SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-9554
VIACOM INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 04-2980402
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1515 Broadway, New York, N.Y. 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (212) 258-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
10.25% Senior Subordinated Notes due 2001 American Stock Exchange
9.125% Senior Subordinated Notes due 1999 American Stock Exchange
8.75% Senior Subordinated Reset Notes due 2001 American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No ---
---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. /X/
As of March 25, 1994, 100 shares of Viacom International Inc.
Common Stock, par value $.10, were outstanding, all of which were held
by Viacom Inc.
DOCUMENTS INCORPORATED BY REFERENCE
The Definitive Proxy of Viacom Inc. for the 1994 Annual Meeting of
Shareholders (Part III to the extent described herein).
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VIACOM INC.
The registrant hereby amends the following items and financial statements of
its Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as
set forth below:
Item Page
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Item 10. Directors and Executive Officers III - 1
Item 11. Executive Compensation III - 5
Item 12. Security Ownership of Certain Beneficial
Owners and Management III - 20
Item 13. Certain Relationships and Related Transactions III - 22
Item 14(c) Exhibits Exhibit 23(c)
Exhibit 23(d)
SIGNATURE
Pursuant to the requirements of this Securities and Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
VIACOM INC.
Date: May 2, 1994 By: /s/ Kevin C. Lavan
-------------------- --------------------
Kevin C. Lavan
Vice President, Controller and
Chief Accounting Officer
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PART I
ITEM 1. BUSINESS.
BACKGROUND
Viacom International Inc. (the "Company") is a diversified
entertainment and communications company with operations in four
principal segments: Networks, Entertainment, Cable Television and
Broadcasting.
Viacom Networks operates three advertiser-supported basic cable
television program services, MTV: MUSIC TELEVISION(R), including MTV
EUROPE(TM) and MTV LATINO(TM), VH-1(R)/VIDEO HITS ONE(R), and
NICKELODEON(R)/NICK AT NITE(R), and three premium subscription
television program services, SHOWTIME(R), THE MOVIE CHANNEL(TM) and
FLIX(TM). The Company, directly and through Viacom Networks,
participates as a joint venturer in four additional advertiser-
supported basic cable program services: LIFETIME(R), COMEDY
CENTRAL(TM), NICKELODEON (TM) (U.K.), and ALL NEWS CHANNEL(TM). On
March 29, 1994, the Company agreed to sell its one-third partnership
interest in LIFETIME to its partners The Hearst Corporation and
Capital Cities/ABC Inc. for approximately $317.6 million; this
transaction is expected to close in the second quarter of 1994.
Viacom Entertainment distributes television series, feature films,
made-for-television movies, mini-series and specials for television
exhibition in domestic and international markets, produces television
series and movies for prime time broadcast network television,
acquires and distributes television series for initial exhibition on a
"first run" basis, and develops, produces, distributes and markets
interactive software for the stand-alone and other multimedia
marketplaces. Viacom Cable Television owns and operates cable
television systems in California, and the Pacific Northwest and
Midwest regions of the United States. Viacom Broadcasting owns and
operates five network-affiliated television stations and fourteen
radio stations.
Viacom International Inc. was originally organized in Delaware in
August 1970 as a wholly owned subsidiary of CBS Inc., and was
reincorporated in Ohio in 1975 (the "Predecessor Company"). On
June 9, 1987, the Predecessor Company became an indirect wholly owned
subsidiary of Viacom Inc. in a leveraged buyout pursuant to a merger
(the "Merger") of a subsidiary of Viacom Inc. into the Predecessor
Company, which was the surviving corporation. On April 26, 1990,
pursuant to a plan of liquidation, the Predecessor Company merged into
a direct wholly owned subsidiary of Viacom Inc., and the surviving
Delaware corporation simultaneously changed its name to "Viacom
International Inc."
All references herein to the term "Company" refer, unless the
context otherwise requires, to Viacom International Inc., its
consolidated subsidiaries and the Predecessor Company. The Company's
principal offices are located at 1515 Broadway, New York, New York
10036 (telephone (212) 258-6000).
Viacom Inc. was organized in Delaware in 1986 for the purpose of
acquiring the Company. As of December 31, 1993, National Amusements,
Inc. ("NAI"), a closely held corporation that owns and operates
approximately 850 movie screens in the United States and the United
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Kingdom, owned 45,547,214 shares or 85.2% of the Class A Common Stock
("Class A Common Stock"), and 46,565,414 shares or 69.1% of the Class
B Common Stock ("Class B Common Stock") outstanding on such date. NAI
is not subject to the informational filing requirements of the
Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the
controlling shareholder of NAI, is the Chairman of the Board of Viacom
Inc. and the Company.
As of December 31, 1993, the principal asset of Viacom Inc.
(together with its subsidiaries, unless the context otherwise
requires, "Viacom Inc.") was the common stock of the Company. Viacom
Inc.'s principal executive offices are located at 200 Elm Street,
Dedham, Massachusetts 02026.
As of December 31, 1993, the Company and its affiliated companies
employed approximately 5,000 persons.
On March 11, 1994, pursuant to a tender offer (the "Paramount
Offer") commenced in the fourth quarter of 1993, Viacom Inc. acquired
61,657,432 shares of Paramount Communications Inc. ("Paramount")
common stock constituting a majority of the shares outstanding. The
Paramount Offer was made pursuant to an Amended and Restated Agreement
and Plan of Merger dated as of February 4, 1994 (the "Paramount Merger
Agreement") between Viacom Inc. and Paramount. As a result of the
Paramount Merger Agreement, a new wholly owned subsidiary of Viacom
Inc. will merge with and into Paramount (the "Paramount Merger"), and
Paramount will become a wholly owned subsidiary of Viacom Inc. after
the effective time of the Paramount Merger, which is expected to occur
in the second quarter of 1994.
Except where expressly noted, information is given as of December
31, 1993, and does not include information on or with respect to
Paramount or its businesses. Information with respect to Paramount in
response to Item 1 is incorporated by reference herein from (i) Item 1
of Paramount's Transition Report on Form 10-K for the six-month period
ended April 30, 1993, as such report was amended in its entirety by
Form 10-K/A No. 1 dated September 28, 1993, as further amended by Form
10-K/A No. 2 dated September 30, 1993 and as further amended by Form
10-K/A No. 3 dated March 21, 1994 and (ii) Paramount's Quarterly
Reports on Form 10-Q for the quarters ended July 31, 1993, October 31,
1993 and January 31, 1994 (the documents in clauses (i) and (ii) being
hereinafter collectively referred to as the "Paramount Reports").
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein. A copy of each of the
Paramount Reports is included as an exhibit hereto. Descriptions of
all documents incorporated by reference herein or included as exhibits
hereto are qualified in their entirety by reference to the full text
of such documents so incorporated or included.
The businesses of Paramount are entertainment and publishing.
Entertainment includes the production, financing and distribution of
motion pictures, television programming and prerecorded
videocassettes, and the operation of motion picture theaters,
independent television stations, regional theme parks and Madison
Square Garden. Publishing includes the publication and distribution
of hard cover and paperback books for the general public, textbooks
for elementary schools, high schools and colleges, and the provision
of information services for business and professions.
On January 7, 1994, Viacom Inc. and Blockbuster Entertainment
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Corporation ("Blockbuster") entered into an agreement and plan of
merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger").
Blockbuster is an international entertainment company with
businesses operating in the home video, music retailing and filmed
entertainment industries. Blockbuster also has investments in other
entertainment related businesses.
The mergers pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have been
unanimously approved by the Boards of Directors of each of the
respective companies. The obligations of Viacom Inc., Blockbuster and
Paramount to consummate the mergers are subject to various conditions,
including obtaining requisite stockholder approvals. Viacom Inc.
holds sufficient shares of Paramount common stock to approve, on
behalf of Paramount, the Paramount Merger and intends to vote its
shares of Paramount in favor of the merger, and NAI has agreed to vote
its shares of Viacom Inc. in favor of the Mergers; therefore,
stockholder approval of the Paramount Merger is assured, and approval
by Viacom Inc. of the Blockbuster Merger is also assured.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The contribution to revenues and earnings from operations of each
industry segment and the identifiable assets attributable to each
industry segment for each of the last three years ending December 31,
are set forth in Note 12 ("Business Segments") to the Consolidated
Financial Statements of Viacom Inc. and the Company included elsewhere
herein.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operations
for each of the last three years ending December 31, is set forth in
Notes 11 and 12 ("Foreign Operations" and "Business Segments") to the
Consolidated Financial Statements of Viacom Inc. and the Company
included elsewhere herein.
BUSINESS
VIACOM NETWORKS
Viacom Networks operates three advertiser-supported basic cable
television program services, MTV: MUSIC TELEVISION(R) ("MTV"),
including MTV EUROPE(TM) and MTV LATINO(TM), VH-1(R)/VIDEO HITS ONE(R)
("VH-1") and NICKELODEON(R)/NICK AT NITE(R), and three premium
subscription television program services, SHOWTIME(R), THE MOVIE
CHANNEL(TM) and FLIX(TM). The Company, directly and through Viacom
Networks, participates as a joint venturer in four additional
advertiser-supported basic cable program services: LIFETIME(R) with
The Hearst Corporation and Capital Cities/ABC Video Enterprises, Inc.,
COMEDY CENTRAL(TM) with Home Box Office ("HBO"), a division of Time
Warner Entertainment Company, L.P., NICKELODEON(TM)(U.K.) with a
subsidiary of British Sky Broadcasting Limited, and ALL NEWS
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CHANNEL(TM) with Conus Communications. On March 29, 1994, the Company
agreed to sell its one-third partnership interest in Lifetime to its
partners The Hearst Corporation and Capital Cities/ABC Inc. for
approximately $317.6 million; this transaction is expected to close in
the second quarter of 1994. MTV Networks launched two new services in
1993, NICKELODEON (U.K.) in September and MTV LATINO in October.
Viacom Networks also distributes special events and feature films on a
pay-per-view basis through SET(TM) PAY PER VIEW and packages
satellite-delivered program services for distribution to home
satellite dish owners through SHOWTIME SATELLITE NETWORKS(TM). Viacom
Networks, through its operation of the Showtime Entertainment Group,
also arranges for the development and production of original programs
and motion pictures, including feature films under the Viacom Pictures
label. These original programs and motion pictures premiere
domestically on SHOWTIME and certain of such programming is exploited
in various media worldwide.
Basic cable program services derive revenues primarily from two
sources: the sale of advertising time to national advertisers and
per-subscriber license fees paid by cable operators and other
distributors. Basic cable services are generally offered to customers
of cable television operators and other distributors as part of a
package or packages of services for a periodic subscription fee.
Premium subscription television program services derive revenues
primarily from subscriber fees paid by cable television operators and
other distributors. Subscribers typically pay fees for each premium
service to cable television operators and other distributors.
MTV NETWORKS. MTV Networks ("MTVN") operates MTV: MUSIC
TELEVISION, MTV EUROPE, MTV LATINO, NICKELODEON (including the
NICKELODEON and NICK AT NITE program segments, and the U.K.
NICKELODEON network) and VH-1 which are transmitted via satellite for
distribution by cable television operators and other distributors.
The MTV, VH-1, NICKELODEON and NICK AT NITE trademarks are strongly
identified with the product lines they represent and are significant
assets of their respective businesses.
MTV: MUSIC TELEVISION is a 24-hours-a-day, seven-days-a-week
program service offering a format which consists primarily of rock
music videos, augmented by music and general lifestyle information,
promotions, news, interviews, comedy, concert tour information,
specials, documentaries and other youth-oriented programming. MTV
targets young adult viewers from the ages of 12 to 34. In addition to
rock music videos, MTV offers regularly scheduled youth-oriented
programming such as the animated BEAVIS & BUTT-HEAD(TM), specials such
as the Annual MTV Video Music Awards and the MTV Movie Awards, public
affairs campaigns, and series such as UNPLUGGED(TM). MTV successfully
merchandised BEAVIS & BUTT-HEAD in 1993, featuring a BEAVIS & BUTT-
HEAD album, "THE BEAVIS & BUTT-HEAD EXPERIENCE", released in December
1993 by Geffen Records, and "MTV'S BEAVIS & BUTT-HEAD: THIS BOOK
SUCKS", which was the first book of the MTV Books imprint published by
Callaway Editions/Pocket Books, a division of Simon & Schuster, in
November 1993.
Following the conclusion of MTV's 1992 CHOOSE OR LOSE political
awareness campaign and continuing its emphasis on public affairs, MTV
launched the FREE YOUR MIND campaign in 1993, focusing on issues of
diversity and discrimination, which included on-air promotional spots,
news reports and specials and contests.
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UNPLUGGED features live acoustical performances by major recording
artists such as Eric Clapton, Rod Stewart and 10,000 Maniacs. MTV
licenses the distribution of UNPLUGGED home video versions of these
performances, and MTV and the applicable record labels release the
soundtracks to MTV's UNPLUGGED series.
MTV Productions made its first venture into theatrical film-making
by agreeing with Geffen Pictures in 1993 to jointly develop JOE'S
APARTMENT into a feature-length film for distribution by Warner Bros.
JOE'S APARTMENT is the award-winning short film about a young man's
efforts to cope with a big dirty city and a tiny apartment full of
talking cockroaches.
At December 31, 1993, MTV was licensed to approximately 52.2
million domestic cable subscribers (based on subscriber counts
provided by each cable system). According to the December 1993 sample
reports issued by the A. C. Nielsen Company (the "Nielsen Report"),
MTV reached approximately 59 million subscriber households.
MTV EUROPE is a 24-hours-a-day, seven-days-a-week video music
network distributed via cable systems and direct-to-home satellite
transmission throughout Europe, reaching over 58.3 million subscribers
as of December 31, 1993 (based on subscriber counts provided by each
distributor of the service). During 1993, MTV EUROPE expanded its
reach by entering into distribution arrangements in certain countries
in Eastern Europe, the former Soviet Union and the Middle East. MTV
EUROPE is designed to communicate with Europe's youth in their
language by providing approximately 85% European-sourced youth
programming, including music videos, fashion, movie shows, MTV NEWS,
trends and social issues.
In October 1993, MTVN launched MTV LATINO, a 24-hours-a-day,
seven-days-a-week music-based program service customized for Spanish-
speaking viewers, ages 12 to 34, in Latin America and the United
States. MTV LATINO reaches subscribers to cable, multichannel,
multidistribution systems ("MMDS"), satellite master antenna
television ("SMATV") and direct-to-home viewers in approximately 20
territories in Latin America. MTV LATINO was distributed to
approximately 2.4 million subscribers as of December 31, 1993 (based
on subscriber counts provided by authorized distributors).
MTVN has licensing arrangements covering the distribution of
regionally-specific program services called MTV: MUSIC TELEVISION in
Asia, Japan and Brazil. MTVN provides creative input and programming,
production, marketing and research expertise and support in connection
with licenses to each such licensee of the right to package and
exhibit a customized MTV program service containing MTV trademarks and
logos and a mix of MTV-owned and controlled programming and
interstitial material with locally produced programming and
interstitial material. Such arrangements include agreements with a
subsidiary of HutchVision Limited for a 24-hours-a-day MTV Asia
service, which is distributed to 42 million subscriber households via
the AsiaSat 1 satellite on the Hong Kong-based Satellite Television
Asian Region (STAR) system to 30 countries in Asia and parts of the
Middle East; the Abril Group for MTV Brazil, which airs 16-hours-a-day
in Brazil, reaching 9.5 million households; and Music Channel Co.
Ltd., a joint venture of Pioneer Electronic Corp., TDK Corp. and Tokyu
Agency, Inc. for MTV Japan, which launched in December 1992 and is
distributed to approximately 810,000 subscriber households in Japan
via the Superbird B satellite.
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MTVN licenses, in international markets, the format rights and/or
broadcast television exhibition rights to MTVN-owned or controlled
programming. MTVN also licenses the exhibition of "MTV
Internacional", a Spanish-language MTV-produced one-hour program, to
Spanish-language television stations in the U.S. and abroad. MTVN
anticipates further worldwide licensing of MTVN networks, programs,
merchandise and format rights.
NICKELODEON, the first network for kids, is a 24-hours-a-day,
seven-days-a-week entertainment program service which combines
acquired and originally produced programs in a pro-social, non-violent
format, comprising two distinct program segments: NICKELODEON,
targeted to audiences ranging from the ages of 2 to 15, and NICK AT
NITE, targeted to family audiences including NICKELODEON'S 2 to 15
year old audience and ranging up to age 54. Cable television
operators and other distributors typically carry both of the
NICKELODEON programming segments.
In 1993, NICKELODEON expanded its successful original animated
programming block, NICKTOONS(R), with the introduction of ROCKO'S
MODERN LIFE(TM). NICKELODEON continues to develop original animation
projects such as REAL MONSTERS(TM), in addition to THE REN & STIMPY
SHOW(TM), DOUG(TM) and RUGRATS(R). NICKELODEON also exhibits on
Saturday nights SNICK(TM), its first prime-time block of original
NICKELODEON programming. MTVN, in cooperation with MCA Inc. ("MCA"),
operates NICKELODEON STUDIOS FLORIDA at Universal Studios in Orlando,
Florida, which combines state-of-the-art television production
facilities with interactive features that demonstrate the operation of
NICKELODEON's studios from a kid's perspective.
NICKELODEON and Sony Music entered into an agreement in April 1993
for Sony to manufacture and distribute NICKELODEON home video and
audio products in the U.S. and Canada through its Sony Wonder
Children's label. In June 1993, NICKELODEON launched NICKELODEON
MAGAZINE, a bi-monthly humor-based children's publication. At
December 31, 1993 circulation was approximately 225,000 (based on
subscription and newsstand sales); distribution is handled, under
agreement with NICKELODEON, by the New York Times' The Family Circle,
Inc. (U.S.), and Worldwide Media Service, Inc. (U.K.).
At December 31, 1993, NICKELODEON was licensed to approximately
53.4 million cable subscribers (based on subscriber counts provided by
each cable system). At December 31, 1993, NICK AT NITE was licensed
to approximately 53.1 million cable subscribers (based on subscriber
counts provided by each cable system). According to the Nielsen
Report, NICKELODEON and NICK AT NITE each reached approximately 60.9
million subscriber households.
In December 1992, Nickelodeon Huggings U.K. Limited, a subsidiary
of the Company, entered into a joint venture with a subsidiary of
British Sky Broadcasting Limited for the launch and operation of
NICKELODEON program service in the United Kingdom and Ireland.
NICKELODEON in the U.K. is a 12-hours-a-day, seven-days-a-week,
satellite-delivered children's programming service which launched in
September 1993, and it carries a mix of programming, including
original productions from NICKELODEON in the U.S. and programming
originally produced by the joint venture for the U.K. market.
Pursuant to the joint venture agreement and related parent agreements,
the Company guarantees the obligation of its subsidiary and has both
the right of first negotiation/last refusal with respect to any sale
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of, and the right to approve any purchaser of, the British Sky
Broadcasting subsidiary's interest in NICKELODEON U.K. The Company's
subsidiary is obligated to fund loans in an amount equal to 50% of
NICKELODEON U.K.'s working capital deficit. The Company funded loans
of approximately B.P.3,500,000 in 1993 and expects to fund loans of
approximately B.P.7,000,000 in 1994.
VH-1/VIDEO HITS ONE is a 24-hours-a-day, seven-days-a-week music
program service. VH-1 targets an audience of baby boomers, 25 to 49
years old, rather than the 12 to 34 year-olds targeted by MTV. The
format consists primarily of music video clips from the adult
contemporary, soft rock, classic oldies, contemporary jazz and country
genres, augmented by original animation, music and general lifestyle
information and programming, comedy, fashion, nostalgia, interviews
and promotions. VH-1 offers programs such as original and acquired
comedy programming including STAND-UP SPOTLIGHT and Gallagher
specials; FT: FASHION TELEVISION; and the ONE-TO-ONE series which
profiles pop artists. At December 31, 1993, VH-1 was licensed to
approximately 45.5 million cable subscribers (based on subscriber
counts provided by each cable system). According to the Nielsen
Report, VH-1 reached approximately 49.5 million subscriber households.
Substantially all such subscribers also receive MTV.
MTVN has agreements with some U.S. record companies which, in
exchange for cash and advertising time, license the availability of
such companies' music videos for exhibition on MTV and on MTVN's other
basic cable networks; a number of other record companies provide MTVN
with music videos in exchange for promotional consideration only. The
agreements generally provide that the videos are available for debut
by MTVN and, in some cases, that videos are subject to exclusive
periods on MTV. These record companies provide a substantial portion
of the music videos exhibited on MTV and VH-1. MTVN is currently in
negotiations for the renewal and extension of certain of its record
company agreements. Although MTVN believes that these agreements will
be renewed, there can be no assurance that the terms of such renewals
will be as favorable as existing arrangements.
MTVN derives revenues principally from two sources: the sale of
time on its own networks to advertisers and the license of the
services to cable television and other system operators. The sale of
MTVN advertising time is affected by viewer demographics, viewer
ratings and market conditions for advertising time. Adverse changes
in market conditions for advertising may affect MTVN's revenues. MTVN
derives revenues from license fees paid by cable operators and other
distribution systems which deliver programming by satellite and
microwave transmissions. In 1993, MTVN derived approximately 58% of
its revenues from music programming and approximately 42% of its
revenues from children's and other programming.
MTVN also derives revenues from the sale of advertising time
within internally produced or co-produced programming distributed to
television stations and from the sale of advertising time within such
programs produced by third parties. MTVN, through its operation of
One World Entertainment, sells barter advertising time in series
licensed for distribution to television stations by the Company and
third parties, in exchange for a commission.
COMEDY CENTRAL. The Company and HBO, through a 50-50 joint
venture, operate COMEDY CENTRAL, a 24-hours-a-day, seven-days-a-week
program service targeted to audiences ranging from the ages of 18 to
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34. The format consists primarily of comedy programming, including
movies, series, situation comedies, stand-up and sketch comedy,
commentary, promotions, specials, and other original and acquired
comedy programming. Pursuant to the joint venture agreement, the
Company is obligated to make capital contributions in an amount equal
to 50% of the partnership's working capital deficit (and Viacom Inc.
has guaranteed such obligation). The Company's capital contributions
for 1993 totaled $13.6 million. For 1994, the Company estimates its
contribution obligation to be approximately $9 million. COMEDY
CENTRAL reached approximately 30.3 million subscriber households
according to the Nielsen Report.
LIFETIME. The Company owns a one-third partnership interest in
LIFETIME, an advertiser-supported basic cable television network that
provides programming directed primarily toward women in the 18 to 54
age group. On March 29, 1994, the Company agreed to sell its one-
third partnership interest in LIFETIME to its partners The Hearst
Corporation and Capital Cities/ABC Inc. for approximately $317.6
million; this transaction is expected to close in the second quarter
of 1994.
SHOWTIME NETWORKS INC. Showtime Networks Inc. ("SNI") operates
three 24-hours-a-day, commercial-free, premium subscription services
offered to cable television operators and other distributors:
SHOWTIME, offering theatrically released feature films, dramatic
series, comedy specials, boxing events, family programs and original
movies; THE MOVIE CHANNEL, offering feature films and related
programming including film festivals; and FLIX, an added value premium
subscription service featuring movies primarily from the 1960s, 70s
and 80s which was launched on August 1, 1992. SHOWTIME, THE MOVIE
CHANNEL and FLIX are offered to cable television operators and other
distributors (including the Company) under affiliation agreements
which for SHOWTIME and THE MOVIE CHANNEL are generally for a term of
three to five years and in each case are distributed to the systems
they serve by means of domestic communications satellites. As of
December 31, 1993, SHOWTIME, THE MOVIE CHANNEL and FLIX, in the
aggregate, had approximately 11,900,000 cable and other subscribers in
approximately 8,700 cable systems and other distribution systems in 50
states and certain U.S. territories.
SNI also provides special events, such as sports events, and
feature films to licensees on a pay-per-view basis through its
operation of SET PAY PER VIEW, a division of the Company.
Showtime Satellite Networks Inc. ("SSN"), a subsidiary of SNI,
packages for distribution to home satellite dish owners (on a direct
retail basis) SHOWTIME, THE MOVIE CHANNEL, FLIX, Viacom Networks'
basic cable program services, ALL NEWS CHANNEL (a 24-hour satellite-
delivered news service which is a joint venture between Viacom
Satellite News Inc., a subsidiary of the Company, and Conus
Communications Company Limited Partnership, a limited partnership
whose managing general partner is Hubbard Broadcasting, Inc.) and
certain third-party program services. SHOWTIME, THE MOVIE CHANNEL and
FLIX are also offered to third-party licensees for subdistribution to
home satellite dish owners.
In order to exhibit theatrical motion pictures on premium
subscription television, SNI enters into commitments to acquire
rights, with an emphasis on acquiring exclusive rights for SHOWTIME
and THE MOVIE CHANNEL, from major or independent motion picture
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producers and other distributors (including the Company). SNI's
exhibition rights always cover the United States and may on a
contract-by-contract basis cover additional territories. Theatrical
motion pictures are generally exhibited first on SHOWTIME and THE
MOVIE CHANNEL after an initial period for theatrical, home video and
pay-per-view exhibition and before the period has commenced for
standard broadcast television and basic cable television exhibition.
FLIX primarily offers motion pictures from the 1960s, 70s and 80s,
most of which have been previously made available for standard
broadcast and other exhibitions.
The cost of acquiring premium television rights to programming,
including exclusive rights, is the principal expense of SNI. At
December 31, 1993, in addition to such commitments reflected in Viacom
Inc.'s and the Company's financial statements, SNI had commitments to
acquire such rights at a cost of approximately $1.8 billion. Most of
the $1.8 billion is payable within the next seven years as part of
normal programming expenditures of SNI. These commitments are
contingent upon delivery of motion pictures which are not yet
available for premium television exhibition and, in many cases, have
not yet been produced.
In November 1993, SNI entered into a seven-year agreement with
Metro-Goldwyn-Mayer Inc. ("MGM") under which SNI agreed to acquire the
exclusive premium television rights in the licensed territory to MGM
and United Artists feature films. The agreement includes all
qualifying films theatrically released from September 1, 1994 through
August 31, 2001, up to a maximum of 150 pictures. This agreement
follows a previous agreement between SNI and Pathe Entertainment,
Inc., a predecessor-in-interest to MGM. The recent agreement also
calls for SNI and MGM to co-finance the production of certain
exclusive original movies to be produced for SNI's program services.
Also in 1993, SNI and Sony Pictures Entertainment Inc. entered
into a five-year agreement under which SNI agreed to acquire the
exclusive premium television rights in the licensed territory to
TriStar Pictures feature films. A continuation of SNI's previous
three-year arrangement with TriStar, this new agreement includes all
qualifying TriStar films theatrically released from 1994 through 1998,
up to a maximum of 75 pictures. Feature films theatrically released
by TriStar include SLEEPLESS IN SEATTLE, CLIFFHANGER and PHILADELPHIA.
In February 1994, SNI reached an agreement in principle with
Castle Rock Entertainment ("Castle Rock") to acquire the exclusive
premium television rights in the licensed territory to additional
Castle Rock feature films. This agreement follows SNI's previous
output arrangement with Castle Rock, which included such previously
theatrically released feature films as A FEW GOOD MEN, CITY SLICKERS,
WHEN HARRY MET SALLY, MISERY, MALICE and IN THE LINE OF FIRE. The new
agreement includes all qualifying Castle Rock motion pictures
theatrically released from 1994 through 1999, up to a maximum of 55
pictures.
In March 1994, SNI entered into an agreement with Orion Pictures
Corporation ("Orion") under which SNI agreed to acquire the exclusive
premium television rights in the licensed territory to up to 30, in
the aggregate, motion pictures, including qualifying motion pictures
theatrically released from 1994 through 1996 and qualifying original
motion pictures. This agreement follows a previous output agreement
between SNI and Orion.
I - 9
<PAGE>
In 1989, SNI agreed with Walt Disney Pictures ("Disney") to
acquire exclusive premium television rights in the licensed territory
to qualifying feature films (up to a maximum of 125 films) produced
and distributed by Disney's major distribution labels (other than the
Disney label) and theatrically released during the five-year period
commencing January 1, 1991. These films include SISTER ACT 2,
TOMBSTONE, THE JOY LUCK CLUB and WHAT'S LOVE GOT TO DO WITH IT. In
addition, SNI has agreements with (among other suppliers) New Line
Distribution, Inc., Imagine Films Entertainment, Inc., Cannon
Pictures, Inc., and Polygram Filmed Entertainment Distribution, Inc.
SNI also arranges for the development and production of original
programs and motion pictures that premiere on SHOWTIME through its
operation of the Showtime Entertainment Group, which was formed in
1992. The Showtime Entertainment Group reflects SNI's increased
commitment to the development and production of original programming
and includes the operation of Viacom Pictures, a division of the
Company.
Viacom Pictures arranges for the development and production of
motion pictures that are exhibited theatrically in foreign markets and
premiere domestically on SHOWTIME. These films are then made
available for distribution to various media worldwide, with the
exception of the U.S. theatrical market. These feature films are
generally budgeted at an average cost of approximately $5 million.
During 1993, Viacom Pictures completed principal photography on two
films: PAST TENSE, starring Scott Glenn, Anthony LaPaglia and Lara
Flynn Boyle, and ROSWELL, starring Kyle MacLachlan, Martin Sheen and
Dwight Yoakam.
The Showtime Entertainment Group also has entered into commitments
to produce, distribute and/or exhibit other original programming,
including series, films, documentary programs, comedy specials and
boxing events. In 1993, for example, SNI televised comedy specials
featuring Tim Allen, Brett Butler and Shelley Long, boxing matches
featuring such fighters as Julio Cesar Chavez, and the critically
acclaimed dramatic anthology series entitled FALLEN ANGELS, episodes
of which were directed by Michael Mann, Steve Soderbergh, Jonathan
Kaplan and Tom Cruise and starred Gary Oldman, Laura Dern, Meg Tilly,
Gabrielle Anwar, James Woods, Joe Mantegna, Gary Busey and Alan
Rickman. In addition to exhibiting these original programs and motion
pictures on its premium subscription services, SNI distributes certain
of such programming for exploitation in various media worldwide.
ADDITIONAL INFORMATION ABOUT VIACOM NETWORKS. The domestic
program services of MTVN and SNI are currently transmitted over
transponders principally on GE Americom's C-3 and C-4 and the Hughes
Galaxy I and V domestic satellites. In 1994, Viacom Networks program
services on Galaxy I will move to AT&T's Telstar 302. NICKELODEON
(U.K.) program service is transmitted over the Astra 1-C satellite.
MTV LATINO is transmitted over PanAmSat-1. MTV EUROPE is transmitted
over the Astra 1-A, Astra 1-B and Eutelsat II-F1 satellites.
The Company has entered into pre-launch agreements for
international satellite coverage on Apstar-1 and Apstar-2, covering a
broad Asian area, on PanAmSat-2 (Pacific Rim area), PanAmSat-3 (Latin
America) and PanAmSat-4 (India/Middle East and South Africa) and
Eutelsat II-F6 (greater Europe), all for service beginning in 1994 and
1995.
I - 10
<PAGE>
The Company entered into agreements, as of August 27, 1992, with
United States Satellite Broadcasting Inc. ("USSB"), a subsidiary of
Hubbard Broadcasting, Inc., for the direct broadcast satellite
distribution using high-powered Ku-band technology ("DBS") of each of
the Company's wholly owned basic cable and premium networks. These
networks are expected to be offered by USSB to DBS customers beginning
in 1994, and will be delivered directly to dishes located at DBS
customers' homes from the first high-powered Ku-band satellite serving
the U.S., which was launched in December 1993. DBS delivery utilizes
consumer dishes significantly smaller than the C-band consumer dishes
currently in use by home satellite dish owners in the U.S.
VIACOM ENTERTAINMENT
Viacom Entertainment is comprised of (i) Viacom Enterprises,
which distributes television series, feature films, made-for-
television movies, mini-series and specials for television exhibition
in various markets throughout the world and also distributes
television series for initial United States television exhibition on a
non-network ("first run") basis and for international television
exhibition; (ii) Viacom Productions, which produces television series
and other television properties independently and in association with
others primarily for initial exhibition on U.S. prime time network
television; (iii) Viacom New Media, which was established in 1992
to develop, produce, distribute and market interactive software
for the stand alone and other multimedia marketplaces; (iv) Viacom
World Wide, which explores and develops business opportunities in
international markets primarily in cable and premium television; and
(v) Viacom MGS Services, which duplicates and distributes television
and radio commercials. Viacom Enterprises and Viacom Productions are
expected to be consolidated with Paramount's television operations
during 1994.
VIACOM ENTERPRISES. Viacom Enterprises distributes or syndicates
television series, feature films, made-for-television movies, mini-
series and specials, and first run series for television exhibition in
domestic and/or international broadcast, cable and other markets.
Feature film and television properties are acquired from third parties
or result from the Company's own production activities, including
television properties produced by Viacom Productions and certain
television properties produced by or for MTV Networks. Third-party
agreements for the acquisition of distribution rights are generally
long-term and exclusive in nature; such agreements frequently
guarantee a minimum recoupable advance payment to such third parties
and generally provide for periodic payment to such third parties based
on the amount of revenues derived from distribution activities after
deduction of Viacom Enterprises' percentage distribution fee,
recoupment of distribution expenses and recoupment of any advance
payments.
At December 31, 1993, Viacom Enterprises held domestic and/or
international television distribution rights to approximately 5,000
half-hour series episodes, 2,000 one-hour series episodes, 1,500
feature films and television movies, and 30 mini-series.
At December 31, 1993, Viacom Enterprises distributed television
product to, among other outlets, approximately 750 domestic broadcast
television stations, including stations in every principal city
in the U.S., and to outlets in approximately 120 other countries
I - 11
<PAGE>
around the world. Viacom Enterprises generally licenses product to
exhibitors for periods of one to six years, with license fee payments
due over a somewhat shorter period.
Episodes of a network television series from the first four
seasons on a broadcast network generally become available for
exhibition in domestic syndication to broadcast television stations
commencing upon the start of the fifth broadcast season on the
network; episodes from each subsequent broadcast season generally
become available for such domestic syndication at the conclusion of
each such subsequent broadcast season. Episodes of network television
series are available for exhibition by foreign stations prior to or
concurrent with their initial network runs. Generally, a network
television series must air for at least three full broadcast seasons
before it has value for such domestic syndication. Television
programs can be made available to stations and other outlets, such as
cable television services, on a first run basis without having been
exhibited on any of the networks. The Company has greater control
over the availability for exhibition in such domestic syndication of
programming developed by and for Viacom's cable networks than of
programming developed for network television. The Company has adopted
a strategy of internal development of first run programs utilizing in-
house creative resources from within Viacom Enterprises and from
elsewhere within the Company, such as MTV Networks. Feature films
which have been released theatrically generally become available for
exhibition in such domestic syndication after their theatrical, home
video, pay-per-view, and premium television exhibition periods have
expired (which is generally three to four years after domestic
theatrical release) and for network or ad hoc network exhibition
between the first and second premium television windows. Such feature
films generally become available for free television exhibition by
foreign stations after the foreign theatrical, home video, pay-per-
view (if any) and premium television (if any) exhibition periods have
expired (which is generally two to three years after theatrical
release in the applicable foreign market).
The Company controls the exclusive worldwide broadcast, basic
cable, premium, and home video television distribution rights to
ROSEANNE, now in its sixth network broadcast season on ABC, and THE
COSBY SHOW, which completed its eight-year network run at the end of
the 1991/92 network broadcast season. The start of the sixth network
season of ROSEANNE automatically triggered the first of three 26-week
extensions of individual station licenses for ROSEANNE's initial
licensing in domestic syndication, which was made on a cash plus
barter basis. The second licensing period in domestic syndication for
THE COSBY SHOW commenced in September 1993 (upon expiration of the
term for the initial licensing in domestic syndication of THE COSBY
SHOW) on an all-cash basis.
The Company also controls certain worldwide exclusive
distribution rights to classic network series such as I LOVE LUCY, THE
ANDY GRIFFITH SHOW, THE BEVERLY HILLBILLIES, HAWAII FIVE-O and THE
TWILIGHT ZONE. The Company is also offering VIACOM SEASONAL SPECIALS
FEATURING NICKTOONS which brings six one hour seasonally themed
specials, drawn from MTV Networks' critically acclaimed NICKTOONS
animation block, to broadcast television.
In addition, the Company controls the exclusive worldwide
distribution rights in all media to various network television movies
and series produced by Viacom Productions such as the PERRY MASON
I - 12
<PAGE>
television movies starring Raymond Burr, the DIAGNOSIS MURDER
television movies and series starring Dick Van Dyke and the MATLOCK
series starring Andy Griffith. Most episodes of MATLOCK and most of
the PERRY MASON television movies are currently available for
exhibition in domestic syndication. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
The Company had accumulated a backlog of unbilled license
agreements of approximately $399 million at December 31, 1993. As the
entire license fee amount is billed during the term of various
licensing contracts, the Company will recognize as revenues that
portion of such amount representing its distribution fees. Down
payments and other accelerated payments of license fees are included
in the backlog and are recognized as revenues in accordance with the
billing terms of the license agreements. (See Note 1 to the
Consolidated Financial Statements of Viacom Inc. and the Company for
an explanation as to how license fees are billed.) Approximately 58%
of the Company's backlog is attributable to license fees for ROSEANNE
and THE COSBY SHOW. As THE COSBY SHOW becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Since the late 1970s, the Company has produced and/or acquired
television series for distribution on a first run basis. There is a
financial exposure to the Company when it acquires or produces such
series to the extent that advertising revenues derived by the Company
and/or license fees paid by television stations to the Company are not
sufficient to cover production costs. The Company typically offers to
license new episodes of a first run series on a broadcast season
basis. Generally, a first run series may be canceled by the Company
for any reason at any time; in such event, television station licenses
for such first run series are subject to termination by the Company,
and the Company may have certain financial obligations to the producer
notwithstanding cancellation. The Company is currently offering the
third season (since its national launch) of THE MONTEL WILLIAMS SHOW,
a first run one-hour strip (five times per week) talk show which
premiered in Spring 1991 and was nationally launched in September
1992, on a cash plus barter basis, and NICK NEWS, a first run half
hour weekly (one time per week) news and information show targeted for
audiences 12 years old and under, which was nationally launched in
September 1993 on an all-barter basis.
The Company licenses certain ancillary rights to third parties,
including home video, video disc and merchandising rights. These
rights can be acquired concurrently with a program acquisition,
derived from programs or characters created in-house, or directly
licensed from the holders of such rights. These activities have not
been a source of significant revenues to date.
For the year ended December 31, 1993, approximately 37% of Viacom
Enterprises' revenues were attributable to foreign operations and
export business. A substantial portion of such revenues is derived in
countries that have import quotas and other restrictions which limit
the number of foreign programs and films exhibited in such countries.
(See "BUSINESS -- Regulation -- Viacom Entertainment -- European
Community Directive")
VIACOM PRODUCTIONS. Viacom Productions Inc. ("Viacom
Productions") produces programs independently and in association with
others primarily for U.S. network prime time television.
I - 13
<PAGE>
These programs, which include television movies, series and mini-
series, are also a source of product for the Company's distribution
activities. There is a financial exposure to the Company with respect
to such programs to the extent that revenues from distribution or
syndication in foreign or domestic broadcast, cable and/or other
markets are not sufficient to cover production deficits (i.e., the
----
difference between production costs and network license fees). For
the 1993/94 broadcast season, Viacom Productions is producing the
eighth network broadcast season of Andy Griffith's MATLOCK series
(ABC); three additional PERRY MASON mystery television movies (NBC);
the first network broadcast season of Dick Van Dyke's DIAGNOSIS MURDER
series (CBS); two television movies starring Louis Gossett, Jr. (NBC);
and several two-hour television movies, including THE ANISSA AYALA
STORY (NBC); DESPERATE JOURNEY, starring Mel Harris (ABC); and SIN AND
REDEMPTION, starring Richard Grieco (CBS). Viacom Productions also
produces movies for cable television networks, including THEY,
starring Vanessa Redgrave (SHOWTIME) and A FRIENDLY SUIT, starring
Melissa Gilbert and Marlee Matlin (LIFETIME).
VIACOM NEW MEDIA. Viacom New Media, the Company's interactive
publishing division, was formed in 1992 to develop, produce,
distribute and market interactive software for the stand-alone and
other multimedia marketplaces. ICOM Simulations, Inc., an interactive
software development company, was acquired by the Company in May 1993
and has been integrated into Viacom New Media; among other things,
ICOM Simulations, Inc. is known for its SHERLOCK HOLMES CONSULTING
DETECTIVE series of CD-ROM products. Viacom New Media released an
interactive horror movie on CD-ROM entitled DRACULA UNLEASHED in the
fourth quarter of 1993. In 1994, Viacom New Media expects to release
original video games and CD-ROM products based on certain MTV Networks
programs, including ROCKO'S MODERN LIFE (currently scheduled for
second quarter 1994 release) and BEAVIS & BUTT-HEAD. Viacom New Media
also expects to participate in the development of interactive
programming for the Viacom/AT&T Castro Valley cable system project.
(See "BUSINESS -- Viacom Cable Television")
VIACOM WORLD WIDE LTD. Viacom World Wide Ltd. ("Viacom World
Wide") explores and develops international business opportunities in
all media, focusing primarily on countries with recently deregulated
television industries. Viacom World Wide works closely with the
Company's other operating units in identifying international business
opportunities. Viacom World Wide also provides consulting services to
companies overseas. Over the past year, Viacom World Wide has
provided strategic and business planning services to corporations in
the Middle East and engineering services in Japan. None of these
services has been a source of significant revenues to date nor
required significant capital contributions by the Company.
