Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 108 637K
2: EX-3.(A) Restated Certificate of Incorporation 12 47K
3: EX-10.(J) Excess Pension Plan 4 14K
4: EX-11 Computation of Net Earnings Per Share 2± 12K
5: EX-21 Subsidiaries of Viacom Inc. 13 37K
6: EX-23.(A) Consent of Pricewaterhousecoopers LLP 1 7K
7: EX-24 Powers of Attorney 7 17K
8: EX-27 Financial Data Schedule 2 9K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER 1-9553
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VIACOM INC.
(Exact Name Of Registrant As Specified In Its Charter)
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[Download Table]
Delaware 04-2949533
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
1515 Broadway, New York, NY 10036
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 258-6000
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Securities Registered Pursuant to Section 12(b) of the Act:
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Name of Each Exchange on
Title of Each Class Which Registered
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Class A Common Stock, $0.01 par value New York Stock Exchange
Class B Common Stock, $0.01 par value New York Stock Exchange
6.75% Senior Notes due 2003 American Stock Exchange
7.75% Senior Notes due 2005 American Stock Exchange
7.625% Senior Debentures due 2016 American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title Of Class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 14, 2000, 138,136,111 shares of Viacom Inc. Class A Common
Stock, $0.01 par value ("Class A Common Stock"), and 560,513,402 shares of
Viacom Inc. Class B Common Stock, $0.01 par value ("Class B Common Stock"),
were outstanding. The aggregate market value of the shares of Class A Common
Stock (based upon the closing price of $52 7/16 per share as reported by the
New York Stock Exchange on that date) held by non-affiliates was approximately
$2,328,844,392 and the aggregate market value of the shares of the Class B
Common Stock (based upon the closing price of $52 11/16 per share as reported
by the New York Stock Exchange on that date) held by non-affiliates was
approximately $24,027,308,762.
DOCUMENTS INCORPORATED BY REFERENCE
The Definitive Proxy of the Registrant for the 2000 Annual Meeting of
Shareholders (Part III to the extent described herein).
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Part I
Item 1. Business.
Background
Viacom Inc. (together with its subsidiaries and divisions, unless the
context otherwise requires, the "Company") is a diversified entertainment
company with operations in six segments: (i) Networks, (ii) Entertainment,
(iii) Video, (iv) Parks, (v) Publishing and (vi) Online. The Networks segment
operates MTV: MUSIC TELEVISION(R), SHOWTIME(R), NICKELODEON(R)/NICK AT
NITE(R), VH1 MUSIC FIRST(R) and TV LAND(R), among other program services. The
Entertainment segment, which includes PARAMOUNT PICTURES(R), PARAMOUNT
TELEVISION(TM) (collectively, the "PARAMOUNT STUDIO") and PARAMOUNT STATIONS
GROUP(R), produces and distributes theatrical motion pictures and television
programming and operates or programs 19 broadcast television stations. The
Entertainment segment also includes movie theater and music publishing
operations. The Video segment consists of an approximately 82% interest in
BLOCKBUSTER, which operates and franchises BLOCKBUSTER(R) video stores
worldwide. The Parks segment, PARAMOUNT PARKS(R), owns and operates five theme
parks and a themed attraction in the U.S. and Canada. The Publishing segment
publishes and distributes consumer books and related multimedia products,
under such imprints as SIMON & SCHUSTER(R), POCKET BOOKS(TM), SCRIBNER(R) and
THE FREE PRESS(TM). The Online segment provides online music and children's
destinations featuring entertainment, information, community tools and e-
commerce, through Internet sites currently related to MTV: MUSIC TELEVISION,
NICKELODEON/NICK AT NITE and VH1 MUSIC FIRST.
The Company was organized in Delaware in 1986 for the purpose of acquiring
the stock of a predecessor. On March 11, 1994, the Company acquired a majority
of the outstanding shares of Paramount Communications Inc. by tender offer; on
July 7, 1994, Paramount Communications Inc. became a wholly owned subsidiary
of the Company, and on January 3, 1995, Paramount Communications Inc. was
merged into the principal subsidiary of the Company. On September 29, 1994,
Blockbuster Entertainment Corporation merged with and into the Company.
On September 7, 1999, the Company and CBS Corporation ("CBS") announced
that the companies had signed a definitive agreement to merge. On December 29,
1999, shareholders of the Company and CBS approved the merger of the two
companies. The Company and CBS have agreed that CBS will merge with the
Company upon the terms and conditions set forth in the merger agreement, as
amended and restated. At the time of the merger, the Company will issue 1.085
shares of its Class B Common Stock for each share of CBS common stock and
1.085 shares of its Series C Preferred Stock for each share of CBS Series B
preferred stock. Although the waiting period prescribed by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 has expired, the merger is under
continuing review by the U.S. Department of Justice and is further subject to
regulatory approval by the Federal Communications Commission ("FCC") (see
"Business--Regulation--Broadcasting"). The Company expects the merger to be
completed in April of 2000.
On August 10, 1999, BLOCKBUSTER INC. ("BLOCKBUSTER") (NYSE: BBI) sold to
the public 31 million shares of its Class A common stock at $15 per share. The
shares are traded on the New York Stock Exchange. The Company, through its
ownership of all of the 144 million shares of BLOCKBUSTER Class B common stock
outstanding, retained approximately 82% of the total equity value in, and
approximately 96% of the combined voting power of, BLOCKBUSTER. Proceeds of
the offering aggregated $442.9 million, net of underwriting discounts and
commissions and before payment of offering expenses, and were used by
BLOCKBUSTER to repay outstanding indebtedness under a $1.9 billion term and
revolving credit agreement. The Company recorded a reduction to equity of
approximately $662 million as a result of the issuance of subsidiary stock.
In December 1999, a registration statement on Form S-4 was filed with the
Securities and Exchange Commission relating to a split-off of BLOCKBUSTER
pursuant to an offering by the Company to exchange all
I-1
of its shares of BLOCKBUSTER for shares of the Company's common stock. The
Company has announced that, subject to the approval of the Company's Board of
Directors, which will be based on an assessment of market conditions, and the
receipt of a supplemental private letter ruling from the Internal Revenue
Service reflecting the anticipated merger between the Company and CBS, it
intends to split-off BLOCKBUSTER by offering to exchange all of its shares of
BLOCKBUSTER for shares of the Company's common stock. In particular, the
Company has said it does not intend to commence the offer unless the
BLOCKBUSTER Class A common stock price improves to a price range exceeding
$20.00 per share. The split-off is intended to establish BLOCKBUSTER as a
stand-alone entity with objectives separate from those of the Company's other
businesses. The Company has no obligation to effect the split-off either
before or after the merger. The Company 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, or whether or not the split-off, if it does occur,
will be tax free.
On June 21, 1999, the Company completed its tender offer for all
outstanding shares of SPELLING ENTERTAINMENT GROUP INC. ("SPELLING") common
stock that it did not already own for $9.75 per share in cash. The tender
offer was made under the terms of a merger agreement between the Company and
SPELLING. The tendered shares, along with the shares already owned by the
Company, represented approximately 97% of all of the issued and outstanding
shares of SPELLING. On June 23, 1999, the Company acquired the remaining
outstanding shares of SPELLING, approximately 3%, through a merger of SPELLING
and a wholly owned subsidiary of the Company. As a result of the merger, each
share of Spelling common stock was also converted into the right to receive
$9.75 in cash. The total consideration for tendered shares and shares obtained
by the merger was approximately $176 million.
On November 27, 1998, the Company completed the sale of its educational,
professional and reference publishing businesses to Pearson plc for
approximately $4.6 billion in cash. On October 26, 1998, the Company completed
the sale of its music retail stores to Wherehouse Entertainment, Inc. for
approximately $115 million in cash. On September 4, 1998, SPELLING completed
the sale of substantially all of the development operations of VIRGIN
INTERACTIVE ENTERTAINMENT LIMITED ("VIRGIN") to Electronic Arts Inc. for
$122.5 million in cash. In addition, on November 10, 1998, SPELLING completed
the sale of all non-U.S. operations of VIRGIN to an investor group.
On July 2, 1997, the Company completed the sale of its ten radio stations
to Chancellor Media Corp. for approximately $1.1 billion in cash. On July 31,
1996, the Company completed the split-off of a subsidiary that held its cable
television systems to its shareholders pursuant to an exchange offer and
related transactions. As a result, the Company realized a gain of
approximately $1.3 billion, reduced its debt and retired 30,713,920 of the
Company's common shares, representing approximately 4.1% of the Company's then
total outstanding common shares.
As of March 14, 2000, National Amusements, Inc. ("NAI"), a closely held
corporation that owns and operates approximately 1,300 movie screens in the
U.S., the U.K. and South America, beneficially owned approximately 68% of the
Company's voting Class A Common Stock, and approximately 28% of the Company's
outstanding Class A Common Stock and non-voting Class B Common Stock on a
combined basis. NAI is not subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the
controlling shareholder of NAI, is the Chairman of the Board and Chief
Executive Officer of the Company.
The Company's principal offices are located at 1515 Broadway, New York, New
York 10036 (telephone 212/258-6000). At December 31, 1999, the Company and its
affiliated companies employed approximately 126,820 people, of which
approximately 39,130 were full-time salaried employees.
I-2
Business
Networks
The Company owns and operates advertiser-supported basic cable television
program services and premium subscription television program services in the
U.S. and internationally. The MTV Networks division ("MTVN") includes such
owned and operated program services as MTV: MUSIC TELEVISION(R) ("MTV") in the
U.S., Europe and Latin America, NICKELODEON(R) in the U.S., Europe, Asia and
Latin America, NICK AT NITE(R) in the U.S., VH1 MUSIC FIRST(R) in the U.S.
("VH1"), VH1(R) in the U.K. and Germany, MTV's spin-off, MTV2: MUSIC
TELEVISION(TM) in the U.S. and Europe, and TV LAND(R) in the U.S. MTVN also
participates in program services as a joint venturer, including MTV: MUSIC
TELEVISION(TM) in Asia, Russia and Brazil and NICKELODEON(R) in the U.K. and
Australia. The Company's Showtime Networks Inc. subsidiary ("SNI") owns and
operates SHOWTIME(R), THE MOVIE CHANNEL(R) and FLIX(R), and participates as a
joint venturer in, and is the manager of, SUNDANCE CHANNEL(R). SNI also
participates as a joint venturer in the advertiser-supported basic program
service SHOWTIME EXTREME(R) in Spain. Additionally, the Company participates
as a joint venturer in COMEDY CENTRAL(R), an advertiser-supported basic cable
program service in the U.S., GULF DTH ENTERTAINMENT LDC ("GULF DTH"), a
satellite direct-to-home platform offering programming in the Middle East, and
NOGGIN(TM), a subscription-supported, non-commercial children's educational
program service with the Children's Television Workshop launched on February
2, 1999, which is distributed by cable and satellite, and includes a related
online service.
Generally, the Company's networks are offered to customers of cable
television operators, distributors of direct-to-home satellite services
("DTH") and other multichannel distributors. The two largest DTH distributors
provide service using high-powered K-Band satellite technology (received by
small satellite dishes at customers' premises, "DBS"); other DTH distributors
provide service using low-powered C-Band satellite technology (received by
large satellite dishes at customers' premises, "TVRO"). Cable television is
currently the predominant means of distribution of the Company's program
services in the U.S. Internationally, the predominant distribution technology
varies territory by territory.
MTV Networks. MTV targets viewers from the ages of 12 to 34 with
programming that consists primarily of music videos and events, augmented by
music and general lifestyle information, comedy and dramatic series, animated
programs, news specials, interviews, documentaries and other youth-oriented
programming. MTV2: MUSIC TELEVISION, a 24-hour, seven-days-a-week spin-off of
MTV, targets a segment of the 12 to 34 year old audience with a "freeform"
music format which features music videos from a broad range of musical genres
and artists and is principally distributed to consumers by DTH. On August 1,
1998, MTVN launched "The Suite from MTV Networks" ("The Suite"), a package of
digital television program services, which currently consists of six music
program services, each featuring a music genre that is an extension of the MTV
or VH1 service, NOGGIN and two other children's program services from
NICKELODEON. The Suite is offered for distribution by digital technologies
through DBS distributors and cable operators offering digital technology. On
July 15, 1999, MTVN licensed from The MTVi GROUP, L.P. The Box Music Network,
a 24-hour interactive, all music basic cable channel, which was contributed to
The MTVi GROUP, L.P. by Liberty Digital Inc. (see "Business--Online"). The Box
Music Network targets viewers from the ages of 12 to 34 with technology
allowing selection of music videos on a market-by-market basis. The Box Music
Network is offered to cable operators on a local and national basis.
MTV continues to expand its business opportunities based on its
programming. MTV FILMS(TM), in association with PARAMOUNT PICTURES, produced
VARSITY BLUES, 200 CIGARETTES, ELECTION and THE WOOD which were released by
PARAMOUNT PICTURES in 1999, and is currently producing ORIGINAL KINGS OF
COMEDY. MTV has also launched lines of home videos, consumer products and
books, featuring MTV programming and personalities. In addition, MTV pursues
broadcast network and first-run syndication television opportunities through
MTV PRODUCTIONS(TM), which, among other things, produces a reality music
series scheduled to commence broadcasting on ABC on March 24, 2000. MTV's
Internet activities are part of the Company's Online segment (see "Business--
Online").
I-3
MTV had approximately 70.5 million domestic subscribers at December 31,
1999 (based on subscriber counts provided by each distributor of the service,
including cable, DTH and other multichannel programming providers). According
to the December 1999 sample reports issued by Nielsen Media Research (the
"Nielsen Report"), MTV reached approximately 73.6 million domestic subscriber
households. At December 31, 1999, MTV2: MUSIC TELEVISION had approximately
11.7 million domestic subscribers (based on subscriber counts provided by each
distributor of the service, including cable, DTH and other multichannel
programming providers). At December 31, 1999, The Box Music Network had
approximately 7 million domestic subscribers (based on subscriber counts
provided by each distributor of the service). According to the Nielsen Report,
The Box Music Network reached approximately 19.4 million domestic subscriber
households, including low power television (LPTV) transmission.
MTV also owns and operates, participates in as a joint venturer, and
licenses third parties to operate, MTV program services throughout the world.
The MTV international program services are described in the International MTVN
Program Services chart that follows. Most of these international MTV program
services are regionally customized to suit the local tastes of their young
adult viewers by the inclusion of local music, programming and on-air
personalities, and use of the local language.
NICKELODEON combines acquired and originally produced programs in a pro-
social, non-violent format comprising two distinct program units tailored to
age-specific demographic audiences: NICKELODEON, targeted to audiences ages 2
to 11 (which includes NICK JR.(R), a program block designed for 2 to 5 year
olds), features a variety of live-action and animated programs, including
children's game shows, educational shows, puppet shows, dramatic specials,
comedy, adventure and magazine shows, and such popular shows as RUGRATS(R),
BLUE'S CLUES(R) and SPONGEBOB SQUAREPANTS(TM), and NICK AT NITE, which
attracts primarily audiences ages 18 to 54 and offers mostly situation
comedies from various eras, including I LOVE LUCY, THE DICK VAN DYKE SHOW,
HAPPY DAYS, THE MARY TYLER MOORE SHOW and TAXI. TV LAND, a 24-hour, seven-
days-a-week spin-off of NICK AT NITE, is comprised of a broad range of well-
known television programs from various genres, including comedies, dramas,
westerns, variety and other formats from the 1950s through the 1980s. On March
1, 1999, the Company launched NICKELODEON GAS Games and Sports for Kids(TM), a
cable program service packaged as part of The Suite featuring children's game
shows and sports programming for viewers ages 6 to 11, which includes a
related online service. NICKELODEON has committed approximately $200 million
for the year 2000 to new production, both live-action and animation.
At December 31, 1999, NICKELODEON/NICK AT NITE had approximately 72.8
million domestic subscribers (based on subscriber counts provided by each
distributor of the service, including cable, DTH and other multichannel
programming providers). According to the Nielsen Report, NICKELODEON/NICK AT
NITE reached approximately 76.6 million domestic subscriber households.
According to the Nielsen Media Research report for the period from September
9, 1999 to December 26, 1999, NICKELODEON held 50% of the gross ratings points
for the kids ages 2 to 11 audience during the relevant daypart. At December
31, 1999, TV LAND had approximately 45.7 million domestic subscribers (based
on subscriber counts provided by each distributor of the service, including
cable, DTH and other multichannel programming providers). According to the
Nielsen Report, TV LAND reached approximately 43.8 million domestic subscriber
households.
NICKELODEON licenses its brands and characters for and in connection with
merchandise, home video and publishing worldwide. NICKELODEON MOVIES(R)
develops a mix of story- and character-driven projects based on original ideas
and NICKELODEON programming, such as the feature films SNOW DAY, released
theatrically on February 11, 2000, and RUGRATS IN PARIS: THE MOVIE, expected
to be released in 2000 by PARAMOUNT PICTURES, as well as a BLUE'S CLUES
direct-to-video movie BLUE'S BIG MUSICAL. Additionally, the Company publishes
a monthly NICKELODEON MAGAZINE(TM), which had approximately 803,000
subscribers at December 31, 1999, and according to Simmons Media Research, had
a total audience of approximately 5.2 million children each month. NICK JR.
also launched its own magazine in October 1999. The magazine is an interactive
magazine for preschool families distributed nationally to approximately
500,000 parents through newsstand sales, subscriptions and preschool centers.
Additionally, NICKELODEON owns and operates theme park attractions and touring
shows under its NICKELODEON RECREATION(TM) unit and
I-4
interactive public attractions and television production studios under its
NICKELODEON STUDIOS(R) unit located at Universal Studios Florida. NICKELODEON
also produces original animation at its NICKTOONS(R) Animation Studio in
Burbank, California.
NICKELODEON also owns and operates, participates in as a joint venturer,
and licenses third parties to operate, NICKELODEON program services throughout
the world. The NICKELODEON international program services are described in the
International MTVN Program Services chart that follows. Many of these
international program services are customized by region and country to suit
the tastes and needs of their viewers by inclusion of regionally or locally
produced programming and by use of local language.
VH1 presents music and related programming directed at an audience aged 25
to 44 with emphasis on series which feature viewers' favorite music and
artists such as BEHIND THE MUSIC(R), THE LIST(TM), ROCK 'N' ROLL JEOPARDY(TM),
VH1 WHERE ARE THEY NOW(R), VH1 MUSIC FIRST POP UP VIDEO(R) and VH1
STORYTELLERS(TM), in addition to airing music videos, concerts, special events
and musically themed movies. In 1999, VH1 began airing two-hour, movie-length
programming made for VH1, such as biopics of musical artists, fictionalized
music-themed stories and music documentaries, including SWEETWATER: A TRUE
ROCK STORY and RICKY NELSON: ORIGINAL TEEN IDOL. At December 31, 1999, VH1 had
approximately 65.7 million domestic subscribers (based on subscriber counts
provided by each distributor of the service, including cable, DTH and other
multichannel programming providers). According to the Nielsen Report, VH1
reached approximately 69.2 million domestic subscriber households.
International versions of VH1 program services are described in the
International MTVN Program Services chart that follows.
In 1999, VH1 broadcast live VH1 DIVAS LIVE '99(TM) featuring Whitney
Houston, Cher, Tina Turner and Brandy. VH1 DIVAS LIVE '99(TM) was the highest
rated program in the network's history. In 1999,VH1 entered into agreements
with various record labels for the release of five VH1-branded audio products,
including the second release from the DIVAS franchise and a live concert
recording of Donna Summer. In addition, VH1 continued to support the VH1 SAVE
THE MUSIC(TM) Foundation which, in connection with VH1's cable television and
satellite affiliates, restored music education programs to over 140 public
schools in 30 communities in 1999.
MTVN, in exchange for cash and advertising time or for promotional
consideration only, licenses from record companies music videos for exhibition
on MTV, VH1, MTV2: MUSIC TELEVISION and other MTVN program services. MTVN has
entered into multi-year global or regional music video licensing agreements
with certain of the major record companies. These agreements generally cover a
three to five year period and contain provisions regarding video debut and
exclusivity for a limited number of music videos in the U.S. MTVN also is
negotiating and expects to renew or initiate additional global or regional
license agreements with the other major record companies and independent
labels. However, there can be no assurance that such renewals or agreements
can be concluded on favorable terms (see "Business--Competition--Networks").
MTVN derives revenues principally from two sources: the sale of time on its
own networks to advertisers; and the license of the networks to cable
television operators, DTH and other distributors. The sale of MTVN advertising
time is affected by viewer demographics, viewer ratings and market conditions
for advertising time. Adverse changes to any of these factors could have an
adverse effect on revenues. In addition, continued consolidation among cable
operators could have an adverse effect on MTVN's license fee revenue (see
"Business--Competition--Networks").
I-5
International MTVN Program Services
The following table sets forth information regarding MTVN program services
operated internationally:
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Launch/
Program Regional Feeds/ Commencement
Service Territory Ownership Language(1) Date
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MTV Europe 40 territories, including 100% by the 5 Regional Feeds August 1987
all EU states, Eastern and Company (U.K., Northern,
Central Europe, South Scandinavian,
Africa, certain countries in Central and
the former Soviet Union, the South),
Middle East, Egypt, Faroe all in English
Islands, Israel, (except Central
Liechtenstein, Malta and presented in
Moldova German and South
presented in
Italian)
MTV Latin Latin America, the 100% by the 2 Regional Feeds October 1993
America Caribbean, Brazil Company in Spanish
and the U.S.
MTV Brasil Brazil Joint Venture Portuguese October 1990
(with Abril
S.A.)
MTV Asia Taiwan, certain provinces in Joint Venture English, April 1995
China*, Singapore, (with PolyGram Mandarin, Bahasa
Philippines, Brunei, N.V.) Indonesian,
Thailand, Singapore, Tagalog and
Philippines, Indonesia, Hindi
Malaysia, Vietnam, Hong
Kong*, South Korea*, Papua
New Guinea, India,
Sri Lanka, Bangladesh, Nepal
and Pakistan
MTV Australia Australia Licensing English March 1997
Arrangement
(with Optus
Vision Pty
Limited)
MTV Russia Russia Joint Venture Russian September 1998
(with Russia
Partners
Company, L.P.,
Biz Enterprises
and others)
Nickelodeon Latin America, Brazil and 100% by the Spanish, December 1996
Latin America the Caribbean Company Portuguese and
English
Nickelodeon Nordic region (including 100% by the Swedish, February 1997
Nordic* Sweden, Norway, Denmark and Company Norwegian and
Finland) Danish
Nickelodeon U.K. Joint Venture English September 1993
U.K.* (with British
Sky Broadcasting
Limited)
Nickelodeon Australia Joint Venture English October 1995
Australia (with XYZ
Entertainment
Pty Ltd.)
Nickelodeon Spain 100% by the Spanish March 1999
Spain* Company
Nickelodeon Japan, CIS/Baltic Republics, 100% by the Japanese, November 1998
Global Network India, Poland*, Hungary*, Company Russian, Magyar,
Ventures(2) Africa*, Malaysia, New English, Polish
Zealand, Romania, Indonesia, and Romanian
Bangladesh, Nepal and Malta
VH1 U.K./VH1 All EU states, the Middle 100% by the English September 1994
Export East, Africa, Scandinavia, Company
Israel, Malta, Moldova,
South Africa and Eastern
Europe
VH1 Germany Germany and Austria 100% by the German May 1995
Company
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* Denotes program services that are not 24 hours-a-day/seven-days-a-week.
(1) All MTV and VH1 program services include English language music videos.
(2) Nickelodeon Global Network Ventures consists of eleven different services
with customized programming for targeted markets.
I-6
Showtime Networks Inc. SNI owns and operates three commercial-free, premium
subscription television program services: SHOWTIME, offering recently released
theatrical feature films, original motion pictures and series, family
entertainment, and boxing and other special events; THE MOVIE CHANNEL,
offering recently released theatrical films and related programming; and FLIX,
an added-value program service featuring theatrical motion pictures primarily
from the 1960s, 70s and 80s, as well as select recent titles. At December 31,
1999, SHOWTIME, THE MOVIE CHANNEL and FLIX, in the aggregate, had
approximately 23.2 million subscriptions in 50 states and certain U.S.
territories. SUNDANCE CHANNEL, a joint venture (among SNI, an affiliate of
Robert Redford and Universal Studios) managed by SNI, is a commercial-free
premium subscription television program service, dedicated to independent
film, featuring top-quality American independent films, documentaries, foreign
and classic art films, shorts and animation, with an emphasis on recently
released titles.
SNI also owns and operates several multiplexed versions of SHOWTIME and THE
MOVIE CHANNEL in the U.S., including SHOWTIME BEYOND(TM), a genre-based
channel featuring sci-fi, horror and fantasy programming, and SHOWTIME
EXTREME(R), a genre-based channel featuring action/adventure programming. A
different program service, also named SHOWTIME EXTREME, is available in Spain,
where it is distributed as an advertiser-supported basic program service, and
is jointly owned by SNI and Media Park, S.A., a leader in thematic channel
production based in Barcelona.
SNI also provides special events, such as sports and musical events, to
licensees on a pay-per-view basis. SHOWTIME EVENT TELEVISION(TM) is a pay-per-
view distributor of these special events, including boxing events, such as the
historic rematch between heavyweight champion Evander Holyfield and former
heavyweight champion Mike Tyson in June 1997, Evander Holyfield's successful
defense of his heavyweight championship titles against a challenge by Michael
Moorer in 1998, and the return to the ring of Mike Tyson in 1999. Other
special events included the Backstreet Boys' U.S. full-length television
concert in 1999.
In order to exhibit theatrical motion pictures on premium subscription
television, SNI enters into commitments to acquire rights, with an emphasis on
acquiring exclusive rights for SHOWTIME and THE MOVIE CHANNEL, from major or
independent motion picture producers and other distributors. SNI's exhibition
rights cover the U.S. and may, on a contract-by-contract basis, cover
additional territories. SNI has the exclusive U.S. premium television rights
to all PARAMOUNT PICTURES' feature films theatrically released beginning
January 1, 1998, as well as non-exclusive rights to certain titles from
PARAMOUNT PICTURES' film library (see "Business--Entertainment"). SNI also has
significant theatrical motion picture license agreements with Metro-Goldwyn-
Mayer Inc. ("MGM"), PolyGram Filmed Entertainment Inc., Castle Rock
Entertainment, Phoenix Pictures, Artisan Pictures Inc., Stratosphere
Entertainment LLC, and Buena Vista Television (a subsidiary of The Walt Disney
Company) for Dimension Films theatrical pictures, covering motion pictures
initially theatrically released through dates ranging from December 31, 1999
to December 31, 2003. Theatrical motion pictures that are licensed to SNI on
an exclusive basis are generally exhibited first on SHOWTIME and THE MOVIE
CHANNEL after an initial period for theatrical, home video and pay-per-view
exhibition and before the period has commenced for standard broadcast
television and basic cable television exhibition. Many of the motion pictures
which appear on FLIX have been previously available for standard broadcast and
other exhibitions (but are shown on FLIX unedited and commercial-free).
SNI also arranges for the development, production, acquisition and, in many
cases, distribution of original programs, series and motion pictures. As part
of its original programming strategy, SNI premiered 32 original motion
pictures on SHOWTIME and 12 original motion pictures on THE MOVIE CHANNEL in
1999, and expects to premiere 32 original motion pictures in 2000. The
producers of some of SNI's original motion pictures are given an opportunity
to seek a theatrical release prior to such pictures' exhibition on SHOWTIME or
THE MOVIE CHANNEL. If the producers are not successful in obtaining such a
theatrical release, these pictures then premiere in the U.S. on SHOWTIME or
THE MOVIE CHANNEL. SNI has entered into and plans to continue to enter into
co-financing, co-production and/or co-distribution arrangements with other
parties to reduce the net cost to SNI for its original motion pictures. In
1999, Hallmark Entertainment Distribution Company, PARAMOUNT TELEVISION and
MGM were the predominant co-producers, co-financiers and co-distributors of
SNI's original motion pictures, programs and series for that calendar year.
BLOCKBUSTER and SNI have an
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agreement whereby BLOCKBUSTER will license from SNI the exclusive domestic
home video rights to up to 90 SNI original motion pictures and other programs
over the 1999-2001 period.
The costs of acquiring premium television rights to programming and
producing original motion pictures are the principal expenses of SNI. At
December 31, 1999, in addition to program acquisition commitments reflected in
the Company's financial statements, SNI had commitments to acquire programming
rights and original programming commitments in an aggregate amount of
approximately $726.7 million (excluding intersegment commitments of
approximately $684.2 million), most of which is payable over the next six
years as part of SNI's normal programming expenditures. SNI's commitments to
acquire programming rights are contingent upon delivery of motion pictures
which are not yet available for premium television exhibition and, in many
cases, have not yet been produced.
Other Joint Ventures. COMEDY CENTRAL, a joint venture of the Company and
Home Box Office ("HBO"), a division of Time Warner Inc. ("Time Warner"), is an
advertiser-supported basic cable television program service which features
comedy programming, including SOUTH PARK. The Company is a joint venturer in
GULF DTH, a satellite direct-to-home platform offering the following channels
in the Middle East: MTV, VH1, NICKELODEON, TV LAND and THE PARAMOUNT COMEDY
CHANNEL(TM). On February 2, 1999, NICKELODEON and the Children's Television
Workshop launched as a joint venture, NOGGIN, a 24-hour, seven-days-a-week
subscription-supported, non-commercial children's educational program service,
which is distributed by cable and satellite, and includes a related online
service. NOGGIN's purpose is to educate and entertain 2 to 12 year olds.
NOGGIN's programming line-up includes a mix of live action, news, animated and
puppet shows, including many acclaimed series such as Sesame Street, Electric
Company and BLUE'S CLUES after their initial network runs.
Entertainment
The Entertainment segment's principal businesses are, through PARAMOUNT
PICTURES, the production and distribution of motion pictures and, through
PARAMOUNT TELEVISION, television programming (collectively, the "PARAMOUNT
STUDIO"), as well as movie theater operations, music publishing and the
ownership, operation or programming of 19 broadcast television stations.
Additionally, the Company is a joint venturer in the UNITED PARAMOUNT
NETWORK(R), also known as UPN(R), a U.S. broadcast television network (see
"Business--Regulation--Broadcasting"), and various international basic cable
and pay television program services.
Theatrical Motion Pictures. Through PARAMOUNT PICTURES, the Company
produces, finances and distributes feature motion pictures. Motion pictures
are produced by PARAMOUNT PICTURES, produced by independent producers and
financed in whole or in part by PARAMOUNT PICTURES, or produced by others and
distributed by PARAMOUNT PICTURES. Each picture is a separate and distinct
product with its financial success dependent upon many factors, among which
cost and public response are of fundamental importance. In general, motion
pictures produced or acquired for distribution by PARAMOUNT PICTURES are
exhibited in U.S. and foreign theaters followed by videocassettes, discs and
DVDs, pay-per-view television, premium subscription television, network
television, and basic cable television and syndicated television exploitation.
During 1999, PARAMOUNT PICTURES produced or co-produced and theatrically
released 15 feature motion pictures in the U.S., including RUNAWAY BRIDE,
DOUBLE JEOPARDY, THE GENERAL'S DAUGHTER, SLEEPY HOLLOW, PAYBACK, SOUTH PARK,
THE TALENTED MR. RIPLEY and ANGELA'S ASHES; and VARSITY BLUES, THE WOOD,
ELECTION and 200 CIGARETTES produced by MTV FILMS in association with
PARAMOUNT PICTURES. PARAMOUNT PICTURES currently plans to release
approximately 14 films in 2000, including MISSION: IMPOSSIBLE 2, RULES OF
ENGAGEMENT, SHAFT, NUMBERS, ALONG CAME A SPIDER and BLESS THE CHILD, and SNOW
DAY and RUGRATS IN PARIS: THE MOVIE produced by NICKELODEON MOVIES in
association with PARAMOUNT PICTURES.
In 1999, SAVING PRIVATE RYAN, theatrically released internationally through
United International Pictures ("UIP"), won five Academy Awards.
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PARAMOUNT CLASSICS(TM), a division of PARAMOUNT PICTURES, commenced its
distribution activities in 1999 with the theatrical release of six films.
PARAMOUNT CLASSICS was established to handle the distribution of specialized
film product that may require alternative release strategies from films
generally distributed by PARAMOUNT PICTURES. PARAMOUNT CLASSICS plans to
release approximately nine titles in 2000.
In seeking to limit PARAMOUNT PICTURES' financial exposure, the Company has
pursued a strategy with respect to a number of films of entering into
agreements to distribute such films produced and/or financed, in whole or in
part, with other parties. The parties to these arrangements include studio and
non-studio entities, both domestic and foreign. In various of these
arrangements, the other parties control certain distribution and other
ownership rights.
PARAMOUNT PICTURES generally distributes its motion pictures for theatrical
release outside the U.S. and Canada through UIP, a company owned by the
Company, MGM and Universal Studios, Inc. ("Universal"). In October 1999,
PARAMOUNT PICTURES and Universal agreed to extend their commitment for UIP to
continue to distribute each studio's films through 2006. Also in October 1999,
MGM notified UIP that as of the end of October 2000, it would be withdrawing
from UIP and licensing its motion picture product elsewhere. PARAMOUNT
PICTURES distributes its motion pictures on videocassette and disc in the U.S.
and Canada through PARAMOUNT HOME ENTERTAINMENT(TM) and outside the U.S. and
Canada, generally through PARAMOUNT HOME ENTERTAINMENT's international
operations. During 1999, affiliates of the Company and Universal terminated
their joint venture arrangements with regard to Cinema International B.V.
which had previously handled videocassette and disc distribution outside of
the U.S. and Canada for both entities; however, they continue to operate
separate joint ventures for such distribution activities in five countries.
PARAMOUNT PICTURES' feature films initially theatrically released in the U.S.
on or after January 1, 1998 are exhibited exclusively (within U.S. premium
television) on SHOWTIME and THE MOVIE CHANNEL. PARAMOUNT PICTURES also
distributes its motion pictures for premium subscription, free and basic cable
television release outside the U.S. and Canada and licenses its motion
pictures to residential and hotel/motel pay-per-view, airlines, schools and
universities.
During 1999, PARAMOUNT PICTURES entered into an agreement with RAI-Radio
Televisione Italiana for free television distribution rights in Italy for
current motion picture and television product. This agreement also includes
free television distribution rights in Italy for various motion picture and
television library product.
UIP and United Cinemas International ("UCI"; see "Business--Entertainment--
Theatrical Exhibition) were the subject of governmental inquiries by the
Commission of the European Community ("EC"). UIP has resolved all issues with
the EC relating to its pay television operations in the European Union.
Consistent with PARAMOUNT PICTURES' and the other member studios' recent
practices, the UIP member studios have agreed to license their pay television
rights in the future without using the facilities of UIP. UIP Pay Television
will continue to administer certain agreements that were previously entered
into through UIP. The EC's evaluation of UIP's theatrical distribution
operations has also been concluded, which resulted in the issuance of a
comfort letter, the effect of which was to extend the exemption for a minimum
of five additional years.
In addition to premium subscription television, most motion pictures are
also licensed for exhibition on broadcast and basic cable television, with
fees generally collected in installments. All of the above license fees for
television exhibition (including international and U.S. premium television and
basic cable television) are recorded as revenue in the year that licensed
films are available for such exhibition, which, among other reasons, may cause
substantial fluctuation in PARAMOUNT PICTURES' operating results. At December
31, 1999, the unrecognized revenues attributable to such licensing of
completed films from PARAMOUNT PICTURES' license agreements were approximately
$1.2 billion. At December 31, 1999, PARAMOUNT PICTURES had approximately 990
motion pictures in its library.
Television Production and Syndication. The Company, through PARAMOUNT
TELEVISION, VIACOM PRODUCTIONS(TM) and SPELLING, produces, acquires and
distributes series, miniseries, specials and made-
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for-television movies primarily for broadcast on network television, first-run
syndication, pay television and basic cable television. As a result of the
merger with SPELLING, certain of SPELLING's operations have been integrated
into PARAMOUNT TELEVISION.
On July 1, 1999, the Company completed a transaction with Cox Broadcasting
and Rysher Entertainment, pursuant to which the Company purchased their 50%
interest in ENTERTAINMENT TONIGHT(R) (giving the Company a 100% ownership
interest in that program) and assumed Rysher's television production and
distribution operations. Under the arrangement, the Company is paid a fee for
producing certain ongoing Rysher series and distributing its library
throughout the world.
The Company's current network programming includes FRASIER(R) (NBC),
BECKER(TM) (CBS), DIAGNOSIS MURDER(R) (CBS), JAG(TM) (CBS), NOW AND AGAIN(TM)
(CBS), SABRINA, THE TEENAGE WITCH(R) (ABC), MOESHA(R) (UPN), SEVEN DAYS(TM)
(UPN), THE PARKERS(TM) (UPN), STAR TREK: VOYAGER(R) (UPN), BEVERLY HILLS,
90210(R) (FOX), CHARMED(TM) (WB), SAFE HARBOR(TM) (WB) and 7TH HEAVEN(R) (WB).
Generally, a network will license a specified number of episodes for
exhibition on the network in the U.S. during the license period. All other
distribution rights, including foreign and off-network syndication rights, are
typically retained by the Company. The episodic network license fee is
normally less than the costs of producing each series episode; however, in
many cases, the Company has been successful in recouping some of its costs by
obtaining international sales through its syndication operations. Foreign
sales are generally concurrent with U.S. network runs. Generally, a series
must have a network run of at least three or four years to be successfully
sold in domestic syndication.
