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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1999
REGISTRATION NO. 333-84761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CBS CORPORATION
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 4833 25-0877540
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------
51 WEST 52ND STREET, NEW YORK, NY 10019, (212) 975-4321
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
LOUIS J. BRISKMAN, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CBS CORPORATION
51 WEST 52ND STREET
NEW YORK, NY 10019
(212) 975-4321
(Name, Address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
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ROBERT B. SCHUMER, ESQ. HOWARD CHATZINOFF, ESQ.
DOUGLAS A. CIFU, ESQ. RAYMOND O. GIETZ, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON WEIL, GOTSHAL & MANGES LLP
1285 AVENUE OF THE AMERICAS 767 FIFTH AVENUE
NEW YORK, NY 10019-6064 NEW YORK, NY 10153-0119
(212) 373-3000 (212) 310-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of King World Productions, Inc. with and into K
Acquisition Corp. pursuant to an Agreement and Plan of Merger dated as of March
31, 1999, as amended, described in the Proxy Statement/Prospectus Supplement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 to the Registration Statement includes a
proxy statement/ prospectus supplement, which amends and supplements the proxy
statement/prospectus dated August 9, 1999 of King World Productions, Inc. and
CBS Corporation. This proxy statement/prospectus supplement contains information
regarding Amendment No. 1, dated as of September 8, 1999, to the Agreement and
Plan of Merger, dated as of March 31, 1999, among CBS, King World and K
Acquisition Corp., a wholly-owned subsidiary of CBS, and information regarding
the proposed merger of Viacom Inc. and CBS.
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[LOGO] [LOGO]
</TABLE>
November 5, 1999
Dear Stockholder:
On August 9, 1999, we mailed to you a proxy statement/prospectus relating to
a special meeting of stockholders of King World Productions, Inc. that was
scheduled for September 7, 1999. The purpose of the special meeting was to
consider and vote upon the proposed merger of a wholly-owned subsidiary of CBS
Corporation with and into King World. Following the merger, King World will be a
wholly-owned subsidiary of CBS.
On the morning of September 7, 1999, CBS announced that it had entered into
an agreement with Viacom Inc. providing for the merger of Viacom and CBS.
Although the Viacom/CBS transaction is subject to a number of conditions and is
not expected to close until sometime during the first half of 2000, we
determined that the King World stockholders should be made aware of this
development prior to voting on the CBS/King World merger. For this reason, we
adjourned the special meeting to a later date. As a result of the delay that
would occur in completing our merger, we also believed that it was appropriate
to request that CBS waive certain conditions to its obligations to close the
CBS/King World merger.
On September 8, 1999, we amended our merger agreement with CBS by executing
Amendment No. 1 to the merger agreement.
We are enclosing a supplement to the proxy statement/prospectus previously
mailed to you on August 9, 1999; an additional copy of the proxy
statement/prospectus accompanies this supplement. This supplement provides you
with a summary of Amendment No. 1 to the merger agreement, which also is
attached to the supplement as Annex S-A. The special meeting will be reconvened
on November 15, 1999 at 9:00 A.M. local time, at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison located at 1285 Avenue of the Americas, New York, NY
10019. At the special meeting you will be asked to consider and vote upon the
adoption of the CBS/ King World merger agreement, as amended by Amendment
No. 1. We currently anticipate that the CBS/King World merger will close on the
same date, promptly following the conclusion of the special meeting.
The Board of Directors of King World continues to recommend that you vote in
favor of the CBS/King World merger agreement at the special meeting.
In the CBS/King World merger, you will continue to have the right to receive
.81 of a share of CBS common stock for each share of King World common stock you
own. The value you receive in the merger for each share of King World common
stock you own will depend upon the value of CBS common stock at the effective
time of the merger. On November 4, 1999, the last trading day before the date of
this supplement, the closing sales price of CBS common stock was $48.5625 per
share and the closing sales price of King World common stock was $38.7500 per
share. Thus, given the merger exchange ratio of .81 of a share of CBS common
stock for each share of King World common stock, the King World share equivalent
value as of such date was $39.3356. CBS's shares are traded on the New York
Stock Exchange under the symbol "CBS." King World's shares are traded on the New
York Stock Exchange under the symbol "KWP."
We have enclosed a proxy card with the supplement. If you have previously
voted and do not wish to change your vote, your previous proxy will be voted as
you directed. If you have not previously voted or if you wish to revoke or
change your vote, please complete, date, sign and return the enclosed proxy
card. You may send in your proxy card or revoke your vote by fax by following
the instructions on page S-2.
Thank you for your continuing support.
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[LOGO] [LOGO]
Michael King Roger King
Vice Chairman and Chairman
Chief Executive Officer
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE CBS COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED THAT THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This supplement to the proxy statement/prospectus is dated November 5, 1999
and was first mailed to stockholders on or about November 5, 1999.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Introduction............................................................................................. S-1
Questions & Answers About The Merger..................................................................... S-1
Summary of Amendment No. 1............................................................................... S-3
King World Board Approval of Amendment No. 1............................................................. S-5
The Viacom/CBS Merger.................................................................................... S-5
Where You Can Find More Information...................................................................... S-7
Experts.................................................................................................. S-9
Index To Financial Information........................................................................... F-1
Annex S-A-- Amendment No. 1 to Agreement and Plan of Merger
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<PAGE>
INTRODUCTION
EXCEPT AS DESCRIBED IN THIS SUPPLEMENT, THE INFORMATION WE PROVIDED IN THE PROXY
STATEMENT/PROSPECTUS THAT WE PREVIOUSLY MAILED TO YOU CONTINUES TO APPLY. TO THE
EXTENT INFORMATION IN THIS SUPPLEMENT DIFFERS FROM OR CONFLICTS WITH INFORMATION
CONTAINED IN THE PROXY STATEMENT/PROSPECTUS, THIS SUPPLEMENT SUPERSEDES AND
REPLACES THE INFORMATION IN THE PROXY STATEMENT/PROSPECTUS. IF YOU NEED ANOTHER
COPY OF THE PROXY STATEMENT/PROSPECTUS, PLEASE CALL OUR PROXY SOLICITORS,
MACKENZIE PARTNERS, INC., (212) 929-5500 (CALL COLLECT) OR (800) 322-2885 (CALL
TOLL-FREE).
QUESTIONS & ANSWERS ABOUT THE MERGER
Q: WHY WAS THE SPECIAL MEETING OF KING WORLD'S STOCKHOLDERS ADJOURNED WITHOUT A
VOTE OF THE KING WORLD STOCKHOLDERS?
A: On September 7, 1999, shortly before the time of the special meeting, CBS
publicly announced its proposed merger with Viacom. King World determined
that it would be appropriate to adjourn its special meeting to give King
World stockholders the opportunity to consider this development.
Q: HOW DOES THE VIACOM/CBS MERGER AFFECT ME?
A: If the CBS/King World merger occurs, you will become a CBS stockholder. If
you continue to own CBS shares at the time of the Viacom/CBS merger, you
will become a stockholder of Viacom. In that transaction, all of your shares
of CBS common stock will be converted into Viacom non-voting Class B common
stock.
Viacom Inc. is a diversified entertainment company with operations in six
segments: (1) Networks, (2) Entertainment, (3) Video, (4) Parks,
(5) Publishing and (6) Online. The Networks segment operates MTV: Music
Television-Registered Trademark-, Showtime-Registered Trademark-,
Nickelodeon-Registered Trademark-/Nick at Nite-Registered Trademark-, VH1
Music First-Registered Trademark- and TV Land-Registered Trademark-, among
other program services. The Entertainment segment, which includes Paramount
Pictures-Registered Trademark-, Paramount Television-Registered Trademark-,
Paramount Stations Group and Spelling Entertainment Group Inc., produces and
distributes theatrical motion pictures and television programming and
operates or programs 19 broadcast television stations. The Video segment
consists of an approximate 80% interest in Blockbuster Inc. which operates
and franchises Blockbuster Video-Registered Trademark- stores worldwide. The
Parks segment, through Paramount Parks-Registered Trademark-, 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. The Online segment operates Internet businesses
currently related to some of its networks. Viacom's principal place of
business is 1515 Broadway, New York, NY 10036; telephone number
(212) 258-6000.
Q: WILL THE CBS STOCKHOLDERS HAVE THE OPPORTUNITY TO VOTE ON THE VIACOM/CBS
MERGER?
A: Yes. The affirmative vote of a majority of the votes cast by CBS stockholders
entitled to vote at a meeting of CBS stockholders held to consider the
Viacom/CBS merger will be required to approve the transaction. Immediately
following the consummation of the CBS/King World merger, the former King
World stockholders will own approximately 7.6% of the outstanding CBS common
stock.
Q: WILL I BE ENTITLED TO VOTE ON THE VIACOM/CBS MERGER?
A: If the CBS/King World merger is consummated and you continue to hold the CBS
shares that you will receive in the CBS/King World merger as of the record
date for the vote on the Viacom/CBS merger, you will be entitled to vote. A
record date for the purpose of determining the CBS stockholders to be
entitled to vote on the Viacom/CBS merger has been or will be designated by
CBS for a date following the date of the closing of the CBS/King World
merger. King World stockholders will be deemed for those purposes to be
record holders of the CBS common stock as of the date of the closing of the
CBS/King World merger.
Q: WHAT WILL I RECEIVE IN THE VIACOM/CBS MERGER?
A: If you are a CBS stockholder at the time of the merger, you will receive, for
each share of CBS common stock that you own, 1.085 shares of Viacom
non-voting Class B common stock.
S-1
<PAGE>
Q: WHEN WILL THE VIACOM/CBS MERGER OCCUR?
A: The transaction is subject to a number of conditions and is not expected to
close until sometime during the first half of 2000, after the anticipated
date for the closing of the CBS/King World merger.
Q: WHAT HAS CHANGED IN THE CBS/KING WORLD MERGER AGREEMENT?
A: The conditions to CBS's obligations to complete the merger relating to the
continued accuracy of King World's representations and warranties set forth
in the merger agreement, the status of its distribution agreements and the
status of Roger King's and Michael King's employment contracts with King
World as of the time of the merger were waived by CBS. King World
represented to CBS that these conditions to the CBS/King World merger were
satisfied as of September 7, 1999. CBS's right to terminate the merger
agreement if the merger is not completed by December 31, 1999 was also
waived.
In addition, Amendment No. 1 makes other changes to the merger agreement
that are described in this document beginning on page S-3.
Q: IS THE EXCHANGE RATIO THE SAME?
A: Yes. In the CBS/King World merger you will continue to have the right to
receive .81 of a share of CBS common stock for each of your King World
shares.
Q: AM I BEING ASKED TO VOTE ON THE VIACOM/CBS MERGER NOW?
A: No, we are not soliciting your vote on the Viacom/CBS merger, nor is the
consummation of the
CBS/King World merger conditioned upon the consummation of the Viacom/CBS
merger. If the CBS/King World merger is consummated and you continue to hold
CBS shares as of the applicable record date, you will receive detailed
information and voting instructions from CBS regarding the Viacom/CBS
merger, including information about the rights you will have as a holder of
Viacom non-voting Class B common stock.
Q: HAS THE RECORD DATE FOR THE KING WORLD SPECIAL MEETING CHANGED?
A: No. The record date for the meeting continues to be July 28, 1999.
Q: WHAT DO I NEED TO DO NOW?
A: First, carefully read this document. If you already have delivered a properly
executed proxy, you do not need to do anything unless you wish to change
your vote. If you are a registered holder and you have not already delivered
a properly executed proxy, or wish to change your vote, please complete,
sign and date the enclosed proxy card and return it in the accompanying
prepaid envelope or submit via facsimile a copy of both sides of your proxy
card duly completed, signed and dated to (732) 417-2916 or (732) 417-2917 to
ensure that your shares will be represented at the special meeting. If your
shares are held in "street name" by your broker, and you have not already
delivered a properly executed proxy, or wish to change your vote, please
instruct your broker in the manner described on page 1 of the proxy
statement/prospectus mailed to you on August 9, 1999, an additional copy of
which accompanies this supplement.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You can change your vote by:
- sending by facsimile to the number listed on this page under "What do I
need to do now?" or by mail a notice of revocation following the
procedures described on page 15 of the proxy statement/ prospectus mailed
to you on August 9, 1999;
- sending a later-dated, signed proxy card before the special meeting; or
- attending the meeting in person and voting.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
(800) 322-2885 (CALL TOLL-FREE)
S-2
<PAGE>
SUMMARY OF AMENDMENT NO. 1
The following is a summary of the changes to the original CBS/King World
merger agreement effected by Amendment No. 1:
ACCURACY OF REPRESENTATIONS AND WARRANTIES OF KING WORLD LIMITED TO
SEPTEMBER 7, 1999--One of the conditions to CBS's obligation to close the merger
provided for in the original merger agreement was that King World's
representations and warranties be accurate in all significant respects at the
time of the merger. Under Amendment No. 1, except for the accuracy of
information provided by King World to be included in CBS's registration
statement, the requirement that the representations and warranties made by King
World be accurate has been limited to September 7, 1999, the date on which the
special meeting was originally convened. Any inaccuracy in King World's
representations and warranties occurring after September 7, 1999 will not allow
CBS to delay or abandon the merger.
AGREEMENT BY EACH OF CBS AND KING WORLD NOT TO ADVERSELY AFFECT ITS OWN
REPRESENTATIONS AND WARRANTIES OR COVENANTS--Under Amendment No. 1, King World
and CBS each has agreed through the time of the merger not to take any action
that would adversely affect the accuracy of its representations and warranties
or impede its performance of its obligations and covenants under the merger
agreement.
WAIVER BY CBS OF CONDITIONS RELATED TO EMPLOYMENT AGREEMENTS, MATERIAL
DISTRIBUTION AGREEMENTS AND GOVERNMENTAL PROCEEDINGS--Under Amendment No. 1, CBS
waived the closing conditions under the original merger agreement that, at the
time of the merger, (a) Roger King's and Michael King's employment contracts
with King World be effective and that Roger King and Michael King be able to
perform their obligations under those contracts, (b) King World's material
distribution agreements be in effect and not likely to be terminated, and
(c) no governmental suit or proceeding be pending that would have a reasonable
likelihood of success of restraining or prohibiting the merger or otherwise
resulting in a material and adverse effect on King World or CBS. The parties
agreed that such conditions were met as of September 7, 1999, the date on which
the special meeting was originally convened.
KING WORLD MAY TERMINATE THE MERGER AGREEMENT IF THE CBS/KING WORLD MERGER
HAS NOT CLOSED BY JUNE 30, 2000; CBS HAS NO SIMILAR RIGHT OF TERMINATION--Under
Amendment No. 1, King World has the sole right to terminate the merger agreement
if the merger has not closed by the close of business on June 30, 2000. The
original merger agreement allowed either CBS or King World to terminate the
merger agreement if the merger was not completed by December 31, 1999.
PROHIBITIONS ON THE CONSUMMATION OF THE MERGER--The original merger
agreement would have allowed CBS not to close the merger if any restraints,
injunctions or other legal prohibitions were in existence that would have or
reasonably would be expected to have a material adverse effect on the business
of CBS. Amendment No. 1 deleted this termination right.
CBS WILL BE REQUIRED TO RELY ON A TAX OPINION OF EITHER CBS'S LEGAL COUNSEL
OR KING WORLD'S LEGAL COUNSEL--Under Amendment No. 1, the condition that CBS
receive an opinion of counsel as to the qualification of the merger as a
tax-free reorganization for federal income tax purposes may be satisfied if the
opinion is rendered by either Weil, Gotshal & Manges LLP, legal counsel to CBS,
or Paul, Weiss, Rifkind, Wharton & Garrison, legal counsel to King World. The
original merger agreement required that the tax opinion be rendered to CBS
solely by CBS's legal counsel.
CHANGE IN DIRECTION OF THE MERGER--The original merger agreement provided
that K Acquisition Corp. would merge with and into King World, with King World
being the surviving corporation in the merger. Under Amendment No. 1, King World
will be merged with and into K Acquisition Corp., with K Acquisition Corp. being
the surviving corporation. The direction of the merger was reversed to ensure
the tax-free status of the transaction. After the merger, the name of the
surviving corporation will be changed to King World Productions, Inc. CBS may
still cause the direction of the merger to be as originally
S-3
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provided for in the merger agreement, so long as it would not unreasonably delay
the merger or cause the tax opinions required at closing not to be delivered.
WAIVER OF CLAIMS OCCASIONED BY THE DELAY IN THE CONSUMMATION OF THE
MERGER--Under Amendment No. 1, CBS and King World acknowledged that the
announcement of the Viacom/CBS merger agreement has delayed consummation of the
CBS/King World merger as a result of the need to amend CBS's registration
statement and the proxy/statement prospectus by means of this supplement. King
World agreed to waive any claim it might have against CBS occasioned by the
delay. CBS agreed to use its reasonable best efforts to expedite the closing of
the merger and King World has agreed to cooperate with CBS in this regard.
A copy of Amendment No. 1 is attached as Annex S-A to this document and is
incorporated in this document by reference.
S-4
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KING WORLD BOARD APPROVAL OF AMENDMENT NO. 1
On September 7, 1999, the special meeting of King World stockholders, which
was scheduled to vote on the approval and adoption of the merger agreement
entered into with CBS, was adjourned until September 14, 1999. King World
adjourned the special meeting to consider the impact of the Viacom/CBS merger
announced earlier that day. A meeting of the King World Board of Directors was
convened later that day at which it was determined that King World stockholders
should be provided with this supplement to the proxy statement/prospectus first
mailed to the stockholders on August 9, 1999, providing additional material
information about the proposed Viacom/CBS merger.
The Board also approved Amendment No. 1 to the merger agreement providing
for the waiver by CBS of certain conditions, as more fully described in the
section of this supplement entitled "Summary of Amendment No. 1" on page S-3.
Amendment No. 1 was entered into by King World and CBS on September 8, 1999.
Following extensive discussions between representatives of CBS and
representatives of King World regarding the terms of the merger agreement as
well as consultation with King World's counsel, the King World board of
directors determined that, unless King World was willing to seek to terminate
the merger agreement, there was no plausible basis to compel CBS to agree to
modify the exchange ratio of .81 of a share of CBS common stock for each share
of King World common stock. In making this determination, the board of directors
noted that the closing price of CBS common stock on September 7, 1999 was $50.69
as compared to $40.81 on March 31, 1999, the day before the execution of the
merger agreement was first announced. The King World board of directors also
determined that, because the King World stockholders would continue to receive
shares of CBS common stock in the merger with CBS, the reasons for the merger
set forth on pages 3, 17 and 18 of the proxy statement remained compelling. The
board of directors concluded that, in light of these reasons in favor of the
merger and the fact that CBS had agreed in Amendment No. 1 to make significant
concessions to King World, primarily in the form of CBS's waiver of conditions
to its obligations to consummate the merger, which concessions are described
above under the heading "Summary of Amendment No. 1," it continued to be in the
best interests of King World stockholders to approve the merger agreement, as
amended by Amendment No. 1. Accordingly the King World board of directors
approved Amendment No. 1 and unanimously maintains its recommendation that King
World stockholders vote in favor of the merger agreement, as amended by
Amendment No. 1.
In light of the fact that the exchange ratio was unchanged and that the
value of the consideration to be received by King World stockholders in the
merger with CBS had actually increased from March 31, 1999, the King World board
of directors determined that, even though the fairness opinion was based only on
receipt of CBS shares and not the receipt of shares of the combined Viacom/CBS
entity, there was no reason to obtain a new fairness opinion from its financial
advisor Allen & Company.
On each of September 14, October 1, October 18 and November 1, 1999, King
World adjourned its special meeting of stockholders held to consider the merger
with CBS. On November 1, 1999, the special meeting of stockholders was adjourned
to November 15, 1999. King World announced at that adjournment that it would
seek further adjournments as may be necessary to allow sufficient time to
prepare this supplement.
The Board of Directors of King World continues to recommend that you vote in
favor of the CBS/ King World merger agreement at the special meeting.
THE VIACOM/CBS MERGER
Under the terms of the merger agreement between Viacom and CBS, CBS
stockholders will receive, for each share of CBS common stock, 1.085 shares of
Viacom non-voting Class B common stock. The transaction is subject to a number
of closing conditions, including Federal Communications Commission approval,
expiration of the Hart-Scott-Rodino waiting period and the approval of the
Viacom/CBS merger by the CBS shareholders. Viacom and CBS announced that the
merger is expected to close sometime
S-5
<PAGE>
during the first half of 2000. There can be no assurance that all of the
conditions to the transaction will be satisfied or waived and that the
Viacom/CBS merger will be completed.
You may access the Form 8-K of CBS filed on October 12, 1999 for a copy of
the Viacom/CBS merger agreement. See "Where You Can Find More Information" on
page S-7.
Viacom files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. These filings may
be read and copied at the Securities and Exchange Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. Please call
1-800-SEC-0330 for further information on the operation of the Public Reference
Room. These filings also are publicly available on the Securities and Exchange
Commission's Web site at "http://www.sec.gov." Neither CBS nor King World
participated in the preparation of these documents, and we do not make any
representation or warranty and accept no responsibility for the accuracy or
completeness of these documents. See also "Index to Financial Information" on
page F-1 for certain historical and pro forma financial data.
WE ARE NOT SOLICITING YOUR VOTE ON THE VIACOM/CBS MERGER, NOR IS THE
CONSUMMATION OF THE CBS/KING WORLD MERGER CONDITIONED UPON THE CONSUMMATION OF
THE VIACOM/CBS MERGER. IF THE CBS/KING WORLD MERGER IS CONSUMMATED AND YOU
CONTINUE TO HOLD YOUR CBS SHARES AS OF THE RECORD DATE TO BE ESTABLISHED IN THE
FUTURE FOR DETERMINING THE CBS STOCKHOLDERS ENTITLED TO VOTE ON THE VIACOM/CBS
MERGER, YOU, AS A STOCKHOLDER OF CBS, WILL RECEIVE MORE DETAILED INFORMATION,
INCLUDING A PROXY STATEMENT SOLICITING YOUR VOTE, FROM CBS AND VIACOM IN ORDER
TO EVALUATE YOUR VOTING DECISION WITH RESPECT TO THE VIACOM/CBS MERGER.
S-6
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WHERE YOU CAN FIND MORE INFORMATION
CBS and King World each file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any document that we file at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street N.W., Washington, D.C.
20549. Please call 1-800-SEC-0330 for further information on the operation of
the Public Reference Room. Reports, proxy statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission, including our filings, are also available to the public from the
Securities and Exchange Commission's Web site at "http://www.sec.gov."
CBS has filed with the Securities and Exchange Commission a registration
statement on Form S-4, as amended by post-effective Amendment No. 1. This
supplement is a part of the registration statement and constitutes a supplement
to the prospectus of CBS for the CBS common stock to be issued to you in the
merger. As allowed by the Securities and Exchange Commission rules, the proxy
statement/prospectus and this supplement do not contain all the information you
can find in the registration statement or the exhibits to the registration
statement.
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS US TO "INCORPORATE BY
REFERENCE" THE INFORMATION WE FILE WITH THEM, WHICH MEANS THAT WE CAN DISCLOSE
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US TO YOU THAT IS NOT
INCLUDED IN OR DELIVERED WITH THE PROXY STATEMENT/PROSPECTUS AND THIS SUPPLEMENT
BY REFERRING YOU TO THOSE DOCUMENTS.
The information incorporated by reference is considered to be part of the
proxy statement/prospectus. Information that we file later with the Securities
and Exchange Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
filing we will make with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 following the
date of this supplement and prior to the date the special meeting is reconvened
and the King World stockholders vote on the merger:
CBS
1. Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended
December 31, 1998;
2. Current Reports on Form 8-K filed on January 29, 1999, February 5, 1999,
April 1, 1999, April 13, 1999, April 30, 1999, June 4, 1999, June 28, 1999,
July 30, 1999, August 4, 1999, September 8, 1999, September 15, 1999,
October 8, 1999, October 8, 1999, October 12, 1999, October 29, 1999 and
November 2, 1999, respectively;
3. Quarterly Report on Form 10-Q, as amended by Form 10-Q/A, for the quarter
ended March 31, 1999;
4. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999; and
5. The description of CBS common stock contained in CBS's registration
statement on Form 10 dated May 15, 1935.
References in the proxy statement/prospectus and this supplement to:
- the Form 10-K for the year ended December 31, 1998, refer to that
Form 10-K as amended by the Form 10-K/A, and
- the Form 10-Q for the quarter ended March 31, 1999, refer to that
Form 10-Q as amended by the Form 10-Q/A.
King World
1. Annual Report on Form 10-K for the fiscal year ended August 31, 1998;
2. Quarterly Report on Form 10-Q for the period ended November 30, 1998 and the
related Quarterly Report on Form 10-Q/A;
3. Quarterly Report on Form 10-Q for the period ended February 28, 1999;
4. Quarterly Report on Form 10-Q for the period ended May 31, 1999;
5. Current Reports on Form 8-K, filed on April 1, 1999 and September 10, 1999,
respectively; and
6. The description of King World common stock in King World's registration
statement on Form S-1.
S-7
<PAGE>
YOU MAY REQUEST A COPY OF THESE FILINGS, AT NO COST, BY WRITING OR
TELEPHONING US AT THE FOLLOWING ADDRESS:
IN THE CASE OF CBS TO:
LOUIS J. BRISKMAN, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
CBS CORPORATION
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
TELEPHONE REQUESTS MAY BE DIRECTED TO (212) 975-4321.
IN THE CASE OF KING WORLD TO:
JONATHAN BIRKHAHN, ESQ.
SENIOR VICE PRESIDENT BUSINESS AFFAIRS AND GENERAL COUNSEL
KING WORLD PRODUCTIONS, INC.
1700 BROADWAY, 33RD FLOOR
NEW YORK, NEW YORK 10019
TELEPHONE REQUESTS MAY BE DIRECTED TO (212) 315-4000.
IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS, YOU SHOULD MAKE SUCH
REQUEST AS SOON AS POSSIBLE AFTER YOUR RECEIPT OF THIS SUPPLEMENT.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR ABOUT US THAT DIFFERS FROM OR ADDS TO THE
INFORMATION IN THE PROXY STATEMENT/PROSPECTUS OR THIS SUPPLEMENT OR IN OUR
DOCUMENTS OR THE DOCUMENTS THAT WE PUBLICLY FILE WITH THE SECURITIES AND
EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL
INFORMATION, YOU SHOULD NOT RELY ON IT.
IF YOU ARE IN A JURISDICTION WHERE IT IS UNLAWFUL TO OFFER TO EXCHANGE OR
SELL, OR TO ASK FOR OFFERS TO EXCHANGE OR SELL, THE SECURITIES OFFERED BY THE
PROXY STATEMENT/PROSPECTUS AND THIS SUPPLEMENT OR TO ASK FOR PROXIES, OR IF YOU
ARE A PERSON TO WHOM IT IS UNLAWFUL TO DIRECT SUCH ACTIVITIES, THEN THE OFFER
PRESENTED BY THIS PROXY STATEMENT/PROSPECTUS AND THIS SUPPLEMENT DOES NOT EXTEND
TO YOU.
THE INFORMATION CONTAINED IN THIS SUPPLEMENT SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
S-8
<PAGE>
EXPERTS
The consolidated financial statements and the related financial statement
schedule of CBS, as of December 31, 1998 and 1997 and for each of the years in
the three year period ended December 31, 1998, incorporated by reference in this
proxy statement/prospectus supplement from CBS's Form 10-K for the year ended
December 31, 1998, have been audited by KPMG LLP, independent auditors, as
stated in their reports, which are incorporated in this document by reference,
and have been so incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
The consolidated financial statements incorporated in this proxy
statement/prospectus supplement by reference from King World's Form 10-K for the
fiscal year ended August 31, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and is incorporated in this document by reference in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements and the related financial statement
schedule of Viacom Inc., as of December 31, 1998 and 1997 and for each of the
years in the three year period ended December 31, 1998, included in this proxy
statement/prospectus supplement, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report,
which is included in this proxy statement/prospectus supplement, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
S-9
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CBS/KING WORLD SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION........ F-2
UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION...................................................................................... F-10
Unaudited CBS/King World Pro Forma Combined Condensed Balanced Sheet as of June 30, 1999................. F-12
Unaudited CBS/King World Pro Forma Combined Condensed Statement of Operations for the six months ended
June 30, 1999.......................................................................................... F-13
Unaudited CBS/King World Pro Forma Combined Condensed Statement of Operations for the year ended December
31, 1998............................................................................................... F-14
Notes to Unaudited CBS/King World Pro Forma Combined Condensed Financial Statements...................... F-15
UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION...................................................................................... F-21
Unaudited Viacom/CBS Pro Forma Combined Condensed Balanced Sheet as of June 30, 1999..................... F-23
Unaudited Viacom/CBS Pro Forma Combined Condensed Statement of Operations for the six months ended June
30, 1999............................................................................................... F-24
Unaudited Viacom/CBS Pro Forma Combined Condensed Statement of Operations for the year ended December 31,
1998................................................................................................... F-25
Notes to Unaudited Viacom/CBS Pro Forma Combined Condensed Financial Statements.......................... F-26
VIACOM INC. AND SUBSIDIARIES 1998 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO............... F-31
Report of Independent Accountants........................................................................ F-32
Consolidated Statements of Operations for the years ended December 31, 1998, 1997
and 1996............................................................................................... F-33
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. F-34
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996............................................................................................... F-35
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996..... F-36
Notes to Consolidated Financial Statements............................................................... F-37
Financial Statement Schedule II--Valuation and Qualifying Accounts....................................... F-76
VIACOM INC. AND SUBSIDIARIES JUNE 30, 1999 QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
(UNAUDITED)................................................................................................ F-77
Unaudited Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998........ F-78
Unaudited Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998.......... F-79
Unaudited Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.......................... F-80
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998.......... F-81
Notes to Unaudited Consolidated Financial Statements..................................................... F-82
</TABLE>
F-1
<PAGE>
CBS/KING WORLD
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
F-2
<PAGE>
CBS/KING WORLD SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
We are providing the following historical financial information to help with
your analysis of the financial aspects of the merger. The information is only a
summary and you should read it together with the consolidated financial
statements of CBS and King World and other financial information contained in
the most recent annual and quarterly reports of CBS and King World, which are
incorporated in this document by reference and from which we derived this
information. See "Where You Can Find More Information" on page S-7 and the
Unaudited Viacom/CBS Pro Forma Combined Condensed Financial Information and
Viacom Inc. and Subsidiaries Historical Financial Information which follow.
