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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-9553
VIACOM INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 04-2949533
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation Or Organization) Identification Number)
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1515 Broadway
New York, NY 10036
(212) 258-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Class A Common Stock, $0.01 par value New York Stock Exchange
Class B Common Stock, $0.01 par value New York Stock Exchange
6.75% Senior Notes due 2003 American Stock Exchange
7.75% Senior Notes due 2005 American Stock Exchange
7.625% Senior Debentures due 2016 American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title Of Class)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of March 19, 2001, 137,458,566 shares of Viacom Inc. Class A Common
Stock, $0.01 par value ("Class A Common Stock"), and 1,644,694,576 shares of
Viacom Inc. Class B Common Stock, $0.01 par value ("Class B Common Stock"),
were outstanding. The aggregate market value of the shares of Class A Common
Stock (based upon the closing price of $46.87 per share as reported by the New
York Stock Exchange on that date) held by non-affiliates was approximately
$2,049,856,075 and the aggregate market value of the shares of the Class B
Common Stock (based upon the closing price of $46.60 per share as reported by
the New York Stock Exchange on that date) held by non-affiliates was
approximately $70,957,111,400.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Viacom Inc.'s Notice of the 2001 Annual Meeting and Proxy
Statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the Proxy
Statement) (Part III).
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Part I
Item 1. Business.
Background
Viacom Inc. (together with its subsidiaries unless the context otherwise
requires, the "Company" or "Viacom") is a diversified worldwide entertainment
company with operations, during 2000, in seven segments:
. CABLE NETWORKS: The Cable Networks segment operates MTV: MUSIC
TELEVISION(R), SHOWTIME(R), NICKELODEON(R), NICK AT NITE(R), VH1 MUSIC
FIRST(R), TV LAND(R), TNN: THE NATIONAL NETWORK(TM) and CMT: COUNTRY MUSIC
TELEVISION(TM), among other program services.
. TELEVISION: The Television segment consists of the CBS(R) and UPN(R)
television networks, 39 owned broadcast television stations, and the
Company"s television production and syndication business, including KING
WORLD PRODUCTIONS(TM) and PARAMOUNT TELEVISION(TM).
. INFINITY: The Infinity segment operates 184 radio stations through
INFINITY BROADCASTING(R), and outdoor advertising properties through
INFINITY OUTDOOR(TM) and TDI(R).
. ENTERTAINMENT: The Entertainment segment includes PARAMOUNT PICTURES(R),
which produces and distributes theatrical motion pictures; PARAMOUNT
PARKS(R), which owns and operates five theme parks and a themed
attraction in the U.S. and Canada; and movie theater and music
publishing operations.
. VIDEO: The Video segment consists of an approximately 82% equity
interest in Blockbuster Inc., which operates and franchises
BLOCKBUSTER(R) video stores worldwide.
. PUBLISHING: The Publishing segment publishes and distributes consumer
books and related multimedia products, under such imprints as SIMON &
SCHUSTER(R), POCKET BOOKS(TM), SCRIBNER(R) and THE FREE PRESS(TM).
. ONLINE: The Online segment provides online music and children"s
destinations through Internet sites related to MTV: MUSIC TELEVISION,
NICKELODEON, NICK AT NITE, VH1 MUSIC FIRST, and CMT: COUNTRY MUSIC
TELEVISION, as well as SonicNet.com, and NickJR.com. In addition,
CBS.com offers a broad range of informational, entertainment, news and
promotional services. Effective January 1, 2001, the Company will
present its online businesses as part of the Cable Networks and
Television segments.
The Company was organized in Delaware in 1986 for the purpose of acquiring
the stock of a predecessor. In 1994, the Company acquired Paramount
Communications Inc. and Blockbuster Entertainment Corporation. On August 10,
1999, Blockbuster Inc. ("Blockbuster") (NYSE: BBI) sold to the public 31
million shares of its Class A common stock at $15 per share. The Company,
through its ownership of all of the 144 million shares of Blockbuster Class B
common stock outstanding, retains approximately 82% of the total equity value
in, and approximately 96% of the combined voting power of, Blockbuster. In
1999, the Company announced that it intended to split-off Blockbuster by
offering to exchange all of its shares of Blockbuster common stock for shares
of the Company's common stock. The split-off was subject to approval by the
Company's Board of Directors and an assessment of market conditions. The
Company no longer has any plans for the split-off of Blockbuster.
During 2000 and in the first quarter of 2001, the Company took several
important steps to secure its position as a leading global media and
entertainment company. Significant transactions included the following:
. On May 4, 2000, CBS Corporation ("CBS") merged with and into the
Company. At the time of the merger, the Company issued 1.085 shares of
its Class B Common Stock for each share of CBS common stock and 1.085
shares of its Series C Preferred Stock for each share of CBS Series B
preferred stock. The total purchase price of approximately $39.8 billion
represents the issuance of 825.5 million shares
I-1
of Viacom Class B Common Stock, 11,004 shares of Viacom Series C
convertible preferred stock (which were subsequently converted into 11.0
million shares of Viacom Class B Common Stock), the estimated fair value
of CBS stock options which were assumed by issuing Viacom options, and
estimated transaction costs. In addition, Viacom assumed approximately
$3.7 billion of CBS debt.
. As a result of its merger with CBS, the Company acquired an approximate
64.2% equity interest in Infinity Broadcasting Corporation ("Infinity
Broadcasting"). On February 21, 2001 Infinity Broadcasting merged with
and into a wholly owned subsidiary of the Company. In connection with
the merger, the Company issued 0.592 of a share of Viacom Class B Common
Stock for each issued and outstanding share of Infinity Broadcasting
Class A common stock resulting in the issuance of approximately 232
million shares of Viacom Class B Common Stock.
. On August 24, 2000, Infinity Broadcasting completed the acquisition of
18 radio stations from Clear Channel Communications Inc. for $1.4
billion. The acquisition resulted in Infinity Broadcasting expanding
into five new top 50 radio markets and owning over 180 radio stations.
During June 2000, Infinity Broadcasting completed the acquisition of
Giraudy SA, one of France's largest outdoor advertising companies, for
approximately $400 million. Infinity Broadcasting also acquired SMA
Societa Manifesti ed Affissione S.p.A, one of the leading Italian
outdoor media sales companies, for approximately $90 million.
. On November 3, 2000, the Company announced an agreement to acquire BET
Holdings II, Inc. ("BET"), which operates the BET: BLACK ENTERTAINMENT
TELEVISION(R) and BET ON JAZZ(R) cable networks. On January 23, 2001,
the Company completed its acquisition of BET for a total purchase price
of approximately $3.0 billion, which principally represents the issuance
of approximately 43.4 million shares of Viacom Class B Common Stock and
the assumption by the Company of approximately $590 million in debt.
Beginning in the first quarter of 2001, BET will be reported in the
Cable Networks segment.
As of March 19, 2001, National Amusements, Inc. ("NAI"), a closely held
corporation that owns and operates approximately 1,400 movie screens in the
U.S., the U.K. and South America, beneficially owned approximately 68% of the
Company's Class A Common Stock, and approximately 11% of the Company's Class A
Common Stock and Class B Common Stock on a combined basis. NAI is not subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended. Sumner M. Redstone, the controlling shareholder of NAI, is the
Chairman of the Board and Chief Executive Officer of the Company.
The Company's principal offices are located at 1515 Broadway, New York, New
York 10036 (telephone 212/258-6000).
For additional information about principal acquisitions and divestitures,
see Notes 3 and 5 to the Consolidated Financial Statements.
Viacom Segments
Cable Networks
The Company owns and operates advertiser-supported basic cable television
program services through its MTV Networks ("MTVN") division and premium
subscription television program services through Showtime Networks Inc. ("SNI")
in the U. S. and internationally.
Generally, the Company's cable networks are offered to customers of cable
television operators, distributors of direct-to-home satellite services ("DTH")
and other multichannel distributors. Cable television is currently the
predominant means of distribution of the Company's program services in the U.S.
Internationally, the predominant distribution technology varies territory by
territory.
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MTV Networks. In the U.S., MTVN's owned and operated program services
include MTV: MUSIC TELEVISION ("MTV"), MTV's spin-off, MTV2: MUSIC
TELEVISION(TM) ("MTV2"), NICKELODEON, NICK AT NIGHT, TV LAND, VH1 MUSIC FIRST
("VH1"), CMT: COUNTRY MUSIC TELEVISION ("CMT"), and TNN: THE NATIONAL NETWORK
("TNN").
MTV's programming consists of music videos and events, augmented by music
and general lifestyle information, comedy and dramatic series, animated
programs, news specials, interviews, documentaries and other youth-oriented
programming appealing primarily to an audience aged 18 to 24. At December 31,
2000 according to the Nielsen Media Research report, MTV reached approximately
77.3 million domestic subscriber households. MTV2, a 24-hour, seven-days-a-
week spin-off of MTV, offers a "freeform" music format which features music
videos from a broad range of musical genres and artists. MTVN also operates
"The Suite from MTV Networks" ("The Suite"), a package of digital television
program services, which currently consists of MTV2 and five other music
related services, and NOGGIN(R) and two other program services from
NICKELODEON. The Suite is offered through DBS distributors and cable operators
offering digital technology. During 2000, MTVN also offered THE BOX(R) MUSIC
NETWORK, a 24-hour, all music basic cable channel, with technology allowing
selection of music videos on a market-by-market basis. On December 31, 2000,
THE BOX MUSIC NETWORK was integrated into MTV2. At December 31, 2000, MTV2,
with the integration of the subscribers of THE BOX MUSIC NETWORK, had
approximately 30.0 million domestic subscriber households (based on subscriber
counts provided by each distributor of the service, including cable, DTH and
other multichannel programming providers).
NICKELODEON combines acquired and originally produced programs in a pro-
social, non-violent format comprising two distinct program units tailored to
age-specific demographic audiences: NICKELODEON, targeted to audiences ages 2
to 11 (which includes NICK JR.(R), a program block designed for 2 to 5 year
olds, and such popular shows as RUGRATS, BLUE'S CLUES and SPONGEBOB
SQUAREPANTS); and NICK AT NITE, which attracts primarily audiences ages 18 to
54 and offers mostly situation comedies from various eras, including I LOVE
LUCY, THE DICK VAN DYKE SHOW, THE MARY TYLER MOORE SHOW and TAXI. At December
31, 2000, according to the Nielsen Media Research report, NICKELODEON/NICK AT
NITE reached approximately 79.8 million domestic subscriber households.
NICKELODEON licenses its brands and characters for and in connection with
merchandise, home video and publishing worldwide. NICKELODEON MOVIES(R)
develops a mix of story- and character-driven projects based on original ideas
and NICKELODEON programming, such as the feature films SNOW DAY, released
theatrically on February 11, 2000, and RUGRATS IN PARIS: THE MOVIE, released
in fourth quarter 2000 by PARAMOUNT PICTURES, as well as a BLUE'S CLUES
direct-to-video movie BLUE'S BIG MUSICAL. Additionally, the Company publishes
monthly NICKELODEON MAGAZINE(TM). NICKELODEON GAS GAMES AND SPORTS FOR
KIDS(R), a cable program service packaged as part of The Suite, features
children's game shows and sports programming for viewers ages 6 to 11, and
includes a related online service. NICKELODEON owns and operates theme park
attractions and touring shows under its NICKELODEON RECREATION(TM) unit and
interactive public attractions and television production studios under its
NICKELODEON STUDIOS(R) unit located at Universal Studios Florida. NICKELODEON
also produces original animation at its NICKTOONS(R) Animation Studio in
Burbank, California.