The Company produces and/or distributes original television programming for
first-run syndication which it sells directly to television stations in the
U.S. on a market-by-market basis. The Company sells its programs to television
stations for cash, advertising time or a combination of both. The Company's
first-run syndicated programming includes such shows as ENTERTAINMENT TONIGHT,
ENTERTAINMENT TONIGHT WEEKEND(TM), JUDGE JUDY(R), THE MONTEL WILLIAMS
SHOW(TM), JUDGE JOE BROWN(TM), REAL TV(TM), LEEZA(R), WILD THINGS(TM), RELIC
HUNTER(TM), COMEDY SHOWCASE(TM) and AMERICA'S DUMBEST CRIMINALS(TM).
The Company also co-produces and/or distributes original television
programming for foreign television exhibition. The Company's international
programming includes such shows as HOPE ISLAND(TM), HIGHER GROUND(TM) and
TRIBE(TM) miniseries.
The Company also distributes television programming produced by it or other
parties to basic cable program services (such as the television series ANY DAY
NOW(TM) and BEYOND CHANCE(TM), both on Lifetime), including services in which
the Company has an interest, such as NICK AT NITE and VH1 in the U.S. and THE
PARAMOUNT COMEDY CHANNEL in the U.K. and Spain.
The Company, through PARAMOUNT TELEVISION, distributes or syndicates
television series, feature films, made-for-television movies, miniseries and
specials for television exhibition in domestic and/or international broadcast,
cable and other marketplaces. Feature film and television properties
distributed by the Company are produced by the Company or acquired from third
parties. Third-party agreements for the acquisition of distribution rights
generally provide for a long-term grant of distribution rights which are
exclusive in nature with respect to the territory or territories involved;
such agreements frequently guarantee a minimum recoupable advance payment to
such third parties and generally provide for periodic payment to such third
parties based on the amount of revenues derived from distribution activities
after deduction of the Company's distribution fee, recoupment of distribution
expenses and recoupment of any advance payments.
The recognition of revenues for license fees for completed television
programming in syndication and on basic cable is similar to that of feature
films exhibited on television with license fees recorded as revenue in the
year that programming is available for exhibition which, among other reasons,
may cause substantial fluctuation in PARAMOUNT TELEVISION's operating results.
At December 31, 1999, the unrecognized revenues attributable to television
program license agreements were approximately $462.1 million.
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Broadcasting. The Company's broadcast television division, PARAMOUNT
STATIONS GROUP ("PSG"), owns and operates 17 television stations, all of which
operate pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), under licenses granted by the FCC. Such licenses are
renewable every eight years. In addition, the Company programs two additional
commercial television stations pursuant to local marketing agreements
("LMAs"). These 19 stations are located in the top 50 television markets and
reach approximately 25.6% of all U.S. television households, which equals
approximately a 14% reach under FCC calculation rules.
In recent years, PSG has acquired television stations that are, or will
become, primary affiliates of UPN in order to expand and develop its interest
in the network. On February 1, 1999, PSG acquired WNPA-TV, serving Pittsburgh,
Pennsylvania, for approximately $40 million. On October 12, 1999, PSG acquired
an FCC construction permit for authority to build television station KSCC-TV,
serving the Wichita-Hutchinson, Kansas market. That station is to be operated
by Clear Channel Broadcasting, Inc. under an LMA. The station is currently
expected to commence broadcasting in the second quarter of 2000.
Additionally, in connection with an agreement with the licensee of WHDF-TV,
serving the Huntsville-Decatur-Florence, Alabama market, to switch the
station's affiliation from NBC to UPN, on April 4, 1999, the Company acquired
a minority interest in the licensee in exchange for debt and equity financing
for upgrading the station's technical facilities.
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The table below sets forth the 17 television stations owned and operated
by PSG, the two television stations operated by PSG under LMAs, the station to
be built in Kansas and the minority interest in the Alabama station.
[Download Table]
Station and Metropolitan Market Type/
Area Served(1) Rank(2) Channel Network Affiliation
------------------------ ------- ------- ----------------------
WPSG-TV................................. 4 UHF/57 UPN
Philadelphia, PA
WSBK-TV................................. 6 UHF/38 UPN
Boston, MA
KTXA-TV................................. 7 UHF/21 UPN
Dallas-Ft. Worth, TX
WDCA-TV................................. 8 UHF/20 UPN
Washington, DC
WKBD-TV................................. 9 UHF/50 UPN
Detroit, MI
WUPA-TV................................. 10 UHF/69 UPN
Atlanta, GA
KTXH-TV................................. 11 UHF/20 UPN
Houston, TX
KSTW-TV................................. 12 VHF/11 UPN
Seattle-Tacoma, WA
WTOG-TV................................. 13 UHF/44 UPN
Tampa-St. Petersburg-Sarasota, FL
WBFS-TV................................. 16 UHF/33 UPN
Miami-Ft. Lauderdale, FL
KMAX-TV................................. 19 UHF/31 UPN
Sacramento-Stockton-Modesto, CA
WNPA-TV................................. 20 UHF/19 UPN
Pittsburgh, PA
WNDY-TV................................. 26 UHF/23 UPN
Indianapolis, IN
WWHO-TV................................. 34 UHF/53 WB/primary
Columbus, OH (expires April 2000)
UPN/program license(3)
WUPL-TV................................. 41 UHF/54 UPN
New Orleans, LA
WGNT-TV................................. 42 UHF/27 UPN
Norfolk-Portsmouth-Newport News, VA
KAUT-TV................................. 45 UHF/43 UPN
Oklahoma City, OK
The following two stations are operated by PSG under LMAs:
WTVX-TV................................. 43 UHF/34 UPN
West Palm Beach-Ft. Pierce, FL
WLWC-TV................................. 50 UHF/28 WB/primary
Providence, RI-New Bedford, MA (expires April 2000)
UPN/program license(3)
The following television station when built
will be owned by PSG, but operated by another
entity under an LMA:
KSCC-TV................................. 65 UHF/36 UPN
Wichita-Hutchinson, KS (upon launch)
PSG holds a 17.5% interest in the following station:
WHDF-TV................................. 82 UHF/15 UPN
Huntsville-Decatur-Florence, AL (as of Nov. 22, 1999)
---------------------
(1) Metropolitan Areas Served are Nielsen Media Research's Designated Market
Areas.
(2) Market Rank as reported in the TV & Cable Factbook No. 68, 2000 Edition,
based on the 1999-2000 Nielsen U.S. Television Household Estimates.
(3) Under program license agreements, UPN programming is broadcast out-of-
pattern and is scheduled around WB programming. Once the WB primary
network affiliation expires, the station will broadcast UPN as its sole
network affiliation.
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Broadcast television signals are presently transmitted in analog form;
however, in 1997, the FCC assigned to each existing television station a six
MHz channel to be used for the broadcast of digital television ("DTV"). Under
the construction schedule adopted by the FCC, each of the Company's television
stations must construct a DTV facility no later than May 1, 2002 (see
"Business--Regulation--Broadcasting"). Despite this timetable, the Company
plans to launch DTV services in at least one of its markets by June 2000. The
Company estimates that the cost of construction of each DTV station will range
from $3 million to $7 million. The Company is currently formulating plans for
use of its DTV channels and intends to construct up to seven DTV stations in
2000.
Other Joint Ventures. On January 15, 1997, the Company acquired a 50%
interest in UPN from BHC Communications, Inc. ("BHC"), a corporate subsidiary
of Chris-Craft Industries, Inc. On March 20, 2000, BHC agreed to sell to the
Company its remaining 50% interest in UPN for $5 million. The transaction is
expected to close on March 31, 2000 (see "Business--Regulation--
Broadcasting").
At December 31, 1999, UPN provided 24 hours of programming a week,
including two-hour prime-time programming blocks five nights per week, to
affiliates in 179 U.S. television markets, reaching approximately 96% of all
U.S. television households, including secondary affiliates. The Company also
produces original programming for UPN and owns and operates 17 stations and
programs an additional two stations pursuant to LMAs, all of which are
affiliates of UPN (see "Business--Entertainment--Television Production and
Syndication" and "Business--Entertainment--Broadcasting").
Through PARAMOUNT PICTURES and various of its affiliates, the Company is a
joint venturer in international program services, including THE PARAMOUNT
COMEDY CHANNEL in the U.K., an afternoon and nighttime (including prime time)
program service featuring comedies and films, which is a joint venture with
BSkyB. On March 1, 1999, the Company launched THE PARAMOUNT COMEDY CHANNEL in
Spain, a wholly owned, 24-hour program service, including a NICKELODEON
program segment.
Theatrical Exhibition. The Company's movie theater operations consist
primarily of FAMOUS PLAYERS(R) in Canada and UCI in Europe, Latin America and
Asia. At December 31, 1999, FAMOUS PLAYERS, a 100%-owned subsidiary of the
Company, operated approximately 800 screens in 105 theaters across Canada.
UCI, a 50%-owned joint venture of entities affiliated with the Company and
Universal, operated as of December 31, 1999, approximately 868 screens in 104
theaters in the U.K., Ireland, Germany, Austria, Spain, Japan, Italy,
Portugal, Poland, Argentina, Brazil and Panama.
As of November 29, 1999, WF Cinema Holdings, L.P. (a limited partnership of
which the Company owns a 50% interest and the other 50% is controlled by Time
Warner Inc., "WF Cinema") entered into agreements (the "Asset Agreements")
with WestStar Cinemas, Inc., WestStar Real Estate, Inc., Colorado Holdings LLC
and WestStar Holdings, Inc. (collectively, "WestStar"), which parties are the
subject of a Chapter 11 Bankruptcy Code proceeding. Pursuant to the Asset
Agreements, WF Cinema agreed to purchase from WestStar various theaters and
related assets for a purchase price of $90 million (payable during 2000) and
other consideration. The theaters and assets which are the subject of this
transaction comprise in large part the assets that were sold by WF Cinema
(then known as Cinamerica Theaters L.P.) to WestStar in 1997. WF Cinema
currently intends to dispose of or close a number of the theaters being
acquired. The Company and Time Warner have agreed to guarantee certain
obligations of WF Cinema as part of these transactions. The Asset Agreements
were approved by the Bankruptcy Court on January 12, 2000, and the acquisition
by WF Cinema closed on January 28, 2000.
Music Publishing. The FAMOUS MUSIC(R) publishing companies own, control
and/or administer all or a portion of the copyright rights to more than
100,000 musical works (songs, scores, cues). These rights include the right to
license and exploit such works, as well as the right to collect income
generated by such licensing and exploitation.
The majority of rights acquired by FAMOUS MUSIC are derived from (i) music
acquisition agreements entered into by PARAMOUNT PICTURES, PARAMOUNT
TELEVISION, SPELLING, MTVN and various other divisions of the Company
respecting certain motion pictures, television programs and other properties
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produced by such units and (ii) music acquisition agreements entered into
directly by FAMOUS MUSIC with songwriters and music publishers, including
exclusive songwriting agreements, catalog purchases and music administration
agreements.
Video
The Company operates in the home video, DVD and video game rental and
retailing business through its approximately 82% interest in BLOCKBUSTER. As
of December 31, 1999, BLOCKBUSTER operated or franchised 7,153 stores in the
U.S., its territories and 26 other countries, a net increase of 772 stores
over the prior year. Most of these stores operate under the BLOCKBUSTER(R)
brand name.
BLOCKBUSTER's new technologies business consists of "blockbuster.com",
which, among other things, provides information about BLOCKBUSTER's domestic
stores and products, delivers content regarding certain movies and
entertainment programs and allows customers to buy new and previously viewed
movies, music, video games and BLOCKBUSTER GIFTCARDS(R). In November 1999,
BLOCKBUSTER relaunched its Web site and introduced several new features
designed to enhance the breadth and depth of blockbuster.com's entertainment-
related news and information and e-commerce offerings and capabilities.
BLOCKBUSTER offers movies and video games primarily for rental and also
offers certain titles for purchase. In addition, BLOCKBUSTER offers
previously-viewed tapes for sale after the end of their useful lives as rental
products. In 1998, in order to increase the quantity and selection of newly
released video titles and to satisfy its customers' demand for newly released
videos earlier, BLOCKBUSTER entered into revenue-sharing agreements with the
major movie studios. For titles purchased under these agreements, revenue-
sharing allows BLOCKBUSTER to purchase videocassettes for minimal up-front
payments with a percentage of the U.S. rental revenues shared with the studios
over a contractually determined period of time. The revenue-sharing agreements
also govern the terms and conditions under which videocassettes purchased
under them may be sold as previously-viewed tapes.
In addition to purchasing products pursuant to revenue-sharing agreements,
BLOCKBUSTER purchases certain products that are not subject to revenue-sharing
agreements at traditional wholesale prices. BLOCKBUSTER also purchases "sell-
through" titles, which are movies that are released by the studios at
relatively low initial prices in order to generate consumer demand to
purchase, rather than rent, them. BLOCKBUSTER also acquires and offers a wide
variety of independent and lower-cost movies that are generally exclusively
available for a specified period of time at its stores.
BLOCKBUSTER has introduced DVDs for rental and sale in about 3,600 domestic
stores and in some markets outside of the United States. BLOCKBUSTER also
rents DVD players in these stores. In addition, in all of its domestic stores
and many of its stores outside of the U.S., BLOCKBUSTER rents video games and
video game consoles and sells previously-played video games. BLOCKBUSTER also
sells new games in most of its stores in markets outside of the U.S.
BLOCKBUSTER receives substantially all of its videocassettes and video
games at its 850,000 square foot distribution center located near Dallas,
Texas and distributes them directly to its stores. BLOCKBUSTER's Internet
sales are currently distributed by independent distributors. BLOCKBUSTER's
franchisees generally are responsible for obtaining their own supplies and
coordinating their own distribution system. However, as a result of making
revenue-sharing agreements available to its U.S. franchisees in the fourth
quarter of 1999, some of BLOCKBUSTER's U.S. franchisees are participating in
such agreements. Accordingly, such U.S. franchisees are relying upon
BLOCKBUSTER's distribution center to receive some portion of their
videocassettes.
BLOCKBUSTER uses its extensive real estate and customer transaction
databases to identify optimal sites for its new stores within targeted U.S.
markets and has developed three distinct store formats that are tailored to
maximize its penetration in each market. These three store formats include
BLOCKBUSTER's "new" traditional store format, which is about 4,800 square
feet, its seam store format, which is about 2,500-3,500 square feet, and
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its store-in-store format, which is about 1,000-1,200 square feet. BLOCKBUSTER
also uses different store prototypes in its international markets in response
to local real estate and market conditions.
BLOCKBUSTER's business may be affected by a variety of factors, including,
among others: (i) introduction and acceptance of new technologies; (ii) public
acceptance and interest in newly released videos; (iii) adverse changes in the
movie studios' current distribution and pricing policies; (iv) the number,
timing and performance of new or acquired stores and obstacles to
BLOCKBUSTER's U.S. and international new stores expansion; (v) BLOCKBUSTER's
mix of products rented and sold; (vi) BLOCKBUSTER's expansion into new markets
and geographic locations; (vii) additional and existing competition and their
pricing actions; (viii) marketing programs and new release acquisition costs;
(ix) special events, such as the Olympics and the World Cup; and (x) other
factors affecting retailers in general. In addition, as with other retail
outlets, there is a distinct seasonal pattern to the home video and video
games business, particularly weaker business in April and May, due in part to
improved weather and Daylight Savings Time, and in September and October, due
in part to the start of school and the introduction of new television
programs. Internationally, BLOCKBUSTER's success depends in great part upon
its ability to address country by country variations, including, among others,
varying systems of supply and distribution of movies, video formats, film
certification processes, studio arrangements, release dates, political and
economic systems, legal standards and regulations, and cultural preferences
for certain types of technology and movie selections.
Parks
PARAMOUNT PARKS owns and operates five regional theme parks and a themed
attraction in the U.S. and Canada: PARAMOUNT'S CAROWINDS(R), in Charlotte,
North Carolina; PARAMOUNT'S GREAT AMERICA(TM), in Santa Clara, California;
PARAMOUNT'S KINGS DOMINION(TM), located near Richmond, Virginia; PARAMOUNT'S
KINGS ISLAND(TM), located near Cincinnati, Ohio; PARAMOUNT CANADA'S
WONDERLAND(R), located near Toronto, Ontario; and STAR TREK: THE
EXPERIENCE(R), at the Las Vegas Hilton, a futuristic, interactive environment
based on the popular television and movie series. Each of the theme parks
features attractions, products and live shows based on various intellectual
properties of the Company. On March 24, 1999, PARAMOUNT PARKS sold the RAGING
WATERS(R) water park in San Jose, California.
A substantial amount of the theme parks' income is generated during its
seasonal operating period. Factors such as local economic conditions,
competitors and their marketing/pricing actions, and extreme weather
conditions could negatively impact the business' overall profitability if they
come into play during the operating season.
Publishing
SIMON & SCHUSTER publishes and distributes consumer hardcover books, trade
paperbacks, mass-market paperbacks, children's books, audiobooks, electronic
books and CD-ROM products in the U.S. and internationally. SIMON & SCHUSTER's
flagship imprints include SIMON & SCHUSTER, POCKET BOOKS, SCRIBNER and THE
FREE PRESS. SIMON & SCHUSTER also develops special imprints and publishes
titles based on MTV, VH1, NICKELODEON and PARAMOUNT PICTURES products. SIMON &
SCHUSTER distributes its products directly and through third parties. SIMON &
SCHUSTER also delivers content and sells products on Internet Web sites
operated by various imprints or linked to individual titles.
In 1999, SIMON & SCHUSTER published 59 titles which were New York Times
bestsellers, including 10 New York Times number one bestsellers. Bestselling
titles released in 1999 include "HEARTS IN ATLANTIS" (Stephen King), "'TIS"
(Frank McCourt), "WE'LL MEET AGAIN" (Mary Higgins Clark), "SHADOW" (Bob
Woodward), "WHEN PRIDE STILL MATTERED" (David Maraniss), "YESTERDAY, I CRIED"
(Iyanla Vanzant), "THE ABSOLUTELY ESSENTIAL ELOISE" (Kay Thompson and Hilary
Knight), as well as a number of BLUE'S CLUES and RUGRATS books, featuring the
popular NICKELODEON characters.
SIMON & SCHUSTER AUDIO(R) publishes audio editions of prominent works
published by SIMON & SCHUSTER and by other publishers, as well as the
PIMSLEUR(R) line of language instruction. Major titles
I-15
released as audiobooks in 1999 include "'TIS" (Frank McCourt), "HEARTS IN
ATLANTIS" (Stephen King) and "TOM CLANCY'S OP-CENTER: STATE OF SIEGE" (Tom
Clancy).
Titles published by SIMON & SCHUSTER INTERACTIVE(R) generally consist of
CD-ROM editions or product extensions of well-known book publishing properties
or titles associated with recognized authors and Company properties, including
such 1999 titles as "MISS SPIDER'S TEA PARTY", "SABRINA, THE TEENAGE WITCH"
and "WIMZIE'S HOUSE".
SIMON & SCHUSTER ONLINE(TM), through "SimonSays.com", publishes original
content, builds reader communities, and promotes and sells SIMON & SCHUSTER's
books and products over the Internet.
International publishing includes the international distribution of
English-language titles through SIMON & SCHUSTER UK and SIMON & SCHUSTER
AUSTRALIA and other distributors, as well as the publication of local titles
by SIMON & SCHUSTER UK and SIMON & SCHUSTER AUSTRALIA.
The consumer publishing marketplace is subject to increased periods of
demand in the summer months and during the end-of-year holiday season. Major
new title releases drive a significant portion of SIMON & SCHUSTER's sales
throughout the year.
Consumer books are generally sold on a fully returnable basis, resulting in
significant product returns. In the international markets, the Company is
subject to global trends and local economic conditions.
Online
Through its interest in THE MTVi GROUP, L.P. ("MTVi") and through
NICKELODEON ONLINE (TM), the Company operates Internet sites which are
targeted to the current audiences of its various MTV, VH1 and NICKELODEON
program services, as well as to new audiences such as those unable to receive
cable or DTH. In addition to providing entertainment and information on such
Web sites, the Company also sells Company-licensed and third-party
merchandise.
On July 15, 1999, the Company together with Liberty Digital Inc. formed
MTVi. The Company contributed all of its assets used exclusively in its
Internet music businesses, including the assets of IMAGINE RADIO(TM), which
the Company acquired in February 1999, in exchange for a 90% equity interest
in MTVi. Liberty Digital Inc. contributed all of its assets used in its
Internet music businesses, including SonicNet.com and assets of The Box
Worldwide, Inc. (certain of which were concurrently licensed to MTVN; see
"Business--Networks--MTV Networks") in exchange for a 10% equity interest in
MTVi. In February 2000, a registration statement on Form S-1 was filed with
the Securities and Exchange Commission relating to an initial public offering
of Class A common stock in The MTVi Group, Inc. The net proceeds of the
initial public offering will be contributed by The MTVi Group, Inc. to MTVi in
exchange for general and limited partnership units of MTVi.
MTVi has 22 music Web site destinations around the world, including
MTV.com, VH1.com and SonicNet.com. In December 1999, MTVi's Web sites
attracted over 2.9 million unique visitors, according to Media Metrix, a
leading online audience research measurement service.
MTVi currently obtains much of its content from record labels, music
publishers and artists at minimal or no charge. While MTVi obtains certain
rights to some of such content (such as performance rights of song composers
and non-interactive rights to digital transmission of recordings) pursuant to
statutory compulsory licenses, the royalties payable for such compulsory
licenses are not yet established. Other rights are not subject to compulsory
licenses and must be negotiated with the individual record labels and other
providers. If these providers begin to charge significant fees for their
content, or otherwise alter or discontinue their relationship with MTVi, then
MTVi's content offering and business, financial condition and operating
results could be adversely affected. In addition, because the laws relating to
online rights for music and other copyrighted works are evolving, it is
possible that parties from whom MTVi currently does not obtain licenses will
demand that MTVi obtain them and pay fees for continued use, or even for prior
use (see "Business--Regulation --Intellectual Property").
I-16
NICKELODEON ONLINE features nick.com, nickjr.com, tvland.com, nick-at-
nite.com, gas.nick.com, teachers.nick.com and redrocket.com. In December 1999,
NICKELODEON ONLINE's Web sites attracted over 2.2 million unique visitors,
according to Media Metrix.
Online revenues are primarily generated by advertising revenues derived
from online advertising and on-air promotion and by the sale of merchandise.
The Company also operates Internet sites through other business units for
the purpose of marketing and commerce, such as PARAMOUNT PICTURES, BLOCKBUSTER
and SIMON & SCHUSTER. Such activity is not reported as part of the Online
segment.
Discontinued Operations
Non-Consumer Publishing. On November 27, 1998, the Company completed the
sale of its educational, professional and reference publishing businesses to
Pearson plc for approximately $4.6 billion in cash.
Music Retailing. On October 26, 1998, the Company completed the sale of its
music retail stores to Wherehouse Entertainment, Inc. for approximately $115
million in cash. The Company had previously closed the remaining music stores
that were not part of the transaction.
Interactive Games. Pursuant to the Company's previously announced plan to
dispose of its interactive game businesses, including VIACOM NEW MEDIA(R), the
operations of which were terminated in 1997, on September 4, 1998, SPELLING
completed the sale of substantially all of the development operations of
VIRGIN to Electronic Arts Inc. for $122.5 million in cash. In addition, on
November 10, 1998, SPELLING completed the sale of all non-U.S. operations of
VIRGIN to an investor group.
Radio. On July 2, 1997, the Company completed the sale of its ten radio
stations to Chancellor Media Corp. for approximately $1.1 billion in cash.
Intellectual Property
It is the Company's practice to protect its theatrical and television
product, software, publications and its other original and acquired works. The
following logos and trademarks and related trademark families are among those
strongly identified with the product lines they represent and are significant
assets of the Company: VIACOM(R), BLOCKBUSTER(R), MTV: MUSIC TELEVISION(R),
NICK AT NITE(R), NICKELODEON(R), TV LAND(R), VH1 MUSIC FIRST(TM),
PARAMOUNT(R), ENTERTAINMENT TONIGHT(R), STAR TREK(R), SHOWTIME(R), THE MOVIE
CHANNEL(R), SIMON & SCHUSTER(R) and POCKET BOOKS(TM).
Competition
Corporate mergers consummated in recent years have resulted in greater
consolidation in the entertainment industries, which may also present
significant competitive challenges to several of the Company's businesses.
Networks
MTV Networks. MTVN services compete with other basic cable program services
for channel space and compensation for carriage from cable television
operators, DTH and other multichannel distributors. MTVN also competes for
advertising revenue with other basic cable and broadcast television networks,
and radio and print media. For basic cable television networks such as the
MTVN services, advertising revenues derived by each program service depend on
the number of households subscribing to the service through local cable
operators and other distributors in addition to household and demographic
viewership as determined by research companies such as Nielsen Media Research.
I-17
Certain major record companies have launched music-based program services
outside the U.S., including, but not limited to: Channel V, which is jointly
owned and operated in Asia and Australia by Star TV and four major record
labels; and Viva and Viva 2, German-language music channels distributed in
Germany and owned in large part by four major record labels. In addition,
MuchMusic, a music service which originated in Canada, is distributing a
MuchMusic service customized for the Latin American market in Argentina.
MuchMusic USA is being distributed in the U.S. through Rainbow Media Holdings,
Inc.
Children-oriented programming blocks are currently exhibited on a number of
U.S. broadcast television networks, including, among others, "Fox Kids",
"Kids' WB" and a Saturday morning block on ABC, all of which compete with
NICKELODEON for advertising revenue. There are also a number of other U.S.
cable television program services featuring children-oriented programming,
including the Cartoon Network, the Disney Channel and the Fox Family Channel.
In addition, NICKELODEON competes internationally with other television
program services and blocks targeted at children for distribution by cable,
satellite and other systems, and for distribution license fees and advertising
revenue.
Showtime Networks Inc. Competition among premium subscription television
program services in the U.S. is primarily dependent on: (i) the acquisition
and packaging of an adequate number of recently released quality motion
pictures and the production, acquisition and packaging of original motion
pictures, original series and other original programs; and (ii) the offering
of prices, marketing and advertising support and other incentives to cable
operators and other distributors for carriage so as to favorably position and
package SNI's premium subscription television program services to subscribers.
HBO is the dominant company in the U.S. premium subscription television
category, offering two premium subscription television program services, the
HBO service and Cinemax. SNI is second to HBO with a significantly smaller
share of the premium subscription television category. Starz Encore Media
Group (an affiliate of AT&T Corp.) owns the third principal premium
subscription television program service in the U.S., Starz!, which features
recently released motion pictures and competes with SNI's and HBO's premium
program services.
Entertainment
Motion Picture and Television Production and Distribution. The Company
competes with other major studios and independent film producers in the
production and distribution of motion pictures, videocassettes, discs and
DVDs. Similarly, as a producer and distributor of television programs, the
Company competes with other studios, television networks (which now produce
some of their own programming and compete in the sale of off-network and
first-run syndication programming) and independent producers and syndicators
in the licensing of television programs to both networks and independent
television stations. PARAMOUNT STUDIO's competitive position primarily depends
on the quality of the product produced, its distribution and marketing
success, and public response. The Company also competes to obtain creative
talents and story properties which are essential to the success of all of the
Company's entertainment businesses.
Broadcasting. The principal methods of competition in broadcast television
are the acquisition of popular programming and the development of audience
interest through programming and promotions in order to sell advertising at
profitable rates. Television stations compete for programming and for
advertising revenues with other stations in their respective coverage areas
and, in some cases, with larger station groups for programming, and in the
case of advertising revenues, with other local media. Broadcast networks like
UPN compete for audience and advertising revenues with other broadcast
networks, basic cable program services and, with respect to advertising
revenues only, other national media. The Company's expansion strategy has been
to seek to acquire UPN affiliates or independent stations which will become
primary affiliates of UPN. At this time, UPN provides 10 hours of weekday
primetime programming, 12 hours of children's programming and two hours of
movies (during the weekend daypart). Therefore, with respect to the UPN-
affiliated stations, and to the extent that the Company acquires independent
stations, there will be a need for those stations to acquire additional
programming to a greater extent than would otherwise be required if the
stations were affiliated with other, more established networks, which provide
programming during most dayparts. In addition,
I-18
the local television ownership rules, the national television ownership cap,
the dual network rule and the merger with CBS will each affect competition in
broadcasting (see "Business--Regulation--Broadcasting").
Video
BLOCKBUSTER operates in a highly competitive environment. The Company
believes that BLOCKBUSTER's most significant competition comes from (i) video
stores and other retailers that rent or sell movies and (ii) non-videocassette
providers of home viewing entertainment.
Video stores and other retailers that rent or sell movies include, among
others, (i) local, regional and national video stores; (ii) mass merchant
retailers; and (iii) supermarkets, pharmacies and convenience stores. The
Company believes that the principal factors that BLOCKBUSTER faces in
competing with video stores and other retailers are (a) convenience and
visibility of store locations; (b) quality, quantity and variety of titles;
(c) pricing; and (d) customer service. BLOCKBUSTER also competes with other
online retailers, primarily with respect to "sell-through" titles.
With the development of new technologies, BLOCKBUSTER's most significant
competitive risk comes from direct broadcast satellite and digital cable
television. Direct broadcast satellite, digital cable and "traditional" cable
providers not only offer numerous channels of conventional television, but
they also offer pay-per-view movies which permit a subscriber to pay a fee to
see a selected movie. Because of the increased availability of channels,
direct broadcast satellite and digital cable providers have been able to
enhance their pay-per-view business by (i) substantially increasing the number
and variety of movies they can offer their subscribers on a pay-per-view
basis; and (ii) providing more frequent and convenient start times for the
most popular movies. This is referred to in BLOCKBUSTER's industry as "near-
video-on demand". Near-video-on-demand allows the consumer to avoid trips to
the video store for rentals and returns of movies, which also eliminates the
chance they will incur an extended viewing fee. However, newly released movies
are currently made available by the studios for rental prior to being made
available on a near-video-on-demand basis. Near-video-on-demand also does not
allow the consumer to start, stop and rewind the movie. Some digital cable
providers have begun implementing technology referred to as "video-on-demand",
which technology transmits movies on demand with interactive capabilities such
as start, stop and rewind. However, video-on-demand competes with other uses
of cable infrastructure, such as the ability to provide Internet access and
basic telephone services, some of which may provide higher returns for
operators.
Parks
During the last two years, the regional theme park industry has experienced
increased consolidation. The Company must now compete in a business
environment that is dominated by highly-capitalized, multi-park entertainment
corporations. In order to compete effectively, regional theme park operators
must differentiate their product by having access to the latest entertainment
intellectual property and brands and must reinvest significant levels of
capital to maintain a fresh experience for their repeat-visitor base. The
Company believes that its intellectual properties enhance existing attractions
and facilitate the development of new attractions which encourages visitors to
the PARAMOUNT PARKS theme parks and STAR TREK: THE EXPERIENCE at the Las Vegas
Hilton. The Company's theme parks also compete with other forms of leisure
entertainment.
Publishing
The publishing business is highly competitive and consumer publishing in
particular has been affected by consolidation trends. Recent years have
brought a number of significant mergers among the leading consumer publishers.
The book superstore has emerged as a significant factor in the industry
contributing to the general trend toward consolidation in the retail channel.
There have also been a number of mergers completed in the distribution
channel.
The Company must compete with other publishers for the rights to works by
well-known authors and public personalities.
I-19
Online
The online industry is highly competitive as it is rapidly evolving and
expanding throughout the world. Competition among media and Internet companies
pursuing online consumers is particularly intense. The number of Web sites
offering content and features competing with the Company's Web sites has
increased dramatically and will likely continue to increase due to the
Internet's low barriers to entry. Rivalry for online consumers' attention and
leisure time, and associated advertising dollars and e-commerce expenditures
by online consumers, will increase for all industry participants.
The Company's online businesses compete for online consumers, advertisers
and content providers with leading news/information/entertainment online
sites, online portal services and broadcasters, traditional media, retail and
record companies and their respective Internet properties, and online commerce
companies. Many of the Company's online competitors are likely to enjoy
competitive advantages, including ownership of music and other content rights,
superior technology, access to ownership of distribution platforms, and strong
financial and marketing resources.
Web sites maintained by existing and potential competitors may be perceived
by online consumers, advertisers and content and other online vendors to be
superior to the Company's Web sites. In addition, with respect to MTVi's Web
sites, the major record companies, which control the vast majority of recorded
music, have started to engage in strategic arrangements, including business
combinations, with Internet and Internet-related businesses for the online
distribution and other commercialization of their music libraries and artist
relationships. As a result of these actions, the Company's online businesses
may not be able to maintain or increase online traffic levels on its Web
sites, which may negatively affect their advertising and e-commerce revenues.
Regulation
The Company's businesses are either subject to or affected by regulations
of federal, state and local governmental authorities. The rules, regulations,
policies and procedures affecting these businesses are constantly subject to
change. The descriptions which follow are summaries and should be read in
conjunction with the texts of the statutes, rules and regulations described
herein. The descriptions do not purport to describe all present and proposed
statutes, rules and regulations affecting the Company's businesses.
Intellectual Property
Domestic and international laws affecting intellectual property are of
significant importance to the Company.
WIPO Copyright Treaties. In 1996, delegates to the World Intellectual
Property Organization ("WIPO") adopted a proposed Copyright Treaty which will
take effect if ratified by 30 nations. As of December 1999, 13 countries,
including the U.S., had ratified the Copyright Treaty.
The proposed Copyright Treaty updates the Berne Convention, last revised in
1971, and addresses copyright protection for new technologies that have
emerged since that time. It is not possible to predict whether the Copyright
Treaty will take effect or how countries would implement the Treaty after
ratification. Because the Treaty includes important copyright protections for
the digital transmission of content, if ratified, the Treaty likely would have
a positive impact on the Company.
The U.S. implementing legislation, known as the Digital Millennium
Copyright Act ("DMCA"), which is effective whether or not WIPO is ultimately
ratified, affords important new copyright protections, including civil and
criminal penalties for the manufacture of, or trafficking in, devices that
circumvent copyright protection technologies such as encryption and
scrambling, and for the act of circumventing such technologies to gain
unauthorized access to a copyrighted work. The DMCA also amends the Copyright
Act by creating a new statutory license concerning certain rights related to
digital transmissions of sound recordings. The statute
I-20
provides that new statutory rates for each license will be set either through
voluntary negotiations between the interested parties or through Copyright
Arbitration Royalty Proceedings.
Copyright Term Extension. In October 1998, Congress passed legislation
extending the copyright term an additional twenty years. The extended term is
life of the author plus 70 years for authored works and 95 years for works-
made-for-hire. This extension puts the U.S. copyright term on par with the
European Community. Term extension should have a beneficial effect for the
Company over time, including with respect to important publishing properties
which otherwise would have passed into the public domain in the next several
years.
Compulsory Copyright License.
Multichannel Distributors Other Than DTH. The Copyright Act provides a
compulsory license for the retransmission of broadcast signals by
multichannel video distributors such as cable television, MMDS (Multipoint
Multichannel Distribution Systems) and SMATV (Satellite Master Antenna
Television). The compulsory license rate paid to programmers for the
retransmission of distant broadcast signals by cable, MMDS and SMATV is
established by statute. There is no licensing fee for the retransmission of
local broadcast signals.
DTH. In November 1999, Congress enacted legislation to extend and reform
the Satellite Home Viewer Act (SHVA). The original SHVA legislation created
a temporary compulsory license that allowed satellite carriers to import
distant broadcast signals to those homes that were unable to receive their
local broadcast signals. This distant signal compulsory license was set to
expire at the end of 1999. Through the SHVA legislation, Congress extended
the distant signal compulsory license until December 31, 2004, and set a
statutory compulsory license fee for these distant signals of $0.189 per
subcriber for superstations and $0.1485 per subscriber for networks. Up to
this point, the DTH compulsory license fee was set through negotiations and
binding arbitration. In addition, Congress created a new and permanent
compulsory license for the retransmission of local broadcast signals back
into the local market, the so-called "local-into-local" provision. Unlike
the distant signal compulsory license, the local signal compulsory license
is royalty-free.
Congress also extended retransmission consent and must carry obligations
to satellite carriers (see "Business--Regulation--Broadcasting"). As is the
case with cable, local broadcasters will have the option of choosing either
retransmission consent or must carry. The obligation to obtain
retransmission consent from the local station does not take effect until
May 2000. With respect to must carry, beginning in January 2002, satellite
carriers are obligated to carry the signals of all television stations in
those markets where the satellite carrier chooses to offer local broadcast
service. The legislation also, for the first time, extends to satellite
carriers network non-duplication and syndicated exclusivity rules to the
retransmission of the signals of superstations. The FCC is instructed to
make these rules effective by November 2000.
First Sale Doctrine. The copyright "First Sale" doctrine provides that the
owner of a legitimate copy of a copyrighted work may use or dispose of it in
such manner as the owner sees fit, including by renting it. The First Sale
doctrine does not apply to sound recordings or computer software (other than
software made for a limited purpose computer, such as a video game platform)
for which the Copyright Act vests a rental right (i.e., the right to control
the rental of the copy) in the copyright holder. The repeal or limitation of
the First Sale doctrine (or conversely, the creation of a rental right vested
in the copyright holder) for audiovisual works or for computer software made
for limited purpose computers would have an adverse impact on the Company's
home video and game rental business; however, no such legislation is pending
in Congress at the present time.
Cable Networks
Cable Rate Regulation. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") directed the FCC to limit by
regulation cable system rates for the "basic service tier" ("BST") (including
retransmission consent and must carry broadcast signals and public,
educational and governmental channels) and the "cable programming service
tier" ("CPST") to a level not to exceed the rates that would be charged in the
presence of effective competition. Programming offered on a per-channel or
per-program basis is exempt from rate regulation.