CBS SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below have
been derived from, and should be read together with, the CBS audited
consolidated financial statements and the accompanying notes included in CBS's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
unaudited interim consolidated financial statements and the accompanying notes
included in CBS's quarterly report on Form 10-Q for the six months ended
June 30, 1999, which are incorporated by reference in this proxy
statement/prospectus supplement. The historical financial data presented below
include the results of American Radio Systems Corporation after its acquisition
by CBS on June 4, 1998, the results of The Nashville Network and Country Music
Television, Gaylord Entertainment Company's two major cable networks, after
their acquisition by CBS on September 30, 1997, the results of Infinity Media
Corporation, formerly known as Infinity Broadcasting Corporation, after its
acquisition by CBS on December 31, 1996 and the results of CBS Inc. after its
acquisition by CBS, formerly Westinghouse Electric Corporation, on November 24,
1995.
STATEMENT OF OPERATIONS DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues...................... $ 3,446 $ 3,433 $ 6,805 $ 5,367 $ 4,143 $ 1,074 $ 744
Operating profit.............. 412 263 482 253 54 160 151
Other income (expense) net.... (6) 17 43 74 55 152 (131)
Interest expense.............. (97) (160) (370) (386) (401) (184) (26)
Income (loss) from Continuing
Operations before income
taxes and minority
interest.................... 309 120 155 (59) (292) 128 (6)
Income tax (expense)
benefit..................... (176) (95) (161) (73) 71 (75) 1
Income (loss) from Continuing
Operations.................. 103 23 (12) (131) (221) 47 (10)
Income (loss) from
Discontinued Operations..... 384 -- -- 680 409 (57) 58
Extraordinary item, net of
income taxes................ (5) -- (9) -- (93) -- --
Net income (loss)............. 482 23 (21) 549 95 (10) 48
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
Continuing Operations......... $ 0.15 $ 0.03 $ (0.02) $ (0.24) $ (0.67) $ (0.09) $ (0.27)
Discontinued Operations....... 0.55 -- -- 1.08 1.02 (0.16) 0.16
Extraordinary item............ (0.01) -- (0.01) -- (0.23) -- --
--------- --------- --------- --------- --------- --------- ---------
Basic earnings (loss) per
common share................ $ 0.69 $ 0.03 $ (0.03) $ 0.84 $ 0.12 $ (0.25) $ (0.11)
========= ========= ========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
Continuing Operations......... $ 0.15 $ 0.03 $ (0.02) $ (0.24) $ (0.67) $ (0.09) $ (0.27)
Discontinued Operations....... 0.54 -- -- 1.08 1.02 (0.16) 0.16
Extraordinary item............ (0.01) -- (0.01) -- (0.23) -- --
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per
common share................ $ 0.68 $ 0.03 $ (0.03) $ 0.84 $ 0.12 $ (0.25) $ (0.11)
========= ========= ========= ========= ========= ========= =========
Dividends per common share.... $ -- $ 0.05 $ 0.05 $ 0.20 $ 0.20 $ 0.20 $ 0.20
========= ========= ========= ========= ========= ========= =========
Average common and common
equivalent shares (if
dilutive)................... 710 719 696 629 401 370 355
========= ========= ========= ========= ========= ========= =========
</TABLE>
F-3
<PAGE>
BALANCE SHEET DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
JUNE 30, -----------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Total assets--Continuing Operations................. $ 20,358 $ 20,139 $ 16,503 $ 15,406 $ 10,391 $ 2,524
Total assets--Discontinued Operations............... 861 1,919 4,101 5,710 8,157 9,273
--------- --------- --------- --------- --------- ---------
TOTAL ASSETS........................................ $ 21,219 $ 22,058 $ 20,604 $ 21,116 $ 18,548 $ 11,797
========= ========= ========= ========= ========= =========
Long-term debt--Continuing Operations............... $ 2,111 $ 2,506 $ 3,236 $ 5,147 $ 7,222 $ 1,865
Long-term debt--Discontinued Operations............. 408 382 440 419 161 589
--------- --------- --------- --------- --------- ---------
TOTAL LONG-TERM DEBT................................ $ 2,519 $ 2,888 $ 3,676 $ 5,566 $ 7,383 $ 2,454
========= ========= ========= ========= ========= =========
Total debt--Continuing Operations................... $ 2,190 $ 2,665 $ 3,387 $ 5,635 $ 7,840 $ 2,471
Total debt--Discontinued Operations................. 429 428 543 439 528 1,266
--------- --------- --------- --------- --------- ---------
TOTAL DEBT.......................................... $ 2,619 $ 3,093 $ 3,930 $ 6,074 $ 8,368 $ 3,737
========= ========= ========= ========= ========= =========
SHAREHOLDERS' EQUITY................................ $ 9,695 $ 9,054 $ 8,080 $ 5,731 $ 1,453 $ 1,789
========= ========= ========= ========= ========= =========
</TABLE>
KING WORLD SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated historical financial data presented below have
been derived from, and should be read together with, the King World audited
consolidated financial statements and the accompanying notes included in King
World's Annual Report on Form 10-K for the fiscal year ended August 31, 1998,
and the unaudited interim consolidated financial statements and the accompanying
notes included in King World's Quarterly Report on Form 10-Q for the quarterly
period ended May 31, 1999, which are incorporated by reference in this document.
STATEMENT OF OPERATIONS DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31, YEARS ENDED AUGUST 31,
-------------------- --------------------------------------------
1999 1998 1998 1997 1996 1995(1)
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues.................................................... $ 584 $ 515 $ 684 $ 671 $ 663 $ 574
Income from operations...................................... 158 133 176 192 192 162
Income before provision for income taxes.................... 185 154 205 222 232(2) 183
Net income.................................................. 120 102 136 143 150(2) 117
BASIC AND DILUTED EARNINGS PER SHARE(3):
Basic earnings per share.................................. $ 1.69 $ 1.40 $ 1.86 $ 1.93 $ 2.02(2) $ 1.60
Diluted earnings per share................................ $ 1.62 $ 1.34 $ 1.79 $ 1.91 $ 1.99(2) $ 1.57
Special dividend per share................................ $ -- $ -- $ -- $ 1.00 $ -- $ --
Weighted average basic shares............................... 71 73 73 74 74 73
Weighted average diluted shares............................. 74 76 76 75 75 75
<CAPTION>
1994(1)
-----------
<S> <C>
Revenues.................................................... $ 481
Income from operations...................................... 128
Income before provision for income taxes.................... 141
Net income.................................................. 88
BASIC AND DILUTED EARNINGS PER SHARE(3):
Basic earnings per share.................................. $ 1.19
Diluted earnings per share................................ $ 1.17
Special dividend per share................................ $ --
Weighted average basic shares............................... 74
Weighted average diluted shares............................. 76
</TABLE>
F-4
<PAGE>
BALANCE SHEET DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF
MAY 31, AS OF AUGUST 31,
----------- ---------------------------------------------------------
1999 1998 1997 1996 1995(1) 1994(1)
----------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash and investments.................................... $ 794 $ 748 $ 730 $ 644 $ 529 $ 430
Advances to producers................................... 140 130 65 130 60 60
Working capital......................................... 462 311 586 520 478 294
Total assets............................................ 1,106 1,024 902 854 687 570
Stockholders' equity.................................... 963 881 784 738 576 459
</TABLE>
- ------------------------
(1) The results of operations for fiscal 1995 and 1994 reflect a change in
accounting for revenue recognition adopted prospectively in the fourth
quarter of fiscal 1994. The one-time impact of adopting such change was to
cause revenues, income from operations, income before provision for income
taxes, net income, basic earnings per share and diluted earnings per share
in the fourth quarter of fiscal 1994 to be approximately $60.7 million,
$20.6 million, $20.6 million, $12.9 million, $.17 and $.17, lower,
respectively, than they would have been under our prior revenue recognition
practice. Revenues were recognized in fiscal 1995 under the modified
accounting practice. The results of operations for fiscal 1995 would have
been substantially the same as that actually reported if our prior revenue
recognition practice had been in effect for all of fiscal 1995.
(2) Income before provision for income taxes, net income, basic earnings per
share and diluted earnings per share include a nonrecurring gain of
approximately $14.1 million, $10.3 million, $.14 and $.14, respectively, as
a result of our sale of Buffalo Broadcasting Co. Inc. to LIN Television
Corporation in October 1995.
(3) Adjusted to reflect a two-for-one stock split paid in February 1998.
F-5
<PAGE>
SELECTED UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION
The following selected unaudited pro forma combined condensed financial data
are derived from the Unaudited CBS/King World Pro Forma Combined Condensed
Financial Information included elsewhere in this proxy statement/prospectus
supplement and should be read together with that data and with the notes to that
data. These selected unaudited pro forma combined condensed financial data are
based upon the historical financial statements of CBS, King World, American
Radio, and Outdoor Systems, Inc. The unaudited pro forma combined condensed
balance sheet as of June 30, 1999 is presented as if the merger of CBS and King
World, and the probable acquisition of Outdoor Systems had occurred on June 30,
1999. The unaudited pro forma combined condensed statement of operations for the
six months ended June 30, 1999 and the year ended December 31, 1998 is presented
as if the merger of CBS and King World, the acquisition of American Radio by
CBS, the probable acquisition of Outdoor Systems by Infinity Broadcasting
Corporation, and the Infinity initial public offering had occurred on
January 1, 1998.
These selected unaudited pro forma combined condensed financial data are for
illustrative purposes only and do not necessarily indicate the operating results
or financial position that would have been achieved had the merger of CBS and
King World, and the other CBS events been completed as of the dates indicated or
of the results that may be obtained in the future. In addition, the data does
not reflect synergies that might be achieved from combining these operations.
SELECTED UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS DATA
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Revenues................................................................... $ 4,190 $ 8,361
Operating profit........................................................... 442 508
Interest expense, net...................................................... (143) (363)
Income from Continuing Operations before income taxes and minority interest
in income of consolidated subsidiaries................................... 295 183
Income (loss) from Continuing Operations................................... 24 (172)
Basic and diluted income (loss) from Continuing Operations per share....... 0.03 (0.23)
Weighted average shares outstanding:
Basic.................................................................. 751 753
Diluted................................................................ 770 753
</TABLE>
SELECTED UNAUDITED CBS/KING WORLD PRO FORMA BALANCE SHEET DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-----------------
<S> <C>
Total assets--Continuing Operations............................................................ $ 31,510
Long-term debt--Continuing Operations.......................................................... 3,283
Total debt--Continuing Operations.............................................................. 3,548
Shareholders' equity........................................................................... 15,172
</TABLE>
F-6
<PAGE>
CBS/KING WORLD COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
CBS KING WORLD COMBINED KING WORLD
HISTORICAL HISTORICAL AS ADJUSTED FOR PRO FORMA
SIX MONTHS ENDED JUNE 30, 1999 MAY 31, 1999 OTHER CBS EVENTS EQUIVALENT
- ------------------------------------------- ----------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Income (loss) per common share from
Continuing Operations:
Basic.................................... $ 0.15 $ 1.10 $ 0.03 $ 0.03
Diluted.................................. 0.15 1.05 0.03 0.03
Book value per common share:
Basic.................................... 13.96 13.52 20.19 16.35
Diluted.................................. 13.64 12.80 19.65 15.92
Cash dividends per common share............ -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
CBS KING WORLD COMBINED KING WORLD
HISTORICAL HISTORICAL AS ADJUSTED FOR PRO FORMA
TWELVE MONTHS ENDED DECEMBER 31, 1998 NOVEMBER 30, 1998 OTHER CBS EVENTS EQUIVALENT
- ------------------------------------------- ----------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Income (loss) per common share from
Continuing Operations:
Basic.................................... $ (0.02) $ 1.97 $ (0.23) $ (0.18)
Diluted.................................. (0.02) 1.89 (0.23) (0.18)
Book value per common share:
Basic.................................... 13.12 12.62 19.05 15.43
Diluted.................................. 12.85 12.12 18.65 15.10
Cash dividends per common share............ 0.05 -- 0.05 0.04
</TABLE>
F-7
<PAGE>
NOTES TO SELECTED UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
The average common shares outstanding used in calculating pro forma combined
basic and diluted income (loss) per common share from Continuing Operations, as
adjusted for Other CBS Events, are calculated assuming that the estimated number
of shares of CBS common stock to be issued in the merger were outstanding from
January 1, 1998. For the six months ended June 30, 1999, the average common
shares outstanding used in calculating pro forma combined diluted income per
share include the impact of options to purchase shares of common stock. Shares
of common stock issuable under deferred compensation arrangements were not
included in computing pro forma diluted income per common share for the six
months ended June 30, 1999, because their inclusion would result in increased
income per common share. Shares of common stock issuable under deferred
compensation arrangements approximated 3 million for the six months ended
June 30, 1999. For the year ended December 31, 1998, options to purchase shares
of common stock as well as shares issuable under deferred compensation
arrangements were not included in computing pro forma diluted income per common
share because their inclusion would result in smaller loss per common share. For
the year ended December 31, 1998, options to purchase shares of common stock as
well as common stock issuable under deferred compensation arrangements
approximated 21 million shares.
The book value per share amounts of CBS were calculated by dividing
shareholders' equity by the number of common shares outstanding, excluding
treasury shares, at the end of the period. The common shares outstanding used in
calculating basic pro forma combined book value per share are 694,261,000 and
690,327,000 of CBS common shares outstanding at June 30, 1999 and December 31,
1998, respectively, plus 57,311,821 shares representing the estimated number of
common shares to be issued in the merger. See Note 2 to the Unaudited CBS/King
World Pro Forma Combined Condensed Financial Statements. The common shares
outstanding used in calculating diluted pro forma combined book value per share
as of June 30, 1999 and December 31, 1998 include the CBS common shares, plus
the estimated number of common shares to be issued in the merger, as well as the
dilutive impact of CBS and King World options to purchase shares of common
stock, and totaled 772,090,000 and 763,780,000, respectively. Shares of common
stock issuable under deferred compensation arrangements were not included in
computing diluted pro forma combined book value per share as of June 30, 1999
and December 31, 1998 because their inclusion would result in increased book
value per common share.
King World pro forma equivalent amounts are calculated by multiplying the
respective pro forma combined per share amounts by the exchange ratio of .81.
COMPARATIVE PER SHARE MARKET INFORMATION
CBS common stock is traded on the New York Stock Exchange, Pacific Stock
Exchange, Chicago Stock Exchange, Boston Stock Exchange and Philadelphia Stock
Exchange under the symbol "CBS". King World common stock is traded on the New
York Stock Exchange under the symbol "KWP".
Set forth below are the last reported sales prices of CBS common stock and
King World common stock on March 31, 1999, the last trading day before the date
of the public announcement of the execution of the merger agreement, as reported
on the New York Stock Exchange Composite Transaction Tape, and the equivalent
pro forma sale price of King World common stock on that date. This was
determined by multiplying the last reported sale price of CBS common stock by
the exchange ratio of .81:
<TABLE>
<S> <C>
CBS common stock share price...................................... $ 40.8125
King World common stock share price............................... $ 30.5625
King World share equivalent value................................. $ 33.0581
</TABLE>
F-8
<PAGE>
On November 4, 1999, the last trading day before the date of this document,
the last reported sale prices of CBS common stock and King World common stock,
as reported on the New York Stock Exchange Composite Transaction Tape, were
$48.5625 per share and $38.7500 per share, respectively. The King World share
equivalent value on that date was $39.3356 per share. There were 71,318,112
shares of King World common stock outstanding on that date.
We urge you to obtain current market quotations for King World common stock
and CBS common stock before voting on the adoption of the merger agreement.
F-9
<PAGE>
UNAUDITED CBS/KING WORLD
PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
F-10
<PAGE>
UNAUDITED CBS/KING WORLD PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
GENERAL
The following unaudited pro forma combined condensed financial statements
are presented using the purchase method of accounting for the merger of CBS and
King World, the June 4, 1998 acquisition of CBS Radio, Inc., formerly American
Radio Systems Corporation, by CBS and the probable acquisition of Outdoor
Systems, Inc. by Infinity Broadcasting Corporation which was announced on May
27, 1999. These financial statements also reflect the combination of
consolidated historical financial data of CBS, King World, American Radio, and
Outdoor Systems.
The unaudited pro forma combined condensed balance sheet as of June 30, 1999
is presented as if the merger of CBS and King World, and the Outdoor Systems
acquisition had occurred on June 30, 1999. The unaudited pro forma combined
condensed statement of operations for the six months ended June 30, 1999 and the
year ended December 31, 1998 is presented as if the merger of CBS and King
World, the acquisition of American Radio by CBS, the probable acquisition of
Outdoor Systems by Infinity, and the Infinity initial public offering had
occurred on January 1, 1998. In the opinion of CBS management, all adjustments
and/or disclosures considered necessary for a fair presentation of the pro forma
data have been made.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with: (i) CBS's consolidated financial statements and the
notes thereto as of and for the year ended December 31, 1998 and Management's
Discussion and Analysis included in CBS's Annual Report on Form 10-K for the
year ended December 31, 1998, which is incorporated by reference in this proxy
statement/prospectus supplement; (ii) King World's consolidated financial
statements and the notes thereto as of and for the year ended August 31, 1998
and Management's Discussion and Analysis included in King World's Annual Report
on Form 10-K for the fiscal year ended August 31, 1998, which is incorporated by
reference in this proxy statement/prospectus supplement; (iii) CBS's Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 1999 and March 31,
1999; and (iv) King World's Quarterly Reports on Form 10-Q for the quarterly
periods ended November 30, 1998, February 28, 1999, and May 31, 1999, which are
incorporated by reference in this proxy statement/prospectus supplement. These
unaudited pro forma combined condensed financial statements are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have been achieved had the CBS and King
World merger, the acquisition of American Radio by CBS, the probable acquisition
of Outdoor Systems by Infinity, or the Infinity initial public offering been
consummated as of the dates indicated, or of the results that may be obtained in
the future.
F-11
<PAGE>
UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
CBS KING WORLD ESTIMATED
CORPORATION PRODUCTIONS, INC. ESTIMATED ESTIMATED ADJUSTMENTS
JUNE 30, MAY 31, PRO FORMA PRO FORMA FOR OTHER CBS
1999 1999 ADJUSTMENTS COMBINED EVENTS (8)
------------- ----------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................. $ 742 $ 375 $ -- $ 1,117 $ (535)
Short-term investments..................... -- 32 -- 32 --
Customer receivables, net.................. 1,127 102 (5)(4) 1,224 164
Program rights............................. 516 -- -- 516 --
Deferred income taxes...................... 303 -- -- 303 13
Prepaid and other current assets........... 163 96 -- 259 89
--------- --------- --------- --------- ---------
Total current assets....................... 2,851 605 (5) 3,451 (269)
Long-term investments...................... -- 387 -- 387 --
Property and equipment, net................ 1,132 20 -- 1,152 1,895
FCC licenses, net.......................... 4,310 -- -- 4,310 --
Goodwill, net.............................. 10,260 -- 1,731 (3) 11,991 6,627
Other intangible and noncurrent assets..... 1,805 94 -- 1,899 67
--------- --------- --------- --------- ---------
TOTAL ASSETS................................. $ 20,358 $ 1,106 $ 1,726 $ 23,190 $ 8,320
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....... $ 79 $ -- $ -- $ 79 $ 186
Liabilities for talent and program rights.. 374 -- -- 374 --
Accounts payable, accrued and other
liabilities.............................. 1,255 143 25 (3) 1,418 88
(5)(4)
--------- --------- --------- --------- ---------
Total current liabilities.................. 1,708 143 20 1,871 274
Long-term debt............................. 2,111 -- -- 2,111 1,172
Net liabilities of Discontinued 985 -- -- 985 --
Operations...............................
Pension liability.......................... 846 -- -- 846 --
Postretirement benefit liability........... 1,020 -- -- 1,020 --
Other noncurrent liabilities............... 2,368 -- -- 2,368 102
--------- --------- --------- --------- ---------
TOTAL LIABILITIES............................ 9,038 143 20 9,201 1,548
--------- --------- --------- --------- ---------
Minority interest in equity of consolidated
subsidiaries............................... 1,625 -- -- 1,625 3,964
SHAREHOLDERS' EQUITY:
Preferred stock............................ -- -- -- -- --
Common stock............................... 743 1 57 (3) 800 --
(1)(3)
Capital in excess of par value............. 9,176 151 2,282 (3) 11,788 2,808
330 (3)
(151)(3)
Common stock held in treasury, at cost..... (1,467) (446) 446 (3) (1,467) --
Retained earnings.......................... 1,910 1,257 (1,257)(3) 1,910 --
Accumulated other comprehensive loss....... (667) -- -- (667) --
--------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY................... 9,695 963 1,706 12,364 2,808
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 20,358 $ 1,106 $ 1,726 $ 23,190 $ 8,320
========= ========= ========= ========= =========
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED
AS ADJUSTED
FOR OTHER
CBS EVENTS
------------
<S> <C>
ASSETS:
Cash and cash equivalents.................. $ 582
Short-term investments..................... 32
Customer receivables, net.................. 1,388
Program rights............................. 516
Deferred income taxes...................... 316
Prepaid and other current assets........... 348
----------
Total current assets....................... 3,182
Long-term investments...................... 387
Property and equipment, net................ 3,047
FCC licenses, net.......................... 4,310
Goodwill, net.............................. 18,618
Other intangible and noncurrent assets..... 1,966
----------
TOTAL ASSETS................................. $ 31,510
==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....... $ 265
Liabilities for talent and program rights.. 374
Accounts payable, accrued and other
liabilities.............................. 1,506
----------
Total current liabilities.................. 2,145
Long-term debt............................. 3,283
Net liabilities of Discontinued 985
Operations...............................
Pension liability.......................... 846
Postretirement benefit liability........... 1,020
Other noncurrent liabilities............... 2,470
----------
TOTAL LIABILITIES............................ 10,749
----------
Minority interest in equity of consolidated
subsidiaries............................... 5,589
SHAREHOLDERS' EQUITY:
Preferred stock............................ --
Common stock............................... 800
Capital in excess of par value............. 14,596
Common stock held in treasury, at cost..... (1,467)
Retained earnings.......................... 1,910
Accumulated other comprehensive loss....... (667)
----------
TOTAL SHAREHOLDERS' EQUITY................... 15,172
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... $ 31,510
==========
</TABLE>
See Accompanying Notes to Unaudited CBS/King World Pro Forma
Combined Condensed Financial Statements.
F-12
<PAGE>
UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
SIX MONTHS ENDED ESTIMATED PRO FORMA
------------------------------------- ADJUSTMENTS COMBINED
MAY 31, 1999 ESTIMATED ESTIMATED FOR AS ADJUSTED
JUNE 30, 1999 KING WORLD PRO FORMA PRO FORMA OTHER CBS FOR OTHER
CBS CORPORATION PRODUCTIONS, INC. ADJUSTMENTS COMBINED EVENTS (8) CBS EVENTS
---------------- ------------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 3,446 $ 390 $ (20)(4) $ 3,816 $ 374 $ 4,190
Operating expenses............ (2,051) (238) 20 (4) (2,269) (173) (2,442)
Marketing, general and
administrative.............. (597) (44) -- (641) (19) (660)
Depreciation and
amortization................ (301) (2) (87)(5) (390) (171) (561)
Residual costs of discontinued
businesses.................. (85) -- -- (85) -- (85)
---------- --------- --------- --------- --------- ---------
Operating profit (loss)....... 412 106 (87) 431 11 442
Other income and expense,
net......................... (6) -- -- (6) 2 (4)
Interest expense, net......... (97) 14 -- (83) (60) (143)
---------- --------- --------- --------- --------- ---------
Income (loss) from Continuing
Operations before income
taxes and minority interest
in income of consolidated
subsidiaries................ 309 120 (87) 342 (47) 295
Income tax expense............ (176) (42) -- (218) (21) (239)
Minority interest in income of
consolidated
subsidiaries................ (30) -- -- (30) (2) (32)
---------- --------- --------- --------- --------- ---------
Income (loss) from Continuing
Operations.................. $ 103 $ 78 $ (87) $ 94 $ (70) $ 24
========== ========= ========= ========= ========= =========
Weighted average shares
outstanding(6)
Basic....................... 694 57 (2) 751 751
---------- --------- --------- ---------
Diluted..................... 710 60 770 770
---------- --------- --------- ---------
Income from Continuing
Operations per share:
Basic....................... $ 0.15 $ 0.13 $ 0.03
========== ========= =========
Diluted..................... $ 0.15 $ 0.12 $ 0.03
========== ========= =========
</TABLE>
See Accompanying Notes to Unaudited CBS/King World Pro Forma
Combined Condensed Financial Statements
F-13
<PAGE>
UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
TWELVE MONTHS ENDED PRO FORMA
-------------------------------------- ESTIMATED COMBINED
NOVEMBER 30, 1998 ADJUSTMENT AS ADJUSTED
KING WORLD ESTIMATED ESTIMATED FOR FOR
DECEMBER 31, 1998 PRODUCTIONS, INC. PRO FORMA PRO FORMA OTHER CBS OTHER CBS
CBS CORPORATION (7) ADJUSTMENTS COMBINED EVENTS (8) EVENTS
----------------- ------------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 6,805 $ 705 $ (23)(4) $ 7,487 $ 874 $ 8,361
Operating expenses........... (4,373) (442) 23 (4) (4,792) (450) (5,242)
Marketing, general and
administrative............. (1,216) (78) -- (1,294) (41) (1,335)
Depreciation and
amortization............... (571) (2) (177)(5) (750) (363) (1,113)
Residual costs of
discontinued businesses.... (163) -- -- (163) -- (163)
--------- --------- --------- --------- --------- ---------
Operating profit (loss)...... 482 183 (177) 488 20 508
Other income and expense,
net........................ 43 -- -- 43 (5) 38
Interest expense, net........ (370) 34 -- (336) (27) (363)
--------- --------- --------- --------- --------- ---------
Income (loss) from Continuing
Operations before income
taxes and minority interest
in income of consolidated
subsidiaries............... 155 217 (177) 195 (12) 183
Income tax expense........... (161) (74) -- (235) (85) (320)
Minority interest in income
of consolidated
subsidiaries............... (6) -- -- (6) (29) (35)
--------- --------- --------- --------- --------- ---------
Income (loss) from Continuing
Operations................. $ (12) $ 143 $ (177) $ (46) $ (126) $ (172)
========= ========= ========= ========= ========= =========
Weighted average Basic and
diluted shares
outstanding(6)............. 696 57(2) 753 753
--------- --------- --------- ---------
Basic and diluted loss from
Continuing Operations per
share...................... $ (0.02) $ (0.06) $ (0.23)
========= ========= =========
</TABLE>
See Accompanying Notes to Unaudited CBS/King World Pro Forma
Combined Condensed Financial Statements
F-14
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(1) BASIS OF PRESENTATION
The purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma combined condensed financial statements. Under
this method of accounting, the purchase price is allocated to assets acquired
and liabilities assumed based on their respective fair values as of the
effective time of the merger. The excess of consideration paid over the
estimated fair value of net assets acquired will be recorded as goodwill and
amortized as a charge to earnings. For purposes of the unaudited pro forma
combined condensed financial statements, the preliminary fair values of King
World's assets and liabilities were estimated by CBS management based primarily
on information furnished by the management of King World. The final allocation
of the purchase price will be determined after the consummation of the merger
and will be based on appraisals and a comprehensive final evaluation of the fair
value of assets acquired and liabilities assumed of King World.
(2) PURCHASE PRICE INFORMATION
Pursuant to the merger agreement, shareholders of King World will receive
.81 of a share of CBS common stock for each King World share issued and
outstanding at the consummation of the merger. The total number of King World
shares issued and outstanding during the period subsequent to the merger
announcement but prior to its consummation is not anticipated to fluctuate from
the ordinary course. For the purpose of the pro forma combined condensed
financial statements the value of the per share CBS common stock to be issued
was calculated based upon the market price per share at the close of business on
March 31, 1999.
<TABLE>
<S> <C>
Total estimated King World common shares outstanding............................. 70,755,335
Exchange Ratio................................................................... 0.81
----------
Estimated CBS common shares to be issued......................................... 57,311,821
CBS common stock per share market value.......................................... $ 40.8125
Purchase Price:
Estimated value of CBS common stock to be issued in connection with the merger... $ 2,339
Estimated fair value of stock options assumed.................................... 330
----------
Estimated net increase in CBS equity............................................. $ 2,669
==========
</TABLE>
F-15
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(3) PURCHASE PRICE AND ELIMINATION OF HISTORICAL BALANCES
To record the purchase price paid in connection with the merger as described
in Note 1 and Note 2 above and to eliminate certain historical King World
balances.
<TABLE>
<S> <C>
Issuance of new CBS equity (per Note 2) (57,311,821 shares at $40.8125) allocated as
follows:
Common stock, $1.00 par value (57,311,821 shares).................................. $ 57
Capital in excess of par value:
Issuance of new CBS stock........................................................ 2,282
Fair value of King World stock options assumed by CBS............................ 330
---------
Estimated net increase in CBS equity (see Note 2).................................. 2,669
Less: Shareholders' equity of King World at June 30, 1999
Common stock....................................................................... (1)
Capital in excess of par value..................................................... (151)
Common stock held in treasury...................................................... 446
Retained earnings.................................................................. (1,257)
Adjustments:
Add: Estimated accrued transaction costs........................................... 25
---------
Excess purchase price over fair value of net assets acquired....................... $ 1,731
=========
</TABLE>
The above pro forma adjustments are based on preliminary estimates. The
final allocation of the purchase price will be determined after the consummation
of the merger and will be based on appraisals and a comprehensive final
evaluation of the fair value of assets acquired and liabilities assumed of King
World. As further analysis is performed, these estimates may be revised at a
later date.