TV LAND, a 24-hour, seven-days-a-week spin-off of NICK AT NITE, is
comprised of a broad range of well-known television programs from various
genres, including comedies, dramas, westerns, variety and other formats from
the 1950s through the 1980s, including THE HONEYMOONERS, THE ANDY GRIFFITH
SHOW, LEAVE IT TO BEAVER and CHARLIE'S ANGELS. At December 31, 2000, according
to the Nielsen Media Research report, TV LAND reached approximately 55.5
million domestic subscriber households.
VH1 presents music and related programming directed at an audience aged 25
to 49 with an emphasis on series which feature viewers' favorite music and
artists such as VH1 BEHIND THE MUSIC, STORYTELLERS, POP UP VIDEO, VH1 BEFORE
THEY WERE ROCK STARS and VH1 ALL ACCESS. In addition, VH1 airs music videos,
concerts, special events and musically themed movies. In April 2000, VH1 aired
DIVAS 2000: A TRIBUTE TO DIANA ROSS, followed in November 2000 with its debut
of the first MY VH1 MUSIC AWARDS, where nominees and winners were determined
by fans voting online. In December 2000, VH1 had
I-3
its most successful original movie premiere with A DIVAS CHRISTMAS CAROL. The
VH1 SAVE THE MUSIC(R) Foundation, in connection with VH1's cable television
and satellite affiliates, restored music education programs to 214 schools in
40 communities while also winning the Governors' Award from the Academy of
Television Arts & Sciences, the George Foster Peabody Award for broadcasting
and cable excellence and the Beacon Award presented by the Cable Television
Public Affairs Association. At December 31, 2000, according to the Nielsen
Media Research report, VH1 reached approximately 74.2 million domestic
subscriber households.
CMT is an advertiser-supported, 24-hour cable network which presents
country music videos, and related events, lifestyle and entertainment
programming. Its programming in 2000 included CMT All ACCESS, a monthly series
of concerts featuring country music artists, and special events such as CHICKS
MUSIC TELEVISION featuring a variety of programs showcasing the Dixie Chicks.
The Company offers CMT in the U.S. and, through a minority joint venture, in
Canada. At December 31, 2000, according to the Nielsen Media Research report,
CMT reached approximately 44.7 million domestic subscriber households.
TNN (formerly TNN: The Nashville Network(R)) is an advertiser-supported
general entertainment cable network with a focus on popular lifestyle and
entertainment programming. The Company offers TNN in the U.S. and, as a non-
advertiser supported service, in Canada. At December 31, 2000, according to
the Nielsen Media Research report, TNN reached approximately 79.2 million
domestic subscriber households and Mediastat reports TNN's Canadian
distribution at 6.3 million households. TNN's programming includes the highly
rated series WWF RAW IS WAR, as well as popular movies and favorite off-net
television series such as STARSKY AND HUTCH and THE DUKES OF HAZZARD, and
sports, including professional bull-riding, motor sports, fishing and other
outdoor sports.
MTV FILMS(TM), in association with PARAMOUNT PICTURES, produced THE
ORIGINAL KINGS OF COMEDY which was released by PARAMOUNT PICTURES in 2000,
and, with PARAMOUNT PICTURES, is currently producing ORANGE COUNTY. MTV FILMS
also produced SAVE THE LAST DANCE, with PARAMOUNT PICTURES, released in
January 2001. MTV has also launched lines of home videos, consumer products
and books, featuring MTV programming and personalities. In addition, MTV
pursues broadcast network and first-run syndication television opportunities
through MTV PRODUCTIONS(TM).
Internationally, MTVN owns and operates, participates in as a joint
venturer, and licenses third parties to operate, MTVN program services,
including MTV and NICKELODEON programming. The MTVN international program
services are described in the chart that follows. Most of the MTVN
international program services are regionally customized to suit the local
tastes of their young adult viewers by the inclusion of local music,
programming and on-air personalities, and use of the local language. MTV
Networks Europe is Europe's most widely distributed cable and satellite
network comprising 16 individual music channels, including MTV (9 regionalized
services), VH1 (3 services), MTV2, MTV Extra(TM), MTV Base, and VH1
Classic(TM). The network currently reaches more than 90 million households in
Europe via a combination of satellite, cable, and terrestrial distribution.
MTVN, in exchange for cash and advertising time or for promotional
consideration only, licenses from record companies music videos for exhibition
on MTV, MTV2, VH1, CMT and other MTVN program services. MTVN has entered into
multi-year global or regional music video licensing agreements with certain of
the major record companies. These agreements generally cover a three to five
year period and contain provisions regarding video debut and exclusivity for a
limited number of music videos in the U.S. MTVN also is negotiating and
expects to renew or initiate additional global or regional license agreements
with the other major record companies and independent labels. However, there
can be no assurance that such renewals or agreements can be concluded on
favorable terms (see "Viacom Segments--Competition--Cable Networks").
MTVN derives revenues principally from two sources: the sale of time on its
own networks to advertisers and the license of the networks to cable
television operators, DTH and other distributors. The sale of MTVN advertising
time is affected by viewer demographics, viewer ratings and market conditions
for advertising time. Adverse changes to any of these factors could have an
adverse effect on revenues. In addition, continued consolidation among cable
operators could have an adverse effect on MTVN's license fee revenue (see
"Viacom Segments--Competition--Cable Networks").
I-4
International MTVN Program Services
The following table sets forth information regarding MTVN program services
operated internationally:
Launch/
Regional Commencement
Program Service Territory Ownership Feeds/Language(1) Date
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MTV Europe 40 territories, 100% by the 9 Regional Feeds Various: August
(includes MTV: including all EU states, Company (U.K., Netherlands, 1987-2000.
Music Television Eastern and Central Scandinavia, Poland,
and MTV Base, Europe, South Africa, Spain, France,
MTV Extra and certain countries in the Central, South and
MTV2) former Soviet Union, the European) all in or
Middle East, Egypt, mainly in English
Faroe Islands, Israel, (except for Central
Liechtenstein, Malta and presented in German,
Moldova Poland presented in
Polish and South
presented in Italian)
MTV Latin Latin America, the 100% by the 3 Regional Feeds in October 1993
America Caribbean, Brazil and Company Spanish
the U.S.
MTV Brasil Brazil Joint Venture Portuguese October 1990
(with Abril
S.A.)
MTV Asia Taiwan, certain Joint Venture English, Mandarin, April 1995
provinces in China*, (with PolyGram Bahasa Indonesian,
Brunei, Thailand, N.V.) Tagalog, Hindi, and
Singapore, Philippines, Korean
Indonesia, Malaysia,
Vietnam, Hong Kong*,
South Korea*, Papua New
Guinea, India, Sri
Lanka, Bangladesh, Nepal
and Pakistan
MTV Australia Australia Licensing English March 1997
Arrangement
(with Optus
Vision Pty
Limited)
MTV Russia Russia Joint Venture Russian September 1998
(with Russia
Partners
Company, L.P.,
Biz
Enterprises
and others)
MTV Japan Japan Joint Venture Japanese January 1, 2001
with @Japan
Media K.K. and
others)
Nickelodeon Latin America, Brazil 100% by the Spanish, Portuguese December 1996
Latin America and the Caribbean Company and English
Nickelodeon Nordic region (including 100% by the Swedish, Norwegian and February 1997
Nordic* Sweden, Norway, Denmark Company Danish
and Finland)
Nickelodeon U.K. Joint Venture English September 1993-
U.K.* (with British Nick
Sky September 1999-
Broadcasting Nick Jr.
Limited)
Nickelodeon Australia Joint Venture English October 1995
Australia (with XYZ
Entertainment
Pty Ltd.)
Nickelodeon Spain 100% by the Spanish March 1999
Spain* Company
Nickelodeon Japan, CIS/Baltic 100% by the Japanese, Russian, November 1998
Global Network Republics, India, Company Magyar, English,
Ventures(2) Poland*, Hungary*, Polish and Romanian
Africa*, Malaysia, New
Zealand, Romania,
Indonesia, Philippines,
Singapore, Turkey,
Bangladesh, Nepal and
Malta
VH1 U.K./VH1 All EU states, the 100% by the English September 1994
Export/ VH1 Middle East, Africa, Company
Classic Scandinavia, Israel,
Malta, Moldova, South
Africa and Eastern
Europe
VH1 Germany Germany and Austria 100% by the German May 1995
Company
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* Denotes program services that are not 24 hours-a-day/seven-days-a-week.
(1) All MTV and VH1 program services include English language music videos.
(2) Nickelodeon Global Network Ventures consists of eleven different services
with customized programming for targeted markets.
I-5
Showtime Networks Inc. SNI owns and operates three commercial-free, premium
subscription television program services in the U.S.: SHOWTIME, offering
recently released theatrical feature films, original motion pictures and
series, family entertainment, and boxing and other special events; THE MOVIE
CHANNEL(R), offering recently released theatrical feature films and related
programming; and FLIX(R), featuring theatrical feature films primarily from
the 70s, 80s and 90s as well as selected other titles. At December 31, 2000,
SHOWTIME, THE MOVIE CHANNEL and FLIX, in the aggregate, had approximately 28.4
million subscriptions in the 50 states and certain U.S. territories. SUNDANCE
CHANNEL(R), a joint venture (among SNI, an affiliate of Robert Redford and
Universal Studios) managed by SNI, is a commercial-free premium subscription
television program service in the U.S., dedicated to independent film,
featuring top-quality American independent films, documentaries, foreign and
classic art films, shorts and animation, with an emphasis on recently released
titles.
SNI also owns and operates several multiplexed versions of SHOWTIME and THE
MOVIE CHANNEL in the U.S., including SHOWTIME BEYOND(R), a genre-based channel
featuring sci-fi, horror and fantasy programming, and SHOWTIME EXTREME(R), a
genre-based channel featuring action/adventure programming. On March 1, 2001,
SNI launched SHOWTIME NEXT(TM), a channel targeting 18-24 year-olds, SHOWTIME
WOMEN(TM), focusing on women in front of and behind the camera, and SHOWTIME
FAMILYZONE(TM), a channel featuring no R-rated programming. SNI also transmits
a high definition television version of SHOWTIME. In addition, SNI jointly
owns an advertiser-supported basic television program service in Spain named
SHOWTIME EXTREME(R) with Media Park, S.A., a leader in thematic channel
production based in Barcelona. At the end of 2000, SNI entered into a joint
venture with Zone Vision Enterprises, Limited, a UK company, for the
production and distribution of an advertiser-supported action-oriented basic
television program service in Turkey. The channel was launched in January 2001
under the name SHOWTIME(TM).
SNI also provides special events, such as sports and musical events, to
licensees on a pay-per-view basis. SHOWTIME EVENT TELEVISION(TM) is a pay-per-
view distributor of these special events, including boxing events. This unit
has produced and distributed seven of the top ten pay-per-view events of all
time, including the top two: Tyson vs. Holyfield I and Holyfield vs. Tyson II.
SHOWTIME EVENT TELEVISION has also been instrumental in bringing other events
to the viewing public, such as DORITOS PRESENTS DREW CAREY'S IMPROV ALL STARS,
as well as numerous music concerts, including THE LAST KISS, SPICE GIRLS IN
CONCERT--WILD!, THE BACKSTREET BOYS, TINA TURNER and THE ROLLING STONES.
