SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 13, 1995
VIACOM INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-9553 04-2949533
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1515 Broadway, New York, New York 10036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 258-6000
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Item 5. Other Events
The information included herein is being filed solely in connection
with the registration statements of Viacom Inc. (the "Registrant") or Viacom
International Inc. filed under the Securities Act of 1933, as amended, including
the Registration Statement on Form S-3 (Reg. No. 33-53485) of the Registrant and
Viacom International Inc.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
1. Item 8 and Items 14(a)(1) and 14(a)(2) of the Transition Report
on Form 10-K of Paramount Communications Inc. for the eleven month period ended
March 31, 1994, as amended by Form 10-K/A Amendment No. 1 dated July 29, 1994
and as further amended by Form 10-K/A Amendment No. 2 dated August 12, 1994.
2. Item 1 of the Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended June 30, 1994.
3. Item 8 and Items 14(a)(1) and 14(a)(2) of the Annual Report on
Form 10-K of Blockbuster Entertainment Corporation for the year ended December
31, 1993.
4. Item 1 of the Quarterly Report on Form 10-Q of Blockbuster
Entertainment Corporation for the quarter ended June 30, 1994.
(b) Pro forma financial information.
(c) Exhibits.
23.1 Consent of Ernst & Young LLP as to financial statements of Paramount
Communications Inc.
23.2 Consent of Arthur Andersen LLP as to financial statements of
Blockbuster Entertainment Corporation.
23.3 Consent of Price Waterhouse LLP as to financial statements of
Paramount Communications Inc.
Item 7(a) Financial Statements of Businesses Acquired.
Item 7(a)(1)
REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors
Paramount Communications Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of earnings, of changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Paramount Communications Inc. at March 31, 1994, and the results of
its operations, changes in its stockholders' equity and its cash flows for the
eleven month period then ended in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit 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 audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse
New York, New York
June 3, 1994
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
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 two 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 the
consolidated results of its operations and its cash flows for the six-month
period ended April 30, 1993 and for each of the two years in the period ended
October 31, 1992 in conformity with generally accepted accounting principles.
As discussed in Notes A and K, 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 J, 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 J, as to which the date is
September 10, 1993
Paramount Communications Inc.
CONSOLIDATED STATEMENT OF EARNINGS
Eleven Months Six Months
Ended March 31 Ended April 30 Year Ended October 31
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1994 1993 1992 1991
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(In millions, except per share)
REVENUES $ 4,433.5 $ 1,898.1 $4,264.9 $3,895.4
Cost of goods sold 3,179.3 1,286.8 2,739.8 2,638.7
Selling, general and administrative expenses 1,153.4 621.4 1,129.0 1,098.9
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4,332.7 1,908.2 3,868.8 3,737.6
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OPERATING INCOME (LOSS) 100.8 (10.1) 396.1 157.8
Other income (expense) -- Note D (45.7) (3.7) (6.6) 0.1
Interest and other investment income (expense) --
net -- Note L
Interest expense (107.7) (47.9) (113.8) (112.0)
Interest and other investment income 61.4 44.9 121.6 133.8
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(46.3) (3.0) 7.8 21.8
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EARNINGS (LOSS) BEFORE INCOME TAXES 8.8 (16.8) 397.3 179.7
Provision (benefit) for income taxes -- Notes A and J 3.1 (7.7) 123.1 52.1
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EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5.7 (9.1) 274.2 127.6
Extraordinary item -- Note E (8.8)
Cumulative effect of accounting change -- Note A (66.9)
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NET EARNINGS (LOSS) $ 5.7 $ (76.0) $ 265.4 $ 127.6
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Average common and common equivalent
shares outstanding -- Note A 120.4 118.8 119.2 118.5
Earnings (loss) per share -- Note A
Earnings (loss) before extraordinary item and
cumulative effect of accounting change $ .05 $ (.08) $ 2.31 $ 1.08
Net earnings (loss) .05 (.65) 2.23 1.08
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See notes to consolidated financial statements.
FINANCIAL REPORTING BY BUSINESS SEGMENTS
A summary description of the Company's business segments is as follows. See
Note N 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
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Eleven Months Ended March 31 Six Months Ended April 30 Year Ended October 31
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1994 1993 1993 1992 1992 1991
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(Unaudited) (Unaudited)
(In millions)
Business Segments
Entertainment $ 2,822.9 $ 2,248.9 $ 1,280.8 $ 1,408.3 $ 2,657.4 $ 2,380.2
Publishing 1,610.6 1,504.3 617.3 590.2 1,607.5 1,515.2
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Total $ 4,433.5 $ 3,753.2 $ 1,898.1 $ 1,998.5 $ 4,264.9 $ 3,895.4
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Operating Income (Loss)
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Eleven Months Ended March 31 Six Months Ended April 30 Year Ended October 31
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1994 1993 1993 1992 1992 1991
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(Unaudited) (Unaudited)
(In millions)
Business Segments
Entertainment $ 98.5 $191.4 $121.9 $164.9 $279.6 $ 66.2
Publishing 92.2 173.3 (90.9) (55.0) 182.0 156.2
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Total 190.7 364.7 31.0 109.9 461.6 222.4
Corporate Expenses (89.9) (62.9) (41.1) (32.1) (65.5) (64.6)
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$ 100.8 $301.8 $(10.1) $ 77.8 $396.1 $157.8
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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 $657.1, $290.7, $606.8 and $690.7
million, respectively, for the eleven months ended March 31, 1994, the six
months ended April 30, 1993 and the years ended October 31, 1992 and 1991.
These sales were principally made in Europe, Asia and Canada.
During the eleven months ended March 31, 1994, the Company recorded a
$84.3-million charge against Publishing's operating income and a $22.3-million
charge against Corporate Expenses. 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.
CONSOLIDATED BALANCE SHEET
March 31 April 30 October 31
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1994 1993 1992
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(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents -- Notes A and M $ 239.3 $ 372.6 $ 324.3
Short-term investments -- Notes A and M 67.3 569.7 912.0
Trade receivables -- net -- Note L 914.3 829.6 972.9
Inventories -- Notes A and F 699.2 617.3 580.2
Prepaid income taxes 303.5 131.7 139.7
Prepaid expenses and other -- Note L 491.9 400.2 342.7
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TOTAL CURRENT ASSETS 2,715.5 2,921.1 3,271.8
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PROPERTY, PLANT AND EQUIPMENT -- Note A
Land 267.1 210.8 210.4
Buildings 665.6 591.4 590.6
Machinery, equipment and other 733.2 606.9 573.8
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1,665.9 1,409.1 1,374.8
Less allowance for depreciation 409.2 336.1 315.5
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1,256.7 1,073.0 1,059.3
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OTHER ASSETS
Investment in affiliated companies -- Notes A and G 211.2 243.9 228.9
Noncurrent receivables and inventories -- Notes A and F 773.1 689.8 604.7
Intangible assets -- net -- Note A 2,093.5 1,517.5 1,528.1
Deferred costs and other -- Note A 558.0 429.5 364.2
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3,635.8 2,880.7 2,725.9
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$7,608.0 $6,874.8 $7,057.0
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 35.6 $ 109.8 $ 10.0
Trade accounts payable 201.6 194.7 143.7
Income taxes payable 19.6 26.6 139.2
Accrued expenses and other -- Note L 1,484.4 1,128.4 1,114.1
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TOTAL CURRENT LIABILITIES 1,741.2 1,459.5 1,407.0
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DEFERRED LIABILITIES -- Note L 795.3 805.9 822.4
LONG-TERM DEBT, net of current maturities -- Notes A, H and M 998.4 707.3 812.1
STOCKHOLDERS' EQUITY -- Note I
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 122,792,910 at March 31, 1994
(excluding 25,069,138 shares held in treasury), 118,199,396 at
April 30, 1993 (excluding 29,665,980 shares held in treasury)
and 117,459,926 at October 31, 1992 (excluding 30,405,450
shares held in treasury) 122.8 118.2 117.5
Paid-in surplus 957.7 712.8 665.7
Retained earnings -- Notes A, G and J 3,016.5 3,082.5 3,228.6
Cumulative translation adjustments (23.9) (11.4) 3.7
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4,073.1 3,902.1 4,015.5
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$7,608.0 $6,874.8 $7,057.0
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See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period From October 31, 1990 to March 31, 1994
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Cumulative Total
Common Paid-in Retained Translation Stockholders'
Stock Surplus Earnings Adjustments Equity
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(In millions)
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
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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 ($.775 per share) (91.5) (91.5)
Translation adjustments (7.4) (7.4)
Tax benefit from exercise of stock options 0.9 0.9
Net earnings for the year 265.4 265.4
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BALANCE AT OCTOBER 31, 1992, NET OF TREASURY 117.5 665.7 3,228.6 3.7 4,015.5
Common Stock issued
Exercise of stock options and grants to employees 1.3 41.6 42.9
Dividend reinvestment and stock
purchase plan 1.9 1.9
Acquisition of stock for the treasury (0.6) (3.5) (22.9) (27.0)
Common Stock dividends ($.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)
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BALANCE AT APRIL 30, 1993, NET OF TREASURY 118.2 712.8 3,082.5 (11.4) 3,902.1
Common Stock issued
Exercise of stock options and grants to employees 4.6 207.6 212.2
Dividend reinvestment and stock
purchase plan 2.8 2.8
Common Stock dividends ($.60 per share) (71.7) (71.7)
Translation adjustments (12.5) (12.5)
Tax benefit from exercise of stock options 34.5 34.5
Net earnings for the eleven months ended March 31, 1994 5.7 5.7
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BALANCE AT MARCH 31, 1994, NET OF TREASURY $122.8 $957.7 $3,016.5 $(23.9) $4,073.1
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See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Eleven Months Six Months
Ended March 31 Ended April 30 Year Ended October 31
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1994 1993 1992 1991
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(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings (loss) before extraordinary item and
cumulative effect of accounting change $ 5.7 $ (9.1) $ 274.2 $ 127.6
Non-cash expenses
Depreciation 93.0 37.1 71.7 59.1
Deferred income taxes (151.1) 28.9 (3.2) (37.5)
Amortization of intangible assets 47.2 4.3 44.4 39.2
Amortization of pre-publication costs 77.4 24.0 87.0 88.0
Gain from sale of affiliate equity investment (11.0)
Other non-cash charges 145.4
Provision for real estate write-down and relocation 40.0
Undistributed net earnings of unconsolidated affiliates (12.6) (11.3) (19.7) (15.7)
Theatrical and television inventories and broadcast rights
Gross additions (1,121.2) (526.8) (909.6) (953.6)
Amortization 1,032.5 387.0 834.7 945.2
Decrease (increase) in network features and syndication licenses (21.5) 4.2 (78.2) (47.1)
Increase in pre-publication costs (80.8) (39.6) (87.7) (77.8)
Decrease (increase) in trade receivables (25.8) 194.6 (8.4) (44.6)
Decrease (increase) in inventories (other than theatrical
and television) 16.5 (23.5) 19.4 19.2
Increase in prepaid expenses (89.2) (67.6) (13.4) (45.0)
Increase (decrease) in trade accounts payable (10.1) 51.0 8.5 (24.3)
Increase (decrease) in income taxes payable 5.7 (112.6) 12.4 (29.8)
Increase (decrease) in accrued expenses and other 228.4 (50.7) 34.4 (10.3)
Other -- net (124.3) (91.1) (48.4) 91.7
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NET CASH FLOWS PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES 4.2 (161.2) 218.1 84.3
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CASH FLOWS FROM INVESTMENT AND OTHER ACTIVITIES
Expenditures for property, plant and equipment (excluding
capitalized leases) (148.2) (55.9) (120.0) (167.5)
Proceeds on disposal of property, plant and equipment 5.1 1.1 11.8 2.2
Purchase price of acquired businesses (net of acquired cash) (738.8) (0.1) (585.1) (86.9)
Decrease (increase) in investment in affiliated companies 23.6 (3.7) 10.8 8.3
Decrease (increase) in short-term and other investments 424.8 317.1 209.0 (467.1)
Increase in investments maturing after one year (43.6)
Decrease in investments maturing after one year 49.1 205.5
Decrease in notes receivable 6.2 1.3 8.9 17.3
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NET CASH FLOWS PROVIDED FROM (USED FOR) INVESTMENT
AND OTHER ACTIVITIES (427.3) 259.8 (415.5) (531.8)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt 323.7 492.4
Payments of long-term debt (142.6) (5.9) (395.7) (26.9)
Loss on early extinguishment of debt (13.4)
Issuance of Common Stock (excluding grants to employees) 180.4 29.8 23.8 14.5
Acquisition of stock for the treasury (27.0) (49.2) (15.2)
Dividends (71.7) (47.2) (91.5) (82.4)
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NET CASH FLOWS PROVIDED FROM (USED FOR)
FINANCING ACTIVITIES 289.8 (50.3) (33.6) (110.0)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (133.3) 48.3 (231.0) (557.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 372.6 324.3 555.3 1,112.8
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 239.3 $ 372.6 $ 324.3 $ 555.3
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See notes to consolidated financial statements.
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. As a result
of the Viacom Offer described in Note B, the Company became a majority-owned
subsidiary of Viacom Inc. in March 1994. 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.
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 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) for the year ended October 31, 1991. 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.
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. In March 1994 , the Board of Directors
approved a change in the Company's fiscal year end to March 31 from April 30.
The accompanying consolidated financial statements include audited financial
statements for the six-month and eleven-month transition periods ended April
30, 1993 and March 31, 1994, respectively. The unaudited condensed financial
information presented below for the eleven-month period ended March 31, 1993
and the six-month period ended April 30, 1992 are for comparative purposes
only.
Eleven Months Six Months
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Ended March 31 Ended April 30
1993 1992
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(In millions, except per share)
(Unaudited)
Revenues $3,753.2 $1,998.5
Gross Profit 1,376.6 615.4
Operating Income 301.8 77.8
Income Taxes 94.4 20.0
Earnings before extraordinary item and
cumulative effect of accounting change 213.7 48.7
Extraordinary item (8.8)
Cumulative effect of accounting change (66.9)
Net Earnings 138.0 48.7
Earnings (Loss) Per Share
Earnings before extraordinary item and
cumulative effect of accounting change 1.80 .41
Extraordinary item (.07)
Cumulative effect of accounting change (.57)
Net earnings 1.16 .41
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the lower of cost or 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 contract execution and
availability of the film for telecast.
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 and a
contract has been executed.
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 91% of unamortized film costs at March
31, 1994 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 $277.9, $233.9 and $230.1 million at March 31, 1994, April 30,
1993 and October 31, 1992, 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 various
periods, the majority of which is four years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ends 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 -- VIACOM INC. MERGER
Pursuant to an Amended and Restated Agreement and Plan of Merger dated as of
February 4, 1994 (as subsequently amended, the "Merger Agreement") between
Viacom Inc. ("Viacom") and the Company, the Company will become a wholly owned
subsidiary of Viacom at the effective time of a merger between the Company and
a subsidiary of Viacom (the "Viacom Merger"). A special meeting of the
Company's stockholders will be held on July 6, 1994 to act on the Viacom
Merger. The approval of holders of a majority of all outstanding voting shares
of both Viacom and the Company is required to approve the Viacom Merger. The
approval by Viacom's stockholders is assured by means of a voting agreement
between the Company and National Amusements, Inc., Viacom's parent corporation
which is controlled by Sumner M. Redstone. The approval by the
Company's stockholders is assured since Viacom now owns a majority of the
outstanding shares of the Company's Common Stock.
On March 2, 1994, Viacom accepted for payment, pursuant to a tender
offer (the "Viacom Offer"), 61,657,432 shares of the Company's Common Stock,
constituting a majority of the shares outstanding, at a price of $107 per share
in cash. Pursuant to the Merger Agreement, each share of the Company's Common
Stock outstanding at the time of the Viacom Merger (other than shares held in
the treasury of the Company or owned by Viacom and other than shares held by
any stockholders of the Company 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 ("8% Debentures") of Viacom, (iii) 0.93065 of a
contingent value right ("CVR"), (iv) 0.5 of a warrant to purchase one share of
Class B Common Stock of Viacom at any time prior to the third anniversary of
the Viacom Merger at a price of $60 per share, and (v) 0.3 of a warrant to
purchase one share of Class B Common Stock at any time prior to the fifth
anniversary of the Viacom Merger at a price of $70 per share. If a proposed
merger between Blockbuster Entertainment Corporation and Viacom is not
consummated prior to January 1, 1995, the 8% Debentures will be exchangeable,
at Viacom's option, for 5% cumulative preferred stock of Viacom and the
dividend payable on such preferred stock will be deemed to have accrued from
the effective time of the Viacom Merger and there will be no obligation to make
payments of interest on the 8% Debentures.
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. (CWI), 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 (WKBD) 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.(Macmillan), a leading book publisher, for
approximately $553 million.
The acquisitions have been accounted for as purchases and the financial
statements include the results of their operations from the dates of
acquistion.
The following table summarizes, on a pro forma basis, the combined
results of operations as though CWI, WKBD and Macmillan had been acquired on
November 1, 1992. It includes estimated amounts for a reduction of interest
income due to the use of short-term investments for the acquistions,
amortization of estimated intangible assets, an adjustment to depreciation
expense, an adjustment to conform WKBD's
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounting policies related to the accrual of certain operating
expenses to that of Paramount 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 acquistion taken place on
that date, nor are they necessarily indicative of future results.
Eleven Months Six Months
Ended March 31 Ended April 30
-------------- --------------
1994 1993
- -----------------------------------------------------------------------------
(In millions, except per share)
(Unaudited)
Revenues $4,697.2 $2,035.1
Loss before cumualtive effect of
accounting change (3.7) (33.6)
Net loss (3.7) (100.5)
Loss per share
Loss before cummualtive effect of
accounting change (0.03) (0.29)
Net loss (0.03) (0.85)
The Company and BHC Communications, Inc., which is majority-owned by
Chris-Craft Industries, Inc., are forming 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 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.
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.
The acquisitions have been 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
-------------------------------------------------------------------------
During the eleven months ended March 31, 1994, the six months ended April 30,
1993 and the years ended October 31, 1992 and 1991, 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 -- OTHER INCOME (EXPENSE)
Other income (expense) for the eleven months ended March 31, 1994, includes a
pre-tax charge of $27.2 million for costs incurred in the Company's merger with
Viacom Inc., consisting principally of finance, legal, consulting and other
fees, and an $18.8 million increase in reserves previously established for
discontinued operations.