VIACOM MGS SERVICES. Viacom MGS Services Inc. ("MGS")
distributes, duplicates and stores taped and filmed television
commercials, radio commercials, and other programs for advertisers and
agencies, production houses and industrial and educational customers.
VIACOM CABLE TELEVISION
CABLE OPERATIONS. At December 31, 1993, Viacom Cable Television
("Viacom Cable") was approximately the 13th largest multiple cable
television system operator in the United States with approximately
1,094,000 subscribers. In January 1993, the Company completed the
I - 14
<PAGE>
sale of its suburban Milwaukee cable system, serving approximately
47,000 customers, to Warner Communications Inc., a unit of Time Warner
Entertainment Co., L.P. as part of the settlement of the Company's
antitrust lawsuit against Time Warner Inc. Viacom Cable's systems are
operated pursuant to non-exclusive franchises granted by local
governing authorities.
Viacom Cable offers two tiers of primary (i.e., non-premium)
service: "Limited Service", which consists generally of local and
distant broadcast stations and all public, educational and
governmental channels ("PEG") required by local franchise authorities;
and, the "Satellite Value Package", which provides additional channels
of satellite-delivered cable networks. Monthly service fees for these
two levels of primary service constitute the major source of the
systems' revenue.
The monthly service fees for Limited Service and the Satellite
Value Package are regulated under the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") (See
"BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation"). At
December 31, 1993, the fixed monthly fees charged to customers for
primary services varied by geographic area and ranged from $9.00 to
$14.84 per month for Limited Service and from $21.25 to $25.78 for the
combination of Limited Service plus the Satellite Value Package, in
each case for all of an individual customer's television connections.
The Company offers customers the Company's own basic programming
services, as well as third-party services such as CNN and ESPN. An
installation charge is levied in many cases but does not constitute an
important source of revenue. Customers are free to discontinue
service at will. None of Viacom Cable's systems is exempt from rate
regulation under the 1992 Cable Act.
Viacom Cable offers premium cable television programming,
including the Company's premium subscription television services, to
its customers for an additional monthly fee of up to $12.25 per
premium service. As of December 31, 1993, the Company's cable
television systems had approximately 718,000 subscriptions to premium
cable television program services.
Viacom Cable customers who elect to subscribe to Limited Service
alone are also able to purchase premium and pay-per-view services
offered by the Company without first having to "buy through" the
Satellite Value Package. The 1992 Cable Act requires cable operators
to implement this practice where no technological limitations exist.
(See "BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")
Viacom Cable also derives revenue from sales of available
advertising spots on advertiser-supported programming and sharing of
revenues from sales of products on home shopping services offered by
Viacom Cable to its customers.
Cable operators require substantial capital expenditures to
construct systems and significant annual expenditures to maintain,
rebuild and expand systems. The equipment of each cable system
consists principally of receiving apparatus, trunk lines, feeder cable
and drop lines connecting the distribution network to the premises of
the customers, electronic amplification and distribution equipment,
converters located in customers' homes and other components. System
construction and operation and quality of equipment used must conform
with federal, state and local electrical and safety codes and certain
I - 15
<PAGE>
regulations of the FCC. Viacom Cable, like many other cable
operators, is analyzing potential business applications for its
broadband network, including interactive video, video on demand, data
services and telephony. These applications, either individually or in
combination, may require technological changes such as fiber optics
and digital compression. If these applications justify capital
spending in excess of current projections, Viacom Cable will revise
its capital needs accordingly. Although management believes the
equipment used in the cable operations is in good operating condition,
except for ordinary wear and tear, Viacom Cable invests significant
amounts each year to upgrade, rebuild and expand its cable systems.
During the last five years, Viacom Cable's capital expenditures were
as follows: 1989: $40 million; 1990: $46 million; 1991: $45 million;
1992: $55 million; and 1993: $79 million. The Company expects that
Viacom Cable's capital expenditures in 1994 will be approximately $100
million.
Viacom Cable has constructed a fiber optic cable system in Castro
Valley, California to provide more channels with significantly better
picture quality, and to accommodate testing of new services including
an interactive on-screen programming guide known as StarSight (in
which a consolidated affiliate of the Company currently has a 21.4%
equity interest which it has the right to increase to 35%), other
interactive programs with Viacom New Media, video-on-demand premium
services, multiplexed premium services, and advanced interactive video
and data services. Viacom has entered into an agreement with AT&T to
test and further develop such services.
As part of Viacom's strategic relationship with NYNEX Corporation
("NYNEX"), Viacom has granted NYNEX a right of first refusal with
respect to providing telephony service upgrade expertise to Viacom
Cable.
I - 16
<PAGE>
<TABLE>
AS OF DECEMBER 31, 1993
---------------------
<CAPTION>
APPLOXIMATE APPROXIMATE NUMBER OF
HOMES IN HOMES PASSED PRIMARY PRIMARY PREMIUM PREMIUM MILES OF
FRANCHISE BY CABLE CUSTOMERS PENETRATION UNITS PENETRATION CABLE
AREA DISTRIBUTION
(1) (2) (3) (4) (5) (6)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bay Area Region
Marin (7) 81,000 79,600 61,800 78% 30,200 49% 638
Sonoma (7) 45,000 44,700 34,500 77% 17,000 49% 514
Napa (7) 33,000 32,600 22,900 70% 11,800 52% 302
East Bay/Castro 85,000 85,400 70,800 83% 53,700 76% 668
Valley(7)
Pittsburg/Pinole(7) 72,000 71,400 53,600 75% 37,900 71% 511
San Francisco 354,500 334,000 161,800 48% 117,700 73% 709
------- ------- ------- --- ------- --- ---
Total Bay Area 670,500 647,700 405,400 63% 268,300 66% 3,342
Region
Ore-Cal Region
Redding (7) 55,800 53,400 35,400 66% 17,400 49% 629
Oroville(7) 42,600 38,700 25,100 65% 8,800 35% 482
Salem 74,400 72,300 42,500 59% 21,700 51% 600
------ ------ ------ --- ------ --- ---
Total Ore-Cal 172,800 164,400 103,000 63% 47,900 47% 1,711
Region
Puget Sound Region 614,300 595,900 408,600 69% 253,200 62% 6,123
(7)
Mid-West Region
Nashville (17) 265,000 227,100 125,400 55% 99,000 79% 2,222
Dayton 98,000 94,800 51,700 55% 49,700 96% 633
------ ------ ------ --- ------ --- ---
Total Mid-West 363,000 321,900 177,100 55% 148,700 84% 2,855
Region
Total Viacom Cable 1,820,600 1,729,900 1,094,100 63% 718,100 66% 14,031
========= ========= ========= === ======= === ======
<FN>
- - ----------------------
(1) Homes in franchise area represents Viacom Cable's estimate based upon local sources such as city
directories, chambers of commerce, public utilities, public officials and house counts.
(2) Homes are deemed "passed by cable" if such homes can be connected without any further extension of the
transmission lines.
(3) Represents the number of homes connected, rather than the number of television outlets connected within
such homes.
(4) Represents primary customers as a percentage of homes passed by cable.
(5) The premium unit count is based on the total number of premium services subscribed to by primary
customers.
(6) Represents premium units as a percentage of primary customers.
(7) Other cable television companies have franchises and serve parts of these areas in which the Company has
franchises.
</TABLE>
I - 17
<PAGE>
VIACOM BROADCASTING
Viacom Broadcasting is engaged in the operation of five television
and 14 radio stations. The Company's television and radio stations
operate pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), and licenses granted by the FCC, which are
renewable every five years in the case of television stations and every
seven years in the case of radio stations.
VIACOM TELEVISION. The Company owns and operates the following
five television properties:
NETWORK
STATION AND AFFILIATION
METROPOLITAN AND EXPIRATION YEAR
AREA SERVED TYPE DATE OF AGREEMENT ACQUIRED
- - --------------------------------------------------------------------
KMOV-TV
St. Louis, MO VHF CBS/December 31, 1994 1986
WVIT-TV
Hartford-New Haven-
New Britain-Waterbury, CT UHF NBC/July 2, 1995 1978
WNYT-TV
Albany-Troy-Schenectady, NY VHF NBC/September 28, 1980
1995
KSLA-TV
Shreveport, LA VHF CBS/June 30, 1995 1983
WHEC-TV
Rochester, NY VHF NBC/August 13, 1994 1983
As reflected in the table above, each of the Company's television
stations is affiliated with a national television network. Such
affiliations can be an advantage, because network programming is often
competitively stronger and results in lower programming costs than
would otherwise be necessary to obtain programming from other sources.
The Company expects that the affiliation agreements which expire in
1994 will be renewed.
I - 18
<PAGE>
In addition to fees paid by networks to their affiliates, the
principal source of revenue for the Company's television stations is
the sale of broadcast time that has not been sold by the networks to
national, local and regional advertisers. Such sales may involve all
or part of a program or spot announcements within or between programs.
Broadcast time is sold to national advertisers through national sales
representatives who are compensated on a commission basis at normal
industry rates. Advertising is sold to local and regional advertisers
through a station's own sales force. Local and national spot
advertising is generally sold pursuant to contracts which are for short
periods and are generally cancelable upon prior notice but which are
frequently renewed for additional terms.
VIACOM RADIO. The Company owns and operates the 14 radio stations
listed below. On June 16, 1993, the Company acquired the assets of
KQLZ-FM (now KXEZ-FM), serving Los Angeles, California and on November
1, 1993, the Company acquired the assets of WCXR-FM and WCPT-AM serving
Washington, D.C., in exchange for the assets of KIKK-AM/FM serving
Houston, Texas and cash. The Company now operates multiple FM and/or
multiple AM stations in Seattle, Washington (2 FMs, 1 AM), Los Angeles,
California (2 FMs) and Washington, D.C. (2 FMs, 2 AMs) as permitted by
the FCC's recently liberalized ownership rules which permit common
ownership of two or more AM or two or more FM stations in the same
market. Pursuant to the FCC's order on March 4, 1994 consenting to the
transfer of control of Paramount's broadcast licenses to Viacom Inc.,
which licenses include a television station serving Washington, D.C.,
the Company has undertaken to dispose of one AM and one FM radio
station serving Washington, D.C. no later than September 11, 1995.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
I - 19
<PAGE>
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- - -----------------------------------------------------------------------
WLTW-FM
New York, NY 106.7 MHz 50,000 Adult 1980
Contemporary
WLIT-FM
Chicago, IL 93.9 MHz 50,000 Adult 1982
Contemporary
WLTI-FM
Detroit, MI 93.1 MHz 50,000 Adult 1988
Contemporary
WMZQ-AM-FM
Washington, (AM) 1390 KHz 5,000 Country 1984
D.C. (FM) 98.7 MHz 50,000 1980
WCXR-FM 105.4 MHz 50,000 Classic Rock 1993
WCPT-AM 730 KHz 5,000 D* CNN Headline 1993
Washington, 20 N* News
D.C.
KBSG-AM-FM
Tacoma/Seattle, (FM) 97.3 MHz 100,000 Oldies 1987
WA (AM) 1210 KHz 10,000 D* 1989
1,000 N*
KNDD-FM
Seattle, WA 107.7 MHz 100,000 New Rock (AOR) 1992
I - 20
<PAGE>
STATION AND
METROPOLITAN POWER RADIO YEAR
AREA SERVED FREQUENCY WATTS STATION FORMAT ACQUIRED
- - -----------------------------------------------------------------------
KYSR-FM
Los Angeles, 98.7 MHz 75,000 Adult 1990
CA Contemporary
KXEZ-FM
Los Angeles, 100.3 MHz 50,000 Adult 1993
CA Contemporary
KSRY-FM
San Francisco, 98.9 MHz 50,000 Adult 1990
CA Contemporary
KSRI-FM
Santa Cruz/San 99.1 MHz 50,000 Adult 1990
Jose, CA Contemporary
_________________________
* D/N = Day/Night
As indicated in the table above, the radio stations generally have
specialized program formats targeted to specific audiences. In
addition, the stations' programming includes entertainment, news,
religion, sports, education and other topics of general interest. The
stations also provide time for public affairs, educational and cultural
programs and for discussion of local and national issues.
Radio station revenues are derived almost entirely from the sale of
advertising time. Only a small amount of such revenues is derived from
sponsored programs or non-broadcast sources. As is customary in the
industry, national representatives are engaged to obtain advertising
from and to sell broadcast time to national advertisers, and are
compensated on a commission basis. The stations' own sales forces sell
advertising time to local and regional advertisers. Local, regional
and national advertising is generally sold pursuant to contracts which
are for short periods and generally are cancelable upon prior notice,
but frequently are renewed for additional terms.
REGULATION
The Company's entertainment, cable television and broadcasting
businesses are subject to extensive regulation by federal, state and
local governmental authorities and its programming businesses are
affected thereby. The rules, regulations, policies and procedures
affecting these businesses are constantly subject to change. The
descriptions which follow are summaries and should be read in
conjunction with the texts of the statutes, rules and regulations
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<PAGE>
described herein. The descriptions do not purport to describe all
present and proposed federal, state and local statutes, rules and
regulations affecting the Company's businesses.
VIACOM ENTERTAINMENT
The Company's first run, network and other production operations
and its distribution of off-network, first run and other programs in
domestic and foreign syndication are not directly regulated by
legislation. However, existing and proposed rules and regulations of
the FCC applicable to broadcast networks, individual broadcast stations
and cable could affect Viacom Entertainment.
FINANCIAL INTEREST AND SYNDICATION RULES. The financial interest
and syndication rules ("finsyn rules") were adopted by the FCC in 1970.
These rules significantly limited the role of broadcast television
networks in broadcast television program syndication. The financial
interest rule prohibited a network from acquiring a financial or
proprietary right or interest in the exhibition (other than its own
broadcast network exhibition), distribution or other commercial use in
connection with the broadcasting of any television program of which it
is not the sole producer. The syndication rule prohibited a network
from syndicating programming domestically to television stations for
non-network exhibition and precluded a network from reserving any
rights to participate in income derived from domestic broadcast
syndication, or from foreign broadcast syndication where the network
was not the sole producer. For the purposes of these rules, a
broadcast network was defined as any entity which offers an
interconnected program service on a regular basis for 15 or more hours
per week to at least 25 affiliated television stations in 10 or more
states.
In 1991 the FCC adopted modified finsyn rules. In 1992,
these rules were vacated by the U.S. Court of Appeals for the
Seventh Circuit (the "Seventh Circuit Appeals Court"), acting on
appeals filed by ABC, CBS, NBC and others. In 1993 the FCC
adopted a decision (the "Decision") further modifying the finsyn
rules effective as of June 5, 1993, although ABC, CBS, and NBC
could not commence operating under the modified finsyn rules until
November 10, 1993 when the antitrust consent decrees to which they
are subject were modified to eliminate certain restrictions by an
order (the "Order") of the U.S. District Court for the Central
District of California (the "District Court"). The modified
rules will expire in November 1995, absent an affirmative
FCC action retaining or further modifying them. The FCC is to
initiate a final review of the modified rules six months prior to
their November 1995 expiration date and proponents of their
continuance have the burden of proving that the public interest
requires their continued retention. The Decision has been
appealed by the networks and others, and all appeals have been
consolidated before the Seventh Circuit Appeals Court. The
Company is unable to predict what action the court will take when
it reviews the Decision or what effect, if any, the Decision will
have on the Company's distribution and production activities.
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<PAGE>
The Decision eliminates certain restrictions on network
acquisition of financial interests and syndication rights in
network programming. With respect to first run programs, networks
may not acquire any financial interests or syndication rights
except in programs produced solely by the network and in programs
distributed only outside the U.S. The networks are also
prohibited by the modified rules from directly engaging in
syndication in the U.S. of both network prime time entertainment
programs and first run programs, but they may syndicate non-
prime time network programs and network non-entertainment
programs in the U.S. and any programs in foreign markets.
Networks must also release prime time entertainment programs
in which they hold syndication rights into the syndication
market no later than four years after the program's network
debut or within six months after the end of the network
run, whichever is earlier. In addition, networks are also
subject to certain certification and reporting requirements. A
network is defined in the modified rules as any entity that
provides more than 15 hours of prime time programming per week to
affiliates reaching 75% of television households nationwide.
Emerging networks not currently meeting the network definition are
exempt from the modified rules except for certain reporting
requirements which become applicable when they commence providing
16 hours per week of prime time programs to their affiliates. The
networks must use an independent syndicator to distribute off-
network prime time entertainment programs in which they hold
syndication rights, and there must be no contractual or other
understandings between the network and the syndicator regarding
the subsequent sale or scheduling of the syndicated program that
would have the direct or indirect effect of affiliate station
favoritism.
The FCC will consider complaints if a party can make a
showing undermining the credibility of the independence of the
syndicator, and it is unclear whether such complaints may be
directed only to the network involved or whether independent
syndicators may also be subject to such complaints.
PRIME TIME ACCESS RULE. The Prime Time Access Rule ("PTAR")
prohibits network affiliates in the top 50 markets (designated by the
FCC based on survey data) from exhibiting network or off-network
programming during more than three out of the four prime time hours,
with certain limited exceptions. The Decision provided that first run
programming produced by a network will be considered network programming
for this purpose.
A number of interested parties have raised the issue of whether
PTAR should be modified or repealed. Certain programmers are seeking
modification of PTAR to permit the exhibition of off-network
programming. The licensee of WCPX-TV, Orlando, Florida, has sought
elimination of PTAR on First Amendment grounds and certain West Coast
network affiliates have obtained PTAR waivers from the FCC that
facilitated the commencement of network prime time one hour earlier.
If PTAR itself is so modified or is eliminated, the Company is
unable to predict the effect, if any, on its first run and other
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<PAGE>
distribution activities. The Company is also unable to predict whether
earlier commencement of network prime time programming would affect the
availability of prime time for the presentation of syndicated programs
on network-affiliated stations.
EUROPEAN COMMUNITY DIRECTIVE. In October 1989, the European
Commission directed each European Community member country to adopt
broadcast quota regulations based on its guidelines by October 3, 1991.
All member countries other than Spain and the Flemish region of Belgium
have enacted legislation aimed at adopting such regulations. Such
broadcast quota regulations may limit the amount of U.S. produced
programming to be purchased by foreign customers which could have an
adverse impact on the Company's foreign syndication operations.
Similar rules are contained in a Council of Europe Convention which
went into force on May 1, 1993. This has currently been ratified by
Cyprus, Italy, Poland, San Marino, Switzerland, the Vatican and the
United Kingdom.
VIACOM CABLE
Federal Regulation
1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") substantially amending the regulatory framework under which
cable television systems have operated since the Communications Act of
1934, as amended (the "Communications Act"), was amended by the Cable
Communications Policy Act of 1984 (the "1984 Act"). The FCC through
its rules and regulations began implementing the requirements of the
1992 Cable Act in 1993 and is currently engaged in several proceedings
in order to adopt additional rules and regulations or to reconsider
and/or amend certain of the rules and regulations previously adopted.
The extent and materiality of the effects of the 1992 Cable Act on
Viacom Cable and Viacom Networks depend to a large degree on the final
form of the FCC's implementing regulations and the outcome of judicial
challenges to various provisions of the 1992 Cable Act as more fully
discussed below. The following is a summary of certain significant
issues:
Rate Regulation. Rate regulations adopted in April 1993 by the FCC
---------------
(the "April 1993 Regulations") govern rates charged to subscribers for
regulated tiers of cable service and became effective on September 1,
1993. On February 22, 1994, the FCC adopted additional rules (the
"February 22nd Regulations") which have not yet been published in
their final form. The "benchmark" formula adopted as part of the
April 1993 Regulations establishes an "initial permitted rate" which
may be charged by cable operators for specified tiers of cable
service. The regulations also establish the prices which may be
charged for equipment used to receive these services. Because the
text of the February 22nd Regulations has not been released, it is not
possible to know the extent or nature of the revisions to the April
1993 Regulations. However, from public statements made during the
FCC's February 22 meeting and news releases issued thereafter, it
appears that the February 22nd Regulations will contain a new formula
for determining permitted rates. The new formula may require up to a
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<PAGE>
17% reduction of rates from those charged on September 30, 1992,
rather than the 10% reduction required by the April 1993 Regulations.
The February 22nd Regulations also adopted interim standards governing
"cost-of-service" proceedings pursuant to which a cable operator would
be permitted to charge rates in excess of rates which it would
otherwise be permitted to charge under such regulations, provided that
the operator substantiates that its costs in providing services
justify such rates.
Based on its implementation of the April 1993 Regulations, the
Company estimates that it will recognize a reduction to revenues
ranging from $27 million to $32 million on an annualized basis,
substantially all of which will be reflected as a reduction in
earnings from operations of its cable television division. The
Company's estimated reduction does not reflect further reductions
to revenue which would result from the lowering of the initial
permitted rates pursuant to the February 22nd Regulations. These
new and reduced initial permitted rates will apply prospectively
from a date to be announced by the FCC when it publishes precise
regulations which implement the February 22nd Regulations. Until
the February 22nd Regulations are released, it is not possible to
predict the effects of the interim standards governing cost-of-
service proceedings; however, based on the FCC's public statements,
the Company believes it is unlikely that it will be able to utilize
such proceedings so as to charge rates in excess of rates which it
would otherwise be permitted to charge under the regulations. The
Company's ability to mitigate the effects of these new rate
regulations by employing techniques such as the pricing and
repricing of new or currently offered unregulated program services
and ancillary services may also be restricted by the new
regulations adopted as part of the February 22nd Regulations. No
such mitigating factors are reflected in the estimated reductions
to revenues. The stated reduction to revenues may be mitigated by
the higher customer growth due to lower primary service rates. The
Company also cannot predict the effect, if any, of cable system
rate regulation on license fee rates payable by cable systems to
program services such as those owned by the Company.
Vertical Integration. Certain pricing and other restrictions are
--------------------
imposed on vertically integrated cable programmers (such as the
Company) with respect to their dealings with multichannel distributors
of programming, such as cable systems, SMATV systems, MMDS operators
and TVRO and DBS distributors (as defined in "BUSINESS--Competition--
Viacom Cable Television"). The FCC's implementing regulations
governing access by multichannel distributors to the programming of
vertically integrated cable programmers limit the extent to which a
vertically integrated cable programmer can differentiate in pricing or
other terms and conditions of carriage between and among multichannel
distributors. Because the application of these new regulations is
subject to numerous uncertainties, the Company is currently unable to
determine their impact, if any, on the Company. The FCC's
implementing regulations also limit the number of channels on a cable
system which may be used to carry the programming of such system's
affiliated (vertically integrated) cable programmers. These
regulations provide generally that no more than 40% of such a system's
channels can be used to carry the programming of the system's
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<PAGE>
affiliated cable programmers. These channel occupancy limits apply
only up to 75 channels of a given system. The FCC also considered
whether limits should be placed on a multichannel distributor's right
to participate in the production or creation of programming, and
concluded that no such limits are appropriate at this time. The FCC's
implementing regulations governing access by multichannel distributors
to the programming of vertically integrated cable programmers and
regarding channel occupancy limits are subject to pending petitions
for reconsideration at the FCC.
Must Carry/Retransmission Consent. Commercial television stations
---------------------------------
which are "local" to communities served by a cable system can elect to
require either (a) carriage (and with certain restrictions, channel
position) on the cable system ("Must Carry"), or (b) payment (monetary
or in-kind) in consideration for their consent to the retransmission
of their signal by the cable system ("Retransmission Consent"). In
addition, a cable system may not carry any commercial non-satellite-
delivered television station which is "distant" to communities served
by such system or any radio station without obtaining the consent of
such station for such retransmission; however, such television and
radio stations do not have Must Carry rights. Such stations may
require payment in consideration for Retransmission Consent. Viacom
Cable has negotiated retransmission rights for a number of commercial
stations which it carries. Some of these agreements are on an interim
basis and may be canceled by the stations. Viacom Cable carries other
stations pursuant to their exercise of their Must Carry rights. Local
non-commercial television stations have Must Carry rights, but may not
elect Retransmission Consent. The Must Carry rules were challenged by
cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted
review; oral argument was heard in January 1994 and a decision is
expected by July 1994. (See "BUSINESS -- Regulation -- Viacom
Broadcasting -- Must Carry/Retransmission Consent")
Limits on Number of Subscribers. The FCC's implementing
-------------------------------
regulations generally impose a 30% horizontal ownership limit on the
number of homes passed by cable that any one cable operator can serve
nationwide through systems in which it has an attributable interest
(the Company serves approximately 2% of "homes passed" nationwide).
In view of a recent federal district court decision holding that this
imposition of horizontal ownership limits is unconstitutional, the FCC
has stayed the effectiveness of this 30% limit until final judicial
resolution of the constitutional issue.
Buy Through to Premium Services. Pursuant to the 1992 Cable
-------------------------------
Act, a cable system may not require subscribers to purchase any
tier of service other than the basic service tier in order to
obtain services offered by the cable operator on a per channel
(e.g., premium services) or pay-per-view basis. A cable system
----
which is not now fully addressable and which cannot utilize other
means to facilitate access to all of its programming will have up
to 10 years to fully comply with this provision through the
implementation of fully addressable technology. The Company's
cable systems have already begun to implement compliance.
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<PAGE>
Among other things, the 1992 Cable Act and the FCC's implementing
regulations also: (i) with certain exceptions, require a three-year
holding period before the resale of cable systems; (ii) provide that
franchising authorities cannot unreasonably refuse to grant competing
franchises (all of the Company's current franchises are non-exclusive);
(iii) require that the FCC study the cost and benefits of issuing
regulations with respect to compatibility between cable system
equipment and consumer electronics such as VCRs and issue such
regulations as may be appropriate; and (iv) facilitate the manner in
which third parties can lease channel capacity from cable systems and
provide that the maximum rates which a cable system can charge for
leased channel capacity may be set by the FCC. Pursuant to the 1992
Cable Act, the FCC adopted minimum customer service standards and also
determined the circumstances under which local franchising authorities
may impose higher standards.
Lawsuits have been filed challenging the constitutionality of
various provisions of the 1992 Cable Act including the provisions
relating to rate regulation, Must Carry, Retransmission Consent, the
pricing and other restrictions imposed on vertically integrated cable
programmers with respect to their dealings with multichannel
programming distributors, and the mandated availability of cable
channels for leased access and PEG programming.
COMPETITION WITH TELEPHONE COMPANIES. In a recent decision by the
U.S. District Court for the Eastern District of Virginia, the Court
declared the restrictions contained in the Communications Act on
the provision of video programming by a telephone company in its local
service area to be unconstitutional and has enjoined enforcement of
those restrictions. The Court has held that this decision does not
apply to geographic areas outside of its jurisdiction. An appeal of
the Court's holding of the unconstitutionality of such restrictions has
been filed. Several similar suits have recently been filed in
different jurisdictions by regional Bell Operating Companies (including
NYNEX) ("BOCs") challenging the very same restrictions. In an
interpretation of the current restrictions contained in the
Communications Act, the FCC in 1992 established its "Video Dial Tone"
policy. The Video Dial Tone policy is being challenged in court by
cable interests as violating the Communications Act. It is also being
challenged by telephone interests as not being liberal enough. The
policy permits in-service-area delivery of video programming by a
telephone company (a "telco", as further defined below) and exempts
telcos from the Communications Act's franchising requirements so long
as their facilities are capable of two-way video and are used for
transmission of video programming on a common carrier basis,
i.e. use of the facilities must be available to all programmers
- - ----
and program packagers on a non-discriminatory, first-come first-
served basis. Telcos are also permitted to provide to facilities
users additional "enhanced" services such as video gateways, video
processing services, customer premises equipment and billing and
collection. These can be provided on a non-common carrier basis.
There are currently pending in Congress four principal bills (in the
Senate, S. 1086, the Telecommunications Infrastructure Act of 1993, and
S. 1822, the Communications Act of 1994 (which is expected to supersede
S. 1086) and in the House, H.R. 3626, the Antitrust Reform Act 1993, and
H.R. 3636, the National Communications Competition and Information
Infrastructure Act of 1993) which would, among other things, permit a
I - 27
<PAGE>
BOC or a Regional Holding Company ("RHC"; a BOC or RHC, a "telco") to
offer cable service under certain stated conditions including providing
safeguards and transition rules designed to protect against anti-
competitive activity by the telcos and cross-subsidization of a telco's
cable business by the telco's charges to its telephone customers.
These bills also generally eliminate state and local entry barriers
which currently either prohibit or restrict an entity's (including a
cable operator's) capacity to offer telecommunications services
(including telephone exchange service) in competition with telcos and
to interconnect on a non-discriminatory basis with telcos and utilize
certain telco facilities in order to provide service in competition
with a telco. The Clinton Administration has indicated its intention
to propose reform of federal telecommunications legislation, although
such proposal has not been finalized. At present, state and/or local
laws do not prohibit cable television companies from engaging in
certain kinds of telephony business in most states. Viacom Cable is a
general partner in three partnerships providing commercial competitive
access services which link business customers to long distance carriers
via private networks owned by the cable television company partners and
leased to the partnerships. If the pending legislation does not become
law, and the various appeals courts uphold the unconstitutionality of
the Communications Act's restrictions on telco video programming, the
telcos have stated their intent to immediately enter the video
programming business.
COMPULSORY COPYRIGHT. Cable television systems are subject to the
Copyright Act of 1976 which provides a compulsory license for carriage
of distant broadcast signals at prescribed rates. No license fee is
charged by the copyright holder for retransmission of broadcast signals
which are "local" to the communities served by the cable system. The
FCC has recommended to Congress that it eliminate the compulsory
license for retransmission of both distant and local signals, requiring
instead that approval be received from the copyright holders for
retransmission. If the compulsory license is repealed, Viacom Cable
could incur additional costs for its carriage of programming of certain
broadcast stations and if some broadcast stations are not carried,
customer satisfaction with cable service may be adversely affected
until satisfactory replacement programming is obtained.
Pending legislation in the 103rd Congress includes a bill (H.R.759)
to affirm the application of the compulsory license to MMDS and other
alternative video transmission technologies; a bill (H.R.1103) to
eliminate the sunset provision of the Satellite Home Viewer Act and
continue the application of the compulsory license to satellite
carriers that transmit to home dish owners; and a bill (H.R.12) to
provide for payment by television broadcasters to program producers
where a broadcaster exercises its Retransmission Consent rights
enacted in the 1992 Cable Act and thereby obtains payment from a cable
operator for retransmission of the broadcaster's signal.
State and Local Regulation.
State and local regulation of cable is exercised primarily through
the franchising process under which a company enters into a franchise
agreement with the appropriate franchising authority and agrees to
abide by applicable ordinances. The 1992 Cable Act permits the FCC to
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<PAGE>
broaden the regulatory powers of the franchising authorities,
particularly in the areas of rate regulation and customer service
standards. (See "BUSINESS --- Regulation -- Viacom Cable -- Federal
Regulation")
Under the 1984 Act, franchising authorities may control only cable-
related equipment and facilities requirements and may not require the
carriage of specific program services. However, if the Must Carry
provisions of the 1992 Cable Act are upheld by the Supreme Court,
federal law (as implemented by FCC regulations) will mandate the
carriage of both commercial and non-commercial television broadcast
stations "local" to the area in which a cable system is located. (See
"BUSINESS -- Regulation -- Viacom Cable -- Federal Regulation")
The 1984 Act, as amended, guarantees cable operators due process
rights in franchise renewal proceedings and provides that franchises
will be renewed unless the cable operator fails to meet one or more
enumerated statutory criteria. The Company's current franchises expire
on various dates through 2017. During the five-year period 1994
through 1998, franchises having an aggregate of approximately 230,081
customers (as of October 31, 1993) will expire unless renewed. The
Company expects its franchises to be renewed.
VIACOM NETWORKS
1992 CABLE ACT. See "BUSINESS -- Regulation -- Viacom Cable --
Federal Regulation -- 1992 Cable Act".
MODIFICATION OF FINAL JUDGMENT. The Modification of Final Judgment
(the "MFJ") is the consent decree pursuant to which AT&T was
reorganized and was required to divest its local telephone service
monopolies. As a result, seven RHCs were formed (including NYNEX)
comprised of operating companies within their regions (the BOCs). In
addition, that portion of the continental United States served by the
BOCs was divided into geographical areas termed Local Access and
Transport Areas ("LATAs"). The MFJ restricts the RHCs, the BOCs and
their affiliates from engaging in inter-LATA telecommunications
services and from manufacturing telecommunications products. As a
result of NYNEX's investment in Viacom Inc., the Company could arguably
be considered an affiliate of an RHC for MFJ purposes. As a result,
the Company transferred certain of Viacom Networks' and other
operations and properties to an affiliated entity which will be
consolidated into the Company for financial reporting purposes.
Neither the transfer nor the operations of the affiliate as an entity
separate from the Company will have a material effect on the financial
condition or the results of operations of the Company. However, should
the MFJ restrictions be modified or waived, the Company intends to
retransfer the assets and operations and any future appreciation in the
value of such assets after such retransfer will be for the benefit of
the holders of Viacom Common Stock.
VIACOM BROADCASTING
Television and radio broadcasting are subject to the jurisdiction
of the FCC pursuant to the Communications Act.
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<PAGE>
THE COMMUNICATIONS ACT. The Communications Act authorizes the FCC:
to issue, renew, revoke or modify broadcast licenses; to regulate the
radio frequency, operating power and location of stations; to approve
the transmitting equipment used by stations; to adopt rules and
regulations necessary to carry out the provisions of the Communications
Act; and to impose certain penalties for violations of the
Communications Act and the FCC's regulations governing the day-to-day
operations of television and radio stations.
BROADCAST LICENSES. Broadcast station licenses (both television
and radio) are ordinarily granted for the maximum allowable period of
five years in the case of television and seven years in the case of
radio, and are renewable for additional five-year or seven-year periods
upon application and approval. Such licenses may be revoked by the FCC
for serious violations of its regulations. Petitions to deny renewal
of a license or competing applications may be filed for the frequency
used by a renewal applicant. If a petition to deny is filed, the FCC
will determine whether renewal is in the public interest based upon
presentations made by the licensee and the petitioner. If a competing
application is filed, a comparative hearing is held to determine which
applicant should be granted the license. In the absence of egregious
and willful violations of FCC rules, license holders, as a practical
matter, can generally expect renewal by the FCC.
The licenses for the Company's television stations expire as
follows: WVIT-TV on April 1, 1994; each of WNYT-TV and WHEC-TV on
June 1, 1994; KSLA-TV on June 1, 1997; and KMOV-TV on February 1, 1998.
The Company's licenses for its radio stations expire as follows: WMZQ-
AM-FM, WCPT-AM and WCXR-FM on October 1, 1995; WLTI-FM on October 1,
1996; WLIT-FM on December 1, 1996; KSRI-FM and KSRY-FM on August 1,
1997; KYSR-FM and KXEZ-FM on December 1, 1997; each of KBSG-AM-FM and
KNDD-FM on February 1, 1998; and WLTW-FM on June 1, 1998. The Company
has applied for renewal of and expects that the licenses which expire
in 1994 will be renewed.
The Communications Act prohibits the assignment of a license or the
transfer of control of a license without prior approval of the FCC.
The Communications Act also provides that no license may be held by a
corporation if (1) any officer or director is an alien, or (2) more
than 20% of the voting stock is owned of record or voted by aliens or
is subject to control by aliens. In addition, no corporation may hold
the voting stock of another corporation owning broadcast licenses if
any of the officers or directors of such parent corporation are aliens
or more than 25% of the voting stock of such parent corporation is
owned of record or voted by aliens or is subject to control by aliens,
unless specific FCC authorization is obtained.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains
provisions which grant certain Must Carry rights to commercial
broadcast television stations that are "local" to communities served by
a cable system, including the right to elect either to require a cable
operator to carry the station pursuant to the Must Carry provisions of
the Act or to require that the cable operator secure the station's
Retransmission Consent on a negotiated basis before the station can be
carried (i.e., retransmitted) on the cable system. Each of the
----
Company's television stations elected in 1993 to negotiate with their
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<PAGE>
local cable systems for the systems' right to retransmit the station's
signal. All such negotiations were successfully completed assuring
continued carriage of each station on all of their local cable systems
at least through December 1996. The Must Carry Rules were challenged
by cable program services and cable system operators. In April 1993, a
District of Columbia three judge court upheld the rules against a
facial First Amendment attack. The U.S. Supreme Court accepted review;
oral argument was heard in January 1994 and a decision is expected by
July 1994. If the Must Carry Rules are determined to be
unconstitutional, the Company's television stations do not expect to be
materially affected since they expect to continue to obtain carriage
pursuant to Retransmission Consent negotiations. If a station is not
carried by a cable system in its area, that station could experience a
decline in revenues. The Company's television stations have
traditionally been carried prior to the institution of Retransmission
Consent and in the absence of Must Carry. (See "BUSINESS -- Regulation
- - -- Viacom Cable Television -- Must Carry/Retransmission Consent and
Compulsory Copyright")
RESTRICTIONS ON BROADCAST ADVERTISING. In past Congressional
sessions, committees of Congress examined proposals for legislation
that would eliminate or severely restrict advertising of beer and wine
either through direct restrictions on content or through elimination or
reduction of the deductibility of expenses for such advertising under
federal tax laws. Such proposals generated substantial opposition, but
it is possible that similar proposals will be reintroduced in Congress.
The elimination of all beer and wine advertising would have an adverse
effect on the revenues of the Company's television and radio stations.
Congress may again take up Campaign Finance Reform legislation
similar to that which was passed by the 102nd Congress but vetoed by
President Bush. Such legislation could reduce revenues of the
Company's television and radio stations derived from political
advertising by candidates for certain public offices.
On April 9, 1991, the FCC adopted regulations to implement the
Children's Television Act of 1990 (the "Children's Television Act")
which limit the amount of advertising in children's programming,
including a prohibition on children's programming which contains
characters that are based on products advertised on such programs. The
FCC will take into account the efforts made by broadcasters to meet the
educational and informational needs of children as part of assessing
the broadcaster's record of performance in the public interest before
granting renewal of broadcast licenses. The impact, if any, of these
regulations on the Company's television stations is not material. The
FCC has instituted an inquiry into the manner in which TV stations have
been complying with the Children's Television Act. Additionally, the
FCC is considering whether to impose limits on the amount of
advertising time which a television station can sell during any
broadcast hour or part thereof.
OWNERSHIP LIMITATIONS. The FCC has placed limits on the number of
radio and television stations in which one entity can own an
"attributable interest". The Company currently owns radio stations
below those ownership limits and, with the transfer of control of
licenses held by Paramount, owns the maximum permitted number of
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<PAGE>
television stations. The FCC has adopted a number of rules designed to
prevent monopoly or undue concentration of control of the media of mass
communications. In 1992 the FCC amended its regulations to permit a
single entity to have an "attributable" ownership or management
interest in up to 18 AM and 18 FM stations nationwide (20 AM and 20 FM
beginning in 1994), including multiple AM and/or FM stations licensed
to serve the same market. Minority-controlled broadcasters can own an
additional three AM and three FM stations. The limit on the number of
such multiple stations in a particular market which a single entity may
own or control depends upon the total number of AM and/or FM stations
in that market, provided that, at the time of purchase, the combined
audience share of such multiple stations does not exceed 25%. With
respect to television, the FCC's rules limit the maximum number of
stations nationwide in which one entity can have an "attributable"
ownership or management interest, to that number which serves up to 25%
of U.S. television households, provided, however, that (except in
limited circumstances) the total number of stations will not exceed 12.
Unlike certain of the new radio rules, there is now no allowance for
ownership of multiple television stations licensed to serve the same
market, although the FCC is examining the issue. The FCC also permits
radio stations to broker the programming and sales inventories of their
stations to other radio stations within the same area, subject to
various restrictions, so long as ultimate operational control and
ownership is retained and exercised by the licensee. Such brokerage
agreements function, as a practical matter, to effect a consolidation
of competitive radio broadcast stations within a market in much the
same manner as multiple ownership of radio facilities by one entity.
Similar brokerage agreements among television stations are being
implemented in a smaller number of markets than in radio and are not
now subject to any explicit FCC regulations.
The FCC's ownership limitations also prohibit a single entity from
owning multiple "same service" (e.g., TV, AM or FM) stations licensed
----
to serve different markets if the broadcast signals of such stations
overlap, to a specified measurable degree. The maximum number of
commonly owned stations serving neighboring markets whose signals can
overlap is the same as that maximum number of commonly owned stations
which an entity can own or control in a single market. Additional
ownership prohibitions preclude common ownership in the same market of
(i) television stations and cable systems; (ii) television or radio
stations and newspapers of general circulation; and (iii) radio and
television stations. Radio-television cross-ownership prohibitions are
subject to waiver by the FCC on a case-by-case basis. The Company
operates two AM and two FM stations as well as a television station
serving Washington, D.C. Ownership of the television station (WDCA)
was obtained when Viacom Inc. acquired majority ownership of Paramount
on March 11, 1994. Pursuant to the FCC's order consenting to the
transfer of control of the broadcast licenses of Paramount to the
Company, the Company has undertaken to dispose of one AM and one FM
radio station serving Washington, D.C. no later than September 11,
1995. The FCC's previous prohibition on a national television
network's (ABC, CBS, and NBC) owning or operating cable systems has
been repealed but with certain limits as to the number of homes which
network-owned cable systems can pass on a national and local basis.
TERRITORIAL EXCLUSIVITY. The FCC is considering changes to its
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non-network program territorial exclusivity rules which provide that a
broadcaster, with certain limited exceptions, cannot obtain exclusivity
to syndicated programming as against other broadcast stations beyond a
35-mile radius from its city of license. The proposed rule would
permit expansion of the 35-mile exclusivity area thereby increasing the
protection given the programming contracted for by a broadcaster. The
Company cannot predict the effect, if any, that any change of this rule
may have on its broadcast operations.