(4) EXISTING RELATIONSHIP BETWEEN CBS AND KING WORLD
Through an existing agreement with King World, CBS's owned-and-operated
television stations pay for certain programming from King World. The following
adjustments have been made to eliminate the balances associated with the
transactions between CBS and King World:
<TABLE>
<S> <C>
BALANCE SHEET
Customer receivables/Accounts payable as of June 30, 1999....................................... $ 5
STATEMENT OF OPERATIONS
Revenue/operating expenses for the six months ended June 30, 1999............................... $ 20
Revenue/operating expenses for the year ended December 31, 1998................................. 23
</TABLE>
(5) AMORTIZATION OF GOODWILL
The pro forma adjustments are based on preliminary estimates. The final
allocation of the purchase price will be determined after the consummation of
the merger and will be based on appraisals and a comprehensive final evaluation
of the fair value of assets acquired and liabilities assumed of King World. As
further analysis is performed, including obtaining appraisals for identifiable
intangible assets and programming commitments acquired, these estimates may be
significantly revised, including the estimated amortization periods. Estimated
goodwill amortization is computed on a straight-line basis over a 10-year
period. If goodwill amortization had been computed assuming a 20-year period pro
forma operating results for the six months ended June 30, 1999 and for the year
ended December 31, 1998 on a pre and post tax basis would have improved by $43
million and $89 million, respectively, or approximately $0.06 and $0.12 per
share, respectively, on a basic and diluted basis.
F-16
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
(6) AVERAGE SHARES OUTSTANDING
The average CBS common shares outstanding used in calculating pro forma
income (loss) per common share from Continuing Operations, as adjusted for Other
CBS Events, are calculated assuming that the estimated number of shares of CBS
common stock to be issued in connection with the merger were outstanding from
January 1, 1998. For the six months ended June 30, 1999, the average common
shares outstanding used in calculating pro forma combined diluted income per
share include the impact of options to purchase shares of common stock. Shares
of common stock issuable under deferred compensation arrangements were not
included in computing pro forma diluted income per common share for the six
months ended June 30, 1999, because of their inclusion would result in increased
income per common share. Shares of common stock issuable under deferred
compensation arrangements approximated 3 million for the six months ended
June 30, 1999. For the year ended December 31, 1998, options to purchase shares
of common stock as well as shares issuable under deferred compensation
arrangements were not included in computing pro forma diluted income per common
share because their inclusion would result in smaller loss per common share. For
the year ended December 31, 1998, options to purchase shares of common stock as
well as common stock issuable under deferred compensation arrangements
approximated 21 million shares.
(7) KING WORLD CONDENSED STATEMENT OF OPERATIONS
The King World condensed statement of operations for the six months ended
May 31, 1999 is calculated by adding the King World second quarter and third
quarter statement of operations as filed in its Quarterly Reports on Form 10-Q
for the three month periods ended February 28, 1999 and May 31, 1999,
respectively.
The King World condensed statement of operations for the twelve month period
ended November 30, 1998 is calculated by adding the King World first quarter
statement of operations as filed in its Quarterly Report on Form 10-Q for the
three month period ended November 30, 1998, and subtracting the prior year first
quarter statement of operations as filed in their Quarterly Report on Form 10-Q
for the period ended November 30, 1997, from its total year 1998 statement of
operations as filed in its Annual Report on Form 10-K for the fiscal year ended
August 31, 1998.
(8) OTHER CBS EVENTS
The unaudited pro forma combined condensed financial statements are
presented after giving effect to the following Other CBS Events:
ACQUISITION OF AMERICAN RADIO BY CBS
On June 4, 1998, CBS acquired the radio operations of American Radio for
$1.4 billion in cash plus the assumption of debt with a fair value of
approximately $1.3 billion. This acquisition has been accounted for under the
purchase method of accounting.
PROBABLE ACQUISITION OF OUTDOOR SYSTEMS BY INFINITY
On May 27, 1999, Infinity signed a definitive agreement to acquire Outdoor
Systems for approximately $8.7 billion which includes the assumption of debt
with a fair value of approximately $1.9 billion. This acquisition will be
accounted for under the purchase method of accounting. In connection with this
acquisition Infinity will issue approximately 231 million shares of its Class A
common stock which will
F-17
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
dilute CBS's equity ownership in Infinity to approximately 65 percent. The
consummation of the acquisition is subject to certain conditions, including the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act and the approval of Outdoor Systems and Infinity
shareholders. In connection with the Hart-Scott-Rodino Act filing, Infinity and
Outdoor Systems have received a second request for information from the
Department of Justice, which they are responding to.
INFINITY INITIAL PUBLIC OFFERING
In 1998, CBS formed a new company, named Infinity, comprising the radio and
outdoor advertising operations of CBS. In December 1998, Infinity sold 18.2
percent of its common stock in an initial public offering, generating proceeds
of approximately $3 billion. These proceeds were used to pay down an
intercompany note payable to CBS. CBS used the proceeds of the payment on the
note to pay down existing debt under the CBS revolving credit facility and other
debt of CBS and made investments in short-term marketable securities.
The following table sets forth the estimated adjustments effecting CBS's
consolidated financial statements for the inclusion of the probable acquisition
of Outdoor Systems by Infinity. In that regard, the historical statement of
position at June 30, 1999, has been incorporated into the pro forma financial
information and is adjusted to reflect the acquisition purchase price as well as
certain other items such as: the repayment of long-term debt; the step up in
value of certain long-term debt instruments; the elimination of existing debt
financing costs; the accrual for the estimated transaction costs; and the
recognition of the estimated excess purchase price over the fair value of assets
acquired as goodwill. As further analysis is performed, including appraisals on
identifiable tangible and intangible assets acquired and liabilities assumed,
these estimates may be significantly revised including the estimated
amortization periods. Minority interest in equity of consolidated subsidiaries
has also been adjusted to reflect Infinity's distribution of its stock in
connection with the acquisition of Outdoor Systems and thus the reduction of
CBS's equity interest in Infinity from approximately 82 percent to approximately
65 percent.
<TABLE>
<CAPTION>
ESTIMATED
OUTDOOR ADJUSTMENTS
SYSTEMS ESTIMATED FOR
JUNE 30, PRO FORMA OTHER CBS
1999 ADJUSTMENTS EVENTS
----------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................................................. $ 13 $ (548) $ (535)
Customer receivables, net.................................................. 164 -- 164
Deferred income taxes...................................................... 13 -- 13
Prepaid and other current assets........................................... 89 -- 89
--------- --------- ---------
Total current assets....................................................... 279 (548) (269)
Property and equipment, net................................................ 1,895 -- 1,895
Goodwill, net.............................................................. 604 6,023 6,627
Other intangible and noncurrent assets..................................... 49 18 67
--------- --------- ---------
TOTAL ASSETS............................................................... $ 2,827 $ 5,493 $ 8,320
========= ========= =========
</TABLE>
F-18
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ESTIMATED
OUTDOOR ADJUSTMENTS
SYSTEMS ESTIMATED FOR
JUNE 30, PRO FORMA OTHER CBS
1999 ADJUSTMENTS EVENTS
--------- --------- ---------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt....................................... $ 186 $ -- $ 186
Accounts payable, accrued and other liabilities............................ 73 15 88
--------- --------- ---------
Total current liabilities.................................................. 259 15 274
Long-term debt............................................................. 1,645 (473) 1,172
Other noncurrent liabilities............................................... 112 (10) 102
--------- --------- ---------
TOTAL LIABILITIES.......................................................... 2,016 (468) 1,548
Minority interest in equity of consolidated subsidiaries................... -- 3,964 3,964
SHAREHOLDERS' EQUITY:
Common stock............................................................... 2 (2) --
Capital in excess of par value............................................. 764 2,044 2,808
Common stock held in treasury, at cost..................................... (4) 4 --
Retained earnings.......................................................... 55 (55) --
Accumulated other comprehensive loss....................................... (6) 6 --
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY................................................. 811 1,997 2,808
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 2,827 $ 5,493 $ 8,320
========= ========= =========
</TABLE>
The following table combines the above mentioned Other CBS Events as if
these transactions had occurred as of January 1, 1999 and were reflected in
CBS's results of operations for the six month period ended June 30, 1999:
<TABLE>
<CAPTION>
ESTIMATED
OUTDOOR ADJUSTMENTS
SYSTEMS ESTIMATED FOR
JUNE 30, PRO FORMA OTHER CBS
1999 ADJUSTMENTS EVENTS
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues................................................................ $ 374 $ -- $ 374
Operating expenses...................................................... (173) -- (173)
Marketing, general and administrative................................... (19) -- (19)
Depreciation and amortization........................................... (71) (100)(d) (171)
--------- --------- ---------
Operating profit (loss)................................................. 111 (100) 11
Other income and expense, net........................................... 2 -- 2
Interest expense, net................................................... (74) 14 (e) (60)
--------- --------- ---------
Income from Continuing Operations before income taxes and minority
interest in income of consolidated subsidiaries....................... 39 (86) (47)
Income tax expense...................................................... (15) (6)(c) (21)
Minority interest in income of consolidated subsidiaries................ -- (2)(f) (2)
--------- --------- ---------
Income (loss) from Continuing Operations................................ $ 24 $ (94) $ (70)
========= ========= =========
</TABLE>
F-19
<PAGE>
NOTES TO UNAUDITED CBS/KING WORLD PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The following table combines the above mentioned Other CBS Events as if
these transactions had occurred as of January 1, 1998 and were reflected in
CBS's results of operations for the year ended December 31, 1998:
<TABLE>
<CAPTION>
OUTDOOR SYSTEMS
AMERICAN RADIO ACQUISITION ACQUISITION
------------------------------------------- ---------------
AMERICAN ESTIMATED
RADIO AMERICAN OUTDOOR
THROUGH ESTIMATED RADIO SYSTEMS
JUNE 4, PRO FORMA PRO FORMA INFINITY DECEMBER 31,
1998 ADJUSTMENTS COMBINED IPO 1998
----------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 168 $ -- $ 168 $ -- $ 706
Operating expenses....................... (119) -- (119) -- (331)
Marketing, general and administrative.... (4) -- (4) -- (37)
Depreciation and amortization............ (28) (10)(a) (38) -- (123)
--------- --------- --------- --------- ---------
Operating profit (loss).................. 17 (10) 7 -- 215
Other income and expenses, net........... -- -- -- (5)
Interest expense, net.................... (30) (45)(b) (75) 169 (g) (138)
--------- --------- --------- --------- ---------
Income (loss) from Continuing Operations
before income taxes and minority
interest in income of consolidated
subsidiaries........................... (13) (55) (68) 169 72
Income tax benefit (expense)............. 9 10 (c) 19 (67)(c) (31)
Minority interest in income of
consolidated subsidiaries.............. -- -- -- (13)(f) --
--------- --------- --------- --------- ---------
Income (loss) from Continuing
Operations............................. $ (4) $ (45) $ (49) $ 89 $ 41
========= ========= ========= ========= =========
<CAPTION>
ESTIMATED ESTIMATED
OUTDOOR ADJUSTMENTS
ESTIMATED SYSTEMS FOR
PRO FORMA PRO FORMA OTHER CBS
ADJUSTMENTS COMBINED EVENTS
--------------- ------------- ---------------
<S> <C> <C> <C>
Revenues................................. $ -- $ 706 $ 874
Operating expenses....................... -- (331) (450)
Marketing, general and administrative.... -- (37) (41)
Depreciation and amortization............ (202)(d) (325) (363)
--------- --------- ---------
Operating profit (loss).................. (202) 13 20
Other income and expenses, net........... -- (5) (5)
Interest expense, net.................... 17 (e) (121) (27)
--------- --------- ---------
Income (loss) from Continuing Operations
before income taxes and minority
interest in income of consolidated
subsidiaries........................... (185) (113) (12)
Income tax benefit (expense)............. (6)(c) (37) (85)
Minority interest in income of
consolidated subsidiaries.............. (16)(f) (16) (29)
--------- --------- ---------
Income (loss) from Continuing
Operations............................. $ (207) $ (166) $ (126)
========= ========= =========
</TABLE>
Pro forma adjustments giving effect to the Other CBS Events in the unaudited
pro forma combined condensed financial statements reflect the following:
(a) American Radio acquisition--amortization of goodwill and identifiable
intangible assets, including FCC licenses on a straight-line basis over 40
years.
(b) Increase in interest expense resulting from borrowings under CBS's credit
facility to finance the acquisition of American Radio including the
repayment of certain American Radio revolver borrowings in conjunction with
the consummation of the acquisition.
(c) Income tax expense on the pro forma results of operations and the pro forma
adjustments, excluding non-deductible goodwill amortization, is calculated
at a 40 percent marginal tax rate.
(d) Outdoor Systems acquisition--amortization of goodwill and identifiable
intangible assets on a straight-line basis over 30 years.
(e) Reduction in interest expense resulting from the repayment of Outdoor
Systems' credit facility with credit facility borrowings of Infinity where
average borrowing rates are more favorable than previously experienced by
Outdoor Systems. In addition, the reduction of interest expense reflects the
recording of all debt instruments assumed at fair value within the pro forma
financial statements. These reductions were partially offset by incremental
interest expense recognized as a result of the assumed deconsolidation of
Infinity from the CBS consolidated income tax return.
(f) The adjustment to minority interest in income of consolidated subsidiaries
reflects CBS's ownership interest dilution resulting from Infinity's assumed
issuance of common stock to acquire Outdoor Systems. In addition, for the
year ended December 31, 1998 the adjustment reflects the impact of
Infinity's initial public offering. As a result of the December 1998 initial
public offering CBS's equity ownership in Infinity was reduced to
approximately 81.8 percent and will be further reduced to approximately 65
percent after Infinity's probable acquisition of Outdoor Systems.
(g) Reduction in the interest expense represents savings resulting from the
assumed repayment of debt with the proceeds received from the Infinity
public offering.
F-20
<PAGE>
UNAUDITED VIACOM/CBS
PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
F-21
<PAGE>
UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
GENERAL
On September 6, 1999, Viacom Inc. and CBS, entered into an agreement and
plan of merger providing for the merger of CBS and Viacom. Pursuant to the
Viacom/CBS merger agreement, each share of CBS common stock, par value $1.00 per
share, that is issued and outstanding immediately prior to the effective time of
the merger will be converted into the right to receive 1.085 shares of Viacom
non-voting Class B common stock. The Viacom/CBS merger will be accounted for by
the purchase method of accounting. Consideration provided by Viacom in this
merger includes: approximately $36.7 billion through the issuance of
approximately 812 million shares of Viacom non-voting Class B common stock plus,
approximately $833 million of cash consideration, net of approximately
$556 million of deferred taxes, for the assumed settlement of certain historical
CBS stock options and the assumption of approximately $200 million of CBS stock
options by Viacom, both of which were granted prior to the date of the merger
agreement, and approximately $3.5 billion for the assumption of debt. This
consideration will be allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed according to their respective fair
values, with the excess purchase consideration being allocated to goodwill. The
merger is contingent upon, among other things, regulatory and CBS shareholder
approval.
The following unaudited pro forma combined condensed balance sheet as of
June 30, 1999, is presented as if the Viacom/CBS merger and other Viacom
transactions, as described in the notes to the unaudited Viacom/CBS pro forma
combined condensed financial statements, had occurred on June 30, 1999. The
unaudited pro forma combined condensed statements of operations for the six
months ended June 30, 1999, and for the year ended December 31, 1998, are
presented as if the Viacom/CBS merger and other Viacom transactions had occurred
on January 1, 1998. In the opinion of Viacom and CBS management, all adjustments
and/or disclosures necessary for a fair presentation of the pro forma data have
been made. These unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or the financial position that would have been achieved
had the Viacom/CBS merger, or the other Viacom transactions, been consummated as
of the dates indicated or of the results that may be obtained in the future.
These unaudited pro forma combined condensed financial statements and notes
thereto should be read in conjunction with the unaudited CBS/King World pro
forma combined condensed financial information included herein, and (i) CBS's
consolidated financial statements and the notes thereto as of and for the year
ended December 31, 1998, and Management's Discussion and Analysis included in
CBS's Annual Report on Form 10-K for the year ended December 31, 1998, which is
incorporated by reference in this proxy statement/prospectus supplement; (ii)
King World's consolidated financial statements and the notes thereto as of and
for the year ended August 31, 1998, and Management's Discussion and Analysis
included in King World's Annual Report on Form 10-K for the fiscal year ended
August 31, 1998, which is incorporated by reference in this proxy
statement/prospectus supplement; (iii) CBS's Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, 1999 and June 30, 1999, (iv) King World's
Quarterly Reports on Form 10-Q for the quarterly periods ended November 30,
1998, February 28, 1999, and May 31, 1999 which are incorporated by reference in
this proxy statement/prospectus supplement, (v) Viacom's consolidated financial
statements and the notes thereto as of and for the year ended December 31, 1998,
included herein and (vi) Viacom's consolidated financial statements and the
notes thereto as of and for the six month period ended June 30, 1999, included
herein.
F-22
<PAGE>
UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED PRO FORMA
PRO FORMA MERGED
COMBINED ESTIMATED ESTIMATED VIACOM/CBS
AS ADJUSTED PRO FORMA ADJUSTMENT AS ADJUSTED
FOR ESTIMATED MERGED FOR OTHER FOR OTHER
OTHER CBS VIACOM INC. PRO FORMA VIACOM / VIACOM VIACOM
EVENTS HISTORICAL ADJUSTMENTS (3) CBS EVENTS (4) EVENTS
------------- ----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents........... $ 582 $ 616 $ (532) $ 666 $ -- $ 666
Customer receivables, net........... 1,388 1,577 -- 2,965 -- 2,965
Other current assets................ 1,212 2,622 484 4,318 -- 4,318
--------- --------- --------- --------- --------- ---------
Total current assets................ 3,182 4,815 (48) 7,949 -- 7,949
Property and equipment, net......... 3,047 3,249 -- 6,296 -- 6,296
Goodwill and other intangibles,
net............................... 23,689 11,490 22,594 57,773 -- 57,773
Other noncurrent assets............. 1,592 4,249 (387) 5,546 (5) 5,541
92
--------- --------- --------- --------- --------- ---------
TOTAL ASSETS........................ $ 31,510 $ 23,803 $ 22,251 $ 77,564 $ (5) $ 77,559
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Current maturities of
long-term debt.................... $ 265 $ 328 $ -- $ 593 $ -- $ 593
Accounts payable, accrued and other
liabilities....................... 1,880 3,960 (72) 5,743 -- 5,743
(25)
--------- --------- --------- --------- --------- ---------
Total current liabilities........... 2,145 4,288 (97) 6,336 -- 6,336
Long-term debt...................... 3,283 6,424 470 10,242 (437) 9,805
65
Net liabilities of Discontinued
Operations........................ 985 -- -- 985 -- 985
Other noncurrent liabilities........ 4,336 1,876 8 6,220 -- 6,220
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES................... 10,749 12,588 446 23,783 (437) 23,346
--------- --------- --------- --------- --------- ---------
Minority interest in equity of
consolidated subsidiaries......... 5,589 -- -- 5,589 1,094 6,683
SHAREHOLDERS' EQUITY:
Common stock........................ 800 7 8 15 -- 15
(800)
Capital in excess of par value...... 14,596 10,593 36,725 47,741 (662) 47,079
200
(14,596)
223
Common stock held in treasury,
at cost........................... (1,467) (1,361) 1,467 (1,361) -- (1,361)
Retained earnings................... 1,910 2,018 (1,910) 1,839 -- 1,839
(179)
Accumulated other
comprehensive loss................ (667) (42) 667 (42) -- (42)
--------- --------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY.......... 15,172 11,215 21,805 48,192 (662) 47,530
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.............. $ 31,510 $ 23,803 $ 22,251 $ 77,564 $ (5) $ 77,559
========= ========= ========= ========= ========= =========
</TABLE>
See Accompanying Notes to Unaudited Viacom/CBS
Pro Forma Combined Condensed Financial Statements.
F-23
<PAGE>
UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED ESTIMATED ESTIMATED
AS ADJUSTED PRO FORMA ADJUSTMENT
FOR ESTIMATED MERGED FOR OTHER
OTHER CBS VIACOM INC. PRO FORMA VIACOM / VIACOM
EVENTS HISTORICAL ADJUSTMENTS (3) CBS EVENTS (4)
------------- ------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $ 4,190 $ 5,954 $ -- $ 10,144 $ --
Operating expenses.................................. (2,442) (3,887) -- (6,329) --
Selling, marketing, general and administrative...... (660) (1,110) -- (1,770) --
Depreciation and amortization....................... (561) (397) (282) (1,240) --
Residual costs of discontinued businesses........... (85) -- -- (85) --
--------- --------- --------- --------- ---------
Operating profit.................................... 442 560 (282) 720 --
Other income and expense, net....................... (4) (29) -- (33) --
Interest expense, net............................... (143) (200) (40) (383) 1
--------- --------- --------- --------- ---------
Income from Continuing Operations before income
taxes and minority interest in income of
consolidated subsidiaries......................... 295 331 (322) 304 1
Income tax (expense) benefit (5).................... (239) (202) 16 (425) --
Minority interest in income of consolidated
subsidiaries...................................... (32) (1) -- (33) 4
--------- --------- --------- --------- ---------
Income (loss) from Continuing Operations............ 24 128 (306) (154) 5
Cumulative convertible preferred stock dividend
requirement and premium on repurchase of preferred
stock............................................. -- (13) -- (13) --
--------- --------- --------- --------- ---------
Net income (loss) from Continuing Operations
attributable to common stock...................... $ 24 $ 115 $ (306) $ (167) $ 5
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic............................................. 693 812 1,505
--------- --------- ---------
Diluted........................................... 708 812 1,505
--------- --------- ---------
Net income (loss) from Continuing Operations per
common share:
Basic............................................. $ 0.17 $ (0.11)
========= =========
Diluted........................................... $ 0.16 $ (0.11)
========= =========
<CAPTION>
ESTIMATED
PRO FORMA
MERGED
VIACOM/CBS
AS ADJUSTED
FOR OTHER
VIACOM
EVENTS
-------------
<S> <C>
Revenues............................................ $ 10,144
Operating expenses.................................. (6,329)
Selling, marketing, general and administrative...... (1,770)
Depreciation and amortization....................... (1,240)
Residual costs of discontinued businesses........... (85)
---------
Operating profit.................................... 720
Other income and expense, net....................... (33)
Interest expense, net............................... (382)
---------
Income from Continuing Operations before income
taxes and minority interest in income of
consolidated subsidiaries......................... 305
Income tax (expense) benefit (5).................... (425)
Minority interest in income of consolidated
subsidiaries...................................... (29)
---------
Income (loss) from Continuing Operations............ (149)
Cumulative convertible preferred stock dividend
requirement and premium on repurchase of preferred
stock............................................. (13)
---------
Net income (loss) from Continuing Operations
attributable to common stock...................... $ (162)
=========
Weighted average shares outstanding:
Basic............................................. 1,505
---------
Diluted........................................... 1,505
---------
Net income (loss) from Continuing Operations per
common share:
Basic............................................. $ (0.11)
=========
Diluted........................................... $ (0.11)
=========
</TABLE>
See Accompanying Notes to Unaudited Viacom/CBS
Pro Forma Combined Condensed Financial Statements.
F-24
<PAGE>
UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ESTIMATED
PRO FORMA
COMBINED ESTIMATED ESTIMATED
AS ADJUSTED PRO FORMA ADJUSTMENT
FOR ESTIMATED MERGED FOR OTHER
OTHER CBS VIACOM INC. PRO FORMA VIACOM / VIACOM
EVENTS HISTORICAL ADJUSTMENTS (3) CBS EVENTS (4)
------------- ----------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ 8,361 $ 12,096 $ -- $ 20,457 $ --
Operating expenses................................ (5,242) (8,506) -- (13,748) --
Selling, marketing, general and administrative.... (1,335) (2,061) -- (3,396) --
Depreciation and amortization..................... (1,113) (777) (565) (2,455) --
Residual costs of discontinued businesses......... (163) -- -- (163) --
--------- --------- --------- --------- ---------
Operating profit (loss)........................... 508 752 (565) 695 --
Other income and expense, net..................... 38 (57) -- (19) --
Interest expense, net............................. (363) (599) (89) (1,051) 6
--------- --------- --------- --------- ---------
Income (loss) from Continuing Operations before
income taxes and minority interest in income of
consolidated subsidiaries....................... 183 96 (654) (375) 6
Income tax (expense) benefit (5).................. (320) (139) 36 (423) (2)
Minority interest in income of consolidated
subsidiaries.................................... (35) (1) -- (36) 54
--------- --------- --------- --------- ---------
Income (loss) from Continuing Operations.......... (172) (44) (618) (834) 58
Cumulative convertible preferred stock dividend
requirement and discount on repurchase of
preferred stock................................. -- (27) -- (27) --
--------- --------- --------- --------- ---------
Net income (loss) from Continuing Operations
attributable to common stock.................... $ (172) $ (71) $ (618) $ (861) $ 58
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic........................................... 709 812 1,521
--------- --------- ---------
Diluted......................................... 709 812 1,521
--------- --------- ---------
Net income (loss) from Continuing Operations per
common share:
Basic........................................... $ (0.10) $ (0.57)
========= =========
Diluted......................................... $ (0.10) $ (0.57)
========= =========
<CAPTION>
ESTIMATED
PRO FORMA
MERGED
VIACOM/CBS
AS ADJUSTED
FOR OTHER
VIACOM
EVENTS
-------------
<S> <C>
Revenues.......................................... $ 20,457
Operating expenses................................ (13,748)
Selling, marketing, general and administrative.... (3,396)
Depreciation and amortization..................... (2,455)
Residual costs of discontinued businesses......... (163)
---------
Operating profit (loss)........................... 695
Other income and expense, net..................... (19)
Interest expense, net............................. (1,045)
---------
Income (loss) from Continuing Operations before
income taxes and minority interest in income of
consolidated subsidiaries....................... (369)
Income tax (expense) benefit (5).................. (425)
Minority interest in income of consolidated
subsidiaries.................................... 18
---------
Income (loss) from Continuing Operations.......... (776)
Cumulative convertible preferred stock dividend
requirement and discount on repurchase of
preferred stock................................. (27)
---------
Net income (loss) from Continuing Operations
attributable to common stock.................... $ (803)
=========
Weighted average shares outstanding:
Basic........................................... 1,521
---------
Diluted......................................... 1,521
---------
Net income (loss) from Continuing Operations per
common share:
Basic........................................... $ (0.53)
=========
Diluted......................................... $ (0.53)
=========
</TABLE>
See Accompanying Notes to Unaudited Viacom/CBS
Pro Forma Combined Condensed Financial Statements.
F-25
<PAGE>
NOTES TO UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
The purchase method of accounting has been used in the preparation of the
accompanying unaudited pro forma combined condensed financial statements. Under
this method of accounting, the purchase consideration is allocated to tangible
and identifiable intangible assets acquired and liabilities assumed based on
their respective fair values, with the excess purchase consideration being
allocated to goodwill. For purposes of the unaudited pro forma combined
condensed financial statements, the preliminary fair values of CBS's assets and
liabilities were estimated by CBS and Viacom management. The final allocation of
the purchase price will be determined after the completion of the Viacom/CBS
merger and will be based on appraisals and a comprehensive final evaluation of
tangible and identifiable intangible assets acquired (including their estimated
useful lives) and liabilities assumed.
(2) CONSIDERATION
Pursuant to the merger agreement, CBS stockholders will receive 1.085 shares
of Viacom non-voting Class B common stock for each CBS share issued and
outstanding at the completion of the merger. The total number of CBS shares
issued and outstanding during the period subsequent to the merger announcement
but prior to its completion is not anticipated to fluctuate from the ordinary
course. For the purpose of the unaudited pro forma combined condensed financial
statements the value of the per share Viacom non-voting Class B common stock to
be issued was calculated based on the average market price per share from
September 2, 1999 through September 9, 1999.
<TABLE>
<S> <C> <C>
Total estimated CBS common shares outstanding (including 57,311,812 shares
to be issued to King World stockholders)................................ 748,597,072
Exchange Ratio............................................................ 1.085
----------
Estimated Viacom non-voting Class B common shares to be issued............ 812,227,823
Viacom non-voting Class B common stock average per share market value..... $ 45.225
Purchase Consideration:
Estimated value of Viacom non-voting Class B common stock to be issued in
connection with the merger.............................................. $ 36,733
Estimated fair value of CBS stock options to be assumed by Viacom (note
3)...................................................................... 200
----------
Estimated net increase in Viacom equity................................... $ 36,933
==========
</TABLE>
F-26
<PAGE>
NOTES TO UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) VIACOM/CBS MERGER
To record the excess purchase price over the net tangible and intangible
assets acquired in connection with the Viacom/CBS merger as described in notes 1
and 2, after the elimination of certain CBS Estimated Pro Forma Combined As
Adjusted For Other CBS Events balances at June 30, 1999:
<TABLE>
<S> <C>
Issuance of Viacom equity (812,227,823 shares at $45.225) allocated as follows:
Common stock, $0.01 par value (812,227,823 shares).............................. $ 8
Capital in excess of par value:
Issuance of Viacom non-voting Class B common stock............................ 36,725
Estimated fair value of CBS stock options to be assumed by Viacom............. 200
---------
Estimated net increase in Viacom equity........................................... 36,933
Less: Shareholders' equity of CBS Estimated Pro Forma Combined As Adjusted For
Other CBS Events at June 30, 1999
Common stock.................................................................... (800)
Capital in excess of par value.................................................. (14,596)
Common stock held in treasury................................................... 1,467
Retained earnings/Accumulated other comprehensive loss.......................... (1,243)
Adjustments:
Add: Liability for conversion of CBS stock options, net of deferred taxes....... 833
---------
Excess purchase price over net tangible and identifiable intangible assets 22,594
acquired........................................................................