In addition, in the eleven months ended March 31, 1994, an unconsolidated
affiliate of the Company sold an equity investment of which the Company
recorded its appropriate share, amounting to a pre-tax gain of $11.0 million.
Other income (expense) also includes foreign exchange gains (losses), minority
interest and other.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- 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 F -- INVENTORIES
Inventories as described in Note A are stated as follows
(in millions):
March 31 April 30 October 31
-------- -------- ----------
1994 1993 1992
- ----------------------------------------------------------------------------
Current
Finished goods $ 278.5 $ 248.3 $230.1
Work in process 19.2 12.8 10.6
Materials and supplies 31.7 29.5 26.4
- ----------------------------------------------------------------------------
329.4 290.6 267.1
- ----------------------------------------------------------------------------
Theatrical and television productions
Released 226.0 176.9 169.1
Completed, not released 29.2 32.7 35.7
In process and other 46.3 61.8 75.9
- ----------------------------------------------------------------------------
301.5 271.4 280.7
- ----------------------------------------------------------------------------
Broadcast rights 68.3 55.3 32.4
- ----------------------------------------------------------------------------
Total Current 699.2 617.3 580.2
- ----------------------------------------------------------------------------
Noncurrent
Theatrical and television productions
Released 130.4 155.3 103.9
In process and other 305.9 247.0 174.8
- ----------------------------------------------------------------------------
436.3 402.3 278.7
- ----------------------------------------------------------------------------
Broadcast rights 136.8 107.0 104.4
- ----------------------------------------------------------------------------
Total Noncurrent 573.1 509.3 383.1
- ----------------------------------------------------------------------------
Total $1,272.3 $1,126.6 $963.3
- ----------------------------------------------------------------------------
NOTE G -- 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 -- see paragraph 4 on page 2 for additional information);
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 six
countries (49% owned); and as of August 1992, Canada's Wonderland, Inc., a
Canadian theme park (20% owned). 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.
Summarized financial information for the above companies is as follows (in
millions):
Eleven Months Ended Six Months Ended Year Ended
or at March 31 or at April 30 or at October 31
------------------- ---------------- ------------------------
1994 1993 1992 1991
------------------------------------------------------------------------------------------------
Revenues $695.1 $372.6 $783.2 $683.0
Gross profit 152.8 129.0 321.6 226.3
Net earnings (loss) (26.1) 36.2 83.2 74.4
Current assets $348.4 $326.7 $337.8
Noncurrent assets 819.5 855.8 934.2
Current liabilities 313.9 223.7 248.8
Noncurrent liabilities 437.9 493.4 595.4
----------------------------------------------------------------------------------------------
Included in the operating income of the Company's Entertainment operations are
equity in earnings (loss) for the above affiliated companies of $(3.9), $24.0,
$58.7 and $47.6 million, respectively, for the eleven months ended March 31,
1994, the six months ended April 30, 1993 and the years ended October 31, 1992
and 1991. Dividends received from these affiliated companies were $14.8, $7.8,
$22.0 and $32.5 million, respectively, for the eleven months ended March 31,
1994, the six months ended April 30, 1993 and the years ended October 31, 1992
and 1991.
Included in consolidated retained earnings at March 31, 1994 is $134.2 million
of undistributed earnings of affiliates.
NOTE H -- LONG-TERM DEBT
Long-term debt includes (in millions):
March 31 April 30 October 31
-------- -------- ----------
1994 1993 1992
- ---------------------------------------------------------------------------
8 1/2% senior notes due 1996
(prepaid July 1993) $ 99.8 $ 99.8
5 7/8% senior notes due 2000 $ 149.4
7 1/2% senior notes due 2002 246.6 246.3 246.0
8 1/4% senior debentures due 2022 246.9 246.8 246.7
7 1/2% senior debentures due 2023 149.5
7% subordinated debentures due 2003,
net of unamortized discount of
$50.8 at March 31, 1994, $53.7
at April 30, 1993 and $55.1 at
October 31, 1992 (effective
average interest rate of 10.8%) 180.6 177.7 176.3
Revolving loan agreement borrowings 25.0
Other notes and debentures due
1994 to 1996 (effective average
interest rate of 8.24%) 12.1 12.2 12.2
Obligations under capital leases 23.9 34.3 41.1
-------------------------------------------------------------------------
1,034.0 817.1 822.1
Less current maturities 35.6 109.8 10.0
-------------------------------------------------------------------------
$ 998.4 $707.3 $812.1
-------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long-term debt (including the present value of obligations under
capital leases as set forth in Note K) during the five years ending March 31,
1999 are (in millions):
- --------------------------------------------------------
1995 $ 35.6
1996 20.0
1997 3.0
1998 0.4
1999 0.4
- --------------------------------------------------------
The Company has complied with restrictions and limitations required under terms
of various loan agreements.
At March 31, 1994 the Company had $125 million of unused revolving loan
agreement facilities.
NOTE I -- 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 B.
Common Stock outstanding at March 31, 1994, does not include 18,975
shares reserved under the 1984 Stock Option Plan; 2,078,971 shares reserved
under the 1989 Stock Option Plan; 5,750,000 shares reserved under the 1992 Stock
Option Plan; and 3,102,224 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.
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, 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
Granted 200,000 51.56- 56.38 10.7
Issued (2,035,492) (2,390,747) 15.25- 55.00 (177.6)
Rescinded (73,350) (520,759) 20.19- 55.00 (23.2)
------------------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 1994 -0- 18,975 1,504,337 31.69- 56.38 $67.5
------------------------------------------------------------------------------------------------------------------------------
Exercisable at
October 31, 1992 30,000 2,831,508 2,287,869
April 30, 1993 -0- 2,127,817 2,238,430
March 31, 1994 -0- 18,975 197,500
Reserved for future grants at
October 31, 1992 660,340
April 30, 1993 253,875
March 31, 1994 574,634
------------------------------------------------------------------------------------------------------------------------------
No options have been granted under the 1992 Stock Option Plan, and at March 31,
1994, 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, 125,000 shares 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 year ended October
31, 1991, 50,000 and 292,000, respectively, of previously granted shares were
rescinded. At March 31, 1994, the unvested portion of previously granted
shares totaling $1.7 million is included as a reduction of stockholders'
equity. Compensation expense is recorded over the period during which services
are performed.
During the eleven months ended March 31, 1994, the six months ended April 30,
1993 and the year ended October 31, 1992, 27,794, 61,094 and 64,205 shares,
respectively, of Common Stock of the Company were granted to employees at an
average market price of $80.81, $43.50 and $37.63 under the terms of the
Company's Long-Term Performance Plan. At March 31, 1994, April 30, 1993 and
October 31, 1992, there were 3,102,224, 3,130,018 and 3,191,112 shares,
respectively, of Common Stock reserved for future grants under this plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--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):
March 31 April 30 October 31
-------- -------- ----------
1994 1993 1992
- -------------------------------------------------------------------------------
Deferred tax assets:
Costs of motion picture and
television production $ 92.9 $ 89.2 $ 75.0
Employee compensation and other
payroll related expenses 34.1 44.5 60.7
Provisions for real estate
write-down, relocation and
publishing charges 99.3 40.5 24.8
Sales returns and allowances 64.4 46.4 45.8
Discontinued operations 37.1 34.2 29.0
Postretirement benefit obligation 35.5 34.5
Preacquisition net operating loss
carryforwards of subsidiaries
and other 31.9 50.0 60.3
Net operating loss carry forward 87.0
Other 93.6 32.1 42.0
- -------------------------------------------------------------------------------
575.8 371.4 337.6
Valuation allowance for deferred
tax assets (31.9) (50.0) (60.3)
- --------------------------------------------------------------------------------
Total deferred tax assets 543.9 321.4 277.3
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Income on motion picture and
television production (2.6) (12.4) (13.1)
Expenses related to renovation
project (9.5) (9.2) (9.2)
Self insurance (20.2) (10.5) (3.1)
Deferred seasonal expenses (44.0) (41.9) (26.8)
Other (5.9) (18.4) (17.9)
- -------------------------------------------------------------------------------
Total deferred tax liabilities (82.2) (92.4) (70.1)
- -------------------------------------------------------------------------------
Net deferred tax assets $461.7 $229.0 $207.2
- -------------------------------------------------------------------------------
The net deferred tax assets at March 31, 1994 consist of $268.9 million
classified in current assets and $192.8 million classified as noncurrent
assets. At March 31, 1994, the Company has net operating loss carryforwards
of $339.9 million which begin to expire in 1996, $91.0 million of which
relates to acquired net operating losses subject to limitations, for which a
full valuation has been established .
Provision (benefit) for income taxes includes (in millions):
Eleven Months Six Months Year Ended
Ended March 31 Ended April 30 October 31
-------------- -------------- --------------
1994 1993 1992 1991
- ------------------------------------------------------------------------
Current
Federal $ 97.5 $(54.1) $ 62.4 $ 26.1
Foreign 46.6 16.1 55.1 47.5
State and other 10.1 1.4 8.8 16.0
- ------------------------------------------------------------------------
154.2 (36.6) 126.3 89.6
- ------------------------------------------------------------------------
Deferred
Federal (158.6) 27.7 4.0 (28.0)
Foreign 7.5 1.2 (7.2) (4.2)
State and other (5.3)
- ------------------------------------------------------------------------
(151.1) 28.9 (3.2) (37.5)
- ------------------------------------------------------------------------
$ 3.1 $ (7.7) $123.1 $ 52.1
- ------------------------------------------------------------------------
The components of earnings (loss) before income taxes were as follows (in
millions):
Eleven Months Six Months Year Ended
Ended March 31 Ended April 30 October 31
-------------- -------------- -----------------
1994 1993 1992 1991
- -------------------------------------------------------------------------
Domestic $(132.4) $(47.8) $301.8 $ 68.0
Foreign 141.2 31.0 95.5 111.7
- -------------------------------------------------------------------------
$ 8.8 $(16.8) $397.3 $179.7
- -------------------------------------------------------------------------
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):
Eleven Months Six Months Year Ended
Ended March 31 Ended April 30 October 31
-------------- -------------- ---------------
1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
Provision (benefit)
for income taxes
at statutory rate $ 3.1 $(5.7) $135.1 $ 61.1
Increase (decrease) in
taxes arising from
effect of
Income (principally
foreign) taxed at lower rates (17.1) (1.2) (13.4) (19.6)
Amortization of
intangible assets 13.6 1.3 13.1 8.8
U. S. state and local
income taxes 6.6 1.0 5.3 7.0
Tax exempt interest (5.4)
Restoration of reserves
no longer required (3.9) (21.4)
Statutory rate change (5.9)
Other 2.8 0.8 4.4 0.2
- ----------------------------------------------------------------------------------------------------------
Provision (benefit) for
income taxes $ 3.1 $(7.7) $123.1 $ 52.1
- ----------------------------------------------------------------------------------------------------------
Effective tax rate 35.2% 45.8% 31.0% 29.0%
- ----------------------------------------------------------------------------------------------------------
Total income tax payments were $116.2, $59.6, $120.0 and $103.8 million,
respectively, for the eleven months ended March 31, 1994, the six months ended
April 30, 1993 and the years ended October 31, 1992 and 1991. 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 $771 million at March 31, 1994. 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 K -- COMMITMENTS AND CONTINGENCIES
Leases
Total rental expense was $89.9, $45.7, $87.0 and $80.0 million, respectively,
for the eleven months ended March 31, 1994, the six months ended April 30, 1993
and the years ended October 31, 1992 and 1991.
At March 31, 1994, the minimum lease payments under capital leases and
noncancellable operating leases were as follows (in millions):
Year Ending March 31
---------------------
Capital Operating
Leases Leases
- --------------------------------------------------------------------
1995 $13.5 $73.9
1996 9.4 57.3
1997 3.6 50.0
1998 0.8 44.1
1999 0.7 41.2
Thereafter 4.2 452.1
- --------------------------------------------------------------------
Total minimum lease payments 32.2 $718.6
- --------------------------------------------------------------------
Less amounts representing interest 8.3
- --------------------------------------------------------------------
Present value of net minimum lease payments $23.9
- --------------------------------------------------------------------
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic pension cost for the Company's plans were as
follows (in millions):
Eleven Months Six Months Year Ended
Ended March 31 Ended April 30 October 31
-------------- -------------- ---------------
1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
Service cost-benefits
earned $ 20.7 $ 9.2 $ 18.1 $ 17.2
Interest cost on projected
benefit obligation 32.6 18.9 34.1 32.4
Less return on plan assets (41.6) (25.2) (41.2) (59.4)
Net amortization
and deferral 1.8 3.9 1.9 19.7
- ------------------------------------------------------------------------------------------
Net periodic pension cost $ 13.5 6.8 $ 12.9 $ 9.9
- ------------------------------------------------------------------------------------------
In addition, the Company had other pension expense for the eleven months ended
March 31, 1994, the six months ended April 30, 1993 and the years ended October
31, 1992 and 1991 of $10.1, $5.0, $9.2 and $9.2 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):
March 31 April 30 October 31
-------- -------- ----------
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit
obligation
Vested $418.4 $345.8 $325.6
Nonvested 23.5 19.4 17.8
- ---------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 441.9 365.2 343.4
Effect of projected future salary
increases 71.1 57.1 55.8
- ---------------------------------------------------------------------------------------------------------------------
Projected benefit obligation 513.0 422.3 399.2
Plan assets at fair value 471.9 453.0 432.1
- ---------------------------------------------------------------------------------------------------------------------
Plan assets in excess of or (less than)
projected benefit obligation (41.1) 30.7 32.9
Unrecognized net (gain) loss 21.8 (34.9) (30.2)
Unrecognized prior service cost (7.1) (8.2) (9.7)
Unrecognized net asset at date
of adoption of SFAS No. 87 (7.5) (9.0) (9.7)
- ---------------------------------------------------------------------------------------------------------------------
Net pension liability $(33.9) $(21.4) $(16.7)
- ---------------------------------------------------------------------------------------------------------------------
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, the
Company's plans owned 932,076 shares of the Company's Common Stock with an
aggregate market value of $48.5 and $39.3 million, respectively. During the
eleven months ended March 31, 1994, all shares of the Company's Common Stock
owned by the Company's plans were sold, resulting in net proceeds of $74.2
million.
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 7.5% and 5.0%, respectively, for the
eleven months ended March 31, 1994, and 8.5% and 6.0%, respectively, for the
six months ended April 30, 1993 and the year ended October 31, 1992. The
expected long-term rate of return on assets used for the majority of the
Company's plans was 10.0% for the eleven months ended March 31, 1994, the six
months ended April 30, 1993 and the years ended October 31, 1992 and 1991.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the amounts recognized in the Company's consolidated balance
sheet are as follows (in millions):
March 31 April 30 November 1
-------- -------- ----------
1994 1993 1992
- ----------------------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation attributable to:
Current retirees $ 50.8 $ 51.7 $ 49.2
Fully eligible active plan
participants 20.0 20.2 19.2
Other active plan participants 34.2 34.7 33.0
Unrecognized net gain 9.4
- ----------------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation $114.4 $106.6 $101.4
- ----------------------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for the eleven
months ended March 31, 1994 and the six months ended April 30, 1993, are as
follows (in millions):
Eleven Months Six Months
Ended March 31 Ended April 30
-------------- --------------
1994 1993
- ----------------------------------------------------------------------------------------------
Service cost-benefits earned $ 4.2 $2.4
Interest cost on accumulated
postretirement benefit obligation 6.5 4.2
- ----------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $10.7 $6.6
- ----------------------------------------------------------------------------------------------
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for the eleven months ended March 31, 1994 and 8.5% for the
six months ended April 30, 1993. At March 31, 1994, the assumed weighted
average health care cost trend rates to be used in measuring the accumulated
postretirement benefit obligation for 1995 are 11% for retirees age 65 and over
and 13% for retirees under age 65. Both rates are assumed to decrease
gradually each year to 5.5% 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 March 31, 1994 by $19.2
million, and increase the sum of the service and interest cost components of
net periodic postretirement benefit cost by $2.3 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 eleven months ended March 31, 1994 and the six months
ended April 30, 1993, was $12.7 and $5.6 million, respectively.
Commitments
At March 31, 1994, the Company is obligated to make future payments for various
feature films, syndicated programs, sports events and other programming
totaling approximately $367 million. This amount includes $285 million related
to Madison Square Garden Network's agreement to televise New York Yankees
baseball games through the year 2000. These commitments had a fair value of
approximately $295 million at March 31, 1994.
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 L -- SUPPLEMENTAL INFORMATION
Trade receivables are net of allowance for doubtful accounts of $47.9, $64.1
and $65.5 million at March 31, 1994, April 30, 1993 and October 31, 1992,
respectively.
Prepaid expenses and other includes royalties advances of $171.4, $182.8 and
$161.6 million in addition to deferred theatrical advertising and print costs
of $149.8, $89.9 and $95.3 million at March 31, 1994, April 30, 1993 and
October 31, 1992, respectively.
The details of accrued expenses and other are as follows (in millions):
March 31 April 30 October 31
-------- -------- ----------
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Participations payable and accrued
syndication expenses $ 419.8 $ 334.6 $ 363.0
Deferred television contracts income 99.7 90.6 86.9
Accrued compensation and other
employee benefit related items 174.9 114.7 140.6
Reverse repurchase liability 75.1 50.1
Other 790.0 513.4 473.5
- -----------------------------------------------------------------------------------------------------------
$1,484.4 $1,128.4 $1,114.1
- -----------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred liabilities includes participations payable and deferred syndication
expenses of $144.5, $193.7 and $189.2 million, at March 31, 1994, April 30, 1993
and October 31, 1992, respectively.