HDTV. The FCC is considering technical standards to be adopted for
the transmission of high definition television ("HDTV"), an advanced
television system which enhances picture and sound quality, as well as
the methods and timetable for implementation of an HDTV transmission
standard by broadcasters. A standard has been recommended to the FCC
by an advisory committee. The standard which is ultimately adopted for
HDTV transmissions and the manner in which that transmission standard
will be implemented and the development of technologies such as
"digital compression" will have an economic and competitive impact on
broadcasting and cable operations. The Company cannot predict the
effect of implementation of these technologies on its operations. The
FCC has stated its intention not to disadvantage broadcasters and it is
expected that any HDTV standard which is ultimately adopted will be
fashioned so as to accommodate the needs of broadcasters vis-a-vis
competitive video delivery technologies. The FCC has already
determined that TV stations will be given up to six years to implement
HDTV once a standard has been selected and that stations which do not
convert to the HDTV standard will lose their licenses to broadcast at
the end of a proposed 15-year period from adoption of the standard.
The cost of converting to HDTV will not have a material effect on the
Company.
COMPETITION
VIACOM NETWORKS
MTVN COMPETITION. MTVN services are in competition for available
channel space on existing cable systems and for fees from cable
operators and alternative media distributors, with other cable program
services, and nationally distributed and local independent television
stations. MTVN also competes for advertising revenue with other cable
and broadcast television programmers, and radio and print media. For
basic cable television programmers, such as MTVN, advertising revenues
derived by each programming service depend on the number of households
subscribing to the service through local cable operators and other
distributors. A number of record companies have announced plans to
launch music-based program services in the U.S. and internationally.
For example, Tele-Communications, Inc. and Bertelsmann AG announced
plans for a music video/home shopping channel and Sony Corp.'s Sony
Music and Time Warner Inc.'s Time Warner Music Group are discussing the
formation of a worldwide music video program service with such other
major record companies as EMI Music, a unit of Thorn EMI PLC, and
PolyGram.
As of December 31, 1993, there were 32 principal cable program
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services and superstations under contract with A.C. Nielsen Company,
including MTV, VH-1, NICKELODEON (including NICKELODEON and NICK AT
NITE program segments), each with over 10,000,000 subscribers. The
Nielsen Report ranked NICKELODEON/NICK AT NITE seventh, MTV eleventh,
and VH-1 sixteenth, in terms of subscriber households.
MTV EUROPE is engaged in a number of related litigations in Europe
contesting the legality of certain joint licensing activities by the
major worldwide record companies. In 1992, MTV EUROPE initiated a
proceeding before the European Commission, seeking the dissolution,
under Articles 85 and 86 of the Treaty of Rome, of the record
companies' joint licensing organizations -- Video Performance Limited
(VPL) and International Federation of Phonogram and Videogram Producers
(IFPI) -- through which the record companies exclusively license rights
to exhibit music video clips on television in Europe and elsewhere.
The EC issued a preliminary letter in 1993 stating its non-binding
opinion that the arrangements constituted an unlawful restriction of
trade under Article 85, and reserved its right to address abuse of
monopoly power under Article 86. MTVN has been informed that the EC
has issued a Statement of Objections, which commences formal legal
proceedings against VPL and IFPI, and their major record company
members. MTV EUROPE has been licensed to continue to exhibit music
video clips during the EC proceeding under an EC-assisted interim
agreement with VPL and IFPI, which expires in July 1994.
In December 1993, MTV EUROPE commenced a separate proceeding before
the European Commission, challenging the operation of VIVA, a German
language music service owned by four of the five major record
companies, as another example of illegal cartel activity.
In a separate U.K. high court action, MTV EUROPE is seeking
reimbursement of license fees paid to VPL and IFPI, on the grounds that
these fees were unlawfully extracted by the record companies' cartel
organizations.
SNI COMPETITION. The principal means of competition in the
provision of premium subscription television program services are: (1)
the acquisition and packaging of an adequate number of quality recently
released motion pictures; and (2) the offering of prices, marketing and
advertising support and other incentives to cable operators and other
distributors so as to favorably position and package SNI's premium
subscription television program services to subscribers. HBO is the
dominant company in the premium subscription television category,
offering two premium subscription television program services, the HBO
service and Cinemax. SNI is second to HBO with a significantly smaller
share of the premium subscription television category. In addition, in
February 1994, Encore Media Corp. (an affiliate of Liberty Media
Corporation and Tele-Communications, Inc.) launched Starz!, a premium
subscription television program service that will exhibit recently
released motion pictures. The Company believes that Starz! will
directly compete with SNI's premium program services.
On November 9, 1993, the Company filed an amended complaint in its
antitrust suit against Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corp., Netlink USA,
Comcast Corporation and QVC Network, Inc., which action is pending in
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the Southern District of New York. (See "Item 3 - Legal Proceedings")
VIACOM ENTERTAINMENT
Distribution and production of programming for television is a
highly competitive business. The Company competes directly with other
distributors and producers including major motion picture studios and
other companies which produce and/or distribute programs and films.
The main competitive factors in the television program distribution
business are the availability and quality of product, promotion and
marketing, and access to licensees of product. Major studios and
distributors with a history of successful programming are better
positioned to acquire and/or produce and distribute quality product.
These studios and distributors also have greater available resources
for promotion and marketing. Brand name identification is an advantage
to a distributor in promoting and marketing programs for domestic and
first run exhibition. The decline in the demand by licensees for
recent off-network series and series produced for first run exhibition
(due to renewal of existing series by stations during the past year)
and feature films (due primarily to the recent expansion of the Fox
network to supply programming to its affiliated stations seven nights
a week) has been partly offset by a resurgence in demand by stations
for first run hours and an increasing number of programming outlets,
particularly cable networks. Distributors are advantageously
positioned to obtain clearances from stations they also own. This
advantage increases with an increase in the number of stations so
owned, the size of the markets served by those stations and the
viewership of those stations. Since the successful launch of a program
for first run exhibition generally requires securing licenses in New
York, Los Angeles and Chicago, distributors owning stations serving
these markets are at the greatest advantage among distributors owning
stations.
Distribution of programming for television in international
markets is also a highly competitive business. The Company competes in
such markets with both U.S. and non-U.S. producers and distributors.
Deregulation by certain foreign countries has given rise to new
broadcast stations and cable services which, along with technological
advances such as DBS, are continuing to increase the number of
potential international customers. However, as a result of a political
directive adopted by the European Community in 1989, which became
effective in October 1991, most European Community countries have
adopted broadcast quota regulations based on the guidelines of the
directive. Such broadcast quota regulations may adversely affect the
amount of U.S. produced programming to be purchased by foreign
customers. (See "BUSINESS -- Regulation -- Viacom Entertainment --
European Community Directive")
Program production for network television, which is a source of
product for the Company's distribution operations, and program
production for first run exhibition on cable and other media are highly
competitive businesses. The Company competes with the major studios
and other production companies. A company with a program airing on a
network, which program the network deems commercially successful, is at
an advantage in getting that network and, to a lesser extent, other
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networks, to license additional programs. (See "BUSINESS -- Viacom
Entertainment -- Viacom Productions")
Subsequent to December 31, 1993, Viacom Inc. acquired Paramount, which
is a significantly larger distributor and producer of television
programming. It is anticipated that this acquisition and the
combination of the Company's television distribution and production
businesses with those of Paramount will significantly enhance the Company's
competitive position in these businesses.
VIACOM NEW MEDIA
The emerging market for interactive multimedia software is highly
competitive and rapidly evolving. Major competitors include hardware
manufacturers who also manufacture and publish cartridge video games,
software publishers, and interactive software publishing divisions that
have been established by diversified entertainment companies similar to
the Company.
VIACOM CABLE TELEVISION
The Company's cable systems operate pursuant to non-exclusive
franchises granted by local governing authorities (either municipal or
county) and primarily compete with over-the-air broadcast television.
Cable systems also compete with other distribution systems which
deliver programming by microwave transmission ("MDS" and "MMDS") and
satellite transmission to master antennas ("SMATV") or directly to
subscribers via either "TVRO" or "DBS" technology. A new type of
distribution system called Multichannel Local Distribution Service
("MLDS"), which is similar to but more advanced than MMDS due to
greater channel capacity, could also become competitive with cable. In
1991, the FCC concluded a proceeding aimed at eliminating a number of
technological and regulatory limitations applicable to, and thereby
supporting the potential growth of, MMDS and SMATV as competitive video
delivery technologies. Certain DBS distribution systems are expected
to commence their services in the near future, including United States
Satellite Broadcasting, Inc., with which the Company has distribution
agreements for each of the Company's wholly owned basic cable and
premium networks, and Hughes DirecTV The development of these other
distribution systems could in the future result in substantial
competition for the Company's cable systems, depending upon the
marketing plans and programming provided. However, a developing
technology called "digital compression" may allow cable systems to
significantly increase the number of channels of programming they
deliver and thereby help cable systems meet competition from these
other distribution systems.
The acquisition of new franchises has slowed as an increasingly
limited number of franchises and systems are left to be developed. The
resulting reduced rate of construction may affect the cable industry's
ability to sustain its historical subscriber growth rate. However,
cable operators have increasingly sought to expand their subscriber
bases through the acquisition of contiguous systems, which provide
increased operating efficiencies. The Company's plan to expand in the
cable business includes supplying additional services to its customers,
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increasing primary and premium subscriber penetrations, developing
existing franchise areas and, to a lesser degree, reviewing possible
acquisitions of existing systems, principally contiguous systems,
directly or through participation with others in partnerships or joint
ventures.
Since the Company's cable television systems are franchised on a
non-exclusive basis, other cable operators have been franchised and may
continue to apply for franchises in certain areas served by the
Company's cable systems. In addition, the 1992 Cable Act prohibits a
franchiser from granting exclusive franchises and from unreasonably
refusing to reward additional competitive franchises. In 1986, the U.S.
Supreme Court held that cable system operations implicate First Amendment
rights and that local franchising authorities may violate those rights
by establishing franchise requirements, unless there is a legitimate
government purpose. Since this decision, various federal district
and appellate courts have issued contradictory opinions with respect
to the enforceability of specific franchise requirements. Depending on
the resolution of these cases, competitive entry by other operators into
Viacom Cable's franchise areas and Viacom Cable's entry into other
franchise areas could be more easily achieved.
The entry of telephone companies into the cable television business
may adversely affect Viacom Cable. The FCC's Video Dial Tone
regulations (See "BUSINESS -- Regulation -- Viacom Cable Television --
Competition with Telephone Companies") are an indication of the FCC's
willingness to narrow the cross-ownership prohibitions contained in the
Communications Act to the extent that it can do so consistent with its
interpretation of the Act.
VIACOM BROADCASTING
The principal methods of competition in the television and radio
broadcasting field are the development of audience interest through
programming and promotions. Television and radio stations also compete
for advertising revenues with other stations in their respective
coverage areas and with all other advertising media. They also compete
with various other forms of leisure time activities, such as cable
television systems and audio players and video recorders. These
competing services, which may provide improved signal reception and
offer an increased home entertainment selection, have been in a period
of rapid development and expansion. Technological advances and
regulatory policies will have an impact, upon the future competitive
broadcasting environment. In particular, recent FCC liberalization of
its radio station ownership limits will allow for increased group
ownership of stations. However, the Company is unable to predict what
impact these rule changes will have on its businesses in their markets.
(See "BUSINESS -- Regulation -- Viacom Broadcasting -- Ownership
Limitations")
DBS satellite distribution of programs is expected to commence in
1994. Additionally, the FCC has issued rules which may significantly
increase the number of multipoint distribution service stations (i.e.,
----
video services distributed on microwave frequencies which can only be
received by special microwave antennas). The FCC has also authorized
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video uses of certain frequencies which have not traditionally been
used or permitted for commercial video services and has issued rules
which will increase the number of FM and AM stations. The FCC is also
considering authorizing digital audio broadcasts ("DAB"), which could
ultimately permit increased radio competition by satellite delivery
of audio stations directly to the home (or to cars) and result in an
increased spectrum being used for digital delivery of radio signals,
and it has authorized and is in the process of licensing low power
television stations ("LPTV stations") that may serve various
communities with coverage areas smaller than those served by full
conventional television stations. Because of their coverage
limitations, LPTV stations may be allocated to communities which cannot
accommodate a full power television station because of technical
requirements.
ITEM 2. PROPERTIES.
The Company maintains its worldwide headquarters at 1515 Broadway,
New York, New York, where it rents approximately 720,000 square feet
for executive offices, including MTVN. The Company also rents
approximately 24,000 square feet at the same location for WLTW-FM and
Viacom Broadcasting headquarters. The lease runs to 2010, with four
renewal options for five years each. The lease also grants the Company
options for additional space at the then fair market value, including
sufficient space for SNI and Paramount headquarters staff, and a right
of first negotiation for other available space in the building.
The Company also leases approximately 106,000 square feet at 1775
Broadway, New York, New York. The lease expires in 1998. In 1992, the
Company sublet approximately 53,000 square feet of such space to COMEDY
CENTRAL.
The Company also operates a data processing facility in Rutherford,
New Jersey and owns a 30,000 square foot building at 140 West 43rd
Street, New York, New York, which supports office and conferencing
requirements.
Viacom MGS Services leases approximately 25,000 square feet at 619
West 54th Street, New York, New York.
During 1993, the Company leased premises in California, Ohio,
Oregon, Tennessee and Washington, the locations of Viacom Cable's
operations. Viacom Cable's operations require a large investment in
physical assets consisting primarily of receiving apparatus, trunk
lines, feeder cable and drop lines connecting the distribution network
to the premises of the customers, electronic amplification and
distribution equipment, converters located in customers' homes and
other components. Significant expenditures are also required for
replacement of and additions to such system assets as a result of
technological advances, ordinary wear and tear and regulatory
standards. Approximately 47% of the Company's cable television
systems' fixed assets have been installed within the past five years
and, except for ordinary wear and tear, the Company believes that this
equipment is in good condition.
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In addition to its leased space at 1515 Broadway, Viacom
Broadcasting owns office and studio space in Hartford, Connecticut,
occupied by television station WVIT-TV; in Menands, New York, occupied
by television station WNYT-TV; in Shreveport, Louisiana, occupied by
television station KSLA-TV; and in Rochester, New York, occupied by
television station WHEC-TV. Television station KMOV-TV, St. Louis,
Missouri, leases office and studio space for a term expiring
December 31, 2002.
WLIT-FM, Chicago, Illinois, leases office and studio space for a
term expiring in April 2002. WLTI-FM, Detroit, Michigan, leases office
and studio space for a term expiring in August 2002. WMZQ-FM,
Washington, D.C., leases office and studio space for a term expiring in
December 1998. WMZQ-AM, Arlington, Virginia, leases office and studio
space for a term expiring in August 2014. WCPT-AM and WCXR-FM lease
office and studio space in Alexandria, Virginia for a term expiring in
November 2001. KBSG-AM/FM, Tacoma/Seattle, Washington, lease office
and studio space for a term expiring in August 1999. KYSR-FM, and
KXEZ-FM, Los Angeles, California, lease office and studio space for a
term expiring in October 1999. KSRY-FM, San Francisco, California,
leases office and studio space for a term expiring in March 1997.
KSRI-FM, Santa Cruz, California, leases office and studio space for a
term expiring in July 1995. KNDD-FM, Seattle, Washington, leases
office and studio space for a term expiring in February 2001.
Viacom Broadcasting owns the broadcasting antenna equipment of its
radio and television stations and the main transmission and antenna
sites used by its five television stations and radio stations WMZQ-FM,
WCPT-AM, KYSR-FM and KNDD-FM. The other radio stations, WLTW-FM, WLIT-
FM, WLTI-FM, WCXR-FM, WMZQ-AM, KBSG-AM, KBSG-FM, KSRY-FM, KSRI-FM and
KXEZ-FM lease their transmission and antenna sites. The leases expire
in August 2005, September 2002, December 1995, February 2000, August
2014, February 2000, December 1997, February 2000, May 1999, and
November 2000, respectively.
MTVN, by agreement with MCA, leases approximately 75,000 square
feet of studio and office space for NICKELODEON STUDIOS FLORIDA, which
agreement expires (with extensions at MCA's option) in 2003. MTVN
leases approximately 58,600 square feet of other office facilities and
studios (i.e., excluding 1515 Broadway, 1775 Broadway, NICKELODEON
----
STUDIOS, Orlando and Universal City, Los Angeles).
MTVN also owns the Network Operations Center in Smithtown, New York
at which it assembles and uplinks its programming signals. The center
consists of a 15,000 square foot building housing television and
satellite transmission equipment.
In March 1993, a subsidiary of the Company entered into an
agreement to purchase approximately 50,000 square feet of office and
studio space in London, England. The Company leases the space to MTV
EUROPE.
SNI's executive offices are located at 1633 Broadway, New York, New
York, where it rents approximately 106,000 square feet. SNI leases
approximately 58,000 square feet of other office facilities (i.e.,
----
excluding 1633 Broadway, 1775 Broadway and Universal City, Los
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Angeles).
For a description of the transponders employed by MTVN and SNI, see
"BUSINESS -- Viacom Networks -- Additional Information about MTVN and
SNI."
Other than Brazil, where the office facility is owned, most of the
domestic and international television program and feature film sales
offices are held under leases aggregating approximately 9,000 square
feet. Also, the Company maintains approximately 83,000 square feet of
consolidated offices in Universal City, Los Angeles for Viacom
Entertainment, MTVN and SNI.
The Company also maintains a tape storage and operations service
center of approximately 22,500 square feet for Viacom Networks and
Viacom Enterprises in New York, New York.
The Company believes that all of its facilities are adequate for
the activities conducted at such facilities. However, the Company
anticipates that it will lease or purchase additional office space both
in the New York area as well as in other areas where the Company and
its subsidiaries are presently located.
Information with respect to Paramount in response to Item 2 is
incorporated by reference herein from the Paramount Reports.
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 3. LEGAL PROCEEDINGS.
Stockholder Litigation.
Seven putative class action complaints were filed by alleged
Blockbuster stockholders in the Delaware Court of Chancery against
Blockbuster, the members of its Board of Directors, Viacom Inc. and
Sumner M. Redstone. By Order dated January 31, 1994, the seven actions
were consolidated under the caption In re Blockbuster Entertainment
Corp. Shareholders' Litigation, Consolidated Civil Action No. 13319.
On February 18, 1994, plaintiffs filed the Consolidated and Amended
Class Action Complaint (the "Complaint"). The Complaint generally
alleges that Blockbuster's directors have violated their fiduciary
duties of loyalty and fair dealing by allegedly failing to ensure the
maximization of stockholder value in the sale of control of
Blockbuster, including the alleged failure to authorize and direct that
a process designed to secure the best value available for Blockbuster
stockholders be undertaken, and by implementing measures such as the
Subscription Agreement which allegedly were designed solely to thwart
or impede other competing transactions. Among other things, the
plaintiffs seek to (i) preliminarily and permanently enjoin the
purchase by Blockbuster of shares of Viacom Class B Common Stock
pursuant to the Subscription Agreement (see next paragraph); (ii)
preliminarily and permanently enjoin the Blockbuster Merger or any
anti-takeover devices designed to facilitate the Blockbuster Merger;
(iii) require the Blockbuster directors to maximize stockholder value
by exploring third party interest; and/or (iv) recover damages from the
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Blockbuster directors for their alleged breaches of fiduciary duty.
The defendants believe that plaintiffs' allegations are without merit
and intend to defend themselves vigorously.
On February 28, 1994, plaintiffs filed motions in the Delaware
Chancery Court seeking expedited discovery, a temporary restraining
order enjoining consummation of the Subscription Agreement and the
scheduling of a preliminary injunction hearing. On March 1, 1994, Vice
Chancellor Carolyn Berger issued an order denying plaintiffs' motions.
Following issuance of the above-described order, plaintiffs filed a
Motion for Clarification or, in the alternative, for Certification on
Interlocutory Appeal, requesting that the Chancery Court clarify
whether its order also refers to a hearing for a preliminary
injunction. Plaintiffs requested that, if the order is limited to a
hearing for a temporary restraining order, the Chancery Court schedule
a hearing on plaintiffs' motion for a preliminary injunction. On March
2, 1994, plaintiffs informed the Chancery Court that they had decided
not to seek an interlocutory appeal and indicated their understanding
that the order precluded preliminary injunctive relief as to the
Subscription Agreement.
On March 7, 1994, the plaintiffs filed a motion for a preliminary
injunction, seeking an order preliminarily enjoining the defendants
from (i) taking any steps to effectuate or enforce the Blockbuster
Merger Agreement, the Subscription Agreement and the Stockholders Stock
Option Agreement; (ii) making any payment to Viacom of its fees and
expenses pursuant to Section 8.05(b) of the Blockbuster Merger
Agreement; and (iii) entering into any competing transaction with a
party other than Viacom, which transaction includes a stock component
unless adequate price protection for the stockholders of Blockbuster is
provided. Plaintiffs have also moved for an injunction requiring the
Blockbuster defendants to investigate all bona fide offers to acquire
Blockbuster and to provide such bona fide offerors access to
information concerning Blockbuster in order to facilitate such offers.
No schedule has been set for a hearing on the motion.
On March 10, 1994, Defendant Sumner Redstone filed a motion to
dismiss the Complaint as to him, on the grounds of lack of personal
jurisdiction, insufficiency of process, and insufficiency of service of
process. Also, on March 10, 1994, defendant Viacom filed a motion to
dismiss the Complaint as to itself, for failure to state a claim
against Viacom upon which relief can be granted. No schedule has been
set for a hearing on these motions.
Antitrust Matters
On September 23, 1993, the Company filed an action in the United
States District Court for the Southern District of New York styled
Viacom International Inc. v. Tele-Communications, Inc., et al., Case
No. 93 Civ. 6658, against Tele-Communications, Inc. ("TCI"), Liberty
Media Corporation, Satellite Services, Inc. ("SSI"), Encore Media
Corp., Netlink USA, and QVC Network, Inc. The complaint alleges
violations of Sections 1 and 2 of the Sherman Act, Section 7 of the
Clayton Act, Section 12 of the Cable Act, and New York's Donnelly Act,
and tortious interference, against all defendants, and a breach of
contract claim against defendants TCI and SSI only. In addition to
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other relief, the Company seeks injunctive relief against defendants'
anticompetitive conduct and damages in an amount to be determined at
trial, including trebled damages and attorneys' fees under the Sherman
and Clayton Acts and damages resulting from QVC Network, Inc.'s
proposed acquisition of Paramount Communications Inc.
The 19 claims for relief in the complaint are based on allegations
that defendants exert monopoly power in the U.S. cable industry through
their control over approximately one in four of all cable households in
the United States. Among other things, the complaint alleges that
defendants conspired and attempted to force SNI to enter into a merger
with a TCI-controlled pay television service; defendants have attempted
to eliminate The Movie Channel from at least 28 of TCI's systems and
have plans to eliminate The Movie Channel from another 27 such systems;
defendants have conspired with General Instrument Corporation ("GI") to
entrench GI's monopoly power in the markets for digital compression and
encryption systems and to use such monopoly power to weaken and
eliminate the defendants' competitors; and TCI's construction of a
central authorization center to illegally control the distribution of
programming services through refusals to deal and denial of direct
access. On November 9, 1993, the Company amended its complaint in
Viacom International Inc. v. Tele-Communications, Inc., et al., Case
No. 93 Civ. 6658, to add Comcast Corporation as an additional defendant
and to incorporate into the allegations additional anticompetitive
activities by the defendants. Each of the defendants has answered and
has generally denied the material allegations of the Company's amended
complaint. Following the filing of its amended complaint, the Company
has agreed to voluntarily dismiss certain of its breach of contract
claims against TCI and SSI.
Viacom Cable, through a subsidiary of the Company, was one of the
original partners ("Original Partners") of Primestar Partners L.P.
("Primestar"). Primestar was launched in 1990 to deliver programming
directly to dishes located at subscribers' homes from a mid-powered Ku-
band satellite. The Company has withdrawn from Primestar by, among
other things, exercising in November 1991 the Company's contractual
right not to continue funding its share of Primestar's capital
requirements. The Department of Justice ("DOJ") has conducted an
inquiry into the structure and business of Primestar to ensure that the
Original Partners did not engage in any concerted action prohibited by
law. In addition, several state Attorneys General ("AGs") have
reviewed the structure and business plan of Primestar as well as
certain business practices of the Original Partners which reflect
business practices in the cable industry, generally. The AGs' inquiry
resulted in a final judgment entered into with the consent of the
Original Partners in September of 1993. The DOJ has concluded its
inquiry by submitting a similar consent judgment for judicial approval.
Both judgments address (i) access by multichannel distributors
competitive with cable to programming controlled by any of the Original
Partners and (ii) the extent of programming which may be licensed
exclusively by the cable operations of the Original Partners. The
provisions of the AGs' decree expire in 1997 and 1999. If approved, as
expected, the provisions of the DOJ decree will expire in 1999. The
terms of the judgments do not materially affect the Company.
Information with respect to Paramount in response to Item 3 is
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incorporated by reference herein from the Paramount Reports.
Information in the Paramount Reports is given as of the date of each
such report and is not updated herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
EXECUTIVE OFFICERS OF VIACOM INC. AND THE COMPANY
Set forth below is certain information concerning the current
executive officers of Viacom Inc. and the Company, which information is
hereby included in Part I of this report.
POSITIONS WITH VIACOM INC.
NAME AGE AND THE COMPANY
- - ------------------------------------------------------------------------
Sumner M. Redstone 70 Chairman of the Board of Viacom
Inc. and the Company
Frank J. Biondi, Jr 49 President, Chief Executive Officer
and Director of Viacom Inc. and
the Company
Raymond A. Boyce 58 Senior Vice President, Corporate
Relations of Viacom Inc. and the
Company
Neil S. Braun 41 Senior Vice President of Viacom Inc.
and the Company
Vaughn A. Clarke 40 Vice President, Treasurer of Viacom
Inc. and the Company
Philippe P. Dauman 40 Executive Vice President, General
Counsel, Chief Administrative Officer
and Secretary and Director of Viacom
Inc. and the Company
Earl H. Doppelt 40 Senior Vice President, Deputy General
Counsel of Viacom Inc. and the
Company
Thomas E. Dooley 37 Executive Vice President, Finance,
Corporate Development and Communications
of Viacom Inc. and the Company
Michael D. Fricklas 34 Senior Vice President, Deputy
General Counsel of Viacom Inc. and
the Company
I - 43
<PAGE>
John W. Goddard 52 Senior Vice President of Viacom
Inc. and the Company; President,
Chief Executive Officer of Viacom
Cable
Edward D. Horowitz 46 Senior Vice President, Technology of
Viacom Inc. and the Company;
Chairman, Chief Executive Officer
of New Media and Interactive
Television
Kevin C. Lavan 41 Vice President, Controller and Chief
Accounting Officer of Viacom Inc.
and the Company
Henry J. Leingang 44 Senior Vice President, Chief Information
Officer of Viacom Inc. and the
Company
William A. Roskin 51 Senior Vice President, Human Resources
and Administration of Viacom Inc.
and the Company
George S. Smith, Jr. 45 Senior Vice President, Chief
Financial Officer of Viacom Inc.
and the Company
Mark M. Weinstein 51 Senior Vice President, Government
Affairs of Viacom Inc. and the
Company
None of the executive officers of Viacom Inc. or the Company is
related to any other executive officer or director by blood, marriage
or adoption except that Brent D. Redstone, a Director of Viacom Inc.
and the Company, is the son of Sumner M. Redstone.
Mr. Redstone has been Chairman of the Board and a Director of the
Company since the Merger. Mr. Redstone is also Chairman of the Board
and a Director of Viacom Inc. Mr. Redstone has served as President,
Chief Executive Officer of NAI since July 1967, and continues to serve
in such capacity; he has also served as the Chairman of the Board of
NAI since 1986. Mr. Redstone became a director of Paramount in March
1994. He served as the first Chairman of the Board of the National
Association of Theater Owners, and is currently a member of the
Executive Committee of that organization. During the Carter
Administration, Mr. Redstone was appointed a member of the Presidential
Advisory Committee on the Arts for the John F. Kennedy Center for the
Performing Arts and, in 1984, he was appointed a Director of the
Kennedy Presidential Library Foundation. Since 1982, Mr. Redstone has
been a member of the faculty of Boston University Law School, where he
has lectured in entertainment law. In 1944, Mr. Redstone graduated
I - 44
<PAGE>
from Harvard University and, in 1947, received an L.L.B. from Harvard
University School of Law. Upon graduation, he served as Law Secretary
with the United States Court of Appeals, and then as a Special
Assistant to the United States Attorney General.
Mr. Biondi has been President, Chief Executive Officer and a
Director of Viacom Inc. and the Company since July 1987. He became a
director of Paramount in March 1994. From November 1986 to July 1987,
Mr. Biondi was Chairman, Chief Executive Officer of Coca-Cola
Television and, from 1985, Executive Vice President of the
Entertainment Business Sector of The Coca-Cola Company. Mr. Biondi
joined HBO in 1978 and held various positions there until his
appointment as President, Chief Executive Officer in 1983. In 1984, he
was elected to the additional position of Chairman and continued to
serve in such capacities until October 1984.
Mr. Boyce has been an executive officer of Viacom Inc. and the
Company since January 1988 when he was elected Senior Vice President,
Corporate Relations of the Company. In April 1988, he was elected
Senior Vice President, Corporate Relations of Viacom Inc. Mr. Boyce
served as Vice President, Public Relations of the Entertainment
Business Sector of The Coca-Cola Company from 1982 to 1987. In 1979,
Mr. Boyce joined Columbia Pictures Industries, Inc. and served first as
Director, Corporate Communications and later as Vice President,
Corporate Communications until The Coca-Cola Company's acquisition of
Columbia Pictures Industries, Inc. in 1982.
Mr. Braun has been an executive officer of Viacom Inc. and the
Company since November 1987 when he was elected Senior Vice President
of each. He served as Chairman, Chief Executive Officer of Viacom
Entertainment from July 1992 to March 1994. Prior to that, Mr. Braun
served as Senior Vice President, Corporate Development and
Administration of Viacom Inc. and the Company from November 1987 to
July 1992 and from October 1989 to July 1992, he also served as
Chairman of Viacom Pictures. Mr. Braun served as President, Chief
Operating Officer of Imagine Films Entertainment from May 1986 until he
joined the Company. From 1982 until 1986, Mr. Braun held various
positions at HBO including Senior Vice President, Film Programming of
HBO and Executive Vice President of HBO Video, Inc.
Mr. Clarke was elected Vice President, Treasurer of Viacom and the
Company in April 1993. Prior to that, he spent 12 years at Gannett
Co., Inc., where he held various management positions, most recently as
Assistant Treasurer.
Mr. Dauman has been a Director of Viacom Inc. and the Company since
the Merger. In March 1994, he was elected Executive Vice President,
General Counsel, Chief Administrative Officer and Secretary of Viacom
Inc. and the Company. From February 1993 to March 1994, he served as
Senior Vice President, General Counsel and Secretary of Viacom Inc. and
the Company. Prior to that, Mr. Dauman was a partner in the law firm
of Shearman & Sterling in New York, which he joined in 1978. Mr.
Dauman became a Director of National Amusements, Inc. in 1992 and
Paramount in March 1994.
Mr. Dooley has been an executive officer of the Company since
I - 45
<PAGE>
January 1987. In March 1994, he was elected Executive Vice President,
Finance, Corporate Development and Communications of Viacom Inc. and
the Company. From July 1992 to March 1994, Mr. Dooley served as Senior
Vice President, Corporate Development of Viacom Inc. and the Company.
From August 1993 to March 1994, he also served as President,
Interactive Television. Prior to that, he served as Vice President,
Treasurer of the Company and Viacom Inc. since 1987. In December 1990,
he was named Vice President, Finance of Viacom Inc. and the Company.
Mr. Dooley joined the Company in 1980 in the corporate finance area and
has held various positions in the corporate and divisional finance
areas, the most recent of which was Director of Business Analysis from
1985 to 1986.
Mr. Doppelt was elected Senior Vice President, Deputy General
Counsel of Viacom Inc. and the Company in March 1994. Prior to that,
he served as Senior Vice President of Paramount since 1992 and as
Deputy General Counsel of Paramount since 1985. He joined Paramount in
1983 as Associate Litigation Counsel, and in 1985 was appointed
Assistant Vice President and Deputy General Counsel. In 1986, he
became a Vice President of Paramount. From 1977 to 1983, Mr. Doppelt
was an attorney in private practice at the law firm of Paul, Weiss,
Rifkind, Wharton & Garrison.
Mr. Fricklas was elected Senior Vice President, Deputy General
Counsel of Viacom Inc. and the Company in March 1994. From June 1993
to March 1994, he served as Vice President, Deputy General Counsel of
Viacom Inc. and the Company. He served as Vice President, General
Counsel and Secretary of Minorco (U.S.A.) Inc. from 1990 to 1993.
Prior to that, Mr. Fricklas was an attorney in private practice at the
law firm of Shearman & Sterling.
Mr. Goddard has been an executive officer of the Company since
August 1980. In November 1987, Mr. Goddard was elected Senior Vice
President of Viacom Inc. and in September 1983, Mr. Goddard was elected
Senior Vice President of the Company and President, Chief Executive
Officer of Viacom Cable and continues to serve in those capacities. In
August 1980, Mr. Goddard was appointed President of Viacom Cable and,
in September 1980, he was elected Vice President of the Company. From
September 1978 through July 1980, Mr. Goddard was Executive Vice
President, Viacom Communications. From June 1971 until September 1978,
Mr. Goddard was President and General Manager of Tele-Vue Systems, a
subsidiary of the Company.
Mr. Horowitz has been an executive officer of Viacom Inc. and the
Company since April 1989. In March 1994, he was elected Senior Vice
President, Technology of Viacom Inc. and the Company and Chairman,
Chief Executive Officer of New Media and Interactive Television. Prior
to that, he served as Senior Vice President of Viacom Inc. and the
Company from April 1989 and as Chairman, Chief Executive Officer of
Viacom Broadcasting from July 1992 to March 1994. From 1974 to April
1989, Mr. Horowitz held various positions with HBO, most recently as
Senior Vice President, Technology and Operations. Mr. Horowitz held
several other management positions with HBO, including Senior Vice
President, Network Operations and New Business Development and Vice
President, Affiliate Sales.
I - 46
<PAGE>
Mr. Lavan has been an executive officer of the Company since
December 1987. In May 1989, he was elected Vice President of Viacom
Inc. and the Company. In December 1990, he assumed the added
responsibilities of oversight of Company tax matters. From 1991 to
1992, he also served as Senior Vice President and Chief Financial
Officer of Viacom Pictures. Mr. Lavan joined Viacom in 1984 as
Assistant Controller and, in December 1987, was elected Controller,
Chief Accounting Officer of Viacom Inc. and the Company and he
continues to serve in such capacities.
Mr. Leingang was elected Senior Vice President, Chief Information
Officer in May 1993. Prior to that, he served as Vice President, Chief
Information Officer upon joining Viacom in 1990. Mr. Leingang was Vice
President, Information Services of the Train Group (formerly Triangle
Industries) from 1984 to 1990. From 1982 to 1984, he served as
Corporate Director, MIS, and Manager, MIS Planning and Control for
Interpace Corporation. Prior to that he held positions with Touche
Ross & Company, McGraw-Hill Book Company and General Electric Credit
Corp.
Mr. Roskin has been an executive officer of Viacom Inc. and the
Company since April 1988 when he became Vice President, Human Resources
and Administration of each. In July 1992, Mr. Roskin was elected
Senior Vice President, Human Resources and Administration of Viacom
Inc. and the Company. From May 1986 to April 1988, he was Senior Vice
President, Human Resources at Coleco Industries, Inc. From 1976 to
1986, he held various executive positions at Warner Communications,
Inc., serving most recently as Vice President, Industrial and Labor
Relations.
Mr. Smith has been an executive officer of the Company since May
1985. In November 1987, he was elected Senior Vice President, Chief
Financial Officer of Viacom Inc. and the Company and he continues to
serve in such capacities. In May 1985, Mr. Smith was elected Vice
President, Controller of the Company and, in October 1987, he was
elected Vice President, Chief Financial Officer of the Company. From
1983 until May 1985, he served as Vice President, Finance and
Administration of the Viacom Broadcasting Division and from 1981 until
1983, he served as Controller of Viacom Radio. Mr. Smith joined the
Company in 1977 in the Corporate Treasurer's office and until 1981
served in various financial planning capacities.
Mr. Weinstein has been an executive officer of the Company since
January 1986. In February 1993, he was elected Senior Vice President,
Government Affairs of Viacom Inc. and the Company. Prior to that, Mr.
Weinstein served as Senior Vice President, General Counsel and
Secretary of the Company and of Viacom Inc. since the fall of 1987. In
January 1986, Mr. Weinstein was appointed Vice President, General
Counsel of the Company. From 1976 through 1985, he was Deputy General
Counsel of Warner Communications Inc. and in 1980 became Vice
President. Previously, Mr. Weinstein was an attorney in private
practice at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison.
I - 47
<PAGE>
PART II
Item 5. Market for Viacom Inc.'s Common Equity and Related Security Holder
Matters.
Viacom Inc. voting Class A Common Stock and Viacom Inc. non-voting Class B
Common Stock are listed and traded on the American Stock Exchange ("ASE")
under the symbols "VIA" and "VIAB," respectively. The following table sets
forth, for the calendar period indicated, the per share range of high and
low sales prices for Viacom Inc.'s Class A Common Stock and Class B Common
Stock, as reported on the ASE Composite Tape by the National Quotation
Bureau Incorporated. As of March 30, 1994 there were approximately 6,912
holders of Viacom Inc. Class A Common Stock, and 6,861 holders of Viacom
Inc. Class B Common Stock.
Viacom Class A Viacom Class B
Common Stock Common Stock
--------------- ----------------
High Low High Low
---- --- ---- ---
1992
1st quarter $37 1/4 $32 1/8 $36 1/2 $31 1/4
2nd quarter 38 1/2 32 3/8 36 7/8 30 1/2
3rd quarter 34 7/8 30 7/8 32 7/8 29
4th quarter 44 28 1/8 41 7/8 27
1993
1st quarter $46 1/2 $37 1/2 $44 1/8 $35 1/4
2nd quarter 52 5/8 37 1/8 49 1/2 36
3rd quarter 67 1/2 50 1/2 61 1/4 45 3/4
4th quarter 66 1/2 47 60 1/2 40 3/8
The parent, Viacom Inc., has substantially no source of funds other than
dividends paid by the Company on its stock. Under the restrictions
contained in the Credit Agreement, the Company is prohibited from (i)
paying any dividends on its stock to Viacom Inc. for the purpose of
enabling Viacom Inc. to pay any dividend on its common stock, or (ii)
making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes), unless its total leverage ratio is less than a
specified amount.
II-1
<PAGE>
Item 6. Selected Financial Data.
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
(Thousands of dollars, except per share amounts)
<TABLE> <CAPTION>
Year Ended December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $2,004,949 $1,864,683 $1,711,562 $1,599,625 $1,436,220
Earnings from operations $ 384,995 $ 347,927 $ 312,234 $ 223,831 $ 144,716
Earnings (loss) before
extraordinary items
and cumulative effect of
change in accounting
principle $ 169,481 $ 66,085 $ (46,556) $ (89,781) $ 131,080
Net earnings (loss) $ 170,952 $ 48,965 $ (49,657) $ (89,781) $ 131,080
Net earnings (loss)
attributable
to common stock $ 158,202 $ 48,965 $ (49,657) $ (89,781) $ 113,589
Net earnings (loss) per
common share:
Earnings (loss) before
extraordinary items and
cumulative effect of
change in accounting
principle $ 1.30 $ .55 $ (.41) $ (.84) $ 1.06
Net earnings (loss) $ 1.31 $ .41 $ (.44) $ (.84) $ 1.06
At year end:
Total assets $6,416,868 $4,317,094 $4,188,378 $4,027,927 $3,752,962
Long-term debt $2,378,286 $2,397,014 $2,320,919 $2,537,263 $2,283,118
Shareholders' equity $2,718,114 $ 756,511 $ 699,493 $ 366,163 $ 455,944
</TABLE>
See Notes to Consolidated Financial Statements for information on
transactions and accounting classifications which have affected the
comparability of the periods presented above. Viacom Inc. has not declared
cash dividends for any of the periods presented above.
II-2
<PAGE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial
Condition.
General
-------
Management's discussion and analysis of the combined results of
operations and financial condition of Viacom Inc. and the Company
should be read in conjunction with the Consolidated Financial
Statements and related Notes. Information presented below does not
include information with respect to Paramount, which became a
subsidiary of Viacom Inc. on March 11, 1994. Information with
respect to Paramount's results of operations and financial condition
and Paramount's audited and unaudited financial statements, in
each case including the notes thereto, are incorporated by reference
herein from the Paramount Reports (as defined in Item 1). Information
in the Paramount Reports is given as of the date of each such report
and is not updated herein. A copy of each of the Paramount Reports is
included as an exhibit hereto. Descriptions of all documents incorporated
by reference herein or included as exhibits hereto are qualified in
their entirety by reference to the full text of such documents so
incorporated or included.
Viacom Inc. (together with its consolidated subsidiaries, unless the
context otherwise requires, "Viacom Inc.") is a holding company whose
principal asset is the common stock of Viacom International Inc.
(together with its consolidated subsidiaries, unless the context
otherwise requires, the "Company"). The Company is a diversified
entertainment and communications company with operations in four
principal segments: Networks, Entertainment, Cable Television and
Broadcasting. Viacom Inc. is an approximately 76.3% owned subsidiary
of National Amusements, Inc. ("NAI"), a closely held corporation that
owns and operates approximately 850 movie screens in the United
States and the United Kingdom.