Identifiable intangible assets acquired........................................... 23,689
---------
Excess purchase price over net tangible assets acquired........................... $ 46,283
=========
Incremental amortization expense of excess purchase price over net tangible and
identifiable intangible assets acquired:
Twelve month amortization..................................................... $ 565
=========
Six month amortization........................................................ $ 282
=========
</TABLE>
The above pro forma adjustments are based on preliminary estimates. The
final allocation of the purchase price will be determined after the completion
of the Viacom/CBS merger and will be based on appraisals and a comprehensive
final evaluation of the fair value of CBS's tangible and identifiable intangible
assets acquired and liabilities assumed at the time of the merger. For the
purpose of these pro forma financial statements, amortization of the excess
purchase price over tangible net assets acquired of approximately $46.3 billion
is computed on a straight-line basis using useful lives as follows: $37.2
billion (40 years), $6.6 billion (30 years) and $2.5 billion (10 years).
Generally accepted accounting principles currently require that acquired
intangible assets be amortized over periods not to exceed 40 years. Viacom
believes that the intangible assets acquired from CBS included in the 40-year
category is comprised principally of the franchises, FCC licenses, and
trademarks of CBS--assets with indefinite lives, which have historically
appreciated in value over time. In addition, Viacom intends to continue to
expand the combined companies' existing lines of business, develop new
businesses, by leveraging the well known franchises, trademarks and products of
Viacom and CBS, and take advantage of synergies that exist between Viacom and
CBS to further strengthen existing lines of business. Viacom believes that it
will benefit from the merger for an indeterminable period of time of at least 40
years and, therefore, a 40-year amortization period for the $37.2 billion
portion of the excess purchase consideration is appropriate. After the
completion of the merger, Viacom will complete valuations and other studies of
the significant assets, liabilities, and business operations of CBS as of the
time of the merger. Using this information, Viacom will make a final allocation
of the purchase consideration,
F-27
<PAGE>
NOTES TO UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) VIACOM/CBS MERGER (CONTINUED)
including allocation to tangible assets and liabilities, identifiable intangible
assets and goodwill. Accordingly, depreciation and amortization as presented in
the pro forma combined condensed statement of operations for the year and six
months ended December 31, 1998 and June 30, 1999, may fluctuate significantly
from the preliminary estimate when the final appraisals of tangible and
intangible assets are completed.
The following table presents the incremental reduction to pro forma net
income (loss) from Continuing Operations attributable to common stock and pro
forma net income (loss) from Continuing Operations per common share resulting
from the allocation of each $1 billion of purchase consideration to assets with
useful lives of thirty, twenty, or ten years rather than the forty year life
reflected in the pro forma financial statements.
<TABLE>
<CAPTION>
30 YEARS 20 YEARS 10 YEARS
----------- ----------- -----------
Impact on pro forma net income (loss) from
Continuing Operations attributable to common stock:
<S> <C> <C> <C>
For the twelve month period..................... $ (8) $ (25) $ (75)
=========== =========== ===========
For the six month period........................ $ (4) $ (13) $ (38)
=========== =========== ===========
Impact on pro forma net income (loss) from
Continuing Operations per common share:
For the year ended December 31, 1998............ $ (0.01) $ (0.02) $ (0.05)
=========== =========== ===========
For the six months ended June 30, 1999.......... $ -- $ (0.01) $ (0.02)
=========== =========== ===========
</TABLE>
Certain limited rights to receive cash in lieu of Viacom options exist for
the majority of the historical CBS stock options outstanding prior to the
announcement of the Viacom/CBS merger. To reflect the liability associated with
these stock options, these unaudited pro forma combined condensed financial
statements assume that the options will be settled in cash for approximately
$1.4 billion. Accordingly, the issuance of long-term debt of $470 million and
adjustments to reflect the use of cash and investments, classified as other
noncurrent assets, of $532 million and $387 million, respectively, have been
recorded in the pro forma balance sheet to reflect the financing and funding of
such obligations at the effective time of the merger. In addition, related
interest expense of $38 million and $85 million for the six months of 1999 and
the twelve months of 1998, respectively, have been recorded in the unaudited pro
forma combined condensed statement of operations. Deferred taxes have been
provided for on the respective book and tax basis differences at a 40 percent
marginal tax rate. Additional options with a fair value of $200 million either
do not contain these limited rights or are options related to underlying shares
which cannot be disposed of for some designated period of time, and, as such,
have been reflected as an adjustment to additional paid in capital within
shareholders' equity.
Viacom has entered into agreements with the two Deputy Chairmen of Viacom
regarding the terms of their resignations upon the effective time of the merger.
Accordingly, the pro forma balance sheet includes a charge as a reduction to
retained earnings of $179 million, net of tax benefit of $119 million, which
principally reflects the stock options granted to them over the life of their
employment with Viacom as well as cash payments in accordance with their
resignation agreements. The tax benefit assumes a 40 percent marginal tax rate.
The pro forma statement of operations includes a charge for the incremental
interest expense associated with the increase in long-term debt.
F-28
<PAGE>
NOTES TO UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) OTHER VIACOM EVENTS
On August 10, 1999, Blockbuster Inc., a subsidiary of Viacom, completed the
initial public offering of 31 million shares of its Class A common stock at $15
per share. Viacom owns 100% of the outstanding shares of Blockbuster Class B
common stock, which represents approximately 82.3% of Blockbuster's equity value
after the initial public offering. As a result of the issuance of subsidiary
stock, Viacom recorded a pro forma reduction to capital in excess of par value
of approximately $662 million. Of this amount, $5 million represents transaction
costs which were prepaid prior to June 30, 1999. Net proceeds from this offering
of approximately $437 million were used to repay Blockbuster debt.
The net decrease in interest expense of $1 million and $6 million for the
six months ended June 30, 1999 and the twelve months ended December 31, 1998,
respectively, is attributable to the repayment of debt with the Blockbuster
initial public offering net proceeds of $437 million, partially offset by the
increase in interest expense due to the higher interest rate attributable to the
Blockbuster debt and the amortization of deferred debt issue costs incurred in
connection with the Blockbuster debt.
The adjustment to minority interest reflects Blockbuster's initial public
offering of its shares as discussed above.
(5) INCOME TAX EXPENSE
Income tax expense on the pro forma results of operations and the pro forma
adjustments, excluding non-deductible goodwill amortization, is calculated at a
40 percent marginal tax rate.
(6) ITEMS NOT INCLUDED IN THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
The proceeding unaudited pro forma combined condensed financial statements
do not include any pro forma adjustments for the following:
(a) Viacom anticipates recording a pre-tax restructuring charge in
connection with the acquisition of the remaining minority interest of
Spelling Entertainment Group Inc. of approximately $70-$90 million in the
third quarter of 1999.
(b) Any operating efficiencies and cost savings that may be achieved with
respect to the combined companies.
(c) Upon closing of the merger, the combined companies may incur certain
integration related expenses as a result of the elimination of duplicate
facilities and functions, operational realignment and related workforce
reductions. Such CBS costs would generally be recognized as a liability
assumed as of the merger date resulting in additional goodwill while
Viacom related costs would be recognized as a liability through the
statement of operations.
(d) Transactions between Viacom and CBS, including transactions between
Viacom and companies proposed to be acquired by CBS, have not been
eliminated in the unaudited pro forma combined condensed financial
statements, as the amounts are not material for the periods presented.
(e) Transaction costs related to the merger are not expected to have a
material impact on these unaudited pro forma combined condensed financial
statements.
(f) In connection with the Viacom/CBS merger, certain radio and television
stations may have to be divested in order to comply with current FCC
regulations. Also, Viacom may be required to reduce or divest its
interest in the United Paramount Network to comply with FCC rules
limiting the common ownership of certain television networks. Generally,
any gains or losses associated with disposition of historical Viacom
assets would be recognized through the statements of
F-29
<PAGE>
NOTES TO UNAUDITED VIACOM/CBS PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
(TABLES IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) ITEMS NOT INCLUDED IN THE UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS (CONTINUED)
operations while the gain or loss on the disposition of historical CBS
assets would likely be recognized as an adjustment to goodwill.
(g) Viacom has announced that, subject to Viacom board approval and the
receipt of a supplemental tax ruling from the Internal Revenue Service
reflecting the merger between Viacom and CBS, it may split-off
Blockbuster by offering to exchange all of its shares of Blockbuster for
shares of Viacom's common stock. The aggregate market value of the shares
of Blockbuster common stock based on the November 1, 1999 closing price
of $12.4375 per share of Blockbuster common stock was approximately
$2.2 billion. The pro forma net book value of Blockbuster at June 30,
1999, after giving effect to the initial public offering, was
approximately $5.1 billion. If Viacom 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 November 1, 1999 closing stock
price of Blockbuster, a split-off would have resulted in a pre-tax pro
forma loss on discontinued operations of approximately $3.3 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. In addition, in a tax-free
split-off, Viacom/CBS pro forma shareholders' equity will be reduced by
an amount no greater than the net book value of Blockbuster at the time
of the split-off. Viacom has no obligation to effect the split-off either
before or after the merger. Viacom and CBS 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.
(7) RECLASSIFICATIONS
Certain reclassifications have been made from the historical Viacom
financial statements to conform to the combined condensed pro forma
presentation.
F-30
<PAGE>
VIACOM INC. AND SUBSIDIARIES
1998 ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO
F-31
<PAGE>
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
present fairly, in all material respects, the financial position of Viacom Inc.
and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the accompanying financial
statement schedule presents 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 generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
February 8, 1999, except for the first paragraph of Note 2, which is as of
February 25, 1999
F-32
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Revenues..................................................................... $ 12,096.1 $ 10,684.9 $ 9,683.9
Expenses:
Operating.................................................................. 8,506.3 7,476.3 6,340.2
Selling, general and administrative........................................ 2,060.9 1,750.6 1,442.0
Restructuring charge (Note 4).............................................. -- -- 50.2
Depreciation and amortization.............................................. 777.3 772.6 654.3
---------- ---------- ---------
Total expenses........................................................... 11,344.5 9,999.5 8,486.7
---------- ---------- ---------
Operating income............................................................. 751.6 685.4 1,197.2
Other income (expense):
Interest expense, net...................................................... (599.0) (750.9) (785.5)
Other items, net (Note 16)................................................. (15.3) 1,244.0 (1.6)
---------- ---------- ---------
Earnings from continuing operations before income taxes...................... 137.3 1,178.5 410.1
Provision for income taxes................................................... (138.7) (646.4) (243.3)
Equity in loss of affiliated companies, net of tax (Note 7).................. (41.4) (163.3) (13.3)
Minority interest............................................................ (0.7) 4.7 (1.3)
---------- ---------- ---------
Earnings (loss) from continuing operations................................... (43.5) 373.5 152.2
Discontinued operations (Note 3):
Earnings (loss), net of tax................................................ (54.1) 14.9 (62.0)
Net gain on dispositions, net of tax....................................... 49.9 405.2 1,157.7
---------- ---------- ---------
Net earnings (loss) before extraordinary loss................................ (47.7) 793.6 1,247.9
Extraordinary loss, net of tax (Note 17)..................................... (74.7) -- --
---------- ---------- ---------
Net earnings (loss).......................................................... (122.4) 793.6 1,247.9
Cumulative convertible preferred stock dividend requirement.................. (57.2) (60.0) (60.0)
Discount on repurchase of preferred stock (Note 10).......................... 30.0 -- --
---------- ---------- ---------
Net earnings (loss) attributable to common stock............................. $ (149.6) $ 733.6 $ 1,187.9
========== ========== =========
Basic earnings per common share:
Earnings (loss) from continuing operations................................. $ (.10) $ .44 $ .13
Net earnings (loss)........................................................ $ (.21) $ 1.04 $ 1.63
Diluted earnings per common share:
Earnings (loss) from continuing operations................................. $ (.10) $ .44 $ .13
Net earnings (loss)........................................................ $ (.21) $ 1.04 $ 1.62
Weighted average number of common shares:
Basic...................................................................... 708.7 705.8 728.0
Diluted.................................................................... 708.7 708.5 734.7
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents................................................................. $ 767.3 $ 292.3
Receivables, less allowances of $98.7 (1998) and $99.8 (1997)............................. 1,759.1 2,397.7
Inventory (Note 6)........................................................................ 468.7 934.8
Theatrical and television inventory (Note 6).............................................. 1,336.8 1,317.9
Other current assets...................................................................... 732.6 770.8
--------- ---------
Total current assets........................................................................ 5,064.5 5,713.5
--------- ---------
Property and Equipment:
Land...................................................................................... 458.5 452.2
Buildings................................................................................. 1,636.8 1,544.4
Capital leases............................................................................ 671.7 655.6
Equipment and other....................................................................... 1,770.0 1,668.0
--------- ---------
4,537.0 4,320.2
Less accumulated depreciation and amortization............................................ 1,457.5 1,122.5
--------- ---------
Net property and equipment.............................................................. 3,079.5 3,197.7
--------- ---------
Inventory (Note 6).......................................................................... 2,470.8 2,650.6
Intangibles, at amortized cost.............................................................. 11,557.3 14,699.6
Other assets................................................................................ 1,441.0 2,027.3
--------- ---------
$23,613.1 $28,288.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................................... $ 499.2 $ 699.7
Accrued expenses.......................................................................... 2,125.8 1,574.7
Deferred income........................................................................... 286.5 254.6
Accrued compensation...................................................................... 410.3 441.7
Participants' share, residuals and royalties payable...................................... 1,227.5 951.3
Program rights............................................................................ 179.6 197.7
Income tax payable........................................................................ 526.5 556.3
Current portion of long-term debt......................................................... 377.2 376.5
--------- ---------
Total current liabilities............................................................... 5,632.6 5,052.5
--------- ---------
Long-term debt (Note 8)..................................................................... 3,813.4 7,423.0
Other liabilities........................................................................... 2,117.5 2,429.6
Commitments and contingencies (Note 13)
Shareholders' Equity:
Convertible Preferred Stock, par value $.01 per share; 200.0 shares authorized; 12.0
(1998) and 24.0 (1997) shares issued and outstanding.................................... 600.0 1,200.0
Class A Common Stock, par value $.01 per share; 200.0 shares authorized; 141.6 (1998) and
140.7 (1997) shares issued.............................................................. 1.4 1.4
Class B Common Stock, par value $.01 per share; 1,000.0 shares authorized; 591.9 (1998)
and 581.1 (1997) shares issued.......................................................... 5.9 5.8
Additional paid-in capital................................................................ 10,574.7 10,329.5
Retained earnings......................................................................... 1,932.9 2,089.0
Accumulated other comprehensive loss (Note 1)............................................. (67.1) (12.6)
--------- ---------
13,047.8 13,613.1
Less treasury stock, at cost; 38.5 shares (1998) and 13.0 shares (1997)................... 998.2 229.5
--------- ---------
Total shareholders' equity.............................................................. 12,049.6 13,383.6
--------- ---------
$23,613.1 $28,288.7
========= =========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Operating Activities:
Net earnings (loss)............................................................. $ (122.4) $ 793.6 $ 1,247.9
Adjustments to reconcile net earnings (loss) to net cash flow from operating
activities:
Net gain on dispositions........................................................ (49.9) (1,761.3) (1,157.7)
Depreciation and amortization................................................... 777.3 943.3 817.6
Restructuring charge............................................................ -- -- 88.9
Distribution from affiliated companies.......................................... 17.9 62.2 59.8
Gain on the sale of cost investments............................................ (118.9) -- --
Loss on redemption of debt...................................................... 126.6 -- --
Equity in loss of affiliated companies.......................................... 41.4 163.3 13.0
Amortization of deferred financing costs........................................ 16.1 33.6 31.2
Change in operating assets and liabilities:
Decrease (increase) in receivables............................................ 135.6 (251.3) (413.3)
Decrease (increase) in inventory and related programming liabilities, net..... 367.1 79.7 (443.0)
Decrease (increase) in prepublication costs, net.............................. 13.8 (21.4) (57.9)
Increase in prepaid expenses and other current assets......................... (119.7) (83.5) (40.0)
Decrease (increase) in unbilled receivables................................... 105.0 (53.3) (226.5)
Increase (decrease) in accounts payable and accrued expenses.................. 192.6 (7.6) 1.0
Increase (decrease) in income taxes payable and deferred income taxes, net.... (563.9) 455.6 38.5
Increase (decrease) in deferred income........................................ 7.4 (93.1) 122.6
Other, net.................................................................... 38.1 80.2 (11.6)
--------- --------- ---------
Net cash flow provided by operating activities.................................... 864.1 340.0 70.5
--------- --------- ---------
Investing activities:
Proceeds from dispositions...................................................... 4,950.1 3,014.9 1,838.1
Acquisitions, net of cash acquired.............................................. (126.4) (355.1) (299.8)
Capital expenditures............................................................ (603.5) (530.3) (598.6)
Investments in and advances to affiliated companies............................. (100.3) (300.4) (88.8)
Proceeds from sale of cost investment........................................... 167.3 -- --
Proceeds from sale of short-term investments.................................... 101.4 139.8 137.9
Purchases of short-term investments............................................. (151.6) (81.3) (149.2)
Other, net...................................................................... (18.6) 18.2 --
--------- --------- ---------
Net cash flow provided by investing activities.................................... 4,218.4 1,905.8 839.6
--------- --------- ---------
Financing activities:
Repayments of credit agreements, net............................................ (2,383.0) (2,092.3) (859.5)
Repayment of notes and debentures............................................... (869.3) -- (50.9)
Purchase of treasury stock and warrants......................................... (809.6) (9.8) (223.6)
Repurchase of Preferred Stock................................................... (564.0) -- --
Payment on capital lease obligations............................................ (110.7) (66.2) (48.9)
Payment of Preferred Stock dividends............................................ (64.8) (60.0) (60.0)
Proceeds from exercise of stock options and warrants............................ 182.8 69.6 95.1
Other, net...................................................................... 11.1 (3.8) (17.4)
--------- --------- ---------
Net cash flow used in financing activities........................................ (4,607.5) (2,162.5) (1,165.2)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 475.0 83.3 (255.1)
Cash and cash equivalents at beginning of year.................................... 292.3 209.0 464.1
--------- --------- ---------
Cash and cash equivalents at end of year.......................................... $ 767.3 $ 292.3 $ 209.0
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS
--------- --------- --------- --------- --------- ---------
Convertible Preferred Stock:
Balance, beginning of year..................................... 24.0 $ 1,200.0 24.0 $ 1,200.0 24.0 $ 1,200.0
Repurchase of Preferred Stock.................................. 12.0 600.0 -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, end of year........................................... 12.0 600.0 24.0 $ 1,200.0 24.0 $ 1,200.0
========= ========= ========= ========= ========= =========
Class A Common Stock:
Balance, beginning of year..................................... 140.7 $ 1.4 140.2 $ 1.4 150.2 $ 1.5
Exercise of stock options and warrants......................... .9 -- .5 -- .8 --
Cable split-off................................................ -- -- -- -- (10.8) (.1)
--------- --------- --------- --------- --------- ---------
Balance, end of year........................................... 141.6 $ 1.4 140.7 $ 1.4 140.2 $ 1.4
========= ========= ========= ========= ========= =========
Class B Common Stock:
Balance, beginning of year..................................... 581.1 $ 5.8 576.4 $ 5.8 589.2 $ 5.9
Exercise of stock options and warrants......................... 10.8 .1 4.7 -- 7.0 .1
Cable split-off................................................ -- -- -- -- (19.8) (.2)
--------- --------- --------- --------- --------- ---------
Balance, end of year........................................... 591.9 $ 5.9 581.1 $ 5.8 576.4 $ 5.8
========= ========= ========= ========= ========= =========
Additional Paid-In Capital:
Balance, beginning of year..................................... $10,329.5 $10,238.5 $10,723.2
Exercise of stock options and warrants, net of tax benefit..... 280.1 94.9 157.4
Cable split-off................................................ -- -- (625.5)
Warrants repurchased........................................... (34.9) (3.9) (16.6)
--------- --------- ---------
Balance, end of year........................................... $10,574.7 $10,329.5 $10,238.5
========= ========= =========
Retained Earnings:
Balance, beginning of year..................................... $ 2,089.0 $ 1,358.6 $ 173.1
Net earnings (loss)............................................ (122.4) 793.6 1,247.9
Preferred stock dividend requirement........................... (57.2) (60.0) (60.0)
Discount on repurchase of Preferred Stock...................... 30.0 -- --
Comprehensive income reclassification.......................... -- (3.2) (2.4)
Exercise of stock options...................................... (6.5) -- --
--------- --------- ---------
Balance, end of year........................................... $ 1,932.9 $ 2,089.0 $ 1,358.6
========= ========= =========
Accumulated Other Comprehensive Income (Loss):
Balance, beginning of year..................................... $ (12.6) $ 5.9 $ (11.9)
Other comprehensive income (loss).............................. (54.5) (18.5) 17.8
--------- --------- ---------
Balance, end of year........................................... $ (67.1) $ (12.6) $ 5.9
========= ========= =========
Treasury Stock, at cost:
Balance, beginning of year..................................... 13.0 $ (229.5) 12.5 $ (223.6) -- $ --
Class A Common Stock repurchased............................... -- -- -- -- 1.3 (22.9)
Class B Common Stock repurchased............................... 26.2 (787.0) .5 (5.9) 11.2 (200.7)
Exercise of stock options...................................... (.7) 18.3 -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, end of year........................................... 38.5 $ (998.2) 13.0 $ (229.5) 12.5 $ (223.6)
========= ========= ========= ========= ========= =========
Total Shareholders' Equity..................................... $12,049.6 $13,383.6 $12,586.6
========= ========= =========
Comprehensive Income (Loss)(Note 1):
Net earnings (loss)............................................ $ (122.4) $ 793.6 $ 1,247.9
Other comprehensive income (loss).............................. (54.5) (18.5) 17.8
--------- --------- ---------
Total Comprehensive Income (Loss).............................. $ (176.9) $ 775.1 $ 1,265.7
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
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 3 regarding the presentation of discontinued operations. See Note 14
regarding the relative contribution to revenues and operating results of 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 and discs, 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 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 operates 2 stations pursuant to
local marketing agreements.
Spelling Entertainment Group Inc. ("Spelling") is a producer and distributor
of television series, mini-series and made-for-television movies.
VIDEO
Blockbuster Video operates and franchises videocassette rental and retail
sales stores throughout the United States and internationally.
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 online services provides online music and children destinations
featuring entertainment, information, community tools and e-commerce.
F-37
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported 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 EQUIVALENTS--Cash equivalents are defined as short-term (three months
or less) highly liquid investments.
INVENTORIES--Inventories related to theatrical and television product (which
include 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
participations are accrued, on an individual product basis 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 and Spelling 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 70% of unamortized film costs
(including amounts allocated under purchase accounting) at December 31, 1998
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 4).
PROGRAM RIGHTS--The Company acquires rights to exhibit programming on its
broadcast stations or cable networks. The costs incurred in acquiring programs
are capitalized and amortized over the license period. 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 ranging from 3 to 40 years. Depreciation expense, including
capitalized lease amortization, was $441.8 million (1998), $447.2 million (1997)
and $331.1 million (1996).
F-38
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Property and equipment includes capital leases of $399.0 million and $463.1
million as of December 31, 1998 and December 31, 1997, respectively, net of
accumulated amortization of $272.7 million and $192.5 million, respectively.
Amortization expense related to capital leases was $62.6 million (1998),
$58.4 million (1997) and $63.0 million (1996).
In 1996, the Company adopted SFAS 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 requires that the Company assess 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 the assets' 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. The adoption of SFAS 121 did not have a significant effect on the
consolidated financial position or results of operations.
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 $1.6 billion at December 31, 1998 and 1997.
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.
Theatrical revenues from domestic and foreign markets are recognized as
films are exhibited; revenues from the sale of videocassettes and discs 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 enters into interest rate exchange agreements; the amount to
be paid or received under such agreements is accrued as interest rates change
and is recognized over the life of the agreements as an adjustment to interest
expense. Amounts paid for purchased interest rate cap agreements are 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", and have not been material in
any of the years presented.
F-39
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PROVISION FOR DOUBTFUL ACCOUNTS--The provision for doubtful accounts charged
to expense was $29.5 million (1998), $83.1 million (1997) and $55.1 million
(1996).
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.
In December 1998, the Company repurchased 12 million shares of its
convertible preferred stock. The preferred stock had a cumulative cash dividend
of $30 million per year.
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. Prior period amounts have been adjusted to reflect
the effect of the 2-for-1 stock split (See Note 2). The numerator used in the
calculation of both basic and diluted EPS for each respective year reflects
earnings from continuing operations less preferred stock dividends of $57.2
million for 1998 and $60 million for both 1997 and 1996 plus the discount on
repurchase of preferred stock of $30 million for 1998. The table below presents
a reconciliation of weighted average shares used in the calculation of basic and
diluted EPS:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares for basic EPS................................ 708.7 705.8 728.0
Plus incremental shares for stock options............................ -- 2.7 6.7
--------- --------- ---------
Weighted average shares for diluted EPS.............................. 708.7 708.5 734.7
========= ========= =========
</TABLE>
COMPREHENSIVE INCOME (LOSS)--The Company adopted SFAS 130, "Reporting
Comprehensive Income", effective January 1, 1998. The components of accumulated
other comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
MINIMUM ACCUMULATED
UNREALIZED CUMULATIVE PENSION OTHER
GAIN (LOSS) TRANSLATION LIABILITY COMPREHENSIVE
ON SECURITIES ADJUSTMENTS ADJUSTMENT INCOME(LOSS)
--------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
At December 31, 1995..................................... $ 2.0 $ (9.9) $ (4.0) $ (11.9)
Current period change.................................... 3.0 21.2 (6.4) 17.8
--------- --------- --------- ---------
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)
========= ========= ========= =========
</TABLE>
RECLASSIFICATIONS--Certain amounts reported for prior years have been
reclassified to conform with the current year's presentation.
RECENT PRONOUNCEMENTS--In April 1998, Statement of Position 98-5 "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides
guidance on the financial reporting of start-up costs and organization costs.
The SOP is effective for financial statements for fiscal years beginning after
F-40
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
December 15, 1998. The Company does not anticipate that the adoption of this
statement will have a material effect on its financial statements.
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, 1999. 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, 1999 and could have a
significant impact on the Company's results of operations and financial position
depending on its final outcome. The Company has not concluded on its impact
given the preliminary stages of the proposed Statement of Position.
2) SUBSEQUENT EVENTS
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 will be 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 (See Note 10).
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.
3) DISCONTINUED OPERATIONS
In accordance with Accounting Principles Board Opinion ("APB") 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 has 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, Viacom Radio Stations and Viacom Cable.
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing to Pearson plc for approximately $4.6 billion in cash plus
approximately $92 million related to changes in net assets, which is subject to
change based upon final determination of net assets. 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 approximately $115 million in cash
before adjustments for changes in working capital 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
F-41
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 approximately $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 approximately $1.1 billion in cash. As a result of
the sale, the Company realized a gain on disposition of approximately
$416.4 million, net of tax, in the third quarter of 1997.
On July 31, 1996, the Company completed the split-off of its Cable segment
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
approximately 4.1% of the Company's then total outstanding common shares.
For the year ended December 31, 1998, the net gain on dispositions of
$49.9 million includes the gain from the sale of Non-Consumer Publishing of
$65.5 million, net of tax, a tax benefit related to the sale of Virgin of
$134.0 million and the reversal of cable split-off reserves that were no longer
required, partially offset by the loss on the sale of the Company's music retail
stores of $138.5 million, net of tax, and additional reserves of $20.3 million,
net of minority interest, which provided for Virgin's operating losses through
its disposition.
For the year ended December 31, 1997, the net gain on dispositions of
$405.2 million includes approximately $416.4 million, net of tax, for the Viacom
Radio Stations sale, a net reversal of approximately $20.8 million principally
of Cable split-off reserves that were no longer required partially offset by a
reserve of $32.0 million, net of minority interest, for anticipated additional
losses associated with the operations of Virgin through disposition.
For the year ended December 31, 1996, the net gain on dispositions of
approximately $1.2 billion includes the Cable gain of approximately
$1.3 billion and the Company's estimated loss on disposal of its interactive
game businesses of $159.3 million.
Basic earnings (loss) per share for discontinued operations was ($0.01),
$0.60 and $1.50 for 1998, 1997 and 1996, respectively. Diluted earnings (loss)
per share for discontinued operations was $(0.01), $0.60 and $1.49 for 1998,
1997 and 1996, respectively.
F-42
<PAGE>
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:
RESULTS OF DISCONTINUED OPERATIONS:
<TABLE>
<CAPTION>
NON-CONSUMER
PUBLISHING MUSIC RADIO CABLE INTERACTIVE TOTAL
-------------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
FOR THE YEAR ENDED DECEMBER 31, 1996(4)
Revenues............................................ $ 1,784.1 $ 616.2 $ 113.5 $ 236.9 $ 268.7 $ 3,019.4
Earnings (loss) from operations before income
taxes............................................. 157.8 (87.4) 36.3 50.5 (157.6) (0.4)
Benefit (provision) for income taxes................ (85.0) 32.8 (16.1) (21.5) (1.2) (91.0)
Net earnings (loss)................................. 73.1 (54.6) 20.2 28.3 (129.0) (62.0)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------
<S> <C>
FINANCIAL POSITION(5):
Current assets.............................................................................. $ 114.9
Net property and equipment.................................................................. 14.5
Other assets................................................................................ 153.1
Total liabilities........................................................................... (293.0)
----------
Net liabilities of discontinued operations.................................................. $ (10.5)
==========
</TABLE>
- ------------------------
(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.