I-21
Although all rate regulation of the CPST expired on March 31, 1999, local
franchising authorities continue to be responsible for regulating the BST. The
Company believes that cable rate regulation adversely affects its non-premium
cable program services which rely on cable operator license fee support, along
with advertising revenues, to maintain the quantity and quality of
programming. Rate regulation in this area tends to erode cable operator
incentives to invest in programming and particularly in start-up program
services.
Program Access. The "program access" provisions of the 1992 Cable Act
impose certain pricing and other restrictions on vertically integrated program
providers (those program services that are owned in whole or in part by cable
operators) with respect to the provision of their program services to
multichannel programming distributors, such as cable systems, SMATV systems,
MMDS operators and TVRO and DBS distributors. Specifically, vertically
integrated program services generally are prohibited from entering into
exclusive arrangements with cable operators and from discriminating against
cable competitors on programming price and other terms. The program access
provisions were intended to spur competition to cable providers by
facilitating the access of cable competitors to programming owned by cable
operators or their affiliates. The Telecommunications Act of 1996 extended the
program access rules to program services in which common carriers that provide
video programming have an attributable interest.
The Company divested its cable systems in 1996 and, as a result, the
Company's wholly owned program services are no longer subject to the program
access rules. Legislation which would extend the program access provisions to
non-vertically integrated program services, if enacted, could adversely impact
the Company's program services by reducing the Company's flexibility to
negotiate the most favorable terms available for the distribution of its
content. However, no such legislation is pending in Congress.
Programming. Under FCC rules, cable operators must eventually close caption
most of their programming on a phased-in basis beginning in January 1998. As a
practical matter, however, cable networks assume responsibility for these
closed captioning requirements. FCC rules also direct that all television
receiver models with screens 13 inches or larger be equipped with "V-chip"
technology as of January 1, 2000. This technology, which works in tandem with
television ratings (age and content markers), will permit parents to block out
certain programming from their children. Most cable networks, including those
of MTVN and SNI, voluntarily encode their programming with television ratings.
In addition, the FCC has commenced a rule making proceeding that might lead to
the adoption of rules that would effectively require certain cable networks to
air four hours per week of programming containing video descriptions for the
visually impaired.
Motion Picture and Television Production and Distribution
The Company's first-run, network and other production operations and its
distribution of off-network, first-run and other programs in domestic and
foreign syndication are not directly regulated. However, existing and proposed
rules and regulations of the FCC applicable to broadcast networks, individual
broadcast stations and cable operators could affect the Company's
entertainment businesses.
European Union Directive. Since 1989, members of the European Union have
been required by the "Television without Frontiers" Directive (89/552/EEC) to
maintain quotas such that programming of local origin constitutes the majority
proportion of all programming, where practicable and by appropriate means, to
be achieved progressively on the basis of stated criteria. The Company
believes that its program services in Europe are in compliance with the EC
broadcast quotas.
Broadcasting
Television broadcasting is subject to the jurisdiction of the FCC.
The Communications Act. The Communications Act authorizes the FCC to issue,
renew, revoke or modify broadcast licenses; to regulate the radio frequency,
operating power and location of stations; to approve the transmitting
equipment used by stations; to adopt rules and regulations necessary to carry
out the provisions of
I-22
the Communications Act; and to impose certain penalties for violations of the
Communications Act and the FCC's regulations governing the day-to-day
operations of television stations.
Broadcast Licenses. Unless the FCC finds that doing so would not be in the
public interest, it will grant broadcast station licenses for maximum periods
of eight years. Upon application to and approval by the FCC, the licenses are
renewable for an indefinite number of additional eight-year periods.
A licensee can ordinarily expect renewal of its license if the licensee has
served the public interest and has not seriously violated the Communications
Act or FCC rules. Among the factors the FCC considers relevant to whether a
broadcaster has served the public interest is compliance with the Children's
Television Act of 1990 and implementing regulations. Under those rules,
beginning on September 1, 1997, licensees generally are required to regularly
schedule at least three hours a week of "core" educational and informational
programming targeted to children ages 16 and under. Licensees also are
required to limit commercials during programming targeted to children ages 12
and under.
A license which has expired but is awaiting renewal entitles the licensee
to continue broadcasting pending grant of the renewal. The status of the
Company's television stations' licenses is as follows: WDCA-TV and WGNT-TV
each expires on October 1, 2004; WBFS-TV and WTOG-TV each expires on February
1, 2005; WUPA-TV expires on April 1, 2005; WUPL-TV expires on June 1, 2005;
WNDY-TV expires on August 1, 2005; WKBD-TV and WWHO-TV each expires on October
1, 2005; KAUT-TV expires on June 1, 2006; KTXA-TV and KTXH-TV each expires on
August 1, 2006; KMAX-TV expires on December 1, 2006; KSTW-TV expires on
February 1, 2007; WSBK-TV expires on April 1, 2007; and WPSG-TV and WNPA-TV
each expires on August 1, 2007.
The Communications Act requires prior approval of the FCC for the
assignment of a license or transfer of control of a licensee. The Company's
anticipated merger with CBS, which will result in the transfer of control of
CBS and its licensee subsidiaries to the Company, is subject to the approval
of the FCC. The application seeking consent to the transfer of control was
filed with the FCC on November 16, 1999. The comment period for formal
petitioners ended on January 28, 2000. Four formal petitions to deny have been
filed. If the FCC grants the application, interested parties would have 30
days from the date of public notice of the grant to seek reconsideration or
review of that grant by the full Commission or, as the case may be, a court of
competent jurisdiction. The full Commission has an additional 10 days to set
aside on its own motion any action taken by the FCC's staff, if action on the
application is taken in the first instance by the staff of the FCC; if action
is taken in the first instance by the full Commission, the full Commission may
set aside its own action within 30 days of public notice of such action. When
passing on a transfer application, the FCC is prohibited from considering
whether the public interest might be served by assignment or transfer to any
party other than the one specified in the application.
Additionally, the Communications Act provides that no license may be held
by a corporation whose voting stock is more than 20% owned of record or voted
by aliens or is subject to control by aliens. In addition, no corporation
whose voting stock is more than 25% owned of record or voted by aliens or is
subject to control by aliens may hold the voting stock of a corporation
holding a broadcast license without specific FCC authorization. The Company
conducts periodic surveys of its shareholders to confirm its compliance with
the foreign ownership limits.
Television Programming. In addition to children's educational and
informational programming, discussed above, broadcasters under FCC rules must
eventually close caption most of their programming on a phased-in basis
beginning in January 1998. FCC rules also direct that all television receiver
models with screens 13 inches or larger be equipped with "V-chip" technology
as of January 1, 2000. This technology, which works in tandem with television
ratings (age and content markers), will permit parents to block out certain
programming from their children. Most broadcasters, including UPN and the PSG
stations, voluntarily encode their programming with television ratings for use
with the "V-chip" technologies.
I-23
Digital Television Service. In April 1997, the FCC issued a DTV Table of
Allotments which assigned to all existing television stations nationwide a
second, six-MHz channel for broadcasting in digital form. Under FCC rules,
television stations may use this second channel to broadcast either one or two
streams of "high definition" digital television (HDTV) video programming or to
"multicast" several streams of standard digital video programming.
Broadcasters may also deliver large amounts of data over their DTV channels or
offer other ancillary or supplementary services, including computer software
distribution, teletext, interactive materials, aural messages, paging
services, audio signals or subscription video. At a minimum, under the FCC's
DTV rules, broadcasters must ultimately provide a free digital video
programming service the resolution of which is comparable to or better than
that of today's service on air during the same time periods that their analog
channels are broadcasting.
At the time it adopted the DTV Table of Allotments, the FCC also
established a schedule pursuant to which all television stations must have
constructed their DTV operations. Under that schedule, any commercial
television station that is not an affiliate of ABC, CBS, NBC or FOX must
construct its DTV station no later than May 1, 2002. Because its stations are
all affiliates of UPN or the WB, the Company must have constructed its digital
operations by that date, unless an extension of time is granted by the FCC. It
is difficult to assess how DTV will affect the Company's broadcast business
with respect to other broadcasters and other video program providers.
Each television station licensee will be licensed a digital channel for an
eight-year term running coterminous with the licensee's analog channel.
Broadcasters will be required to surrender their analog channels but, under
FCC policy, not until at least 2006. This transition period is subject to
periodic progress reviews to make sure DTV service is widely available. The
FCC recently initiated the first such review. In addition, the Balanced Budget
Act of 1997 includes provisions that would extend the continuation of analog
service beyond the year 2006 deadline if DTV is implemented more slowly than
expected. Specific conditions which would extend the transition period include
the failure of one or more of the largest television stations in a market to
begin broadcasting digital television signals through no fault of their own,
or fewer than 85% of the television households in a market being able to
receive digital televisions signals off the air either with a digital
television set or with an analog set equipped with a converter box or by
subscription to a cable-type service that carries the DTV stations in the
market. Until the transition to digital is complete, FCC rules require that
broadcasters phase in (according to annual benchmarks) the percentage of video
programming of their analog channels that is simulcast on the DTV channel.
During the transition and thereafter, broadcasters are permitted to use
their digital channels to offer ancillary and supplementary services,
including, but not limited to, data transmission and subscription services.
The Telecommunications Act of 1996 imposes fees for use of the spectrum based
upon the extent to which such services generate revenues other than from
commercial advertisements used to support broadcasting for which a
subscription fee is not required. In 1998, the FCC adopted rules which set the
spectrum use fee at 5% of the broadcaster's gross revenues from ancillary and
supplemental services. The implementation of digital television will impose
substantial additional costs on television stations because of the need to
replace equipment and because some stations will need to operate at higher
utility costs. There can be no assurance that the Company's television
stations will be able to increase revenue to offset such costs. The FCC is
also considering imposing new public interest requirements on television
licensees in exchange for their receipt of digital television channels.
Must Carry/Retransmission Consent. The Communications Act grants certain
"must carry" rights to enable broadcast television stations that are "local"
to communities served by cable systems to obtain carriage on such systems.
Alternatively, commercial stations may elect to secure cable system carriage
pursuant to "retransmission consent" on negotiated terms. The must
carry/retransmission consent election must be made every three years; the last
election was made on October 1, 1999, and took effect on January 1, 2000.
All of the Company's television stations are carried on cable systems
serving the communities in the stations' markets. Most of the stations
obtained carriage by asserting must carry rights, but some stations
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followed the retransmission consent process. Failure of broadcast stations to
be carried on cable systems could be detrimental to the business of a
television station.
The application of must carry requirements to DTV is to be decided by the
FCC in a proceeding that is expected to be completed during the second quarter
of 2000. The Telecommunications Act of 1996 expressly provides that no
ancillary or supplementary DTV services provided by broadcasters will be
entitled to mandatory cable carriage. As explained in the section on SHVA, the
recently enacted SHVA legislation imposes retransmission consent and,
ultimately, must carry, obligations on satellite carriers as well.
Ownership Regulation. The Communications Act and FCC rules and policies
regulate broadcast ownership. FCC rules limit the ability of individuals and
entities to own or have an official position or ownership interest, known as
an attributable interest, above a specific level in broadcast stations as well
as other specified mass media. As detailed below, in August 1999, the FCC
substantially revised a number of its attribution and ownership rules. The
attribution and ownership rules, including the FCC's recent revisions, are
summarized below.
Attribution of Ownership. A direct or indirect purchaser of certain
interests of the Company could violate FCC regulations or policies if that
purchaser owned or acquired an attributable interest in other media properties
in the same areas as stations owned by the Company or in other television
stations which, when aggregated with those of the Company, reached more than
35% of all U.S. television households. Under the FCC's recently revised rules,
an attributable interest for purposes of the Commission's broadcast ownership
rules generally includes:
. Equity and debt interests, which combined exceed 33% of a television
station licensee's total assets, if the interest holder supplies more
than 15% of total weekly programming, or is a same-market media entity,
including television, radio, cable or newspaper.
. 5% or greater voting stock interest. Equity interests up to 49% are
nonattributable if the licensee is controlled by a single majority
shareholder and the interest holder is not otherwise attributable under
the "equity/debt plus" standard referred to above.
. 20% or greater voting stock interest, if the holder is a qualified
passive investor.
. Any equity interest in a limited liability company or limited
partnership, unless properly "insulated" from management activities and
the interest holder is not otherwise attributable under the "equity/debt
plus" standard referred to above.
. All officers and directors of a licensee and its direct or indirect
parent.
Local Television Ownership. The FCC's new television duopoly rule permits
parties to own two television stations without regard to signal contour
overlap, provided they are located in separate markets, as determined by
Nielsen Media Research's Designated Market Areas ("DMAs"). In addition, the
new rules permit parties in larger DMAs to own up to two television stations
in the same DMA so long as at least eight independently owned and operating
full-power television stations remain in the market at the time of acquisition
and at least one of the two stations is not among the top four-ranked stations
in the market based on audience share. In addition, without regard to numbers
of remaining or independently owned television stations, the FCC will permit
television duopolies within the same DMA provided that certain signal contours
of the stations involved do not overlap. A "satellite" station (one that
simply rebroadcasts the programming of a "parent" station) will continue to be
exempt from the duopoly rule if located in the same DMA as its parent station.
The duopoly rule also applies to same-market LMAs involving more than 15% of
the station's program time, although current LMAs will be exempt from the
duopoly rule for a period of either two or five years, depending on the date
of the LMA agreement. Further, the FCC may grant a waiver of the television
duopoly rule if one of the two television stations is a "failed" or "failing"
station, as defined by the FCC, or the proposed transaction would result in
the construction of a new television station.
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Following the Company's anticipated merger with CBS, and exclusive of other
acquisitions, the Company could potentially have duopolies in six television
markets: Philadelphia, Boston, Dallas, Miami, Detroit and Pittsburgh. The
Company has applied to the FCC for ownership of duopolies in those markets as
part of its application seeking consent to the transfer of control of the CBS
licenses to the Company, but there can be no assurance that the Company will
be able to retain ownership of two television stations in each of these
markets.
National Television Ownership Cap. The FCC imposes a 35% national audience
reach cap for television ownership, under which one party may have an
attributable interest in television stations which reach no more than 35% of
all U.S. television households. The FCC discounts the audience reach of a UHF
station for this purpose by 50%. Under new FCC rules, for parties that have
attributable interests in two stations in the same market, the FCC counts the
audience reach of that market only once for national ownership cap purposes.
The Company's television stations currently reach approximately 14% of U.S.
households, using the FCC's UHF discount. The merger of the Company's
television stations with those of CBS would have an aggregate national
audience reach of approximately 41%. As these stations would exceed the FCC's
current 35% national ownership cap, it will be necessary, absent legislative
or regulatory relief, to divest specific television stations in order to
comply with the national ownership cap.
Dual Network Rule. The FCC's "dual network" rule generally prohibits a
television station from affiliating with an entity that "maintains" one of the
existing four major networks (ABC, CBS, NBC and FOX) and one other specific
qualifying network in existence as of February 8, 1996, specifically UPN or
The WB. The FCC is evaluating this rule as part of its biennial review of
broadcast regulations, which is expected to be released in the second quarter
of this year. FCC regulations do not identify the amount and nature of
ownership interest required to trigger the dual network prohibition.
The Company's anticipated merger with CBS would result in the common
ownership of UPN and the CBS Television Network in potential conflict with the
FCC's dual network rule. Accordingly, it is possible that, absent either
legislative or regulatory relief, the combined company might be required to
divest some or all of the Company's interest in UPN.
In applying for consent to the transfer of control of the CBS broadcast
licenses, the Company requested, if deemed necessary, a 24-month period
following consummation of the merger to comply with the local television
ownership rules, the national television ownership cap and the dual network
rule.
Video
BLOCKBUSTER is subject to various federal, state and local laws that govern
the access and use of its video stores by disabled people and the disclosure
and retention of video rental records. BLOCKBUSTER also must comply with
various regulations affecting its business, including state and local
advertising, consumer protection, credit protection, licensing, zoning, land
use, construction, environmental, and minimum wage and other labor and
employment regulations.
BLOCKBUSTER is also subject to the Trade Regulation Rule of the Federal
Trade Commission ("FTC") entitled "Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures" and state laws and
regulations that govern (i) the offer and sale of franchises and (ii)
franchise relationships. These regulations require BLOCKBUSTER to furnish each
prospective franchisee with a current franchise offering circular prior to the
offer or sale of a franchise. In addition, a number of states require that
BLOCKBUSTER, as franchisor, comply with that state's registration or filing
requirements prior to offering or selling a franchise in the state and provide
a prospective franchisee with a current franchise offering circular complying
with the state's laws, prior to the offer or sale of the franchise.
BLOCKBUSTER intends to maintain a franchise offering circular that complies
with all applicable federal and state franchise sales and other applicable
laws.
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BLOCKBUSTER is also subject to a number of state laws and regulations that
regulate some substantive aspects of the franchisor-franchisee relationship,
including (i) those governing the termination or non-renewal of a franchise
agreement; (ii) requirements that the franchisor deal with its franchisees in
good faith; (iii) prohibitions against interference with the right of free
association among franchisees; and (iv) those regulating discrimination among
franchisees in charges, royalties or fees.
Compliance with federal and state franchise laws is costly and time-
consuming, and no assurance can be given that BLOCKBUSTER will not encounter
difficulties or delays in this area or that it will not require significant
capital for franchising activities.
Online
Web Sites Directed to Children. The Children's Online Privacy Protection
Act of 1998 ("COPPA"), which was implemented by the FTC in October 1999,
applies to Web sites, or those portions of Web sites, directed to children
under age 13. Under COPPA, Web site operators generally cannot collect online
from a child under age 13 information that is individually identifiable such
as a first and last name, an e-mail address or telephone number without the
prior consent of that child's parent. The FTC rules become effective on April
21, 2000. Congress may also consider legislation this year regarding online
privacy for adults.
Anti-Cybersquatting Legislation. In 1999, Congress enacted legislation to
address the practice of domain name piracy. The legislation is designed to
limit the practice of registering an Internet address of an established
trademark with the hopes of selling the Internet address to the affected
company. The legislation also includes a prohibition on the registration of a
domain name that is the name of another living person, or a name that is
confusingly similar to that name. There is a broad exemption for personal
names linked to copyrighted works.
Item 2. Properties.
The Company maintains its world headquarters at 1515 Broadway, New York,
New York, where it rents approximately one million square feet for executive
offices and certain of its operating divisions. The lease runs to 2010, with
four renewal options for five years each. The lease also grants the Company
options for additional space and a right of first negotiation for other
available space in the building. The Company also leases approximately 548,000
square feet of office space at 1633 Broadway, New York, New York, which lease
runs to 2010, and approximately 237,000 square feet of office space at 1230
Avenue of the Americas, New York, New York, which lease runs to 2009, which
leases contain options to renew. The Company owns the PARAMOUNT PICTURES
studio at 5555 Melrose Avenue, Los Angeles, California, which consists of
approximately 65 acres containing sound stages, administrative, technical and
dressing room structures, screening theaters, machinery and equipment
facilities, plus a back lot and parking lots. PARAMOUNT PARKS' operations in
the U.S. include approximately 1,950 acres owned and 108 acres leased and in
Canada include approximately 380 acres owned. The BLOCKBUSTER headquarters at
1201 Elm Street, Dallas, Texas consists of approximately 220,000 square feet
of leased space. The BLOCKBUSTER distribution center consists of approximately
850,000 square feet of leased space. Facilities within the Publishing segment
(other than executive offices at 1230 Avenue of the Americas described above)
include approximately 1,190,000 square feet of space, of which approximately
603,000 square feet are leased. The facilities are used for warehouse,
distribution and administrative functions.
The Company also owns and leases office, studio, retail and warehouse space
and broadcast and satellite transmission facilities in various cities in the
U.S., Canada and several countries around the world for its businesses. The
Company considers its properties adequate for its present needs.
Item 3. Legal Proceedings.
Antitrust. On July 21, 1999, Ruben Loredo, doing business as Five Palms
Video, purporting to act as a class representative on behalf of himself and
all others similarly situated, filed a complaint in the District Court of
Bexar County, Texas, against BLOCKBUSTER. The plaintiff asserts, among other
things, that by entering into and operating under its revenue-sharing
agreements with the major motion picture studios, BLOCKBUSTER
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has attempted to and conspired with the studios to monopolize and restrain
competition in the market for the retail rental of videocassettes in violation
of Texas law. A substantially similar complaint with different class
representatives is pending in the United States District Court for the Western
District of Texas against the Company and major motion picture studios and
their home video subsidiaries that have operated under these revenue-sharing
agreements with BLOCKBUSTER, including PARAMOUNT HOME VIDEO (now PARAMOUNT
HOME ENTERTAINMENT). These plaintiffs are seeking triple the amount of the
alleged actual damages to themselves and triple the amount of alleged damages
of those similarly situated, as well as preliminary and permanent injunctive
relief prohibiting any unlawful attempt or conspiracy to monopolize the market
for the retail rental of videocassettes. The Company believes that the
plaintiff's' position in these litigations are without merit and intends to
vigorously defend itself in the litigations.
MTVN has been subject to an investigation by the Antitrust Division of the
Department of Justice regarding possible anticompetitive practices in the
music video industry. The Company does not believe that it has engaged in any
anti-competitive conduct in the areas of investigation.
The Company, through PARAMOUNT PICTURES, is subject to a consent decree,
entered in 1948, which contains restrictions on certain motion picture trade
practices in the U.S. The Company, through PARAMOUNT PICTURES, along with
other major distributors, has received a Civil Investigative Demand from the
Justice Department which is investigating possible violations of the industry-
wide decrees. The Company believes that it has not committed any violation of
the consent decree and has not been advised that the Department of Justice
believes otherwise.
Other Matters. On March 19, 1999, the date upon which the Company announced
its proposal to acquire the remaining stock of SPELLING that it did not
currently own, eight putative class action complaints were filed in the Court
of Chancery of the State of Delaware naming the Company, SPELLING and all of
SPELLING's Directors, and alleging various breaches of fiduciary duties to
SPELLING and its stockholders, as well as other claims. These legal
proceedings were settled, subject to confirmatory discovery and court
approval.
Certain subsidiaries of the Company from time to time receive claims from
federal and state environmental regulatory agencies and other entities
asserting that they are or may be liable for environmental cleanup costs and
related damages arising out of former operations. While the outcome of these
claims cannot be predicted with certainty, on the basis of its experience and
the information currently available to it, the Company does not believe that
the claims it has received will have a material adverse effect on its results
of operations, financial position or cash flows. (See "Item 6. Selected
Financial Data" and "Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition".)
The Company and various of its subsidiaries are parties to certain other
legal proceedings. However, these proceedings are not likely to result in
judgments that will have a material adverse effect on its results of
operations, financial position or cash flows.
Financial Information About Foreign and Domestic Operations
Financial information relating to foreign and domestic operations for each
of the last three years ending December 31, is set forth in Note 16 to the
Consolidated Financial Statements of the Company included elsewhere herein.
Item 4. Submission of Matters to a Vote of Security Holders.
By a joint proxy statement/prospectus dated November 24, 1999, and mailed
to shareholders on or about November 26, 1999, the written consent of the
shareholders of the Company's Class A Common Stock was solicited with respect
to the following matters: (i) if the merger is structured as a merger of CBS
into the Company, the adoption of the Agreement and Plan of Merger dated as of
September 6, 1999, as amended and
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restated as of October 8, 1999, and as of November 23, 1999, among the
Company, CBS and Viacom/CBS LLC (the "Merger Agreement"); (ii) if the merger
is structured as a merger of CBS into Viacom/CBS LLC, the adoption of the
proposed new Restated Certificate of Incorporation of the Company; (iii) if
the merger is structured as a merger of CBS into Viacom/CBS LLC, the issuance
of up to 907,746,991 shares of the Company's Class B Common Stock to the
holders of CBS common stock and up to 11,003 shares of the Company's Series C
Preferred Stock to the holders of CBS Series B preferred stock in the merger,
in accordance with the terms set forth in the Merger Agreement; and (iv) the
amendment to increase the number of shares of the Company's Class B Common
Stock authorized to be issued under the Company incentive plan by an
additional 10 million shares.
The consents cast for, against or abstaining from, and the broker non-
consents, with respect to the adoption of the Merger Agreement, if the merger
is structured as a merger of CBS into the Company:
[Download Table]
Abstentions and Broker
For: Against: Non-Consents:
128,074,140 61,585 5,173,686
The consents cast for, against or abstaining from, and the broker non-
consents, with respect to the adoption of the proposed new Restated
Certificate of Incorporation of the Company, if the merger is structured as a
merger of CBS into Viacom/CBS LLC:
[Download Table]
Abstentions and Broker
For: Against: Non-Consents:
128,062,616 67,212 5,179,583
The consents cast for, against or abstaining from, and the broker non-
consents, with respect to the issuance of up to 907,746,991 shares of the
Company's Class B Common Stock to the holders of CBS common stock and up to
11,003 shares of the Company's Series C Preferred Stock to the holders of CBS
Series B preferred stock in the merger, in accordance with the terms set forth
in the Merger Agreement, if the merger is structured as a merger of CBS into
Viacom/CBS LLC:
[Download Table]
Abstentions and Broker
For: Against: Non-Consents:
128,051,135 73,709 5,184,567
The consents cast for, against or abstaining from, and the broker non-
consents, with respect to the amendment to increase the number of shares of
the Company's Class B Common Stock authorized to be issued under the Company
incentive plan by an additional 10 million shares:
[Download Table]
Abstentions and Broker
For: Against: Non-Consents:
126,209,604 7,059,393 40,414
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Executive Officers of the Company
Set forth below is certain information concerning the executive officers of
the Company.
[Enlarge/Download Table]
Name Age Title
---- --- -----
Sumner M. Redstone...... 76 Chairman of the Board of Directors and Chief Executive Officer
Philippe P. Dauman...... 46 Deputy Chairman, Executive Vice President and Director
Thomas E. Dooley........ 43 Deputy Chairman, Executive Vice President and Director
Carl D. Folta........... 42 Senior Vice President, Corporate Relations
Michael D. Fricklas..... 40 Senior Vice President, General Counsel and Secretary
Susan C. Gordon......... 46 Vice President, Controller and Chief Accounting Officer
Rudolph L. Hertlein..... 59 Senior Vice President, Corporate Development
Carol A. Melton......... 45 Senior Vice President, Government Affairs
William A. Roskin....... 57 Senior Vice President, Human Resources and Administration
Martin M. Shea.......... 56 Senior Vice President, Investor Relations
George S. Smith, Jr..... 51 Senior Vice President, Chief Financial Officer
--------
None of the executive officers of the Company is related to any other
executive officer or director by blood, marriage or adoption except that Brent
D. Redstone and Shari Redstone, Directors of the Company, are the son and
daughter, respectively, of Sumner M. Redstone.
Mr. Redstone has been a Director of the Company since 1986 and Chairman of
the Board since 1987, acquiring the additional title of Chief Executive
Officer in January 1996. Mr. Redstone has served as Chief Executive Officer of
NAI since 1967, and continues to serve in such capacity; he has also served as
Chairman of the Board of NAI since 1986. Mr. Redstone was President of NAI
from 1967 through 1999. Mr. Redstone became a Director of Blockbuster in 1999.
He is a member of the Advisory Council for the Academy of Television Arts and
Sciences Foundation and on the Board of Trustees for The Museum of Television
and Radio. Mr. Redstone served as the first Chairman of the Board of the
National Association of Theatre Owners, and is currently a member of the
Executive Committee of that organization. Since 1982, Mr. Redstone has been a
member of the faculty of Boston University Law School, where he has lectured
on entertainment law, and since 1994, he has been a Visiting Professor at
Brandeis University. In 1944, Mr. Redstone graduated from Harvard University
and, in 1947, received an LL.B. from Harvard University School of Law. Upon
graduation, he served as Law Secretary with the U.S. Court of Appeals, and
then as a Special Assistant to the U.S. Attorney General.
Mr. Dauman has been a Director of the Company since 1987. He was elected
Executive Vice President in March 1994, and was appointed Deputy Chairman in
January 1996. From February 1993 to October 1998, Mr. Dauman also served as
General Counsel and Secretary of the Company. Prior to February 1993, Mr.
Dauman was a partner in the law firm of Shearman & Sterling in New York, which
he joined in 1978. Mr. Dauman became a Director of Lafarge Corporation in
1997, a Director of Blockbuster in 1999 and a Director of NAI in 1992.
Mr. Dooley was elected Executive Vice President in March 1994 and appointed
a Director and Deputy Chairman of the Company in January 1996, having been an
executive officer of the Company since January 1987. From July 1992 to March
1994, Mr. Dooley served as Senior Vice President, Corporate Development of the
Company. From August 1993 to March 1994, he also served as President,
Interactive Television. Prior to that, he held various positions in the
Company's corporate and divisional finance areas. Mr. Dooley became a Director
of Blockbuster in 1999.
Mr. Folta was elected Senior Vice President, Corporate Relations of the
Company in November 1994. Prior to that, he served as Vice President,
Corporate Relations of the Company from April 1994 to November 1994. From 1984
until joining the Company in April 1994, Mr. Folta held various Corporate
Communications positions at Paramount Communications Inc., serving most
recently as Senior Director, Corporate Communications.
Mr. Fricklas was elected Senior Vice President, General Counsel and
Secretary of the Company in October 1998. From July 1993 to October 1998, he
served as Deputy General Counsel of the Company. He served as
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Vice President, General Counsel and Secretary of Minorco (U.S.A.) Inc. from
1990 to 1993. Prior to that, Mr. Fricklas was an attorney in private practice
at the law firm of Shearman & Sterling.
Ms. Gordon was elected Vice President, Controller and Chief Accounting
Officer in April 1995. Prior to that, she served as Vice President, Internal
Audit of the Company since October 1986. From June 1985 to October 1986, Ms.
Gordon served as Controller of Viacom Broadcasting. She joined the Company in
1981 and held various positions in the corporate finance area.
Mr. Hertlein was elected Senior Vice President, Corporate Development of
the Company in July 1994. Prior to that, he served as Senior Vice President
and Controller of Paramount Communications Inc. from September 1993 to July
1994 and as Senior Vice President, Internal Audit and Special Projects of
Paramount Communications Inc. from September 1992 to September 1993 and,
before that, as Vice President, Internal Audit and Special Projects of
Paramount Communications Inc.
Ms. Melton was elected Senior Vice President, Government Affairs of the
Company in May 1997. Before joining the Company, Ms. Melton served most
recently as Vice President, Law and Public Policy at Time Warner Inc., having
joined Warner Communications Inc. in 1987. Prior to that, Ms. Melton served as
Legal Advisor to the Chairman of the Federal Communications Commission and as
Assistant General Counsel for the National Cable Television Association.
Mr. Roskin has been an executive officer of the Company since April 1988
when he became Vice President, Human Resources and Administration. In July
1992, Mr. Roskin was elected Senior Vice President, Human Resources and
Administration of the Company. From May 1986 to April 1988, he was Senior Vice
President, Human Resources at Coleco Industries, Inc. From 1976 to 1986, he
held various executive positions at Warner Communications Inc., serving most
recently as Vice President, Industrial and Labor Relations.
Mr. Shea was elected Senior Vice President, Investor Relations of the
Company in January 1998. From July 1994 to May 1995 and from November 1995 to
December 1997, he was Senior Vice President, Corporate Communications for
Triarc Companies, Inc. From June 1995 through October 1995, he served as
Managing Director of Edelman Worldwide. From 1977 until July 1994, Mr. Shea
held various Investor Relations positions at Paramount Communications Inc.,
serving most recently as Vice President, Investor Relations.
Mr. Smith has been an executive officer of the Company since May 1985. In
November 1987, he was elected Senior Vice President, Chief Financial Officer
of the Company and he continues to serve in such capacity. In May 1985, Mr.
Smith was elected Vice President, Controller and, in October 1987, he was
elected Vice President, Chief Financial Officer of the Company. From 1983
until May 1985, he served as Vice President, Finance and Administration of
Viacom Broadcasting and from 1981 until 1983, he served as Controller of
Viacom Radio. Mr. Smith joined the Company in 1977 in the Corporate
Treasurer's office and until 1981 served in various financial planning
capacities.
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PART II
Item 5. Market for Viacom Inc.'s Common Equity and Related Security Holder
Matters.
Viacom Inc. voting Class A Common Stock and Viacom Inc. non-voting Class B
Common Stock are listed and traded on the New York Stock Exchange ("NYSE")
under the symbols "VIA" and "VIA.B", respectively. The Company moved its
listing to the NYSE from the American Stock Exchange effective April 8, 1999.
On February 25, 1999, the Board of Directors of the Company declared a 2-
for-1 common stock split, to be effected in the form of a dividend. The
additional shares were issued on March 31, 1999 to shareholders of record on
March 15, 1999. All common share and per share amounts have been adjusted to
reflect the stock split for all periods presented.
The following table sets forth, for the calendar periods indicated, the per
share range of high and low sales prices for Viacom Inc.'s Class A Common
Stock and Class B Common Stock, as reported on the NYSE or by the American
Stock Exchange as the case may be.
[Download Table]
Viacom Inc. Class A Viacom Inc. Class B
Common Stock Common Stock
------------------- ---------------------
High Low High Low
--------- --------- --------- -----------
1998
1st quarter.................... $27 1/8 $19 15/16 $27 17/32 $20 1/4
2nd quarter.................... 30 1/2 26 1/8 30 5/8 26 13/32
3rd quarter.................... 34 11/16 24 5/8 35 24 3/4
4th quarter.................... 36 29/32 25 7/16 37 1/8 25 163/512
1999
1st quarter.................... $45 1/2 $35 5/16 $45 15/16 $35 3/8
2nd quarter.................... 48 3/4 36 11/16 49 3/16 36 5/8
3rd quarter.................... 49 5/8 38 7/16 48 3/4 38 9/16
4th quarter.................... 60 7/16 40 5/16 60 7/16 39 13/16
Viacom Inc. has not declared cash dividends on its common stock and has no
present intention of so doing.
As of March 14, 2000, there were approximately 8,967 holders of Viacom Inc.
Class A Common Stock and 17,894 holders of Viacom Inc. Class B Common Stock.
II-1
Item 6. Selected Financial Data.
VIACOM INC. AND SUBSIDIARIES
(Millions of dollars, except per share amounts)
[Download Table]
Year Ended December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Revenues................... $12,858.8 $12,096.1 $10,684.9 $ 9,683.9 $ 8,700.1
Operating income (a)....... $ 1,247.3 $ 751.6 $ 685.4 $ 1,197.2 $ 1,247.2
Earnings (loss) from
continuing operations..... $ 371.7 $ (43.5) $ 373.5 $ 152.2 $ 88.0
Net earnings (loss)........ $ 334.0 $ (122.4) $ 793.6 $ 1,247.9 $ 222.5
Net earnings (loss)
attributable to common
stock..................... $ 321.6 $ (149.6) $ 733.6 $ 1,187.9 $ 162.5
Basic earnings per common
share:
Earnings (loss) from
continuing operations.... $ .52 $ (.10) $ .44 $ .13 $ .04
Net earnings (loss)....... $ .46 $ (.21) $ 1.04 $ 1.63 $ .22
Diluted earnings per common
share:
Earnings (loss) from
continuing operations.... $ .51 $ (.10) $ .44 $ .13 $ .04
Net earnings (loss)....... $ .45 $ (.21) $ 1.04 $ 1.62 $ .22
At Year End:
Total assets.............. $24,486.4 $23,613.1 $28,288.7 $28,834.0 $28,991.0
Long-term debt, net of
current portion.......... $ 5,697.7 $ 3,813.4 $ 7,423.0 $ 9,855.7 $10,712.1
Shareholders' equity...... $11,132.0 $12,049.6 $13,383.6 $12,586.5 $12,093.8
--------------------
(a) Operating income is defined as earnings (loss) before extraordinary loss,
discontinued operations, minority interest, equity in loss of affiliated
companies (net of tax), provision for income taxes, other items (net) and
interest income and expense.
See Notes to Consolidated Financial Statements for additional information
on transactions and accounting classifications which have affected the
comparability of the periods presented above.
Viacom Inc. has not declared cash dividends on its common stock for any of
the periods presented above.
II-2
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
(Tabular dollars in millions)
General
Management's discussion and analysis of the results of operations and
financial condition of Viacom Inc. and its subsidiaries (the "Company") should
be read in conjunction with the Consolidated Financial Statements and related
Notes. Descriptions of all documents incorporated by reference herein or
included as exhibits hereto are qualified in their entirety by reference to
the full text of such documents so incorporated or included.
The Company delivered exceptional financial results in 1999 and continues
to accomplish its strategic objectives to focus on its core businesses,
strengthen the balance sheet and improve the capital structure. The Company,
in conjunction with the anticipated completion of the merger with CBS
Corporation ("CBS"), has secured its position as a leading global media and
entertainment company. The Company's significant transactions were as follows:
. On September 7, 1999, the Company and CBS announced that the companies
had signed a definitive agreement to merge. On December 29, 1999, the
shareholders of both companies approved this transaction. At the time of
the merger, the Company will issue 1.085 shares of its Class B Common
Stock for each share of CBS common stock and 1.085 shares of its Series
C Preferred Stock for each share of CBS Series B preferred stock.
Although the waiting period prescribed by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 has expired, the merger is under
continuing review by the U.S. Department of Justice and is further
subject to regulatory approval by the Federal Communications Commission.
The Company expects the merger to be completed in April of 2000.
. On August 10, 1999, Blockbuster Inc. ("Blockbuster") sold to the public
31 million shares of its Class A common stock at $15 per share. The
shares are traded on the New York Stock Exchange. The Company, through
its ownership of all of the 144 million shares of Blockbuster Class B
common stock outstanding, retained approximately 82% of the total equity
value in, and approximately 96% of the combined voting power of,
Blockbuster.
. Throughout 1998 and 1999, the Company repurchased its common stock,
warrants and convertible preferred stock for an aggregate cost of $2.5
billion. In addition, on February 16, 2000, the Company announced a new
repurchase program to acquire up to $1.0 billion of its shares of common
stock.
