SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (date of earliest event reported): May 4, 2000
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 File (I.R.S. Employer
jurisdiction of 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 7. Financial Statements and Exhibits
The following financial information is being filed pursuant to the Securities
and Exchange Act of 1934, as amended:
Page
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(a) Financial Statements of Business Acquired
CBS Unaudited Interim Consolidated Financial Statements and Notes as of and
for the three months ended March 31, 2000 2
(b) Pro Forma Financial Information
Viacom Inc. Pro Forma Financial Information -- General 12
Viacom Inc. Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2000 13
Viacom Inc. Unaudited Pro Forma Combined Condensed Statement of Operations
for the three months ended March 31, 2000 14
Viacom Inc. Unaudited Pro Forma Combined Condensed Statement of Operations
for the year ended December 31, 1999 15
Notes to Unaudited Pro Forma Combined Condensed Financial Statements 16
Certain required financial information of Viacom Inc. is incorporated by
reference to the Annual Report on Form 10-K filed by Viacom for the fiscal year
ended December 31, 1999 (File No. 1-9553).
Certain required financial information of CBS Corporation is incorporated by
reference to the Annual Report on Form 10-K filed by CBS for the fiscal year
ended December 31, 1999 (File No. 1-977).
Certain required financial information of Viacom Inc. is incorporated by
reference to the Quarterly Report on Form 10-Q filed by Viacom Inc. for the
period ended March 31, 2000 (File No. 1-9553).
(c) Exhibits
None.
1
Item 7 (a). Financial Statements of Business Acquired.
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
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(unaudited, in millions except per share amounts)
Three Months Ended March 31, 2000 1999
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Revenues $ 2,406 $ 1,769
Operating expenses (1,403) (1,156)
Marketing, administration and general expenses (435) (301)
Depreciation and amortization (297) (149)
Residual costs of discontinued businesses (49) (40)
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Operating profit 222 123
Other income, net (2) 8
Interest expense (79) (51)
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Income (loss) from Continuing Operations before income taxes,
minority interest in income of consolidated subsidiaries and
equity losses of unconsolidated affiliated companies 141 80
Income tax expense (91) (46)
Minority interest in income of consolidated subsidiaries (15) (9)
Equity losses of unconsolidated affiliated companies,
net of income taxes (75) --
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(Loss) income from Continuing Operations (40) 25
Gain on disposal of Discontinued Operations,
net of income taxes -- 366
Extraordinary income (loss) on extinguishment of debt,
net of income taxes 2 (4)
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Net (loss) income $ (38) $ 387
==============================================================================================================
Net (loss) income per common share Basic:
Continuing Operations $ (.05) $ .04
Discontinued Operations -- .53
Extraordinary item -- (.01)
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Net (loss) income per common share Basic $ (.05) $ .56
==============================================================================================================
Net (loss) income per common share Diluted:
Continuing Operations $ (.05) $ .04
Discontinued Operations -- .52
Extraordinary item -- (.01)
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Net (loss) income per common share Diluted $ (.05) $ .55
==============================================================================================================
Comprehensive (loss) income
Net (loss) income $ (38) $ 387
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Other comprehensive (loss) income:
Minimum pension liability adjustment, net of tax
benefit (expense) of $7 and $(52) (14) 97
Unrealized gains on marketable securities, net of tax
benefit (expense) of $17 and $(26) (26) 40
Foreign currency translation adjustment 11 --
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Other comprehensive (loss) income (29) 137
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Comprehensive (loss) income $ (67) $ 524
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See Notes to the Condensed Consolidated Financial Statements.
2
CBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
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(in millions except per share amounts)
(unaudited)
March 31, December 31,
2000 1999
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ASSETS:
Cash and cash equivalents $ 318 $ 194
Short-term investments 281 306
Customer receivables (net of allowance for doubtful
accounts of $85 and $74) 1,651 1,676
Program rights 665 623
Deferred income taxes 391 200
Prepaid expenses and other current assets 339 373
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Total current assets 3,645 3,372
Property and equipment, net 3,136 3,070
Intangibles, net 24,548 24,917
Other noncurrent assets 1,764 1,766
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Total assets $ 33,093 $ 33,125
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term debt $ 52 $ 38
Current maturities of long-term debt 10 6
Accounts payable 348 377
Liabilities for talent and program rights 698 401
Other current liabilities 1,211 1,142
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Total current liabilities 2,319 1,964
Long-term debt 3,670 3,753
Pensions, postretirement and postemployment benefits 1,429 1,440
Deferred income taxes 1,600 1,717
Other noncurrent liabilities 2,539 2,590
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Total liabilities 11,557 11,464
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Contingent liabilities and commitments (note 7)
Minority interest in equity of consolidated subsidiaries 5,746 5,514
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Shareholders' equity:
Preferred stock, $1.00 par value (25 shares authorized):
Series B participating preferred stock (.01 and zero shares issued) -- --
Common stock, $1.00 par value (1,100 shares authorized,
808 and 805 shares issued) 808 805
Capital in excess of par value 15,180 15,234
Retained earnings 2,170 2,208
Accumulated other comprehensive loss (446) (417)
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17,712 17,830
Less: Treasury stock, at cost (58 and 54 shares held) (1,922) (1,683)
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Total shareholders' equity 15,790 16,147
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Total liabilities and shareholders' equity $ 33,093 $ 33,125
=========================================================================================================================
See Notes to the Condensed Consolidated Financial Statements.
3
CBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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(unaudited, in millions)
Three Months Ended March 31, 2000 1999
=================================================================================================================================
Cash flows from operating activities of Continuing Operations:
(Loss) income from Continuing Operations $ (40) $ 25
Adjustments to reconcile (loss) income from Continuing Operations to
Net cash provided by operating activities:
Depreciation and amortization 297 149
Gain on asset dispositions -- (9)
Other noncash adjustments (31) (43)
Barter revenue - Internet (51) --
Equity losses of unconsolidated affiliated companies 75 --
Minority interest in (income) loss of consolidated subsidiaries 15 9
Changes in assets and liabilities, net of effects of acquisitions and
divestitures of businesses:
Program rights 269 283
Receivables, current and noncurrent 43 (120)
Accounts payable (34) 11
Deferred and current income taxes 51 14
Pensions, postretirement and postemployment benefits (32) (32)
Other assets and liabilities 2 (57)
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Cash provided by operating activities of Continuing Operations 564 230
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Cash used by operating activities of Discontinued Operations (17) (101)
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Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired, assets and investments (151) (70)
Business divestitures and other asset liquidations 51 342
Capital expenditures - Continuing Operations (47) (24)
Capital expenditures - Discontinued Operations -- (12)
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Cash provided (used) by investing activities (147) 236
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Cash flows from financing activities:
Bank revolver borrowings 195 --
Bank revolver repayments (175) --
Net increase in short-term debt 13 --
Repayments of long-term debt (106) (247)
Stock issued 46 128
Stock issued by subsidiaries 155 --
Purchase of treasury stock (233) (70)
Purchase of treasury stock by subsidiary (163) --
Other financing activities -- (1)
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Cash provided (used) by financing activities (268) (190)
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Increase in cash and cash equivalents 132 175
Cash and cash equivalents at beginning of period for Continuing and
Discontinued Operations 249 825
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Cash and cash equivalents at end of period for Continuing and
Discontinued Operations $ 381 $ 1,000
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Supplemental disclosure of cash flow information:
Interest paid - Continuing Operations $ 65 $ 58
Interest paid - Discontinued Operations -- 1
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Total interest paid $ 65 $ 59
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Income taxes paid, net of refunds $ 40 $ 42
=================================================================================================================================
See Notes to the Condensed Consolidated Financial Statements.
