaware 100
Toe-To-Toe Productions, Inc. Delaware 100
Viacom Pictures Inc. Delaware 100
Viacom Pictures Development Company Delaware 100
Viacom Pictures Movie Music Inc. Delaware 100
Viacom Pictures Overseas Inc. Delaware 100
Viacom Pictures Songs Inc. Delaware 100
Viacom Satellite News Inc. Delaware 100
MTV NETWORKS:
- -------------
Games Productions Inc. Delaware 100
Bardwire Inc. Delaware 100
Games Animations Inc. Delaware 100
QWERTY Inc. Delaware 100
Uptown Productions Inc. Delaware 100
MTV Australia Inc. Delaware 100
MTV Latino Inc. Delaware 100
MTV Networks Company Delaware 100
MTV Networks Europe Inc. Delaware 100
MTV Songs Inc. Delaware 100
MTVN Shopping Inc. Delaware 100
Music By Nickelodeon Inc. Delaware 100
Music By Video Inc. Delaware 100
Nickelodeon Huggings U.K. Limited United Kingdom 100
Nickelodeon Magazines Inc. Delaware 100
Reality Check Productions Inc. Delaware 100
Outatown Productions Inc. Delaware 100
Remote Productions Inc. Delaware 100
Tunes By Nickelodeon Inc. Delaware 100
Viacom Camden Lock Inc. Delaware 100
Viacom HA! Holding Company Delaware 100
Viacom Networks Europe Inc. Delaware 100
Viacom VH-1 Holding Company Delaware 100
Percentage
of Voting
Securities
State or Other Owned Directly
Jurisdiction of or
Name Incorporation Indirectly
---- --------------- --------------
LIFETIME:
- ---------
LT Holdings Inc. Delaware 100
OTHER:
- ------
Glendale Property Corp. Delaware 100
Viacom International Inc. Political
Action Committee Corp. New York 100
Viacom MGS Services Inc. Delaware 100
Viacom Networks Inc. New York 100
Viacom Telecommunications (D.C.) Inc. Delaware 100
Viacom Sub Inc. Delaware 100
Viacom World Wide Limited New York 100
VNM Inc. Delaware 100
VSC Compositions Inc. New York 100
VSC Music Inc. New York 100
SUBSIDIARIES OF VIACOM INC. (indirect interest acquired on March 11, 1994)
- --------------------------------------------------------------------------
Paramount Communications Inc.
Consolidated Subsidiaries of Paramount Communications Inc.
1020917 Ontario Inc. Ontario 100
Actrax International Corporation Delaware 100
Broadcast Holdings Ltd., L.P. Delaware 100
Computer Curriculum Corporation Delaware 100
CPW Holdings Inc. Delaware 100
CPW Investments Ltd., L.P. Delaware 100
Eighth Century Corporation Delaware 100
Famous Players Inc. Canada 100
Festival Inc. Delaware 100
Gulf & Western International N.V. Netherlands 100
Antilles
International Raw Materials Limited Bahamas 100
Kings Island Company Delaware 100
Maarten Investerings Partnership New York 100
Madison Square Garden Corporation Delaware 100
Modern Curriculum Press, Inc. Ohio 100
Percentage
of Voting
Securities
State or Other Owned Directly
Jurisdiction of or
Name Incorporation Indirectly
---- --------------- --------------
SUBSIDIARIES OF VIACOM INC. (CONT'D)
- ------------------------------------
Consolidated Subsidiaries of Paramount Communications Inc. (Cont'd)
Monetas N.V. Netherlands 100
Antilles
Newtel Inc. Delaware 100
NIEUW ORANJESTAD Partnership New York 100
Nine W Inc. Delaware 100
Paramount Communications Acquisition Corporation Delaware 100
Paramount Communications B.V. Netherlands 100
Paramount Communications (Canada) Limited Ontario 100
Paramount Communications Holding Company Delaware 100
Paramount Communications Realty Corporation Delaware 100
Paramount Home Video, Inc. Delaware 100
Paramount Parks Inc. Delaware 100
Paramount Pictures (Canada) Inc. Ontario 100
Paramount Pictures Corporation Delaware 100
Paramount Stations Group Inc. Virginia 100
Paramount Stations Holding Company Inc. Virginia 100
Paramount Stations Group of Philadelphia Inc. Virginia 100
Paramount Television Service, Inc. Delaware 100
PCI Canada Inc. Delaware 100
PCI's Holdings Corporation Delaware 100
Premier Advertiser Sales Inc. Delaware 100
Prentice-Hall Canada Inc. Ontario 100
Prentice-Hall, Inc. Delaware 100
Prentice-Hall International, Inc. New York 100
Silver Burdett Ginn Inc. Delaware 100
Simon & Schuster, Inc. New York 100
Theatre 59 Ltd. Delaware 100
Unconsolidated Subsidiaries of Paramount Communications Inc.
Canada's Wonderland, Inc. Ontario 20
Cinema International Corporation N.V. Netherlands 49
Cinema International B.V. Netherlands 49
Cinamerica Theatres, L.P. Delaware 50
United Cinemas International Multiplex B.V. Netherlands 49
United International Pictures B.V. Netherlands 33
USA Networks New York 50
Consent of Independent Accounts
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 reports dated February 4,
1994, except as to Note 2, which is as of March 11, 1994,
which appear on pages II-32 and F-2 of this Form 10-K.
PRICE WATERHOUSE
New York, New York
March 31, 1994
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 Annual Report (Form 10-K).
ERNST & YOUNG
New York, New York
March 31, 1994
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director and/or officer of VIACOM INC., a Delaware
corporation (the "Company"), hereby constitutes and appoints
Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (and any amendments thereto);
granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
29th day of March, 1994.
/s/ Sumner M. Redstone
-----------------------
Sumner M. Redstone
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
25th day of February 1994.
/s/ George S. Abrams
----------------------
George S. Abrams
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
2nd day of March 1994.
/s/ Ken Miller
----------------------
Ken Miller
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
28th day of February 1994.
/s/ Brent D. Redstone
----------------------
Brent D. Redstone
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
2nd day of March 1994.
/s/ William Schwartz
----------------------
William Schwartz
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
4th day of March 1994.
/s/ William C. Ferguson
------------------------
William C. Ferguson
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director of VIACOM INC., a Delaware corporation (the
"Company"), hereby constitutes and appoints Philippe Dauman,
Michael Fricklas and Nancy Rosenfeld his true and lawful
attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (and any amendments thereto); granting
unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
28th day of February 1994.
/s/ Frederic V. Salerno
------------------------
Frederic V. Salerno
VIACOM INC.
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned
director and/or officer of VIACOM INC., a Delaware
corporation (the "Company"), hereby constitutes and appoints
Philippe Dauman, Michael Fricklas and Nancy Rosenfeld his
true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (and any amendments thereto);
granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully for all intents
and purposes as he might or could do in person, hereby
ratifying and confirming all that the said attorney-in-fact
and agent, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto signed my name this
1st day of March 1994.
/s/ H. Wayne Huizenga
----------------------
H. Wayne Huizenga
PART I
Item 1. Business.
The businesses of Paramount Communications Inc. are
entertainment and publishing. Entertainment includes the
production, financing and distribution of motion picture,
television programming and prerecorded videocassettes and the
operation of motion picture theaters, independent television
stations, regional theme parks and Madison Square Garden.
Publishing includes the publication and distribution of hardcover
and paperback books for the general public, textbooks for
elementary schools, high schools and colleges, and the provision
of information services for business and professions.
Principal Activities*
Entertainment
Theatrical Motion Pictures. Paramount Pictures
produces and/or finances feature motion pictures for exhibition
in theaters and on television and for distribution by
videocassettes and video discs. Motion pictures are produced by
Paramount Pictures, produced by independent producers and
financed in whole or in part by Paramount Pictures, or produced
by others and acquired by Paramount Pictures. In the six-month
period ended April 30, 1993, Paramount Pictures released six
feature motion pictures. Paramount Pictures distributes its
motion pictures for theatrical release outside the United States
and Canada through United International Pictures, a company owned
by Paramount Pictures, MCA Inc. and MGM.
Most motion pictures are also licensed for exhibition
on television, with fees generally collected in installments.
License fees are recorded as revenue in the year that the films
are available for telecast and, therefore, Paramount Pictures'
operating results are subject to substantial fluctuation. At
April 30, 1993, the unrecognized revenues attributable to
licensing of completed films from Paramount Pictures' license
agreements were $478 million. Paramount Pictures has an
exclusive pay television license agreement with Home Box Office
to include new Paramount Pictures' motion pictures released
theatrically through December 1997. Paramount Pictures also
licenses its motion pictures to home and hotel/motel
pay-per-view, airlines, schools and universities. Paramount
Pictures also distributes its motion pictures for pay television
release outside the United States and Canada through United
International Pictures. In 1993, Paramount acquired a joint
venture interest in HBO Pacific Partners, C.V. and granted to it
- --------------------
* For a discussion of the Company's business segments and
operating results see "Financial Reporting by Business
Segments" and "Management's Discussion and Analysis" on
pages F-5 through F-11 and F-26.
2
a license to carry Paramount Pictures' motion pictures on pay
television in Singapore, Thailand, the Philippines and other
territories through 1999. Paramount Pictures has approximately
890 motion pictures in its library.
Television Programs. Paramount Pictures is engaged in
the production and distribution of series, mini-series, specials
and made-for-television movies for network television, first-run
syndication, pay and basic cable, videocassettes and video discs,
and live television programming. The receipt and recognition of
revenues for license fees for completed television programming in
syndication is similar to that of feature films exhibited on
television and, consequently, operating results are subject to
substantial fluctuation. At April 30, 1993, the unrecognized
revenues from such television license agreements were $260
million. Certain programs are licensed in exchange for cash
and/or advertising time which Paramount Pictures retains and
sells through its wholly-owned affiliate Premier Advertiser
Sales. Premier Advertiser Sales also sells advertising time in
programming distributed by third parties. Paramount Pictures'
foreign television revenues include the licensing of series,
mini-series and specials made for U.S. television and theatrical
and made-for-television movies that are part of its television
library. In addition, foreign television revenues also include
revenues derived from distribution of television product acquired
from independent producers.
Home Video. Paramount Pictures sells videocassettes
for the home video market, featuring its motion picture and
television program library, acquisitions from third parties and
programs made originally for the home video market. It also
licenses this product for distribution on video disc. Paramount
Pictures distributes its home video products outside the United
States and Canada through Cinema International B.V., a joint
venture with MCA.
Theatrical Exhibition. Famous Players operates 441
screens in 107 theaters throughout Canada. Cinamerica, a joint
venture with Time Warner Inc., includes Mann and Festival
Theaters and operates 341 screens in 66 theaters in California,
Colorado, Arizona and Alaska. United Cinemas International, a
joint venture with MCA, operates 234 screens in 25 theaters in
the United Kingdom and Ireland, 42 screens in 3 theaters in
Germany and 69 screens in 24 theaters in Spain. United Cinemas
International plans to construct and operate additional theaters
in the United Kingdom, Germany, Austria and Spain. It also
manages in seven countries, 32 screens in 18 theaters which are
owned by Cinema International Corporation, a joint venture with
MCA.
Television Broadcasting and Cable Television Networks.
Paramount Stations Group owns and operates seven television
stations: WTXF-TV, Philadelphia; KRRT(TV), San Antonio; WLFL-TV,
Raleigh/Durham; WDCA-TV, Washington, D.C.; KTXA(TV), Dallas;
3
KTXH(TV), Houston; and WKBD-TV, Detroit. Paramount
Communications and MCA jointly own USA Networks, which operates
two national advertiser-supported basic cable television
networks, USA Network and the Sci-Fi Channel. USA Network is one
of the largest of its kind in the United States, reaching 61
million households.
Theme Parks. Paramount Parks owns and operates five
regional theme parks: Paramount's Carowinds, in Charlotte, North
Carolina; Paramount's Great America, in Santa Clara, California;
Paramount's Kings Dominion located near Richmond, Virginia;
Paramount's Kings Island located near Cincinnati, Ohio and
Canada's Wonderland located near Toronto ,Ontario. In May l993,
Paramount Parks acquired the 80% interest in Canada's Wonderland
which it did not previously own. The majority of the theme
parks' operating income is generated from May through September.
Madison Square Garden. Madison Square Garden's
activities include the operation of the Madison Square Garden
Arena, which seats approximately 20,000 people, and The
Paramount, a theater which seats approximately 5,600 people, the
New York Knickerbockers Basketball Club of the National
Basketball Association and the New York Rangers Hockey Club of
the National Hockey League. It also supplies and distributes
television programming for cable systems principally in New York,
New Jersey and Connecticut through the Madison Square Garden
Network. Its programming includes its own sporting events and
rights to the New York Yankees baseball games through the year
2000. In addition, Madison Square Garden produces, promotes
and/or presents live entertainment, which includes television
event production of the Miss Universe, Miss USA and Miss Teen USA
pageants and auto thrill shows through SRO Motorsports.
Competition and Regulation. Paramount Pictures
competes intensely with other major studios and independent film
producers in the production and distribution of motion pictures
and videocassettes. Similarly, as a producer and distributor of
television programs, it competes with other studios and
independent producers in the licensing of television programs to
both networks and independent television stations. Paramount
Pictures' competitive position primarily depends on the quality
of the product produced, public response and cost. Theatrical
exhibitors compete for access to films and audiences.
Paramount's television stations compete in their respective
markets for viewers and advertisers with other independent and
network affiliated broadcast stations and with cable channels.
USA Networks vies with other cable networks and with independent
television stations and network affiliated broadcast stations to
attract viewers and advertisers. Madison Square Garden's sports
and entertainment operations compete against other sporting and
entertainment events in their respective areas. Paramount's
theme parks compete with other theme parks in their respective
geographic regions as well as with other forms of leisure
entertainment.
4
Paramount Pictures is subject to a consent decree,
entered in 1948, which contains restrictions on certain motion
picture trade practices in the United States. Television
broadcasting is subject to extensive regulation by the Federal
Communications Commission, which governs, among other things, the
issuance, transfer, term and renewal of broadcast licenses.
Network and syndication television revenues could be adversely
affected by changes in the regulatory restrictions imposed on the
networks by the FCC and certain consent decrees entered into by
the networks. The FCC restrictions, which prohibited television
networks from acquiring financial or proprietary interests, other
than the right to network exhibition, in television programs
produced by program suppliers, were substantially relaxed by the
FCC in 1993. The FCC has been asked to reconsider the issuance
of the revised rules. In the meantime, the revised rules are in
effect. The ability of the networks to acquire financial
interests and syndication rights in television programming
produced by non-network suppliers, however, continues to be
prohibited by the consent decrees. The networks, supported by
the United States Department of Justice, are seeking in federal
district court to eliminate the financial interest and
syndication prohibitions in the consent decrees. If the consent
decrees are modified as requested, the networks will be able to
negotiate with programmers to acquire financial interests and
syndication rights in television programs that air on the
networks. Unless otherwise extended by the FCC, the FCC's
revised rules will expire two years after the district court
grants the networks' request to modify the consent decrees.
Properties and Employees. Paramount Pictures' studio
in Los Angeles, California, is used for production of most of its
television series and for production of some of its motion
pictures. In addition, facilities at the studio are rented to
outside motion picture and television producers. The 62-acre
studio contains 32 production sound stages. The theater
operations, either directly or through joint ventures, own or
operate under lease the theaters described above under
"Theatrical Exhibition." Paramount Stations Group leases
approximately 127,000 square feet of office and studio space.
The theme park operations in the United States include 1,627
acres owned and 294 acres leased and in Canada include 200 acres
owned and 97 acres leased. Madison Square Garden owns the
Madison Square Garden facility. The Entertainment operations
(exclusive of joint ventures) employ approximately 3,800 persons
on a full-time basis.
Publishing
Paramount Publishing includes well-known imprints such
as Simon & Schuster, Pocket Books, Prentice Hall, Silver Burdett
Ginn and Computer Curriculum Corporation, among others. In
fiscal 1992, Paramount Publishing was organized into seven
groups: School, Higher Education, Supplementary Education,
Consumer, Business and Professional, Educational Technology and
5
International. In fiscal 1993, Publishing's operations were
reorganized into six groups with School, Supplementary Education
and Educational Technology being substantially incorporated into
new Elementary and Secondary groups.
Educational Publishing. The Elementary, Secondary and
Higher Education groups (which include substantially all of the
former School, Supplementary Education and Educational Technology
groups) publish elementary, secondary and college textbooks and
related materials, computer-based educational products,
audiovisual products and vocational and technical materials under
such imprints as "Prentice Hall," "Silver Burdett Ginn," "Allyn &
Bacon," "Globe," "Modern Curriculum Press," "Coronet/MTI Film &
Video," "Fearon/Janus/Quercus," "Computer Curriculum
Corporation," "Simon & Schuster Workplace Resources," "Academic
Reference," "Regents/PH," "American Teaching Aids,"
"Judy/Instructo," "Ginn Press," "Alemany" and "Cambridge."
Consumer Publishing. The Consumer group publishes and
distributes hardcover, trade paperback and mass market books and
audiotapes. It publishes its hard cover trade books principally
under the "Simon & Schuster," "Pocket Books," "Poseidon Press,"
"Little Simon," "Simon & Schuster Books for Young Readers,"
"Green Tiger" and "Julian Messner" imprints; its trade paperback
books under the "Fireside" and "Touchstone" imprints; and its
mass market paperbacks under the "Pocket Books," "Pocket Star,"
"Archway," "Washington Square Press" and "Minstrel" imprints.
Audio cassettes are sold under the imprints "Audio Works" and
"Sound Ideas." Books of other publishing companies, including
"Harlequin" and "Silhouette" romance novels, books published
under the imprints of "Baen," "Meadowbrook," "Picture Book
Studios" and "Rabbit Ears," and audio cassettes under the
"Nightingale Conant Audio" imprint are also distributed.
The Consumer group also publishes or distributes
consumer information and special-interest books, including
"Prentice Hall" reference books; "Arco" college entrance and
civil service test preparation material; "J.K. Lasser" tax
guides; "Webster's New World" and "Harrap's" bilingual
dictionaries; travel books under the "Frommer's," "American
Express," "Baedeker," "Mobil" and "Real Guide" imprints;
cookbooks under the "Betty Crocker" imprint; gardening books
under the "Burpee" and "Horticulture" imprints; maps under the
"Gousha" imprint; and "Monarch Notes" study guides.
Business, Technical and Professional. The Business,
Technical and Professional group publishes books, newsletters and
software for a variety of professional groups, including lawyers,
accountants, tax professionals, business executives and the
medical community. These materials are published under the
"Prentice Hall," "Bureau of Business Practice," "Parker,"
"Appleton & Lange" and "New York Institute of Finance" imprints.
It publishes Prentice Hall Computer Publishing computer reference
books under the "Que," "Brady," "Sams," "New Riders," "Alpha
6
Books" and "Hayden" imprints. In June 1993, the Company entered
into an agreement with Information America, Inc. (IA) to sell
certain of the Company's businesses which provide information and
services to corporate attorneys and lending institutions,
professional tax preparation and practice management software to
accounting firms and law firms, and software to manage and
maintain trademark and patent registration. After completion of
the transaction, the Company will own approximately 49% of the
common stock of IA, as well as debt, preferred stock, warrants
and options of IA. The Company will continue to operate other
businesses which provide information to corporate attorneys and
business training programs to corporations.
International. The international operations include
publishing in Canada, the United Kingdom, Australia, Brazil,
Mexico, Singapore, Japan and India primarily under the "Prentice
Hall" and "Simon & Schuster" imprints as well as distribution of
Publishing's products worldwide.
Marketing and Competition. Publishing rights derive
from authors and other publishers and are essential because they
are the principal source of Publishing's products. Business
reputation, financial resources, editorial and marketing skills
and distribution capabilities are the principal factors involved
in the competition for purchasing these rights. Sales are
affected principally by the public's reception and the
publisher's marketing capability. Publishing distributes through
its own sales forces (including employees and independent
contractors), through wholesalers and retailers and by direct
mail.
Competition in the elementary, secondary and higher
education textbook and the trade and paperback book fields is
intense, with a number of strong competitors. In the field of
elementary and secondary school textbooks, 22 states and some
local jurisdictions limit the textbooks that may be bought by
school systems to those books that have been approved by adoption
or listing. In the higher education textbook field, new books
compete with used books. In addition, book piracy affects sales
in certain foreign markets. A large portion of annual sales of
educational textbooks is made during the June to September
period. In certain areas of publishing, books are usually sold
on a fully-returnable basis resulting in significant product
returns to publishers. In the field of information services to
businesses and professionals, there am numerous organizations
that provide competitive materials and services.
Properties and Employees. Publishing's facilities
comprise approximately 5,910,000 square feet of space, of which
about 3,822,000 square feet are leased. These facilities are
used for warehouse, distribution and administrative functions.
Publishing employs approximately 8,775 persons.
7
Item 2. Properties.
Paramount Communications and its subsidiaries lease
approximately 439,000 square feet at 15 Columbus Circle,
New York, New York, under a lease expiring in 1995. The
remainder of the response to this item is incorporated in the
response to Item 1.
Item 3. Legal Proceedings.
Paramount Communications from time to time receives
claims from Federal and state environmental regulatory agencies
and other entities asserting that it is or may be liable for
environmental cleanup costs and related damages arising out of
certain operations conducted by its former mining and
manufacturing businesses. On the basis of its experience and the
information currently available to it, Paramount Communications
does not believe that the claims it has received will have a
material adverse effect on its financial condition. Paramount
Communications and various of its subsidiaries are parties to
certain other legal proceedings. However, in the opinion of
counsel, these proceedings are not likely to result in judgments
that would have a material adverse effect on its financial
condition.
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
----------------------
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
/ / Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
OR
/X/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from November 1, 1992 to April 30, 1993*
Commission file number 1-5404
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 Columbus Circle, New York, New York 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $1 par value )
7% Subordinated Debentures, Series A due 2003 )
7% Subordinated Debentures, Series B due 2003 ) New York Stock Exchange
Common Stock Purchase Rights )
----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ . No / / .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $6.1 billion at August 23,
1993.**
At August 23, 1993, 118,417,196 shares of the registrant's Common Stock, $1
par value, were outstanding.
- ----------
* Paramount Communications Inc. has changed its fiscal year end from October
31 to April 30. This transition report is for the six months ended April
30, 1993.
** Calculated by excluding all shares held by executive officers and directors
of registrant without conceding that all such persons are "affiliates" of
registrant for purposes of the Federal Securities laws.
===============================================================================
PARAMOUNT COMMUNICATIONS INC.
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Transition Report on Form 10-K for the six
months ended April 30, 1993, as set forth in the pages attached hereto:
Financial schedules for the six months ended April 30, 1993 and years
ended October 31, 1992, 1991 and 1990.
Exhibits.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE
----
(a) 1. Financial Statements Index . . . . . . . . . . . . . . . . . . . . 2
2. The following financial information is submitted herewith:
Schedules for the six months ended or at April 30, 1993 and years
ended or at October 31, 1992, 1991 and 1990:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . 3
Schedule I -- Marketable Securities --- Other Investments . . . 4
Schedule II -- Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other
Than Related Parties . . . . . . . . . . . . 5
Schedule VII -- Guarantees of Securities of Other Issuers . . . . 13
Schedule VIII -- Valuation and Qualifying Accounts . . . . . . . . 14
Schedule X -- Supplementary Income Statement Information . . . 15
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is included in the financial statements or in the notes
to financial statements or is not significant.
3. Exhibits Index . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Registrant filed no reports on Form 8-K during the period covered
by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: September 28, 1993 By /s/: RONALD L. NELSON
-------------------------------
Ronald L. Nelson
Executive Vice President and
Chief Financial Officer
-1-
FINANCIAL STATEMENTS INDEX
PARAMOUNT COMMUNICATIONS INC.
Report of Independent Auditors
Selected Financial Data
Consolidated Statement of Earnings
Financial Reporting by Business Segments -
Revenues and Operating Income (Loss)
Management's Discussion and Analysis
Consolidated Balance Sheet
Consolidated Statement of Changes in
Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
The above listed consolidated financial statements and accompanying footnotes
were previously filed as part of this transition report on Form 10-K for the
six months ended April 30, 1993.
-2-
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Paramount Communications Inc.
In connection with our audits of the consolidated financial statements of
Paramount Communications Inc. as of April 30, 1993 and October 31, 1992 and
1991, and for the six-month period ended April 30, 1993 and for each of the
three years in the period ended October 31, 1992, we have also audited the
consolidated schedules included in this filing on Form 10-K/A as listed in the
accompanying index.
In our opinion, the consolidated schedules referred to above present
fairly, in all material respects, the information required to be stated
therein.
ERNST & YOUNG
New York, New York
August 27, 1993
-3-
SCHEDULE I --- MARKETABLE SECURITIES --- OTHER INVESTMENTS
PARAMOUNT COMMUNICATIONS INC.
AT APRIL 30, 1993
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT AT WHICH
NUMBER OF EACH PORTFOLIO
SHARES OR MARKET OF EQUITY SECURITY
UNITS - PRINCIPAL VALUE OF ISSUES AND EACH
AMOUNT OF EACH ISSUE OTHER SECURITY
NAME OF ISSUER BONDS AND COST OF AT BALANCE ISSUE CARRIED IN
AND TITLE OF EACH ISSUE NOTES EACH ISSUE SHEET DATE THE BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------------------------
United States Government and Agency
Bonds, Notes and Bills . . . . . . . . . . $ 425.8 $ 433.8 $ 439.1 $ 433.8
Commercial Paper/Corporate Obligations. . . 45.1 45.8 46.6 45.8
Asset-Backed Securities . . . . . . . . . . 16.6 16.8 17.4 16.8
Mortgage-Backed Securities. . . . . . . . . 71.5 73.3 74.3 73.3
------- ------- ------- -------
$ 559.0 $ 569.7 $ 577.4 $ 569.7
------- ------- ------- -------
------- ------- ------- -------
-4-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
SIX MONTHS ENDED APRIL 30, 1993
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
-------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- --------------------------------------------------------------------------------------------------------------------------
William Bernstein: 6% note payable . . . . . . . . . . $ 0.4 $ 0.4
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . . $ 0.2
David Checketts: note payable; principal to be
repaid the earlier of February 28, 1995 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . 0.5
Arthur Cohen: 6% note payable; principal to be repaid
monthly with the balance due on demand or no later
than October 31, 1995 . . . . . . . . . . . . . . . . 0.1
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . 3.0
Robert Gutkowski: 6% note payable; due November 1,
1993; interest due on first business day of each month
commencing February 1, 1993; secured by residential
real estate . . . . . . . . . . . . . . . . . . . . . 0.4
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . 0.3 0.3
- --------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
-------------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- --------------------------------------------------------------------------------------------------------------------------
William Bernstein: 6% note payable . . . . . . . . . .
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . . $ 0.2
David Checketts: note payable; principal to be
repaid the earlier of February 28, 1995 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . 0.5
Arthur Cohen: 6% note payable; principal to be repaid
monthly with the balance due on demand or no later
than October 31, 1995 . . . . . . . . . . . . . . . . $ 0.1
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . . 3.0
Robert Gutkowski: 6% note payable; due November 1,
1993; interest due on first business day of each month
commencing February 1, 1993; secured by residential
real estate . . . . . . . . . . . . . . . . . . . . . 0.4
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . .
-5-
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
SIX MONTHS ENDED APRIL 30, 1993
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
--------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- --------------------------------------------------------------------------------------------------------------------------------
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . . 0.5 0.1
Barry London: 6% note payable . . . . . . . . . . . . 0.1 0.1
Anthony Mason: 10% note payable; due in 48 semi-
monthly installments beginning July 15, 1993 . . . . 0.1
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate. . . . . . . . . . 0.6 0.1
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1993; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate. . . . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . 2.0
Neil Smith: note payable; principal to be repaid the
earlier of May 31, 1997 or 180 days after termination;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . . 0.4
----- ----- -----
$ 9.1 $ 0.6 $ 0.9
----- ----- -----
----- ----- -----
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
------------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- --------------------------------------------------------------------------------------------------------------------------------
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . . . 0.4
Barry London: 6% note payable. . . . . . . . . . . . . .
Anthony Mason: 10% note payable; due in 48 semi-
monthly installments beginning July 15, 1993. . . . . . 0.1
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate. . . . . . . . . . . 0.1 0.6
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1993; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate. . . . . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . . 2.0
Neil Smith: note payable; principal to be repaid the
earlier of May 31, 1997 or 180 days after termination;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . . . 0.4
----- -----
$ 1.6 $ 7.2
----- -----
----- -----
-6-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1992
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- ------------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
----------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- ------------------------------------------------------------------------------------------------------------------------------------
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . . . $ 0.2
David Checketts: note payable; principal to be
repaid the earlier of February 28, 1995 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . . 0.5
Arthur Cohen: 6% note payable; principal to be repaid
monthly with the balance due on demand or no later
than October 31, 1995 . . . . . . . . . . . . . . . 0.1
Alan Cole-Ford: 6.8% note payable; due October 15,
1996; secured by residential real estate . . . . . . . $ 0.1 $ 0.1 (A)
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . . . 3.0
Robert Gutkowski: 6% note payable; due November 1,
1993; interest due on first business day of each month
commencing February 1, 1993; secured by residential
real estate . . . . . . . . . . . . . . . . . . . . . 0.4
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.8 0.1 0.6
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
-----------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- ------------------------------------------------------------------------------------------------------------------------------------
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . . . $0.2
David Checketts: note payable; principal to be
repaid the earlier of February 28, 1995 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . . 0.5
Arthur Cohen: 6% note payable; principal to be repaid
monthly with the balance due on demand or no later
than October 31, 1995 . . . . . . . . . . . . . . . . $0.1
Alan Cole-Ford: 6.8% note payable; due October 15,
1996; secured by residential real estate . . . . . .
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . . 3.0
Robert Gutkowski: 6% note payable; due November 1,
1993; interest due on first business day of each month
commencing February 1, 1993; secured by residential
real estate . . . . . . . . . . . . . . . . . . . . . 0.4
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.1 0.2
- ------------------
Note A --- Reclassified since individual is no longer an employee.
-7-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1992
(DOLLARS IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- ----------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
--------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- ----------------------------------------------------------------------------------------------------------------------------
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . . 0.5
Barry London: 7% note payable; due October 1992 . . . . 3.0 3.0
Anthony Mason: 10% note payable; due in 48 semi-
monthly installments beginning July 15, 1993 . . . . . 0.1
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.6
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1993; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . 2.0
Neil Smith: note payable; principal to be repaid the
earlier of May 31, 1997 or 180 days after termination;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . . 0.4
----- ------ -----
$ 8.0 $ 4.8 $ 3.7
----- ------ -----
----- ------ -----
- ----------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- ----------------------------------------------------------------------------------------------------------------------------
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . . 0.5
Barry London: 7% note payable; due October 1992 . . . .
Anthony Mason: 10% note payable; due in 48 semi-
monthly installments beginning July 15, 1993 . . . . . 0.1
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.1 0.5
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1993; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . 2.0
Neil Smith: note payable; principal to be repaid the
earlier of May 31, 1997 or 180 days after termination;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . . . . 0.4
----- -----
$ 1.3 $ 7.8
----- -----
----- -----
-8-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1991
(DOLLARS IN MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- -------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
--------------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- -------------------------------------------------------------------------------------------------------------------------------
James Boyd: 16% note payable;
relocation bridge loan . . . . . . . . . . . . . . . . $0.2 $0.2
Alan Cole-Ford: 6.8% note payable; due October 15,
1996; secured by residential real estate . . . . . . . $ 0.1
Richard Evans: 7% note payable; secured by
residential real estate. . . . . . . . . . . . . . . . 0.2 0.2
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . . . 5.0 2.0
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.8 0.1 0.1
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation. . . . . . . . . . . 0.5
Frank Mancuso: 6% note payable;
secured by residential real estate . . . . . . . . . . 2.0 2.0
- -------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
------------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- -------------------------------------------------------------------------------------------------------------------------------
James Boyd: 16% note payable;
relocation bridge loan . . . . . . . . . . . . . . .
Alan Cole-Ford: 6.8% note payable; due October 15,
1996; secured by residential real estate . . . . . . $0.1
Richard Evans: 7% note payable; secured by
residential real estate. . . . . . . . . . . . . . .
Patrick Ewing: 10% note payable;
due September 1995 . . . . . . . . . . . . . . . . . 3.0
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . $0.1 0.7
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation. . . . . . . . . . 0.1 0.4
Frank Mancuso: 6% note payable;
secured by residential real estate . . . . . . . . .
-9-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1991
(DOLLARS IN MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- ----------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
--------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- ----------------------------------------------------------------------------------------------------------------------------------
Patrick Purcell: 7% note payable; principal to be
repaid out of future compensation;
secured by residential real estate. . . . . . . . . . . 0.7 0.1 0.2
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1992; interest rate set quarterly based
on the 90 day commercial paper composite
rate; secured by residential real estate . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured
by residential real estate . . . . . . . . . . . . . 2.0
----- ------ -----
$ 9.4 $ 3.3 $ 4.7
----- ------ -----
----- ------ -----
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
----------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- ----------------------------------------------------------------------------------------------------------------------------------
Patrick Purcell: 7% note payable; principal to be
repaid out of future compensation;
secured by residential real estate . . . . . . . . . . . 0.1 0.5
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1992; interest rate set quarterly based
on the 90 day commercial paper composite
rate; secured by residential real estate . . . . . . 1.0
Note payable; due no later than December 31, 1996;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured
by residential real estate . . . . . . . . . . . . . 2.0
----- -----
$ 1.3 $ 6.7
----- -----
----- -----
-10-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1990
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
-----------------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- --------------------------------------------------------------------------------------------------------------------------------
James Boyd: 16% note payable;
relocation bridge loan . . . . . . . . . . . . . . . . $ 0.2
Richard Evans: 7% note payable; due
December 1990; secured by
residential real estate . . . . . . . . . . . . . . . $ 0.2
Patrick Ewing: 10% note payable; $2.0 million due
June 1991, $3.0 million due September 1991 or,
subject to certain conditions, September 1995 . . . . 5.0
Sidney Ganis: 8.5% note payable;
secured by second mortgage on residence . . . . . . . 1.0 0.1 $ 1.1 (A)
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.8
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . . 0.5
Frank Mancuso: 6% note payable; principal
to be paid from proceeds on sale of former
residence with balance to be paid within
one year of termination of employment or
within 60 days if employed elsewhere;
secured by residential real estate . . . . . . . . . . 2.0 0.1 0.1
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
------------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- --------------------------------------------------------------------------------------------------------------------------------
James Boyd: 16% note payable;
relocation bridge loan . . . . . . . . . . . . . . $ 0.2
Richard Evans: 7% note payable; due
December 1990; secured by
residential real estate . . . . . . . . . . . . . . 0.2
Patrick Ewing: 10% note payable; $2.0 million due
June 1991, $3.0 million due September 1991 or,
subject to certain conditions, September 1995 . . . 5.0
Sidney Ganis: 8.5% note payable;
secured by second mortgage on residence . . . . . .
Robert Klingensmith: 10% note payable; principal
to be repaid out of future compensation;
secured by residential real estate . . . . . . . . 0.1 $0.7
Earl Lestz: 8% note payable; principal to be
repaid out of future compensation . . . . . . . . . 0.1 0.4
Frank Mancuso: 6% note payable; principal
to be paid from proceeds on sale of former
residence with balance to be paid within
one year of termination of employment or
within 60 days if employed elsewhere;
secured by residential real estate . . . . . . . . 2.0
- -----------------
Note A --- Reclassified since individual is no longer an employee.
-11-
SCHEDULE II --- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
YEAR ENDED OCTOBER 31, 1990
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------------------------------------------------------
DEDUCTIONS
----------------------------------
BALANCE (1) (2)
AT BEGINNING AMOUNTS AMOUNTS
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF
- --------------------------------------------------------------------------------------------------------------------------------
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate . . . . . . . . . . 0.9 0.2
Lucille Salhany-Polcari: Non-interest bearing loan
payable in full within 60 days of termination. . . . . 0.1 0.1
Ronald Suchodolski: relocation bridge loan. . . . . . . 0.1 0.1
----- ------ -----
$ 9.3 $ 1.7 $ 1.6
----- ------ -----
----- ------ -----
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. E
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
-------------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- --------------------------------------------------------------------------------------------------------------------------------
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate . . . . . . . . 0.1 0.6
Lucille Salhany-Polcari: Non-interest bearing loan
payable in full within 60 days of termination. . .
Ronald Suchodolski: relocation bridge loan. . . . .
----- -----
$ 5.7 $ 3.7
----- -----
----- -----
-12-
SCHEDULE VII --- GUARANTEES OF SECURITIES OF OTHER ISSUERS
PARAMOUNT COMMUNICATIONS INC.
AT APRIL 30, 1993
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. F
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE OF TOTAL
ISSUE OF AMOUNT
NAME OF ISSUER OF SECURITIES EACH CLASS GUARANTEED NATURE
GUARANTEED BY PERSON FOR OF SECURITIES AND OF
WHICH STATEMENT IS FILED GUARANTEED OUTSTANDING GUARANTEE
- ------------------------------------------------------------------------------------------------------------------------------------
CBF Fabrics, Inc. Industrial Revenue Bond $ 2.7 Principal and interest
Kayser-Roth Corporation Secured Notes 1.0 Principal and interest
Simmons Manufacturing Industrial Revenue Bond 9.7 Principal and interest
Company Inc.
Ontario Limited Revolving Credit 2.4 Principal and interest
Redevelopment Agency of Senior Secured Refunding Notes 39.0 Principal and interest
the City of Santa Clara,
California
United Cinemas International Revolving Credit 87.7 Principal and interest
Cinema International Corporation, N.V. Revolving Credit 12.4 Principal and interest
-------
$ 154.9
-------
-------
- ---------------------
NOTE: Information for Columns D, E, and G is not applicable at April 30,
1993.
-13-
SCHEDULE VIII --- VALUATION AND QUALIFYING ACCOUNTS
PARAMOUNT COMMUNICATIONS INC.
SIX MONTHS ENDED APRIL 30, 1993 AND THREE YEARS ENDED OCTOBER 31, 1992
(IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------
(2)
(1) CHARGED TO
BALANCE CHARGED TO OTHER BALANCE
AT BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts deducted from
trade receivables on the balance sheet:
Six months ended April 30, 1993 . . . . . . . . $ 65.5 $ 8.0 $ 2.1(A) $11.5(B) $64.1
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Year ended October 31, 1992 . . . . . . . . . . $ 59.6 $16.6 $ 8.9(A) $19.6(B) $65.5
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Year ended October 31, 1991 . . . . . . . . . . $ 59.8 $19.4 $ 4.0(A) $23.6(B) $59.6
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Year ended October 31, 1990 . . . . . . . . . . $ 56.3 $10.4 $ 8.2(A) $15.1(B) $59.8
------ ----- ----- ----- -----
------ ----- ----- ----- -----
- ---------------------
Note A---Represents balance sheet reclassification related to certain
entertainment receivables.
Note B---Primarily write-off of uncollectible accounts net of
collections of accounts previously written-off.
-14-
SCHEDULE X --- SUPPLEMENTARY INCOME STATEMENT INFORMATION
PARAMOUNT COMMUNICATIONS INC.
SIX MONTHS ENDED APRIL 30, 1993 AND THREE YEARS ENDED OCTOBER 31, 1992
(DOLLARS IN MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------------------------------------------------------------
ITEM CHARGED TO COSTS AND EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended April 30 Year Ended October 31
-------------- ------------------------------
1993 1992 1991 1990
---- ---- ---- ----
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . $21.1 $40.6 $33.1 $29.9
Taxes, other than payroll and
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.9 46.8 48.3 40.7
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.4 171.5 152.0 136.5
Advertising costs . . . . . . . . . . . . . . . . . . . . . . . . . . 250.9 563.3 514.0 495.0
- ----------------
Amounts for depreciation and amortization of preoperating costs and similar
deferrals are not presented as such amounts do not exceed 1% of revenues.
-15-
EXHIBITS INDEX
PARAMOUNT COMMUNICATIONS INC.
(3)(a) - Restated Certificate of Incorporation and
Amendments thereto (Incorporated by ref-
erence to Exhibit (4)(i)(A) of Paramount
Communications' post-effective amendment
No. 3 to the registration statement on
Form S-3 No. 2-83427).
* (3)(b) - Amended and restated By-laws.
(4)(a) - Instruments with respect to issues of
long-term debt have not been filed as
exhibits to this Annual Report on Form
10-K as the authorized principal amount on
any one of such issues does not exceed 10%
of the total assets of Paramount
Communications and its subsidiaries on a
consolidated basis. Paramount
Communications agrees to furnish a copy of
each such instrument to the Commission
upon request.
(4)(b) - Shareholder rights agreement dated as of
September 7, 1988, as amended, between
Paramount Communications Inc. and
Chemical Bank, as Rights Agent
(Incorporated by reference to Paramount
Communications' registration statement on
Form 8-A dated September 14, 1988 and to
Amendment No. 1 to Form 8-A on Form 8
dated June 8, 1989).
(10)(ii)(A)(1) - Agreement, dated as of September 9, 1992,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(2) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended July
31, 1992).
(10)(ii)(A)(2) - Agreement, dated as of March 17, 1991,
between Paramount Pictures Corporation
and Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(8) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended
October 31, 1991).
+(10)(iii)(A)(1) - Amended and restated agreement, dated as of
October 1, 1985 and restated as of June
23, 1989, between Paramount Communications
and Martin S. Davis (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended
October 31, 1989).
+(10)(iii)(A)(2) - Agreement, dated as of March 18, 1991,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended April
30, 1991).
-16-
PARAMOUNT COMMUNICATIONS INC.
+(10)(iii)(A)(3) - Amendment, dated as of September 9, 1992,
to the Agreement, dated as of March 18,
1991, between Paramount Communications
and Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Quarterly
Report on Form 10-Q for the quarter
ended July 31, 1992).
+(10)(iii)(A)(4) - Amended and restated agreement, dated as of
November 17, 1987 and restated as of
June 23, 1989, between Paramount
Communications and Ronald L. Nelson
(Incorporated by reference to Exhibit
(10)(ii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January
31, 1990).
+(10)(iii)(A)(5) - Amendment, dated as of December 21,
1992, to the amended and restated
agreement, dated as of November 17, 1987
and restated as of June 23, 1989,
between Paramount Communications and
Ronald L. Nelson (Incorporated by
reference to Exhibit (10)(iii)(A)(5) of
Paramount Communications' Annual Report
on Form 10-K for the fiscal year ended
October 31, 1992).
+(10)(iii)(A)(6) - Agreement, dated as of January 12, 1993,
between Paramount Communications and
Ronald L. Nelson (Incorporated by
reference to Exhibit (10)(iii)(A)(1) of
Paramount Communications' Quarterly
Report on Form 10-Q for the quarter
ended January 31, 1993).
+(10)(iii)(A)(7) - Amended and restated agreement, dated as of
October 1, 1985 and restated as of June
23, 1989, between Paramount
Communications and Donald Oresman
(Incorporated by reference to Exhibit
(10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January
31, 1990).
+(10)(iii)(A)(8) - Agreement, dated as of September 10, 1992,
between Paramount Communications and Earl
H. Doppelt (Incorporated by reference to
Exhibit (10)(iii)(A)(7) of Paramount
Communications' Annual Report on Form
10-K for the fiscal year ended October
31, 1992).
+(10)(iii)(A)(9) - Agreement, dated as of September 10, 1992,
between Paramount Communications and
Rudolph L. Hertlein (Incorporated by
reference to Exhibit (10)(iii)(A)(8) of
Paramount Communications' Annual Report
on Form 10-K for the fiscal year ended
October 31, 1992).
+(10)(iii)(A)(10) - Agreement, dated as of June 2, 1989,
between Paramount Communications and
Lawrence E. Levinson (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Quarterly
Report on Form 10-Q for the quarter
ended July 31, 1989).
-17-
PARAMOUNT COMMUNICATIONS INC.
+(10)(iii)(A)(11) - Agreement, dated as of June 2, 1989, between
Paramount Communications and Eugene I.
Meyers (Incorporated by reference to
Exhibit (10)(ii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended July 31, 1989).
+(10)(iii)(A)(12) - Agreement, dated as of February 25, 1992,
between Paramount Communications and
Jerry Sherman (Incorporated by reference
to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January 31,
1992).
+(10)(iii)(A)(13) - Agreement, dated April 5, 1993, between
Paramount Communications and Robert
Greenberg (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30,
1993).
+(10)(iii)(A)(14) - 1992 Stock Option Plan (the "1992 Plan")
(Incorporated by reference to Exhibit I
of Paramount Communications' Proxy
Statement dated January 27, 1992 for the
1992 Annual Meeting of Stockholders).
+(10)(iii)(A)(15) - 1989 Stock Option Plan, as amended (the "1989
Plan") (Incorporated by reference to
Exhibit (10)(iii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30,
1992).
+(10)(iii)(A)(15)(a) - Form of Stock Option Agreement pursuant to the
1989 Plan--Incentive Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(a) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31,
1989).
+(10)(iii)(A)(15)(b) - Form of Stock Option Agreement pursuant to the
1989 Plan--Nonqualified Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(b) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31,
1989).
+(10)(iii)(A)(16) - 1984 Stock Option Plan, as amended (the "1984
Plan") (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30,
1992).
+(10)(iii)(A)(16)(a) - Form of Stock Option Agreement pursuant to the
1984 Plan--Incentive Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(a) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
-18-
PARAMOUNT COMMUNICATIONS INC.