. On June 21, 1999, the Company completed its tender offer for all
outstanding shares of Spelling Entertainment Group Inc. ("Spelling")
common stock that it did not already own and on June 23, 1999, the
Company acquired the remaining outstanding shares through a merger of
Spelling and a wholly owned subsidiary of the Company. The Spelling
transaction resulted in the Company recording a charge of approximately
$81.1 million, of which $70.3 million was recorded as a restructuring
charge and $10.8 million was recorded as part of depreciation expense.
The restructuring charge of $70.3 million was primarily associated with
the integration of the operations of Spelling into Paramount Television,
resulting in the elimination of duplicative sales forces and certain
other back office functions.
II-3
Business Segment Information
The Company has the following six operating segments:
Networks--Basic Cable and Premium Subscription Television Program Services.
Entertainment--Production and Distribution of Motion Pictures and
Television Programming as well as the operation of Television Stations,
International Television Program Services, Movie Theaters and Music
Publishing.
Video--Home Video and Game Rental and Retail through traditional stores and
the Internet.
Parks--Theme Parks.
Publishing--Consumer Publishing.
Online--Interactive Online Services.
The following tables set forth revenues and operating income (loss) by
business segment, for the years ended December 31, 1999, 1998 and 1997.
Results for each year presented exclude the educational, professional and
reference publishing businesses ("Non-Consumer Publishing"), music retail
stores, interactive game businesses and Viacom Radio Stations which are
reported as discontinued operations.
[Download Table]
Percent
Year ended December 31, Better/(Worse)
------------------------------- ---------------
1999 1998
1999 1998 1997 vs 1998 vs 1997
--------- --------- --------- ------- -------
Revenues:
Networks...................... $ 3,045.5 $ 2,607.9 $ 2,262.8 17% 15%
Entertainment................. 4,618.1 4,757.8 4,305.9 (3) 10
Video......................... 4,463.5 3,893.4 3,313.6 15 17
Parks......................... 390.8 421.2 367.3 (7) 15
Publishing.................... 610.7 564.6 556.6 8 1
Online........................ 29.8 13.7 10.4 118 32
Intercompany.................. (299.6) (162.5) (131.7) (84) (23)
--------- --------- ---------
Total revenues.............. $12,858.8 $12,096.1 $10,684.9 6 13
========= ========= =========
Operating income (loss) (a):
Networks...................... $ 932.4 $ 744.3 $ 635.6 25% 17%
Entertainment................. 332.0 448.0 343.0 (26) 31
Video......................... 127.9 (342.2) (196.8) NM (74)
Parks......................... 42.5 49.9 42.4 (15) 18
Publishing.................... 54.3 53.2 60.4 2 (12)
Online........................ (64.5) (7.5) 2.3 NM NM
--------- --------- ---------
Segment total............... 1,424.6 945.7 886.9 51 7
Corporate/Eliminations........ (177.3) (194.1) (201.5) 9 4
--------- --------- ---------
Total operating income...... $ 1,247.3 $ 751.6 $ 685.4 66 10
========= ========= =========
---------------------
(a) Operating income (loss) is defined as earnings before extraordinary loss,
discontinued operations, minority interest, equity in loss of affiliated
companies (net of tax), provision for income taxes, other items (net), and
interest income and expense.
NM--Not meaningful
II-4
EBITDA
The following table sets forth EBITDA (defined as operating income (loss)
before depreciation and amortization principally of goodwill related to
business combinations) for the years ended December 31, 1999, 1998 and 1997.
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.
[Download Table]
Percent
Year ended December 31, Better/(Worse)
---------------------------- ---------------
1999 1998
1999 1998 1997 vs 1998 vs 1997
-------- -------- -------- ------- -------
EBITDA(a):
Networks.......................... $1,053.1 $ 851.3 $ 729.4 24% 17%
Entertainment..................... 554.3 640.5 514.5 (13) 24
Video............................. 520.3 39.9 221.6 NM (82)
Parks............................. 95.5 101.1 88.9 (6) 14
Publishing........................ 74.0 71.2 77.9 4 (9)
Online............................ (48.4) (3.5) 2.3 NM NM
-------- -------- --------
Segment total................... 2,248.8 1,700.5 1,634.6 32 4
Corporate/Eliminations............ (156.8) (171.6) (176.6) 9 3
-------- -------- --------
Total EBITDA.................... $2,092.0 $1,528.9 $1,458.0 37 5
======== ======== ========
---------------------
(a) EBITDA is defined as operating income (loss) before depreciation and
amortization.
NM--Not meaningful
Results of Operations 1999 versus 1998
Revenues increased 6% to $12.9 billion for 1999 from $12.1 billion for
1998. Revenue increases were paced by gains in the Networks, Video and
Publishing segments. Networks recorded higher advertising revenues and
affiliate fees for the year. Video's revenue gains were led by increases in
worldwide same store sales and the increased number of system-wide stores in
1999. Entertainment's revenues were down slightly for the year as its
worldwide theatrical and home video contributions did not match the
extraordinary box office and home video success in 1998 of Titanic, Deep
Impact and the theatrical performance of Saving Private Ryan.
Total expenses increased 3% to $11.6 billion for 1999 from $11.3 billion
for 1998 principally reflecting normal increases associated with revenue
growth and the Spelling charge of $81.1 million. In addition, results for 1998
include the second quarter Blockbuster charge of $424.3 million associated
with an adjustment to the carrying value of rental tapes due to a new method
of accounting.
EBITDA and operating income increased 37% to $2.1 billion and 66% to $1.2
billion, respectively, for 1999 from $1.5 billion and $751.6 million,
respectively, for 1998. Excluding the impact of the Spelling charge recorded
in the third quarter of 1999 and the second quarter 1998 Blockbuster charge
from the results presented above, EBITDA increased 11% and operating income
increased 13% for 1999.
II-5
Segment Results of Continuing Operations--1999 versus 1998
Networks (Basic Cable and Premium Subscription Television Program Services)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
----------- ----------- ---------------
Revenues............................. $ 3,045.5 $ 2,607.9 17%
Operating Income..................... $ 932.4 $ 744.3 25
EBITDA............................... $ 1,053.1 $ 851.3 24
The Networks segment is comprised of MTV Networks ("MTVN"), basic cable
television program services and Showtime Networks Inc. ("SNI"), premium
subscription television program services.
For the year, MTVN revenues of $2.25 billion, EBITDA of $915.1 million and
operating income of $816.9 million increased 21%, 23% and 24% respectively.
The increase in MTVN's revenues principally reflects higher worldwide
advertising revenues, up 22% for the year, and higher affiliate fees, up 13%,
along with the success of MTVN's consumer products licensing programs,
including Rugrats and Blues Clues. Advertising revenue growth was driven by
rate increases at VH1 and MTV and higher unit volume at MTV. Nickelodeon's
advertising revenue growth was driven by the increased number of units sold
and lower average unit rates which was principally due to a 2% decline in
spending in the Kids advertising segment during 1999 as well as increased
competition in that category. The increased revenues drove MTVN's EBITDA and
operating income gains.
SNI's revenues, EBITDA and operating income increased 7%, 14% and 19%,
respectively, over the prior year. The revenue increases were principally due
to an increase of approximately 3.5 million subscriptions, up 18% over the
prior year to 23.2 million subscriptions at December 31, 1999. Operating
results reflect revenue increases attributable to the continued growth of
direct broadcast satellite subscriptions, as well as higher programming,
marketing and advertising expenses to support subscription growth, and SNI's
original films and branding initiatives.
Entertainment (Production and Distribution of Motion Pictures and Television
Programming as well as the operation of Television Stations, International
Television Program Services, Movie Theaters and Music Publishing)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
----------- ----------- ---------------
Revenues............................. $ 4,618.1 $ 4,757.8 (3)%
Operating Income..................... $ 332.0 $ 448.0 (26)
EBITDA............................... $ 554.3 $ 640.5 (13)
The Entertainment segment is comprised of Paramount Pictures and Paramount
Television (the "Paramount Studio"), the Paramount Stations Group, Movie
Theaters, Music Publishing and International Television Program Services.
For the year, Entertainment's revenues decreased 3%, and EBITDA and
operating income decreased 13% and 26%, respectively, as the 1999 results were
impacted by the Spelling charge and did not match the prior year's
extraordinary box office and home video success of Titanic and Deep Impact and
the theatrical performance of Saving Private Ryan. The Spelling charge of
$81.1 million was incurred in the third quarter of 1999, of which $70.3
million was recorded as a restructuring charge and $10.8 million was recorded
as part of depreciation expense. The restructuring charge was primarily
associated with the integration of Spelling's operations into Paramount
Television, resulting in the elimination of duplicative sales forces and
certain other back office functions. Excluding the impact of the Spelling
charge, Entertainment's EBITDA and operating income decreased 2% and 8%, to
$624.6 million and $413.1 million, respectively, and Paramount Studio's EBITDA
and operating income decreased 2% and 4%, to $458.4 million and $336.8
million, respectively.
II-6
Paramount Studio's revenues decreased 6% to $3.8 billion from $4.1 billion
in the prior year. Paramount Studio's revenues included strong theatrical
contributions from Varsity Blues, Payback, The General's Daughter, Runaway
Bride, Double Jeopardy, Sleepy Hollow and The Talented Mr. Ripley, but did not
match last year's box office success of Titanic, Saving Private Ryan, Deep
Impact, The Truman Show and The Rugrats Movie. Foreign home video revenues
were higher primarily driven by Saving Private Ryan, The Rugrats Movie and The
Truman Show, but were offset by lower domestic home video revenues which did
not match last year's release of Titanic. Television programming revenues were
higher primarily due to higher syndication revenues from Judge Judy, the first
time availability of JAG, Star Trek: Voyager, The Sentinel and Viper, and from
an additional season of Sister, Sister. Television programming revenues for
the year also benefited from the recognition of a cable retransmission royalty
settlement. For the year, the increase in Television programming revenues was
partially offset by lower library syndication revenues. Theaters' revenues
were higher primarily as a result of the new multiplex theaters opened since
the end of 1998.
Paramount Studio's EBITDA and operating income decreased 17% and 27%, to
$388.1 million and $255.7 million, respectively, principally due to the
Spelling charge and the revenue items discussed above. Theaters' EBITDA and
operating income were lower for the year primarily due to the one-time costs
associated with opening new multiplexes.
License fees for the television exhibition of motion pictures and for
syndication and basic cable exhibition of television programming are recorded
as revenue in the period that the products are available for such exhibition,
which, among other reasons, may cause substantial fluctuation in operating
results. As of December 31, 1999, the unrecognized revenues attributable to
such licensing agreements were approximately $1.7 billion.
For the year, Paramount Stations Group's revenues increased 2% to $437.1
million, EBITDA increased 2% to $151.5 million and operating income increased
1% to $100.6 million. Paramount Stations Group owns and operates 17 television
stations, including WNPA-TV serving Pittsburgh, Pennsylvania, which was
acquired on February 1, 1999. In addition, Paramount Stations Group programs
two additional television stations pursuant to local marketing agreements.
Video (Home Video and Game rental and retail through traditional stores and
the Internet)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
----------- ----------- --------------
Revenues............................. $ 4,463.5 $ 3,893.4 15%
Operating Income..................... $ 127.9 $ (342.2) NM
EBITDA............................... $ 520.3 $ 39.9 NM
---------------------
NM--Not meaningful
The Video segment is comprised of Blockbuster's operations in the home
video, DVD and video game rental and retailing business through traditional
stores and the Internet.
For the year, Video's revenues were higher principally due to higher
worldwide same store sales and the increased number of system-wide video
stores. Worldwide same store sales, including rental and retail product,
increased 8.3%, and worldwide same store rental revenues increased 10.1%. The
increase in same store revenues was principally due to increases in the
average domestic rental fee and increased sales of previously-viewed tapes.
Blockbuster ended the year with 7,153 stores, a net increase of 772 stores
over the prior year.
Video's EBITDA increased to $520.3 million in 1999 from $39.9 million in
1998. The 1999 results reflect Blockbuster's investment in its Internet
business which resulted in a reduction to EBITDA and operating income of $6.6
million and $7.0 million, respectively, for the year ended December 31, 1999.
The 1998 results reflect a charge taken in the second quarter of $424.3
million associated with an adjustment to the carrying value of rental tapes
due to a new method of accounting.
Excluding the amounts attributable to the investment in its Internet
business described above and the effects of the 1998 charge, Video's EBITDA
increased by $62.7 million, or 14%, reflecting the continuing success of
revenue growth programs implemented in the first quarter of 1999 which
emphasize tape copy depth, promote
II-7
customer loyalty and reward customer frequency. For the year, Video's gross
margin percentage decreased slightly to 60.5% from 60.8%, excluding the
Internet business' results in 1999 and the $424.3 million charge taken in
1998.
Parks (Theme Parks)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
----------- ----------- --------------
Revenues.............................. $ 390.8 $ 421.2 (7)%
Operating Income...................... $ 42.5 $ 49.9 (15)
EBITDA................................ $ 95.5 $ 101.1 (6)
The Parks segment is comprised of five regional theme parks and a themed
attraction in the U.S. and Canada. The Parks' revenue, EBITDA and operating
income declines for the year reflect declines in overall attendance primarily
due to increased competition at two of the parks and generally less than
favorable weather conditions.
Publishing (Consumer Publishing)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
----------- ----------- --------------
Revenues.............................. $ 610.7 $ 564.6 8%
Operating Income...................... $ 54.3 $ 53.2 2
EBITDA................................ $ 74.0 $ 71.2 4
The Publishing segment is comprised of Simon & Schuster Inc., which also
includes other flagship imprints such as Pocket Books, Scribner and The Free
Press.
For the year, the improved revenues and operating results are due
principally to higher sales in the Trade division, led by the best selling
titles 'Tis by Frank McCourt, Hearts in Atlantis by Stephen King and When
Pride Still Mattered by David Maraniss. The Children's division revenues also
increased for the year driven by higher sales including the best-selling title
The Dance by Richard Paul Evans and Eloise at Christmastime by Kay Thompson.
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing for $4.6 billion in cash. The Company realized a gain of $65.5
million, net of tax, from the sale and presented Non-Consumer Publishing as a
discontinued operation for 1998 and for all prior periods.
Online (Interactive Online Services)
[Download Table]
Year ended December 31,
-----------------------
Percent
1999 1998 Better/(Worse)
------------ ----------- --------------
Revenues........................... $ 29.8 $ 13.7 118%
Operating Income................... $ (64.5) $ (7.5) NM
EBITDA............................. $ (48.4) $ (3.5) NM
---------------------
NM--Not meaningful
The Online segment is comprised of online music ventures and children's
destinations featuring entertainment, information and e-commerce, using the
MTVN brands and SonicNet.
Revenue increases for the year principally reflect increased license fees
and higher advertising revenues. The operating losses reflect the continued
investments in the Company's online services.
II-8
On July 15, 1999, the Company together with Liberty Digital Inc. formed the
MTVi Group, L.P. ("MTVi"). The Company contributed all of its assets used
exclusively in its Internet music businesses, including the assets of Imagine
Radio, which the Company acquired in February 1999, in exchange for a 90%
equity interest in MTVi. Liberty Digital Inc. contributed all of its assets
used in its Internet music businesses, including SonicNet.com and assets of
The Box Worldwide, Inc. (certain of which were concurrently licensed to MTVN)
in exchange for a 10% equity interest in MTVi.
Other Income and Expense Information
Corporate Expenses/Eliminations
Corporate expenses/eliminations, including depreciation and amortization
expense, decreased 9% to $177.3 million for 1999 from $194.1 million for 1998.
Corporate expenses of $194.6 million in 1999 increased 7% from $182.3 million
in 1998 while the benefit from eliminations of $17.3 million increased over
the prior year by approximately $21 million principally due to the timing of
the recognition of intersegment sales.
Interest Expense
Interest expense decreased 28% to $448.9 million for 1999 from $622.4
million for 1998 due to lower average debt outstanding of $5.8 billion during
1999 versus $7.4 billion during 1998. The Company had approximately $6.0
billion and $4.2 billion principal amount of debt outstanding (including
current maturities) at December 31, 1999 and 1998, respectively, at weighted
average interest rates of 7.5% and 7.8%, respectively.
Interest Income
Interest income increased 18% to $27.7 million for 1999 from $23.4 million
for 1998.
Other Items, Net
"Other items, net" reflects $17.8 million of income for 1999 compared to a
loss of $15.3 million in 1998. The net increase of $33.1 million principally
reflects a $25.2 million foreign exchange gain in 1999 compared to a $7.4
million foreign exchange loss in 1998. "Other items, net" also includes a net
loss of approximately $7.4 million from the sale of assets in 1999 and the
loss of approximately $91 million associated with the closing of the Viacom
Entertainment Store partially offset by a net gain of approximately $82.9
million from the sale of assets in 1998.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The annual effective tax rates of 48.8%
for 1999 and 101.0% for 1998 were both adversely affected by amortization of
intangibles in excess of amounts which are deductible for tax purposes.
Excluding the non-deductible amortization of intangibles, the annual effective
tax rates would have been 35.4% for 1999 and 31.8% for 1998.
Equity in Loss of Affiliates
"Equity in loss of affiliated companies, net of tax" was $60.7 million for
1999 as compared to $41.4 million for 1998 principally reflecting increased
net operating losses of United Paramount Network ("UPN") and international
ventures partially offset by the improved results of Comedy Central.
Minority Interest
Minority interest primarily represents the minority ownership of
Blockbuster common stock in 1999 and Spelling common stock in 1998.
II-9
Discontinued Operations
For 1998, discontinued operations reflect the results of operations, net of
tax, of Non-Consumer Publishing and the music retail stores which were sold on
November 27, 1998 and October 26, 1998, respectively. Discontinued operations
also reflect the gain from the sale of Non-Consumer Publishing of $65.5
million, net of tax, the loss from the sale of music retail stores of $138.5
million, net of tax, additional losses recognized for Virgin operations prior
to disposal of $20.3 million, net of minority interest, the tax benefit
associated with the disposal of Virgin of $134.0 million and the reversal of
excess cable split-off reserves.
Extraordinary Loss
During 1999 and 1998, the Company recognized after-tax extraordinary losses
on the early extinguishment of debt of $37.7 million and $74.7 million,
respectively.
Net Earnings (Loss)
For the reasons described above, net earnings of $334.0 million for 1999
increased $456.4 million from a loss of $122.4 million for 1998.
Results of Operations 1998 versus 1997
Revenues increased 13% to $12.1 billion for 1998 from $10.7 billion for
1997 with every operating segment posting increases over the prior year.
Primary contributors to the increase were the Entertainment segment which
recorded higher feature and theater revenues; the Video segment which realized
the positive impact from revenue sharing as well as revenue increases from the
increase in the number of system-wide stores; and the Networks segment, where
revenue increases were driven primarily by increased advertising and affiliate
revenues.
Total expenses increased 13% to $11.3 billion for 1998 from $10.0 billion
for 1997 principally reflecting normal increases associated with revenue
growth and the second quarter 1998 Blockbuster charge of approximately $424.3
million principally associated with an accounting change for tape
amortization. In 1997, expenses reflect the impact of the Blockbuster charge
which consisted primarily of a reduction in the carrying value of excess
retail inventory and the cost of closing underperforming stores principally
located in international markets.
Effective April 1, 1998, Blockbuster adopted an accelerated method of
amortizing videocassettes and game rental inventory. Blockbuster adopted this
new method of amortization because it implemented a new business model,
including revenue sharing agreements with Hollywood studios, which
dramatically increased the number of videocassettes in the stores and which is
satisfying consumer demand over a shorter period of time. Previously,
Blockbuster purchased tapes for a fixed price, which were amortized over a
period of six to 36 months. Pursuant to the new method, the Company records
base stock videocassettes at cost and amortizes a portion of the costs on an
accelerated basis over three months, generally to $8 per unit, with the
remaining cost of the base stock videocassettes amortized on a straight-line
basis over 33 months to an estimated $4 salvage value. Non-base stock
videocassette costs are amortized on an accelerated basis over three months to
an estimated $4 salvage value. Video games are amortized on an accelerated
basis over a 12 month period to an estimated $10 salvage value. Revenue
sharing payments are expensed when earned pursuant to the applicable
contractual arrangements. The Company recorded a pre-tax charge of $424.3
million which represents an adjustment to the carrying value of the rental
tapes due to the new method of accounting. The charge was reflected as part of
operating expenses for 1998.
During the second quarter of 1997, Blockbuster shifted its strategic
emphasis from retailing a broad assortment of merchandise to focusing on its
core rental business. Rationalization of the retail product lines such as
sell-through video, confectionery items, literature, music and fashion
merchandise allowed the Company to devote more management time and attention,
as well as retail floor selling space, to its video and rental game
II-10
business. In addition, as part of its effort to improve the performance of its
operations, Blockbuster adopted a plan to close consistently underperforming
stores primarily located in the United Kingdom and Australia and to exit the
German market. As a result, Blockbuster recorded a pre-tax charge of $322.8
million which consisted of operating and general and administrative expenses
of approximately $247.5 million, as well as depreciation expense attributable
to the write-off of long-lived assets of $45.9 million and write-offs
attributable to international joint ventures accounted for under the equity
method of $29.4 million. As a result of exiting the music business,
approximately $72.6 million of the charge was presented as part of
discontinued operations. The remaining balance of the charge consisted
principally of $100.8 million for a reduction in the carrying value of excess
merchandise inventories, $69.6 million for the closing of underperforming
stores principally located in international markets, and $39.3 million
recognized as general and administrative expenses, primarily related to
relocation costs incurred in connection with the move of the Company's
employees, corporate offices and data center from Fort Lauderdale, Florida to
Dallas, Texas.
The $69.6 million charge for the closing of underperforming stores was
comprised of a $41.8 million non-cash impairment charge associated with long-
lived assets and a $27.8 million charge for lease exit obligations. These
amounts were recognized as depreciation expense and general and administrative
expense, respectively. Through December 31, 1999, the Company paid and charged
approximately $19.9 million against the lease exit obligations.
The Company's EBITDA increased 5% to $1.53 billion for 1998 from $1.46
billion for 1997 and operating income increased 10% to $751.6 million for 1998
from $685.4 million for 1997. Operating results were adversely affected by the
charges taken by Blockbuster during 1998 and 1997. Excluding the impact of
such charges in each period, the Company's EBITDA increased 20% to $1.97
billion and operating income increased 31% to $1.19 billion.
Segment Results of Continuing Operations--1998 versus 1997
Networks (Basic Cable and Premium Subscription Television Program Services)
For the year, MTVN revenues of $1.9 billion increased 21%, EBITDA of $743.5
million increased 17% and operating income of $660.1 million increased 16%
over the prior year principally reflecting higher advertising revenues, as
well as the benefit of the continued licensing success of Rugrats and Blue's
Clues. Advertising revenue growth was driven by rate increases at Nickelodeon
and VH1 and higher unit volume at MTV. MTVN's EBITDA and operating income
growth were driven by revenue growth partially offset by increased production,
selling and marketing expenses. Results for 1998 also include an operating
loss of $22.0 million for MTV Asia, which was previously accounted for under
the equity method. Excluding the loss of MTV Asia, MTVN's EBITDA and operating
income increased 21% and 20%, respectively.
SNI's revenues, EBITDA and operating income increased 3%, 15% and 29%,
respectively, over the prior-year period. Operating results reflect revenue
increases attributable to the continued growth of direct broadcasting
satellite subscriptions partially offset by increased marketing costs
associated with SNI's No Limits branding campaign. SNI's subscriptions
increased over the prior year by approximately 1.5 million to 19.7 million
subscriptions at December 31, 1998.
Entertainment (Production and Distribution of Motion Pictures and Television
Programming as well as the operation of Television Stations, International
Television Program Services, Movie Theaters and Music Publishing)
Entertainment revenues for the year ended December 31, 1998 were 10% higher
than the same period last year principally reflecting Paramount Studio
(including Spelling) revenue increases of 11%. Higher Paramount Studio
revenues were led by the extraordinary domestic box office and home video
success of Titanic, along with the successful domestic theatrical performance
of Deep Impact and The Rugrats Movie, the foreign theatrical performance of
Saving Private Ryan, and the worldwide theatrical success of The Truman Show.
These
II-11
results were partially offset by lower television programming revenues
compared with the prior year, which included the successful first time
availability of Frasier in syndication. The revenue increases also reflect the
impact of the licensing of Spelling's classic video library and the sale of
television library product, partially offset by Spelling's exit from the
feature film and video distribution businesses. Theaters' revenues were also
higher primarily as a result of opening new multiplex theaters.
Paramount Studio recorded EBITDA and operating income increases of 36% and
53%, respectively, compared with the same prior year period. The results
reflect the revenue increases described above partially offset by earnings
recorded in 1997 attributable to long-term foreign licensing agreements.
License fees for the television exhibition of motion pictures and for
syndication and basic cable exhibition of television programming are recorded
as revenue in the period that the products are available for such exhibition,
which, among other reasons, may cause substantial fluctuation in operating
results. As of December 31, 1998, the unrecognized revenues attributable to
such licensing agreements were approximately $1.6 billion.
For the year, Paramount Stations Group's revenues increased 1% and EBITDA
and operating income decreased 5% and 15%, respectively, from the same prior-
year period. Operating results primarily reflect decreased advertising
revenues and the impact of swapping for television stations with greater
growth potential.
Video (Home Video and Game rental and retail through traditional stores and
the Internet)
For the year, Video revenues increased 17% driven by higher video store
revenues reflecting the impact of revenue sharing and an increase in the
number of system-wide stores. EBITDA decreased 82% principally reflecting the
impact of the $424.3 million charge taken in the second quarter of 1998 to
adjust the carrying value of videocassettes and game rental inventory under a
new method of amortization as a result of the implementation of Blockbuster's
new business model. For the year, Blockbuster recorded same store sales
increases of 13% domestically and worldwide. Blockbuster ended the year with
6,381 stores, a net increase of 332 stores over the prior year. Video results
in 1997 reflect a charge of approximately $250 million related primarily to
the reduction of the carrying value of excess retail inventory and the cost of
closing underperforming stores principally located in international markets.
Excluding the impact of the 1998 and 1997 charges, Video's EBITDA increased
20% to $476.6 million in 1998 from $397.3 million in 1997. Excluding the
impact of the second quarter 1998 and 1997 Blockbuster charges, Video's gross
margin percentage decreased to 60.8% in 1998 from 61.4% in 1997 due to the
initial impact of revenue sharing agreements and increased promotional
activity.
Parks (Theme Parks)
Parks' revenues of $421.2 million, EBITDA of $101.1 million and operating
income of $49.9 million for 1998 increased 15%, 14% and 18%, respectively, as
compared with revenues of $367.3 million, EBITDA of $88.9 million and
operating income of $42.4 million for 1997, principally reflect increased
attendance driven by new branded attractions and entertainment, including Star
Trek: The Experience located at the Las Vegas Hilton, and increased pricing.
Publishing (Consumer Publishing)
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing for $4.6 billion in cash. The Company retained its consumer
operations including the Simon & Schuster name. The Company recognized a gain
of $65.5 million, net of tax, from the sale and presented Non-Consumer
Publishing as a discontinued operation.
Growth in revenues to $564.6 million was primarily attributable to
increases in the trade hard cover business driven by the best selling titles
including Bag of Bones by Stephen King, All Through the Night by Mary Higgins
Clark and Angela's Ashes by Frank McCourt, along with gains in the children's
and interactive businesses. The mass-market business experienced a sales
decrease due to weakness in that segment of the industry.
II-12
Online (Interactive Online Services)
Revenues increased 32% to $13.7 million for 1998 from $10.4 million for
1997. Operating loss of $7.5 million in 1998, as compared with operating
income of $2.3 million in 1997, reflects the increased investment in the
Company's online services.
Other Income and Expense Information
Corporate Expenses/Eliminations
Corporate expenses/eliminations, including depreciation and amortization
expense, decreased 4% to $194.1 million for 1998 from $201.5 million for 1997,
principally reflecting a decrease in general and administrative and litigation
expenses.
Interest Expense
Interest expense decreased 19% to $622.4 million for 1998 from $772.9
million for 1997. The Company had approximately $4.2 billion and $7.8 billion
principal amount of debt outstanding (including current maturities) at
December 31, 1998 and 1997, respectively, at a weighted average interest rate
of 7.8% for each period.
Interest Income
Interest income increased 6% to $23.4 million for 1998 from $22.0 million
for 1997.
Other Items, Net
The Company continued the strategy of focusing on its core businesses and
in December 1998, announced plans to close the Viacom Entertainment Store in
Chicago in January 1999 and to phase out its Nickelodeon stores in the first
half of 1999. As a result, the Company recorded a loss of approximately $91
million, which is reflected in "Other items, net", for the year ended December
31, 1998. The loss principally reflects $8.5 million for estimated severance
benefits payable to approximately 530 employees and $32.7 million for lease
exit obligations. Through December 31, 1999, the Company paid and charged
approximately $8.5 million against the severance benefits payable and $6.8
million against lease exit obligations. The loss also reflects the write-off
of property and equipment, inventory and prepaid assets of $21.1 million,
$10.3 million and $3.1 million, respectively, as well as future vendor
commitments of $3.3 million. Additionally, "Other items, net" principally
reflects foreign exchange losses and the write-off of certain investments,
partially offset by a gain of approximately $118.9 million from the sale of a
cost investment. "Other items, net" of $1.2 billion for 1997 principally
reflects the gain from the sale of USA Networks as well as gains associated
with the exchange of certain television stations offset by the write-off of
certain investments held at cost.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The annual effective tax rates of
101.0% for 1998 and 54.9% for 1997 were both adversely affected by
amortization of intangibles in excess of amounts, which are deductible for tax
purposes. Excluding the non-deductible amortization of intangibles, the annual
effective tax rates would have been 31.8% for 1998 and 44.1% for 1997.
Equity in Loss of Affiliates
"Equity in loss of affiliated companies, net of tax" was $41.4 million for
1998 as compared to $163.3 million for 1997. In 1998, the equity loss
primarily reflects the net operating loss of UPN partially offset by the
positive results of Comedy Central. In 1997, the equity loss primarily
reflects the net operating loss of UPN and
II-13
charges associated with international network ventures partially offset by
earnings from the Company's half-interest in USA Networks, which was sold in
the fourth quarter of 1997.
Minority Interest
Minority interest primarily represents the minority ownership of Spelling
common stock.
Discontinued Operations
For 1998, discontinued operations reflect the results of operations, net of
tax, of Non-Consumer Publishing prior to sale on November 27, 1998, and music
retail stores prior to sale on October 26, 1998. Discontinued operations also
reflect the gain from the sale of Non-Consumer Publishing of $65.5 million net
of tax, the loss from the sale of music retail stores of $138.5 million, net
of tax, additional losses recognized for Virgin operations prior to disposal
of $20.3 million, net of minority interest, the tax benefit associated with
the disposal of Virgin of $134.0 million and the reversal of excess cable
split-off reserves.
For 1997, discontinued operations reflect the results of operations, net of
tax, of (1) Non-Consumer Publishing, (2) music retail stores, (3) the Viacom
Radio Stations prior to disposal on July 2, 1997, as well as the realized gain
on the sale of $416.4 million, net of tax, (4) additional losses recognized
for Virgin operations prior to disposal of $32.0 million, net of minority
interest, and (5) the reversal of excess cable split-off reserves.
Extraordinary Loss
During 1998, the Company recognized an after-tax extraordinary loss on the
early extinguishment of debt of $74.7 million.
Net Earnings (Loss)
For the reasons described above, the Company reported a net loss of $122.4
million in 1998 as compared to net earnings of $793.6 million in 1997.
Liquidity and Capital Resources
The Company expects to fund its anticipated cash requirements (including
the anticipated cash requirements of its capital expenditures, share
repurchase programs, joint ventures, commitments and payments of principal and
interest on its outstanding indebtedness) with internally generated funds, in
addition to various external sources of funds. The external sources of funds
may include the Company's existing credit agreements and amendments thereto,
co-financing arrangements by the Company's various divisions relating to the
production of entertainment products, and/or additional financings.
Subsequent to its initial public offering, Blockbuster no longer
participates in the Company's centralized cash management system. Cash
generated by Blockbuster's operations is expected to be retained by
Blockbuster to fund its anticipated cash requirements.
As of December 31, 1999, the Company had $1.45 billion available under its
shelf registration statement as filed with the Securities and Exchange
Commission in 1995. The net proceeds from the sale of the offered securities
may be used by the Company to repay, redeem, repurchase or satisfy its
obligations in respect of its outstanding indebtedness or other securities; to
make loans to its subsidiaries; for general corporate purposes; or for such
other purposes as may be specified in the applicable Prospectus Supplement.
At December 31, 1999, National Amusements, Inc. ("NAI") beneficially owned
approximately 68% of Viacom Inc. Class A Common Stock and approximately 28% of
Class A and Class B Common Stock on a combined basis.
II-14
Share Repurchase Programs
On February 16, 2000, the Company initiated a share repurchase program to
acquire up to $1.0 billion in the Company's common stock. For the year to date
period ended March 21, 2000, the Company repurchased 10,000 shares of its
Class A Common Stock and 11,570,900 shares of its Class B Common Stock for
$634.6 million in the aggregate.
During 1999, the Company had repurchased 25,000 shares of its Class A
Common Stock, 10,551,200 shares of its Class B Common Stock and 1,140,400
Viacom Five-Year Warrants, for approximately $466.4 million in the aggregate.
During 1998, the Company had repurchased a total of 12,000 shares of its Class
A Common Stock, 26,190,200 shares of its Class B Common Stock and 5,502,000
Viacom Five-Year Warrants, for approximately $822.0 million in the aggregate.
On December 2, 1998, the Company repurchased 12 million shares of its
convertible preferred stock from Bell Atlantic Corporation for $564 million in
cash. On January 5, 1999, the Company repurchased the remaining 12 million
shares of its convertible preferred stock from Bell Atlantic Corporation for
$612 million in cash.
Financial Position
Current assets increased to $5.2 billion as of December 31, 1999 from $5.1
billion as of December 31, 1998, principally reflecting an increase of $194.3
million in theatrical and television inventory to $1.5 billion from $1.3
billion, partially offset by a decrease in cash and cash equivalents of $86.5
million. The allowance for doubtful accounts as a percentage of receivables
increased to 6% for 1999 from 5% for 1998. The change in property and
equipment principally reflects capital expenditures of $706.2 million related
to capital additions for new and existing video stores, construction of new
movie theaters and additional construction and equipment upgrades for Parks
offset by depreciation expense of $496.8 million. Current liabilities
decreased to $4.4 billion from $5.6 billion reflecting the payment of taxes
associated with the sale of Non-Consumer Publishing, payment of accrued
expenses and the settlement of the 8% Merger Debentures. Long-term debt,
including current maturities, increased to $6.0 billion from $4.2 billion,
reflecting the tax payments discussed above and acquiring the Company's common
stock, preferred stock and warrants under its repurchase programs.
The Company continually monitors its positions with, and credit quality of,
the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties. The Company's
receivables do not represent significant concentrations of credit risk at
December 31, 1999, due to the wide variety of customers, markets and
geographic areas to which the Company's products and services are sold.
Cash Flows
Net cash flow provided by operating activities decreased to $294.1 million
in 1999 from $864.1 million in 1998 primarily reflecting the increased
investment in inventory of $512.7 million in 1999 versus a $202.7 million net
decrease in 1998, excluding the impact of the Blockbuster inventory charge,
and an increase in unbilled receivables of $120.7 million in 1999 versus a
$105.0 million decrease in 1998. The decrease in operating cash flow for 1999
was partially offset by the net earnings of $334.0 million. Net cash
expenditures for investing activities of $1.1 billion for 1999 principally
reflect capital expenditures and the Spelling transaction as well as
acquisitions of video stores and television stations. Net cash flow provided
by investing activities of $4.2 billion for 1998 principally reflects the
proceeds from the sale of Non-Consumer Publishing of approximately $4.6
billion and the sale of certain investments offset by capital expenditures.
Financing activities reflect borrowings and repayment of debt, the repurchase
of convertible preferred stock and purchase of common stock and warrants,
offset by the proceeds from the exercise of stock options and warrants.
Planned capital expenditures, including information systems costs, are
approximately $550 million to $650 million in 2000. Capital expenditures are
primarily related to capital additions for new and existing video stores,
expansion of Paramount's theatres and theme park attractions. The Company's
joint ventures are expected to require estimated net cash contributions of
approximately $25 million to $65 million in 2000.
II-15
Commitments and Contingencies
The commitments of the Company for program license fees, which are not
reflected in the balance sheet as of December 31, 1999 and are estimated to
aggregate approximately $1.0 billion, excluding intersegment commitments of
approximately $865.9 million, principally reflect SNI's commitments of
approximately $726.7 million for the acquisition of programming rights and the
production of original programming. This estimate is based upon a number of
factors. A majority of such fees are payable over several years, as part of
normal programming expenditures of SNI. These commitments to acquire
programming rights are contingent upon delivery of motion pictures which are
not yet available for premium television exhibition and, in many cases, have
not yet been produced.
See Note 15 of Notes to Consolidated Financial Statements for a description
of the Company's future minimum lease commitments.
There are various lawsuits and claims pending against the Company.
Management believes that any ultimate liability resulting from those actions
or claims will not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
Certain subsidiaries and affiliates of the Company from time to time
receive claims from federal and state environmental regulatory agencies and
other entities asserting that they are or may be liable for environmental
cleanup costs and related damages, principally relating to discontinued
operations. The Company has recorded a liability reflecting its best estimate
of environmental exposure. Such liability was not discounted or reduced by
potential insurance recoveries and reflects management's estimate of cost
sharing at multiparty sites. The estimated liability was calculated based upon
currently available facts, existing technology and presently enacted laws and
regulations. On the basis of its experience and the information currently
available to it, the Company believes that the claims it has received will not
have a material adverse effect on its results of operations, financial
position or cash flows.
II-16
CAPITAL STRUCTURE
The following table sets forth the Company's long-term debt, net of current
portion:
[Download Table]
At December 31,
-----------------
1999 1998
-------- --------
Notes payable to banks.................................... $3,054.2 $ 868.5
Senior debt............................................... 2,310.9 2,308.9
Senior subordinated debt.................................. 35.3 36.3
Subordinated debt......................................... -- 475.2
Obligations under capital leases.......................... 591.6 501.4
Other..................................................... -- .3
-------- --------
5,992.0 4,190.6
Less current portion...................................... 294.3 377.2
-------- --------
$5,697.7 $3,813.4
======== ========
Debt as a percentage of total capitalization of the Company increased to
35% at December 31, 1999 from 26% at December 31, 1998.
The Viacom Credit Agreements, as amended, are comprised of (i) a $3.7
billion senior unsecured reducing revolver maturing July 1, 2002, and a $571
million term loan maturing April 1, 2002 (the "Viacom Agreement") and (ii) a
$100 million term loan for Viacom International Inc. maturing July 1, 2002
(the "Viacom International Agreement"). Of these amounts, $1.8 billion and
$846.2 million were outstanding as of December 31, 1999 and 1998,
respectively.
The interest rate on all loans made under the Viacom Credit Agreements is
based on Citibank, N.A.'s base rate or a spread over the London Interbank
Offered Rate ("LIBOR"). The spread over such rate is based on the Company's
credit rating. At December 31, 1999, LIBOR (upon which the Company's borrowing
rate was based) for borrowing periods of one month and two months were 5.8%
and 5.9%, respectively. At December 31, 1998, LIBOR for borrowing periods of
one month and two months were each 5.09%.
The Company's scheduled maturities of indebtedness through December 31,
2004, assuming full utilization of the Viacom Credit Agreements, as amended,
are $1.0 billion (2000), $1.8 billion (2001), $2.0 billion (2002), $350.0
million (2003) and $0 (2004). The Company's maturities of long-term debt
outstanding at December 31, 1999, excluding capital leases, are $302.2 million
(2000), $304.6 million (2001), $1.7 billion (2002), $350.0 million (2003) and
$0 (2004). The Company has classified certain short-term indebtedness as long-
term debt based upon its intent and ability to refinance such indebtedness on
a long-term basis.
At December 31, 1999, the Company was in compliance with all debt covenants
and had satisfied all financial ratios and tests under the credit agreements.
The Company expects to be in compliance and satisfy all such covenants and
ratios as may be applicable from time to time during 2000.
The Company used proceeds received from Blockbuster, as described below in
Blockbuster Debt, to permanently reduce its commitments under the Viacom
Credit Agreements by $1.139 billion.
On May 6, 1999, the 364-day film financing credit agreement guaranteed by
Viacom International Inc. and the Company was paid in full, and on May 7, 1999
this credit agreement terminated.
During 1999, the Company redeemed the remaining $211.8 million principal
amount of its 8% Merger Debentures outstanding and recognized an extraordinary
loss of $37.4 million, net of tax, on the early redemption.
II-17
During 1999, the Company amended the Viacom Credit Agreements to, among
other things, provide for the Blockbuster Credit Agreement and to allow for a
potential split-off of Blockbuster.
During 1998, the Company redeemed and retired $1.3 billion in the aggregate
of notes and debentures and also purchased and retired $50.8 million of notes
and debentures in open market transactions. As a result of the early
extinguishment of outstanding indebtedness, the Company recognized an
extraordinary loss of $74.7 million, net of tax, in 1998.
Blockbuster Credit Agreement
On June 21, 1999, Blockbuster entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement is comprised of a $700 million revolver due July
1, 2004, a $600 million term loan due in quarterly installments beginning
April 1, 2002 and ending July 1, 2004, and a $600 million revolver due June
19, 2000, which was subsequently reduced with proceeds from the initial public
offering as described below. Interest rates are based on the prime rate or
LIBOR at Blockbuster's option at the time of borrowing. A variable commitment
fee based on the total leverage ratio is charged on the unused amount of the
revolver.
The Blockbuster Credit Agreement contains covenants, which, among other
things, relate to the payment of dividends, repurchase of Blockbuster's common
stock or other distributions and also require compliance with certain
financial covenants with respect to a maximum leverage ratio and a minimum
fixed charge coverage ratio.
On June 23, 1999, Blockbuster borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolver, $600 million borrowed under the
term loan, and $600 million under the short-term revolver. The weighted
average interest rate at December 31, 1999 for these borrowings was 7.9%. The
proceeds of the borrowings were used to pay amounts owed to the Company.
Blockbuster has repaid $442.9 million of the short-term revolver through
proceeds from the offering. These proceeds permanently reduced Blockbuster's
commitments under the Blockbuster Credit Agreement from $1.9 billion to
approximately $1.46 billion.
Blockbuster's scheduled maturities of indebtedness through December 31,
2004, assuming full utilization of the Blockbuster Credit Agreement are $157.1
million (2000), $0 (2001), $150.0 million (2002), $275.0 million (2003) and
$875.0 million (2004). Blockbuster's maturities of long-term debt outstanding
at December 31, 1999, excluding capital leases, are $157.1 million (2000), $0
(2001), $150.0 million (2002), $275.0 million (2003) and $605.0 million
(2004). Blockbuster expects to fund the current obligation by various external
sources, including additional borrowings under the revolver due July 1, 2004,
an amendment to Blockbuster's Credit Agreement or the issuance of debt
securities.
Spelling Transaction and Restructuring Charge
On June 21, 1999, the Company completed its tender offer for all
outstanding shares of Spelling common stock that it did not already own for
$9.75 per share in cash. The tender offer was made under the terms of a merger
agreement between the Company and Spelling. The tendered shares, along with
the shares already owned by the Company, represented approximately 97% of all
of the issued and outstanding shares of Spelling. On June 23, 1999, the
Company acquired the remaining outstanding shares of Spelling, approximately
3%, through a merger of Spelling and a wholly owned subsidiary of the Company.
As a result of the merger, each share of Spelling common stock was also
converted into the right to receive $9.75 in cash. The consideration for
tendered shares was approximately $176 million.
In connection with the integration of the operations of Spelling into
Paramount Television, the Company recorded a charge of approximately $81.1
million, of which $70.3 million was recorded as a restructuring charge and
$10.8 million was recorded as part of depreciation expense in the third
quarter of 1999. Included in the restructuring charge are severance and
employee related costs of $48.1 million, lease termination and other occupancy
costs of $17.7 million and other exit costs of $4.5 million. Severance and
other employee related costs
represent the costs to terminate approximately 250 employees engaged in legal,
sales, marketing, finance,
II-18
information systems, technical support and human resources for Spelling. Lease
termination and other occupancy costs principally represent the expenses
associated with vacating existing lease obligations in New York and Los
Angeles. The depreciation expense of approximately $10.8 million was
associated with the fixed asset write-offs for software, leasehold
improvements and equipment located at these premises. As of December 31, 1999,
the Company had paid and charged approximately $11.0 million against the
severance liability, $3.7 million against lease termination and other
occupancy costs, and $.6 million against the other exit costs. The Company
expects to complete the exit activities by the end of the year 2000.
Market Risk
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward
contracts, spots and options. The foreign exchange contracts have principally
been used to hedge the British Pound, the Australian Dollar, the Japanese Yen,
the Canadian Dollar, the Singapore Dollar and the European Union's common
currency (the "Euro"). These derivatives, which are over-the-counter
instruments, are non-leveraged. Realized gains and losses on contracts that
hedge anticipated future cash flows are recognized in "Other items, net" and
were not material in any of the periods presented. The Company is primarily
vulnerable to changes in LIBOR which is the rate currently used in existing
agreements; however, the Company does not believe this exposure to be
material.
The Company enters into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest on its
variable rate long-term debt and/or take advantage of changes in interest
rates. These interest rate exchange agreements include interest rate swaps and
interest rate caps. At December 31, 1999, the Company had $400 million of
interest rate exchange agreements outstanding with commercial banks. These
agreements, which expired February 24, 2000, effectively changed the Company's
interest rate on an equivalent amount of variable rate borrowings to a fixed
rate of 6.35%.
Other Matters
In February 2000, a registration statement on Form S-1 was filed with the
Securities and Exchange Commission relating to an initial public offering of
Class A common stock in The MTVi Group, Inc. The net proceeds of the initial
public offering will be contributed by The MTVi Group, Inc. to MTVi in
exchange for general and limited partnership units of MTVi.
On September 7, 1999, the Company and CBS announced that the companies had
signed a definitive agreement to merge. On December 29, 1999, the shareholders
of both companies approved this transaction. The Company and CBS have agreed
that CBS will merge with the Company upon the terms and conditions set forth
in the merger agreement, as amended and restated. At the time of the merger,
the Company will issue 1.085 shares of its Class B Common Stock for each share
of CBS common stock and 1.085 shares of its Series C Preferred Stock for each
share of CBS Series B preferred stock. Although the waiting period prescribed
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired, the
merger is under continuing review by the U.S. Department of Justice and is
further subject to regulatory approval by the Federal Communications
Commission. The Company expects the merger to be completed in April of 2000.
On August 10, 1999, Blockbuster sold to the public 31 million shares of its
Class A common stock for $15 per share. The shares are traded on the New York
Stock Exchange. The Company, through its ownership of all of the 144 million
shares of Blockbuster Class B common stock outstanding, retained approximately
82% of the total equity value in, and approximately 96% of the combined voting
power of, Blockbuster. Proceeds from the offering aggregated $442.9 million,
net of underwriting discounts and commissions and before payment of offering
expenses, and were used by Blockbuster to repay outstanding indebtedness under
a $1.9 billion term and revolving credit agreement. The Company recorded a
reduction to equity of approximately $662 million as a result of the issuance
of subsidiary stock.
II-19
In December 1999, a registration statement on Form S-4 was filed with the
Securities and Exchange Commission relating to a split-off of Blockbuster
pursuant to an offering by the Company to exchange all of its shares of
Blockbuster for shares of the Company's common stock. The Company has
announced that, subject to the approval of the Company's Board of Directors,
which will be based on an assessment of market conditions, and the receipt of
a supplemental private letter ruling from the Internal Revenue Service
reflecting the anticipated merger between the Company and CBS, it intends to
split-off Blockbuster by offering to exchange all of its shares of Blockbuster
for shares of the Company's common stock. In particular, 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 split-off
is intended to establish Blockbuster as a stand-alone entity with objectives
separate from those of the Company's other businesses. The Company has no
obligation to effect the split-off either before or after the merger. The
Company 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, or whether or
not the split-off, if it does occur, will be tax-free. The aggregate market
value of the shares of Blockbuster common stock based on the March 20, 2000
closing price of $10.9375 per share of Blockbuster common stock was
approximately $1.9 billion. The net book value of Viacom's investment in
Blockbuster at December 31, 1999 was approximately $5.1 billion. If the
Company determines to engage in the split-off, any difference between the fair
market value and net book value at the time of the split-off will be
recognized as a gain or loss for accounting purposes. Based on the March 20,
2000 closing stock price of Blockbuster, a split-off would have resulted in a
pre-tax loss on discontinued operations of approximately $3.5 billion. The
actual amount of the gain or loss will depend upon the fair market value and
net book value of Blockbuster at the time of the split-off as well as the
exchange ratio used in the split-off.
On July 7, 1999, the Viacom Five-Year Warrants expired. The Company
received proceeds of approximately $317 million and issued approximately 9.0
million shares of its Class B Common Stock in connection with the exercise of
4.5 million warrants issued as part of the 1994 acquisition of Paramount
Communications.
The Board of Directors of the Company declared a 2-for-1 common stock split
in the form of a dividend. The additional shares were issued on March 31, 1999
to shareholders of record on March 15, 1999. All common share and per share
amounts have been adjusted to reflect the stock split for all periods
presented.
On January 15, 1997, the Company acquired a 50% interest in UPN from BHC
Communications, Inc. ("BHC"), a corporate subsidiary of Chris Craft
Industries, Inc. On March 20, 2000, BHC agreed to sell to the Company its
remaining 50% interest in UPN for $5 million. The transaction is expected to
close on March 31, 2000.
Recent Pronouncements
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective for fiscal years
beginning after June 15, 2000. The Company anticipates that due to its limited
use of derivative instruments, the adoption of SFAS 133 will not have a
material effect on its financial statements.
In October 1998, the FASB released an exposure draft of the proposed
statement on "Rescission of FASB Statement No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films," ("SFAS 53"). An entity
that previously was subject to the requirements of SFAS 53 would follow the
guidance in a proposed Statement of Position, "Accounting by Producers and
Distributors of Films." This proposed Statement of Position would be effective
for financial statements for fiscal years beginning after December 15, 2000
and could have a significant impact on the Company's results of operations and
financial position depending on its final outcome.
Euro Conversion
In January 1999, eleven member countries of the European Union established
permanent conversion rates between their existing currencies and the Euro. The
transition period for the introduction of the Euro will be
II-20
between January 1, 1999 and June 30, 2002. The Company conducts business in
member countries and is addressing the issues involved with the introduction
of the Euro. The more important issues facing the Company include: converting
information technology systems, reassessing currency risk, negotiating and
amending licensing agreements and contracts, and processing tax, accounting,
payroll and customer records.
Based on the progress to date, the Company believes that the transition to
the Euro currency will not have a significant impact on the manner in which it
conducts its business affairs and processes its business and accounting
records. Accordingly, conversion to the Euro is not expected to have a
material effect on the Company's financial condition or results of operations.
Year 2000
The Company has completed its program to identify and mitigate Year 2000
("Y2K") risks. To date, the Company has not encountered any disruptions
related to the Y2K issue. The Company cannot provide any assurances, however,
that its business partners have not been or will not be affected in any
manner. As a result, the Company will continue to monitor its own Y2K
compliance and that of its business partners. Based on the action described
above, the Company does not expect to encounter any significant disruptions in
the future.
Costs
Y2K costs have been expensed as incurred, except those costs directly
related to the replacement of systems requiring upgrades in the ordinary
course of business, which have been capitalized. As of January 28, 2000, the
Company incurred costs of approximately $55.0 million, of which $14.7 million
had been capitalized. The Company does not anticipate incurring any additional
material costs related to Y2K.
Cautionary Statement Concerning Forward-Looking Statements
This document and the documents incorporated by reference into this Form
10-K, including "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition", contain both historical and forward-
looking statements. All statements other than statements of historical fact
are, or may be deemed to be, forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are not based on
historical facts, but rather reflect the Company's current expectations
concerning future results and events. These forward-looking statements
generally can be identified by use of statements that include phrases such as
"believe," "expect," "anticipate," "intend," "plan," "foresee," "likely,"
"will" or other similar words or phrases. Similarly, statements that describe
the Company's objectives, plans or goals are or may be forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be different from any future
results, performance and achievements expressed or implied by these
statements.
The following important factors, among others, could affect future results,
causing these results to differ materially from those expressed in the
Company's forward-looking statements:
. The Company derives substantial revenues from the sale of advertising
time on its basic cable networks and television stations. The sale of
advertising time is affected by viewer demographics, viewer ratings and
market conditions for advertising time, which tends to be cyclical.
Adverse changes to any of these factors could have an adverse effect on
revenues.
. Operating results derived from the Company's motion picture and
television production fluctuate depending primarily upon cost of such
productions and acceptance of such productions by the public, which are
difficult to predict. Motion picture and television production has
experienced cycles in which increased costs of talent and other factors
have resulted in higher production costs. In addition, the commercial
success of the Company's motion picture and television productions also
depends upon the quality and acceptance of other competing productions,
and the availability of alternative forms of entertainment and leisure
time activities.
II-21
. The Company's operating results also fluctuate due to the timing and
availability of theatrical and home video releases, as well as a result
of the recording of license fees for television exhibition of motion
pictures and for syndication and basic cable exhibition of television
programming in the period that the products are available for such
exhibition.
. The Company's basic cable networks and pay television networks are
dependent on affiliation agreements with cable and direct broadcast
satellite distributors on acceptable terms. The loss of carriage on such
distributors, or continued carriage on less favorable terms, could
adversely affect, with respect to basic cable networks, revenues from
subscriber fees and the ability to sell advertising time, and with
respect to pay television networks, subscriber fee revenues.
. Many of the Company's businesses are seasonal. More specifically, the
home video business and consumer publishing business are subject to
increased periods of demand coinciding with summer and winter holidays,
while a substantial majority of the theme parks operating income is
generated from May through September. In addition, the home video and
theme parks businesses' revenues are influenced by weather.
. Changes in Federal Communications Laws and Regulations could, directly
or indirectly, adversely affect the operations and ownership of the
Company's properties.
. The Company has contingent liabilities related to discontinued
operations, including environmental liabilities and pending litigation.
While there can be no assurance in this regard, the pending or potential
litigation, environmental and other liabilities should not have a
material adverse effect on the Company.
. The Company may be adversely affected by changes in technology and its
effect on competition in the Company's markets.
. If the merger of the Company and CBS is completed as anticipated, the
Company's and CBS' businesses may not be integrated successfully and/or
the combined company's new corporate governance structure may not be a
successful model for managing the combined company.
. The split-off of Blockbuster from the Company may not occur, which may
hinder the operation of the Company's different businesses. For example,
the Company believes that the operation of Blockbuster under the same
corporate parent as Paramount results in a perceived conflict of
interest between Blockbuster and Paramount by the movie studio
competitors of Paramount.
. Other economic, business, competitive and/or regulatory factors
affecting the Company's businesses generally.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors also could
have material adverse effects on our future results. The Company does not have
any obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances. The Company cannot assure you that
projected results or events will be achieved. You should review carefully all
information, including the financial statements and the notes to the financial
statements, included or incorporated by reference into this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Response to this item is included in "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Market Risk."
II-22
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Viacom Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
shareholders' equity and comprehensive income present fairly, in all material
respects, the financial position of Viacom Inc. and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a) present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 10, 2000, except for the second and third paragraphs of Note 2, which
are as of March 21, 2000
II-23
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
Management has prepared and is responsible for the consolidated financial
statements and related notes of Viacom Inc. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All financial
information in this annual report is consistent with the consolidated
financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets
are safeguarded, that transactions are executed in accordance with
management's authorization and properly recorded, and that accounting records
may be relied upon for the preparation of consolidated financial statements
and other financial information. The design, monitoring, and revision of
internal accounting control systems involve, among other things, management's
judgment with respect to the relative cost and expected benefits of specific
control measures. The Company also maintains an internal auditing function
which evaluates and reports on the adequacy and effectiveness of internal
accounting controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who have expressed their
opinion with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with
management, to review accounting, auditing, internal accounting controls and
financial reporting matters. The Audit Committee is also responsible for
recommending to the Board of Directors the independent accounting firm to be
retained for the coming year, subject to shareholder approval. The independent
accountants and the internal auditors have full and free access to the Audit
Committee with and without management's presence.
VIACOM INC.
By: /s/ Sumner M. Redstone
-----------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
By: /s/ George S. Smith, Jr.
-----------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
By: /s/ Susan C. Gordon
-----------------------------------
Susan C. Gordon
Vice President, Controller,
Chief Accounting Officer
II-24
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
[Download Table]
Year Ended December 31,
--------------------------------
1999 1998 1997
--------- --------- ---------
Revenues.................................... $12,858.8 $12,096.1 $10,684.9
Expenses:
Operating.................................. 8,337.9 8,506.3 7,476.3
Selling, general and administrative........ 2,358.6 2,060.9 1,750.6
Restructuring charge (Note 4).............. 70.3 -- --
Depreciation and amortization.............. 844.7 777.3 772.6
--------- --------- ---------
Total expenses............................ 11,611.5 11,344.5 9,999.5
--------- --------- ---------
Operating income............................ 1,247.3 751.6 685.4
Interest expense............................ (448.9) (622.4) (772.9)
Interest income............................. 27.7 23.4 22.0
Other items, net (Note 18).................. 17.8 (15.3) 1,244.0
--------- --------- ---------
Earnings from continuing operations before
income taxes............................... 843.9 137.3 1,178.5
Provision for income taxes.................. (411.4) (138.7) (646.4)
Equity in loss of affiliated companies, net
of tax (Note 9)............................ (60.7) (41.4) (163.3)
Minority interest........................... (.1) (.7) 4.7
--------- --------- ---------
Earnings (loss) from continuing operations.. 371.7 (43.5) 373.5
Discontinued operations (Note 5):
Earnings (loss), net of tax................ -- (54.1) 14.9
Net gain on dispositions, net of tax....... -- 49.9 405.2
--------- --------- ---------
Net earnings (loss) before extraordinary
loss....................................... 371.7 (47.7) 793.6
Extraordinary loss, net of tax (Note 19).... (37.7) (74.7) --
--------- --------- ---------
Net earnings (loss)......................... 334.0 (122.4) 793.6
Cumulative convertible preferred stock
dividend requirement....................... (.4) (57.2) (60.0)
(Premium) discount on repurchase of
preferred stock (Note 12).................. (12.0) 30.0 --
--------- --------- ---------
Net earnings (loss) attributable to common
stock...................................... $ 321.6 $ (149.6) $ 733.6
========= ========= =========
Basic earnings per common share:
Earnings (loss) from continuing
operations................................ $ .52 $ (.10) $ .44
Net earnings (loss)........................ $ .46 $ (.21) $ 1.04
Diluted earnings per common share:
Earnings (loss) from continuing
operations................................ $ .51 $ (.10) $ .44
Net earnings (loss)........................ $ .45 $ (.21) $ 1.04
Weighted average number of common shares:
Basic...................................... 695.2 708.7 705.8
Diluted.................................... 709.5 708.7 708.5
See notes to consolidated financial statements.
II-25
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
[Download Table]
At December 31,
---------------------
1999 1998
---------- ---------
ASSETS
Current Assets:
Cash and cash equivalents............................. $ 680.8 $ 767.3
Receivables, less allowances of $109.5 (1999) and
$98.7 (1998)......................................... 1,697.4 1,759.1
Inventory (Note 8).................................... 1,959.5 1,805.5
Other current assets.................................. 860.7 732.6
---------- ---------
Total current assets.................................. 5,198.4 5,064.5
---------- ---------
Property and Equipment:
Land.................................................. 450.3 458.5
Buildings............................................. 660.1 623.0
Capital leases........................................ 881.9 671.7
Leasehold improvements................................ 1,134.0 1,019.5
Equipment and other................................... 2,129.6 1,764.3
---------- ---------
5,255.9 4,537.0
Less accumulated depreciation and amortization........ 1,830.6 1,457.5
---------- ---------
Net property and equipment............................ 3,425.3 3,079.5
---------- ---------
Inventory (Note 8)..................................... 2,829.5 2,470.8
Intangibles, at amortized cost......................... 11,478.9 11,557.3
Other assets........................................... 1,554.3 1,441.0
---------- ---------
$ 24,486.4 $23,613.1
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 544.4 $ 499.2
Accrued expenses...................................... 1,431.2 2,125.8
Deferred income....................................... 371.4 286.5
Accrued compensation.................................. 473.3 410.3
Participants' share, residuals and royalties payable.. 1,087.2 1,227.5
Program rights........................................ 196.9 179.6
Income taxes payable.................................. 1.0 526.5
Current portion of long-term debt..................... 294.3 377.2
---------- ---------
Total current liabilities............................. 4,399.7 5,632.6
---------- ---------
Long-term debt (Note 10)............................... 5,697.7 3,813.4
Other liabilities...................................... 2,010.5 2,046.3
Commitments and contingencies (Note 15)
Minority interest...................................... 1,246.5 71.2
Shareholders' Equity:
Convertible Preferred Stock, par value $.01 per share;
200.0 shares
authorized; and 12.0 (1998) shares issued and
outstanding.......................................... -- 600.0
Class A Common Stock, par value $.01 per share; 500.0
shares
authorized; 139.7 (1999) and 141.6 (1998) shares
issued............................................... 1.4 1.4
Class B Common Stock, par value $.01 per share;
3,000.0 shares
authorized; 606.6 (1999) and 591.9 (1998) shares
issued............................................... 6.1 5.9
Additional paid-in capital............................ 10,338.5 10,574.7
Retained earnings..................................... 2,247.9 1,932.9
Accumulated other comprehensive loss (Note 1)......... (30.2) (67.1)
---------- ---------
12,563.7 13,047.8
---------- ---------
Less treasury stock, at cost; 1.4 (1999 and 1998)
Class A shares and
47.1 (1999) and 37.1 (1998) Class B shares........... 1,431.7 998.2
---------- ---------
Total shareholders' equity............................ 11,132.0 12,049.6
---------- ---------
$ 24,486.4 $23,613.1
========== =========
See notes to consolidated financial statements.
II-26
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
[Download Table]
Year Ended December 31,
------------------------------
1999 1998 1997
-------- --------- ---------
Operating Activities:
Net earnings (loss)........................... $ 334.0 $ (122.4) $ 793.6
Adjustments to reconcile net earnings (loss)
to net cash flow
from operating activities:
Net gain on dispositions...................... (29.8) (49.9) (1,761.3)
Depreciation and amortization................. 844.7 777.3 943.3
Restructuring charge.......................... 70.3 -- --
Distribution from affiliated companies........ 26.4 17.9 62.2
Gain on the sale of cost investments.......... (3.9) (118.9) --
Loss on redemption of debt.................... 37.7 126.6 --
Equity in loss of affiliated companies........ 60.7 41.4 163.3
Amortization of deferred financing costs...... 15.4 16.1 33.6
Change in operating assets and liabilities:
Decrease (increase) in receivables............ 61.7 135.6 (251.3)
Decrease (increase) in inventory and related
programming liabilities, net................. (603.4) 367.1 79.7
Decrease (increase) in prepublication costs,
net.......................................... -- 13.8 (21.4)
Increase in prepaid expenses and other current
assets....................................... (49.4) (119.7) (83.5)
Decrease (increase) in unbilled receivables... (120.7) 105.0 (53.3)
Increase (decrease) in accounts payable and
accrued expenses............................. (19.7) 192.6 (7.6)
Increase (decrease) in income taxes payable
and deferred income taxes, net............... (344.5) (563.9) 455.6
Increase (decrease) in deferred income........ 57.0 7.4 (93.1)
Other, net.................................... (42.4) 38.1 80.2
-------- --------- ---------
Net cash flow provided by (used for) operating
activities.................................... 294.1 864.1 340.0
-------- --------- ---------
Investing activities:
Capital expenditures.......................... (706.2) (603.5) (530.3)
Acquisitions, net of cash acquired............ (312.4) (126.4) (355.1)
Investments in and advances to affiliated
companies.................................... (161.6) (100.3) (300.4)
Proceeds from sale of short-term investments.. 406.3 101.4 139.8
Purchases of short-term investments........... (416.2) (151.6) (81.3)
Proceeds from dispositions.................... 114.3 4,950.1 3,014.9
Proceeds from sale of cost investments........ 4.0 167.3 --
Other, net.................................... (35.8) (18.6) 18.2
-------- --------- ---------
Net cash flow provided by (used for) investing
activities.................................... (1,107.6) 4,218.4 1,905.8
-------- --------- ---------
Financing activities:
Borrowings (repayments) of credit agreements,
net.......................................... 2,184.8 (2,383.0) (2,092.3)
Repayment of notes and debentures............. (1,075.3) (869.3) --
Purchase of treasury stock and warrants....... (478.8) (809.6) (9.8)
Repurchase of Preferred Stock................. (611.9) (564.0) --
Payment on capital lease obligations.......... (106.5) (110.7) (66.2)
Net proceeds from issuance of subsidiary
stock........................................ 430.7 -- --
Payment of Preferred Stock dividends.......... (7.8) (64.8) (60.0)
Proceeds from exercise of stock options and
warrants..................................... 390.8 182.8 69.6
Other, net.................................... 1.0 11.1 (3.8)
-------- --------- ---------
Net cash flow provided by (used for) financing
activities.................................... 727.0 (4,607.5) (2,162.5)
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. (86.5) 475.0 83.3
Cash and cash equivalents at beginning of
year......................................... 767.3 292.3 209.0
-------- --------- ---------
Cash and cash equivalents at end of year....... $ 680.8 $ 767.3 $ 292.3
======== ========= =========
See notes to consolidated financial statements.
II-27
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(In millions)
[Download Table]
Year ended December 31,
------------------------------------------------------
1999 1998 1997
----------------- ----------------- ----------------
Shares Amount Shares Amount Shares Amount
------ --------- ------ --------- ------ ---------
Convertible Preferred
Stock:
Balance, beginning of
year................... 12.0 $ 600.0 24.0 $ 1,200.0 24.0 $ 1,200.0
Repurchase of Preferred
Stock.................. 12.0 600.0 12.0 600.0 -- --
----- --------- ----- --------- ----- ---------
Balance, end of year.... -- $ -- 12.0 $ 600.0 24.0 $ 1,200.0
===== ========= ===== ========= ===== =========
Class A Common Stock:
Balance, beginning of
year................... 141.6 $ 1.4 140.7 $ 1.4 140.2 $ 1.4
Exercise of stock
options and warrants... -- -- .9 -- .5 --
Conversion of A shares
into B shares.......... (1.9) -- -- -- -- --
----- --------- ----- --------- ----- ---------
Balance, end of year.... 139.7 $ 1.4 141.6 $ 1.4 140.7 $ 1.4
===== ========= ===== ========= ===== =========
Class B Common Stock:
Balance, beginning of
year................... 591.9 $ 5.9 581.1 $ 5.8 576.4 $ 5.8
Exercise of stock
options and warrants... 12.8 .2 10.8 .1 4.7 --
Conversion of A shares
into B shares.......... 1.9 -- -- -- -- --
----- --------- ----- --------- ----- ---------
Balance, end of year.... 606.6 $ 6.1 591.9 $ 5.9 581.1 $ 5.8
===== ========= ===== ========= ===== =========
Additional Paid-In
Capital:
Balance, beginning of
year................... $10,574.7 $10,329.5 $10,238.5
Exercise of stock
options and warrants,
net of tax benefit..... 443.5 280.1 94.9
Loss on Blockbuster
Offering............... (662.1) -- --
Warrants repurchased.... (17.6) (34.9) (3.9)
--------- --------- ---------
Balance, end of year.... $10,338.5 $10,574.7 $10,329.5
========= ========= =========
Retained Earnings:
Balance, beginning of
year................... $ 1,932.9 $ 2,089.0 $ 1,358.6
Net earnings (loss)..... 334.0 (122.4) 793.6
Preferred Stock dividend
requirement............ (.4) (57.2) (60.0)
Discount (premium) on
repurchase of Preferred
Stock.................. (12.0) 30.0 --
Comprehensive income
reclassification....... -- -- (3.2)
Exercise of stock
options................ (6.6) (6.5) --
--------- --------- ---------
Balance, end of year.... $ 2,247.9 $ 1,932.9 $ 2,089.0
========= ========= =========
Accumulated Other
Comprehensive Income
(Loss):
Balance, beginning of
year................... $ (67.1) $ (12.6) $ 5.9
Other comprehensive
income (loss).......... 36.9 (54.5) (18.5)
--------- --------- ---------
Balance, end of year.... $ (30.2) $ (67.1) $ (12.6)
========= ========= =========
Treasury Stock, at cost:
Balance, beginning of
year................... 38.5 $ (998.2) 13.0 $ (229.5) 12.5 $ (223.6)
Common Stock
repurchased............ 10.6 (448.8) 26.2 (787.0) .5 (5.9)
Exercise of stock
options (Class B)...... (.6) 15.3 (.7) 18.3 -- --
----- --------- ----- --------- ----- ---------
Balance, end of year.... 48.5 $(1,431.7) 38.5 $ (998.2) 13.0 $ (229.5)
===== ========= ===== ========= ===== =========
Total Shareholders'
Equity................. $11,132.0 $12,049.6 $13,383.6
========= ========= =========
Comprehensive Income
(Loss):
Net earnings (loss)..... $ 334.0 $ (122.4) $ 793.6
--------- --------- ---------
Other Comprehensive
Income (Loss):
Unrealized gain on
securities............. 15.8 85.2 29.9
Reclassification
adjustment for gains
included in net
earnings............... (2.3) (118.9) --
Cumulative translation
adjustments............ 21.2 (19.0) (50.4)
Minimum pension
liability adjustment... 2.2 (1.8) 2.0
--------- --------- ---------
Total Other
Comprehensive Income
(Loss)................. 36.9 (54.5) (18.5)
--------- --------- ---------
Total Comprehensive
Income (Loss).......... $ 370.9 $ (176.9) $ 775.1
========= ========= =========
See notes to consolidated financial statements.
II-28
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--Viacom Inc. and its subsidiaries (the "Company") is
a diversified entertainment company with operations in the six segments
described below. These operating segments have been determined in accordance
with the Company's internal management structure, which is organized based on
products and services. In accordance with Statement of Financial Accounting
Standards ("SFAS") 131, "Disclosures about Segments of an Enterprise and
Related Information," certain similar operating segments have been aggregated.
See Note 16 regarding the relative contribution to revenues and operating
results from each of the following operating segments:
Networks
MTV Networks owns and operates advertiser-supported basic cable television
program services, and Showtime Networks Inc. owns and operates premium
subscription cable television program services.
Entertainment
Paramount Pictures: 1) produces, acquires, finances and distributes feature
motion pictures, normally for exhibition in U.S. and foreign theaters followed
by videocassettes, discs and DVDs, pay-per-view television, premium
subscription television, network television, basic cable television and
syndicated television exploitation; 2) produces, acquires and distributes
series, mini-series, specials and made-for-television movies initially for
network television, first-run syndication, pay television, and basic cable
television and subsequently for syndication; 3) operates movie theaters; 4)
acquires and exploits a library of music copyrights to various musical works,
including songs, scores and cues; and 5) owns and operates 17 television
stations and programs 2 stations pursuant to local marketing agreements.
Video
Blockbuster Video operates and franchises in the home video, DVD and video
game rental and retailing business throughout the United States and
internationally. Blockbuster's new technologies business consists of
blockbuster.com.
Parks
Paramount Parks owns and operates five regional theme parks and a themed
attraction in the United States and Canada.
Publishing
Simon & Schuster publishes and distributes consumer hardcover books, trade
paperbacks, mass-market paperbacks, children's books, audiobooks, electronic
books and CD-ROM products in the United States and internationally.
Online
Viacom interactive online services provides online music and children's
destinations featuring entertainment, information, community tools and e-
commerce.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts
II-29
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could subsequently
differ from those estimates.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and investments of more than 50% in subsidiaries
and other entities. Investments in affiliated companies over which the Company
has a significant influence or ownership of more than 20% but less than or
equal to 50% are accounted for under the equity method. Investments of 20% or
less are accounted for under the cost method. All significant intercompany
transactions have been eliminated.
Cash and Cash Equivalents--Cash and cash equivalents consist of cash on
hand and short-term (three months or less) highly liquid investments.
Inventories--Inventories related to theatrical and television product
(which includes direct production costs, production overhead, acquisition
costs, prints and certain exploitation costs) are stated at the lower of
amortized cost or net realizable value. Inventories are amortized, and
liabilities for residuals and participation are accrued, for an individual
product based on the proportion that current revenues bear to the estimated
remaining total lifetime revenues. Estimates for initial domestic syndication
and basic cable revenues 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 their respective primary markets, with the
remainder classified as non-current. A portion of the cost to acquire
Paramount Communications was allocated to theatrical and television
inventories based upon estimated revenues from certain films less related
costs of distribution and a reasonable profit allowance for the selling
effort. The cost allocated to films is being amortized over their estimated
economic lives not to exceed 20 years.
The Company estimates that approximately 66% of unamortized film costs
(including amounts allocated under purchase accounting) at December 31, 1999
will be amortized within the next three years.
Inventories related to base stock videocassettes (generally less than five
copies per title for each store) are recorded at cost and a portion of these
costs are amortized on an accelerated basis over three months, generally to $8
per unit, with the remaining base stock videocassette costs amortized on a
straight-line basis over 33 months to an estimated $4 salvage value. The cost
of non-base stock videocassettes (generally greater than four copies per title
for each store) is amortized on an accelerated basis over three months to an
estimated $4 salvage value. Video games are amortized on an accelerated basis
over a 12 month period to an estimated $10 salvage value (See Note 6).
Program Rights--The Company acquires rights to programming and produces
programming to exhibit on its broadcast stations or cable networks. The costs
incurred in acquiring and producing programs are capitalized and amortized
over the license period or projected useful life of the programming. Program
rights and the related liabilities are recorded at the gross amount of the
liabilities when the license period has begun, the cost of the program is
determinable, and the program is accepted and available for airing.
Property and Equipment--Property and equipment is stated at cost.
Depreciation is computed principally by the straight-line method over
estimated useful lives as follows:
[Download Table]
Buildings (including capital leases)....................... 20 to 40 years
Leasehold improvements..................................... 4 to 15 years
Equipment and other (including capital leases)............. 3 to 20 years
II-30
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Depreciation expense, including capitalized lease amortization, was $496.8
million (1999), $441.8 million (1998) and $447.2 million (1997). Amortization
expense related to capital leases was $80.1 million (1999), $62.6 million
(1998) and $58.4 million (1997). Accumulated amortization of capital leases
was $295.5 million at December 31, 1999 and $272.7 million at December 31,
1998.
Impairment of Long-Lived Assets--The Company assesses long-lived assets and
certain identifiable intangibles for impairment whenever there is an
indication that the carrying amount of the asset may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted
undiscounted cash flows generated by those assets to their net carrying value.
The amount of impairment loss if any, will generally be measured by the
difference between the net book value of the assets and the estimated fair
value of the related assets. No material impairment losses have been
identified by the Company.