Results of operations of Interactive for 1997 were provided for in the prior
year's estimated loss on disposal.
(4) Results of operations include Cable for the six months ended June 30, 1996.
(5) Reflects financial position of Interactive at December 31, 1997.
The provisions 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
effective tax rate for 1996 is not meaningful. 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 nondeductible goodwill
amortization, state and local taxes and, for 1996, the provision of valuation
allowances attributable to net operating losses of Virgin.
F-43
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
4) 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
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 rental game 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
F-44
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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 has been 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 is
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 have been recognized as depreciation expense and general and
administrative expense, respectively. Through December 31, 1998, the Company has
paid and charged approximately $12.8 million against the lease exit obligations.
During the fourth quarter of 1996, Blockbuster adopted a plan to abandon
certain music retail stores, relocate its headquarters from Fort Lauderdale to
Dallas and eliminate third party distributors domestically. As a result of such
plan, Blockbuster recognized a restructuring charge of approximately
$88.9 million of which approximately $38.7 million related to Music retail
stores closings which is included as part of discontinued operations. Of the
remaining charge, $25.0 million reflects estimated severance benefits payable to
approximately 650 employees who had chosen not to relocate to Dallas,
$11.6 million of other costs related to the disposition of its corporate
headquarters and $13.6 million for eliminating third party distributors.
The Company relocation to Dallas was completed during the second quarter of
1997. Through December 31, 1998, the Company paid and charged approximately
$25.0 million against the severance liability and approximately $11.4 million
against the Fort Lauderdale exit. In addition, as of December 31, 1998,
substantially all activities related to the music retail store closings have
been completed.
F-45
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
5) ACCOUNTS RECEIVABLE
As of December 31, 1998, the Company had an aggregate of $399.6 million
outstanding under revolving receivable securitization programs. Proceeds from
the sale of these receivables were used to reduce outstanding borrowings. The
resulting loss on the sale of receivables was not material to the Company's
financial position and results of operations.
6) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Prerecorded videocassettes............................................. $ 381.9 $ 559.2
Videocassette rental inventory......................................... 404.1 722.8
Publishing:
Finished goods....................................................... 59.7 301.2
Work in process...................................................... 6.9 30.3
Materials and supplies............................................... 2.5 23.3
Other.................................................................. 17.7 20.6
--------- ---------
872.8 1,657.4
Less current portion................................................. 468.7 934.8
--------- ---------
$ 404.1 $ 722.6
--------- ---------
Theatrical and television inventory:
Theatrical and television productions:
Released........................................................... $ 1,800.4 $ 1,736.0
Completed, not released............................................ 35.9 17.8
In process and other............................................... 321.0 341.4
Program rights....................................................... 1,246.2 1,150.7
--------- ---------
3,403.5 3,245.9
Less current portion................................................. 1,336.8 1,317.9
--------- ---------
$ 2,066.7 $ 1,928.0
--------- ---------
Total Current Inventory................................................ $ 1,805.5 $ 2,252.7
========= =========
Total Non-Current Inventory............................................ $ 2,470.8 $ 2,650.6
========= =========
</TABLE>
7) 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) and United Cinemas International
(50% owned). Investments in affiliates are included as a component of other
assets.
F-46
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following is a summary of combined financial information which is based
on information provided by the equity investees.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Results of operations:
Revenues................................................. $ 1,898.3 $ 2,324.9 $ 2,074.9
Operating income (loss).................................. (73.2) (142.5) 7.3
Net loss................................................. (115.4) (150.6) (28.2)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Financial position:
Current assets........................................................... $ 740.5 $ 866.6
Non-current assets....................................................... 781.2 616.7
Current liabilities...................................................... 694.9 788.1
Non-current liabilities.................................................. 451.8 366.0
Equity................................................................... 375.0 329.2
</TABLE>
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 1998, equity in loss of affiliated companies, net of tax, principally
reflects the net operating loss of United Paramount Network ("UPN"), a 50%
interest which was acquired in January 1997, 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.
F-47
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
8) BANK FINANCING AND DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Notes payable to banks (a)................................................................. $ 848.3 $ 3,152.7
6.625% Senior Notes due 1998 (b)........................................................... -- 150.0
5.875% Senior Notes * due 2000, net of unamortized discount of $.2 (1998) and (1997)....... 149.8 149.8
7.5% Senior Notes * due 2002, net of unamortized discount of $1.3 (1998) and $1.7 (1997)... 248.7 248.3
6.75% Senior Notes due 2003, net of unamortized discount of $.2 (1998) and (1997).......... 349.8 349.8
7.75% Senior Notes due 2005, net of unamortized discount of $5.9 (1998) and $7.1 (1997).... 965.0 992.9
7.625% Senior Debentures due 2016, net of unamortized discount of $1.2 1998 and $1.3
(1997)................................................................................... 198.7 198.7
8.25% Senior Debentures * due 2022, net of unamortized discount of $2.6 (1998) and $2.7
(1997)................................................................................... 247.4 247.3
7.5% Senior Debentures * due 2023, net of unamortized discount of $.5...................... 149.5 149.5
9.125% Senior Subordinated Notes * due 1999 (c)............................................ -- 150.0
8.75%Senior Subordinated Reset Notes * due 2001 (d)........................................ -- 100.0
10.25% Senior Subordinated Notes * due 2001 (e)............................................ 36.3 200.0
7.0% Senior Subordinated Debentures * due 2003, net of unamortized discount of $36.0 (1997)
(f)...................................................................................... -- 195.5
8.0% Merger Debentures due 2006, net of unamortized discount of $44.1 (1998) and $98.9
(1997) (e)............................................................................... 475.2 971.4
Other Notes................................................................................ 20.5 16.6
Obligations under capital leases........................................................... 501.4 527.0
--------- ---------
4,190.6 7,799.5
Less current portion....................................................................... 377.2 376.5
--------- ---------
$ 3,813.4 $ 7,423.0
========= =========
</TABLE>
- ------------------------
* Issues of Viacom International guaranteed by the Company.
(a) --Effective March 26, 1997, the Company and Viacom International
Inc. ("Viacom International") amended and restated the $6.489 billion and
$311 million Credit Agreements and the $1.8 billion Credit Agreement,
originally established in 1994, to provide for credit agreements of $6.4
billion (the "March 1997 Viacom Credit Agreement") and $100 million (the
"March 1997 Viacom International Credit Agreement," together with the
March 1997 Viacom Credit Agreement, collectively the "March 1997 Credit
Agreements"). The March 1997 Credit Agreements increased commitments by $400
million, extended maturities and reduced pricing.
Effective December 23, 1997, the Company permanently reduced its commitments
under the March 1997 Credit Agreements by $1.0 billion.
F-48
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Certain proceeds from the disposition of Non-Consumer Publishing in November
of 1998 were used to reduce borrowings under the March 1997 Credit Agreements.
Effective June 30, 1997, certain financial covenants in the March 1997
Credit Agreements and the film financing credit agreement were amended to
provide the Company with increased financial flexibility.
The following is a summary description of the March 1997 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 March 1997 Viacom Credit Agreement is comprised of (i) a $4.7 billion
senior unsecured reducing revolving loan maturing July 1, 2002 and (ii) a
$700 million term loan maturing April 1, 2002. The March 1997 Viacom
International Credit Agreement is comprised of a $100 million term loan
maturing July 1, 2002.
The Company guarantees the March 1997 Viacom International Credit
Agreement and notes and debentures issued by Viacom International. Viacom
International guarantees the March 1997 Viacom Credit Agreement and notes
and debentures issued by the Company.
The Company may prepay the loans and reduce commitments under the March
1997 Credit Agreements in whole or in part at any time.
The March 1997 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 March 1997 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.
The interest rate on all loans made under the three facilities is based upon
Citibank, N.A.'s base rate or the London Interbank Offered Rate ("LIBOR") and is
affected by the Company's credit rating. At December 31, 1998, the LIBOR (upon
which the Company's borrowing rate was based) for borrowing periods of one month
and two months were each 5.09%. At December 31, 1997, LIBOR for borrowing
periods of one and two months were 5.72% and 5.75%, respectively.
The Company is required to pay a commitment fee based on the aggregate daily
unborrowed portion of the loan commitments. As of December 31, 1998, the Company
had $4.7 billion of available unborrowed loan commitments. The March 1997 Credit
Agreements do not require compensating balances.
On May 8, 1998, a subsidiary of the Company amended the 364-day film
financing credit agreement, guaranteed by Viacom International and the Company,
which extended the expiration date for one year, reduced pricing and decreased
the available credit by $109 million to $361 million.
(b) --On February 17, 1998, the Company retired all $150.0 million of
its outstanding 6.625% Senior Notes due 1998.
(c) --On February 15, 1998, the Company redeemed all $150.0 million of
Viacom International's outstanding 9.125% Senior Subordinated Notes due
1999, at a redemption price equal to 101.3% of the principal amount.
F-49
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(d) --On May 15, 1998, the Company redeemed all $100.0 million of Viacom
International's outstanding 8.75% Senior Subordinated Reset Notes due 2001
at a redemption price equal to 101% of the principal amount.
(e) --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'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. In 1999, an additional $307.5 million of the 8.0% Merger
Debentures were tendered for a total principal amount of $841.3 million of
notes tendered.
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.
(f) --On December 30, 1998, the Company redeemed all $231.5 million of
Viacom International's outstanding 7% Senior Subordinated Debentures due
2003 at a redemption price equal to 100% of the principal amount.
The Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and contingent
value rights of Viacom and guarantees of such debt securities by Viacom
International which may be issued for aggregate gross proceeds of $3.0 billion.
The registration statement was declared effective on May 10, 1995. The net
proceeds from the sale of the offered securities may be used by Viacom 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 filed a post-effective amendment
to this registration statement on November 19, 1996. To date, the Company has
issued $1.55 billion of notes and debentures and has $1.45 billion remaining
availability under the shelf registration statement.
Interest costs incurred, interest income and capitalized interest are
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Interest Incurred................................................ $ 622.3 $ 772.8 $ 823.9
Interest Income.................................................. 23.4 21.0 33.9
Capitalized Interest............................................. -- 1.0 4.5
</TABLE>
The Company's scheduled maturities of indebtedness through December 31,
2003, assuming full utilization of the March 1997 Credit Agreements, as amended,
are $1.2 billion (1999), $1.7 billion (2000), $1.8 billion (2001), $2.0 billion
(2002) and $350.0 million (2003). The Company's maturities of long-term debt
outstanding at December 31, 1998, excluding capital leases, are $327.9 million
(1999), $150.0 million (2000), $36.3 million (2001), $1.1 billion (2002) and
$350.0 million (2003). 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.
F-50
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
9) 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 which are not
significant. The carrying value of the senior debt, senior subordinated debt and
subordinated debt is $2.8 billion and the fair value, which is estimated based
on quoted market prices, is approximately $3.0 billion.
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 1998 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, the European Union's common currency (the "Euro") and the
European Currency Unit/British Pound relationship. At December 31, 1998, the
Company had outstanding contracts with a notional value of approximately $4.3
million which expire in 1999. 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, 1998 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, 1998, due to the wide variety of customers, markets and geographic
areas to which the Company's products and services are sold.
10) 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. All common shares and per-share amounts have been adjusted to reflect
the stock split for all periods presented.
On December 2, 1998, as part of its repurchase program described below, the
Company repurchased 12 million shares of its convertible preferred stock, par
value $.01 per share, 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. The preferred stock had a cumulative cash dividend of $60 million per
year and was convertible into approximately 34.3 million shares of the Company's
Class B common stock.
On August 31, 1998, the Company initiated a repurchase program to acquire
one or more classes of the Company's equity securities. Through December 31,
1998, the Company had repurchased 12,000 shares of Class A Common Stock,
26,190,200 shares of Class B Common Stock, 5,502,000 Viacom Five-
F-51
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Year Warrants, expiring on July 7, 1999, and 12 million shares of its
convertible preferred stock for approximately $1.4 billion in the aggregate. On
February 10, 1999, the program was completed and the Company had repurchased a
total of 12,000 shares of Class A Common Stock 26,255,600 shares of Class B
Common Stock, 5,546,500 Viacom Five-Year warrants, expiring on July 7, 1999 and
24 million shares of its convertible preferred stock. The total repurchase
program approximated $2.0 billion. The cost of the acquired treasury stock has
been reflected separately as a reduction to shareholders' equity. The acquired
warrants have been canceled and the cost has been reflected as a reduction to
additional paid-in capital.
At December 31, 1998 and 1997, respectively, there were 6,090,822 and
11,522,695 outstanding Viacom Five-Year Warrants, expiring July 7, 1999 and at
December 31, 1996 there were 30,576,562 outstanding Viacom Three-Year Warrants,
which expired July 7, 1997. The decrease in the outstanding Viacom Five-Year
Warrants is attributable to the 1998 stock repurchase program.
During 1997, the Company completed its joint purchase program initially
established in September 1996 with NAI, for each to acquire up to $250 million,
or $500 million in total, of the Company's Class A Common Stock, Class B Common
Stock, and, as to the Company, Viacom Warrants. The Company repurchased
1,319,400 shares of Viacom Inc. Class A Common Stock, 11,632,600 shares of
Viacom Inc. Class B Common Stock and 6,824,590 Viacom Five-Year Warrants,
expiring on July 7, 1999, for approximately $250 million in the aggregate. The
cost of the acquired treasury stock has been reflected separately as a reduction
to shareholders' equity. The cost of the warrants has been reflected as a
reduction to additional paid-in-capital and such warrants have been cancelled.
As of December 31, 1997, NAI has separately acquired 2,564,400 shares of Viacom
Inc. Class A Common Stock and 11,204,000 shares of Viacom Inc. Class B Common
Stock pursuant to the joint purchase program for approximately $250 million,
raising its ownership to approximately 67% of Viacom Inc. Class A Common Stock
and approximately 28% of Class A and Class B Common Stock on a combined basis.
LONG-TERM INCENTIVE PLANS--The purpose of the Company's 1989, 1994 and 1997
Long-Term Incentive Plans (the "Plans") 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 Plans 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 stock options available for future grant are as follows:
<TABLE>
<S> <C>
December 31, 1996............................................... 40,701,682
December 31, 1997............................................... 26,753,956
December 31, 1998............................................... 14,849,484
</TABLE>
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 its stock option 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 stock option
plans been determined based upon the fair value at the grant date for
F-52
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
awards consistent with the methodology prescribed by SFAS 123, the Company's
consolidated pre-tax income would have decreased by $67.4 million ($40.5 million
after tax or $.06 per basic and diluted common share), $36.3 million ($22.2
million after tax or $.03 per basic and diluted common share) and $18.3 million
($11.0 million after tax or $.02 per basic and diluted common share) in 1998,
1997 and 1996, 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.
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:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield(a)........................................... -- -- --
Expected stock price volatility...................................... 32.76% 31.74% 32.50%
Risk-free interest rate.............................................. 5.43% 6.04% 6.19%
Expected life of options (years)..................................... 6.0 6.0 6.0
</TABLE>
- ------------------------
(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.
The weighted-average fair value of each option as of the grant date was
$12.97, $6.58 and $8.14 in 1998, 1997 and 1996, respectively.
The following table summarizes the Company's stock option activity under the
various plans (all options and prices reflect the stock split):
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
------------- -----------------
<S> <C> <C>
Balance at December 31, 1995................................. 37,136,642 $ 15.35
-------------
Granted.................................................... 12,527,600 18.75
Exercised.................................................. (7,677,298) 15.18
Canceled................................................... (2,695,930) 18.78
-------------
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
=============
</TABLE>
F-53
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes information concerning currently outstanding
and exercisable stock options of the Company at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
REMAINING
RANGE OF CONTRACTUAL WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ----------------- ------------ --------- --------- ---------- ---------
$10 to $15....... 1,017,994 3.4 $ 13.43 847,994 $ 13.20
15 to 20......... 27,705,974 7.7 16.49 5,906,282 17.66
20 to 25......... 1,304,000 6.8 22.55 809,998 22.72
25 to 30......... 759,178 5.0 27.08 700,868 27.23
30 to 35......... 13,498,420 9.6 30.59 -- --
3 to 25(a)....... 359,384(a) 4.2 14.29 359,384 14.29
15 to 30(b)...... 268,356(b) 4.0 23.51 268,356 23.51
------------ ----------
44,913,306 8,892,882
============ ==========
</TABLE>
- ------------------------
(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:
<TABLE>
<S> <C>
December 31, 1996............................................... 22,486,440
December 31, 1997............................................... 14,795,698
December 31, 1998............................................... 8,892,882
</TABLE>
The Company has reserved a total of 85,694 shares of Viacom Inc. Class A
Common Stock and 57,033,736 shares of Viacom Inc. Class B Common Stock
principally for exercise of stock options and warrants.
SPELLING STOCK OPTION PLANS--Spelling currently has stock option plans under
which both incentive and nonqualified stock options have been granted to certain
key employees, consultants and directors. Options have generally been granted
with an exercise price equal to the fair market value of the underlying Common
Stock on the date of grant, although nonqualified options may be granted with an
exercise price not less than 50% of such fair market value. Each option is
granted subject to various terms and conditions established on the date of
grant, including vesting periods and expiration dates. The options typically
become exercisable at the rate of 20% or 25% annually, beginning one year after
the date of grant. Options expire no later than 10 years from their date of
grant.
The Spelling stock options available for future grant are as follows:
<TABLE>
<S> <C>
December 31, 1996.............................................. 5,094,251(a)
December 31, 1997.............................................. 3,030,838
December 31, 1998.............................................. 2,867,963
</TABLE>
- ------------------------
(a) Includes 1,360,866 shares available for grant under a plan which expired on
April 13, 1997.
F-54
<PAGE>
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
$2.91, $2.65 and $2.66 for 1998, 1997 and 1996, respectively. The fair value of
each Spelling option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield(a)..................................... -- -- --
Expected stock price volatility................................ 34.30% 30.91% 28.45%
Risk-free interest rate........................................ 4.91% 5.75% 6.60%
Expected life of options (years)............................... 6.2 5.2 4.8
</TABLE>
- ------------------------
(a) During 1998, 1997 and 1996, Spelling did not declare any cash dividends on
its common stock.
The following table summarizes Spelling's stock option activity:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at December 31, 1995.................................. 5,759,218 $ 7.72
-----------
Granted..................................................... 3,750,010 7.13
Exercised................................................... (841,943) 4.91
Canceled.................................................... (688,967) 7.02
-----------
Balance at December 31, 1996.................................. 7,978,318 7.80
-----------
Granted..................................................... 1,171,000 6.90
Exercised................................................... (362,008) 6.29
Canceled.................................................... (588,519) 8.90
-----------
Balance at December 31, 1997.................................. 8,198,791 7.66
-----------
Granted..................................................... 1,287,500 6.76
Exercised................................................... (671,279) 6.15
Canceled.................................................... (1,187,839) 8.06
-----------
Balance at December 31, 1998.................................. 7,627,173 7.58
===========
</TABLE>
The following table summarizes Spelling's information concerning currently
outstanding and exercisable stock options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C>
REMAINING
CONTRACTUAL
RANGE OF LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- -------------------------------------- ---------- --------- --------- ---------- ---------
$ 5.25 to $ 5.75...................... 25,834 7.27 $ 5.69 8,959 $ 5.56
6.00 to 7.75...................... 5,942,717 7.48 6.83 2,309,842 6.61
7.88 to 9.88...................... 469,622 5.66 9.11 417,122 9.14
10.00 to 11.78...................... 1,189,000 5.86 10.75 1,179,000 10.75
---------- --------- --------- ---------- ---------
$ 5.25 to $11.78...................... 7,627,173 7.12 $ 7.58 3,914,923 $ 8.12
========== ========= ========= ========== =========
</TABLE>
F-55
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SHARES ISSUABLE UNDER EXERCISABLE STOCK OPTIONS:
<TABLE>
<S> <C>
December 31, 1996................................................ 3,079,436
December 31, 1997................................................ 3,813,349
December 31, 1998................................................ 3,914,923
</TABLE>
Options related to employees of Virgin and included in the tables above are
875,010 shares granted for the year ended December 31, 1996. Also included are
120,276, 133,582 and 775,220 shares exercised, and 615,060, 184,269 and 149,921
shares terminated for the years ended December 31, 1998, 1997 and 1996,
respectively.
11) INCOME TAXES
Earnings from continuing operations before income taxes are attributable to
the following jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
United States.................................................. $ 74.1 $ 910.4 $ 152.6
Foreign........................................................ 63.2 268.1 257.5
--------- --------- ---------
Total.......................................................... $ 137.3 $ 1,178.5 $ 410.1
========= ========= =========
</TABLE>
Components of the provision for income taxes on earnings from continuing
operations before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current:
Federal........................................................ $ 151.0 $ 370.0 $ 155.9
State and local................................................ 34.9 115.1 27.7
Foreign........................................................ 50.9 24.5 76.6
--------- --------- ---------
236.8 509.6 260.2
Deferred......................................................... (98.1) 136.8 (16.9)
--------- --------- ---------
$ 138.7 $ 646.4 $ 243.3
========= ========= =========
</TABLE>
The earnings (loss) of affiliated companies accounted for under the equity
method are shown net of tax on the Company's Statements of Operations. The tax
provision (benefit) relating to earnings (loss) from equity investments in 1998,
1997 and 1996 are ($24.0) million, ($29.0) million and $14.9 million,
respectively, which represents an effective tax rate of 36.7%, 15.1% and 762.1%,
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 31.8%, 44.1% and 35.7% for 1998, 1997 and 1996,
respectively. See Note 3 for tax benefits relating to the discontinued
operations. In addition to the amounts reflected in the table above, $55.1
million and $7.8
F-56
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
million of income tax benefit in 1998 and 1997, respectively, 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Statutory U.S. federal tax rate.................................. 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit................ 5.7 5.9 2.3
Effect of foreign operations..................................... (35.5) (0.6) (13.0)
Amortization of intangibles...................................... 86.3 9.7 27.1
Divestiture tax versus book...................................... (.5) -- 1.0
Other, net....................................................... 10.0 4.9 6.9
--------- --------- ---------
Effective tax rate on earnings from continuing operations before
income taxes................................................... 101.0% 54.9% 59.3%
========= ========= =========
</TABLE>
The following is a summary of the components of the deferred tax accounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Current deferred tax assets and (liabilities):
Recognition of revenue.................................................... $ 103.0 $ 76.7
Sales return and allowances............................................... 29.9 91.5
Publishing costs.......................................................... 15.2 15.6
Employee compensation and other payroll related expenses.................. 23.7 48.0
Other differences between tax and financial statement values.............. 7.1 4.5
--------- ---------
Gross current deferred net tax assets................................... 178.9 236.3
--------- ---------
Noncurrent deferred tax assets and (liabilities):
Depreciation/amortization of fixed assets and intangibles................. 45.0 (179.5)
Reserves including restructuring and relocation charges................... 260.3 296.7
Acquired net operating loss and tax credit carryforwards.................. 60.9 82.1
Amortization of discount on 8% Merger Debentures.......................... 60.4 61.3
Other differences between tax and financial statement values.............. 26.9 95.3
--------- ---------
Gross non-current deferred net tax assets............................... 453.5 355.9
--------- ---------
Valuation allowance....................................................... (88.3) (106.8)
--------- ---------
Total net deferred tax assets (liabilities)............................. $ 544.1 $ 485.4
========= =========
</TABLE>
As of December 31, 1998 and December 31, 1997, the Company had total
deferred tax assets of $632.4 million and $771.7 million, respectively, and
total deferred tax liabilities of $179.5 million as of December 31, 1997. There
were no deferred tax liabilities as of December 31, 1998.
As of December 31, 1998, the Company had net operating loss carryforwards of
approximately $173.7 million which expire in various years from 1999 through
2012.
F-57
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The 1998 and 1997 net deferred tax assets are reduced by a valuation
allowance of $88.3 million and $106.8 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 $1.5 billion at
December 31, 1998 and December 31, 1997. 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.
As of December 31, 1998, the Company owns approximately 80% of Spelling's
outstanding common stock and consolidates Spelling's results for tax purposes.
12) 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. Effective January 1, 1996, the
pension plans of Paramount were merged with the Company's pension plans. The
Pension Plan for Employees of PVI Transmission Inc. and Paramount Distribution
Inc. was merged with and into the Viacom Pension Plan effective December 31,
1996. 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 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 15.8% and 10% of the plan assets' fair value at December 31, 1998
and 1997, 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:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Change in benefit obligation:
Benefit obligation, beginning of year.................. $ 785.3 $ 667.8 $ 103.6 $ 98.8
Service cost........................................... 36.8 32.1 1.0 1.0
Interest cost.......................................... 57.8 54.1 6.5 7.4
Benefits paid.......................................... (39.3) (38.8) (8.8) (9.2)
Actuarial (gain) loss.................................. 66.8 70.4 (2.9) 4.5
Curtailments/Divestitures.............................. (61.4) -- (46.9) --
Participant contributions.............................. -- -- 1.1 1.1
Amendments............................................. -- .8 -- --
Cumulative translation adjustments..................... (1.8) (1.1) -- --
--------- --------- --------- ---------
Benefit obligation, end of year........................ $ 844.2 $ 785.3 $ 53.6 $ 103.6
========= ========= ========= =========
</TABLE>
F-58
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the change in plan assets for the Company's
benefit plans:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Change in plan assets:
Fair value of plan assets, beginning of year............. $ 697.3 $ 606.2 $ -- $ --
Actual return on plan assets............................. 146.4 123.6 -- --
Employer contributions................................... 7.3 7.9 7.7 8.1
Benefits paid............................................ (39.3) (38.8) (8.8) (9.2)
Divestitures............................................. (21.7) -- -- --
Participant contributions................................ -- -- 1.1 1.1
Cumulative translation adjustments....................... (3.4) (1.6) -- --
--------- --------- --------- ---------
Fair value of plan assets, end of year................... $ 786.6 $ 697.3 $ -- $ --
========= ========= ========= =========
</TABLE>
The projected benefit obligations and accumulated benefit obligations for
the pension plans with accumulated benefit obligations in excess of plan assets
were $99.6 million and $88.4 million for 1998, and $85.7 million and $75.1
million for 1997.
The accrued pension and postretirement costs recognized in the Company's
consolidated balance sheets are computed as follows:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Funded status....................................... $ (57.6) $ (88.0) $ (53.6) $ (103.6)
--------- --------- --------- ---------
Unrecognized actuarial gain......................... (97.5) (71.5) (16.2) (30.1)
Unrecognized prior service cost (benefit)........... 12.5 15.1 (5.4) (25.1)
Unrecognized asset at transition.................... (2.1) (4.3) -- --
--------- --------- --------- ---------
Accrued pension liability, net...................... $ (144.7) $ (148.7) $ (75.2) $ (158.8)
========= ========= ========= =========
Amounts recognized in the Consolidated
Balance Sheets:
Accrued pension liability, net.................... $ (161.1) $ (163.3) $ (75.2) $ (158.8)
Prepaid benefits cost............................. 2.3 3.6 -- --
Intangibles....................................... 3.9 2.6 -- --
Accumulated other comprehensive loss.............. 10.2 8.4 -- --
--------- --------- --------- ---------
Net liability recognized............................ $ (144.7) $ (148.7) $ (75.2) $ (158.8)
========= ========= ========= =========
</TABLE>
F-59
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net periodic cost for the Company's pension and postretirement benefit plans
consists of the following:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic cost:
Service cost............................ $ 36.8 $ 32.1 $ 31.1 $ 1.0 $ 1.0 $ 1.0
Interest cost........................... 57.8 54.1 50.6 6.5 7.4 8.1
Expected return on plan assets.......... (64.4) (56.0) (48.8) -- -- --
Amortization of prior service cost...... 2.6 1.6 1.7 (3.0) (3.2) (3.2)
Amortization of transition obligation... (2.2) (.7) (.5) -- -- --
Recognized actuarial (gain) loss........ 3.7 3.3 (.2) (2.9) (3.1) (1.3)
Curtailment (gain)...................... (31.4) -- -- (77.5) -- --
--------- --------- --------- --------- --------- ---------
Net periodic cost....................... $ 2.9 $ 34.4 $ 33.9 $ (75.9) $ 2.1 $ 4.6
========= ========= ========= ========= ========= =========
</TABLE>
The following assumptions were used in accounting for the pension plans:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Discount rate...................................................... 6.75% 7.25% 7.75%
Expected return on plan assets..................................... 9.5% 9.5% 9.5%
Rate of increase in future compensation............................ 5.0% 5.0% 5.0%
</TABLE>
The following assumptions were used in accounting for postretirement
benefits:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Projected health care cost trend rate.............................. 6.0% 7.0% 9.0%
Ultimate trend rate................................................ 5.5% 5.5% 5.5%
Year ultimate trend rate is achieved............................... 1999 1999 1999
Discount rate...................................................... 6.75% 7.25% 7.75%
</TABLE>
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:
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
----------------- -----------------
<S> <C> <C>
Effect on total of service and interest cost components...... $ .6 $ (.5)
Effect on the postretirement benefit obligation.............. $ 4.4 $ (3.8)
</TABLE>
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 in 1998.
The Company contributes to multi-employer plans which provide pension and
health and welfare benefits to certain employees under collective bargaining
agreements. The contributions to these plans were $35.4 million (1998) and $52.5
million (1997).
F-60
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
In addition, the Company sponsors a health and welfare plan which 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 $21.1 million, $19.2 million and $24.4 million
for the years ended December 31, 1998, 1997 and 1996.
13) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancelable lease commitments for retail and
office space and equipment, transponders, studio facilities and vehicles.