The costs of acquiring premium television rights to programming and
producing original motion pictures and series are the principal expenses of
SNI. In order to exhibit theatrical motion pictures on premium subscription
television, SNI enters into commitments to acquire rights, with an emphasis on
acquiring exclusive rights for SHOWTIME and THE MOVIE CHANNEL, from major or
independent motion picture producers and other distributors. SNI's exhibition
rights cover the U.S. and may, on a contract-by-contract basis, cover
additional territories. SNI has the exclusive U.S. premium subscription
television rights to all PARAMOUNT PICTURES' feature films theatrically
released beginning January 1, 1998, as well as non-exclusive rights to certain
titles from PARAMOUNT PICTURES' film library (see "Viacom Segments--
Entertainment"). SNI also has significant theatrical motion picture license
agreements with other motion picture producers and distributors, including
Metro-Goldwyn-Mayer Studios Inc. ("MGM"), Artisan Pictures Inc., and Buena
Vista Television (a subsidiary of The Walt Disney Company) for Dimension Films
theatrical pictures, covering motion pictures initially theatrically released
through dates ranging from December 31, 2001 to December 31, 2008. Theatrical
motion pictures that are licensed to SNI on an exclusive basis are generally
exhibited first on SHOWTIME and THE MOVIE CHANNEL after an initial period or
"window" for theatrical, home video and pay-per-view exhibition and before the
period commenced for standard broadcast television and basic cable television
exhibition. Many of the motion pictures which appear on FLIX have been
previously available for standard broadcast and other exhibitions (but are
shown on FLIX unedited and commercial-free).
SNI also arranges for the development, production, acquisition and, in many
cases, distribution of original programs, series and motion pictures. SNI's
original series include RESURRECTION BLVD., the first English-language U.S.
dramatic television series that predominantly features Hispanics both in front
of and behind the
I-6
camera, and SOUL FOOD, a series (based on the theatrical motion picture of the
same name) that follows the struggles, rivalries and triumphs of a multi-
generational African-American family. SNI's original motion pictures have
received numerous industry awards over the years, including the prestigious
Golden Globe Award for "Best Mini-Series or Motion Picture Made for
Television" for 2000. As part of its original programming strategy, SNI
premiered 30 original motion pictures on SHOWTIME in 2000, and expects to
premiere approximately 35 original motion pictures in 2001. The producers of
some of SNI's original motion pictures are given an opportunity to seek a
theatrical release prior to such pictures' exhibition on SHOWTIME or THE MOVIE
CHANNEL. If the producers are not successful in obtaining such a theatrical
release, these pictures then premiere in the U.S. on SHOWTIME or THE MOVIE
CHANNEL. SNI has entered into and plans to continue to enter into co-
financing, co-production and/or co-distribution arrangements with other
parties to reduce the net cost to SNI for its original motion pictures. In
2000, Hallmark Entertainment Distribution LLC, PARAMOUNT TELEVISION and MGM
were the predominant co-producers, co-financiers and co-distributors of SNI's
original motion pictures, programs and series for that calendar year.
BLOCKBUSTER and SNI have an agreement whereby BLOCKBUSTER will license from
SNI the exclusive domestic home video rights to up to 180 SNI original motion
pictures and other programs over the period from April 1, 2000 through March
31, 2005.
Cable Networks Joint Ventures. COMEDY CENTRAL(R), a joint venture of the
Company and Home Box Office ("HBO"), a unit of AOL Time Warner Inc., is an
advertiser-supported basic cable television program service which features
comedy programming, including SOUTH PARK. The Company is a joint venturer in
GULF DTH ENTERTAINMENT LDC, a satellite direct-to-home platform offering the
following channels in the Middle East: MTV, VH1, NICKELODEON, TV LAND and THE
PARAMOUNT COMEDY CHANNEL(TM). A joint venture between NICKELODEON and Sesame
Workshop (formerly Children"s Television Workshop) operates NOGGIN, a 24-hour,
seven-days-a-week, non-commercial children's educational program service,
distributed by digital cable and satellite, which includes a related online
service. NOGGIN's purpose is to educate and entertain 2 to 12 year olds.
NOGGIN's programming line-up includes a mix of live action, news, animated and
puppet shows, including many acclaimed series such as Sesame Street, Electric
Company and BLUE'S CLUES after their initial network runs. MTV Polska, a joint
venture between MTV Networks BV, the Dutch subsidiary of MTV Networks Europe,
and UPC Programming BV, was established to create, produce and broadcast two
new channels: MTV Polska, and VH1 Polska. MTV Polska is broadcast by cable and
satellite throughout Poland.
Television
The Television segment consists of the CBS and UPN television networks, 39
owned broadcast television stations, and the Company's television production
and syndication business.
Television Networks. The CBS TELEVISION NETWORK(TM) through CBS NEWS(TM),
CBS SPORTS(TM) and CBS ENTERTAINMENT(TM) distributes a comprehensive schedule
of news and public affairs broadcasts, sports and entertainment programming,
and feature films to more than 200 domestic affiliates, 16 of the Company's
owned and operated television stations, and to certain overseas affiliated
stations. The affiliates serve, in the aggregate, all 50 states and the
District of Columbia, reaching virtually every television home in the United
States. The CBS TELEVISION NETWORK is responsible for sales of advertising
time for its network broadcasts.
CBS NEWS operates a worldwide news organization, providing the CBS
TELEVISION NETWORK and the CBS RADIO NETWORK(R) with regularly scheduled news
and public affairs broadcasts, including 60 MINUTES, the pioneering news
magazine now in its 33rd year, and its offspring, 60 MINUTES II, the CBS
EVENING NEWS WITH DAN RATHER, 48 HOURS, THE EARLY SHOW, FACE THE NATION, THE
SATURDAY EARLY SHOW and CBS NEWS SUNDAY MORNING--as well as special reports.
CBS NEWS maintains 18 news bureaus and offices around the world, in addition
to its headquarters operations in New York City. CBS Radio News serves more
than 2000 radio stations with hourly newscasts, instant coverage of breaking
stories, special reports, updates, features, customized reports and news feed
material. Among its many features
I-7
are "World News Roundup," and "The World Tonight." CBS News Productions, the
off-network production company created by CBS NEWS, produces original
nonfiction programming for domestic and international outlets, including the
cable television, home video, CD-ROM, audio-book and in-flight markets, as
well as schools and libraries.
CBS SPORTS broadcasts comprehensive regular-season golf and college
basketball lineups on network television, in addition to the NFL's American
Football Conference schedule and championship games. CBS SPORTS' 2000-2001
broadcast schedule was highlighted by Super Bowl XXXV. Among the events CBS
SPORTS airs are THE NFL TODAY; NCAA basketball, including the men's Final Four
and championship games; golf, including the Masters and PGA Championship; the
U.S. Open Tennis Championships; college football; CBS SPORTS SPECTACULAR,
including track and field and gymnastics, and NCAA championships, including
the College World Series. Extending its franchises off the field, CBS SPORTS
has launched a licensing program that will showcase its logo on apparel and
sports equipment and has formed a marketing unit to develop licensing,
merchandising, multimedia and other business opportunities for advertisers and
event organizers.
CBS ENTERTAINMENT is responsible for acquiring or developing and scheduling
the entertainment programming presented on the CBS TELEVISION NETWORK which
includes primetime comedy and drama series, new television movies and mini-
series, theatrical films, specials, children's programs, daytime dramas, game
shows and late-night broadcasts. In the past year, the Company introduced to
U.S. audiences the highly successful reality-based SURVIVOR series. CBS
ENTERTAINMENT has introduced two dramas in the 2000-2001 season, CSI: CRIME
SCENE INVESTIGATION and THE DISTRICT, and a new comedy YES, DEAR. Its shows
include EVERYBODY LOVES RAYMOND, BECKER, THE KING OF QUEENS, JUDGING AMY,
TOUCHED BY AN ANGEL, JAG and FAMILY LAW. The division presents two movie
franchises, a lineup of specials that includes THE GRAMMY AWARDS, THE CMA
AWARDS and THE KENNEDY CENTER HONORS, and THE LATE SHOW WITH DAVID LETTERMAN.
The CBS Daytime lineup and the drama THE YOUNG AND THE RESTLESS have been
rated number one in the daypart by Nielsen Media Research for 12 consecutive
years.
In 1997, the Company acquired a 50% interest in the UNITED PARAMOUNT
NETWORK(R) ("UPN") from BHC Communications, Inc. ("BHC"), a subsidiary of
Chris-Craft Industries, Inc. In March 2000, BHC sold to the Company the
remaining 50% interest in UPN for $5 million. After the May 2000 merger with
CBS, pursuant to which the Company acquired the CBS TELEVISION NETWORK, the
Federal Communications Commission (the "FCC" or the "Commission") ordered the
Company to come into compliance with its rule prohibiting a single entity from
operating two networks within 12 months of the merger closing date. The FCC
subsequently proposed to eliminate this rule. (See "Viacom Segments--
Regulation--Broadcasting").
At December 31, 2000, UPN provided 23 hours of programming a week,
including two-hour prime-time programming blocks five nights per week, to
affiliates in 177 U.S. television markets, reaching approximately 96% of all
U.S. television households, including secondary affiliates. Nineteen of the
Company's owned television stations and two stations which the Company
programs pursuant to local marketing agreements ("LMAs") are affiliates of
UPN.
Television Stations. The Company owns 39 television stations, all of which
operate under licenses granted by the FCC pursuant to the Communications Act
of 1934, as amended (the "Communications Act"). The licenses are renewable
every eight years. In addition to these 39 owned stations, the Company
operates two additional commercial television stations--(WTVX-TV in West Palm
Beach--Ft. Pierce, FL and WLWC-TV in Providence, RI--New Bedford, MA),
pursuant to LMAs.
The Company's television stations are located in the 12 largest, and 18 of
the top 20, television markets in the United States. Consistent with the 1999
liberalization of the FCC's local ownership rules, the Company has duopolies
in 6 major markets: Philadelphia (market #4), Boston (market #6), Dallas
(market #7), Detroit (market #9), Miami (market #16) and Pittsburgh (market
#20). The 39 owned stations reach approximately 48% of all U.S. television
households, which equals approximately 41% of U.S. television households under
the FCC
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national ownership limitation. The FCC's order approving the merger of Viacom
and CBS requires that the Company be in compliance with the FCC's national
ownership limitation of 35% by May 4, 2001. The Company has challenged the
rule in federal court and is seeking a stay of the requirement to come into
compliance with the limit pending judicial review of the national ownership
cap (See "Viacom Segments--Regulation--Broadcasting").
The stations produce news and broadcast public affairs and other
programming to serve their local markets and offer CBS or UPN television
network and syndicated programming. Many of the Company's television stations
currently operate Web sites which promote the stations' talent and
programming, and provide news, information and entertainment, as well as other
services.
Currently, broadcast signals are, for the most part, transmitted in analog
form. However, in April 1997, the FCC assigned each existing television
station a six MHz channel to be used for the broadcast of digital television.