Intangible Assets--Intangible assets, which primarily consist of the cost
of acquired businesses in excess of the fair value of tangible assets and
liabilities acquired ("goodwill"), are generally amortized by the straight-
line method over estimated useful lives of up to 40 years. The Company
evaluates the amortization period of intangibles on an ongoing basis in light
of changes in any business conditions, events or circumstances that may
indicate the potential impairment of intangible assets. Accumulated
amortization of intangible assets was $1.9 billion at December 31, 1999 and
$1.6 billion at December 31, 1998.
Revenue Recognition--Subscriber fees for Networks are recognized in the
period the service is provided. Advertising revenues for Networks are
recognized in the period during which the spots are aired. Video segment
revenues are recognized at the time of rental or sale. The Publishing segment
recognizes revenue when merchandise is shipped. Online advertising revenue is
recognized ratably during the period in which the advertising is displayed and
obligations are satisfied.
Theatrical revenues from domestic and foreign markets are recognized as
films are exhibited; revenues from the sale of videocassettes, discs and DVDs
are recognized upon availability of sale to the public; and revenues from all
television sources are recognized upon availability of the film for telecast.
On average, the length of the initial revenue cycle for feature films
approximates four to seven years.
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 period that the films or television series
are available for telecast and therefore may cause fluctuation in operating
results.
Interest--Costs associated with the refinancing or issuance of debt, as
well as with debt discount, are expensed as interest over the term of the
related debt. The Company may enter into interest rate exchange agreements;
the amount to be paid or received under such agreements would be accrued as
interest rates change and recognized over the life of the agreements as an
adjustment to interest expense. Amounts paid for purchased interest rate cap
agreements would be amortized as interest expense over the term of the
agreement.
Foreign Currency Translation and Transactions--The Company's foreign
subsidiaries' assets and liabilities are translated at exchange rates in
effect at the balance sheet date, while results of operations are translated
at average exchange rates for the respective periods. The resulting
translation gains or losses are included as a separate component of
shareholders' equity in accumulated other comprehensive income. Foreign
currency transaction gains and losses have been included in "Other items,
net".
II-31
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Subsidiary Stock Transactions--Gains or losses arising from issuances by a
subsidiary of its own stock in a public offering are recorded within
shareholders' equity.
Provision for Doubtful Accounts--The provision for doubtful accounts
charged to expense was $33.5 million (1999), $29.5 million (1998) and $83.1
million (1997).
Net Earnings (Loss) per Common Share--Basic earnings per share is based
upon the net earnings applicable to common shares after preferred dividend
requirements and upon the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the effect of the
assumed conversions of convertible securities and exercise of stock options
only in the periods in which such effect would have been dilutive.
For each of the full years presented, the effect of the assumed conversion
of preferred stock is antidilutive and therefore, not reflected in diluted net
earnings per common share. For the year ended December 31, 1998, the
incremental shares attributable to the assumed exercise of stock options had
an antidilutive effect, and are therefore excluded from the diluted earnings
per share computation. The numerator used in the calculation of both basic and
diluted EPS for each respective year reflects earnings (loss) from continuing
operations less preferred stock dividends of $.4 million for 1999, $57.2
million for 1998 and $60 million for 1997 plus the (premium) discount on
preferred stock of ($12 million) for 1999 and $30 million for 1998,
respectively. The table below presents a reconciliation of weighted average
shares used in the calculation of basic and diluted EPS:
[Download Table]
1999 1998 1997
----- ----- -----
Weighted average shares for basic EPS..................... 695.2 708.7 705.8
Plus incremental shares for stock options................. 14.3 -- 2.7
----- ----- -----
Weighted average shares for diluted EPS................... 709.5 708.7 708.5
===== ===== =====
Comprehensive Income (Loss)--The components of accumulated other
comprehensive income (loss) were as follows:
[Download Table]
Minimum Accumulated
Unrealized Cumulative Pension Other
Gain (Loss) Translation Liability Comprehensive
on Securities Adjustments Adjustment Income (Loss)
------------- ----------- ---------- -------------
At December 31, 1996......... $ 5.0 $ 11.3 $(10.4) $ 5.9
Current period change...... 29.9 (50.4) 2.0 (18.5)
----- ------ ------ ------
At December 31, 1997......... 34.9 (39.1) (8.4) (12.6)
Current period change...... (33.7) (19.0) (1.8) (54.5)
----- ------ ------ ------
At December 31, 1998......... 1.2 (58.1) (10.2) (67.1)
Current period change...... 13.5 21.2 2.2 36.9
----- ------ ------ ------
At December 31, 1999......... $14.7 $(36.9) $ (8.0) $(30.2)
===== ====== ====== ======
II-32
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Reclassifications--Certain amounts reported for prior years have been
reclassified to conform with the current year's presentation.
Recent Pronouncements--In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), effective for fiscal years beginning after
June 15, 2000. The Company anticipates that due to its limited use of
derivative instruments, the adoption of SFAS 133 will not have a material
effect on its financial statements.
In October 1998, the FASB released an exposure draft of the proposed
statement on "Rescission of FASB Statement No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films," ("SFAS 53"). An entity
that previously was subject to the requirements of SFAS 53 would follow the
guidance in a proposed Statement of Position, "Accounting by Producers and
Distributors of Films." This proposed Statement of Position would be effective
for financial statements for fiscal years beginning after December 15, 2000
and could have a significant impact on the Company's results of operations and
financial position depending on its final outcome.
2) PENDING TRANSACTIONS AND SUBSEQUENT EVENTS
On September 7, 1999, the Company and CBS Corporation ("CBS") announced
that the companies had signed a definitive agreement to merge. On December 29,
1999, the shareholders of both companies approved this transaction. The
Company and CBS have agreed that CBS will merge with the Company upon the
terms and conditions set forth in the merger agreement, as amended and
restated. At the time of the merger, the Company will issue 1.085 shares of
its Class B Common Stock for each share of CBS common stock and 1.085 shares
of its Series C Preferred Stock for each share of CBS Series B preferred
stock. Although the waiting period prescribed by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 has expired, the merger is under continuing
review by the U.S. Department of Justice and is further subject to regulatory
approval by the Federal Communications Commission. The Company expects the
merger to be completed in April of 2000. The Company's consolidated results of
operations will incorporate CBS activity upon the acquisition date.
On March 20, 2000, BHC Communications, Inc. ("BHC"), a corporate subsidiary
of Chris Craft Industries, Inc., agreed to sell to the Company its remaining
50% interest in United Paramount Network ("UPN") for $5 million. The
transaction is expected to close on March 31, 2000.
On February 16, 2000, the Company initiated a share repurchase program to
acquire up to $1.0 billion in the Company's common stock. For the year to date
period ended March 21, 2000, the Company repurchased 10,000 shares of its
Class A Common Stock and 11,570,900 shares of its Class B Common Stock for
$634.6 million in the aggregate.
3) BLOCKBUSTER INITIAL PUBLIC OFFERING
On August 10, 1999, Blockbuster sold to the public 31 million shares of its
Class A common stock at $15 per share. The shares are traded on the New York
Stock Exchange. The Company, through its ownership of all of the 144 million
shares of Blockbuster Class B common stock outstanding, retained approximately
82% of the total equity value in, and approximately 96% of the combined voting
power of, Blockbuster. Proceeds from the offering aggregated $442.9 million,
net of underwriting discounts and commissions and before payment of offering
expenses, and were used by Blockbuster to repay outstanding indebtedness under
a $1.9 billion term and revolving credit agreement. The Company recorded a
reduction to equity of approximately $662 million as a result of the issuance
of subsidiary stock.
II-33
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
In December 1999, a registration statement on Form S-4 was filed with the
Securities and Exchange Commission relating to a split-off of Blockbuster
pursuant to an offering by the Company to exchange all of its shares of
Blockbuster for shares of the Company's common stock. The Company has
announced that, subject to the approval of the Company's Board of Directors,
which will be based on an assessment of market conditions, and the receipt of
a supplemental private letter ruling from the Internal Revenue Service
reflecting the anticipated merger between the Company and CBS, it intends to
split-off Blockbuster by offering to exchange all of its shares of Blockbuster
for shares of the Company's common stock. In particular, 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 split-off
is intended to establish Blockbuster as a stand-alone entity with objectives
separate from those of the Company's other businesses. The Company has no
obligation to effect the split-off either before or after the merger. The
Company 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, or whether or
not the split-off, if it does occur, will be tax-free. The aggregate market
value of the shares of Blockbuster common stock based on the March 20, 2000
closing price of $10.9375 per share of Blockbuster common stock was
approximately $1.9 billion. The net book value of Viacom's investment in
Blockbuster at December 31, 1999 was approximately $5.1 billion. If the
Company determines to engage in the split-off, any difference between the fair
market value and net book value at the time of the split-off will be
recognized as a gain or loss for accounting purposes. Based on the March 20,
2000 closing stock price of Blockbuster, a split-off would have resulted in a
pre-tax loss on discontinued operations of approximately $3.5 billion. The
actual amount of the gain or loss will depend upon the fair market value and
net book value of Blockbuster at the time of the split-off as well as the
exchange ratio used in the split-off.
4) SPELLING TRANSACTION AND RESTRUCTURING CHARGE
On June 21, 1999, the Company completed its tender offer for all
outstanding shares of Spelling Entertainment Group Inc. ("Spelling") common
stock that it did not already own for $9.75 per share in cash. The tender
offer was made under the terms of a merger agreement between the Company and
Spelling. The tendered shares, along with the shares already owned by the
Company, represented approximately 97% of all of the issued and outstanding
shares of Spelling. On June 23, 1999, the Company acquired the remaining
outstanding shares of Spelling, approximately 3%, through a merger of Spelling
and a wholly owned subsidiary of the Company. As a result of the merger, each
share of Spelling common stock was also converted into the right to receive
$9.75 in cash. The consideration for tendered shares was approximately $176
million.
In connection with the integration of the operations of Spelling into
Paramount Television, the Company recorded a charge of approximately $81.1
million, of which $70.3 million was recorded as a restructuring charge and
$10.8 million was recorded as part of depreciation expense in the third
quarter of 1999. Included in the restructuring charge are severance and
employee related costs of $48.1 million, lease termination and other occupancy
costs of $17.7 million and other exit costs of $4.5 million. Severance and
other employee related costs represent the costs to terminate approximately
250 employees engaged in legal, sales, marketing, finance, information
systems, technical support and human resources for Spelling. Lease termination
and other occupancy costs principally represent the expenses associated with
vacating existing lease obligations in New York and Los Angeles. The
depreciation expense of approximately $10.8 million was associated with the
fixed asset write-offs for software, leasehold improvements and equipment
located at these premises. As of December 31, 1999, the Company paid and
charged approximately $11.0 million against the severance liability, $3.7
million against lease termination and other occupancy costs, and $.6 million
against the other exit costs. The Company expects to complete the exit
activities by the end of the year 2000.
II-34
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
5) DISCONTINUED OPERATIONS
In accordance with Accounting Principles Board ("APB") Opinion 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", the Company presented the following lines of
business as discontinued operations: its educational, professional and
reference publishing businesses ("Non-Consumer Publishing"), its music retail
stores, interactive game businesses and Viacom Radio Stations.
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing for $4.6 billion in cash. Viacom retained its consumer publishing
operations, including the Simon & Schuster name. As a result of the sale, the
Company recorded a net gain on the transaction of $65.5 million.
On October 26, 1998, the Company completed the sale of its music retail
stores to Wherehouse Entertainment, Inc. for $115 million in cash and recorded
a net loss on the transaction of $138.5 million. The Company had previously
closed the remaining music stores that were not part of the transaction.
On February 19, 1997, the Company adopted a plan to dispose of its
interactive game businesses, including Viacom New Media, the operations of
which were terminated in 1997. On that same date, the Board of Directors of
Spelling approved a formal plan to dispose of Virgin Interactive Entertainment
Limited ("Virgin"). Accordingly, the interactive game businesses were
presented as discontinued operations. On September 4, 1998, Spelling completed
the sale of substantially all of the development operations of Virgin to
Electronic Arts Inc. for $122.5 million in cash. In addition, on November 10,
1998, Spelling completed the sale of all non-U.S. operations of Virgin to an
investor group.
For the year ended December 31, 1997, the revenues and operating losses of
the interactive game businesses were $241.3 million and $43.5 million,
respectively. These losses were provided for in the estimated loss on disposal
of $159.3 million, net of minority interest, which included a provision for
future operating losses of $44.0 million, net of minority interest, as of
December 31, 1996. In the fourth quarter of 1997, an estimated loss of $32.0
million, net of minority interest, was recorded, reflecting anticipated future
operating losses and cash funding requirements through completion of the
disposition.
On July 2, 1997, the Company completed the sale of Viacom Radio Stations to
Chancellor Media Corp. for $1.1 billion in cash. As a result of the sale, the
Company realized a gain on disposition of $416.4 million, net of tax, in the
third quarter of 1997.
II-35
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Summarized financial data of discontinued operations are as follows:
[Download Table]
Results of discontinued operations: Non-Consumer
Publishing Music Radio Total
------------ ------- ------ --------
For the Year ended December 31,
1998(1)(2)
Revenues............................. $1,718.0 $ 293.5 -- $2,011.5
Loss from operations before income
taxes............................... (15.2) (20.9) -- (36.1)
Benefit (provision) for income
taxes............................... (26.0) 8.0 -- (18.0)
Net loss............................. (41.2) (12.9) -- (54.1)
For the Year ended December 31, 1997(3)
Revenues............................. $1,915.5 $ 605.7 $ 57.1 $2,578.3
Earnings (loss) from operations
before income taxes................. 144.5 (100.3) 24.5 68.7
Benefit (provision) for income
taxes............................... (80.8) 37.6 (10.6) (53.8)
Net earnings (loss).................. 63.7 (62.7) 13.9 14.9
---------------------
(1) Results of operations reflect Non-Consumer Publishing for the period
January 1 through November 26, 1998.
(2) Results of operations reflect the music retail stores for the period
January 1 through August 10, 1998.
(3) Results of operations include Radio for the six months ended June 30,
1997.
The provision for income taxes of $18.0 million for 1998 and $53.8 million
for 1997 represent effective tax rates of (49.9%) and 78.3%, respectively. The
differences between the effective tax rates and the statutory federal tax rate
of 35% principally relate to certain non-deductible expenses, the allocation
of non-deductible goodwill amortization, state and local taxes.
[Download Table]
Year ended December 31,
-------------------------
1998 1997
------------ -----------
Net gain on dispositions, net of tax:
Loss on sale of Music........................... $ (138.5) $ --
Gain on sale of Non-Consumer Publishing......... 65.5 --
Gain on sale of Viacom Radio.................... -- 416.4
Additional reserves for Virgin's operating
losses......................................... (20.3) (32.0)
Tax benefit for the sale of Virgin.............. 134.0 --
Reversal of excess cable split-off reserves..... 9.2 20.8
------------ -----------
Net gain on dispositions, net of tax............ $ 49.9 $ 405.2
============ ===========
Basic and diluted earnings (loss) per share for discontinued operations was
$(.01) and $.60 for 1998 and 1997, respectively.
6) CHANGE IN ACCOUNTING METHOD AND OTHER CHARGES
Effective April 1, 1998, Blockbuster adopted an accelerated method of
amortizing videocassette and game rental inventory. Blockbuster has adopted
this new method of amortization because it has implemented a new business
model, including revenue sharing agreements with Hollywood studios, which has
dramatically increased the number of videocassettes in the stores and is
satisfying consumer demand over a shorter period of time. Revenue sharing
allows Blockbuster to purchase videocassettes at a lower product cost than the
traditional buying arrangements, with a percentage of the net rental revenues
shared with the studios over a contractually determined period of time. As the
new business model results in a greater proportion of rental revenue over a
II-36
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
shorter period of time, Blockbuster has changed its method of amortizing
rental inventory in order to more closely match expenses in proportion with
the anticipated revenues to be generated therefrom.
Pursuant to the new accounting method, the Company records base stock
videocassettes (generally less than five copies per title for each store) at
cost and amortizes a portion of these costs on an accelerated basis over three
months, generally to $8 per unit, with the remaining base stock videocassette
costs amortized on a straight-line basis over 33 months to an estimated $4
salvage value. The cost of non-base stock videocassettes (generally greater
than four copies per title for each store) is amortized on an accelerated
basis over three months to an estimated $4 salvage value. Video games are
amortized on an accelerated basis over a 12-month period to an estimated $10
salvage value. Revenue sharing payments are expensed when revenues are earned
pursuant to the applicable contractual arrangements.
The new method of accounting has been applied to rental inventory held as
of April 1, 1998. The adoption of the new method of amortization has been
accounted for as a change in accounting estimate effected by a change in
accounting principle. The Company recorded a pre-tax charge of $436.7 million
to operating expenses in the second quarter of 1998. Approximately $424.3
million of the charge represents an adjustment to the carrying value of the
rental tapes due to the new method of accounting and approximately $12.4
million represents a write-down of retail inventory.
The Company believes that the new amortization method developed for
Blockbuster's new business model will result in a better matching of revenue
and expense recognition. Under the new model, operating expense attributable
to videocassettes is comprised of revenue sharing payments, which are expensed
when earned, and amortization of product costs. The calculation of the change
in operating expense attributable to videocassettes and games for the twelve
months ended December 31, 1998 would not be meaningful because the method of
accounting applied prior to April 1, 1998 did not contemplate the new business
model.
Prior to April 1, 1998, videocassette rental inventory was recorded at cost
and amortized over its estimated economic life. Base stock videocassettes (1
to 4 copies per title for each store) were amortized over 36 months on a
straight-line basis. Non-base stock videocassettes (the fifth and succeeding
copies per title for each store) were amortized over six months on a straight-
line basis. Video game inventory was amortized on a straight-line basis over a
period of 12 to 24 months.
During the second quarter of 1997, Blockbuster shifted its strategic
emphasis from retailing a broad assortment of merchandise to focusing on its
core rental business. Rationalization of the retail product lines such as
sell-through video, confectionery items, literature, music and fashion
merchandise allowed the Company to devote more management time and attention,
as well as retail floor selling space, to its video and game rental business.
In addition, as part of its effort to improve the performance of its
operations, Blockbuster adopted a plan to close consistently underperforming
stores primarily located in the United Kingdom and Australia and to exit the
German market. As a result, Blockbuster recorded a pre-tax charge of $322.8
million which consisted of operating and general and administrative expenses
of approximately $247.5 million, as well as depreciation expense attributable
to the write-off of long-lived assets of $45.9 million and write-offs
attributable to international joint ventures accounted for under the equity
method of $29.4 million. As a result of exiting the music business,
approximately $72.6 million of the charge was presented as part of
discontinued operations. The remaining balance of the charge consisted
principally of $100.8 million for a reduction in the carrying value of excess
merchandise inventories, $69.6 million for the closing of underperforming
stores principally located in international markets, and $39.3 million
recognized as general and administrative expenses, primarily related to
relocation costs incurred in connection with the move of the Company's
employees, corporate offices and data center from Fort Lauderdale, Florida to
Dallas, Texas.
II-37
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The $69.6 million charge for the closing of underperforming stores was
comprised of a $41.8 million non-cash impairment charge associated with long-
lived assets and a $27.8 million charge for lease exit obligations. These
amounts were recognized as depreciation expense and general and administrative
expense, respectively. Through December 31, 1999, the Company paid and charged
approximately $19.9 million against the lease exit obligations.
7) ACCOUNTS RECEIVABLE
As of December 31, 1999, the Company had an aggregate of $516.7 million
outstanding under revolving receivable securitization programs. Proceeds from
the securitization programs were used to reduce outstanding borrowings.
8) INVENTORY
[Download Table]
December 31,
-----------------
1999 1998
-------- --------
Theatrical and television inventory:
Theatrical and television productions:
Released.................................................. $1,944.3 $1,800.4
Completed, not released................................... .8 35.9
In process and other...................................... 411.6 321.0
Program rights............................................. 1,434.4 1,246.2
-------- --------
3,791.1 3,403.5
Less current portion...................................... 1,531.1 1,336.8
-------- --------
2,260.0 2,066.7
-------- --------
Merchandise inventory, including sell-through
videocassettes............................................. 338.0 381.9
Videocassette rental inventory.............................. 569.5 404.1
Publishing:
Finished goods............................................. 60.0 59.7
Work in process............................................ 6.1 6.9
Raw materials.............................................. 4.3 2.5
Other....................................................... 20.0 17.7
-------- --------
997.9 872.8
Less current portion...................................... 428.4 468.7
-------- --------
569.5 404.1
-------- --------
Total Current Inventory..................................... $1,959.5 $1,805.5
======== ========
Total Non-Current Inventory................................. $2,829.5 $2,470.8
======== ========
9) INVESTMENTS IN AFFILIATED COMPANIES
The Company accounts for its investments in affiliated companies over which
the Company has significant influence or ownership of more than 20% but less
than or equal to 50%, under the equity method. Such investments principally
include but are not limited to the Company's interest in Comedy Central (50%
owned), United Paramount Network (50% owned), United Cinemas International
(50% owned), Nickelodeon U.K.
II-38
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
(50% owned), NOGGIN (50% owned) and Middle East Channel (33% owned).
Investments in affiliates are included as a component of other assets.
The following is a summary of combined financial information that is based
on information provided by the equity investees.
[Download Table]
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Results of operations:
Revenues........................................ $1,995.4 $1,898.3 $2,324.9
Operating loss.................................. (109.4) (73.2) (142.5)
Net loss........................................ (154.9) (115.4) (150.6)
At December 31,
------------------
1999 1998
-------- --------
Financial position:
Current assets.................................. $ 851.9 $ 740.5
Non-current assets.............................. 972.1 781.2
Current liabilities............................. 811.3 694.9
Non-current liabilities......................... 652.8 451.8
Equity.......................................... 359.9 375.0
The Company, through the normal course of business, is involved in
transactions with affiliated companies that have not been material in any of
the periods presented.
In 1999 and 1998, equity in loss of affiliated companies, net of tax,
principally reflects the net operating loss of UPN, partially offset by the
positive results of Comedy Central. In 1997, the equity loss primarily
reflects the net operating loss of UPN and charges associated with
international network ventures partially offset by earnings from the Company's
half-interest in USA Networks which was sold on October 21, 1997.
II-39
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
10) BANK FINANCING AND DEBT
Long-term debt consists of the following:
[Download Table]
December 31,
-----------------
1999 1998
-------- --------
Notes payable to banks....................................... $3,054.2 $ 868.5
5.875% Senior Notes* due 2000, net of unamortized discount
of $.1 (1999) and $.2 (1998)................................ 149.9 149.8
7.5% Senior Notes* due 2002, net of unamortized discount
of $.9 (1999) and $1.3 (1998)............................... 249.1 248.7
6.75% Senior Notes due 2003, net of unamortized discount
of $.1 (1999) and $.2 (1998)................................ 349.9 349.8
7.75% Senior Notes due 2005, net of unamortized discount
of $5.0 (1999) and $5.9 (1998).............................. 966.0 965.0
7.625% Senior Debentures due 2016, net of unamortized
discount
of $1.1 (1999) and $1.2 (1998).............................. 198.9 198.7
8.25% Senior Debentures* due 2022, net of unamortized
discount
of $2.5 (1999) and $2.6 (1998).............................. 247.5 247.4
7.5% Senior Debentures* due 2023, net of unamortized discount
of $.4 (1999) and $.5 (1998)................................ 149.6 149.5
10.25% Senior Subordinated Notes* due 2001................... 35.3 36.3
8.0% Merger Debentures due 2006, net of unamortized
discount of $44.1 (1998).................................... -- 475.2
Other Notes.................................................. -- .3
Obligations under capital leases............................. 591.6 501.4
-------- --------
5,992.0 4,190.6
Less current portion......................................... 294.3 377.2
-------- --------
$5,697.7 $3,813.4
======== ========
---------------------
* Issues of Viacom International Inc. guaranteed by the Company.
The Viacom Credit Agreements, as amended, are comprised of (i) a $3.7
billion senior unsecured reducing revolver maturing July 1, 2002 and a $571
million term loan maturing April 1, 2002 (the "Viacom Agreement") and (ii) a
$100 million term loan for Viacom International Inc. maturing July 1, 2002
(the "Viacom International Agreement"). Of these amounts, $1.8 billion and
$846.2 million were outstanding as of December 31, 1999 and 1998,
respectively.
The following is a summary description of the Viacom Credit Agreements, as
amended. The description does not purport to be complete and should be read in
conjunction with each of the credit agreements, which have been filed as
exhibits and are incorporated by reference herein.
The Company guarantees the Viacom International Agreement and notes and
debentures issued by Viacom International Inc. Viacom International Inc.
guarantees the Viacom Agreement and notes and debentures issued by the
Company.
The Company may prepay the loans and reduce commitments under the Viacom
Credit Agreements in whole or in part at any time.
II-40
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The Viacom Credit Agreements contain certain covenants which, among
other things, require that the Company maintain certain financial ratios
and impose on the Company and its subsidiaries certain limitations on
substantial asset sales and mergers with any other company in which the
Company is not the surviving entity.
The Viacom Credit Agreements contain certain customary events of default
and provide that it is an event of default if NAI fails to own at least 51%
of the outstanding voting stock of the Company.
During 1999, the Company amended the Viacom Credit Agreements to, among
other things, provide for the Blockbuster Credit Agreement and to allow for a
potential split-off of Blockbuster.
On May 6, 1999, the 364-day film financing credit agreement guaranteed by
Viacom International Inc. and the Company was paid in full, and on May 7, 1999
this credit agreement terminated.
The Company used proceeds received from Blockbuster as described below to
permanently reduce its commitments under the Viacom Credit Agreements by
$1.139 billion.
The interest rate on all loans made under the Viacom Credit Agreements is
based on Citibank, N.A.'s base rate or a spread over the London Interbank
Offered Rate ("LIBOR"). The spread over such rate is based on the Company's
credit rating. At December 31, 1999, LIBOR (upon which the Company's borrowing
rate was based) for borrowing periods of one month and two months were 5.8%
and 5.9%, respectively. At December 31, 1998, LIBOR for borrowing periods of
one month and two months were each 5.09%.
Certain proceeds from the disposition of Non-Consumer Publishing in
November of 1998 were used to reduce borrowings under the Viacom Credit
Agreements.
The Company is required to pay a commitment fee based on the aggregate
daily unborrowed portion of the loan commitments. As of December 31, 1999, the
Company had $2.5 billion of available unborrowed loan commitments. The Viacom
Credit Agreements do not require compensating balances.
Blockbuster Credit Agreement
On June 21, 1999, Blockbuster entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement is comprised of a $700 million revolver due July
1, 2004, a $600 million term loan due in quarterly installments beginning
April 1, 2002 and ending July 1, 2004, and a $600 million revolver due June
19, 2000, which was subsequently reduced with proceeds from the offering as
described below. Interest rates are based on the prime rate or LIBOR at
Blockbuster's option at the time of borrowing. A variable commitment fee based
on the total leverage ratio is charged on the unused amount of the revolver.
The Blockbuster Credit Agreement contains covenants, which, among other
things, relate to the payment of dividends, repurchase of Blockbuster's common
stock or other distributions and also require compliance with financial
covenants with respect to a maximum leverage ratio and a minimum fixed charge
ratio.
On June 23, 1999, Blockbuster borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolver, $600 million borrowed under the
term loan, and $600 million under the short-term revolver. The weighted
average interest rate at December 31, 1999 for these borrowings was 7.9%. The
proceeds of the borrowings were used to pay amounts owed to the Company.
Blockbuster has repaid $442.9 million of the short-
II-41
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
term revolver through proceeds from the offering. These proceeds permanently
reduced Blockbuster's commitments under the Blockbuster Credit Agreement from
$1.9 billion to approximately $1.46 billion.
---------------------
During December 1998, the Company commenced the unconditional tender offers
to purchase for cash, all of its outstanding 8.0% Merger Debentures due 2006
at a purchase price of 104% of the principal amount, and to purchase Viacom
International Inc.'s outstanding 10.25% Senior Subordinated Notes due 2001 at
a purchase price of 112.925% of the principal amount. The tender offer for the
8.0% Merger Debentures expired on January 4, 1999. The offer for the 10.25%
Senior Subordinated Notes expired December 30, 1998 and $163.7 million of such
notes were tendered. Through December 31, 1998, $533.8 million of the 8%
Merger Debentures were tendered and classified as part of accrued liabilities
as the settlement date occurred subsequent to year-end. During 1999, the
Company redeemed the remaining outstanding 8.0% Merger Debentures for $539.9
million. The Company recognized extraordinary losses of $37.4 million and
$41.7 million, net of taxes, in 1999 and 1998, respectively, on the early
redemption of the 8% Merger Debentures.
In addition, the Company purchased $21.8 million of the 8.0% Merger
Debentures and $29.0 million of the 7.75% Senior Notes in open market
transactions during 1998.
As of December 31, 1999, the Company had $1.45 billion available under its
shelf registration statement as filed with the Securities and Exchange
Commission in 1995. The net proceeds from the sale of the offered securities
may be used by the Company to repay, redeem, repurchase or satisfy its
obligations in respect of its outstanding indebtedness or other securities; to
make loans to its subsidiaries; for general corporate purposes; or for such
other purposes as may be specified in the applicable Prospectus Supplement.
The Company's scheduled maturities of indebtedness through December 31,
2004, assuming full utilization of the Viacom Credit Agreements, as amended,
are $1.0 billion (2000), $1.8 billion (2001), $2.0 billion (2002), $350.0
million (2003) and $0 (2004). The Company's maturities of long-term debt
outstanding at December 31, 1999, excluding capital leases, are $302.2 million
(2000), $304.6 million (2001), $1.7 billion (2002), $350.0 million (2003) and
$0 (2004). The Company has classified certain short-term indebtedness as long-
term debt based upon its intent and ability to refinance such indebtedness on
a long-term basis.
Blockbuster's scheduled maturities of indebtedness through December 31,
2004, assuming full utilization of the Blockbuster Credit Agreement are $157.1
million (2000), $0 (2001), $150.0 million (2002), $275.0 million (2003) and
$875.0 million (2004). Blockbuster's maturities of long-term debt outstanding
at December 31, 1999, excluding capital leases, are $157.1 million (2000), $0
(2001), $150.0 million (2002), $275.0 million (2003) and $605.0 million
(2004).
11) FINANCIAL INSTRUMENTS
The Company's carrying value of financial instruments approximates fair
value, except for differences with respect to the notes and debentures and
certain differences related to other financial instruments that are not
significant. The carrying value of the senior debt and senior subordinated
debt is $2.35 billion and the fair value, which is estimated based on quoted
market prices, is $2.33 billion.
The Company entered into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest on its
variable rate long-term debt and/or take advantage of changes in interest
rates. These interest rate exchange agreements include interest rate swaps and
interest rate caps. At December 31, 1999, the Company had $400 million of
interest rate exchange agreements outstanding with commercial
II-42
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
banks. These agreements, which expired February 24, 2000, effectively changed
the Company's interest rate on an equivalent amount of variable rate
borrowings to a fixed rate of 6.35%.
The Company enters into foreign currency exchange contracts in order to
reduce its exposure to changes in foreign currency exchange rates that affect
the value of its firm commitments and certain anticipated foreign currency
cash flows. These contracts generally mature within the calendar year. The
Company does not enter into foreign currency contracts for speculative
purposes. To date, the contracts utilized have been purchased options, spots
and forward contracts. A spot or forward contract is an agreement between two
parties to exchange a specified amount of foreign currency, at a specified
exchange rate on a specified date. An option contract provides the right, but
not the obligation, to buy or sell currency at a fixed exchange rate on a
future date. In 1999 the foreign exchange contracts have principally been used
to hedge the British Pound, the Australian Dollar, the Japanese Yen, the
Canadian Dollar, the Singapore Dollar and the European Union's common currency
(the "Euro"). At December 31, 1999, the Company had outstanding contracts with
a notional value of approximately $69.2 million that expire in 2000. Realized
gains and losses on contracts that hedge anticipated future cash flows are
recognized in "Other items, net" and were not material in each of the periods.
Option premiums are expensed at the inception of the contract. Deferred gains
and losses on foreign currency exchange contracts as of December 31, 1999 were
not material.
The Company continually monitors its positions with, and credit quality of,
the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties. The Company's
receivables do not represent significant concentrations of credit risk at
December 31, 1999, due to the wide variety of customers, markets and
geographic areas to which the Company's products and services are sold.
12) SHAREHOLDERS' EQUITY
On February 25, 1999, the Company announced a 2-for-1 common stock split in
the form of a dividend with a record date of March 15, 1999 and a distribution
date of March 31, 1999. An amount equal to the par value of the shares issued
has been transferred from additional paid-in capital to the common stock
account.
During 1999, the Company had repurchased 25,000 shares of its Class A
Common Stock, 10,551,200 shares of its Class B Common Stock and 1,140,400
Viacom Five-Year Warrants, for approximately $466.4 million in the aggregate.
During 1998, the Company had repurchased a total of 12,000 shares of its Class
A Common Stock, 26,190,200 shares of its Class B Common Stock and 5,502,000
Viacom Five-Year Warrants, for approximately $822.0 million in the aggregate.
On July 7, 1999, the Viacom Five-year Warrants expired. The Company
received proceeds of approximately $317 million and issued approximately 9.0
million shares of its Class B Common Stock in connection with the exercise of
4.5 million warrants issued as part of the 1994 acquisition of Paramount
Communications.
On December 2, 1998, the Company repurchased 12 million shares of its
convertible preferred stock from Bell Atlantic Corporation for $564 million in
cash. On January 5, 1999, the Company repurchased the remaining 12 million
shares of its convertible preferred stock from Bell Atlantic Corporation for
$612 million in cash.
Long-Term Incentive Plans--The Company has three Long-Term Incentive Plans
(the "Plans"): the Viacom Long-Term Management Incentive Plan (the "Viacom
Plan"), the Blockbuster Long-Term Management
II-43
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Incentive Plan (the "Blockbuster Plan") and MTVi Long-Term Incentive Plan (the
"MTVi Plan"). The Plans provide for the issuance of fixed grants of equity-
based interests which include stock options, stock appreciation rights,
restricted shares, phantom shares and other equity-based interests.
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with the
provisions of SFAS 123, the Company applies APB 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the Plans
and accordingly, does not recognize compensation expense for any of its Plans
because the Company typically does not issue options at exercise prices below
the market value at date of grant. Had compensation expense for its Plans been
determined based upon the fair value at the grant date for awards consistent
with the methodology prescribed by SFAS 123, the Company's consolidated pre-
tax income would have decreased by $118.0 million ($70.8 million after tax or
$0.10 per basic and diluted common share), $67.4 million ($40.5 million after
tax or $.06 per basic and diluted common share) and $36.3 million ($22.2
million after tax or $.03 per basic and diluted common share) in 1999, 1998
and 1997, respectively. These pro forma effects may not be representative of
future amounts since the estimated fair value of stock options on the date of
grant is amortized to expense over the vesting period and additional options
may be granted in future years.
Viacom Plan--The purpose of the Viacom Plan is to benefit and advance the
interests of the Company by rewarding certain key employees for their
contributions to the financial success of the Company and thereby motivating
them to continue to make such contributions in the future. The Viacom Plan
provide for fixed grants of equity-based interests pursuant to awards of
phantom shares, stock options, stock appreciation rights, restricted shares or
other equity-based interests ("Awards"), and for subsequent payments of cash
with respect to phantom shares or stock appreciation rights based, subject to
certain limits, on their appreciation in value over stated periods of time.
The stock options generally vest over a four to six year period from the date
of grant and expire 10 years after the date of grant. The Company has reserved
a total of 20,430 shares of Viacom Inc. Class A Common Stock and 53,980,626
shares of Viacom Inc. Class B Common Stock principally for exercise of stock
options.
During 1999, the Board of Directors, subject to shareholder approval,
increased the total aggregate number of shares of Class B Common Stock that
may be issued under the 1997 plan by 10,000,000 shares. In December 1999,
shareholder approval was obtained by consent. The stock options available for
future grant under the Viacom Plans are as follows:
[Download Table]
December 31, 1997............................................. 26,753,956
December 31, 1998............................................. 14,849,484
December 31, 1999............................................. 11,726,413
The weighted-average fair value of each option as of the grant date was
$19.89, $12.97 and $6.58 in 1999, 1998 and 1997, respectively. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
[Download Table]
1999 1998 1997
----- ----- -----
Expected dividend yield(a)................................. -- -- --
Expected stock price volatility............................ 29.64% 32.76% 31.74%
Risk-free interest rate.................................... 6.11% 5.43% 6.04%
Expected life of options (years)........................... 7.5 6.0 6.0
---------------------
(a) The Company has not declared any cash dividends on its common stock for
any of the periods presented and has no present intention of so doing.
II-44
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The following table summarizes the Company's stock option activity under
the Viacom plans:
[Download Table]
Weighted-
Average
Options Exercise
Outstanding Price
----------- ---------
Balance at December 31, 1996............................. 39,291,014 $16.23
-----------
Granted................................................. 18,406,000 15.34
Exercised............................................... (5,467,748) 14.40
Canceled................................................ (7,012,692) 18.24
-----------
Balance at December 31, 1997............................. 45,216,574 15.78
-----------
Granted................................................. 13,576,420 30.53
Exercised............................................... (12,077,298) 16.16
Canceled................................................ (1,802,390) 16.97
-----------
Balance at December 31, 1998............................. 44,913,306 20.09
-----------
Granted................................................. 14,283,483 42.02
Exercised............................................... (4,403,681) 17.19
Canceled................................................ (814,588) 18.59
-----------
Balance at December 31, 1999............................. 53,978,520 26.16
===========
The following table summarizes information concerning currently outstanding
and exercisable stock options under the Viacom Plans at December 31, 1999:
[Download Table]
Outstanding Exercisable
---------------------------------------- -------------------------
Remaining
Contractual Weighted- Weighted-
Range of Life Average Average
Exercise Price Options (Years) Exercise Price Options Exercise Price
-------------- ---------- ----------- -------------- ---------- --------------
$10 to $20 24,270,729 6.7 $16.44 10,642,350 $17.14
20 to 30 1,693,416 5.1 24.09 1,600,082 24.27
30 to 40 13,701,420 8.7 30.78 15,000 34.25
40 to 50 13,655,234 9.5 41.89 2,500 41.94
50 to 60 210,000 9.9 55.88 -- --
3 to 25(a) 178,486(a) 3.6 10.93 178,486 10.93
15 to 30(b) 209,238(b) 3.3 23.95 209,238 23.95
---------- ----------
53,918,523 12,647,656
========== ==========
---------------------
(a) Represents information for options assumed with the merger of
Blockbuster.
(b) Represents information for options assumed with the merger of Paramount.
Shares issuable under exercisable stock options:
[Download Table]
December 31, 1997.............................................. 14,795,698
December 31, 1998.............................................. 8,892,882
December 31, 1999.............................................. 12,647,656
II-45
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Blockbuster Plan
On July 15, 1999, Blockbuster's Board of Directors adopted the Blockbuster
Plan for the benefit of its employees and directors. An aggregate of
25,000,000 shares of Blockbuster Class A common stock is reserved for issuance
under the Blockbuster Plan, which provides for the issuance of stock-based
incentive awards, including stock options to purchase shares of Blockbuster
Class A common stock, stock appreciation rights, restricted shares of
Blockbuster Class A common stock, restricted share units and phantom shares.
The Blockbuster stock options generally vest over a five year period from the
date of grant and expire 10 years after the date of the grant.
The weighted average fair value of each option as of the grant date was
$7.98 for 1999. The fair value of each Blockbuster option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
[Download Table]
1999
----
Expected dividend yield(a).......................................... .6%
Expected stock price volatility..................................... 45.0%
Risk-free interest rate............................................. 6.2%
Expected life of options (years).................................... 7.0
---------------------
(a) Blockbuster's current intention is to pay dividends of $.02 per share each
quarter on both its Class A common stock and Class B common stock.
At December 31, 1999, there are 11,235,479 outstanding stock options issued
with an exercisable price ranging from $13.56 to $15.00 under the Blockbuster
Plan. All outstanding shares have a weighted average exercise price of $14.99
and a remaining contractual life of 9.6 years, and none of them are
exercisable as of December 31, 1999. The following table summarizes
Blockbuster's stock option activity pursuant to the Blockbuster Plan:
[Download Table]
Options Weighted-Average
Outstanding Exercise Price
----------- ----------------
Balance at December 31, 1998.................. -- $ --
Granted..................................... 11,573,108 14.99
Exercised................................... -- --
Canceled.................................... 337,629 15.00
----------
Balance at December 31, 1999.................. 11,235,479 $14.99
==========
MTVi Plan
MTVi, a subsidiary of the Company, operates the Company's Internet music
business. In connection with the planned initial public offering of MTVi, the
Company established the MTVi Plan to benefit and advance the interests of the
business by rewarding employees for their contributions to the financial
success of MTVi and thereby motivating them to continue to make such
contributions in the future. An aggregate of approximately 12 million shares
of MTVi Class A common stock is reserved for issuance under the MTVi Plan. The
MTVi stock options generally vest over a three to four year period from the
date of grant and expire 10 years after the date of grant.
II-46
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The weighted average fair value of each option as of the grant date was
$11.45 for 1999. The fair value of each MTVi option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
[Download Table]
1999
-----
Expected dividend yield............................................ --
Expected stock price volatility.................................... 97.60%
Risk-free interest rate............................................ 6.04%
Expected life of options (years)................................... 5.0
At December 31, 1999, there were 5,074,500 outstanding stock options issued
with an exercisable price of $15 under the MTVi Plan. All outstanding shares
have a weighted remaining contractual life of 9.6 years and none of them are
exercisable as of December 31, 1999. The following table summarizes MTVi's
stock option activity for 1999:
[Download Table]
Options Weighted-Average
Outstanding Exercise Price
----------- ----------------
Balance at December 31, 1998.................. -- $ --
Granted..................................... 5,106,500 15.00
Exercised................................... -- --
Canceled.................................... 32,000 15.00
---------
Balance at December 31, 1999.................. 5,074,500 15.00
=========
13) INCOME TAXES
Earnings from continuing operations before income taxes are attributable to
the following jurisdictions:
[Download Table]
Year Ended December
31,
-----------------------
1999 1998 1997
------ ------ --------
United States..................................... $656.3 $ 74.1 $ 910.4
Foreign........................................... 187.6 63.2 268.1
------ ------ --------
Total............................................. $843.9 $137.3 $1,178.5
====== ====== ========
Components of the provision for income taxes on earnings from continuing
operations before income taxes are as follows:
Year Ended December
31,
-----------------------
1999 1998 1997
------ ------ --------
Current:
Federal......................................... $167.4 $151.0 $ 370.0
State and local................................. 21.3 34.9 115.1
Foreign......................................... 35.3 50.9 24.5
------ ------ --------
224.0 236.8 509.6
Deferred.......................................... 187.4 (98.1) 136.8
------ ------ --------
$411.4 $138.7 $ 646.4
====== ====== ========
II-47
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The equity losses of affiliated companies are shown net of tax on the
Company's Statements of Operations. The tax benefit relating to losses from
equity investments in 1999, 1998 and 1997 are $17.7 million, $24.0 million and
$29.0 million, respectively, which represents an effective tax rate of 22.6%,
36.7% and 15.1%, respectively.
The difference between the effective tax rates and the statutory U.S.
federal tax rate of 35% is principally due to the effect of non-deductible
goodwill amortization, state and local taxes and foreign losses for which no
benefit was provided. Excluding the non-deductible amortization of
intangibles, the annual effective tax rate on earnings from continuing
operations before income taxes would have been 35.4%, 31.8% and 44.1% for
1999, 1998 and 1997, respectively. See Note 5 for tax benefits relating to the
discontinued operations. In 1999 and 1998, respectively, $58.8 million and
$55.1 million of income tax benefit was recorded as a component of
shareholders' equity as a result of exercised stock options.
A reconciliation of the statutory U.S. federal tax rate to the Company's
effective tax rate on earnings from continuing operations before income taxes
is summarized as follows:
[Download Table]
Year Ended December 31,
--------------------------
1999 1998 1997
------- -------- -------
Statutory U.S. federal tax rate............. 35.0% 35.0% 35.0%
State and local taxes, net of federal tax
benefit.................................... 3.7 5.7 5.9
Effect of foreign operations................ (9.3) (35.5) (.6)
Amortization of intangibles................. 15.7 86.3 9.7
Other, net.................................. 3.7 9.5 4.9
------- -------- -------
Effective tax rate on earnings from
continuing operations before income taxes.. 48.8% 101.0% 54.9%
======= ======== =======
II-48
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The following is a summary of the components of the deferred tax accounts:
[Download Table]
At
December 31,
--------------
1999 1998
------ ------
Current deferred tax assets and (liabilities):
Recognition of revenue.......................................... $ 84.5 $103.0
Sales return and allowances..................................... 26.9 29.9
Publishing costs................................................ 17.0 15.2
Employee compensation and other payroll related expenses........ 41.7 23.7
Other differences between tax and financial statement values.... 17.9 7.1
------ ------
Gross current deferred net tax assets.......................... 188.0 178.9
------ ------
Noncurrent deferred tax assets and (liabilities):
Depreciation/amortization of fixed assets and intangibles....... (72.9) 45.0
Reserves including restructuring and relocation charges......... 301.3 260.3
Acquired net operating loss and tax credit carryforwards........ 83.4 60.9
Amortization of discount on 8% Merger Debentures................ -- 60.4
Other differences between tax and financial statement values.... 6.0 26.9
------ ------
Gross non-current deferred net tax assets....................... 317.8 453.5
------ ------
Valuation allowance............................................ (96.0) (88.3)
------ ------
Total net deferred tax assets (liabilities)................... $409.8 $544.1
====== ======
As of December 31, 1999 and December 31, 1998, the Company had total
deferred tax assets of $578.7 and $632.4 million, respectively, and total
deferred tax liabilities of $72.9 million as of December 31, 1999. There were
no deferred tax liabilities as of December 31, 1998.
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $136.8 million which expire in various years from 2002
through 2008.
The 1999 and 1998 deferred tax assets are reduced by a valuation allowance
of $96.0 and $88.3 million, respectively, principally relating to tax benefits
of net operating losses which are not expected to be recognized as a result of
certain limitations applied where there is a change of ownership.
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 $1.4 billion
and $1.5 billion at December 31, 1999 and December 31, 1998, respectively. No
provision has been recorded for the U.S. or foreign taxes that could result
from the remittance of such undistributed earnings since the Company intends
to reinvest these earnings outside the United States indefinitely and it is
not practicable to estimate the amount of such taxes.
14) PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries have non-contributory pension
plans covering specific groups of employees. The benefits for these plans are
based primarily on an employee's years of service and pay near retirement.
Participant employees are vested in the plans after five years of service. The
Company's policy for
II-49
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
all pension plans is to fund amounts in accordance with the Employee
Retirement Income Security Act of 1974. Plan assets consist principally of
common stocks, marketable bonds and U.S. government securities. The Company's
Class B Common Stock represents approximately 20.8% and 15.8% of the plan
assets' fair value at December 31, 1999 and 1998, respectively.
The Company adopted SFAS 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits--an amendment of FASB Statements No. 87, 88 and
106" in 1998.
The following table sets forth the change in benefit obligation for the
Company's benefit plans:
[Download Table]
Pension Postretirement
Benefits Benefits
December 31, December 31,
--------------- ---------------
1999 1998 1999 1998
------- ------ ------- -------
Change in benefit obligation:
Benefit obligation, beginning of year........ $ 844.2 $785.3 $ 53.6 $ 103.6
Service cost................................. 33.7 36.8 .7 1.0
Interest cost................................ 61.5 57.8 3.7 6.5
Benefits paid................................ (45.2) (39.3) (5.7) (8.8)
Actuarial (gain) loss........................ (147.9) 66.8 (1.6) (2.9)
Curtailments, divestitures, combinations..... 47.6 (61.4) -- (46.9)
Participant contributions.................... -- -- .4 1.1
Amendments................................... .2 -- -- --
Cumulative translation adjustments........... 1.1 (1.8) -- --
------- ------ ------ -------
Benefit obligation, end of year.............. $ 795.2 $844.2 $ 51.1 $ 53.6
======= ====== ====== =======
The following table sets forth the change in plan assets for the Company's
benefit plans:
[Download Table]
Postretirement
Pension Benefits Benefits
December 31, December 31,
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets, beginning of
year................................... $ 786.6 $ 697.3 $ -- $ --
Actual return on plan assets............ 167.2 146.4 -- --
Employer contributions.................. 6.0 7.3 5.3 7.7
Benefits paid........................... (45.2) (39.3) (5.7) (8.8)
Divestitures, combinations.............. 56.5 (21.7) -- --
Participant contributions............... -- -- .4 1.1
Cumulative translation adjustments...... 2.7 (3.4) -- --
-------- -------- ------- -------
Fair value of plan assets, end of year.. $ 973.8 $ 786.6 $ -- $ --
======== ======== ======= =======
The projected benefit obligations, accumulated benefit obligations and the
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $103.4 million, $92.6 million and $0
for 1999 and $99.9 million, $88.4 million and $.3 million for 1998,
respectively.
II-50
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
The accrued pension and postretirement costs recognized in the Company's
consolidated balance sheet are computed as follows:
[Download Table]
Postretirement
Pension Benefits Benefits
December 31, December 31,
------------------ ---------------
1999 1998 1999 1998
-------- -------- ------ -------
Funded status............................ $ 178.6 $ (57.6) $(51.1) $ (53.6)
-------- -------- ------ -------
Unrecognized actuarial gain.............. (336.8) (97.5) (17.1) (16.2)
Unrecognized prior service cost
(benefit)............................... 10.9 12.5 (4.8) (5.4)
Unrecognized asset at transition......... (2.3) (2.1) -- --
-------- -------- ------ -------
Accrued pension liability, net........... $ (149.6) $ (144.7) $(73.0) $ (75.2)
======== ======== ====== =======
Amounts recognized in the Consolidated
Balance Sheets:
Accrued pension liability, net......... $ (172.0) $ (161.1) $(73.0) $ (75.2)
Prepaid benefits cost.................. 8.4 2.3 -- --
Intangibles............................ .5 3.9 -- --
Accumulated other comprehensive loss... 13.5 10.2 -- --
-------- -------- ------ -------
Net liability recognized................. $ (149.6) $ (144.7) $(73.0) $ (75.2)
======== ======== ====== =======
Net periodic cost for the Company's pension and postretirement benefit plans
consists of the following:
[Download Table]
Postretirement
Pension Benefits Benefits December
December 31, 31,
---------------------- -------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ---- ------ -----
Components of net periodic cost:
Service cost..................... $ 33.7 $ 36.8 $ 32.1 $ .7 $ 1.0 $ 1.0
Interest cost.................... 61.5 57.8 54.1 3.7 6.5 7.4
Expected return on plan assets... (79.4) (64.4) (56.0) -- -- --
Amortization of prior service
cost............................ 1.6 2.6 1.6 (.7) (3.0) (3.2)
Amortization of transition
obligation...................... (.2) (2.2) (.7) -- -- --
Recognized actuarial (gain)
loss............................ 1.1 3.7 3.3 (.7) (2.9) (3.1)
Curtailment (gain)............... (3.5) (31.4) -- -- (77.5) --
------ ------ ------ ---- ------ -----
Net periodic cost................ $ 14.8 $ 2.9 $ 34.4 $3.0 $(75.9) $ 2.1
====== ====== ====== ==== ====== =====
The following assumptions were used in accounting for the pension plans:
[Download Table]
1999 1998 1997
---- ----- -----
Discount rate......................................... 8.0% 6.75% 7.25%
Expected return on plan assets........................ 9.5% 9.5% 9.5%
Rate of increase in future compensation............... 5.0% 5.0% 5.0%
The following assumptions were used in accounting for postretirement
benefits:
1999 1998 1997
---- ----- -----
Projected health care cost trend rate................. 5.5% 6.0% 7.0%
Ultimate trend rate................................... 5.5% 5.5% 5.5%
Year ultimate trend rate is achieved.................. 1999 1999 1999
Discount rate......................................... 8.0% 6.75% 7.25%
II-51
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Assumed health care cost trend rates could have a significant effect on the
amounts reported for the postretirement health care plan. A one percentage
point change in assumed health care cost trend rates would have the following
effects:
[Download Table]
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest
cost components......................... $ .3 $ (.2)
Effect on the postretirement benefit
obligation.............................. $3.6 $(3.2)
In 1998, as a result of the sale of Non-Consumer Publishing, the Company
realized curtailment gains of $31.4 million related to pension benefits and
$77.5 million related to postretirement benefits, which have been included in
the net gain on disposition for that year.
The Company contributes to multi-employer plans that provide pension and
health and welfare benefits to certain employees under collective bargaining
agreements. The contributions to these plans were $26.1 million (1999) and
$35.4 million (1998).
In addition, the Company sponsors a health and welfare plan that provides
certain postretirement health care and life insurance benefits to retired
employees and their covered dependents who are eligible for these benefits if
they meet certain age and service requirements. The plan is contributory and
contains cost-sharing features such as deductibles and coinsurance which are
adjusted annually. The plan is not funded and the Company funds these benefits
as claims are paid.
SFAS 112, "Employers' Accounting For Postemployment Benefits" does not have
a significant effect on the Company's consolidated financial position or
results of operations.
In addition, the Company has defined contribution plans for the benefit of
substantially all employees meeting certain eligibility requirements. Employer
contributions to such plans were $16.5 million, $21.1 million and $19.2
million for the years ended December 31, 1999, 1998 and 1997.
II-52
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
15) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancelable operating lease commitments for
retail and office space and equipment, transponders, studio facilities and
vehicles. The Company has also entered into capital leases for satellite
transponders and buildings.
At December 31, 1999, minimum rental payments under noncancelable leases
are as follows:
[Download Table]
Leases
-----------------
Operating Capital
--------- -------
2000.................................................... $ 578.4 $151.7
2001.................................................... 512.0 145.2
2002.................................................... 421.9 133.2
2003.................................................... 388.6 102.1
2004.................................................... 310.9 62.9
2005 and thereafter..................................... 1,865.3 170.4
-------- ------
Total minimum lease payments............................ $4,077.1 765.5
========
Less amounts representing interest...................... 173.9
------
Present value of net minimum payments................... $591.6
======
Future minimum capital lease payments have not been reduced by future
minimum sublease rentals of $22.4 million. Rent expense amounted to $601.7
million (1999), $533.8 million (1998) and $523.1 million (1997).
The commitments of the Company for program license fees, which are not
reflected in the balance sheet as of December 31, 1999 and are estimated to
aggregate approximately $1.0 billion, excluding intersegment commitments of
approximately $865.9 million, principally reflect Showtime Networks Inc.'s
("SNI's") commitments of approximately $726.7 million for the acquisition of
programming rights and the production of original programming. This estimate
is based upon a number of factors. A majority of such fees are payable over
several years, as part of normal programming expenditures of SNI. These
commitments to acquire programming rights are contingent upon delivery of
motion pictures which are not yet available for premium television exhibition
and, in many cases, have not yet been produced.
There are various lawsuits and claims pending against the Company.
Management believes that any ultimate liability resulting from those actions
or claims will not have a material adverse effect on the Company's results of
operations, financial position or liquidity.
Certain subsidiaries and affiliates of the Company from time to time
receive claims from federal and state environmental regulatory agencies and
other entities asserting that they are or may be liable for environmental
cleanup costs and related damages, principally relating to discontinued
operations. The Company has recorded a liability reflecting its best estimate
of environmental exposure. Such liability was not discounted or reduced by
potential insurance recoveries and reflects management's estimate of cost
sharing at multiparty sites. The estimated liability was calculated based upon
currently available facts, existing technology and presently enacted laws and
regulations. On the basis of its experience and the information currently
available to it, the Company believes that the claims it has received will not
have a material adverse effect on its results of operations, financial
position or cash flows.
II-53
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
16) OPERATING SEGMENTS
The Company's reportable operating segments have been determined in
accordance with the Company's internal management structure, which is
organized based on products and services. See Note 1 for descriptive
information about the Company's business segments and the summary of
significant accounting policies. The Company evaluates performance based on
many factors; one of the primary measures is earnings before interest, taxes,
depreciation and amortization ("EBITDA").
The following tables set forth the Company's financial results by operating
segments. Intersegment revenues, recorded at fair market value, of the
Entertainment segment for 1999, 1998 and 1997 were $250.8 million, $156.7
million and $114.0 million, respectively. Intersegment revenues of the
Networks segment for 1999 were $46.8 million and were not material for prior
periods presented. All other intersegment revenues were not material for all
of the periods presented.
[Download Table]
Year Ended or At December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Revenues:
Networks....................................... $ 3,045.5 $ 2,607.9 $ 2,262.8
Entertainment.................................. 4,618.1 4,757.8 4,305.9
Video.......................................... 4,463.5 3,893.4 3,313.6
Parks.......................................... 390.8 421.2 367.3
Publishing..................................... 610.7 564.6 556.6
Online......................................... 29.8 13.7 10.4
Intercompany................................... (299.6) (162.5) (131.7)
--------- --------- ---------
Total revenues............................. $12,858.8 $12,096.1 $10,684.9
========= ========= =========
EBITDA:
Networks....................................... $ 1,053.1 $ 851.3 $ 729.4
Entertainment.................................. 554.3 640.5 514.5
Video.......................................... 520.3 39.9 221.6
Parks.......................................... 95.5 101.1 88.9
Publishing..................................... 74.0 71.2 77.9
Online......................................... (48.4) (3.5) 2.3
--------- --------- ---------
Segment total.............................. 2,248.8 1,700.5 1,634.6
Reconciliation to operating income:
Corporate/Eliminations......................... (156.8) (171.6) (176.6)
Depreciation and amortization.................. (844.7) (777.3) (772.6)
--------- --------- ---------
Total operating income..................... $ 1,247.3 $ 751.6 $ 685.4
========= ========= =========
Depreciation and amortization:
Networks....................................... $ 120.7 $ 107.0 $ 93.8
Entertainment.................................. 222.3 192.5 171.5
Video.......................................... 392.4 382.1 418.4
Parks.......................................... 53.0 51.2 46.5
Publishing..................................... 19.7 18.0 17.5
Online......................................... 16.1 4.0 --
--------- --------- ---------
Segment total.............................. 824.2 754.8 747.7
Corporate...................................... 20.5 22.5 24.9
--------- --------- ---------
Total depreciation and amortization........ $ 844.7 $ 777.3 $ 772.6
========= ========= =========
II-54
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Download Table]
Year Ended or At December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------
Total assets:
Networks......................................... $ 3,138.1 $ 2,770.2 $ 2,692.8
Entertainment.................................... 9,704.3 9,361.6 9,342.9
Video............................................ 8,475.6 8,142.6 8,965.4
Parks............................................ 939.4 914.8 897.2
Publishing....................................... 948.1 962.4 5,439.4
Online........................................... 162.1 5.8 1.4
--------- --------- ---------
Segment total................................ 23,367.6 22,157.4 27,339.1
Corporate/Eliminations........................... 1,118.8 1,455.7 949.6
--------- --------- ---------
Total assets................................. $24,486.4 $23,613.1 $28,288.7
========= ========= =========
Capital expenditures:
Networks......................................... $ 83.4 $ 89.8 $ 67.9
Entertainment.................................... 127.1 174.3 66.7
Video............................................ 384.9 196.0 294.2
Parks............................................ 58.5 61.0 35.0
Publishing....................................... 8.7 37.5 36.1
Online........................................... 22.8 -- --
--------- --------- ---------
Segment total................................ 685.4 558.6 499.9
Corporate........................................ 20.8 44.9 30.4
--------- --------- ---------
Total capital expenditures................... $ 706.2 $ 603.5 $ 530.3
========= ========= =========
Information regarding the Company's operations by geographic area is as
follows:
Year Ended or At December 31,
-----------------------------
1999 1998 1997
--------- --------- ---------
Revenues(a):
United States.................................. $10,207.0 $ 9,268.3 $ 8,227.9
International.................................. 2,651.8 2,827.8 2,457.0
--------- --------- ---------
Total revenues............................... $12,858.8 $12,096.1 $10,684.9
========= ========= =========
Long-lived assets:
United States.................................. $17,675.6 $16,857.0 $20,914.3
International.................................. 1,401.3 1,326.9 1,421.6
--------- --------- ---------
Total long-lived assets...................... $19,076.9 $18,183.9 $22,335.9
========= ========= =========
Intercompany transfers between geographic areas are not significant.
---------------------
(a) Revenue classifications are based on customers' locations.
II-55
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
17) QUARTERLY FINANCIAL DATA (unaudited):
[Download Table]
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- ---------
1999
Revenues..................... $2,951.1 $3,003.3 $3,332.0 $3,572.4 $12,858.8
Operating income (1)......... $ 277.5 $ 282.3 $ 321.2 $ 366.3 $ 1,247.3
Earnings from continuing
operations.................. $ 68.4 $ 59.3 $ 110.9 $ 133.1 $ 371.7
Net earnings (2)............. $ 44.9 $ 59.3 $ 96.7 $ 133.1 $ 334.0
Net earnings attributable to
common stock................ $ 32.5 $ 59.3 $ 96.7 $ 133.1 $ 321.6
Basic earnings per common
share:
Earnings from continuing
operations................. $ .08 $ .09 $ .16 $ 0.19 $ .52
Net earnings................ $ .05 $ .09 $ .14 $ 0.19 $ .46
Diluted earnings per common
share:
Earnings from continuing
operations................. $ .08 $ .08 $ .16 $ 0.19 $ .51
Net earnings................ $ .05 $ .08 $ .14 $ 0.19 $ .45
Weighted average number of
common shares:
Basic....................... 696.1 690.6 696.7 697.4 695.2
Diluted..................... 711.1 705.0 709.5 712.1 709.5
1998(3)
Revenues..................... $2,685.6 $2,779.3 $3,288.8 $3,342.4 $12,096.1
Operating income (loss)(4)... $ 273.4 $ (225.4) $ 407.3 $ 296.3 $ 751.6
Earnings (loss) from
continuing operations....... $ 47.6 $ (267.3) $ 86.4 $ 89.8 $ (43.5)
Net earnings
(loss)(5)(6)(7)............. $ 1.4 $ (280.7) $ 138.4 $ 18.5 $ (122.4)
Net earnings (loss)
attributable to common
stock....................... $ (13.6) $ (295.7) $ 123.4 $ 36.3 $ (149.6)
Basic earnings per common
share:
Earnings (loss) from
continuing operations...... $ .05 $ (.40) $ .10 $ .15 $ (.10)
Net earnings (loss)......... $ (.02) $ (.41) $ .17 $ .05 $ (.21)
Diluted earnings per common
share:
Earnings (loss) from
continuing operations...... $ .05 $ (.40) $ .10 $ .15 $ (.10)
Net earnings (loss)......... $ (.02) $ (.41) $ .17 $ .05 $ (.21)
Weighted average number of
common shares:
Basic....................... 710.5 713.2 714.7 696.7 708.7
Diluted..................... 718.0 713.2 725.5 706.4 708.7
The timing of the Company's results of operations is affected by the
typical timing of major motion picture releases, the summer operation of the
theme parks, the positive effect of the holiday season on advertising and
video store revenues, and the impact of the broadcasting television season on
television production.
---------------------
(1) The third quarter of 1999 included a $81.1 million charge for Spelling
Entertainment related to integrating the operations of Spelling into
Paramount Television.
(2) The first and third quarter of 1999 included an extraordinary loss of
$23.5 and $14.2 million, net of tax, respectively, on the early
extinguishment of debt (See Note 19).
(3) The first three quarters of 1998 results have been restated for the effect
of discontinued operations (See Note 5).
(4) The second quarter of 1998 included a $424.3 million charge for
Blockbuster representing the adjustment to the carrying value of the
library tapes due to a change in Blockbuster's business model (See Note
6).
II-56
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
(5) The third quarter of 1998 included a loss of $138.5 million, net of tax,
resulting from the sale of the Company's music retail stores, partially
offset by a tax benefit of $134.0 million related to the sale of Virgin.
(6) The fourth quarter of 1998 included a gain of $65.5 million, net of tax,
resulting from the sale of Non-Consumer Publishing.
(7) The fourth quarter of 1998 included an extraordinary loss of $74.7
million, net of tax, on the early extinguishment of debt (See Note 19).
18) OTHER ITEMS, NET
"Other items, net" reflects $17.8 million of income for 1999 which is
principally comprised of foreign exchange gains of $25.2 million and net gains
of $17.1 million from the sale of land, fixed assets and a Company plane,
partially offset by losses associated with securitizing trade receivables.
The Company continued the strategy of focusing on its core businesses and,
in December 1998, announced plans to close the Viacom Entertainment Store in
Chicago in January 1999 and to phase out its Nickelodeon stores in the first
half of 1999. As a result, the Company recorded a loss of approximately $91
million, which is reflected in "Other items, net" for the year ended December
31, 1998. The loss principally reflects $8.5 million for estimated severance
benefits payable to approximately 530 employees and $32.7 million for lease
exit obligations. Through December 31, 1999, the Company paid and charged
approximately $8.5 million against the severance benefits payable and $6.8
million against lease exit obligations. The loss also reflects the write-off
of property and equipment, inventory and prepaid assets of $21.1 million,
$10.3 million and $3.1 million, respectively, as well as future vendor
commitments of $3.3 million. Additionally, "Other items, net" for 1998
principally reflects foreign exchange losses, losses associated with
securitizing trade receivables and the write-off of certain investments,
partially offset by a gain of approximately $118.9 million from the sale of a
cost investment.
On October 21, 1997, the Company completed the sale of its half-interest in
USA Networks, includingSci-Fi Channel, to Universal Studios, Inc. for a total
of $1.7 billion in cash. The Company realized a pre-tax gain of approximately
$1.1 billion in the fourth quarter of 1997. The net proceeds from this
transaction were used to repay debt.
In addition, during 1997, the Company recorded pre-tax gains on the swap of
certain television stations of approximately $190.9 million partially offset
by write-offs of certain cost investments.
19) EXTRAORDINARY LOSS
For the year ended December 31, 1999, the Company recognized an
extraordinary loss of $37.7 million, net of tax of $26.2 million, or a loss of
$.06 per basic and diluted common share, on the early extinguishment of the
8.0% Merger Debentures and the 10.25% Senior Subordinated Notes (See Note 10).
For the year ended December 31, 1998, the Company recognized an
extraordinary loss of $74.7 million, net of tax of $51.9 million, or a loss of
$.10 per basic and diluted common share, on the early extinguishment of the
10.25% Senior Subordinated Notes for $163.7 million, 7.0% Senior Subordinated
Debentures for $231.5 million and the 8.0% Merger Debentures for $555.6
million (See Note 10).
II-57
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
20) SUPPLEMENTAL CASH FLOW INFORMATION
[Download Table]
Year Ended December 31,
-----------------------
1999 1998 1997
------ ------ ------
Cash payments for interest net of amounts capitalized.... $445.6 $668.2 $792.1
Cash payments for income taxes........................... 615.8 656.6 110.9
Supplemental schedule of noncash financing and investing
activities:
Equipment acquired under capitalized leases............. $223.4 $116.8 $ 54.0
Noncash acquisitions.................................... 150.0 -- --
II-58
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
21) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International is a wholly owned subsidiary of the Company. The
Company has fully and unconditionally guaranteed Viacom International debt
securities (See Note 10). The Company has determined that separate financial
statements and other disclosures concerning Viacom International are not
material to investors. The following condensed consolidating financial
statements present the results of operations, financial position and cash
flows of the Company, Viacom International (in each case carrying investments
in Non-Guarantor Affiliates under the equity method), the direct and indirect
Non-Guarantor Affiliates of the Company, and the eliminations necessary to
arrive at the information for the Company on a consolidated basis.
[Enlarge/Download Table]
1999
-----------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Revenues................ $ 35.4 $2,164.6 $10,709.5 $ (50.7) $12,858.8
Expenses:
Operating............. 30.5 706.3 7,680.8 (79.7) 8,337.9
Selling, general and
administrative....... 3.0 783.2 1,572.4 -- 2,358.6
Restructuring charge.. -- -- 70.3 -- 70.3
Depreciation and
amortization......... 4.6 105.4 734.7 -- 844.7
------ -------- --------- ------- ---------
Total expenses...... 38.1 1,594.9 10,058.2 (79.7) 11,611.5
------ -------- --------- ------- ---------
Operating income
(loss)................. (2.7) 569.7 651.3 29.0 1,247.3
Interest expense........ (263.6) (89.3) (96.0) -- (448.9)
Interest income......... 1.4 17.1 9.2 -- 27.7
Intercompany interest... (99.1) 149.6 (50.5) -- --
Other items, net........ (24.8) 28.0 14.6 -- 17.8
------ -------- --------- ------- ---------
Earnings (loss) from
continuing operations
before income taxes.... (388.8) 675.1 528.6 29.0 843.9
Benefit (provision) for
income taxes........... 159.5 (276.8) (294.1) -- (411.4)
Equity in earnings
(loss) of affiliated
companies, net of tax.. 600.7 199.9 (82.1) (779.2) (60.7)
Minority interest....... -- 2.8 (2.9) -- (.1)
------ -------- --------- ------- ---------
Earnings from continuing
operations............. 371.4 601.0 149.5 (750.2) 371.7
Extraordinary loss, net
of tax................. (37.4) (.3) -- -- (37.7)
------ -------- --------- ------- ---------
Net earnings............ 334.0 600.7 149.5 (750.2) 334.0
Cumulative convertible
preferred stock
dividend requirement... (.4) -- -- -- (.4)
Premium on repurchase of
preferred stock........ (12.0) -- -- -- (12.0)
------ -------- --------- ------- ---------
Net earnings
attributable to common
stock.................. $321.6 $ 600.7 $ 149.5 $(750.2) $ 321.6
====== ======== ========= ======= =========
II-59
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1998
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------- ------------- ---------- ------------ ------------
Revenues................ $ 39.4 $1,775.3 $10,301.9 $(20.5) $12,096.1
Expenses:
Operating............. 33.3 563.7 7,929.8 (20.5) 8,506.3
Selling, general and
administrative....... 2.6 650.6 1,407.7 -- 2,060.9
Depreciation and
amortization......... 2.1 87.0 688.2 -- 777.3
------- -------- --------- ------ ---------
Total expenses...... 38.0 1,301.3 10,025.7 (20.5) 11,344.5
------- -------- --------- ------ ---------
Operating income........ 1.4 474.0 276.2 -- 751.6
Interest expense........ (429.8) (146.9) (45.7) -- (622.4)
Interest income......... 5.3 6.8 11.3 -- 23.4
Intercompany interest... (91.5) 106.1 (14.6) -- --
Other items, net........ (21.2) 89.0 (83.1) -- (15.3)
------- -------- --------- ------ ---------
Earnings (loss) from
continuing operations
before income taxes.... (535.8) 529.0 144.1 -- 137.3
Benefit (provision) for
income taxes........... 219.7 (216.9) (141.5) -- (138.7)
Equity in earnings
(loss) of affiliated
companies, net of tax.. 236.9 (236.3) (54.0) 12.0 (41.4)
Minority interest....... -- 1.3 (2.0) -- (.7)
------- -------- --------- ------ ---------
Earnings (loss) from
continuing operations.. (79.2) 77.1 (53.4) 12.0 (43.5)
Discontinued operations:
Loss, net of tax...... -- -- (54.1) -- (54.1)
Net gain (loss) on
dispositions, net of
tax.................. -- 191.2 (141.3) -- 49.9
------- -------- --------- ------ ---------
Net earnings (loss)
before extraordinary
loss................... (79.2) 268.3 (248.8) 12.0 (47.7)
Extraordinary loss, net
of tax................. (43.2) (31.5) -- -- (74.7)
------- -------- --------- ------ ---------
Net earnings (loss)..... (122.4) 236.8 (248.8) 12.0 (122.4)
Cumulative convertible
preferred stock
dividend requirement... (57.2) -- -- -- (57.2)
Discount on repurchase
of preferred stock..... 30.0 -- -- -- 30.0
------- -------- --------- ------ ---------
Net earnings (loss)
attributable to common
stock.................. $(149.6) $ 236.8 $ (248.8) $ 12.0 $ (149.6)
======= ======== ========= ====== =========
II-60
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1997
-----------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------- ------------- ---------- ------------ ------------
Revenues................ $ 26.7 $1,458.3 $9,225.8 $ (25.9) $10,684.9
Expenses:
Operating............. 25.6 471.3 7,005.3 (25.9) 7,476.3
Selling, general and
administrative....... 1.8 520.3 1,228.5 -- 1,750.6
Depreciation and
amortization......... 1.9 67.4 703.3 -- 772.6
------- -------- -------- --------- ---------
Total expenses...... 29.3 1,059.0 8,937.1 (25.9) 9,999.5
------- -------- -------- --------- ---------
Operating income
(loss)................. (2.6) 399.3 288.7 -- 685.4
Interest expense........ (543.4) (180.0) (49.5) -- (772.9)
Interest income......... .9 9.4 11.7 -- 22.0
Intercompany interest... (88.6) 114.4 (25.8) -- --
Other items, net........ -- (38.7) 1,282.7 -- 1,244.0
------- -------- -------- --------- ---------
Earnings (loss) from
continuing operations
before income taxes.... (633.7) 304.4 1,507.8 -- 1,178.5
Benefit (provision) for
income taxes........... 266.1 (127.8) (784.7) -- (646.4)
Equity in earnings
(loss) of affiliated
companies, net of tax.. 1,160.9 545.3 (53.8) (1,815.7) (163.3)
Minority interest....... -- (.9) 5.6 -- 4.7
------- -------- -------- --------- ---------
Earnings from continuing
operations............. 793.3 721.0 674.9 (1,815.7) 373.5
Discontinued operations:
Earnings, net of tax.. .3 2.7 11.9 -- 14.9
Net gain (loss) on
dispositions, net of
tax.................. -- 437.2 (32.0) -- 405.2
------- -------- -------- --------- ---------
Net earnings............ 793.6 1,160.9 654.8 (1,815.7) 793.6
Cumulative convertible
preferred stock
dividend requirement .. (60.0) -- -- -- (60.0)
------- -------- -------- --------- ---------
Net earnings
attributable to common
stock.................. $ 733.6 $1,160.9 $ 654.8 $(1,815.7) $ 733.6
======= ======== ======== ========= =========
II-61
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1999
-----------------------------------------------------------------
Viacom Non-Guarantor Viacom Inc.