At December 31, 1998, minimum rental payments under noncancelable leases are
as follows:
<TABLE>
<CAPTION>
LEASES
----------------------
<S> <C> <C>
OPERATING CAPITAL
--------- ---------
1999..................................................................... $ 553.2 $ 120.4
2000..................................................................... 516.9 106.8
2001..................................................................... 441.6 101.1
2002..................................................................... 347.7 90.7
2003..................................................................... 314.4 69.4
2004 and thereafter...................................................... 1,630.3 164.3
--------- ---------
Total minimum lease payments............................................. $ 3,804.1 652.7
=========
Less amounts representing interest....................................... (151.3)
---------
Present value of net minimum payments.................................... $ 501.4
=========
</TABLE>
The Company has entered into capital leases for satellite transponders with
future minimum commitments commencing in future periods. Future minimum capital
lease payments have not been reduced by future minimum sublease rentals of $40.0
million. Rent expense amounted to $533.8 million (1998), $523.1 million (1997)
and $392.3 million (1996).
The commitments of the Company for program license fees, which are not
reflected in the balance sheet as of December 31, 1998 and are estimated to
aggregate approximately $1.2 billion, excluding intersegment commitments of
approximately $738.9 million, principally reflect Showtime Networks Inc.'s
("SNI's") commitments of approximately $1.1 billion 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.
F-61
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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
conducted by its former mining and manufacturing businesses (acquired as part of
the mergers with Paramount and Blockbuster). 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 liquidity.
14) 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. The prior years' results have also been reclassified to conform to the
new presentation. Intersegment revenues, recorded at fair market value, of the
Entertainment segment for 1998, 1997 and 1996 were $156.7 million, $114.0
million and $45.9 million, respectively. All other intersegment revenues were
immaterial for any of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ---------
REVENUES:
Networks................................................. $ 2,607.9 $ 2,262.8 $ 1,999.5
Entertainment............................................ 4,757.8 4,305.9 3,897.9
Video.................................................... 3,893.4 3,313.6 2,942.3
Parks.................................................... 421.2 367.3 361.9
Publishing............................................... 564.6 556.6 547.6
Online................................................... 13.7 10.4 --
Intercompany............................................. (162.5) (131.7) (65.3)
---------- ---------- ---------
Total revenues......................................... $ 12,096.1 $ 10,684.9 $ 9,683.9
========== ========== =========
</TABLE>
F-62
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
EBITDA:
Networks................................................. $ 851.3 $ 729.4 $ 619.3
Entertainment............................................ 640.5 514.5 593.7
Video.................................................... 39.9 221.6 635.7
Parks.................................................... 101.1 88.9 87.9
Publishing............................................... 71.2 77.9 77.8
Online................................................... (3.5) 2.3 --
---------- ---------- ---------
Segment total.......................................... 1,700.5 1,634.6 2,014.4
Reconciliation to operating income:
Corporate expenses....................................... (171.6) (176.6) (162.9)
Depreciation and amortization............................ (777.3) (772.6) (654.3)
---------- ---------- ---------
Total operating income................................. $ 751.6 $ 685.4 $ 1,197.2
========== ========== =========
DEPRECIATION AND AMORTIZATION:
Networks................................................. $ 107.0 $ 93.8 $ 86.8
Entertainment............................................ 192.5 171.5 165.4
Video.................................................... 382.1 418.4 326.3
Parks.................................................... 51.2 46.5 44.2
Publishing............................................... 18.0 17.5 17.7
Online................................................... 4.0 -- --
---------- ---------- ---------
Segment total.......................................... 754.8 747.7 640.4
Corporate................................................ 22.5 24.9 13.9
---------- ---------- ---------
Total depreciation and amortization.................... $ 777.3 $ 772.6 $ 654.3
========== ========== =========
</TABLE>
F-63
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
TOTAL ASSETS:
Networks................................................................... $ 2,770.2 $ 2,692.8 $ 2,925.3
Entertainment.............................................................. 9,361.6 9,342.9 9,224.4
Video...................................................................... 8,142.6 8,965.4 9,273.7
Parks...................................................................... 914.8 897.2 883.1
Publishing................................................................. 962.4 5,439.4 5,405.1
Online..................................................................... 5.8 1.4 --
---------- ---------- ----------
Segment total.......................................................... 22,157.4 27,339.1 27,711.6
Corporate.................................................................. 1,455.7 949.6 833.0
Net assets of discontinued operations...................................... -- -- 289.4
---------- ---------- ----------
Total assets........................................................... $ 23,613.1 $ 28,288.7 $ 28,834.0
========== ========== ==========
CAPITAL EXPENDITURES:
Networks................................................................... $ 89.8 $ 67.9 $ 86.4
Entertainment.............................................................. 174.3 66.7 67.6
Video...................................................................... 196.0 294.2 304.3
Parks...................................................................... 61.0 35.0 54.2
Publishing................................................................. 37.5 36.1 37.3
Online..................................................................... -- -- --
---------- ---------- ----------
Segment total.......................................................... 558.6 499.9 549.8
Corporate.................................................................. 44.9 30.4 48.8
---------- ---------- ----------
Total capital expenditures............................................. $ 603.5 $ 530.3 $ 598.6
========== ========== ==========
</TABLE>
Information regarding the Company's operations by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------- ---------- ----------
REVENUES(A):
United States............................................................ $ 9,268.3 $ 8,227.9 $ 7,428.2
International............................................................ 2,827.8 2,457.0 2,255.7
---------- ---------- ----------
Total revenues......................................................... $ 12,096.1 $ 10,684.9 $ 9,683.9
========== ========== ==========
LONG-LIVED ASSETS(B):
United States............................................................ $ 16,857.0 $ 20,914.3 $ 21,570.7
International............................................................ 1,326.9 1,421.6 1,223.9
---------- ---------- ----------
Total long-lived assets................................................ $ 18,183.9 $ 22,335.9 $ 22,794.6
========== ========== ==========
</TABLE>
Intercompany transfers between geographic areas are not significant.
- ------------------------
(a) Revenue classification is based on location of customer.
(b) Includes all non-current assets.
F-64
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
15) QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998(1) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
- ------------------------------------------------------ --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 2,685.6 $ 2,779.3 $ 3,288.8 $ 3,342.4 $ 12,096.1
Operating income (loss)(2)............................ $ 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)(3)(4)(5).......................... $ 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 (loss) per common share(6):
Earnings (loss) from continuing operations.......... $ .05 $ (.40) $ .10 $ .15 $ (.10)
Net earnings (loss)................................. $ (.02) $ (.41) $ .17 $ .05 $ (.21)
Diluted earnings (loss) per common share(6):
Earnings (loss) from continuing operations.......... $ .05 $ (.40) $ .10 $ .15 $ (.10)
Net earnings (loss)................................. $ (.02) $ (.41) $ .17 $ .05 $ (.21)
Weighted average number of common shares(6):
Basic............................................... 710.5 713.2 714.7 696.7 708.7
Diluted............................................. 718.0 713.2 725.5 706.4 708.7
<CAPTION>
1997(1)
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 2,495.7 $ 2,476.1 $ 2,806.4 $ 2,906.7 $ 10,684.9
Operating income (loss)(7)............................ $ 246.6 $ (65.9) $ 287.3 $ 217.4 $ 685.4
Earnings (loss) from continuing operations(8)......... $ 11.2 $ (166.6) $ (46.0) $ 574.9 $ 373.5
Net earnings (loss)(9)................................ $ (18.7) $ (195.0) $ 434.3 $ 573.0 $ 793.6
Net earnings (loss) attributable to common
stock............................................... $ (33.7) $ (210.0) $ 419.3 $ 558.0 $ 733.6
Basic earnings (loss) per common share(6):
Earnings (loss) from continuing operations.......... $ (.01) $ (.26) $ (.09) $ .79 $ .44
Net earnings (loss)................................. $ (.05) $ (.30) $ .59 $ .79 $ 1.04
Diluted earnings (loss) per common share(6):
Earnings (loss) from continuing
operations(10).................................... $ (.01) $ (.26) $ (.09) $ .77 $ .44
Net earnings (loss)(10)............................. $ (.05) $ (.30) $ .59 $ .77 $ 1.04
Weighted average number of common shares(6):
Basic............................................... 705.0 705.3 705.9 706.8 705.8
Diluted(10)......................................... 705.0 705.3 705.9 744.5 708.5
</TABLE>
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 first three quarters of 1998 and all four quarters of 1997 results have
been restated for the effect of discontinued operations (See Note 3).
F-65
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(2) The second quarter of 1998 included a $436.7 million charge for Blockbuster
representing the adjustment to the carrying value of the library tapes due
to a change in Blockbuster's business model and a revaluation of retail
inventory (See Note 4).
(3) 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.
(4) The fourth quarter of 1998 included a gain of $65.5 million, net of tax,
resulting from the sale of Non-Consumer Publishing.
(5) The fourth quarter of 1998 included an extraordinary loss of $74.7 million,
net of tax, for the early extinguishment of debt (See Note 17).
(6) All prior quarters' earnings per common share and weighted average number of
common shares have been adjusted to reflect the effect of the 2-for-1 stock
split.
(7) The second quarter of 1997 included a $220.8 million charge for Blockbuster
representing the reduction in carrying value of excess retail inventory and
costs associated with closing underperforming stores principally located in
international markets (See Note 4).
(8) The fourth quarter of 1997 included a gain of $640.5 million, net of tax,
resulting from the sale of USA Networks.
(9) The third quarter of 1997 included a gain of $416.4 million, net of tax,
resulting from the sale of Viacom Radio Stations.
(10) For the fourth quarter of 1997, the assumed conversion of preferred stock
had a dilutive effect on earnings per share, therefore, the sum of the
quarterly earnings per share will not equal full year earnings per share.
16) 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 and to phase out its Nickelodeon stores in January 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. 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 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, including Sci-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.
F-66
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
17) EXTRAORDINARY LOSS
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 for the early extinguishment of the
10.25% Senior Subordinated Notes, 7.0% Senior Subordinated Debentures and the
8.0% Merger Debentures (See Note 8).
18) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Cash payments for interest net of amounts capitalized................................ $ 668.2 $ 792.1 $ 808.0
Cash payments for income taxes....................................................... 656.6 110.9 193.0
Supplemental schedule of non-cash financing and investing activities:
Equipment acquired under capitalized leases.......................................... 116.8 54.0 211.1
Common Stock retired with Cable Split-off............................................ -- -- 625.8
</TABLE>
19) 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 8). 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.
F-67
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM 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
Other income (expense):
Interest expense, net...................... (516.0) (34.0) (49.0) -- (599.0)
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) -- (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............ -- 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)
========= ========== ========== ========= ==========
</TABLE>
F-68
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM 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
Other income (expense):
Interest expense, net....................... (631.1) (56.2) (63.6) -- (750.9)
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............................. -- (0.9) 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........................ 0.3 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
========= ========== ========= ========== ==========
</TABLE>
F-69
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- ---------- ----------
Revenues...................................... $ -- $ 1,193.7 $ 8,517.5 $ (27.3) $ 9,683.9
Expenses:
Operating................................... -- 373.5 5,994.0 (27.3) 6,340.2
Selling, general and administrative......... (0.3) 470.1 972.2 -- 1,442.0
Restructuring charge........................ -- -- 50.2 -- 50.2
Depreciation and amortization............... -- 60.9 593.4 -- 654.3
--------- ---------- --------- ---------- ----------
Total expenses............................ (0.3) 904.5 7,609.8 (27.3) 8,486.7
--------- ---------- --------- ---------- ----------
Operating income.............................. 0.3 289.2 907.7 -- 1,197.2
Other income (expense):
Interest expense, net....................... (627.7) (102.5) (55.3) -- (785.5)
Other items, net............................ -- (0.1) (1.5) -- (1.6)
--------- ---------- --------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes......................... (627.4) 186.6 850.9 -- 410.1
Benefit (provision) for income taxes.......... 259.3 (84.0) (418.6) -- (243.3)
Equity in earnings (loss) of affiliated
companies, net of tax....................... 1,613.0 77.2 42.3 (1,745.8) (13.3)
Minority interest............................. -- (1.2) (0.1) -- (1.3)
--------- ---------- --------- ---------- ----------
Earnings from continuing operations........... 1,244.9 178.6 474.5 (1,745.8) 152.2
Discontinued operations:
Earnings (loss) net of tax.................. 3.0 2.5 (67.5) -- (62.0)
Net gain (loss) on dispositions, net of
tax....................................... -- 1,292.0 (134.3) -- 1,157.7
--------- ---------- --------- ---------- ----------
Net earnings.................................. 1,247.9 1,473.1 272.7 (1,745.8) 1,247.9
Cumulative convertible preferred stock
dividend requirement........................ (60.0) -- -- -- (60.0)
--------- ---------- --------- ---------- ----------
Net earnings attributable to common stock..... $ 1,187.9 $ 1,473.1 $ 272.7 $ (1,745.8) $ 1,187.9
========= ========== ========= ========== ==========
</TABLE>
F-70
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 subs.............. 5,951.7 15,701.9 -- (21,653.6) --
Other assets.................................. 83.4 1,541.4 1,795.3 (1,979.1) 1,441.0
--------- ---------- --------- ---------- ----------
$ 6,583.4 $ 19,389.8 $21,300.5 $(23,660.6) $ 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............................. (17,419.8) 3,302.4 9,008.6 7,226.3 2,117.5
Shareholders' equity:
Convertible 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........................... 10,764.8 4,977.7 (98.8) (13,710.8) 1,932.9
Accumulated other comprehensive income
(loss).................................... -- 34.1 (101.2) -- (67.1)
--------- ---------- --------- ---------- ----------
21,891.7 12,890.0 8,482.6 (30,216.5) 13,047.8
Less treasury stock, at cost................ 998.2 -- -- -- 998.2
--------- ---------- --------- ---------- ----------
Total shareholders' equity................ 20,893.5 12,890.0 8,482.6 (30,216.5) 12,049.6
--------- ---------- --------- ---------- ----------
$ 6,583.4 $ 19,389.8 $21,300.5 $(23,660.6) $ 23,613.1
========= ========== ========= ========== ==========
</TABLE>
F-71
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- ---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................... $ .1 $ 91.5 $ 200.7 $ -- $ 292.3
Receivables, net............................ 10.2 384.0 2,047.0 (43.5) 2,397.7
Inventory................................... 13.3 100.5 2,138.9 -- 2,252.7
Other current assets........................ (6.1) 55.6 719.4 1.9 770.8
--------- ---------- --------- ---------- ----------
Total current assets...................... 17.5 631.6 5,106.0 (41.6) 5,713.5
--------- ---------- --------- ---------- ----------
Property and equipment........................ 12.4 478.9 3,828.9 -- 4,320.2
Less accumulated depreciation and
amortization.............................. 2.2 131.9 988.4 -- 1,122.5
--------- ---------- --------- ---------- ----------
Net property and equipment................ 10.2 347.0 2,840.5 -- 3,197.7
--------- ---------- --------- ---------- ----------
Inventory..................................... -- 318.2 2,332.4 -- 2,650.6
Intangibles, at amortized cost................ 112.4 534.4 14,052.8 -- 14,699.6
Investments in consolidated subs.............. 8,256.9 9,303.0 -- (17,559.9) --
Other assets.................................. (11.3) 238.0 1,719.7 80.9 2,027.3
--------- ---------- --------- ---------- ----------
$ 8,385.7 $ 11,372.2 $26,051.4 $(17,520.6) $ 28,288.7
========= ========== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................ $ -- $ 36.0 $ 803.3 $ (139.6) $ 699.7
Accrued expenses............................ 113.3 486.9 861.5 113.0 1,574.7
Deferred income............................. -- 17.0 237.6 -- 254.6
Accrued compensation........................ -- 122.4 319.3 -- 441.7
Participants' share, residuals and royalties
payable................................... -- -- 951.3 -- 951.3
Program rights.............................. -- 38.2 175.0 (15.5) 197.7
Income tax payable.......................... (6.2) 1,405.9 (307.2) (536.2) 556.3
Current portion of long-term debt........... 150.0 156.5 70.0 -- 376.5
--------- ---------- --------- ---------- ----------
Total current liabilities................. 257.1 2,262.9 3,110.8 (578.3) 5,052.5
--------- ---------- --------- ---------- ----------
Long-term debt................................ 4,760.5 1,953.9 708.6 -- 7,423.0
Other liabilities............................. (14,112.9) (4,498.2) 20,248.7 792.0 2,429.6
Shareholders' equity:
Convertible Preferred Stock................. 1,200.0 -- -- -- 1,200.0
Common Stock................................ 7.2 256.6 835.3 (1,091.9) 7.2
Additional paid-in capital.................. 10,329.6 6,745.9 1,071.0 (7,817.0) 10,329.5
Retained earnings........................... 6,173.7 4,585.0 155.7 (8,825.4) 2,089.0
Accumulated other comprehensive income
(loss).................................... -- 66.1 (78.7) -- (12.6)
--------- ---------- --------- ---------- ----------
17,710.5 11,653.6 1,983.3 (17,734.3) 13,613.1
Less treasury stock, at cost.................. 229.5 -- -- -- 229.5
--------- ---------- --------- ---------- ----------
Total shareholders' equity................ 17,481.0 11,653.6 1,983.3 (17,734.3) 13,383.6
--------- ---------- --------- ---------- ----------
$ 8,385.7 $ 11,372.2 $26,051.4 $(17,520.6) $ 28,288.7
========= ========== ========= ========== ==========
</TABLE>
F-72
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
Net cash flow provided by (used in) operating
activities.................................. $ 527.3 $ (303.7) $ 640.5 $ -- $ 864.1
--------- ---------- --------- --------- ----------
Investing Activities:
Proceeds from dispositions.................... -- 4,677.3 272.8 -- 4,950.1
Acquisitions, net of cash acquired............ (14.9) -- (111.5) -- (126.4)
Capital expenditures.......................... -- (88.6) (514.9) -- (603.5)
Investments in and advances to affiliated
companies................................... -- (3.6) (96.7) -- (100.3)
Proceeds from sale of cost investment......... -- 131.7 35.6 -- 167.3
Proceeds from sale of short-term
investments................................. -- 101.4 -- -- 101.4
Purchases of short-term investments........... -- (151.6) -- -- (151.6)
Other, net.................................... -- (6.9) (11.7) -- (18.6)
--------- ---------- --------- --------- ----------
Net cash flow provided by (used in) investing
activities.................................. (14.9) 4,659.7 (426.4) -- 4,218.4
--------- ---------- --------- --------- ----------
Financing Activities:
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 used in 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
========= ========== ========= ========= ==========
</TABLE>
F-73
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- --------- ----------
Net cash flow provided by (used in) operating
activities................................. $ 1,275.7 $ 109.6 $ (1,045.3) $ -- $ 340.0
--------- ---------- ---------- --------- ----------
Investing Activities:
Proceeds from dispositions................... -- 1,096.5 1,918.4 -- 3,014.9
Acquisitions, net of cash acquired........... (46.9) -- (308.2) -- (355.1)
Capital expenditures......................... -- (77.9) (452.4) -- (530.3)
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)
Other, net................................... -- .1 18.1 -- 18.2
--------- ---------- ---------- --------- ----------
Net cash flow provided by (used in) investing
activities................................. (46.9) 1,029.7 923.0 -- 1,905.8
--------- ---------- ---------- --------- ----------
Financing Activities:
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 in) 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
========= ========== ========== ========= ==========
</TABLE>
F-74
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM GUARANTOR VIACOM INC.
VIACOM INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
Net cash flow provided by (used in) operating
activities.................................. $ 1,150.6 $ (1,583.2) $ 503.1 $ -- $ 70.5
--------- ---------- --------- --------- ----------
Investing Activities:
Proceeds from dispositions.................... -- 1,700.0 138.1 -- 1,838.1
Acquisitions, net of cash acquired............ -- -- (299.8) -- (299.8)
Capital expenditures.......................... -- (125.5) (473.1) -- (598.6)
Investments in and advances to affiliated
companies................................... -- (57.3) (31.5) -- (88.8)
Proceeds from sale of short-term
investments................................. -- 137.9 -- -- 137.9
Purchases of short-term investments........... -- (149.2) -- -- (149.2)
Other, net.................................... -- -- -- -- --
--------- ---------- --------- --------- ----------
Net cash flow provided by (used in) investing
activities.................................. -- 1,505.9 (666.3) -- 839.6
--------- ---------- --------- --------- ----------
Financing Activities:
Repayments of credit agreements, net.......... (1,293.8) 407.0 27.3 -- (859.5)
Increase (decrease) in intercompany
payables.................................... 320.7 (464.3) 143.6 -- --
Repayment of notes and debentures............. -- (12.0) (38.9) -- (50.9)
Purchase of treasury stock and warrants....... (223.6) -- -- -- (223.6)
Payment on capital lease obligations.......... -- (15.5) (33.4) -- (48.9)
Payment of Preferred Stock dividends.......... (60.0) -- -- -- (60.0)
Proceeds from exercise of stock options and
warrants.................................... 95.1 -- -- -- 95.1
Other, net.................................... (17.4) -- -- -- (17.4)
--------- ---------- --------- --------- ----------
Net cash flow provided (used by) financing
activities.................................. (1,179.0) (84.8) 98.6 -- (1,165.2)
--------- ---------- --------- --------- ----------
Net decrease in cash and cash equivalents..... (28.4) (162.1) (64.6) -- (255.1)
Cash and cash equivalents at beginning of
year........................................ 47.4 223.3 193.4 -- 464.1
--------- ---------- --------- --------- ----------
Cash and cash equivalents at end of year...... $ 19.0 $ 61.2 $ 128.8 $ -- $ 209.0
========= ========== ========= ========= ==========
</TABLE>
F-75
<PAGE>
VIACOM INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
COL. B COL. C COL. E
------------- ------------------------ -----------
COL. A BALANCE AT CHARGED TO CHARGED TO COL. D BALANCE AT
- -------------------------------------------------- BEGINNING OF COSTS AND OTHER ---------- END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998.................... $ 99.8 $ 29.5(D) $ 18.3 $ 48.9(A) $ 98.7
Year ended December 31, 1997.................... $ 101.3 $ 83.1(D) $ (6.2) $ 78.4(B) $ 99.8
Year ended December 31, 1996.................... $ 126.0 $ 55.1 $ 3.1 $ 82.9(B) $ 101.3
Valuation allowance on deferred tax assets:
Year ended December 31, 1998.................... $ 106.8 $ -- $ -- $ 18.5 $ 88.3
Year ended December 31, 1997.................... $ 81.8 $ 25.0 $ -- $ -- $ 106.8
Year ended December 31, 1996.................... $ 81.8 $ -- $ -- $ -- $ 81.8
Reserves for inventory obsolescence:
Year ended December 31, 1998.................... $ 150.6 $ 25.7(D) $ (8.1) $ 111.5 $ 56.7
Year ended December 31, 1997.................... $ 105.8 $ 98.9(D) $ -- $ 54.1(C) $ 150.6
Year ended December 31, 1996.................... $ 129.6 $ 11.2(D) $ (24.7) $ 10.3(B) $ 105.8
</TABLE>
- ------------------------
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.
(D) Prior year amounts charged to the Statement of Operations have been restated
to conform with the current discontinued operations presentation.
F-76
<PAGE>
VIACOM INC. AND SUBSIDIARIES
JUNE 30, 1999 QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO
(UNAUDITED)
F-77
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Revenues................................................................................... $ 3,003.3 $ 2,779.3
Expenses:
Operating................................................................................ 1,935.4 2,309.4
Selling, general and administrative...................................................... 585.6 503.4
Depreciation and amortization............................................................ 200.0 191.9
--------- ---------
Total expenses......................................................................... 2,721.0 3,004.7
--------- ---------
Operating income (loss).................................................................... 282.3 (225.4)
Other income (expense):
Interest expense, net.................................................................... (106.1) (156.6)
Other items, net......................................................................... 6.6 (8.1)
--------- ---------
Earnings (loss) from continuing operations before income taxes............................. 182.8 (390.1)
Benefit (provision) for income taxes..................................................... (105.1) 133.0
Equity in loss of affiliated companies, net of tax....................................... (18.2) (10.6)
Minority interest........................................................................ (0.2) 0.4
--------- ---------
Earnings (loss) from continuing operations................................................. 59.3 (267.3)
Discontinued operations (Note 5):
Loss, net of tax......................................................................... -- (13.7)
Gain on dispositions..................................................................... -- 0.3
--------- ---------
Net earnings (loss)........................................................................ 59.3 (280.7)
Cumulative convertible preferred stock dividend requirement.............................. -- (15.0)
--------- ---------
Net earnings (loss) attributable to common stock........................................... $ 59.3 $ (295.7)
========= =========
Earnings (loss) per common share:
Basic:
Net earnings (loss) from continuing operations........................................... $ 0.09 $ (0.40)
Net earnings (loss)...................................................................... $ 0.09 $ (0.41)
Diluted:
Net earnings (loss) from continuing operations........................................... $ 0.08 $ (0.40)
Net earnings (loss)...................................................................... $ 0.08 $ (0.41)
Weighted average number of common shares:
Basic.................................................................................... 690.6 713.2
Diluted.................................................................................. 705.0 713.2
</TABLE>
See notes to consolidated financial statements.
F-78
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
Revenues................................................................................... $ 5,954.4 $ 5,464.9
Expenses:
Operating................................................................................ 3,887.6 4,113.6
Selling, general and administrative...................................................... 1,109.9 924.6
Depreciation and amortization............................................................ 397.1 378.7
--------- ---------
Total expenses......................................................................... 5,394.6 5,416.9
--------- ---------
Operating income........................................................................... 559.8 48.0
Other income (expense):
Interest expense, net.................................................................... (200.4) (310.7)
Other items, net......................................................................... 5.3 (4.5)
--------- ---------
Earnings (loss) from continuing operations before income taxes............................. 364.7 (267.2)
Benefit (provision) for income taxes..................................................... (202.4) 65.2
Equity in loss of affiliated companies, net of tax....................................... (34.3) (18.3)
Minority interest........................................................................ (0.3) 0.6
--------- ---------
Earnings (loss) from continuing operations................................................. 127.7 (219.7)
Discontinued operations (Note 5):
Loss, net of tax......................................................................... -- (59.9)
Gain on dispositions..................................................................... -- 0.3
--------- ---------
Net earnings (loss) before extraordinary loss.............................................. 127.7 (279.3)
Extraordinary loss, net of tax........................................................... (23.5) --
--------- ---------
Net earnings (loss)........................................................................ 104.2 (279.3)
Cumulative convertible preferred stock dividend requirement.............................. (0.4) (30.0)
Premium on repurchase of preferred stock................................................. (12.0) --
--------- ---------
Net earnings (loss) attributable to common stock........................................... $ 91.8 $ (309.3)
========= =========
Earnings (loss) per common share:
Basic:
Net earnings (loss) from continuing operations........................................... $ 0.17 $ (0.35)
Net earnings (loss)...................................................................... $ 0.13 $ (0.43)
Diluted:
Net earnings (loss) from continuing operations........................................... $ 0.16 $ (0.35)
Net earnings (loss)...................................................................... $ 0.13 $ (0.43)
Weighted average number of common shares:
Basic.................................................................................... 693.4 711.8
Diluted.................................................................................. 708.1 711.8
</TABLE>
See notes to consolidated financial statements.
F-79
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 616.0 $ 767.3
Receivables, less allowances of $109.7 (1999)
and $98.7 (1998)................................................................... 1,577.6 1,759.1
Inventory (Note 6)................................................................... 1,738.5 1,805.5
Other current assets................................................................. 883.2 732.6
---------- ----------
Total current assets............................................................. 4,815.3 5,064.5
---------- ----------
Property and equipment, at cost........................................................ 4,912.7 4,537.0
Less accumulated depreciation........................................................ 1,663.9 1,457.5
---------- ----------
Net property and equipment....................................................... 3,248.8 3,079.5
---------- ----------
Inventory (Note 6)..................................................................... 2,667.6 2,470.8
Intangibles, at amortized cost......................................................... 11,489.7 11,557.3
Other assets........................................................................... 1,582.0 1,441.0
---------- ----------
$ 23,803.4 $ 23,613.1
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................................... $ 420.7 $ 499.2
Accrued compensation................................................................. 287.7 410.3
Participants' share, residuals and royalties payable................................. 1,094.3 1,227.5
Income tax payable................................................................... 195.5 526.5
Current portion of long-term debt (Note 7)........................................... 328.2 377.2
Accrued expenses and other........................................................... 1,961.1 2,591.9
---------- ----------
Total current liabilities........................................................ 4,287.5 5,632.6
---------- ----------
Long-term debt (Note 7)................................................................ 6,424.3 3,813.4
Other liabilities...................................................................... 1,876.8 2,117.5
Commitments and contingencies (Note 8)
Shareholders' Equity:
Convertible Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 12.0 (1998) shares issued and outstanding.............................. -- 600.0
Class A Common Stock, par value $.01 per share; 200.0 shares
authorized; 140.5 (1999) and 141.6 (1998) shares issued............................ 1.4 1.4
Class B Common Stock, par value $.01 per share; 1,000.0 shares
authorized; 594.8 (1999) and 591.9 (1998) shares issued............................ 5.9 5.9
Additional paid-in capital........................................................... 10,593.2 10,574.7
Retained earnings.................................................................... 2,017.9 1,932.9
Accumulated other comprehensive loss (Note 1)........................................ (42.5) (67.1)
---------- ----------
12,575.9 13,047.8
Less treasury stock, at cost; 46.8 (1999) and 38.5 (1998) shares....................... 1,361.1 998.2
---------- ----------
Total shareholders' equity....................................................... 11,214.8 12,049.6
---------- ----------
$ 23,803.4 $ 23,613.1
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-80
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
OPERATING ACTIVITIES:
Net earnings (loss)......................................................................... $ 104.2 $ (279.3)
Adjustments to reconcile net earnings (loss) to net cash flow from operating activities:
Depreciation and amortization............................................................. 397.1 464.9
Distribution from affiliated companies.................................................... 14.4 10.2
Gain on sale of investment................................................................ -- (10.7)
Equity in loss of affiliated companies.................................................... 34.3 18.3
Change in operating assets and liabilities:
Decrease in receivables................................................................. 181.5 455.5
Decrease (increase) in inventory and related programming liabilities, net............... (266.6) 244.7
Increase in prepaid expenses and other current assets................................... (167.2) (15.3)
Decrease (increase) in unbilled receivables............................................. (14.3) 46.5
Decrease in accounts payable and accrued expenses....................................... (835.3) (365.0)
Decrease in taxes payable and deferred income taxes, net................................ (351.4) (738.3)
Increase in deferred income............................................................. 38.2 15.0
Other, net.............................................................................. (40.8) 86.1
--------- ---------
Net cash flow from operating activities..................................................... (905.9) (67.4)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures...................................................................... (320.4) (264.0)
Acquisitions, net of cash acquired........................................................ (277.4) (72.8)
Investments in and advances to affiliated companies....................................... (84.4) (51.0)
Proceeds from sales of short-term investments............................................. 222.5 53.4
Purchases of short-term investments....................................................... (215.3) (48.8)
Other, net................................................................................ -- 4.0
--------- ---------
Net cash flow from investing activities..................................................... (675.0) (379.2)
--------- ---------
FINANCING ACTIVITIES:
Borrowings from banks, net................................................................ 2,776.6 883.9
Repurchase of Preferred Stock............................................................. (612.0) --
Purchase of treasury stock and warrants................................................... (402.3) --
Repayment of notes and debentures......................................................... (323.1) (400.0)
Payment of capital lease obligations...................................................... (44.5) (35.6)
Proceeds from exercise of stock options and warrants...................................... 42.4 71.7
Other, net................................................................................ (7.5) (29.8)
--------- ---------
Net cash flow from financing activities..................................................... 1,429.6 490.2
--------- ---------
Net increase (decrease) in cash and cash equivalents...................................... (151.3) 43.6
Cash and cash equivalents at beginning of the period...................................... 767.3 292.3
--------- ---------
Cash and cash equivalents at end of period.................................................. $ 616.0 $ 335.9
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, net of amounts capitalized.................................... $ 236.5 $ 315.1
Cash payments for income taxes............................................................ $ 524.3 $ 620.2
NON CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capitalized leases.................................. $ 117.5 $ 17.6
</TABLE>
See notes to consolidated financial statements.