In early March 1994, Viacom Inc. acquired a majority interest in
Paramount Communications Inc. ("Paramount") pursuant to the terms of
its tender offer. Paramount will become a wholly owned subsidiary of
Viacom Inc. upon the closing of the merger pursuant to the Paramount
merger agreement. Viacom Inc. has also entered into a merger
agreement with Blockbuster Entertainment Corporation ("Blockbuster")
pursuant to which Blockbuster will merge into Viacom Inc. (See
"Paramount Merger, Blockbuster Merger and Related Transactions" for
additional information regarding the mergers).
The primary differences between Viacom Inc.'s and the Company's
financial statements are as follows: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the
contribution to capital of Viacom Inc.'s exchangeable preferred
stock, which was exchanged for 15.5% Junior Subordinated Exchange
Debentures due 2006 (the "Exchange Debentures") on March 31, 1989
which in turn were fully redeemed during 1991; b) during 1993, Viacom
Inc. issued $1.8 billion of 5% cumulative convertible preferred stock
and declared related preferred stock dividends of $12.8 million, c)
certain general and administrative expenses recorded by Viacom Inc.
of $5.0 million (1993), $9.0 million (1992) and $12.9 million (1991),
which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net
interest income of $3.1 million (1993) and net interest expense of
$45.2 million (1991).
II-3
<PAGE>
Business Segment Information
----------------------------
The following tables set forth revenues, earnings from operations,
depreciation and amortization by business segment and a reconciliation
of total earnings from operations to net earnings (loss) attributable to
common stock for the periods indicated:
Year Ended December 31, Percentage Change
----------------------------- -----------------
From From
1993 1992 1991 1992 1991
---- ---- ---- To To
1993 1992
---- ----
(Thousands of Dollars)
Revenues:
Networks $1,221,200 $1,058,831 $ 922,157 15% 15%
Entertainment 209,110 248,335 273,488 (16) (9)
Cable Television 415,953 411,087 378,026 1 9
Broadcasting 181,778 168,847 159,182 8 6
Intercompany elimination (23,092) (22,417) (21,291) (3) (5)
---------- --------- ----------
Total revenues $2,004,949 $1,864,683 $1,711,562 8 9
========== ========== ==========
Earnings from operations:
Networks $ 272,087 $ 205,576 $ 172,296 32 19
Entertainment 32,480 59,662 73,214 (46) (19)
Cable Television 110,176 122,037 103,954 (10) 17
Broadcasting 42,293 31,956 27,734 32 15
Corporate (72,041) (71,304) (64,964) (1) (10)
---------- --------- ----------
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234 11 11
========== ========== ==========
Depreciation and amortization:
Networks $ 44,747 $ 41,754 $ 30,123
Entertainment 9,549 6,792 7,160
Cable Television 71,520 68,505 66,604
Broadcasting 23,475 24,509 27,062
Corporate 3,766 3,242 1,915
---------- --------- ----------
Total depreciation and
amortization $ 153,057 $ 144,802 $ 132,864
========== ========== ==========
II-4
<PAGE>
Reconciliation to net earnings
(loss) attributable
to common stock:
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234
Interest expense, net (144,953) (194,104) (297,451)
Other items, net 61,774 1,756 (6,536)
---------- --------- ----------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
---------- --------- ----------
Earnings (loss) before
extraordinary losses and
cumulative effect of change
in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of
tax (8,867) (17,120) (3,101)
Cumulative effect of change
in accounting principle 10,338 -- --
---------- --------- ----------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible
preferred stock dividend
requirement of Viacom Inc. 12,750 -- --
---------- --------- ----------
Net earnings (loss)
attributable to common
stock $ 158,202 $ 48,965 $ (49,657)
========== ========== ==========
II-5
<PAGE>
Results of Operations
---------------------
1993 vs. 1992
-------------
Revenues increased 8% to $2.0 billion in 1993 from $1.9 billion in
1992. Earnings from operations increased 11% to $385.0 million in
1993 from $347.9 million in 1992. Explanations of variances in
revenues and earnings from operations for each operating segment
follow.
Net earnings attributable to common stock of $158.2 million, or $1.31
per share, for the year ended December 31, 1993, reflect net interest
expense of $145.0 million, a pre-tax gain aggregating $72.4 million
from the sale of the Wisconsin cable television system and sales of a
portion of an investment held at cost, and a provision for income
taxes of $129.8 million. Net earnings of $49.0 million, or $.41 per
share, for the year ended December 31, 1992, reflect net interest
expense of $194.1 million and a provision for income taxes of $84.8
million.
The comparability of results of operations for 1993 and 1992 has been
affected by (1) the sale of the Wisconsin cable television system,
effective January 1, 1993 and (2) the change in estimate of copyright
royalty revenues during 1992 in the Entertainment segment. (See
"Cable Television" and "Entertainment" for additional information
concerning the changes noted above.)
Networks (Basic cable and premium television networks)
The constituents of Networks are MTV Networks ("MTVN") and Showtime
Networks Inc. ("SNI"). Networks revenues increased 15% to $1.221
billion in 1993 from $1.059 billion in 1992. Networks earnings from
operations increased 32% to $272.1 million in 1993 from $205.6 million
in 1992.
MTVN revenues increased 27% to $677.9 million in 1993 from $533.4
million in 1992: 70% of the increase was attributable to increased
advertising sales; 21% was due to increased affiliate fees; and 9% was
due to other sources. The increases in advertising sales and
affiliate fees were principally due to rate increases. The increase
in other sources was principally due to revenues from new business
ventures including licensing and merchandising. Earnings from
operations of MTVN increased 39% to $239.7 million in 1993 from $172.9
million in 1992, reflecting the increased revenues, partially offset
by increased programming and marketing expenses at each of the
networks and other costs of operating the networks, including start up
losses of MTV Latino and Nickelodeon Magazine aggregating $6.5
million. The increased programming and marketing expenses at each of
the networks (including animated programming on Nickelodeon and MTV)
was to a large extent responsible for the Company's ability to
increase advertising rates.
II-6
<PAGE>
SNI revenues increased 3% to $543.3 million in 1993 from $525.7 million
in 1992, including Viacom Pictures in each period presented, due to (i)
an increase of $13.6 million in revenues of Showtime Satellite Networks
("SSN"), primarily due to a 40% increase in SSN's subscriber base,
principally attributable to the use of upgraded scrambling technology,
partially offset by a decrease of 8% in average rates, (ii) an increase
of $4.4 million in revenues of Showtime and The Movie Channel
(excluding revenues generated by SSN), reflecting a 3% increase in the
combined subscriber base with a decrease in average rates of 2% and
(iii) a $.4 million decrease in other revenue sources. SNI's premium
movie services, Showtime, The Movie Channel and FLIX, served
approximately 11.9 million subscribers as of December 31, 1993 and 10.7
million subscribers as of December 31, 1992. SNI's overall earnings
from operations decreased 1% to $32.3 million in 1993 from $32.7
million in 1992, reflecting increased programming and marketing
expenses, partially offset by the increased revenues.
Entertainment (Television programming, syndication, production and new
media)
The Entertainment segment distributes television series, feature
films, made-for-television movies and mini-series for television
exhibition around the world, produces television series and made-for-
television movies, and also distributes television and radio
commercials. The Entertainment segment also includes Viacom New
Media, which develops, produces, distributes and markets interactive
software.
Entertainment revenues decreased 16% to $209.1 million in 1993 from
$248.3 million in 1992. The revenue variance was principally due to
lower syndication revenues, lower copyright revenues resulting from a
change in estimate which increased revenue by approximately $10 million
in 1992, and decreased network production revenues. Lower sales to the
broadcast, cable and other markets reflect lower syndication revenues
for The Cosby Show and softness in the syndication marketplace due to a
decrease in the number of independent broadcast television stations
because of new network affiliations. Revenues from the domestic
broadcast syndication of The Cosby Show were approximately 12% and 18%
of Entertainment revenues during 1993 and 1992, respectively. The
decrease was due to the ending of the first domestic syndication cycle
of The Cosby Show during the third quarter of 1993. The second
domestic broadcast syndication cycle of The Cosby Show, which began in
the third quarter of 1993, will generate significantly lower revenues.
Network license fees were lower because fewer shows were produced for
network television; however the decrease does not have a significant
impact on Entertainment earnings from operations.
Earnings from operations decreased 46% to $32.5 million in 1993 from
$59.7 million in 1992, reflecting the decreased revenues and $6.1
million of start-up losses associated with Viacom New Media, which
anticipates releasing approximately nine interactive video games based
II-7
<PAGE>
on MTV Networks' programming by the end of 1994.
The Company had accumulated a backlog of unbilled syndication license
agreements of approximately $399.0 million at December 31, 1993. As
the license fees are billed over the term of the various licensing
contracts, the Company will recognize as revenues that portion of such
license fees representing its distribution fees. Approximately 58% of
the Company's backlog was attributable to license fees for Roseanne
and The Cosby Show. As The Cosby Show becomes a smaller portion of
the total backlog, the percentage of the total license fee recognized
as revenue by the Company will be reduced.
Cable Television (Cable television systems)
Cable Television revenues increased 1% to $416.0 million in 1993 from
$411.1 million in 1992. Earnings from operations decreased 10% to
$110.2 million in 1993 from $122.0 million in 1992.
On a comparable basis with the 1992 results (excluding the Wisconsin
cable system, which was sold effective January 1, 1993), Cable
Television revenues increased 6% to $416.0 million in 1993 from $393.6
million in 1992: 52% of this increase resulted from increases in rates
for basic services; 32% from increased basic customers; 8% from
increased pay-per-view revenues; and 8% from increases in other revenue
sources. Total revenue per basic customer per month increased 3% to
$32.03 in 1993 from $31.04 in 1992. Earnings from operations decreased
6% to $110.2 million in 1993 from $117.6 million in 1992, reflecting
increased operating expenses (which included non-recurring costs
associated with the implementation of Federal Communication Commission
("FCC") rate regulations discussed below), partially offset by
increased revenues.
The 1992 Cable Act amended the Communications Act of 1934, as amended
(the "Communications Act"). Rate regulations adopted in April 1993 by
the FCC govern rates charged to subscribers for regulated tiers of
cable service and became effective on September 1, 1993. On February
22, 1994, the FCC adopted additional rules (the "February 22nd
Regulations") which have not yet been published in their final form.
The "benchmark" formula adopted as part of the regulations in April
1993 establishes an "initial permitted rate" which may be charged by
cable operators for tiers of cable service. The regulations also
establish the prices which may be charged for equipment used to receive
these services. Because the text of the February 22nd Regulations has
not been released, it is not possible to know the extent or nature of
revisions to the April 1993 regulations. However, from public
statements made during the FCC meeting and news releases issued
thereafter, it appears that the February 22nd Regulations will contain
a new formula for determining permitted rates. The new formula will
require up to a 17% reduction of rates from those charged on September
30, 1992, rather than the 10% reduction required by the April 1993
regulations. The February 22nd Regulations also adopted interim
standards governing "cost-of-service" proceedings pursuant to which a
II-8
<PAGE>
cable operator would be permitted to charge rates in excess of rates
which it would otherwise be permitted to charge under the regulations,
provided that the operator substantiates that its costs in providing
services justify such rates.
Based on its implementation of the April 1993 rate regulations, the
Company estimates that it will recognize a reduction to revenues
ranging from $27 million to $32 million on an annualized basis
substantially all of which will be reflected as a reduction in earnings
from operations of its cable division. The Company's estimated
reduction does not reflect further reductions to revenue which would
result from the lowering of the initial permitted rates pursuant to the
February 22nd Regulations. These new and reduced initial permitted
rates will apply prospectively from a date to be announced by the FCC
when it publishes precise regulations which implement the February 22nd
Regulations. Until the February 22nd Regulations are released, it is
not possible to predict the effects of the interim standards governing
cost-of-service proceedings; however, based on the public statements,
Viacom believes it is unlikely that it will be able to utilize such
proceedings so as to charge rates in excess of rates which it would
otherwise be permitted to charge under the regulations. The Company's
ability to mitigate the effects of these new rate regulations by
employing techniques such as the pricing and repricing of new or
currently offered unregulated program services and ancillary services
may be restricted by the new regulations adopted as part of the
February 22nd Regulations. No such mitigating factors are reflected in
the estimated reductions to revenues. The stated reduction to revenues
may be mitigated by higher customer growth due to lower basic rates.
The "must carry" provisions of the 1992 Cable Act are not material to
the Company's results of operations.
As of December 31, 1993, the Company operated systems in California,
Oregon, Washington, Ohio and Tennessee, serving approximately 1,094,000
basic customers subscribing to approximately 718,000 premium units.
Basic customers and premium units decreased 2% and 9%, respectively,
since December 31, 1992; and, excluding the Wisconsin cable system
customers in 1992, basic customers and premium units increased 2% and
decreased 5%, respectively.
As part of the settlement of the Time Warner antitrust lawsuit, the
Company entered into an agreement to sell all the stock of Viacom
Cablevision of Wisconsin, Inc. to Warner Communications Inc.
("Warner"), effective January 1, 1993. As consideration for the stock,
Warner paid the sum of $46 million, $20 million of which was received
during 1992, plus repayment of debt in the amount of $49 million,
resulting in a pre-tax gain of approximately $55 million reflected in
"Other items, net." As of December 31, 1992, the Wisconsin cable
system served approximately 47,000 basic customers subscribing to
approximately 34,000 premium units.
II-9
<PAGE>
Broadcasting (Television and radio stations)
As of December 31, 1993, the Broadcasting segment operated five
network-affiliated television stations and 14 radio stations.
Broadcasting revenues increased 8% to $181.8 million in 1993 from
$168.8 million in 1992. Earnings from operations increased 32% to
$42.3 million in 1993 from $32.0 million in 1992.
Television revenues increased 4% to $90.3 million in 1993 from $87.1
million in 1992, reflecting an increase in national and local
advertising revenues. Earnings from operations increased 20% to
$20.3 million in 1993 from $16.9 million in 1992, primarily
reflecting the increased revenues.
Television Stations:
STATION LOCATION AFFILIATION MARKET RANK (a)
------- -------- ----------- ------ --------
KMOV-TV St. Louis, MO CBS 18 2
WVIT-TV Hartford/New NBC 25 3
Haven, CT
WNYT-TV Albany/Schenectad NBC 52 2
y, NY
WHEC-TV Rochester, NY NBC 71 2
KSLA-TV Shreveport, LA CBS 74 1
(a) Source: Nielsen, November 1993.
Radio revenues increased 12% to $91.4 million in 1993 from $81.8
million in 1992, reflecting increased national and local
advertising revenues. Earnings from operations increased 45% to
$26.6 million in 1993 from $18.3 million in 1992, primarily
reflecting the increased revenues, partially offset by increased
selling costs.
Radio Stations:
STATION LOCATION FORMAT MARKET RANK (a)
------- -------- ------ ------ -----
WLTW-FM New York, NY Adult 1 1
Contemp
KYSR-FM Los Angeles, CA Adult 2 2
Contemp
KXEZ-FM (b) Los Angeles, CA Adult 2 2
Contemp
WLIT-FM Chicago, IL Adult 3 7
Contemp
KSRY-FM San Francisco, Adult 4 24
CA Contemp (Tie)
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<PAGE>
KSRI-FM Santa Cruz/San Adult 4 24
Jose, CA Contemp (Tie)
WLTI-FM Detroit, MI Adult 6 8
Contemp
WMZQ-AM/FM Washington, DC Country 8 4
(Tie)
WCXR-FM (c) Washington, DC Classic Rock 8 9
(Tie)
WCPT-AM (c) Washington, DC Headline 8 NA(d)
News
KBSG-AM/FM Seattle/Tacoma, Oldies 13 2
WA
KNDD-FM (e) Seattle, WA Modern Rock 13 5
(AOR)
(a) Source: Arbitron, Fall 1993, based on target demographics.
(b) Acquired in June 1993.
(c) Acquired in November 1993.
(d) Rank not applicable.
(e) Acquired in December 1992.
See "Acquisition and Ventures" for disclosure of acquisitions
and exchanges of radio stations that occurred in 1993 and 1992.
Other Income and Expense Information
Corporate expenses increased 1% to $72.0 million in 1993 from
$71.3 million in 1992, reflecting increased overall expenses
offset by decreased compensation expense associated with the
Long-Term Incentive Plans (the "Plans"), which consist of the
Long-Term Incentive Plan ("LTIP") and the Long-Term Management
Incentive Plan ("LTMIP"). The Plans provide for grants of
phantom shares and stock options. The value of phantom shares
issued under the Plans is determined by reference to the fair
market value of Viacom Class A Common Stock and Viacom Class B
Common Stock (collectively, "Common Stock"). The Plans also
provide for subsequent cash payments with respect to such
phantom shares based on appreciated value, subject to certain
limits, and vesting requirements. As a result of the
fluctuation in the market value of its Common Stock, Viacom Inc.
recorded compensation expense associated with the Plans of $3.9
million in 1993 and $8.2 million in 1992. During December 1992,
a significant portion of the liability associated with the LTIP
was satisfied by the cash payment of $68.6 million and the
issuance of 177,897 shares of Viacom Class B Common Stock valued
at $6.9 million. The Plans' phantom shares currently have a
maximum potential liability of $19.5 million, all of which was
accrued as of December 31, 1993.
II-11
<PAGE>
Net interest expense decreased 25% to $145.0 million in 1993 from
$194.1 million in 1992, reflecting improvements made to the
capital structure (as described below) and reduced interest
rates, including rates associated with the Credit Agreement (as
defined in "Capital Structure"). The Company and Viacom Inc. had
approximately $2.4 billion principal amount of debt outstanding
as of December 31, 1993 and December 31, 1992 at weighted average
interest rates of 5.3% and 6.5%, respectively. On July 15, 1993,
the Company redeemed all $298 million principal amount
outstanding of 11.80% Senior Subordinated Notes. During 1992,
the following changes to the capital structure were made: a) on
March 4, 1992, the Company issued $150 million principal amount
of 9.125% Senior Subordinated Notes ("9.125% Notes") due 1999;
b) on March 10, 1992, the Company redeemed all $193 million of
the outstanding 11.5% Senior Subordinated Extendible Reset Notes
("11.5% Reset Notes") due 1998; c) on May 28, 1992, the Company
issued $100 million principal amount of 8.75% Senior Subordinated
Reset Notes ("8.75% Reset Notes") due 2001; and d) on June 18,
1992, the Company redeemed all $356.5 million of the outstanding
14.75% Senior Subordinated Discount Debentures ("Discount
Debentures") due 2002 (see "Capital Structure"). (See "Liquidity
and Capital Resources" for additional information concerning
changes in Viacom Inc.'s and the Company's capital structure.)
For 1993, "Other items, net" reflects the pre-tax gain of
approximately $55 million on the sale of the stock of the
Wisconsin cable system (see "Cable Television"), a pre-tax gain
of $17.4 million in the aggregate from sales of a portion of an
investment held at cost, and an increase of $9.1 million to
previously established non-operating litigation reserves and
other items.
The settlement of the Time Warner antitrust lawsuit resulted in
various business arrangements, which have a positive effect on
Viacom Inc. currently and are expected to continue to have a
favorable effect on a prospective basis. "Other items, net"
reflects a gain of $35 million recorded in the third quarter of
1992; this gain represents payments received in the third quarter
of 1992 relating to certain aspects of the settlement of the
lawsuit, net of Viacom Inc.'s 1992 legal expenses related to this
lawsuit.
"Other items, net" also reflects a reserve for litigation of $33
million during the second quarter of 1992 related to a summary
judgment against Viacom Inc. in a dispute with CBS Inc. arising
under the 1970 agreement associated with the spin-off of Viacom
International Inc. by CBS Inc. On July 30, 1993, the Company
settled all disputes arising under that litigation.
"Equity in loss of affiliated companies, net of tax," consists
primarily of the Company's share of Lifetime's net earnings,
Comedy Central's net losses and Nickelodeon (UK)'s net losses in
II-12
<PAGE>
1993. "Equity in loss of affiliated companies, net of tax"
decreased 46% to $2.5 million in 1993 from $4.6 million in 1992,
primarily reflecting improved operating results at Lifetime and
Comedy Central, partially offset by net losses on equity
investments made in 1993. (See "Acquisitions and Ventures.")
The provision for income taxes represents federal, state and
foreign income taxes on earnings before income taxes.
The annual effective tax rate of 43% for 1993 and 54.5% for 1992
(which continues to be adversely affected by amortization of
acquisition costs which are not deductible for tax purposes) is
decreased as a result of reductions of certain prior year tax
reserves of $22.0 million and $20.0 million in 1993 and 1992,
respectively. The reductions relate to management's current
opinion on several tax issues based upon the progress of
federal, state and local audits.
During the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" on a prospective basis and recognized a cumulative benefit
from a change in accounting principle of $10.3 million.
In August 1993, the Omnibus Budget Reconciliation Act of 1993
(the "Reconciliation Act") was signed into law. It is not
expected that the Reconciliation Act will have a significant
effect on the Company's financial position or results of
operations.
In 1993, the Company recognized an after-tax extraordinary loss
from the early extinguishment of the 11.80% Notes of $8.9 million
(net of a tax benefit of $6.1 million).
In 1993, Viacom Inc. declared dividends on its Preferred Stock
(as defined in "Capital Structure") of $12.8 million.
In 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting For Postemployment
Benefits" ("SFAS 112"), which the Company will adopt in 1994.
SFAS 112 requires that postemployment benefits be accounted for
under the accrual method versus the currently used pay-as-you-go
method. SFAS 112 is not expected to have a significant effect on
the Company's financial position or results of operations.
1992 vs. 1991
-------------
Revenues increased 9% to $1.9 billion in 1992 from $1.7 billion
in 1991. Operating expenses increased 8% to $854.0 million in
1992 from $790.8 million in 1991. Earnings from operations
increased 11% to $347.9 million in 1992 from $312.2 million in
1991. Explanations of variances in revenues and earnings from
II-13
<PAGE>
operations for each operating segment follow.
Net earnings of $49.0 million, or $.41 per share, for the year
ended December 31, 1992, reflect net interest expense of $194.1
million and a provision for income taxes of $84.8 million. The
net loss of $49.7 million, or $.44 per share, for the year ended
December 31, 1991, reflects net interest expense of $297.5
million and a provision for income taxes of $42.1 million.
Networks (Basic cable and premium television networks)
Networks revenues increased 15% to $1.058 billion in 1992 from
$922.2 million in 1991. Earnings from operations increased 19%
to $205.6 million in 1992 from $172.3 million in 1991.
MTVN revenues increased 30% to $533.4 million in 1992 from
$411.4 million in 1991: 77% of the increase was attributable to
increased advertising sales; 19% was due to increased affiliate
fees; and 4% was due to other sources. The increases in
advertising sales and affiliate fees were principally due to
rate increases. The increase in other sources was principally
due to revenues from new business ventures including licensing
and merchandising. Earnings from operations of MTVN increased
23% to $172.9 million in 1992 from $141.0 million in 1991,
reflecting the increased revenues, partially offset by increased
programming expenses and other costs of operating the networks.
The Company increased programming expenses, particularly for new
animated programming on Nickelodeon. This new programming was
to a large extent responsible for the Company's ability to
increase advertising rates.
On August 30, 1991, Viacom Inc. increased its interest in MTV
EUROPE to 100% through the purchase of the 50.01% interest held
by an affiliate of Mirror Group Newspapers. Subsequent to
August 30, 1991, the results of operations of MTV EUROPE have
been included in MTVN's results of operations. Prior to such
date, the investment in MTV EUROPE was accounted for under the
equity method; therefore, operating results were included in
"Equity in loss of affiliated companies, net of tax." The
financial results of MTV EUROPE were not material to the
financial results of the Company or the Networks segment;
however, as the pan-European marketplace develops for both
advertising revenues and affiliate fees, the financial results
of MTV EUROPE may become material. In the aggregate, MTV
(excluding MTV EUROPE), VH-1 and Nickelodeon/Nick at Nite
revenues increased 21%, subscribers increased 3% and earnings
from operations increased 18% during 1992 versus 1991.
SNI revenues increased 3% to $515.3 million in 1992 from $501.3
million in 1991: 30% of the revenue increase was due to rate
increases for SSN; 23% was due to a higher average subscriber
II-14
<PAGE>
base during the year for SSN principally attributable to the use
of upgraded scrambling technology in 1992; 23% was due to a
higher average cable subscriber base during the year for Showtime
and The Movie Channel; and 24% of this increase was due to other
revenue sources. SNI's premium movie services served
approximately 10.7 million subscribers as of December 31, 1992
and 10.2 million subscribers as of December 31, 1991. SNI's
overall earnings from operations increased 7% to $35.2 million in
1992 from $33.0 million in 1991, reflecting the increase in
revenues, partially offset by an increase in programming
expenses.
Entertainment (Television programming, syndication, production
and new media)
Entertainment revenues decreased 9% to $248.3 million in 1992
from $273.5 million in 1991. The revenue variance was
principally due to lower sales to broadcast, cable and other
markets, lower network license fees and lower copyright royalty
revenues. Lower sales to the broadcast, cable and other markets
reflect softness in the syndication marketplace due to a
generally weak economy and due to a decrease in the number of
independent broadcast television stations because of new network
affiliations. Network license fees were lower because there were
fewer shows produced for network television. Copyright royalties
were lower due to changes made by cable operators in the tiering
of their services, which generated lower copyright royalty
liabilities and therefore less income for program producers and
syndicators. During the first quarter of 1992, certain legal
developments indicated that the percentage of income recognized
under certain copyright royalty arrangements should be increased.
This change in estimate resulted in an increase in revenues of
approximately $10 million. During the first quarter of 1991, the
Company began to recognize copyright royalty revenue on an
accrual basis rather than a cash basis, as a sufficient pattern
had been established to make these revenues estimable; this
change resulted in an increase in revenues of approximately $13.0
million. Earnings from operations decreased 19% to $59.7 million
in 1992 from $73.2 million in 1991, reflecting the decreased
revenues and changes in estimate noted above, and expenses
associated with staff changes and the implementation of new
systems of approximately $4.0 million.
Cable Television (Cable television systems)
Cable television revenues increased 9% to $411.1 million in 1992
from $378.0 million in 1991: 68% of this increase resulted from
increases in rates for basic services; 26% from increased basic
customers; 10% from increased premium customers; partially offset
by a negative 4% from decreases in other revenue sources. Total
II-15
<PAGE>
revenue per basic customer per month increased 5% to $31.06 in
1992 from $29.41 in 1991. Earnings from operations increased 17%
to $122.0 million in 1992 from $104.0 million in 1991, reflecting
the increased revenues, partially offset by increased operating
expenses.
As of December 31, 1992, the Company operated systems in
California, Oregon, Washington, Wisconsin, Ohio and Tennessee,
serving approximately 1,116,000 basic customers subscribing to
approximately 786,000 premium units. Basic customers and premium
units increased 3% and 1%, respectively, since December 31, 1991.
Broadcasting (Television and radio stations)
Broadcasting revenues increased 6% to $168.8 million in 1992
from $159.2 million in 1991. Earnings from operations increased
15% to $32.0 million in 1992 from $27.7 million in 1991.
Television revenues increased 9% to $87.1 million in 1992 from
$80.1 million in 1991, reflecting an increase in national and
local advertising revenues at each of the stations, primarily
due to higher rates driven by the Olympics and the political
campaign. Earnings from operations increased 38% to $16.9
million in 1992 from $12.2 million in 1991, reflecting the
increased revenues, partially offset by increased programming
and selling expenses.
Radio revenues increased 3% to $81.8 million in 1992 from $79.0
million in 1991, reflecting an increase in local advertising
revenues, partially offset by a decrease in national advertising
revenues. Earnings from operations decreased 7% to $18.3
million in 1992 from $19.6 million in 1991, driven by increased
operating, selling and promotion costs, partially offset by the
increased revenues.
Other Income and Expense Information
Corporate expenses increased 10% to $71.3 million in 1992 from
$65.0 million in 1991, primarily due to severance costs,
partially offset by decreased legal costs and decreased
compensation expense associated with the Long-Term Incentive
Plans. As a result of the fluctuation in the market value of
its Common Stock, Viacom Inc. recorded compensation expense
associated with the Plans of $8.2 million and $12.3 million in
1992 and 1991, respectively.
Net interest expense decreased 35% to $194.1 million in 1992 from
$297.5 million in 1991, reflecting improvements made to the capital
structure and reduced interest rates, including rates associated
with the Credit Agreement (as defined in "Capital Structure"). The
II-16
<PAGE>
Company and Viacom Inc. had approximately $2.4 billion and $2.3
billion principal amount of debt outstanding as of December 31,
1992 and December 31, 1991 at weighted average interest rates of
6.5% and 9.2%, respectively. During 1991, Viacom Inc. realized net
proceeds of approximately $317.7 million from the issuance of non-
voting Class B Common Stock ("Viacom Class B Common Stock");
redeemed all $402 million of its outstanding Exchange Debentures;
the Company repurchased $43 million principal amount of the
Discount Debentures; and the Company issued $200 million principal
amount of 10.25% Senior Subordinated Notes ("10.25% Notes") due
2001. (See "Liquidity and Capital Resources" for additional
information concerning changes in Viacom Inc.'s and the Company's
capital structure.)
Viacom Inc. and the Company file a separate consolidated federal
income tax return and have done so since the period commencing
June 11, l991, the date on which NAI's percentage ownership of
Viacom was reduced to less than 80% (see "Capital Structure").
Prior to such date, Viacom Inc. and the Company filed a
consolidated federal income tax return with NAI, and participated
in a tax-sharing agreement with NAI with respect to federal
income taxes. The tax-sharing agreement obligated Viacom Inc.
and the Company to make payment to NAI to the extent that they
would have paid federal income taxes on a separate company basis,
and entitled them to receive a payment from NAI to the extent
their losses and credits reduced NAI's federal income taxes.
"Equity in loss of affiliated companies, net of tax," decreased
64% to a loss of $4.6 million in 1992 from a loss of $12.7
million in 1991, driven by improvements at Lifetime and Comedy
Central.
In 1992, the Company recognized after-tax extraordinary losses
from the early extinguishment of the Discount Debentures of $13.7
million (net of a tax benefit of $8.9 million) and the 11.50%
Reset Notes of $3.4 million (net of a tax benefit of $2.4
million).
Liquidity and Capital Resources
-------------------------------
Paramount Merger, Blockbuster Merger and Related Transactions
-------------------------------------------------------------
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender
offer (the "Paramount Offer"), 61,657,432 shares of Paramount
common stock, constituting a majority of the shares outstanding,
at a price of $107 per share in cash. The Paramount Offer was
financed by (i) the sale of Preferred Stock (see "Capital
Structure"), proceeds of which are reflected as cash and cash
equivalents on the balance sheet as of December 31, 1993, (ii)
the sale of Viacom Class B Common Stock to Blockbuster and (iii)
borrowings under a credit agreement (as described below). The
II-17
<PAGE>
Paramount Offer was made pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of February 4, 1994 (the
"Paramount Merger Agreement") between Viacom Inc. and Paramount.
Paramount will become a wholly owned subsidiary of Viacom Inc.
(the "Paramount Merger") at the effective time of a merger
between Paramount and a subsidiary of Viacom Inc. (the
"Paramount Effective Time") which is expected to occur in the
second quarter of 1994. Pursuant to the Paramount Merger
Agreement, each share of Paramount common stock outstanding at
the time of such merger (other than shares held in the treasury
of Paramount or owned by Viacom Inc. and other than shares held
by any stockholders who shall have demanded and perfected
appraisal rights) will be converted into the right to receive
(i) 0.93065 of a share of Viacom Class B Common Stock, (ii)
$17.50 principal amount of 8% exchangeable subordinated
debentures of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of
Viacom Class B Common Stock at any time prior to the third
anniversary of the Paramount Merger at a price of $60 per share,
and (v) 0.3 of a warrant to purchase one share of Viacom Class B
Common Stock at any time prior to the fifth anniversary of the
Paramount Merger at a price of $70 per share. If the debentures
are issued prior to the completion of the proposed merger of
Viacom Inc. and Blockbuster, the debentures will be
exchangeable, at the option of Viacom Inc., into 5% exchangeable
preferred stock of Viacom Inc. on or after January 1, 1995 if
the proposed merger with Blockbuster has not previously been
consummated.
Each CVR will represent the right to receive the amount, if any,
by which the Target Price exceeds the greater of the Current
Market Value or the Minimum Price (see defined terms in
following paragraph). The CVRs will mature on the first
anniversary of the Paramount Effective Time (the "Maturity
Date"); provided, however, that Viacom Inc. may, at its option,
(i) extend the Maturity Date to the second anniversary of the
Paramount Effective Time (the "First Extended Maturity Date") or
(ii) extend the First Extended Maturity Date to the third
anniversary or the Paramount Effective Time (the "Second
Extended Maturity Date"). Viacom Inc., at its option, may pay
any amount due under the terms of the CVRs in cash or in the
equivalent value of registered securities of Viacom Inc.,
including without limitation, common stock, preferred stock,
notes, or other securities.
The "Minimum Price" means (a) at the Maturity Date, $36, (b) at
the First Extended Maturity Date, $37 and (c) at the Second
Extended Maturity Date, $38. Target Price means (a) at the
Maturity Date, $48, (b) at the First Extended Maturity Date,
$51, and (c) at the Second Extended Maturity Date, $55. The
"Current Market Value" means the average market price of Viacom
Class B Common Stock for a specified period.
II-18
<PAGE>
On January 7, 1994, Viacom Inc. and Blockbuster entered into an
agreement and plan of merger (the "Blockbuster Merger
Agreement") pursuant to which Blockbuster will be merged with
and into Viacom Inc. (the "Blockbuster Merger") subject to
shareholder approval. At the effective time of the Blockbuster
Merger, each share of Blockbuster common stock outstanding at
the time of the Blockbuster Merger (other than shares held in
the treasury of Blockbuster or owned by Viacom Inc. and other
than shares held by any stockholders who shall have demanded and
perfected appraisal rights, if available) will be converted into
the right to receive (i) 0.08 of a share of Viacom Class A
Common Stock, (ii) 0.60615 of a share of Viacom Class B Common
Stock, and (iii) up to an additional 0.13829 of a share of
Viacom Class B Common Stock, with the exact fraction of a share
being dependent on the market prices of Viacom Class B Common
Stock during the year following the effective time of the
Blockbuster Merger, and with the right to receive such
additional fraction of a share to be evidenced by one variable
common right ("VCR"). The VCRs mature on the first anniversary
of the Blockbuster Merger ("VCR Conversion Date").
The mergers pursuant to the Paramount Merger Agreement and
Blockbuster Merger Agreement (collectively, the "Mergers") have
been unanimously approved by the Boards of Directors of each of
the respective companies. The obligations of Viacom Inc.,
Blockbuster and Paramount to consummate the mergers are subject
to various conditions, including obtaining requisite stockholder
approvals. Viacom Inc. intends to vote its shares of Paramount
in favor of the merger and NAI has agreed to vote its shares of
Viacom Inc. in favor of the Mergers; therefore, stockholder
approval of the Paramount Merger is assured, and approval by
Viacom Inc. of the Blockbuster Merger is also assured.
On March 10, 1994, Blockbuster purchased approximately 22.7
million shares of Viacom Class B Common Stock for an aggregate
purchase price of $1.25 billion, or $55 per share. If (with
certain exceptions) the Blockbuster Merger Agreement is
terminated and in the event that Viacom Class B Common Stock
trades (for a specified period) at a level below $55 per share
during the one year period after such termination, Viacom Inc.
may be obligated to make certain payments of up to a maximum of
$275 million, at its option, in cash or securities, or to sell
certain assets to Blockbuster. The Viacom Class B Common Stock
purchased by Blockbuster will be canceled upon consummation of
the Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit
agreement with certain financial institutions named therein,
pursuant to which such financial institutions have advanced to
Blockbuster, on an unsecured basis, an aggregate of $1.0 billion
to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The
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<PAGE>
Blockbuster Facility contains certain events of default,
including a change of control default, which will require either
a waiver in connection with the Blockbuster Merger or the
refinancing of the indebtedness incurred by Blockbuster under
the Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7 billion under a
credit agreement dated as of November 19, 1993, as amended on
January 4, 1994 and February 15, 1994, among Viacom Inc., the
banks named therein, and The Bank of New York, Citibank, N.A.
and Morgan Guaranty Trust Company of New York, as Managing Agent
(the "Merger Credit Agreement").
The Merger Credit Agreement provides that, in order to pay for
the Paramount Offer and related expenses, up to $3.7 billion may
be borrowed, repaid and reborrowed until November 18, 1994, at
which time all amounts outstanding will become due and payable.
The Merger Credit Agreement provides that Viacom Inc. may elect
to borrow at either the Base Rate or the Eurodollar Rate (each
as defined below), subject to certain limitations. The "Base
Rate" will be the higher of (i) the Citibank N.A., Base Rate and
(ii) the Federal Funds Rate plus 0.50%. The "Eurodollar Rate"
will be the London Interbank Offered Rate plus (i) 0.9375%,
until Viacom Inc.'s senior unsecured long-term debt is rated by
Standard & Poor's Corporation or Moody's Investors Service,
Inc., and (ii) thereafter, a variable rate ranging from 0.25% to
0.9375% dependent on the senior unsecured long-term debt rating
assigned to Viacom Inc. The Merger Credit Agreement provides
that Viacom Inc. will pay each bank a facility fee on such
bank's commitment until November 18, 1994.
The Merger Credit Agreement contains certain covenants which,
among other things, require Viacom Inc. to meet certain
financial ratios.
As of December 31, 1993, Viacom Inc. had promissory notes
outstanding in the aggregate amount of $26 million, in order to
finance expenses associated with the Mergers and expects to
obtain additional financing as required to finance such
expenses.
Viacom Inc. anticipates that, following the Mergers, Viacom
Inc., Paramount and Blockbuster, on a pro forma combined basis
(the "Combined Company") will have outstanding total
indebtedness of approximately $10 billion ($8 billion if the
Blockbuster Merger is not consummated) and 5% Preferred Stock
(as defined in "Capital Structure") with a liquidation
preference of $1.2 billion ($1.8 billion if the Blockbuster
Merger is not consummated). Of such $10 billion, $3.7 billion
was borrowed under the Merger Credit Agreement and must be
repaid by November 18, 1994. In addition, the $1.0 billion
II-20
<PAGE>
borrowed under the Blockbuster Facility must be repaid by
February 14, 1995 and both the Blockbuster Facility and a
previous Blockbuster credit agreement contain certain covenants
and events of default, including a change of control default,
which will require either a waiver in connection with the
Blockbuster Merger or the refinancing of the indebtedness under
such Blockbuster facilities prior to the Blockbuster Merger.
Accordingly, assuming consummation of the Blockbuster Merger,
the foregoing facilities, together with other current
maturities, may require Viacom Inc. to refinance up to $5.7
billion ($4.0 billion if the Blockbuster Merger is not
consummated) within the next 12 months. Viacom Inc. also
anticipates that, following the Mergers, the Combined Company
will fund its anticipated operating, investing and financing
activities, including the anticipated cash requirements of its
joint ventures, commitments, capital expenditures, preferred
stock dividend requirements and principal and interest payments
on outstanding indebtedness, through a variety of sources,
which may include, but may not be limited to, funds generated
internally by Viacom Inc. and its subsidiaries (including
following the Mergers funds generated by Blockbuster and
Paramount), bank refinancing, and the public or private sale of
debt or equity securities. The Blockbuster Merger is subject
to shareholder approval. In the event the Blockbuster Merger
is not consummated, Viacom Inc. believes that it will still be
capable of meeting all of its obligations.
Viacom Inc. and the Company - Liquidity and Capital Resources
-------------------------------------------------------------
(prior to the Paramount Offer and the Mergers)
----------------------------------------------
The Company's scheduled maturities of long-term debt through
December 31, 1998, assuming full utilization of the $1.9 billion
commitment under the Credit Agreement and $300 million under the
Loan Facility Agreement, are $300 million (1994), $380 million
(1995), $380 million (1996) $380 million (1997) and $380 million
(1998). On January 4, 1993, Viacom Inc. borrowed $42.2 million
from The Bank of New York ("BONY") pursuant to an unsecured
credit agreement ("Term Loan Agreement") to satisfy its
obligation under the LTIP. Viacom Inc. repaid $13.9 million of
debt under the Term Loan Agreement on January 15, 1994, the
first scheduled maturity date. The remaining $28.3 million
under the Term Loan Agreement matures on January 15, 1995. (See
"Capital Structure " for defined terms and additional
information).
The Company's joint ventures are expected to require estimated
cash contributions of approximately $20 million to $40 million
in 1994. Capital expenditures are primarily related to
additional construction and equipment upgrades for the Company's
existing cable franchises, certain transponder payments and
information system costs. Planned capital expenditures,
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<PAGE>
including information systems costs, are approximately $150
million to $170 million in 1994.
The Company was in compliance with all covenants and had
satisfied all financial ratios and tests as of December 31, 1993
under its Credit Agreement and the Company expects to remain in
compliance and satisfy all such financial ratios and tests
during 1994.
Debt as a percentage of total capitalization of Viacom Inc. was
47% at December 31, 1993 and 76% at December 31, 1992. The
decrease in debt as a percentage of total capitalization
resulted principally from the issuance of Preferred Stock (as
defined in "Capital Structure") during 1993.
The commitments of the Company for program license fees which
are not reflected in the balance sheet as of December 31, 1993,
which are estimated to aggregate approximately $1.9 billion,
principally reflect commitments under SNI's exclusive
arrangements with several motion picture companies. This
estimate is based upon a number of factors. A majority of such
fees are payable within the next seven years, as part of normal
programming expenditures of SNI. These commitments are
contingent upon delivery of motion pictures which are not yet
available for premium television exhibition and, in many cases,
have not yet been produced.
During July 1991, the Company received reassessments from 10
California counties of its Cable Division's real and personal
property, related to the June 1987 acquisition by NAI, which
could result in substantially higher California property tax
liabilities. The Company is appealing the reassessments and
believes that the reassessments as issued are unreasonable and
unsupportable under California law. The Company believes that
the final resolution of this matter will not have a material
effect on its consolidated financial position or results of
operations.