+(10)(iii)(A)(16)(b) - Form of Stock Option Agreement pursuant to the
1984 Plan--Incentive Stock Option with
a Stock Appreciation Right (Incorporated
by reference to Exhibit (10)(iii)(A)(1)(b)
of Paramount Communications' Annual Report
on Form 10-K for the three months ended
October 31, 1985).
+(10)(iii)(A)(16)(c) - Form of Stock Option Agreement pursuant to the
1984 Plan--Nonqualified Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(c) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(16)(d) - Form of Stock Option Agreement pursuant to the
1984 Plan--Nonqualified Stock Option
with a Stock Appreciation Right
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(d) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(17) - 1973 Key Employees Stock Purchase Plan
(Incorporated by reference to Exhibit
(10)(c)(i) of Paramount Communications'
Annual Report on Form 10-K for the fiscal
year ended July 31, 1981).
+(10)(iii)(A)(18) - Amended and Restated Supplemental Executive
Retirement Plan (Incorporated by
reference to Exhibit (10)(iii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended July
31, 1992).
+(10)(iii)(A)(19) - Deferred Compensation Plan for Board of
Directors (Incorporated by reference to
Exhibit (10)(iii)(A)(6) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended July 31, 1984).
+(10)(iii)(A)(20) - Long-Term Performance Plan, as amended
(Incorporated by reference to Exhibit
(10)(iii)(A)(6) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31,
1989).
+(10)(iii)(A)(21) - Corporate Annual Performance Plan, as amended
(Incorporated by reference to Exhibit
(10)(iii)(A)(7) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31,
1989).
+(10)(iii)(A)(22) - Retirement Plan for non-employee directors
(Incorporated by reference to Exhibit
(10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January 31,
1990).
+(10)(iii)(A)(23) - Non-qualified retirement plan (Incorporated by
reference to Exhibit (10)(iii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended April
30, 1991).
-19-
PARAMOUNT COMMUNICATIONS INC.
* (11) --Computation of Earnings (Loss) per Share.
* (22) --List of Subsidiaries.
* (24) --Consent of Ernst & Young.
* (25) --Powers of Attorney.
- ---------------
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
* These exhibits were previously filed as part of this transition
report on Form 10-K for the six months ended April 30, 1993.
-20-
EXHIBITS INDEX
PARAMOUNT COMMUNICATIONS INC.
(3)(a) - Restated Certificate of Incorporation and
Amendments thereto (Incorporated by ref-
erence to Exhibit (4)(i)(A) of Paramount
Communications' post-effective amendment
No. 3 to the registration statement on
Form S-3 No. 2-83427).
* (3)(b) - Amended and restated By-laws.
(4)(a) - Instruments with respect to issues of
long-term debt have not been filed as
exhibits to this Annual Report on Form
10-K as the authorized principal amount on
any one of such issues does not exceed 10%
of the total assets of Paramount
Communications and its subsidiaries on a
consolidated basis. Paramount
Communications agrees to furnish a copy of
each such instrument to the Commission
upon request.
(4)(b) - Shareholder rights agreement dated as of
September 7, 1988, as amended, between
Paramount Communications Inc. and
Chemical Bank, as Rights Agent
(Incorporated by reference to Paramount
Communications' registration statement on
Form 8-A dated September 14, 1988 and to
Amendment No. 1 to Form 8-A on Form 8
dated June 8, 1989).
**10(i)(a) - Agreement and Plan of Merger dated as of
September 12, 1993 between Viacom Inc.
and Paramount Communications Inc.
**10(i)(b) - Stock Option Agreement dated as of September
12, 1993 between Viacom Inc. and Paramount
Communications Inc.
**10(i)(c) - Voting Agreement dated as of September 12,
1993 between National Amusements, Inc. and
Paramount Communications Inc.
(10)(ii)(A)(1) - Agreement, dated as of September 9, 1992,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(2) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended July
31, 1992).
(10)(ii)(A)(2) - Agreement, dated as of March 17, 1991,
between Paramount Pictures Corporation
and Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(8) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended
October 31, 1991).
+(10)(iii)(A)(1) - Amended and restated agreement, dated as of
October 1, 1985 and restated as of June
23, 1989, between Paramount Communications
and Martin S. Davis (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended
October 31, 1989).
+(10)(iii)(A)(2) - Agreement, dated as of March 18, 1991,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended April
30, 1991).
-16-
PARAMOUNT COMMUNICATIONS INC.
* (11) --Computation of Earnings (Loss) per Share.
* (22) --List of Subsidiaries.
* (24) --Consent of Ernst & Young.
* (25) --Powers of Attorney.
- ---------------
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
* These exhibits were previously filed as part of this transition
report on Form 10-K for the six months ended April 30, 1993.
** Filed herewith.
-20-
=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
------------------
FORM 10-K/A
AMENDMENT NO. 2
(Mark One)
/ / Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
OR
/X/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from November 1, 1992 to April 30, 1993*
Commission file number 1-5404
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 Columbus Circle, New York, New York 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock, $1 par value )
7% Subordinated Debentures, Series A due 2003 ) New York Stock Exchange
7% Subordinated Debentures, Series B due 2003 )
Common Stock Purchase Rights )
-----------------
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $6.1 billion at August 23,
1993.**
At August 23, 1993, 118,417,196 shares of the registrant's Common
Stock, $1 par value, were outstanding.
- ---------------------
* Paramount Communications Inc. has changed its fiscal year end from
October 31 to April 30. This transition report is for the six months ended
April 30, 1993.
** Calculated by excluding all shares held by executive officers and
directors of registrant without conceding that all such persons are
"affiliates" of registrant for purposes of the Federal securities laws.
=============================================================================
1
PARAMOUNT COMMUNICATIONS INC.
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Transition Report on Form 10-K for the six
months ended April 30, 1993, as set forth in the pages attached hereto:
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 6 is found on page F-3; Item 7 is found on
pages F-6 through F-11 and Item 8 is found on pages F-4 through F-27, exclusive
of pages F-6 through F-11.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements--See index to financial statements on
Page F-1.
2. Financial Statement Schedules Index:
Report of Independent Auditors
Schedule I -- Marketable Securities--Other Investments
Schedule II -- Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other
Than Related Parties
Schedule VII -- Guarantees of Securities of Other Issuers
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is included in the financial statements or in the
notes to financial statements or is not significant.
The above listed financial statement schedules were previously
filed as part of this Transition Report on Form 10-K for the six
months ended April 30, 1993, as amended.
3. Exhibits--
(3)(a) --Restated Certificate of Incorporation and Amendments thereto
(Incorporated by reference to Exhibit (4)(i)(A) of Paramount
Communications' post-effective amendment No. 3 to the registration
statement on Form S-3 No. 2-83427).
*(3)(b) --Amended and restated By-laws.
2
(4)(a) --Instruments with respect to issues of long-term debt have not been
filed as exhibits to this Annual Report on Form 10-K as the authorized
principal amount on any one of such issues does not exceed 10% of the
total assets of Paramount Communications and its subsidiaries on a
consolidated basis. Paramount Communications agrees to furnish a copy
of each such instrument to the Commission upon request.
(4)(b) --Shareholder rights agreement dated as of September 7, 1988, as amended,
between Paramount Communications Inc. and Chemical Bank, as Rights Agent
(Incorporated by reference to Paramount Communications' registration
statement on Form 8-A dated September 14, 1988 and to Amendment No. 1 to
Form 8-A on Form 8 dated June 8, 1989).
*(10)(i)(a) --Agreement and Plan of Merger dated as of September 12, 1993 between
Viacom Inc. and Paramount Communications Inc.
*(10)(i)(b) --Stock Option Agreement dated as of September 12, 1993 between
Viacom Inc. and Paramount Communications Inc.
*(10)(i)(c) --Voting Agreement dated as of September 12, 1993 between National
Amusements, Inc. and Paramount Communications Inc.
(10)(ii)(A)(1) --Agreement, dated as of September 9, 1992, between Paramount
Communications and Stanley R. Jaffe (Incorporated by reference to Exhibit
(10)(ii)(A)(2) of Paramount Communications' Quarterly Report on Form 10-Q
for the quarter ended July 31, 1992).
(10)(ii)(A)(2) --Agreement, dated as of March 17, 1991, between Paramount Pictures
Corporation and Stanley R. Jaffe (Incorporated by reference to Exhibit
(10)(ii)(A)(8) of Paramount Communications' Annual Report on Form 10-K
for the fiscal year ended October 31, 1991).
+(10)(iii)(A)(1) --Amended and restated agreement, dated as of October 1, 1985 and restated
as of June 23, 1989, between Paramount Communications and Martin S.
Davis (Incorporated by reference to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Annual Report on Form 10-K for the fiscal year ended
October 31, 1989).
+(10)(iii)(A)(2) --Agreement, dated as of March 18, 1991, between Paramount Communications
and Stanley R. Jaffe (Incorporated by reference to Exhibit (10)(ii)(A)(1)
of Paramount Communications' Quarterly Report on Form 10-Q for the
quarter ended April 30, 1991).
3
+(10)(iii)(A)(3) --Amendment, dated as of September 9, 1992, to the Agreement, dated as of
March 18, 1991, between Paramount Communications and Stanley R. Jaffe
(Incorporated by reference to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form 10-Q for the quarter ended July
31, 1992).
+(10)(iii)(A)(4) --Amended and restated agreement, dated as of November 17, 1987 and
restated as of June 23, 1989, between Paramount Communications and Ronald
L. Nelson (Incorporated by reference to Exhibit (10)(ii)(A)(2) of
Paramount Communications' Quarterly Report on Form 10-Q for the quarter
ended January 31, 1990).
+(10)(iii)(A)(5) --Amendment, dated as of December 21, 1992, to the amended and restated
agreement, dated as of November 17, 1987 and restated as of June 23,
1989, between Paramount Communications and Ronald L. Nelson (Incorporated
by reference to Exhibit (10)(iii)(A)(5) of Paramount Communications'
Annual Report on Form 10-K for the fiscal year ended October 31, 1992).
+(10)(iii)(A)(6) --Agreement, dated as of January 12, 1993, between Paramount Communications
and Ronald L. Nelson (Incorporated by reference to Exhibit
(10)(iii)(A)(1) of Paramount Communications' Quarterly Report on Form
10-Q for the quarter ended January 31, 1993).
+(10)(iii)(A)(7) --Amended and restated agreement, dated as of October 1, 1985 and restated
as of June 23, 1989, between Paramount Communications and Donald Oresman
(Incorporated by reference to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form 10-Q for the quarter ended
January 31, 1990).
+(10)(iii)(A)(8) --Agreement, dated as of September 10, 1992, between Paramount
Communications and Earl H. Doppelt (Incorporated by reference to Exhibit
(10)(iii)(A)(7) of Paramount Communications' Annual Report on Form 10-K
for the fiscal year ended October 31, 1992).
+(10)(iii)(A)(9) --Agreement, dated as of September 10, 1992, between Paramount
Communications and Rudolph L. Hertlein (Incorporated by reference to
Exhibit (10)(iii)(A)(8) of Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October 31, 1992).
+(10)(iii)(A)(10) --Agreement, dated as of June 2, 1989, between Paramount Communications and
Lawrence E. Levinson (Incorporated by reference to Exhibit (10)(ii)(A)(1)
of Paramount Communications' Quarterly Report on Form 10-Q for the
quarter ended July 31, 1989).
4
+(10)(iii)(A)(11) --Agreement, dated as of June 2, 1989, between Paramount Communications and
Eugene I. Meyers (Incorporated by reference to Exhibit (10)(ii)(A)(2) of
Paramount Communications' Quarterly Report on Form 10-Q for the quarter
ended July 31, 1989).
+(10)(iii)(A)(12) --Agreement, dated as of February 25, 1992, between Paramount
Communications and Jerry Sherman (Incorporated by reference to Exhibit
(10)(ii)(A)(1) of Paramount Communications' Quarterly Report on Form 10-Q
for the quarter ended January 31, 1992).
+(10)(iii)(A)(13) --Agreement, dated April 5, 1993, between Paramount Communications and
Robert Greenberg (Incorporated by reference to Exhibit (10)(iii)(A)(1) of
Paramount Communications' Quarterly Report on Form 10-Q for the quarter
ended April 30, 1993).
+(10)(iii)(A)(14) --1992 Stock Option Plan (the "1992 Plan") (Incorporated by reference to
Exhibit I of Paramount Communications' Proxy Statement dated January 27,
1992 for the 1992 Annual Meeting of Stockholders).
+(10)(iii)(A)(15) --1989 Stock Option Plan, as amended (the "1989 Plan") (Incorporated by
reference to Exhibit (10)(iii)(A)(2) of Paramount Communications'
Quarterly Report on Form 10-Q for the quarter ended April 30, 1992).
+(10)(iii)(A)(15)(a) --Form of Stock Option Agreement pursuant to the 1989 Plan--Incentive
Stock Option (Incorporated by reference to Exhibit (10)(iii)(A)(1)(a) of
Paramount Communications' Annual Report on Form 10-K for the fiscal year
ended October 31, 1989).
+(10)(iii)(A)(15)(b) --Form of Stock Option Agreement pursuant to the 1989 Plan--Nonqualified
Stock Option (Incorporated by reference to Exhibit (10)(iii)(A)(1)(b) of
Paramount Communications' Annual Report on Form 10-K for the fiscal year
ended October 31, 1989).
+(10)(iii)(A)(16) --1984 Stock Option Plan, as amended (the "1984 Plan") (Incorporated by
reference to Exhibit (10)(iii)(A)(1) of Paramount Communications'
Quarterly Report on Form 10-Q for the quarter ended April 30, 1992).
+(10)(iii)(A)(16)(a) --Form of Stock Option Agreement pursuant to the 1984 Plan--Incentive
Stock Option (Incorporated by reference to Exhibit (10)(iii)(A)(1)(a) of
Paramount Communications' Annual Report on Form 10-K for the three months
ended October 31, 1985).
5
+(10)(iii)(A)(16)(b) --Form of Stock Option Agreement pursuant to the 1984 Plan--Incentive Stock
Option with a Stock Appreciation Right (Incorporated by reference to
Exhibit (10)(iii)(A)(1)(b) of Paramount Communications' Annual Report on
Form 10-K for the three months ended October 31, 1985).
+(10)(iii)(A)(16)(c) --Form of Stock Option Agreement pursuant to the 1984 Plan--Nonqualified
Stock Option (Incorporated by reference to Exhibit (10)(iii)(A)(1)(c) of
Paramount Communications' Annual Report on Form 10-K for the three months
ended October 31, 1985).
+(10)(iii)(A)(16)(d) --Form of Stock Option Agreement pursuant to the 1984 Plan--Nonqualified
Stock Option with a Stock Appreciation Right (Incorporated by reference
to Exhibit (10)(iii)(A)(1)(d) of Paramount Communications' Annual Report
on Form 10-K for the three months ended October 31, 1985).
+(10)(iii)(A)(17) --1973 Key Employees Stock Purchase Plan (Incorporated by reference to
Exhibit (10)(c)(i) of Paramount Communications' Annual Report on Form
10-K for the fiscal year ended July 31, 1981).
+(10)(iii)(A)(18) --Amended and Restated Supplemental Executive Retirement Plan (Incorporated
by reference to Exhibit (10)(iii)(A)(1) of Paramount Communications'
Quarterly Report on Form 10-Q for the quarter ended July 31, 1992).
+(10)(iii)(A)(19) --Deferred Compensation Plan for Board of Directors (Incorporated by
reference to Exhibit (10)(iii)(A)(6) of Paramount Communications' Annual
Report on Form 10-K for the fiscal year ended July 31, 1984).
+(10)(iii)(A)(20) --Long-Term Performance Plan, as amended (Incorporated by reference to
Exhibit (10)(iii)(A)(6) of Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October 31, 1989).
+(10)(iii)(A)(21) --Corporate Annual Performance Plan, as amended (Incorporated by reference
to Exhibit (10)(iii)(A)(7) of Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October 31, 1989).
+(10)(iii)(A)(22) --Retirement Plan for non-employee directors (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount Communications' Quarterly Report on
Form 10-Q for the quarter ended January 31, 1990).
+(10)(iii)(A)(23) --Non-qualified retirement plan (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount Communications' Quarterly Report on
Form 10-Q for the quarter ended April 30, 1991).
6
**(11) --Computation of Earnings (Loss) per Share.
*(22) --List of Subsidiaries.
**(24) --Consent of Ernst & Young.
*(25) --Powers of Attorney.
(b) Registrant filed no reports on Form 8-K during the period covered by this
report.
- ------------
* These exhibits were previously filed as part of this Transition Report on
Form 10-K for the six months ended April 30, 1993, as amended.
** Filed herewith.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: September 30, 1993 By /s/: RONALD L. NELSON
------------------------------
Ronald L. Nelson
Executive Vice President and
Chief Financial Officer
F-1
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT
AUDITORS F-2
SELECTED FINANCIAL DATA F-3
CONSOLIDATED STATEMENT OF
EARNINGS F-4
FINANCIAL REPORTING BY
BUSINESS SEGMENTS -
REVENUES AND OPERATING
INCOME (LOSS) F-5
MANAGEMENT'S DISCUSSION AND
ANALYSIS F-6
CONSOLIDATED BALANCE SHEET F-12
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS'
EQUITY F-13
CONSOLIDATED STATEMENT OF
CASH FLOWS F-14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS F-15
F-2
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Paramount Communications Inc.
We have audited the accompanying consolidated balance sheet of Paramount
Communications Inc. as of April 30, 1993 and October 31, 1992 and 1991, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for the six-month period ended April 30, 1993 and for each of
the three years in the period ended October 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paramount
Communications Inc. at April 30, 1993 and October 31, 1992 and 1991, and the
consolidated results of its operations and its cash flows for the six-month
period ended April 30, 1993 and for each of the three years in the period ended
October 31, 1992 in conformity with generally accepted accounting principles.
As discussed in Notes A and J, in the six-month period ended April 30,
1993, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." As discussed in Notes A and I, effective May 1, 1993, the Company
adopted SFAS No. 109, "Accounting for Income Taxes."
Ernst & Young
New York, New York
August 27, 1993,
except for Notes A and I, as to which the date is
September 10, 1993
F-3
SELECTED FINANCIAL DATA
The table below summarizes recent financial information for Paramount
Communications. For further information, refer to the audited financial
statements and the notes thereto contained elsewhere herein.
Six Months Ended
or at April 30 Year Ended or at October 31
---------------------- ---------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
(Dollar amounts in millions, except per share)
Revenues $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4 $ 3,869.0 $ 3,391.6 $ 3,055.9
Earnings (loss) from continuing
operations before income taxes (16.8) 68.7 397.3 179.7 381.0 19.1 268.7
Earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes (9.1) 48.7 274.2 127.6 264.4 17.3 152.8
Discontinued operations 1,453.9 231.9
Extraordinary item (8.8)
Cumulative effect of accounting changes (66.9) (56.5)
Net earnings (loss) (76.0) 48.7 265.4 127.6 264.4 1,414.7 384.7
Earnings (loss) per share
Earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes (.08) .41 2.31 1.08 2.20 .14 1.27
Discontinued operations 12.12 1.94
Extraordinary item (.08)
Cumulative effect of accounting changes (.57) (.48)
Net earnings (loss) (.65) .41 2.23 1.08 2.20 11.78 3.21
Cash dividends declared per common share .40 .375 .775 .70 .70 .70 .675
Working capital 1,461.6 1,864.8 2,141.8 2,119.0 2,787.3 1,066.4
Total assets 6,874.8 7,057.0 6,654.7 6,541.0 7,060.0 5,378.1
Current maturities of long-term debt 109.8 10.0 198.3 21.7 20.6 117.2
Long-term debt, net of current maturities 707.3 812.1 519.9 712.1 723.8 1,390.3
Stockholders' equity 3,902.1 4,015.5 3,854.8 3,783.8 3,666.8 2,266.2
Book value per common share 33.01 34.19 32.73 32.24 30.56 19.50
Capital expenditures (including
capitalized leases) 55.9 120.0 172.9 187.9 94.2 64.8
Number of common stockholders 26,000 26,000 29,000 30,000 30,000 31,000
Reference is made to Note A to the consolidated financial statements for a
description of the accounting changes.
F-4
CONSOLIDATED STATEMENT OF EARNINGS
Six Months Ended April 30 Year Ended October 31
-------------------------- ---------------------------------
1993 1992 1992 1991 1990
----------- --------- --------- --------- ---------
(Unaudited)
(In millions, except per share)
REVENUES $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4 $ 3,869.0
Cost of goods sold 1,286.8 1,383.1 2,739.8 2,638.7 2,542.6
Selling, general and administrative expenses 621.4 537.6 1,129.0 1,098.9 1,022.2
----------- --------- --------- --------- ---------
1,908.2 1,920.7 3,868.8 3,737.6 3,564.8
----------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (10.1) 77.8 396.1 157.8 304.2
Other income (expense) - Note C (3.7) (6.6) (6.6) 0.1 (2.0)
Interest and other investment income (expense) -
net - Note K
Interest expense (47.9) (59.8) (113.8) (112.0) (123.9)
Interest and other investment income 44.9 57.3 121.6 133.8 202.7
----------- --------- --------- --------- ---------
(3.0) (2.5) 7.8 21.8 78.8
----------- --------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES (16.8) 68.7 397.3 179.7 381.0
Provision (benefit) for income taxes - Notes A and I (7.7) 20.0 123.1 52.1 116.6
----------- --------- --------- --------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (9.1) 48.7 274.2 127.6 264.4
Extraordinary item - Note D (8.8)
Cumulative effect of accounting change - Note A (66.9)
----------- --------- --------- --------- ---------
NET EARNINGS (LOSS) $ (76.0) $ 48.7 $ 265.4 $ 127.6 $ 264.4
=========== ========= ========= ========= =========
Average common and common equivalent
shares outstanding - Note A 118.8 119.0 119.2 118.5 120.1
Earnings (loss) per share - Note A
Earnings (loss) before extraordinary item and
cumulative effect of accounting change $ (.08) $ .41 $ 2.31 $ 1.08 $ 2.20
Net earnings (loss) (.65) .41 2.23 1.08 2.20
See notes to consolidated financial statements.
F-5
FINANCIAL REPORTING BY BUSINESS SEGMENTS
A summary description of the Company's business segments is as follows. See
Note M for additional disclosures related to business segments.
ENTERTAINMENT
Produces, finances and distributes motion pictures, television programming and
prerecorded videocassettes and operates motion picture theaters, independent
television stations, sports and entertainment facilities and regional theme
parks.
PUBLISHING
Publishes and distributes hardcover and paperback books, educational textbooks
and materials, and provides information services for business and professions.
REVENUES AND OPERATING INCOME (LOSS)
Revenues
-------------------------------------------------------------------
Six Months Ended April 30 Year Ended October 31
------------------------- ---------------------------------------
1993 1992 1992 1991 1990
---------- --------- ----------- ----------- ----------
(Unaudited)
(In millions)
Business Segments
Entertainment $ 1,280.8 $ 1,408.3 $ 2,657.4 $ 2,380.2 $ 2,446.7
Publishing 617.3 590.2 1,607.5 1,515.2 1,422.3
---------- --------- ----------- ----------- ----------
Total $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4 $ 3,869.0
========== ========= =========== =========== ==========
Operating Income (Loss)
-------------------------------------------------------------------
Six Months Ended April 30 Year Ended October 31
------------------------- ---------------------------------------
1993 1992 1992 1991 1990
---------- --------- ----------- ----------- ----------
(Unaudited)
(In millions)
Business Segments
Entertainment $ 121.9 $ 164.9 $ 279.6 $ 66.2 $ 212.5
Publishing (90.9) (55.0) 182.0 156.2 155.5
---------- --------- ----------- ----------- ----------
Total 31.0 109.9 461.6 222.4 368.0
Corporate Expenses (41.1) (32.1) (65.5) (64.6) (63.8)
---------- --------- ----------- ----------- ----------
$ (10.1) $ 77.8 $ 396.1 $ 157.8 $ 304.2
========== ========= =========== =========== ==========
During the six months ended April 30, 1993, the Company recorded a $35-million
and a $5-million charge, respectively, against Publishing's operating loss and
Corporate Expenses and during the year ended October 31, 1991, recorded a
$52-million charge against Entertainment's operating income. For further
details related to these charges see Management's Discussion and Analysis.
Revenues by business segment include revenues that are directly associated with
a particular segment. Revenues between business segments (amounts are
insignificant), which are accounted for on substantially the same basis as
revenues from unaffiliated customers, have been eliminated. No single customer
accounts for 10% or more of consolidated revenues.
Export sales to unaffiliated customers were $290.7, $336.4 (unaudited), $606.8,
$690.7 and $609.2 million, respectively, for the six months ended April 30,
1993 and 1992 and the years ended October 31, 1992, 1991 and 1990. These sales
were principally made in Europe, Asia and Canada.
F-6
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Entertainment
Six Months 1993 versus 1992
Operating income decreased for the six months ended April 30, 1993, compared
with the prior-year period. Theatrical results declined in the current-year
period primarily because of the release of fewer profitable pictures.
Theatrical results for the six months ended April 30, 1993, included higher
feature write-downs, primarily related to the releases of Leap of Faith,
Jennifer Eight and The Temp, which more than offset contributions from the
international box office performances of Patriot Games and Boomerang.
Theatrical results also decreased in the current period due to the absence of
recognition of a one-time payment received in the prior-year period in
connection with the signing of a long-term film processing agreement, and from
higher scenario reserves.
Home video operations registered lower profits in the current-year period,
despite strong contributions from domestic and foreign videocassette sales of
Patriot Games and Boomerang, and the continued international success of Ghost.
Pay cable results decreased for the current six-month period because strong
contributions from the availability of The Addams Family and Wayne's World
were more than offset by the absence of recognition of additional license fees
recorded in the prior-year six-month period for films made available in prior
periods. Operating income from network features rose because of the
availability of more profitable titles. Income from domestic and international
features syndication increased in the current-year period because of higher
revenues along with a more profitable mix of titles.
Television programming operations increased significantly in the current-year
period. Profits from network series rose because of higher revenues for
Cheers and the domestic licensing of Wings to USA Network. Income from
first-run syndication increased; higher profits from Star Trek: The Next
Generation and Entertainment Tonight, along with contributions from Star Trek:
Deep Space Nine and Hard Copy, were partially offset by lower income from The
Arsenio Hall Show. In addition, the current-year period reflects higher income
from library products, principally Star Trek, as well as from television
movies-of-the-week.
Paramount Stations Group registered higher profits, principally due to higher
revenues. At USA Networks (jointly owned with MCA Inc.), operating income
declined primarily because of start-up costs incurred for the Sci-Fi Channel.
Theatrical exhibition profits increased in the current-year period.
International theater operations recorded higher profits primarily because of
increased attendance levels, principally from operations in Europe. Operating
income at Famous Players, the Company's Canadian chain, declined in the current
six-month period. At Cinamerica, the Company's 50%-owned domestic theater
operation (jointly owned with Time Warner Inc.), operating income for the six
months equaled the prior year.
Operating income for Madison Square Garden decreased in the current-year period
primarily due to lower results from the Rangers, where higher team
compensation, the absence of playoff income and the absence of league expansion
revenues recorded in the prior-year period, more than offset higher income
from regular season ticket sales. Results at MSG Network declined because of
higher programming and operating expenses. These results were partially offset
by higher income from the Knickerbockers and lower operating expenses.
Results for the current period include modest seasonal losses from Paramount
Parks, the Company's theme park operations, which were acquired in the fourth
quarter of fiscal 1992. Paramount Parks' operating season began in late March
1993.
Fiscal 1992 versus Fiscal 1991
Operating income increased in fiscal 1992 compared with fiscal 1991. Results
for the prior year included a $52-million charge, the majority of which was
related to a provision for write-downs of certain motion picture and television
development commitments and entertainment reorganization costs. Theatrical
results for the current year increased significantly from those achieved in the
prior year, primarily attributable to lower feature write-downs, the strong
domestic box office performance of Wayne's World, The Addams Family, Star Trek
VI: The Undiscovered Country and Patriot Games, as well as the success of The
Naked Gun 2 1/2: The Smell of Fear in foreign markets. Fiscal 1992 theatrical
results also benefited from lower scenario reserves as well as a payment
received in connection with the signing of a long-term film processing
agreement.
Home video operations registered higher profits in the current year, benefiting
from the release of Wayne's World and The Addams Family in the domestic
videocassette market, sales of Ghost in the international videocassette market
and The Naked Gun 2 1/2: The Smell of Fear in the domestic and foreign markets.
Pay cable profitability increased significantly in
F-7
MANAGEMENT'S DISCUSSION AND ANALYSIS
fiscal 1992 principally because of the recognition of additional license fees
for films made available in prior periods. Operating income from network
features increased slightly in the current year, led by the availability of
Indiana Jones and The Last Crusade. Domestic and international features
syndication posted increased profits over the prior year because of higher
revenues on titles available for showing.
Television programming operations were up sharply in fiscal 1992 from the prior
year. In first-run syndication, higher profits from Star Trek: The Next
Generation and Entertainment Tonight as well as contributions from Hard Copy
and The Maury Povich Show were partially offset by lower income from The
Arsenio Hall Show. Network series results declined reflecting lower Cheers
syndication renewal sales and increased investments in new programming.
Television product also benefited from increased syndication and licensing
revenues from library products, principally Star Trek.
Paramount Stations Group registered lower profits, primarily stemming from
higher programming costs occasioned by the use of more conservative film
amortization assumptions, which were partially offset by increased revenues.
Profits were higher at USA Networks because of higher advertising and affiliate
revenues at USA Network, which were partially offset by start-up costs incurred
for the Sci-Fi Channel.
Theatrical exhibition profits declined primarily because of lower results at
Cinamerica stemming principally from lower attendance levels. Additionally,
results at Famous Players declined slightly. These results were partially
offset by increased profits at international theater operations which benefited
from continued circuit expansion, higher average admission and concession
prices and increased attendance levels.
Madison Square Garden registered operating income in fiscal 1992 compared with
an operating loss in fiscal 1991. Results at MSG Network benefited from
increased affiliate and advertising sales, which were partially offset by
increases in programming and production costs. Results for the Knickerbockers
were up primarily because of higher ticket sales, increased licensing and
promotional revenues and higher income from playoff games, which were partially
offset by higher operating expenses. The Rangers registered lower profits;
increased team compensation and higher operating expenses more than offset
higher income from ticket sales and playoff games and increased expansion
revenues. Madison Square Garden's results for fiscal 1992 include higher suite
license and concession income, improved results from SRO/Pace, income from The
Democratic National Convention and events at The Paramount, along with lower
operating expenses.
Results for the current year reflect contributions from Kings Entertainment
Company and Kings Island Company, later renamed Paramount Parks, which were
acquired in August and October 1992, respectively.
Fiscal 1991 versus Fiscal 1990
Operating income decreased in fiscal 1991 compared with fiscal 1990. Results
for fiscal 1991 included the $52-million charge described above. Theatrical
results for fiscal 1991 decreased from those achieved in the prior year because
of a less profitable product flow combined with an increase in feature
write-downs, primarily related to the release of Flight of the Intruder,
Frankie and Johnny, Almost An Angel, The Butcher's Wife and The Godfather Part
III. However, theatrical results benefited from the international box office
performance and continued domestic success of Ghost, the release of The Naked
Gun 2 1/2: The Smell of Fear in domestic and foreign theatrical markets and
lower scenario reserves.
Home video operations registered higher profits, benefiting from strong
videocassette sales of Ghost, The Hunt for Red October and Another 48 HRS. in
both domestic and foreign markets. Pay cable profits decreased because of a
less profitable mix of available titles. Profits from domestic and
international features syndication declined because of lower revenues and lower
average profit rates on titles available for showing. Profits from the sale of
features to network television declined. Results also include expenses related
to a direct satellite pay-per-view service, in which the Company had an
investment in fiscal 1991.
Income from television product declined principally because of lower
syndication sales of library products. Strong gains from the renewal of Cheers
in syndication markets were partially offset by lower income from Dear John and
MacGyver. In first-run syndication, Entertainment Tonight and Star Trek: The
Next Generation posted higher profits while income from The Arsenio Hall Show
was lower.
F-8
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 1991 results reflect the consolidation of a full twelve months of
operations versus six months in the prior year of the Paramount Stations Group
(formerly TVX Broadcast Group Inc.), which was carried on an equity basis prior
to May 1990. Profits at USA Network rose because of higher advertising and
affiliate revenues and settlement of outstanding litigation.
Theatrical exhibition operations registered lower earnings. Results at Famous
Players declined primarily because of lower attendance levels and average
admission prices partially offset by lower film rental costs. International
theater operations posted lower results because of the absence of gains
recorded in the prior year on the sale of other theater interests as well as
operating losses in the current year attributable to the start-up of operations
in Germany. However, these operations benefited from the continued expansion
of operations in the United Kingdom. Cinamerica recorded increased profits
because of higher average admission and concession prices, lower film rental
and operating costs and a gain on the sale of theaters.
Madison Square Garden experienced an operating loss in fiscal 1991 compared
with operating income in fiscal 1990. Affiliate and advertising sales rose at
MSG Network, but were more than offset by higher programming and operating
costs. The Knickerbockers registered lower profits; increased team
compensation, the absence of league expansion revenues recorded in the prior
year, higher operating expenses and lower playoff income were partially offset
by increased broadcast revenues and ticket sales. The Rangers posted improved
profits. League expansion revenues and higher ticket sales were partially
offset by increased team compensation, higher operating expenses and lower
playoff income. Madison Square Garden's results include higher suite license
income, but were negatively impacted by lower results from SRO/Pace,
pre-opening advertising and promotional expenses for the renovated Madison
Square Garden facility and higher operating expenses.
Publishing
Six Months 1993 versus 1992
Publishing operations, which traditionally record profits in the quarters ended
July 31 and October 31, posted higher operating losses for the six months ended
April 30, 1993, compared with the prior-year period. The current-year period
includes a $35-million charge, related to the write-down of certain real estate
sites, expected to be sold, to fair value and relocation costs for several
operating sites. Consumer publishing posted significantly higher operating
results in the current year period. Stronger frontlist and backlist sales of
hardcover titles and increased international sales along with increased
frontlist paperback sales, were partially offset by lower sales of children's
books and increased product support and development expenses. In addition, the
current six-month period was impacted by lower backlist sales of certain
reference books and increased operating expenses.
Operating income in the business, technical and professional group approximated
the comparable year-earlier period. Increased sales of computer titles,
multimedia programs and medical publications were partially offset by lower tax
software and professional service revenues and increased product support and
development and operating expenses.
Seasonal operating losses at elementary education were higher in the
current-year period. Lower sales of prior years' programs and fewer new
product releases combined with increased product support expenses due to the
acceleration of promotional spending and higher operating expenses, were
partially offset by increased sales of computer learning stations.
Additionally, product development expenses in elementary education were lower
in the current six months. Secondary education operating losses increased in
the current-year period; higher sales from social studies programs were more
than offset by higher product support expenses attributable to increased state
adoption opportunities and decreased sales in mathematics, science and language
arts programs. Higher education's operating income decreased slightly in the
six-month period. Increased sales of vocational books from the success of new
editions and frontlist sales of college texts were more than offset by
increased product support and development expenses. Results of international
operations declined slightly in the current six-month period; increased sales
at all units were more than offset in the current six months by higher
expenses. Additionally, publishing operations benefited from lower corporate
administrative expenses.
Fiscal 1992 versus Fiscal 1991
Operating income increased in fiscal 1992 compared with fiscal 1991. Consumer
publishing posted increased operating income primarily because of a stronger
publishing program of
F-9
MANAGEMENT'S DISCUSSION AND ANALYSIS
paperback books which resulted in higher sales of initial releases and
reorders, combined with stronger frontlist and reorder sales and a greater
number of bestsellers for hardcover titles and higher sales of certain
reference titles.
Business, technical and professional group operating income increased
significantly in the current year. The improved results are primarily
attributable to contributions from recently acquired Prentice Hall Computer
Publishing.
Operating income declined at elementary education as decreased sales of
textbooks, principally due to fewer adoption opportunities, reduced funding at
the local and state levels and lower sales of prior years' programs, as well as
reduced sales from educational film and video products, were partially offset
by sales increases on volume growth of learning stations and increased
frontlist sales of workbooks and kits. In addition, fiscal 1992 benefited from
lower product support and development and operating expenses, despite expansion
costs incurred in anticipation of planned growth at Computer Curriculum
Corporation. Secondary education operating income increased in the current
year because of lower expenses across all categories, partially offset by
decreased sales principally due to fewer adoption opportunities. Profits at
higher education rose in the current year; strong sales gains from college
books, reflecting the effect of volume improvements, and vocational
publications were partially offset by higher product support and development
expenses. Results of international operations improved in the current year
primarily because of sales gains from acquired Prentice Hall Computer
Publishing titles as well as volume improvements of locally produced products,
partially offset by increased product support and development and operating
expenses incurred to service and promote the new products. Additionally,
publishing operations reflect higher corporate administrative expenses.
Fiscal 1991 versus Fiscal 1990
Operating income increased slightly in fiscal 1991 compared with fiscal 1990.
Consumer publishing registered lower profits. Higher sales of paperback
reorders and initial releases and a strong frontlist performance of hardcover
titles were more than offset by a corresponding increase in revenue-related
expenses, primarily operating and product development expenses and lower
distribution fees.
Results for the business, technical and professional group declined. Lower
software license and service fees and lower sales resulting from the timing of
the release of 1991 annual editions, combined with higher operating and product
development expenses were partially offset by lower product support expenses
primarily at professional publishing and increased subscription sales at Bureau
of Business Practice.
Elementary education group operating income declined; strong sales of
current-year programs, primarily math, science, social studies and reading
along with the inclusion of a full twelve months of operations versus eight
months in the prior year from Computer Curriculum Corporation, which was
acquired in March 1990, were more than offset by increased product support and
development and operating expenses, due in part to expansion costs at Computer
Curriculum Corporation incurred in anticipation of planned growth, along with
lower profits from the group's educational film and video operations.
Operating income in secondary education declined slightly as higher expenses
across all categories more than offset sales gains in language arts and social
studies due to increased state adoptions. Higher education posted improved
profits on sales gains stemming principally from college books and vocational
publications. Profits from international operations decreased slightly;
higher educational sales, primarily from the United Kingdom, Asia, Australia
and Mexico were more than offset by higher product support and development
expenses and lower Canadian trade sales. Additionally, publishing operations
reflect lower corporate administrative expenses.
Interest and Other Investment Income
(Expense) - Net
Net interest and other investment expense increased slightly in the current six
months ended April 30, 1993, compared with the same prior-year period. The
current six-month period benefited from lower interest expense primarily
because lower average effective interest rates on the Company's debt more than
offset the effect of higher average debt outstanding. Interest and other
investment income declined in the current six-month period due to lower average
cash equivalents and short-term investments. The lower average cash
equivalents and short-term investments were primarily a
F-10
MANAGEMENT'S DISCUSSION AND ANALYSIS
result of acquisitions, the repurchase of shares of the Company's Common Stock
and the funding of the working capital requirements of the Company.
In addition to the results of the operating units, earnings reflect lower net
interest and other investment income for the year ended October 31, 1992
compared with 1991, and 1991 compared with 1990. These decreases stem from
lower average cash equivalents, short-term investments and interest rates. The
lower average cash equivalents and short-term investments were primarily a
result of expenditures for acquisitions, the repurchase of shares of the
Company's Common Stock and the funding of the working capital requirements of
the Company, and in 1991, because of a March 1990 income tax payment related to
the October 1989 sale of Associates First Capital Corporation, the Company's
former consumer/commercial finance business, and a reduction of outstanding
debt.
Other
The pre-tax loss of $16.8 million in the six months ended April 30, 1993 gives
rise to an income tax benefit at an effective rate of 45.8%. For the
comparable prior year period, the effective rate for income taxes on pre-tax
earnings of $68.7 million was 29.1%. The increase in the effective rate is the
result of less income subject to tax at lower foreign rates, increases in
income subject to state and local income taxes and the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Corporate expenses include a $5-million charge in the current six-month period
in connection with the Company's planned relocation of its corporate
headquarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company depended primarily on internal cash flow and external borrowings
to finance its operations during the six months ended April 30, 1993, and
expects to continue to do so.
In May 1993, the Company purchased the remaining 80% it did not own of Canada's
Wonderland, Inc., a Canadian theme park, for approximately $52 million. The
Company subsequently liquidated Canada's Wonderland debt obligations of
approximately $31 million. In June 1993, the Company agreed to sell Prentice
Hall Legal and Financial Services, Prentice Hall Legal Practice Management and
Prentice Hall Professional Software, three of its Publishing software and
information services units, to Information America, Inc. (IA) for common
stock, debt, preferred stock, common stock warrants and options. The
transaction is subject to approval by IA's shareholders. In September 1993,
the Company purchased television station WKBD-TV in Detroit from Cox
Enterprises Inc. for approximately $105 million.
In May 1993, the Company called for redemption on July 1, 1993, $100 million of
8 1/2% senior notes due 1996. In July 1993, the Company completed a public
offering of $150 million of 5 7/8% senior notes due 2000 and $150 million of
7 1/2% senior debentures due 2023. A portion of the net proceeds was used to
refinance the previously mentioned redemption of the Company's 8 1/2% senior
notes. The remainder of such proceeds were used to fund the acquisitions of
television station WKBD-TV in Detroit and the remaining 80% interest in
Canada's Wonderland theme park. During the current six-month period, the
Company purchased 0.6 million shares of its Common Stock under a 10-million
share repurchase program announced in May 1988, leaving 2.6 million remaining
shares authorized under the program. Total debt as a percentage of total
capitalization was 17% at April 30, 1993 and October 31, 1992. In the past,
the Company has been able to increase its borrowings as required and expects to
be able to continue to do so.
Capital expenditures amounted to $56, $69, $120, $168 and $187 million for the
six months ended April 30, 1993 and 1992 and the years ended October 31, 1992,
1991 and 1990, respectively.
F-11
MANAGEMENT'S DISCUSSION AND ANALYSIS
Accounting Changes
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
The Company has elected to record the cumulative effect of the accounting
change as a charge against income as of November 1, 1992, resulting in a
one-time charge of $66.9 million, net of income taxes of $34.5 million, or $.57
per share. For further detail, see Notes A and J to the consolidated financial
statements.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Effective May 1, 1993, the Company adopted the
provisions of this standard by restating its prior period financial statements
beginning November 1, 1988. The effect of adopting SFAS No. 109 was to
decrease the loss before cumulative effect of accounting change and net loss by
$1.8 million ($.01 per share) for the six months ended April 30, 1993; increase
earnings before extraordinary item and net earnings by $4.0 million ($.04 per
share) for the year ended October 31, 1992; and, increase net earnings by $5.4
million ($.05 per share), $5.3 million ($.04 per share) and $2.0 million ($.02
per share) for the years ended October 31, 1991 and 1990 and the six months
ended April 30, 1992, respectively. The cumulative effect of adopting SFAS No.
109 as of October 31, 1989, decreased the beginning balance of 1990's retained
earnings by $50.7 million.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
For further detail, see Notes A and I to the consolidated financial statements.
Effects of Accounting for
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," which is
effective for the Company in the year ending April 30, 1995. Under this
statement, the cost of benefits provided to employees after employment but
before retirement is to be recognized in the financial statements on an accrual
basis during the service period of the employee. It is expected that
implementation of this statement will not have a material impact on the
financial position of the Company.
Accounting for Certain Investments in
Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which is
effective for the Company in the year ending April 30, 1995. This statement
sets forth the accounting for certain investments in debt and equity securities
based upon management's ability and intent, at the time of purchase, to trade,
hold to maturity or make available for sale such investments. The effect of
this statement at the time of adoption will depend upon the Company's intent
with respect to such investments.
F-12
CONSOLIDATED BALANCE SHEET
April 30 October 31
---------- ----------------
1993 1992 1991
---------- --------- ---------
(In millions)
ASSETS
Current Assets
Cash and cash equivalents - Notes A and L $ 372.6 $ 324.3 $ 555.3
Short-term investments - Notes A and L 569.7 912.0 1,020.7
Trade receivables - net - Note K 829.6 972.9 904.1
Inventories - Notes A and E 617.3 580.2 590.4
Prepaid income taxes 131.7 139.7 115.4
Prepaid expenses and other - Note K 400.2 342.7 407.9
---------- --------- ---------
Total Current Assets 2,921.1 3,271.8 3,593.8
Property, Plant and Equipment - Note A
Land 210.8 210.4 130.8
Buildings 591.4 590.6 537.3
Machinery, equipment and other 606.9 573.8 358.2
---------- --------- ---------
1,409.1 1,374.8 1,026.3
Less allowance for depreciation 336.1 315.5 268.2
---------- --------- ---------
1,073.0 1,059.3 758.1
Other Assets
Investment in affiliated companies - Notes A and F 243.9 228.9 204.4
Noncurrent receivables and inventories - Notes A and E 689.8 604.7 483.0
Intangible assets - net - Note A 1,517.5 1,528.1 1,239.3
Deferred costs and other - Note A 429.5 364.2 376.1
---------- --------- ---------
2,880.7 2,725.9 2,302.8
---------- --------- ---------
$ 6,874.8 $ 7,057.0 $ 6,654.7
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 109.8 $ 10.0 $ 198.3
Trade accounts payable 194.7 143.7 119.8
Income taxes payable 26.6 139.2 131.4
Accrued expenses and other - Notes K and L 1,128.4 1,114.1 1,002.5
---------- --------- ---------
Total Current Liabilities 1,459.5 1,407.0 1,452.0
Deferred Liabilities - Note K 805.9 822.4 828.0
Long-Term Debt, net of current maturities - Notes A, G and L 707.3 812.1 519.9
Stockholders' Equity - Note H
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 118,199,396 at April 30, 1993
(excluding 29,665,980 shares held in treasury), 117,459,926
at October 31, 1992 (excluding 30,405,450 shares held in treasury)
and 117,757,018 at October 31, 1991 (excluding 30,108,358
shares held in treasury) 118.2 117.5 117.8
Paid-in surplus 712.8 665.7 629.5
Retained earnings - Notes A, F and I 3,082.5 3,228.6 3,096.4
Cumulative translation adjustments (11.4) 3.7 11.1
---------- --------- ---------
3,902.1 4,015.5 3,854.8
---------- --------- ---------
$ 6,874.8 $ 7,057.0 $ 6,654.7
========== ========= =========
See notes to consolidated financial statements.
F-13
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Years and Six Months Ended April 30, 1993
------------------------------------------------------------------
Cumulative Total
Common Paid-in Retained Translation Stockholders'
Stock Surplus Earnings Adjustments Equity
----------- ----------- ----------- ----------- -----------
(In millions)
BALANCE AT OCTOBER 31, 1989, net of treasury -
as reported $ 120.0 $ 539.0 $ 3,054.7 $ 3.8 $ 3,717.5
Cumulative effect of accounting change - Note A (50.7) (50.7)
----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 31, 1989, net of treasury -
as adjusted 120.0 539.0 3,004.0 3.8 3,666.8
Common Stock issued
Exercise of stock options and grants to employees 0.4 37.6 38.0
Dividend reinvestment and stock
purchase plan 0.1 3.1 3.2
Acquisition of stock for the treasury (3.1) (14.6) (110.0) (127.7)
Common Stock dividends ($.70 per share) (83.4) (83.4)
Translation adjustments 11.7 11.7
Tax benefit from exercise of stock options 10.8 10.8
Net earnings for the year 264.4 264.4
----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 31, 1990, net of treasury 117.4 575.9 3,075.0 15.5 3,783.8
Common Stock issued
Exercise of stock options and grants to employees 1.0 51.8 52.8
Dividend reinvestment and stock
purchase plan 0.1 3.3 3.4
Acquisition of stock for the treasury (0.7) (3.7) (23.8) (28.2)
Common Stock dividends ($.70 per share) (82.4) (82.4)
Translation adjustments (4.4) (4.4)
Tax benefit from exercise of stock options 2.2 2.2
Net earnings for the year 127.6 127.6
----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 31, 1991, net of treasury 117.8 629.5 3,096.4 11.1 3,854.8
Common Stock issued
Exercise of stock options and grants to employees 0.7 38.1 38.8
Dividend reinvestment and stock
purchase plan 0.1 3.6 3.7
Acquisition of stock for the treasury (1.1) (6.4) (41.7) (49.2)
Common Stock dividends ($.775 per share) (91.5) (91.5)
Translation adjustments (7.4) (7.4)
Tax benefit from exercise of stock options 0.9 0.9
Net earnings for the year 265.4 265.4
----------- ----------- ----------- ----------- -----------
BALANCE AT OCTOBER 31, 1992, net of treasury 117.5 665.7 3,228.6 3.7 4,015.5
Common Stock issued
Exercise of stock options and grants to employees 1.3 41.6 42.9
Dividend reinvestment and stock
purchase plan 1.9 1.9
Acquisition of stock for the treasury (0.6) (3.5) (22.9) (27.0)
Common Stock dividends ($.40 per share) (47.2) (47.2)
Translation adjustments (15.1) (15.1)
Tax benefit from exercise of stock options 7.1 7.1
Net loss for the six months ended April 30, 1993 (76.0) (76.0)
----------- ----------- ----------- ----------- -----------
BALANCE AT APRIL 30, 1993, net of treasury $ 118.2 $ 712.8 $ 3,082.5 $ (11.4) $ 3,902.1
=========== ========== =========== =========== ===========
See notes to consolidated financial statements.
F-14
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
April 30 Year Ended October 31
------------------- ---------------------------------
1993 1992 1992 1991 1990
-------- -------- --------- --------- ---------
(Unaudited)
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings (loss) before extraordinary item and cumulative
effect of accounting change $ (9.1) $ 48.7 $ 274.2 $ 127.6 $ 264.4
Non-cash expenses
Depreciation 37.1 35.2 71.7 59.1 45.8
Deferred income taxes 28.9 1.0 (3.2) (37.5) 23.1
Amortization of intangible assets 4.3 4.0 44.4 39.2 33.6
Amortization of pre-publication costs 24.0 23.5 87.0 88.0 67.2
Provision for real estate write-down and relocation 40.0
-------- -------- --------- --------- ---------
GROSS CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES 125.2 112.4 474.1 276.4 434.1
Undistributed net earnings of unconsolidated affiliates (11.3) (14.1) (19.7) (15.7) (31.2)
Theatrical and television inventories and broadcast rights
Gross additions (526.8) (472.0) (909.6) (953.6) (863.7)
Amortization 387.0 413.7 834.7 945.2 836.3
Decrease (increase) in network features and
syndication licenses 4.2 (66.5) (78.2) (47.1) (117.5)
Increase in pre-publication costs (39.6) (44.9) (87.7) (77.8) (110.1)
Decrease (increase) in trade receivables 194.6 162.7 (8.4) (44.6) 1.0
Decrease (increase) in inventories (other than theatrical
and television) (23.5) (11.9) 19.4 19.2 (15.0)
Decrease (increase) in prepaid expenses (67.6) 31.2 (13.4) (45.0) (21.8)
Increase (decrease) in trade accounts payable 51.0 (3.4) 8.5 (24.3) 24.9
Increase (decrease) in income taxes payable (112.6) (41.7) 12.4 (29.8) 32.7
Increase (decrease) in accrued expenses and other (50.7) (19.6) 34.4 (10.3) (76.4)
Other - Net (91.1) (66.4) (48.4) 91.7 93.9
-------- -------- --------- --------- ---------
NET CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES (161.2) (20.5) 218.1 84.3 187.2
CASH FLOWS FROM INVESTMENT AND OTHER ACTIVITIES
Expenditures for property, plant and equipment (excluding
capitalized leases) (55.9) (68.8) (120.0) (167.5) (186.7)
Proceeds on disposal of property, plant and equipment 1.1 5.2 11.8 2.2 2.6
Purchase price of acquired businesses (net of acquired cash) (0.1) (161.5) (585.1) (86.9) (220.9)
Decrease (increase) in investment in affiliated companies (3.7) 13.3 10.8 8.3
Taxes related to gain on sale of business (667.4)
Decrease (increase) in short-term and other investments 317.1 114.3 209.0 (467.1) (476.8)
Decrease (increase) in investments maturing after one year 25.6 49.1 161.9 (211.0)
Decrease in notes receivable 1.3 4.7 8.9 17.3 515.8
-------- -------- --------- --------- ---------
NET CASH FLOWS PROVIDED FROM (USED FOR) INVESTMENT
AND OTHER ACTIVITIES 259.8 (67.2) (415.5) (531.8) (1,244.4)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt 245.7 492.4
Payments of long-term debt (5.9) (214.5) (395.7) (26.9) (138.1)
Loss on early extinguishment of debt (13.4)
Issuance of Common Stock (excluding grants to employees) 29.8 9.8 23.8 14.5 13.4
Acquisition of stock for the treasury (27.0) (0.7) (49.2) (15.2) (142.3)
Dividends (47.2) (44.2) (91.5) (82.4) (83.4)
-------- -------- --------- --------- ---------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES (50.3) (3.9) (33.6) (110.0) (350.4)
-------- -------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48.3 (91.6) (231.0) (557.5) (1,407.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 324.3 555.3 555.3 1,112.8 2,520.4
-------- -------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 372.6 $ 463.7 $ 324.3 $ 555.3 $ 1,112.8
======== ======== ========= ========= =========
See notes to consolidated financial statements.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Paramount
Communications Inc. (Company) and its majority-owned affiliates. The
Company's investments in its 20-50% owned investees are carried on the equity
basis. The income taxes of the investees are included in the provision for
income taxes.
Certain amounts in the consolidated financial statements for periods prior to
April 30, 1993 have been reclassified to conform to current presentation for
comparative purposes.
Accounting Changes
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
The Company has elected to record the cumulative effect of the accounting
change as a charge against income as of November 1, 1992, resulting in a
one-time charge of $66.9 million, net of income taxes of $34.5 million, or $.57
per share. The incremental effect of this accounting change on each of the
quarters in the six months ended April 30, 1993 was to increase net periodic
postretirement benefit cost by approximately $2.6 million on a pre-tax basis.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Effective May 1, 1993, the Company adopted the
provisions of this standard by restating its prior period financial statements
beginning November 1, 1988. The effect of adopting SFAS No. 109 was to
decrease the loss before cumulative effect of accounting change and net loss by
$1.8 million ($.01 per share) for the six months ended April 30, 1993; increase
earnings before extraordinary item and net earnings by $4.0 million ($.04 per
share) for the year ended October 31, 1992; and, increase net earnings by $5.4
million ($.05 per share), $5.3 million ($.04 per share) and $2.0 million ($.02
per share - unaudited) for the years ended October 31, 1991 and 1990 and the six
months ended April 30, 1992, respectively. The cumulative effect of adopting
SFAS No. 109 as of October 31, 1989, decreased the beginning balance of 1990's
retained earnings by $50.7 million.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
Change in Fiscal Year End
In June 1993, the Board of Directors approved a change in the Company's fiscal
year end to April 30 from October 31.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments with original maturities
of three months or less.
Short-Term Investments
Short-term investments consist of instruments with original maturities in
excess of three months and are carried at cost, which approximates market.
Inventories
Inventories are generally determined using the lower of cost (first-in,
first-out or average cost method) or net realizable value.
Theatrical and Television Inventories, Revenues and Costs
Feature films are produced or acquired for distribution, normally, first in the
theatrical market followed by videocassettes, pay cable, network television and
syndicated television. On average, the length of the revenue cycle for feature
films approximates four years. Theatrical revenues from domestic and foreign
markets are recognized as films are exhibited, revenues from the sale of
videocassettes are recognized upon delivery of the merchandise and revenues
from all television sources are recognized upon availability of the film for
telecast.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Television series initially produced for the networks and first-run syndication
are generally licensed to domestic and foreign markets concurrently. The more
successful series are later syndicated in domestic markets and in certain
foreign markets. The length of the revenue cycle for television series will
vary depending on the number of seasons a series remains in active production.
Revenues arising from television license agreements are recognized in the year
that the films or television series are available for telecast.
Inventories related to theatrical and television product (which include direct
production costs, production overhead, capitalized interest, and acquisition
costs) are stated at the lower of cost less amortization or net realizable
value. Inventories are amortized and participations and residuals are accrued
on an individual product basis in the proportion that current revenues bear to
the estimated remaining total lifetime revenues. Domestic syndication and
basic cable revenue estimates are not included in the estimated lifetime
revenues of network series until such sales are probable. Estimates of total
lifetime revenues and expenses are periodically reviewed. The costs of feature
and television films are classified as current assets to the extent such costs
are expected to be recovered through the respective primary markets. Other
costs relating to film production are classified as noncurrent.
The Company estimates that approximately 94% of unamortized film costs at April
30, 1993 will be amortized within the next three years.
Publishing Revenue Recognition
The Company's publishing segment follows standard industry practice of
recognizing revenue when merchandise is shipped and billed.
Broadcast Rights
Broadcast rights are recorded when the license period begins and the program
becomes available for use, and are stated at the lower of cost less
amortization or net realizable value. Broadcast rights for feature films and
syndicated programs are amortized using the straight-line method based on
program usage. Sports rights are generally charged to expense when the event
is telecast. Contract payments are generally made in installments over a term
somewhat shorter than the contract.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Provision for depreciation
on substantially all depreciable assets is computed using the straight-line
method over the estimated useful lives of the assets.
Intangible Assets
Intangible assets primarily represent the excess of cost of purchased
businesses over the value of their net underlying assets (goodwill) and are
being amortized annually by the straight-line method over appropriate periods
not exceeding forty years. Intangible assets are net of accumulated
amortization of $233.9, $230.1 and $186.0 million at April 30, 1993 and October
31, 1992 and 1991, respectively.
Deferred Costs and Other
Deferred costs and other includes certain pre-publication costs being amortized
annually by the straight-line method or an accelerated basis over appropriate
periods, the majority of which is four years.
Unamortized Debt Discount
Debt discount is amortized over the term of the related debt using the interest
method.
Income Taxes
Provision for income taxes includes deferred taxes which represent future tax
effects of items reported for income tax purposes in periods different than for
financial purposes.
Deferred Off-Season Theme Park Expenses
Certain expenses incurred in the off-season to prepare the theme parks for the
operating season are deferred and amortized over the subsequent operating
season, which generally begins in March and finishes in October.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are based on the weighted average common and
dilutive common equivalent (stock options) shares outstanding during the
respective periods. Earnings (loss) per share are computed by dividing the
average common and, where dilutive, common equivalent shares outstanding into
the earnings (loss) applicable to such shares.
Note B - Acquisition and
Disposition of Businesses
Acquisitions
In August and October 1992, the Company acquired Kings Entertainment Company
and Kings Island Company, respectively, later renamed Paramount Parks, which
own and operate regional theme parks, for a total of approximately $400
million.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1991, the Company acquired Macmillan Computer Publishing, later
renamed Prentice Hall Computer Publishing, a leading publisher of personal
computer and related technical books, for approximately $158 million.
The acquisitions are being accounted for as purchases and the financial
statements include the results of their operations from the dates of
acquisition.
The following table summarizes, on a pro forma basis, the combined results of
operations as though Kings Entertainment Company, Kings Island Company and
Macmillan Computer Publishing had been acquired on November 1, 1990. It
includes estimated amounts for a reduction of interest income due to the use of
short-term investments for the acquisitions, amortization of estimated
intangible assets, additional depreciation expense and an adjustment for income
taxes, at the statutory rate. These pro forma results do not necessarily
reflect the actual results of operations as they would have been had the
acquisitions taken place on that date, nor are they necessarily indicative of
future results.
Year Ended October 31
----------------------------
1992 1991
--------- ---------
(In millions, except per share)
(Unaudited)
Revenues $ 4,464.1 $ 4,203.5
Earnings before extraordinary item 277.7 133.2
Net earnings 268.9 133.2
Earnings per share
Earnings before extraordinary item 2.34 1.13
Net earnings 2.26 1.13
In March 1990, the Company acquired Computer Curriculum Corporation, which
develops and markets computer-based learning systems, for approximately $75
million.
In December 1989, the Company acquired a preferred and common stock equity
interest in Paramount Stations Group (PSG), formerly TVX Broadcast Group Inc.,
which owns and operates independent television stations, for approximately $110
million. The Company also acquired PSG debt obligations for approximately $34
million. In April 1990, the Company was granted the right by the Federal
Communications Commission to assume control of PSG. The Company did so by
converting preferred stock into common stock and, consequently, began
reflecting its operations on a consolidated basis. In July and October 1990,
the Company purchased additional shares of PSG stock for $3.5 million and $4.3
million, respectively. In February 1991, the Company, through a merger,
acquired the remaining outstanding shares of PSG for approximately $62 million.
In May 1993, the Company purchased the remaining 80% it did not own of Canada's
Wonderland, Inc., a Canadian theme park, for approximately $52 million.
In June 1993, the Company announced it signed a definitive agreement to
purchase television station WKBD-TV in Detroit from Cox Enterprises Inc. for
approximately $105 million; this acquisition was completed in September 1993.
Dispositions
In June 1993, the Company agreed to sell Prentice Hall Legal and Financial
Services, Prentice Hall Legal Practice Management and Prentice Hall
Professional Software, three of its Publishing software and information
services units, to Information America, Inc. (IA) for common stock, debt,
preferred stock, common stock warrants and options. The transaction is subject
to approval by IA's shareholders. At closing, the Company will own an
approximately 49% common stock interest in IA.
During the six months ended April 30, 1993 and 1992 and the years ended
October 31, 1992, 1991 and 1990, the Company also acquired or sold certain
other businesses. The contributions of these businesses in the aggregate were
not significant to the Company's results of operations for the periods
presented, nor are they expected to have a material effect on the Company's
results on a continuing basis.
Note C - Other Income (Expense)
Other income (expense) includes foreign exchange gains (losses), minority
interest and other.
Note D - Extraordinary Item
In September 1992, the Company redeemed $175 million of 9 3/4% senior
debentures due 2016 for $1,061.25 per $1,000 principal amount. The premium
paid by the Company and the write-off of related unamortized discount and
issuance costs resulted in a loss of $8.8 million, net of an income tax benefit
of $4.6 million.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note E - Inventories
Inventories as described in Note A are stated as follows
(in millions):
April 30 October 31
--------- ----------------------
1993 1992 1991
--------- --------- ---------
CURRENT
Finished goods $ 248.3 $ 230.1 $ 229.8
Work in process 12.8 10.6 20.3
Materials and supplies 29.5 26.4 20.8
--------- --------- ---------
290.6 267.1 270.9
Theatrical and television productions
Released 176.9 169.1 161.2
Completed, not released 32.7 35.7 43.3
In process and other 61.8 75.9 84.4
--------- --------- ---------
271.4 280.7 288.9
Broadcast rights 55.3 32.4 30.6
--------- --------- ---------
617.3 580.2 590.4
NONCURRENT
Theatrical and television productions
Released 155.3 103.9 71.1
In process and other 247.0 174.8 119.2
--------- --------- ---------
402.3 278.7 190.3
Broadcast rights 107.0 104.4 111.5
--------- --------- ---------
509.3 383.1 301.8
--------- --------- ---------
$ 1,126.6 $ 963.3 $ 892.2
========= ========= =========
Note F - Investment in
Affiliated Companies
Investments in affiliated companies primarily include the Company's interest in
USA Networks, national advertiser-supported basic cable television networks
(50% owned); Cinamerica, a domestic motion picture theater operation (50%
owned); United Cinemas International Multiplex B.V., engaged in theatrical
exhibition of motion pictures in the United Kingdom, Ireland, Germany and Spain
(49% owned); Cinema International Corporation N.V., which owns motion picture
screens in seven countries (49% owned); and as of August 1992, Canada's
Wonderland, Inc., a Canadian theme park (20% owned).
Summarized financial information for the above companies is as follows (in
millions):
Six Months Ended Year Ended
or at April 30 or at October 31
------------------------- ----------------------------------------
1993 1992 1992 1991 1990
---------- --------- ---------- ---------- ----------
(Unaudited)
Revenues $ 372.6 $ 354.7 $ 783.2 $ 683.0 $ 548.3
Gross profit 129.0 139.8 321.6 226.3 208.3
Net earnings 36.2 49.3 83.2 74.4 52.1
Current assets $ 326.7 $ 337.8 $ 227.8
Noncurrent assets 855.8 934.2 741.2
Current liabilities 223.7 248.8 167.6
Noncurrent liabilities 493.4 595.4 430.4
Included in the operating income of the Company's Entertainment operations are
equity in earnings for the above affiliated companies of $24.0, $34.1
(unaudited), $58.7, $47.6 and $43.7 million, respectively, for the six months
ended April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and
1990. Dividends received from these affiliated companies were $7.8, $10.5
(unaudited), $22.0, $32.5 and $10.8 million, respectively, for the six months
ended April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and
1990.
Included in consolidated retained earnings at April 30, 1993 is $161.7 million
of undistributed earnings of affiliates.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G - Long-Term Debt
Long-term debt includes (in millions):
April 30 October 31
------ --------------
1993 1992 1991
------ ------ ------
8 1/2% senior notes due 1996 (prepaid
July 1993) $ 99.8 $ 99.8 $ 99.7
7 1/2% senior notes due 2002 246.3 246.0
8 1/4% senior debentures due 2022 246.8 246.7
11 5/8% senior notes due 1992 125.0
9.55% note payable to an institutional
investor due 1999 (prepaid 1992) 62.6
9 3/4% senior debentures due 2016
(prepaid 1992) 173.6
12 3/8% subordinated notes due 1995
(prepaid 1992) 19.5
7% subordinated debentures due 2003,
net of unamortized discount of $53.7
at April 30, 1993, $55.1 at
October 31, 1992 and $57.8 at
October 31, 1991 (effective average
interest rate of 11%) 177.7 176.3 173.6
Other notes and debentures due
1993 to 1996 (effective average
interest rate of 8.22%) 12.2 12.2 17.4
Obligations under capital leases 34.3 41.1 46.8
------- ------- -------
817.1 822.1 718.2
Less current maturities 109.8 10.0 198.3
------- ------- -------
$707.3 $812.1 $519.9
======= ======= =======
Maturities of long-term debt (including the present value of obligations under
capital leases as set forth in Note J) during the five years ending April 30,
1998 are (in millions):
1994 $109.8
1995 10.7
1996 20.1
1997 3.1
1998 0.4
The Company has complied with restrictions and limitations required under terms
of various loan agreements.
In July 1993, the Company completed a public offering of $150 million of 5 7/8%
senior notes due 2000 and $150 million of 7 1/2% senior debentures due 2023.
Note H - Capital Stock
The authorized capital stock of the Company includes 75,000,000 shares of
Preferred Stock, all of which are undesignated.
Each share of Common Stock outstanding has a related Common Stock purchase
right which will become exercisable after a specified period of time only if a
person or group acquires beneficial ownership of 15% or more of the outstanding
Common Stock of the Company or announces or commences a tender or exchange
offer that would result in the offeror acquiring 30% or more of the Company's
Common Stock. Once exercisable, each right would entitle its registered holder
to purchase one share of the Company's Common Stock at a price of $200 per
share, subject to adjustment to prevent dilution. Upon the occurrence of
certain events or transactions specified in the rights agreement, the rights
holder is entitled to receive for $200 per right a number of shares of the
Company's or an acquiring company's common stock having a market value equal to
twice the right's exercise price. The rights may be redeemed by the Company
for $.01 per right prior to the tenth day after a person or group acquires 15%
or more of the outstanding Common Stock of the Company. The rights expire on
September 30, 1998, unless redeemed earlier by the Company.
Common Stock outstanding at April 30, 1993, does not include 2,127,817 shares
reserved under the 1984 Stock Option Plan; 4,469,718 shares reserved under the
1989 Stock Option Plan; 5,750,000 shares reserved under the 1992 Stock Option
Plan; and 3,130,018 shares reserved under the Long-Term Performance Plan.
The Company's 1973 Key Employees Stock Purchase Plan and 1984, 1989 and 1992
Stock Option Plans provide for the issuance of options to key employees to
purchase Common Stock of the Company at a price not less than fair market value
on the date of grant. Options may not be granted under these plans that expire
more than ten years from the date of grant. The Company may establish
installment exercise terms for a stock option so that the option becomes fully
exercisable in a series of cumulative portions. The Company may also
accelerate the period for the exercise of any stock option or portion thereof.
Each option granted under the Company's 1984, 1989 and 1992 Stock Option Plans
contains a Limited Right which entitles the holder thereof, only upon the
occurrence of certain specified events constituting a change in control of the
Company and only after the Compensation Committee of the Board of Directors of
the Company so determines, to receive cash in lieu of exercising the option.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving outstanding stock options under these plans were:
Number of Common Shares Option Price
-------------------------------------- ---------------------------
1973 Plan 1984 Plan 1989 Plan Per Share Aggregate
--------- --------- --------- --------------- ---------
(In millions)
Outstanding at October 31, 1989 100,000 4,585,753 498,700 $ 7.75-- $55.63 $172.1
Granted 1,275,155 34.63-- 55.00 66.1
Issued (309,887) 15.38-- 39.56 (10.1)
Rescinded (32,675) (56,550) 31.69-- 55.00 (4.4)
------- --------- -------- ------- ----- ------
Outstanding at October 31, 1990 100,000 4,243,191 1,717,305 7.75-- 55.63 223.7
Granted 2,967,650 36.94-- 42.13 119.9
Issued (30,000) (750,710) 11.80-- 43.13 (24.1)
Rescinded (320,700) (487,970) 31.69-- 55.00 (36.1)
------- --------- --------- ------- ----- ------
Outstanding at October 31, 1991 70,000 3,171,781 4,196,985 7.75-- 55.63 283.4
Granted 468,500 37.50-- 47.13 20.0
Issued (40,000) (295,198) (221,183) 7.75-- 41.81 (20.1)
Rescinded (45,075) (325,825) 20.19-- 55.00 (15.7)
------- -------- --------- ------- ----- ------
Outstanding at October 31, 1992 30,000 2,831,508 4,118,477 13.94-- 55.63 267.6
Granted 442,500 44.19-- 50.69 19.7
Issued (30,000) (703,091) (309,099) 13.94-- 45.81 (27.8)
Rescinded (600) (36,035) 33.88-- 55.00 (1.9)
------- --------- --------- ------- ----- ------
Outstanding at April 30, 1993 -0- 2,127,817 4,215,843 15.25-- 55.63 $257.6
======= ========= ========= ======= ===== ======
Exercisable at
October 31, 1991 70,000 3,159,281 1,077,475
October 31, 1992 30,000 2,831,508 2,287,869
April 30, 1993 -0- 2,127,817 2,238,430
Reserved for future grants at
October 31, 1991 803,015
October 31, 1992 660,340
April 30, 1993 253,875
No options have been granted under the 1992 Stock Option Plan, and at April 30,
1993, 5,750,000 shares were reserved for future grants under this plan.
The Company follows the practice of recording amounts received upon the
exercise of options by crediting Common Stock and paid-in surplus. No charges
are reflected in the consolidated statement of earnings as a result of the
grant or exercise of stock options. The Company records compensation expense
related to stock appreciation rights of each plan and share unit features of
the 1973 Plan based on the change in the quoted market price of the Common
Stock for the period. The exercise prices of options are subject to
anti-dilution provisions. The Company realizes an income tax benefit from the
exercise or early disposition of certain stock options. This benefit results
in a decrease in current income taxes payable and an increase in paid-in
surplus.
During the six months ended April 30, 1993 and the year ended October 31, 1991,
125,000 and 200,000 shares, respectively, of Common Stock of the Company were
granted to certain key employees subject to restrictions which will lapse on
certain dates through February 1997. The average market price of these shares
on the dates on which they were granted ranged from $43.06 to $44.19. During
the six months ended April 30, 1993 and the years ended October 31, 1991 and
1990, 50,000, 292,000 and 125,000, respectively, of previously granted shares
were rescinded. At April 30, 1993, the unvested portion of previously granted
shares totaling $34.1 million is included as a reduction of stockholders'
equity. Compensation expense is recorded over the period during which services
are performed.
During the six months ended April 30, 1993 and the years ended October 31, 1992
and 1991, 61,094, 64,205 and 138,485 shares, respectively, of Common Stock of
the Company were granted to employees at an average market price of $43.50,
$37.63 and $41.88 under the terms of the Company's Long-Term Performance Plan.
At April 30, 1993 and October 31, 1992 and 1991, there were 3,130,018,
3,191,112 and 3,255,317 shares, respectively, of Common Stock reserved for
future grants under this plan.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I - Income Taxes
As described in Note A, effective May 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes" by restating its prior period financial
statements beginning November 1, 1988.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities were as follows (in
millions):
April 30 October 31
-------- --------------------
1993 1992 1991
-------- ------ ------
Deferred tax assets:
Costs of motion picture and
television production $ 89.2 $ 75.0 $ 50.4
Employee compensation and other
payroll related expenses 44.5 60.7 53.2
Provisions for real estate
write-down, relocation and
prior year publishing charge 40.5 24.8 26.9
Sales returns and allowances 46.4 45.8 38.2
Discontinued operations 34.2 29.0 37.8
Postretirement benefit obligation 34.5
Preacquisition net operating loss
carryforwards of subsidiaries
and other 50.0 60.3 66.0
Other 32.1 42.0 54.8
------ ------ ------
371.4 337.6 327.3
Valuation allowance for deferred
tax assets (50.0) (60.3) (66.0)
------ ------ ------
Total deferred tax assets 321.4 277.3 261.3
Deferred tax liabilities:
Income on motion picture and
television production (12.4) (13.1) (16.8)
Expenses related to renovation
project (9.2) (9.2) (9.2)
Self insurance (10.5) (3.1)
Deferred seasonal expenses (41.9) (26.8)
Other (18.4) (17.9) (21.7)
------ ------ ------
Total deferred tax liabilities (92.4) (70.1) (47.7)
------ ------ ------
Net deferred tax assets $229.0 $207.2 $213.6
====== ====== ======
Provision (benefit) for income taxes includes (in millions):
Six Months
Ended April 30 Year Ended October 31
-------------------- ------------------------------
1993 1992 1992 1991 1990
-------- -------- -------- -------- --------
(Unaudited)
Current
Federal $ (54.1) $ (16.7) $ 62.4 $ 26.1 $ 37.3
Foreign 16.1 31.1 55.1 47.5 49.0
State and other 1.4 4.6 8.8 16.0 7.2
-------- -------- -------- -------- --------
(36.6) 19.0 126.3 89.6 93.5
Deferred
Federal 27.7 1.0 4.0 (28.0) 20.3
Foreign 1.2 (7.2) (4.2) (1.3)
State and other (5.3) 4.1
-------- -------- -------- -------- --------
28.9 1.0 (3.2) (37.5) 23.1
-------- -------- -------- -------- --------
$ (7.7) $ 20.0 $ 123.1 $ 52.1 $ 116.6
======== ======== ======== ======== ========
The components of earnings (loss) before income taxes were as follows (in
millions):
Six Months
Ended April 30 Year Ended October 31
----------------------- -------------------------------------
1993 1992 1992 1991 1990
------- ------- -------- ------- -------
(Unaudited)
Domestic $ (47.8) $ 7.7 $ 301.8 $ 68.0 $ 218.4
Foreign 31.0 61.0 95.5 111.7 162.6
------- ------- -------- ------- -------
$ (16.8) $ 68.7 $ 397.3 $ 179.7 $ 381.0
======= ======= ======== ======= =======
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the provision (benefit) for income taxes computed by
applying the statutory Federal income tax rate to earnings (loss) before income
taxes and the actual provision (benefit) for income taxes is as follows (in
millions):
Six Months
Ended April 30 Year Ended October 31
----------------------- -------------------------------------
1993 1992 1992 1991 1990
------- ------- -------- ------- -------
(Unaudited)
Provision (benefit)
for income taxes
at statutory rate $ (5.7) $ 23.4 $ 135.1 $ 61.1 $ 129.5
Increase (decrease) in
taxes arising from
effect of
Income (principally
foreign) taxed at
lower rates (1.2) (7.4) (13.4) (19.6) (34.5)
Amortization of
intangible assets 1.3 1.0 13.1 8.8 9.6
U. S. state and local
income taxes 1.0 3.0 5.3 7.0 7.8
Tax exempt interest (5.4) (8.0)
Restoration of reserves
no longer required (3.9) (21.4)
Other 0.8 4.4 0.2 12.2
------- ------- -------- ------- -------
Provision (benefit) for
income taxes $ (7.7) $ 20.0 $ 123.1 $ 52.1 $ 116.6
------- ------- -------- ------- -------
Effective tax rate 45.8% 29.1% 31.0% 29.0% 30.6%
======= ======= ======== ======= =======
Total income tax payments were $59.6, $43.5 (unaudited), $120.0, $103.8 and
$720.4 million (including $667.4 million resulting from the fiscal 1989 sale of
Associates First Capital Corporation), respectively, for the six months ended
April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and 1990.
The Company's share of the undistributed earnings of foreign subsidiaries not
included in its consolidated Federal income tax return, that could be subject
to additional income taxes if remitted, was approximately $810 million at April
30, 1993. No provision has been made for taxes that could result from the
remittance of such undistributed earnings since the Company intends to reinvest
these earnings indefinitely; determination of the related unrecognized deferred
U.S. income tax liability is not practicable.
Note J - Commitments and Contingencies
Leases
Total rental expense was $45.7, $43.1 (unaudited), $87.0, $80.0 and $76.8
million, respectively, for the six months ended April 30, 1993 and 1992 and the
years ended October 31, 1992, 1991 and 1990.
At April 30, 1993, the minimum lease payments under capital leases and
noncancellable operating leases were as follows (in millions):
Year Ending April 30
---------------------------
Capital Operating
Leases Leases
------- --------
1994 $ 14.4 $ 65.2
1995 13.8 56.7
1996 9.7 44.5
1997 3.8 38.1
1998 0.7 35.9
Thereafter 5.1 388.4
------- --------
Total minimum lease payments 47.5 $ 628.8
========
Less amounts representing interest 13.2
-------
Present value of net minimum lease payments $ 34.3
=======
Many of the leases also require the lessee to pay property taxes, insurance and
ordinary repairs and maintenance.
Employee Benefit Plans
The cost of pension benefits for eligible employees, measured by length of
service, compensation and other factors, is currently being funded through
trusts established under the plans. In general, the Company's funding policy
is to make contributions to the plans as necessary to meet minimum funding
requirements.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic pension cost for the Company's plans were as
follows (in millions):
Six Months
Ended April 30 Year Ended October 31
------------------- ----------------------------
1993 1992 1992 1991 1990
------ ------ ------ ------ ------
(Unaudited)
Service cost-benefits
earned $ 9.2 $ 9.0 $ 18.1 $ 17.2 $ 15.8
Interest cost on projected
benefit obligation 18.9 17.0 34.1 32.4 30.6
Less return on plan assets (25.2) (20.6) (41.2) (59.4) (36.0)
Net amortization
and deferral 3.9 1.1 1.9 19.7 (3.4)
------ ------ ------ ------ ------
Net periodic pension cost $ 6.8 $ 6.5 $ 12.9 $ 9.9 $ 7.0
====== ====== ====== ====== ======
In addition, the Company had other pension expense for the six months
ended April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and
1990 of $5.0, $4.7 (unaudited), $9.2, $9.2 and $10.6 million, respectively,
primarily related to multiemployer pension plans.
The funded status and amounts recognized in the Company's consolidated
balance sheet for its domestic and non-U.S. plans is as follows (in millions):
April 30 October 31
------ ----------------
1993 1992 1991
------ ------ ------
Actuarial present value of benefit
obligation
Vested $345.8 $325.6 $307.1
Nonvested 19.4 17.8 16.8
------ ------ ------
Accumulated benefit obligation 365.2 343.4 323.9
Effect of projected future salary
increases 57.1 55.8 53.1
------ ------ ------
Projected benefit obligation 422.3 399.2 377.0
Plan assets at fair value 453.0 432.1 416.8
------ ------ ------
Plan assets in excess of projected
benefit obligation 30.7 32.9 39.8
Unrecognized net gain (34.9) (30.2) (23.8)
Unrecognized prior service cost (8.2) (9.7) (11.2)
Unrecognized net asset at date
of adoption of SFAS No. 87 (9.0) (9.7) (12.7)
------ ------ ------
Net pension liability $(21.4) $(16.7) $ (7.9)
====== ====== ======
Plan assets consist primarily of marketable equity and fixed income securities
and the Company's Common Stock. At April 30, 1993 and October 31, 1992 and
1991, the Company's plans owned 932,076 shares of the Company's Common Stock
with an aggregate market value of $48.5, $39.3 and $37.4 million, respectively.
In the six months ended April 30, 1993 and the years ended October 31, 1992 and
1991, the weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation for the Company's plans were 8.5% and 6.0%,
respectively. The expected long-term rate of return on assets used for the
majority of the Company's plans was 10.0% for the six months ended April 30,
1993 and 1992 and the years ended October 31, 1992, 1991 and 1990.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company sponsors a welfare plan
which provides certain postretirement health care and life insurance benefits
for substantially all employees and their covered dependents who generally have
worked ten years and are eligible for early or normal retirement under the
provisions of the Company's retirement plan. The welfare plan is contributory
and contains cost-sharing features such as deductibles and coinsurance which
are adjusted annually. The plan is not funded. The Company continues to fund
these benefits as claims are paid.
As described in Note A, effective November 1, 1992, the Company adopted SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Postretirement benefit costs for prior years, which were recorded
on a cash basis, have not been restated.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the amounts recognized in the Company's consolidated balance
sheet are as follows (in millions):
April 30 November 1
--------- ----------
1993 1992
------- -------
Accumulated postretirement benefit
obligation attributable to:
Current retirees $ 51.7 $ 49.2
Fully eligible active plan participants 20.2 19.2
Other active plan participants 34.7 33.0
------- -------
Accumulated postretirement benefit
obligation $ 106.6 $ 101.4
======= =======
The components of net periodic postretirement benefit cost for the six months
ended April 30, 1993, are as follows (in millions):
Service cost-benefits earned $ 2.4
Interest cost on accumulated postretirement benefit obligation 4.2
-------
Net periodic postretirement benefit cost $ 6.6
=======
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.5%. At April 30, 1993, the assumed weighted average health
care cost trend rates to be used in measuring the accumulated postretirement
benefit obligation for 1994 are 13% for retirees age 65 and over and 15% for
retirees under age 65. Both rates are assumed to decrease gradually each year
to 6.7% in 2011 and thereafter. A one percentage point increase in each year
of these health care cost trend rates would increase the accumulated
postretirement benefit obligation at April 30, 1993 by $19.2 million, and
increase the sum of the service and interest cost components of net periodic
postretirement benefit cost by $1.4 million.
In addition, the Company contributes to multiemployer plans which provide
health and welfare benefits to active as well as retired employees. The cost
of these benefits for the six months ended April 30, 1993, was $5.6 million.
Commitments
At April 30, 1993, the Company is obligated to make future payments for various
feature films, syndicated programs, sports events and other programming
totaling approximately $401 million. This amount includes $327 million related
to Madison Square Garden Network's agreement to televise New York Yankees
baseball games through the year 2000.
Legal Proceedings
The Company is a defendant in various lawsuits wherein substantial amounts are
claimed. In the opinion of counsel, these suits should not result in judgments
that in the aggregate would have a material adverse effect on the Company's
financial statements.
Note K - Supplemental Information
Trade receivables are net of allowance for doubtful accounts of $64.1, $65.5
and $59.6 million at April 30, 1993 and October 31, 1992 and 1991,
respectively.
Prepaid expenses and other includes royalties advances of $182.8, $161.6 and
$156.4 million at April 30, 1993 and October 31, 1992 and 1991, respectively.
The details of accrued expenses and other are as follows (in millions):
April 30 October 31
-------- --------------------------
1993 1992 1991
-------- -------- ---------
Participations payable and accrued
syndication expenses $ 334.6 $ 363.0 $ 348.2
Deferred television contracts income 90.6 86.9 73.7
Accrued compensation and other
employee benefit related items 114.7 140.6 97.2
Reverse repurchase liability 75.1 50.1
Other 513.4 473.5 483.4
-------- -------- ---------
$1,128.4 $1,114.1 $ 1,002.5
======== ======== =========
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred liabilities includes participations payable and deferred syndication
expenses of $193.7, $189.2 and $187.9 million at April 30, 1993 and October 31,
1992 and 1991, respectively.
The details of interest and other investment income (expense) - net are as
follows (in millions):
Six Months
Ended April 30 Year Ended October 31
---------------------- ------------------------------------
1993 1992 1992 1991 1990
-------- --------- --------- --------- --------
(Unaudited)
Interest expense
Interest on
indebtedness
and other $ (44.9) $ (54.4) $ (104.1) $ (108.6) $ (116.2)
Imputed interest
on long-term
liabilities (5.8) (8.5) (14.7) (14.6) (22.9)
Less capitalized
interest 2.8 3.1 5.0 11.2 15.2
-------- --------- --------- --------- --------
(47.9) (59.8) (113.8) (112.0) (123.9)
Interest and other
investment income
Interest and other
income on
investments 28.6 40.0 88.4 106.9 180.3
Imputed interest
on long-term
receivables 16.3 17.3 33.2 26.9 22.4
-------- --------- --------- --------- --------
44.9 57.3 121.6 133.8 202.7
-------- --------- --------- --------- --------
$ (3.0) $ (2.5) $ 7.8 $ 21.8 $ 78.8
======== ========= ========= ========= ========
Imputed interest relates principally to network and syndication licenses of
motion picture and television products. Capitalized interest relates to
projects under construction and theatrical and television productions in
process. Interest paid on borrowings was $40.8, $51.0 (unaudited), $91.0,
$99.5 and $105.6 million, respectively, for the six months ended April 30, 1993
and 1992 and the years ended October 31, 1992, 1991 and 1990.
Note L - Financial Instruments
The Company adopted SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments" in the six months ended April 30, 1993. This statement requires
disclosure of estimated fair values for all financial instruments for which it
is practicable to estimate fair value.
The Company has used various methods and assumptions to estimate the fair value
of its financial instruments at April 30, 1993. For cash and cash equivalents,
the carrying amount approximates fair value because of the short maturities of
these instruments. Quoted market prices or dealer quotes for the same or
similar instrument were used for short-term investments and the majority of
long-term debt. Other techniques, such as estimated cash flows and termination
cost have been used to estimate the fair value of the remaining financial
instruments. These values represent a general approximation of possible value
and may not be indicative of the amounts that could be realized in a current
market exchange.
The carrying amounts and fair values of the Company's recorded financial
instruments at April 30, 1993 are as follows (in millions):
Carrying Fair
Amount Value
-------- ------
Cash and cash equivalents $372.6 $372.6
Short-term investments 569.7 577.4
Long-term debt (including current maturities) (1) 782.8 859.8
Reverse repurchase liability 75.1 75.1
(1) Excludes obligations under capital leases classified as long-term debt.
Periodically, the Company enters into interest rate swap agreements. These
agreements generally allow the Company to exchange fixed rates for variable
rates without the exchange of cash with respect to the underlying principal
amounts. Net interest payments or receipts, which were not material, are
recorded as adjustments to interest expense. The fair value of interest rate
swaps at April 30, 1993 was not material.
The Company has guaranteed third party securities and commitments relating
primarily to joint venture obligations, theater leases and standby letters of
credit totaling approximately $320 million at April 30, 1993. These guarantees
had a fair value of $293 million at April 30, 1993.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - Financial Reporting By Business Segments
A summary description of the Company's business segments and their respective
Revenues and Operating Income (Loss) for the six months ended April 30, 1993
and 1992 and the years ended October 31, 1992, 1991 and 1990 is presented
elsewhere herein.
Depreciation, capital expenditures and identifiable assets were as follows (in
millions):
Depreciation Capital Expenditures (1)
----------------------------------------------- -----------------------------------------
Six Months Six Months
Ended April 30 Year Ended October 31 Ended April 30 Year Ended October 31
-------------- -------------------------- -------------- ----------------------
1993 1992 1992 1991 1990 1993 1992 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Business Segments
Entertainment $24.6 $23.1 $49.0 $38.1 $28.0 $46.0 $58.6 $94.3 $146.6 $174.7
Publishing 11.6 11.2 20.9 19.1 15.8 8.7 10.0 24.6 25.8 12.6
----- ----- ----- ----- ----- ----- ----- ----- ------ ------
Total 36.2 34.3 69.9 57.2 43.8 54.7 68.6 118.9 172.4 187.3
Corporate and Other
Non-Segment Items 0.9 0.9 1.8 1.9 2.0 1.2 0.2 1.1 0.5 0.6
----- ----- ----- ----- ----- ----- ----- ------ ------ ------
$37.1 $35.2 $71.7 $59.1 $45.8 $55.9 $68.8 $120.0 $172.9 $187.9
===== ===== ===== ===== ===== ===== ===== ====== ====== ======
Identifiable Assets
------------------------------------
April 30 October 31
-------- ------------------------
1993 1992 1991 1990
---- ---- ---- ----
Business Segments
Entertainment $3,377.8 $3,221.9 $2,493.7 $2,223.0
Publishing 2,321.3 2,396.5 2,226.4 2,191.5
-------- -------- -------- --------
Total 5,699.1 5,618.4 4,720.1 4,414.5
Corporate and Other
Non-Segment Items 1,175.7 1,438.6 1,934.6 2,126.5
-------- -------- -------- --------
$6,874.8 $7,057.0 $6,654.7 $6,541.0
======== ======== ======== ========
- ---------------
(1) Including capitalized leases.
Identifiable assets are those which can be directly identified or associated
with the segments. Corporate and other non-segment items principally include
cash and cash equivalents, short-term investments, notes receivable, prepaid
income taxes and corporate property and equipment.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Quarterly Results (Unaudited)
The following summarizes the quarterly operating results of the Company for the
six months ended April 30, 1993 and the years ended October 31, 1992 and 1991
(in millions, except per share):
Earnings (Loss) Per Share
-------------------------
Earnings Earnings
(Loss) Before (Loss) Before
Extraordinary Extraordinary
Item and Item and
Cumulative Cumulative
Operating Earnings Effect of Net Effect of Net
Cost of Income (Loss) Before Accounting Earnings Accounting Earnings
Quarter Ended Revenues Goods Sold (Loss) Income Taxes Change (Loss) Change (Loss)
------------- -------- ---------- ------ ------------ ----------- -------- ---------- --------
1993
January 31 $ 943.7 $ 648.8 $ 1.8 $ (1.2) $ 0.1 $(66.8) $ -0- $(.57)
April 30 954.4 638.0 (11.9) (15.6) (9.2) (9.2) (.08) (.08)
-------- -------- ------ ------- ------ ------ ----- -----
$1,898.1 $1,286.8 $(10.1) $ (16.8) $ (9.1) $(76.0) $(.08) $(.65)
======== ======== ====== ======= ====== ====== ===== =====
1992
January 31 $1,070.6 $ 761.4 $ 27.6 $ 27.1 $ 19.4 $ 19.4 $ .16 $ .16
April 30 927.9 621.7 50.2 41.6 29.3 29.3 .25 .25
July 31 1,063.9 629.2 156.9 166.6 114.3 114.3 .96 .96
October 31 1,202.5 727.5 161.4 162.0 111.2 102.4 .94 .86
-------- -------- ------ ------- ------ ------ ----- -----
$4,264.9 $2,739.8 $396.1 $ 397.3 $274.2 $265.4 $2.31 $2.23
======== ======== ====== ======= ====== ====== ===== =====
1991
January 31 $ 897.1 $ 658.3 $(27.0) $ (10.8) $ (5.9) $ (5.9) $(.05) $(.05)
April 30 868.1 646.9 (86.3) (80.8) (53.7) (53.7) (.46) (.46)
July 31 963.9 553.9 149.5 148.8 102.6 102.6 .87 .87
October 31 1,166.3 779.6 121.6 122.5 84.6 84.6 .72 .72
-------- -------- ------ ------- ------ ------ ----- -----
$3,895.4 $2,638.7 $157.8 $ 179.7 $127.6 $127.6 $1.08 $1.08
======== ======== ====== ======= ====== ====== ===== =====
Note O - Subsequent Event (Unaudited)
On September 12, 1993, the Company and Viacom Inc. (Viacom), entered into an
Agreement and Plan of Merger, dated as of September 12, 1993 (the "Merger
Agreement"), providing for the merger of the Company with and into Viacom, with
Viacom as the surviving corporation (the "Merger"). The name of the combined
entity will be Paramount Viacom International, Inc.
Upon the effectiveness of the Merger, each share of the Company's stock will be
converted into (i) 0.10 shares of Viacom Class A common stock, (ii) 0.90 shares
of Viacom Class B common stock and (iii) $9.10 in cash.
A special meeting of the Company's common stockholders will be called to act on
the Merger. The approval of the holders of a majority of all outstanding
shares of the Company's Common Stock is required to approve the Merger.
In addition, consummation of the Merger is subject to certain conditions,
including the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and receipt of regulatory
approvals (including approval of the Federal Communications Commission). If
the Merger is terminated under certain limited circumstances, the Company must
pay Viacom $100 million.
As a condition to entering into the Merger Agreement, the Company and Viacom
entered into a Stock Option Agreement, dated as of September 12, 1993 (the
"Stock Option Agreement"), pursuant to which the Company granted to Viacom an
irrevocable option to purchase up to 23,699,000 shares of the Company's Common
Stock at an exercise price of $69.14 per share (the "Option"). The Option will
become exercisable upon conditions similar to those applicable to the $100
million payment.
On September 20, 1993, the Company received an acquisition proposal from
QVC Network, Inc. (QVC), consisting of a combination of $30 in cash and 0.893 of
a share of QVC common stock for each share of the Company. On September 27,
1993, the Company's Board of Directors met and took no action on the QVC
proposal. The Company will consider the QVC proposal when there is satisfactory
evidence of financing.
EXHIBIT INDEX
Exhibits No. Description
- ------------ -----------
(3)(a) --Restated Certificate of Incorporation and Amendments thereto (Incorporated by
reference).
*(3)(b) --Amended and restated By-laws.
(4)(a) --Instruments with respect to issues of long-term debt have not been filed as exhibits
to this Annual Report on Form 10-K as the authorized principal amount on any one of
such issues does not exceed 10% of the total assets of Paramount Communications and
its subsidiaries on a consolidated basis. Paramount Communications agrees to furnish
a copy of each such instrument to the Commission upon request.
(4)(b) --Shareholder rights agreement dated as of September 7, 1988, as amended, between Paramount
Communications Inc. and Chemical Bank, as Rights Agent (Incorporated by reference).
*(10)(i)(a) --Agreement and Plan of Merger dated as of September 12, 1993 between Viacom Inc. and Paramount
Communications Inc.
*(10)(i)(b) --Stock Option Agreement dated as of September 12, 1993 between Viacom Inc. and
Paramount Communications Inc.
*(10)(i)(c) --Voting Agreement dated as of September 12, 1993 between National Amusements, Inc. and
Paramount Communications Inc.
(10)(ii)(A)(1) --Agreement, dated as of September 9, 1992, between Paramount Communications and
Stanley R. Jaffe (Incorporated by reference).
(10)(ii)(A)(2) --Agreement, dated as of March 17, 1991, between Paramount Pictures Corporation and
Stanley R. Jaffe (Incorporated by reference).
+(10)(iii)(A)(1) --Amended and restated agreement, dated as of October 1, 1985 and restated
as of June 23, 1989, between Paramount Communications and Martin S. Davis
(Incorporated by reference).
+(10)(iii)(A)(2) --Agreement, dated as of March 18, 1991, between Paramount
Communications and Stanley R. Jaffe (Incorporated by reference).
+(10)(iii)(A)(3) --Amendment, dated as of September 9, 1992, to the Agreement, dated as of
March 18, 1991, between Paramount Communications and Stanley R. Jaffe
(Incorporated by reference).
+(10)(iii)(A)(4) --Amended and restated agreement, dated as of November 17, 1987 and restated
as of June 23, 1989, between Paramount Communications and Ronald L. Nelson
(Incorporated by reference).
+(10)(iii)(A)(5) --Amendment, dated as of December 21, 1992, to the amended and restated
agreement, dated as of November 17, 1987 and restated as of June 23, 1989,
between Paramount Communications and Ronald L. Nelson (Incorporated by reference).
+(10)(iii)(A)(6) --Agreement, dated as of January 12, 1993, between Paramount Communications
and Ronald L. Nelson (Incorporated by reference).
+(10)(iii)(A)(7) --Amended and restated agreement, dated as of October 1, 1985 and restated as of
June 23, 1989, between Paramount Communications and Donald Oresman
(Incorporated by reference).
Exhibits No. Description
------------ -----------
+(10)(iii)(A)(8) --Agreement, dated as of September 10, 1992, between Paramount Communications and
Earl H. Doppelt (Incorporated by reference).
+(10)(iii)(A)(9) --Agreement, dated as of September 10, 1992, between Paramount Communications and
Rudolph L. Hertlein (Incorporated by reference).
+(10)(iii)(A)(10) --Agreement, dated as of June 2, 1989, between Paramount Communications and Lawrence E.
Levinson (Incorporated by reference).
+(10)(iii)(A)(11) --Agreement, dated as of June 2, 1989, between Paramount Communications and Eugene I.
Meyers (Incorporated by reference).
+(10)(iii)(A)(12) --Agreement, dated as of February 25, 1992, between Paramount Communications and Jerry
Sherman (Incorporated by reference).
+(10)(iii)(A)(13) --Agreement, dated April 5, 1993, between Paramount Communications and Robert
Greenberg (Incorporated by reference).
+(10)(iii)(A)(14) --1992 Stock Option Plan (the "1992 Plan") (Incorporated by reference).
+(10)(iii)(A)(15) --1989 Stock Option Plan, as amended (the "1989 Plan") (Incorporated by reference).
+(10)(iii)(A)(15)(a) --Form of Stock Option Agreement pursuant to the 1989 Plan--Incentive Stock Option
(Incorporated by reference).
+(10)(iii)(A)(15)(b) --Form of Stock Option Agreement pursuant to the 1989 Plan--Nonqualified Stock Option
(Incorporated by reference).
+(10)(iii)(A)(16) --1984 Stock Option Plan, as amended (the "1984 Plan") (Incorporated by reference).
+(10)(iii)(A)(16)(a) --Form of Stock Option Agreement pursuant to the 1984 Plan--Incentive Stock Option
(Incorporated by reference).
+(10)(iii)(A)(16)(b) --Form of Stock Option Agreement pursuant to the 1984 Plan--Incentive Stock Option
with a Stock Appreciation Right (Incorporated by reference).
+(10)(iii)(A)(16)(c) --Form of Stock Option Agreement pursuant to the 1984 Plan--Nonqualified Stock Option
(Incorporated by reference).
+(10)(iii)(A)(16)(d) --Form of Stock Option Agreement pursuant to the 1984 Plan--Nonqualified Stock Option
with a Stock Appreciation Right (Incorporated by reference).
+(10)(iii)(A)(17) --1973 Key Employees Stock Purchase Plan (Incorporated by reference).
+(10)(iii)(A)(18) --Amended and Restated Supplemental Executive Retirement Plan (Incorporated by
reference).
+(10)(iii)(A)(19) --Deferred Compensation Plan for Board of Directors (Incorporated by reference).
Exhibits No. Description
-------------- -----------
+(10)(iii)(A)(20) --Long-Term Performance Plan, as amended (Incorporated by reference).
+(10)(iii)(A)(21) --Corporate Annual Performance Plan, as amended (Incorporated by reference).
+(10)(iii)(A)(22) --Retirement Plan for non-employee directors (Incorporated by reference).
+(10)(iii)(A)(23) --Non-qualified retirement plan (Incorporated by reference).
**(11) --Computation of Earnings (Loss) per Share.
*(22) --List of Subsidiaries.
**(24) --Consent of Ernst & Young.
*(25) --Powers of Attorney.
- -------------
* These exhibits were previously filed as part of this Transition Report
on Form 10-K for the six months ended April 30, 1993, as amended.
** Filed herewith.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
EXHIBIT (11)
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
COMPUTATION OF LOSS PER SHARE
SIX MONTHS ENDED APRIL 30, 1993
(IN MILLIONS, EXCEPT PER SHARE)
E.P.S.
-----------------------
Loss Before Loss Before
Cumulative Effect Cumulative Effect
of Accounting Net of Accounting Net
Change Loss Shares Change Loss
---------- -------- ------- ----------- ---------
Loss and average common shares outstanding . . . . . . . . . . $ (9.1) $ (76.0) 117.8
Assumed exercise of dilutive options . . . . . . . . . . . . . 5.4
Assumed purchase of treasury stock using
the average market price . . . . . . . . . . . . . . . . . . (4.4)
------ ------- -----
Primary loss per share (9.1) (76.0) 118.8 $(.08)(1) $ (.65)(1)
===== ======
Reverse dilutive effect of options included
in primary calculation . . . . . . . . . . . . . . . . . . . (1.0)
-----
117.8
Calculation of fully diluted loss per share
I) Assumed exercise of outstanding
options - Schedule A . . . . . . . . . . . . . . . . 5.6
II) Assumed purchase of treasury
stock - Schedule A . . . . . . . . . . . . . . . . . . (4.1)
III) Reflect actual exercises as of the
beginning of the year. . . . . . . . . . . . . . . . . 0.1
------ ------- -----
Fully diluted loss per share $(9.1) $(76.0) 119.4 $(.08)(1) $ (.65)(1)
===== ====== ===== ===== ======
- -----------
(1) Computed using the average common shares outstanding since the assumed
exercise of options is anti-dilutive.
-1-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
SCHEDULE A - ASSUMED EXERCISE OF OUTSTANDING OPTIONS
SIX MONTHS ENDED APRIL 30, 1993
(IN MILLIONS)
Potential
------------------------------
Additional Cash
Shares Proceeds
---------- --------
I) Options
-------
Options under the 1984 stock option plan . . . . . . . . . . . . . . . . . . . . . 2.2 $ 72.3
Options under the 1989 stock option plan . . . . . . . . . . . . . . . . . . . . . 3.4 142.1
----- --------
5.6 214.4
II) Treasury Stock Purchase
-----------------------
Use of proceeds to purchase stock at end of period price
$52.00 (higher than average price for the period) . . . . . . . . . . . . . . . (4.1) (214.4)
----- --------
1.5 $ -0-
===== ========
-2-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED APRIL 30, 1992
(IN MILLIONS, EXCEPT PER SHARE)
Net Net Earnings
Earnings Shares Per Share
-------- -------- ---------------
Net earnings and average common shares outstanding . . . . . . . . . . $ 48.7 118.0
Assumed exercise of dilutive options . . . . . . . . . . . . . . . . . 5.9
Assumed purchase of treasury stock using
the average market price . . . . . . . . . . . . . . . . . . . . . . (4.9)
-------- -------
Primary earnings per share 48.7 119.0 $.41
====
Reverse dilutive effect of options included
in primary calculation . . . . . . . . . . . . . . . . . . . . . . . (1.0)
-------
118.0
Calculation of fully diluted earnings per share
I) Assumed exercise of outstanding
options - Schedule A . . . . . . . . . . . . . . . . . . . . 6.0
II) Assumed purchase of treasury
stock - Schedule A . . . . . . . . . . . . . . . . . . . . . (4.7)
-------- -------
Fully diluted earnings per share $ 48.7 119.3 $.41
======== ======= ====
-3-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
SCHEDULE A - ASSUMED EXERCISE OF OUTSTANDING OPTIONS
SIX MONTHS ENDED APRIL 30, 1992
(IN MILLIONS)
Potential
------------------------------
Additional Cash
Shares Proceeds
---------- --------
I) Options
-------
Options under the 1973 stock purchase plan . . . . . . . . . . . . . . . . . . . . 0.1 $ 0.4
Options under the 1984 stock option plan . . . . . . . . . . . . . . . . . . . . . 3.0 93.3
Options under the 1989 stock option plan . . . . . . . . . . . . . . . . . . . . . 2.9 119.3
--- --------
6.0 213.0
II) Treasury Stock Purchase
-----------------------
Use of proceeds to purchase stock at end of period price
$45.63 (higher than average price for period) . . . . . . . . . . . . . . . . . (4.7) (213.0)
--- --------
1.3 $ -0-
=== ========
-4-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED OCTOBER 31, 1992
(IN MILLIONS, EXCEPT PER SHARE)
E.P.S.
-----------------------
Earnings Earnings
Before Before
Extraordinary Net Extraordinary Net
Item Earnings Shares Item Earnings
------------ -------- ------ ------------- --------
Earnings and average common shares outstanding . . . . . . $ 274.2 $ 265.4 118.1
Assumed exercise of dilutive options . . . . . . . . . . . 5.6
Assumed purchase of treasury stock using
the average market price . . . . . . . . . . . . . . . . (4.5)
------- ------- -----
Primary earnings per share 274.2 265.4 119.2 $ 2.31 $ 2.23
====== ======
Reverse dilutive effect of options included
in primary calculation . . . . . . . . . . . . . . . . . (1.1)
-----
118.1
Calculation of fully diluted earnings per share
I) Assumed exercise of outstanding
options - Schedule A . . . . . . . . . . . . . . 5.6
II) Assumed purchase of treasury
stock - Schedule A . . . . . . . . . . . . . . . (4.5)
------- ------- -----
Fully diluted earnings per share $ 274.2 $ 265.4 119.2 $ 2.31 $ 2.23
======= ======= ===== ====== ======
-5-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
SCHEDULE A - ASSUMED EXERCISE OF OUTSTANDING OPTIONS
YEAR ENDED OCTOBER 31, 1992
(IN MILLIONS)
Potential
------------------------------
Additional Cash
Shares Proceeds
------ --------
I) Options
-------
Options under the 1973 stock purchase plan . . . . . . . . . . . . . . . . . . . . $ 0.4
Options under the 1984 stock option plan . . . . . . . . . . . . . . . . . . . . . 2.8 86.8
Options under the 1989 stock option plan . . . . . . . . . . . . . . . . . . . . . 2.8 111.1
--- --------
5.6 198.3
II) Treasury Stock Purchase
-----------------------
Use of proceeds to purchase stock at average price
for year $43.80 (higher than year-end price) . . . . . . . . . . . . . . . . . (4.5) (198.3)
--- --------
1.1 $ -0-
=== ========
-6-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED OCTOBER 31, 1991
(IN MILLIONS, EXCEPT PER SHARE)
Net Net Earnings
Earnings Shares Per Share
-------- ------ ---------
Net earnings and average common shares outstanding . . . . . . . . . . $ 127.6 117.7
Assumed exercise of dilutive options . . . . . . . . . . . . . . . . . 3.5
Assumed purchase of treasury stock using
the average market price . . . . . . . . . . . . . . . . . . . . . . (2.7)
------- -----
Primary earnings per share 127.6 118.5 $1.08
=====
Reverse dilutive effect of options included
in primary calculation . . . . . . . . . . . . . . . . . . . . . . . (0.8)
-----
117.7
Calculation of fully diluted earnings per share
I) Assumed exercise of outstanding options - Schedule A . . . . . 4.0
II) Assumed purchase of treasury stock - Schedule A . . . . . . . . (3.1)
III) Reflect actual exercises as of the beginning of the year
Options and purchase of treasury
stock - net . . . . . . . . . . . . . . . . . . . . . . . 0.1
------- -----
Fully diluted earnings per share $ 127.6 118.7 $1.08
======= ===== =====
-7-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
SCHEDULE A - ASSUMED EXERCISE OF OUTSTANDING OPTIONS
YEAR ENDED OCTOBER 31, 1991
(IN MILLIONS)
Potential
------------------------------
Additional Cash
Shares Proceeds
------ --------
I) Options
-------
Options under the 1973 stock purchase plan . . . . . . . . . . . . . . . . . . . . 0.1 $ 0.7
Options under the 1984 stock option plan . . . . . . . . . . . . . . . . . . . . . 2.9 86.6
Options under the 1989 stock option plan . . . . . . . . . . . . . . . . . . . . . 1.0 37.2
--- --------
4.0 124.5
II) Treasury Stock Purchase
-----------------------
Use of proceeds to purchase stock at year-end price
$40.13 (higher than average price for year) . . . . . . . . . . . . . . . . . . (3.1) (124.5)
---- --------
0.9 $ -0-
=== ========
-8-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED OCTOBER 31, 1990
(IN MILLIONS, EXCEPT PER SHARE)
Net Net Earnings
Earnings Shares Per Share
-------- ------- ---------
Net earnings and average common shares outstanding . . . . . . . . . . $ 264.4 118.8
Assumed exercise of dilutive options . . . . . . . . . . . . . . . . . 4.5
Assumed purchase of treasury stock using
the average market price . . . . . . . . . . . . . . . . . . . . . . (3.2)
------- -----
Primary earnings per share 264.4 120.1 $2.20
=====
Reverse dilutive effect of options included
in primary calculation . . . . . . . . . . . . . . . . . . . . . . . (1.3)
-----
118.8
Calculation of fully diluted earnings per share
I) Assumed exercise of outstanding
options - Schedule A . . . . . . . . . . . . . . . . . . . . 4.8
II) Assumed purchase of treasury
stock - Schedule A . . . . . . . . . . . . . . . . . . . . . (3.6)
III) Reflect actual exercises as of the
beginning of the year
Options and purchase of treasury
stock - net . . . . . . . . . . . . . . . . . . . . . . 0.1
------- -----
Fully diluted earnings per share $ 264.4 120.1 $2.20
======= ===== =====
-9-
EXHIBIT (11)
PARAMOUNT COMMUNICATIONS INC.
SCHEDULE A - ASSUMED EXERCISE OF OUTSTANDING OPTIONS
YEAR ENDED OCTOBER 31, 1990
(IN MILLIONS)
Potential
-------------------------------
Additional Cash
Shares Proceeds
---------- ----------
I) Options
-------
Options under the 1973 stock purchase plan . . . . . . . . . . . . . . . . . . . . 0.1 $ 1.1
Options under the 1984 stock option plan . . . . . . . . . . . . . . . . . . . . . 4.2 136.0
Options under the 1989 stock option plan . . . . . . . . . . . . . . . . . . . . . 0.5 21.0
---------- ---------
4.8 158.1
II) Treasury Stock Purchase
-----------------------
Use of proceeds to purchase stock at average price for year
$44.30 (higher than year-end price) . . . . . . . . . . . . . . . . . . . . . . (3.6) (158.1)
---------- ---------
1.2 $ -0-
========== =========
-10-
EXHIBIT (24)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Numbers 33-48534, 33-48535, 33-46900, 33-28441, 33-22743, 2-66018,
2-88448 and 33-10554 on Form S-8 and Numbers 2-83427 and 33-51656 on Form S-3)
of Paramount Communications Inc. 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 amended consolidated financial statements of Paramount Communications Inc.
included in this Transition Report (Form 10-K/A - Amendment No. 2) for the
six-month period ended April 30, 1993.
ERNST & YOUNG
New York, New York
September 30, 1993
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
----------------------
FORM 10-K/A
AMENDMENT NO. 3
(Mark One)
/ / Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
OR
/x/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from November 1, 1992 to April 30, 1993*
Commission file number 1-5404
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 Columbus Circle, New York, New York 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, $1 par value )
7% Subordinated Debentures, Series A due 2003 ) New York Stock Exchange
7% Subordinated Debentures, Series B due 2003 )
Common Stock Purchase Rights )
----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/. No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $6.1 billion at August 23,
1993.**
At August 23, 1993, 118,417,196 shares of the registrant's Common Stock,
$1 par value, were outstanding.
- ----------
* Paramount Communications Inc. has changed its fiscal year end from October
31 to April 30. This transition report is for the six months ended April 30,
1993.
** Calculated by excluding all shares held by executive officers and directors
of registrant without conceding that all such persons are "affiliates" of
registrant for purposes of the Federal securities laws.
================================================================================
1
PARAMOUNT COMMUNICATIONS INC.
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Transition Report on Form 10-K for the six
months ended April 30, 1993, as set forth in the pages attached hereto:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 7 is found on pages F-6 through F-14 and Item
8 is found on pages F-4 through F-31, exclusive of pages F-6 through F-14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements--See index to financial statements on Page
F-1.
2. Financial Statement Schedules Index:
Report of Independent Auditors
Schedule I -- Marketable Securities--Other Investments
Schedule II -- Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other
Than Related Parties
Schedule VII -- Guarantees of Securities of Other Issuers
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
Schedules other than those listed above are omitted for the reason
that they are not required or are not applicable, or the required
information is included in the financial statements or in the
notes to financial statements or is not significant.
The above listed financial statement schedules were previously
filed as part of this Transition Report on Form 10-K for the six
months ended April 30, 1993, as amended.
3. Exhibits--
(3)(a) -- Restated Certificate of Incorporation and
Amendments thereto (Incorporated by
reference to Exhibit (4)(i)(A) of Paramount
Communications' post-effective amendment No.
3 to the registration statement on Form S-3
No. 2-83427).
*(3)(b) -- Amended and restated By-laws.
2
(4)(a) -- Instruments with respect to issues of
long-term debt have not been filed as
exhibits to this Annual Report on Form 10-K
as the authorized principal amount on any
one of such issues does not exceed 10% of
the total assets of Paramount Communications
and its subsidiaries on a consolidated
basis. Paramount Communications agrees to
furnish a copy of each such instrument to
the Commission upon request.
(4)(b) -- Shareholder rights agreement dated as of
September 7, 1988, as amended, between
Paramount Communications Inc. and Chemical
Bank, as Rights Agent (Incorporated by
reference to Paramount Communications'
registration statement on Form 8-A dated
September 14, 1988 and to Amendment No. 1 to
Form 8-A on Form 8 dated June 8, 1989,
Amendment No. 2 to Form 8-A on Form 8-A/A
dated September 22, 1993, Amendment No. 3 to
Form 8-A on Form 8-A/A dated November 5,
1993, Amendment No. 4 to Form 8-A on Form
8-A/A dated November 15, 1993, Amendment
No. 5 to Form 8-A on Form 8-A/A dated
January 5, 1994, Amendment No. 6 to Form 8-A
on Form 8-A/A dated January 31, 1994 and
Amendment No. 7 to Form 8-A on Form 8-A/A
dated March 2, 1994).
(10)(i)(a) -- Amended and Restated Agreement and Plan of
Merger, dated as of February 4, 1994,
between Paramount Communications Inc. and
Viacom Inc. (Incorporated by reference to
Exhibit 105 of Amendment No. 34, dated
February 7, 1994, to the Schedule 14D-9
filed by Paramount Communications Inc. with
respect to the tender offer by Viacom
Inc.).
(10)(i)(b) -- Voting Agreement dated as of January 21,
1994, between National Amusements, Inc. and
Paramount Communications Inc. (Incorporated
by reference to Exhibit 81 of Amendment No.
28, dated January 24, 1994, to the Schedule
14D-9 filed by Paramount Communications
Inc. with respect to the tender offer by
Viacom Inc.).
(10)(ii)(A)(1) -- Agreement, dated as of September 9, 1992,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by reference
to Exhibit (10)(ii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended July 31, 1992).
(10)(ii)(A)(2) -- Agreement, dated as of March 17, 1991,
between Paramount Pictures Corporation
and Stanley R. Jaffe (Incorporated by
reference to Exhibit (10)(ii)(A)(8) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October
31, 1991).
+(10)(iii)(A)(1) -- Amended and restated agreement, dated as of
October 1, 1985 and restated as of June
23, 1989, between Paramount Communications
and Martin S. Davis (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October
31, 1989).
+(10)(iii)(A)(2) -- Amendment dated as of February 11, 1994, to
the Amended and Restated Agreement dated
as of October 1, 1985 and restated as of
June 23, 1989 between Paramount
Communications and Martin S. Davis
(Incorporated by reference to Exhibit
(10)(iii)(A)(1) of Paramount Communications'
Quarterly Report on Form 10-Q for the
quarter ended January 31, 1994).
3
+(10)(iii)(A)(3) -- Agreement, dated as of March 18, 1991,
between Paramount Communications and
Stanley R. Jaffe (Incorporated by reference
to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30, 1991).
+(10)(iii)(A)(4) -- Amendment, dated as of September 9, 1992, to
the Agreement, dated as of March 18,
1991, between Paramount Communications and
Stanley R. Jaffe (Incorporated by reference
to Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended July 31, 1992).
+(10)(iii)(A)(5) -- Amended and restated agreement, dated as of
November 17, 1987 and restated as of
June 23, 1989, between Paramount
Communications and Ronald L. Nelson
(Incorporated by reference to Exhibit
(10)(ii)(A)(2) of Paramount Communications'
Quarterly Report on Form 10-Q for the
quarter ended January 31, 1990).
+(10)(iii)(A)(6) -- Amendment, dated as of December 21, 1992, to
the amended and restated agreement,
dated as of November 17, 1987 and restated
as of June 23, 1989, between Paramount
Communications and Ronald L. Nelson
(Incorporated by reference to Exhibit
(10)(iii)(A)(5) of Paramount Communications'
Annual Report on Form 10-K for the fiscal
year ended October 31, 1992).
+(10)(iii)(A)(7) -- Agreement, dated as of January 12, 1993,
between Paramount Communications and
Ronald L. Nelson (Incorporated by reference
to Exhibit (10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January 31,
1993).
+(10)(iii)(A)(8) -- Amendment dated as of February 11, 1994, to
the Agreement dated as of January 12,
1993 between Paramount Communications and
Ronald L. Nelson (Incorporated by reference
to Exhibit (10)(iii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January 31,
1994).
+(10)(iii)(A)(9) -- Amended and restated agreement, dated as of
October 1, 1985 and restated as of June
23, 1989, between Paramount Communications
and Donald Oresman (Incorporated by
reference to Exhibit (10)(ii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended January
31, 1990).
+(10)(iii)(A)(10) -- Amendment dated as of February 11, 1994, to
the Amended and Restated Agreement dated
as of October 1, 1985 and restated as of
June 23, 1989 between Paramount
Communications and Donald Oresman
(Incorporated by reference to Exhibit
(10)(iii)(A)(3) of Paramount Communications'
Quarterly Report on Form 10-Q for the
quarter ended January 31, 1994).
4
+(10)(iii)(A)(11) -- Agreement, dated as of September 10, 1992,
between Paramount Communications and
Earl H. Doppelt (Incorporated by reference
to Exhibit (10)(iii)(A)(7) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31, 1992).
+(10)(iii)(A)(12) -- Agreement, dated as of September 10, 1992,
between Paramount Communications and
Rudolph L. Hertlein (Incorporated by
reference to Exhibit (10)(iii)(A)(8) of
Paramount Communications' Annual Report on
Form 10-K for the fiscal year ended October
31, 1992).
+(10)(iii)(A)(13) -- Agreement, dated as of June 2, 1989, between
Paramount Communications and Lawrence E.
Levinson (Incorporated by reference to
Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended July 31, 1989).
+(10)(iii)(A)(14) -- Agreement, dated as of June 2, 1989, between
Paramount Communications and Eugene I.
Meyers (Incorporated by reference to Exhibit
(10)(ii)(A)(2) of Paramount Communications'
Quarterly Report on Form 10-Q for the
quarter ended July 31, 1989).
+(10)(iii)(A)(15) -- Agreement, dated as of February 25, 1992,
between Paramount Communications and
Jerry Sherman (Incorporated by reference to
Exhibit (10)(ii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended January 31,
1992).
+(10)(iii)(A)(16) -- Agreement, dated April 5, 1993, between
Paramount Communications and Robert
Greenberg (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30, 1993).
+(10)(iii)(A)(17) -- 1992 Stock Option Plan (the "1992 Plan")
(Incorporated by reference to Exhibit I of
Paramount Communications' Proxy Statement
dated January 27, 1992 for the 1992 Annual
Meeting of Stockholders).
+(10)(iii)(A)(18) -- 1989 Stock Option Plan, as amended (the "1989
Plan") (Incorporated by reference to
Exhibit (10)(iii)(A)(2) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30, 1992).
+(10)(iii)(A)(18)(a) -- Form of Stock Option Agreement pursuant to
the 1989 Plan--Incentive Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(a) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31, 1989).
+(10)(iii)(A)(18)(b) -- Form of Stock Option Agreement pursuant to
the 1989 Plan--Nonqualified Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(b) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended October 31, 1989).
5
+(10)(iii)(A)(19) -- 1984 Stock Option Plan, as amended (the "1984
Plan") (Incorporated by reference to
Exhibit (10)(iii)(A)(1) of Paramount
Communications' Quarterly Report on Form
10-Q for the quarter ended April 30, 1992).
+(10)(iii)(A)(19)(a) -- Form of Stock Option Agreement pursuant to
the 1984 Plan--Incentive Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(a) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(19)(b) -- Form of Stock Option Agreement pursuant to
the 1984 Plan--Incentive Stock Option
with a Stock Appreciation Right
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(b) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(19)(c) -- Form of Stock Option Agreement pursuant to
the 1984 Plan--Nonqualified Stock Option
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(c) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(19)(d) -- Form of Stock Option Agreement pursuant to
the 1984 Plan--Nonqualified Stock Option
with a Stock Appreciation Right
(Incorporated by reference to Exhibit
(10)(iii)(A)(1)(d) of Paramount
Communications' Annual Report on Form 10-K
for the three months ended October 31,
1985).
+(10)(iii)(A)(20) -- 1973 Key Employees Stock Purchase Plan
(Incorporated by reference to Exhibit
(10)(c)(i) of Paramount Communications'
Annual Report on Form 10-K for the fiscal
year ended July 31, 1981).
+(10)(iii)(A)(21) -- Amended and Restated Supplemental Executive
Retirement Plan (Incorporated by
reference to Exhibit (10)(iii)(A)(1) of
Paramount Communications' Quarterly Report
on Form 10-Q for the quarter ended July 31,
1992).
+(10)(iii)(A)(22) -- Deferred Compensation Plan for Board of
Directors (Incorporated by reference to
Exhibit (10)(iii)(A)(6) of Paramount
Communications' Annual Report on Form 10-K
for the fiscal year ended July 31, 1984).
+(10)(iii)(A)(23) -- Long-Term Performance Plan, as amended
(Incorporated by reference to Exhibit
(10)(iii)(A)(6) of Paramount Communications'
Annual Report on Form 10-K for the fiscal
year ended October 31, 1989).
+(10)(iii)(A)(24) -- Corporate Annual Performance Plan, as amended
(Incorporated by reference to Exhibit
(10)(iii)(A)(7) of Paramount Communications'
Annual Report on Form 10-K for the fiscal
year ended October 31, 1989).
+(10)(iii)(A)(25) -- Retirement Plan for non-employee directors
(Incorporated by reference to Exhibit
(10)(iii)(A)(1) of Paramount Communications'
Quarterly Report on Form 10-Q for the
quarter ended January 31, 1990).
6
+(10)(iii)(A)(26) -- Non-qualified retirement plan (Incorporated
by reference to Exhibit (10)(iii)(A)(1)
of Paramount Communications' Quarterly
Report on Form 10-Q for the quarter ended
April 30, 1991).
*(11) -- Computation of Earnings (Loss) per Share.
*(22) -- List of Subsidiaries.
**(24) -- Consent of Ernst & Young.
*(25) -- Powers of Attorney.
(b) Registrant filed no reports on Form 8-K during the period covered by
this report.
- -------------
* These exhibits were previously filed as part of this Transition Report on
Form 10-K for the six months ended April 30, 1993, as amended.
** Filed herewith.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: March 21, 1994 By /s/: RUDOLPH L. HERTLEIN
-----------------------------------
Rudolph L. Hertlein
Senior Vice President and
Controller
F-1
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS F-2
SELECTED FINANCIAL DATA F-3
CONSOLIDATED STATEMENT OF EARNINGS F-4
FINANCIAL REPORTING BY
BUSINESS SEGMENTS --
REVENUES AND OPERATING
INCOME (LOSS) F-5
MANAGEMENT'S DISCUSSION AND
ANALYSIS F-6
CONSOLIDATED BALANCE SHEET F-15
CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS'
EQUITY F-16
CONSOLIDATED STATEMENT OF
CASH FLOWS F-17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS F-18
F-2
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Paramount Communications Inc.
We have audited the accompanying consolidated balance sheet of Paramount
Communications Inc. as of April 30, 1993 and October 31, 1992 and 1991, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for the six-month period ended April 30, 1993 and for each of
the three years in the period ended October 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Paramount
Communications Inc. at April 30, 1993 and October 31, 1992 and 1991, and the
consolidated results of its operations and its cash flows for the six-month
period ended April 30, 1993 and for each of the three years in the period ended
October 31, 1992 in conformity with generally accepted accounting principles.
As discussed in Notes A and J, in the six-month period ended April 30,
1993, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." As discussed in Notes A and I, effective May 1, 1993, the Company
adopted SFAS No. 109, "Accounting for Income Taxes."
Ernst & Young
New York, New York
August 27, 1993,
except for Notes A and I, as to which the date is
September 10, 1993
F-3
SELECTED FINANCIAL DATA
The table below summarizes recent financial information for Paramount
Communications. For further information, refer to the audited financial
statements and the notes thereto contained elsewhere herein.
Six Months Ended or at April 30 Year Ended or at October 31
------------------------------- ---------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
(Dollar amounts in millions, except per share)
Revenues $1,898.1 $1,998.5 $4,264.9 $3,895.4 $3,869.0 $3,391.6 $3,055.9
Earnings (loss) from continuing
operations before income taxes (16.8) 68.7 397.3 179.7 381.0 19.1 268.7
Earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes (9.1) 48.7 274.2 127.6 264.4 17.3 152.8
Discontinued operations 1,453.9 231.9
Extraordinary item (8.8)
Cumulative effect of accounting
changes (66.9) (56.5)
Net earnings (loss) (76.0) 48.7 265.4 127.6 264.4 1,414.7 384.7
Earnings (loss) per share
Earnings (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes (.08) .41 2.31 1.08 2.20 .14 1.27
Discontinued operations 12.12 1.94
Extraordinary item (.08)
Cumulative effect of accounting
changes (.57) (.48)
Net earnings (loss) (.65) .41 2.23 1.08 2.20 11.78 3.21
Cash dividends declared per common
share .40 .375 .775 .70 .70 .70 .675
Working capital 1,461.6 1,864.8 2,141.8 2,119.0 2,787.3 1,066.4
Total assets 6,874.8 7,057.0 6,654.7 6,541.0 7,060.0 5,378.1
Current maturities of long-term debt 109.8 10.0 198.3 21.7 20.6 117.2
Long-term debt, net of current
maturities 707.3 812.1 519.9 712.1 723.8 1,390.3
Stockholders' equity 3,902.1 4,015.5 3,854.8 3,783.8 3,666.8 2,266.2
Book value per common share 33.01 34.19 32.73 32.24 30.56 19.50
Capital expenditures (including
capitalized leases) 55.9 120.0 172.9 187.9 94.2 64.8
Number of common stockholders 26,000 26,000 29,000 30,000 30,000 31,000
- ----------------------------------------------------------------------------------------------------------------------
Reference is made to Note A to the consolidated financial statements for a
description of the accounting changes.
F-4
CONSOLIDATED STATEMENT OF EARNINGS
Six Months Ended April 30 Year Ended October 31
-------------------------- ------------------------------
1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------------------
(Unaudited)
(In millions, except per share)
REVENUES $1,898.1 $1,998.5 $4,264.9 $3,895.4 $3,869.0
Cost of goods sold 1,286.8 1,383.1 2,739.8 2,638.7 2,542.6
Selling, general and
administrative expenses 621.4 537.6 1,129.0 1,098.9 1,022.2
- ----------------------------------------------------------------------------------------------
1,908.2 1,920.7 3,868.8 3,737.6 3,564.8
- ----------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (10.1) 77.8 396.1 157.8 304.2
Other income (expense) -- Note C (3.7) (6.6) (6.6) 0.1 (2.0)
Interest and other investment
income (expense)
-- net -- Note K
Interest expense (47.9) (59.8) (113.8) (112.0) (123.9)
Interest and other investment
income 44.9 57.3 121.6 133.8 202.7
- ----------------------------------------------------------------------------------------------
(3.0) (2.5) 7.8 21.8 78.8
- ----------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (16.8) 68.7 397.3 179.7 381.0
Provision (benefit) for income taxes
-- Notes A and I (7.7) 20.0 123.1 52.1 116.6
- ----------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (9.1) 48.7 274.2 127.6 264.4
Extraordinary item -- Note D (8.8)
Cumulative effect of accounting
change -- Note A (66.9)
- ----------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $(76.0) $48.7 $265.4 $127.6 $264.4
- ----------------------------------------------------------------------------------------------
Average common and common equivalent
shares outstanding -- Note A 118.8 119.0 119.2 118.5 120.1
Earnings (loss) per share -- Note A
Earnings (loss) before
extraordinary item and cumulative
effect of accounting change $(.08) $.41 $2.31 $1.08 $2.20
Net earnings (loss) (.65) .41 2.23 1.08 2.20
- ----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-5
FINANCIAL REPORTING BY BUSINESS SEGMENTS
A summary description of the Company's business segments is as follows. See
Note M for additional disclosures related to business segments.
ENTERTAINMENT
Produces, finances and distributes motion pictures, television programming and
prerecorded videocassettes and operates motion picture theaters, independent
television stations, sports and entertainment facilities and regional theme
parks.
PUBLISHING
Publishes and distributes hardcover and paperback books, educational textbooks
and materials, and provides information services for business and professions.
REVENUES AND OPERATING INCOME (LOSS)
Revenues
------------------------------------------------------------
Six Months Ended April 30 Year Ended October 31
------------------------- ---------------------------
1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------
(Unaudited)
(In millions)
Business Segments
Entertainment $1,280.8 $1,408.3 $2,657.4 $2,380.2 $2,446.7
Publishing 617.3 590.2 1,607.5 1,515.2 1,422.3
- ----------------------------------------------------------------------------------
Total $1,898.1 $1,998.5 $4,264.9 $3,895.4 $3,869.0
- ----------------------------------------------------------------------------------
Operating Income (Loss)
------------------------------------------------------------
Six Months Ended April 30 Year Ended October 31
------------------------- ---------------------------
1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------
(Unaudited)
(In millions)
Business Segments
Entertainment $121.9 $164.9 $279.6 $66.2 $212.5
Publishing (90.9) (55.0) 182.0 156.2 155.5
- ----------------------------------------------------------------------------------
Total 31.0 109.9 461.6 222.4 368.0
Corporate Expenses (41.1) (32.1) (65.5) (64.6) (63.8)
- ----------------------------------------------------------------------------------
$(10.1) $77.8 $396.1 $157.8 $304.2
- ----------------------------------------------------------------------------------
During the six months ended April 30, 1993, the Company recorded a $35-million
and a $5-million charge, respectively, against Publishing's operating loss and
Corporate Expenses and during the year ended October 31, 1991, recorded a
$52-million charge against Entertainment's operating income. For further
details related to these charges see Management's Discussion and Analysis.
Revenues by business segment include revenues that are directly associated with
a particular segment. Revenues between business segments (amounts are
insignificant), which are accounted for on substantially the same basis as
revenues from unaffiliated customers, have been eliminated. No single customer
accounts for 10% or more of consolidated revenues.
Export sales to unaffiliated customers were $290.7, $336.4 (unaudited), $606.8,
$690.7 and $609.2 million, respectively, for the six months ended April 30,
1993 and 1992 and the years ended October 31, 1992, 1991 and 1990. These sales
were principally made in Europe, Asia and Canada.
F-6
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
ENTERTAINMENT
SIX MONTHS 1993 VERSUS 1992
Revenues decreased 9% to $1,280.8 million from $1,408.3 million and operating
income decreased 26% for the six months ended April 30, 1993, compared with the
same prior-year period.
Features
Revenues from features product decreased 28% in the six months ended April 30,
1993, to $503.3 million from $696.5 million. The theatrical revenue component
of features declined 48% principally because of the release of fewer successful
pictures. Home video revenues decreased 29% in the current-year period despite
strong contributions from the domestic and foreign videocassette sales of
Patriot Games, Star Trek VI: The Undiscovered Country and Boomerang, and the
continued international success of Ghost. Pay cable revenues decreased 24% in
the current six- month period because strong contributions from the
availability of The Addams Family, Star Trek VI: The Undiscovered Country and
Wayne's World were more than offset by the absence of recognition of additional
license fees recorded in the prior-year six-month period for films made
available in prior periods. Revenues from network features rose 61% because of
the availability of more successful titles.
Features operating income decreased 94% in the current six-month period
compared with the same prior-year period. Theatrical results declined
primarily because of the release of fewer profitable pictures. Theatrical
results included higher feature write-downs, primarily related to the releases
of Leap of Faith, Jennifer Eight and The Temp, which more than offset
contributions from the international box office performances of Patriot Games
and Boomerang. Theatrical results also decreased in the current period due to
the absence of recognition of a one-time payment received in the prior-year
period in connection with the signing of a long-term film processing agreement,
and from higher scenario reserves. Home video operations registered lower
profits and pay cable results decreased in the current-year period primarily
because of the decline in revenues described above. Operating income from
network features rose primarily because of the increase in revenues. Income
from domestic and international features syndication increased in the
current-year period because of 30% higher revenues along with a more profitable
mix of titles.
Television
Television programming revenues increased 8%, to $345.7 million in the six
months ended April 30, 1993, compared with $319.2 million for the same
prior-year period. Revenues from the network series decreased 14% despite
higher syndication sales of Cheers. Revenues from first-run series were up
19%; higher sales of Star Trek: The Next Generation, Entertainment Tonight and
Hard Copy, along with contributions from Star Trek: Deep Space Nine, were
partially offset by lower revenues from The Arsenio Hall Show.
Television programming results increased significantly, posting an operating
profit in the current-year period compared with an operating loss in the same
prior-year period. Profits from network series rose because of the
aforementioned higher revenues from Cheers and the domestic licensing of Wings
to USA Network. Income from first-run syndication increased, generated by the
higher revenues previously noted. In addition, the current-year period
reflects higher income from library products, principally Star Trek, as well as
from television movies-of- the-week.
Station and Network
Operating results at the Station and Network group declined 22% in the six
months ended April 30, 1993. Paramount Stations Group registered higher
profits, principally due to an 11% increase in revenues, to $82.9 million from
$74.8 million resulting from higher advertising sales. At USA Networks
(jointly owned with MCA Inc.), operating income declined primarily because of
start-up costs incurred for the Sci-Fi Channel.
Theaters
Theatrical exhibition revenues decreased 12% in the current-year period, to
$95.7 million from $108.3 million. International theater operations recorded
higher revenue primarily because of increased attendance levels, principally
from operations in Europe. Revenues at Famous Players, the Company's Canadian
chain, declined 16% in the current six-month period. At Cinamerica, the
Company's 50%-owned domestic theater operation (jointly owned with Time Warner
Inc.), results for the six months equaled the prior year. Theatrical
exhibition operating income rose 28%, primarily because of the increase in
revenues and profitability from international theater operations.
F-7
MANAGEMENT'S DISCUSSION AND ANALYSIS
Madison Square Garden
Revenues for Madison Square Garden increased 9% in the current-year period, to
$203.4 million from $185.8 million. The sports teams registered increased
revenues of 6%, as higher ticket sales and National Basketball Association
licensing and promotion revenues for the Knickerbockers were partially offset
by lower revenues from the Rangers, where the absence of playoff income and the
absence of league expansion revenues recorded in the prior-year period more
than offset higher regular season ticket sales. The current period also
included higher revenue from live entertainment events in the Arena as well as
increased boxing telecast revenues and MSG Network affiliate sales.
Operating income decreased 12% in the current-year period, primarily due to
lower results from the Rangers resulting from the decrease in revenues and
higher team compensation. Results at MSG Network declined, as the increase in
sales was more than offset by higher programming and operating expenses. These
results were partially offset by higher income from the Knickerbockers and
lower operating expenses.
Paramount Parks
Results for the current period include modest seasonal losses from Paramount
Parks, the Company's theme park operations, which were acquired in the fourth
quarter of fiscal 1992. Paramount Parks' operating season began in late March
1993.
FISCAL 1992 VERSUS FISCAL 1991
Revenues increased 12% to $2,657.4 million from $2,380.2 million and operating
income increased 322% in fiscal 1992 compared with fiscal 1991. Results for
the prior year included a $52-million charge, the majority of which was related
to a provision for write-downs of certain motion picture and television
development commitments and entertainment reorganization costs.
Features
Revenues from features increased 6% to $1,259.4 million in the year ended
October 31, 1992 from $1,190.3 million in the prior year. The theatrical
revenue component of features declined 3% from those achieved in the comparable
prior-year period, despite the strong domestic box office performance of
Wayne's World, The Addams Family, Star Trek VI: The Undiscovered Country and
Patriot Games, as well as the success of The Naked Gun 2 1/2: The Smell of Fear
in foreign markets. Home video revenues in the current year equaled the prior
year, benefiting from the release of Wayne's World and The Addams Family in the
domestic videocassette market, sales of Ghost in the international
videocassette market and The Naked Gun 2 1/2: The Smell of Fear in the domestic
and foreign markets. Pay cable revenues increased 42% in fiscal 1992
principally because of the recognition of additional license fees for films
made available in prior periods. Revenues from network features rose 14% in the
current year, led by the availability of Indiana Jones and the Last Crusade.