The FCC adopted a time schedule under which stations are required (absent
conditions beyond their control) to construct digital transmission facilities
and begin digital operations. The schedule has staggered deadlines depending
upon a station's market size and whether the station is affiliated with a
major broadcast television network (CBS, ABC, NBC, or FOX). Under the
schedule, the Company was required to construct digital transmission
facilities for its eight CBS network affiliated stations in the top ten
markets by May 1, 1999, and by November 1, 1999, for its seven CBS network
affiliated stations in the 11th through 30th markets. The Company is required
to construct digital facilities for the five CBS network affiliated stations
in markets below the top 30, as well as for its UPN network affiliated
stations in all markets, by May 1, 2002. The Company is currently transmitting
digital broadcasts for CBS network affiliated owned and operated stations in
New York, Los Angeles, Philadelphia, San Francisco, Boston, Dallas (low
power), Detroit, Pittsburgh and Baltimore. The Company is currently
transmitting digital broadcasts for UPN network affiliated owned and operated
stations in Dallas and Detroit.
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Television Stations
The table below sets forth the 39 television stations owned by the Company
and the two television stations operated by the Company pursuant to LMAs.
Market Type/ Network
Station and Metropolitan Area Served(1) Rank(2) Channel Affiliation
- --------------------------------------- ------- ------- -----------
WCBS-TV............................................. 1 VHF/2 CBS
New York, NY
KCBS-TV............................................. 2 VHF/2 CBS
Los Angeles, CA
WBBM-TV............................................. 3 VHF/2 CBS
Chicago, IL
KYW-TV.............................................. 4 VHF/3 CBS
Philadelphia, PA
WPSG-TV............................................. 4 UHF/57 UPN
Philadelphia, PA
KPIX-TV............................................. 5 VHF/5 CBS
San Francisco, CA
WBZ-TV.............................................. 6 VHF/4 CBS
Boston, MA
WSBK-TV............................................. 6 UHF/38 UPN
Boston, MA
KTVT-TV............................................. 7 VHF/11 CBS
Dallas-FT. Worth, TX
KTXA-TV............................................. 7 UHF/21 UPN
Dallas-FT. Worth, TX
WDCA-TV............................................. 8 UHF/20 UPN
Washington, DC
WKBD-TV............................................. 9 UHF/50 UPN
Detroit, MI
WWJ-TV.............................................. 9 UHF/62 CBS
Detroit, MI
WUPA-TV............................................. 10 UHF/69 UPN
Atlanta, GA
KTXH-TV............................................. 11 UHF/20 UPN
Houston, TX
KSTW-TV............................................. 12 VHF/11 UPN
Seattle-Tacoma, WA
WCCO-TV............................................. 14 VHF/4 CBS
Minneapolis-St. Paul, MN
Satellites:
KCCO-TV(3)........................................ CBS
Alexandria, MN
KCCW-TV(4)........................................ CBS
Walker, MN
WTOG-TV............................................. 15 UHF/44 UPN
Tampa-St. Petersburg, Sarasota, FL
WFOR-TV............................................. 16 VHF/4 CBS
Miami-Ft. Lauderdale, FL
WBFS-TV............................................. 16 UHF/33 UPN
Miami-Ft. Lauderdale, FL
KCNC-TV............................................. 18 VHF/4 CBS
Denver, CO
KMAX-TV............................................. 19 UHF/31 UPN
Sacramento-Stockton-Modesto, CA
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Market Type/ Network
Station and Metropolitan Area Served(1) Rank(2) Channel Affiliation
- --------------------------------------- ------- ------- -----------
KDKA-TV........................................... 20 VHF/2 CBS
Pittsburgh, PA
WNPA-TV........................................... 20 UHF/19 UPN
Pittsburgh, PA
WJZ-TV............................................ 24 VHF/13 CBS
Baltimore, MD
WNDY-TV........................................... 25 UHF/23 UPN
Indianapolis, IN
WWHO-TV........................................... 34 UHF/53 UPN/WB(5)
Columbus, OH
KUTV-TV........................................... 36 VHF/2 CBS
Salt Lake City, UT
Satellite:
KUSG-TV(6)...................................... CBS
St. George, UT
WGNT-TV........................................... 40 UHF/27 UPN
Norfolk, Portsmouth, Newport News, VA
WUPL-TV........................................... 41 UHF/54 UPN
New Orleans, LA
KAUT-TV........................................... 45 UHF/43 UPN
Oklahoma City, OK
KEYE-TV........................................... 60 UHF/42 CBS
Austin, TX
KSCC-TV(7)........................................ 65 UHF/36 UPN
Wichita-Hutchinson, KS
WFRV-TV........................................... 69 VHF/5 CBS
Green Bay-Appleton, WI
Satellite:
WJMN-TV(8)...................................... 177 CBS
Escanaba, MI
WHDF-TV(9)........................................ 81 UHF/15 UPN
Huntsville-Decatur-Florence, AL
The following two stations are operated by the Company pursuant to LMAs:
WTVX-TV........................................... 44 UHF/34 UPN/WB(10)
West Palm Beach-Ft. Pierce, FL
WLWC-TV........................................... 50 UHF/28 UPN/WB(11)
Providence, RI-New Bedford, MA
- --------
(1) Metropolitan Area Served is Nielsen Media Research's Designated Market
Area.
(2) Market Rank based on September 2000 Nielsen Media Research U.S.
Television Household Estimates as provided by BIA Media Access.
(3) KCCO-TV is operated as a satellite station of WCCO-TV.
(4) KCCW-TV is operated as a satellite station of WCCO-TV.
(5) WWHO-TV's primary affiliation is with the UPN network. The station has a
secondary affiliation with the WB network.
(6) KUSG-TV is operated as a satellite station of KUTV-TV.
(7) KSCC-TV is operated by Clear Channel Broadcasting, Inc. ("CCB") pursuant
to an LMA. On February 24, 2001, pursuant to a contractual right, the
Company notified CCB that it would require CCB to acquire the station.
(8) WJMN-TV is operated as a satellite station of WFRV-TV.
(9) The Company owns an attributable 17.5% interest in WHDF-TV.
(10) WTVX-TV's primary affiliation is with the UPN network. The station has a
secondary affiliation with the WB network.
(11) WLWC-TV's primary affiliation is with the UPN network. The station has a
secondary affiliation with the WB network.
I-11
Television Production and Syndication. The Company, through CBS ENTERPRISES
(including KING WORLD PRODUCTIONS and CBS BROADCAST INTERNATIONAL), PARAMOUNT
TELEVISION, SPELLING TELEVISION(R) (including BIG TICKET TELEVISION(R)) and
VIACOM PRODUCTIONS acquires or produces, and distributes programming worldwide
including series, miniseries, specials and made-for-television movies
primarily for broadcast on network television, and first-run and off-network
syndicated programming.
The Company's current network programming includes ED (NBC); FRASIER (NBC);
BECKER (CBS); DIAGNOSIS MURDER (CBS); JAG (CBS); SOME OF MY BEST FRIENDS
(CBS); SABRINA, THE TEENAGE WITCH (WB); MOESHA (UPN); SEVEN DAYS (UPN); THE
PARKERS (UPN); STAR TREK: VOYAGER (UPN); CHARMED (WB); 7TH HEAVEN (WB); THAT'S
LIFE (CBS); and GIRLFRIENDS (UPN). Generally, a network will license a
specified number of episodes for exhibition on the network in the U.S. during
a license period. The bulk of remaining distribution rights, including foreign
and off-network syndication rights, are typically retained by the Company. The
episodic network license fee is normally less than the costs of producing each
series episode; however, in many cases, the Company has been successful in
recouping a portion of its costs through domestic syndication of episodes
after their network runs or by obtaining international sales through its
licensing operations. Foreign sales are generally concurrent with U.S. network
runs. Generally, a series must have a network run of at least three or four
years to be successfully sold in domestic syndication.
In off-network syndication, the Company distributes such series as CAROLINE
IN THE CITY; EARLY EDITION; FRASIER; MOESHA; SABRINA, THE TEENAGE WITCH; 7TH
HEAVEN; SISTER, SISTER; SPIN CITY; STAR TREK: VOYAGER and TOUCHED BY AN ANGEL.
Outside the U.S., PARAMOUNT PICTURES INTERNATIONAL, WVI FILMS B.V. and CBS
BROADCAST INTERNATIONAL distribute U.S. network series programming.
The Company produces and/or distributes programming for first-run
syndication which it sells directly to television stations in the U.S. on a
market-by-market basis. The Company's first-run syndicated programming
includes such shows as ENTERTAINMENT TONIGHT, ENTERTAINMENT TONIGHT WEEKEND,
HOLLYWOOD SQUARES, INSIDE EDITION, JEOPARDY!, JUDGE JOE BROWN, JUDGE JUDY,
JUDGE MILLS LANE, MARTHA STEWART LIVING, MAXIMUM EXPOSURE, THE MONTEL WILLIAMS
SHOW, THE OPRAH WINFREY SHOW, QUEEN OF SWORDS, REAL TV, RELIC HUNTER and WHEEL
OF FORTUNE.
The Company produces and/or distributes original television programming to
basic cable program services (such as the television series ANY DAY NOW,
BEYOND CHANCE and THE DIVISION, on Lifetime), including services in which the
Company has an interest, such as NICK AT NITE, TV LAND and VH1 in the U.S. and
PARAMOUNT COMEDY CHANNEL in U.K. and Spain. It also produces and/or
distributes for premium subscription services programming such as SOUL FOOD,
RESURRECTION BLVD. and THE CHRIS ISAAK SHOW. The Company also co-produces
and/or distributes original television programming for foreign television
exhibition, including such shows as HOPE ISLAND, HIGHER GROUND, LARGO WINCH
and TRIBE.
The recognition of revenues for license fees for completed television
programming in syndication and on basic cable is similar to that of feature
films exhibited on television with license fees recorded as revenue in the
year that programming is available for exhibition which, among other reasons,
may cause substantial fluctuation in the Televsion segment's operating
results. At December 31, 2000, the unrecognized revenues attributable to
television program license agreements were approximately $622 million,
compared to approximately $462 million at December 31, 1999.
Infinity
Infinity's operations are focused on the out-of-home media business with
operations in radio broadcasting through INFINITY BROADCASTING, and outdoor
advertising through INFINITY OUTDOOR and TDI. The
I-12
Radio Stations and Outdoor Displays table sets forth selected information with
regard to Infinity's radio stations and outdoor displays in the top 25 U.S.
radio markets. Infinity characterizes its radio and outdoor advertising
businesses as out-of-home because a majority of radio listening, and virtually
all viewing of outdoor advertising, takes place in automobiles, transit
systems, on the street and other locations outside the consumer's home.
Infinity's strategy generally is to acquire out-of-home media properties in
the largest markets.
Infinity Radio. INFINITY BROADCASTING, consisting of 184 radio stations
serving 41 markets, accounted for approximately 13% of total 2000 U.S. radio
advertising expenditures. The Company's stations ranked first or second, in
terms of 2000 pro forma radio revenues, in 30 out of the 41 markets in which
the Company operates stations. Approximately 91% of the Company's radio
stations are located in the 50 largest radio markets in the United States, and
62% and 97% of the Company's pro forma 2000 net radio revenues were generated
in the 10 and 50 largest U.S. markets, respectively. The Company believes that
this focus on large markets makes it more appealing to advertisers, enables it
to attract more highly skilled management, employees and on-air talent, and
enables it to more efficiently manage its business and generate higher levels
of cash flow than would be the case if it managed a larger number of smaller
stations. Infinity owns the CBS RADIO NETWORK, which is managed by Westwood
One, Inc.
Infinity's radio stations serve diverse target demographics through a broad
range of programming formats. This diversity provides advertisers with the
convenience to select stations to reach a targeted demographic group or to
select groups of stations and outdoor advertising properties to reach broad
groups of consumers within and across markets. This diversity also reduces its
dependence on any single station, local economy, format or advertiser.