The details of interest and other investment income (expense) -- net are as
follows (in millions):
Eleven Months Six Months Year Ended
Ended March 31 Ended April 30 October 31
-------------- -------------- ---------------------
1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Interest expense
Interest on
indebtedness
and other $(105.8) $(44.9) $(104.1) $(108.6)
Imputed interest
on long-term
liabilities (8.6) (5.8) (14.7) (14.6)
Less capitalized
interest 6.7 2.8 5.0 11.2
- --------------------------------------------------------------------------------------------------------------
(107.7) (47.9) (113.8) (112.0)
- --------------------------------------------------------------------------------------------------------------
Interest and other
investment income
Interest and other
income on
investments 35.7 28.6 88.4 106.9
Imputed interest
on long-term
receivables 25.7 16.3 33.2 26.9
- --------------------------------------------------------------------------------------------------------------
61.4 44.9 121.6 133.8
- --------------------------------------------------------------------------------------------------------------
$ (46.3) $ (3.0) $ 7.8 $ 21.8
- --------------------------------------------------------------------------------------------------------------
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 $84.6, $40.8, $91.0 and $99.5
million, respectively, for the eleven months ended March 31, 1994, the six
months ended April 30, 1993 and the years ended October 31, 1992 and 1991.
NOTE M --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 March 31, 1994 and 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 March 31, 1994 and April 30, 1993 are as follows (in millions):
March 31, 1994 April 30, 1993
-------------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------
Cash and cash equivalents $ 239.3 $239.3 $372.6 $372.6
Short-term investments 67.3 67.3 569.7 577.4
Long-term debt
(including current
maturities) (1) 1,010.1 959.8 782.8 859.8
Reverse repurchase liability -0- -0- 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. At March 31, 1994, the fair market
value of the Company's interest rate swaps was a net payable position of
approximately $25 million. The Company has established reserves for this
diminution in value. 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 $343 and $320 million at March 31, 1994 and April
30, 1993, respectively. These guarantees had a fair value of $314 and $293
million at March 31, 1994 and April 30, 1993, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N -- FINANCIAL REPORTING BY BUSINESS SEGMENTS
A summary description of the Company's business segments and their respective
Revenues and Operating Income (Loss) for the eleven months ended March 31, 1994
and 1993, the six months ended April 30, 1993 and 1992 and the years ended
October 31, 1992 and 1991 is presented on page F-6.
Depreciation, capital expenditures and identifiable assets were as follows (in
millions):
Depreciation Capital Expenditures (1)
------------------------------------------------------ -------------------------------
Eleven Months Six Months Eleven Months Six Months
Ended March 31 Ended April 30 Year Ended October 31 Ended March 31 Ended April 30
-------------- -------------- --------------------- -------------- --------------
1994 1993 1992 1991 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Business Segments
Entertainment $69.9 $24.6 $49.0 $38.1 $119.0 $46.0
Publishing 21.3 11.6 20.9 19.1 26.6 8.7
- -----------------------------------------------------------------------------------------------------------------
Total 91.2 36.2 69.9 57.2 145.6 54.7
Corporate and Other
Non-Segment Items 1.8 0.9 1.8 1.9 2.6 1.2
- -----------------------------------------------------------------------------------------------------------------
$93.0 $37.1 $71.7 $59.1 $148.2 $55.9
- -----------------------------------------------------------------------------------------------------------------
Capital Expenditures (1)
---------------------------
Year Ended October 31
---------------------------
1992 1991
- ---------------------------------------------------
Business Segments
Entertainment $94.3 $146.6
Publishing 24.6 25.8
- ---------------------------------------------------
Total 118.9 172.4
Corporate and Other
Non-Segment Items 1.1 0.5
- ---------------------------------------------------
$120.0 $172.9
- ---------------------------------------------------
Identifiable Assets
--------------------------------------
March 31 April 30 October 31
-------- -------- -----------------
1994 1993 1992 1991
-----------------------------------------------------------------------
Business Segments
Entertainment $3,792.9 3,377.8 $3,221.9 2,493.7
Publishing 2,886.4 2,321.3 2,396.5 2,226.4
- ------------------------------------------------------------------------
Total 6,679.3 5,699.1 5,618.4 4,720.1
Corporate and Other
Non-Segment Items 928.7 1,175.7 1,438.6 1,934.6
- ------------------------------------------------------------------------
$7,608.0 6,874.8 $7,057.0 6,654.7
- ------------------------------------------------------------------------
- ----------------
(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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O -- QUARTERLY RESULTS (UNAUDITED)
The following summarizes the quarterly operating results of the Company for the
eleven months ended March 31, 1994, the six months ended April 30, 1993 and the
year ended October 31, 1992 (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)
- ------------------------------------------------------------------------------------------------------------------------
ELEVEN MONTHS ENDED
MARCH 31, 1994
July 31, 1993 $1,351.7 $ 842.4 $ 190.6 $ 185.2 $ 120.4 $ 120.4 $ 1.01 $ 1.01
October 31, 1993 1,391.8 918.4 159.7 148.9 96.8 96.8 .80 .80
January 31, 1994 1,013.5 784.2 (52.3) (56.3) (36.6) (36.6) (.31) (.31)
Two Months
Ended March 31, 1994 676.5 634.3 (197.2) (269.0) (174.9) (174.9) (1.45) (1.45)
- -------------------------------------------------------------------------------------------------------------------------
$4,433.5 $3,179.3 $ 100.8 $ 8.8 $ 5.7 $5.7 $ .05 $ .05
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 1993
January 31, 1993 $ 943.7 $ 648.8 $1.8 $ (1.2) $ 0.1 $ (66.8) $ -0- $ (.57)
April 30, 1993 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)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
1992
January 31, 1992 $1,070.6 $ 761.4 $ 27.6 $ 27.1 $ 19.4 $ 19.4 $ .16 $ .16
April 30, 1992 927.9 621.7 50.2 41.6 29.3 29.3 .25 .25
July 31, 1992 1,063.9 629.2 156.9 166.6 114.3 114.3 .96 .96
October 31, 1992 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
- ------------------------------------------------------------------------------------------------------------------------
During the two months ended March 31, 1994, the Company recorded a $84.3
million and $22.3 million charge, respectively, against Publishing's operating
income and Corporate Expenses. For further details related to these charges,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations.
During the two months ended March 31, 1994, the Company recorded a charge of
$27.2 million and $18.8 million, respectively, for costs incurred in the
Company's merger with Viacom Inc. and to provide for additional costs
applicable to operations previously discontinued. The Company also recorded a
charge of approximately $20 million to adjust certain interest rate swaps to
current fair market value. In addition, the Company recorded a gain of $11.0
million from its share of an equity investment that was sold by an
unconsolidated affiliate of the Company (see Note D).
PARAMOUNT COMMUNICATIONS INC.
The registrant hereby amends the cover page and the following items, financial
statements, exhibits or other portions of its Transition Report on Form 10-K
for the eleven months ended March 31, 1994, as set forth in the pages attached
hereto:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
Page
----
(a) 1. Financial Statements Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The following financial information is submitted herewith:
Schedules for the eleven months ended or at March 31, 1994, the six months
ended or at April 30, 1993 and the years ended or at October 31, 1992 and 1991:
Reports of Independent Accountants/Auditors . . . . . . . . . . . . . . . . . . . . . . 4
Schedule II -- Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties . . . . . 6
Schedule VII -- Guarantees of Securities of Other Issuers . . . . . . . . . . . . 14
Schedule VIII -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . 15
Schedule IX -- Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . 16
Schedule X -- Supplementary Income Statement Information . . . . . . . . . . . 17
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.
PARAMOUNT COMMUNICATIONS INC.
FINANCIAL STATEMENTS INDEX
Reports of Independent Accountants/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
eleven months ended March 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
Stockholders and Board of Directors
Paramount Communications Inc.
Our audit of the consolidated financial statements referred to in our
report dated June 3, 1994 appearing on page F-2 of the March 31, 1994 Form 10-K
also included an audit of the Financial Statement Schedules included in this
filing on Form 10-K/A as listed in the accompanying index. 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
Form 10-K.
Price Waterhouse
New York, New York
June 3, 1994
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
for the six-month period ended April 30, 1993 and for each of the two 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 as of and for the aforementioned periods.
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
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
ELEVEN MONTHS ENDED MARCH 31, 1994
(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
- ------------------------------------------------------------------------------------------------------------------
Greg Anthony: 10% note payable; due in installments
from November 1994 to May 1997 . . . . . . . . . . $ 0.9
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . $ 0.2 0.2 $ 0.1
David Checketts: note payable; principal to be
repaid the earlier of December 30, 1997 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . 0.5
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 . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.4
Michael Keenan: 5% note payable; interest paid quarterly;
principal due June 30, 1998; secured by residential
real estate . . . . . . . . . . . . . . . . . . . 0.9
- -----------------------------------------------------------------------------------------
COL. A COL. E
- -----------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD
------------------------
(1) (2)
NAME OF DEBTOR CURRENT NOT CURRENT
- -----------------------------------------------------------------------------------------
Greg Anthony: 10% note payable; due in installments
from November 1994 to May 1997 . . . . . . . . . . $ 0.2 $ 0.7
Rolando Blackman: 10% note payable; due in
monthly installments from September 15, 1994
to August 15, 1995 . . . . . . . . . . . . . . . . 0.2 0.1
David Checketts: note payable; principal to be
repaid the earlier of December 30, 1997 or 180 days
after termination; interest rate set quarterly based
on the 90 day commercial paper composite rate;
secured by residential real estate . . . . . . . . 0.5
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 . . . . . . . . . . . . . . . . . . . . . . .
Michael Keenan: 5% note payable; interest paid
quarterly; principal due June 30, 1998;
secured by residential real estate . . . . . . . 0.9
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
PARAMOUNT COMMUNICATIONS INC.
Eleven Months Ended March 31, 1994
(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 . . . . . . . 0.4
Anthony Mason: 10% note payable; due in 24 semi-
monthly installments beginning July 15, 1994 . . 0.1 0.5 0.1
Patrick Purcell: 7% note payable; principal to
be repaid out of future compensation;
secured by residential real estate . . . . . . . 0.7 0.1 0.1
Patrick Riley:
Relocation bridge loan; due no later than
August 31, 1994 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . 0.4
Esa Tikkanen: note payable; due in 24 installments
from October 1993 to October 1995 . . . . . . . 0.8 0.4
----- ----- -----
$ 8.8 $ 3.4 $ 1.1
===== ===== =====
- ----------------------------------------------------------------------------------------
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
Anthony Mason: 10% note payable; due in 24 semi-
monthly installments beginning July 15, 1994 . . 0.4 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, 1994 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . 0.4
Esa Tikkanen: note payable; due in 24 installments
from October 1993 to October 1995 . . . . . . . 0.3 0.1
----- ----
$ 2.3 $8.8
===== ====
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 . . . . . .
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 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
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 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . 0.4
----- -----
$ 1.6 $ 7.2
===== =====
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.
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 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
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 or 180 days after termination;
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
or 180 days after termination; 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
180 days after termination of employment;
interest rate set quarterly based on the 90 day
commercial paper composite rate; secured by
residential real estate . . . . . . . . . . . . 0.4
---- ----
$1.3 $7.8
==== ====
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 . . . . . . .
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 or 180 days after termination;
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
or 180 days after termination; 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 or 180 days after termination
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
or 180 days after termination; interest rate set
quarterly based on the 90 day commercial paper
composite rate; secured by residential
real estate . . . . . . . . . . . . . . . . 2.0
---- ----
$1.3 $6.7
==== ====
SCHEDULE VII -- GUARANTEES OF SECURITIES OF OTHER ISSUERS
PARAMOUNT COMMUNICATIONS INC.
AT MARCH 31, 1994
(In millions)
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C
- ---------------------------------------------------------------------------------------------------------------
TITLE OF TOTAL
ISSUE OF AMOUNT
NAME OF ISSUER OF SECURITIES EACH CLASS GUARANTEED
GUARANTEED BY PERSON FOR OF SECURITIES AND
WHICH STATEMENT IS FILED GUARANTEED OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------
CBF Fabrics, Inc. Industrial Revenue Bond $ 2.4
Kayser-Roth Corporation Secured Notes 0.6
Simmons Manufacturing Industrial Revenue Bond 9.7
Company Inc.
Redevelopment Agency of Senior Secured Refunding Notes 37.8
the City of Santa Clara,
California
United Cinemas International Revolving Credit 85.1
Cinema International Corporation, N.V. Revolving Credit 11.6
------
$147.2
======
- -------------------------------------------------------------------------------------------------------------
COL. A COL. F
- -------------------------------------------------------------------------------------------------------------
NAME OF ISSUER OF SECURITIES NATURE
GUARANTEED BY PERSON FOR OF
WHICH STATEMENT IS FILED GUARANTEE
- -------------------------------------------------------------------------------------------------------------
CBF Fabrics, Inc. Principal and interest
Kayser-Roth Corporation Principal and interest
Simmons Manufacturing Principal and interest
Company Inc.
Redevelopment Agency of Principal and interest
the City of Santa Clara,
California
United Cinemas International Principal and interest
Cinema International Corporation, N.V. Principal and interest
- ----------------
Note: Information for Columns D, E, and G is not applicable at March 31, 1994
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
PARAMOUNT COMMUNICATIONS INC.
ELEVEN MONTHS ENDED MARCH 31, 1994, SIX MONTHS ENDED APRIL 30, 1993 AND
TWO YEARS ENDED OCTOBER 31, 1992
(In millions)
- ----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------
(2)
(1) CHARGED TO
BALANCE CHARGED TO OTHER
AT BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS --
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts deducted from
trade receivables on the balance sheet:
Eleven months ended March 31, 1994 . . . . . . . . . $ 64.1 $ 9.2 $ 7.4 (A) $ 32.8 (B)
====== ====== ===== ======
Six months ended April 30, 1993 . . . . . . . . . . . $ 65.5 $ 8.0 $ 2.1 (A) $ 11.5 (B)
====== ====== ===== ======
Year ended October 31, 1992 . . . . . . . . . . . . . $ 59.6 $ 16.6 $ 8.9 (A) $ 19.6 (B)
====== ====== ===== ======
Year ended October 31, 1991 . . . . . . . . . . . . . $ 59.8 $ 19.4 $ 4.0 (A) $ 23.6 (B)
====== ====== ===== ======
- -------------------------------------------------------------------------
COL. A COL. E
- -------------------------------------------------------------------------
BALANCE
AT END OF
DESCRIPTION PERIOD
- -------------------------------------------------------------------------
Allowance for doubtful accounts deducted from
trade receivables on the balance sheet:
Eleven months ended March 31, 1994 . . . . . . . . . $ 47.9
======
Six months ended April 30, 1993 . . . . . . . . . . . $ 64.1
======
Year ended October 31, 1992 . . . . . . . . . . . . . $ 65.5
======
Year ended October 31, 1991 . . . . . . . . . . . . . $ 59.6
======
- --------------------
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.
SCHEDULE IX -- SHORT-TERM BORROWINGS
PARAMOUNT COMMUNICATIONS INC.
Eleven Months Ended March 31, 1994,
Six Months Ended April 30, 1993 and Two Years Ended October 31, 1992
(Dollars in millions)
- --------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
- --------------------------------------------------------------------------------------------------------------------
WEIGHTED MAXIMUM AMOUNT
CATEGORY OF BALANCE AT AVERAGE OUTSTANDING
AGGREGATE END OF INTEREST DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD
- --------------------------------------------------------------------------------------------------------------------
Eleven Months Ended March 31, 1994
Note payable to bank (A) . . . . . . . $ 25.0 3.89% $ 25.0
- ------------------------------------------------------------------------------------------------
COL. A COL. E COL. F
- ------------------------------------------------------------------------------------------------
AVERAGE AMOUNT WEIGHTED AVERAGE
CATEGORY OF OUTSTANDING INTEREST RATE
AGGREGATE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD (B) PERIOD (C)
- ------------------------------------------------------------------------------------------------
Eleven Months Ended March 31, 1994
Note payable to bank (A) . . . . . . . $ 0.2 3.89%
- --------------------
Note A -- The note payable to bank represents a revolving loan agreement
borrowing, which has a maturity of one month from date of issue
and has a provision to be extended for an additional two months.
The Company had no short-term borrowings for the six months ended
April 30, 1993 and the two years ended October 31, 1992.
Note B -- The average amount outstanding during the period was computed by
dividing the total of the daily outstanding principal balances
by the number of days in the period.
Note C -- The weighted average interest rate during the period was computed by
dividing the actual interest expense by average debt outstanding.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
PARAMOUNT COMMUNICATIONS INC.
Eleven Months Ended March 31, 1994, Six Months Ended April 30, 1993 and
Two Years Ended October 31, 1992
(In millions)
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------------------------------------------------
ITEM CHARGED TO COSTS AND EXPENSES
- ------------------------------------------------------------------------------------------------------------------------
Eleven Months Six Months
Ended March 31 Ended April 30 Year Ended October 31
-------------- -------------- -----------------------
1994 1993 1992 1991
---- ---- ---- ----
Maintenance and repairs . . . . . . . . . . . . . . $ 56.1 $ 21.1 $ 40.6 $ 33.1
Taxes, other than payroll and
income taxes . . . . . . . . . . . . . . . . . . 33.3 16.9 46.8 48.3
Royalties . . . . . . . . . . . . . . . . . . . . . 253.3 77.4 171.5 152.0
Advertising costs . . . . . . . . . . . . . . . . . 501.9 250.9 563.3 514.0
- -----------------
Amounts for depreciation and amortization of preoperating costs and similar
deferrals are not presented as such amounts do not exceed 1% of revenues.
-17-
Item 7(a)(2)
PARAMOUNT COMMUNICATIONS INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended Three months Ended
June 30, July 31,
------------------ ------------------
1994 1993 1993
----- ---- ----
(In millions, except per share)
Revenues $1,198.6 $1,109.9 $1,351.7
Cost of goods sold 791.1 729.8 842.4
Selling, general and administrative expenses 332.5 346.9 318.7
-------- -------- --------
1,123.6 1,076.7 1,161.1
-------- -------- --------
Operating Income 75.0 33.2 190.6
Other expense (7.2) (2.9) (0.8)
Interest and other investment income (expense):
Interest expense (26.4) (22.8) (21.0)
Interest and other investment income 10.7 18.6 16.4
------ ------ ------
(15.7) (4.2) (4.6)
-------- ------- -------
Earnings before Income Taxes 52.1 26.1 185.2
Provision for income taxes 18.3 8.9 64.8
------ ------ ----
Net Earnings $33.8 $17.2 $120.4
===== ===== ======
Average common and common equivalent
shares outstanding 122.8 119.6 119.8
Net earnings per share $0.28 $0.14 $1.01
Cash dividends declared per common share -- $0.20 $0.20
See notes to consolidated financial statements.