F-81
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1) BASIS OF PRESENTATION
Viacom Inc. (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. See Note 5 regarding the presentation of
discontinued operations.
The accompanying unaudited consolidated financial statements of the Company
have been prepared pursuant to the rules of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
more detailed financial statements and notes thereto included in the Company's
most recent annual report on Form 10-K.
In the opinion of management, the accompanying financial statements reflect
all adjustments, consisting of only normal and recurring adjustments, necessary
for a fair presentation of the financial position and results of operations and
cash flows of the Company for the periods presented. Certain previously reported
amounts have been reclassified to conform with the current presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
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 differ from those estimates.
NET EARNINGS (LOSS) PER COMMON SHARE--Basic earnings per share ("EPS") is
computed by dividing the net earnings applicable to common shares by the
weighted average of common shares outstanding during the period. Diluted EPS
adjusts the basic weighted average of common shares outstanding by the assumed
conversion of convertible securities and exercise of stock options only in the
periods in which such effect would have been dilutive. Prior period amounts have
been adjusted to reflect the effect of the 2-for-1 stock split (see Note 3). The
table below presents a reconciliation of weighted average shares used in the
calculation of basic and diluted EPS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares for basic EPS........................................... 690.6 713.2 693.4 711.8
Incremental shares for stock options & warrants................................. 14.4 -- 14.7 --
--------- --------- --------- ---------
Weighted average shares for diluted EPS......................................... 705.0 713.2 708.1 711.8
========= ========= ========= =========
</TABLE>
COMPREHENSIVE INCOME (LOSS)--Total comprehensive income (loss) for the Company
includes net income and other comprehensive income items including unrealized
gain (loss) on securities, cumulative translation adjustments and minimum
pension liability adjustments. Total comprehensive income (loss) for the three
months ended June 30, 1999 and 1998 was $62.1 million and $(297.8) million,
respectively, and for the six months ended June 30, 1999 and 1998 was $128.8
million and $(277.8) million, respectively.
2) SUBSEQUENT EVENTS
On July 19, 1999, Blockbuster Inc., a wholly owned subsidiary of the
Company, amended a previously filed registration statement on Form S-1 with the
Securities and Exchange Commission for a proposed
F-82
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
2) SUBSEQUENT EVENTS (CONTINUED)
initial public offering of 31 million shares of Blockbuster's Class A common
stock, representing approximately 17.7% of its shares. The underwriters will be
granted an option to acquire up to an additional 4.65 million shares to cover
over-allotments. It is currently estimated that the initial public offering
price will be between $16 and $18 per share. Blockbuster will use the net
proceeds of the offering to repay outstanding indebtedness under its credit
agreement.
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.
3) STOCK TRANSACTIONS AND ACQUISITIONS
On March 24, 1999, the Company initiated a repurchase program which was
subsequently expanded, to acquire up to $600 million of the Company's common
stock and warrants. As of June 30, 1999, the Company had repurchased 25,000
shares of Class A Common Stock, 8,825,800 shares of Class B Common Stock and
1,095,900 Viacom Five-Year Warrants, which expired July 7, 1999, for $393.1
million in the aggregate. During the period June 30 through July 28, 1999, the
Company repurchased 690,000 shares of Class B Common Stock and the cumulative
repurchase program totaled $423.4 million in the aggregate.
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 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 tendered shares, along with
the shares already owned by the Company, represented approximately 97% of all of
the issued and outstanding shares of Spelling. The tender offer was made under
the terms of a merger agreement between the Company and 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 merger was approximately $176 million. The Company has
begun the process of integrating certain operations of Spelling into Paramount
Television.
4) RECEIVABLES
As of June 30, 1999, the Company had an aggregate of $363.3 million
outstanding under revolving receivable securitization programs. Proceeds from
the sale of these receivables were used to reduce outstanding borrowings. The
resulting loss on the sale of receivables was not material to the Company's
financial position and results of operations.
F-83
<PAGE>
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 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 has presented its educational, professional and
reference publishing businesses ("Non-Consumer Publishing") and its music retail
stores ("Music") as discontinued operations, as these businesses were sold on
November 27, 1998 and October 26, 1998, respectively.
The gain on dispositions for the three and six months ended June 30, 1998
represents the reversal of cable split-off reserves that were no longer
required.
Summarized financial results of discontinued operations are as follows:
<TABLE>
<CAPTION>
NON-CONSUMER
PUBLISHING MUSIC TOTAL
--------------- --------- ---------
<S> <C> <C> <C>
For the three months ended June 30, 1998:
Revenues....................................................................... $ 422.0 $ 122.6 $ 544.6
Loss from operations before income taxes....................................... (21.6) (6.8) (28.4)
Benefit for income taxes....................................................... 12.1 2.6 14.7
Net loss....................................................................... (9.5) (4.2) (13.7)
For the six months ended June 30, 1998:
Revenues....................................................................... $ 690.5 $ 255.9 $ 946.4
Loss from operations before income taxes....................................... (113.1) (16.4) (129.5)
Benefit for income taxes....................................................... 63.3 6.3 69.6
Net loss....................................................................... (49.8) (10.1) (59.9)
</TABLE>
F-84
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
6) INVENTORY
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Merchandise inventory, including sell-through videocassettes.................... $ 303.9 $ 381.9
Videocassette rental inventory.................................................. 457.8 404.1
Publishing:
Finished goods................................................................ 68.9 59.7
Work in process............................................................... 6.6 6.9
Raw materials................................................................. 3.6 2.5
Other........................................................................... 28.8 17.7
----------- -----------
869.6 872.8
Less current portion.......................................................... 411.8 468.7
----------- -----------
457.8 404.1
----------- -----------
Theatrical and television inventory:
Theatrical and television productions:
Released.................................................................... 1,828.1 1,800.4
Completed, not released..................................................... 38.5 35.9
In process and other........................................................ 381.8 321.0
Program rights................................................................ 1,288.1 1,246.2
----------- -----------
3,536.5 3,403.5
Less current portion.......................................................... 1,326.7 1,336.8
----------- -----------
2,209.8 2,066.7
----------- -----------
Total Current Inventory......................................................... $ 1,738.5 $ 1,805.5
=========== ===========
Total Non-Current Inventory..................................................... $ 2,667.6 $ 2,470.8
=========== ===========
</TABLE>
F-85
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
7) LONG-TERM DEBT
The following table sets forth the Company's long-term debt, net of current
portion:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Notes payable to banks.......................................................... $ 3,646.8 $ 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 $1.1 (1999) and $1.3
(1998)........................................................................ 248.9 248.7
6.75% Senior Notes due 2003, net of unamortized discount of $.2 (1999 and
1998)......................................................................... 349.8 349.8
7.75% Senior Notes due 2005, net of unamortized discount of $5.5 (1999) and $5.9
(1998)........................................................................ 965.5 965.0
7.625% Senior Debentures due 2016, net of unamortized discount of $1.2 (1999 and
1998)......................................................................... 198.8 198.7
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 $15.8 (1999) and
$44.1 (1998).................................................................. 194.2 475.2
Other Notes..................................................................... -- .3
Obligations under capital leases................................................ 566.2 501.4
----------- -----------
6,752.5 4,190.6
Less current portion............................................................ 328.2 377.2
----------- -----------
$ 6,424.3 $ 3,813.4
=========== ===========
</TABLE>
On July 7, 1999, the Company completed the redemption of the remaining $210
million principal amount of its 8.0% Merger Debentures.
On June 21, 1999, Blockbuster Inc. 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 revolving loan
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 revolving
loan due June 19, 2000. A varying commitment fee is charged on the unused amount
of the revolving loans. Interest rates are based on the prime rate or LIBOR at
Blockbuster's option at the time of borrowing.
The Blockbuster Credit Agreement contains covenants, which, among other
things, relates to the payment of dividends, repurchase of Blockbuster's common
stock or other distributions and also requires compliance with financial
covenants with respect to a maximum leverage ratio and a minimum fixed charge
ratio.
On June 23, 1999, Blockbuster Inc. borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolving loan, $600 million borrowed under
the term loan, and $600 million under the
F-86
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
7) LONG-TERM DEBT (CONTINUED)
short-term revolving loan. The weighted average interest rates at June 30, 1999
for these borrowings are 6.9%, 6.9%, and 6.8%, respectively. The proceeds of the
borrowings were used to pay amounts owed to the Company. The Company used such
proceeds to permanently reduce its commitments under the March 1997 Credit
Agreements by $1.139 billion.
On May 21, 1999, the Company amended the March 1997 Credit Agreements to,
among other things, provide for the Blockbuster Credit Agreement.
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,
the credit agreement terminated.
As of June 30, 1999, the Company's scheduled maturities of indebtedness
through December 31, 2003, assuming full utilization of the March 1997 Credit
Agreements, as amended, and the Blockbuster Credit Agreement are $245.2 million
(1999), $1.6 billion (2000), $1.8 billion (2001), $2.2 billion (2002) and $625.0
million (2003). The Company's maturities of long-term debt outstanding at June
30, 1999, excluding capital leases, are $245.2 million (1999), $882.5 million
(2000), $304.6 million (2001), $2.0 billion (2002) and $625.0 million (2003).
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.
8) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees, which are not
reflected in the balance sheet as of June 30, 1999 and are estimated to
aggregate $1.2 billion, principally reflect Showtime Networks Inc.'s ("SNI's")
commitments of $918.9 million for the acquisition of programming rights and the
production of original programming, and exclude intersegment commitments between
the Networks and Entertainment segments of $847.2 million. The 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.
9) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated effective tax rates of
55.5% for 1999 and 54.7% for 1998 were both adversely affected by amortization
of intangibles in excess of the amounts deductible for tax purposes. Excluding
the non-deductible amortization of intangibles, the estimated effective tax
rates would have been 37.7% for 1999 and 28.1% for 1998.
Due to the unusual nature of the 1998 second quarter charge associated with
the change in accounting for rental tape amortization, the full income tax
effect is reflected in the second quarter 1998 tax provision and is excluded
from the estimated annual effective tax rate.
10) OPERATING SEGMENTS
The following table sets forth the Company's financial performance by
operating segment. Prior period results have been reclassified to conform to the
new presentation. Intersegment revenues, recorded at fair market value, of the
Entertainment segment were $58.8 million and $108.4 million for the three and
F-87
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
10) OPERATING SEGMENTS (CONTINUED)
six months ended June 30, 1999 and $25.7 million and $56.0 million for the three
and six months ended June 30, 1998, respectively. All other intersegment
revenues were immaterial for each of the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES:
Networks........................................................... $ 704.4 $ 597.3 $ 1,368.2 $ 1,142.0
Entertainment...................................................... 1,025.2 1,043.1 2,117.5 2,162.0
Video.............................................................. 1,041.7 890.0 2,154.7 1,821.2
Parks.............................................................. 148.4 151.2 158.9 164.0
Publishing......................................................... 145.8 122.5 268.5 230.9
Online............................................................. 5.2 2.5 9.9 4.7
Intercompany eliminations.......................................... (67.4) (27.3) (123.3) (59.9)
--------- --------- --------- ---------
Total revenues................................................... $ 3,003.3 $ 2,779.3 $ 5,954.4 $ 5,464.9
========= ========= ========= =========
EBITDA:
Networks........................................................... $ 219.3 $ 175.1 $ 420.8 $ 325.4
Entertainment...................................................... 165.8 153.5 328.6 327.3
Video.............................................................. 104.5 (359.2) 249.6 (192.0)
Parks.............................................................. 28.6 27.5 25.9 25.4
Publishing......................................................... 16.9 9.6 22.6 14.0
Online............................................................. (6.0) (0.2) (7.0) 0.3
--------- --------- --------- ---------
Total segment EBITDA............................................. 529.1 6.3 1,040.5 500.4
RECONCILIATION TO OPERATING INCOME:
Corporate/Eliminations............................................. (46.8) (39.8) (83.6) (73.7)
Depreciation and amortization...................................... (200.0) (191.9) (397.1) (378.7)
--------- --------- --------- ---------
Total operating income........................................... $ 282.3 $ (225.4) $ 559.8 $ 48.0
========= ========= ========= =========
</TABLE>
F-88
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International Inc. ("Viacom International") is a wholly owned
subsidiary of the Company. The Company has fully and unconditionally guaranteed
Viacom International debt securities. 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. Certain prior
year equity eliminations have been reclassified to conform with the current
period presentation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON- VIACOM
VIACOM VIACOM GUARANTOR INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------- ----------
Revenues........................................ $ 10.2 $ 485.4 $ 2,616.3 $ (108.6) $ 3,003.3
Expenses:
Operating..................................... 9.0 158.6 1,876.4 (108.6) 1,935.4
Selling, general and administrative........... 0.4 189.5 395.7 -- 585.6
Depreciation and amortization................. 0.9 21.6 177.5 -- 200.0
--------- --------- --------- ---------- ----------
Total expenses............................ 10.3 369.7 2,449.6 (108.6) 2,721.0
--------- --------- --------- ---------- ----------
Operating income (loss)......................... (0.1) 115.7 166.7 -- 282.3
Other income (expense):
Interest expense, net......................... (96.1) 27.3 (37.3) -- (106.1)
Other items, net.............................. (5.1) 5.6 6.1 -- 6.6
--------- --------- --------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes........................... (101.3) 148.6 135.5 -- 182.8
Benefit (provision) for income taxes.......... 41.5 (60.9) (85.7) -- (105.1)
Equity in earnings (loss) of affiliated
companies, net of tax....................... 119.1 31.4 (23.9) (144.8) (18.2)
Minority interest............................. -- -- (0.2) -- (0.2)
--------- --------- --------- ---------- ----------
Net earnings.................................... $ 59.3 $ 119.1 $ 25.7 $ (144.8) $ 59.3
========= ========= ========= ========== ==========
</TABLE>
F-89
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON- VIACOM
VIACOM VIACOM GUARANTOR INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- --------- --------- ---------- ----------
Revenues........................................ $ 19.3 $ 937.7 $ 5,114.4 $ (117.0) $ 5,954.4
Expenses:
Operating..................................... 18.5 306.9 3,679.2 (117.0) 3,887.6
Selling, general and administrative........... 1.2 358.4 750.3 -- 1,109.9
Depreciation and amortization................. 1.8 44.0 351.3 -- 397.1
--------- --------- --------- ---------- ----------
Total expenses............................ 21.5 709.3 4,780.8 (117.0) 5,394.6
--------- --------- --------- ---------- ----------
Operating income (loss)......................... (2.2) 228.4 333.6 -- 559.8
Other income (expense):
Interest expense, net......................... (177.4) 50.2 (73.2) -- (200.4)
Other items, net.............................. (10.5) 5.0 10.8 -- 5.3
--------- --------- --------- ---------- ----------
Earnings (loss) from continuing operations
before income taxes........................... (190.1) 283.6 271.2 -- 364.7
Benefit (provision) for income taxes.......... 77.9 (116.2) (164.1) -- (202.4)
Equity in earnings (loss) of affiliated
companies, net of tax....................... 239.6 72.5 (43.8) (302.6) (34.3)
Minority interest............................. -- -- (0.3) -- (0.3)
--------- --------- --------- ---------- ----------
Net earnings before extraordinary loss.......... 127.4 239.9 63.0 (302.6) 127.7
Extraordinary loss, net of tax................ (23.2) (0.3) -- -- (23.5)
--------- --------- --------- ---------- ----------
Net earnings.................................... 104.2 239.6 63.0 (302.6) 104.2
Cumulative convertible preferred stock
dividend requirement........................ (0.4) -- -- -- (0.4)
Premium on repurchase of preferred stock...... (12.0) -- -- -- (12.0)
--------- --------- --------- ---------- ----------
Net earnings attributable to common stock....... $ 91.8 $ 239.6 $ 63.0 $ (302.6) $ 91.8
========= ========= ========= ========== ==========
</TABLE>
F-90
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON- VIACOM
VIACOM VIACOM GUARANTOR INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
Revenues........................................ $ 10.5 $ 392.0 $ 2,383.6 $ (6.8) $ 2,779.3
Expenses:
Operating..................................... 7.2 138.3 2,170.7 (6.8) 2,309.4
Selling, general and administrative........... 0.4 152.2 350.8 -- 503.4
Depreciation and amortization................. 0.6 23.3 168.0 -- 191.9
--------- ---------- --------- --------- ----------
Total expenses............................ 8.2 313.8 2,689.5 (6.8) 3,004.7
--------- ---------- --------- --------- ----------
Operating income (loss)......................... 2.3 78.2 (305.9) -- (225.4)
Other income (expense):
Interest expense, net......................... (137.3) (9.1) (10.2) -- (156.6)
Other items, net.............................. (6.5) (0.7) (0.9) -- (8.1)
--------- ---------- --------- --------- ----------
Earnings (loss) from continuing operations
before income taxes........................... (141.5) 68.4 (317.0) -- (390.1)
Benefit (provision) for income taxes.......... 56.7 (27.2) 103.5 -- 133.0
Equity in loss of affiliated companies, net of
tax......................................... (195.9) (237.4) (14.2) 436.9 (10.6)
Minority interest............................. -- -- 0.4 -- 0.4
--------- ---------- --------- --------- ----------
Loss from continuing operations................. (280.7) (196.2) (227.3) 436.9 (267.3)
Discontinued operations:
Loss from discontinued operations............. -- -- (13.7) -- (13.7)
Gain on dispositions.......................... -- 0.3 -- -- 0.3
--------- ---------- --------- --------- ----------
Net loss........................................ (280.7) (195.9) (241.0) 436.9 (280.7)
Cumulative convertible preferred stock
dividend requirement........................ (15.0) -- -- -- (15.0)
--------- ---------- --------- --------- ----------
Net loss attributable to common stock........... $ (295.7) $ (195.9) $ (241.0) $ 436.9 $ (295.7)
========= ========== ========= ========= ==========
</TABLE>
F-91
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON- VIACOM
VIACOM VIACOM GUARANTOR INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
Revenues........................................ $ 20.6 $ 737.9 $ 4,719.2 $ (12.8) $ 5,464.9
Expenses:
Operating..................................... 17.4 263.3 3,845.7 (12.8) 4,113.6
Selling, general and administrative........... 1.4 270.9 652.3 -- 924.6
Depreciation and amortization................. 1.2 41.7 335.8 -- 378.7
--------- ---------- --------- --------- ----------
Total expenses............................ 20.0 575.9 4,833.8 (12.8) 5,416.9
--------- ---------- --------- --------- ----------
Operating income (loss)......................... 0.6 162.0 (114.6) -- 48.0
Other income (expense):
Interest expense, net......................... (264.8) (21.0) (24.9) -- (310.7)
Other items, net.............................. (9.1) 8.1 (3.5) -- (4.5)
--------- ---------- --------- --------- ----------
Earnings (loss) from continuing operations
before income taxes........................... (273.3) 149.1 (143.0) -- (267.2)
Benefit (provision) for income taxes.......... 112.0 (61.1) 14.3 -- 65.2
Equity in loss of affiliated companies, net of
tax......................................... (118.0) (207.5) (25.2) 332.4 (18.3)
Minority interest............................. -- 1.2 (0.6) -- 0.6
--------- ---------- --------- --------- ----------
Loss from continuing operations................. (279.3) (118.3) (154.5) 332.4 (219.7)
Discontinued operations:
Loss from discontinued operations............. -- -- (59.9) -- (59.9)
Gain on dispositions.......................... -- 0.3 -- -- 0.3
--------- ---------- --------- --------- ----------
Net loss........................................ (279.3) (118.0) (214.4) 332.4 (279.3)
Cumulative convertible preferred stock
dividend requirement........................ (30.0) -- -- -- (30.0)
--------- ---------- --------- --------- ----------
Net loss attributable to common stock........... $ (309.3) $ (118.0) $ (214.4) $ 332.4 $ (309.3)
========= ========== ========= ========= ==========
</TABLE>
F-92
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM VIACOM GUARANTOR VIACOM INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
----------- ---------- ---------- ---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................. $ 10.3 $ 452.4 $ 153.3 $ -- $ 616.0
Receivables, net.......................... 9.1 303.7 1,337.4 (72.6) 1,577.6
Inventory................................. 11.5 154.5 1,572.5 -- 1,738.5
Other current assets...................... 1.2 235.7 646.3 -- 883.2
----------- ---------- ---------- ---------- ----------
Total current assets.................. 32.1 1,146.3 3,709.5 (72.6) 4,815.3
Property and equipment, at cost............. 14.1 632.9 4,265.7 -- 4,912.7
Less accumulated depreciation............. 3.7 209.8 1,450.4 -- 1,663.9
----------- ---------- ---------- ---------- ----------
Net property and equipment............ 10.4 423.1 2,815.3 -- 3,248.8
Inventory................................... -- 447.1 2,220.5 -- 2,667.6
Intangibles, at amortized cost.............. 107.9 522.0 10,859.8 -- 11,489.7
Investments in consolidated
subsidiaries.............................. 6,407.3 15,366.2 -- (21,773.5) --
Other assets................................ 63.0 154.6 1,497.5 (133.1) 1,582.0
----------- ---------- ---------- ---------- ----------
$ 6,620.7 $ 18,059.3 $ 21,102.6 $(21,979.2) $ 23,803.4
=========== ========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................... $ -- $ 64.4 $ 391.2 $ (34.9) $ 420.7
Accrued compensation...................... -- 67.1 220.6 -- 287.7
Participants' share, residuals and
royalties payable....................... -- -- 1,094.3 -- 1,094.3
Income tax payable........................ (16.1) 876.0 (128.2) (536.2) 195.5
Current portion of long-term debt......... 194.2 18.4 115.6 -- 328.2
Accrued expenses and other................ 92.5 641.7 1,334.9 (108.0) 1,961.1
----------- ---------- ---------- ---------- ----------
Total current liabilities............. 270.6 1,667.6 3,028.4 (679.1) 4,287.5
----------- ---------- ---------- ---------- ----------
Long-term debt.............................. 3,177.6 1,037.2 2,209.5 -- 6,424.3
Other liabilities........................... (12,176.0) 2,593.4 7,505.5 3,953.9 1,876.8
Shareholders' equity:
Preferred Stock........................... -- 104.1 20.4 (124.5) --
Common Stock.............................. 7.3 230.4 1,907.4 (2,137.8) 7.3
Additional paid-in capital................ 10,593.2 7,334.6 6,540.2 (13,874.8) 10,593.2
Retained earnings......................... 6,109.1 5,061.5 (35.8) (9,116.9) 2,017.9
Accumulated other comprehensive income
(loss).................................. -- 30.5 (73.0) -- (42.5)
----------- ---------- ---------- ---------- ----------
16,709.6 12,761.1 8,359.2 (25,254.0) 12,575.9
Less treasury stock, at cost.............. 1,361.1 -- -- -- 1,361.1
----------- ---------- ---------- ---------- ----------
Total shareholders' equity............ 15,348.5 12,761.1 8,359.2 (25,254.0) 11,214.8
----------- ---------- ---------- ---------- ----------
$ 6,620.7 $ 18,059.3 $ 21,102.6 $(21,979.2) $ 23,803.4
=========== ========== ========== ========== ==========
</TABLE>
F-93
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM VIACOM GUARANTOR VIACOM INC.
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........................ 0.9 160.9 570.8 -- 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............... 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 compensation........................ -- 144.4 265.9 -- 410.3
Participants' share, residuals and royalties
payable................................... -- -- 1,227.5 -- 1,227.5
Income taxes payable........................ -- 1,257.5 (139.7) (591.3) 526.5
Current portion of long-term debt........... 282.4 13.5 81.3 -- 377.2
Accrued expenses and other.................. 612.7 663.6 1,351.5 (35.9) 2,591.9
---------- ---------- ---------- ---------- ----------
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) 3,458.2 9,008.6 2,485.5 2,117.5
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
========== ========== ========== ========== ==========
</TABLE>
F-94
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM VIACOM GUARANTOR VIACOM INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM OPERATING ACTIVITIES......... $ (379.1) $ (242.7) $ (284.1) $ -- $ (905.9)
INVESTING ACTIVITIES:
Capital expenditures.......................... -- (50.6) (269.8) -- (320.4)
Acquisitions, net of cash acquired............ (160.9) -- (116.5) -- (277.4)
Investments in and advances to affiliated
companies................................... -- (16.2) (68.2) -- (84.4)
Purchases of short-term investments........... -- (215.3) -- -- (215.3)
Proceeds from sales of short-term
investments................................. -- 222.5 -- -- 222.5
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM INVESTING ACTIVITIES......... (160.9) (59.6) (454.5) -- (675.0)
--------- ---------- --------- --------- ----------
FINANCING ACTIVITIES:
Net borrowings from banks..................... 1,165.4 -- 1,611.2 -- 2,776.6
Repurchase of Preferred Stock................. (612.0) -- -- -- (612.0)
Purchase of treasury stock and warrants....... (402.3) -- -- -- (402.3)
Repayment of notes and debentures............. (321.6) (1.5) -- -- (323.1)
Payment of capital lease obligations.......... -- (14.9) (29.6) -- (44.5)
Increase (decrease) in intercompany
payables.................................... 279.5 581.6 (861.1) -- --
Proceeds from exercise of stock options and
warrants.................................... 42.4 -- -- -- 42.4
Other, net.................................... (7.5) -- -- -- (7.5)
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM FINANCING ACTIVITIES......... 143.9 565.2 720.5 -- 1,429.6
--------- ---------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................. (396.1) 262.9 (18.1) -- (151.3)
Cash and cash equivalents at beginning of
period...................................... 406.4 189.5 171.4 -- 767.3
--------- ---------- --------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $ 10.3 $ 452.4 $ 153.3 $ -- $ 616.0
========= ========== ========= ========= ==========
</TABLE>
F-95
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
11) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-
VIACOM VIACOM GUARANTOR VIACOM INC.
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM OPERATING ACTIVITIES........ $ (183.5) $ (860.5) $ 976.6 $ -- $ (67.4)
--------- ---------- --------- --------- ----------
INVESTING ACTIVITIES:
Capital expenditures......................... -- (55.4) (208.6) -- (264.0)
Acquisitions, net of cash acquired........... (11.1) -- (61.7) -- (72.8)
Investments in and advances to affiliated
companies.................................. -- (0.1) (50.9) -- (51.0)
Purchases of short-term investments.......... -- (48.8) -- -- (48.8)
Proceeds from sales of short-term
investments................................ -- 53.4 -- -- 53.4
Other, net................................... -- 13.3 (9.3) -- 4.0
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM INVESTING ACTIVITIES........ (11.1) (37.6) (330.5) -- (379.2)
--------- ---------- --------- --------- ----------
FINANCING ACTIVITIES:
Borrowings from banks, net................... 1,041.3 (109.0) (48.4) -- 883.9
Repayment of notes and debentures............ (150.0) (250.0) -- -- (400.0)
Payment of capital lease obligations......... -- (12.4) (23.2) -- (35.6)
Increase (decrease) in intercompany
payables................................... (675.3) 1,303.7 (628.4) -- --
Proceeds from exercise of stock options and
warrants................................... 71.7 -- -- -- 71.7
Payment of Preferred Stock dividends......... (30.0) -- -- -- (30.0)
Other, net................................... -- -- 0.2 -- 0.2
--------- ---------- --------- --------- ----------
NET CASH FLOW FROM FINANCING ACTIVITIES........ 257.7 932.3 (699.8) -- 490.2
--------- ---------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................ 63.1 34.2 (53.7) -- 43.6
Cash and cash equivalents at beginning of
period..................................... 0.1 91.5 200.7 -- 292.3
--------- ---------- --------- --------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 63.2 $ 125.7 $ 147.0 $ -- $ 335.9
========= ========== ========= ========= ==========
</TABLE>
F-96
<PAGE>
ANNEX S-A
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER, dated as of September 8,
1999 ("Amendment No. 1"), by and among CBS Corporation, a Pennsylvania
corporation (the "Parent"), King World Productions, Inc., a Delaware corporation
(the "Company"), and K Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Parent ("Merger Sub"), amending the Agreement and
Plan of Merger, dated as of March 31, 1999 (the "Agreement"), by and among the
parties hereto. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Agreement.