Infinity seeks to maintain substantial diversity among its radio stations
in many respects. The geographically wide-ranging stations serve diverse
target demographics through a broad range of programming formats, such as
rock, oldies, news/talk, adult contemporary, sports/talk and country, and
Infinity has established leading franchises in news, sports, and personality
programming. The overall mix of each radio station's programming is designed
to fit the station's specific format and serve its local community. Infinity's
general programming strategy includes acquiring significant on-air talent and
the rights to broadcast sports franchises and news content for its radio
stations. This strategy, in addition to developing loyal audiences for its
radio stations, creates the opportunity to obtain additional revenues from
syndicating such programming franchises to other radio stations.
Outdoor Advertising. INFINITY OUTDOOR and TDI sell advertising space on
various media, including billboards, bulletins, buses, bus shelters and
benches, trains, train platforms and terminals throughout commuter rail
systems, mall posters and phone kiosks. Infinity has outdoor advertising
operations in more than 90 markets in North America, and all 50 of the largest
metropolitan markets in the United States, 14 of the 15 largest metropolitan
markets in Canada and all of the 45 largest metropolitan markets in Mexico.
Additionally, the Company has the exclusive rights to manage advertising space
within the London Underground and on more than 90% of the buses in London and
the United Kingdom, has the exclusive rights to transit advertising in the
Republic of Ireland and parts of Northern Ireland, and has a variety of
outdoor advertising displays in the Netherlands, France, Italy, Spain and
Finland.
The substantial majority of Infinity's revenues are generated from the sale
of local, regional and national advertising. The major categories of out-of-
home advertisers include: automotive, retail, healthcare, telecommunications,
fast food, beverage, movies, entertainment and services.
Infinity beneficially owns shares and vested warrants representing
approximately 18% of the common stock of Westwood One, Inc., which it manages
pursuant to a management agreement. Westwood One is one of the leading
producers and distributors of syndicated and network radio programming in the
U.S. and distributes syndicated and network radio programming to the Company's
radio stations as well as to competitors of Infinity.
Seasonal revenue fluctuations are common in the out-of-home media industry
and are primarily the result of fluctuations in advertising expenditures by
retailers. Infinity's revenues are typically lowest in the first quarter and
highest in the fourth quarter.
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Radio Stations and Outdoor Displays
The following table sets forth certain selected information with regard to
the Company's U.S. radio stations and outdoor displays in the top 25 U.S.
markets as of February 23, 2001:
2000 Market Rank Radio Outdoor
By Metro Area -------------------------------------------- --------------------------------
Market Population Stations AM/FM Format Display Type
- ------ ---------------- -------- ----- ----------------------------- --------------------------------
New York, NY............ 1 WCBS FM Oldies Bus, Bus Shelters, Rail, Kiosks,
WCBS AM News Billboards, Walls, Trestles,
WFAN AM Sports "Spectacular Signage,"
WINS AM News Bulletins, Posters, Mall Posters
WNEW FM Talk
WXRK FM Alternative Rock
Los Angeles, CA......... 2 KCBS FM Classic Rock Bus, Bus Shelters, Kiosks,
KFWB AM News Beach Panels, Bulletins, Walls,
KLSX FM Talk Posters, Mall Posters
KNX AM News
KROQ FM Alternative Rock
KRTH FM Oldies
KTWV FM Smooth Jazz
Chicago, IL............. 3 WBBM FM Contemporary Hit, Radio/Dance Bus, Bus Shelters,
WBBM AM News Bulletins, Posters, Mall Posters
WCKG FM Talk
WJMK FM Oldies
WSCR AM Sports/Talk
WUSN FM Country
WXRT FM Adult Alternative Rock
San Francisco, CA....... 4 KCBS AM News Bus, Bus Shelters, Rail, Cable
KFRC FM Oldies Cars, Bulletins, Walls, Posters,
KFRC AM Oldies Mall Posters
KITS FM Alternative Rock
KLLC FM Modern Adult Contemporary
KYCY AM Talk
KYCY FM Country
Philadelphia, PA........ 5 KYW AM News Bus, Bus Shelters, Rail,
WIP AM Sports Bulletins, Mall Posters,
WOGL FM Oldies
WPHT AM Talk
WYSP FM Active Rock
Dallas--Fort Worth, TX.. 6 KHVN AM Gospel Bus, Bulletins, Mall Posters
KLUV FM Oldies
KOAI FM Smooth Jazz
KRBV FM Rhythmic Contemporary Hits
KRLD AM News/Talk
KVIL FM Adult Contemporary
KYNG FM Talk
Detroit, MI............. 7 WKRK FM Talk Bus, Bus Shelters, Bulletins,
WOMC FM Oldies Posters, Mall Posters
WVMV FM Smooth Jazz
WWJ AM News
WXYT AM Talk/Sports
WYCD FM Country
Boston, MA.............. 8 WBCN FM Alternative Bus, Rail, Mall Posters
WBMX FM Modern Adult Contemporary
WBZ AM News/Talk/Sports
WODS FM Oldies
WZLX FM Classic Rock
Washington, D.C......... 9 WARW FM Classic Rock Bus, Rail, Mall Posters
WHFS FM Alternative Rock
WJFK FM Talk
WPGC FM Urban Contemporary
WPGC AM Gospel
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2000 Market Rank Radio Outdoor
By Metro Area ------------------------------------- --------------------------------
Market Population Stations AM/FM Format Display Type
- ------ ---------------- -------- ----- --------------------- --------------------------------
Houston, TX............... 10 KIKK FM Country Bulletins, Mall Posters
KIKK AM Business
KILT FM Country
KILT AM Sports
Atlanta, GA............... 11 WAOK AM Gospel Bus, Bus Shelters, Rail,
WVEE FM Urban Contemporary Bulletins, Posters, Mall Posters
WZGC FM Classic Rock
Miami-Ft. Lauderdale, FL.. 12 -- -- -- Bulletins, Mall Posters
Seattle-Tacoma, WA........ 14 KBKS FM Country Bus, Bulletins, Mall Posters
KMPS FM Country
KYCW AM Adult Contemporary
Hit Radio
KYPT FM 80's Pop Rock
KZOK FM Classic Rock
San Diego, CA............. 15 KPLN FM Classic Rock Bus, Bus Shelters, Bulletins,
KYXY FM Adult Contemporary Posters, Mall Posters
Phoenix, AZ............... 16 KOOL FM Oldies Bus Shelters, Bulletins,
KZON FM Alternative Rock Posters, Mall Posters
KMLE FM Country
Minneapolis, MN........... 17 WCCO AM News/Talk Bus, Bulletins, Mall Posters
WLTE FM Adult Contemporary
WXPT FM Modern Adult
Contemporary
KSGS AM Urban Adult
Contemporary
Nassau-Suffolk, NY........ 18 -- -- -- Bus, Bulletins
St. Louis, MO............. 19 KEZK FM Soft Rock Bulletins, Posters, Mall Posters
KMOX AM News/Talk/Sports
KYKY FM Adult Contemporary
Hot
Baltimore, MD............. 20 WBGR AM Gospel Mall Posters
WBMD AM Religion
WJFK AM Talk
WLIF FM Lite Music
WQSR FM Oldies
WWMX FM Hot Adult
Contemporary
WXYV FM Contemporary Hit
Radio
Tampa-St. Petersburg, FL.. 21 WLLD FM Rhythmic Contemporary Bulletins, Mall Posters
Hit Radio
WQYK FM Country
WQYK AM Sports/Talk
WYUU FM Oldies
WRBQ FM Country
WSJT FM Smooth Jazz
Pittsburgh, PA............ 22 KDKA AM News/Talk Bus, Bulletins, Mall Posters
WBZZ FM Contemporary Hit
Radio Top 40
WDSY FM Country
WZPT FM Hot Adult
Contemporary
Denver, CO................ 23 KDJM FM Jammin' Oldies Bus Benches, Bulletins, Posters,
KIMN FM Adult Contemporary Mall Posters
KXKL FM Oldies
Cleveland, OH............. 24 WNCX FM Classic Rock Bulletins, Mall Posters
WDOK FM Soft Adult
Contemporary
WQAL FM Hot Adult
Contemporary
WZJM FM Jammin' Oldies
Portland, OR.............. 25 KVMX FM Modern Adult Bulletins, Mall Posters
Contemporary
KINK FM Adult Album
Alternative
KKJZ FM Smooth Jazz
KUFO FM Album Oriented Rock
KUPL FM Country
KUPL AM Classic Country
I-15
Entertainment
The Entertainment segment's principal businesses are PARAMOUNT PICTURES,
which produces and distributes motion pictures; PARAMOUNT PARKS, which
operates five regional theme parks and a themed attraction in the U.S. and
Canada; FAMOUS PLAYERS(R), which operates movie theaters; and FAMOUS MUSIC(R).
Theatrical Motion Pictures. Through PARAMOUNT PICTURES, the Company
produces, finances and distributes feature motion pictures. Motion pictures
are produced by PARAMOUNT PICTURES, produced by independent producers and
financed in whole or in part by PARAMOUNT PICTURES, or produced by others and
distributed by PARAMOUNT PICTURES. Each picture is a separate and distinct
product with its financial success dependent upon many factors, among which
cost and public response are of fundamental importance. In general, motion
pictures produced or acquired for distribution by PARAMOUNT PICTURES are
exhibited in U.S. and foreign theaters followed by videocassettes, discs and
DVDs, pay-per-view television, premium subscription television, network
television, basic cable television and syndicated television exploitation.
During 2000, PARAMOUNT PICTURES produced or co-produced and theatrically
released 12 feature motion pictures in the U.S., including WONDER BOYS, RULES
OF ENGAGEMENT, MISSION: IMPOSSIBLE 2, SHAFT and WHAT WOMEN WANT; THE ORIGINAL
KINGS OF COMEDY produced by MTV FILMS in association with PARAMOUNT PICTURES;
and SNOW DAY and RUGRATS IN PARIS: THE MOVIE produced by NICKELODEON MOVIES in
association with PARAMOUNT PICTURES. PARAMOUNT PICTURES currently plans to
release approximately 17 films in 2001 (which release plans may change due to
a variety of factors), including DOWN TO EARTH, ENEMY AT THE GATES, ALONG CAME
A SPIDER, TOMB RAIDER, RAT RACE, DOMESTIC DISTURBANCE, FOUR FEATHERS, and
VANILLA SKY, and ZOOLANDER produced by VH1 FILMS(TM) in association with
PARAMOUNT PICTURES, SAVE THE LAST DANCE and ORANGE COUNTY produced by MTV
FILMS in association with PARAMOUNT PICTURES, and JIMMY NEUTRON-BOY GENIUS
produced by NICKELODEON MOVIES in association with PARAMOUNT PICTURES.
PARAMOUNT CLASSICS(TM), a division of PARAMOUNT PICTURES, released seven
films in 2000, including SUNSHINE, THE VIRGIN SUICIDES, YOU CAN COUNT ON ME
and THE GIFT. PARAMOUNT CLASSICS was established to handle the distribution of
specialized film product that may require alternative release strategies from
films generally distributed by PARAMOUNT PICTURES. PARAMOUNT CLASSICS
currently plans to release approximately six titles in 2001 (which release
plans may change due to a variety of factors).