4
CBS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. GENERAL
The condensed consolidated financial statements include the accounts of CBS
Corporation and its subsidiary companies after elimination of intercompany
accounts and transactions. The terms "we," "our," "us," "CBS" and "Corporation"
refer to CBS Corporation and its consolidated subsidiaries unless the context
indicates otherwise. When reading the financial information contained in these
financial statements, reference should be made to the consolidated financial
statements, schedules and notes contained in the Corporation's Annual Report on
Form 10-K for the year ended December 31, 1999. Certain prior period amounts
have been reclassified for comparative purposes. In the opinion of management,
the condensed consolidated financial statements include all material adjustments
necessary to present fairly the Corporation's financial position, results of
operations and cash flows. Such adjustments are of a normal recurring nature.
The results for this interim period are not necessarily indicative of results
for the entire year or any other interim period.
In June 1999, Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of Effective Date of
FASB Statement No. 133," was issued. Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The issuance of Statement No. 137 delays the effective date for Statement
No. 133 for one year, to fiscal years beginning after June 15, 2000. The
Corporation's derivative and hedging transactions are not material and it is
anticipated that adoption of this standard will not materially impact its
financial results or disclosure when adopted January 1, 2001.
Certain amounts reported for the prior period have been reclassified to conform
with the current period's presentation.
2. MERGERS AND ACQUISITIONS
On December 7, 1999, Infinity Broadcasting Corporation, a majority owned
subsidiary of CBS (Infinity Broadcasting), completed its acquisition of Outdoor
Systems, Inc., now known as Infinity Outdoor, Inc. (Infinity Outdoor), for
approximately $8.7 billion, which included the assumption of $1.9 billion in
debt, at fair value, and $670 million of Outdoor Systems stock options. On
November 15, 1999, we completed our acquisition of King World Productions, Inc.
(King World) for approximately $2.7 billion which includes $312 million for the
estimated fair value of King World stock options assumed. The transactions were
accounted for under the purchase method. The purchase prices have been
preliminarily allocated based on the estimated fair value of the assets acquired
and liabilities assumed.
The following unaudited pro forma information combines our consolidated results
of operations on a continuing basis with those of Infinity Outdoor and King
World as if these acquisitions had occurred on January 1, 1999. The aggregate
impact of other acquisitions was not material to our revenue, income (loss) or
income (loss) per share. The pro forma results give effect to certain
adjustments, including amortization expense from goodwill and other identifiable
intangible assets, interest expense from acquisition of debt, the effect to
minority interest participation, all related income tax effects and the issuance
of additional shares.
PRO FORMA RESULTS
(unaudited, in millions except per-share amounts)
Three Months Ended March 31, 2000 1999
- --------------------------------------------------------------------------------------------------
Revenues $2,406 $2,126
Loss from Continuing Operations (40) (4)
Loss per common share - Basic and Diluted (.05) (.01)
This pro forma financial information is presented for comparative purposes only
and is not necessarily indicative of the operating results that actually would
have occurred had the Infinity, Outdoor and King World transactions been
consummated on January 1, 1999. In addition, these results are not intended to
be a projection of future results and do not reflect any synergies that might be
achieved from the combined operations.
On March 3, 2000, Infinity Broadcasting entered into an asset purchase agreement
to acquire 18 radio stations, located in the top 50 markets, from Clear Channel
Communications, Inc. for approximately $1.4 billion. This transaction is
expected to close by year-end 2000 and is subject to regulatory reviews and
approvals.
5
On March 21, 2000, Infinity Broadcasting announced that it had entered into an
agreement to purchase Giraudy, one of France's largest outdoor advertising
companies, for approximately $375 million. This transaction closed June 8, 2000.
On March 28, 2000, Infinity Broadcasting announced that it had agreed to acquire
Waterman Broadcasting Corporation of Texas (Waterman Broadcasting) in exchange
for approximately 2.7 million shares of its Class A common stock valued at
approximately $88 million on that date. Waterman Broadcasting owns radio
stations KTSA-AM and KTFM-FM in San Antonio. This transaction closed on
June 30, 2000.
On June 22, 2000, Infinity Broadcasting acquired Societa Manifesti & Affissioni
S.p.A. one of the leading Italian outdoor media sales companies, for
approximately $80 million.
3. INVESTMENTS IN INTERNET BASED COMPANIES
During the first quarter of 2000, we obtained equity ownership interests in two
Internet based companies, Hollywood.com, Inc. and Content Commerce, L.P.,
bringing our total number of investments in Internet based companies to 17. We
obtained a 30% ownership interest in Hollywood.com in exchange for $100 million
in future advertising and promotion time and $5 million in cash, and we obtained
a 35% ownership interest in Content Commerce in exchange for $40 million in
future advertising and promotion time. Both of these investments are accounted
for as equity method investments.
At the date of acquisition, for nonconsolidated equity investments in Internet
based companies we typically record our investment at an amount equal to the
cash consideration paid plus the fair value of the advertising and promotion
time to be provided. The associated obligation to provide future advertising and
promotion time is noncash and is recorded as deferred revenue at an amount equal
to the fair value of the advertising and promotion time to be provided.
At March 31, 2000 and December 31, 1999 our total investment balance was $843
million and $836 million, respectively, and is reflected in Other noncurrent
assets in the Condensed Consolidated Balance Sheet. Any related deferred revenue
balance is presented in Other current and Other noncurrent liabilities in the
Condensed Consolidated Balance Sheet. See note 5 to the condensed financial
statements. Deferred revenue is relieved and barter revenue is recognized as the
related advertising and promotion time is delivered. Barter revenue of $71
million has been recognized for the three months ended March 31, 2000. Barter
revenue recognized in the prior year first quarter was not significant.
The following summarized unaudited financial information of our Internet equity
investees reflects their results of operations in the fourth quarter in 1999 and
1998, respectively, or from inception (results are recorded on a one quarter
lag).
RESULTS OF OPERATIONS DATA
(unaudited, in millions)
Three Months Ended March 31, 2000 1999
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Revenues $ 26 $ 7
Gross profit 6 3
Loss from Continuing Operations (126) (12)
Net loss (126) (12)
The majority of our Internet based investments represent newly formed
enterprises that will require access to capital markets to fund their future
start-up losses. There can be no assurance that these companies will be
successful in raising the necessary capital to finance their operations, and we
have no obligation for future funding. These companies may also face intense
competition as more traditional "brick-and-mortar" companies respond to changes
in the market place, including launching their own Internet sites. Therefore,
our future results of operations for a quarter or a year could be materially
affected by a non-cash write down in the carrying amount of these investments to
recognize an impairment loss due to an other than temporary decline in the value
of these investments. This write down would be recognized in Equity losses of
unconsolidated affiliated companies, net of income taxes in the Condensed
Consolidated Statement of Income. The advertising and promotion agreements
entered into in exchange for our equity interest in these investees contain
termination provisions in the event of failure or inability of the investee to
perform under the terms of the agreements. Generally, pursuant to these above
termination provisions, we are released from delivering any remaining
unfulfilled advertising commitments. Upon termination of the unfulfilled
advertising and promotion commitments, the remaining deferred revenue, if any,
recorded as a liability will be reversed and recognized as an adjustment to
Equity losses of unconsolidated affiliated companies, net of
6
income taxes in the Consolidated Statement of Income. During the first quarter
2000, we recorded a non-cash write down of an internet investment and the
related deferred revenue of $31 million due to an other than temporary decline
in the value of this investment.
4. INTANGIBLES, NET (in millions)
(unaudited)
March 31, December 31,
2000 1999
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Goodwill $17,875 $18,161
FCC licenses 4,694 4,725
Show contracts 464 478
Cable license agreements 389 402
Distribution networks 351 363
Tradenames 241 245
Other intangibles 534 543
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Intangibles, net $24,548 $24,917
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Intangible assets presented in the preceding table are net of accumulated
amortization of $1,761 million at March 31, 2000 and $1,533 million at December
31, 1999.
5. OTHER CURRENT AND NONCURRENT LIABILITIES (in millions)
Other current liabilities are as follows:
(unaudited)
March 31, December 31,
2000 1999
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Accrued liabilities $ 511 $ 442
Income taxes payable 35 56
Accrued employee compensation 121 149
Deferred revenue -- Internet 157 125
Retained liabilities of discontinued businesses 233 237
Other 154 133
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Total Other current liabilities $1,211 $1,142
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Other noncurrent liabilities are as follows:
(unaudited)
March 31, December 31,
2000 1999
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Net liabilities of Discontinued Operations $ 625 $ 637
Retained liabilities of discontinued businesses 971 996
Deferred revenue -- Internet 509 467
Other 434 490
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Total Other noncurrent liabilities $2,539 $2,590
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6. RESTRUCTURING
During the three months ended March 31, 2000 we recorded a restructuring accrual
of $11 million in connection with the integration of King World with the
existing CBS syndication business. Of this amount, $4 million in costs related
to the existing CBS syndication business were charged to operations and $7
million in costs related to the historical operating activities of King World
increased goodwill. The restructuring accrual includes severance-related and
relocation costs for approximately 70 employees in redundant functions which are
expected to be paid by year-end 2000. Terminations of employees are expected to
be completed by year-end 2000.
7
7. CONTINGENT LIABILITIES AND COMMITMENTS
Certain environmental, litigation and other liabilities associated with
previously divested industrial businesses were not assumed by other parties in
the divestiture transactions and, therefore, were retained by us. These
liabilities include certain environmental, general litigation, and other matters
not involving active businesses. Accrued liabilities associated with these
matters, which have been separately presented in Continuing Operations as
Retained liabilities of discontinued businesses, totaled $1.2 billion at March
31, 2000, including $568 million for accrued legal matters as well as amounts
related to previously discontinued businesses of CBS Inc. Of the $1.2 billion,
$971 million is classified as noncurrent. A separate asset of $199 million was
recorded for estimated amounts recoverable from third parties, of which $172
million is classified in Other noncurrent assets in the Condensed Consolidated
Balance Sheet.
Legal Matters
Asbestos
We are a defendant in numerous lawsuits claiming various asbestos-related
personal injuries, which allegedly occurred from use or inclusion of asbestos in
certain products supplied by our previously divested industrial businesses,
generally in the pre-1970 time period. Typically, these lawsuits are brought
against multiple defendants. We were neither a manufacturer nor a producer of
asbestos and we are oftentimes dismissed from these lawsuits on the basis that
we have no relationship to the products in question or the claimant did not have
exposure to our product. At March 31, 2000, we had approximately 124,000
unresolved claims pending.
In court actions that have been resolved, we have prevailed in many of the
asbestos claims and have resolved others through settlement. Furthermore, we
have brought suit against certain of our insurance carriers with respect to
these asbestos claims. Under the terms of a settlement agreement resulting from
this suit, carriers that have agreed to the settlement are now reimbursing us
for a substantial portion of our current costs and settlements associated with
asbestos claims. We recorded a liability reflected in Retained liabilities of
discontinued businesses for asbestos-related matters that is deemed probable and
can be reasonably estimated. We have also separately recorded an asset reflected
in Other noncurrent assets in the Condensed Consolidated Balance Sheet equal to
the amount of such estimated liability that will be recovered pursuant to
agreements with insurance carriers.
Factors considered in evaluating this litigation include: claimed product
involvement, alleged exposure to product, alleged disease, validity of medical
claims, number of resolved claims, available insurance proceeds and status of
litigation in multiple jurisdictions. We have not been able to reasonably
estimate costs for unasserted asbestos claims. However, we review asbestos
claims on an ongoing basis and adjust our liability as appropriate.
General
Litigation is inherently uncertain and always difficult to predict. Substantial
damages are sought in certain groupings of asbestos claims, and, although we
believe a significant adverse judgment is unlikely, any such judgment could have
a material adverse effect on our results of operations for a quarter or a year.
However, based on our understanding and evaluation of the relevant facts and
circumstances, we believe that we have adequately provided for costs arising
from resolution of these matters and that the litigation should not have a
material adverse effect on our financial condition.