Net cash flow from operating activities increased 45% to $147.6
million in 1993 from $102.0 million in 1992, resulting from
increased net earnings before extraordinary items and cumulative
effect of change in accounting principle, partially offset by
increased payments for accrued expenses. Net cash expenditures
for investing activities of $128.4 million in 1993 principally
reflects capital expenditures, the acquisitions of KXEZ-FM and
ICOM Simulations, Inc. and the additional investment in
StarSight Telecast Inc. ("StarSight") and advances to Comedy
Central, partially offset by proceeds from the sale of the
Wisconsin cable system, proceeds related to the radio station
swap and proceeds from the sale of an investment held at cost.
Net cash expenditures for investing activities of $116.8 million
in 1992 principally reflect capital expenditures, advances to
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<PAGE>
Comedy Central and a deposit received on the sale of Viacom
Cablevision of Wisconsin Inc. Financing activities reflect
borrowings and repayment of debt under the Credit Agreement
during each period presented; the redemption of the 11.80 %
Notes and the issuance of the Preferred Stock during 1993, and
the redemption of the 11.50% Reset Notes and Discount
Debentures, and the issuance of the 9.125% Notes and the 8.75%
Reset Notes during 1992.
Acquisitions and Ventures
-------------------------
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston,
Texas, for Westinghouse Broadcasting Company, Inc.'s WCXR-FM and
WCPT-AM, Washington, D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-
FM), Los Angeles, California from Westwood One Stations Group-
LA, Inc. for $40 million in cash and certain other
consideration. The Company sold KXEZ-FM to Viacom Inc. in
exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately
held ICOM Simulations, Inc.
On March 31, 1993, the Company increased its percentage of
ownership in StarSight. On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock.
On September 16, 1993, the Company exercised a warrant to
purchase 833,333 shares of StarSight common stock at a cost of
$5.625 per share. In November 1993, the Company transferred its
ownership percentage in StarSight to a consolidated affiliate of
the Company. As a result of these transactions, the affiliate
of the Company's percentage ownership of StarSight is
approximately 21%. The investment in StarSight is accounted for
under the equity method.
In December 1992, the Company entered into a 50-50 joint venture
called Nickelodeon (UK) with a subsidiary of British Sky
Broadcasting Limited. Nickelodeon (UK) began airing on
September 1, 1993. The Company's investment is accounted under
the equity method and therefore the results of operations is
included in "Equity in loss of affiliated companies, net of
tax."
The Company exchanged KHOW-AM and FM, Denver, Colorado for Noble
Broadcast Group, Inc.'s KNDD-FM, Seattle, Washington effective
December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE
to 100% through the purchase of the 50.01% interest held by an
affiliate of Mirror Group Newspapers. The approximate value of the
purchase was $65.0 million, which included intangibles of
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<PAGE>
approximately $61.6 million. As consideration for the sale, Viacom
Inc. issued 2,210,884 shares of Viacom Class B Common Stock (see
"Capital Structure").
Capital Structure
-----------------
The following table and related notes set forth the capitalization
of Viacom Inc. and subsidiaries as of December 31, 1993 and December
31, 1992:
December 31, December 31,
1993 1992
----------- -----------
(Thousands of Dollars)
Current portion of long-term debt $ 55,004 $ --
=========== ============
Long-term debt:
Notes payable to banks (a) $ 1,928,271 1,648,984
11.8% Senior Subordinated Notes due -- 298,000
1998 (b)
9.125% Senior Subordinated Notes due 150,000 150,000
1999 (c)
8.75% Senior Subordinated Reset Notes 100,000 100,000
due 2001 (d)
10.25% Senior Subordinated Notes due 200,000 200,000
2001 (e)
5.75% Convertible Subordinated 15 30
Debentures due 2001
----------- ------------
Total long-term debt $ 2,378,286 $ 2,397,014
=========== ============
Shareholders' equity (f):
Preferred Stock $ 1,800,000 $ --
Common Stock and additional paid-in 922,072 918,671
capital
Accumulated deficit (3,958) (162,160)
----------- ------------
Total shareholders' equity $ 2,718,114 $ 756,511
=========== ============
II-24
<PAGE>
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9 billion and $300 million under (i) an unsecured
credit agreement guaranteed by Viacom Inc. (amended and restated as
of January 17, 1992 (as amended, the "Credit Agreement") among the
Company, the named banks ("Banks"), Citibank, N.A. ("Citibank") as
agent and The Bank of New York ("BONY") as co-agent and (ii) an
unsecured credit agreement, dated June 2, 1993, among the Company
and the named banks and BONY and Citibank as agents (the "Loan
Facility Agreement"). The Loan Facility Agreement has a 364-day
term and is identical to the Credit Agreement in all other material
terms and conditions. Borrowings of $1.765 billion were
outstanding under the Credit Agreement as of December 31, 1993,
including $274 million aggregate principal amount assumed by five
subsidiaries of the Company ("Subsidiary Obligors"). Borrowings of
$150 million were outstanding under the Loan Facility Agreement as
of December 31, 1993, $135 million of which were classified as
long-term.
Subsequent to December 31, 1993, Viacom Inc. borrowed approximately
$3.7 billion pursuant to the Merger Credit Agreement in connection
with the Paramount Merger (see "Paramount Merger, Blockbuster
Merger and Related Transactions").
The following is a summary description of the Credit Agreement. The
description does not purport to be complete and should be read in
conjunction with the Credit Agreement.
The Credit Agreement provides for three facilities:
Facility A - $700 million under a term loan having a final
maturity of June 30, 1999;
Facility B - $926 million under a revolver, which converts
on January 1, 1995 into a term loan having a
final maturity of June 30, 1999; and
Facility B-1 - $274 million under a term loan having a final
maturity of June 30, 1999.
The interest rate on all loans made under the three facilities is
based upon Citibank, N.A.'s base rate, the domestic certificate of
deposit rate or the London Interbank Offered Rate and is affected
by the Company's leverage ratio. At December 31, 1993, the London
Interbank Offered Rates (upon which the Company's borrowing rate
was based) for borrowing periods of one month and two months were
3.25% and 3.3125%, respectively. The Company is permitted to issue
commercial paper with a maturity at the time of issuance not to
exceed nine months, provided that following each issuance of
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<PAGE>
commercial paper, (i) the aggregate face amount of commercial paper
outstanding shall not exceed $500 million less the aggregate amount
of competitive bid rate borrowings (described below), outstanding
at such time and (ii) the aggregate amount of all Facility B loans
and competitive bid rate loans outstanding, together with the
aggregate face amount of commercial paper outstanding, shall not
exceed $926 million. The Company is also permitted to make short-
term competitive bid rate borrowings from the Banks until December
1, 1994, provided that following the making of each proposed
competitive bid rate borrowing, (i) the aggregate amount of the
competitive bid rate loans outstanding shall not exceed $500
million less the aggregate face amount of commercial paper
outstanding and (ii) the aggregate amount of all Facility B loans
and competitive bid rate loans outstanding, together with the
aggregate face amount of commercial paper outstanding, shall not
exceed $926 million.
The Company and Subsidiary Obligors are required to repay the
principal outstanding under the Credit Agreement in quarterly
payments equal to percentages of the original aggregate principal
amount with respect to the Facility A loans and Facility B-1 loans,
and of the outstanding principal amount with respect to the
Facility B loans, under the Credit Agreement, in the amount of 5%
for the period commencing January 2, 1995 through and including
January 2, 1999; and 7.5% on April 1, 1999 and on June 30, 1999.
The Company may prepay at any time a portion or all of the
principal outstanding under the Credit Agreement. Any such
optional prepayments shall be applied to the remaining installments
of Facility A and Facility B loans in the order that the Company
designates. The Company is required to make mandatory prepayments
upon receipt of net cash sale proceeds in connection with permitted
sales of assets not in the ordinary course of business. All such
prepayments shall be applied until December 31, 1994 to reduce the
Facility B loans outstanding; provided, however, that any amounts
so repaid may be reborrowed prior to December 31, 1994. All such
prepayments after December 31, 1994 shall be applied pro rata
against the remaining installments of first, the Facility A loans
and second, the Facility B loans. In the event of a sale of the
stock or substantially all of the assets of any Subsidiary Obligor,
the Facility B-1 loan of such Subsidiary Obligor shall be repaid in
full; provided, however, that upon such prepayment prior to
December 31, 1994, the Facility B commitment of each Facility B
Bank shall be increased by an amount equal to the principal amount
of such Facility B Bank's Facility B-1 loan prepaid as a result of
such prepayment and such amounts may be borrowed by the Company
prior to December 31, 1994. The Company is required to prepay
principal outstanding under the Credit Agreement with the proceeds
of certain issuances of unsecured senior debt in an amount equal to
the proceeds so received, together with accrued interest to the
date of such prepayment on the principal amount prepaid, with such
prepayments applied against remaining installments of first, the
II-26
<PAGE>
Facility A loans and second, the Facility B loans.
The Credit Agreement contains certain covenants which, among other
things, require the Company to maintain certain financial ratios
and impose on the Company and its subsidiaries certain limitations
on (i) the incurrence of indebtedness or the guarantee or
assumption of indebtedness of another; (ii) the creation or
incurrence of mortgages, pledges or security interests on the
property or assets of the Company or any of its subsidiaries in
order to secure debt or the sale of assets of the Company or its
subsidiaries; (iii) the merger or consolidation of the Company with
any person or other entity; (iv) the incurrence of capitalized
leases and purchase money indebtedness; (v) the payment of cash
dividends or the redemption or repurchase of any capital stock of
the Company; and (vi) investments and acquisitions.
The Credit Agreement also contains certain customary events of
default. The Credit Agreement also provides that it is an event of
default if National Amusements, Inc. ("NAI") fails to own at least
51% of the outstanding voting stock of Viacom Inc. or Viacom Inc.
fails to own at least 67% of the outstanding voting stock of the
Company.
Under the restrictions contained in the Credit Agreement, the
Company is prohibited from (i) paying any dividends on its stock to
Viacom Inc. for the purpose of enabling Viacom Inc. to pay any
dividend on its common stock, or (ii) making any other dividend
payments to Viacom Inc. (other than for certain limited specified
purposes, including the satisfaction of Viacom Inc.'s obligations
under the LTIP), unless its total leverage ratio is less than a
specified amount.
The Company is required to pay a commitment fee based on the
aggregate average daily unborrowed portion of the Facility B
commitment, with any amounts outstanding under competitive bid rate
loans and commercial paper being deemed unborrowed for the purpose
of calculating the commitment fee. The Company also is required to
pay certain agency fees to the agent. The Credit Agreement does
not require compensating balances.
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY
pursuant to the Term Loan Agreement. The interest rate in the Term
Loan Agreement is based upon BONY's prime rate or the London
Interbank Offered Rate. Viacom Inc. repaid $13.9 million of debt
under the Term Loan Agreement on January 15, 1994, the first
scheduled maturity date. The remaining $28.3 million under the
Term Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the
principal amount outstanding under the Term Loan Agreement. Any
such optional prepayments shall be applied to reduce the principal
installment due January 1995 and shall include all accrued interest
II-27
<PAGE>
on the amount of principal prepaid. Viacom Inc. shall be obligated
to prepay the loan in the amount of any dividends received from the
Company.
The Term Loan Agreement contains certain covenants which impose
certain limitations on (i) the incurrence of indebtedness and (ii)
payment of cash dividends or the redemption or repurchase of any
capital stock of Viacom. The Term Loan Agreement also contains
certain customary events of default. The Term Loan Agreement has
been amended to allow Viacom Inc. to complete the Paramount Offer
and Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility
Agreement and Term Loan Agreement bear interest at floating rates,
causing the Company to be sensitive to changes in prevailing
interest rates. The Company enters into interest rate protection
agreements with off-balance sheet risk in order to reduce its
exposure to changes in interest rates on its variable rate long-
term debt. These interest rate protection agreements include
interest rate swaps and interest rate caps. At December 31, 1993,
the Company and Viacom Inc. had interest rate protection agreements
outstanding with commercial banks, with respect to $1.1 billion of
indebtedness under the Credit Agreement and $42.2 million under the
Term Loan Agreement. These agreements effectively change the
Company's interest exposure under the Credit Agreement to a ceiling
of 5.64% on the interest rate caps, and under the Term Loan
Agreement to a fixed weighted average rate of 6.65% on interest
rate swaps. The interest rate protection agreements are in effect
for a fixed period of time. The Company is exposed to credit loss
in the event of nonperformance by the counterparties to the
agreements. However, the Company does not anticipate
nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of
December 31, 1993.
The Company also has aggregate money market facilities of $40
million, all of which was available at December 31, 1993.
(b) -- On July 15, 1993, the Company redeemed all of the $298
million principal amount outstanding of the 11.80% Senior
Subordinated Notes ("11.80% Notes") at a redemption price equal to
103.37% of the principal amount plus accrued interest to July 15,
1993. The Company recognized an after-tax extraordinary loss from
the early extinguishment of debt of $8.9 million, net of a tax
benefit of approximately $6.1 million on the transaction. The
Company borrowed the funds necessary for the redemption under its
bank credit facilities.
(c) -- On March 4, 1992, the Company issued $150 million
aggregate principal amount of 9.125% Senior Subordinated Notes
("9.125% Notes") due August 15, 1999. Interest is payable
II-28
<PAGE>
semiannually on February 15 and August 15, commencing August 15,
1992. The 9.125% Notes may not be redeemed prior to February 15,
1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997
at a redemption price of 102.607% of the principal amount, during
the 12 month period beginning February 15, 1998 at 101.304% of the
principal amount, and on or after February 15, 1999 at 100% of the
principal amount. Any such redemption will include accrued
interest to the redemption date. The 9.125% Notes are not subject
to any sinking fund requirements.
(d) -- On May 28, 1992, the Company issued $100 million
aggregate principal amount of 8.75% Senior Subordinated Reset Notes
("8.75% Reset Notes") due on May 15, 2001. Interest is payable
semiannually on May 15 and November 15, commencing November 15,
1992. On May 15, 1995 and May 15, 1998, unless a notice of
redemption of the 8.75% Reset Notes on such date has been given by
the Company, the interest rate on the 8.75% Reset Notes will, if
necessary, be adjusted from the rate then in effect to a rate to be
determined on the basis of market rates in effect on May 5, 1995
and on May 5, 1998, respectively, as the rate the 8.75% Reset Notes
should bear in order to have a market value of 101% of principal
amount immediately after the resetting of the rate. In no event
will the interest rate be lower than 8.75% or higher than the
average three year treasury rate (as defined in the indenture)
multiplied by two. The interest rate reset on May 15, 1995 will
remain in effect on the 8.75% Reset Notes through and including May
15, 1998 and the interest rate reset on May 15, 1998 will remain in
effect on the 8.75% Reset Notes thereafter. The 8.75% Reset Notes
are redeemable at the option of the Company, in whole but not in
part, on May 15, 1995 or May 15, 1998, at a redemption price of
101% of principal amount plus accrued interest to, but not
including, the date of redemption. The 8.75% Reset Notes are not
subject to any sinking fund requirements.
(e) -- On September 15, 1991, the Company issued $200 million
aggregate principal amount of 10.25% Senior Subordinated Notes
("10.25% Notes") due September 15, 2001. Interest is payable
semiannually on March 15 and September 15, commencing March 15,
1992. The 10.25% Notes are not redeemable by the Company prior to
maturity and are not subject to any sinking fund requirements.
(f) -- On December 31, 1993, there were 53,449,325 outstanding
shares of Viacom Class A Common Stock (100,000,000 shares
authorized) and 67,347,131 outstanding shares of Viacom Class B
Common Stock (150,000,000 shares authorized).
On October 22, 1993, Blockbuster purchased 24 million shares of
cumulative convertible preferred stock, par value $.01 per share,
of Viacom Inc. ("Series A Preferred Stock") for $600 million. On
November 19, 1993, NYNEX Corporation ("NYNEX") purchased 24 million
shares of cumulative convertible preferred stock, par value $.01
II-29
<PAGE>
per share, of Viacom Inc. ("Series B Preferred Stock," collectively
with the Series A Preferred Stock, "Preferred Stock") for $1.2
billion. Series A Preferred Stock and Series B Preferred Stock
have liquidation preferences of $25 per share and $50 per share,
respectively. The Preferred Stock has an annual dividend rate of
5%, is convertible into shares of Viacom Class B Common Stock at a
conversion price of $70 and does not have voting rights other than
those required by law. The Preferred Stock is redeemable by Viacom
Inc. at declining premiums after five years. The Preferred Stock
purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger. Both NYNEX and Blockbuster may, under certain
limited circumstances, require Viacom Inc. to repurchase their
respective preferred shares, but such right does not inure to the
benefit of subsequent holders of such preferred shares.
NAI holds approximately 76.3% and the public holds approximately
23.7% of outstanding Viacom Inc. Common Stock as of December 31,
1993. NAI's percentage of ownership consists of 85.2% of the
outstanding Viacom Class A Common Stock and 69.1% of the
outstanding Viacom Class B Common Stock, as of December 31, 1993.
Pursuant to a purchase program initiated in August 1987, NAI
announced its intention to buy, from time to time, up to an
additional 3,000,000 shares of Viacom Class A Common Stock and
2,423,700 shares of Viacom Class B Common Stock. As of December
31, 1993, NAI had acquired an aggregate of 3,374,300 shares of
Common Stock, consisting of 1,466,200 shares of Viacom Class A
Common Stock and 1,908,100 shares of Viacom Class B Common Stock,
pursuant to this buying program. On August 20, 1993, NAI ceased
making purchases of Common Stock.
_____________________
The Company and Viacom Inc. filed a shelf registration statement
with the Securities and Exchange Commission ("SEC") registering
$800 million of debt securities (or, if such debt securities are
issued at an original issue discount, such greater principal amount
as shall result in an aggregate offering price equal to $800
million) guaranteed by Viacom Inc. The registration statement was
declared effective by the SEC on March 11, 1993. Some or all of
the debt securities may be issued by the Company in one or more
offerings.
During April 1993, the Company and Viacom Inc. terminated the
prior shelf registration statement, under which an aggregate of
$300 million principal amount of additional debt securities
remained available.
NAI, Sumner M. Redstone and the Company each have purchased on
the open market and may in the future continue to purchase on the
open market or in privately negotiated transactions certain debt
securities of the Company. During 1993, there were no purchases
of debt securities made by NAI, Sumner M. Redstone or the
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<PAGE>
Company. During 1992, Sumner M. Redstone purchased directly or
beneficially $350,000, $605,000, $15,000 and $200,000 of 11.50%
Senior Subordinated Extendible Reset Notes, 9.125% Senior
Subordinated Notes, 10.25% Senior Subordinated Notes and 8.75%
Senior Subordinated Reset Notes, respectively. During 1991, NAI
and Sumner M. Redstone purchased $3,110,000 and $869,000 of
11.80% Senior Subordinated Notes, respectively. During 1991, NAI
purchased $311,000 of the 11.50% Senior Subordinated Extendible
Reset Notes. During December 1991, the Company purchased $43
million of Discount Debentures at an average price of 107.375% of
their principal amount plus accrued interest.
II-31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
- - ---------------------------------
To the Boards of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Viacom Inc. and its subsidiaries and of Viacom International Inc., a wholly-
owned subsidiary of Viacom Inc., and its subsidiaries, at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of Viacom Inc. and Viacom International Inc.;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 7 to the financial statements, Viacom Inc. and Viacom
International Inc. adopted Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes" in 1993.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 4, 1994, except as to Note 2, which is as of March 11, 1994
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<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
- - ----------------------------------------------------------------
Management has prepared and is responsible for the consolidated financial
statements and related notes of Viacom Inc. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All financial
information in this annual report is consistent with the consolidated
financial statements.
The Company maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by Price
Waterhouse, independent public accountants, who have expressed their opinion
with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with
management, to review accounting, auditing, internal accounting controls and
financial reporting matters. The Audit Committee is also responsible for
recommending to the Board of Directors the independent accounting firm to be
retained for the coming year, subject to stockholder approval. The independent
accountants and the internal auditors have full and free access to the Audit
Committee with and without management's presence.
VIACOM INC.
By: /s/Frank J. Biondi, Jr.
-----------------------------------------
Frank J. Biondi, Jr.
President, Chief Executive Officer
By: /s/George S. Smith, Jr.
------------------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
By: /s/Kevin C. Lavan
------------------------------------------
Kevin C. Lavan
Vice President, Controller
and Chief Accounting Officer
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<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Thousands of dollars, except per share amounts)
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Revenues $2,004,949 $1,864,683 $1,711,562
Expenses:
Operating 877,609 853,977 790,816
Selling, general and administrative 589,288 517,977 475,648
Depreciation and amortization 153,057 144,802 132,864
--------- ---------- ----------
Total expenses 1,619,954 1,516,756 1,399,328
--------- ---------- ---------
Earnings from operations 384,995 347,927 312,234
Other income (expense):
Interest expense, net (144,953) (194,104) (297,451)
Other items, net (See Note 14) 61,774 1,756 (6,536)
--------- ---------- ---------
Earnings before income taxes 301,816 155,579 8,247
Provision for income taxes 129,815 84,848 42,060
Equity in loss of affiliated
companies, net of tax (2,520) (4,646) (12,743)
--------- ---------- ---------
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle 169,481 66,085 (46,556)
Extraordinary losses, net of tax (See
Note 4) (8,867) (17,120) (3,101)
Cumulative effect of change in
accounting principle 10,338 -- --
--------- ---------- ---------
Net earnings (loss) 170,952 48,965 (49,657)
Cumulative convertible preferred stock
dividend requirement of Viacom Inc. 12,750 -- --
--------- ---------- ---------
Net earnings (loss) attributable to
common stock $ 158,202 $ 48,965 $ (49,657)
========= ========= ==========
Weighted average number of common
shares 120,607 120,235 113,789
Net earnings (loss) per common share:
Earnings (loss) before extraordinary
losses and cumulative effect of
change in accounting principle $ 1.30 $ .55 $ (.41)
Extraordinary losses (.07) (.14) (.03)
Cumulative effect of change in
accounting principle .08 -- --
--------- ---------- ---------
Net earnings (loss) $ 1.31 $ .41 $ (.44)
========= ========= =========
See notes to consolidated financial statements.
II-34
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars)
December 31,
-------------------------
1993 1992
---- ----
Assets
Current Assets:
Cash and cash equivalents $1,882,381 $ 48,428
Receivables, less allowances of $33,889
and $25,779 351,765 319,804
Distribution fees advanced and
committed, current 18,620 19,631
Program rights and deferred program
costs, current 264,212 215,109
Prepaid distribution costs 73,722 89,723
Other current assets 95,693 65,793
---------- ----------
Total current assets 2,686,393 758,488
Property and Equipment:
Land 16,486 17,869
Buildings 41,627 37,486
Cable television systems 414,918 388,170
Broadcasting facilities 52,100 50,665
Equipment and other 349,332 258,565
Construction in progress 26,982 10,858
----------- ----------
901,445 763,613
Less accumulated depreciation 347,243 306,548
---------- ----------
Net property and equipment 554,202 457,065
---------- ----------
Distribution fees advanced and committed,
non-current 263,281 228,784
Program rights and deferred program
costs, non-current 526,247 462,122
Intangibles, at amortized cost 2,180,571 2,195,936
Other assets 206,174 214,699
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-35
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Thousands of dollars, except per share amounts)
December 31,
-----------------------
1993 1992
---- ----
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 96,579 $ 71,199
Accrued interest 20,684 38,229
Deferred income, current 50,930 68,295
Other accrued expenses 264,921 290,937
Income taxes 140,453 96,529
Owners' share of distribution revenue 139,081 158,351
Program rights, current 197,966 187,956
Current portion of long-term debt 55,004 --
---------- ----------
Total current liabilities 965,618 911,496
---------- ----------
Long-term debt 2,378,286 2,397,014
Program rights, non-current 86,752 92,886
Other liabilities 268,098 159,187
Commitments and contingencies (See Note 10)
Shareholders' Equity of Viacom Inc. (See
Notes 1 and 6):
Preferred Stock, par value $.01 per share;
100,000,000 shares authorized;
48,000,000 shares issued
and outstanding; stated at liquidation
value 1,800,000 --
A Common Stock, par value $.01 per share;
100,000,000 shares authorized;
53,449,325 (1993) and 53,380,390
(1992) shares issued and outstanding 535 534
B Common Stock, par value $.01 per share;
150,000,000 shares authorized;
67,347,131 (1993) and 67,069,688
(1992) shares issued and outstanding 673 671
Additional paid-in capital 920,864 917,466
Accumulated deficit (3,958) (162,160)
---------- ----------
Total shareholders' equity 2,718,114 756,511
---------- ----------
$6,416,868 $4,317,094
========== ==========
See notes to consolidated financial statements.
II-36
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Net cash flow from operating activities:
Net earnings (loss) $170,952 $ 48,965 $ (49,657)
Adjustments to reconcile net earnings
(loss) to net cash flow from operating
activities:
Depreciation and amortization 153,057 144,802 132,864
Interest accretion and interest in kind
on debentures -- -- 59,196
Reserve for litigation (See Note 14) -- 33,000 --
Equity in loss of affiliated companies,
net of tax 2,520 4,646 12,743
Gain on the sale of the cable system,
net of tax (45,873) -- --
Gain on the sale of investment held at
cost, net of tax (10,882) -- --
Extraordinary losses, net of tax 8,867 17,120 3,101
Deferred compensation . 3,924 8,202 12,328
Provision (benefit) for deferred income
taxes 24,364 15,068 (8,756)
(Decrease) increase in accounts payable
and accrued expenses (17,189) 53,400 6,831
Increase in receivables (31,881) (49,756) (61,929)
Increase in programming related assets
and liabilities, net (137,549) (138,568) (66,391)
Increase in income taxes payable 58,501 7,389 37,732
(Decrease) increase in deferred income (8,999) 22,933 (2,384)
(Increase) decrease in unbilled
receivables (6,516) 17,749 (27,630)
Payment of LTIP liability (3,606) (68,599) --
Other, net (12,080) (14,362) 21,819
---------- --------- ---------
Net cash flow from operating activities 147,610 101,989 69,867
---------- --------- ---------
Investing activities:
Capital expenditures (135,011) (110,222) (72,157)
Investments in and advances to
affiliated companies. (21,618) (23,708) (44,372)
Advances from affiliated companies 13,441 9,447 5,546
Proceeds from sale of cable system and
radio station 93,739 20,000 --
Proceeds from sale of investment held at
cost 18,140 -- --
Proceeds from sale of transponders 51,000 -- --
Acquisitions (82,197) -- --
Deposits on transponders (49,934) (9,723) --
Payment of deferred merger costs (15,382) -- --
Other, net (616) (2,636) (4,120)
---------- --------- ---------
Net cash flow from investing activities (128,438) (116,842) (115,103)
---------- --------- ---------
Financing activities:
Borrowings from banks under credit
facilities 334,291 8,343,967 6,695,048
Repayments to banks under credit
facilities -- (7,968,466) (6,764,593)
Issuance of notes -- 250,000 200,000
Redemption of notes and debentures (298,015) (549,454) (407,580)
Issuance of Preferred Stock 1,800,000 -- --
Issuance of B Common Stock -- -- 317,987
Payment of deferred financing costs (18,106) (22,659) (5,869)
Payment of premium on redemption of notes (10,054) (19,753) (4,078)
Other, net 6,665 924 (18)
---------- --------- ---------
Net cash flow from financing activities 1,814,781 34,559 30,897
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 1,833,953 19,706 (14,339)
Cash and cash equivalents at beginning of
year 48,428 28,722 43,061
---------- --------- ---------
Cash and cash equivalents at end of year $1,882,381 $ 48,428 $ 28,722
========== ========= =========
See notes to consolidated financial statements.
II-37
<PAGE>
--
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
-----------------------
OF SHAREHOLDERS' EQUITY
-----------------------
(Thousands of dollars)
<TABLE> <CAPTION>
Preferred A Common Stock B Common Stock Paid-in Accumulated
Stock Shares Amount Shares Amount Capital Deficit
----- ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Viacom Inc:
- - -----------
December 31, 1990 -- 53,365,870 $ 534 53,365,870 $ 534 $526,563 $(161,468)
Issuance of B Common
Stock -- -- -- 13,492,484 135 382,780 --
Exercise of stock
options -- 583 -- 583 -- 33 --
Conversion of 5.75%
debentures -- 700 -- 700 -- 39 --
Net loss -- -- -- -- -- -- (49,657)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1991 -- 53,367,153 534 66,859,637 669 909,415 (211,125)
---------- ---------- ------ ---------- ------ -------- ---------
B Common Stock issued
as satisfaction of
LTIP liability -- -- -- 177,897 2 6,892 --
Exercise of stock
options -- 13,187 -- 32,104 -- 1,157 --
Conversion of 5.75%
debentures -- 50 -- 50 -- 2 --
Net earnings -- -- -- -- -- -- 48,965
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1992 -- 53,380,390 534 67,069,688 671 917,466 (162,160)
---------- ---------- ------ ---------- ------ -------- ---------
Issuance of Series A
and Series B Preferred
Stock $1,800,000 -- -- -- -- (5,363) --
Exercise of stock
options -- 68,935 1 277,443 2 8,761 --
Net earnings -- -- -- -- -- -- 170,952
Preferred Stock
dividend requirements -- -- -- -- -- -- (12,750)
---------- ---------- ------ ---------- ------ -------- ---------
December 31, 1993 $1,800,000 53,449,325 $535 67,347,131 $673 $920,864 $ (3,958)
========== ========= ====== ========== ====== ======== =========
</TABLE>
See notes to consolidated financial statements.
II-38
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1) SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation -Viacom Inc. (together with its consolidated
subsidiaries, unless the context otherwise requires, "Viacom Inc.") is a
holding company whose principal asset is the common stock of Viacom
International Inc. (together with its consolidated subsidiaries, unless the
context otherwise requires, the "Company"). The Company is a diversified
entertainment and communications company with operations in four principal
segments: Networks, Entertainment, Cable Television and Broadcasting.
The primary differences between Viacom Inc.'s and the Company's financial
statements include the following factors: a) the capitalization of the two
companies -- the Company's shareholders' equity reflects the contribution to
capital of Viacom Inc.'s exchangeable preferred stock, which was exchanged for
15.5% Junior Subordinated Exchange Debentures due 2006 (the "Exchange
Debentures") on March 31, 1989 which in turn were fully redeemed during 1991;
b) during 1993, Viacom Inc. issued $1.8 billion of 5% cumulative convertible
preferred stock (see Note 6) and declared related preferred stock dividends of
$12.8 million, c) certain general and administrative expenses recorded by
Viacom Inc. of $5.0 million (1993), $9.0 million (1992) and $12.9 million
(1991), which include transactions associated with the long-term deferred
incentive compensation plans; and d) Viacom Inc. recorded net interest income
of $3.1 million (1993) and net interest expense of $45.2 million (1991).
Certain amounts reported on the balance sheet and statements of cash flows for
prior years have been reclassified to conform with the current presentation.
Principles of Consolidation - The consolidated financial statements include the
accounts of Viacom Inc., the Company and all investments of more than 50% in
subsidiaries and other entities. All significant intercompany transactions
have been eliminated. Investments in affiliated companies of more than 20% but
less than or equal to 50% are accounted for under the equity method.
Investments of 20% or less are accounted for under the cost method. In 1993,
the fiscal year end for certain foreign operations was changed from October 31
to December 31.
Cash Equivalents - Cash equivalents are defined as short-term (3 months or
less) highly liquid investments.
Program Rights - The Company acquires rights to exhibit programming on its
broadcast stations or cable networks, and produces its own programs. The costs
incurred in acquiring and producing programs are capitalized and amortized over
the license period or over the estimated exhibition life of the program. Costs
related to the production of programs are either charged to earnings or
capitalized to the extent they are estimated to be recoverable from future
revenue. Program rights and the related liabilities are recorded at the gross
amount of the liabilities when the license period has begun, the cost of the
program is determinable and the program is accepted and available for airing.
Program Distribution - Fees for distributing television shows and feature films
are recognized upon billing over contractual periods generally ranging from
one to five years, except that such fees for internally produced programs are
recognized when such programs are delivered and fees for barter advertising
revenue are recognized when the programs are available and a noncancellable
contract has been executed. Receivables reflect gross billings, which include
the owners' share. Amounts due to owners are recorded as liabilities in
"Owners' share of distribution revenue" or are deducted from "Distribution fees
advanced and committed, current."
Minimum guarantees to owners are recorded as liabilities and are liquidated by
payments in accordance with contract terms. A corresponding asset is recorded
as "Distribution fees advanced and committed" and is reduced by the owners'
share of billings until fully recovered or amortized as operating expenses
against the Company's share of total estimated billings based on the ratio of
total estimated costs to total estimated billings.
Prepaid distribution costs incurred on behalf of the owners are recovered from
the owners' share of billings or amortized as operating expenses against the
Company's share of total estimated billings based on the ratio of total
estimated costs to total estimated billings.
II-39
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
All amortization estimates are reviewed periodically by management and are
adjusted prospectively. Minimum guarantees or other costs estimated not to be
recoverable from total estimated billings are expensed in the period any
shortfall is determined.
Depreciation and Amortization - Depreciation is computed principally by the
straight-line method over estimated useful lives ranging principally from 3 to
15 years. Capitalized lease amortization of $5.5 million (1993) and $3.0
million (1992) is included in depreciation expense. Depreciation expense was
$92.8 million (1993), $81.5 million (1992) and $70.1 million (1991).
Intangibles resulting from business acquisitions are generally amortized over
40 years. Accumulated amortization relating to intangibles at December 31 was
$412.5 million (1993) and $361.1 million (1992) .
Equity in Loss of Affiliated Companies - Equity in loss of affiliated companies
is primarily comprised of the Company's one-third interest in Lifetime, the 50%
interest in Comedy Central, the 50% interest in Nickelodeon (UK) during 1993
and the 49.99% interest in MTV EUROPE prior to August 30, 1991. (See Note 3.)
Provision for Doubtful Accounts - The provision for doubtful accounts charged
to expense was $16.7 million (1993), $9.4 million (1992) and $15.9 million
(1991).
Net Earnings (Loss) per Common Share - Earnings (loss) per share is calculated
based on the weighted average number of shares outstanding during the year.
The effect of the assumed exercise of stock options and conversion of
convertible debentures is not material for each of the years presented. For
1993, the assumed conversion of the Preferred Stock (as defined in Note 2)
would have an antidilutive effect on fully-diluted earnings per common share.
Therefore, the effects of such assumption are not reflected in net earnings
(loss) per common share.
Interest Rate Protection Agreements - The amount to be paid or received is
accrued as interest rates change and is recognized over the life of the
agreements as an adjustment to interest expense.
2) SUBSEQUENT EVENTS
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer (the
"Paramount Offer"), 61,657,432 shares of Paramount common stock, constituting a
majority of the shares outstanding, at a price of $107 per share in cash. The
Paramount Offer was financed by (i) the sale of Preferred Stock (see "Note 6"),
proceeds of which are reflected as cash and cash equivalents on the balance
sheet as of December 31, 1993, (ii) the sale of Viacom Class B Common Stock to
Blockbuster and (iii) borrowings under a credit agreement (as described below).
The Paramount Offer was made pursuant to the Amended and Restated Agreement and
Plan of Merger dated as of February 4, 1994 (the "Paramount Merger Agreement")
between Viacom Inc. and Paramount. Paramount will become a wholly owned
subsidiary of Viacom Inc. (the "Paramount Merger") at the effective time of a
merger between Paramount and a subsidiary of Viacom Inc. (the "Paramount
Effective Time") which is expected to occur in the second quarter of 1994.
Pursuant to the Paramount Merger Agreement, each share of Paramount common
stock outstanding at the time of such merger (other than shares held in the
treasury of Paramount or owned by Viacom Inc. and other than shares held by
any stockholders who shall have demanded and perfected appraisal rights) will
be converted into the right to receive (i) 0.93065 of a share of Viacom
Class B Common Stock, (ii) $17.50 principal amount of 8% exchangeable
subordinated debentures of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of Viacom Class B
Common Stock at any time prior to the third anniversary of the Paramount Merger
at a price of $60 per share, and (v) 0.3 of a warrant to purchase one share of
Viacom Class B Common Stock at any time prior to the fifth anniversary of the
Paramount Merger at a price of $70 per share. If the debentures are issued
prior to the completion of the purposed merger of Viacom Inc. and Blockbuster,
the debentures will be exchangeable, at the option of Viacom Inc., into 5%
exchangeable preferred stock of Viacom Inc. on or after January 1, 1995 if the
proposed merger with Blockbuster has not previously been consummated.
II-40
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Each CVR will represent the right to receive the amount, if any, by which the
Target Price exceeds the greater of the Current Market Value and the Minimum
Price (see defined terms in following paragraph). The CVRs will mature on the
first anniversary of the Paramount Effective Time (the "Maturity Date");
provided, however, that Viacom Inc. may, at its option, (i) extend the Maturity
Date to the second anniversary of the Paramount Effective Time (the "First
Extended Maturity Date") or (ii) extend the First Extended Maturity Date to the
third anniversary or the Paramount Effective Time (the "Second Extended
Maturity Date"). Viacom Inc., at its option, may pay any amount due under the
terms of the CVRs in cash or in the equivalent value of registered securities
of Viacom Inc., including without limitation, common stock, preferred stock,
notes, or other securities.
The "Minimum Price" means (a) at the Maturity Date, $36, (b) at the First
Extended Maturity Date, $37 and (c) at the Second Extended Maturity Date, $38.
Target Price means (a) at the Maturity Date, $48, (b) at the First Extended
Maturity Date, $51, and (c) at the Second Extended Maturity Date, $55. The
"Current Market Value" means the average market price of Viacom Class B Common
Stock for a specified period.
On January 7, 1994, Viacom Inc. and Blockbuster entered into an agreement and
plan of merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger") subject to approval. At the effective time of the Blockbuster
Merger, each share of Blockbuster common stock outstanding at the time of the
Blockbuster Merger (other than shares held in the treasury of Blockbuster or
owned by Viacom Inc. and other than shares held by any stockholders who shall
have demanded and perfected appraisal rights, if available) will be converted
into the right to receive (i) 0.08 of a share of Viacom Class A Common Stock,
(ii) 0.60615 of a share of Viacom Class B Common Stock, and (iii) up to an
additional 0.13829 of a share of Viacom Class B Common Stock, with the exact
fraction of a share being dependent on the market prices of Viacom Class B
Common Stock during the year following the effective time of the Blockbuster
Merger, and with the right to receive such additional fraction of a share to
be evidenced by one variable common right ("VCR"). The VCRs mature on the
first anniversary of the Blockbuster Merger ("VCR Conversion Date").
The mergers pursuant to the Paramount Merger Agreement and Blockbuster Merger
Agreement (collectively, the "Mergers") have been unanimously approved by the
Boards of Directors of each of the respective companies. The obligations of
Viacom Inc., Blockbuster and Paramount to consummate the mergers are subject to
various conditions, including obtaining requisite stockholder approvals.
Viacom Inc. intends to vote its shares of Paramount in favor of the merger and
NAI has agreed to vote its shares of Viacom Inc. in favor of the Mergers;
therefore, stockholder approval of the Paramount Merger is assured, and
approval by Viacom Inc. of the Blockbuster Merger is also assured.
The Mergers will be accounted for under the purchase method of accounting. The
unaudited condensed pro forma data for the year ended or at December 31, 1993
presented below assumes the Mergers occurred on January 1, 1993 for statement
of operations data or at December 31, 1993 for balance sheet data. Intangible
assets are expected to be amortized over 40 years on a straight-line basis.
The unaudited pro forma information is not necessarily indicative of the
combined results of operations or financial position of Viacom Inc., Paramount
and Blockbuster (the "Combined Company") following the Mergers that would have
occurred if the completion of the Mergers had occurred on the dates previously
indicated nor are they necessarily indicative of future operating results of
the Combined Company.
II-41
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Year Ended or at
December 31, 1993
----------------
(Millions of dollars)
(Unaudited)
Results of operations data:
Revenues $9,624.1
Earnings from operations $ 887.9
Net earnings before extraordinary items, cumulative effect
of changes in accounting principles and preferred stock
dividends $ 135.6
Net earnings attributable to common stock before
extraordinary items and cumulative effect of changes in
accounting principles $ 75.6
Primary earnings per common share before
extraordinary items and cumulative effect of changes in
accounting principles $ .18
Balance sheet data:
Total assets $24,377.3
Long-term debt, including current maturities $ 9,998.8
Shareholders' equity:
Preferred $ 1,200.0
Common $ 8,844.8
On March 10, 1994, Blockbuster purchased approximately 22.7 million shares of
Viacom Class B Common Stock for an aggregate purchase price of $1.25 billion,
or $55 per share. If (with certain exceptions) the Blockbuster Merger
Agreement is terminated and in the event that Viacom Class B Common Stock
trades (for a specified period) at a level below $55 per share during the one
year period after such termination, Viacom Inc. may be obligated to make
certain payments of up to a maximum of $275 million, at its option, in cash or
securities, or to sell certain assets to Blockbuster. The Viacom Class B
Common Stock purchased by Blockbuster will be canceled upon consummation of the
Blockbuster Merger.
On February 15, 1994, Blockbuster entered into a credit agreement with certain
financial institutions named therein, pursuant to which such financial
institutions have advanced to Blockbuster, on an unsecured basis, an aggregate
of $1.0 billion to finance a portion of the purchase of the shares under the
Subscription Agreement (the "Blockbuster Facility"). The Blockbuster Facility
contains certain events of default, including a change of control default,
which will require either a waiver in connection with the Blockbuster Merger or
the refinancing of the indebtedness incurred by Blockbuster under the
Blockbuster Facility.
On March 11, 1994, Viacom Inc. borrowed $3.7 billion under a credit agreement
dated as of November 19, 1993, as amended on January 4, 1994 and February 15,
1994, among Viacom Inc., the banks named therein, and The Bank of New York,
Citibank, N.A. and Morgan Guaranty Trust Company of New York, as Managing Agents
(the "Merger Credit Agreement").
The Merger Credit Agreement provides that, in order to pay for the Paramount
Offer and related expenses, up to $3.7 billion may be borrowed, repaid and
reborrowed until November 18, 1994, at which time all amounts outstanding will
become due and payable.
The Merger Credit Agreement provides that Viacom Inc. may elect to borrow at
either the Base Rate or the Eurodollar Rate (each as defined below), subject to
certain limitations. The "Base Rate" will be the higher of (i) the Citibank
N.A., Base Rate and (ii) the Federal Funds Rate plus 0.50%. The "Eurodollar
Rate" will be the London Interbank Offered Rate plus (i) 0.9375%, until Viacom
Inc.'s senior unsecured long-term debt is rated by Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (ii) thereafter, a variable
II-42
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
rate ranging from 0.25% to 0.9375% dependent on the senior unsecured long-term
debt rating assigned to Viacom Inc. The Merger Credit Agreement provides that
Viacom Inc. will pay each bank a facility fee on such bank's commitment until
November 18, 1994.
The Merger Credit Agreement contains certain covenants which, among other
things require Viacom Inc. to meet certain financial ratios.
As of December 31, 1993, Viacom Inc. has promissory notes outstanding in the
aggregate amount of $26 million, in order to finance expenses associated with
the Mergers and expects to obtain additional financing as required to finance
such expenses.
3) ACQUISITIONS AND VENTURES
On November 1, 1993, the Company exchanged KIKK-AM/FM, Houston, Texas, for
Westinghouse Broadcasting Company, Inc.'s WCXR-FM and WCPT-AM, Washington,
D.C., and cash.
On June 16, 1993, the Company purchased KXEZ-FM (formerly KQLZ-FM), Los
Angeles, California from Westwood One Stations Group-LA, Inc. for $40 million
in cash and certain other consideration. The Company sold KXEZ-FM to Viacom
Inc. in exchange for a $40 million promissory note.
On May 5, 1993, the Company completed the purchase of privately held ICOM
Simulations, Inc.
On March 31, 1993, the Company increased its percentage of ownership in
StarSight Telecast Inc. ("StarSight"). On August 5, 1993, StarSight completed
an initial public offering of 3,105,000 shares of common stock. On September
16, 1993, the Company exercised a warrant to purchase 833,333 shares of
StarSight common stock at a cost of $5.625 per share. In November 1993, the
Company transferred its ownership percentage in StarSight to a consolidated
affiliate of the Company. As a result of these transactions, the affiliate's
of the Company's percentage ownership of StarSight is approximately 21%. The
investment in StarSight is accounted for under the equity method.
In December 1992, the Company entered into a 50-50 joint venture called
Nickelodeon (UK) with a subsidiary of British Sky Broadcasting Limited.
Nickelodeon (UK) began airing on September 1, 1993. The Company's investment
is accounted for under the equity method.
The Company exchanged KHOW-AM and FM, Denver, Colorado for Noble Broadcast
Group, Inc.'s KNDD-FM, Seattle, Washington effective December 28, 1992.
On August 30, 1991, Viacom Inc. increased its interest in MTV EUROPE to 100%
through the purchase of the 50.01% interest held by an affiliate of Mirror
Group Newspapers. The approximate value of the purchase was $65.0 million,
which included intangibles of approximately $61.6 million. As consideration
for the sale, Viacom Inc. issued 2,210,884 shares of Viacom Class B Common
Stock (See Note 6).
II-43
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of the
following:
December 31, December 31,
1993 1992
------------ ------------
(Thousands of dollars)
Notes payable to banks (a) $1,983,275 $1,648,984
11.80% Senior Subordinated Notes due 1998 -- 298,000
9.125% Senior Subordinated Notes due 1999 (b) 150,000 150,000
8.75% Senior Subordinated Reset Notesdue 2001 (c) 100,000 100,000
10.25% Senior Subordinated Notes due 2001 (d) 200,000 200,000
5.75% Convertible Subordinated Debentures
due 2001 15 30
---------- ----------
2,433,290 2,397,014
Less current portion 55,004 --
---------- ----------
$2,378,286 $2,397,014
========== ==========
(a) -- At December 31, 1993, there were aggregate borrowing
facilities of $1.9 billion and $300 million under (i) an unsecured credit
agreement guaranteed by Viacom Inc. (amended and restated as of January 17,
1992, (as amended, the "Credit Agreement") among the Company the named banks
("Banks"), Citibank, N.A. ("Citibank") as agent and The Bank of New York
("BONY") as co-agent and (ii) an unsecured credit agreement, dated June 2,
1993, among the Company and the named banks and BONY and Citibank as agents
(the "Loan Facility Agreement"). The Loan Facility Agreement has a 364-day
term and is identical to the Credit Agreement in all other material terms and
conditions. Borrowings of $1.765 billion were outstanding under the Credit
Agreement as of December 31, 1993, including $274 million aggregate principal
amount assumed by five subsidiaries of the Company ("Subsidiary Obligors").
Borrowings of $150 million were outstanding under the Loan Facility Agreement
as of December 31, 1993, $135 million of which were classified as long-term.
The following is a summary description of the amended and restated Credit
Agreement. The description does not purport to be complete and should be read
in conjunction with the Credit Agreement.
The Credit Agreement provides for three facilities:
Facility A - $700 million under a term loan having a final
maturity of June 30, 1999;
Facility B - $926 million under a revolver, which converts on
January 1, 1995 into a term loan having a final
maturity of June 30, 1999; and
Facility B-1 - $274 million under a term loan having a final
maturity of June 30, 1999.
The interest rate on all loans made under the three facilities is based upon
Citibank, N.A.'s base rate, the domestic certificate of deposit rate or the
London Interbank Offered Rate and is affected by the Company's leverage ratio.
At December 31, 1993, the London Interbank Offered Rates (upon which the
Company's borrowing rate was based) for borrowing periods of one month and two
months were 3.25% and 3.3125%, respectively. The Company is permitted to issue
commercial paper with a maturity at the time of issuance not to exceed nine
months, provided that following each issuance of commercial paper, (i) the
aggregate face amount of commercial paper outstanding shall not exceed $500
million less the aggregate amount of competitive bid rate borrowings (described
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VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
below), outstanding at such time and (ii) the aggregate amount of all Facility
B loans and competitive bid rate loans outstanding, together with the aggregate
face amount of commercial paper outstanding, shall not exceed $926 million.
The Company is also permitted to make short-term competitive bid rate
borrowings from the Banks until December 1, 1994, provided that following the
making of each proposed competitive bid rate borrowing, (i) the aggregate
amount of the competitive bid rate loans outstanding shall not exceed $500
million less the aggregate face amount of commercial paper outstanding and (ii)
the aggregate amount of all Facility B loans and competitive bid rate loans
outstanding, together with the aggregate face amount of commercial paper
outstanding, shall not exceed $926 million.
The Company and Subsidiary Obligors are required to repay the principal
outstanding under the Credit Agreement in quarterly payments equal to
percentages of the original aggregate principal amount with respect to the
Facility A loans and Facility B-1 loans, and of the outstanding principal
amount with respect to the Facility B loans, under the Credit Agreement, in the
amount of 5% for the period commencing January 2, 1995 through and including
January 2, 1999; and 7.5% on April 1, 1999 and on June 30, 1999.
The Company may prepay at any time a portion or all of the principal
outstanding under the Credit Agreement. Any such optional prepayments shall be
applied to the remaining installments of Facility A and Facility B loans in the
order that the Company designates. The Company is required to make mandatory
prepayments upon receipt of net cash sale proceeds in connection with permitted
sales of assets not in the ordinary course of business. All such prepayments
shall be applied until December 31, 1994 to reduce the Facility B loans
outstanding; provided, however, that any amounts so repaid may be reborrowed
prior to December 31, 1994. All such prepayments after December 31, 1994 shall
be applied pro rata against the remaining installments of first, the Facility A
loans and second, the Facility B loans. In the event of a sale of the stock or
substantially all of the assets of any Subsidiary Obligor, the Facility B-1
loan of such Subsidiary Obligor shall be repaid in full; provided, however,
that upon such prepayment prior to December 31, 1994, the Facility B commitment
of each Facility B Bank shall be increased by an amount equal to the principal
amount of such Facility B Bank's Facility B-1 loan prepaid as a result of such
prepayment and such amounts may be borrowed by the Company prior to December
31, 1994. The Company is required to prepay principal outstanding under the
Credit Agreement with the proceeds of certain issuances of unsecured senior
debt in an amount equal to the proceeds so received, together with accrued
interest to the date of such prepayment on the principal amount prepaid, with
such prepayments applied against remaining installments of first, the Facility
A loans and second, the Facility B loans.
The Credit Agreement contains certain covenants which, among other things,
require the Company to maintain certain financial ratios and impose on the
Company and its subsidiaries certain limitations on (i) the incurrence of
indebtedness or the guarantee or assumption of indebtedness of another; (ii)
the creation or incurrence of mortgages, pledges or security interests on the
property or assets of the Company or any of its subsidiaries in order to secure
debt or the sale of assets of the Company or its subsidiaries; (iii) the merger
or consolidation of the Company with any person or other entity; (iv) the
incurrence of capitalized leases and purchase money indebtedness; (v) the
payment of cash dividends or the redemption or repurchase of any capital stock
of the Company; and (vi) investments and acquisitions.
The Credit Agreement also contains certain customary events of default. The
Credit Agreement also provides that it is an event of default if National
Amusements, Inc. ("NAI") fails to own at least 51% of the outstanding voting
stock of Viacom Inc. or Viacom Inc. fails to own at least 67% of the
outstanding voting stock of the Company.
Under the restrictions contained in the Credit Agreement, the Company is
prohibited from (i) paying any dividends on its stock to Viacom Inc. for the
purpose of enabling Viacom Inc. to pay any dividend on its common stock, or
(ii) making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes, including the satisfaction of Viacom Inc.'s
obligations under the LTIP), unless its total leverage ratio is less than a
specified amount.
The Company is required to pay a commitment fee based on the aggregate average
daily unborrowed portion of the Facility B commitment, with any amounts
outstanding under competitive bid rate loans and commercial paper being deemed
unborrowed for the purpose of calculating the commitment fee. The Company also
is required to pay certain agency fees to the agent. The Credit Agreement does
not require compensating balances.
II-45
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On January 4, 1993, Viacom Inc. borrowed $42.2 million from BONY pursuant to
the Term Loan Agreement. The interest rate in the Term Loan Agreement is based
upon BONY's prime rate or the London Interbank Offered Rate. Viacom Inc.
repaid $13.9 million of debt under the Term Loan Agreement on January 15, 1994,
the first scheduled maturity date. The remaining $28.3 million under the Term
Loan Agreement matures on January 15, 1995.
Viacom Inc. may prepay at any time a portion or all of the principal amount
outstanding under the Term Loan Agreement. Any such optional prepayments shall
be applied to reduce the principal installment due January 1995 and shall
include all accrued interest on the amount of principal prepaid. Viacom Inc.
shall be obligated to prepay the loan in the amount of any dividends received
from the Company.
The Term Loan Agreement contains certain covenants which impose certain
limitations on (i) the incurrence of indebtedness and (ii) payment of cash
dividends or the redemption or repurchase of any capital stock of Viacom. The
Term Loan Agreement also contains certain customary events of default. The
Term Loan Agreement has been amended to allow Viacom Inc. to complete the
Paramount Offer and the Paramount Merger.
The indebtedness under the Credit Agreement, Loan Facility Agreement and Term
Loan Agreement bear interest at floating rates, causing the Company to be
sensitive to changes in prevailing interest rates. The Company enters into
interest rate protection agreements with off-balance sheet risk in order
to reduce its exposure to changes in interest rates on its variable rate
long-term debt. These interest rate protection agreements include interest
rate swaps and interest rate caps. At December 31, 1993, the Company and
Viacom Inc. had interest rate protection agreements outstanding with
commercial banks, with respect to $1.1 billion of indebtedness under the
Credit Agreement and $42.2 million under the Term Loan Agreement. These
agreements effectively change the Company's interest exposure under the Credit
Agreement to a ceiling of 5.64% on the interest rate caps, and under the Term
Loan Agreement to a fixed weighted average rate of 6.65% on interest rate
swaps. The interest rate protection agreements are in effect for a fixed
period of time. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties.
The Company had commercial paper outstanding of $60.9 million as of December
31, 1993.
The Company also has aggregate money market facilities of $40 million, all of
which was available at December 31, 1993.
(b) -- On March 4, 1992, the Company issued $150 million aggregate
principal amount of 9.125% Senior Subordinated Notes ("9.125% Notes") due
August 15, 1999. Interest is payable semiannually on February 15 and August 15,
commencing August 15, 1992. The 9.125% Notes may not be redeemed prior to
February 15, 1997. They are redeemable at the option of the Company, in whole
or in part, during the 12 month period beginning February 15, 1997 at a
redemption price of 102.607% of the principal amount, during the 12 month
period beginning February 15, 1998 at 101.304% of the principal amount, and on
or after February 15, 1999 at 100% of the principal amount. Any such
redemption will include accrued interest to the redemption date. The 9.125%
Notes are not subject to any sinking fund requirements.
(c) -- On May 28, 1992, the Company issued $100 million aggregate
principal amount of 8.75% Senior Subordinated Reset Notes ("8.75% Reset Notes")
due on May 15, 2001. Interest is payable semiannually on May 15 and November
15, commencing November 15, 1992. On May 15, 1995 and May 15, 1998, unless a
notice of redemption of the 8.75% Reset Notes on such date has been given by
the Company, the interest rate on the 8.75% Reset Notes will, if necessary, be
adjusted from the rate then in effect to a rate to be determined on the basis
of market rates in effect on May 5, 1995 and on May 5, 1998, respectively, as
the rate the 8.75% Reset Notes should bear in order to have a market value of
101% of principal amount immediately after the resetting of the rate. In no
event will the interest rate be lower than 8.75% or higher than the average
three year treasury rate (as defined in the indenture) multiplied by two. The
interest rate reset on May 15, 1995 will remain in effect on the 8.75% Reset
Notes through and including May 15, 1998 and the interest rate reset on May 15,
1998 will remain in effect on the 8.75% Reset Notes thereafter. The 8.75%
Reset Notes are redeemable at the option of the Company, in whole but not in
part, on May 15, 1995 or May 15, 1998, at a redemption price of 101% of
II-46
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
principal amount plus accrued interest to, but not including, the date of
redemption. The 8.75% Reset Notes are not subject to any sinking fund
requirements.
(d) -- On September 15, 1991, the Company issued $200 million
aggregate principal amount of 10.25% Senior Subordinated Notes ("10.25% Notes")
due September 15, 2001. Interest is payable semiannually on March 15 and
September 15, commencing March 15, 1992. The 10.25% Notes are not redeemable
by the Company prior to maturity and are not subject to any sinking fund
requirements.
_____________________
II-47
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The extraordinary losses and related tax benefits associated with the
extinguishment of certain debt of Viacom Inc. and the Company are summarized as
follows:
11.50%
11.80% Reset Discount Exchange
Notes Notes Debentures Debentures Total
------ ------ ---------- ---------- -----
(Thousands of dollars)
Year ended December 31, 1993:
- - ----------------------------
Extraordinary loss (a) $14,953 $ -- $ -- $ -- $14,953
Tax benefit 6,086 -- -- -- 6,086
------- ------ ------- ------ -------
Extraordinary loss, net of tax $ 8,867 $ -- $ -- $ -- $ 8,867
======= ====== ======= ====== =======
Year ended December 31, 1992:
- - ----------------------------
Extraordinary loss (b) $ -- $5,800 $22,600 $ -- $28,400
Tax benefit -- 2,361 8,919 -- 11,280
------- ------ ------- ------ -------
Extraordinary loss, net of tax $ -- $3,439 $13,681 $ -- $17,120
======= ====== ======= ====== =======
Year ended December 31, 1991:
- - ----------------------------
Extraordinary loss (c) $ -- $ -- $ 3,761 $ 947 $ 4,708
Tax benefit -- -- 1,284 323 1,607
------- ------ ------- ------ -------
Extraordinary loss, net of tax $ -- $ -- $ 2,477 $ 624 $ 3,101
======= ====== ======= ====== =======
(a) On July 15, 1993, the Company redeemed all of the $298 million
principal amount outstanding of the 11.80% Senior Subordinated Notes ("11.80%
Notes") at a redemption price equal to 103.37% of the principal amount plus
accrued interest to July 15,1993.
(b) On June 18, 1992, the Company redeemed all of the $356.5 million
principal amount outstanding of the 14.75% Senior Subordinated Discount
Debentures ("Discount Debentures") at a redemption price equal to 105% of the
principal amount plus accrued interest to June 18, 1992.
On March 10, 1992, the Company redeemed all of the $193 million principal
amount outstanding of its 11.50% Senior Subordinated Extendible Reset Notes
("11.50% Reset Notes") at a redemption price equal to 101% of the principal
amount plus accrued interest to the redemption date.
(c) During December 1991, the Company purchased $43 million of
Discount Debentures at an average price of 107.375% of their principal amount
plus accrued interest.
On August 30, 1991 and October 31, 1991, Viacom Inc. redeemed $250 million and
$152 million, respectively, constituting the entire principal amount of the
Exchange Debentures.
The Company borrowed the funds necessary for each of these redemptions under
its bank credit facilities existing in the respective periods.
_____________________
NAI, Sumner M. Redstone and the Company each have purchased on the open market
and may in the future continue to purchase on the open market or in privately
negotiated transactions certain debt securities of the Company. During 1993,
there were no purchases of debt securities made by NAI, Sumner M. Redstone or
the Company. During 1992, Sumner M. Redstone purchased directly and
beneficially $350,000, $605,000, $15,000 and $200,000 of 11.50% Senior
II-48
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subordinated Extendible Reset Notes, 9.125% Senior Subordinated Notes, 10.25%
Senior Subordinated Notes and 8.75% Senior Subordinated Reset Notes,
respectively. During 1991, NAI and Sumner M. Redstone purchased $3,110,000 and
$869,000 of 11.80% Senior Subordinated Notes, respectively. During 1991, NAI
purchased $311,000 of the 11.50% Senior Subordinated Extendible Reset Notes.
During December 1991, the Company purchased $43 million of Discount Debentures
at an average price of 107.375% of their principal amount plus accrued
interest.
Interest costs incurred, interest income and capitalized interest are
summarized below:
Year Ended December 31,
--------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Interest Incurred $154,509 $195,725 $298,591
Interest Income $ 9,184 $ 1,119 $ 626
Capitalized Interest $ 372 $ 502 $ 513
Scheduled maturities of long-term debt of the Company through December 31,
1998, assuming full utilization of the $1.9 billion commitment under the Credit
Agreement and $300 million commitment under the Loan Facility, are $300 million
(1994), $380 million (1995), $380 million (1996), $380 million (1997) and $380
million (1998). Scheduled maturities of debt of Viacom Inc. under the Term Loan
Agreement are $13.9 million (repaid on January 15, 1994) and $28.3 million
(1995). (See Note 2 regarding Paramount Merger financing and scheduled maturity
of debt.)
5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's carrying value of the financial instruments approximates fair
value, except for differences with respect to the senior subordinated debt and
certain differences related to other financial instruments which are not
significant. The carrying value of the senior subordinated debt is $450
million and the fair value, which is estimated based on quoted market prices,
is $486 million.
6) SHAREHOLDERS' EQUITY
On October 22, 1993, Blockbuster purchased 24 million shares of cumulative
convertible preferred stock, par value $.01 per share, of Viacom Inc. ("Series
A Preferred Stock") for $600 million. On November 19, 1993, NYNEX Corporation
("NYNEX") purchased 24 million shares of cumulative convertible preferred
stock, par value $.01 per share, of Viacom Inc. ("Series B Preferred Stock,"
collectively with the Series A Preferred Stock, "Preferred Stock") for $1.2
billion. Series A Preferred Stock and Series B Preferred Stock have
liquidation preferences of $25 per share and $50 per share, respectively. The
Preferred Stock has an annual dividend rate of 5%, is convertible into shares
of Viacom Class B Common Stock at a conversion price of $70 and does not have
voting rights other than those required by law. The Preferred Stock is
redeemable by Viacom Inc. at declining premiums after five years. The
Preferred Stock purchased by Blockbuster will be canceled upon consummation of
the Blockbuster Merger.
On August 30, 1991, Viacom Inc. issued 2,210,884 shares of Viacom Class B
Common Stock to an affiliate of Mirror Group Newspapers in exchange for the
remaining 50.01% interest in MTV EUROPE (See Note 3). On September 17, 1991,
all such shares of B Common Stock were sold by Mirror Group Newspapers in an
underwritten public offering.
II-49
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On June 11, 1991, Viacom Inc. completed the sale of 10,781,600 shares of Viacom
Class B Common Stock in a registered public offering and the private
placement of an additional 500,000 shares of Viacom Class B Common Stock with
NAI. Viacom Inc. realized proceeds, net of underwriting discounts and other
related expenses, of approximately $317.7 million from the sale and private
placement.
NAI holds approximately 76.3% and the public holds approximately 23.7% of
outstanding Viacom Inc. Common Stock as of December 31, 1993. NAI's percentage
of ownership consists of 85.2% of the outstanding Viacom Class A Common Stock
and 69.1% of the outstanding Viacom Class B Common Stock, as of December 31,
1993. Pursuant to a purchase program initiated in August 1987, NAI announced
its intention to buy, from time to time, up to an additional 3,000,000 shares
of Viacom Class A Common Stock and 2,423,700 shares of Viacom Class B Common
Stock. As of December 31, 1993, NAI had acquired an aggregate of 3,374,300
shares of Common Stock, consisting of 1,466,200 shares of Viacom Class A Common
Stock and 1,908,100 shares of Viacom Class B Common Stock, pursuant to this
buying program. On August 20, 1993, NAI ceased making purchases of Common
Stock.
Under the restrictions contained in the Credit Agreement, the Company is
prohibited from (i) paying any dividends on its stock to Viacom Inc. for the
purpose of enabling Viacom Inc. to pay any dividend on its common stock, or
(ii) making any other dividend payments to Viacom Inc. (other than for certain
limited specified purposes), unless its total leverage ratio is less than a
specified amount.
Long-Term Incentive Plans - The purpose of the Long-Term Incentive Plans (the
"Plans"), which consist of the Long-Term Incentive Plan ("LTIP") and the Long-
Term Management Incentive Plan ("LTMIP"), is to benefit and advance the
interests of Viacom Inc. by rewarding certain key employees for their
contributions to the financial success of the Company and thereby motivating
them to continue to make such contributions in the future. The Plans provide
for grants of equity-based interests pursuant to awards of phantom shares,
stock options, stock appreciation rights, restricted shares or other equity-
based interests ("Awards"), and for subsequent payments of cash with respect to
phantom shares or stock appreciation rights based, subject to certain limits,
on their appreciation in value over stated periods of time.
During December 1992, a significant portion of the liability associated with
the LTIP was satisfied through the cash payment of $68.6 million and the
issuance of 177,897 shares of Viacom Class B Common Stock valued at $6.9
million.
The LTMIP provides that an aggregate of 7,000,000 Awards may be granted over
five years. As of December 31, 1993, there were 1,994,020 Awards available for
future grant, and 4,616,155 Awards outstanding consisting of phantom shares for
643,098 shares of common stock at an average grant price of $29 and vesting
over three years from the date of grant, and stock options for 3,973,057 shares
of common stock with exercise prices ranging from $20.75 to $55.25 and vesting
over four years from the date of grant. The stock options expire 10 years
after the date of grant.
II-50
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of stock option activity follows:
Number of Option
Shares Price range
------- -----------
Balance at December 31, 1991 3,148,357 $20.75 to $29.375
Granted 643,740 31.875
Exercised (45,291) 20.75 to 29.00
Canceled (189,215) 20.75 to 29.375
---------
Balance at December 31, 1992 3,557,591 20.75 to 31.875
Granted 856,990 43.25 to 55.25
Exercised (346,378) 20.75 to 31.875
Canceled (95,146) 20.75 to 55.25
---------
Balance at December 31, 1993 3,973,057 $20.75 to $55.25
=========
Available for future grant:
December 31, 1993 1,994,020
December 31, 1992 2,752,854
Exercisable:
December 31, 1993 1,448,570
December 31, 1992 775,040
Viacom Inc. has reserved 224,410 shares of Viacom Class A Common Stock and
29,462,933 shares of Viacom Class B Common Stock, principally for exercise of
stock options and the conversion of the Preferred Stock.
7) INCOME TAXES
The provision for income taxes shown below for the years ended December 31,
1993, 1992 and 1991 represents federal, state and foreign income taxes on
earnings before income taxes. The tax benefits relating to losses accounted
for under the equity method of accounting, which are shown net of tax on the
Company's statement of operations, are $.6 million (1993), $2.2 million (1992)
and $6.4 million (1991). See Note 4 for tax benefits relating to the
Extraordinary Losses.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") on a
prospective basis and recognized an increase to earnings of $10.3 million in
1993 as the cumulative effect of a change in accounting principle. SFAS 109
mandates the liability method for computing deferred income taxes.
II-51
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings before income taxes are attributable to the following jurisdictions:
Year Ended December 31,
------------------------------
1993 1991 1992
---- ---- ----
(Thousands of dollars)
United States $267,804 $138,215 $ (2,716)
Foreign 34,012 17,364 10,963
-------- -------- --------
Total $301,816 $155,579 $ 8,247
======== ======== ========
Components of the provision for income taxes on earnings before income taxes
are as follows:
Year Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Current:
Federal $89,484 $47,347 $29,039
State and local 10,357 17,851 16,618
Foreign 5,610 4,582 5,159
-------- ------- -------
105,451 69,780 50,816
Deferred 24,364 15,068 (8,756)
-------- ------- -------
$129,815 $84,848 $42,060
======== ======= =======
II-52
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
Statutory U.S. tax rate 35.0% 34.0% 34.0%
State and local taxes, net
of federal tax benefit 5.7 4.7 10.8
Foreign taxes, net of federal
tax benefit .5 1.9 41.3
Amortization of intangibles 7.1 18.2 405.3
Divestiture gain - nontaxable portion (3.2) -- --
Property and equipment basis
difference -- 7.2 150.0
Other purchase accounting
adjustments -- -- (46.8)
Alternative minimum tax -- (88.7)
Income tax reserve adjustment (5.0) (12.9) --
Effect of changes in statutory rate .5 -- --
Other, net 2.4 1.4 4.2
----- ----- -------
Effective tax rate 43.0% 54.5% 510.1%
===== ===== ======
The annual effective tax rate of 43% for 1993 and 54.5% for 1992 includes a
reduction of certain prior year tax reserves in the amount of $22 million and
$20 million, respectively. The reduction is based on management's view
concerning the outcome of several tax issues based upon the progress of
federal, state and local audits.
As of December 31, 1993, after having given effect to SFAS 109, the Company had
total non-current deferred net tax liabilities of $85.2 million and current
deferred net tax assets of $16.3 million. The deferred net tax assets are
deemed to be fully realizable and therefore no valuation allowance has been
established. At December 31, 1993, the Company had no net operating loss or
investment tax credit carryovers.
II-53
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of the deferred tax accounts in accordance with SFAS
109 for the year ended December 31, 1993.
(Thousands of dollars)
Current deferred tax assets and (liabilities):
Differences between book and tax recognition of
revenue $ 17,826
Differences between book and tax expense for
program costs (4,127)
Other differences between tax and financial
statement values 2,591
--------
Gross current deferred net tax assets 16,290
--------
Noncurrent deferred tax assets and (liabilities):
Tax depreciation in excess of book depreciation (69,118)
Reserves in excess of tax expense 39,336
Tax amortization in excess of book amortization (32,985)
Differences between book and tax expense for program
costs (18,442)
Differences between book and tax recognition of
revenue (3,505)
Other differences between tax and financial
statement values (497)
----------
Gross noncurrent deferred net tax liabilities (85,211)
----------
Total net deferred tax liabilities $ (68,921)
==========
The following table identifies the deferred tax items which were part of the
Company's tax provision under previously applicable accounting principles for
the years ended December 31, 1992 and 1991:
Year Ended December 31,
-----------------------
1992 1991
---- ----
(Thousands of dollars)
Deferred compensation $22,682 $(3,044)
Depreciation 7,594 4,320
Syndication advance payments 4,118 (771)
Alternative minimum tax - (7,821)
Litigation accrual (13,324) -
Sale of cable system (6,850) -
Other, net 848 (1,440)
------- ------
$15,068 $(8,756)
======= ========
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<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
There are no significant temporary differences relating to foreign
undistributed earnings or investments in foreign subsidiaries for 1993, 1992 or
1991. Thus, no related deferred taxes have been recorded by the Company for
these years.
Viacom Inc. and its subsidiaries file a consolidated federal income tax return
and have done so since the period commencing June 11, 1991, the date on which
NAI's percentage of ownership of Viacom Inc. was reduced to less than 80%.
Prior to such date, Viacom Inc. and the Company filed a consolidated federal
income tax return with NAI, and also participated in a tax-sharing agreement
with NAI with respect to federal income taxes. The tax-sharing agreement
obligated Viacom Inc. and the Company to make payment to NAI to the extent they
would have paid federal income taxes on a separate company basis, and entitled
them to receive a payment from NAI to the extent losses and credits reduced
NAI's federal income taxes.
8) PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND
POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries have non-contributory pension plans
covering substantially all employees. The benefits for these plans are based
primarily on an employee's years of service and pay near retirement. All
employees are vested in the plans after five years of service. The Company's
policy for all pension plans is to fund amounts in accordance with the Employee
Retirement Income and Security Act of 1974. Plan assets consist principally of
common stocks, marketable bonds and United States government securities.
Net periodic pension cost for the periods indicated included the following
components:
Year Ended December 31,
----------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Service cost - benefits earned during
the period $5,442 $4,581 $3,919
Interest cost on projected benefit
obligation 4,106 3,300 2,761
Return on plan assets:
Actual (1,777) (1,421) (4,434)
Deferred (gain) loss (1,134) (752) 2,952
Unrecognized prior service cost 480 454 450
-------- ------- -------
Net pension cost $7,117 $6,162 $5,648
====== ====== ======
II-55
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The funded status of the pension plans for the periods indicated is as follows:
Year Ended December 31,
-----------------------
1993 1992
---- ----
(Thousands of dollars)
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $34,440 $ 24,095
Non-vested 3,177 1,740
--------- --------
Total $37,617 $ 25,835
======= ========
Projected benefit obligation $58,845 $ 43,626
Plan assets at fair value 32,649 28,282
--------- --------
Plan assets less than the
projected benefit obligation (26,196) (15,344)
Unrecognized loss during the year 8,104 476
Unrecognized prior service cost 3,743 4,384
Adjustment to recognize minimum liability (576) (768)
--------- --------
Pension liability at year end $(14,925) $(11,252)
========= ========
For purposes of valuing the 1993 and 1992 projected benefit obligation, the
discount rate was 7.5% (1993) and 8.25% (1992) and the rate of increase in
future compensation was 6% for each of the years. For determining the pension
expense for each of the years, the long-term rate of return on plan assets was
9%.
In 1992, the FASB issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting For Postemployment Benefits" ("SFAS 112") which the
Company will be required to adopt in 1994. SFAS 112 requires that
postemployment benefits be accounted for under the accrual method versus the
currently used pay-as-you-go method. The Company is evaluating the impact of
SFAS 112 and it is not expected that SFAS 112 will have a significant effect on
the Company's consolidated financial position or results of operations.
9) RELATED PARTY TRANSACTIONS
The Company, through the normal course of business, is involved in transactions
with affiliated companies. The Company sold programming to affiliates
amounting to $5.5 million (1993), $3.3 million (1992) and $.9 million (1991)
and paid subscriber fees of $6.1 million (1993), $5.4 million (1992) and $2.0
million (1991). In addition, rent and other expenses of $5.8 million, $4.7
million and $4.0 million were charged to affiliated companies during 1993, 1992
and 1991, respectively. Related party accounts receivable and accounts payable
were immaterial for each period.
The Company received approximately $.9 million (1993) and $1.3 million (1992)
under its tax-sharing agreement with NAI and paid approximately $.9 million
(1991).
II-56
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancellable lease commitments for office space and
equipment, transponders, studio facilities and vehicles.
At December 31, 1993, minimum rental payments under noncancellable leases are
as follows:
Operating Capital
Leases Leases
------ ------
(Thousands of dollars)
1994 $ 59,746 $ 9,632
1995 58,946 10,660
1996 56,795 11,689
1997 53,125 12,717
1998 55,373 13,746
1999 and thereafter 390,181 38,764
-------- -------
Total minimum lease payments $674,166 97,208
========
Less amounts representing
interest 34,121
-------
Present value of net minimum
payments $63,087
=======
Future minimum capital lease payments and operating lease payments have not
been reduced by future minimum sublease rentals of $26.0 million and $.5
million, respectively. Rent expense amounted to $74.2 million (1993), $67.9
million (1992) and $64.6 million (1991).
Capital leases represent the financing of transponders of $67.0 million (1993)
and $26.2 million (1992), net of accumulated amortization of $7.8 million
(1993) and $3.0 million (1992).
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of December 31, 1993, which are estimated to aggregate
approximately $1.9 billion, principally reflect commitments under SNI's
exclusive arrangements with several motion picture companies. This estimate is
based upon a number of factors. A majority of such fees are payable within the
next seven years, as part of normal programming expenditures of SNI. These
commitments are contingent upon delivery of motion pictures which are not yet
available for premium television exhibition and, in many cases, have not yet
been produced.
During July 1991, the Company received reassessments from 10 California
counties of its Cable Division's real and personal property, related to the
June 1987 acquisition by NAI, which could result in substantially higher
California property tax liabilities. The Company is appealing the
reassessments and believes that the reassessments as issued are unreasonable
and unsupportable under California law. The Company believes that the final
resolution of this matter will not have a material effect on its consolidated
financial position or results of operations.
There are various lawsuits and claims pending against the Company. Management
believes that any ultimate liability resulting from those actions or claims
will not have a material adverse effect on the Company's financial position or
results of operations (See Note 14).
II-57
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11) FOREIGN OPERATIONS
The consolidated financial statements include the following amounts applicable
to foreign subsidiaries:
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Revenues $ 122,200 $68,193 $31,786
Earnings before income taxes $ 34,012 $17,364 $10,963
Net earnings $ 33,747 $16,384 $ 9,294
Current assets $ 54,190 $47,769 $38,452
Total assets $ 115,744 $73,817 $40,422
Total liabilities $ 68,728 $57,441 $30,897
Total export revenues were $25.2 million (1993), $34.9 million (1992) and $26.7
million (1991).
Foreign currency transaction gains and losses were immaterial in each period
presented.
II-58
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12) BUSINESS SEGMENTS
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
(Thousands of dollars)
Revenues:
Networks $1,221,200 $1,058,831 $ 922,157
Entertainment 209,110 248,335 273,488
Cable Television 415,953 411,087 378,026
Broadcasting 181,778 168,847 159,182
Intercompany elimination (23,092) (22,417) (21,291)
---------- ---------- ----------
Total revenues $2,004,949 $1,864,683 $1,711,562
========== ========== ==========
Earnings from operations:
Networks $ 272,087 $ 205,576 $ 172,296
Entertainment 32,480 59,662 73,214
Cable Television 110,176 122,037 103,954
Broadcasting 42,293 31,956 27,734
Corporate (72,041) (71,304) (64,964)
---------- ---------- ----------
Total earnings from
operations $ 384,995 $ 347,927 $ 312,234
========== ========== ==========
Depreciation and amortization:
Networks $ 44,747 $ 41,754 $ 30,123
Entertainment 9,549 6,792 7,160
Cable Television 71,520 68,505 66,604
Broadcasting 23,475 24,509 27,062
Corporate 3,766 3,242 1,915
---------- ---------- ----------
Total depreciation and amortization $ 153,057 $ 144,802 $ 132,864
========== ========== ==========
Identifiable assets at year end:
Networks $1,794,418 $1,604,504 $1,453,643
Entertainment 845,620 829,607 855,357
Cable Television 963,047 972,066 979,668
Broadcasting 744,208 722,023 742,650
Corporate 2,069,575 188,894 157,060
---------- ---------- ----------
Total identifiable assets at year end $6,416,868 $4,317,094 $4,188,378
========== ========== ==========
Capital expenditures:
Networks $ 35,786 $ 26,076 $ 6,170
Entertainment 4,933 7,102 916
Cable Television 79,482 54,596 44,967
Broadcasting 4,886 5,102 3,101
Corporate 9,924 17,346 2,275
---------- ---------- ----------
Total capital expenditures $ 135,011 $ 110,222 $ 57,429
========== ========== ==========
II-59
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13) QUARTERLY FINANCIAL DATA (unaudited):
Summarized quarterly financial data for 1993 and 1992 appears below:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total Year
------- ------- ------- ------- ----------
(Thousands of dollars, except per share amounts)
1993
- - ----
Revenues $470,650 $495,799 $508,122 $530,378 $2,004,949
Earnings from operations $ 90,182 $106,562 $110,153 $ 78,098 $ 384,995
Earnings before
extraordinary losses
and cumulative effect
of changes in
accounting principle (1) $ 70,626 $ 41,628 $ 30,901 $ 26,326 $ 169,481
Net earnings $ 80,964 $ 41,628 $ 22,034 $ 26,326 $ 170,952
Net earnings
attributable to
common stock (2) $ 80,964 $ 41,628 $ 22,034 $ 13,576 $ 158,202
Net earnings per
common share:
Earnings before
extraordinary losses
and cumulative effect
of changes in
accounting principle $ .59 $ .35 $ .25 $ .11 $ 1.30
Net earnings $ .67 $ .35 $ .18 $ .11 $ 1.31
Average number of
common shares 120,479 120,517 120,645 120,782 120,607
1992
- - ----
Revenues $430,568 $451,053 $471,498 $511,564 $1,864,683
Earnings from
operations (3) $ 83,399 $ 96,873 $100,010 $ 67,645 $ 347,927
Earnings (loss) before
extraordinary losses (4) $ 10,527 $ (1,145) $ 45,049 $ 11,654 $ 66,085
Net earnings (loss) $ 7,088 $(14,826) $ 45,049 $ 11,654 $ 48,965
Net earnings (loss)
per common share:
Earnings (loss) before
extraordinary losses $ .09 $ (.01) $ .37 $ .10 $ .55
Net earnings (loss) $ .06 $ (.12) $ .37 $ .10 $ .41
Average number of
common shares 120,228 120,229 120,230 120,250 120,235
(1) The first quarter of 1993 reflects a pre-tax gain of $55 million related to
the sale of the stock of Viacom Cablevision of Wisconsin Inc. (See Note
14).
(2) The fourth quarter of 1993 reflects Preferred Stock dividends of $12.8
million (See Note 6).
(3) The third quarter of 1992 reflects a reversal of compensation expense
associated with the Long-Term Incentive Plans. The fourth quarter of 1992
reflects a significant expense associated with the Long-Term Incentive
Plans. The fluctuations in compensation expense associated with the Long-
Term Incentive Plans for the third and fourth quarter of 1992 resulted
primarily from the fluctuations in market value of Viacom Inc.'s Common
Stock (See Note 6).
(4) The second quarter of 1992 reflects the reserve for litigation of $33
million related to a summary judgment against the Company in a dispute
with CBS Inc. The third quarter of 1992 reflects a gain of $35 million
related to certain aspects of the settlement of the Time Warner antitrust
lawsuit (See Note 14).
II-60
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14) OTHER ITEMS, NET
As part of the settlement of the Time Warner antitrust lawsuit, the Company
sold all the stock of Viacom Cablevision of Wisconsin, Inc. to Warner
Communications Inc. ("Warner"). This transaction was effective on January 1,
1993. As consideration for the stock, Warner paid the sum of $46 million plus
repayment of debt under the Credit Agreement in the amount of $49 million,
resulting in a pre-tax gain of approximately $55 million reflected in "Other
items, net." Also reflected in this line item is the net gain on the sale of a
portion of an investment held at cost and adjustments to previously established
non-operating litigation reserves, and other items.
"Other items, net" reflects a gain of $35 million recorded in the third quarter
of 1992; this gain represents payments received in the third quarter relating
to certain aspects of the settlement of the Time Warner antitrust lawsuit, net
of the Company's 1992 legal expenses related to this lawsuit.
"Other items, net" also reflects a reserve for litigation of $33 million during
the second quarter of 1992 related to a summary judgment against Viacom in a
dispute with CBS Inc. arising under the 1970 agreement associated with the
spin-off of Viacom International Inc. by CBS Inc. On July 30, 1993, the
Company settled all disputes arising under the above litigation.
In September 1991, the Company recorded a reserve for its investment in a
start-up joint venture. On August 16, 1991, the Company sold 129,837 shares of
Turner Broadcasting System, Inc. Class B Common Stock for approximately $1.9
million. These transactions resulted in a pre-tax loss of approximately $6.5
million, which is reflected in "Other items, net."
II-61
<PAGE>
VIACOM INC. AND
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15) SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
------------------------
1993 1992 1991
---- ----- ----
(Thousands of dollars)
Cash payments for interest net of $167,383 $194,879 $233,904
amounts capitalized
Cash payments for income taxes 32,675 50,738 24,539
Cash received for income taxes 1,074 1,470 3,301
Supplemental schedule of non-cash financing
and investing activities:
B Common stock issued as
satisfaction for LTIP liability -- 6,894 --
Equipment acquired under capitalized leases 44,381 26,192 --
B Common Stock issued to acquire the remaining
50.01% interest in MTV EUROPE -- -- 65,000
II-62
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
II-63
<PAGE>
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements and schedules
of the registrant and its subsidiaries are submitted herewith
as part of this report:
Reference
(Page/s)
--------
1. Report of Independent Accountants.................. II-32
2. Management's Statement of Responsibility for
Financial Reporting................................ II-33
3. Consolidated Statements of Operations for the years
ended December 31, 1993, 1992, and 1991........... II-34
4. Consolidated Balance Sheets as of December 31, 1993
and 1992........................................... II-35-II-36
5. Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991........... II-37
6. Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1993, 1992 and 1991... II-38
7. Notes to Consolidated Financial Statements......... II-39-II-62
Report of Independent Accountants on Financial
Statement Schedules................................... F-2
Financial Statement Schedules:
II. Amounts receivable from related parties. F-3
VIII. Valuation and qualifying accounts.......... F-4
IX. Short-term borrowings...................... F-5
X. Supplementary statement of operations
information................................ F-6
All other Schedules are omitted since the required information
is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information
required is included in the consolidated financial statements
and notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Boards of Directors and
Shareholders of Viacom Inc. and
Viacom International Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 4, 1994, except as to Note 2, which is as of
March 11, 1994, appearing on page II-32 of this annual report on Form
10-K also included an audit of the Financial Statement Schedules
listed in Item 14(a) of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 4, 1994
F-2
<PAGE>
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
(Thousands of Dollars)
<TABLE> <CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Balance at End of
Deductions Period
-------------------------- -----------------
Balance at Amounts
Beginning of Amounts Written Non-
Name of Debtor Period Additions Collected Off Other Current Current
-------------- ----------- --------- --------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
National Amusements, Inc. -- $ 855 $ 855 -- -- -- --
Year Ended December 31, 1992:
National Amusements, Inc. -- $1,307 $1,307 -- -- -- --
Year Ended December 31, 1991:
National Amusements, Inc. -- $2,885 $2,885 -- -- -- --
</TABLE>
F-3
<PAGE>
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE> <CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ----------------------- ------------- ------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts(A) Deductions(B) Period
----------- ----------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts:
Year ended December $25,779 $16,733 $3,459 $12,082 $33,889
31, 1993
Year ended December $28,603 $ 9,355 $ (155) $12,024 $25,779
31, 1992
Year ended December $23,593 $15,855 $1,933(C) $12,778 $28,603
31, 1991
<FN>
Notes:
-----
(A) Charged (credited) to the balance sheet account "Owners' share of
distribution revenue."
(B) Includes amounts written off, net of recoveries.
(C) Includes the allowance for doubtful accounts of MTV EUROPE,
previously accounted for under the equity method, of $689 thousand
</TABLE>
F-4
<PAGE>
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(Thousands of Dollars)
<TABLE> <CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate Beginning of Interest During the During the During the
Short-term Borrowings Period Rate Period Period(A) Period(A)
- - --------------------- ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Money Market $ -- -- $ 23,000 $ 305 3.68%
Commercial Paper $ 60,879 3.68% $ 174,257 $122,744 3.64%
Year ended December 31, 1992:
Money Market $ -- -- $ 6,000 $ 1,684 4.66%
Commercial Paper $ 9,984 3.83% $ 144,638 $ 74,214 4.51%
Year ended December 31, 1991:
Money Market $ -- -- $ 20,000 $ 1,293 6.28%
Commercial Paper $ 73,425 5.51% $ 188,975 $108,985 6.58%
<FN>
NOTE:
----
(A) Calculated on a monthly basis.
</TABLE>
F-5
<PAGE>
VIACOM INC. AND VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
(Thousands of Dollars)
Col. A Col. B
------ -----------------------------
Charged to Costs and Expenses
-----------------------------
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
ITEM
Maintenance and repairs $21,104 $25,649 $20,145
Advertising costs $79,827 $51,124 $68,858
Amortization $60,278 $63,256 $62,795
Taxes, other than payroll and $30,362 $21,000 $19,805
income taxes
NOTE:
----
Items not presented above are less than 1% of revenues or are
presented elsewhere in the consolidated financial statements.
F-6
<PAGE>
Item 10. Directors and Executive Officers
For information concerning the current executive officers of Viacom Inc.
and the Company, see "Executive Officers of Viacom Inc. and the Company" in
Part I of this report.
Set forth below is certain information concerning the directors of Viacom
Inc and the Company. Each director is also a director of Paramount.
Corporation Offices
and
Director* Principal Occupation**
-------- --------------------
George S. Abrams Associated with Winer & Abrams, a
Age 61 law firm located in Boston,
Director since 1987 Massachusetts, for more than five
years. Mr. Abrams became a director of
Paramount in 1994 and NAI in 1992. He
is the former General Counsel and Staff
Director of the United States Senate
Judiciary Committee on Refugees. Mr.
Abrams is also a member of the Boards
of Trustees and Visiting Committees of
a number of art museums, art-related
organizations and educational
institutions.
Frank J. Biondi, Jr. President, Chief Executive Officer of
Age 49 Viacom Inc. and the Company since
Director since 1987 July 1987 and Paramount since March
1994. Mr. Biondi became a director of
Paramount in 1994. From November 1986
to July 1987, Mr. Biondi was Chairman,
Chief Executive Officer of Coca-Cola
Television and, from 1985, Executive
Vice President of the Entertainment
Business Sector of The Coca-Cola
Company. Mr. Biondi joined Home Box
Office in 1978 and held various
positions there until his appointment as
President, Chief Executive Officer in
1983. In 1984, he was elected to the
additional position of Chairman and
continued to serve in such capacities
until October 1984. Mr. Biondi recently
became a director of Maybelline, Inc.
Philippe P. Dauman Executive Vice President, General
Age 40 Counsel, Chief Administrative
Director since 1987 Officer and Secretary of Viacom Inc.,
the Company and Paramount since March
1994. Mr. Dauman became a director of
Paramount in 1994 and NAI in 1992.
From February 1993 to March 1994, Mr.
Dauman served as Senior Vice President,
General Counsel and Secretary of Viacom
Inc. and the Company. Prior to that,
Mr. Dauman was a partner in the law firm
of Shearman & Sterling in New York,
which he joined in 1978.
William C. Ferguson Chairman of the Board and Chief
Age 63 Executive Officer of NYNEX since
Director since 1993 October 1989. Mr. Ferguson became a
director of Paramount in 1994. He
served as Vice Chairman of the Board of
NYNEX from 1987 to 1989 and as President
and Chief Executive Officer from June to
September 1989. He has served as a
director of NYNEX since 1987. He is
also a director of CPC International,
Inc. and General Re Corporation.
III-1
<PAGE>
Corporation Offices
and
Director* Principal Occupation**
-------- --------------------
H. Wayne Huizenga Chairman of the Board and Chief
Age 56 Executive Officer of Blockbuster
Director since 1993 since April 1987. Mr. Huizenga became
a director of Paramount in 1994. He
served as President of Blockbuster from
April 1987 until June 1988. He is a
co-founder of Waste Management, Inc.
(now known as (WMX Technologies, Inc.
("WMX")), a waste disposal and
collection company, where he served in
various capacities, including President,
Chief Operating Officer and a director,
until May 1984. From May 1984 to the
present, Mr. Huizenga has been an
investor in other businesses and is the
sole shareholder and Chairman of the
Board of Huizenga Holdings, Inc.
("Holdings"), a holding and
management company with various
business interests. In connection with
these business interests, Mr. Huizenga
has been actively involved in strategic
planning for, and executive
management of, these businesses. He
also has a majority ownership interest in
Florida Marlins Baseball, Ltd., a Major
League Baseball sports franchise, owns
the Florida Panthers Hockey Club, Ltd.,
a National Hockey League sports
franchise, and has a limited partnership
interest in Miami Dolphins, Ltd. ("Miami
Dolphins"), a National Football League
sports franchise, and an ownership
interest in Robbie Stadium Corporation
and certain affiliated entities, which own
and operate Joe Robbie Stadium in
South Florida. Mr. Huizenga has
entered into an agreement to purchase
the remaining ownership interest in the
Miami Dolphins. He is Chairman of the
Board of Directors of Spelling
Entertainment Group Inc. He is also a
director of Discovery Zone, Inc. and
Republic Pictures Corporation.
Ken Miller President, Chief Executive Officer
Age 51 of The Lodestar Group, an
Director since 1987 investment firm, since 1988. Mr. Miller
became a director of Paramount in 1994.
He was Vice Chairman of Merrill Lynch
Capital Markets during 1987 and a Managing
Director of Merrill Lynch Capital Markets
for more than the preceding five years.
He is Chairman of the Board of Directors
of Kinder-Care Learning Centers, Inc.
Brent D. Redstone Assistant District Attorney for
Age 43 Suffolk County, Massachusetts from
Director since 1991 1976 to October 1991, serving from
1988 through 1991 on the Homicide Unit
responsible for the investigation and
trial of homicide cases. Mr. Redstone
became a director of Paramount in 1994
and NAI in 1992.
III-2
<PAGE>
Corporation Offices
and
Director* Principal Occupation**
-------- --------------------
Sumner M. Redstone Chairman of the Board of Viacom Inc.
Age 69 and the Company since June 1987 and
Director since 1986 Paramount since April 1994. Mr. Redstone
became a director of Paramount in 1994.
He has served as Chairman of the Board of
NAI since 1986 and President, Chief
Executive Officer of NAI since 1967.
Mr. Redstone is the former Chairman of
the Board of the National Association
of Theater Owners and is currently a
member of its Executive Committee. During
the Carter Administration, Mr. Redstone
was appointed a member of the Presidential
Advisory Committee on the Arts for the
John F. Kennedy Center for the Performing
Arts and, in 1984, he was appointed a
Director of the Kennedy Presidential
Library Foundation. Mr. Redstone has
recently accepted a visiting professorship
at Brandeis University. Since 1982, Mr.
Redstone has been a member of the faculty
of Boston University Law School, where he
has lectured in entertainment law. Mr.
Redstone graduated from Harvard University
in 1944 and received an LL.B. from Harvard
University School of Law in 1947. Upon
graduation, Mr. Redstone served as Law
Secretary with the United States Court of
Appeals, and then as a Special Assistant
to the United States Attorney General.
Frederic V. Salerno Vice Chairman -- Finance and and
Age 49 Business Development of NYNEX since
Director since 1994 March 1, 1994. Mr. Salerno became a
director of Paramount in 1994. He was
Vice Chairman of the Board of NYNEX and
President of the Worldwide Services
Group from 1991 to 1994 and President
and Chief Executive Officer of New York
Telephone Company from 1987 to 1991. He
has served as a director of NYNEX since
1991. He is also a director of The Bear
Stearns Companies Inc. and Avnet, Inc.
William Schwartz Vice President for Academic Affairs
Age 59 (the chief academic officer) of Yeshiva
Director since 1987 University since 1992 and University
Professor of Law at Yeshiva University
and the Cardozo School of Law since
1991. Mr. Schwartz became a director of
Paramount in 1994. He has been of
Counsel to Cadwalader, Wickersham & Taft
since 1988. Mr. Schwartz was Dean of
the Boston University School of Law from
1980 to 1988, a professor of law at
Boston University from 1955 to 1991 and
Director of the Feder Center for Estate
Planning at Boston University School of
Law from 1988 to 1991. He has served as
Chairman of the Board of Directors of
UST Corporation since 1993. He previously
served as Vice Chairman of UST Corporation
since 1985 and has been a director of UST
Corporation for more than five years.
Mr. Schwartz is a trustee of several
educational and charitable organizations
and an honorary member of the National
College of Probate Judges. He served
III-3
<PAGE>
Corporation Offices
and
Director* Principal Occupation**
-------- --------------------
as Chairman of the Boston Mayor's
Special Commission on Police
Procedures and was formerly a member
of the Legal Advisory Board of the New
York Stock Exchange.
* Brent Redstone is the son of Sumner Redstone. None of the other directors
is related to any other director or executive officer of Viacom
Inc., the Company or Paramount by blood, marriage or adoption.
** NAI, Paramount and the Company are affiliates of Viacom Inc. None of
the other corporations or organizations indicated herein is a parent,
subsidiary or other affiliate of Viacom Inc.
III-4
<PAGE>
Item 11. Executive Compensation
Compensation Committee Report on Executive Compensation
- - -------------------------------------------------------
All members of the Compensation Committee are non-employee directors. The
members include Mr. Sumner Redstone, the controlling shareholder of Viacom Inc.
The Committee reviews and, with any changes it believes appropriate, approves
Viacom Inc.'s executive compensation. Independent compensation consultants have
advised the Committee with respect to the long-term incentive compensation
plans since 1987.
The objectives of the executive compensation package for Viacom Inc.'s
executive officers are to:
- Set levels of base salary and annual bonus compensation that will
attract and retain superior executives in the highly competitive
environment of media companies;
- Provide annual bonus compensation for executive officers that varies
directly with Viacom Inc.'s financial performance and, in the case of
executive officers with divisional responsibilities, also with the
financial performance of their respective divisions, and, in
addition, reflects the executive officer's individual contribution to
that performance; and
- Provide long-term incentive compensation that is tied to Viacom Inc.'s
stock price so as to focus the attention of executives on managing
Viacom Inc. from the perspective of an owner with an equity stake.
Viacom Inc. has just completed a historic transaction in the acquisition
of Paramount. It is therefore more crucial than ever that Viacom Inc. attract
and retain executives with broad media-based experience. The Committee's goal
is to develop a compensation package that enables Viacom Inc. to accomplish
this.
In that connection, the Committee evaluates the competitiveness of its
executive compensation packages based on information from a variety of sources,
including information supplied by consultants and information obtained from the
media or from Viacom Inc.'s own experience. The Committee also focuses on
executive compensation offered by the members of the peer group included in the
Performance Graph* set forth below. At times, the Committee also evaluates
compensation at a broader range of companies whether or not included in the
peer group that have particular lines of business comparable to those of Viacom
Inc.
- - ----------
*As a result of the Paramount Merger and the anticipated Blockbuster Merger, it
is likely that the composition of the peer group included in the Performance
Graph will be reviewed and adjusted for subsequent years.
III-5
<PAGE>
While the Committee evaluates this information and has generally attempted
to peg overall compensation to the median to 75th percentile level (with base
salaries generally being pegged to the median level and annual bonus
compensation to the 75th percentile level), it ultimately determines the
appropriate compensation for each position based on the requirements and
characteristics of that position and the knowledge, skills and abilities of the
executive. For Viacom Inc.'s executive officers as a whole and for Mr. Biondi
specifically, the Committee believes that it has achieved its goal of providing
overall 1993 compensation, and the base salary and annual bonus components, at
the median to 75th percentile level.
Executive Compensation
- - ----------------------
Executive compensation is comprised of base salary, annual bonus
compensation and long-term incentive compensation in the form of stock options
and phantom share awards. Long-term incentive compensation for executive
officers with divisional responsibilities has also included performance share
awards tied to divisional performance.
Base Salaries
- - -------------
Base salary levels for executive officers are consistent with competitive
practice and level of responsibility. Base salary levels for the more senior
executive officers are generally set forth in the executives' employment
contracts and increases in their base salary in 1993 were generally made in
accordance with their contracts. Increases in base salary in 1993 for other
senior executives were set consistent with the considerations discussed above
with respect to base salary levels and increases were within the range of
percentages by which the salaries of other senior executives at that level
increased. The employment contracts for Mr. Biondi and the other four named
executive officers are described below under the caption "Employment Contracts".
Incentive Compensation
- - ----------------------
Limits to Tax Deductibility of Executive Compensation
- - -----------------------------------------------------
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended, generally limiting to $1,000,000 the
federal tax deductibility of compensation (including stock options) paid to
Viacom Inc.'s Chief Executive Officer and the four most highly compensated
officers, other than the Chief Executive Officer, starting with the 1994
calendar year. The tax law change includes an exception to the deduction
limitation for performance-based compensation (including stock-based
compensation, such as stock options), provided such compensation meets
certain requirements, including shareholder approval. The Viacom Inc.
Senior Executive Short-Term Incentive Plan (the "Senior Executive STIP")
and the 1994 Viacom Inc. Long-Term Management Incentive Plan (the "New
LTMIP") have been designed to comply with this exception. The Senior
Executive STIP will provide objective performance-based annual bonuses
for selected executive officers of Viacom Inc., subject to a maximum
limit, starting with the 1994 calendar year. Long-term incentive
compensation for Viacom Inc.'s executive officers will be provided
under the New LTMIP starting with the 1994 calendar year, primarily
through grants of stock options. The Viacom Inc. Board of Directors
has adopted, and is recommending that the shareholders approve, the
Senior Executive STIP and the New LTMIP. Viacom Inc. does not expect
compensation paid to Viacom Inc.'s Chief Executive Officer and the
other four most highly compensated officers for 1994 to exceed the
Section 162(m) deductibility limit because of the anticipated shareholder
approval of the Senior Executive STIP and the New LTMIP, the effect of the
"grandfathering" provisions of the tax laws and the deferral of a portion (not
in excess of 15%) of annual cash compensation under the Company's 401(k) and
excess 401(k) plans.
III-6
<PAGE>
Annual Bonus Compensation
- - -------------------------
Annual bonus compensation for Viacom Inc.'s executive officers from 1989
through 1993 was provided under the Company's Short-Term Incentive Plan
(the "STIP"). During each of those calendar years, target levels of annual
operating income and cash flow were established for Viacom Inc. as a whole
and for each of its divisions and subsidiaries. Operating income is defined as
revenues less operating expenses (other than depreciation and amortization);
cash flow is defined as operating income (as defined) less cash capital
expenditures and increases or decreases in working capital and in other balance
sheet investments. Historically, the operating income and cash flow goals have
generally been given equal weight. Additional targets have also been
established for specific divisions and subsidiaries. For 1993, operating
income and cash flow goals were given equal weight for Viacom Inc. as a whole
and were generally given equal weight for its divisions and subsidiaries.
The level of achievement of the applicable corporate or divisional goals
determined the aggregate amounts available for funding awards for corporate or
divisional executives; the amounts were subject to upward or downward
adjustment pursuant to a mathematical formula based on the level of achievement
and could exceed 100% of targeted amounts. The aggregate amount available for
funding annual bonuses for executive officers with exclusive corporate
responsibilities was based exclusively on achievement of Viacom Inc.'s annual
financial targets. For executive officers with divisional responsibilities,
most (approximately 80%) of their annual bonuses (including 1993 bonuses) was
based on the aggregate amounts available for annual bonuses for their
particular divisions, which was determined by the level of achievement of the
applicable divisional targets; the remaining 20% was based on the aggregate
amount available for annual bonuses for corporate executives.
The Committee approved a specific target bonus for each executive officer
which was expressed as a percentage of his salary. These targets are included
in the executive officers' employment contracts and for the named executive
officers other than Mr. Biondi are described below under the caption
"Employment Contracts".
At the beginning of each calendar year, the executive officers were
assigned individual goals for that year. The goals for executive officers with
divisional responsibilities tended to parallel the applicable divisional goals.
At the end of each calendar year, an assessment was made of each executive
officer's individual performance. If the officer had achieved 100% of his
individual goals, he would receive an award of 100% of his target bonus,
assuming the applicable corporate and/or divisional targets had been fully
achieved. Thus, since the applicable individual and corporate and/or divisional
targets for 1991 and 1992 were both fully met or exceeded, each of the named
executives received at least 100% of their target bonus for those years. The
applicable individual and corporate targets and the targets of each division,
other than the Cable Division, were also fully met or exceeded for 1993 and each
of the named executives, other that Mr. Goddard, received at least 100% of their
target bonus for 1993. In addition, each of such executives also received a
special bonus in recognition of their outstanding personal contributions to
such achievement, as well as their special efforts to effect the Paramount
Merger. Mr. Goddard's 1993 annual bonus reflected the Cable Division's less
than 100% achievement of its targets.
III-7
<PAGE>
Long-Term Incentive Compensation
- - --------------------------------
The Committee believes that the use of equity-based long-term incentive
plans directly links executive interests to enhancing shareholder value.
Viacom Inc.'s first long-term incentive program was provided under the
Viacom Inc. Long-Term Incentive Plan ("LTIP"), established in 1987 after the
Company was acquired by NAI. The LTIP was developed with the assistance
of Towers Perrin, an independent consultant. Since it was crucial to the
success of Viacom Inc. that it attract and retain the services of experienced
executives, the Committee awarded a single substantial grant of phantom shares
to Viacom Inc.'s executive officers as of August 1987. The size of the grant to
each executive was within the range assigned to the executive's relative level
of responsibility. Payment for most LTIP phantom shares was accelerated and
made in December 1992. The reasons for the acceleration and the operation of
the LTIP are described in more detail below.
Most subsequent long-term incentive compensation for Viacom Inc.'s
executive officers has been provided under the five (5) year Viacom Inc. 1989
Long-Term Management Incentive Plan (the "LTMIP") through annual stock option
grants. The LTMIP was also developed with the assistance of Towers Perrin.
Payments for phantom shares granted under the LTIP was based on the amount
by which the fair market value of the Viacom Inc. Common Stock as of certain
valuation dates exceeded the initial value of the phantom shares on the date of
grant, subject to a $31.23 per share payment limit. These phantom shares had an
average initial value of $19.50. In 1990, Viacom Inc. issued a share of Class B
Common Stock for each share of Class A Common Stock then outstanding. As
adjusted by the Committee for this stock split, the value of each phantom share
was determined by reference to the combined fair market values of a share of
Class A Common Stock and a share of Class B Common Stock. The first valuation
date was December 15, 1992 for 25% of the grant, although a portion of these
phantom shares were valued as of December 15, 1990. The second valuation date
was December 15, 1993 for another 25% and the final valuation date is December
15, 1994 for the remaining 50%. These phantom shares vested over the three
year period from 1987 through 1990.
Subsequent minor grants of LTIP phantom shares were made with initial
values set at the fair market value of the Viacom Inc. Common Stock at the time
of grant.
On December 17, 1992, the Committee approved the acceleration of the
valuation and payment to active employees, including Viacom Inc.'s executive
officers, of the LTIP phantom shares granted as of August 1987 that would
otherwise be valued and paid after the December 15, 1993 and December 15, 1994
valuation dates. Payment for these phantom shares was made in December 1992 at
the same time that payment was made for the LTIP phantom shares with a December
15, 1992 valuation date. The Committee took this action, in part, to preserve
individual and corporate tax benefits which might be lost in the future if
certain announced tax law changes were enacted. The Committee also took this
action because these phantom shares had already reached the $31.23 per share
payment limit, thereby reducing their value as incentives to enhancing
shareholder value, and because the remaining valuation and payment dates (i.e.,
December 15, 1993 and December 15, 1994) were more than six or seven years
after the original grant. For a description of the acceleration of the
valuation and payment of Mr. Biondi's LTIP phantom shares, see "Chief Executive
Officer's Compensation" below.
III-8
<PAGE>
Under the LTMIP, the Committee awarded annual grants of stock options for
Class B Common Stock to Viacom Inc.'s executive officers for the years 1990,
1991, 1992 and 1993. The Committee also awarded Mr. Dauman a special one-time
grant of 60,000 stock options for Class B Common Stock as of February 1, 1993
when he became an executive officer of Viacom Inc. and the Company. The
exercise price of all of these stock options was set at the fair market value
of the Class B Common Stock at the time of grant. The grant awarded by the
Committee for 1989 consisted of a combination of stock options and phantom
shares. Included in Messrs. Biondi, Braun, Goddard and Weinstein's 1989 grant
were certain stock options conditioned upon their becoming available from
forfeitures by other participants in the LTMIP. After the 1990 stock split,
the Committee adjusted the phantom shares granted in 1989 in the same manner
that it adjusted the LTIP phantom shares and each stock option granted in 1989
became exercisable for a share of Class A Common Stock and a share of Class B
Common Stock. All of the stock options granted under the LTMIP are ten-year
non-qualified options that become fully exercisable four years after the grant.
The pattern for determining awards to Viacom Inc.'s executive officers
under the LTMIP was essentially consistent with the pattern developed for the
LTIP except that (i) each of the five awards to these officers for the 1989
through 1993 period was approximately one-fifth of the size of the 1987 LTIP
grants to executives at their level and (ii) an effort was made to reduce the
difference between the grants at the divisional Chairman level and the grants
at the divisional President level. The 1993 LTMIP awards were generally
consistent with the pattern described above. The amounts therefore reflected
the amounts of outstanding awards, as adjusted for promotions. In addition,
from time to time, in determining the amount of the LTMIP awards, special note
was taken of either a unique competitive situation or extraordinary individual
contributions which had already occurred or were expected in the future. Mr.
Dauman's initial LTMIP grant was thus intended in part, to attract him to Viacom
Inc. and, in part, to recognize his extraordinary services to Viacom Inc. before
he became an executive officer of Viacom Inc.
In 1993, the Viacom Inc. Long-Term Incentive Plan (Divisional) (the
"Divisional LTIP") was adopted by the Committee. The Divisional LTIP was
developed with the assistance of Frederic W. Cook & Co., Inc. to provide long-
term compensation for divisional executives based on the performance of their
respective divisions. The Divisional LTIP is designed to provide divisional
executives with annual grants of performance shares that vest after three
years. Long-term financial and strategic goals are established by the
Committee for each division or subsidiary at the time the performance shares
are granted. The amount payable for the performance shares is based on the
achievement during the three years of those goals, with the amounts payable
varying directly with the level of achievement. Amounts are payable if
certain, though not all, of the goals are achieved provided certain minimum
levels are achieved.
The first grant of performance shares under the Divisional LTIP was made
in June 1993 with respect to the three year period that commenced January 1,
1993. The financial goals included the attainment of specified levels of
cumulative operating income and average return on net assets employed. In
addition, strategic targets were established for specific divisions and
subsidiaries. The Committee established the amounts and terms of these grants.
Executive officers with divisional responsibilities such as Messrs. Braun and
Goddard received a grant under the Divisional LTIP for the three year period
that commenced January 1, 1993. The 1992 and 1993 LTMIP grants to these
executives were reduced to reflect their participation in the Divisional Plan.
It is expected that long-term compensation for 1994 and subsequent years for
executive officers with divisional responsibilities will be awarded under the
New LTMIP and not under the Divisional LTIP.
Chief Executive Officer's Compensation
- - --------------------------------------
Mr. Biondi's compensation package was negotiated in 1987 when he became
President, Chief Executive Officer of Viacom Inc. and the Company. It
included his initial base salary and 10% annual rate of increase, his
guaranteed annual bonus compensation and a grant of 240,000 LTIP phantom
shares. His employment contract is more fully described below under the
caption "Employment Contracts".
III-9
<PAGE>
Mr. Biondi's salary increased during 1993 by the stipulated 10%. His 1993
annual bonus reflected full achievement of Viacom Inc.'s operating income and
cash flow goals for the year. In addition, he received a special bonus in
recognition of his outstanding personal contribution to that achievement, as
well as his special efforts to effect the Paramount Merger. Mr. Biondi's 1993
stock option award under the LTMIP is consistent with the overall program and
is shown below in the Summary Compensation Table.
As part of the Committee's approval of the accelerated valuation and
payment of the LTIP phantom shares discussed above, the Committee approved the
December 1992 payment of Mr. Biondi's LTIP phantom shares with December 15,
1993 and December 15, 1994 valuation dates. Payment was made in shares of
Class B Common Stock with the number of shares based on the fair market value
of the Class B Common Stock on December 17, 1992. The Committee determined
that payment to Mr. Biondi in stock, rather than cash, was preferable because
Mr. Biondi's LTIP phantom shares, unlike those of other employees, were not
subject to the $31.23 per share payment limit, and the payment in stock would
allow him to continue to benefit from, and would further link his interests to,
increases in shareholder value. As a result of the foregoing, Mr. Biondi
recognized taxable income and the Company recognized a corresponding
deduction, of $10,263,600, of which $3,370,053 was withheld as taxes and the
remainder paid as 177,897 shares of Class B Common Stock, all of which have
been retained by Mr. Biondi. Mr. Biondi also received a cash payment in
December 1992 in the amount of $3,421,200 for his LTIP phantom shares with a
December 15, 1992 valuation date.
Sumner M. Redstone, Chairman
George S. Abrams
Philippe P. Dauman*
William C. Ferguson
H. Wayne Huizenga
Ira A. Korff**
Jerome Magner**
Ken Miller
Brent D. Redstone
Frederic V. Salerno***
William Schwartz
Members of the Compensation Committee
- - ----------
*Mr. Dauman resigned from the Compensation Committee on February 1, 1993 when
he became an executive officer of Viacom Inc. and the Company.
**Messrs. Korff and Magner resigned on March 15, 1994 when they resigned from
the Boards of Directors of Viacom Inc. and the Company.
***Mr. Salerno became a member of the Compensation Committee when he became a
director of Viacom Inc. and the Company on January 27, 1994.
III-10
<PAGE>
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
Annual Compensation(1) Long-Term Compensation
---------------------- ----------------------
Awards Payouts
Name and ------ -------
Principal Securities All Other
Position at Underlying LTIP Compensa-
End of Fiscal 1993 Year Salary Bonus Options(2) Payouts tion (3)
------------------ ---- ------ ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Biondi, Jr. 1993 $1,010,904 $1,600,000 90,000 0 $65,180
President, Chief 1992 922,045 1,000,000 90,000 $13,684,800(4) 46,032
Executive Officer 1991 835,151 900,000 90,000 0 --
of Viacom Inc. and
the Company
Neil S. Braun 1993 $ 552,115 $ 450,000 30,000 $ 39,038 $24,788
Senior Vice President 1992 456,130 375,000 30,000 2,037,485(5) 16,275
of Viacom Inc. and 1991 414,087 320,000 36,000 0 --
the Company; Chairman,
Chief Executive Officer
of the Viacom
Entertainment Group*
Philippe P. Dauman 1993 $ 553,846 $ 900,000 120,000*** 0 0
Senior Vice President,
General Counsel and
Secretary of Viacom Inc.
and the Company**
John W. Goddard 1993 $ 562,154 $ 500,000 40,500 0 $26,500
Senior Vice President 1992 513,923 764,664 40,500 $4,028,670(4) 32,362
of Viacom Inc. and 1991 474,228 708,000 54,000 0 --
the Company;
President, Chief
Executive Officer of
the Viacom Cable
Division
<FN>
------
* On March 17, 1994, Mr. Braun relinquished his responsiblities as Chairman, Chief Executive
Officer of the Viacom Entertainment Group.
** On March 15, 1994, Mr. Dauman became Executive Vice President, General Counsel, Chief
Administrative Officer and Secretary of Viacom Inc. and the Company.
*** Mr. Dauman received two grants in 1993: a special one-time grant of 60,000 options for
Class B Common Stock as of February 1, 1993 when he joined Viacom Inc. and a regular
grant of 60,000 options for Class B Common Stock as of August 1, 1993. See Option Grant
Table below.
</TABLE>
III-11
<PAGE>
<TABLE>
Summary Compensation Table (cont'd)
-----------------------------------
<CAPTION>
Annual Compensation(1) Long-Term Compensation
---------------------- ----------------------
Awards Payouts
Name and ------ -------
Principal Securities All Other
Position at Underlying LTIP Compensa-
End of Fiscal 1993 Year Salary Bonus Options(2) Payouts tion (3)
------------------ ---- ------ ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mark M. Weinstein 1993 $ 493,039 $ 450,000 30,000 0 $23,538
Senior Vice President, 1992 368,538 225,000 30,000 $2,014,335(5) 15,118
Government Affairs of 1991 337,038 300,000 27,000 0 --
Viacom Inc. and the
Company
<FN>
NOTES:
(1) For 1993, salary and bonus include compensation deferred under the Company's 401(k) and
excess 401(k) plans for Mr. Biondi in the amount of $253,285, for Mr. Braun in the amount
of $150,000, for Mr. Goddard in the amount of $53,000 and for Mr. Weinstein in the amount
of $47,077.
(2) In addition, conditions relating to certain options granted in 1989 were met as follows:
for Mr. Biondi for 834 options in 1993, 373 options in 1992 and 1,189 options in 1991;
for Mr. Braun for 334 options in 1993, 149 options in 1992 and 475 options in 1991; for
Mr. Goddard for 667 options in 1993, 299 options in 1992 and 951 options in 1991; and for
Mr. Weinstein for 334 options in 1993, 149 options in 1992 and 475 options in 1991. These
options are more fully described above in the "Compensation Committee Report on Executive
Compensation".
(3) Includes the following: the Company's matching contributions under its 401(k) plan for
Mr. Biondi of $4,497 for 1993 and $3,491 for 1992; for Mr. Braun of $1,375 for 1993 and
$1,374 for 1992; and for each of Messrs. Goddard and Weinstein of $4,497 for 1993 and
$4,364 for 1992; and credits for the Company's matching contributions under its excess
401(k) plan for Mr. Biondi of $60,682 for 1993 and $42,541 for 1992; for Mr. Braun of
$23,413 for 1993 and $14,901 for 1992; for Mr. Goddard of $22,003 for 1993 and $27,998
for 1992; and for Mr. Weinstein of $19,041 for 1993 and $10,754 for 1992. Disclosure
regarding these items is not required for calendar year 1991.
(4) Consists of: $3,421,200 paid in cash for Mr. Biondi's LTIP phantom shares with a December
1992 valuation date; and 177,897 shares of Class B Common Stock valued on December 17,
1992 and $3,370,053 which was withheld as taxes for his LTIP phantom shares for which the
valuation and payment was accelerated. Mr. Biondi's LTIP payout is more fully described
above in the "Compensation Committee Report on Executive Compensation".
(5) Represents substantially all amounts payable with respect to the LTIP phantom shares
granted to the named executives. Includes payment for the LTIP phantom shares with a
December 1992 valuation date, as well as the accelerated payment of the LTIP phantom
shares with future valuation dates. The amount payable for their LTIP phantom shares was
the $31.23 per share payment limit (except for certain minor grants made after 1987).
The LTIP payouts are more fully described above in the "Compensation Committee Report on
Executive Compensation".
</TABLE>
III-12
<PAGE>
<TABLE>
Option Grants in Fiscal 1993
----------------------------
The following Option Grant Table includes columns designated "Potential Realizable Gain". The
calculations in those columns are based on hypothetical 5% and 10% growth assumptions proposed by the
Securities and Exchange Commission. There is no way to anticipate what the actual growth rate of the
Class B Common Stock will be.
<CAPTION>
Individual Grants
----------------------------------------------- Potential Realizable Gain at
% of Total Assumed Annual Rates of
Number of Options Stock Price Appreciation for
Shares of Granted to Option Term Compounded
Class B Employees Annually(1)
Common Stock in Exercise ----------------------------
Underlying Fiscal Price Expiration
Name Options 1993 ($/Share) Date 5% 10%
------------- ---------- ------- --------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Biondi, Jr. 90,000(2) 10.74% $55 1/4 7/31/2003 $3,127,180 $7,924,885
Neil S. Braun 30,000(2) 3.58% 55 1/4 7/31/2003 1,042,395 2,641,630
Philippe P. Dauman 60,000(3) 7.16% 43 1/4 1/31/2003 2,084,785 5,283,255
60,000(2) 7.16% 55 1/4 7/31/2003 1,631,980 4,135,760
John W. Goddard 40,500(2) 4.83% 55 1/4 7/31/2003 1,407,230 3,566,200
Mark M. Weinstein 30,000(2) 3.58% 55 1/4 7/31/2003 1,042,395 2,641,628
<FN>
NOTES:
(1) The total potential gain for all five named executives over the ten year term of the options listed
in the table would be 37/100 of one percent of the total gain in the Class B Common Stock value. If
the Class B Common Stock value were to appreciate 5% over the ten year term of the options, the
value of all shares of Class B Common Stock owned by Viacom Inc.'s shareholders would grow from $3.7
billion to $6.1 billion, a gain of $2.4 billion. If it were to appreciate 10%, the value of all
outstanding shares of Class B Common Stock would grow from $3.7 billion to $9.7 billion, a gain of
$6 billion.
(2) These options, which were granted as of August 1, 1993, will vest in one-third increments on August
1, 1995, August 1, 1996 and August 1, 1997. In addition, conditions relating to certain options
granted in 1989 were met in 1993 as follows: for Mr. Biondi for 834 options; for Mr. Braun for 334
options; for Mr. Goddard for 667 options; and for Mr. Weinstein for 334 options. These options are
more fully described above in the "Compensation Committee Report on Executive Compensation".
(3) These options, which were granted to Mr. Dauman as of February 1, 1993 when he joined Viacom Inc.,
will vest in one-third increments on August 1, 1994, August 1, 1995 and August 1, 1996. These
options are more fully described above in the "Compensation Committee Report on Executive
Compensation".
</TABLE>
III-13
<PAGE>
<TABLE>
Aggregated Option Exercises in Fiscal 1993
and Value of Options at End of Fiscal 1993
------------------------------------------
<CAPTION>
Shares Number of Securities(1) Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
on Value Options at End of Fiscal 1993 at End of Fiscal 1993
Name Exercise Realized Exercisable Nonexercisable Exercisable Nonexercisable
------- -------- -------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Frank J. Biondi, Jr. -0- -0- 138,000 270,000 $2,770,500 $2,823,750
Neil S. Braun -0- -0- 56,000 96,000 1,122,500 1,051,500
Philippe P. Dauman -0- -0- 0 120,000 0 97,500
John W. Goddard -0- -0- 84,000 135,000 1,683,750 1,518,750
Mark M. Weinstein -0- -0- 42,000 87,000 841,875 886,125
<FN>
NOTE:
(1) Options listed below are for shares of Class B Common Stock except that exercisable options
include for Mr. Biondi 24,000 options each for a share of Class A Common Stock and a share of
Class B Common Stock, for Mr. Braun 10,000 of such options, for Mr. Goddard 15,000 of such
options and for Mr. Weinstein 7,500 of such options; the aggregate number of exercisable
options includes two underlying securities for each of these options.
</TABLE>
III-14
<PAGE>
<TABLE>
Long-Term Incentive Plans
Awards in Fiscal 1993
---------------------
<CAPTION>
Estimated Future Payouts
Performance -----------------------------------
Number of Period Until
Name Performance Shares Maturation(1) Threshold Target(2) Maximum(3)
---------------- ------------------ ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Frank J. Biondi, Jr. 0 --- --- --- ---
Neil S. Braun 6,875(4) 1/1/93- $24,062.50 --- ---
12/31/95
Philippe P. Dauman 0 --- --- --- ---
John W. Goddard 5,600(5) 1/1/93- (5) --- ---
12/31/95
Mark M. Weinstein 0 --- --- --- ---
<FN>
NOTES:
(1) These performance shares vest at the end of the three-year performance period. They are more fully
described above in the "Compensation Committee Report on Executive Compensation".
(2) The value of the performance shares will be determined by reference to the performance criteria.
(3) There is no maximum since the value of the performance shares can increase without limit pursuant to
the formula established under the performance criteria.
(4) The performance criteria for determining the value of Mr. Braun's shares was based 50% on measuring
Viacom Entertainment's cumulative operating income over the three-year period and 50% on the
achievement during the three-year period of certain performance criteria which were targeted as key
items in executing Viacom Entertainment's strategic plan. It is expected that this criteria will be
adjusted by the Compensation Committee to reflect the combination of Viacom and Paramount's
Entertainment Groups.
(5) The performance criteria applicable to Mr. Goddard's performance shares is being adjusted by the
Compensation Committee to reflect regulatory changes applicable to the Viacom Cable Division.
</TABLE>
III-15
<PAGE>
Pension Plan Table
- - ------------------
Years of Service
-------------------------------------------------------
Remuneration 15 20 25 30 35
- - ------------ -------- -------- --------- --------- ---------
$ 50,000 $ 9,546 $ 12,728 $ 15,911 $ 18,297 $ 20,684
100,000 20,796 27,728 34,661 39,860 45,059
200,000 43,296 57,728 72,161 82,985 93,809
300,000 65,796 87,728 109,661 126,110 142,559
400,000 88,296 117,728 147,161 169,235 191,309
500,000 110,796 147,728 184,661 212,360 240,059
600,000 133,296 177,728 222,161 255,485 288,809
700,000 155,796 207,728 259,661 298,610 337,559
800,000 178,296 237,728 297,161 341,735 386,309
900,000 200,796 267,728 334,661 384,860 435,059
1,000,000 223,296 297,728 372,161 427,985 483,809
1,100,000 245,796 327,728 409,661 471,110 532,559
1,200,000 268,296 357,728 447,161 514,235 581,309
1,300,000 290,796 387,728 484,661 557,360 630,059
Under the Viacom Pension Plan, and the Viacom Excess Pension Plan for
certain higher compensated employees, an eligible employee will receive a
benefit at retirement that is based upon the employee's number of years of
benefit service and average annual salary (salary as set forth in the Summary
Compensation Table) for the highest 60 consecutive months out of the final 120
months. The benefits under the Viacom Excess Pension Plan are not subject to
the Internal Revenue Code provisions that limit the compensation subject to
benefits under the Viacom Pension Plan. The number of years of benefit service
that have been credited for Messrs. Biondi, Braun, Goddard and Weinstein are
approximately 6.6, 5, 27 and 8, respectively. Mr. Dauman has been credited
with one year of service under the Viacom Pension Plan; however, the benefits
payable under the Viacom Excess Pension Plan shall be calculated as though he
had ten years of credited service. The foregoing table illustrates, for
representative average annual pensionable compensation and years of benefit
service classifications, the annual retirement benefit payable to employees
under the Plans upon retirement in 1993 at age 65, based on the straight-life
annuity form of benefit payment and not subject to deduction or offset.