In seeking to limit PARAMOUNT PICTURES' financial exposure, the Company has
pursued a strategy with respect to a number of films of entering into
agreements to distribute such films produced and/or financed, in whole or in
part, with other parties. The parties to these arrangements include studio and
non-studio entities, both domestic and foreign. In various of these
arrangements, the other parties control certain distribution and other
ownership rights.
PARAMOUNT PICTURES generally distributes its motion pictures for theatrical
release outside the U.S. and Canada through United International Pictures
("UIP"), a company owned by the Company and an affiliate of Universal Studios,
Inc. ("Universal"). Pursuant to an agreement, UIP will continue to distribute
each studio's films through 2006. PARAMOUNT PICTURES distributes its motion
pictures on videocassette and disc in the U.S. and Canada through PARAMOUNT
HOME ENTERTAINMENT(TM) and outside the U.S. and Canada, generally through
PARAMOUNT HOME ENTERTAINMENT INTERNATIONAL. Commencing April 2000, PARAMOUNT
HOME ENTERTAINMENT INTERNATIONAL started releasing pictures in DVD format in
Europe and Japan. PARAMOUNT PICTURES' feature films initially theatrically
released in the U.S. on or after January 1, 1998 are exhibited exclusively (to
U.S. premium subscription television) on SHOWTIME and THE MOVIE CHANNEL.
PARAMOUNT PICTURES also distributes its motion pictures for premium
subscription, free and basic cable television release outside the U.S. and
Canada and licenses its motion pictures to residential and hotel/motel pay-
per-view, airlines, schools and universities.
I-16
During 2000, PARAMOUNT PICTURES INTERNATIONAL entered into an agreement
with DBS Satellite Services for pay television distribution rights in Israel
for current films, library films and television products and PARAMOUNT
PICTURES INTERNATIONAL and WVI FILMS B.V. entered into an agreement with Movie
Television Inc. for free television distribution rights in Japan for current
motion picture and television product. This latter agreement also includes
free television distribution rights in Japan for various motion picture and
television library product.
In addition to premium subscription television, most motion pictures are
also licensed for exhibition on broadcast and basic cable television, with
fees generally collected in installments. All of the above license fees for
television exhibition (including international and U.S. premium television and
basic cable television) are recorded as revenue in the year that licensed
films are available for such exhibition, which, among other reasons, may cause
substantial fluctuation in PARAMOUNT PICTURES' operating results. At December
31, 2000, the unrecognized revenues attributable to such licensing of
completed films from PARAMOUNT PICTURES' license agreements were approximately
$1.0 billion, compared to approximately $1.2 billion at December 31, 1999. At
December 31, 2000, PARAMOUNT PICTURES had approximately 1,000 motion pictures
in its library. The Company also has a library of additional motion picture
titles, most of which comprise the SPELLING ENTERTAINMENT(TM) library.
Through PARAMOUNT PICTURES and various of its affiliates, the Company is a
joint venturer in a number of international program services, including THE
PARAMOUNT COMEDY CHANNEL(TM) in the U.K., an afternoon and nighttime
(including prime time) program service featuring comedies and films, which is
a joint venture with BSkyB. On March 1, 1999, the Company launched THE
PARAMOUNT COMEDY CHANNEL(R) in Spain, a wholly owned, 24-hour program service,
including a NICKELODEON program segment.
Theatrical Exhibition. The Company's movie theater operations consist
primarily of FAMOUS PLAYERS in Canada and United Cinemas International ("UCI")
in Europe, Latin America and Asia. At December 31, 2000, FAMOUS PLAYERS, a
wholly owned subsidiary of the Company, operated approximately 880 screens in
104 theaters across Canada. UCI, a 50%-owned joint venture of entities
affiliated with the Company and Universal, operated as of December 31, 2000,
approximately 970 screens in 113 theaters in the U.K., Ireland, Germany,
Austria, Spain, Japan, Italy, Poland, Argentina, Brazil, Panama and Taiwan.
As of November 29, 1999, WF Cinema Holdings, L.P. (a limited partnership in
which the Company owns a 50% interest and the other 50% is controlled by AOL
Time Warner Inc., "WF Cinema") entered into agreements (the "Asset
Agreements") with WestStar Cinemas, Inc., WestStar Real Estate, Inc., Colorado
Holdings LLC and WestStar Holdings, Inc. (collectively, "WestStar"), which
parties are the subject of a Chapter 11 Bankruptcy Code proceeding. Pursuant
to the Asset Agreements, WF Cinema agreed to purchase from WestStar various
theaters and related assets for a purchase price of $90 million (which was
paid during 2000) and other consideration. The theaters and assets which are
the subject of this transaction comprise in large part the assets that were
sold by WF Cinema (then known as Cinamerica Theaters L.P.) to WestStar in
1997. WF Cinema has disposed of or closed a number of the theaters that were
acquired and currently intends to dispose of or close some of the remaining
theaters. The Company and AOL Time Warner have agreed to guarantee certain
obligations of WF Cinema as part of these transactions. The Asset Agreements
were approved by the Bankruptcy Court on January 12, 2000, and the acquisition
by WF Cinema closed on January 28, 2000.
Music Publishing. The FAMOUS MUSIC publishing companies own, control and/or
administer all or a portion of the copyright rights to more than 100,000
musical works (songs, scores, cues). These rights include the right to license
and exploit such works, as well as the right to collect income generated by
such licensing and exploitation.
The majority of rights acquired by FAMOUS MUSIC are derived from (i) music
acquisition agreements entered into by PARAMOUNT PICTURES, PARAMOUNT
TELEVISION, SPELLING TELEVISION, MTVN and various other divisions of the
Company respecting certain motion pictures, television programs and other
properties produced by such units and (ii) music acquisition agreements
entered into directly by FAMOUS MUSIC with songwriters and music publishers,
including exclusive songwriting agreements, catalog purchases and music
administration agreements.
I-17
Parks. PARAMOUNT PARKS owns and operates five regional theme parks and a
themed attraction in the U.S. and Canada: PARAMOUNT'S CAROWINDS(R), in
Charlotte, North Carolina; PARAMOUNT'S GREAT AMERICA(TM), in Santa Clara,
California; PARAMOUNT'S KINGS DOMINION(TM), located near Richmond, Virginia;
PARAMOUNT'S KINGS ISLAND(TM), located near Cincinnati, Ohio; PARAMOUNT
CANADA'S WONDERLAND(R), located near Toronto, Ontario; and STAR TREK: THE
EXPERIENCE(R), at the Las Vegas Hilton, a futuristic, interactive environment
based on the popular television and movie series. Each of the theme parks
features attractions, products and live shows based on various intellectual
properties of the Company.
A substantial amount of the theme parks' income is generated during its
seasonal operating period. Factors such as local economic conditions,
competitors and their marketing/pricing actions, and extreme weather
conditions could negatively impact the business' overall profitability if they
come into play during the operating season.
Video
The Company operates in the home video business through its approximately
82% equity interest in Blockbuster Inc. As of December 31, 2000, the Company's
video segment, which included BLOCKBUSTER's home video, DVD and video game
rental and retailing operations operated or franchised approximately 7,700
stores in the U.S., its territories and 25 other countries. BLOCKBUSTER also
operates its Internet site, "blockbuster.com" and is exploring various forms
of electronic entertainment delivery including video-on-demand.
In its stores, which operate primarily under the highly recognized
BLOCKBUSTER brand name, BLOCKBUSTER offers video movies and video games
primarily for rental and also offers certain titles for purchase. BLOCKBUSTER
also offers DVDs for rental and for sale in most of its U.S. stores. In
addition, BLOCKBUSTER offers previously-viewed tapes and previously-viewed
video games for sale. During 2000, BLOCKBUSTER expanded its traditional video
rental service through an agreement with DIRECTV, Inc. ("DIRECTV"), a provider
of digital television entertainment service. Pursuant to this agreement,
BLOCKBUSTER is now marketing DIRECTV System equipment and DIRECTV(R)
programming packages in over 3,800 of BLOCKBUSTER's U.S. stores. Blockbuster
and DIRECTV have also announced that they plan to introduce a co-branded pay-
per-view service during 2001. BLOCKBUSTER also launched a movies-on-demand
service on a trial basis in four cities in December 2000. In addition, in
February 2001, BLOCKBUSTER entered into a strategic alliance with RadioShack
Corporation for the purpose of introducing a RadioShack store-within-a-store
concept inside BLOCKBUSTER.
BLOCKBUSTER acquires its VHS movies primarily pursuant to revenue-sharing
arrangements that were initially implemented in 1998 with the major motion
picture studios, including PARAMOUNT PICTURES. BLOCKBUSTER entered into these
arrangements in order to increase the quantity and selection of newly released
video titles and to satisfy its customers' demand for newly released videos
earlier. For titles acquired under these arrangements, revenue-sharing
generally allows BLOCKBUSTER to license videocassettes for minimal up-front
payments with a percentage of the U.S. rental revenues shared with the studios
over a contractually determined period of time. In addition to acquiring
products pursuant to revenue-sharing agreements, BLOCKBUSTER purchases certain
products that are not subject to revenue-sharing agreements, at wholesale
prices. BLOCKBUSTER also purchases "sell-through" titles, which are movies
that are released by the studios at relatively low initial prices in order to
generate consumer demand to purchase, rather than rent, them. Almost all DVDs
are also released by the studios at sell-through prices. In addition,
BLOCKBUSTER also acquires and offers a wide variety of independent and lower-
cost movies that are generally exclusively available for a specified period of
time at its stores. BLOCKBUSTER also rents video game consoles and DVD players
in most of its U.S. stores.
As with other retail outlets, there is a distinct seasonal pattern to the
home video and video games business, with particularly weaker business in
April and May, due in part to improved weather and Daylight Savings Time, and
in September and October, due in part to the start of school and the
introduction of new television programs.
I-18
Publishing
SIMON & SCHUSTER publishes and distributes consumer hardcover books, trade
paperbacks, mass-market paperbacks, children's books, audiobooks, electronic
books and CD-ROM products in the U.S. and internationally. SIMON & SCHUSTER's
flagship imprints include SIMON & SCHUSTER, POCKET BOOKS, SCRIBNER and THE
FREE PRESS. SIMON & SCHUSTER also develops special imprints and publishes
titles based on MTV, VH1, NICKELODEON and PARAMOUNT PICTURES products. SIMON &
SCHUSTER distributes its products directly and through third parties. SIMON &
SCHUSTER also delivers content and promotes its products on Internet sites
operated by various imprints or linked to individual titles.
In 2000, SIMON & SCHUSTER published 87 titles which were New York Times
bestsellers, including seven New York Times number one bestsellers. Best-
selling titles released in 2000 include "NOTHING LIKE IT IN THE WORLD" by
Stephen Ambrose, "JOE DIMAGGIO: THE HERO'S LIFE" by Richard Ben Cramer,
"BEFORE I SAY GOODBYE" by Mary Higgins Clark, "BLACKBIRD" by Jennifer Lauck,
"TALKING DIRTY WITH THE QUEEN OF CLEAN" by Linda Cobb, "ON WRITING" by Stephen
King, "AN INVITATION TO THE WHITE HOUSE" by Hillary Rodham Clinton, and
"OLIVIA" by Ian Falconer, as well as a number of RUGRATS and BLUE'S CLUE'S
books, featuring the popular NICKELODEON characters.
SIMON & SCHUSTER AUDIO(R) publishes audio editions of prominent works
published by SIMON & SCHUSTER and by other publishers, as well as the
PIMSLEUR(R) line of language instruction. Major titles released as audiobooks
in 2000 include "SHOPGIRL" by Steve Martin, "THE MILLIONAIRE NEXT DOOR" by
Thomas J. Stanley and William D. Danko, and "WHO MOVED MY CHEESE?" by Spencer
Johnson.
Titles published by SIMON & SCHUSTER INTERACTIVE(R) generally consist of
CD-ROM editions or product extensions of well-known book publishing properties
or titles associated with recognized authors and Company properties, including
such 2000 titles as "STAR TREK DEEP SPACE NINE: THE FALLEN," "SABRINA THE
ANIMATED SERIES: MAGICAL ADVENTURE" and "M&M'S: THE LOST FORMULAS."
SIMON & SCHUSTER ONLINE(TM), through "SimonSays.com," publishes original
content, builds reader communities, and promotes and sells SIMON & SCHUSTER's
books and products over the Internet. In 2000, SIMON & SCHUSTER ONLINE, in
conjunction with SCRIBNER, published Stephen King"s "RIDING THE BULLET," an
original story released exclusively in digital form.
International publishing includes the international distribution of
English-language titles through SIMON & SCHUSTER UK(TM) and SIMON & SCHUSTER
AUSTRALIA(TM) and other distributors, as well as the publication of local
titles by SIMON & SCHUSTER UK and SIMON & SCHUSTER AUSTRALIA.
The consumer publishing marketplace is subject to increased periods of
demand in the summer months and during the end-of-year holiday season. Major
new title releases drive a significant portion of SIMON & SCHUSTER's sales
throughout the year.
Consumer books are generally sold on a fully returnable basis, resulting in
significant product returns. In the international markets, the Company is
subject to global trends and local economic conditions.
Online
Through its 90% equity interest in THE MTVi GROUP, L.P. ("MTVi") and
through NICKELODEON ONLINE(TM), the Company operates Internet sites which are
targeted to the current audiences of its various MTV, VH1 and NICKELODEON
television program services worldwide, as well as to new online audiences. The
remaining 10% interest in MTVi is owned by Liberty Digital, Inc. In addition
to providing entertainment and information on such Web sites, the Company also
sells Company-licensed and third-party merchandise.
I-19
MTVi has numerous music Web site destinations around the world, including
MTV.com, VH1.com, Country.com and SonicNet.com. In December 2000, MTVi's Web
sites attracted over 4 million unique visitors, according to Media Metrix, a
leading online audience research measurement service. MTV.com offers users the
latest music news, information on artists and MTV programs, and interactive
entertainment through convergence programs such as Direct Effect (DFX), Total
Request Live (TRL) and VJ for a Day. VH1.com offers users convergent
entertainment, music news, fan club information, daily polls and community
features.
MTVi currently obtains much of its content from record labels, music
publishers and artists. While MTVi obtains certain rights to some of such
content (such as performance rights of song composers and non-interactive
rights to digital transmission of recordings) pursuant to statutory compulsory
licenses, the royalties payable for such compulsory licenses are not yet
established or have not yet been negotiated. Other rights are not subject to
compulsory licenses and must be negotiated with the individual record labels
and other providers. If these providers begin to charge significant fees for
their content, or otherwise alter or discontinue their relationship with MTVi,
then MTVi's content offering and business, financial condition and operating
results could be adversely affected. In addition, because the laws relating to
online rights for music and other copyrighted works are evolving, it is
possible that parties from whom MTVi currently does not obtain licenses will
demand that MTVi obtain them and pay certain fees for usage (see "Viacom
Segments--Regulation--Intellectual Property").
NICKELODEON ONLINE operates Web sites that feature NICKELODEON properties,
including Nick.com, NickJR.com, TVLand.com, Nick-at-Nite.com, Gas.Nick.com and
Teachers.Nick.com. Nick.com is a leading Web site for kids, offering
convergent entertainment, online games, entertainment tools and services,
Internet radio, information on Nickelodeon celebrities and programs and other
content for kids. NickJR.com offers online content for parents and their pre-
school aged kids, including advice, parent-to-parent communities, e-commerce,
as well as a preschool area featuring interactive games, art, stories and
music. In December 2000, NICKELODEON ONLINE's Web sites attracted over 2.8
million unique visitors, according to Media Metrix.
In addition, the Company operates two Web sites, CBS.com and CBSNews.com,
which draw visitors from CBS TELEVISION NETWORK programming in all dayparts
(daytime, primetime and late night). CBS.com integrates local, national and
international news, weather, sports and information on CBS TELEVISION NETWORK
programming in one location. The site provides information on CBS
ENTERTAINMENT programming (including such features as David Letterman's "Top
Ten" list). In early 2001, as a result of the debut of CBS's reality show,
SURVIVOR: THE AUSTRALIAN OUTBACK, CBS.com reached its highest visitor levels
ever. The site also provides links to a number of sites in which the Company
owns an equity interest, including CBS MarketWatch, CBS SportsLine and CBS
HealthWatch.
CBSNews.com brings the coverage and reputation of CBS NEWS to the Internet,
including multimedia coverage of top stories, coverage of breaking news events
and information from CBS NEWS investigations.
During 2000, the Online segment included an investment in iWon, Inc., which
operates an Internet portal. Subsequent to December 31, 2000, the successor to
iWon will be included with the Company's other Internet investments. Effective
January 1, 2001, the Company will present its online businesses as part of the
Cable Networks and Television segments. Online revenues are primarily
generated by advertising revenues derived from online advertising and on-air
promotion and by the sale of merchandise.
The Company also operates Internet sites through its other businesses, such
as PARAMOUNT PICTURES, INFINITY BROADCASTING, BLOCKBUSTER, SHOWTIME and SIMON
& SCHUSTER, for the purpose of marketing and commerce. Such activity is not
reported as part of the Online segment.
Internet Investments: The Company holds minority investments in five public
Internet companies: Sportsline.com, Inc. (NASDAQ: SPLN), which publishes
several sports Internet sites including CBS.sportsline.com; MarketWatch.com,
Inc. (NASDAQ: MKTW), which publishes financial and market data Internet sites
including CBS.marketwatch.com; Hollywood Media Corp. (NASDAQ: HOLL), which
publishes entertainment content Internet sites, including hollywood.com;
Switchboard Incorporated (NASDAQ: SWBD),
I-20
which publishes local information directory Internet sites, including
switchboard.com; and Medicalogic/Medscape, Inc. (NASDAQ: MDLI), which
publishes consumer health Internet sites including
CBShealthwatch.medscape.com. Other Internet investments of the Company include
minority investments in Office.com, Inc., Content Commerce, L.P., RX.com, Inc.
and Wrenchead.com, Inc.
Competition
Corporate mergers consummated in recent years have resulted in greater
consolidation in the entertainment industries, which may also present
significant competitive challenges to several of the Company's businesses.
Cable Networks
MTV Networks. MTVN services compete with other basic cable program services
for channel space and compensation for carriage from cable television
operators, DTH and other multichannel distributors. MTVN also competes for
advertising revenue with other basic cable and broadcast television networks,
and radio and print media. For basic cable television networks such as the
MTVN services, advertising revenues derived by each program service depend on
the number of households subscribing to the service through local cable
operators and other distributors in addition to household and demographic
viewership as determined by research companies such as Nielsen Media Research.
MTVN services also compete with other cable services and broadcast television
for the acquisition of popular programming.
Certain major record companies have launched music-based program services
outside the U.S., including, but not limited to: Channel V, which is jointly
owned and operated in Asia and Australia by Star TV and four major record
labels; and Viva and Viva 2, German-language music channels distributed in
Germany and owned in large part by four major record labels. In addition to
the competition referred to above, MTVN's music-based program services compete
with other music-based television program services and blocks for distribution
by cable, satellite and other systems, and for distribution license fees and
advertising revenues.
Children-oriented programming blocks are currently exhibited on a number of
U.S. broadcast television networks, including, among others, "Fox Kids,"
"Kids' WB" and a Saturday morning block on ABC, all of which compete with
NICKELODEON for advertising revenue. There are also a number of other U.S.
cable television program services featuring children-oriented programming,
including the Cartoon Network, the Disney Channel and the Fox Family Channel.
In addition to the competition referred to above, NICKELODEON competes
internationally with other television program services and blocks targeted at
children for distribution by cable, satellite and other systems, and for
distribution license fees and advertising revenue.
Showtime Networks Inc. Competition among premium subscription television
program services in the U.S. is primarily dependent on: (i) the acquisition
and packaging of an adequate number of recently released quality motion
pictures and the production, acquisition and packaging of original motion
pictures, original series and other original programs; and (ii) the offering
of prices, marketing and advertising support and other incentives to cable
operators and other distributors for carriage so as to favorably position and
package SNI's premium subscription television program services to subscribers.
HBO is the dominant company in the U.S. premium subscription television
category, offering two premium subscription television program services, the
HBO service and Cinemax. SNI is second to HBO with a significantly smaller
share of the premium subscription television category. Starz Encore Media
Group (an affiliate of AT&T Corp.) owns the third principal premium
subscription television program service in the U.S., Starz!, which features
recently released motion pictures and competes with SNI's and HBO's premium
program services.
Television
The television broadcast environment is highly competitive. The principal
methods of competition in broadcast television are the acquisition of popular
programming and the development of audience interest
I-21
through programming and promotions in order to sell advertising at profitable
rates. Broadcast networks like CBS and UPN compete for audience, advertising
revenues and programming with other broadcast networks, independent television
stations, basic cable program services as well as other media, including
satellite television services, videocassettes, DVDs and the Internet.
Television stations compete for programming and for advertising revenues with
other stations in their respective coverage areas and, in some cases, with
larger station groups for programming, and in the case of advertising
revenues, with other local media. In addition, the CBS and UPN television
networks compete with other television networks to secure affiliations with
independently owned television stations in markets across the country, which
are necessary to ensure the effective distribution of network programming to a
nationwide audience.
Because an extended conversion to digital television broadcasting has begun
current and future technological developments may affect competition within
the television marketplace. Technological developments that compress digital
signals will increasingly permit the same broadcast, cable, or satellite
channel to carry multiple video and data services which could result in an
expanded field of competing services. Television broadcasters will continue to
operate their current stations while gradually building and operating digital
facilities concurrently on separate channels.
As a producer and distributor of programming, the Company competes with
studios, television networks and independent producers and syndicators to sell
programming both domestically and overseas.
Infinity
The Company's radio stations and outdoor advertising properties compete for
audience, advertising revenues and programming directly with other radio
stations and outdoor advertising companies, as well as with other media, such
as broadcast television, newspapers, magazines, cable television, the Internet
and direct mail, within their respective markets.
The radio and outdoor advertising industry is also subject to competition
from new media technologies that are being developed or introduced, such as
the delivery of audio programming by cable television systems, by satellite
and by terrestrial delivery of digital audio broadcasting. The FCC has
authorized spectrum for the use of a new technology, satellite digital audio
radio services, to deliver audio programming. Satellite digital audio radio
service will provide a medium for the delivery by satellite of multiple new
audio programming formats to local and national audiences. The FCC also has a
pending proceeding which contemplates the use of digital technology by
existing terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies. The FCC recently authorized a new "low power" radio
or "microbroadcasting" service with the intent of creating opportunities for
low cost neighborhood service on frequencies which would not interfere with
existing stations.