Environmental Matters
Compliance with federal, state, and local laws and regulations relating to the
discharge of pollutants into the environment, the disposal of hazardous wastes,
and other related activities affecting the environment have had and will
continue to have an impact on us. It is difficult to estimate the timing and
ultimate costs to be incurred in the future due to uncertainties about the
status of laws, regulations, and technology; the adequacy of information
available for individual sites; the extended time periods over which site
remediation occurs; and the identification of new sites. We have, however,
recognized an estimated liability, measured in current dollars, for those sites
where it is probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. We recognize changes in estimates as new
remediation requirements are defined or as more information becomes available.
With regard to remedial actions under federal and state Superfund laws, we have
been named a potentially responsible party (PRP) at numerous sites located
throughout the country. At many of these sites, we are either not a responsible
party or our site involvement is very limited or de minimis. However, we may
have varying degrees of cleanup responsibilities at approximately 74 sites. We
believe that any liability incurred for cleanup at these sites
8
will be satisfied over a number of years, and in many cases, the costs will be
shared with other responsible parties. These sites include certain sites for
which we, as part of an agreement for sale, have retained obligations for
remediation of environmental contamination and for other Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) issues.
Based on the costs associated with the most probable alternative remediation
strategy for the previously mentioned sites, we have an accrued liability of
$505 million at March 31, 2000 which is reflected in Retained liabilities of
discontinued businesses in the Condensed Consolidated Balance Sheet. Depending
on the remediation alternatives ultimately selected, the costs related to these
sites could differ from the amounts currently accrued. The accrued liability
includes $388 million for site investigation and remediation, and $117 million
for post-closure and monitoring activities. Management anticipates that the
majority of expenditures for site investigation and remediation will occur
during the next five to ten years. Expenditures for post-closure and monitoring
activities will be made during periods of up to 30 years.
Other
We are involved with several administrative actions alleging violations of
federal, state, or local environmental regulations. For these matters, we have
estimated our remaining reasonably possible costs and determined them to be
immaterial.
Commitments
We routinely enter into commitments to purchase the rights to broadcast
programs, including feature films and sporting events. These contracts permit
the broadcast of such programs for various periods. At March 31, 2000 we were
committed to make payments under such broadcasting contracts, along with
commitments for talent contracts, totaling $14.1 billion. In addition, we have
received various equity ownership interests in Internet-based companies that
commit us to provide advertising and promotional time over the next several
years (see note 3).
Other commitments that exist for the Corporation include commitments under
operating and capital leases for certain facilities and equipment (including
satellites), as well as commitments to pay for certain franchise rights
entitling it to display advertising on buses, taxis, trains, bus shelters,
terminals and phone kiosks.
9
8. INCOME (LOSS) PER COMMON SHARE
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE - CONTINUING OPERATIONS
(unaudited, in millions except per-share amounts)
Three Months Ended March 31, 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
(Loss) income from Continuing Operations applicable to common stockholders $ (40) $ 25
- ---------------------------------------------------------------------------------------------------------------------
Average shares outstanding -- basic 752 693
Dilutive effect of stock option plans -- 15
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Average shares outstanding -- diluted 752 708
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(Loss) income per common share -- basic and diluted $(.05) $ .04
- ---------------------------------------------------------------------------------------------------------------------
The computation of (loss) income per common share - diluted for the three months
ended March 31, 2000 excludes options to purchase shares of common stock of 23
million, shares of common stock issuable under deferred compensation
arrangements of 2 million and convertible preferred shares of 10 million,
because their inclusion would be anti-dilutive. The computation of (loss) income
per common share - diluted for the three months ended March 31, 1999 excludes
shares of common stock issuable under deferred compensation arrangements of 3
million because their inclusion would be anti-dilutive.
9. SHAREHOLDERS' EQUITY
Our Board of Directors authorized a $3 billion multi-year stock repurchase
program in 1998. For the three months ended March 31, 2000, we purchased 4.5
million shares for $259 million, bringing our total share repurchases under this
program to 44.3 million shares for $1.6 billion.
OTHER COMPREHENSIVE INCOME
(in millions)
In 1998 we adopted SFAS No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and its
components in the financial statements but did not change the recognition or
measurement of assets and liabilities. Comprehensive income is used to describe
all changes in equity from transactions and other events and circumstances from
nonowner sources. Comprehensive income includes net income and other
comprehensive income or loss items.
The following table presents the components of Accumulated other comprehensive
loss, net of related taxes presented in our Condensed Consolidated Balance
Sheet:
(unaudited)
March 31, December 31,
2000 1999
- ----------------------------------------------------------------------------------------
Minimum pension liability adjustment $ (491) $ (477)
Unrealized gains on marketable securities 47 73
Foreign currency translation adjustment (2) (13)
- ----------------------------------------------------------------------------------------
Total accumulated other comprehensive loss $ (446) $ (417)
- ----------------------------------------------------------------------------------------
10
10. SEGMENT INFORMATION
The Corporation's Continuing Operations are aligned into four business segments:
Infinity, Television, Cable and the Internet Group. These business segments are
consistent with our management of these businesses, our financial reporting
structure and operating focus.
SEGMENT RESULTS OF OPERATIONS
(unaudited, in millions)
Revenues Operating Profit (Loss) EBITDA
Three Months Ended March 31, 2000 1999 2000 1999 2000 1999
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Infinity $ 789 $ 474 $ 165 $ 98 $ 326 $ 170
Television 1,491 1,165 129 54 233 105
Cable 138 130 26 25 53 50
Internet Group 9 1 (36) (1) (31) (2)
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Total combined segments 2,427 1,770 284 176 581 323
Corporate and other (21) (1) (13) (13) (13) (11)
Residual costs of discontinued businesses -- -- (49) (40) (49) (40)
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Total $2,406 $1,769 $ 222 $ 123 $ 519 $ 272
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We evaluate operating performance based on earnings before interest, taxes,
minority interest, equity losses, depreciation and amortization (EBITDA). We
believe that EBITDA is an appropriate measure of evaluating the operating
performance of our segments. EBITDA eliminates the effect of depreciation and
amortization of tangible and intangible assets caused by the magnitude and
timing of acquisitions. However, EBITDA should be considered in addition to, not
as a substitute for operating earnings, net earnings, cash flows, and other
measures of financial performance reported in accordance with generally accepted
accounting principles. As EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principles, this measure may not
be comparable to similarly titled measures employed by other companies.