III-16
<PAGE>
Performance Graph
-----------------
The following graph compares the cumulative total shareholder return on
the Class A Common Stock and, as of June 18, 1990, the Class B Common Stock with
the cumulative total return on the companies listed in the Standard & Poor's 500
Stock Index and a Peer Group on companies (identified below). The total return
data was obtained from Standard & Poor's Compustat Services, Inc., which first
reported trading activity for the Class B Common Stock on June 18, 1990.
Viacom Inc. Common Stock
Cumulative Total Shareholder Return for
Five-Year Period Ended December 31, 1993
December 31... 1988 1989 1990 1991 1992 1993
- - -------------- ---- ---- ---- ---- ---- ----
Viacom Class A 100.00 184.74 166.78 217.61 279.56 310.54
Viacom Class B 159.33 220.80 270.94 290.35
S&P 500 100.00 131.59 127.49 166.17 178.81 196.75
Peer Group 100.00 135.32 101.66 131.76 167.40 243.51
Effective June 13, 1990, one share of Class B Common Stock was issued for
each share of Class A Common Stock then outstanding. The Class B Common Stock
has rights, privileges, restrictions and qualifications identical to the Class
A Common Stock except that shares of Class B Common Stock have no voting rights
other than those required by law. As of April 1, 1994, NAI owned 45,547,214
shares or 85.2% of the Class A Common Stock and 45,565,414 shares or 51.7% of
the Class B Common Stock. Sumner M. Redstone, the controlling shareholder of
NAI, is the Chairman of the Board of Viacom Inc., the Company and Paramount.
The performance graph assumes $100 invested on December 31, 1988 in each of
the Class A Common Stock, the S&P 500 Index, and the Peer Group*, including
reinvestment of dividends, through the fiscal year ended December 31 1993.
The cumulative total shareholder return on the Class B Common Stock assumes
the investment in Class B Common Stock as of June 18, 1990 (the first date on
which the Class B Common Stock was publicly traded) of an amount equal to the
cumulative total shareholder return on the Class A Common Stock as of that
date ($176.31).
- - ----------
* The Peer Group consists of the following companies: BHC Communications,
Inc.; Cablevision Systems Corp.; Capital Cities/ABC, Inc.; CBS Inc.; Comcast
Corp.; Gaylord Entertainment Co.; King World Productions Inc.; Liberty
Media Corp.; Multimedia, Inc.; Paramount Communications Inc.; Spelling
Entertainment Inc.; Tele-Communications, Inc.; The News Corp. Ltd. (ADRs);
Time Warner Inc.; and Turner Broadcasting System Inc. As a result of the
Paramount Merger and the anticipated Blockbuster Merger, it is likely that
the composition of the peer group included in the Performance Graph will be
reviewed and adjusted for subsequent years.
III-17
<PAGE>
Employment Contracts
- - --------------------
It is expected that a new employment contract will be entered into shortly
with Mr. Biondi to reflect his new responsibilities as a result of the
Paramount Merger as the President, Chief Executive Officer of Viacom Inc. Mr.
Biondi's current contract provided that he will be employed as President, Chief
Executive Officer of the Company until July 31, 1995 at a base salary
of $966,000 for the contract year that ended July 31, 1993 and $1,063,000 for
the following contract year, with an increase for the succeeding contract year
of not less that 10%. His current contract also provided that he would receive
guaranteed bonus compensation for the contract year that ended July 31, 1993 of
not less than $465,850, with 10% annual increases for the two succeeding
contract years. Mr. Biondi's current contract provides that, in the event of a
change in control of Viacom Inc. or the Company, he can terminate his contract
upon the earlier of one year after the change in control or the last day of the
term of his contract and receive his guaranteed bonus compensation for the
contract year in which termination occurs pro-rated to the date of termination.
The Company's obligations under this contract are guaranteed by Viacom Inc.
Mr. Braun's contract currently provides that he will be employed as an
executive of the Company until December 31, 1995, at a base salary of
$550,000 for calendar year 1993, with $50,000 annual increases for the two
succeeding calendar years. For the 1993, 1994 and 1995 calendar years, his
target bonus is set at 75% of his base salary at the end of each year and his
STIP bonus compensation shall not be less than 50% of his base salary at that
time.
Mr. Dauman became Executive Vice President, General Counsel, Chief
Administrative Officer and Secretary of Viacom Inc. and the Company on
March 15, 1994. Previously, he had served as Senior Vice President, General
Counsel and Secretary of Viacom Inc. and the Company since February 1,
1993. It is expected that his employment contract will be amended shortly to
reflect his new responsibilities. Mr. Dauman's contract currently provides
that he will be employed as an executive of the Company until January
31, 1998, at a salary of $600,000 for the contract year ending January 31,
1994, with annual increases of not less than 10%. Currently, for the 1993
through 1997 calendar years, his target bonus is set at 100% of his base salary
at the end of each year and his STIP bonus compensation shall not be less than
75% of his base salary at that time.
Mr. Goddard's contract provides that he will be employed as an executive
of the Company until December 31, 1994 at an annual base salary of
$560,000 for the 1993 calendar year and $610,000 for the 1994 calendar year.
Mr. Goddard's contract provides that his target bonus for each calendar year
shall be 100% of his base salary at the end of each year.
Mr. Weinstein became Senior Vice President, Government Affairs of Viacom
Inc. and the Company on February 1, 1993. His contract was amended in 1993
to reflect his new responsibilities. As amended, his contract provides that
he will be employed as an executive of the Company until December 31,
1997, at a salary of $500,000 for the contract year that began February 1,
1993, with $50,000 annual increases on each February 1st during the employment
term. For calendar years 1993 through 1997, his target bonus is set at 75% of
his base salary at the end of each year and his STIP bonus compensation shall
not be less than 56.25% of his base salary at that time.
Directors' Compensation
- - -----------------------
Directors of Viacom Inc. and the Company who are not officers or
employees of Viacom Inc., the Company or NAI or members of their immediate
family ("Outside Directors") are entitled to receive the directors' fees and
are eligible to participate in the Company's retirement plans
described below. Messrs. Abrams, Miller and Schwartz were Outside Directors
for the entire 1993 calendar year. Mr. Dauman was an Outside Director until
January 31, 1993. Messrs. Huizenga, Ferguson and Salerno became Outside
Directors on October 22, 1993, November 20, 1993 and January 27, 1994,
respectively. In 1993, only Outside Directors received any compensation for
services as a director.
III-18
<PAGE>
Directors' Fees. Outside Directors received the following fees for the
---------------
first quarter of 1993: (i) a combined quarterly fee of $6,000 for membership
on the Boards of Directors of Viacom Inc. and the Company, and (ii) a per
meeting attendance fee of $1,000 for each Board meeting, $500 for each Audit
Committee meeting and $500 for each Compensation Committee meeting (except that
only one Board attendance fee is payable when both Boards meet on the same day
and only one Audit Committee or Compensation Committee attendance fee is
payable when the corresponding committees of both Boards meet on the same day).
Effective April 1, 1993, the fees for Outside Directors were increased as
follows: (i) a combined quarterly fee of $7,500 for membership on both Boards,
(ii) a per meeting attendance fee of $1,500 for each Board meeting (the $500
per meeting attendance fee for each Audit or Compensation Committee remained
unchanged), and (iii) a $7,500 annual retainer fee for the Chairman of the
Audit Committee (currently Mr. Abrams). Compensation for Messrs. Huizenga and
Ferguson's services as Outside Directors for 1993 was paid to Blockbuster and
NYNEX, respectively.
Deferred Compensation Plan. In 1989, the Company established an
--------------------------
unfunded Deferred Compensation Plan permitting participating Outside Directors
to defer payment of all of their membership and attendance fees. A participant
can elect to have deferred fees credited to an account which shall either
accrue interest or be deemed invested in a number of stock units equal to the
number of shares of Viacom Inc. Common Stock the amount of such fees would have
purchased at such time. Since 1989, Messrs. Abrams, Miller and Schwartz have
elected to have their fees credited to their stock unit accounts. The Plan
permits participants to elect to have amounts credited to a participant's
account paid in a lump sum or in three or five annual installments seven months
after the director's retirement, with the value of the stock units determined
by reference to the fair market values of the Class A Common Stock and Class B
Common Stock at that time and, if the participant had elected installment
payments, credited with interest until payment had been made in full. For
1993, the stock unit accounts of Messrs. Abrams, Miller and Schwartz were
credited with 607, 516 and 499 Class A Common Stock units, respectively, and
648, 552 and 534 Class B Common Stock units, respectively.
Retirement Income Plan. In 1989, the Company established an unfunded,
----------------------
non-qualified Retirement Income Plan pursuant to which each Outside Director
will receive annual payments commencing on such director's retirement equal
to l00% of the amount of the annual Board membership fees at the time of such
retirement, provided he has served on the Boards of both companies for at
least three years. The Plan provides that the director or his estate will
receive such annual payments for the number of years of such director's service
on the Boards (with current Outside Directors receiving credit for their years
of service on the Boards of Viacom Inc. and the Company prior to 1989).
Mr. Dauman, who ceased to be an Outside Director in February 1993, will
receive payments under this Plan for the period that he was an Outside Director
when he retires from the Board.
Outside Directors' Stock Option Plan. In 1993, the Viacom Board of
------------------------------------
Directors (with Outside Directors Messrs. Abrams, Miller and Schwartz
abstaining) adopted the Outside Directors' Plan, subject to the approval of
such Plan by the shareholders of Viacom Inc. at the 1994 annual meeting of
shareholders.
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
Messrs. Abrams, Miller, Sumner Redstone, Brent Redstone and Schwartz were
members of the Compensation Committee for the entire 1993 calendar year. Mr.
Dauman resigned from the Compensation Committee when he became Senior Vice
President, General Counsel and Secretary of Viacom Inc. and the Company on
February 1, 1993. Prior to that, he was a partner with the law firm of
Shearman & Sterling. Messrs. Huizenga, Ferguson and Salerno became members of
the Compensation Committee when they joined the Boards of Directors of Viacom
Inc. and the Company on October 22, 1993, November 20, 1993 and January 27,
1994, respectively. Messrs. Korff and Magner resigned from the Compensation
Committee on March 15, 1994 when they resigned from the Boards of Directors of
Viacom Inc. and the Company and Mr. Korff resigned from his position as a
Viacom Inc. Senior Vice President. Mr. Korff's position as an officer had been
purely nominal since he did not have any responsibilities or authority as a
Viacom Inc. officer and had never received any compensation for such office
since Viacom Inc. was formed. Mr. Korff had never been eligible to participate
in any of Viacom Inc.'s benefit and incentive plans, including, without
limitation, the plans administered by the Compensation Committee.
III-19
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As set forth below, as of April 1, 1994, is certain information concerning
beneficial ownership of Viacom Inc. Common Stock by (i) each director of Viacom
Inc., (ii) each of the named executive officers, (iii) all executive directors
and officers of Viacom Inc. as a group, and (iv) holders of 5% or more of the
outstanding Viacom Inc. Common Stock. The following table excludes shares of
Class B Common Stock issuable upon conversion of the Viacom Preferred Stock
(defined below).
Shares of Viacom Inc. Common Stock Beneficially Owned
Title of
Class of Number of Option Percent
Name Common Stock of Shares Shares(1) of Class
- - ---- ------------ ------------- --------- --------
George S. Abrams Class A ---(2) --- ---
Class B 200(2) --- (6)
Frank J. Biondi, Jr. Class A 415(3) 24,000 (6)
Class B 178,318(3)(4) 114,000 (6)
Neil S. Braun Class A 232(3) 10,000 (6)
Class B 236(3) 46,000 (6)
Philippe P. Dauman Class A 1,000 --- (6)
Class B 8,300 --- (6)
William C. Ferguson --- --- --- ---
John W. Goddard Class A 4,371(3) 15,000 (6)
Class B 4,377(3) 69,000 (6)
H. Wayne Huizenga --- --- --- ---
Ken Miller Class A ---(2) --- ---
Class B ---(2) --- ---
National Class A 45,547,214(5) --- 85.2%
Amusements, Inc. Class B 46,565,414(5) --- 51.7%
III-20
<PAGE>
Brent D. Redstone --- --- --- ---
Sumner M. Redstone Class A 45,547,294(5) --- 85.2%
Class B 46,565,494(5) --- 51.7%
Frederic V. Salerno --- --- --- ---
William Schwartz Class A ---(2) --- ---
Class B ---(2) --- ---
Mark M. Weinstein Class A 318(3) 7,500 (6)
Class B 324(3) 34,500 (6)
All directors and Class A 14,363(3) 76,350 (6)
executive officers as Class B 200,273(3) 385,839 (6)
a group other than
Mr. Sumner Redstone
(22 persons)
NOTES:
(1) Reflects shares of Class A Common Stock or Class B Common Stock subject
to options to purchase such shares which on April 1, 1994 were unexercised
but were exercisable within a period of 60 days from that date. These
shares are excluded from the column headed "Number of Shares".
(2) Messrs. Abrams, Miller and Schwartz participate in the Deferred
Compensation Plan described below in which their directors' fees are
converted into stock units. Messrs. Abrams, Miller and Schwartz have
been credited with 3,306, 3,021 and 3,052 Class A Common Stock units,
respectively, and 3,477, 3,164 and 3,196 Class B Common Stock units,
respectively.
(3) Includes shares held through the Company's 401(k) plan as of December 31,
1993.
(4) Includes 177,897 shares held as result of the accelerated valuation and
payment of Mr. Biondi's LTIP phantom shares (discussed above in
"Compensation Committee Report on Executive Compensation").
(5) Except for 80 shares of each class of Viacom Inc. Common Stock owned
directly by Mr. Redstone, all shares are owned of record by NAI. Mr.
Redstone is the Chairman and the beneficial owner of a controlling
interest in NAI and, accordingly, beneficially owns all such shares.
(6) Less than 1%.
III-21
<PAGE>
Item 13. Certain Relationships and Related Transactions
Sale of Viacom Preferred Stock to Blockbuster and NYNEX
- - -------------------------------------------------------
On October 22, 1993, Blockbuster purchased $600 million of Viacom Inc.'s
Series A Cumulative Convertible Preferred Stock ("Series A Preferred"), pursuant
to an amended and restated subscription agreement (the "Blockbuster Preferred
Stock Agreement") dated October 21, 1993 between Viacom Inc. and Blockbuster.
On November 19, 1993, NYNEX (NYNEX and Blockbuster are hereinafter collectively
referred to as the "Preferred Stock Investors") purchased $1.2 billion of Viacom
Inc.'s Series B Cumulative Convertible Preferred Stock ("Series B Preferred"
and, together with the Series A Preferred, "Viacom Preferred Stock"), pursuant
to a subscription agreement (the "NYNEX Preferred Stock Agreement") dated
October 4, 1993, as amended as of November 19, 1993, between Viacom Inc. and
NYNEX. Shares of Viacom Preferred Stock will be convertible at any time at the
option of the holders thereof into shares of Class B Common Stock at a
conversion price of $70 per share of Class B Common Stock.
Each of the Blockbuster Preferred Stock Agreement and the NYNEX Preferred
Stock Agreement provides that for so long as the Preferred Stock Investor and
its affiliates beneficially own at least $300 million, based on liquidation
preference, of the Viacom Preferred Stock initially purchased or the equivalent
in number of shares of Viacom Preferred Stock and shares of Class B Common
Stock issued on conversion of Viacom Preferred Stock, the Preferred Stock
Investor will be entitled to designate one representative to the Board of
Directors of Viacom Inc. The Director designated by Blockbuster is H. Wayne
Huizenga, Chairman and Chief Executive Officer of Blockbuster, and the Director
designated by NYNEX is William C. Ferguson, Chairman of the Board of NYNEX.
In their agreements with Viacom, Blockbuster and NYNEX each agreed to
pursue appropriate strategic partnership opportunities in the domestic and
international media, entertainment, video transport and telecommunication
sectors.
Certain Other Transactions Between Viacom Inc. and Blockbuster and With Their
Shareholders
- - -----------------------------------------------------------------------------
Blockbuster Subscription Agreement.
- - -----------------------------------
On March 10, 1994, Blockbuster purchased approximately 22.7 million shares
of Class B Common Stock for an aggregate purchase price of $1.25 billion, or
$55 per share, pursuant to the subscription agreement dated as of January 7,
1994 between Blockbuster and Viacom Inc. (the "Subscription Agreement"). If the
Blockbuster Merger Agreement is terminated, Viacom Inc. may be obligated to
make certain payments to Blockbuster or, at Viacom Inc.'s option, to sell
certain assets to Blockbuster in the event that Class B Common Stock trades (for
a specified period) at a level below $55 per share during the one year period
after such termination.
III-22
<PAGE>
Blockbuster Voting Agreement.
- - -----------------------------
Pursuant to the voting agreement dated as of January 7, 1994 between NAI
and Blockbuster, NAI has agreed to vote its shares of Class A Common Stock in
favor of the Blockbuster Merger Agreement and against any competing business
combination proposal. Approval of the Blockbuster Merger Agreement by the
shareholders of Viacom Inc. is therefore assured.
Blockbuster Shareholders Stock Option Agreement.
- - ------------------------------------------------
Pursuant to the amended and restated shareholders stock option agreement
dated as of January 7, 1994 (the "Blockbuster Shareholders Stock Option
Agreement"), among Viacom Inc. and certain shareholders of Blockbuster (the
"Blockbuster Option Shareholders"), the Blockbuster Option Shareholders have
granted to Viacom Inc. (i) options to purchase an aggregate of approximately
15.6 million shares of Blockbuster common stock (representing approximately 6.3%
of the outstanding Blockbuster common stock as of January 7, 1994), and shares
subsequently acquired by the Blockbuster Option Shareholders, at a price of
$30.125 per share under certain circumstances in the event the Blockbuster
Merger Agreement is terminated and (ii) proxies to vote such shares in favor of
the Blockbuster Merger and against any competing business combination proposal.
Blockbuster Proxy Agreement.
- - ----------------------------
Pursuant to the amended and restated proxy agreement dated as of January
7, 1994 (the "Blockbuster Proxy Agreement"), among Viacom Inc. and certain
shareholders of Blockbuster (the "Blockbuster Proxy Shareholders"), the
Blockbuster Proxy Shareholders have granted to Viacom Inc. proxies to vote
shares of Blockbuster common stock owned by such shareholders in favor of the
Blockbuster Merger Agreement and against any competing business combination
proposal, which shares, together with the shares subject to the Blockbuster
Shareholders Stock Option Agreement, represent approximately 22.3% of the
outstanding shares of Blockbuster common stock as of January 7, 1994.
Certain Transactions Among Viacom Inc., NAI and Paramount
- - ---------------------------------------------------------
Paramount Voting Agreement.
- - ---------------------------
Pursuant to the voting agreement dated as of January 21, 1994 between
Paramount and NAI, NAI has agreed to vote its shares of Class A Common Stock in
favor of the Paramount Merger Agreement. Approval of the Paramount Merger
Agreement is therefore assured.
Other Transactions
- - ------------------
Viacom Inc., the Company and NAI entered into a tax sharing agreement
governing the filing of consolidated federal tax returns in 1987. This
agreement required that Viacom Inc. and/or the Company pay NAI to the extent
they would have paid federal income taxes on a separate company basis and
entitled them to receive payments from NAI to the extent losses and credits
III-23
<PAGE>
reduced NAI's federal income taxes. This agreement was in effect for periods
ending on or before June 10, 1991, when NAI's percentage ownership of Common
Stock was reduced to less than 80% on a combined basis. For periods commencing
on or after June 11, 1991, Viacom Inc. and the Company have not filed
consolidated federal tax returns with NAI.
Philippe P. Dauman, a director and Executive Vice President, General
Counsel, Chief Administrative Officer and Secretary of Viacom Inc., the
Company and Paramount, became an executive officer of Viacom Inc. and the
Company on February 1, 1993. Prior to that, he was a partner with the law
firm of Shearman & Sterling, which performed legal services for Viacom Inc.
in 1993.
III-24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) and (d) Financial Statements and Schedules (see
Index on Page F-1)
(b) Reports on Form 8-K
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of October 5, 1993
relating to the agreement dated as of October 4, 1993
between Viacom Inc. and NYNEX Corporation ("NYNEX") pursuant
to which NYNEX subscribed for and agreed to purchase from
Viacom Inc. 24 million shares of newly issued Series B
Cumulative Convertible Preferred Stock of Viacom Inc. for an
aggregate purchase price of $1.2 billion.
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of October 27, 1993
relating to the completion of the issuance and sale to
Blockbuster Entertainment Corporation ("Blockbuster") by
Viacom Inc. of 24 million shares of new issued Series A
Cumulative Convertible Preferred Stock and the election of
H. Wayne Huizenga, Chairman and Chief Executive Officer of
Blockbuster, as a director of Viacom Inc. and Viacom
International Inc.
Current Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of November 19, 1993
relating to the completion of the issuance and sale to NYNEX
Corporation ("NYNEX") of 24 million shares of newly issued
Series B Cumulative Convertible Preferred Stock for an
aggregate purchase price of $1.2 billion and the election of
William C. Ferguson, Chairman and Chief Executive Officer of
NYNEX, as a director of Viacom Inc. and Viacom International
Inc.
(c) Exhibits (see index on Page E-1)
IV-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the
Securities Exchange Act of 1934, Viacom International Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.
VIACOM INTERNATIONAL INC.
By /s/Frank J. Biondi, Jr.
---------------------------------
Frank J. Biondi, Jr., President,
Chief Executive Officer
By /s/George S. Smith, Jr.
---------------------------------
George S. Smith, Jr., Senior Vice
President, Chief Financial Officer
By /s/Kevin C. Lavan
---------------------------------
Kevin C. Lavan, Vice President,
Controller, Chief Accounting Officer
Date: March 31, 1994
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed by the following persons on behalf of
Viacom Inc. and in the capacities and on the dates indicated:
By * March 31, 1994
--------------------------------
George S. Abrams, Director
By /s/Frank J. Biondi, Jr. March 31, 1994
--------------------------------
Frank J. Biondi, Jr., Director
By /s/Philippe P. Dauman March 31, 1994
--------------------------------
Philippe P. Dauman, Director
By * March 31, 1994
--------------------------------
William C. Ferguson, Director
By * March 31, 1994
--------------------------------
H. Wayne Huizenga, Director
By * March 31, 1994
--------------------------------
Ken Miller, Director
By * March 31, 1994
--------------------------------
Brent D. Redstone, Director
By * March 31, 1994
--------------------------------
Sumner M. Redstone, Director
By * March 31, 1994
--------------------------------
Frederic V. Salerno, Director
By * March 31, 1994
--------------------------------
William Schwartz, Director
* By /s/Philippe P. Dauman March 31, 1994
--------------------------------
Philippe P. Dauman
Attorney-in-Fact
for the Directors
<PAGE>
VIACOM INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Unless indicated otherwise, all exhibits have been filed previously.
ITEM 14(C)
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(2) Plan of Acquisition
(a) Certificate of Ownership and Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. as filed with the Office of Secretary of
State of Delaware and effective on April 26,
1990 (incorporated by reference to
Exhibit 2(1) to the Current Report on Form 8-K
of Viacom International Inc. with a report
date of April 26, 1990) (File No. 1-9554).
(b) Certificate and Agreement of Merger of Viacom
International Inc. into Arsenal Holdings II,
Inc. filed with the Office of the Secretary of
State of Ohio and effective April 26, 1990
(incorporated by reference to Exhibit 2(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(c) Agreement and Plan of Merger dated as of
January 7, 1994 between Viacom Inc. and
Blockbuster Entertainment Corporation
(incorporated by reference to Exhibit 99(c)(9)
to Viacom Inc. Schedule 14D-1 Tender Offer
Statement (Amendment No. 20) dated January 7,
1994).
(d) Voting Agreement dated as of January 7, 1994
between National Amusements, Inc. and
Blockbuster Entertainment Corporation.
(e) Amended and Restated Stockholders Stock Option
Agreement dated as of January 7, 1994 among
Viacom Inc. and each person listed on the
signature pages thereto.
(f) Amended and Restated Proxy Agreement dated as
of January 7, 1994 among Viacom Inc. and each
person listed on the signature pages thereto.
(g) Voting Agreement dated as of January 21, 1994
between National Amusements, Inc. and
Paramount Communications Inc. (incorporated by
reference to Exhibit 99(a)(66) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 29) dated January 24, 1994).
(h) Amended and Restated Agreement and Plan of
Merger dated as of February 4, 1994 between
Viacom Inc. and Paramount Communications Inc.
(incorporated by reference to Exhibit
99(a)(92) to Viacom Inc. Schedule 14D-1 Tender
Offer Statement (Amendment No. 38) dated
February 7, 1994).
E-1
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(3) Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation of
Viacom Inc. (incorporated by reference to
Exhibit 3(a) to the Annual Reports on Form 10-
K of Viacom Inc. and Viacom International Inc.
for the fiscal year ended December 31, 1992,
as amended by Form 10-K/A Amendment No. 1
dated November 29, 1993 and as further amended
by Form 10-K/A Amendment No. 2 dated December
9, 1993) (File Nos. 1-9553/1-9554).
(b) Certificate of the Designations, Powers,
Preferences and Relative, Participating or
other Rights, and the Qualifications,
Limitations or Restrictions thereof, of Series
A Cumulative Convertible Preferred Stock
($0.01 par value) of Viacom Inc. (incorporated
by reference to Exhibit 4.1 to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended
September 30, 1993) (File Nos. 1-9553/1-9554).
(c) Certificate of the Designations, Powers,
Preferences and Relative, Participating or
other Rights, and the Qualifications,
Limitations or Restrictions thereof, of Series
B Cumulative Convertible Preferred Stock
($0.01 par value) of Viacom Inc.
(d) By-laws of Viacom Inc. (incorporated by
reference to Exhibit 3.3 to the Registration
Statement on Form S-4 filed by Viacom Inc.)
(File No. 33-13812).
(e) Certificate of Incorporation of Viacom
International Inc. (formerly Arsenal Holdings
II, Inc.) (incorporated by reference to
Exhibit 3(e) to the Annual Reports on Form 10-
K of Viacom Inc. and Viacom International Inc.
for the fiscal year ended December 31, 1990,
as amended on Form 8, dated June 3, 1991)
(File Nos. 1-9553/1-9554).
(f) By-laws of Viacom International Inc. (formerly
Arsenal Holdings II, Inc.) (incorporated by
reference to Exhibit 3(f) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990, as amended on Form 8, dated
June 3, 1991) (File Nos. 1-9553/1-9554).
E-2
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(4) Instruments defining the rights of security
holders, including indentures:
(a) Specimen certificate representing the Viacom
Inc. Voting Common Stock (currently Class A
Common Stock) (incorporated by reference to
Exhibit 4.1 to the Registration Statement on
Form S-4 filed by Viacom Inc.) (File No. 33-
13812).
(b) Specimen certificate representing Viacom Inc.
Class B Non-Voting Common Stock (incorporated
by reference to Exhibit 4(a) to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended
June 30, 1990) (File Nos. 1-9553/1-9554).
(c) Specimen certificate representing Viacom Inc.
Series A Cumulative Convertible Preferred
Stock of Viacom Inc.
(d) Specimen certificate representing Viacom Inc.
Series B Cumulative Convertible Preferred
Stock of Viacom Inc.
(e) Indenture, dated as of September 15, 1991,
among Viacom International Inc., as Issuer,
Viacom Inc., as Guarantor, and The Bank of New
York, as Trustee, relating to Viacom
International Inc.'s Guarantied Senior
Subordinated Debt Securities (incorporated by
reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
September 20, 1991) (File Nos. 1-9553/1-9554)
as supplemented by the First Supplemental
Indenture dated as of September 15, 1991 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 10.25% Senior Subordinated Notes due
September 15, 2001 (incorporated by reference
to Exhibit 4.2 to the Current Reports on Form
8-K of Viacom Inc. and Viacom International
Inc. with a report date of September 20, 1991)
(File Nos. 1-9553/1-9554) as further
supplemented by the Second Supplemental
Indenture dated as of March 4, 1992 among
Viacom International Inc., as Issuer, Viacom
Inc., as Guarantor, and The Bank of New York,
as Trustee, relating to Viacom International
Inc.'s 9.125% Senior Subordinated Notes due
August 15, 1999 and relating to Viacom
International Inc.'s 8.75% Senior Subordinated
Reset Notes due May 15, 2001 (incorporated by
reference to Exhibit 4.1 to the Current
Reports on Form 8-K of Viacom Inc. and Viacom
International Inc. with a report date of
March 4, 1992) (File Nos. 1-9553/1-9554).
(f) Specimen of Note evidencing the 10.25% Senior
Subordinated Notes due September 15, 2001
(incorporated by reference to Exhibit 4.3 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of September 20, 1991) (File Nos. 1-
9553/1-9554).
(g) Specimen of Note evidencing the 9.125% Senior
Subordinated Notes due August 15, 1999
(incorporated by reference to Exhibit 4.2 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of March 4, 1992) (File Nos. 1-9553/1-
9554).
E-3
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(h) Specimen of Note evidencing the 8.75% Senior
Subordinated Reset Notes due May 15, 2001
(incorporated by reference to Exhibit 4.1 to
the Current Reports on Form 8-K of Viacom Inc.
and Viacom International Inc. with a report
date of May 28, 1992) (File Nos. 1-9553/1-
9554).
(i) Indenture, dated as of July 15, 1988, between
Viacom International Inc. and Bankers Trust
Company, Trustee, relating to Viacom
International Inc.'s 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit 4.1 to the Registration
Statement on Form S-2 filed by Viacom
International Inc.) (File No. 33-21280) and
the First Supplement to Indenture dated April
27, 1990 between Viacom International Inc. and
Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4(2) to
the Current Report on Form 8-K of Viacom
International Inc. with a report date of
April 26, 1990) (File No. 1-9554).
(j) Form of Note evidencing the 11.80% Senior
Subordinated Notes due 1998 (incorporated by
reference to Exhibit A to the Indenture filed
as Exhibit 4.1 to the Registration Statement
on Form S-2 filed by Viacom International
Inc.) (File No. 33-21280).
(k) Indenture, dated as of June 15, 1986, between
Viacom International Inc. and Morgan Guaranty
Trust Company of New York, Trustee, relating
to Viacom International Inc.'s 5 3/4%
Convertible Subordinated Debentures Due 2001
(incorporated by reference to Exhibit 4.5(b)
to the Annual Report on Form 10-K of Viacom
International Inc. for the fiscal year ended
December 31, 1986) (File No. 1-6514), and the
First Supplement to Indenture, dated June 9,
1987, among Viacom International Inc., Viacom
Inc. and Morgan Guaranty Trust Company of New
York, Trustee (incorporated by reference to
Exhibit 4.5(b) to the Registration Statement
on Form S-4 filed by Viacom Inc.) (File No.
33-13812).
(l) Credit Agreement, dated as of September 26,
1989 (the "Credit Agreement"), among Viacom
International Inc., the banks listed therein
(the "Banks"), and Citibank, N.A. as Agent and
The Bank of New York as Co-Agent, as amended
and restated as of January 17, 1992 among
Viacom Inc., as Guarantor, Viacom
International Inc., the Subsidiary Obligors,
the Banks, Citibank, N.A. as Agent, and The
Bank of New York as Co-Agent (incorporated by
reference to Exhibits 10(1) and 10(2) to the
Current Reports on Form 8-K of Viacom Inc. and
Viacom International Inc. with a report date
of January 22, 1992) as amended by Letter
Agreements dated as of May 13, 1993 and April
7, 1993 (incorporated by reference to Exhibits
4.1 and 4.2 to the Current Reports on Form 10-
Q of Viacom Inc. and Viacom International Inc.
for the quarter ended June 30, 1993) (File
Nos. 1-9553/1-9554)
(m) Loan Facility Agreement dated as of June 2,
1993 among the Company and the banks named
therein and The Bank of New York as
Administrative Managing Agent, and The Bank of
New York and Citibank as Managing Agents
(incorporated by reference to Exhibit 10.1 to
the Quarterly Reports on Form 10-Q of Viacom
Inc. and Viacom International Inc. for the
quarter ended June 30, 1993)(File Nos. 1-
9553/1-9554).
E-4
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(n) Credit Agreement dated as of November 19,
1993, as amended as of January 4, 1994 and as
further amended as of February 15, 1994, among
Viacom Inc., the Banks named therein, and The
Bank of New York, Citibank, N.A. and Morgan
Guaranty Trust Company of New York, as
Managing Agents (incorporated by reference to
Exhibit 99(a)(11) to Viacom Inc. Schedule 14D-
1 Tender Offer Statement (Amendment No. 46)
dated March 3, 1994).
(10) Material Contracts
(a) Viacom Inc. 1989 Long-Term Management
Incentive Plan (as amended and restated
through April 23, 1990) (incorporated by
reference to Exhibit A to Viacom Inc.'s
Definitive Proxy Statement dated April 27,
1990).*
(b) Viacom Inc. Long-Term Incentive Plan
(incorporated by reference to Exhibit A to
Viacom Inc.'s Definitive Proxy Statement dated
April 29, 1988), and amendment thereto
(incorporated by reference to Exhibit 10(d) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 21, 1991) (File Nos. 1-
9553/1-9554), and as further amended by
amendment dated December 17, 1992
(incorporated by reference to Exhibit 10(d) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554).*
(c) Viacom Inc. Long-Term Incentive Plan
(Divisional) (incorporated by reference to
Exhibit 10.2 to the Quarterly Reports on Form
10-Q of Viacom Inc. and Viacom International
Inc. for the quarter ended June 30, 1993)(File
Nos. 1-9553/1-9554).*
(d) Viacom International Inc. Deferred
Compensation Plan for Non-Employee Directors
(as amended and restated through December 17,
1992) (incorporated by reference to Exhibit
10(e) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(e) Viacom Inc. and Viacom International Inc.
Retirement Income Plan for Non-Employee
Directors (incorporated by reference to
Exhibit 10(f) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1989) (File Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-5
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -------------------------------------------------------------------
(f) Viacom Inc. Stock Option Plan for Non-Employee
Directors (incorporated by reference to
Exhibit 10.2 to the Quarterly Reports on Form
10-Q of Viacom Inc. and Viacom International
Inc. for the quarter ended June 30, 1993)(File
Nos. 1-9553/1-9554).*
(g) Excess Benefits Investment Plan for Certain
Key Employees of Viacom International Inc.
(effective April 1, 1984 and amended as of
January 1, 1990) (incorporated by reference to
Exhibit 10(h) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(h) Excess Pension Plan for Certain Key Employees
of Viacom International Inc. (incorporated by
reference to Exhibit 10(i) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(i) Employment Agreement, dated as of August 1,
1987, between Viacom International Inc. and
Frank J. Biondi, Jr. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (File No. 1-9553/1-9554).
Guarantee Agreement, dated as of August 1,
1987, from Viacom Inc. (incorporated by
reference to Exhibit 10(e) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1988) (Files Nos. 1-9553/1-9554).
Agreement under the Viacom Inc. Long-Term
Incentive Plan, dated March 7, 1989, between
Viacom Inc. and Frank J. Biondi, Jr.
(incorporated by reference to Exhibit 10(e) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1988) (File Nos. 1-
9553/1-9554).*
(j) Agreement, dated as of January 1, 1990,
between Viacom International Inc. and Neil S.
Braun (incorporated by reference to
Exhibit 10(l) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554)
as amended by an Agreement dated as of October
1, 1992 (incorporated by reference to Exhibit
10(k) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(k) Amended and Restated Employment Agreement,
dated as of October 1, 1987, between Viacom
International Inc. and John W. Goddard
(incorporated by reference to Exhibit 10(l) to
the Annual Reprints on Form 10-K of Viacom
Inc. and Viacom International Inc. for the
fiscal year ended December 31, 1991) (File
Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-6
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(l) Agreement, dated as of August 1, 1990, between
Viacom International Inc. and George S. Smith,
Jr. (incorporated by reference to
Exhibit 10(o) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554).*
(m) Agreement, dated as of August 1, 1990, between
Viacom International Inc. and Mark M.
Weinstein (incorporated by reference to
Exhibit 10(p) to the Annual Reports on
Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1990) (File Nos. 1-9553/1-9554)
as amended by an Agreement dated as of
February 1, 1993 (incorporated by reference to
Exhibit 10(n) to the Annual Reports on Form
10-K of Viacom Inc. and Viacom International
Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554).*
(n) Agreement, dated as of August 1, 1992, between
Viacom International Inc. and Thomas E. Dooley
(incorporated by reference to Exhibit 10(o) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554) as amended by an Agreement
dated as of October 1, 1992 (incorporated by
reference to Exhibit 10(o) to the Annual
Reports on Form 10-K of Viacom Inc. and Viacom
International Inc. for the fiscal year ended
December 31, 1992, as amended by Form 10-K/A
Amendment No. 1 dated November 29, 1993 and as
further amended by Form 10-K/A Amendment No. 2
dated December 9, 1993) (File Nos. 1-9553/1-
9554).*
(o) Agreement, dated as of January 1, 1992,
between Viacom International Inc. and Edward
Horowitz (incorporated by reference to
Exhibit 10(p) to the Annual Reports on Form
10-K of Viacom Inc. and Viacom International
Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No.
1 dated November 29, 1993 and as further
amended by Form 10-K/A Amendment No. 2 dated
December 9, 1993) (File Nos. 1-9553/1-9554) as
amended by an Agreement dated as of October 1,
1992 (incorporated by reference to Exhibit
10(p) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
(p) Agreement dated as of February 1, 1993 between
Viacom International Inc. and Philippe P.
Dauman (incorporated by reference to Exhibit
10(q) to the Annual Reports on Form 10-K of
Viacom Inc. and Viacom International Inc. for
the fiscal year ended December 31, 1992, as
amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by
Form 10-K/A Amendment No. 2 dated December 9,
1993) (File Nos. 1-9553/1-9554).*
* Management contract or compensatory plan
required to be filed as an exhibit to this
form pursuant to Item 14(c).
E-7
<PAGE>
EXHIBIT NO. DESCRIPTION OF DOCUMENT PAGE NO.
- - -----------------------------------------------------------------
(q) Partnership Agreement between Viacom HA!
Holding Company and The Comedy Channel Corp.
dated as of December 17, 1990 (incorporated by
reference to Exhibit 10.2 to the Registration
Statement on Form S-3 filed by Viacom
International Inc.) (File No. 33-40170).
(r) Lease Agreement between First Security Bank of
Utah, N.A., as owner trustee and Viacom
International Inc. dated as of August 12, 1992
(incorporated by reference to Exhibit 10(t) to
the Annual Reports on Form 10-K of Viacom Inc.
and Viacom International Inc. for the fiscal
year ended December 31, 1992, as amended by
Form 10-K/A Amendment No. 1 dated November 29,
1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File
Nos. 1-9553/1-9554).
(s) Lease Agreement dated as of June 22, 1993
between Mellon Financial Services Corporation
and Viacom International Inc. (incorporated by
reference to Exhibit 10.2 to the Quarterly
Reports on Form 10-Q of Viacom Inc. and Viacom
International Inc. for the quarter ended June
30, 1993)(File Nos. 1-9553/1-9554).
(t) Stock Purchase Agreement dated as of October
4, 1993 between Viacom Inc. and NYNEX
Corporation, as amended as of November 19,
1993.
(u) Amended and Restated Stock Purchase Agreement
dated October 21, 1993 between Viacom Inc. and
Blockbuster Entertainment Corporation (filed
herewith).
(v) Subscription Agreement, dated January 7, 1994
between Viacom Inc. and Blockbuster
Entertainment Corporation (incorporated by
reference to Exhibit 99(c)(8) to Viacom Inc.
Schedule 14D-1 Tender Offer Statement
(Amendment No. 20) dated January 7, 1994).
(12) Statements re Computation of Ratios
(a) Computation of Ratio of Earnings to Fixed
Changes of Viacom International Inc. (filed
herewith).
(b) Computation of Ratio of Earnings to Fixed of
Viacom Inc.
(21) Subsidiaries of Viacom Inc. and Viacom
International Inc.
(23) Consents of Experts and Counsel
(a) Consent of Price Waterhouse.
(b) Consent of Ernst & Young.
(c) Consent of Price Waterhouse (filed herewith)
(d) Consent of Ernst & Young (filed herewith)
(24) Powers of Attorney.
(99) Additional Exhibits
(a) Item 1, Item 2 and Item 3 of Paramount's
Transition Report on Form 10-K for the six-
month period ended April 30, 1993, as such
report was amended in its entirety by Form
10-K/A No. 1 dated September 28, 1993, as
further amended by Form 10-K/A No. 2 dated
September 30, 1993 and as further amended
by Form 10-K/A No. 3 dated March 21, 1994.
(b) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended July
31, 1993.
(c) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
October 31, 1993.
(d) Quarterly Report on Form 10-Q of Paramount
Communications Inc. for the quarter ended
January 31, 1994.
E-8
Consent of Independent Accounts
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statement
on Form S-3 (No. 33-59356) of Viacom Inc. and Viacom
International Inc. and Form S-8 (No. 33-41934 and No.
33-56088) of Viacom Inc., of our reports dated February 4,
1994, except as to Note 2, which is as of March 11, 1994,
which appear on pages II-32 and F-2 of this Form 10-K/A.
PRICE WATERHOUSE
New York, New York
May 2, 1994
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 Number 33-59356) of Viacom Inc. and Viacom
International Inc. and the Registration Statements (Form S-8
Numbers 33-41934 and 33-56088) of Viacom Inc. and in the related
Prospectuses of our reports dated August 27, 1993, except for
Notes A and I, as to which the date is September 10, 1993, with
respect to the consolidated financial statements and schedules of
Paramount Communications Inc. included in its Transition Report
(Form 10-K) for the six months ended April 30, 1993, as amended
September 28, 1993, as further amended September 30, 1993 and as
further amended March 21, 1994, which are incorporated by
reference in this Annual Report (Form 10-K/A).
ERNST & YOUNG
New York, New York
May 2, 1994