Features recorded operating income in fiscal 1992 compared with an operating
loss in fiscal 1991. Theatrical results for the current year increased
significantly from those achieved in the prior year, primarily attributable to
lower feature write-downs, the contributions from the performances of the above
mentioned pictures, as well as lower scenario reserves and a one-time payment
received in connection with the signing of a long-term film processing
agreement. Home video operations registered higher profits in the current
year, benefiting from the profitability of the aforementioned releases. Pay
cable profitability increased significantly because of the higher revenues
described above. Operating income from network features increased slightly in
the current year on the increase in revenues. Domestic and international
features syndication posted increased profits over the prior year because of
26% higher revenues on titles available for showing.
Television
Television programming revenues increased 13% to $655.0 million in fiscal 1992
from $578.5 million in the prior-year. Revenues from first-run syndication
increased 20%, as higher sales from Star Trek: The Next Generation,
Entertainment Tonight, Hard Copy and The Maury Povich Show were partially
offset by lower sales from Geraldo and The Arsenio Hall Show. Revenues from
network series approximated the prior year. Television product also benefited
from increased syndication and licensing revenues from library products,
principally Star Trek.
Television programming profits were up 87% in fiscal 1992 from the prior year,
led by the increases in revenues from first-run syndication and library
products. These results were partially offset by a decline in income from
network series, reflecting lower Cheers syndication renewal sales and increased
investments in new programming.
F-8
MANAGEMENT'S DISCUSSION AND ANALYSIS
Station and Network
Operating income at the Station and Network group rose 6% in fiscal 1992
compared to the prior year. Paramount Stations Group registered lower profits,
primarily stemming from higher programming costs occasioned by the use of more
conservative film amortization assumptions, which were partially offset by a 7%
increase in revenues, to $157.2 million from $147.1 million resulting from
higher advertising sales. Profits were higher at USA Networks because of
increased revenues at USA Network, primarily due to higher advertising and
affiliate revenues, which were partially offset by start-up costs incurred for
the Sci-Fi Channel.
Theaters
Theatrical exhibition revenues decreased 2%, from $196.7 million in fiscal 1991
to $192.7 million in fiscal 1992, stemming principally from lower attendance
levels. Operating income declined 5%, primarily because of lower results at
Cinamerica stemming principally from the decreased attendance levels.
Additionally, results at Famous Players declined slightly. These results were
partially offset by higher profits at international theater operations which
benefited from continued circuit expansion, higher average admission and
concession prices and increased attendance levels.
Madison Square Garden
Revenues for Madison Square Garden increased by 28% in fiscal 1992, to $288.9
million from $225.6 million in fiscal 1991. The sports teams registered
increased revenues of 26% because of higher ticket sales, additional playoff
games, National Hockey League expansion revenues and National Basketball
Association licensing and promotional revenues. Fiscal 1992 also included
higher revenue from live entertainment events at The Paramount, higher suite
license and concession revenues, improved revenues from SRO/Pace, increased MSG
Network affiliate and advertising sales and revenues from the Democratic
National Convention.
Madison Square Garden registered operating income in fiscal 1992 compared with
an operating loss in fiscal 1991. Results for the Knickerbockers were up
primarily because of increased revenues, which were partially offset by higher
operating expenses. The Rangers registered lower profits; increased team
compensation and higher operating expenses more than offset the increase in
revenues. Results at MSG Network benefited from the increase in sales, which
were partially offset by increases in programming and production costs. In
addition to the increased profits arising from the other higher revenues
described above, Madison Square Garden's results for fiscal 1992 include lower
operating expenses.
Paramount Parks
Operating results for the current year reflect contributions from Kings
Entertainment Company and Kings Island Company, later renamed Paramount Parks,
which were acquired in August and October 1992, respectively.
FISCAL 1991 VERSUS FISCAL 1990
Revenues decreased 3% to $2,380.2 million from $2,446.7 million and operating
income decreased 69% in fiscal 1991 compared with fiscal 1990. Results for
fiscal 1991 included the $52-million charge described above.
Features
Revenues from features decreased 11%, to $1,190.3 million in the year ended
October 31, 1991 from $1,330.2 million in the prior year. Theatrical revenues
for fiscal 1991 decreased 17% from those achieved in the prior year because of
a less successful product flow, despite the international box office
performance and continued domestic success of Ghost and the release of The
Naked Gun 2 1/2: The Smell of Fear in domestic and foreign theatrical markets.
Home video revenues rose 5%, benefiting from strong videocassette sales of
Ghost, The Hunt for Red October and Another 48 HRS. in both domestic and
foreign markets. Pay cable revenues decreased 20%, domestic and international
features syndication revenues fell 29% and sales of features to network
television declined 28% because of the mix of available titles in fiscal 1991.
Features incurred operating losses in fiscal 1991 compared with operating
income in fiscal 1990. Theatrical results for fiscal 1991 decreased from those
achieved in the prior year because of lower revenues combined with an increase
in feature write-downs, primarily related to the release of Flight of the
Intruder, Frankie and Johnny, Almost an Angel, The Butcher's Wife and The
Godfather Part III. However, theatrical results benefited from lower scenario
reserves. Home video operations registered higher profits due to the increased
revenues. Pay cable and domestic and international features syndication
profits decreased due to the lower revenues and lower average profit rates of
titles available for showing. Operating income
F-9
MANAGEMENT'S DISCUSSION AND ANALYSIS
from network features declined in the current year because of the decrease in
revenues. Results also include expenses related to a direct satellite
pay-per-view service, in which the Company had an investment in fiscal 1991.
Television
Revenues from television product declined 6% to $578.5 million in fiscal 1991
from $615.9 in the prior-year principally because of lower syndication sales of
library product. Network series revenues increased 8%, as strong gains from
the renewal of Cheers in syndication markets were partially offset by lower
sales from MacGyver. In first-run syndication, revenues decreased 6% as higher
sales from Entertainment Tonight and Star Trek: The Next Generation were more
than offset by lower revenues from Geraldo and The Arsenio Hall Show.
Operating income from television product fell 58% principally because of the
decline in syndication sales and profitability of library products along with
lower income from Dear John and MacGyver.
Station and Network
Station and Network group results rose 72% in fiscal 1991 compared to the prior
year. Fiscal 1991 results reflect the consolidation of a full twelve months of
operations versus six months in the prior year of the Paramount Stations Group
(formerly TVX Broadcast Group Inc.), which was carried on an equity basis prior
to May 1990. Profits at USA Network rose because of an increase in sales,
which was primarily due to higher advertising and affiliate revenues, and
settlement of outstanding litigation.
Theaters
Theatrical exhibition revenues decreased 6%, to $196.7 million from $208.6
million in fiscal 1990. Revenues at Famous Players declined 11% primarily
because of lower attendance levels and average admission prices. International
theater operations posted 13% lower revenues despite the continued expansion of
operations in the United Kingdom. Operating income decreased 18%. Results at
Famous Players declined primarily because of lower revenues partially offset by
lower film rental costs. Operating income from international theater
operations declined because of the absence of gains recorded in the prior year
on the sale of theater interests as well as operating losses in the current
year attributable to the start-up of operations in Germany, partially offset by
contributions from the aforementioned expansion in the United Kingdom.
Cinamerica recorded increased profits because of higher average admission and
concession prices, lower film rental and operating costs and a gain on the sale
of theaters.
Madison Square Garden
Revenues for Madison Square Garden increased by 20% in fiscal 1991, to $225.6
million from $188.0 million in fiscal 1990. MSG Network revenues increased as
affiliate and advertising sales rose in fiscal 1991. Revenues for the
Knickerbockers increased 5% as higher broadcast revenues and ticket sales were
partially offset by the absence of league expansion revenues recorded in the
prior year. The Rangers posted 19% higher revenues, primarily because of
increased league expansion revenues and ticket sales. Madison Square Garden's
results also include higher suite license revenues.
Madison Square Garden experienced an operating loss in fiscal 1991 compared
with operating income in fiscal 1990. Higher revenues at MSG Network were more
than offset by higher programming and operating costs. The Knickerbockers
registered lower profits; increased team compensation, higher operating
expenses and lower playoff income were partially offset by the increase in
revenues. The Rangers posted improved profits, as higher revenues were
partially offset by increased team compensation, higher operating expenses and
lower playoff income. Fiscal 1991 operating results were negatively impacted
by lower results from SRO/Pace, pre-opening advertising and promotional
expenses for the renovated Madison Square Garden facility and higher operating
expenses.
PUBLISHING
SIX MONTHS 1993 VERSUS 1992
Revenues for publishing operations rose 5% to $617.3 million in the current
period compared with $590.2 million in the prior-year period. Publishing
operations, which traditionally record profits in the quarters ended July 31
and October 31, posted 65% higher operating losses for the six months ended
April 30, 1993, compared with the prior-year period. The current-year period
includes a $35-million charge, related to the write-down of certain real estate
sites, expected to be sold, to fair value and relocation costs for several
operating sites.
F-10
MANAGEMENT'S DISCUSSION AND ANALYSIS
Consumer
Revenues increased 7% in the current-year period to $178.2 million from $167.0
million in the prior year; stronger frontlist and backlist sales of hardcover
titles and increased international sales along with increased frontlist
paperback sales, were partially offset by lower sales of children's books and
backlist sales of certain reference books.
Consumer publishing posted higher operating results in the current-year period
as increased revenues were partially offset by increased product support and
development and operating expenses.
Business, Technical and Professional
Revenues of $154.5 million increased 6% from $145.1 million in the prior-year
period as higher sales of computer titles, multimedia programs and medical
publications were partially offset by lower tax software and professional
service revenues.
Operating income approximated the comparable year-earlier period as improved
revenues were partially offset by increased product support and development and
operating expenses.
Education
Revenues rose slightly in the current-year period to $226.2 million from $224.9
million in the prior-year period. Elementary education revenues declined 3%
from $74.4 million to $71.8 million as lower sales of prior years' programs and
fewer new product releases were partially offset by increased sales of computer
learning stations. At secondary education, revenues were flat as higher sales
from social studies programs were more than offset by decreased sales in
mathematics, science and language arts programs. Higher education revenues
rose by 3% to $133.8 million in the current-year period from $129.7 million in
the prior-year period because of increased sales of vocational books, from the
success of new editions, and frontlist sales of college texts.
Operating losses increased 25% in the current-year period primarily because of
increased seasonal operating losses at the elementary and secondary education
groups. The slight improvement in education group revenues was more than
offset by increased product support expenses, primarily due to the acceleration
of promotional spending for elementary programs and increased state adoption
opportunities for secondary programs, along with higher product development and
operating expenses.
International
Revenues of $68.0 million improved 8% from $63.2 million in the prior-year
period from sales gains at all units, led by Asia, Canada, Mexico and Japan.
Operating income declined slightly despite the increased revenues, due to
higher expenses.
Additionally, overall publishing operations benefited from lower corporate
administrative expenses.
FISCAL 1992 VERSUS FISCAL 1991
Revenues increased 6% to $1,607.5 million in fiscal 1992 compared with $1,515.2
million in fiscal 1991, while operating income rose 17%.
Consumer
Revenues of $387.2 million increased 6% from $364.1 million in fiscal 1991
primarily because of a stronger publishing program of paperback books which
resulted in higher sales of initial releases and reorders, combined with
stronger frontlist and reorder sales and a greater number of bestsellers for
hardcover titles and higher sales of certain reference titles.
Operating income rose 108% primarily because of the increased revenues.
Business, Technical and Professional
Revenues rose 29% to $320.1 million in fiscal 1992 from $247.4 million in
fiscal 1991 primarily because of contributions from recently acquired Prentice
Hall Computer Publishing.
Operating income increased by 166% because of the higher revenues.
Education
Revenues for fiscal 1992 of $760.5 million were 2% lower compared with fiscal
1991. Elementary education group revenues declined by 9% to $328.3 million
from $362.3 million in fiscal 1991 as decreased sales of textbooks, principally
due to fewer adoption opportunities, reduced funding at the local and state
levels and lower sales of prior years'
F-11
MANAGEMENT'S DISCUSSION AND ANALYSIS
programs, as well as reduced sales from educational film and video products,
were partially offset by sales increases on volume growth of learning stations
and increased frontlist sales of workbooks and kits. Secondary education
revenues decreased by 2% to $133.4 million in the current year principally due
to fewer adoption opportunities. Revenues of $298.8 million at higher
education rose 6% in the current year from $280.9 million in fiscal 1991
because of strong sales gains from college books, reflecting the effect of
volume improvements, and vocational publications.
Operating income increased 5% as decreased revenues were more than offset by
lower product support and operating expenses, despite expansion costs incurred
in anticipation of planned growth at Computer Curriculum Corporation.
International
Revenues improved by 12% in the current year to $154.9 million from $138.7
million in the prior year primarily because of sales gains from acquired
Prentice Hall Computer Publishing titles as well as volume improvements of
locally produced products.
Operating income rose by 20% as improved revenues were partially offset by
increased product support and development and operating expenses incurred
primarily to service and promote the acquired Prentice Hall Computer Publishing
products.
Additionally, overall publishing operations reflect higher corporate
administrative expenses.
FISCAL 1991 VERSUS FISCAL 1990
Revenues improved by 7% to $1,515.2 million from $1,422.3 million in fiscal
1990, while operating income increased slightly in fiscal 1991 compared with
fiscal 1990.
Consumer
Revenues of $364.1 million increased 7% from $340.0 million in fiscal 1990
because of higher sales of paperback reorders and initial releases and a strong
frontlist performance of hardcover titles.
Operating income decreased by 21% as higher sales were more than offset by a
corresponding increase in revenue related expenses, primarily operating and
product development expenses and lower distribution fees.
Business, Technical and Professional
Revenues of $247.4 million equalled the prior year as lower software license
and service fees and lower sales resulting from the timing of the release of
1991 annual editions, were offset by increased subscription sales at Bureau of
Business Practice.
Operating income declined 29% because of higher operating and product
development expenses which were partially offset by lower product support
expenses, primarily at professional publishing.
Education
Revenues increased 7% to $779.5 million in fiscal 1991 compared with $725.7
million in fiscal 1990. Elementary education revenues were $362.3 million in
fiscal 1991 or 9% higher than the $331.9 million achieved in fiscal 1990
because of strong sales of current-year programs, primarily math, science,
social studies and reading, along with the inclusion of a full twelve months of
operations versus eight months in the prior year from Computer Curriculum
Corporation, which was acquired in March 1990. Secondary education revenues
rose 6% to $136.3 million from $128.5 million because of sales gains in
language arts and social studies due to increased state adoptions. Higher
education posted a 6% increase in revenues of $280.9 million in fiscal 1991
versus $265.3 million in fiscal 1990 on sales gains stemming principally from
college books and vocational publications.
Operating income decreased 4% as improved revenues were more than offset by
increased product support and development and operating expenses, due in part
to expansion costs at Computer Curriculum Corporation incurred in anticipation
of planned growth, along with lower profits from the group's educational film
and video operations.
International
Revenues of $138.7 million rose 8% from $128.8 million in fiscal 1990 as higher
educational sales, primarily from the United Kingdom, Asia, Australia and
Mexico more than offset lower Canadian trade sales.
Profits from international operations decreased slightly as increased sales
were more than offset by higher product support and development expenses.
F-12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Additionally, overall publishing operations reflect lower corporate
administrative expenses.
INTEREST AND OTHER INVESTMENT INCOME
(EXPENSE) -- NET
Net interest and other investment expense increased slightly in the current six
months ended April 30, 1993, compared with the same prior-year period. The
current six-month period benefited from lower interest expense primarily
because lower average effective interest rates on the Company's debt more than
offset the effect of higher average debt outstanding. Interest and other
investment income declined in the current six-month period due to lower average
cash equivalents and short-term investments. The lower average cash
equivalents and short-term investments were primarily a result of acquisitions,
the repurchase of shares of the Company's Common Stock and the funding of the
working capital requirements of the Company.
In addition to the results of the operating units, earnings reflect lower net
interest and other investment income for the year ended October 31, 1992
compared with 1991, and 1991 compared with 1990. These decreases stem from
lower average cash equivalents, short-term investments and interest rates. The
lower average cash equivalents and short-term investments were primarily a
result of expenditures for acquisitions, the repurchase of shares of the
Company's Common Stock and the funding of the working capital requirements of
the Company, and in 1991, because of a March 1990 income tax payment related to
the October 1989 sale of Associates First Capital Corporation, the Company's
former consumer/commercial finance business, and a reduction of outstanding
debt.
OTHER
The pre-tax loss of $16.8 million in the six months ended April 30, 1993 gives
rise to an income tax benefit at an effective rate of 45.8%. For the
comparable prior year period, the effective rate for income taxes on pre-tax
earnings of $68.7 million was 29.1%. The increase in the effective rate is the
result of less income subject to tax at lower foreign rates, increases in
income subject to state and local income taxes and the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Corporate expenses include a $5-million charge in the current six-month period
in connection with the Company's planned relocation of its corporate
headquarters.
LIQUIDITY AND CAPITAL RESOURCES
The Company depended primarily on internal cash flow and external borrowings
to finance its operations during the six months ended April 30, 1993, and
expects to continue to do so. In connection with the tender offers and merger
proposals described in Note O to the consolidated financial statements,
subsequent to its January 1994 dividend, the Company has discontinued its
regular quarterly dividend payment.
In May 1993, the Company purchased the remaining 80% it did not own of Canada's
Wonderland, Inc., later renamed Paramount Canada's Wonderland, Inc., a Canadian
theme park, for approximately $52 million. The Company subsequently liquidated
Paramount Canada's Wonderland debt obligations of approximately $31 million.
In June 1993, the Company agreed to sell Prentice Hall Legal and Financial
Services, Prentice Hall Legal Practice Management and Prentice Hall
Professional Software, three of its Publishing software and information
services units, to Information America, Inc. This agreement was terminated in
October 1993. In September 1993, the Company purchased television station
WKBD-TV in Detroit from Cox Enterprises Inc. for approximately $105 million.
In February 1994, the Company acquired Macmillan Publishing Company and certain
other assets of Macmillan Inc., a leading book publisher, for approximately
$553 million.
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., are forming a joint venture to be known as the
Paramount Television Network which will provide prime-time television
programming primarily to broadcast affiliates nationwide in competition with
the three major networks and the Fox Broadcasting Network. The network is
expected to begin operations in January 1995.
F-13
MANAGEMENT'S DISCUSSION AND ANALYSIS
In July 1993, the Company redeemed $100 million of 8 1/2% senior notes due
1996. Also, in July 1993, the Company completed a public offering of $150
million of 5 7/8% senior notes due 2000 and $150 million of 7 1/2% senior
debentures due 2023. A portion of the net proceeds was used to refinance the
previously mentioned redemption of the Company's 8 1/2% senior notes. The
remainder of such proceeds were used to fund the acquisitions of television
station WKBD-TV in Detroit and the remaining 80% interest in Paramount Canada's
Wonderland theme park. During the current six-month period, the Company
purchased 0.6 million shares of its Common Stock under a 10-million share
repurchase program announced in May 1988, leaving 2.6 million remaining shares
authorized under the program. Total debt as a percentage of total
capitalization was 17% at April 30, 1993 and October 31, 1992. In the past,
the Company has been able to increase its borrowings as required and expects to
be able to continue to do so.
Trade receivables decreased at April 30, 1993 compared to October 31, 1992 by
15%, which is principally attributable to the Company's publishing operations.
Educational publishing, which normally contributes more than half of annual
publishing revenues, records most of its sales in the Company's July and
October quarters, corresponding to the typical school-year buying cycle.
Total inventories increased 17% at April 30, 1993 compared with October 31,
1992; 65% of this increase is attributable to Paramount Pictures due to
production of first-run and network television-series product. In addition,
20% of the overall increase was attributable to New York Yankees broadcast
rights payments at Madison Square Garden in connection with the 1993 major
league baseball season.
The balance sheet at October 31, 1992, reflects the acquisitions of Paramount
Parks and Prentice Hall Computer Publishing, resulting in significant changes
in certain balance sheet accounts as compared to October 31, 1991.
Capital expenditures amounted to $56, $69, $120, $168 and $187 million for the
six months ended April 30, 1993 and 1992 and the years ended October 31, 1992,
1991 and 1990, respectively.
ACCOUNTING CHANGES
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
The Company elected to record the cumulative effect of the accounting change as
a charge against income as of November 1, 1992, resulting in a one-time charge
of $66.9 million, net of income taxes of $34.5 million, or $.57 per share. For
further detail, see Notes A and J to the consolidated financial statements.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Effective May 1, 1993, the Company adopted the
provisions of this standard by restating its prior period financial statements
beginning November 1, 1988. The effect of adopting SFAS No. 109 was to
decrease the loss before cumulative effect of accounting change and net loss by
$1.8 million ($.01 per share) for the six months ended April 30, 1993; increase
earnings before extraordinary item and net earnings by $4.0 million ($.04 per
share) for the year ended October 31, 1992; and, increase net earnings by $5.4
million ($.05 per share), $5.3 million ($.04 per share) and $2.0 million ($.02
per share) for the years ended October 31, 1991 and 1990 and the six months
ended April 30, 1992, respectively. The cumulative effect of adopting SFAS No.
109 as of October 31, 1989, decreased the beginning balance of 1990's retained
earnings by $50.7 million.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are
F-14
MANAGEMENT'S DISCUSSION AND ANALYSIS
expected to reverse. Prior to the adoption of SFAS No. 109, income tax expense
was determined using the deferred method. Deferred tax expense was based on
items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in
effect in the year the differences originated. For further detail, see Notes A
and I to the consolidated financial statements.
EFFECTS OF ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board issued SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which is effective for the
Company in the year ending April 30, 1995. Under this statement, the cost of
benefits provided to employees after employment but before retirement is to be
recognized in the financial statements on an accrual basis during the service
period of the employee. It is expected that implementation of this statement
will not have a material impact on the financial statements of the Company.
ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which is
effective for the Company in the year ending April 30, 1995. This statement
sets forth the accounting for certain investments in debt and equity securities
based upon management's ability and intent, at the time of purchase, to trade,
hold to maturity or make available for sale such investments. The effect of
this statement at the time of adoption will depend upon the Company's ability
and intent with respect to such investments.
EFFECTS OF BUDGET
RECONCILIATION ACT OF 1993
In August 1993, the Budget Reconciliation Act of 1993 (the "Act") was enacted
into law. One of the provisions of the Act increased the corporate income tax
rate to 35% effective January 1, 1993. This increase, from the previous 34%
rate, had no material effect on the Company. The Company expects to benefit
from a section of the Act permitting tax deductions derived from the
amortization of certain intangible assets acquired after July 25, 1991, which
deductions have not previously been claimed on tax returns filed by the
Company. However, the Company believes that any tax benefits generated by the
amortization of intangible assets previously acquired by it will not be
material.
Furthermore, to the extent that the Company is affected by several other
provisions of the Act, the results should not be material.
F-15
CONSOLIDATED BALANCE SHEET
April 30 October 31
-------- ------------------------
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents -- Notes A and L $372.6 $324.3 $555.3
Short-term investments -- Notes A and L 569.7 912.0 1,020.7
Trade receivables -- net -- Note K 829.6 972.9 904.1
Inventories -- Notes A and E 617.3 580.2 590.4
Prepaid income taxes 131.7 139.7 115.4
Prepaid expenses and other -- Note K 400.2 342.7 407.9
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,921.1 3,271.8 3,593.8
- ----------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT -- Note A
Land 210.8 210.4 130.8
Buildings 591.4 590.6 537.3
Machinery, equipment and other 606.9 573.8 358.2
- ----------------------------------------------------------------------------------------------------------
1,409.1 1,374.8 1,026.3
Less allowance for depreciation 336.1 315.5 268.2
- ----------------------------------------------------------------------------------------------------------
1,073.0 1,059.3 758.1
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Investment in affiliated companies -- Notes A and F 243.9 228.9 204.4
Noncurrent receivables and inventories -- Notes A and E 689.8 604.7 483.0
Intangible assets -- net -- Note A 1,517.5 1,528.1 1,239.3
Deferred costs and other -- Note A 429.5 364.2 376.1
- ----------------------------------------------------------------------------------------------------------
2,880.7 2,725.9 2,302.8
- ----------------------------------------------------------------------------------------------------------
$6,874.8 $7,057.0 $6,654.7
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $109.8 $10.0 $198.3
Trade accounts payable 194.7 143.7 119.8
Income taxes payable 26.6 139.2 131.4
Accrued expenses and other -- Notes K and L 1,128.4 1,114.1 1,002.5
- ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,459.5 1,407.0 1,452.0
- ----------------------------------------------------------------------------------------------------------
DEFERRED LIABILITIES -- Note K 805.9 822.4 828.0
LONG-TERM DEBT, net of current maturities -- Notes A, G and L 707.3 812.1 519.9
STOCKHOLDERS' EQUITY -- Note H
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 118,199,396 at April 30,
1993 (excluding 29,665,980 shares held in treasury),
117,459,926 at October 31, 1992 (excluding 30,405,450
shares held in treasury) and 117,757,018 at October 31,
1991 (excluding 30,108,358 shares held in treasury) 118.2 117.5 117.8
Paid-in surplus 712.8 665.7 629.5
Retained earnings -- Notes A, F and I 3,082.5 3,228.6 3,096.4
Cumulative translation adjustments (11.4) 3.7 11.1
- ----------------------------------------------------------------------------------------------------------
3,902.1 4,015.5 3,854.8
- ----------------------------------------------------------------------------------------------------------
$6,874.8 $7,057.0 $6,654.7
- ----------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-16
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Years and Six Months Ended April 30, 1993
----------------------------------------------------------------
Cumulative Total
Common Paid-in Retained Translation Stockholders'
Stock Surplus Earnings Adjustments Equity
- ---------------------------------------------------------------------------------------------------------------------
(In millions)
BALANCE AT OCTOBER 31, 1989, NET OF TREASURY
-- AS REPORTED $120.0 $539.0 $3,054.7 $3.8 $3,717.5
Cumulative effect of accounting change
-- Note A (50.7) (50.7)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1989, NET OF TREASURY
-- AS ADJUSTED 120.0 539.0 3,004.0 3.8 3,666.8
Common Stock issued
Exercise of stock options and grants
to employees 0.4 37.6 38.0
Dividend reinvestment and stock
purchase plan 0.1 3.1 3.2
Acquisition of stock for the treasury (3.1) (14.6) (110.0) (127.7)
Common Stock dividends ($.70 per share) (83.4) (83.4)
Translation adjustments 11.7 11.7
Tax benefit from exercise of stock options 10.8 10.8
Net earnings for the year 264.4 264.4
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1990, NET OF TREASURY 117.4 575.9 3,075.0 15.5 3,783.8
Common Stock issued
Exercise of stock options and grants
to employees 1.0 51.8 52.8
Dividend reinvestment and stock
purchase plan 0.1 3.3 3.4
Acquisition of stock for the treasury (0.7) (3.7) (23.8) (28.2)
Common Stock dividends ($.70 per share) (82.4) (82.4)
Translation adjustments (4.4) (4.4)
Tax benefit from exercise of stock options 2.2 2.2
Net earnings for the year 127.6 127.6
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1991, NET OF TREASURY 117.8 629.5 3,096.4 11.1 3,854.8
Common Stock issued
Exercise of stock options and grants to employees 0.7 38.1 38.8
Dividend reinvestment and stock
purchase plan 0.1 3.6 3.7
Acquisition of stock for the treasury (1.1) (6.4) (41.7) (49.2)
Common Stock dividends ($.775 per share) (91.5) (91.5)
Translation adjustments (7.4) (7.4)
Tax benefit from exercise of stock options 0.9 0.9
Net earnings for the year 265.4 265.4
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1992, NET OF TREASURY 117.5 665.7 3,228.6 3.7 4,015.5
Common Stock issued
Exercise of stock options and grants
to employees 1.3 41.6 42.9
Dividend reinvestment and stock
purchase plan 1.9 1.9
Acquisition of stock for the treasury (0.6) (3.5) (22.9) (27.0)
Common Stock dividends ($.40 per share) (47.2) (47.2)
Translation adjustments (15.1) (15.1)
Tax benefit from exercise of stock options 7.1 7.1
Net loss for the six months ended April 30, 1993 (76.0) (76.0)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 30, 1993, NET OF TREASURY $118.2 $712.8 $3,082.5 $(11.4) $3,902.1
- ---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-17
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended April 30 Year Ended October 31
------------------------- ---------------------------------------
1993 1992 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change $(9.1) $48.7 $274.2 $127.6 $264.4
Non-cash expenses
Depreciation 37.1 35.2 71.7 59.1 45.8
Deferred income taxes 28.9 1.0 (3.2) (37.5) 23.1
Amortization of intangible assets 4.3 4.0 44.4 39.2 33.6
Amortization of pre-publication costs 24.0 23.5 87.0 88.0 67.2
Provision for real estate write-down and
relocation 40.0
Undistributed net earnings of unconsolidated
affiliates (11.3) (14.1) (19.7) (15.7) (31.2)
Theatrical and television inventories and
broadcast rights
Gross additions (526.8) (472.0) (909.6) (953.6) (863.7)
Amortization 387.0 413.7 834.7 945.2 836.3
Decrease (increase) in network features and
syndication licenses 4.2 (66.5) (78.2) (47.1) (117.5)
Increase in pre-publication costs (39.6) (44.9) (87.7) (77.8) (110.1)
Decrease (increase) in trade receivables 194.6 162.7 (8.4) (44.6) 1.0
Decrease (increase) in inventories (other than
theatrical and television) (23.5) (11.9) 19.4 19.2 (15.0)
Decrease (increase) in prepaid expenses (67.6) 31.2 (13.4) (45.0) (21.8)
Increase (decrease) in trade accounts payable 51.0 (3.4) 8.5 (24.3) 24.9
Increase (decrease) in income taxes payable
(including $667.4 million in 1990 related to
gain on sale of business) (112.6) (41.7) 12.4 (29.8) (634.7)
Increase (decrease) in accrued expenses and other (50.7) (19.6) 34.4 (10.3) (76.4)
Other -- net (91.1) (66.4) (48.4) 91.7 93.9
- ---------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES (161.2) (20.5) 218.1 84.3 (480.2)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT AND OTHER ACTIVITIES
Expenditures for property, plant and equipment
(excluding capitalized leases) (55.9) (68.8) (120.0) (167.5) (186.7)
Proceeds on disposal of property, plant and
equipment 1.1 5.2 11.8 2.2 2.6
Purchase price of acquired businesses (net of
acquired cash) (0.1) (161.5) (585.1) (86.9) (220.9)
Decrease (increase) in investment in affiliated
companies (3.7) 13.3 10.8 8.3
Decrease (increase) in short-term and other
investments 317.1 114.3 209.0 (467.1) (476.8)
Increase in investments maturing after one year (43.6) (211.0)
Decrease in investments maturing after one year 25.6 49.1 205.5
Decrease in notes receivable 1.3 4.7 8.9 17.3 515.8
- ---------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS PROVIDED FROM (USED FOR) INVESTMENT
AND OTHER ACTIVITIES 259.8 (67.2) (415.5) (531.8) (577.0)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt 245.7 492.4
Payments of long-term debt (5.9) (214.5) (395.7) (26.9) (138.1)
Loss on early extinguishment of debt (13.4)
Issuance of Common Stock (excluding grants
to employees) 29.8 9.8 23.8 14.5 13.4
Acquisition of stock for the treasury (27.0) (0.7) (49.2) (15.2) (142.3)
Dividends (47.2) (44.2) (91.5) (82.4) (83.4)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES (50.3) (3.9) (33.6) (110.0) (350.4)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48.3 (91.6) (231.0) (557.5) (1,407.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 324.3 555.3 555.3 1,112.8 2,520.4
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $372.6 $463.7 $324.3 $555.3 $1,112.8
- ---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A-- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Paramount
Communications Inc. (Company) and its majority-owned affiliates. The
Company's investments in its 20-50% owned investees are carried on the equity
basis. The income taxes of the investees are included in the provision for
income taxes.
Certain amounts in the consolidated financial statements for periods prior to
April 30, 1993 have been reclassified to conform to current presentation for
comparative purposes.
Accounting Changes
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
The Company elected to record the cumulative effect of the accounting change as
a charge against income as of November 1, 1992, resulting in a one-time charge
of $66.9 million, net of income taxes of $34.5 million, or $.57 per share. The
incremental effect of this accounting change on each of the quarters in the six
months ended April 30, 1993 was to increase net periodic postretirement benefit
cost by approximately $2.6 million on a pre-tax basis.
In February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." Effective May 1, 1993, the Company adopted the
provisions of this standard by restating its prior period financial statements
beginning November 1, 1988. The effect of adopting SFAS No. 109 was to
decrease the loss before cumulative effect of accounting change and net loss by
$1.8 million ($.01 per share) for the six months ended April 30, 1993; increase
earnings before extraordinary item and net earnings by $4.0 million ($.04 per
share) for the year ended October 31, 1992; and, increase net earnings by $5.4
million ($.05 per share), $5.3 million ($.04 per share) and $2.0 million ($.02
per share - unaudited) for the years ended October 31, 1991 and 1990 and the
six months ended April 30, 1992, respectively. The cumulative effect of
adopting SFAS No. 109 as of October 31, 1989, decreased the beginning balance
of 1990's retained earnings by $50.7 million.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
Change in Fiscal Year End
In June 1993, the Board of Directors approved a change in the Company's fiscal
year end to April 30 from October 31.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid instruments with original maturities
of three months or less.
Short-Term Investments
Short-term investments consist of instruments with original maturities in
excess of three months and are carried at cost, which approximates market.
Inventories
Inventories are generally determined using the lower of cost (first-in,
first-out or average cost method) or net realizable value.
Theatrical and Television Inventories, Revenues and Costs
Feature films are produced or acquired for distribution, normally, first in the
theatrical market followed by videocassettes, pay cable, network television and
syndicated television. On average, the length of the revenue cycle for feature
films approximates four years. Theatrical revenues from domestic and foreign
markets are recognized as films are exhibited, revenues from the sale of
videocassettes are recognized upon delivery of the merchandise and revenues
from all television sources are recognized upon availability of the film for
telecast.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Television series initially produced for the networks and first-run syndication
are generally licensed to domestic and foreign markets concurrently. The more
successful series are later syndicated in domestic markets and in certain
foreign markets. The length of the revenue cycle for television series will
vary depending on the number of seasons a series remains in active production.
Revenues arising from television license agreements are recognized in the year
that the films or television series are available for telecast.
Inventories related to theatrical and television product (which include direct
production costs, production overhead, capitalized interest, and acquisition
costs) are stated at the lower of cost less amortization or net realizable
value. Inventories are amortized and participations and residuals are accrued
on an individual product basis in the proportion that current revenues bear to
the estimated remaining total lifetime revenues. Domestic syndication and
basic cable revenue estimates are not included in the estimated lifetime
revenues of network series until such sales are probable. Estimates of total
lifetime revenues and expenses are periodically reviewed. The costs of feature
and television films are classified as current assets to the extent such costs
are expected to be recovered through the respective primary markets. Other
costs relating to film production are classified as noncurrent.
The Company estimates that approximately 94% of unamortized film costs at April
30, 1993 will be amortized within the next three years.
Publishing Revenue Recognition
The Company's publishing segment follows standard industry practice of
recognizing revenue when merchandise is shipped and billed.
Broadcast Rights
Broadcast rights are recorded when the license period begins and the program
becomes available for use, and are stated at the lower of cost less
amortization or net realizable value. Broadcast rights for feature films and
syndicated programs are amortized using the straight-line method based on
program usage. Sports rights are generally charged to expense when the event
is telecast. Contract payments are generally made in installments over a term
somewhat shorter than the contract.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Provision for depreciation
on substantially all depreciable assets is computed using the straight-line
method over the estimated useful lives of the assets.
Intangible Assets
Intangible assets primarily represent the excess of cost of purchased
businesses over the value of their net underlying assets (goodwill) and are
being amortized annually by the straight-line method over appropriate periods
not exceeding forty years. Intangible assets are net of accumulated
amortization of $233.9, $230.1 and $186.0 million at April 30, 1993 and October
31, 1992 and 1991, respectively.
Deferred Costs and Other
Deferred costs and other includes certain pre-publication costs being amortized
annually by the straight-line method or an accelerated basis over appropriate
periods, the majority of which is four years.
Unamortized Debt Discount
Debt discount is amortized over the term of the related debt using the interest
method.
Income Taxes
Provision for income taxes includes deferred taxes which represent future tax
effects of items reported for income tax purposes in periods different than for
financial purposes.
Deferred Off-Season Theme Park Expenses
Certain expenses incurred in the off-season to prepare the theme parks for the
operating season are deferred and amortized over the subsequent operating
season, which generally begins in March and finishes in October.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are based on the weighted average common and
dilutive common equivalent (stock options) shares outstanding during the
respective periods. Earnings (loss) per share are computed by dividing the
average common and, where dilutive, common equivalent shares outstanding into
the earnings (loss) applicable to such shares.
NOTE B -- ACQUISITION AND
DISPOSITION OF BUSINESSES
In August and October 1992, the Company acquired Kings Entertainment Company
and Kings Island Company, respectively, later renamed Paramount Parks, which
own and operate regional theme parks, for a total of approximately $400
million.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 1991, the Company acquired Macmillan Computer Publishing, later
renamed Prentice Hall Computer Publishing, a leading publisher of personal
computer and related technical books, for approximately $158 million.
The acquisitions are being accounted for as purchases and the financial
statements include the results of their operations from the dates of
acquisition.
The following table summarizes, on a pro forma basis, the combined results of
operations as though Kings Entertainment Company, Kings Island Company and
Macmillan Computer Publishing had been acquired on November 1, 1990. It
includes estimated amounts for a reduction of interest income due to the use of
short-term investments for the acquisitions, amortization of estimated
intangible assets, additional depreciation expense and an adjustment for income
taxes, at the statutory rate. These pro forma results do not necessarily
reflect the actual results of operations as they would have been had the
acquisitions taken place on that date, nor are they necessarily indicative of
future results.
Year Ended October 31
-----------------------------
1992 1991
- -----------------------------------------------------------------------------
(In millions, except per share)
(Unaudited)
Revenues $4,464.1 $4,203.5
Earnings before extraordinary item 277.7 133.2
Net earnings 268.9 133.2
Earnings per share
Earnings before extraordinary item 2.34 1.13
Net earnings 2.26 1.13
- -----------------------------------------------------------------------------
In March 1990, the Company acquired Computer Curriculum Corporation, which
develops and markets computer-based learning systems, for approximately $75
million.
In December 1989, the Company acquired a preferred and common stock equity
interest in Paramount Stations Group (PSG), formerly TVX Broadcast Group Inc.,
which owns and operates independent television stations, for approximately $110
million. The Company also acquired PSG debt obligations for approximately $34
million. In April 1990, the Company was granted the right by the Federal
Communications Commission to assume control of PSG. The Company did so by
converting preferred stock into common stock and, consequently, began
reflecting its operations on a consolidated basis. In July and October 1990,
the Company purchased additional shares of PSG stock for $3.5 million and $4.3
million, respectively. In February 1991, the Company, through a merger,
acquired the remaining outstanding shares of PSG for approximately $62 million.
In May 1993, the Company purchased the remaining 80% it did not own of Canada's
Wonderland, Inc., later renamed Paramount Canada's Wonderland, Inc., a Canadian
theme park, for approximately $52 million.
In June 1993, the Company announced it signed a definitive agreement to
purchase television station WKBD-TV in Detroit from Cox Enterprises Inc. for
approximately $105 million; this acquisition was completed in September 1993.
During the six months ended April 30, 1993 and 1992 and the years ended
October 31, 1992, 1991 and 1990, the Company also acquired or sold certain
other businesses. The contributions of these businesses in the aggregate were
not significant to the Company's results of operations for the periods
presented, nor are they expected to have a material effect on the Company's
results on a continuing basis.
NOTE C -- OTHER INCOME (EXPENSE)
Other income (expense) includes foreign exchange gains (losses), minority
interest and other.
NOTE D -- EXTRAORDINARY ITEM
In September 1992, the Company redeemed $175 million of 9 3/4% senior
debentures due 2016 for $1,061.25 per $1,000 principal amount. The premium
paid by the Company and the write-off of related unamortized discount and
issuance costs resulted in a loss of $8.8 million, net of an income tax benefit
of $4.6 million.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- INVENTORIES
Inventories as described in Note A are stated as follows
(in millions):
April 30 October 31
-------- ----------------------------
1993 1992 1991
- -----------------------------------------------------------------------------------------------
CURRENT
Finished goods $248.3 $230.1 $229.8
Work in process 12.8 10.6 20.3
Materials and supplies 29.5 26.4 20.8
- -----------------------------------------------------------------------------------------------
290.6 267.1 270.9
- -----------------------------------------------------------------------------------------------
Theatrical and television productions
Released 176.9 169.1 161.2
Completed, not released 32.7 35.7 43.3
In process and other 61.8 75.9 84.4
- -----------------------------------------------------------------------------------------------
271.4 280.7 288.9
- -----------------------------------------------------------------------------------------------
Broadcast rights 55.3 32.4 30.6
- -----------------------------------------------------------------------------------------------
617.3 580.2 590.4
- -----------------------------------------------------------------------------------------------
NONCURRENT
Theatrical and television productions
Released 155.3 103.9 71.1
In process and other 247.0 174.8 119.2
- -----------------------------------------------------------------------------------------------
402.3 278.7 190.3
- -----------------------------------------------------------------------------------------------
Broadcast rights 107.0 104.4 111.5
- -----------------------------------------------------------------------------------------------
509.3 383.1 301.8
- -----------------------------------------------------------------------------------------------
$1,126.6 $963.3 $892.2
- -----------------------------------------------------------------------------------------------
NOTE F--INVESTMENT IN
AFFILIATED COMPANIES
Investments in affiliated companies primarily include the Company's interest in
USA Networks, national advertiser-supported basic cable television networks
(50% owned); Cinamerica, a domestic motion picture theater operation (50%
owned); United Cinemas International Multiplex B.V., engaged in theatrical
exhibition of motion pictures in the United Kingdom, Ireland, Germany and Spain
(49% owned); Cinema International Corporation N.V., which owns motion picture
screens in seven countries (49% owned); and as of August 1992, Canada's
Wonderland, Inc., a Canadian theme park (20% owned).
Summarized financial information for the above companies is as follows
(in millions):
Six Months Ended Year Ended
or at April 30 or at October 31
---------------- ----------------------------
1993 1992 1992 1991 1990
- -----------------------------------------------------------------------------------
(Unaudited)
Revenues $372.6 $354.7 $783.2 $683.0 $548.3
Gross profit 129.0 139.8 321.6 226.3 208.3
Net earnings 36.2 49.3 83.2 74.4 52.1
Current assets $326.7 $337.8 $227.8
Noncurrent assets 855.8 934.2 741.2
Current liabilities 223.7 248.8 167.6
Noncurrent liabilities 493.4 595.4 430.4
- -----------------------------------------------------------------------------------
Included in the operating income of the Company's Entertainment operations are
equity in earnings for the above affiliated companies of $24.0, $34.1
(unaudited), $58.7, $47.6 and $43.7 million, respectively, for the six months
ended April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and
1990. Dividends received from these affiliated companies were $7.8, $10.5
(unaudited), $22.0, $32.5 and $10.8 million, respectively, for the six months
ended April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and
1990.
Included in consolidated retained earnings at April 30, 1993 is $161.7 million
of undistributed earnings of affiliates.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G-- LONG-TERM DEBT
Long-term debt includes (in millions):
April 30 October 31
-------- ----------------
1993 1992 1991
- -----------------------------------------------------------------------
8-1/2% senior notes due 1996 (prepaid
July 1993) $99.8 $99.8 $99.7
7-1/2% senior notes due 2002 246.3 246.0
8-1/4% senior debentures due 2022 246.8 246.7
11-5/8% senior notes due 1992 125.0
9.55% note payable to an institutional
investor due 1999 (prepaid 1992) 62.6
9-3/4% senior debentures due 2016
(prepaid 1992) 173.6
12-3/8% subordinated notes due 1995
(prepaid 1992) 19.5
7% subordinated debentures due 2003,
net of unamortized discount of $53.7
at April 30, 1993, $55.1 at
October 31, 1992 and $57.8 at
October 31, 1991 (effective average
interest rate of 11%) 177.7 176.3 173.6
Other notes and debentures due
1993 to 1996 (effective average
interest rate of 8.22%) 12.2 12.2 17.4
Obligations under capital leases 34.3 41.1 46.8
- -----------------------------------------------------------------------
817.1 822.1 718.2
Less current maturities 109.8 10.0 198.3
- -----------------------------------------------------------------------
$707.3 $812.1 $519.9
- -----------------------------------------------------------------------
Maturities of long-term debt (including the present value of obligations under
capital leases as set forth in Note J) during the five years ending April 30,
1998 are (in millions):
- --------------------------------------------------------
1994 $109.8
1995 10.7
1996 20.1
1997 3.1
1998 0.4
- --------------------------------------------------------
The Company has complied with restrictions and limitations required under terms
of various loan agreements.
In July 1993, the Company completed a public offering of $150 million of 5 7/8%
senior notes due 2000 and $150 million of 7 1/2% senior debentures due 2023.
NOTE H -- CAPITAL STOCK
The authorized capital stock of the Company includes 75,000,000 shares of
Preferred Stock, all of which are undesignated.