WHEREAS, the Company and the Parent wish to amend the Agreement in order to
provide for, among other things, (i) the merger of the Company with and into
Merger Sub, with Merger Sub being the Surviving Corporation and (ii) the waiver
by Parent and Merger Sub of certain of the conditions to their obligations to
effect the Merger.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. The Agreement is hereby amended to provide that, upon the terms and
subject to the conditions of the Agreement (as amended by this Amendment No. 1)
at the Effective Time, in accordance with the DGCL the Company shall be merged
with and into Merger Sub and the separate existence of the Company shall cease.
References in the Agreement to the "Merger" shall be deemed to be amended hereby
to be references to the merger described in the preceding sentence. In
furtherance of the foregoing:
(a) Merger Sub shall be the Surviving Corporation in the Merger;
(b) the Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation; and
(c) Section 2.1(a) is amended to read in its entirety as follows:
"Each issued and outstanding share of common stock, par value $.01 per
share, of Merger Sub shall remain outstanding as one share of common
stock, par value $.01 per share, of the Surviving Corporation."
2. Parent and Merger Sub hereby expressly waive any rights they might
otherwise have as a result of any adverse effect resulting from the amendments
effected under paragraph 1 above. Parent shall following the Merger cause Merger
Sub to assume and/or perform all obligations that the Company would have been
obligated to perform but for the amendment effected under paragraph 1 above.
Notwithstanding the foregoing, Parent may elect at any time prior to the
consummation of the Merger, instead of having the Company merge with and into
Merger Sub, as provided for in paragraph 1 above, to have Merger Sub merge with
and into the Company; provided however that such election may be made only if it
would not unreasonably delay the consummation of the Merger and would not in any
way adversely affect the satisfaction of the conditions specified in Section
7.2(d) or 7.3(h) of the Agreement.
3. Section 7.1(c) of the Agreement is hereby amended in its entirety to
read as follows:
"(c) No statute, rule, regulation, executive order, judgment, decree, or
injunction shall have been enacted, entered, promulgated or enforced (and
not repealed, superseded, lifted or otherwise made inapplicable), by any
court of competent jurisdiction or Government Entity which restrains,
enjoins or otherwise prohibits the consummation of the Transactions
contemplated by this Agreement (each party agreeing to use its best
efforts to avoid the effect of any such statute, rule, regulation or
order or to have any such order, judgment, decree or injunction lifted)."
S-A-1
<PAGE>
4. Section 7.1(g) of the Agreement shall be deleted in its entirety.
5. A new section, designated as Section 7.2(e), shall be included in the
Agreement and shall read as follows:
"The Effective Time shall have occurred at or before the close of
business in New York City on June 30, 2000 (the "Outside Date")."
6. Section 7.3(h) shall be amended to insert the phrase "or Paul, Weiss,
Rifkind, Wharton & Garrison" immediately after the phrase "Weil, Gotshal &
Manges LLC" and to provide that the representation letter referred to in said
Section shall be modified in a manner reasonably agreed to by the parties (a) to
permit the Parent to acknowledge the existence as of September 7, 1999 of the
Parent/ Viacom Inc. transaction and (b) to give effect to Section 1 of this
Amendment No. 1.
7. Section 8.1(b) of the Agreement is amended by deleting clause (i)
thereof, and the two provisos contained therein.
8. Section 8.1(g) of the Agreement is hereby amended to read in its
entirety as follows:
"(g) by the Company if the Effective Time shall not have occurred on
or before the Outside Date."
9. Section 7.3(a) of the Agreement is hereby amended (x) by deleting all
references therein to "the Closing Date" and replacing each of said references
with the following: "September 7, 1999", (y) by adding a reference to Section
3.10 in the first parenthetical of clause (i) thereof and (z) by adding the
following at the end of said Section:
"and (iv) the representations and warranties of the Company set forth in
Section 3.10 shall be true and correct as of the Effective Time except to
the extent the failure of such representations and warranties to be true and
correct would not or would not reasonably be expected to have a Company
Material Adverse Effect."
10. Sections 7.3(e), (f) and (g) of the Agreement are hereby irrevocably
waived by Parent and Merger Sub and, notwithstanding anything to the contrary
contained in the Agreement or in any other agreement or instrument previously
entered into among or between the parties hereto, shall be deemed deleted from
the Agreement.
11. The Company represents and warrants (which representation and warranty
shall be deemed to be a part of the Agreement) that (a) the conditions appearing
in Section 7.3(a), (b), (e) and (g) of the Agreement would have been satisfied
if the Closing Date had occurred on September 7, 1999 and (b) to its knowledge
the condition appearing in Section 7.3(f) of the Agreement would have been
satisfied if the Closing had occurred on September 7, 1999.
12. Section 5.1(k) of the Agreement hereby is amended by deleting the
references therein to "Section 7.2(a) or 7.2(b)" and inserting in their place
references to "Section 7.3(a) or 7.3(b)."
13. Section 5.2(e) of the Agreement hereby is amended by deleting the
references therein to "Section 7.3(a) or 7.3(b)" and inserting in their place
references to "Section 7.2(a) or 7.2(b)."
14. The Company acknowledges that the changes effected by paragraphs 9 and
10 of this Amendment No. 1 shall not be given any effect for purposes of
Sections 5.1(k) and 6.4 of the Agreement. In addition, the Company agrees that
if any fact, circumstance or event arises that would have resulted in, or would
have been reasonably likely to result in, the failure of the conditions in
Sections 7.3(a), (e), (f) and (g) of the Agreement to be satisfied (the
provisions of paragraphs 9 and 10 of this Amendment No. 1 not being given any
effect for purposes of this sentence), the parties shall work together in good
faith, and take all commercially reasonable actions, as are necessary or
appropriate in an effort to cure such failure;
S-A-2
<PAGE>
provided that the failure to effect such cure shall not relieve the parties'
respective obligations to consummate the Transactions.
15. The parties hereby acknowledge that the announcement of the merger
agreement between Parent and Viacom Inc. has delayed and will continue to delay
the consummation of the Merger as a result of the need to amend the Registration
Statement and Proxy Statement/Prospectus to provide additional disclosure as
required by the Securities Act and Exchange Act. The Company hereby waives any
claims it might have against Parent occasioned by such delay; Parent in turn
hereby agrees that it will use its reasonable best efforts to make effective the
Transactions in the most expeditious manner practicable and the Company will
cooperate with Parent in this regard.
16. Except as expressly set forth herein, this Amendment No. 1 is entered
into without waiver of, or prejudice to, the respective rights of the parties
under the Agreement, all of which rights are expressly reserved. Moreover,
except as modified herein, each of the parties hereto acknowledges and agrees
that it continues to be bound by each of the terms and provisions of the
Agreement, which terms and provisions, as amended hereby, shall continue in full
force and effect.
17. The parties agree to use their commercially reasonable efforts to
prepare and have executed as promptly as practicable after the date hereof any
necessary amendments to any agreement, document or instrument executed and
delivered in connection with the execution and delivery of the Agreement to
effect the provisions of this Amendment No. 1.
18. This Amendment No. 1 may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more of the counterparts has been signed by each of the
parties hereto, it being understood that each party need not sign the same
counterpart.
19. This Amendment No. 1 shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof.
20. Each of the parties represents as to itself (and Parent also represents
as to Merger Sub) that it has duly and validly executed and delivered this
Amendment No. 1 and that, assuming this Amendment No. 1 has been duly and
validly executed and delivered by the other parties hereto, this Amendment No. 1
constitutes the legal, valid and binding obligation of such party enforceable
against it in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors
rights generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
S-A-3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has signed this Amendment No.
1 as of the date first above written.
<TABLE>
<S> <C> <C>
KING WORLD PRODUCTIONS, INC.
By: /s/ JONATHAN BIRKHAHN
-----------------------------------------
Name: Jonathan Birkhahn
Title: Senior Vice President Business
Affairs and General Counsel
CBS CORPORATION
By: /s/ LOUIS J. BRISKMAN
-----------------------------------------
Name: Louis J. Briskman
Title: Executive Vice President and
General Counsel
K ACQUISITION CORP.
By: /s/ LOUIS J. BRISKMAN
-----------------------------------------
Name: Louis J. Briskman
Title: Vice President, General Counsel and
Secretary
</TABLE>
S-A-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CBS is incorporated under the laws of the Commonwealth of Pennsylvania.
Section 1741 of the Pennsylvania Business Corporation Law ("PBCL") empowers
a Pennsylvania corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding (a "Proceeding"), whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that such person is or was a representative of the
corporation or is or was serving at the request of the corporation as a
representative of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such Proceeding, if he or
she acted in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. Section 1742 of the PBCL empowers a corporation to indemnify any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a representative of the corporation or is or was serving at the request of the
corporation as a representative of another corporation or enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of the action if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation, provided that
indemnification will not be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless there
is a judicial determination that in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for the expenses that
the court deems proper.
Section 1743 of the PBCL provides that to the extent that a representative
of a corporation has been successful on the merits or otherwise in defense of
any Proceeding, or in defense of any claim, issue or matter therein, he or she
will be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Section 1745 of the PBCL provides that expenses (including attorneys' fees)
incurred in defending a Proceeding may be paid by the corporation in advance of
the final disposition of such Proceeding upon receipt of an undertaking by or on
behalf of the representative to repay such amount if it is ultimately determined
that he or she is not entitled to be indemnified by the corporation.
Section 1746 of the PBCL provides that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other sections of the PBCL
will not be deemed exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of shareholders or disinterested directors or otherwise.
However, Section 1746 also provides that such indemnification will not be made
in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
CBS provides for indemnification of its directors and officers pursuant to
Article ELEVEN of its Articles of Incorporation and Article XVII(B) of its
By-laws. Article ELEVEN of CBS's Articles of Incorporation and Article XVII(B)
of CBS's By-laws provide in effect that, with respect to Proceedings based on
acts or omissions on or after January 27, 1987, and unless prohibited by
applicable law, CBS will indemnify directors and officers against all expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
incurred in connection with any such Proceedings (subject to certain limitations
in the case of actions by such persons against CBS). Under Article XVII(B), CBS
will also advance
II-1
<PAGE>
amounts to any director or officer during the pendency of any such Proceedings
against expenses incurred in connection with such Proceedings, provided that, if
required by law, CBS receives an undertaking to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified under
such Article. The indemnification provided for in such Articles is in addition
to any rights to which any director or officer may otherwise be entitled.
Article XVII(B) of CBS's By-laws provides that the right of a director or
officer to such indemnification and advancement of expenses will be a contract
right and further provides procedures for the enforcement of such right.
As authorized by Article ELEVEN of its Articles of Incorporation, CBS has
purchased directors' and officers' liability insurance policies indemnifying its
directors and officers and the directors and officers of its subsidiaries
against claims and liabilities (with stated exceptions) to which they may become
subject by reason of their positions with CBS or its subsidiaries as directors
and officers.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) The following is a list of Exhibits included as part of this
Registration Statement.
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of March 31, 1999, by and among CBS Corporation,
K Acquisition Corp. and King World Productions, Inc. (Annex A to the Proxy Statement/
Prospectus).*
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of September 8, 1999, by and
among CBS Corporation, K Acquisition Corp. and King World Productions, Inc.
(Annex S-A to the Proxy Statement/Prospectus Supplement).**
2.3 Stockholder Agreement dated as of March 31, 1999, among CBS Corporation and the
stockholders named therein.*
2.4 Amendment No. 1, dated as of June 1, 1999, to the Stockholder Agreement, dated as of
March 31, 1999, among CBS Corporation and the stockholders named therein.*
2.5 Amendment No. 2, dated as of October 5, 1999, to the Stockholder Agreement, dated as
of March 31, 1999, among CBS Corporation and the stockholders named therein.**
4.1 There are no instruments with respect to long-term debt of CBS that involve securities
authorized thereunder exceeding 10 percent of the total assets of CBS and its
subsidiaries on a consolidated basis. CBS agrees to provide to the Securities and
Exchange Commission, upon request, a copy of instruments defining the rights of
holders of long-term debt of CBS and its subsidiaries.
4.2 Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed
with the Securities and Exchange Commission on January 9, 1996.
4.3 The Restated Articles of Incorporation of CBS, as amended to December 11, 1997, are
incorporated herein by reference to Exhibit 3(b) to Form 10-K for the year ended
December 31, 1997.
4.4 The By-laws of CBS, as amended to May 4, 1999, are incorporated herein by reference to
Exhibit 3(b) to Form 10-Q for the quarter ended June 30, 1999.
5.1 Opinion of Louis J. Briskman, Esq., as to the legality of the securities being
registered.**
8.1 Opinion of Weil, Gotshal & Manges LLP, as to certain United States federal income tax
consequences of the CBS/King World merger.*
8.2 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, as to certain United States
federal income tax consequences of the CBS/King World merger.*
23.1 Consent of KPMG LLP.**
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
23.2 Consent of Arthur Andersen LLP.**
23.3 Consent of PricewaterhouseCoopers LLP.**
23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 8.1).**
23.5 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 8.2).**
24.1 Powers of Attorney (included in the signature page to the Registration Statement).*
99.1 Opinion of Allen & Company Incorporated (Annex B to the Proxy Statement/Prospectus).*
99.2 Form of Proxy Card to be mailed to holders of King World Common Stock.**
</TABLE>
- ------------------------
* Filed previously.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
and
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commision by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(d) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the
II-3
<PAGE>
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(e) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the Registrant undertakes
that such reoffering prospectus will contain the information called for by
the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other items of the applicable registration form;
(f) that every prospectus (i) that is filed pursuant to paragraph (e)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(g) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue;
(h) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request; and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request; and
(i) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York, on this 5th day of November,
1999.
CBS CORPORATION
By: /s/ FREDRIC G. REYNOLDS
-----------------------------------------
Fredric G. Reynolds
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons on behalf of the Registrant named below and in the
capacities indicated, on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Director
- ------------------------------ November 5, 1999
(George H. Conrades)
* Director
- ------------------------------ November 5, 1999
(Martin C. Dickinson)
* Director
- ------------------------------ November 5, 1999
(William H. Gray III)
President and Chief
* Executive Officer
- ------------------------------ and Director (principal November 5, 1999
(Mel Karmazin) executive officer)
* Director
- ------------------------------ November 5, 1999
(Jan Leschly)
* President and Chief
- ------------------------------ Executive Officer, CBS November 5, 1999
(Leslie Moonves) Television, and Director
- ------------------------------ Chairman and Director
(David T. McLaughlin) November 5, 1999
* Director
- ------------------------------ November 5, 1999
(Richard R. Pivirotto)
* Director
- ------------------------------ November 5, 1999
(Raymond W. Smith)
* Director
- ------------------------------ November 5, 1999
(Dr. Paula Stern)
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Director
- ------------------------------ November 5, 1999
(Robert D. Walter)
Executive Vice President
* and Chief Financial
- ------------------------------ Officer November 5, 1999
(Fredric G. Reynolds) (principal financial
officer)
Vice President and
* Controller
- ------------------------------ (principal accounting November 5, 1999
(Robert G. Freedline) officer)
*By: /s/ FREDRIC G. REYNOLDS
- ------------------------------
(Attorney-in-fact)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of March 31, 1999, by and among CBS Corporation,
K Acquisition Corp. and King World Productions, Inc. (Annex A to the Proxy
Statement/Prospectus).*
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of September 8, 1999, by and among CBS
Corporation, K Acquisition Corp. and King World Productions, Inc. (Annex S-A to the Proxy
Statement/Prospectus Supplement).**
2.3 Stockholder Agreement dated as of March 31, 1999, among CBS Corporation and the stockholders
named therein.*
2.4 Amendment No. 1, dated as of June 1, 1999, to the Stockholder Agreement, dated as of March 31,
1999, among CBS Corporation and the stockholders named therein.*
2.5 Amendment No. 2, dated as of October 5, 1999, to the Stockholder Agreement, dated as of
March 31, 1999, among CBS Corporation and the stockholders named therein.**
4.1 There are no instruments with respect to long-term debt of CBS that involve securities authorized
thereunder exceeding 10 percent of the total assets of CBS and its subsidiaries on a consolidated
basis. CBS agrees to provide to the Securities and Exchange Commission, upon request, a copy of
instruments defining the rights of holders of long-term debt of CBS and its subsidiaries.
4.2 Rights Agreement is incorporated herein by reference to Exhibit 1 to Form 8-A filed with the
Securities and Exchange Commission on January 9, 1996.
4.3 The Restated Articles of Incorporation of CBS, as amended to December 11, 1997, are incorporated
herein by reference to Exhibit 3(b) to Form 10-K for the year ended December 31, 1997.
4.4 The By-laws of CBS, as amended to May 4, 1999, are incorporated herein by reference to Exhibit
3(b) to Form 10-Q for the quarter ended June 30, 1999.
5.1 Opinion of Louis J. Briskman, Esq., as to the legality of the securities being registered.**
8.1 Opinion of Weil, Gotshal & Manges LLP, as to certain United States federal income tax
consequences of the CBS/King World merger.**
8.2 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, as to certain United States federal income
tax consequences of the CBS/King World merger.**
23.1 Consent of KPMG LLP.**
23.2 Consent of Arthur Anderson LLP.**
23.3 Consent of PricewaterhouseCoopers LLP.**
23.4 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 8.1).**
23.5 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 8.2).**
24.1 Powers of Attorney (included in the signature page to the Registration Statement).*
99.1 Opinion of Allen & Company Incorporated (Annex B to the Proxy Statement/ Prospectus).*
99.2 Form of Proxy card to be mailed to holders of King World Common Stock.**
</TABLE>
- ------------------------
* Filed previously
** Filed herewith
<PAGE>
EXHIBIT 2.5
AMENDMENT NO. 2 (this "Amendment"), dated as of October 5, 1999, to the
Stockholder Agreement, dated as of March 31, 1999, among CBS Corporation
("Parent") and the individual signatories hereto (each a "Stockholder"), as
amended by Amendment No. 1 entered into on June 1, 1999 among Parent and the
Stockholders (the "Agreement").
WHEREAS, the parties hereto wish to amend the Agreement in the manner set
forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy are hereby acknowledged, the parties agree as follows:
1. Paragraph 3(f) of the Agreement is hereby amended by replacing all
references to "Effective Time" in such paragraph with "September 7, 1999."
2. Each of the parties hereto hereby ratifies and confirms that it, he or
she continues to be bound by the terms and provisions of the Agreement. Except
as expressly modified hereby, all of the terms and provisions of the Agreement
shall continue in full force and effect.
3. This Amendment may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective when
one or more of the counterparts has been signed by each of the parties hereto,
it being understood that each party need not sign the same counterpart. This
Amendment shall be governed by and construed in accordance with the laws of the
State of Delaware regardless of the laws that might otherwise govern under
applicable principles of conflict of laws thereof.
IN WITNESS WHEREOF, Parent has caused this Amendment to be signed by an
officer thereto duly authorized and each Stockholder has signed this Amendment,
all as of the date first above written.
<TABLE>
<S> <C> <C>
CBS CORPORATION
By: /s/ ANGELINE C. STRAKA
----------------------------
Name: Angeline C. Straka
Title: Vice President, Secretary and
Deputy General Counsel
STOCKHOLDERS:
ROGER KING
/s/ ROGER KING
----------------------------
MICHAEL KING
/s/ MICHAEL KING
----------------------------
RICHARD KING
/s/ ROGER KING
----------------------------
DIANA KING
/s/ DIANA KING
----------------------------
</TABLE>
<PAGE>
Exhibit 5.1
[Letterhead]
November 5, 1999
CBS Corporation
51 West 52nd Street
New York, N.Y. 10019
Re: CBS Corporation Registration Statement
on Form S-4 Relating to the CBS/King World Merger
Ladies and Gentlemen:
As set forth in the Registration Statement on Form S-4 (and all amendments
thereto, the "Registration Statement") to be filed by CBS Corporation, a
Pennsylvania corporation ("CBS"), under the Securities Act of 1933, as amended,
relating to the issuance of shares of CBS's common stock, par value $1.00 per
share ("CBS Common Stock"), I am rendering this opinion with respect to the
validity of the shares of CBS Common Stock to be issued pursuant to the terms of
the Merger Agreement referred below. At your request, this opinion is being
furnished to you for filing as Exhibit 5 to the Registration Statement.
As set forth in the Registration Statement, the issuance of shares of CBS
Common Stock will occur in connection with the consummation of the merger of
King World Productions, Inc. ("King World"), a Delaware corporation, with and
into K Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of CBS ("K Acquisition Corp."), pursuant to the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of March 31, 1999, as amended, by and among
King World, CBS and K Acquisition Corp.
In my capacity as General Counsel for CBS, I have examined, either
personally or indirectly through lawyers who report to me or through other
counsel, originals or copies (certified or otherwise identified to my
satisfaction) of the Merger Agreement and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of CBS, and have made
such inquiries of such officers and representatives, as I have deemed relevant
and necessary as the basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to these opinions that have not been
<PAGE>
November 5, 1999
Page 2
independently established, I have relied upon certificates or comparable
documents of officers and representatives of CBS and upon the representations
and warranties of CBS contained in the Merger Agreement.
Based on the foregoing, I am of the opinion that the shares of CBS Common
Stock to be issued pursuant to the Merger Agreement have been duly authorized
and, when issued as contemplated by the Merger Agreement, will be validly
issued, fully paid and nonassessable.
I express no opinion with respect to the laws of any jurisdiction other than
the corporate laws of the Commonwealth of Pennsylvania and the federal
securities laws of the United States.
I hereby consent to the use of this opinion letter as an exhibit to the
Registration Statement and to any and all references to me in the proxy
statement/prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ LOUIS J. BRISKMAN
Louis J. Briskman
Executive Vice President and
General Counsel
<PAGE>
EXHIBIT 8.1
[Letterhead of Weil, Gotshal & Manges LLP]
November 5, 1999
CBS Corporation
51 West 52nd Street
New York, NY 10019
Ladies & Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of King World Productions, Inc., a
Delaware corporation (the "Company"), with and into K Acquisition Corp. ("Sub"),
a Delaware corporation and a direct wholly-owned subsidiary of CBS Corporation,
a Pennsylvania corporation ("Parent").
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement and Plan of Merger dated as of March 31,
1999, as amended (the "Merger Agreement"), among Parent, Sub and the Company,
the Proxy Statement (the "Proxy Statement") filed by the Company with the
Securities and Exchange Commission (the "SEC") and the Registration Statement on
Form S-4, as filed by Parent with the SEC on August 9, 1999, in which the Proxy
Statement is included as a prospectus (with all amendments thereto, the
"Registration Statement"). In addition, we have obtained such additional
information as we deemed relevant and necessary through consultation with
various officers and representatives of Parent and the Company.
Our opinion set forth below assumes (1) the accuracy of the statements and
facts concerning the Merger set forth in the Merger Agreement, the Proxy
Statement and the Registration Statement, (2) the consummation of the Merger in
the manner contemplated by, and in accordance with the terms set forth in, the
Merger Agreement, the Proxy Statement and the Registration Statement, (3) the
accuracy of the representations made by Parent and Sub which are set forth in
the certificate delivered to us by Parent, dated the date hereof, and the
representations made by the Company which are set forth in the certificate
delivered to us by the Company, dated the date hereof, and (4) that any
representations made in such certificates "to the best knowledge of" or like
import are accurate without such qualification.
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above and subject to the assumptions set
forth above, we are of the opinion that for federal income tax purposes the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
Our opinion is based on current provisions of the Code, the Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or facts and circumstances
surrounding the Merger, or any inaccuracy in the statements, facts, assumptions
and representations on which we have relied, may affect the continuing validity
of the opinions set forth herein. We assume no responsibility to inform you of
any such change or inaccuracy that may occur or come to our attention.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
WEIL, GOTSHAL & MANGES LLP
<PAGE>
Exhibit 8.2
November 5, 1999
Board of Directors
King World Productions, Inc.
12400 Wilshire Blvd.
Suite 1200
Los Angeles, CA 90025
Ladies and Gentlemen:
We have acted as tax counsel to King World Productions, Inc., a Delaware
corporation ("King World"), in connection with the proposed merger ("Merger") of
King World with and into K Acquisition Corp., a Delaware corporation ("Merger
Sub") and a wholly owned subsidiary of CBS Corporation, a Pennsylvania
corporation ("CBS"), pursuant to the Agreement and Plan of Merger, dated as of
March 31, 1999, as amended ("Merger Agreement") by and among CBS, King World,
and the Merger Sub. This opinion is being furnished to you pursuant to Section
7.2(d) of the Merger Agreement. All capitalized terms used herein have their
respective meanings set forth in the Merger Agreement unless otherwise stated.
In rendering the opinion expressed herein, we have reviewed copies of the
Merger Agreement and the Registration Statement on Form S-4, as filed by CBS
with the Securities and Exchange Commission on August 9, 1999, and all
amendments thereto (the "Registration Statement"). We also have made such other
investigations of fact and law and have examined such other documents, records
and instruments as we have deemed necessary in order to enable us to render the
opinion expressed herein.
In our examination of documents, we have assumed, with your consent, that
(i) all documents submitted to us are authentic originals, or if submitted as
photocopies, that they faithfully reproduce the originals thereof; (ii) all such
documents have been or will be duly executed to the extent required; (iii) all
representations and statements set forth in such documents are true and correct;
(iv) any representation or statement made as a belief or made 'to the knowledge
of,' or similarly qualified is correct and accurate without such qualification;
and (v) all obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their terms.
Furthermore, we have assumed, with your consent, the accuracy of the
representations contained in the Tax Certificates from King World and CBS dated
the date hereof. These representations relate to the Merger and its
qualification as a reorganization under the Code.
Based upon and subject to the foregoing, we are of the opinion that the
Merger will qualify as a reorganization under the provisions of section 368(a)
of the Code.
This opinion is given as of the date hereof and is based on various Code
provisions, Treasury Regulations promulgated under the Code and interpretations
thereof by the Internal Revenue Service and the courts having jurisdiction over
such matters, all of which are subject to change either prospectively or
retroactively. Further, any variation or difference in the facts from those set
forth in the Registration Statement may affect the conclusions stated herein.
We express no opinion as to any federal income tax issue or other matter
except that set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports dated January 27, 1999 appearing on
page 21 of CBS Corporation's Form 10-K/A and page 55 of CBS Corporation's Form
10-K for the year ended December 31, 1998, incorporated by reference in this
registration statement of the Company and the reference to our firm under the
heading "Experts" in this registration statement.
/s/ KPMG LLP
New York, New York
November 3, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report dated
October 16, 1998 included in King World Productions, Inc.'s Annual Report on
Form 10-K for the year ended August 31, 1998 and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
New York, New York
November 3, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
CBS Corporation of our report dated February 8, 1999, except for the first
paragraph of Note 2, which is as of February 25, 1999 relating to the financial
statements and financial statement schedule of Viacom Inc., which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
November 3, 1999
<PAGE>
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PROXY KING WORLD PRODUCTIONS, INC.
12400 WILSHIRE BOULEVARD
SUITE 1200
LOS ANGELES, CALIFORNIA 90025
SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1999
(THE "SPECIAL MEETING")
The undersigned hereby appoints Roger King, Michael King and Jonathan
Birkhahn, or any of them, each with full power of substitution, as proxies or
proxy of the undersigned and hereby authorizes them to represent and vote as
designated below all shares of common stock, par value $.01 per share, of
King World Productions, Inc. (the "Corporation") held of record by the
undersigned at the close of business on July 28, 1999 at the Special Meeting,
or any adjournment or postponement thereof, and, in their discretion, upon
all matters incident to the conduct of the Special Meeting and such other
matters as may properly be brought before the Special Meeting.
This signed Proxy Form revokes all proxies previously given by the
undersigned to vote at the Special Meeting of Stockholders or any adjournment
or postponement thereof. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Stockholders, the Proxy Statement/Prospectus
mailed to you on August 9, 1999 and the proxy supplement relating to the
Special Meeting.
WHEN PROPERLY EXECUTED, THIS PROXY FORM WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN, THIS PROXY FORM WILL BE VOTED FOR THE FOREGOING PROPOSAL.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES,
SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXY COMMITTEE
CANNOT VOTE YOUR SHARE UNLESS YOU SIGN AND RETURN THIS CARD.
PLEASE MARK YOUR VOTE ON THE REVERSE SIDE, SIGN, DATE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
/x/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE FOLLOWING PROPOSAL.
For Against Abstain
To approve and adopt the Agreement and Plan of / / / / / /
Merger, dated as of March 31, 1999, as amended,
among CBS Corporation, K Acquisition Corp.
and the Corporation.
________________________________________________
Signature(s)________________________________________________
Note: Please sign exactly as name appears above. When shares
are held in name of joint holders, each should sign.
When signing as attorney, executor, trustee, guardian,
etc., please so indicate. If a corporation, please sign
in full corporate name by an authorized officer. If a
partnership, please sign in partnership name by an
authorized person.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
KING WORLD PRODUCTIONS, INC.
Dear Stockholder:
King World Productions, Inc. encourages you to take advantage of new and
convenient ways to vote your shares. You can vote your shares electronically
through the Internet or the telephone 24 hours a day, 7 days a week. This
eliminates the need to return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear
in the box above must be used to access the system.
1. To vote over the Internet:
- Log on the Internet and go to the website
www.vote-by-net.com
2. To vote over the telephone:
- On a touch-tone telephone call
1-800-OK2-VOTE
- Outside of the U.S. and Canada call
(201) 324-0377
Your electronic vote authorizes the named proxies in the same manner as if
you marked, signed, dated and returned the proxy card.
If you choose to vote your shares over the Internet or telephonically, there
is no need for you to mail back your proxy card.
You can also submit a copy of your proxy card by faxing a copy of both sides
of your proxy card to either (732) 417-2916 or (732) 417-2917.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING