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET
June 30, March 31,
1994 1994
---- ----
(Unaudited) (Note)
(In millions)
ASSETS
Current Assets
Cash and cash equivalents $ 305.2 $ 239.3
Short-term investments 66.4 67.3
Trade receivables 1,000.9 914.3
Inventories - Note D 758.3 699.2
Prepaid income taxes 315.9 303.5
Prepaid expenses and other 500.2 491.9
---------- --------
Total Current Assets 2,946.9 2,715.5
Property, Plant and Equipment
Land 268.2 267.1
Buildings 669.7 665.6
Machinery, equipment and other 753.8 733.2
---------- --------
1,691.7 1,665.9
Less allowance for depreciation 437.0 409.2
---------- --------
1,254.7 1,256.7
Other Assets
Investment in affiliated companies 206.5 211.2
Noncurrent receivables and inventories - Note D 758.0 773.1
Intangible assets 2,085.4 2,093.5
Deferred costs and other 543.0 558.0
---------- --------
3,592.9 3,635.8
---------- --------
$ 7,794.5 $7,608.0
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 10.9 $ 35.6
Trade accounts payable 180.5 201.6
Income taxes payable -- 19.6
Accrued expenses and other 1,497.9 1,484.4
---------- --------
Total Current Liabilities 1,689.3 1,741.2
Deferred Liabilities 770.0 795.3
Long-Term Debt, net of current maturities 1,226.9 998.4
Stockholders' Equity
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 122,792,910
(excluding 25,069,138 shares held in treasury) 122.8 122.8
Paid-in surplus 958.0 957.7
Retained earnings 3,050.3 3,016.5
Cumulative translation adjustments (22.8) (23.9)
----------- --------
4,108.3 4,073.1
---------- --------
$ 7,794.5 $7,608.0
========== ========
Note: Derived from audited financial statements.
See notes to consolidated financial statements.
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
------------------
June 30, July 31,
1994 1993
---- ----
(In millions)
Cash Flows from Operating Activities
Net earnings $ 33.8 $ 120.4
Non-cash expenses
Depreciation 31.4 32.6
Deferred income taxes (36.6) 1.8
Amortization of intangible assets 11.0 17.4
Amortization of pre-publication costs 23.1 34.4
Theatrical and television inventories and broadcast rights
Gross additions (233.1) (264.4)
Amortization 204.0 254.6
Decrease in network features and syndication licenses 3.3 8.1
Increase in pre-publication costs (36.1) (16.8)
Increase in trade receivables (123.7) (276.7)
Decrease in inventories (other than theatrical and television) 3.7 18.6
(Increase) decrease in prepaid expenses (8.2) 44.7
Decrease in trade accounts payable (21.0) (36.2)
Increase in prepaid taxes and income taxes payable 52.1 31.2
Increase in accrued expense and other 13.4 55.7
Other, net (28.1) (34.9)
---------- ---------
Net cash flows used for operating activities (111.0) (9.5)
Cash Flows from Investment and Other Activities
Expenditures for property, plant and equipment (excluding capitalized leases) (29.7) (33.4)
Purchase price of acquired businesses (net of acquired cash) -- (52.3)
Decrease in short-term investments, net 0.9 (32.3)
Other, net 3.4 3.4
-------- ---------
Net cash flows provided from investment and other activities (25.4) (114.6)
Cash Flows from Financing Activities
Proceeds of long-term debt 220.0 298.8
Payments of long-term debt (17.7) (134.0)
Issuance of Common Stock (excluding grants to employees) -- 7.4
Dividends -- (23.7)
------ ---------
Net cash flows provided from financing activities 202.3 148.5
-------- --------
Increase in Cash and Cash Equivalents 65.9 24.4
Cash and Cash Equivalents at Beginning of Period 239.3 372.6
-------- --------
Cash and Cash Equivalents at End of Period $ 305.2 $ 397.0
======== ========
See notes to consolidated financial statements.
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
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 eleven months ended March 31,
1994), as amended.
The consolidated financial statements are stated on an historical
basis and do not reflect adjustments made in connection with the
Merger (as defined in Note B).
Change in Fiscal Year End
In March 1994, the Board of Directors approved a change in the
Company's fiscal year end to March 31 from April 30.
Note B - Tender Offer and Merger
In March 1994, Viacom Inc. acquired a majority of the Company's
common stock outstanding at a price of $107 per share in cash. On
July 7, 1994, the Company became a wholly owned subsidiary of Viacom
Inc. (the "Merger") at the effective time of the merger between the
Company and a subsidiary of Viacom Inc. Each share of the Company's
common stock outstanding at the time of the 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) was converted into the right to receive
(i) 0.93065 of a share of Class B Common Stock, (ii) $17.50 principal
amount of 8% exchangeable subordinated debentures ("8% Debentures") of
Viacom Inc., (iii) 0.93065 of a contingent value right ("CVR"), (iv)
0.5 of a warrant to purchase one share of Class B Common Stock at any
time prior to the third anniversary of the Merger at a price of $60
per share, and (v) 0.3 of a warrant to purchase one share of Class B
Common Stock at any time prior to the fifth anniversary of the Merger
at a price of $70 per share.
Note C - Acquisition and Disposition of Businesses
The Company and BHC Communications, Inc., which is majority-owned
by Chris-Craft Industries, Inc., have formed the United Paramount
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 February 1994, the Company acquired Macmillan Publishing Company
and certain other assets of Macmillan Inc. (Macmillan), a leading book
publisher, for approximately $553 million.
In September 1993, the Company purchased television station WKBD-TV
(WKBD) in Detroit from Cox Enterprises Inc. for approximately $105
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.
During the periods ended June 30, 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.
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D Inventories
Inventories are stated at lower of cost or net realizable value as
follows (in millions):
June 30, March 31,
1994 1994
---- ----
Current
Finished goods $ 275.7 $278.5
Work in process 17.8 19.2
Materials and supplies 32.2 31.7
------ ------
325.7 329.4
Theatrical and television productions
Released 232.2 226.0
Completed, not released 108.3 29.2
In process and other 36.4 46.3
------ ------
376.9 301.5
Broadcast rights. 55.7 68.3
------ ------
Total current 758.3 699.2
------ ------
Noncurrent
Theatrical and television productions
Released 136.8 130.4
In process and other 293.5 305.9
------ ------
430.3 436.3
Broadcast rights 109.1 136.8
------ ------
Total noncurrent 539.4 573.1
------ ------
Total $1,297.7 $1,272.3
======= ========
-11-
Item 7(a)(3)
Item 8. Financial Statements and Supplementary Data
Blockbuster Entertainment Corporation
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of
December 31, 1993 and 1992
Consolidated Statements of Operations for Each of the Three
Years Ended December 31, 1993
Consolidated Statements of Changes in Shareholders' Equity
for Each of the Three Years Ended December 31, 1993
Consolidated Statements of Cash Flows for Each of the Three
Years Ended December 31, 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules for Each of the Three
Years Ended December 31, 1993:
V. Property, Plant and Equipment
VI. Accumulated Depreciation, Depletion and
Amortization of Property, Plant
and Equipment
VIII. Valuation and Qualifying Accounts
X. Supplementary Statements of Operations Information
All other schedules are omitted as not applicable or not
required.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Blockbuster Entertainment Corporation:
We have audited the accompanying consolidated balance sheets of Blockbuster
Entertainment Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1993. These financial statements
and the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 financial position of Blockbuster Entertainment
Corporation and subsidiaries as of 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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included in Item 14.(a)(2)
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Fort Lauderdale, Florida,
March 23, 1994.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(In thousands, except share data)
1993 1992
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 95,254 $ 43,358
Accounts and notes receivable,
less allowance 135,172 44,150
Merchandise inventories 350,763 180,002
Film costs and program rights, net 117,324 ---
Other 50,210 23,099
---------- ----------
Total Current Assets 748,723 290,609
VIDEOCASSETTE RENTAL INVENTORY, NET 470,223 322,168
PROPERTY AND EQUIPMENT, NET 522,745 388,588
INTANGIBLE ASSETS, NET 856,318 422,155
INVESTMENT IN VIACOM INC. 600,000 ---
OTHER ASSETS 322,958 117,134
---------- ----------
$3,520,967 $1,540,654
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,083 $ 16,894
Accounts payable 369,815 216,362
Accrued liabilities 177,695 99,518
Accrued participation expenses 43,013 ---
Income taxes payable 43,632 12,827
---------- ----------
Total Current Liabilities 643,238 345,601
LONG-TERM DEBT, LESS CURRENT PORTION 603,496 238,034
SUBORDINATED CONVERTIBLE DEBT --- 118,532
OTHER LIABILITIES 59,999 48,365
MINORITY INTERESTS IN SUBSIDIARIES 90,834 2,775
COMMITMENTS AND CONTINGENCIES --- ---
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; authorized
500,000 shares; none outstanding --- ---
Common stock, $.10 par value; authorized
300,000,000 shares; issued and
outstanding 247,380,069 and 197,944,685
shares, respectively 24,738 19,794
Capital in excess of par value 1,564,685 453,081
Cumulative foreign currency
translation adjustment (38,143) (34,656)
Retained earnings 572,120 349,128
---------- ----------
Total Shareholders' Equity 2,123,400 787,347
---------- ----------
$3,520,967 $1,540,654
========== ==========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share data)
1993 1992 1991
---- ---- ----
REVENUE:
Rental revenue $1,285,412 $ 969,333 $742,013
Product sales 658,097 298,338 182,032
Other revenue 283,494 48,173 37,593
---------- --------- --------
2,227,003 1,315,844 961,638
OPERATING COSTS AND EXPENSES:
Cost of product sales 430,171 196,175 126,746
Operating expenses 1,195,483 763,220 565,160
Selling, general and administrative 178,322 113,587 108,607
---------- --------- --------
OPERATING INCOME 423,027 242,862 161,125
INTEREST EXPENSE (33,773) (17,793) (21,780)
INTEREST INCOME 6,818 7,044 4,013
GAIN FROM EQUITY INVESTMENT 2,979 --- ---
OTHER EXPENSE, NET (9,217) (893) (2,345)
---------- --------- --------
INCOME BEFORE INCOME TAXES 389,834 231,220 141,013
PROVISION FOR INCOME TAXES 146,188 82,951 51,901
---------- --------- --------
NET INCOME $ 243,646 $ 148,269 $ 89,112
========== ========= ========
Net Income per Common and
Common Equivalent Share $ 1.11 $ .77 $ .51
Net Income per Common and ========== ========= ========
Common Equivalent Share -
assuming full dilution $ 1.10 $ .76 $ .51
========== ========= ========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
Capital in Cumulative
Common Excess of Translation Retained
Stock Par Value Adjustment Earnings
-------- ---------- ----------- --------
Balance, December 31, 1990 $ 15,638 $ 181,021 $ --- $122,706
Net income --- --- --- 89,112
Sales of common stock, net 644 10,872 --- ---
Stock issued in acquisitions 649 54,396 --- ---
Tax benefit of non-qualified
stock options exercised --- 8,798 --- ---
Other --- (3,375) --- ---
-------- ------ -------- --------
Balance, December 31, 1991 16,931 251,712 --- 211,818
Net income --- --- --- 148,269
Sales of common stock, net 1,838 133,431 --- ---
Stock issued in acquisitions
and investments 1,025 112,949 --- ---
Note receivable from
shareholder --- (54,500) --- ---
Cash dividends --- --- --- (10,959)
Tax benefit of non-qualified
stock options exercised --- 8,740 --- ---
Foreign currency translation
adjustment --- --- (34,656) ---
Other --- 749 --- ---
-------- --------- -------- --------
Balance, December 31, 1992 19,794 453,081 (34,656) 349,128
Net income --- --- --- 243,646
Sales of common stock, net 2,098 539,100 --- ---
Stock issued for conversion
of subordinated convertible
debt 830 121,442 --- ---
Collection of shareholder
note receivable --- 54,500 --- ---
Stock issued in acquisitions
and investments 2,016 367,391 --- ---
Cash dividends --- --- --- (20,654)
Tax benefit of non-qualified
stock options exercised --- 18,909 --- ---
Foreign currency translation
adjustment --- --- (3,487) ---
Other --- 10,262 --- ---
-------- ---------- -------- --------
Balance, December 31, 1993 $ 24,738 $1,564,685 $(38,143) $572,120
======== ========== ======== ========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands)
1993 1992 1991
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 243,646 $148,269 $ 89,112
Adjustments to reconcile net income
to cash flows from operating
activities:
Depreciation and amortization 396,122 306,829 223,672
Amortization of film costs 87,281 --- ---
Additions to film costs and
program rights (110,422) --- ---
Interest on subordinated
convertible debt 6,362 8,945 8,267
Gain from equity investment (2,979) --- ---
Changes in operating assets and
liabilities, net of effects from
purchase transactions:
Increase in accounts and notes
receivable (29,444) (9,347) (14,203)
(Increase) decrease in
merchandise inventories (83,333) 1,379 (38,606)
(Increase) decrease in other
current assets (974) (5,254) 386
Increase (decrease) in accounts
payable and accrued liabilities (62,529) (37,159) 24,831
Increase in income taxes
payable and related items 83,655 20,391 39,786
Other (5,101) 16,732 17,106
---------- -------- --------
522,284 450,785 350,351
---------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of videocassette rental
inventory (451,116) (296,139) (221,996)
Disposals of videocassette
rental inventory 40,595 37,618 22,648
Purchases of property and equipment (164,541) (98,393) (78,698)
Net cash used in business combinations
and investments (673,241) (252,888) (8,244)
Other (2,216) (22,893) (15,603)
---------- -------- --------
(1,250,519) (632,695) (301,893)
---------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common
stock, net 595,698 80,769 11,516
Proceeds from long-term debt 2,373,786 328,583 87,717
Repayments of long-term debt (2,152,239) (222,523) (144,410)
Cash dividends paid (18,275) (7,154) ---
Other (18,839) (6,071) (3,375)
---------- -------- --------
780,131 173,604 (48,552)
---------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 51,896 (8,306) (94)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 43,358 51,664 51,758
---------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 95,254 $ 43,358 $ 51,664
========== ======== ========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted in all tables except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements present the consolidated
financial position and results of operations of Blockbuster Entertainment
Corporation and subsidiaries (the "Company"). All material intercompany
accounts and transactions have been eliminated.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
The accompanying consolidated financial statements also include the financial
position and results of operations of WJB Video Limited Partnership and certain
of its affiliates ("WJB"), with which the Company merged in August 1993. This
transaction has been accounted for under the pooling of interests method of
accounting and, accordingly, these financial statements and notes thereto have
been restated as if the companies had operated as one entity since inception.
See Note 2, Business Combinations and Investments, for a further discussion of
this transaction.
Accounts and Notes Receivable:
Accounts and notes receivable, which are stated net of an allowance for
doubtful accounts, consist primarily of amounts due from customers. The
current portion of notes receivable was approximately $13,298,000 and
$15,432,000 at December 31, 1993 and 1992, respectively. The Company believes
that the carrying amounts of accounts and notes receivable at December 31, 1993
and 1992 approximate fair value at such dates.
Merchandise Inventories:
Merchandise inventories, consisting primarily of prerecorded music and
videocassettes, are stated at the lower of cost or market. Cost is determined
using the moving weighted average or the retail inventory method, the uses of
which approximate the first-in, first-out basis.
Film Costs and Program Rights:
Film costs and program rights relate to the operations of the Company's filmed
entertainment business. See Note 2, Business Combinations and Investments.
Film costs and program rights include production or acquisition costs
(including advance payments to producers), capitalized overhead and interest,
prints, and advertising expected to benefit future periods. These costs are
amortized, and third party participations and residuals are accrued, in the
ratio that the current year's gross revenue bears to estimated future gross
revenue, calculated on an individual product basis.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Film costs and program rights are stated at the lower of cost, net of
amortization, or estimated net realizable value on an individual film product
basis. Estimates of total gross revenue, costs and participation expenses are
reviewed quarterly and write-downs to net realizable value are recorded and
future amortization expense is revised as necessary. Based on the Company's
estimates of future gross revenue as of December 31, 1993, approximately 60% of
unamortized released film costs and program rights will be amortized within the
next three years.
The components of film costs and program rights, net of amortization, at
December 31, 1993 are as follows:
Film costs:
Released $ 77,204
In process and other 22,009
Program rights 89,690
--------
188,903
Less: non-current portion (71,579)
--------
Current portion of film costs
and program rights $117,324
========
The non-current portion of film costs and program rights is included in other
assets.
Videocassette Rental Inventory:
Videocassettes are recorded at cost and amortized over their estimated economic
life with no provision for salvage value. Videocassettes which are considered
base stock are amortized over thirty-six months on a straight-line basis.
Videocassettes which are considered new release feature films frequently
ordered in large quantities to satisfy initial demand ("hits") are, except as
discussed below, amortized over thirty-six months on an accelerated basis.
"Hit" titles for which twelve or more copies per store were purchased during
the period from January 1, 1990 through December 31, 1991 were, for the twelfth
and any succeeding copies, amortized over twelve months on an accelerated
basis. Effective January 1, 1992, "hit" titles for which ten or more copies
per store are purchased are, for the tenth and any succeeding copies, amortized
over nine months on an accelerated basis. For the twelve months ended
December 31, 1992, the adoption of this shorter economic life had the effect
of reducing net income by approximately $9,556,000 and net income per common
and common equivalent share by approximately five cents per share.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Videocassette rental inventory and related amortization at December 31 are as
follows:
1993 1992
---- ----
Videocassette rental inventory $841,488 $580,748
Less: accumulated amortization (371,265) (258,580)
-------- --------
$470,223 $322,168
======== ========
Amortization expense related to videocassette rental inventory was
$295,729,000, $234,862,000 and $171,509,000 in 1993, 1992 and 1991,
respectively. As videocassette rental inventory is sold or retired, the
applicable cost and accumulated amortization are eliminated from the accounts
and any gain or loss thereon is recorded.
Property and Equipment:
Property and equipment is stated at cost. Depreciation and amortization
expense is provided over the estimated lives of the related assets using the
straight-line method. Property and equipment at December 31 consists of the
following:
Life 1993 1992
---- ---- ----
Land and buildings 15-32 Years $ 77,715 $ 51,781
Leasehold improvements 2-10 Years 281,992 199,463
Furniture and fixtures 2-10 Years 178,578 146,282
Equipment 2-10 Years 194,125 132,648
-------- --------
732,410 530,174
Less: accumulated depreciation
and amortization (209,665) (141,586)
-------- --------
$522,745 $388,588
======== ========
Depreciation and amortization expense related to property and equipment was
$74,772,000, $59,094,000 and $43,868,000 in 1993, 1992 and 1991, respectively.
Additions to property and equipment are capitalized and include acquisitions of
property and equipment, costs incurred in the development and construction of
new stores, major improvements to existing property and management information
systems. As property and equipment is sold or retired, the applicable cost and
accumulated depreciation and amortization are eliminated from the accounts and
any gain or loss thereon is recorded.
Intangible Assets:
Intangible assets primarily consist of the cost of acquired businesses
in excess of the market value of net tangible assets acquired. The cost in
excess of the market value of net tangible assets is amortized on a
straight-line basis over periods ranging from 15 to 40 years. Subsequent to its
acquisitions, the Company continually evaluates factors, events and
circumstances which include, but are not limited to, the historical and
projected operating performance of acquired businesses, specific industry trends
and general economic conditions to assess whether the
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
remaining estimated useful life of intangible assets may warrant
revision or that the remaining balance of intangible assets may not be
recoverable. If such factors, events or circumstances indicate that
intangible assets should be evaluated for possible impairment, the Company uses
an estimate of undiscounted net income over the remaining life of the
intangible assets in measuring their recoverability. Accumulated amortization
of intangible assets at December 31, 1993 and 1992 was $45,286,000 and
$20,168,000, respectively.
Other Assets:
Other assets consist primarily of equity investments in less than
majority-owned businesses, the non-current portion of film costs and program
rights related to the Company's filmed entertainment business and the
non-current portion of accounts and notes receivable. The non-current portion
of such receivables was approximately $39,153,000 and $47,288,000 at December
31, 1993 and 1992, respectively. The Company believes the carrying amounts of
the non-current portion of accounts and notes receivable approximate fair value
at such dates.
Accrued Participation Expenses:
Accrued participation expenses relate to the Company's filmed entertainment
business and include amounts due to producers and other participants for their
share of programming and distribution revenue.
Foreign Currency Translation:
Foreign subsidiaries' assets and liabilities are translated at the rates of
exchange at the balance sheet date while income statement accounts are
translated at the average exchange rates in effect during the periods
presented. The resulting translation adjustments are reported as a separate
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in net income. The aggregate transaction
gain included in the determination of net income for the year ended December
31, 1992 was $6,778,000. There were no transaction gains or losses during the
years ended December 31, 1993 and 1991.
Revenue Recognition:
Revenue from Company-owned video and music stores is recognized at the time of
rental or sale. Revenue from franchise owners is recognized when all material
services or conditions required under the Company's franchise agreements have
been performed by the Company.
Revenue from programming and distribution is recognized as follows: (1) revenue
from licensing agreements covering film product owned by the Company is
recognized when the film product is available to the licensee for telecast,
exhibition or distribution, and other conditions of the licensing agreements
have been met and (2) revenue from television distribution of film product
which is not owned by the Company is recognized when billed.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gain From Equity Investment:
It is the Company's policy to record gains or losses from the sale or issuance
of previously unissued stock by its subsidiaries or by companies in which the
Company is an equity investor and accounts for its investment using the equity
method.
The Company's consolidated results of operations for the year ended December
31, 1993 include a gain before income taxes of $2,979,000, resulting from the
Company's investment in Discovery Zone, Inc. ("Discovery Zone") and a
subsequent initial public offering of 5,000,000 common shares by Discovery Zone
in June 1993. Discovery Zone owns, operates and franchises indoor recreational
facilities for children.
Cash Flow Information:
Cash equivalents consist of interest bearing securities with original
maturities of less than ninety days.
See Notes 2, 3, 5 and 7, Business Combinations and Investments, Long-term Debt,
Income Taxes and Shareholders' Equity, of Notes to Consolidated Financial
Statements for a discussion of supplemental cash flow information.
2. BUSINESS COMBINATIONS AND INVESTMENTS
All business combinations discussed below, except for the merger with WJB, were
accounted for under the purchase method of accounting and, accordingly, are
included in the Company's financial statements from the date of acquisition.
In November 1993, the Company acquired all of the outstanding capital stock of
Super Club Retail Entertainment Corporation and subsidiaries ("Super Club"),
which owns and operates video and music stores. The purchase price paid by the
Company was approximately $150,000,000 and consisted of 5,245,211 shares of the
Company's common stock, $.10 par value ("Common Stock") and warrants to acquire
shares of Common Stock. The warrants give the holders the right to acquire
1,000,000 and 650,000 shares of Common Stock at exercise prices of $31.00 and
$32.42 per share, respectively.
In October 1993, the Company purchased 24,000,000 shares of newly-issued Series
A cumulative convertible preferred stock of Viacom Inc. ("Viacom") for an
aggregate purchase price of $600,000,000, representing a purchase price of $25
per share. The preferred stock provides for the payment of quarterly dividends
at an annual rate of 5% and is convertible into non-voting Viacom Class B
common stock at a conversion price of $70 per share. The preferred stock is
redeemable at the option of Viacom beginning in October 1998. Although the
preferred stock is currently an unlisted equity security, based upon a
valuation which considered the terms and conditions of the preferred stock as
well as comparisons to other similar securities, the Company estimates the fair
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
value of such investment to be approximately $552,000,000 at December 31, 1993.
In August 1993, the Company merged with WJB, its largest franchise owner. In
connection with the merger, the Company issued 7,214,192 shares of its Common
Stock in exchange for the equity interests of WJB. This transaction has been
accounted for under the pooling of interests method of accounting and,
accordingly, the Company's financial statements have been restated for all
periods as if the companies had operated as one entity since inception.
Revenue and net income of the previously separate companies for the periods
before the pooling of interests business combination was consummated (after
reflecting the effects of intercompany eliminations) are as follows:
Six Months
Ended
June 30, Year Ended December 31,
-----------------------
1993 1992 1991
---------- ---------- ---------
Revenue:
The Company $840,416 $1,188,118 $858,353
WJB 85,440 127,726 103,285
-------- ---------- --------
$925,856 $1,315,844 $961,638
======== ========== ========
Net Income:
The Company $ 81,006 $ 133,638 $ 86,798
WJB 11,646 14,631 2,314
-------- ---------- --------
$ 92,652 $ 148,269 $ 89,112
======== ========== ========
During the second quarter of 1993, the Company acquired a majority of the
common stock of Spelling Entertainment Group Inc. ("Spelling"), a producer and
distributor of filmed entertainment. The aggregate consideration paid by the
Company totaled approximately $163,369,000 and consisted of cash and 9,278,034
shares of Common Stock. The Company also issued to certain sellers of
Spelling's common stock, warrants to acquire an aggregate of 2,000,000 shares
of its Common Stock at an exercise price of $25 per share. Additionally, in
October 1993, the Company exchanged 3,652,542 shares of Common Stock for
13,362,215 newly issued shares of Spelling's common stock as more fully
discussed in Note 7, Shareholders' Equity. As a result of the transactions
described above, the Company owned approximately 70.5% of the outstanding
common stock of Spelling at December 31, 1993.
During 1993, the Company acquired or invested in businesses that own and
operate video stores, are involved in the production and distribution of filmed
entertainment, and own, operate and franchise indoor recreational facilities
for children. The aggregate purchase price paid by the Company was
approximately $195,610,000 and consisted of cash and 5,631,180 shares of Common
Stock.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 1992, the Company acquired Sound Warehouse, Inc. and subsidiary and
Show Industries, Inc. ("Sound Warehouse" and "Music Plus") which own and operate
music stores. The purchase price paid by the Company was approximately
$190,000,000 and consisted of cash and 4,142,051 shares of Common Stock.
In February 1992, the Company acquired Cityvision plc ("Cityvision"), the
largest home video retailer in the United Kingdom. The purchase price paid by
the Company was approximately $125,000,000 and consisted of cash and 3,999,672
shares of Common Stock. At December 31, 1993, Cityvision operated 775 stores
under the trade name "Ritz".
During 1992, the Company also acquired or invested in several other businesses
that own and operate video and music stores. The aggregate purchase price paid
by the Company was approximately $103,774,000 and consisted of cash and
2,112,977 shares of Common Stock.
During 1991, the Company acquired several businesses that own and operate video
stores. The aggregate purchase price paid by the Company was approximately
$89,614,000 and consisted of cash and 6,492,757 shares of Common Stock. Such
shares of Common Stock include 1,297,921 shares issued by the Company in
connection with the repayment of a $12,586,000 short-term promissory note which
was issued by the Company in connection with an acquisition during 1991.
The Company's consolidated results of operations for the years ended December
31 on an unaudited pro forma basis assuming the acquisitions of Super Club,
Spelling, Sound Warehouse and Music Plus had occurred as of January 1, 1992,
are as follows:
1993 1992
---------- ----------
Revenue $2,595,199 $2,296,570
========== ==========
Net income $ 247,735 $ 177,034
========== ==========
Net income per common and common
equivalent share - assuming
full dilution $ 1.07 $ .82
========== ==========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The purchase price allocations for all business combinations and investments
discussed above, except for the merger with WJB which was accounted for under
the pooling of interests method of accounting, were as follows for the years
ended December 31:
1993 1992 1991
---- ---- ----
Videocassette rental inventory $ 33,683 $ 53,889 $ 18,642
Property and equipment 56,781 85,175 22,276
Intangible assets 456,937 347,635 40,306
Investment in Viacom 600,000 --- ---
Other assets 182,075 19,825 10,376
Working capital deficiency,
net of cash acquired (45,614) (73,592) (47,464)
Long-term debt assumed (131,008) (40,048) (8,759)
Other liabilities (13,986) (26,022) 15,326
Minority interests in
subsidiaries (96,220) --- ---
Common stock issued (369,407) (113,974) (42,459)
-------- -------- --------
Net cash used in business
combinations and investments $673,241 $252,888 $ 8,244
======== ======== ========
The amounts presented above for 1993 reflect the preliminary purchase price
allocations for business combinations.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT
Long-term debt at December 31 is as follows:
1993 1992
------------- ------------
Payable to banks under an unsecured revolving credit agreement,
interest at 3.71% at December 31, 1993 $ 411,000 $ ---
Payable to banks under an unsecured
revolving credit agreement, interest at
3.98% at December 31, 1992 --- 173,000
Unsecured senior notes, interest fixed
at 6.625% 150,000 ---
Bank term loan, interest at eurodollar
rate plus 2% (5.62% at December 31, 1993) 49,579 ---
Payable to others, interest at 10.00%
at December 31, 1993 2,000 41,031
Payable to a bank under a secured
revolving credit agreement, interest at
LIBOR plus 1.75% (5.06% at
December 31, 1992) --- 31,500
Payable to a bank under a secured term
loan agreement, interest at LIBOR plus 1.50% (4.81% at December 31,
1992) --- 9,397
--------- ---------
Total long-term debt 612,579 254,928
Less: current portion (9,083) (16,894)
--------- ---------
Long-term debt, less current portion $ 603,496 $ 238,034
========= =========
In December 1993, the Company entered into a credit agreement (the "Credit
Agreement") with certain banks pursuant to which such banks have agreed to
advance the Company on an unsecured basis an aggregate of $1,000,000,000
for a term of 40 months. Outstanding advances, if any, are payable at the
expiration of the 40-month term. The Credit Agreement requires, among other
items, that the Company maintain certain financial ratios and comply with
certain financial covenants. Interest is generally determined and payable
monthly using a competitive bid feature. The Credit Agreement replaces a
1992 revolving credit arrangement among the Company and certain other banks.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 1992, the Company filed with the Securities and Exchange Commission
a shelf registration statement covering up to $300,000,000 of unsecured senior
debt securities and unsecured subordinated debt securities. In February 1993,
the Company issued $150,000,000 of 6.625% senior notes under the registration
statement. Such notes mature in February 1998 and pay interest semi-
annually. The proceeds from such issuance were used to refinance existing
indebtedness. The notes are registered on the New York Stock Exchange and at
December 31, 1993 had a quoted market price of approximately $101.25 per note
resulting in a fair value for all outstanding notes of approximately
$151,875,000.
All outstanding advances under the bank term loan, which were related to the
Company's filmed entertainment business, were repaid and such loan terminated
in January 1994.
Excluding the unsecured senior notes discussed above, substantially all
of the Company's long-term debt at December 31, 1993 and 1992 carried interest
rates that were adjusted regularly to reflect current market conditions.
Accordingly, the Company believes the carrying amount of such indebtedness
approximated fair value at such dates.
The Company made interest payments of $26,301,000, $9,707,000 and $12,913,000
in 1993, 1992 and 1991, respectively.
4. SUBORDINATED CONVERTIBLE DEBT
In August 1993, the Company called its Liquid Yield Option Notes ("LYONs") for
redemption. As a consequence of the call, substantially all such LYONs were
converted to approximately 8,303,000 shares of Common Stock resulting in an
increase to shareholders' equity of approximately $122,272,000. The LYONs were
issued initially in November 1989 in the aggregate principal amount at maturity
of $300,000,000 and required no periodic interest payments. Each LYON had an
issue price of $308.32 and would have had a principal amount due at maturity of
$1,000 (representing a yield to maturity of 8% per annum computed on a
semi-annual bond equivalent basis). Each LYON was convertible into 27.702
shares of Common Stock, at the option of the holder, at any time on or prior to
maturity, was subordinated to all existing and future Senior Indebtedness (as
defined in the LYONs indenture agreement) of the Company, and was
redeemable under certain circumstances in whole or in part, at the option of
the Company, for cash in an amount equal to the issue price plus accrued
original issue discount to the date of redemption.
The LYONs were registered on the New York Stock Exchange and at December 31,
1992 had a quoted market price of approximately $530 per LYON resulting in a
fair value for all outstanding LYONs of approximately $159,000,000.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 109 - Accounting for Income Taxes,
which superceded SFAS No. 96. The Company adopted SFAS No. 109 in 1991.
The income tax provision for the years ended December 31 consists of the
following components:
1993 1992 1991
---- ---- ----
Current:
Federal $100,008 $69,020 $38,443
State 8,600 5,006 2,095
Foreign 2,749 --- ---
-------- ------- -------
Total current 111,357 74,026 40,538
-------- ------- -------
Deferred:
Federal 27,549 3,407 10,041
State 1,689 227 1,322
Foreign 5,593 5,291 ---
-------- ------- -------
Total deferred 34,831 8,925 11,363
-------- ------- -------
$146,188 $82,951 $51,901
======== ======= =======
A reconciliation of the federal income tax rate to the Company's effective
income tax rate for the years ended December 31 is as follows:
1993 1992 1991
---- ---- ----
Income tax at statutory rate 35.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 2.6 2.3 2.4
Other, net (.1) (.4) .4
----- ----- -----
37.5% 35.9% 36.8%
===== ===== =====
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 are as
follows:
1993 1992
------ ------
Deferred Tax Assets:
Difference between assigned
value and tax basis of
acquired entities:
Foreign $ 3,008 $12,862
Domestic 82,373 11,898
Tax loss and credit carryforwards 82,469 10,218
Other 6,076 5,109
-------- -------
173,926 40,087
Less: valuation allowance (47,275) (3,731)
-------- -------
$126,651 $36,356
======== =======
Deferred Tax Liabilities:
Expenses deducted for tax,
amortized for book $ 22,221 $15,518
Excess tax over book
depreciation and amortization 54,733 29,160
Other 3,808 8,575
-------- -------
$ 80,762 $53,253
======== =======
During 1993, the Company's valuation allowance increased by $43,544,000 to
$47,275,000. Such increase relates primarily to certain deferred tax assets of
acquired businesses which consist principally of net operating loss
carryforwards. Should future circumstances result in a change in the valuation
allowance, such change may be allocated so as to increase or decrease
intangible assets.
The foreign component of income before income taxes for the years ended
December 31, 1993 and 1992 was approximately $15,200,000 and $22,723,000,
respectively.
At December 31, 1993, the Company had approximately $210,000,000 of operating
and capital loss carryforwards available to reduce future income taxes, of
which approximately $29,000,000 have unlimited carryforward periods and
approximately $181,000,000 expire in varying amounts commencing in 2001. These
carryforwards relate primarily to businesses acquired by the Company and to
periods prior to their respective acquisition dates.
The Company made income tax payments of approximately $63,621,000, $61,002,000
and $14,857,000 in 1993, 1992 and 1991, respectively.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common Stock
may be granted to key employees and directors of the Company. Options granted
under the plans are non-qualified and are granted at a price equal to the fair
market value of the Common Stock at the date of grant.
A summary of stock option and warrant transactions for the years ended December
31 is as follows:
1993 1992 1991
---- ---- ----
Options and warrants outstanding
at beginning of year 12,658 17,384 21,614
Granted 8,915 8,963 2,942
Exercised (2,675) (12,371) (6,440)
Cancelled (584) (1,318) (732)
------- ------- -------
Options and warrants outstanding
at end of year 18,314 12,658 17,384
======= ======= =======
Average price of options and
warrants exercised $ 6.45 $ 5.72 $ 1.79
Prices of options and warrants $1.08 to $1.08 to $1.08 to
outstanding at end of year $32.42 $16.75 $14.25
Average price of options and
warrants outstanding at end
of year $15.86 $ 9.07 $ 6.83
Vested options and warrants at
end of year 11,070 7,645 12,736
Options available for future
grants at end of year 1,800 6,481 9,126
In February 1992, warrants to acquire 5,138,323 shares of Common Stock,
originally issued in 1987 in connection with the initial equity investment in
the Company by its Chairman, were exercised with the Company receiving proceeds
of approximately $6,293,000.
In April 1992, the Company granted a call option, for 5,000,000 shares of
Common Stock, to Philips Electronics N.V. ("Philips") that was subsequently
exercised as more fully described in Note 7, Shareholders' Equity.
7. SHAREHOLDERS' EQUITY
The Board of Directors has the authority to issue up to 500,000 shares of $1
par value preferred stock at such time or times, in such series, with such
designations, preferences, special rights, limitations or restrictions thereof
as it may determine. No shares of preferred stock have been issued.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 1993, the Company registered with the Securities and Exchange
Commission 14,650,000 shares of its Common Stock to be offered in an
underwritten public offering. Upon the sale of such shares, the Company
realized net proceeds of approximately $424,118,000 which were used to reduce
existing indebtedness.
In October 1993, the Company issued 3,652,542 shares of its Common Stock to
Spelling in exchange for 13,362,215 newly issued shares of Spelling's common
stock increasing the Company's ownership to approximately 70.5% of the
outstanding common stock of Spelling. Spelling subsequently resold such shares
of the Company's Common Stock resulting in an increase to the Company's
shareholders' equity of approximately $100,445,000.
In 1993, the Company received net proceeds of approximately $16,635,000 in
connection with the exercise of warrants and options to acquire 2,674,933
shares of Common Stock.
Sales of Common Stock as shown on the Consolidated Statements of
Changes in Shareholders' Equity for the year ended December 31, 1992 include
$66,000,000 received in January 1992 from Philips for the purchase of 6,000,000
shares of Common Stock and $55,000,000 from Philips related to the exercise of
an option to purchase 5,000,000 shares of Common Stock. The sale of the
additional 5,000,000 shares of Common Stock was completed in July 1992 with the
Company receiving from Philips a $54,500,000 promissory note which was
subsequently collected in June 1993. In addition to the option exercised by
Philips, the Company received net proceeds of approximately $15,808,000 in
connection with the exercise of warrants and options to acquire 7,371,084
shares of Common Stock in 1992.
In April 1992, the Board of Directors of the Company adopted a policy providing
for the payment of quarterly cash dividends to the Company's shareholders.
Cash dividends of nine and one half and six cents per common share were
declared during 1993 and 1992, respectively.
In 1991, the Company received net proceeds of approximately $11,516,000 in
connection with the exercise of warrants and options to acquire 6,439,748
shares of Common Stock.
As of December 31, 1993, approximately 34,624,000 shares of Common Stock were
reserved for issuance under employee benefit and dividend reinvestment plans,
upon exercise of certain warrants and options and in connection with potential
acquisitions of other businesses, properties or securities.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. COMMITMENTS AND CONTINGENCIES
The Company leases substantially all of its retail, distribution and
administration facilities under non-cancellable operating leases, which in most
cases contain renewal options. Rental expense was approximately $212,803,000,
$153,522,000 and $106,608,000 for the years ended December 31, 1993, 1992 and
1991, respectively.
Future minimum lease payments under non-cancellable operating leases at
December 31, 1993 are due as follows:
1994 $282,822
1995 254,853
1996 227,278
1997 202,158
1998 170,699
Thereafter 625,095
The Company has guaranteed obligations of certain of its joint ventures
aggregating approximately $53,755,000 at December 31, 1993. After considering
its interest in the underlying assets of such joint ventures, the Company
believes it is not exposed to any potential material losses in connection with
these guarantees.
Subject to certain conditions, the Company is committed to purchase all of the
outstanding common stock of Republic Pictures Corporation ("Republic") for
approximately $68,000,000 in cash in connection with the merger of Republic
into Spelling.
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business, including its business as a
franchisor. The Company believes that such lawsuits, claims and other legal
matters will not have a material adverse effect on the Company's consolidated
results of operations or financial condition.
Spelling is involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes, environmental clean-up
assessments, damages from alleged dioxin contamination and other matters
primarily resulting from its discontinued operations. Some of the parties
involved in such actions seek significant amounts of damages. While the
outcome of these suits and claims cannot be predicted with certainty, the
Company believes based upon its knowledge of the facts and circumstances and
applicable law that the ultimate resolution of such suits and claims will not
have a material adverse effect on the Company's results of operations or
financial condition. This belief is also based upon the adequacy of
approximately $30,000,000 of accruals that have been established for probable
losses on disposal of former operations and remaining Chapter 11 disputed
claims and an insurance-type indemnity agreement which covers up to $35,000,000
of certain possible liabilities in excess of a threshold amount of $25,000,000,
subject to certain adjustments. Substantial portions of such accruals are
intended to cover environmental costs associated with Spelling's former
operations. Such accruals are recorded without discount or offset for either
the time value of money prior to the
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
anticipated date of payment or expected recoveries from insurance or
contribution claims against unaffiliated entities.
Although there are significant uncertainties inherent in estimating
environmental liabilities, based upon the Company's experience it is considered
unlikely that the amount of possible environmental liabilities and Chapter 11
disputed claims would exceed the amount of accruals by more than $50,000,000.
9. NET INCOME PER SHARE
Net income per common and common equivalent share is based on the combined
weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or
conversion of warrants and options. In computing net income per common and
common equivalent share, the Company utilizes the treasury stock method. For
the year ended December 31, 1992, computation of net income per common and
common equivalent share on a fully diluted basis assumes conversion of the
LYONs, resulting in an increase to net income for the hypothetical elimination
of interest expense, net of tax, related to the LYONs. No such adjustment was
necessary for 1993 as the LYONs were converted to shares of Common Stock as
more fully described in Note 4, Subordinated Convertible Debt.
The information required to compute net income per share on a primary and fully
diluted basis for the years ended December 31 is presented below:
1993 1992 1991
-------- -------- --------
Primary:
Weighted average number
of common and common
equivalent shares 220,195 192,427 175,420
======== ======== ========
Fully Diluted:
Net income $243,646 $148,269 $ 89,112
Interest expense related
to LYONs, net of tax --- 5,770 ---
-------- -------- --------
Adjusted net income $243,646 $154,039 $ 89,112
======== ======== ========
Weighted average number
of common and common
equivalent shares 221,476 194,008 175,687
Shares issued upon assumed
conversion of LYONs --- 8,306 ---
-------- -------- --------
Shares used in computing
net income per common and
common equivalent share
assuming full dilution 221,476 202,314 175,687
======== ======== ========
10. BUSINESS SEGMENT INFORMATION
Prior to 1992, the Company's operations consisted primarily of operating
and franchising video stores. With the acquisition of Sound Warehouse and
Music Plus in November 1992, the acquisition of a majority interest in Spelling
in April 1993 and the acquisition of Super Club in November 1993, the Company's
operations were expanded to include the sale
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of prerecorded music and related items and the production and distribution of
filmed entertainment.
Financial information about the Company's operations by industry segment
for the years ended December 31 is as follows:
1993 1992
---------- ----------
Revenue:
Video $1,597,024 $1,234,237
Music 404,515 81,607
Filmed Entertainment 225,464 ---
---------- ----------
$2,227,003 $1,315,844
========== ==========
Operating Income:
Video $ 332,118 $ 228,910
Music 43,181 13,952
Filmed Entertainment 47,728 ---
---------- ----------
$ 423,027 $ 242,862
========== ==========
Depreciation and Amortization Expense:
Video $ 378,577 $ 305,043
Music 12,809 1,786
Filmed Entertainment 4,736 ---
---------- ----------
$ 396,122 $ 306,829
========== ==========
Identifiable Assets:
Video $1,541,274 $1,177,184
Music 537,883 309,168
Filmed Entertainment 584,570 ---
Corporate and Other 857,240 54,302
---------- ----------
$3,520,967 $1,540,654
========== ==========
Capital Expenditures:
Video $ 610,505 $ 523,012
Music 35,885 10,584
Filmed Entertainment 3,008 ---
Corporate and Other 56,723 ---
---------- ----------
$ 706,121 $ 533,596
========== ==========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1993 and 1992.
Operating Net Net Income
Revenue Income Income Per Share
------- ------ ------ ---------
1993
----
First quarter $ 433,398 $ 76,928 $ 44,686 $ .22
Second quarter 492,458 81,729 47,966 .22
Third quarter 577,450 127,329 69,699 .32
Fourth quarter 723,697 137,041 81,295 .34
---------- -------- -------- -------
$2,227,003 $423,027 $243,646 $ 1.10
========== ======== ======== =======
1992
----
First quarter $ 280,596 $ 47,614 $ 27,808 $ .15
Second quarter 287,758 50,402 30,192 .16
Third quarter 310,772 65,230 42,623 .22
Fourth quarter 436,718 79,616 47,646 .23
---------- -------- -------- -------
$1,315,844 $242,862 $148,269 $ .76
========== ======== ======== =======
12. OTHER MATTERS
In January 1994, the Company entered into a merger agreement pursuant to which
the Company has agreed to merge with and into Viacom, with Viacom being the
surviving corporation. Under the terms of the agreement each share of Common
Stock shall be converted into the right to receive .08 shares of Viacom Class A
common stock, .60615 shares of non-voting Viacom Class B common stock and under
certain circumstances, up to an additional .13829 shares of non-voting Viacom
Class B common stock. The closing of the merger is subject to customary
conditions including approval of the merger by the Company's shareholders.
Concurrently with the merger agreement, the Company entered into a subscription
agreement pursuant to which, in March 1994, the Company purchased from Viacom
22,727,273 shares of non-voting Viacom Class B common stock for an aggregate
purchase price of $1,250,000,000, or $55 per share.
In February 1994, the Company entered into a credit agreement with certain
banks pursuant to which such banks advanced the Company on an unsecured basis
$1,000,000,000 for a term of twelve months. In March 1994, the Company used
the proceeds from such borrowing along with $250,000,000 of proceeds from
borrowings under its existing Credit Agreement for the purchase of shares of
non-voting Viacom Class B common stock.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the terms of the subscription agreement the Company was granted
certain rights to a make-whole amount in the event that the merger agreement is
terminated and the highest average trading price of the non-voting Viacom Class
B common stock during any consecutive 30 trading day period prior to the first
anniversary of such termination is below $55 per share. Such make-whole amount
would be based on the difference between $55 per share and such highest average
trading price per share. However, the aggregate make-whole amount may not
exceed $275,000,000.
Viacom is entitled to satisfy its obligation with respect to any such
make-whole amount, at Viacom's option, either through the payment to the
Company of cash or marketable equity or debt securities of Viacom, or a
combination thereof, with an aggregate value equal to the make-whole amount or
through the sale to the Company of the theme parks currently owned and operated
by Paramount Communications Inc., a subsidiary of Viacom.
In the event that Viacom were to elect to sell the theme parks to the Company,
the purchase price would be $750,000,000, payable through delivery to Viacom of
shares of non-voting Viacom Class B common stock valued at $55 per share. If
the theme parks were so purchased by the Company, the subscription agreement
further provides that the Company would grant an option to Viacom, exercisable
for a period of two years after the date of grant, to purchase a 50% equity
interest in the theme parks at a purchase price of $375,000,000.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The adoption of SFAS No. 115 will require the
Company to adjust its investment in non- voting Viacom Class B common stock to
fair market value. Pursuant to the provisions of SFAS No. 115, the Company has
classified such investment as an "available-for-sale security". Accordingly,
any adjustment to fair value will be excluded from net income and reported as a
separate component of shareholders' equity. Based on the quoted market price
at March 23, 1994 and after satisfaction of Viacom's make-whole obligation, the
maximum adjustment to fair value would result in a reduction of total assets
and shareholders' equity of approximately $186,000,000, net of income taxes, at
such date.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements of the Company are set forth in
Part II, Item 8.
(2) The following financial statement schedules for each of the
three years ended December 31, 1993 are submitted herewith:
Schedule V - Property, Plant and Equipment.
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment.
Schedule VIII - Valuation and Qualifying Accounts.
Schedule X - Supplementary Statements of Operations
Information.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1993
Balance at Other changes Balance
beginning Additions add (deduct) at end of
Classification of period at cost Retirements Acquisitions (1) describe (2) period
-------------- ---------- --------- ----------- ---------------- ------------- ---------
Videocassette Rental
Inventory $580,748 $451,116 $(223,219) $ 33,683 $ (840) $841,488
======== ======== ========== ========= ========== ========
Property and Equipment:
Land and Buildings $ 51,781 $ 28 $ (150) $ 26,066 $ (10) $ 77,715
Leasehold Improvements 199,463 72,624 (6,099) 16,582 (578) 281,992
Furniture and Fixtures 146,282 29,057 (4,071) 7,765 (455) 178,578
Equipment 132,648 62,832 (7,129) 6,368 (594) 194,125
-------- -------- -------- --------- ---------- --------
Total Property and
Equipment $530,174 $164,541 $(17,449) $ 56,781 $ (1,637) $732,410
======== ======== ========= ========= ========== ========
(1) Assets acquired in business combinations accounted for under the
purchase method of accounting.
(2) Primarily represents the effects of foreign currency translation.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1992
Balance at Other changes Balance
beginning Additions add (deduct) at end of
Classification of period at cost Retirements Acquisitions (1) describe (2) period
-------------- ---------- --------- ----------- ---------------- ------------- ---------
Videocassette Rental
Inventory $ 472,009 $ 296,139 $(232,433) $ 53,889 $ (8,856) $ 580,748
========= ========= ========== ========== ============ =========
Property and Equipment:
Land and Buildings $ 34,696 $ 1,036 $ (112) $ 16,288 $ (127) $ 51,781
Leasehold Improvements 148,440 38,698 (8,309) 25,442 (4,808) 199,463
Furniture and Fixtures 99,544 25,889 (7,834) 33,331 (4,648) 146,282
Equipment 98,916 32,770 (6,766) 10,114 (2,386) 132,648
--------- --------- --------- ---------- ----------- ---------
Total Property and
Equipment $ 381,596 $ 98,393 $ (23,021) $ 85,175 $ (11,969) $ 530,174
========= ========= ========= ========== =========== =========
(1) Assets acquired in business combinations accounted for under the
purchase method of accounting.
(2) Primarily represents the effects of foreign currency translation.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1991
Balance at Other changes Balance
beginning Additions add (deduct) at end of
Classification of period at cost Retirements Acquisitions (1) describe period
-------------- ---------- --------- ----------- ---------------- ------------- ---------
Videocassette Rental
Inventory $ 367,217 $ 221,996 $(135,846) $ 18,642 $ --- $ 472,009
========= ========= ========== ========== =========== =========
Property and Equipment:
Land and Buildings $ 30,536 $ 2,892 $ (574) $ 1,842 $ --- $ 34,696
Leasehold Improvements 116,352 27,892 (7,593) 11,789 --- 148,440
Furniture and Fixtures 77,425 21,553 (5,825) 6,391 --- 99,544
Equipment 73,582 26,361 (3,281) 2,254 --- 98,916
--------- --------- --------- ---------- ----------- ---------
Total Property and
Equipment $ 297,895 $ 78,698 $(17,273) $ 22,276 $ --- $ 381,596
========= ========= ========= ========== =========== =========
(1) Assets acquired in business combinations accounted for under the
purchase method of accounting.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1993
Additions
Balance at charged to Other changes Balance
beginning costs and add (deduct) at end of
Classification of period expenses Retirements describe (1) period
-------------- ---------- ---------- ----------- ------------- ---------
Videocassette Rental
Inventory $ 258,580 $ 295,729 $(182,624) $ (420) $ 371,265
========= ========= ========== ============ =========
Property and Equipment:
Land and Buildings $ 1,636 $ 896 $ --- $ --- $ 2,532
Leasehold Improvements 45,668 25,727 (1,998) (78) 69,319
Furniture and Fixtures 38,450 19,045 (2,660) (53) 54,782
Equipment 55,832 29,104 (1,813) (91) 83,032
--------- --------- ---------- ----------- ---------
Total Property and
Equipment $ 141,586 $ 74,772 $ (6,471) $ (222) $ 209,665
========= ========= ========== =========== =========
(1) Primarily represents the effects of foreign currency translation.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1992
Additions
Balance at charged to Other changes Balance
beginning costs and add (deduct) at end of
Classification of period expenses Retirements describe (1) period
-------------- ---------- ---------- ----------- ------------- ---------
Videocassette Rental
Inventory $ 220,935 $ 234,862 $(194,815) $ (2,402) $ 258,580
========= ========= ========== ============ =========
Property and Equipment:
Land and Buildings $ 1,000 $ 668 $ (26) $ (6) $ 1,636
Leasehold Improvements 28,815 19,273 (1,774) (646) 45,668
Furniture and Fixtures 25,082 15,516 (1,739) (409) 38,450
Equipment 33,686 23,637 (873) (618) 55,832
--------- --------- ---------- ------------ ---------
Total Property and
Equipment $ 88,583 $ 59,094 $ (4,412) $ (1,679) $ 141,586
========= ========= ========== ============ =========
(1) Primarily represents the effects of foreign currency translation.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
For the year ended December 31, 1991
Additions
Balance at charged to Other changes Balance
beginning costs and add (deduct) at end of
Classification of period expenses Retirements describe period
-------------- ---------- ---------- ----------- ------------- ---------
Videocassette Rental
Inventory $ 162,624 $ 171,509 $(113,198) $ --- $ 220,935
========= ========= ========== =========== =========
Property and Equipment:
Land and Buildings $ 438 $ 566 $ (4) $ --- $ 1,000
Leasehold Improvements 16,002 13,788 (975) --- 28,815
Furniture and Fixtures 14,617 11,462 (997) --- 25,082
Equipment 16,585 18,052 (951) --- 33,686
--------- --------- ---------- ----------- ---------
Total Property and
Equipment $ 47,642 $ 43,868 $ (2,927) $ --- $ 88,583
========= ========= ========== =========== =========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
For the years ended December 31,
Balance at Balance
beginning Charged Accounts at end of
of period to expense written off period
---------- ---------- ----------- ---------
1993 - Allowance for doubtful
accounts $ 229 $ 11,717 $ (9,809) $ 2,137
========= ========= ========== =========
1992 - Allowance for doubtful
accounts $ 374 $ 10,583 $ (10,728) $ 229
========= ========= ========== =========
1991 - Allowance for doubtful
accounts $ 426 $ 13,544 $ (13,596) $ 374
========= ========= ========== =========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
SCHEDULE X
SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
(In Thousands)
For the years ended December 31,
Charged to Costs and Expenses
-----------------------------------------
Item (1) 1993 1992 1991
- ---- -------- -------- -------
Amortization of intangible assets $ 24,692 $ 9,874 $ 5,518
======== ======== ========
Real property taxes $ 26,411 $ 18,491 $ 8,734
======== ======== ========
Advertising costs $ 50,774 $ 39,922 $ 38,992
======== ======== ========
(1) Items not presented are less than one percent of revenue.
80
Item 7(a)(4)
PART I.
ITEM 1. Financial Statements
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1994 1993
---- ----
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 62,487 $ 95,254
Accounts and notes receivable,
less allowance 155,415 135,172
Merchandise inventories 375,554 350,763
Film costs and program rights, net 151,735 117,324
Other 51,461 50,210
---------- ----------
Total Current Assets 796,652 748,723
VIDEOCASSETTE RENTAL INVENTORY, NET 497,925 470,223
PROPERTY AND EQUIPMENT, NET 633,183 522,745
INTANGIBLE ASSETS, NET 903,928 856,318
INVESTMENTS IN VIACOM INC. 1,581,730 600,000
OTHER ASSETS 401,238 322,958
---------- ----------
$4,814,656 $3,520,967
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt and current portion
of long-term debt $1,000,000 $ 9,083
Accounts payable 198,248 369,815
Accrued liabilities 171,323 177,695
Accrued participation expenses 51,609 43,013
Income taxes payable 48,973 43,632
---------- ----------
Total Current Liabilities 1,470,153 643,238
LONG-TERM DEBT, LESS CURRENT PORTION 1,152,000 603,496
OTHER LIABILITIES 78,603 59,999
MINORITY INTERESTS IN SUBSIDIARIES 93,824 90,834
COMMITMENTS AND CONTINGENCIES --- ---
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value; authorized
500,000 shares; none issued --- ---
Common stock, $.10 par value; authorized
800,000,000 shares; issued and
outstanding 249,233,467 and 247,380,069
shares, respectively 24,923 24,738
Capital in excess of par value 1,608,472 1,564,685
Cumulative foreign currency translation
adjustment (32,455) (38,143)
Unrealized holding loss on
available-for-sale securities (276,123) ---
Retained earnings 695,259 572,120
---------- ----------
Total Shareholders' Equity 2,020,076 2,123,400
---------- ----------
$4,814,656 $3,520,967
========== ==========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
REVENUE:
Rental revenue $372,307 $277,954 $ 764,925 $569,352
Product sales 199,300 128,788 404,630 259,141
Other revenue 104,653 85,716 203,235 97,363
-------- -------- ---------- --------
676,260 492,458 1,372,790 925,856
OPERATING COSTS AND EXPENSES:
Cost of product sales 127,367 81,471 260,754 167,485
Operating expenses 378,278 293,091 758,189 524,796
Selling, general and
administrative 51,736 36,167 115,369 74,918
-------- -------- ---------- --------
OPERATING INCOME 118,879 81,729 238,478 158,657
INTEREST EXPENSE (28,318) (9,353) (39,937) (15,912)
INTEREST INCOME 1,144 2,716 2,540 4,497
GAIN FROM EQUITY INVESTMENT --- 2,979 --- 2,979
OTHER INCOME (EXPENSE), NET 8,297 (2,534) 14,148 (4,312)
-------- -------- ---------- --------
INCOME BEFORE INCOME TAXES 100,002 75,537 215,229 145,909
PROVISION FOR INCOME TAXES 37,001 27,571 79,635 53,257
-------- -------- ---------- --------
NET INCOME $ 63,001 $ 47,966 $ 135,594 $ 92,652
======== ======== ========== ========
Net Income per Common Share - assuming full
dilution $ .25 $ .22 $ .53 $ .44
======== ======== ========== ========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(In thousands)
Capital in Cumulative Unrealized
Common Excess of Translation Holding Retained
Stock Par Value Adjustment Loss Earnings
--------- ---------- ----------- ---------- --------
Balance at December 31, 1993 $ 24,738 $1,564,685 $(38,143) $ --- $572,120
Net income for the period --- --- --- --- 135,594
Stock issued in acquisitions
and investments 130 35,200 --- --- ---
Sales of common stock 55 8,587 --- --- ---
Cash dividends --- --- --- --- (12,455)
Foreign currency
translation adjustment --- --- 5,688 --- ---
Unrealized holding loss
on available-for-sale
securities --- --- --- (276,123) ---
-------- ---------- -------- --------- --------
Balance at June 30, 1994 $ 24,923 $1,608,472 $(32,455) $(276,123) $695,259
======== ========== ======== ========= ========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30
-------------------------------
1994 1993
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,594 $ 92,652
Adjustments to reconcile net income to cash
flows from operating activities:
Depreciation and amortization 235,005 186,073
Amortization of film costs 82,307 26,830
Additions to film costs and program rights (96,671) (34,226)
Interest on subordinated convertible debt --- 4,741
Gain from equity investment --- (2,979)
Changes in operating assets and
liabilities, net of effects from
purchase transactions:
(Increase) decrease in accounts
receivable 2,483 (9,945)
Increase in merchandise inventories (25,252) (7,520)
Increase in other current assets (2,216) (9,284)
Decrease in accounts payable and
accrued items (199,814) (101,868)
Increase in income taxes payable
and related items 24,359 19,022
Other (13,322) 10,350
---------- ---------
142,473 173,846
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of videocassette
rental inventory (229,369) (188,505)
Disposals of videocassette
rental inventory 33,637 18,762
Purchases of property and equipment (157,463) (55,186)
Purchase of Viacom Inc. securities (1,250,000) ---
Net cash used in business combinations and
investments (101,510) (49,406)
Other (6,188) (1,537)
---------- ---------
(1,710,893) (275,872)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common
stock, net 8,642 65,379
Proceeds from debt 3,001,000 631,410
Repayments of debt (1,461,579) (564,726)
Cash dividends paid (12,410) (7,672)
Other --- (15,571)
---------- ---------
1,535,653 108,820
---------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (32,767) 6,794
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 95,254 43,358
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,487 $ 50,152
========== =========
The accompanying notes are an integral part of these statements.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(000's omitted in all tables except per share amounts)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Blockbuster Entertainment Corporation and subsidiaries (the "Company") have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations. However, the Company believes that the disclosures
contained herein are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's most recent annual report to shareholders.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period.
The accompanying financial statements also include the financial position and
results of operations of WJB Video Limited Partnership and certain of its
affiliates ("WJB"), with which the Company merged in August 1993. This
transaction has been accounted for under the pooling of interests method of
accounting and, accordingly, these financial statements and notes thereto have
been restated as if the companies had operated as one entity since inception.
See Note 16, Business Combinations and Investments, for a further discussion of
this transaction.
2. MERCHANDISE INVENTORIES
Merchandise inventories, consisting primarily of prerecorded music and
videocassettes, are stated at the lower of cost or market. Cost is determined
using the moving weighted average or the retail inventory method, the uses of
which approximate the first-in, first-out basis.
3. FILM COSTS AND PROGRAM RIGHTS
Film costs and program rights relate to the operations of the Company's filmed
entertainment business. See Note 16, Business Combinations and Investments.
Film costs and program rights include production or acquisition costs
(including advance payments to producers), capitalized overhead and interest,
prints, and advertising expected to benefit future periods. These costs are
amortized, and third party participations and residuals are accrued, in the
ratio that the current year's gross revenue bears to estimated future gross
revenue, calculated on an individual product basis.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Film costs and program rights are stated at the lower of cost, net of
amortization, or estimated net realizable value on an individual film basis.
Estimates of total gross revenue, costs and participation expenses are reviewed
quarterly and write-downs to net realizable value are recorded and future
amortization expense is revised as necessary.
The components of film costs and program rights, net of amortization, are as
follows:
June 30, December 31,
1994 1993
---------- ------------
Film costs:
Released $ 82,476 $ 77,204
In process and other 26,717 22,009
Program rights 146,780 89,690
--------- ---------
255,973 188,903
Less: non-current portion (104,238) (71,579)
--------- ---------
Current portion of film costs
and program rights $ 151,735 $ 117,324
========= =========
The non-current portion of film costs and program rights is included in other
assets.
4. VIDEOCASSETTE RENTAL INVENTORY
Videocassettes are recorded at cost and amortized over their estimated economic
lives with no provision for salvage value. Videocassettes which are considered
base stock are amortized over thirty-six months on a straight-line basis.
Videocassettes which are considered new release feature films frequently
ordered in large quantities to satisfy initial demand ("hits") are, except as
discussed below, amortized over thirty-six months on an accelerated basis.
"Hit" titles for which ten or more copies per store are purchased are, for the
tenth and any succeeding copies, amortized over nine months on an accelerated
basis.
Videocassette rental inventory and related amortization are as follows:
June 30, December 31
1994 1993
---------- ------------
Videocassette rental inventory $ 894,416 $ 841,488
Less: accumulated amortization (396,491) (371,265)
--------- ---------
$ 497,925 $ 470,223
========= =========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
expense is provided over the estimated lives of related assets using the
straight-line method. The components of property and equipment are as follows:
June 30, December 31,
Life 1994 1993
------------ ------------ ------------
Land and buildings 15-32 Years $ 92,912 $ 77,715
Leasehold improvements 2-10 Years 345,194 281,992
Furniture and fixtures 2-10 Years 205,393 178,578
Equipment 2-10 Years 242,524 194,125
--------- ---------
886,023 732,410
Less: accumulated depreciation
and amortization (252,840) (209,665)
--------- ---------
$ 633,183 $ 522,745
========= =========
6. INTANGIBLE ASSETS
Intangible assets primarily consist of the cost of acquired businesses in
excess of the market value of net tangible assets acquired. The cost in excess
of the market value of net tangible assets is amortized on a straight-line
basis over periods ranging from 15 to 40 years.
Accumulated amortization of intangible assets at June 30, 1994 and December 31,
1993 was $59,460,000 and $45,286,000, respectively.
7. INVESTMENTS IN VIACOM INC.
In January 1994, the Company entered into a merger agreement pursuant to which
the Company agreed to merge with and into Viacom Inc. ("Viacom"), with Viacom
being the surviving corporation. The closing of the merger is subject to
customary conditions including, but not limited to, approval of the merger by
the Company's shareholders.
Concurrent with the merger agreement, the Company entered into a subscription
agreement pursuant to which, in March 1994, the Company purchased from Viacom
22,727,273 shares of non-voting Viacom Class B common stock for an aggregate
purchase price of approximately $1,250,000,000, or $55 per share.
Under the terms of the subscription agreement, the Company was granted certain
rights to a make-whole amount in the event that the merger agreement is
terminated and the highest average trading price of the non-voting Viacom Class
B common stock during any consecutive 30 trading day period prior to the first
anniversary of such termination is below
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$55 per share. Such make-whole amount would be based on the difference between
$55 per share and such highest average trading price per share. However, the
aggregate make-whole amount may not exceed $275,000,000.
Viacom is entitled to satisfy its obligation with respect to any such
make-whole amount, at Viacom's option, either through the payment to the
Company of cash or marketable equity or debt securities of Viacom, or a
combination thereof, with an aggregate value equal to the make-whole amount or
through the sale to the Company of the theme parks currently owned and operated
by Paramount Communications Inc., a subsidiary of Viacom. In the event that
Viacom were to elect to sell the theme parks to the Company, the purchase price
would be $750,000,000, payable through delivery to Viacom of shares of
non-voting Viacom Class B common stock valued at $55 per share.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities, which requires the Company to carry its investment
in non-voting Viacom Class B common stock at fair value. Pursuant to the
provisions of SFAS No. 115, the Company has classified its investment in
non-voting Viacom Class B common stock as an "available-for-sale security".
Accordingly, based upon the quoted market price of such common stock and
assuming that Viacom would have elected to satisfy its make-whole obligation
using the method that results in the maximum unrealized holding loss to the
Company, at June 30, 1994 the carrying value of the Company's investment has
been reduced to $981,730,000. The corresponding unrealized holding loss
resulting from such reduction has been excluded from net income and reported in
a separate component of shareholders' equity.
In October 1993, the Company purchased 24,000,000 shares of newly-issued Series
A cumulative convertible preferred stock of Viacom for an aggregate purchase
price of $600,000,000, representing a purchase price of $25 per share. The
preferred stock provides for the payment of quarterly dividends at an annual
rate of 5% and is convertible into non-voting Viacom Class B common stock at a
conversion price of $70 per share. The preferred stock is redeemable at the
option of Viacom beginning in October 1998. Since the preferred stock is an
unlisted equity security, the provisions of SFAS No. 115 described above are not
applicable to this investment. However, based upon a valuation which
considered the terms and conditions of the preferred stock as well as
comparisons to other similar securities, the Company estimates the fair value
of such investment to be approximately $440,000,000 at June 30, 1994.
8. OTHER ASSETS
Other assets consist primarily of equity investments in less than
majority-owned businesses, the non-current portion of film costs and program
rights related to the Company's filmed entertainment business and the
non-current portion of accounts and notes receivable.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. ACCRUED PARTICIPATION EXPENSES
Accrued participation expenses relate to the Company's filmed entertainment
business and include amounts due to producers and other participants for their
share of programming and distribution revenue.
10. DEBT
Debt consists of the following:
June 30, December 31,
1994 1993
------------ ------------
Bank term loan, interest at eurodollar
rate plus .75% (5.56% at June 30, 1994) $1,000,000 $ ---
Payable to banks under an unsecured
revolving credit agreement, interest
at 5.09% at June 30, 1994 1,000,000 411,000
Unsecured senior notes, interest fixed
at 6.625% 150,000 150,000
Bank term loan, interest at eurodollar
rate plus 2% (5.62% at December 31, 1993) --- 49,579
Payable to others, interest at 10.00% 2,000 2,000
---------- ---------
Total debt 2,152,000 612,579
Less: current portion (1,000,000) (9,083)
---------- ---------
Long-term debt, less current portion $1,152,000 $ 603,496
========== =========
In February 1994, the Company entered into a credit agreement with certain
banks pursuant to which such banks advanced the Company on an unsecured basis
$1,000,000,000 for a term of twelve months. This credit agreement requires,
among other items, that the Company maintain certain financial ratios and
comply with certain financial covenants. In March 1994, the Company used the
proceeds from such borrowing along with $250,000,000 of proceeds from
borrowings under its existing revolving credit agreement for the purchase of
shares of non-voting Viacom Class B common stock. See Note 7, Investments in
Viacom Inc., for a further discussion of such investment.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY
As of June 30, 1994, approximately 48,879,000 shares of the Company's common
stock, $.10 par value ("Common Stock") were reserved for issuance under
employee benefit and dividend reinvestment plans, upon exercise of certain
warrants and options, and in connection with potential acquisitions of other
businesses, properties or securities.
During the six months ended June 30, 1994, the Company's shareholders approved
an increase in the number of authorized shares of Common Stock from 300,000,000
to 800,000,000 shares.
Cash dividends of five cents per common share were declared during the six
months ended June 30, 1994.
During the six months ended June 30, 1994, an unrealized holding loss of
$276,123,000 resulting from a fair value adjustment to the Company's investment
in non-voting Viacom Class B common stock was reported in a separate component
of shareholders' equity. See Note 7, Investments in Viacom Inc., for a further
discussion of this fair value adjustment.
12. GAIN FROM EQUITY INVESTMENT
It is the Company's policy to record gains or losses from the sale or issuance
of previously unissued stock by its subsidiaries or by companies in which the
Company is an equity investor and accounts for its investment using the equity
method. The Company's consolidated results of operations for the three months
ended June 30, 1993 include a gain before income taxes of $2,979,000 resulting
from the Company's investment in Discovery Zone, Inc. ("Discovery Zone") and a
subsequent initial public offering of 5,000,000 common shares by Discovery Zone
in June 1993. Discovery Zone owns, operates and franchises indoor recreational
facilities for children.
13. INCOME TAXES
Income taxes have been provided for based on the Company's anticipated annual
effective income tax rate.
14. NET INCOME PER SHARE
Net income per common share is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options. In
computing net income per common share, the Company utilizes the treasury stock
method. For the three and six months ended June 30, 1993, computation of net
income per common share on a fully diluted basis assumes conversion of the
Liquid Yield Option Notes ("LYONs") which were outstanding during this period,
resulting in an adjustment to net income for the hypothetical elimination of
interest expense, net of tax, related to the LYONs.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The information required to compute net income per common share on a primary
and fully diluted basis is presented below:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------
Primary: 1994 1993 1994 1993
-------- -------- -------- --------
Weighted average number of
common and common
equivalent shares 253,990 214,547 253,901 208,928
======== ======== ======== ========
Fully diluted:
Net income $ 63,001 $ 47,966 $135,594 $ 92,652
Interest expense related to
LYONs, net of tax --- 1,561 --- 3,081
-------- -------- -------- --------
Adjusted net income $ 63,001 $ 49,527 $135,594 $ 95,733
======== ======== ======== ========
Weighted average number of
common and common
equivalent shares 253,993 215,308 253,902 209,642
Shares issued upon assumed
conversion of LYONs --- 8,300 --- 8,300
-------- -------- -------- --------
Shares used in computing
net income per common
share - assuming full
dilution 253,993 223,608 253,902 217,942
======== ======== ======== ========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. STOCK OPTIONS AND WARRANTS
A summary of stock option and warrant transactions for the six months ended
June 30, 1994 is as follows:
Options and warrants outstanding at
beginning of period 18,314
Granted 5,426
Exercised (373)
Cancelled (475)
------
Options and warrants outstanding at
end of period 22,892
======
Average price of options and warrants
exercised $11.78
Prices of options and warrants
outstanding at end of period $1.08 to $33.50
Average price of options and warrants
outstanding at end of period $18.21
Vested options and warrants at end
of period 12,475
Options available for future grants at
end of period 11,849
16. BUSINESS COMBINATIONS AND INVESTMENTS
All business combinations discussed below, except for the merger with WJB, were
accounted for under the purchase method of accounting and, accordingly, are
included in the Company's financial statements from the date of acquisition.
During the six months ended June 30, 1994, the Company acquired businesses that
own and operate video stores and indoor recreational facilities for children,
invested in a business which develops, publishes and distributes interactive
software and acquired a distributor of filmed entertainment. The aggregate
purchase price paid by the Company was approximately $141,195,000 and consisted
of cash and 1,304,864 shares of the Company's Common Stock.
In November 1993, the Company acquired all of the outstanding capital stock of
Super Club Retail Entertainment Corporation and subsidiaries ("Super Club"),
which owns and operates video and music stores. The purchase price paid by the
Company was approximately $150,000,000 and consisted of 5,245,211 shares of
Common Stock and warrants to acquire shares of Common Stock. The warrants give
the holders the right to acquire 1,000,000 and 650,000 shares of Common Stock
at exercise prices of $31.00 and $32.42 per share, respectively.