Each share of Common Stock outstanding has a related Common Stock purchase
right which will become exercisable after a specified period of time only if a
person or group acquires beneficial ownership of 15% or more of the outstanding
Common Stock of the Company or announces or commences a tender or exchange
offer that would result in the offeror acquiring 30% or more of the Company's
Common Stock. Once exercisable, each right would entitle its registered holder
to purchase one share of the Company's Common Stock at a price of $200 per
share, subject to adjustment to prevent dilution. Upon the occurrence of
certain events or transactions specified in the rights agreement, the rights
holder is entitled to receive for $200 per right a number of shares of the
Company's or an acquiring company's common stock having a market value equal to
twice the right's exercise price. The rights may be redeemed by the Company
for $.01 per right prior to the tenth day after a person or group acquires 15%
or more of the outstanding Common Stock of the Company. The rights expire on
September 30, 1998, unless redeemed earlier by the Company. On March 1, 1994
the rights were amended to permit consummation of the tender offer by Viacom
Inc., without causing the rights to become exercisable. In addition, the
rights have been amended to provide that the rights expire immediately prior to
the merger between the Company and Viacom. See Note O.
Common Stock outstanding at April 30, 1993, does not include 2,127,817 shares
reserved under the 1984 Stock Option Plan; 4,469,718 shares reserved under the
1989 Stock Option Plan; 5,750,000 shares reserved under the 1992 Stock Option
Plan; and 3,130,018 shares reserved under the Long-Term Performance Plan.
The Company's 1973 Key Employees Stock Purchase Plan and 1984, 1989 and 1992
Stock Option Plans provide for the issuance of options to key employees to
purchase Common Stock of the Company at a price not less than fair market value
on the date of grant. Options may not be granted under these plans that expire
more than ten years from the date of grant. The Company may establish
installment exercise terms for a stock option so that the option becomes fully
exercisable in a series of cumulative portions. The Company may also
accelerate the period for the exercise of any stock option or portion thereof.
Each option granted under the Company's 1984, 1989 and 1992 Stock Option Plans
contains a Limited Right which entitles the holder thereof, only upon the
occurrence of certain specified events constituting a change in control of the
Company and only after the Compensation Committee of the Board of Directors of
the Company so determines, to receive cash in lieu of exercising the option.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions involving outstanding stock options under these plans were:
Number of Common Shares Option Price
--------------------------------------------- --------------------------------
1973 Plan 1984 Plan 1989 Plan Per Share Aggregate
- ----------------------------------------------------------------------------------------------------------------------------------
(In millions)
Outstanding at October 31, 1989 100,000 4,585,753 498,700 $7.75- $55.63 $172.1
Granted 1,275,155 34.63- 55.00 66.1
Issued (309,887) 15.38- 39.56 (10.1)
Rescinded (32,675) (56,550) 31.69- 55.00 (4.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at October 31, 1990 100,000 4,243,191 1,717,305 7.75- 55.63 223.7
Granted 2,967,650 36.94- 42.13 119.9
Issued (30,000) (750,710) 11.80- 43.13 (24.1)
Rescinded (320,700) (487,970) 31.69- 55.00 (36.1)
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at October 31, 1991 70,000 3,171,781 4,196,985 7.75- 55.63 283.4
Granted 468,500 37.50- 47.13 20.0
Issued (40,000) (295,198) (221,183) 7.75- 41.81 (20.1)
Rescinded (45,075) (325,825) 20.19- 55.00 (15.7)
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at October 31, 1992 30,000 2,831,508 4,118,477 13.94- 55.63 267.6
Granted 442,500 44.19- 50.69 19.7
Issued (30,000) (703,091) (309,099) 13.94- 45.81 (27.8)
Rescinded (600) (36,035) 33.88- 55.00 (1.9)
- ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at April 30, 1993 -0- 2,127,817 4,215,843 15.25- 55.63 $257.6
- ----------------------------------------------------------------------------------------------------------------------------------
Exercisable at
October 31, 1991 70,000 3,159,281 1,077,475
October 31, 1992 30,000 2,831,508 2,287,869
April 30, 1993 -0- 2,127,817 2,238,430
Reserved for future grants at
October 31, 1991 803,015
October 31, 1992 660,340
April 30, 1993 253,875
- ----------------------------------------------------------------------------------------------------------------------------------
No options have been granted under the 1992 Stock Option Plan, and at April 30,
1993, 5,750,000 shares were reserved for future grants under this plan.
The Company follows the practice of recording amounts received upon the
exercise of options by crediting Common Stock and paid-in surplus. No charges
are reflected in the consolidated statement of earnings as a result of the
grant or exercise of stock options. The Company records compensation expense
related to stock appreciation rights of each plan and share unit features of
the 1973 Plan based on the change in the quoted market price of the Common
Stock for the period. The exercise prices of options are subject to
anti-dilution provisions. The Company realizes an income tax benefit from the
exercise or early disposition of certain stock options. This benefit results
in a decrease in current income taxes payable and an increase in paid-in
surplus.
During the six months ended April 30, 1993 and the year ended October 31, 1991,
125,000 and 200,000 shares, respectively, of Common Stock of the Company were
granted to certain key employees subject to restrictions which will lapse on
certain dates through February 1997. The average market price of these shares
on the dates on which they were granted ranged from $43.06 to $44.19. During
the six months ended April 30, 1993 and the years ended October 31, 1991 and
1990, 50,000, 292,000 and 125,000, respectively, of previously granted shares
were rescinded. At April 30, 1993, the unvested portion of previously granted
shares totaling $34.1 million is included as a reduction of stockholders'
equity. Compensation expense is recorded over the period during which services
are performed.
During the six months ended April 30, 1993 and the years ended October 31, 1992
and 1991, 61,094, 64,205 and 138,485 shares, respectively, of Common Stock of
the Company were granted to employees at an average market price of $43.50 ,
$37.63 and $41.88 under the terms of the Company's Long-Term Performance Plan.
At April 30, 1993 and October 31, 1992 and 1991, there were 3,130,018,
3,191,112 and 3,255,317 shares, respectively, of Common Stock reserved for
future grants under this plan.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES
As described in Note A, effective May 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes" by restating its prior period financial
statements beginning November 1, 1988.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities were as follows (in
millions):
April 30 October 31
-------- -------------------
1993 1992 1991
- -----------------------------------------------------------------------------------------------
Deferred tax assets:
Costs of motion picture and
television production $89.2 $75.0 $50.4
Employee compensation and other
payroll related expenses 44.5 60.7 53.2
Provisions for real estate
write-down, relocation and
prior year publishing charge 40.5 24.8 26.9
Sales returns and allowances 46.4 45.8 38.2
Discontinued operations 34.2 29.0 37.8
Postretirement benefit obligation 34.5
Preacquisition net operating loss
carryforwards of subsidiaries
and other 50.0 60.3 66.0
Other 32.1 42.0 54.8
- -----------------------------------------------------------------------------------------------
371.4 337.6 327.3
- -----------------------------------------------------------------------------------------------
Valuation allowance for deferred
tax assets (50.0) (60.3) (66.0)
- -----------------------------------------------------------------------------------------------
Total deferred tax assets 321.4 277.3 261.3
- -----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Income on motion picture and
television production (12.4) (13.1) (16.8)
Expenses related to renovation
project (9.2) (9.2) (9.2)
Self insurance (10.5) (3.1)
Deferred seasonal expenses (41.9) (26.8)
Other (18.4) (17.9) (21.7)
- -----------------------------------------------------------------------------------------------
Total deferred tax liabilities (92.4) (70.1) (47.7)
- -----------------------------------------------------------------------------------------------
Net deferred tax assets $229.0 $207.2 $213.6
- -----------------------------------------------------------------------------------------------
Provision (benefit) for income taxes includes (in millions):
Six Months
Ended April 30 Year Ended October 31
--------------- ----------------------------
1993 1992 1992 1991 1990
- -----------------------------------------------------------------------------------------------
(Unaudited)
Current
Federal $(54.1) $(16.7) $62.4 $26.1 $37.3
Foreign 16.1 31.1 55.1 47.5 49.0
State and other 1.4 4.6 8.8 16.0 7.2
- -----------------------------------------------------------------------------------------------
(36.6) 19.0 126.3 89.6 93.5
- -----------------------------------------------------------------------------------------------
Deferred
Federal 27.7 1.0 4.0 (28.0) 20.3
Foreign 1.2 (7.2) (4.2) (1.3)
State and other (5.3) 4.1
- -----------------------------------------------------------------------------------------------
28.9 1.0 (3.2) (37.5) 23.1
- -----------------------------------------------------------------------------------------------
$(7.7) $20.0 $123.1 $52.1 $116.6
- -----------------------------------------------------------------------------------------------
The components of earnings (loss) before income taxes were as follows (in
millions):
Six Months
Ended April 30 Year Ended October 31
-------------- ----------------------------
1993 1992 1992 1991 1990
- -----------------------------------------------------------------------------
(Unaudited)
Domestic $ (47.8) $7.7 $301.8 $68.0 $218.4
Foreign 31.0 61.0 95.5 111.7 162.6
- -----------------------------------------------------------------------------
$ (16.8) $68.7 $397.3 $179.7 $381.0
- -----------------------------------------------------------------------------
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the provision (benefit) for income taxes computed by
applying the statutory Federal income tax rate to earnings (loss) before income
taxes and the actual provision (benefit) for income taxes is as follows (in
millions):
Six Months
Ended April 30 Year Ended October 31
--------------------- ---------------------------------------
1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Provision (benefit)
for income taxes
at statutory rate $ (5.7) $23.4 $135.1 $61.1 $129.5
Increase (decrease) in
taxes arising from
effect of
Income (principally
foreign) taxed at
lower rates (1.2) (7.4) (13.4) (19.6) (34.5)
Amortization of
intangible assets 1.3 1.0 13.1 8.8 9.6
U. S. state and local
income taxes 1.0 3.0 5.3 7.0 7.8
Tax exempt interest (5.4) (8.0)
Restoration of reserves
no longer required (3.9) (21.4)
Other 0.8 4.4 0.2 12.2
- ----------------------------------------------------------------------------------------------------------------------
Provision (benefit) for
income taxes $ (7.7) $20.0 $123.1 $52.1 $116.6
- ----------------------------------------------------------------------------------------------------------------------
Effective tax rate 45.8% 29.1% 31.0% 29.0% 30.6%
- ----------------------------------------------------------------------------------------------------------------------
Total income tax payments were $59.6, $43.5 (unaudited), $120.0, $103.8 and
$720.4 million (including $667.4 million resulting from the fiscal 1989 sale of
Associates First Capital Corporation), respectively, for the six months ended
April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and 1990.
The Company's share of the undistributed earnings of foreign subsidiaries not
included in its consolidated Federal income tax return, that could be subject
to additional income taxes if remitted, was approximately $810 million at April
30, 1993. No provision has been made for taxes that could result from the
remittance of such undistributed earnings since the Company intends to reinvest
these earnings indefinitely; determination of the related unrecognized deferred
U.S. income tax liability is not practicable.
In August 1993, the Budget Reconciliation Act of 1993 (the "Act") was enacted
into law. One of the provisions of the Act increased the corporate income tax
rate to 35% effective January 1, 1993. This increase, from the previous 34%
rate, had no material effect on the Company. The Company expects to benefit
from a section of the Act permitting tax deductions derived from the
amortization of certain intangible assets acquired after July 25, 1991, which
deductions have not previously been claimed on tax returns filed by the
Company. However, the Company believes that any tax benefits generated by the
amortization of intangible assets previously acquired by it will not be
material.
Furthermore, to the extent that the Company is affected by several other
provisions of the Act, the results should not be material.
NOTE J -- COMMITMENTS AND CONTINGENCIES
Leases
Total rental expense was $45.7, $43.1 (unaudited), $87.0, $80.0 and $76.8
million, respectively, for the six months ended April 30, 1993 and 1992 and the
years ended October 31, 1992, 1991 and 1990.
At April 30, 1993, the minimum lease payments under capital leases and
noncancellable operating leases were as follows (in millions):
Year Ending April 30
-------------------------
Capital Operating
Leases Leases
- -----------------------------------------------------------------------
1994 $14.4 $65.2
1995 13.8 56.7
1996 9.7 44.5
1997 3.8 38.1
1998 0.7 35.9
Thereafter 5.1 388.4
- -----------------------------------------------------------------------
Total minimum lease payments 47.5 $628.8
- -----------------------------------------------------------------------
Less amounts representing interest 13.2
- -----------------------------------------------------------------------
Present value of net minimum lease payments $34.3
- -----------------------------------------------------------------------
Many of the leases also require the lessee to pay property taxes, insurance and
ordinary repairs and maintenance.
Employee Benefit Plans
The cost of pension benefits for eligible employees, measured by length of
service, compensation and other factors, is currently being funded through
trusts established under the plans. In general, the Company's funding policy
is to make contributions to the plans as necessary to meet minimum funding
requirements.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic pension cost for the Company's plans were as
follows (in millions):
Six Months
Ended April 30 Year Ended October 31
--------------------- ---------------------------------------
1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Service cost-benefits
earned $9.2 $9.0 $18.1 $17.2 $15.8
Interest cost on projected
benefit obligation 18.9 17.0 34.1 32.4 30.6
Less return on plan assets (25.2) (20.6) (41.2) (59.4) (36.0)
Net amortization
and deferral 3.9 1.1 1.9 19.7 (3.4)
- ----------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $6.8 $6.5 $12.9 $9.9 $7.0
- ----------------------------------------------------------------------------------------------------------------------
In addition, the Company had other pension expense for the six months ended
April 30, 1993 and 1992 and the years ended October 31, 1992, 1991 and 1990 of
$5.0, $4.7 (unaudited), $9.2, $9.2 and $10.6 million, respectively, primarily
related to multiemployer pension plans.
The funded status and amounts recognized in the Company's consolidated balance
sheet for its domestic and non-U.S. plans is as follows (in millions):
April 30 October 31
-------- ------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligation
Vested $345.8 $325.6 $307.1
Nonvested 19.4 17.8 16.8
- -----------------------------------------------------------------------------------------------
Accumulated benefit obligation 365.2 343.4 323.9
Effect of projected future salary
increases 57.1 55.8 53.1
- -----------------------------------------------------------------------------------------------
Projected benefit obligation 422.3 399.2 377.0
Plan assets at fair value 453.0 432.1 416.8
- -----------------------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 30.7 32.9 39.8
Unrecognized net gain (34.9) (30.2) (23.8)
Unrecognized prior service cost (8.2) (9.7) (11.2)
Unrecognized net asset at date
of adoption of SFAS No. 87 (9.0) (9.7) (12.7)
- -----------------------------------------------------------------------------------------------
Net pension liability $(21.4) $(16.7) $(7.9)
- -----------------------------------------------------------------------------------------------
Plan assets consist primarily of marketable equity and fixed income securities
and the Company's Common Stock. At April 30, 1993 and October 31, 1992 and
1991, the Company's plans owned 932,076 shares of the Company's Common Stock
with an aggregate market value of $48.5, $39.3 and $37.4 million, respectively.
In the six months ended April 30, 1993 and the years ended October 31, 1992 and
1991, the weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation for the Company's plans were 8.5% and 6.0%,
respectively. The expected long-term rate of return on assets used for the
majority of the Company's plans was 10.0% for the six months ended April 30,
1993 and 1992 and the years ended October 31, 1992, 1991 and 1990.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company sponsors a welfare plan
which provides certain postretirement health care and life insurance benefits
for substantially all employees and their covered dependents who generally have
worked ten years and are eligible for early or normal retirement under the
provisions of the Company's retirement plan. The welfare plan is contributory
and contains cost-sharing features such as deductibles and coinsurance which
are adjusted annually. The plan is not funded. The Company continues to fund
these benefits as claims are paid.
As described in Note A, effective November 1, 1992, the Company adopted SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Postretirement benefit costs for prior years, which were recorded
on a cash basis, have not been restated.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the amounts recognized in the Company's consolidated balance
sheet are as follows (in millions):
April 30 November 1
-------- ----------
1993 1992
- ---------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Current retirees $51.7 $49.2
Fully eligible active plan participants 20.2 19.2
Other active plan participants 34.7 33.0
- ---------------------------------------------------------------
Accumulated postretirement benefit
obligation $106.6 $101.4
- ---------------------------------------------------------------
The components of net periodic postretirement benefit cost for the six months
ended April 30, 1993, are as follows (in millions):
- ---------------------------------------------------------------
Service cost-benefits earned $2.4
Interest cost on accumulated postretirement
benefit obligation 4.2
- ---------------------------------------------------------------
Net periodic postretirement benefit cost $6.6
- ---------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation was 8.5%. At April 30, 1993, the assumed weighted average health
care cost trend rates to be used in measuring the accumulated postretirement
benefit obligation for 1994 are 13% for retirees age 65 and over and 15% for
retirees under age 65. Both rates are assumed to decrease gradually each year
to 6.7% in 2011 and thereafter. A one percentage point increase in each year
of these health care cost trend rates would increase the accumulated
postretirement benefit obligation at April 30, 1993 by $19.2 million, and
increase the sum of the service and interest cost components of net periodic
postretirement benefit cost by $1.4 million.
In addition, the Company contributes to multiemployer plans which provide
health and welfare benefits to active as well as retired employees. The cost
of these benefits for the six months ended April 30, 1993, was $5.6 million.
Commitments
At April 30, 1993, the Company is obligated to make future payments for various
feature films, syndicated programs, sports events and other programming
totaling approximately $401 million. This amount includes $327 million related
to Madison Square Garden Network's agreement to televise New York Yankees
baseball games through the year 2000.
Legal Proceedings
The Company is a defendant in various lawsuits wherein substantial amounts are
claimed. In the opinion of counsel, these suits should not result in judgments
that in the aggregate would have a material adverse effect on the Company's
financial statements.
NOTE K -- SUPPLEMENTAL INFORMATION
Trade receivables are net of allowance for doubtful accounts of $64.1, $65.5
and $59.6 million at April 30, 1993 and October 31, 1992 and 1991,
respectively.
Prepaid expenses and other includes royalties advances of $182.8, $161.6 and
$156.4 million at April 30, 1993 and October 31, 1992 and 1991, respectively.
The details of accrued expenses and other are as follows
(in millions):
April 30 October 31
-------- ----------------
1993 1992 1991
- ---------------------------------------------------------------------
Participations payable and accrued
syndication expenses $334.6 $363.0 $348.2
Deferred television contracts income 90.6 86.9 73.7
Accrued compensation and other
employee benefit related items 114.7 140.6 97.2
Reverse repurchase liability 75.1 50.1
Other 513.4 473.5 483.4
- ---------------------------------------------------------------------
$1,128.4 $1,114.1 $1,002.5
- ---------------------------------------------------------------------
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred liabilities includes participations payable and deferred syndication
expenses of $193.7, $189.2 and $187.9 million at April 30, 1993 and October 31,
1992 and 1991, respectively.
The details of interest and other investment income (expense) -- net are as
follows (in millions):
Six Months
Ended April 30 Year Ended October 31
-------------- ----------------------
1993 1992 1992 1991 1990
- ------------------------------------------------------------------
(Unaudited)
Interest expense
Interest on
indebtedness
and other $(44.9) $(54.4) $(104.1) $(108.6) $(116.2)
Imputed interest
on long-term
liabilities (5.8) (8.5) (14.7) (14.6) (22.9)
Less capitalized
interest 2.8 3.1 5.0 11.2 15.2
- -------------------------------------------------------------------
(47.9) (59.8) (113.8) (112.0) (123.9)
- -------------------------------------------------------------------
Interest and other
investment income
Interest and other
income on
investments 28.6 40.0 88.4 106.9 180.3
Imputed interest
on long-term
receivables 16.3 17.3 33.2 26.9 22.4
- -------------------------------------------------------------------
44.9 57.3 121.6 133.8 202.7
- -------------------------------------------------------------------
$(3.0) $(2.5) $7.8 $21.8 $78.8
- -------------------------------------------------------------------
Imputed interest relates principally to network and syndication licenses of
motion picture and television products. Capitalized interest relates to
projects under construction and theatrical and television productions in
process. Interest paid on borrowings was $40.8, $51.0 (unaudited), $91.0,
$99.5 and $105.6 million, respectively, for the six months ended April 30, 1993
and 1992 and the years ended October 31, 1992, 1991 and 1990.
NOTE L -- FINANCIAL INSTRUMENTS
The Company adopted SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments" in the six months ended April 30, 1993. This statement requires
disclosure of estimated fair values for all financial instruments for which it
is practicable to estimate fair value.
The Company has used various methods and assumptions to estimate the fair value
of its financial instruments at April 30, 1993. For cash and cash equivalents,
the carrying amount approximates fair value because of the short maturities of
these instruments. Quoted market prices or dealer quotes for the same or
similar instrument were used for short-term investments and the majority of
long-term debt. Other techniques, such as estimated cash flows and termination
cost have been used to estimate the fair value of the remaining financial
instruments. These values represent a general approximation of possible value
and may not be indicative of the amounts that could be realized in a current
market exchange.
The carrying amounts and fair values of the Company's recorded financial
instruments at April 30, 1993 are as follows (in millions):
Carrying Fair
Amount Value
- ---------------------------------------------------------------------------
Cash and cash equivalents $372.6 $372.6
Short-term investments 569.7 577.4
Long-term debt (including current maturities) (1) 782.8 859.8
Reverse repurchase liability 75.1 75.1
- ---------------------------------------------------------------------------
(1) Excludes obligations under capital leases classified as long-term debt.
Periodically, the Company enters into interest rate swap agreements. These
agreements generally allow the Company to exchange fixed rates for variable
rates without the exchange of cash with respect to the underlying principal
amounts. Net interest payments or receipts, which were not material, are
recorded as adjustments to interest expense. The fair value of interest rate
swaps at April 30, 1993 was not material.
The Company has guaranteed third party securities and commitments relating
primarily to joint venture obligations, theater leases and standby letters of
credit totaling approximately $320 million at April 30, 1993. These guarantees
had a fair value of $293 million at April 30, 1993.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M -- FINANCIAL REPORTING BY BUSINESS SEGMENTS
A summary description of the Company's business segments and their respective
Revenues and Operating Income (Loss) for the six months ended April 30, 1993
and 1992 and the years ended October 31, 1992, 1991 and 1990 is presented
elsewhere herein.
Depreciation, capital expenditures and identifiable assets were as follows
(in millions):
Depreciation Capital Expenditures (1)
----------------------------------------- ------------------------------------------
Six Months Six Months
Ended April 30 Year Ended October 31 Ended April 30 Year Ended October 31
-------------- ---------------------- -------------- ------------------------
1993 1992 1992 1991 1990 1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Business Segments
Entertainment $24.6 $23.1 $49.0 $38.1 $28.0 $46.0 $58.6 $94.3 $146.6 $174.7
Publishing 11.6 11.2 20.9 19.1 15.8 8.7 10.0 24.6 25.8 12.6
- ----------------------------------------------------------------------------------------------------------------------
Total 36.2 34.3 69.9 57.2 43.8 54.7 68.6 118.9 172.4 187.3
Corporate and Other
Non-Segment Items 0.9 0.9 1.8 1.9 2.0 1.2 0.2 1.1 0.5 0.6
- ----------------------------------------------------------------------------------------------------------------------
$37.1 $35.2 $71.7 $59.1 $45.8 $55.9 $68.8 $120.0 $172.9 $187.9
- ----------------------------------------------------------------------------------------------------------------------
Identifiable Assets
---------------------------------------
April 30 October 31
-------- -------------------------
1993 1992 1991 1990
- -------------------------------------------------------------------------
Business Segments
Entertainment $3,377.8 $3,221.9 $2,493.7 $2,223.0
Publishing 2,321.3 2,396.5 2,226.4 2,191.5
- -------------------------------------------------------------------------
Total 5,699.1 5,618.4 4,720.1 4,414.5
Corporate and Other
Non-Segment Items 1,175.7 1,438.6 1,934.6 2,126.5
- -------------------------------------------------------------------------
$6,874.8 $7,057.0 $6,654.7 $6,541.0
- -------------------------------------------------------------------------
- -------------
(1) Including capitalized leases.
Identifiable assets are those which can be directly identified or associated
with the segments. Corporate and other non-segment items principally include
cash and cash equivalents, short-term investments, notes receivable, prepaid
income taxes and corporate property and equipment.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N -- QUARTERLY RESULTS (UNAUDITED)
The following summarizes the quarterly operating results of the Company for the
six months ended April 30, 1993 and the years ended October 31, 1992 and 1991
(in millions, except per share):
Earnings (Loss) Per Share
--------------------------
Earnings Earnings
(Loss) Before (Loss) Before
Extraordinary Extraordinary
Item and Item and
Cumulative Cumulative
Operating Earnings Effect of Net Effect of Net
Cost of Income (Loss) Before Accounting Earnings Accounting Earnings
Quarter Ended Revenues Goods Sold (Loss) Income Taxes Change (Loss) Change (Loss)
- ------------------------------------------------------------------------------------------------------------------------------
1993
January 31 $943.7 $648.8 $1.8 $(1.2) $0.1 $(66.8) $-0- $(.57)
April 30 954.4 638.0 (11.9) (15.6) (9.2) (9.2) (.08) (.08)
- ------------------------------------------------------------------------------------------------------------------------------
$1,898.1 $1,286.8 $(10.1) $(16.8) $(9.1) $(76.0) $(.08) $(.65)
- ------------------------------------------------------------------------------------------------------------------------------
1992
January 31 $1,070.6 $761.4 $27.6 $27.1 $19.4 $19.4 $.16 $.16
April 30 927.9 621.7 50.2 41.6 29.3 29.3 .25 .25
July 31 1,063.9 629.2 156.9 166.6 114.3 114.3 .96 .96
October 31 1,202.5 727.5 161.4 162.0 111.2 102.4 .94 .86
- ------------------------------------------------------------------------------------------------------------------------------
$4,264.9 $2,739.8 $396.1 $397.3 $274.2 $265.4 $2.31 $2.23
- ------------------------------------------------------------------------------------------------------------------------------
1991
January 31 $897.1 $658.3 $(27.0) $(10.8) $(5.9) $(5.9) $(.05) $(.05)
April 30 868.1 646.9 (86.3) (80.8) (53.7) (53.7) (.46) (.46)
July 31 963.9 553.9 149.5 148.8 102.6 102.6 .87 .87
October 31 1,166.3 779.6 121.6 122.5 84.6 84.6 .72 .72
- ------------------------------------------------------------------------------------------------------------------------------
$3,895.4 $2,638.7 $157.8 $179.7 $127.6 $127.6 $1.08 $1.08
- ------------------------------------------------------------------------------------------------------------------------------
NOTE O -- SUBSEQUENT EVENTS (UNAUDITED)
Tender Offers and Merger Proposals
On December 13, 1993, the Company's Board of Directors adopted procedures (the
"Bidding Procedures") for the purpose of considering proposals to acquire the
Company. Pursuant to the Bidding Procedures, from December 20, 1993 through
February 1, 1994, Viacom Inc. (Viacom) and QVC Network, Inc. (QVC) submitted a
series of bids for the Company. After the initial round of bidding, the
Company entered into a merger agreement with QVC. Prior to the February 1
bidding deadline established by the Bidding Procedures, Viacom substantially
increased its bid and the Company terminated the agreement with QVC and entered
into a merger agreement with Viacom.
On February 1, 1994, both Viacom and QVC submitted their final proposals for
the acquisition of the Company. Viacom's proposal consisted of a tender offer
(the "Viacom Offer") for 50.1% of the outstanding shares of the Company's
Common Stock (the "Shares"), on a fully diluted basis, at $107 per Share to be
followed by a merger (the "Viacom Second-Step Merger") in which each remaining
Share would be converted into the right to receive (i) 0.93065 shares of Viacom
Class B Common Stock, (ii) 0.93065 Contingent Value Rights, (iii) 0.5
three-year Warrants to purchase Viacom Class B Common Stock, (iv) 0.3 five-year
Warrants to purchase Viacom Class B Common Stock and (v) $17.50 in principal
amount of 8% exchangeable subordinated debentures of Viacom.
QVC's proposal consisted of a tender offer (the "QVC Offer") for 50.1% of the
outstanding Shares, on a fully diluted basis, at $104 per Share to be followed
by a merger in which each remaining Share would be converted into the right to
receive (i) 1.2361 shares of QVC Common Stock, (ii) 0.2386 shares of a new
series of 6% cumulative non-convertible exchangeable preferred stock and (iii)
0.32 ten-year Warrants to purchase QVC Common Stock.
At a meeting held on February 4, 1994, the Company's Board of Directors
recommended that stockholders ac-
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cept the Viacom Offer and reject the QVC Offer. At that time, the Company
entered into an Amended and Restated Merger Agreement with Viacom (the
"Restated Viacom Merger Agreement").
As of midnight on February 14, 1994, approximately 74.6% of the outstanding
Shares, on a fully diluted basis, had been validly tendered pursuant to the
Viacom Offer and not withdrawn. As a result, pursuant to the Bidding
Procedures, on February 15, 1994 Viacom waived certain conditions to the Viacom
Offer and extended the offer until March 1, 1994 and QVC terminated the QVC
Offer. Immediately after midnight on March 1, 1994, all conditions to the
Viacom Offer were deemed to have been satisfied and Viacom accepted for payment
61,657,432, of the Shares validly tendered and not withdrawn pursuant to the
Viacom Offer.
Pursuant to the Restated Viacom Merger Agreement, a special meeting of the
Company's stockholders will be called to act on the Viacom Second- Step Merger.
The approval of holders of a majority of all outstanding voting shares of both
Viacom and the Company is required to approve the merger. The approval by
Viacom's stockholders is assured by means of a voting agreement between
Viacom's parent corporation and the Company. The approval by Paramount's
stockholders is assured since Viacom now owns a majority of the outstanding
Shares.
The Restated Viacom Merger Agreement also provides that consummation of the
Viacom Second-Step Merger is subject to certain customary conditions.
Acquisition and Disposition
Of Businesses
In February 1994, the Company acquired Macmillan Publishing Company and certain
other assets of Macmillan Inc., a leading book publisher, for approximately
$553 million.
In June 1993, the Company agreed to sell Prentice Hall Legal and Financial
Services, Prentice Hall Legal Practice Management and Prentice Hall
Professional Software, three of its Publishing software and information
services units, to Information America, Inc. This agreement was terminated in
October 1993.
EXHIBIT INDEX
Exhibits No. Description
- ------------ -----------
(3)(a) Restated Certificate of Incorporation and Amendments
thereto (Incorporated by reference).
*(3)(b) Amended and restated By-laws.
(4)(a) Instruments with respect to issues of long-term debt
have not been filed as exhibits to this Annual
Report on Form 10-K as the authorized principal amount
on any one of such issues does not exceed 10% of the
total assets of Paramount Communications and its
subsidiaries on a consolidated basis. Paramount
Communications agrees to furnish a copy of each such
instrument to the Commission upon request.
(4)(b) Shareholder rights agreement dated as of
September 7, 1988, as amended, between Paramount
Communications Inc. and Chemical Bank, as Rights Agent
(Incorporated by reference).
(10)(i)(a) Amended and Restated Agreement and Plan of Merger dated
as of February 4, 1994, between Paramount
Communications Inc. and Viacom Inc. (Incorporated by
reference).
(10)(i)(b) Voting Agreement dated as of January 21, 1994, between
National Amusements, Inc. and Paramount Communications
Inc. (Incorporated by reference).
(10)(ii)(A)(1) Agreement, dated as of September 9, 1992, between
Paramount Communications and Stanley R. Jaffe
(Incorporated by reference).
(10)(ii)(A)(2) Agreement, dated as of March 17, 1991, between
Paramount Pictures Corporation and Stanley R.
Jaffe (Incorporated by reference).
+(10)(iii)(A)(1) Amended and restated agreement, dated as of
October 1, 1985 and restated as of June 23,
1989, between Paramount Communications and Martin S.
Davis (Incorporated by reference).
+(10)(iii)(A)(2) Amendment dated as of February 11, 1994, to the Amended
and Restated Agreement dated as of October 1,
1985 and restated as of June 23, 1989 between Paramount
Communications and Martin S. Davis (Incorporated by
reference).
+(10)(iii)(A)(3) Agreement, dated as of March 18, 1991, between Paramount
Communications and Stanley R. Jaffe
(Incorporated by reference).
+(10)(iii)(A)(4) Amendment, dated as of September 9, 1992, to the
Agreement, dated as of March 18, 1991, between
Paramount Communications and Stanley R. Jaffe
(Incorporated by reference).
+(10)(iii)(A)(5) Amended and restated agreement, dated as of
November 17, 1987 and restated as of June 23,
1989, between Paramount Communications and Ronald L.
Nelson (Incorporated by reference).
+(10)(iii)(A)(6) Amendment, dated as of December 21, 1992, to the amended
and restated agreement, dated as of November 17,
1987 and restated as of June 23, 1989, between
Paramount Communications and Ronald L. Nelson
(Incorporated by reference).
Exhibits No. Description
- ------------ -----------
+(10)(iii)(A)(7) Agreement, dated as of January 12, 1993, between
Paramount Communications and Ronald L. Nelson
(Incorporated by reference).
+(10)(iii)(A)(8) Amendment dated as of February 11, 1994, to the
Agreement dated as of January 12, 1993 between
Paramount Communications and Ronald L. Nelson
(Incorporated by reference).
+(10)(iii)(A)(9) Amended and restated agreement, dated as of
October 1, 1985 and restated as of June 23,
1989, between Paramount Communications and Donald
Oresman (Incorporated by reference).
+(10)(iii)(A)(10) Amendment dated as of February 11, 1994, to the Amended
and Restated Agreement dated as of October 1,
1985 and restated as of June 23, 1989 between Paramount
Communications and Donald Oresman (Incorporated by
reference).
+(10)(iii)(A)(11) Agreement, dated as of September 10, 1992, between
Paramount Communications and Earl H. Doppelt
(Incorporated by reference).
+(10)(iii)(A)(12) Agreement, dated as of September 10, 1992, between
Paramount Communications and Rudolph L. Hertlein
(Incorporated by reference).
+(10)(iii)(A)(13) Agreement, dated as of June 2, 1989, between Paramount
Communications and Lawrence E. Levinson
(Incorporated by reference).
+(10)(iii)(A)(14) Agreement, dated as of June 2, 1989, between Paramount
Communications and Eugene I. Meyers
(Incorporated by reference).
+(10)(iii)(A)(15) Agreement, dated as of February 25, 1992, between
Paramount Communications and Jerry Sherman
(Incorporated by reference).
+(10)(iii)(A)(16) Agreement, dated April 5, 1993, between Paramount
Communications and Robert Greenberg
(Incorporated by reference).
+(10)(iii)(A)(17) 1992 Stock Option Plan (the "1992 Plan") (Incorporated
by reference).
+(10)(iii)(A)(18) 1989 Stock Option Plan, as amended (the "1989 Plan")
(Incorporated by reference).
+(10)(iii)(A)(18)(a) Form of Stock Option Agreement pursuant to the 1989
Plan--Incentive Stock Option (Incorporated by
reference).
+(10)(iii)(A)(18)(b) Form of Stock Option Agreement pursuant to the 1989
Plan--Nonqualified Stock Option (Incorporated by
reference).
+(10)(iii)(A)(19) 1984 Stock Option Plan, as amended (the "1984 Plan")
(Incorporated by reference).
+(10)(iii)(A)(19)(a) Form of Stock Option Agreement pursuant to the 1984
Plan--Incentive Stock Option (Incorporated by
reference).
+(10)(iii)(A)(19)(b) Form of Stock Option Agreement pursuant to the 1984
Plan--Incentive Stock Option with a Stock
Appreciation Right (Incorporated by reference).
Exhibits No. Description
- ------------ -----------
+(10)(iii)(A)(19)(c) Form of Stock Option Agreement pursuant to the 1984
Plan--Nonqualified Stock Option (Incorporated by
reference).
+(10)(iii)(A)(19)(d) Form of Stock Option Agreement pursuant to the 1984
Plan--Nonqualified Stock Option with a Stock
Appreciation Right (Incorporated by reference).
+(10)(iii)(A)(20) 1973 Key Employees Stock Purchase Plan (Incorporated by
reference).
+(10)(iii)(A)(21) Amended and Restated Supplemental Executive Retirement
Plan (Incorporated by reference).
+(10)(iii)(A)(22) Deferred Compensation Plan for Board of Directors
(Incorporated by reference).
+(10)(iii)(A)(23) Long-Term Performance Plan, as amended (Incorporated by
reference).
+(10)(iii)(A)(24) Corporate Annual Performance Plan, as amended
(Incorporated by reference).
+(10)(iii)(A)(25) Retirement Plan for non-employee directors (Incorporated
by reference).
+(10)(iii)(A)(26) Non-qualified retirement plan (Incorporated by
reference).
*(11) Computation of Earnings (Loss) per Share.
*(22) List of Subsidiaries.
**(24) Consent of Ernst & Young.
*(25) Powers of Attorney.
- ---------
* These exhibits were previously filed as part of this Transition Report on
Form 10-K for the six months ended April 30, 1993, as amended.
** Filed herewith.
+ This exhibit constitutes a management contract or compensatory plan or
arrangement.
EXHIBIT (24)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Numbers 33-48534, 33-48535, 33-46900, 33-28441, 33-22743, 2- 66018, 2-88448
and 33-10554 on Form S-8 and Numbers 2-83427 and 33-51656 on Form S-3) of
Paramount Communications Inc. 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
amended consolidated financial statements of Paramount Communications Inc.
included in this Transition Report (Form 10-K/A - Amendment No. 3) for the
six-month period ended April 30, 1993.
ERNST & YOUNG
New York, New York
March 17, 1994
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
_______________
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1993 Commission file number 1-5404
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 Columbus Circle, New York, New York 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ . No / / .
At September 3, 1993, 118,503,966 shares of the registrant's Common Stock, $1
par value, were outstanding.
================================================================================
PARAMOUNT COMMUNICATIONS INC.
INDEX
Page
----
Part I. Financial Information
Consolidated Statement of Earnings --
Three Months Ended July 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet --
July 31, 1993 and April 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Consolidated Condensed Statement of Cash Flows --
Three Months Ended July 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-1-
PARAMOUNT COMMUNICATIONS INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
July 31
---------------------------------
1993 1992
----------- -----------
(In millions, except per share)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,351.7 $ 1,063.9
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 842.4 629.2
Selling, general and administrative expenses . . . . . . . . . . . . . . 318.7 277.8
----------- -----------
1,161.1 907.0
----------- -----------
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190.6 156.9
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8) (1.0)
Interest and other investment income (expense) -- net
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (21.0) (25.0)
Interest and other investment income . . . . . . . . . . . . . . 16.4 35.7
----------- -----------
(4.6) 10.7
----------- -----------
Earnings before Income Taxes . . . . . . . . . . . . . . . . . . . . . . 185.2 166.6
Provision for income taxes - Notes A and D . . . . . . . . . . . . . . . 64.8 52.3
----------- -----------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120.4 $ 114.3
=========== ===========
Average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . 119.8 119.6
Net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.01 $ .96
Cash dividends declared per common share . . . . . . . . . . . . . . . . .20 .20
See notes to consolidated financial statements.
-2-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Paramount Communications Inc. operates in the entertainment and publishing
businesses. The following is a comparative summary of operating results for
the three months ended July 31, 1993 and 1992 (in millions):
Three Months Ended July 31
-------------------------------------------------------
Operating
Revenues Income
------------------------ -------------------------
1993 1992 1993 1992
--------- --------- --------- ---------
Entertainment . . . . . . . . . . . . . . . . . . . . . . . . $ 818.8 $ 563.3 $ 89.0 $ 60.8
Publishing . . . . . . . . . . . . . . . . . . . . . . . . . . 532.9 500.6 119.6 112.5
Corporate Expenses . . . . . . . . . . . . . . . . . . . . . . (18.0) (16.4)
--------- --------- --------- ---------
$ 1,351.7 $ 1,063.9 $ 190.6 $ 156.9
========= ========= ========= =========
Entertainment
Revenues increased 45% and operating income increased 46% for the three
months ended July 31, 1993, compared with the same prior-year period. These
increases include significant seasonal operating results from the Company's
theme park operations, acquired in the fall of 1992, as well as operating
income gains in motion picture and theater operations.
Features
Revenues from features product increased 9% in the quarter ended July
31, 1993. Theatrical revenues increased 51% due principally to the domestic
and international success of Indecent Proposal and the outstanding domestic box
office performance of The Firm. Home video revenues decreased 20% in the
current-year period despite the continued success of Boomerang and Patriot
Games in the foreign market and increased sales related to the Great Movies
promotion. Pay cable revenues were 7% higher in the quarter because of the
availability of Patriot Games and Boomerang. Current quarter revenues from
network features were flat compared with the same prior-year period. Domestic
and international features syndication revenues increased 17% in the
current-year period.
Features operating income increased 24% in the current-year quarter
compared with the same prior-year period. Theatrical operating results
increased principally because of the increase in revenues; the current-year
quarter also benefited from lower feature write-downs, which were partially
offset by higher scenario reserves. Home video operating income decreased in
the current-year period due to the decline in revenues and a less profitable
mix of titles. Pay cable operating results increased because of higher
revenues and an improved overall profit rate on library titles. Operating
income from network features was flat in the current-year quarter compared with
the same prior-year period. Income from domestic and international features
syndication increased in the current-year period because of the higher revenues
along with a more profitable mix of titles.
Television
Television programming revenues increased 44% in the three months ended
July 31, 1993, compared with the same prior-year period. Revenues from network
series increased 154% primarily due to higher syndication sales of Cheers.
Revenues from first-run series were up 28%; higher sales of Star Trek: The
Next Generation and contributions from Star Trek: Deep Space Nine and the John
& Leeza Show were partially offset by lower sales of The Arsenio Hall Show.
Operating income for television programming decreased 41% in the
current-year period. Operating results from network series declined as
increased costs associated with investments in new programming more than offset
higher revenues. First-run series operating income rose, generated by the
increase in revenues previously noted. In addition, the current-year period
included contributions from movies-of-the-week and lower income from library
product.
Station and Network
Operating income at the station and network group declined 43% in the
three months ended July 31, 1993. Paramount Stations Group registered higher
profits in the current-year quarter, principally due to a 13% increase in
revenues resulting from higher
-3-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
advertising sales. At jointly owned USA Networks, operating income declined
primarily because of increased programming costs and the underperformance of
certain programs at USA Network, along with increased start-up costs incurred
for the Sci-Fi Channel.
Theaters
Theatrical exhibition revenues decreased 8% in the current-year quarter
primarily because of decreased attendance levels. Operating income increased
24%, led by higher results at the Company's Canadian chain, Famous Players, and
jointly owned Cinamerica primarily because of lower operating expenses that
were partially offset by the decreased attendance levels. International
theater operating results were comparable to the same prior-year period.
Madison Square Garden
Revenues for Madison Square Garden increased by 9% in the current-year
period. The sports teams registered increased revenues of 61%, reflecting
contributions from hockey expansion revenues and a net increase in revenues
from playoff games. The current period also included higher revenues from a
greater number of live entertainment events as well as higher advertising
sales, but was negatively impacted by the absence of revenues from the
Democratic National Convention recognized in the prior-year period.
Operating losses for the current-year period increased 15%, as the
higher total revenues previously described were more than offset by higher
sports team operating expenses and MSG Network programming and operating
expenses.
Publishing
Revenues and operating income increased 6% for the three months ended
July 31, 1993, compared with the prior-year period.
Consumer
Revenues increased 2% in the current-year period as strong sales of
paperback reorders and initial releases and increased international sales were
partially offset by lower backlist sales of certain reference and children's
books.
Operating results improved 96% as increased revenues and lower product
support expenses were partially offset by higher product development expenses.
Business, Technical and Professional
Revenues declined 3% in the current-year period principally because of
lower sales of workplace education and training products, partially offset by
higher sales of computer titles.
The business, technical and professional group posted an operating loss
in the current-year period compared with operating income in the same
prior-year period due to decreased sales and increased product support
expenses.
Education
Revenues rose 8% in the current-year quarter compared with the same
prior-year period. Elementary education revenues improved slightly in the
current-year period because of new adoptions. Revenues at educational
technology increased 34% in the current quarter due to increased sales of
learning stations and related products. At secondary education, revenues rose
17% because of strong sales from new adoptions, primarily science, social
studies and language arts. Higher education revenues increased by 8% because
of strong sales of college texts, primarily in the math, science, humanities
and social studies disciplines.
Operating income increased 12% as improved revenues were partially
offset by increased product support and operating expenses.
International
Revenues improved 10% from sales gains at all units, primarily
attributable to new educational adoptions and improved sales of computer
titles.
Operating income approximated the prior-year period despite the
increased revenues, due to higher expenses.
-4-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and Other Investment Income (Expense) -- Net
Earnings for the current-year period reflect net interest and other
investment expense of $4.6 million, compared with net interest and other
investment income of $10.7 million in the prior-year period. This decrease
stems primarily from decreased interest and other investment income resulting
from lower average cash equivalents and short-term investments and interest
rates. The lower average cash equivalents and short-term investments were
primarily a result of acquisitions, the repurchase of shares of the Company's
Common Stock and the funding of the working capital requirements of the
Company. The decrease in interest and other investment income was partially
offset by lower interest expense, which included lower effective interest rates
on the Company's debt.
Other
The effective rate for income taxes was 35% in the three months ended
July 31, 1993 compared with a 31.4% rate (as restated - see below) for the
comparable prior-year period. The increase is the result of the amount of
foreign income subject to tax at lower foreign rates as a percentage of total
worldwide income and increases in income subject to federal, state and local
income taxes. Corporate expenses for the three months ended July 31, 1993,
include costs related to the start-up of the Paramount Technology Group, a new
business unit responsible for the integration of emerging technologies,
including new product development, throughout the Company's entertainment and
publishing operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company depended primarily on internal cash flow and external
borrowings to finance its operations during the three months ended July 31,
1993, and expects to continue to do so. In May 1993, the Company purchased the
remaining 80% it did not own of Canada's Wonderland, Inc., a Canadian theme
park, for approximately $52 million. The Company subsequently liquidated
Canada's Wonderland debt obligations of approximately $31 million. In June
1993, the Company agreed to sell Prentice Hall Legal and Financial Services,
Prentice Hall Legal Practice Management and Prentice Hall Professional
Software, three of its Publishing software and information services units, to
Information America, Inc. (IA) for common stock, debt, preferred stock, common
stock warrants and options. The transaction is subject to approval by IA's
shareholders. In September 1993, the Company purchased television station
WKBD-TV in Detroit from Cox Enterprises Inc. for approximately $105 million.
In July 1993, the Company redeemed $100 million of 8 1/2% senior notes
due 1996. Also, in July 1993, the Company completed a public offering of $150
million of 5 7/8% senior notes due 2000 and $150 million of 7 1/2% senior
debentures due 2023. A portion of the net proceeds was used to refinance the
previously mentioned redemption of the Company's 8 1/2% senior notes. The
remainder of such proceeds were used to fund the acquisitions of television
station WKBD-TV in Detroit and the remaining 80% interest in Canada's
Wonderland theme park. Total debt as a percentage of total capitalization
increased from 17% at April 30, 1993 to 20% at July 31, 1993. In the past, the
Company has been able to increase its borrowings as required and expects to be
able to continue to do so.
Accounting Change
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Effective May 1, 1993, the Company adopted the provisions of
this standard by restating its prior period financial statements beginning
November 1, 1988. The effect of adopting SFAS No. 109 was to decrease the
loss before cumulative effect of accounting change and net loss by $1.8 million
($.01 per share) for the six months ended April 30, 1993; increase earnings
before extraordinary item and net earnings by $4.0 million ($.04 per share) for
the year ended October 31, 1992; and, increase net earnings by $5.4 million
($.05 per share) and $1.0 million ($.01 per share) for the year ended October
31, 1991 and the three months ended July 31, 1992, respectively. The
cumulative effect of adopting SFAS No. 109 as of October 31, 1990, decreased
the beginning balance of 1991's retained earnings by $45.4 million.
Under SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the
-5-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
adoption of SFAS No. 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the differences
originated. For further detail, see Notes A and D to the consolidated
financial statements.
Effects of Accounting for Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," which is
effective for the Company in the year ending April 30, 1995. Under this
statement, the cost of benefits provided to employees after employment but
before retirement is to be recognized in the financial statements on an accrual
basis during the service period of the employee. It is expected that
implementation of this statement will not have a material impact on the
financial position of the Company.
Accounting for Certain Investments in Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
is effective for the Company in the year ending April 30, 1995. This statement
sets forth the accounting for certain investments in debt and equity securities
based upon management's ability and intent, at the time of purchase, to trade,
hold to maturity or make available for sale such investments. The effect of
this statement at the time of adoption will depend upon the Company's ability
and intent with respect to such investments.
-6-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET
July 31 April 30
1993 1993
---- ----
(Unaudited) (Note)
(In millions)
ASSETS
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 397.0 $ 372.6
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . 602.6 569.7
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 1,097.4 829.6
Inventories - Note C . . . . . . . . . . . . . . . . . . . . . . . . 684.2 617.3
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . 112.6 131.7
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . 379.5 400.2
------------ ------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . 3,273.3 2,921.1
Property, Plant and Equipment
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248.8 210.8
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595.3 591.4
Machinery, equipment and other . . . . . . . . . . . . . . . . . . . 684.9 606.9
------------ ------------
1,529.0 1,409.1
Less allowance for depreciation . . . . . . . . . . . . . . . . . 363.6 336.1
------------ ------------
1,165.4 1,073.0
Other Assets
Investment in affiliated companies . . . . . . . . . . . . . . . . . 233.3 243.9
Noncurrent receivables and inventories - Note C. . . . . . . . . . . 612.3 689.8
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . 1,505.7 1,517.5
Deferred costs and other . . . . . . . . . . . . . . . . . . . . . . 439.8 429.5
------------ ------------
2,791.1 2,880.7
------------ ------------
$ 7,229.8 $ 6,874.8
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt . . . . . . . . . . . . . . . . $ 10.0 $ 109.8
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . 160.9 194.7
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 57.8 26.6
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . 1,186.9 1,128.4
------------ ------------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . 1,415.6 1,459.5
Deferred Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 804.7 805.9
Long-Term Debt, net of current maturities . . . . . . . . . . . . . . 1,004.1 707.3
Stockholders' Equity
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 118,384,222 at July 31, 1993
(excluding 29,481,154 shares held in treasury) and 118,199,396 at
April 30, 1993 (excluding 29,665,980 shares held in treasury) . . . 118.4 118.2
Paid-in surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . 722.4 712.8
Retained earnings - Note D . . . . . . . . . . . . . . . . . . . . . 3,179.2 3,082.5
Cumulative translation adjustments . . . . . . . . . . . . . . . . . (14.6) (11.4)
------------ ------------
4,005.4 3,902.1
------------ ------------
$ 7,229.8 $ 6,874.8
============ ============
Note: Restated from audited financial statements.
See notes to consolidated financial statements.
-7-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
July 31
--------------------
1993 1992
---- ----
(In millions)
Cash Flows from Operating Activities
Gross cash flows provided from operating activities. . . . . . . . . . . . . . . $ 206.6 $ 186.8
Undistributed net earnings of unconsolidated affiliates. . . . . . . . . . . . . (4.7) (10.1)
Theatrical and television inventories and broadcast rights
Gross additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (264.4) (171.3)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254.6 196.0
Decrease in network features and syndication licenses. . . . . . . . . . . . . . 8.1 27.7
Increase in pre-publication costs. . . . . . . . . . . . . . . . . . . . . . . . (16.8) (22.0)
Increase in trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . (276.7) (306.9)
Decrease in inventories (other than theatrical and television) . . . . . . . . . 18.6 19.7
Decrease in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 44.7 5.1
Increase (decrease) in trade accounts payable. . . . . . . . . . . . . . . . . . (36.2) 15.5
Increase (decrease) in income taxes payable. . . . . . . . . . . . . . . . . . . 31.2 (9.9)
Increase (decrease) in accrued expenses. . . . . . . . . . . . . . . . . . . . . 55.7 (5.2)
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30.2) (6.3)
------- -------
Net cash flows used for operating activities . . . . . . . . . . . . . . . . . (9.5) (80.9)
Cash Flows from Investment and Other Activities
Expenditures for property, plant and equipment (excluding
capitalized leases). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33.4) (22.8)
Proceeds on disposal of property, plant and equipment. . . . . . . . . . . . . . 1.9 5.6
Purchase price of acquired businesses (net of acquired cash) . . . . . . . . . . (52.3) (0.1)
Decrease (increase) in investment in affiliated companies. . . . . . . . . . . . 0.2 (7.9)
Increase in short-term and other investments . . . . . . . . . . . . . . . . . . (32.3) (192.6)
Decrease in investments maturing after one year. . . . . . . . . . . . . . . . . 23.5
Decrease in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.2
------- -------
Net cash flows used for investment and other activities. . . . . . . . . . . . (114.6) (193.1)
Cash Flows from Financing Activities
Proceeds of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 298.8
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (134.0) (4.1)
Issuance of Common Stock (excluding grants to employees) . . . . . . . . . . . . 7.4 6.7
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.7) (23.7)
------- -------
Net cash flows provided from (used for) financing activities . . . . . . . . . 148.5 (21.1)
------- -------
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . 24.4 (295.1)
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . 372.6 463.7
------- -------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . $ 397.0 $ 168.6
======= =======
See notes to consolidated financial statements.
-8-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A -- Basis of Presentation
The accompanying consolidated financial statements of Paramount
Communications Inc. and its consolidated subsidiaries (Company) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations of any
interim period are subject to year-end audit and adjustments, and are not
necessarily indicative of the results of operations for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's transition report on Form 10-K
for the six months ended April 30, 1993.
Certain amounts in the consolidated financial statements for the
prior-year period have been reclassified to conform to current presentation for
comparative purposes.
Change in Fiscal Year End
In June 1993, the Board of Directors approved a change in the Company's
fiscal year end to April 30 from October 31.
Accounting Change
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Effective May 1, 1993, the Company adopted the provisions of
this standard by restating its prior period financial statements beginning
November 1, 1988. The effect of adopting SFAS No. 109 was to decrease the
loss before cumulative effect of accounting change and net loss by $1.8 million
($.01 per share) for the six months ended April 30, 1993; increase earnings
before extraordinary item and net earnings by $4.0 million ($.04 per share) for
the year ended October 31, 1992; and, increase net earnings by $5.4 million
($.05 per share) and $1.0 million ($.01 per share) for the year ended October
31, 1991 and the three months ended July 31, 1992, respectively. The
cumulative effect of adopting SFAS No. 109 as of October 31, 1990, decreased
the beginning balance of 1991's retained earnings by $45.4 million.
Under SFAS No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of SFAS No. 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the differences
originated. For further detail, see Note D to the consolidated financial
statements.
Note B -- Acquisition and Disposition of Businesses
In May 1993, the Company purchased the remaining 80% it did not own of
Canada's Wonderland, Inc., a Canadian theme park, for approximately $52
million. In June 1993, the Company agreed to sell Prentice Hall Legal and
Financial Services, Prentice Hall Legal Practice Management and Prentice Hall
Professional Software, three of its Publishing software and information
services units, to Information America, Inc. (IA) for common stock, debt,
preferred stock, common stock warrants and options. The transaction is
subject to approval by IA's shareholders. At closing, the Company will own an
approximately 49% common stock interest in IA. In September 1993, the Company
purchased television station WKBD-TV in Detroit from Cox Enterprises Inc. for
approximately $105 million.
In August and October 1992, the Company acquired Kings Entertainment
Company and Kings Island Company, respectively, later renamed Paramount Parks,
which own and operate regional theme parks, for a total of approximately $400
million.
During the periods ended July 31, 1993 and 1992, the Company also
acquired or sold certain other businesses. The contributions of these
businesses in the aggregate were not significant to the Company's results of
operations for the periods presented, nor are they expected to have a material
effect on the Company's results on a continuing basis.
-9-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C -- Inventories
Inventories are stated as follows (in millions):
July 31 April 30
1993 1993
-------- --------
Current
Lower of cost or net realizable value
Finished goods . . . . . . . . . . . . . . . $ 233.8 $ 248.3
Work in process . . . . . . . . . . . . . . . 9.7 12.8
Materials and supplies . . . . . . . . . . . . 30.8 29.5
------------ ------------
274.3 290.6
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . 214.8 176.9
Completed, not released . . . . . . . . . . . 74.7 32.7
In process and other . . . . . . . . . . . . . 75.9 61.8
------------ ------------
365.4 271.4
Broadcast rights . . . . . . . . . . . . . . . . . . . 44.5 55.3
------------ ------------
684.2 617.3
Noncurrent
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . . 144.2 155.3
In process and other . . . . . . . . . . . . . 191.4 247.0
------------ ------------
335.6 402.3
Broadcast rights . . . . . . . . . . . . . . . . . . . 100.3 107.0
------------ ------------
435.9 509.3
------------ ------------
$ 1,120.1 $ 1,126.6
============ ============
-10-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D -- Income Taxes
As described in Note A, effective May 1, 1993, the Company adopted SFAS
No. 109, "Accounting for Income Taxes" by restating its prior period financial
statements beginning November 1, 1988.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred income tax assets and
liabilities as of April 30, 1993, were as follows (in millions):
April 30
1993
--------
Deferred tax assets:
Costs of motion picture and television production . . . . . . . . . $ 89.2
Employee compensation and other payroll related expenses. . . . . . 44.5
Provisions for real estate write-down, relocation and prior year
publishing charge . . . . . . . . . . . . . . . . . . . . . 40.5
Sales returns and allowances . . . . . . . . . . . . . . . . . . . 46.4
Discontinued operations . . . . . . . . . . . . . . . . . . . . . 34.2
Postretirement benefit obligation . . . . . . . . . . . . . . . . . 34.5
Preacquisition net operating loss carryforwards of subsidiaries
and other . . . . . . . . . . . . . . . . . . . . . . . . 50.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1
-------------
371.4
Valuation allowance for deferred tax assets . . . . . . . . . . . . (50.0)
-------------
Total deferred tax assets . . . . . . . . . . . . . . . . . 321.4
Deferred tax liabilities:
Income on motion picture and television production. . . . . . . . . (12.4)
Expenses related to renovation project. . . . . . . . . . . . . . . (9.2)
Self insurance . . . . . . . . . . . . . . . . . . . . . . . . . . (10.5)
Deferred seasonal expenses. . . . . . . . . . . . . . . . . . . . . (41.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18.4)
-------------
Total deferred tax liabilities . . . . . . . . . . . . . . (92.4)
-------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . $ 229.0
=============
The net change in the valuation allowance from October 31, 1992 to
April 30, 1993 was a decrease of $10.3 million.
Provision (benefit) for income taxes includes (in millions):
Six Months Ended Year Ended
April 30, 1993 October 31, 1992
---------------- ----------------
Current
Federal . . . . . . . . . . . . . . . . . . . . . . $ (54.1) $ 62.4
Foreign . . . . . . . . . . . . . . . . . . . . . . 16.1 55.1
State and other . . . . . . . . . . . . . . . . . . 1.4 8.8
----------- -----------
(36.6) 126.3
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . 27.7 4.0
Foreign . . . . . . . . . . . . . . . . . . . . . . 1.2 (7.2)
----------- -----------
28.9 (3.2)
----------- -----------
$ (7.7) $ 123.1
============ ===========
-11-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the provision (benefit) for deferred taxes were as
follows (in millions):
Six Months Ended Year Ended
April 30, 1993 October 31, 1992
---------------- ----------------
Costs of motion picture and television production . . . . . . . . . . . . . . . . . $(19.1) $ 4.0
Income on motion picture and television production . . . . . . . . . . . . . . . . . (0.8) 3.0
Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5 (13.9)
Employee compensation and other payroll related expenses . . . . . . . . . . . . . . 27.5 (8.4)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.2) (2.0)
Reversal of differences related to a prior year publishing charge . . . . . . . . . (0.5) 14.5
Expenses related to renovation project . . . . . . . . . . . . . . . . . . . . . . . (1.4)
Self insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 8.7
Deferred seasonal expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2
Provision for real estate write-down and relocation . . . . . . . . . . . . . . . . (13.6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) (7.7)
------ ------
$ 28.9 $ (3.2)
====== ======
The components of earnings (loss) before income taxes were as follows
(in millions):
Six Months Ended Year Ended
April 30, 1993 October 31, 1992
---------------- ----------------
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(47.8) $301.8
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.0 95.5
------ ------
$(16.8) $397.3
====== ======
A reconciliation between the provision (benefit) for income taxes
computed by applying the statutory Federal income tax rate to earnings (loss)
before income taxes and the actual provision (benefit) for income taxes is as
follows (in millions):
Six Months Ended Year Ended
April 30, 1993 October 31, 1992
---------------- ----------------
Provision (benefit) for income taxes at statutory rate . . . . . . . . . . . . . . . $(5.7) $135.1
Increase (decrease) in taxes arising from effect of:
Income (principally foreign) taxed at lower rates . . . . . . . . . . . . . (1.2) (13.4)
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . 1.3 13.1
U. S. state and local income taxes . . . . . . . . . . . . . . . . . . . . . 1.0 5.3
Restoration of reserves no longer required . . . . . . . . . . . . . . . . . (3.9) (21.4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 4.4
----- ------
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . $(7.7) $123.1
===== ======
Total income tax payments were $59.6 and $120.0 million, respectively,
for the six months ended April 30, 1993 and the year ended October 31,
1992. The Company's share of the undistributed earnings of foreign
subsidiaries not included in its consolidated Federal income tax return,
that could be subject to additional income taxes if remitted, was
approximately $810 million at April 30, 1993. No provision has been made
for taxes that could result from the remittance of such undistributed
earnings since the Company intends to reinvest these earnings indefinitely;
determination of the related unrecognized deferred U.S. income tax liability
is not practicable.
-12-
PARAMOUNT COMMUNICATIONS INC.
PART II.OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -- None
(b) Reports on Form 8-K -- The following reports on Form 8-K were filed
during the three months ended July 31, 1993:
(i) The registrant filed a Current Report on Form 8-K, dated
June 22, 1993, in respect of its determination to change its
fiscal year to April 30 from October 31. The item reported in
such Current Report was Item 8 (Change in Fiscal Year).
(ii) The registrant filed a Current Report on Form 8-K, dated June
30, 1993, in respect of pro forma unaudited combined financial
statements of Paramount Communications Inc., Kings Entertainment
Company and Kings Island Company. The item reported in such
Current Report was Item 7 (Pro Forma Financial Information), and
the Pro Forma Combined Statement of Earnings for the Year Ended
October 31, 1992 was filed therewith.
(iii) The registrant filed a Current Report on Form 8-K, dated July 15,
1993, in respect of a definitive form of Senior Note related to
the registrant's offering of $150,000,000 of 5 7/8% Senior Notes
due July 15, 2000 and in respect of a definitive form of Senior
Debenture related to the registrant's offering of $150,000,000
of 7 1/2% Senior Debentures due July 15, 2023. The item
reported in such Current Report was Item 7 (Exhibits).
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, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: September 10, 1993 By: /s/ Ronald L. Nelson
-----------------------------
Ronald L. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-13-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1993 COMMISSION FILE NUMBER 1-5404
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
At December 9, 1993, 121,000,626 shares of the registrant's Common Stock, $1
par value, were outstanding.
PARAMOUNT COMMUNICATIONS INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Consolidated Statement of Earnings --
Three Months and Six Months Ended October 31, 1993 and 1992 . . . . . . . . . . . . . . . . 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet --
October 31, 1993 and April 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Consolidated Statement of Cash Flows --
Six Months Ended October 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . 9
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-1-
PARAMOUNT COMMUNICATIONS INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
------------------ --------------------
1993 1992 1993 1992
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE)
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . $1,391.8 $ 1,202.5 $ 2,743.5 $ 2,266.4
Cost of goods sold . . . . . . . . . . . . . . . . . . . 918.4 727.5 1,760.8 1,356.7
Selling, general and administrative expenses . . . . . . 313.7 313.6 632.4 591.4
-------- --------- --------- ---------
1,232.1 1,041.1 2,393.2 1,948.1
-------- --------- --------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 159.7 161.4 350.3 318.3
Other income (expense) . . . . . . . . . . . . . . . . . (2.7) 1.0 (3.5)
Interest and other investment income (expense) -- net
Interest expense . . . . . . . . . . . . . . . . . . . (25.1) (29.0) (46.1) (54.0)
Interest and other investment income . . . . . . . . . 17.0 28.6 33.4 64.3
-------- --------- --------- ---------
(8.1) (0.4) (12.7) 10.3
-------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . . . 148.9 162.0 334.1 328.6
Provision for income taxes - Note A . . . . . . . . . . . 52.1 50.8 116.9 103.1
-------- --------- --------- ---------
EARNINGS BEFORE EXTRAORDINARY ITEM . . . . . . . . . . . 96.8 111.2 217.2 225.5
Extraordinary item - Note C . . . . . . . . . . . . . . (8.8) (8.8)
-------- --------- --------- ---------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . . . $ 96.8 $ 102.4 $ 217.2 $ 216.7
======== ========= ========= =========
Average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . 120.2 119.4
Earnings per share
Earnings before extraordinary item . . . . . . . . . . $ .80 $ .93 $ 1.81 $ 1.89
Net earnings . . . . . . . . . . . . . . . . . . . . . .80 .86 1.81 1.82
Cash dividends declared per common share . . . . . . . . .20 .20 .40 .40
See notes to consolidated financial statements.
-2-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Paramount Communications Inc. operates in the entertainment and publishing
businesses. The following is a comparative summary of operating results for
the three and six months ended October 31, 1993 and 1992 (in millions):
THREE MONTHS ENDED OCTOBER 31 SIX MONTHS ENDED OCTOBER 31
----------------------------------------- -----------------------------------------------
OPERATING OPERATING
REVENUES INCOME REVENUES INCOME
-------------------- ---------------- ---------------------- -------------------
1993 1992 1993 1992 1993 1992 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
Entertainment . . . . . . $ 838.6 $ 685.8 $ 45.3 $ 53.9 $1,657.4 $ 1,249.1 $ 134.3 $ 114.7
Publishing . . . . . . . 553.2 516.7 132.1 124.5 1,086.1 1,017.3 251.7 237.0
Corporate Expenses . . . (17.7) (17.0) (35.7) (33.4)
-------- --------- ------ ------ -------- --------- ------- -------
$1,391.8 $ 1,202.5 $159.7 $161.4 $2,743.5 $ 2,266.4 $ 350.3 $ 318.3
======== ========= ====== ====== ======== ========= ======= =======
ENTERTAINMENT
Revenues increased 22%, to $838.6 million from $685.8 million, and 33%, to
$1,657.4 million from $1,249.1 million, for the three and six months ended
October 31, 1993, respectively, compared with the same prior-year periods.
Operating income decreased 16% in the current three months but increased 17%
for the six months ended October 31, 1993, compared with the same prior-year
periods. Results for the current six-month period included significant
seasonal contributions from Paramount Parks, the Company's theme park
operations, which were acquired in the fall of 1992.
Features
Revenues from features product decreased 3% in the current three months, to
$257.1 million from $264.8 million, but increased 3%, to $582.7 million from
$563.3 million, for the six months ended October 31, 1993, compared with the
same prior-year periods. Theatrical revenues increased 31% and 43% for the
three and six months ended October 31, 1993, respectively, led by the continued
domestic and the international box office success of The Firm and the
international performances of Indecent Proposal and Sliver. In addition, the
current six-month period benefited from the domestic theatrical success of
Indecent Proposal. Home video revenues decreased 16% and 18% for the three-
and six-month current-year periods, respectively, because of the absence of a
significant sell-through title included in the prior-year periods. However,
the current periods included contributions from the domestic videocassette
release of Indecent Proposal and the continued domestic and foreign success of
Patriot Games and Boomerang, along with increased sales from various
sell-through promotional programs. Pay cable revenues declined 31% and 12% for
the current three- and six-month periods because of a weaker mix of newly
available titles compared with the same prior-year periods. Revenues from
network and domestic and international syndication sales of features product
rose 51% and 29% for the three and six months ended October 31, 1993,
respectively, because of the availability of more successful titles.
Features posted an operating loss for the three months ended October 31,
1993, compared with operating income for the comparable prior-year period, and
operating income declined 52% for the current six-month period. Theatrical
results declined because of higher feature write-downs in the current-year
periods, primarily related to the releases of Searching for Bobby Fischer, The
Thing Called Love, Bopha! and Coneheads, as well as higher scenario reserves.
Home video operations registered lower profits in the current-year periods
principally due to the decline in revenues and a less profitable mix of titles.
Pay cable results were flat for the current quarter ended October 31, 1993, but
increased in the current six months primarily because of an improved overall
profit rate on library titles. Operating income from network features and
domestic and international features syndication increased in the current-year
periods because of higher revenues along with a more profitable mix of titles.
Television
Television programming revenues increased 30%, to $293.4 million from
$225.9 million, and 34%, to $451.5 million from $336.1 million, in the three and
six months ended October 31, 1993, respectively, compared with the same
prior-year periods. Revenues from network series increased 54% and 73%,
respectively, in the current-year periods because of contributions from the
domestic licensing of Wings to USA Network, higher network license fees driven
by increased series production and increased syndication sales of network
library titles. Revenues from first-run series increased slightly for the
-3-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
three months ended October 31, 1993, but were up 13% in the current six-month
period; contributions from Star Trek: Deep Space Nine and the John & Leeza Show
were largely offset by lower revenues from The Arsenio Hall Show.
Television programming operating income increased 21% for the current three
months but declined 2% in the six months ended October 31, 1993. Operating
income from network series rose because of higher profitability of Cheers.
First-run series operating income declined, as higher profits from Star Trek:
The Next Generation and Entertainment Tonight, along with contributions from
Star Trek: Deep Space Nine were more than offset by lower results from The
Arsenio Hall Show and increased investments in new programming.
Station and Network
Operating income at the Station and Network group increased 30% in the
three months but declined 15% in the six months ended October 31, 1993.
Paramount Stations Group registered higher profits principally due to an
increase in revenues of 22%, to $50.9 million from $41.8 million, and 18%, to
$96.7 million from $82.2 million, in the current-year three- and six-month
periods, respectively, resulting from higher advertising sales as well as
contributions from the September 1993 acquisition of WKBD-TV in Detroit. At
USA Networks, the Company's jointly-owned cable operations, operating income
declined in the current-year periods primarily because of higher programming
costs and the underperformance of certain programs at USA Network, along with
continued start-up costs incurred for the Sci-Fi Channel.
Theaters
Theatrical exhibition revenues increased 28%, to $47.2 million from $36.9
million, and 8%, to $90.8 million from $84.4 million, for the three and six
months ended October 31, 1993, respectively. Revenues at Famous Players, the
Company's Canadian chain, increased 23% and 3%, respectively, in the current
year periods because of attendance gains driven by improved product. Operating
results at Cinamerica, the Company's 50%-owned domestic theater operation,
increased in the current periods because of higher attendance and lower
operating expenses. International theater operations, which are primarily
jointly-owned, recorded higher operating income, principally because of
increased attendance levels in the United Kingdom and Germany. Overall
theatrical exhibition operating income increased significantly for the current
quarter and by 156% for the current six months, primarily because of the
attendance-driven increase in revenues and lower operating expenses.
Madison Square Garden
Revenues for Madison Square Garden increased by 26%, to $63.2 million from
$50.2 million, and 17%, to $120.8 million from $103.1 million in the
current-year three- and six-month periods, respectively. The sports teams'
revenues increased modestly in the current quarter, but increased 27% for the
current six months led by higher Knickerbocker playoff revenues; revenues for
the Rangers increased slightly in the current six-month period due to the
receipt of expansion revenues, partially offset by the absence of playoff
revenue. The current periods also included higher revenue from an increased
number of live entertainment events in the Arena, increased MSG Network
affiliate and advertising sales and greater concession revenues, while the
current six months were negatively impacted by the absence of revenues from the
Democratic National Convention recognized in the same prior-year period.
Operating losses decreased 9% in the current quarter but increased 2% for
the six months ended October 31, 1993. The current periods included higher
income from the increase in concession revenues along with higher profits at
MSG Network because of the increase in revenues, which were partially offset by
an increase in programming and operating expenses. These results were
partially offset in the current quarter, and more than offset in the current
six months, by an increase in operating losses from the Knickerbockers, where
higher team compensation and operating expenses exceeded revenue gains
achieved.
Paramount Parks
Revenues for Paramount Parks, which were acquired in several transactions
during the quarters ended October 31, 1992 and July 31, 1993, increased to
$115.2 million and $301.4 million in the current-year periods from $56.1
million in each of the prior-year periods. Operating income increased in the
current-year periods reflecting the inclusion of a full six months of
operations versus a partial three-month period in the prior year.
-4-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PUBLISHING
Publishing revenues of $553.2 million and $1,086.1 million in the current
three- and six-month periods, respectively, reflect 7% increases over revenues
of $516.7 million and $1,017.3 million in the comparable prior-year three- and
six-month periods, respectively, while operating income rose 6% in the
current-year periods.
Consumer
Revenues increased 10%, to $146.1 million from $132.6 million, and 7%, to
$235.3 million from $220.2 million, in the current three- and six-month periods,
compared with the same prior-year periods. Revenues increased in the current
three and six months at the Simon & Schuster trade division and at Pocket Books
due primarily to contributions from initial hardcover releases, and in the
current six-month period because of higher backlist hardcover sales at the
trade division and paperback releases at Pocket Books. Additionally, consumer
publishing benefited in the current-year periods from higher sales at
Paramount Publishing New Media, primarily from the audio releases of successful
Pocket Book titles and higher international revenues partially offset by weaker
backlist demand for reference and children's books.
Consumer publishing posted 30% and 36% higher operating income in the
current three- and six-month periods, respectively, as increased revenues along
with lower product support expenses were partially offset by higher product
development and operating expenses.
Business, Technical and Professional
Revenues declined 4% in the current year periods, to $101.9 million in the
current-year quarter from $105.8 million in the prior-year quarter, and to
$168.7 million in the current six months from $175.0 million for the prior
six-month period. Lower sales of multimedia programs, timing of the release of
annual tax products and lower subscription sales were partially offset by
increased sales of computer titles, self-improvement products and higher
revenues from business seminars.
Operating income decreased 13% and 38%, respectively, in the three- and
six-months ended October 31, 1993, because of lower revenues and increased
product support expenses partially offset by lower product development and
operating expenses.
Education
Revenues increased 15%, to $260.7 million from $226.8 million, and 11%, to
$595.3 million from $535.7 million, in the three and six months ended October
31, 1993, respectively, compared with the same prior-year periods. Elementary
education revenues rose 11% for the quarter, to $85.3 million from $76.8
million in the prior-year quarter, while the six months revenues increased 5%,
to $221.8 million from $212.0 million in the prior six-month period. Revenues
were higher primarily because of increased adoption opportunities and the
introduction of new reading, social studies and religion products, along with
higher sales of workbooks and kits. Secondary education revenues rose 19%, to
$55.6 million in the current quarter from $46.7 million in the prior-year
quarter, while the current six-month revenues increased 18%, to $132.9 million
from $112.7 million in the prior six-month period. The increased revenues are
primarily attributable to the successful launch of the latest science, language
arts and social studies programs, particularly in California, Virginia and
Texas, respectively. Revenues at higher education rose 11%, to $87.1 million
from $78.8 million, and 9%, to $184.6 million from $169.1 million, for the
current three and six months, respectively, compared with the same prior-year
periods, primarily from the success of new editions in the social science,
humanities and education disciplines, along with volume-incentive programs.
Educational technology revenues increased 34% in the three- and six-month
periods, to $32.7 million and $56.0 million, respectively, compared with $24.5
million and $41.9 million, respectively, in the prior-year three- and six-month
periods. The revenues increased principally because of higher sales of
computer learning stations and related software products.
Operating income rose 35% and 20%, respectively, in the three- and six-
month periods as increased revenues and lower operating expenses were partially
offset by increased product support expenses.
-5-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
International
Revenues of $52.5 million in the current quarter and $101.8 million in the
current six months reflect an increase of 12% and 11%, respectively, as
compared with revenues of $46.9 million and $91.7 million, respectively, in the
prior-year three- and six- month periods. Sales gains at all units, led by
Asia, United Kingdom Academic, Mexico and Australia, were largely attributable
to increased adoptions and improved sales of computer books.
Operating income improved 22% and 11%, respectively, in the three and six
months ended October 31, 1993, because of higher revenues, partially offset by
increased product support and development and operating expenses.
Additionally, overall publishing operations reflect higher corporate
administrative expenses.
INTEREST AND OTHER INVESTMENT INCOME (EXPENSE) -- NET
Earnings for the current-year periods reflect net interest and other
investment expense of $8.1 million and $12.7 million, compared with net
interest and other investment expense of $0.4 million for the prior-year
three-month period and net interest and other investment income of $10.3
million in the prior-year six-month period. This decrease stems primarily
from lower interest and other investment income because of lower average cash
equivalents and short-term investments and interest rates. The lower average
cash equivalents and short-term investments were primarily a result of
acquisitions and the funding of the working capital requirements of the
Company. The decrease in interest and other investment income was partially
offset by lower interest expense, which included lower effective interest rates
on the Company's debt.
OTHER
The effective rate for income taxes was 35% in the six months ended October
31, 1993 compared with a 31.4% rate (as restated - see below) for the
comparable prior-year period. The increase is the result of the amount of
foreign income subject to tax at lower foreign rates as a percentage of total
worldwide income and increases in income subject to federal, state and local
income taxes. Corporate expenses for the current-year periods include costs
related to the start-up of the Paramount Technology Group, a new business unit
responsible for the integration of emerging technologies, including new product
development, throughout the Company's entertainment and publishing operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company depended primarily on internal cash flow and external
borrowings to finance its operations during the six months ended October 31,
1993, and expects to continue to do so. In May 1993, the Company purchased the
remaining 80% it did not own of Canada's Wonderland, Inc., later renamed
Paramount Canada's Wonderland, Inc., a Canadian theme park, for approximately
$52 million. The Company subsequently liquidated Paramount Canada's Wonderland
debt obligations of approximately $31 million. In June 1993, the Company
agreed to sell Prentice Hall Legal and Financial Services, Prentice Hall Legal
Practice Management and Prentice Hall Professional Software, three of its
Publishing software and information services units, to Information America,
Inc. This agreement was terminated in October 1993. In September 1993, the
Company purchased television station WKBD-TV in Detroit from Cox Enterprises
Inc. for approximately $105 million. In November 1993, the Company entered
into an agreement to purchase Macmillan Publishing Company and certain other
assets of Macmillan Inc., a leading book publisher, for approximately $553
million. The transaction is expected to close in early 1994.
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., have agreed to form a joint venture to be known
as the Paramount Television Network which will provide prime-time television
programming primarily to broadcast affiliates nationwide in competition with
the three major networks and the Fox Broadcasting Network. Subject to certain
conditions, the network is expected to begin operations in January 1995.
In July 1993, the Company redeemed $100 million of 8 1/2% senior notes
due 1996. Also, in July 1993, the Company completed a public offering of $150
million of 5 7/8% senior notes due 2000 and $150 million of 7 1/2% senior
debentures due 2023. A portion of the net proceeds was used to refinance the
previously mentioned redemption of the Company's 8 1/2% senior notes. The
remainder of such proceeds were used to fund the acquisitions of television
station WKBD-TV in Detroit and the remaining 80% interest in Paramount Canada's
Wonderland theme park. Total debt as a percentage of total capitalization
increased from 17% at April 30, 1993 to 20% at October 31, 1993. In the past,
the Company has been able to increase its borrowings as required and expects to
be able to continue to do so.
-6-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Trade receivables increased at October 31, 1993, compared to April 30, 1993
by 28%, which is principally attributable to the Company's publishing
operations. Educational publishing, which normally contributes more than half
of annual publishing revenues, records most of its sales in the Company's July
and October quarters, corresponding to the typical school-year buying cycle.
In addition, trade receivables increased in the Company's entertainment
operations largely because of the commencement of domestic syndication
contracts for major television programs in the quarter coupled with
pre-Christmas videocassette sales.
The balance sheet at October 31, 1993, reflects the acquisitions of the
remaining 80% interest in Paramount Canada's Wonderland theme park and
television station WKBD-TV in Detroit, which contributed to changes in certain
balance sheet accounts as compared to April 30, 1993.
ACCOUNTING CHANGE
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Effective May 1, 1993, the Company adopted the provisions of
this standard by restating its prior period financial statements beginning
November 1, 1988. The effect of adopting SFAS No. 109 was to increase earnings
before extraordinary item and net earnings by $1.0 million ($.01 per share) and
$2.0 million ($.02 per share) for the three and six months ended October 31,
1992, respectively.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
EFFECTS OF ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which is effective for the Company in the year ending
April 30, 1995. Under this statement, the cost of benefits provided to
employees after employment but before retirement is to be recognized in the
financial statements on an accrual basis during the service period of the
employee. It is expected that implementation of this statement will not have a
material impact on the financial statements of the Company.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which is effective for the Company
in the year ending April 30, 1995. This statement sets forth the accounting
for certain investments in debt and equity securities based upon management's
ability and intent, at the time of purchase, to trade, hold to maturity or make
available for sale such investments. The effect of this statement at the time
of adoption will depend upon the Company's ability and intent with respect to
such investments.
EFFECTS OF BUDGET RECONCILIATION ACT OF 1993
In August 1993, the Budget Reconciliation Act of 1993 (the "Act") was
enacted into law. One of the provisions of the Act increased the corporate
income tax rate to 35% effective January 1, 1993. This increase, from the
previous 34% rate, had no material effect on the Company. The Company expects
to benefit from a section of the Act permitting tax deductions derived from the
amortization of certain intangible assets acquired after July 25, 1991, which
deductions have not previously been claimed on tax returns filed by the
Company. However, the Company believes that any tax benefits generated by the
amortization of intangible assets previously acquired by it will not be
material.
Furthermore, to the extent that the Company is affected by several other
provisions of the Act, the results should not be material.
-7-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET
OCTOBER 31 APRIL 30
1993 1993
---- ----
(UNAUDITED) (NOTE)
(IN MILLIONS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 380.6 $ 372.6
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626.5 569.7
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062.2 829.6
Inventories - Note D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.7 617.3
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135.4 131.7
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.9 400.2
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,241.3 2,921.1
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252.3 210.8
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604.5 591.4
Machinery, equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 715.4 606.9
-------- --------
1,572.2 1,409.1
Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 382.4 336.1
-------- --------
1,189.8 1,073.0
OTHER ASSETS
Investment in affiliated companies . . . . . . . . . . . . . . . . . . . . . . . . . 247.5 243.9
Noncurrent receivables and inventories - Note D . . . . . . . . . . . . . . . . . . 774.5 689.8
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,560.3 1,517.5
Deferred costs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432.1 429.5
-------- --------
3,014.4 2,880.7
-------- --------
$7,445.5 $6,874.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $ 10.1 $ 109.8
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196.5 194.7
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64.5 26.6
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,170.5 1,128.4
-------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,441.6 1,459.5
DEFERRED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871.2 805.9
LONG-TERM DEBT, net of current maturities . . . . . . . . . . . . . . . . . . . . . . 1,002.9 707.3
STOCKHOLDERS' EQUITY
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 119,585,360 at October 31, 1993
(excluding 28,280,016 shares held in treasury) and 118,199,396 at
April 30, 1993 (excluding 29,665,980 shares held in treasury) . . . . . . . . . . 119.6 118.2
Paid-in surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778.1 712.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,252.2 3,082.5
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . (20.1) (11.4)
-------- --------
4,129.8 3,902.1
-------- --------
$7,445.5 $6,874.8
======== ========
Note: Derived from audited financial statements.
See notes to consolidated financial statements.
-8-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
OCTOBER 31
----------------------
1993 1992
---- ----
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . $ 217.2 $ 225.5
Non-cash expenses
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.0 36.5
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 (4.2)
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 43.5 40.4
Amortization of pre-publication costs . . . . . . . . . . . . . . . . . . . . . . 59.3 63.5
Undistributed net earnings of unconsolidated affiliates . . . . . . . . . . . . . . (10.7) (5.6)
Theatrical and television inventories and broadcast rights . . . . . . . . . . . . .
Gross additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (629.6) (437.6)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570.3 421.0
Increase in network features and syndication licenses . . . . . . . . . . . . . . . (65.4) (11.7)
Increase in pre-publication costs . . . . . . . . . . . . . . . . . . . . . . . . . (40.9) (42.8)
Increase in trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . (220.4) (171.1)
Decrease in inventories (other than theatrical and television) . . . . . . . . . . 31.8 31.3
Increase in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.6) (44.6)
Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . . . . . (0.7) 11.9
Increase in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 37.9 54.1
Increase in accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . 106.3 54.0
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.5 18.0
-------- --------
NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES . . . . . . . . . . . . . . . 199.4 238.6
CASH FLOWS FROM INVESTMENT AND OTHER ACTIVITIES
Expenditures for property, plant and equipment (excluding capitalized leases) . . . (73.9) (51.2)
Proceeds on disposal of property, plant and equipment . . . . . . . . . . . . . . . 4.7 6.6
Purchase price of acquired businesses (net of acquired cash) . . . . . . . . . . . . (157.3) (423.6)
Increase in investment in affiliated companies . . . . . . . . . . . . . . . . . . . (7.9) (2.5)
Decrease (increase) in short-term and other investments . . . . . . . . . . . . . . (131.9) 94.7
Decrease in investments maturing after one year . . . . . . . . . . . . . . . . . . 23.5
Decrease in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 4.2
-------- --------
NET CASH FLOWS USED FOR INVESTMENT AND OTHER ACTIVITIES . . . . . . . . . . . . (365.0) (348.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298.8 246.7
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (136.7) (181.2)
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . (13.4)
Issuance of Common Stock (excluding grants to employees) . . . . . . . . . . . . . . 58.9 14.0
Acquisition of stock for the treasury . . . . . . . . . . . . . . . . . . . . . . . (48.5)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47.4) (47.3)
--------- --------
NET CASH FLOWS PROVIDED FROM (USED FOR) FINANCING ACTIVITIES . . . . . . . . . . 173.6 (29.7)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . 8.0 (139.4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . 372.6 463.7
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . $ 380.6 $ 324.3
======== ========
See notes to consolidated financial statements.
-9-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements of Paramount
Communications Inc. and its consolidated subsidiaries (Company) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations of any
interim period are subject to year-end audit and adjustments, and are not
necessarily indicative of the results of operations for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's transition report on Form 10-K
for the six months ended April 30, 1993, as amended.
Accounting Change
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." Effective May 1, 1993, the Company adopted the provisions of this
standard by restating its prior period financial statements beginning November
1, 1988. The effect of adopting SFAS No. 109 was to increase earnings before
extraordinary item and net earnings by $1.0 million ($.01 per share) and $2.0
million ($.02 per share) for the three and six months ended October 31, 1992,
respectively.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
NOTE B -- ACQUISITION AND DISPOSITION OF BUSINESSES
In May 1993, the Company purchased the remaining 80% it did not own of
Canada's Wonderland, Inc., later renamed Paramount Canada's Wonderland, Inc., a
Canadian theme park, for approximately $52 million. In June 1993, the Company
agreed to sell Prentice Hall Legal and Financial Services, Prentice Hall Legal
Practice Management and Prentice Hall Professional Software, three of its
Publishing software and information services units, to Information America,
Inc. This agreement was terminated in October 1993. In September 1993, the
Company purchased television station WKBD-TV in Detroit from Cox Enterprises
Inc. for approximately $105 million. In November 1993, the Company entered
into an agreement to purchase Macmillan Publishing Company and certain other
assets of Macmillan Inc., a leading book publisher, for approximately $553
million. The transaction is expected to close in early 1994.
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., have agreed to form a joint venture to be known
as the Paramount Television Network which will provide prime-time television
programming primarily to broadcast affiliates nationwide in competition with
the three major networks and the Fox Broadcasting Network. Subject to certain
conditions, the network is expected to begin operations in January 1995.
In August and October 1992, the Company acquired Kings Entertainment
Company and Kings Island Company, respectively, later renamed Paramount Parks,
which own and operate regional theme parks, for a total of approximately $400
million.
During the periods ended October 31, 1993 and 1992, the Company also
acquired or sold certain other businesses. The contributions of these
businesses in the aggregate were not significant to the Company's results of
operations for the periods presented, nor are they expected to have a material
effect on the Company's results on a continuing basis.
-10-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C -- EXTRAORDINARY ITEM
In September 1992, the Company redeemed $175 million of 9 3/4% senior
debentures due 2016 for $1,061.25 per $1,000 principal amount. The premium
paid by the Company and the write-off of related unamortized discount and
issuance costs resulted in a loss of $8.8 million, net of an income tax benefit
of $4.6 million.
NOTE D -- INVENTORIES
Inventories are stated as follows (in millions):
OCTOBER 31 APRIL 30
1993 1993
---- ----
Current
Lower of cost or net realizable value
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 225.3 $ 248.3
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 12.8
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.5 29.5
--------- ---------
261.0 290.6
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.5 176.9
Completed, not released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.4 32.7
In process and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.3 61.8
--------- ---------
324.2 271.4
Broadcast rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.5 55.3
--------- ---------
633.7 617.3
Noncurrent
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.1 155.3
In process and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315.6 247.0
--------- ---------
411.7 402.3
Broadcast rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128.9 107.0
--------- ---------
540.6 509.3
--------- ---------
$ 1,174.3 $ 1,126.6
========= =========
NOTE E -- TENDER OFFERS
On October 25, 1993, Viacom Inc. (Viacom) commenced a tender offer for 51%
of the outstanding shares of Common Stock of the Company at a price of $80 per
share in cash, which offer, as subsequently revised, provides for the purchase
of 51% of the shares at a price of $85 per share in cash (as so revised, the
"Viacom Offer"). The Viacom Offer is being made pursuant to an Amended and
Restated Agreement and Plan of Merger, dated as of October 24, 1993, as
subsequently amended (the "Restated Merger Agreement"), between Viacom and the
Company, which amended and restated in its entirety the Agreement and Plan of
Merger, dated as of September 12, 1993, between Viacom and the Company.
The Viacom Offer and the Restated Merger Agreement contemplate the merger
(the "Viacom Second - Step Merger") of the Company with Viacom on the terms,
and subject to the conditions, set forth in the Restated Merger Agreement. In
the Viacom Second-Step Merger, each remaining share of Common Stock would be
converted into the right to receive (i) 0.20408 shares of Viacom Class A Common
Stock, (ii) 1.08317 shares of Viacom Class B Common Stock and (iii) 0.30408
shares of a new series of Viacom cumulative convertible exchangeable preferred
stock (the "Viacom Merger Stock Consideration").
-11-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Restated Merger Agreement contemplates that if the Viacom Offer is not
consummated and certain other conditions are satisfied, the Company will be
merged with Viacom on alternate terms (the "Viacom Alternate Merger"). In the
Viacom Alternate Merger, each share will be converted into the right to
receive, at each stockholder's election, either (i) the Viacom Merger Stock
Consideration or (ii) $85 in cash. If either alternative is oversubscribed,
stockholders will receive part of their consideration in cash or stock, as the
case may be.