Viacom Inc. International Affiliates Eliminations Consolidated
----------- ------------- ------------- ------------ ------------
Assets
Current Assets:
Cash and cash
equivalents........... $ 81.6 $ 486.0 $ 113.2 $ -- $ 680.8
Receivables, net....... 10.9 340.4 1,441.7 (95.6) 1,697.4
Inventory.............. 10.9 250.4 1,698.2 -- 1,959.5
Other current assets... 2.8 172.6 685.3 -- 860.7
--------- --------- --------- ---------- ---------
Total current assets.. 106.2 1,249.4 3,938.4 (95.6) 5,198.4
--------- --------- --------- ---------- ---------
Property and equipment.. 13.4 684.5 4,558.0 -- 5,255.9
Less accumulated
depreciation and
amortization.......... 3.8 242.6 1,584.2 -- 1,830.6
--------- --------- --------- ---------- ---------
Net property and
equipment............ 9.6 441.9 2,973.8 -- 3,425.3
--------- --------- --------- ---------- ---------
Inventory............... -- 365.2 2,464.3 -- 2,829.5
Intangibles, at
amortized cost......... 106.4 647.1 10,725.4 -- 11,478.9
Investments in
consolidated
subsidiaries........... 6,829.2 14,891.0 -- (21,720.2) --
Other assets............ 58.0 204.7 1,411.0 (119.4) 1,554.3
--------- --------- --------- ---------- ---------
$ 7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
========= ========= ========= ========== =========
Liabilities and
Shareholders' Equity
Current Liabilities:
Accounts payable....... $ .1 $ 9.0 $ 578.6 $ (43.3) $ 544.4
Accrued expenses....... 100.1 448.1 911.8 (28.8) 1,431.2
Deferred income........ -- 17.3 354.1 -- 371.4
Accrued compensation... -- 170.6 302.7 -- 473.3
Participants' share,
residuals and
royalties payable..... -- -- 1,109.1 (21.9) 1,087.2
Program rights......... -- 52.1 200.3 (55.5) 196.9
Income tax payable..... (84.8) 949.2 (327.3) (536.1) 1.0
Current portion of
long-term debt........ -- 17.7 276.6 -- 294.3
--------- --------- --------- ---------- ---------
Total current
liabilities.......... 15.4 1,664.0 3,405.9 (685.6) 4,399.7
--------- --------- --------- ---------- ---------
Long-term debt.......... 3,262.1 1,013.4 1,422.2 -- 5,697.7
Other liabilities....... (11,421.6) 1,889.6 7,339.9 4,202.6 2,010.5
Minority interest....... -- 144.4 1,102.1 -- 1,246.5
Shareholders' Equity:
Preferred Stock........ -- 104.1 20.4 (124.5) --
Common Stock........... 7.5 185.7 495.4 (681.1) 7.5
Additional paid-in
capital............... 10,338.5 7,342.3 7,739.4 (15,081.7) 10,338.5
Retained earnings...... 6,339.2 5,422.7 50.9 (9,564.9) 2,247.9
Accumulated other
comprehensive income
(loss)................ -- 33.1 (63.3) -- (30.2)
--------- --------- --------- ---------- ---------
16,685.2 13,087.9 8,242.8 (25,452.2) 12,563.7
Less treasury stock, at
cost.................. 1,431.7 -- -- -- 1,431.7
--------- --------- --------- ---------- ---------
Total shareholders'
equity............... 15,253.5 13,087.9 8,242.8 (25,452.2) 11,132.0
--------- --------- --------- ---------- ---------
$7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
========= ========= ========= ========== =========
II-62
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1998
---------------------------------------------------------------
Non-
Viacom Guarantor Viacom Inc.
Viacom Inc. International Affiliates Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
Assets
Current Assets:
Cash and cash
equivalents........... $ 406.4 $ 189.5 $ 171.4 $ -- $ 767.3
Receivables, net....... 9.5 319.5 1,458.0 (27.9) 1,759.1
Inventory.............. 11.5 131.9 1,662.1 -- 1,805.5
Other current assets... .9 160.9 570.8 -- 732.6
--------- --------- --------- ---------- ---------
Total current assets.. 428.3 801.8 3,862.3 (27.9) 5,064.5
--------- --------- --------- ---------- ---------
Property and equipment.. 13.6 602.3 3,921.1 -- 4,537.0
Less accumulated
depreciation and
amortization.......... 3.0 188.6 1,265.9 -- 1,457.5
--------- --------- --------- ---------- ---------
Net property and
equipment............ 10.6 413.7 2,655.2 -- 3,079.5
--------- --------- --------- ---------- ---------
Inventory............... -- 400.1 2,070.7 -- 2,470.8
Intangibles, at
amortized cost......... 109.4 530.9 10,917.0 -- 11,557.3
Investments in
consolidated
subsidiaries........... 5,796.0 15,701.9 -- (21,497.9) --
Other assets............ 83.4 1,541.4 1,795.3 (1,979.1) 1,441.0
--------- --------- --------- ---------- ---------
$ 6,427.7 $19,389.8 $21,300.5 $(23,504.9) $23,613.1
========= ========= ========= ========== =========
Liabilities and
Shareholders' Equity
Current Liabilities:
Accounts payable....... $ -- $ 68.0 $ 474.4 $ (43.2) $ 499.2
Accrued expenses....... 612.7 590.0 923.4 (.3) 2,125.8
Deferred income........ -- 16.5 270.0 -- 286.5
Accrued compensation... -- 144.4 265.9 -- 410.3
Participants' share,
residuals and
royalties payable..... -- -- 1,227.5 -- 1,227.5
Program rights......... -- 57.1 158.1 (35.6) 179.6
Income tax payable..... -- 1,257.5 (139.7) (591.3) 526.5
Current portion of
long-term debt........ 282.4 13.5 81.3 -- 377.2
--------- --------- --------- ---------- ---------
Total current
liabilities.......... 895.1 2,147.0 3,260.9 (670.4) 5,632.6
--------- --------- --------- ---------- ---------
Long-term debt.......... 2,214.6 1,050.4 548.4 -- 3,813.4
Other liabilities....... (12,834.8) 3,457.3 8,938.3 2,485.5 2,046.3
Minority interest....... -- .9 70.3 -- 71.2
Shareholders' Equity:
Preferred Stock........ 600.0 104.1 20.4 (124.5) 600.0
Common Stock........... 7.3 228.7 1,985.3 (2,214.0) 7.3
Additional paid-in
capital............... 10,519.6 7,545.4 6,676.9 (14,167.2) 10,574.7
Retained earnings...... 6,024.1 4,821.9 (98.8) (8,814.3) 1,932.9
Accumulated other
comprehensive income
(loss)................ -- 34.1 (101.2) -- (67.1)
--------- --------- --------- ---------- ---------
17,151.0 12,734.2 8,482.6 (25,320.0) 13,047.8
Less treasury stock, at
cost.................. 998.2 -- -- -- 998.2
--------- --------- --------- ---------- ---------
Total shareholders'
equity............... 16,152.8 12,734.2 8,482.6 (25,320.0) 12,049.6
--------- --------- --------- ---------- ---------
$ 6,427.7 $19,389.8 $21,300.5 $(23,504.9) $23,613.1
========= ========= ========= ========== =========
II-63
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1999
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
-------- ------------- ---------- ------------ ------------
Net cash flow provided
by (used for) operating
activities............. $ 423.0 $(221.5) $ 92.6 $ -- $ 294.1
-------- ------- ------- ----- --------
Investing Activities:
Capital expenditures.... -- (113.9) (592.3) -- (706.2)
Acquisitions, net of
cash acquired.......... (180.6) -- (131.8) -- (312.4)
Investments in and
advances to affiliated
companies.............. -- (40.3) (121.3) -- (161.6)
Proceeds from sale of
short-term
investments............ -- 406.3 -- -- 406.3
Purchases of short-term
investments............ -- (416.2) -- -- (416.2)
Proceeds from
dispositions........... -- -- 114.3 -- 114.3
Proceeds from sale of
cost investments....... -- 4.0 -- -- 4.0
Other, net.............. (18.4) (6.6) (10.8) -- (35.8)
-------- ------- ------- ----- --------
Net cash flow provided
by (used for) investing
activities............. (199.0) (166.7) (741.9) -- (1,107.6)
-------- ------- ------- ----- --------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net.................... 999.3 -- 1,185.5 -- 2,184.8
Increase (decrease) in
intercompany payables.. 232.4 722.1 (954.5) -- --
Repayment of notes and
debentures............. (1,073.8) (1.5) -- -- (1,075.3)
Purchase of treasury
stock and warrants..... (478.8) -- -- -- (478.8)
Repurchase of Preferred
Stock.................. (611.9) -- -- -- (611.9)
Payment on capital lease
obligations............ -- (35.9) (70.6) -- (106.5)
Net proceeds from
issuance of subsidiary
stock.................. -- -- 430.7 -- 430.7
Payment of Preferred
Stock dividends........ (7.8) -- -- -- (7.8)
Proceeds from exercise
of stock options and
warrants............... 390.8 -- -- -- 390.8
Other, net.............. 1.0 -- -- -- 1.0
-------- ------- ------- ----- --------
Net cash flow provided
by (used for) financing
activities............. (548.8) 684.7 591.1 -- 727.0
-------- ------- ------- ----- --------
Net increase (decrease)
in cash and cash
equivalents............ (324.8) 296.5 (58.2) -- (86.5)
Cash and cash
equivalents at
beginning of year...... 406.4 189.5 171.4 -- 767.3
-------- ------- ------- ----- --------
Cash and cash
equivalents at end of
year................... $ 81.6 $ 486.0 $ 113.2 $ -- $ 680.8
======== ======= ======= ===== ========
II-64
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1998
--------------------------------------------------------------
Non-
Viacom Guarantor Viacom Inc.
Viacom Inc. International Affiliates Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
Net cash flow provided
by (used for) operating
activities............. $ 527.3 $ (303.7) $ 640.5 $ -- $ 864.1
-------- -------- ------- ----- ---------
Investing Activities:
Capital expenditures.... -- (88.6) (514.9) -- (603.5)
Acquisitions, net of
cash acquired.......... (14.9) -- (111.5) -- (126.4)
Investments in and
advances to affiliated
companies.............. -- (3.6) (96.7) -- (100.3)
Proceeds from sale of
short-term
investments............ -- 101.4 -- -- 101.4
Purchases of short-term
investments............ -- (151.6) -- -- (151.6)
Proceeds from
dispositions........... -- 4,677.3 272.8 -- 4,950.1
Proceeds from sale of
cost investments....... -- 131.7 35.6 -- 167.3
Other, net.............. -- (6.9) (11.7) -- (18.6)
-------- -------- ------- ----- ---------
Net cash flow provided
by (used for) investing
activities............. (14.9) 4,659.7 (426.4) -- 4,218.4
-------- -------- ------- ----- ---------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net.................... (1,788.6) (470.0) (124.4) -- (2,383.0)
Increase (decrease) in
intercompany payables.. 3,140.7 (3,100.7) (40.0) -- --
Repayment of notes and
debentures............. (202.6) (666.7) -- -- (869.3)
Purchase of treasury
stock and warrants..... (809.6) -- -- -- (809.6)
Repurchase of Preferred
Stock.................. (564.0) -- -- -- (564.0)
Payment on capital lease
obligations............ -- (20.6) (90.1) -- (110.7)
Payment of Preferred
Stock dividends........ (64.8) -- -- -- (64.8)
Proceeds from exercise
of stock options and
warrants............... 182.8 -- -- -- 182.8
Other, net.............. -- -- 11.1 -- 11.1
-------- -------- ------- ----- ---------
Net cash flow provided
by (used for) financing
activities............. (106.1) (4,258.0) (243.4) -- (4,607.5)
-------- -------- ------- ----- ---------
Net increase (decrease)
in cash and cash
equivalents............ 406.3 98.0 (29.3) -- 475.0
Cash and cash
equivalents at
beginning of year...... .1 91.5 200.7 -- 292.3
-------- -------- ------- ----- ---------
Cash and cash
equivalents at end of
year................... $ 406.4 $ 189.5 $ 171.4 $ -- $ 767.3
======== ======== ======= ===== =========
II-65
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
[Enlarge/Download Table]
1997
---------------------------------------------------------------
Non-
Viacom Guarantor Viacom Inc.
Viacom Inc. International Affiliates Eliminations Consolidated
----------- ------------- ---------- ------------ ------------
Net cash flow provided
by (used for) operating
activities............. $ 1,275.7 $ 109.6 $(1,045.3) $ -- $ 340.0
--------- --------- --------- ----- ---------
Investing Activities:
Capital expenditures.... -- (77.9) (452.4) -- (530.3)
Acquisitions, net of
cash acquired.......... (46.9) -- (308.2) -- (355.1)
Investments in and
advances to affiliated
companies.............. -- (47.5) (252.9) -- (300.4)
Proceeds from sale of
short-term
investments............ -- 139.8 -- -- 139.8
Purchases of short-term
investments............ -- (81.3) -- -- (81.3)
Proceeds from
dispositions........... -- 1,096.5 1,918.4 -- 3,014.9
Other, net.............. -- .1 18.1 -- 18.2
--------- --------- --------- ----- ---------
Net cash flow provided
by (used for) investing
activities............. (46.9) 1,029.7 923.0 -- 1,905.8
--------- --------- --------- ----- ---------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net.................... (1,972.0) (148.0) 27.7 -- (2,092.3)
Increase (decrease) in
intercompany payables.. 734.3 (939.2) 204.9 -- --
Purchase of treasury
stock and warrants..... (9.8) -- -- -- (9.8)
Payment on capital lease
obligations............ -- (21.8) (44.4) -- (66.2)
Payment of Preferred
Stock dividends........ (60.0) -- -- -- (60.0)
Proceeds from exercise
of stock options and
warrants............... 69.6 -- -- -- 69.6
Other, net.............. (9.8) -- 6.0 -- (3.8)
--------- --------- --------- ----- ---------
Net cash flow provided
by (used for) financing
activities............. (1,247.7) (1,109.0) 194.2 -- (2,162.5)
--------- --------- --------- ----- ---------
Net increase (decrease)
in cash and cash
equivalents............ (18.9) 30.3 71.9 -- 83.3
Cash and cash
equivalents at
beginning of year...... 19.0 61.2 128.8 -- 209.0
--------- --------- --------- ----- ---------
Cash and cash
equivalents at end of
year................... $ .1 $ 91.5 $ 200.7 $ -- $ 292.3
========= ========= ========= ===== =========
II-66
PART III
Item 10. Directors and Executive Officers.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Information Concerning Directors and Nominees" and
"Compliance with Section 16(a) Beneficial Ownership Reporting Compliance" is
incorporated herein by reference. Information with respect to the Executive
Officers of the Company is included in Part I hereof.
Item 11. Executive Compensation.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Directors' Compensation" and "Executive Compensation" is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Compensation Committee Interlocks and Insider
Participation" and "Related Transaction" is incorporated herein by reference.
III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) and (d) Financial Statements and Schedules (see Index on Page F-1)
(b) Reports on Form 8-K
Current Report on Form 8-K of Viacom Inc. with a Report Date of October
8, 1999, relating to an Amended and Restated Agreement and Plan of Merger
providing for the merger of CBS Corporation with the Company or, under
specified circumstances, Viacom/CBS LLC, a wholly owned subsidiary of the
Company.
(c) Exhibits (see index on Page E-1)
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Viacom Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
Viacom Inc.
By: /s/ Sumner M. Redstone
----------------------------------
Sumner M. Redstone,
Chairman of the Board of
Directors,
Chief Executive Officer
By: /s/ George S. Smith, Jr.
----------------------------------
George S. Smith, Jr.,
Senior Vice President,
Chief Financial Officer
By: /s/ Susan C. Gordon
----------------------------------
Susan C. Gordon,
Vice President, Controller,
Chief Accounting Officer
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Viacom Inc. and
in the capacities and on the dates indicated:
[Download Table]
Signature Title Date
--------- ----- ----
* Director March 24, 2000
___________________________________________
George S. Abrams
/s/ Philippe P. Dauman Director March 24, 2000
___________________________________________
Philippe P. Dauman
/s/ Thomas E. Dooley Director March 24, 2000
___________________________________________
Thomas E. Dooley
* Director March 24, 2000
___________________________________________
Ken Miller
* Director March 24, 2000
___________________________________________
Brent D. Redstone
* Director March 24, 2000
___________________________________________
Shari Redstone
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Sumner M. Redstone Director March 24, 2000
___________________________________________
Sumner M. Redstone
* Director March 24, 2000
___________________________________________
Frederic V. Salerno
* Director March 24, 2000
___________________________________________
William Schwartz
* Director March 24, 2000
___________________________________________
Ivan Seidenberg
*By: /s/ Michael D. Fricklas March 24, 2000
---------------------------------
Michael D. Fricklas
Attorney-in-Fact
for the Directors
VIACOM INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM 14(c)
[Download Table]
Exhibit
No. Description of Document Page No.
------- ----------------------- --------
(2) Plan of Acquisition
(a) Agreement and Plan of Merger dated as of January 7, 1994,
as amended as of June 15, 1994, between Viacom Inc. and
Blockbuster Entertainment Corporation (incorporated by
reference to Exhibit 2.1 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 33-55271).
(b) Amended and Restated Agreement and Plan of Merger dated as
of February 4, 1994 between Viacom Inc. and Paramount
Communications Inc., as further amended as of May 26, 1994,
among Viacom, Viacom Sub Inc. and Paramount Communications
Inc. (incorporated by reference to Exhibit 2.1, included as
Annex I, to the Registration Statement on Form S-4 filed by
Viacom Inc.) (File No. 33-53977).
(c) Agreement and Plan of Merger, dated as of May 17, 1999,
among Viacom International Inc., VSEG Acquisition Inc. and
Spelling Entertainment Group Inc. (incorporated by
reference to Exhibit 99.1 to the Current Report on Form 8-K
of Viacom Inc. with a Report Date of May 17, 1999) (File
No. 1-9553).
(d) Amended and Restated Agreement and Plan of Merger, dated as
of September 6, 1999, as amended and restated as of October
8, 1999 and as of November 23, 1999, among Viacom Inc., CBS
Corporation and Viacom/CBS LLC (incorporated by reference
to Exhibit 2.1 to the Registration Statement on Form S-4
filed by Viacom Inc.) (File No. 333-88613).
(3) Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation of Viacom Inc. (filed
herewith).
(b) By-laws of Viacom Inc. (incorporated by reference to
Exhibit 3.3 to the Registration Statement on Form S-4 filed
by Viacom Inc.) (File No. 33-13812).
(4) Instruments defining the rights of security holders,
including indentures
(a) Specimen certificate representing the Viacom Inc. Voting
Common Stock (currently Class A Common Stock) (incorporated
by reference to Exhibit 4.1 to the Registration Statement
on Form S-4 filed by Viacom Inc.) (File No. 33-13812).
(b) Specimen certificate representing Viacom Inc. Class B Non-
Voting Common Stock (incorporated by reference to Exhibit
4(a) to the Quarterly Report on Form 10-Q of Viacom Inc.
for the quarter ended June 30, 1990) (File No. 1-9553).
(c) Amended and Restated Credit Agreement dated as of March 26,
1997 among Viacom Inc.; the Bank parties thereto; The Bank
of New York ("BNY"), Citibank N.A. ("Citibank"), Morgan
Guaranty Trust Company of New York ("Morgan Guaranty"),
Bank of America NT&SA ("BofA") and The Chase Manhattan Bank
("Chase"), as Managing Agents; BNY, as Documentation Agent;
Citibank, as Administrative Agent; JP Morgan Securities
Inc. ("JP Morgan") and BofA, as Syndication Agents; and the
Agents and Co-Agents named therein (incorporated by
reference to Exhibit 4(f) to the Annual Report on Form 10-K
of Viacom Inc. for the fiscal year ended December 31, 1996)
(File No. 1-9553) as amended by Amendment No. 1, dated as
of June 30, 1997 (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q of Viacom Inc. for the
quarter ended June 30, 1997) (File No. 1-9553), as further
amended by Amendment No. 2, dated as of December 19, 1997
E-1
[Download Table]
Exhibit
No. Description of Document Page No.
------- ----------------------- --------
(incorporated by reference to Exhibit 4(e) to the Annual
Report on Form 10-K of Viacom Inc. for the fiscal year
ended December 31, 1997) (File No. 1-9553), as further
amended by Amendment No. 3, dated as of May 21, 1999
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
June 30, 1999) (File No. 1-9553), and as further amended by
Amendment No. 4, dated as of September 27, 1999
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
September 30, 1999) (File No. 1-9553), and Amended and
Restated Credit Agreement dated as of March 26, 1997 among
Viacom International Inc.; the Bank parties thereto; BNY,
Citibank, Morgan Guaranty, BofA and Chase, as Managing
Agents; BNY, as Documentation Agent; Citibank, as
Administrative Agent; JP Morgan and BofA, as Syndication
Agents; and the Agents and Co-Agents named therein
(incorporated by reference to Exhibit 4(f) to the Annual
Report on Form 10-K of Viacom Inc. for the fiscal year
ended December 31, 1996) (File No. 1-9553), as amended by
Amendment No. 1, dated as of May 21, 1999 (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of Viacom Inc. for the quarter ended June 30, 1999)
(File No. 1-9553).
(d) Credit Agreement, dated as of June 21, 1999, between
Blockbuster Inc. and the banks named therein (incorporated
by reference to Exhibit 10.22 to the Registration Statement
on Form S-1 filed by Blockbuster Inc.) (File No. 333-
77899).
(e) The instruments defining the rights of holders of the long-
term debt securities of Viacom Inc. and its subsidiaries
are omitted pursuant to section (b)(4)(iii)(A) of Item 601
of Regulation S-K. Viacom Inc. hereby agrees to furnish
copies of these instruments to the Securities and Exchange
Commission upon request.
(10) Material Contracts
(a) Viacom Inc. 1989 Long-Term Management Incentive Plan (as
amended and restated through April 23, 1990 as further
amended and restated through April 27, 1995 and as further
amended and restated through November 1, 1996)
(incorporated by reference to Exhibit 10(a) to the Annual
Report on Form 10-K of Viacom Inc. for the fiscal year
ended December 31, 1996) (File No. 1-9553).*
(b) Viacom Inc. 1994 Long-Term Management Incentive Plan (as
amended and restated through April 27, 1995 and as further
amended and restated through November 1, 1996)
(incorporated by reference to Exhibit 10(b) to the Annual
Report on Form 10-K of Viacom Inc. for the fiscal year
ended December 31, 1996) (File No. 1-9553).*
(c) Viacom Inc. 1997 Long-Term Management Incentive Plan (as
amended and restated through July 29, 1999 and as further
amended and restated through September 6, 1999)
(incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-4 filed by Viacom Inc.)
(File No. 333-88613).*
(d) Viacom Inc. Senior Executive Short-Term Incentive Plan (as
amended and restated through March 27, 1996 and as further
amended and restated through March 18, 1999) (incorporated
by reference to Exhibit B to Viacom Inc.'s Definitive Proxy
Statement dated April 16, 1999).*
(e) Viacom International Inc. Deferred Compensation Plan for
Non-Employee Directors (as amended and restated through
December 17, 1992) (incorporated by reference to Exhibit
10(e) to the Annual Report on Form 10-K of Viacom Inc. for
the fiscal year ended December 31, 1992, as amended by Form
10-K/A Amendment No. 1 dated November 29, 1993 and as
further amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File No. 1-9553).*
---------------------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-2
[Download Table]
Exhibit
No. Description of Document Page No.
------- ----------------------- --------
(f) Viacom Inc. and Viacom International Inc. Retirement Income
Plan for Non-Employee Directors (incorporated by reference
to Exhibit 10(f) to the Annual Report on Form 10-K of
Viacom Inc. for the fiscal year ended December 31, 1989)
(File No. 1-9553).*
(g) Viacom Inc. Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
June 30, 1993) (File No. 1-9553).*
(h) Viacom Inc. 1994 Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit B to Viacom Inc.'s
Definitive Proxy Statement dated April 28, 1995).*
(i) Viacom Inc. Excess Investment Plan (incorporated by
reference to Exhibit 4.1 to the Viacom Inc. Registration
Statement on Form S-8) (File No. 1-9553).*
(j) Excess Pension Plan for Certain Employees of Viacom
International Inc. restated as of January 1, 1996 (filed
herewith).*
(k) Viacom Inc. Executive Severance Plan for Senior Vice
Presidents (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q of Viacom Inc. for the
quarter ended September 30, 1999) (File No. 1-9553).*
(l) Employment Letter Agreement, dated September 6, 1999,
between Viacom Inc. and Sumner M. Redstone (incorporated by
reference to Exhibit 10.3 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 333-88613).*
(m) Employment Letter Agreement, dated September 6, 1999,
between Viacom Inc. and Mel Karmazin (incorporated by
reference to Exhibit 10.4 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 333-88613).*
(n) Agreement, dated as of January 1, 1996, between Viacom Inc.
and Philippe P. Dauman (incorporated by reference to
Exhibit 10(l) to the Annual Report on Form 10-K of Viacom
Inc. for the fiscal year ended December 31, 1995) (File No.
1-9553), as amended by an Agreement dated August 20, 1998
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
September 30, 1998) (File No. 1-9553).*
(o) Agreement, dated September 6, 1999, between Viacom Inc. and
Philippe P. Dauman (incorporated by reference to Exhibit
10.5 to the Current Report on Form 8-K of Viacom Inc. with
a Report Date of September 6, 1999) (File No. 1-9553).*
(p) Agreement, dated as of January 1, 1996, between Viacom Inc.
and Thomas E. Dooley (incorporated by reference to Exhibit
10(m) to the Annual Report on Form 10-K of Viacom Inc. for
the fiscal year ended December 31, 1995) (File No. 1-9553),
as amended by an Agreement dated August 20, 1998
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
September 30, 1998) (File No. 1-9553).*
(q) Agreement, dated September 6, 1999, between Viacom Inc. and
Thomas E. Dooley (incorporated by reference to Exhibit 10.6
to the Current Report on Form 8-K of Viacom Inc. with a
Report Date of September 6, 1999) (File No. 1-9553).*
(r) Agreement, dated as of January 1, 1996, between Viacom Inc.
and Michael D. Fricklas, as amended by an Agreement dated
March 31, 1998, and as further amended by an Agreement
dated October 12, 1998 (incorporated by reference to
Exhibit 10(n) to the Annual Report on Form 10-K of Viacom
Inc. for the fiscal year ended December 31, 1998) (File No.
1-9553).*
(s) Agreement, dated as of April 1, 1995, between Viacom Inc.
and George S. Smith, Jr., as amended by an Agreement dated
as of March 30, 1998 (incorporated by reference to
Exhibit 10(o) to the Annual Report on Form 10-K of Viacom
Inc. for the fiscal year ended December 31, 1997) (File No.
1-9553).*
---------------------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-3
[Download Table]
Exhibit
No. Description of Document Page No.
------- ----------------------- --------
(t) Service Agreement, dated as of March 1, 1994, between
George S. Abrams and Viacom Inc. (incorporated by reference
to Exhibit 10(q) to the Annual Report on Form 10-K of
Viacom Inc. for the fiscal year ended December 31, 1994)
(File No. 1-9553).*
(u) Blockbuster Entertainment Corporation ("BEC") stock option
plans* assumed by Viacom Inc. after the Blockbuster Merger
consisting of the following:
(i) BEC's 1989 Stock Option Plan (incorporated by
reference to BEC's Proxy Statement dated March 31,
1989).
(ii) Amendments to BEC's 1989 Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 3, 1991).
(iii) BEC's 1990 Stock Option Plan (incorporated by
reference to BEC's Proxy Statement dated March 29,
1990).
(iv) Amendments to BEC's 1990 Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 15, 1991).
(v) BEC's 1991 Employee Director Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 15, 1991).
(vi) BEC's 1991 Non-Employee Director Stock Option Plan
(incorporated by reference to BEC's Proxy Statement
dated April 15, 1991).
(vii) BEC's 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.35 to the Annual Report on
Form 10-K of BEC for the fiscal year ended December
31, 1993)
(File No. 0-12700).
(v) Stock Purchase Agreement, dated as of May 17, 1998, among
Viacom International Inc., Pearson Inc., and Pearson plc
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of Viacom Inc. for the quarter ended
June 30, 1998)
(File No. 1-9553), as amended by Amendment No. 1 dated as
of November 25, 1998 (incorporated by reference to Exhibit
10(v) to the Annual Report on Form 10-K of Viacom Inc. for
the fiscal year ended December 31, 1998) (File No. 1-9553).
(11) Statements re Computation of Net Earnings Per Share
(21) Subsidiaries of Viacom Inc.
(23) Consents of Experts and Counsel
(a) Consent of PricewaterhouseCoopers LLP
(24) Powers of Attorney
(27) Financial Data Schedule
---------------------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-4
VIACOM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Item 14a
The following consolidated financial statements and schedule of the
registrant and its subsidiaries are submitted herewith as part of this report:
[Download Table]
Reference
(Page/s)
-----------
1. Report of Independent Accountants............................ II-23
2. Management's Statement of Responsibility for Financial II-24
Reporting....................................................
3. Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997............................. II-25
4. Consolidated Balance Sheets as of December 31, 1999 and II-26
1998.........................................................
5. Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997............................. II-27
6. Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the years ended December 31, 1999,
1998 and 1997................................................ II-28
7. Notes to Consolidated Financial Statements................... II-29-II-66
Financial Statement Schedule:
II. Valuation and qualifying accounts........................ F-2
All other Schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule.
F-1
VIACOM INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
[Download Table]
Col. A Col. B Col. C Col. D Col. E
------------------------ ---------- ------------------- ---------- ----------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
------------------------ ---------- ---------- -------- ---------- ----------
Allowance for doubtful
accounts:
Year ended December
31, 1999............. $ 98.7 $33.5 $ 8.1 $ 30.8 $109.5
Year ended December
31, 1998............. $ 99.8 $29.5 $18.3 $ 48.9(A) $ 98.7
Year ended December
31, 1997............. $101.3 $83.1 $(6.2) $ 78.4(B) $ 99.8
Valuation allowance on
deferred tax assets:
Year ended December
31, 1999............. $ 88.3 $ -- $ 3.8 $ (3.9) $ 96.0
Year ended December
31, 1998............. $106.8 $ -- $ -- $ 18.5 $ 88.3
Year ended December
31, 1997............. $ 81.8 $25.0 $ -- $ -- $106.8
Reserves for inventory
obsolescence:
Year ended December
31, 1999............. $ 56.7 $18.5 $16.8 $ 58.8(C) $ 33.2
Year ended December
31, 1998............. $150.6 $25.7 $(8.1) $111.5 $ 56.7
Year ended December
31, 1997............. $105.8 $98.9 $ -- $ 54.1(C) $150.6
---------------------
Notes:
(A) Primarily related to the sale of Non-Consumer Publishing and amounts
written off, net of recoveries.
(B) Includes amounts written off, net of recoveries and amounts related to
discontinued operations.
(C) Primarily related to the second quarter 1997 Blockbuster charge associated
with the reduction in the carrying value of excess inventory.
F-2
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K405’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 8/1/07 | | 24 |
| | 4/1/07 | | 24 | | | | | 4 |
| | 2/1/07 | | 24 | | | | | 4 |
| | 12/1/06 | | 24 |
| | 8/1/06 | | 24 |
| | 6/1/06 | | 24 | | | | | 4, 8-K, SC TO-I/A |
| | 10/1/05 | | 24 | | | | | 4 |
| | 8/1/05 | | 24 |
| | 6/1/05 | | 24 |
| | 4/1/05 | | 24 | | | | | 4 |
| | 2/1/05 | | 24 | | | | | 8-K |
| | 12/31/04 | | 22 | | 74 | | | 10-K, 11-K |
| | 10/1/04 | | 24 | | | | | 4 |
| | 7/1/04 | | 50 | | 73 | | | 4, SC 13D/A |
| | 12/31/03 | | 8 | | | | | 10-K, 11-K, 4 |
| | 7/1/02 | | 49 | | 72 | | | 11-K |
| | 6/30/02 | | 53 | | | | | 10-Q |
| | 5/1/02 | | 14 | | 25 |
| | 4/1/02 | | 49 | | 73 | | | 11-K |
| | 12/15/00 | | 52 | | 65 |
| | 6/19/00 | | 50 | | 73 |
| | 6/15/00 | | 52 | | 65 |
| | 4/21/00 | | 28 |
| | 3/31/00 | | 14 | | 65 | | | 10-Q |
| Filed on: | | 3/24/00 | | 4 | | 102 |
| | 3/21/00 | | 47 | | 65 |
| | 3/20/00 | | 14 | | 66 |
| | 3/14/00 | | 1 | | 33 |
| | 2/24/00 | | 51 | | 75 |
| | 2/16/00 | | 35 | | 65 |
| | 2/11/00 | | 5 | | | | | SC 13G |
| | 2/10/00 | | 55 |
| | 1/28/00 | | 14 | | 53 |
| | 1/12/00 | | 14 |
| | 1/1/00 | | 23 | | 25 |
| For Period End: | | 12/31/99 | | 1 | | 108 | | | 10-K405/A, 11-K |
| | 12/29/99 | | 2 | | 65 | | | S-8 POS |
| | 12/26/99 | | 5 |
| | 11/29/99 | | 14 |
| | 11/26/99 | | 29 |
| | 11/24/99 | | 29 | | | | | S-4/A |
| | 11/23/99 | | 30 | | 103 | | | S-4/A |
| | 11/22/99 | | 13 |
| | 11/16/99 | | 24 |
| | 10/12/99 | | 12 | | | | | 8-K |
| | 10/8/99 | | 30 | | 103 | | | 8-K |
| | 10/1/99 | | 25 |
| | 9/30/99 | | 104 | | 105 | | | 10-Q |
| | 9/27/99 | | 104 |
| | 9/9/99 | | 5 |
| | 9/7/99 | | 2 | | 65 | | | 8-K |
| | 9/6/99 | | 29 | | 105 | | | 8-K/A |
| | 8/10/99 | | 2 | | 65 |
| | 7/29/99 | | 104 |
| | 7/21/99 | | 28 |
| | 7/15/99 | | 4 | | 78 |
| | 7/7/99 | | 52 | | 75 |
| | 7/1/99 | | 11 |
| | 6/30/99 | | 104 | | | | | 10-Q |
| | 6/23/99 | | 3 | | 73 |
| | 6/21/99 | | 3 | | 104 | | | SC 13D/A, SC 13E3/A, SC 14D1/A |
| | 5/21/99 | | 104 | | | | | SC 13D, SC 14D1 |
| | 5/17/99 | | 103 | | | | | 10-Q, 8-K, SC 13D/A |
| | 5/7/99 | | 49 | | 73 |
| | 5/6/99 | | 49 | | 73 |
| | 4/16/99 | | 104 | | | | | DEF 14A |
| | 4/8/99 | | 33 |
| | 4/4/99 | | 12 |
| | 3/31/99 | | 23 | | 75 | | | 10-K405, 10-Q |
| | 3/24/99 | | 16 | | | | | 8-A12B/A |
| | 3/19/99 | | 29 | | | | | SC 13D/A |
| | 3/18/99 | | 104 |
| | 3/15/99 | | 33 | | 75 |
| | 3/1/99 | | 5 | | 14 |
| | 2/25/99 | | 33 | | 75 |
| | 2/2/99 | | 4 | | 9 |
| | 2/1/99 | | 12 | | 39 |
| | 1/5/99 | | 47 | | 75 |
| | 1/4/99 | | 74 |
| | 1/1/99 | | 53 |
| | 12/31/98 | | 36 | | 108 | | | 10-K405, 11-K |
| | 12/30/98 | | 74 |
| | 12/2/98 | | 47 | | 75 |
| | 11/27/98 | | 3 | | 67 | | | 8-K |
| | 11/26/98 | | 68 |
| | 11/25/98 | | 106 |
| | 11/10/98 | | 3 | | 67 |
| | 10/26/98 | | 3 | | 67 |
| | 10/12/98 | | 105 |
| | 9/30/98 | | 105 | | | | | 10-Q |
| | 9/4/98 | | 3 | | 67 |
| | 8/20/98 | | 105 |
| | 8/10/98 | | 68 |
| | 8/1/98 | | 4 |
| | 6/30/98 | | 106 | | | | | 10-Q |
| | 5/17/98 | | 106 |
| | 4/1/98 | | 42 | | 69 |
| | 3/31/98 | | 105 | | | | | 10-K405, 10-Q |
| | 3/30/98 | | 105 |
| | 1/1/98 | | 8 | | 10 |
| | 12/31/97 | | 36 | | 108 | | | 10-K405, 11-K |
| | 12/19/97 | | 103 |
| | 10/21/97 | | 71 | | 89 |
| | 9/1/97 | | 24 |
| | 7/2/97 | | 3 | | 67 |
| | 6/30/97 | | 68 | | 103 | | | 10-Q |
| | 3/26/97 | | 103 | | 104 |
| | 2/19/97 | | 67 |
| | 1/15/97 | | 14 | | 52 |
| | 12/31/96 | | 64 | | 104 | | | 10-K, 11-K, NT 11-K |
| | 11/1/96 | | 104 |
| | 7/31/96 | | 3 | | | | | 8-K, SC 13E4/A |
| | 3/27/96 | | 104 | | | | | SC 13D/A |
| | 2/8/96 | | 27 |
| | 1/1/96 | | 105 |
| | 12/31/95 | | 105 | | | | | 10-K, 11-K |
| | 4/28/95 | | 105 | | | | | DEF 14A, S-3/A |
| | 4/27/95 | | 104 |
| | 4/1/95 | | 105 |
| | 1/3/95 | | 2 |
| | 12/31/94 | | 106 | | | | | 10-K, 11-K |
| | 9/29/94 | | 2 | | | | | 15-12G, 8-K |
| | 7/7/94 | | 2 | | | | | 8-K, SC 13D |
| | 6/15/94 | | 103 |
| | 5/26/94 | | 103 |
| | 3/11/94 | | 2 | | | | | SC 13D/A, SC 14D1/A |
| | 3/1/94 | | 106 |
| | 2/4/94 | | 103 | | | | | SC 13D/A, SC 14D1/A |
| | 1/7/94 | | 103 | | | | | 8-K, SC 13D/A, SC 14D1/A |
| | 12/31/93 | | 106 | | | | | 10-K, 10-K/A |
| | 12/9/93 | | 104 |
| | 11/29/93 | | 104 |
| | 6/30/93 | | 105 |
| | 12/31/92 | | 104 |
| | 12/17/92 | | 104 |
| List all Filings |
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