The category "Corporate and other" includes certain assets and results of
operations that are either not identifiable to a specific reportable segment or
relate to the maintenance of corporate functions. These assets primarily include
cash and cash equivalents, deferred income taxes, property and equipment and
other assets associated with corporate headquarters as well as certain
receivables. Included in the results of operations are intersegment
eliminations, nonallocated income and costs related to interest, taxes and
employee benefits as well as certain headquarters related income and expenses.
Residual costs of discontinued businesses primarily include pension and
postretirement benefit costs for benefit plans retained by us for previously
divested industrial businesses.
11. SUBSEQUENT EVENTS
On May 4, 2000, the Corporation completed its merger with Viacom Inc. (Viacom).
Under the terms of the transaction, each share of CBS common stock has been
converted into the right to receive 1.085 shares of Viacom non-voting Class B
common stock and each share of CBS Series B participating preferred stock has
been converted into the right to receive 1.085 shares of Viacom Series C
preferred stock. CBS shareholders will receive a cash payment in lieu of any
fractional shares.
On May 3, 2000, Infinity Broadcasting entered into a new credit facility, which
provides for approximately $2.0 billion of additional borrowing capacity. The
credit facility provides for short-term money market loans and revolver
borrowings. Borrowing rates under the facility are determined at the time of
each borrowing and are based generally on a floating rate index, the London
Interbank Offer Rate (LIBOR), plus a margin based on Infinity Broadcasting's
senior unsecured debt rating. Borrowing availability under the credit facility
may be subject to compliance with certain covenants, including a maximum
leverage ratio and a minimum interest coverage ratio, based on Infinity
Broadcasting's senior unsecured debt rating.
11
Item 7(b). Pro Forma Financial Information.
VIACOM INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
General
On May 4, 2000, CBS Corporation ("CBS") merged with and into Viacom Inc.
("Viacom" or the "Company"). The merger will be accounted for by the purchase
method of accounting. The total purchase price of approximately $39.8 billion
represents the issuance of 825.5 million shares of Viacom non-voting Class B
Common Stock and 11,004 shares of Viacom Series C Convertible Preferred Stock,
the estimated fair value of CBS stock options which were granted prior to the
date of the merger and assumed by Viacom, and estimated transaction costs. The
purchase price will be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed according to their respective fair
values, with the excess purchase price being allocated to goodwill. In addition,
Viacom assumed approximately $3.7 billion of CBS debt.
The following unaudited pro forma combined condensed financial statements
are presented to illustrate the effects of the merger on the historical
financial position and operating results of Viacom. The pro forma balance sheet
as of March 31, 2000 is presented as if the merger and the United Paramount
Network ("UPN") acquisition, as described in the notes to the unaudited pro
forma combined condensed financial statements, had occurred on March 31, 2000.
The pro forma statements of operations for the three months ended March 31, 2000
and for the year ended December 31, 1999 are presented as if the merger and the
other Viacom and other CBS transactions described in the notes to the unaudited
pro forma combined condensed financial statements had occurred on January 1,
1999. In the opinion of management, all adjustments and/or disclosures necessary
for a fair presentation of the pro forma data have been made. These unaudited
pro forma combined condensed financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or the
financial position that would have been achieved had the merger, or the other
Viacom and other CBS transactions, been consummated as of the dates indicated or
of the results that may be obtained in the future.
These unaudited pro forma combined condensed financial statements and notes
thereto should be read in conjunction with the CBS unaudited interim
consolidated financial statements and the notes thereto as of and for the
three months ended March 31, 2000 included herein, and:
. CBS' consolidated financial statements and the notes thereto as of and
for the year ended December 31, 1999, and Management's Discussion and
Analysis included in CBS' Annual Report on Form 10-K for the year ended
December 31, 1999, which is incorporated by reference in this Current
Report on Form 8-K;
. Viacom's consolidated financial statements and the notes thereto as of
and for the year ended December 31, 1999, and Management's Discussion and
Analysis included in Viacom's Annual Report on Form 10-K for the year
ended December 31, 1999, which is incorporated by reference in this
Current Report on Form 8-K; and
. Viacom's unaudited consolidated financial statements and the notes
thereto as of and for the three-month period ended March 31, 2000 on Form
10-Q, which is incorporated by reference in this Current Report on Form
8-K.
12
VIACOM INC.
UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
As of March 31, 2000
(in millions)
Pro Forma UPN
Viacom CBS Merger Acquisition Pro Forma
Historical Historical Adjustments Adjustments/(3)/ Combined
---------- ---------- ----------- --------------- ---------
ASSETS:
Cash and cash equivalents......................... $ 698 $ 318 $ (233)/(2a)/ $ 3 $ 716
(70)/(2b)/
Receivables, net.................................. 1,530 1,651 -- 28 3,209
Other current assets.............................. 2,724 1,676 178/(4)/ 65 4,627
(16)/(2h)/
-------- -------- -------- ------- --------
Total current assets.............................. 4,952 3,645 (141) 96 8,552
Property and equipment, net....................... 3,400 3,136 227/(2h)/ 2 6,765
Intangibles, net.................................. 11,411 24,548 (24,548)/(2c)/ 125 61,256
49,720/(2h)/
Other noncurrent assets........................... 4,561 1,764 2,088/(4)/ (124) 7,878
(411)/(2h)
-------- -------- -------- ------- --------
Total assets...................................... $ 24,324 $ 33,093 $ 26,935 $ 99 $ 84,451
======== ======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable, accrued expenses and
other........................................... $ 3,706 $ 2,309 $ (35)/(4)/ $ 99 $ 6,944
230/(2b)/
100/(2)/
535/(2h)/
Current portion of long-term debt................. 281 10 -- -- 291
-------- -------- -------- ------- --------
Total current liabilities......................... 3,987 2,319 830 99 7,235
Long-term debt.................................... 6,547 3,670 -- -- 10,217
Other noncurrent liabilities...................... 2,085 5,568 2,265/(2h)/ -- 9,918
-------- -------- -------- ------- --------
Total liabilities................................. 12,619 11,557 3,095 99 27,370
-------- -------- -------- ------- --------
Minority interest in equity of consolidated
subsidiaries.................................... 1,271 5,746 -- -- 7,017
Stockholders' Equity:
Common stock...................................... 8 808 8/(2)/ -- 16
(808)/(2g)/
Additional paid-in capital........................ 10,353 15,180 37,325/(2d)/ -- 50,395
1,819/(2f)/
498/(2e)/
400/(2b)/
(15,180)/(2g)/
Retained earnings................................. 2,324 2,170 (2,170)/(2g)/ -- 1,904
(420)/(2b)/
Accumulated other comprehensive loss.............. (37) (446) 446/(2g)/ -- (37)
Less treasury stock, at cost...................... (2,214) (1,922) 1,922/(2g)/ -- (2,214)
-------- -------- -------- ------- --------
Total stockholders' equity........................ 10,434 15,790 23,840 -- 50,064
-------- -------- -------- ------- --------
Total liabilities and stockholders equity......... $ 24,324 $ 33,093 $ 26,935 $ 99 $ 84,451
======== ======== ======== ======= ========
See accompanying notes to unaudited
pro forma combined condensed financial statements.
13
VIACOM INC.
UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
(in millions, except per share amounts)
Pro Forma UPN
Viacom CBS Merger Acquisition Pro Forma
Historical Historical Adjustments Adjustments/(3)/ Combined
---------- ---------- ----------- --------------- ---------
Revenues............................................. $ 3,026 $ 2,406 $ -- $ 37 $ 5,469
Operating expenses................................... (1,981) (1,403) -- (58) (3,442)
Selling, general and administrative.................. (561) (435) -- (24) (1,020)
Residual costs of discontinued businesses............ -- (49) 17/(2)/ -- (32)
Depreciation and amortization........................ (229) (297) (157)/(2)/ (1) (684)
-------- -------- ------- ------ --------
Operating income (loss).............................. 255 222 (140) (46) 291
Other income and expense, net........................ 2 (2) -- -- --
Interest expense, net................................ (113) (79) (5)/(2)/ -- (197)
-------- -------- ------- ------ --------
Earnings (loss) from continuing operations before
income taxes....................................... 144 141 (145) (46) 94
Income tax (expense) benefit......................... (65) (91) (5)/(4)/ 18 (143)
Equity in loss of affiliated companies, net of tax... (6) (75) -- 14 (67)
Minority interest.................................... 3 (15) -- -- (12)
-------- -------- ------- ------ --------
Earnings (loss) from continuing operations........... $ 76 $ (40) $ (150) $ (14) $ (128)
======== ======== ======= ====== ========
Earnings (loss) from continuing operations
per common share:
Basic............................................ $ .11 $ (.08)
Diluted.......................................... $ .11 $ (.08)
Weighted average shares outstanding:
Basic............................................ 695 826 1,521
Diluted.......................................... 712 826 1,521
See accompanying notes to unaudited
pro forma combined condensed financial statements.
14
VIACOM INC.
UNAUDITED PRO FORMA
COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
(in millions, except per share amounts)
UPN
CBS Pro Forma Acquisition and
Viacom Pro Forma Merger Blockbuster IPO Pro Forma
Historical Combined/(5)/ Adjustments Adjustments/(3)/ Combined
---------- --------- ----------- ---------------- ---------
Revenues..................................... $ 12,859 $ 8,810 $ -- $ 134 $ 21,803
Operating expenses........................... (8,338) (5,013) -- (229) (13,580)
Selling, general and administrative.......... (2,359) (1,415) -- (96) (3,870)
Restructuring charge......................... (70) -- -- -- (70)
Residual costs of discontinued
businesses.................................. -- (175) 90 /(2)/ -- (85)
Depreciation and amortization................ (845) (1,178) (629)/(2)/ (4) (2,656)
-------- -------- -------- ------- ---------
Operating income (loss)...................... 1,247 1,029 (539) (195) 1,542
Other income and expense, net................ 18 (15) -- -- 3
Interest expense, net........................ (421) (286) (18)/(2)/ 1 (720)
4
-------- -------- -------- ------- ---------
Earnings (loss) from continuing
operations before income taxes.............. 844 728 (557) (190) 825
Income tax (expense) benefit................. (411) (528) (29)/(4)/ 75 (893)
Equity in loss of affiliated companies,
net of tax.................................. (61) (73) -- 63 (71)
Minority interest............................ -- (99) -- 5 (94)
-------- -------- -------- ------- ---------
Earnings (loss) from continuing
operations.................................. 372 28 (586) (47) (233)
Cumulative convertible preferred stock
dividend requirement and premium on
repurchase of preferred stock............... (13) -- -- -- (13)
-------- -------- -------- ------- ---------
Earnings (loss) from continuing
operations attributable to common
stock....................................... $ 359 $ 28 $ (586) $ (47) $ (246)
======== ======== ======== ======= =========
Earnings (loss) from continuing
operations per common share:
Basic...................................... $ .52 $ (.16)
Diluted.................................... $ .51 $ (.16)
Weighted average shares outstanding:
Basic...................................... 695 826 1,521
Diluted.................................... 710 826 1,521
See accompanying notes to unaudited
pro forma combined condensed financial statements.
15
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(tables in millions, except per share amounts)
(1) Basis of Presentation
The purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma combined condensed financial statements. Under
this method of accounting, the purchase price is allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on their
respective fair values, with the excess purchase price being allocated to
goodwill. For purposes of these unaudited pro forma combined condensed financial
statements, the preliminary fair values of CBS' assets and liabilities were
estimated. The Company is currently determining allocation of the purchase price
which will be based on appraisals and comprehensive final evaluations of
tangible and identifiable intangible assets acquired (including their estimated
useful lives) and liabilities assumed.
(2) Merger Consideration
Pro forma adjustments to record the merger as of March 31, 2000 reflect:
(a) A decrease in cash of $233 million relating to the settlement of CBS
options that had limited rights.
(b) A decrease in equity of $420 million, net of a tax benefit of $280
million, relating to estimated Viacom merger related costs of $700
million for severance, transaction fees and other business integration
expenses. The costs include cash payments made at merger date of $70
million, accrued liabilities of $230 million and the estimated fair
value of stock options of $400 million. Viacom merger related costs
will be recorded as a charge to operations in the second quarter of
2000.
(c) The elimination of $24.5 billion of CBS' pre-existing intangibles.
(d) An increase of equity of $37.3 billion relating to the issuance of
825.5 million shares of Viacom non-voting Class B common stock, $0.01
par value per share, in exchange for 760.8 million outstanding shares
of CBS common stock, based on an exchange ratio of 1.085 to 1. The
$45.225 per share value of Viacom non-voting Class B common stock
issued was calculated based on its average market price per share from
September 2, 1999 through September 9, 1999.
(e) An increase in equity of $498 million relating to the issuance of
11,004 shares of Viacom Series C convertible preferred stock in
exchange for 10,142 shares of CBS Series B participating preferred
stock.
16
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(tables in millions, except per share amounts)
(f) An increase in equity of $1.8 billion relating to the issuance of
options to purchase 64.3 million shares of Viacom common stock in
exchange for outstanding options to purchase 59.2 million shares of
CBS, not settled in cash, based on a weighted average fair value of
$28.31 per share for each option issued. The fair value of the
options issued was determined using a Black-Scholes option pricing
model.
(g) A net decrease in equity of $15.8 billion reflecting the elimination
of CBS' historical common stock of $808 million, additional paid-in-
capital of $15.2 billion, retained earnings of $2.2 billion,
accumulated other comprehensive loss of $446 million and treasury
stock of $1.9 billion.
(h) Represents the preliminary allocation of the purchase price to assets
acquired and liabilities assumed based on their respective fair
values, with the purchase price over the fair value of the tangible
net assets acquired being allocated to intangibles for $49.7 billion.
The Company has estimated approximately $3.0 billion for the
preliminary fair value adjustments. The estimated asset adjustments
principally include fair value adjustments to programming assets other
than sports programming, fixed assets and other noncurrent assets. The
estimated liability adjustments principally include fair value
adjustments to pension liabilities related to discontinued operations,
environmental and other noncurrent liabilities, as well as CBS
liabilities for integration related expenses which will result from
the elimination of duplicate facilities and functions, operational
realignment and related workforce reductions. The final allocation of
the purchase price will be based on appraisals and comprehensive final
evaluations of the fair value of CBS' tangible and identifiable
intangible assets acquired and liabilities assumed.
The total purchase price and preliminary allocation are summarized below:
Total CBS common shares outstanding (as of close of business May 3, 2000).................. 760.8
Exchange ratio............................................................................. 1.085
-------
Viacom non-voting Class B common stock issued.............................................. 825.5
=======
Purchase Price:
Value of Viacom non-voting Class B common stock issued (825.5 shares at $45.225
per share):
Common stock, $.01 par value............................................................. $ 8
Additional paid-in capital............................................................... 37,325
Viacom Series C preferred stock issued..................................................... 498
Estimated fair value of CBS stock options.................................................. 1,819
Estimated transaction costs................................................................ 100
-------
Total Purchase Price....................................................................... $39,750
=======
17
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
Allocation of Purchase Price:
Assets:
CBS' historical assets........................................... $ 33,093
Elimination of CBS' historical goodwill.......................... (24,548)
Goodwill attributable to CBS merger.............................. 49,720
Estimated adjustments for deferred tax assets.................... 1,928
Estimated adjustments for assets acquired........................ (200)
Liabilities:
CBS' historical liabilities and minority interest................ (17,303)
Estimated fair value adjustment of liabilities assumed........... (2,800)
Liability for cash settlement of CBS options, net of tax......... (140)
--------
Total purchase price.......................................... $ 39,750
========
Pro forma adjustments to record the merger on the unaudited pro forma
combined condensed statements of operations for the three months ended March 31,
2000 and the year ended December 31, 1999 reflect:
. The elimination of CBS' residual costs of discontinued businesses of $17
million and $90 million, respectively, resulting from the accrual of such
obligations in conjunction with the merger.
. A decrease of $5 million and $18 million, respectively, related to the
incremental interest income not earned as a result of the use of cash for
the settlement of CBS options and severance payments.
. Incremental amortization expense of excess purchase price over net assets
acquired:
Three month amortization......................... $ 157
========
Twelve month amortization........................ $ 629
========
For the purpose of these unaudited pro forma combined condensed financial
statements, amortization of the excess purchase price over tangible net assets
acquired of approximately $49.7 billion is computed on a straight-line basis
using useful lives as follows: $40.7 billion (40 years), $6.6 billion (30 years)
and $2.4 billion (10 years).
18
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
Generally accepted accounting principles currently require that acquired
intangible assets be amortized over periods not to exceed 40 years. Viacom
believes that the intangible assets acquired from CBS included in the 40-year
category are comprised principally of the franchises, FCC licenses and
trademarks of CBS assets with indefinite lives, which have historically
appreciated in value over time. In addition, Viacom intends to continue to
expand the combined company's existing lines of business, develop new businesses
by leveraging the well known franchises, trademarks and products of Viacom and
CBS, and take advantage of synergies that exist between Viacom and CBS to
further strengthen existing lines of business. Viacom believes that it will
benefit from the merger for an indeterminable period of time of at least 40
years and, therefore, a 40-year amortization period for the $40.7 billion
portion of the excess purchase consideration is appropriate. Using complete
valuations and other studies of the significant assets, liabilities and business
operations of CBS, Viacom will make a final allocation of the purchase
consideration, including allocation to tangible assets and liabilities,
identifiable intangible assets and goodwill. Accordingly, depreciation and
amortization, as presented in the pro forma combined condensed statements of
operations for the three months ended March 31, 2000 and the year ended December
31, 1999, may fluctuate significantly from the preliminary estimate when the
final appraisals of tangible and intangible assets are completed.
The following table presents the incremental reduction to pro forma net
income (loss) from continuing operations attributable to common stock and pro
forma net income (loss) from continuing operations per common share resulting
from the allocation of each $1 billion of purchase consideration to assets with
useful lives of thirty, twenty or ten years rather than the forty year life
reflected in the pro forma financial statements.
30 years 20 years 10 years
-------- -------- --------
Impact on pro forma net income (loss) from continuing operations attributable to
common stock:
For the three months ended March 31, 2000........................................ $ (2) $ (6) $ (19)
====== ====== ======
For the year ended December 31, 1999............................................. $ (8) $ (25) $ (75)
====== ====== ======
Impact on pro forma net income (loss) from continuing operations per common
share:
For the three months ended March 31, 2000........................................ $ -- $ -- $(0.01)
====== ====== ======
For the year ended December 31, 1999............................................. $(0.01) $(0.02) $(0.05)
====== ====== ======
19
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
(3) UPN Acquisition and Blockbuster IPO
On April 3, 2000, Viacom announced that it had acquired the remaining 50%
interest in the United Paramount Network ("UPN") that it did not already own for
$5 million. The UPN Acquisition Adjustments in the unaudited pro forma combined
condensed balance sheet as of March 31, 2000 represents estimated adjustments to
consolidate UPN as a wholly owned subsidiary on March 31, 2000. The UPN
Acquisition Adjustments in the unaudited pro forma combined condensed statements
of operations for the three months ended March 31, 2000 and the year ended
December 31, 1999 represents estimated adjustments to consolidate the operations
of UPN as of January 1, 1999.
In August 1999, Blockbuster Inc., a subsidiary of Viacom, completed the
initial public offering of 31 million shares of its Class A common stock at $15
per share. Viacom owns 100% of the outstanding shares of Blockbuster Class B
common stock, which represents approximately 82.3% of Blockbuster's equity value
after the initial public offering. As a result of the issuance of subsidiary
stock, Viacom recorded a reduction to additional paid-in capital of
approximately $662 million. The unaudited pro forma combined condensed statement
of operations for the year ended December 31, 1999 is presented as if the
Blockbuster initial public offering had occurred on January 1, 1999, resulting
in the following adjustments:
. The net decrease in interest expense of $4 million for the twelve months
ended December 31, 1999, attributable to the repayment of debt by
Blockbuster using the initial public offering net proceeds of $437 million,
partially offset by the increase in interest expense due to the higher
interest rate attributable to the Blockbuster debt and the amortization of
deferred debt issue costs incurred in connection with the Blockbuster debt.
. The adjustment to minority interest, reflecting the interest in the net
loss of Blockbuster attributable to holders of Blockbuster's Class A common
stock.
. Income tax expense, calculated at a 40% marginal tax rate.
(4) Income Taxes
Income tax effects on the pro forma adjustments included in the unaudited
pro forma combined condensed financial statements, excluding non-deductible
goodwill amortization, are calculated at a 40% marginal tax rate.
20
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
(5) CBS Pro Forma Combined
During 1999, CBS completed several acquisitions, all of which were
accounted for under the purchase method. The most significant acquisitions were
as follows:
. On December 7, 1999, Infinity Broadcasting Corporation, a majority owned
subsidiary of CBS, completed its acquisition of Outdoor Systems, Inc.
. On November 15, 1999, CBS completed its acquisition of King World
Productions, Inc.
. On October 12, 1999, CBS completed its acquisition of KTVT, a CBS affiliate
television station in Dallas-Forth Worth, Texas.
. On August 31, 1999, CBS completed its acquisition of KEYE, a CBS affiliate
television station in Austin, Texas.
The following table combines the above mentioned acquisitions as if these
transactions had occurred as of January 1, 1999 and were consolidated into CBS'
historical statement of operations for the year ended December 31, 1999.
CBS
CBS Pro Forma
Historical Combined Pro Forma Combined
December 31, 1999 Acquisitions Adjustments December 31, 1999
----------------- ------------ ----------- -----------------
Revenues............................... $ 7,384 $ 1,462 $ (36)/(a)/ $ 8,810
Operating expenses..................... (4,266) (783) 36/(a)/ (5,013)
Selling, general and administrative.... (1,290) (125) -- (1,415)
Residual costs of discontinued
businesses............................ (175) -- -- (175)
Depreciation and amortization.......... (669) (142) (367)/(b)/ (1,178)
-------- -------- ------ -------
Operating income....................... 984 412 (367) 1,029
Other income and expense, net.......... (17) 2 -- (15)
Interest expense, net.................. (204) (106) 24/(c)/ (286)
-------- -------- ------ -------
Earnings from continuing
operations before income taxes........ 763 308 (343) 728
Provision for income taxes............. (461) (100) 33/(d)/ (528)
Equity in loss of affiliated companies,
net of tax............................ (73) -- -- (73)
Minority interest...................... (72) -- (27)/(e)/ (99)
-------- -------- ------ -------
Earnings from continuing
operations............................ $ 157 $ 208 $ (337) $ 28
======== ======== ====== =======
21
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
Pro forma adjustments giving effect to the acquisitions in the above table
reflect the following:
a) Elimination of revenues and operating expenses associated with
transactions between CBS and the acquired businesses.
b) Amortization of estimated goodwill in connection with the
acquisitions.
c) Reduction in interest expense resulting from a lower borrowing
rate for CBS compared to historical borrowing rate for Outdoor
Systems.
d) Income tax expense on the pro forma adjustments, excluding non-
deductible goodwill amortization, at a 40 percent marginal rate.
e) Minority interest adjustment reflecting CBS' ownership interest
dilution resulting from Infinity's acquisition of Outdoor Systems.
(6) Pro Forma EBITDA
The following table sets forth Pro Forma EBITDA (defined as operating
income (loss) before depreciation and amortization, principally of goodwill
related to business combinations) for the three months ended March 31, 2000 and
the year ended December 31, 1999. While many in the financial community consider
EBITDA to be an important measure of comparative operating performance, it
should be considered in addition to, but not as a substitute for or superior to
operating income, net earnings, cash flow and other measures of financial
performance prepared in accordance with generally accepted accounting
principles.
For the three months For the year
ended ended
March 31, 2000 December 31, 1999
-------------- -----------------
Pro Forma EBITDA................. $975 $4,198
==== ======
(7) Items not included in the Unaudited Pro Forma Combined Condensed Financial
Statements
The preceding unaudited pro forma combined condensed financial statements
do not include any pro forma adjustments for the following:
. Any operating efficiencies and cost savings that may be achieved with
respect to the combined companies.
22
VIACOM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (continued)
(tables in millions, except per share amounts)
. Integration related expenses incurred by the combined company as a
result of the elimination of duplicate facilities and functions,
operational realignment and related workforce reductions. Such CBS
costs have been recognized as a liability assumed as of the merger
date resulting in additional goodwill, Viacom related costs, as
discussed in note 2(b) of approximately $700 million, will be
recognized as a charge to operations in the second quarter of 2000.
. Transactions between historical Viacom and CBS have not been
eliminated in the unaudited pro forma combined condensed financial
statements, as the amounts are not material for the periods presented.
. Acquisitions and dispositions made by Viacom or CBS that were not
considered material for the periods presented.
. Viacom had previously announced that, subject to Board approval, which
will be based on an assessment of market conditions, it intends to
split off Blockbuster by offering to exchange all of its shares of
Blockbuster for shares of Viacom's common stock. However, the Company
has said that it does not intend to commence the offer unless the
Blockbuster Class A common stock improves to a price range exceeding
$20 per share. The aggregate market value of the shares of Blockbuster
common stock based on the July 13, 2000 closing price of $9.625 per
share of Blockbuster common stock was approximately $1.7 billion. The
net book value of Viacom's investment in Blockbuster at March 31,
2000, after giving effect to the initial public offering, was
approximately $5.1 billion. Based on the July 13, 2000 closing stock
price of Blockbuster, a split-off would have resulted in a pre-tax pro
forma loss on discontinued operations of approximately $3.7 billion.
Viacom cannot give any assurance as to whether or not or when the
split-off will occur or as to the terms of the split-off if it does
occur.
8) Reclassifications
Reclassifications have been made to the historical financial
statements to conform to the unaudited pro forma combined condensed financial
statement presentation.
23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Viacom
Inc. has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
VIACOM INC.
July 14,2000 By: /s/ Susan C. Gordon
--------------------------------
Susan C. Gordon
Vice President, Controller
Chief Accounting Officer
24