Pursuant to the Restated Merger Agreement, a special meeting of the
Company's common stockholders will be called to act on the Viacom Second-Step
Merger or the Viacom Alternate Merger. The approval of holders of a majority
of all outstanding shares is required to approve either of the Viacom
Second-Step Merger or the Viacom Alternate Merger. In addition, consummation
of the Merger is subject to certain conditions, including receipt of regulatory
approvals.
If the Restated Merger Agreement is terminated under certain limited
circumstances, Viacom will be entitled to a termination payment of $100
million. In addition, the Company has granted Viacom an option to purchase up
to 23,699,000 shares of Common Stock at an exercise price of $69.14 per share,
pursuant to a stock Option Agreement, dated as of September 12, 1993, as
subsequently amended (the "Stock Option Agreement"), between the Company and
Viacom. Under the Stock Option Agreement, Viacom also has the right to cause
the Company to pay, in consideration for the cancellation of the option, an
amount equal to the excess of the then current market price of the shares over
the $69.14 exercise price multiplied by the number of shares as to which the
option is exercisable. Viacom's rights under the Stock Option Agreement will
become exercisable upon the same conditions triggering the termination fee
under the Restated Merger Agreement.
On October 27, 1993, QVC Network, Inc. (QVC) commenced an unsolicited
tender offer for approximately 51% of the Common Stock at a price of $80 per
share in cash, which offer, as subsequently revised, provides for the purchase
of approximately 51% of the Common Stock at a price of $90 per share in cash
(the "QVC Offer"). Although there is no binding agreement between QVC and
the Company with respect to a merger of the two entities, QVC has stated its
intention, if it acquires 51% of the Common Stock, to effect a second-step
merger wherein each share of Common Stock would be exchanged for (i) 1.43
shares of QVC common stock and (ii) 0.32 shares of a new series of QVC
cumulative convertible exchangeable preferred stock.
QVC commenced litigation in Delaware State Court, and on December 9, 1993
the Delaware Supreme Court affirmed the order of the Delaware Chancery Court
granting QVC's motion for a preliminary injunction prohibiting the Company from
amending the Company's Shareholder Rights Plan or taking other action to permit
completion of the currently pending Viacom Offer and related merger and denying
Viacom the ability to exercise its rights pursuant to the Stock Option
Agreement described above.
On December 13, 1993 the Company's Board of Directors adopted procedures
for the purpose of considering any proposals to acquire the Company.
Proposals are required to be delivered no later than 4:00 p.m., New York
City time on Monday, December 20, 1993, unless extended. The Company's
Board also determined that, under the current circumstances, it is unable
to take a position with respect to whether stockholders should accept or
reject either the QVC Offer or the Viacom Offer and requested that the
Company's stockholders take no action with respect to either the QVC Offer
or the Viacom Offer until they have been further advised of the Board's
positions.
-12-
PARAMOUNT COMMUNICATIONS INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -- None
(b) Reports on Form 8-K -- The following report on Form 8-K was filed
during the three months ended October 31, 1993:
(i) The registrant filed a Current Report on Form 8-K, dated
September 15, 1993, in respect of a merger agreement between
the registrant and Viacom Inc. The items reported in such
Current Report were Item 5 (Other Events) and Item 7 (Exhibits).
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, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: December 14, 1993 By: /s/ Ronald L. Nelson
------------------------------
Ronald L. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-13-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
---------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1994
COMMISSION FILE NUMBER 1-5404
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
PARAMOUNT COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1330475
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 COLUMBUS CIRCLE, NEW YORK, NEW YORK 10023-7780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-373-8000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] . No [ ] .
At March 4, 1994, 122,787,610 shares of the registrant's Common Stock, $1 par
value, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PARAMOUNT COMMUNICATIONS INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Consolidated Statement of Earnings --
Three Months and Nine Months Ended January 31, 1994 and 1993 . . . . . . . . . . . . . 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet --
January 31, 1994 and April 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 9
Consolidated Statement of Cash Flows --
Nine Months Ended January 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 10
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-1-
PARAMOUNT COMMUNICATIONS INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31 JANUARY 31
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE)
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,013.5 $ 943.7 $ 3,757.0 $ 3,210.1
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 784.2 648.8 2,545.0 2,005.5
Selling, general and administrative expenses . . . . . . . . . . 281.6 293.1 914.0 884.5
--------- --------- --------- ---------
1,065.8 941.9 3,459.0 2,890.0
--------- --------- --------- ---------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . (52.3) 1.8 298.0 320.1
Other income (expense) . . . . . . . . . . . . . . . . . . . . . 0.8 (1.5) (2.7) (1.5)
Interest and other investment income (expense) -- net
Interest expense . . . . . . . . . . . . . . . . . . . . . . (24.5) (24.2) (70.6) (78.2)
Interest and other investment income . . . . . . . . . . . . 19.7 22.7 53.1 87.0
--------- --------- --------- ---------
(4.8) (1.5) (17.5) 8.8
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . (56.3) (1.2) 277.8 327.4
Provision (benefit) for income taxes - Note A . . . . . . . . . . (19.7) (1.3) 97.2 101.8
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . . . . . . . (36.6) 0.1 180.6 225.6
Extraordinary item - Note D . . . . . . . . . . . . . . . . . . . (8.8)
Cumulative effect of accounting change - Note A . . . . . . . . . (66.9) (66.9)
--------- --------- --------- ---------
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . . . . $ (36.6) $ (66.8) $ 180.6 $ 149.9
========= ========= ========= =========
Average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . 120.3 118.8
Earnings (loss) per share
Earnings (loss) before extraordinary item and cumulative
effect of accounting change . . . . . . . . . . . . . . . $ (.31) $ .01 $ 1.50 $ 1.90
Extraordinary item . . . . . . . . . . . . . . . . . . . . . (.07)
Cumulative effect of accounting change . . . . . . . . . . . (.57) (.57)
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . (.31) (.56) 1.50 1.26
Cash dividends declared per common share . . . . . . . . . . . . .20 .20 .60 .60
See notes to consolidated financial statements.
-2-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Paramount Communications Inc. operates in the entertainment and publishing
businesses. The following is a comparative summary of operating results for
the three and nine months ended January 31, 1994 and 1993 (in millions):
THREE MONTHS ENDED JANUARY 31 NINE MONTHS ENDED JANUARY 31
-------------------------------------------- -----------------------------------------
OPERATING OPERATING
REVENUES INCOME (LOSS) REVENUES INCOME
--------------------- ------------------ ----------------- -------------------
1994 1993 1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
Entertainment . . . . . . $ 714.2 $ 639.6 $ 13.3 $ 51.8 $2,371.6 $1,888.7 $147.6 $166.5
Publishing . . . . . . . 299.3 304.1 (47.9) (32.8) 1,385.4 1,321.4 203.8 204.2
Corporate Expenses . . . (17.7) (17.2) (53.4) (50.6)
-------- ------- ------ ------ -------- -------- ------ ------
$1,013.5 $ 943.7 $(52.3) $ 1.8 $3,757.0 $3,210.1 $298.0 $320.1
======== ======= ====== ====== ======== ======== ====== ======
ENTERTAINMENT
Entertainment segment revenues increased 12%, to $714.2 million from $639.6
million, and 26%, to $2,371.6 million from $1,888.7 million for the three and
nine months ended January 31, 1994, respectively, compared with the same
prior-year periods. Operating income declined 74% and 11% for the three and
nine months ended January 31, 1994, respectively, compared with the same
prior-year periods. Results for the current nine-month period included
significant seasonal contributions from Paramount Parks, the Company's theme
park operations, which were acquired in the fall of 1992.
Features
Revenues from features increased 32%, to $358.4 million from $271.4
million, and 13%, to $941.1 million from $834.7 million in the three and nine
months ended January 31, 1994, respectively, compared with the same prior-year
periods. Theatrical revenues increased 94% and 58% for the current three- and
nine-month periods, respectively. The current quarter's increase was led by
the performance of The Firm and Sliver internationally along with Addams Family
Values and Wayne's World 2 domestically; additionally, the current nine-month
period benefited from the domestic performance of The Firm and Sliver and the
success of Indecent Proposal in the domestic and international theatrical
markets. Home video revenues increased 69% and 4% for the current three- and
nine-month periods, respectively, led by the domestic videocassette releases of
The Firm and Sliver, the continued foreign and, in the current nine months,
domestic success of Indecent Proposal, Patriot Games and Boomerang and
increased sales from library sell-through promotional programs, which were
partially offset in the current nine months by the absence of a significant
sell-through title included in the same prior-year period. Pay cable revenues
declined 37% and 23% for the current three- and nine-month periods,
respectively, because of a weaker mix of newly available titles compared with
the same prior-year periods. Revenues from network and domestic and
international syndication sales of features' product fell 33% and 5% for the
three and nine months ended January 31, 1994, respectively, because of fewer
titles available for network broadcast.
Features generated operating income for the three months ended January 31,
1994, compared with a loss for the comparable prior-year period, while
operating income declined 24% for the current nine-month period. Theatrical
results improved in the current three months primarily because of contributions
from the international success of The Firm and Sliver. In the nine months
ended January 31, 1994, theatrical results declined slightly because of higher
feature write-downs primarily related to the releases of Coneheads, Searching
for Bobby Fischer, The Thing Called Love, Flesh and Bone, Addams Family Values
and Bopha!, which were partially offset by contributions from Indecent Proposal
and The Firm. In addition, results for the current periods were negatively
impacted by higher scenario reserves related to increased development activity.
Home video operations registered significantly higher operating income in the
current quarter due to increased revenues and greater profitability on new
releases, however, results declined in the current nine-month period because of
a less profitable mix of titles. Pay cable results declined in the current
three-month period because of lower revenues and a less profitable mix of
titles, but increased slightly in the current nine months primarily because of
an improved overall profit rate on library titles. Operating income from
network features and domestic and international features syndication decreased
in the current quarter on lower revenues but increased in the current nine
months because of a more profitable mix of titles.
-3-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Television
Television programming revenues increased 5%, to $179.0 million from $170.4
million, and 24%, to $630.5 million from $506.5 million in the three and nine
months ended January 31, 1994, respectively, compared with the same prior-year
periods. Revenues from network series product declined slightly in the current
quarter, but increased 48% in the current nine months. Contributions from
higher network license fees driven by increased series production were more
than offset in the quarter and partially offset in the current nine months by
the absence of license fees for the final season of Cheers, which were
recognized in the same prior-year periods; the current nine months also
benefited from basic cable sales of Wings and increased syndication sales of
network library titles. Revenues from first-run series product increased 21%
and 15% for the current three- and nine-month periods, as contributions from
Star Trek: Deep Space Nine and Leeza and increases from Star Trek: The Next
Generation and Hard Copy more than offset lower revenues from The Arsenio Hall
Show.
Television programming operating income declined 78% and 42% in the current
three and nine months ended January 31, 1994, respectively. Results from
network series product fell significantly in the current periods because of
lower profitability on the mix of shows available and increased investment in
new programming. First-run series product operating income declined, as higher
revenues were more than offset by increased investment in new programming.
Station and Network
The Station and Network group posted an operating loss for the three months
ended January 31, 1994 compared with operating income for the same prior-year
period, and a 61% decline in operating income for the current nine-month
period. Paramount Stations Group registered significantly higher profits
principally due to an increase in revenues for the current quarter and nine
months of 37%, to $55.9 million from $40.9 million, and 24%, to $152.5 million
from $123.1 million, respectively, because of contributions from the September
1993 acquisition of WKBD-TV in Detroit as well as higher advertising sales.
USA Networks, the Company's 50%-owned cable operations, generated operating
losses in the current-year periods compared with operating income in the same
prior-year periods. The sharply lower results were due largely to a
$78-million pre-tax charge at USA Network, 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 the Company recorded its share. The current periods also
included continued start-up costs incurred for the Sci-Fi Channel.
Theaters
Theatrical exhibition revenues decreased 16%, to $41.9 million from $50.1
million, and 1%, to $132.7 million from $134.5 million for the three and nine
months ended January 31, 1994, respectively. Revenues at Famous Players, the
Company's Canadian chain, decreased 11% in the current three months due to
lower attendance, and 2% in the current nine months because attendance gains
driven by improved product were more than offset by unfavorable exchange rates.
Operating results at Cinamerica, the Company's 50%-owned domestic theater
operation, decreased in the current periods because of lower attendance and the
absence of gains on the sale of theaters recorded in the prior-year periods,
which were partially offset by higher average ticket prices in the current
quarter and lower operating expenses in the current nine-month period.
International theater operations, which are primarily jointly-owned, recorded
higher operating income, principally because of increased attendance levels at
all locations. Overall theatrical exhibition operating income declined 60% for
the current quarter but increased 24% for the current nine months.
Madison Square Garden
Revenues for Madison Square Garden increased by 10%, to $103.3 million from
$94.2 million, and 14%, to $224.1 million from $197.3 million in the current
three- and nine-month periods, respectively. The sports teams' revenues
increased 17% in the current quarter and 21% in the current nine months, led by
greater Knickerbockers ticket sales generated by higher attendance and ticket
prices, as well as higher NBA merchandising revenues; revenues for the Rangers
increased slightly in the current nine-month period due to the receipt of
expansion revenues, partially offset by the absence of playoff revenue. The
current periods also included higher revenue from an increased number of live
entertainment events in the Arena and The Paramount, increased MSG Network
subscriber levels and advertising sales and greater concession revenues, but
were negatively impacted in the current nine months by the absence of revenues
from the Democratic National Convention recognized in the same prior-year
period.
-4-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating income increased 74% in the current quarter and operating losses
decreased 75% for the nine months ended January 31, 1994. The current periods
included higher concession income and increased profits at MSG Network because
of the increase in revenues, which were partially offset by an increase in
programming and operating expenses in the current nine months. These results
were partially offset by a decrease in operating income from the sports teams,
where higher team compensation and operating expenses exceeded revenue gains
achieved.
Paramount Parks
Revenues for Paramount Parks, which were acquired in several transactions
during the quarters ended October 31, 1992 and July 31, 1993, increased to
$301.7 million in the current nine months from $60.1 million in the same
prior-year period. Operating income increased in the nine months ended January
31, 1994 reflecting the inclusion of a full nine months of operations versus a
partial six months in the prior year. Operating income for the current quarter
included modest seasonal losses that approximated those in the same prior-year
quarter; certain other expenses incurred in the current off-season quarter to
prepare the theme parks for the operating season have been deferred and will be
amortized over the subsequent operating season, which generally begins in March
and ends in October.
PUBLISHING
Publishing revenues decreased 2% in the three months ended January 31,
1994, to $299.3 million from $304.1 million, but increased 5%, to $1,385.4
million from $1,321.4 million, for the nine months ended January 31, 1994,
compared with the same prior-year periods. Publishing operations, which
traditionally record profits in the quarters ended July 31 and October 31,
posted 46% higher operating losses for the three months ended January 31, 1994
compared with the prior-year quarter, while operating income for the nine
months ended January 31, 1994 approximated the prior-year nine-month period.
Consumer
Revenues increased 22%, to $90.2 million from $74.1 million, and 11%, to
$325.5 million from $294.3 million, in the current three- and nine-month
periods, compared with the same prior-year periods. These increases were
primarily due to contributions from frontlist hardcover titles at the Simon &
Schuster trade division and at Pocket Books along with increased frontlist
paperback sales at Pocket Books, and in the current three months because of
higher backlist hardcover sales at the trade division. Additionally, the
current-year periods benefited from higher sales from the audio releases of
successful consumer group titles, and higher international revenues partially
offset by weaker frontlist and backlist demand for reference and children's
books.
Consumer publishing operating losses decreased 24% in the current quarter,
while operating income rose 57% in the current nine months as increased
revenues were partially offset by increased product development and operating
expenses in the current three- and nine-month periods, along with higher
product support expenses in the current quarter.
Business, Technical and Professional
Revenues declined 8% for the quarter, to $66.5 million from $72.5 million
in the prior-year quarter, while the current nine-month revenues decreased 5%,
to $235.6 million from $248.8 million in the prior nine-month period. Lower
sales of multimedia programs and video products were partially offset by
increased sales of computer hardware and software instruction books.
Additionally, the current quarter benefited from increased sales of tax and
professional books and publications, while the current nine months reflected
lower sales of these products along with increased sales from self-improvement
products and higher revenues from business seminars.
Operating losses increased significantly in the current three months, while
operating income decreased 80% in the current nine months because of lower
revenues and increased operating expenses. Additionally, the current
nine-month period reflects lower product development expenses and increased
product support expenses.
-5-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Education
Revenues decreased 13% in the current three months, to $112.9 million from
$130.5 million, but increased 6%, to $707.8 million from $664.8 million for the
nine months ended January 31, 1994, compared with the same prior-year periods.
Elementary education revenues declined 23% for the quarter, to $15.6 million
from $20.2 million in the prior-year quarter, while the nine month revenues
increased 2%, to $237.4 million from $232.2 million in the prior nine-month
period. The current-year periods were impacted by lower sales of puzzles and
manipulatives along with decreased sales from educational video products.
Sales increased, however, in the current nine months primarily because of
increased adoption opportunities and the introduction of new reading, social
studies and religion products, along with higher sales of multicultural and
phonics programs. Secondary education revenues rose 8%, to $8.5 million in the
current quarter from $7.9 million in the prior-year quarter, while the current
nine-month revenues rose 17%, to $141.4 million from $120.6 million in the
prior nine-month period. The increased revenues are primarily attributable to
the success of the latest program releases, including science products in the
current three- and nine-month periods, along with the latest language arts and
social studies products in the current nine-month period. Revenues at higher
education decreased 16%, to $78.2 million in the current quarter from $93.4
million in the prior-year quarter primarily because of volume-incentive
programs offered in the three months ended October 31, 1993 which resulted in a
shift of bookstore orders into the second quarter along with lower sales of
business, economics and accounting textbooks, as compared with the prior-year
periods. Revenues for the current nine-month period increased slightly to
$262.8 million from $262.5 million in the prior nine-month period from improved
frontlist sales in the social science and education disciplines. Educational
technology revenues rose 18%, to $10.6 million from $9.0 million in the
prior-year quarter, while the current nine-month revenues increased 34% to
$66.2 million from $49.5 million in the prior nine-month period. The increased
revenues were primarily due to increased sales of computer learning stations,
in the current three and nine-month periods, and to sales of related software
products in the current nine months.
Operating losses increased 89% in the current three months as decreased
revenues and increased product development and operating expenses were
partially offset by lower product support expenses. In the current nine
months, operating income rose 15% as increased sales and lower operating
expenses were partially offset by increased product support and development
expenses.
International
Revenues of $34.3 million in the current quarter and $136.1 million in the
current nine months reflect an increase of 8% and 10%, respectively, as
compared with revenues of $31.8 million and $123.5 million, respectively, in
the prior-year three- and nine-month periods. Sales gains in Asia, the United
Kingdom and Mexico, largely attributable to increased adoptions and improved
sales of computer books, along with the acquisition of a German computer book
publisher were partially offset by decreased sales of educational products in
Canada.
Operating losses for the current quarter decreased 20%, while operating
income improved 12% in the current nine-month period as increased sales were
partially offset by increased product support and development and operating
expenses.
Additionally, publishing operations reflect lower corporate administrative
expenses in the current three-months, while these expenses were higher in the
current nine-month period.
INTEREST AND OTHER INVESTMENT INCOME (EXPENSE) -- NET
Earnings for the current-year periods reflect net interest and other
investment expense of $4.8 million and $17.5 million, compared with net
interest and other investment expense of $1.5 million for the prior-year
three-month period and net interest and other investment income of $8.8 million
in the prior-year nine-month period. This decrease stems primarily from lower
interest and other investment income because of lower average cash equivalents
and short-term investments and interest rates. The lower average cash
equivalents and short-term investments were primarily a result of acquisitions
and the funding of the working capital requirements of the Company. The
decrease in interest and other investment income was partially offset by lower
interest expense in the current-year nine-month period, which included lower
effective interest rates on the Company's debt.
-6-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER
The effective rate for income taxes was 35% in the nine months ended
January 31, 1994 compared with a 31.1% rate (as restated - see below) for the
comparable prior-year period. The increase is the result of the amount of
foreign income subject to tax at lower foreign rates as a percentage of total
worldwide income and increases in income subject to federal, state and local
income taxes. Corporate expenses for the current-year periods include costs
related to the start-up of the Paramount Technology Group, a new business unit
responsible for the integration of emerging technologies, including new product
development, throughout the Company's entertainment and publishing operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company depended primarily on internal cash flow and external
borrowings to finance its operations during the nine months ended January 31,
1994, and expects to continue to do so. In connection with the tender offers
and merger proposals described in Note B to the consolidated financial
statements, the Company has discontinued its regular quarterly dividend
payment.
In May 1993, the Company purchased the remaining 80% it did not own of
Canada's Wonderland, Inc., later renamed Paramount Canada's Wonderland, Inc., a
Canadian theme park, for approximately $52 million. The Company subsequently
liquidated Paramount Canada's Wonderland debt obligations of approximately $31
million. In September 1993, the Company purchased television station WKBD-TV
in Detroit from Cox Enterprises Inc. for approximately $105 million. In
February 1994, the Company acquired Macmillan Publishing Company and certain
other assets of Macmillan Inc., a leading book publisher, for approximately
$553 million.
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., are forming a joint venture to be known as the
Paramount Television Network which will provide prime-time television
programming primarily to broadcast affiliates nationwide in competition with
the three major networks and the Fox Broadcasting Network. The network is
expected to begin operations in January 1995.
In July 1993, the Company redeemed $100 million of 8 1/2% senior notes due
1996. Also, in July 1993, the Company completed a public offering of $150
million of 5 7/8% senior notes due 2000 and $150 million of 7 1/2% senior
debentures due 2023. A portion of the net proceeds was used to refinance the
previously mentioned redemption of the Company's 8 1/2% senior notes. The
remainder of such proceeds was used to fund the acquisitions of television
station WKBD-TV in Detroit and the remaining 80% interest in Paramount Canada's
Wonderland theme park. Total debt as a percentage of total capitalization
increased from 17% at April 30, 1993 to 19% at January 31, 1994. In the past,
the Company has been able to increase its borrowings as required and expects to
be able to continue to do so.
Trade receivables increased at January 31, 1994, compared to April 30, 1993
by 26%. Entertainment receivables increased principally because of the
recognition of domestic syndication contracts for major television programs in
the fall season along with videocassette sales due to the holiday season and
significant current releases. In publishing, receivable balances were higher
at educational publishing, due to the prior quarters being the peak selling
seasons, and at consumer publishing from recent frontlist and holiday season
sales.
The balance sheet at January 31, 1994, reflects the acquisitions of the
remaining 80% interest in Paramount Canada's Wonderland theme park and
television station WKBD-TV in Detroit, which contributed to changes in certain
balance sheet accounts as compared to April 30, 1993.
ACCOUNTING CHANGES
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
-7-
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company elected to record the cumulative effect of the accounting
change as a charge against income as of November 1, 1992, resulting in a
one-time charge of $66.9 million, net of income taxes of $34.5 million, or $.57
per share.
In February 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 109, "Accounting for Income Taxes." Effective May 1, 1993, the
Company adopted the provisions of this standard by restating its prior period
financial statements beginning November 1, 1988. The effect of adopting SFAS
No. 109 was an adjustment which increased earnings before extraordinary item
and cumulative effect of accounting change by $0.9 million ($.01 per share) and
$2.9 million ($.03 per share) for the three and nine months ended January 31,
1993, respectively. This adjustment also decreased net loss and increased net
earnings for the prior-year three- and nine-month periods, respectively.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
EFFECTS OF ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," which is effective for the Company in the year ending
April 30, 1995. Under this statement, the cost of benefits provided to
employees after employment but before retirement is to be recognized in the
financial statements on an accrual basis during the service period of the
employee. It is expected that implementation of this statement will not have a
material impact on the financial statements of the Company.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which is effective for the Company
in the year ending April 30, 1995. This statement sets forth the accounting
for certain investments in debt and equity securities based upon management's
ability and intent, at the time of purchase, to trade, hold to maturity or make
available for sale such investments. The effect of this statement at the time
of adoption will depend upon the Company's ability and intent with respect to
such investments.
EFFECTS OF BUDGET RECONCILIATION ACT OF 1993
In August 1993, the Budget Reconciliation Act of 1993 (the "Act") was
enacted into law. One of the provisions of the Act increased the corporate
income tax rate to 35% effective January 1, 1993. This increase, from the
previous 34% rate, had no material effect on the Company. The Company expects
to benefit from a section of the Act permitting tax deductions derived from the
amortization of certain intangible assets acquired after July 25, 1991, which
deductions have not previously been claimed on tax returns filed by the
Company. However, the Company believes that any tax benefits generated by the
amortization of intangible assets previously acquired by it will not be
material.
Furthermore, to the extent that the Company is affected by several other
provisions of the Act, the results should not be material.
-8-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET
JANUARY 31 APRIL 30
1994 1993
---- ----
(UNAUDITED) (NOTE)
(IN MILLIONS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 727.6 $ 372.6
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 153.9 569.7
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,043.3 829.6
Inventories - Note E . . . . . . . . . . . . . . . . . . . . . . . . . . 625.2 617.3
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 180.2 131.7
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 450.9 400.2
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 3,181.1 2,921.1
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252.7 210.8
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 651.7 591.4
Machinery, equipment and other. . . . . . . . . . . . . . . . . . . . . . 705.4 606.9
-------- --------
1,609.8 1,409.1
Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . 400.5 336.1
-------- --------
1,209.3 1,073.0
OTHER ASSETS
Investment in affiliated companies . . . . . . . . . . . . . . . . . . . 209.0 243.9
Noncurrent receivables and inventories - Note E . . . . . . . . . . . . . 786.3 689.8
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,567.9 1,517.5
Deferred costs and other . . . . . . . . . . . . . . . . . . . . . . . . 463.2 429.5
-------- --------
3,026.4 2,880.7
-------- --------
$7,416.8 $6,874.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . $ 10.4 $ 109.8
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 150.1 194.7
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 36.3 26.6
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . 1,233.1 1,128.4
-------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 1,429.9 1,459.5
DEFERRED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 799.8 805.9
LONG-TERM DEBT, net of current maturities . . . . . . . . . . . . . . . . 1,000.3 707.3
STOCKHOLDERS' EQUITY
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 121,896,951 at January 31, 1994
(excluding 25,965,097 shares held in treasury) and 118,199,396 at
April 30, 1993 (excluding 29,665,980 shares held in treasury . . . . . 121.9 118.2
Paid-in surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894.3 712.8
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,191.4 3,082.5
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . (20.8) (11.4)
-------- --------
4,186.8 3,902.1
-------- --------
$7,416.8 $6,874.8
======== ========
Note: Derived from audited financial statements.
See notes to consolidated financial statements.
-9-
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JANUARY 31
-----------------------
1994 1993
---- ----
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings before extraordinary item and cumulative effect of accounting change . $ 180.6 $ 225.6
Non-cash expenses
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78.8 53.7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53.3) (3.8)
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . 45.7 42.4
Amortization of pre-publication costs . . . . . . . . . . . . . . . . . . . . 74.6 76.9
Undistributed net earnings of unconsolidated affiliates . . . . . . . . . . . . (10.3) (18.7)
Theatrical and television inventories and broadcast rights
Gross additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (918.1) (670.2)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 838.4 625.5
Decrease (increase) in network features and syndication licenses . . . . . . . . (36.0) 5.3
Increase in pre-publication costs . . . . . . . . . . . . . . . . . . . . . . . (62.0) (59.8)
Increase in trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . (214.2) (68.4)
Decrease in inventories (other than theatrical and television) . . . . . . . . 35.1 30.8
Increase in prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (49.7) (77.5)
Increase (decrease) in trade accounts payable . . . . . . . . . . . . . . . . (47.1) 11.9
Increase in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 9.7 16.9
Increase in accrued expenses and other . . . . . . . . . . . . . . . . . . . . . 168.4 2.6
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22.0) (80.4)
-------- --------
NET CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES . . . . . . . . . . . . . 18.6 112.8
CASH FLOWS FROM INVESTMENT AND OTHER ACTIVITIES
Expenditures for property, plant and equipment (excluding
capitalized leases) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (111.8) (72.1)
Proceeds on disposal of property, plant and equipment . . . . . . . . . . . . . 5.1 7.2
Purchase price of acquired businesses (net of acquired cash) . . . . . . . . . . (166.8) (423.6)
Decrease (increase) in investment in affiliated companies . . . . . . . . . . . 30.1 (1.9)
Decrease in short-term and other investments . . . . . . . . . . . . . . . . . . 340.7 156.0
Decrease in investments maturing after one year . . . . . . . . . . . . . . . . 23.5
Decrease in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 5.1
-------- --------
NET CASH FLOWS PROVIDED FROM (USED FOR) INVESTMENT AND OTHER ACTIVITIES . . 101.8 (305.8)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 298.8 246.7
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (140.1) (184.6)
Loss on early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . (13.4)
Issuance of Common Stock (excluding grants to employees) . . . . . . . . . . . . 147.6 31.4
Acquisition of stock for the treasury . . . . . . . . . . . . . . . . . . . . . (68.8)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71.7) (70.9)
-------- --------
NET CASH FLOWS PROVIDED FROM (USED FOR) FINANCING ACTIVITIES . . . . . . . . 234.6 (59.6)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 355.0 (252.6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 372.6 463.7
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 727.6 $ 211.1
======== ========
See notes to consolidated financial statements.
-10-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements of Paramount
Communications Inc. and its consolidated subsidiaries (Company) have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The results of operations of any
interim period are subject to year-end audit and adjustments, and are not
necessarily indicative of the results of operations for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's transition report on Form 10-K
for the six months ended April 30, 1993, as amended.
Accounting Changes
Effective November 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires that the projected
future cost of providing postretirement benefits, such as health care and life
insurance, be recognized as an expense as employees render service instead of
when the benefits are paid. The Company's previous practice was to recognize
the cost of such postretirement benefits when paid.
The Company elected to record the cumulative effect of the accounting
change as a charge against income as of November 1, 1992, resulting in a
one-time charge of $66.9 million, net of income taxes of $34.5 million, or $.57
per share.
In February 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 109, "Accounting for Income Taxes." Effective May 1, 1993, the
Company adopted the provisions of this standard by restating its prior period
financial statements beginning November 1, 1988. The effect of adopting SFAS
No. 109 was an adjustment which increased earnings before extraordinary item
and cumulative effect of accounting change by $0.9 million ($.01 per share) and
$2.9 million ($.03 per share) for the three and nine months ended January 31,
1993, respectively. This adjustment also decreased net loss and increased net
earnings for the prior-year three- and nine-month periods, respectively.
Under SFAS No. 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of SFAS No. 109, income tax expense was determined using the deferred method.
Deferred tax expense was based on items of income and expense that were
reported in different years in the financial statements and tax returns and
were measured at the tax rate in effect in the year the differences originated.
NOTE B -- TENDER OFFERS AND MERGER PROPOSALS
On December 13, 1993, the Company's Board of Directors adopted procedures
(the "Bidding Procedures") for the purpose of considering proposals to acquire
the Company. Pursuant to the Bidding Procedures, from December 20, 1993
through February 1, 1994, Viacom Inc. (Viacom) and QVC Network, Inc. (QVC)
submitted a series of bids for the Company. After the initial round of
bidding, the Company entered into a merger agreement with QVC. Prior to the
February 1 bidding deadline established by the Bidding Procedures, Viacom
substantially increased its bid and the Company terminated the agreement with
QVC and entered into a merger agreement with Viacom.
On February 1, 1994, both Viacom and QVC submitted their final proposals
for the acquisition of the Company. Viacom's proposal consisted of a tender
offer (the "Viacom Offer") for 50.1% of the outstanding shares of the Company's
Common Stock (the "Shares"), on a fully diluted basis, at $107 per Share to be
followed by a merger (the "Viacom Second-Step Merger") in which each remaining
Share would be converted into the right to receive (i) 0.93065 shares of Viacom
Class B Common Stock, (ii) 0.93065 Contingent Value Rights, (iii) 0.5
three-year Warrants to purchase Viacom Class B Common Stock, (iv) 0.3 five-year
Warrants to purchase Viacom Class B Common Stock and (v) $17.50 in principal
amount of 8% exchangeable subordinated debentures of Viacom.
-11-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QVC's proposal consisted of a tender offer (the "QVC Offer") for 50.1% of
the outstanding Shares, on a fully diluted basis, at $104 per Share to be
followed by a merger in which each remaining Share would be converted into the
right to receive (i) 1.2361 shares of QVC Common Stock, (ii) 0.2386 shares of a
new series of 6% cumulative non-convertible exchangeable preferred stock and
(iii) 0.32 ten-year Warrants to purchase QVC Common Stock.
At a meeting held on February 4, 1994, the Company's Board of Directors
recommended that stockholders accept the Viacom Offer and reject the QVC Offer.
At that time, the Company entered into an Amended and Restated Merger Agreement
with Viacom (the "Restated Viacom Merger Agreement").
As of midnight on February 14, 1994, approximately 74.6% of the outstanding
Shares, on a fully diluted basis, had been validly tendered pursuant to the
Viacom Offer and not withdrawn. As a result, pursuant to the Bidding
Procedures, on February 15, 1994 Viacom waived certain conditions to the Viacom
Offer and extended the offer until March 1, 1994 and QVC terminated the QVC
Offer. Immediately after midnight on March 1, 1994, all conditions to the
Viacom Offer were deemed to have been satisfied and Viacom accepted for payment
61,657,432, of the Shares validly tendered and not withdrawn pursuant to the
Viacom Offer.
Pursuant to the Restated Viacom Merger Agreement, a special meeting of the
Company's stockholders will be called to act on the Viacom Second-Step Merger.
The approval of holders of a majority of all outstanding voting shares of both
Viacom and the Company is required to approve the merger. The approval by
Viacom's stockholders is assured by means of a voting agreement between
Viacom's parent corporation and the Company. The approval by Paramount's
stockholders is assured since Viacom now owns a majority of the outstanding
Shares.
The Restated Viacom Merger Agreement also provides that consummation of the
Viacom Second-Step Merger is subject to certain customary conditions.
NOTE C -- ACQUISITION AND DISPOSITION OF BUSINESSES
In May 1993, the Company purchased the remaining 80% it did not own of
Canada's Wonderland, Inc., later renamed Paramount Canada's Wonderland, Inc., a
Canadian theme park, for approximately $52 million. In September 1993, the
Company purchased television station WKBD-TV in Detroit from Cox Enterprises
Inc. for approximately $105 million. In February 1994, the Company acquired
Macmillan Publishing Company and certain other assets of Macmillan Inc., a
leading book publisher, for approximately $553 million.
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., are forming a joint venture to be known as the
Paramount Television Network which will provide prime-time television
programming primarily to broadcast affiliates nationwide in competition with
the three major networks and the Fox Broadcasting Network. The network is
expected to begin operations in January 1995.
In August and October 1992, the Company acquired Kings Entertainment
Company and Kings Island Company, respectively, later renamed Paramount Parks,
which own and operate regional theme parks, for a total of approximately $400
million.
During the periods ended January 31, 1994 and 1993, the Company also
acquired or sold certain other businesses. The contributions of these
businesses in the aggregate were not significant to the Company's results of
operations for the periods presented, nor are they expected to have a material
effect on the Company's results on a continuing basis.
NOTE D -- EXTRAORDINARY ITEM
In September 1992, the Company redeemed $175 million of 9 3/4% senior
debentures due 2016 for $1,061.25 per $1,000 principal amount. The premium
paid by the Company and the write-off of related unamortized discount and
issuance costs resulted in a loss of $8.8 million, net of an income tax benefit
of $4.6 million.
-12-
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- INVENTORIES
Inventories are stated as follows (in millions):
JANUARY 31 APRIL 30
1994 1993
---- ----
Current
Lower of cost or net realizable value
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223.2 $ 248.3
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 12.8
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 29.5
-------- --------
260.0 290.6
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222.0 176.9
Completed, not released . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.8 32.7
In process and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66.5 61.8
-------- --------
316.3 271.4
Broadcast rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.9 55.3
-------- --------
625.2 617.3
Noncurrent
Theatrical and television productions
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120.1 155.3
In process and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332.2 247.0
-------- --------
452.3 402.3
Broadcast rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.3 107.0
-------- --------
568.6 509.3
-------- --------
$1,193.8 $1,126.6
======== ========
-13-
PARAMOUNT COMMUNICATIONS INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits --
4(a) -- Amendment No. 2, dated as of September 12,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 2 to Paramount Communications Form 8-A
on Form 8-A/A dated September 22, 1993).
4(b) -- Amendment No. 3, dated as of October 24,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 3 to Paramount Communications Form 8-A
on Form 8-A/A dated November 5, 1993).
4(c) -- Amendment No. 4, dated as of November 6,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 4 to Paramount Communications Form 8-A
on Form 8-A/A dated November 15, 1993).
4(d) -- Amendment No. 5, dated as of December 22,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 5 to Paramount Communications Form 8-A
on Form 8-A/A dated January 5, 1994).
4(e) -- Amendment No. 6, dated as of January 21,
1994, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 6 to Paramount Communications Form 8-A
on Form 8-A/A dated January 31, 1994).
4(f) -- Amendment No. 7, dated as of March 1,
1994, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 7 to Paramount Communications Form 8-A
on Form 8-A/A dated March 2, 1994).
*(10)(iii)(A)(1) -- Amendment dated as of February 11, 1994,
to the Amended and Restated Agreement
dated as of October 1, 1985 and restated
as of June 23, 1989 between Paramount
Communications and Martin S. Davis.
*(10)(iii)(A)(2) -- Amendment dated as of February 11, 1994,
to the Agreement dated as of January 12,
1993 between Paramount Communications and
Ronald L. Nelson.
*(10)(iii)(A)(3) -- Amendment dated as of February 11, 1994,
to the Amended and Restated Agreement
dated as of October 1, 1985 and restated
as of June 23, 1989 between Paramount
Communications and Donald Oresman.
(b) Reports on Form 8-K -- The following reports on Form 8-K were
filed during the three months ended January 31, 1994:
(i) The registrant filed a Current Report on Form 8-K, dated
January 4, 1994, in respect of the registrant terminating
the Amended and Restated Agreement and Plan of Merger with
Viacom Inc. and entering into an Agreement and Plan of
Merger with QVC Network, Inc. The items reported in such
Current Report were Item 5 (Other Events) and Item 7
(Exhibits).
(ii) The registrant filed a Current Report on Form 8-K, dated
January 28, 1994, in respect of the registrant terminating
the Agreement and Plan of Merger with QVC Network, Inc.
and entering into an Agreement and Plan of Merger with
Viacom Inc. The items reported in such Current Report
were Item 5 (Other Events) and Item 7 (Exhibits).
______________
* Filed herewith.
-14-
PARAMOUNT COMMUNICATIONS INC.
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, thereunto duly authorized.
PARAMOUNT COMMUNICATIONS INC.
Date: March 8, 1994 By: /s/ Ronald L. Nelson
-------------------------------
Ronald L. Nelson
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-15-
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
4(a) -- Amendment No. 2, dated as of September 12,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 2 to Paramount Communications Form 8-A
on Form 8-A/A dated September 22, 1993).
4(b) -- Amendment No. 3, dated as of October 24,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 3 to Paramount Communications Form 8-A
on Form 8-A/A dated November 5, 1993).
4(c) -- Amendment No. 4, dated as of November 6,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 4 to Paramount Communications Form 8-A
on Form 8-A/A dated November 15, 1993).
4(d) -- Amendment No. 5, dated as of December 22,
1993, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 5 to Paramount Communications Form 8-A
on Form 8-A/A dated January 5, 1994).
4(e) -- Amendment No. 6, dated as of January 21,
1994, to Paramount Communications
Shareholder Rights Agreement, as amended
(Incorporated by reference to Amendment
No. 6 to Paramount Communications Form 8-A
on Form 8-A/A dated January 31, 1994 ).
(10)(iii)(A)(1) -- Amendment dated as of February 11, 1994,
to the Amended and Restated Agreement
dated as of October 1, 1985 and restated
as of June 23, 1989 between Paramount
Communications and Martin S. Davis.
(10)(iii)(A)(2) -- Amendment dated as of February 11, 1994,
to the Agreement dated as of January 12,
1993 between Paramount Communications and
Ronald L. Nelson.
(10)(iii)(A)(3) -- Amendment dated as of February 11, 1994,
to the Amended and Restated Agreement
dated as of October 1, 1985 and restated
as of June 23, 1989 between Paramount
Communications and Donald Oresman.
Amendment dated as of February 11, 1994, to the Amended and
Restated Agreement dated as of October 1, 1985 and restated as of June 23, 1989
(the "Agreement") between Paramount Communications Inc. (the "Company") and
Martin S. Davis (the "Executive").
WHEREAS, the Executive is employed pursuant to the Agreement
and was granted thereunder restricted shares of Paramount common stock (the
"Shares");
WHEREAS, the Shares are subject to transfer restrictions set
forth in the Agreement which will prevent the Executive from tendering such
Shares to Viacom Inc. ("Viacom") pursuant to its currently outstanding tender
offer for approximately 51% of the Company's common stock;
WHEREAS, the Company and the Executive wish to remove these
transfer restrictions but only to the extent required to permit Executive to
tender his Shares to, and only with respect to those Shares purchased for cash
by, Viacom pursuant to such offer;
NOW, THEREFORE, the Company and the Executive agree that
Section 11.2(b) of the Agreement shall be amended by adding the following
provisions at the end thereof:
Notwithstanding the foregoing, Shares may be tendered by Executive to
Viacom Inc. ("Viacom") pursuant to its tender offer, instituted prior
to February 11, 1994, for approximately 51% of the Shares of Company
common stock for cash; provided that any Shares not purchased by
Viacom for cash shall remain subject to the restrictions and other
terms and conditions set forth in this Agreement and any cash received
in exchange for Shares pursuant to such tender offer shall be free of
all restrictions.
IN WITNESS WHEREOF, the Company has caused this Amendment to
be executed and the Executive has executed this Amendment as of the date first
above written.
PARAMOUNT COMMUNICATIONS INC.
By:
-------------------------------
-------------------------------
Martin S. Davis
Amendment dated as of February 11, 1994, to the Agreement
dated as of January 12, 1993 (the "Agreement") between Paramount Communications
Inc. (the "Company") and Ronald L. Nelson (the "Executive").
WHEREAS, the Executive is employed pursuant to the Amended and
Restated Agreement dated as of November 17, 1987 and restated as of June 23,
1989, as modified by an Amendment dated as of December 21, 1992 (the
"Amendment");
WHEREAS, pursuant to the Agreement, the Executive was granted
restricted shares of Paramount common stock (the "Shares") in consideration for
the extension of his employment term as set forth in the Amendment;
WHEREAS, the Shares are subject to transfer restrictions set
forth in the Agreement which will prevent the Executive from tendering such
Shares to Viacom Inc. ("Viacom") pursuant to its currently outstanding tender
offer for approximately 51% of the Company's common stock;
WHEREAS, the Company and the Executive wish to remove these
transfer restrictions but only to the extent required to permit Executive to
tender his Shares to, and only with respect to those shares purchased for cash
by, Viacom pursuant to such offer;
NOW, THEREFORE, the Company and the Executive agree that
Section 1.2(b) of the Agreement shall be amended by adding the following
provisions at the end thereof:
Notwithstanding the foregoing, Shares may be tendered by Executive to
Viacom Inc. ("Viacom") pursuant to its tender offer, instituted prior
to February 11, 1994, for approximately 51% of the Shares of Company
common stock for cash; provided that any shares not purchased by
Viacom for cash shall remain subject to the restrictions and other
terms and conditions set forth in this Agreement and any cash received
in exchange for Shares pursuant to such tender offer shall be free of
all restrictions.
IN WITNESS WHEREOF, the Company has caused this Amendment to
be executed and the Executive has executed this Amendment as of the date first
above written.
PARAMOUNT COMMUNICATIONS INC.
By:
-------------------------------
-------------------------------
Ronald L. Nelson
Amendment dated as of February 11, 1994, to the Amended and
Restated Agreement dated as of October 1, 1985 and restated as of June 23, 1989
(the "Agreement") between Paramount Communications Inc. (the "Company") and
Donald Oresman (the "Executive").
WHEREAS, the Executive is employed pursuant to the Agreement
and was granted thereunder restricted shares of Paramount common stock (the
"Shares");
WHEREAS, the Shares are subject to transfer restrictions set
forth in the Agreement which will prevent the Executive from tendering such
Shares to Viacom Inc. ("Viacom") pursuant to its currently outstanding tender
offer for approximately 51% of the Company's common stock;
WHEREAS, the Company and the Executive wish to remove these
transfer restrictions but only to the extent required to permit Executive to
tender his Shares to, and only with respect to those Shares purchased for cash
by, Viacom pursuant to such offer;
NOW, THEREFORE, the Company and the Executive agree
that Section 10.2(b) of the Agreement shall be amended by adding the following
provisions at the end thereof:
Notwithstanding the foregoing, Shares may be tendered by
Executive to Viacom Inc. ("Viacom") pursuant to its tender
offer, instituted prior to February 11, 1994, for
approximately 51% of the Shares of Company common stock for
cash; provided that any shares not purchased by Viacom for
cash shall remain subject to the restrictions and other terms
and conditions set forth in this Agreement and any cash
received in exchange for Shares pursuant to such tender offer
shall be free of all restrictions.
IN WITNESS WHEREOF, the Company has caused this
Amendment to be executed and the Executive has executed this Amendment as of
the date first above written.
PARAMOUNT COMMUNICATIONS INC.
By:
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Donald Oresman