In August 1993, the Company merged with WJB, its then largest franchise owner.
Under the terms of the agreement and plan of reorganization, the Company issued
7,214,192 shares of its Common Stock in exchange for the
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
equity interests of WJB. This transaction has been accounted for under the
pooling of interests method of accounting and, accordingly, the Company's
financial statements have been restated for all periods as if the companies had
operated as one entity since inception.
During the second quarter of 1993, the Company acquired a majority of the
common stock of Spelling Entertainment Group Inc. and subsidiaries
("Spelling"), a producer and distributor of filmed entertainment. The
aggregate consideration paid by the Company totaled approximately $163,369,000
and consisted of cash and 9,278,034 shares of Common Stock. The Company also
issued to certain sellers of Spelling's common stock, warrants to acquire an
aggregate of 2,000,000 shares of its Common Stock at an exercise price of $25
per share. Additionally, in October 1993, the Company exchanged 3,652,542
shares of Common Stock for 13,362,215 newly-issued shares of Spelling's common
stock. As a result of the transactions described above, the Company owned
approximately 70.5% of the outstanding common stock of Spelling at June 30,
1994.
The Company's consolidated results of operations for the six months ended June
30, 1993, on an unaudited pro forma basis assuming the acquisitions of Super
Club and Spelling had occurred as of January 1, 1993 are as follows:
Revenue $1,153,271
==========
Net income $ 96,046
==========
Net income per common share -
assuming full dilution $ .41
==========
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The purchase price allocations for business combinations and investments during
the six months ended June 30, 1994 and 1993, as described above, were as
follows:
Six Months Ended
June 30,
---------------------
1994 1993
-------- --------
Videocassette rental inventory $ 4,619 $ 6,436
Property and equipment 1,859 6,391
Intangible assets 58,638 279,372
Other assets 74,168 127,884
Working capital (deficiency), excluding
cash acquired 13,901 (8,083)
Debt assumed --- (91,988)
Other liabilities (16,345) (20,128)
Minority interests in subsidiaries --- (76,137)
Common stock issued (35,330) (174,341)
-------- --------
Net cash used in business combinations
and investments $101,510 $ 49,406
======== ========
The amounts presented above for the six months ended June 30, 1994 reflect the
preliminary purchase price allocations for business combinations.
17. LEGAL MATTERS
The Company has become subject to various lawsuits, claims and other legal
matters in the course of conducting its business, including its business as a
franchisor. The Company believes that such lawsuits, claims and other legal
matters should not have a material adverse effect on the Company's consolidated
results of operations or financial condition.
Spelling is involved in a number of legal actions including threatened claims,
pending lawsuits, contract disputes, environmental clean-up assessments,
damages from alleged dioxin contamination and other matters. While the outcome
of these suits and claims cannot be predicted with certainty, the Company
believes based upon its knowledge of the facts and circumstances and
applicable law that the ultimate resolution of such suits and claims will not
have a material adverse effect on the Company's consolidated results of
operations or financial condition. This belief is also based upon the adequacy
of approximately $30,000,000 of accruals that have been established for
probable losses on disposal of former operations and remaining Chapter 11
disputed claims and an insurance-type indemnity agreement which covers up to
$35,000,000 of certain possible liabilities in excess of a threshold amount of
$25,000,000, subject to certain adjustments.
BLOCKBUSTER ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. OTHER MATTERS
In July 1994, the Company reached an agreement in principle to exercise its
option from DKB Investments L.P. pursuant to which the Company would increase
its ownership of Discovery Zone common stock to approximately 50.1%. In
addition, the Company reached an agreement in principle whereby Discovery Zone
will acquire all of the franchised Discovery Zone facilities and territories
currently owned by the Company in exchange for 4,500,000 newly-issued shares of
Discovery Zone common stock. Donald F. Flynn, Chairman of the Board and Chief
Executive Officer of Discovery Zone and a partner of DKB Investments L.P., is a
member of the Company's Board of Directors. Consummation of the transactions
is subject, among other things, to approvals by a special committee of the
Company's Board of Directors as such committee shall deem to be necessary,
receipt by such committee of a financial fairness opinion, negotiation and
execution of definitive agreements and other customary conditions.
Item 7(b) Pro Forma Financial Information.
Viacom Inc.
Unaudited Pro Forma Combined Condensed Financial Statements
The following unaudited pro forma condensed balance sheet at December 31, 1994
gives effect to the sale of Madison Square Garden ("MSG") as if the event had
occurred on such date, and was prepared based upon the balance sheets of
Viacom Inc. ("Viacom"), and MSG at December 31, 1994.
The following unaudited pro forma combined condensed statement of operations for
the year ended December 31, 1994 gives effect to the merger of Paramount
Communications Inc. ("Paramount") with and into a wholly-owned subsidiary of
Viacom Inc. on July 7, 1994 (the "Paramount Merger"), the merger of Blockbuster
Entertainment Corporation ("Blockbuster") with and into Viacom Inc. on
September 29, 1994 (the "Blockbuster Merger"), the sale of Viacom's one-third
partnership interest in LIFETIME, certain acquisitions by Paramount and the
sale of MSG as if they had occurred simultaneously at the beginning of the
year. The unaudited pro forma condensed statement of operations was prepared
based upon the consolidated results of operations of Viacom for the year ended
December 31, 1994, Paramount for the two months ended February 28, 1994 and
Blockbuster for the nine months ended September 30, 1994. Financial
information for Paramount and Blockbuster commencing March 1, 1994 and
October 1, 1994, respectively, is included in the Viacom historical
information. These unaudited pro forma condensed financial statements should
be read in conjunction with the audited financial statements, including the
notes thereto, of Viacom, which are included in Viacom's Annual Report on Form
10-K for the year ended December 31, 1994.
The unaudited pro forma data are not necessarily indicative of the results of
operations or financial position of Viacom that would have occurred if the
Paramount Merger, Blockbuster Merger, the sale of Viacom's one-third
partnership interest in LIFETIME, certain acquisitions by Paramount and the
sale of MSG had occurred at the beginning of the period or the date indicated,
nor are they necessarily indicative of future operating results or financial
position. The pro forma adjustments are based upon available information and
certain assumptions set forth herein, including the notes to the unaudited pro
forma condensed financial statements, which Viacom believes are reasonable
under the circumstances.
The future results of operations of Viacom will reflect increased amortization
of goodwill (see Notes 3b, 4a and 5a), increased interest expense (see Notes 2a,
3c and 5b) and decreased Preferred Stock dividend requirements (see Note 4c).
The following unaudited pro forma condensed statement of operations does not
reflect potential cost savings attributable to consolidation of certain
operating and administrative functions including the elimination of duplicate
facilities and personnel.
Viacom Inc.
Unaudited Pro Forma Condensed Balance Sheet
At December 31, 1994
(In millions)
Historical MSG Pro Forma
Assets Viacom Inc. Sale Viacom Inc.
------ ----------- ---- ----------
Cash and cash equivalents.................... $597.7 $597.7
Other current assets......................... 4,657.5 ($697.4)(1) 3,960.1
----------- ------------- --------
Total current assets....................... 5,255.2 (697.4) 4,557.8
----------- ------------- --------
Property and equipment, net.................. 2,583.1 2,583.1
Intangible assets, at amortized cost......... 16,111.7 16,111.7
Other assets................................. 4,323.7 4,323.7
----------- ------------- --------
$28,273.7 ($697.4) $27,576.3
=========== ============= =========
Liabilities and Shareholders' Equity
Current liabilities.......................... $4,131.2 $4,131.2
Long-term debt............................... 10,402.4 ($985.0)(1a) 9,417.4
Other liabilities............................ 1,948.5 287.6 (1b) 2,236.1
Shareholders' Equity:
Preferred stock............................ 1,200.0 1,200.0
Common stock............................... 10,591.6 10,591.6
----------- ------------- --------
Total shareholders' equity............... 11,791.6 11,791.6
----------- ------------- --------
$28,273.7 ($697.4) $27,576.3
=========== ============= =========
See accompanying notes.
Viacom Inc.
Unaudited Pro Forma Combined Condensed Statement of Operations
For the 12 months ended December 31, 1994
(In millions, except per share data)
Other Paramount
Historical Pro Forma Pro Forma Pro Forma Merger Historical
Viacom Inc. Adjustments Viacom Inc. Paramount Adjustments Blockbuster
----------- ------------- ----------- ---------- ------------ -----------
Revenues............................................. $7,363.2 $7,363.2 $619.6 $2,138.8
Expenses:
Operating.......................................... 4,401.0 4,401.0 493.3 $ (297.9)(3a) 394.3
Selling, general and administrative................ 1,888.2 1,888.2 192.6 (34.2)(3a) 1,290.9
Depreciation and amortization...................... 465.7 465.7 14.1 53.2 (3b) 93.4
-------- ------------- --------- ---------- ------------ --------
Total expenses................................... 6,754.9 6,754.9 700.0 (278.9)(3b) 1,778.6
-------- ------------- --------- ---------- ------------ --------
Earnings (loss) from continuing operations........... 608.3 608.3 (80.4) 278.9 360.2
Other income (expense):
Interest expense................................... (494.1) $ 12.6(2a) (481.5) (8.9) (91.7)(3c) (71.3)
Interest and other investment income............... 4.1
Other Items, net................................... 262.5 (267.4)(2b) (4.9) (21.3) 27.2 (3a) 50.5
-------- ------------- --------- ---------- ------------ ---------
Total other income (expense)..................... (231.6) (254.8) (486.4) (30.2) (64.5) (16.7)
-------- ------------- --------- ---------- ------------ ---------
Earnings from continuing operations
before income taxes................................ 376.7 (254.8) 121.9 (110.6) 214.4 343.5
Provision for income taxes........................... 279.7 (98.6)(2d) 181.1 (33.3) 92.9 127.1
Equity in earnings (loss) of affiliated
companies, net of tax.............................. 18.6 (3.6)(2d) 15.0 14.8
Minority interest.................................... 14.9 14.9 (17.9)(3e)
-------- ------------- --------- ---------- ------------ ---------
Earnings from continuing operations before
discontinued operations and extraordinary items ... 130.5 (159.8) (29.3) (62.5) 103.6 216.4
Cumulative convertible preferred stock
dividend requirement............................... 75.0 75.0
-------- ------------- --------- ---------- ------------ ---------
Earnings attributable to common stock before
discontinued operations and extraordinary items ... $55.5 ($159.8) ($104.3) ($62.5) $ 103.6 $216.4
======== ============= ========== ========== ============ ==========
Weighted average number of common shares or
common shares and common share equivilants......... 213.5 213.5 41.1
Primary earnings (loss) per common share before
discontinued operations and extraordinary items (6) $0.26
Pro Forma
Blockbuster Pro Forma Combined
Merger Combined MSG Company and
Adjustments Company Sale MSG Sale
----------- --------- ------- ------------
Revenues............................................. $10,121.6 $10,121.6
Expenses:
Operating.......................................... 4,990.7 4,990.7
Selling, general and administrative................ 3,337.5 3,337.5
Depreciation and amortization...................... $ 128.5 (4a) 754.9 $ (1.5)(5a) 753.4
----------- --------- ------- ------------
Total expenses................................... 128.5 9,083.1 (1.5) 9,081.6
----------- --------- ------- ------------
Earnings from continuing operations.................. (128.5) 1,038.5 1.5 1,040.0
Other Income (expense):
Interest expense................................... (11.1)(4b) (664.5) 41.6 (5b) (622.9)
Interest and other investment income............... 4.1 4.1
Other Items, net................................... (15.0)(4c) 36.5 36.5
----------- --------- ------- ------------
Total other income (expense)..................... (26.1) (623.9) 41.6 (582.3)
----------- --------- ------- ------------
Earnings from continuing operations
before income taxes................................ (154.6) 414.6 43.1 457.7
Provision for income taxes........................... (9.5)(4d) 358.3 14.6 (5c) 372.9
Equity in Earnings (loss) of affiliated
companies, net of tax.............................. 29.8 29.8
Minority Interest.................................... (3.0) (3.0)
----------- --------- ------- ------------
Earnings from continuing operations before
discontinued operations and extraordinary items ... (145.1) 83.1 28.5 111.6
Cumulative convertible preferred stock
dividend requirement............................... (15.0)(4c) 60.0 60.0
----------- --------- ------- ------------
Earnings attributable to common stock before
discontinued operations and extraordinary items ... ($130.1) $23.1 $28.5 $51.6
=========== ========= ======== ============
Weighted average number of common shares or
common shares and common share equivilants......... 149.1 403.7 403.7
Primary earnings (loss) per common share before
discontinued operations and extraordinary items (6) $0.13
See accompanying notes.
Viacom Inc.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(1) Represents the elimination of the net assets of MSG and related use of
proceeds for:
(a) Repayment of debt from the proceeds.
(b) A non-recurring tax charge of approximately $288 million. (See
Note 5).
(2) Pro forma adjustments made to Viacoms historical results reflect the
following:
(a) A decrease in interest expense of $12.6 million resulting from the
repayment of bank debt due to the use of cash proceeds from the sale of the one-
third partnership interest in LIFETIME.
(b) Eliminates the gain on the sale of the one-third partnership
interest in LIFETIME.
(c) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate.
(d) Eliminates Viacom's equity in earnings, net of tax, of LIFETIME.
(3) Pro forma adjustments related to the Paramount Merger:
(a) Reversal of merger-related charges principally related to
adjustments of programming assets based upon new management strategies and
additional programming sources and other costs incurred related to the merger
with Paramount.
(b) Increase in amortization expense resulting from the increase in
intangibles which are amortized over a period of up to 40 years.
(c) Increase in interest expense resulting from additional debt
financing and use of cash to finance the Paramount Merger. The assumed interest
rate on the debt financing from banks of 5.9% was calculated based on average
historical London Interbank Offered Rate for the year ended December 31, 1994.
(d) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period presented. The
effective income tax rate on a pro forma basis is adversely affected by
amortization of excess acquisition costs, which are not deductible
for tax purposes.
(e) Eliminates minority interest in Paramount for the period March 1
to June 30, 1994.
(4) Pro forma adjustments related to the Blockbuster Merger:
(a) Increase in amortization expense resulting from the increase in
intangibles which are amortized over a period of up to 40 years.
(b) Reflects additional interest expense resulting from Blockbuster's
additional borrowings used to fund its investment in Viacom.
(c) Eliminates the 5% cumulative annual dividend on the $600 million
intercompany Series A Preferred Stock investment by Blockbuster.
(d) Pro forma income tax adjustments reflect the income tax effects
calculated at the statutory tax rate in effect during the period presented. The
effective income tax rate on a pro forma basis is adversely affected by
amortization of excess acquisition costs, which are not deductible
for tax purposes.
(5) Pro forma adjustments related to the sale of MSG:
(a) Decrease in amortization expense resulting from the excess
acquisition costs allocated to MSG.
(b) Decrease in interest expense resulting from the repayment of debt
(see Note 1). The assumed interest rates on the debt financing from banks
are as stated in Note 3.
(c) Reflects the income tax effect on the interest adjustment
calculated at the statutory tax rate in effect.
Note: This transaction did not result in a book gain but, due to a
difference in the book basis versus tax basis of MSG net assets, will result in
a taxable gain. The related non-recurring tax charge is approximately $288
million, which has not been reflected in the pro forma statement of operations.
(6) Pro forma primary earnings per common share is calculated based on the
weighted average number of shares of Viacom Common Stock outstanding, the number
of shares of Viacom Common Stock issued in connection with the Paramount Merger
and Blockbuster Merger and respective common share equivalents as if these
transactions occurred at the beginning of the year. Conversion of the Series
B Preferred Stock would have an antidilutive effect on earnings per common share
and therefore fully diluted earnings per common shares is not presented.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VIACOM INC.
Date: April 13, 1995 By: /s/ Philippe P. Dauman
----------------------
Philippe P. Dauman
Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
EXHIBIT INDEX PAGE
- ------------- ----
23.1 Consent of Ernst & Young LLP as to financial statements
of Paramount Communications Inc.
23.2 Consent of Arthur Andersen LLP as to financial statements
of Blockbuster Entertainment Corporation.
23.3 Consent of Price Waterhouse LLP as to financial statements
of Paramount Communications Inc.
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements (Form
S-3 No. 33-55785 and Form S-8 Nos. 33-41934 and 33-56088) of Viacom Inc.,
Registration Statement (Form S-8 No 33-55173) of Paramount Communications Inc.
and Registration Statement (Form S-8 No. 33-55709) of Blockbuster Entertainment
Corporation of our report dated August 27, 1993, except for Notes A and J, as
to which the date is September 10, 1993, with respect to the consolidated
financial statements of Paramount Communications Inc. included in the Viacom
Inc. Current Report (Form 8-K) filed with the Securities and Exchange
Commission on April 14, 1995.
ERNST & YOUNG LLP
New York, New York
April 12, 1995
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated March 23, 1994 on Blockbuster Entertainment
Corporation's 1993, 1992 and 1991 financial statements, included in this Form
8-K, into Viacom Inc.'s previously filed Registration Statements on Form S-3
(File No. 33-55785) and on Form S-8 (File Nos. 33-41934 and 33-56088), Paramount
Communications Inc.'s previously filed Registration Statement on Form S-8 (File
No. 33-55173) and Blockbuster Entertainment Corporation's previously filed
Registration Statement on Form S-8 (File No. 33-55709).
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
April 10, 1995
EXHIBIT 23.3
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 33-55785) of
Viacom Inc., Form S-8 (Nos. 33-41934 and 33-56088) of Viacom Inc., Form S-8
(No. 33-55173) of Paramount Communications Inc. and Form S-8 (No. 33-55709) of
Blockbuster Entertainment Corporation of our reports dated June 3, 1994,
appearing on page F-2 and page 4 of Item 14(a) in the Paramount Communications
Inc. Transition Report on Form 10-K for the eleven month period ended March 31,
1994, as amended by Form 10-K/A Amendment No. 1 dated July 29, 1994 and as
further amended by Form 10-K/A Amendment No. 2 dated August 12, 1994 included
in the Viacom Inc. Current Report (Form 8-K) filed with the Securities and
Exchange Commission on April 14, 1995.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 12, 1995