Entertainment
Theatrical Motion Pictures. The Company competes with other major studios
and independent film producers in the production and distribution of motion
pictures, videocassettes, discs and DVDs. PARAMOUNT PICTURES' competitive
position primarily depends on the quality of the product produced, its
distribution and marketing success, and public response. The Company also
competes to obtain creative talent and story properties which are essential to
the success of all of the Company's entertainment businesses.
Parks. During the last two years, the regional theme park industry has
experienced increased consolidation. The Company must now compete in a
business environment that is dominated by highly-capitalized, multi-park
entertainment corporations. In order to compete effectively, regional theme
park operators must differentiate their product by having access to the latest
entertainment intellectual property and brands and must reinvest capital to
maintain a fresh experience for their repeat-visitor base. The Company
believes that its intellectual properties enhance existing attractions and
facilitate the development of new attractions, which encourage visitors to the
PARAMOUNT PARKS theme parks and STAR TREK: THE EXPERIENCE at the Las Vegas
Hilton. The Company's theme parks also compete with other forms of leisure
entertainment.
I-22
Video
BLOCKBUSTER operates in a highly competitive environment. The Company
believes that BLOCKBUSTER's most significant competition comes from (i) video
stores and other retailers that rent or sell movies and (ii) providers of
direct delivery home viewing entertainment.
Video stores and other retailers that rent or sell movies include, among
others, (i) local, regional and national video stores; (ii) mass merchant
retailers; (iii) supermarkets, pharmacies and convenience stores; and (iv)
online retailers and mail order services. The Company believes that the
principal factors that BLOCKBUSTER faces in competing with video stores and
other retailers are (a) convenience and visibility of store locations; (b)
quality, quantity and variety of titles; (c) pricing; and (d) customer
service.
With the development of new technologies, a significant competitive risk to
BLOCKBUSTER's video store business comes from direct broadcast satellite,
digital cable television and high-speed Internet access. In response to this
competition in 2000, BLOCKBUSTER entered the direct broadcast satellite market
through its alliance with DIRECTV (see "Viacom Segments--Video"). Direct
broadcast satellite, digital cable and "traditional" cable providers not only
offer numerous channels of conventional television, but they also offer pay-
per-view movies which permit a subscriber to pay a fee to see a selected
movie. Because of the increased availability of channels, direct broadcast
satellite and digital cable providers have been able to enhance their pay-per-
view business by (i) substantially increasing the number and variety of movies
they can offer their subscribers on a pay-per-view basis; and (ii) providing
more frequent and convenient start times for the most popular movies. Pay-per-
view allows the consumer to avoid trips to the video store for rentals and
returns of movies, which also eliminates the chance they will incur additional
costs for keeping a movie beyond its initial rental term. However, newly
released movies are currently made available by the studios for rental prior
to being made available for pay-per-view. Pay-per-view also does not allow the
consumer to start, stop and rewind the movie or fully control start times. As
a result, some digital cable providers and a limited number of Internet
content providers have begun implementing technology referred to as "video-on-
demand," which technology transmits movies on demand with interactive
capabilities such as start, stop and rewind. BLOCKBUSTER also began testing a
video-on-demand service in 2000 with its initial movies-on-demand trials. In
addition to competing with the video retail industry, video-on-demand competes
with other uses of cable and telephony infrastructure, such as the ability to
provide Internet access and basic telephone services, some of which may
provide higher returns for operators. In addition, video-on-demand providers,
including BLOCKBUSTER, may face competition from the studios, which are
considering implementing their own video-on-demand service.
Publishing
The consumer publishing business is highly competitive and has been
affected by consolidation trends. Recent years have brought a number of
significant mergers among the leading consumer publishers. The book superstore
has emerged as a significant factor in the industry contributing to the
general trend toward consolidation in the retail channel. There have also been
a number of mergers completed in the distribution channel.
The Company must compete with other publishers for the rights to works by
well-known authors and public personalities.
Online
The online industry is highly competitive and is rapidly evolving and
facing changing market conditions, including consolidation, alterations in
online advertising spending, slower growth in e-commerce and greater
difficulties in accessing public and private financing. Competition among
media and Internet companies pursuing online consumers is particularly
intense. The Company's online businesses compete for online consumers,
advertisers and content providers with leading news/information/entertainment
online sites, online portal services and broadcasters, traditional media,
retail and record companies and their respective Internet properties, and
I-23
online commerce companies. Rivalry for online consumers' attention and leisure
time, and associated advertising dollars and e-commerce expenditures by online
consumers, will continue to increase for all industry participants.
Web sites maintained by existing and potential competitors may be perceived
by online consumers, advertisers and content and other online vendors to be
superior to the Company's Web sites. In addition, with respect to MTVi's Web
sites, the major record companies, which control the vast majority of recorded
music, have started to engage in strategic arrangements, including business
combinations, with Internet and Internet-related businesses for the online
distribution and other commercialization of their music libraries and artist
relationships. As a result of these actions, the Company's online businesses
may not be able to maintain or increase online traffic levels on its Web
sites, which may negatively affect their advertising and e-commerce revenues.
Regulation
The Company's businesses are either subject to or affected by regulations
of federal, state and local governmental authorities. The rules, regulations,
policies and procedures affecting these businesses are constantly subject to
change. The descriptions which follow are summaries and should be read in
conjunction with the texts of the statutes, rules and regulations described
herein. The descriptions do not purport to describe all present and proposed
statutes, rules and regulations affecting the Company's businesses.
Intellectual Property
Domestic and international laws affecting intellectual property are of
significant importance to the Company.
WIPO Copyright Treaties. In 1996, delegates to the World Intellectual
Property Organization ("WIPO") adopted a proposed Copyright Treaty which will
take effect if ratified by 30 nations. As of December 2000, 22 countries,
including the U.S., had ratified the Copyright Treaty.
The proposed Copyright Treaty updates the Berne Convention, last revised in
1971, and addresses copyright protection for new technologies that have
emerged since that time. It is not possible to predict whether the Copyright
Treaty will take effect or how countries would implement the Treaty after
ratification. Because the Treaty includes important copyright protections for
the digital transmission of content, if ratified, the Treaty likely would have
a positive impact on the Company.
The U.S. implementing legislation, known as the Digital Millennium
Copyright Act ("DMCA"), which is effective whether or not WIPO is ultimately
ratified, affords important new copyright protections, including civil and
criminal penalties for the manufacture of, or trafficking in, devices that
circumvent copyright protection technologies such as encryption and
scrambling, and for the act of circumventing such technologies to gain
unauthorized access to a copyrighted work. The DMCA also amends the Copyright
Act by creating a new statutory license concerning certain rights related to
digital transmissions of sound recordings. The statute provides that new
statutory rates for each license will be set either through voluntary
negotiations between the interested parties or through Copyright Arbitration
Royalty Proceedings.
Copyright Term Extension. In October 1998, Congress passed legislation
extending the copyright term an additional twenty years. The extended term is
life of the author plus 70 years for authored works and 95 years for works-
made-for-hire. This extension puts the U.S. copyright term on par with the
European Community. Term extension should have a beneficial effect for the
Company over time, including with respect to important publishing properties
which otherwise would have passed into the public domain in the next several
years.
Compulsory Copyright License.
Multichannel Distributors Other Than DTH. The Copyright Act provides a
----------------------------------------
compulsory license for the retransmission of broadcast signals by
multichannel video distributors such as cable television, MMDS (Multipoint
Multichannel Distribution Systems) and SMATV (Satellite Master Antenna
Television)
I-24
operators. The compulsory license rate paid to programmers for the
retransmission of distant broadcast signals by cable, MMDS and SMATV
operators is established by statute. There is no licensing fee for the
retransmission of local broadcast signals.
DTH. In November 1999, Congress enacted legislation to extend and reform
---
the Satellite Home Viewer Act (SHVA). The original SHVA legislation created
a temporary compulsory license that allowed satellite carriers to import
distant broadcast signals to those homes that were unable to receive their
local broadcast signals. This distant signal compulsory license was set to
expire at the end of 1999. Through the SHVA legislation, Congress extended
the distant signal compulsory license until December 31, 2004, and set a
statutory compulsory license fee for these distant signals of $0.189 per
subscriber for superstations and $0.1485 per subscriber for networks. Up to
this point, the DTH compulsory license fee was set through negotiations and
binding arbitration. In addition, Congress created a new and permanent
compulsory license for the retransmission of local broadcast signals back
into the local market, the so-called "local-into-local" provision. Unlike
the distant signal compulsory license, the local signal compulsory license
is royalty-free.
First Sale Doctrine. The copyright "First Sale" doctrine provides that the
owner of a legitimate copy of a copyrighted work may use or dispose of it in
such manner as the owner sees fit, including by renting it. The First Sale
doctrine does not apply to sound recordings or computer software (other than
software made for a limited purpose computer, such as a video game platform)
for which the Copyright Act vests a rental right (i.e., the right to control
the rental of the copy) in the copyright holder. The repeal or limitation of
the First Sale doctrine (or conversely, the creation of a rental right vested
in the copyright holder) for audiovisual works or for computer software made
for limited purpose computers would have an adverse impact on the Company's
home video and game rental business. No such legislation is pending in
Congress at the present time. However, the Copyright Office is currently
conducting a study of the First Sale doctrine and it is unclear whether the
Office will recommend that Congress make any changes to the doctrine.
Cable Networks
Cable Rate Regulation. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") directed the FCC to limit by
regulation cable system rates for the "basic service tier" ("BST") (including
retransmission consent and must carry broadcast signals and public,
educational and governmental channels) and the "cable programming service
tier" ("CPST") to a level not to exceed the rates that would be charged in the
presence of effective competition. Programming offered on a per-channel or
per-program basis is exempt from rate regulation.
Although all rate regulation of the CPST expired on March 31, 1999, local
franchising authorities continue to be responsible for regulating the BST. The
Company believes that cable rate regulation adversely affects its non-premium
cable program services which rely on cable operator license fee support, along
with advertising revenues, to maintain the quantity and quality of
programming. Rate regulation in this area tends to erode cable operator
incentives to invest in programming and particularly in start-up program
services.
Program Access. The "program access" provisions of the 1992 Cable Act
impose certain pricing and other restrictions on vertically integrated program
providers (those program services that are owned in whole or in part by cable
operators) with respect to the provision of their program services to
multichannel programming distributors, such as cable systems, SMATV systems,
MMDS operators and TVRO (TeleVision Receive Only) systems and DBS
distributors. Specifically, vertically integrated program services generally
are prohibited from entering into exclusive arrangements with cable operators
and from discriminating against cable competitors on programming price and
other terms. The program access provisions were intended to spur competition
to cable providers by facilitating the access of cable competitors to
programming owned by cable operators or their affiliates. The
Telecommunications Act of 1996 extended the program access rules to program
services in which common carriers that provide video programming have an
attributable interest.
The Company divested its cable systems in 1996 and, as a result, the
Company's wholly owned program services are no longer subject to the program
access rules. Legislation which would extend the program access
I-25
provisions to non-vertically integrated program services, if enacted, could
adversely impact the Company's program services by reducing the Company's
flexibility to negotiate the most favorable terms available for the
distribution of its content. However, no such legislation is pending in
Congress at this time. The FCC, as directed by statute, will launch a rule
making proceeding, likely toward the end of the year, to determine whether the
existing prohibition against exclusive grants by vertically integrated program
services to cable operators should extend beyond 2002.
Programming. Under FCC rules, cable operators must eventually close caption
most of their programming on a phased-in basis, which began in January 1998.
As a practical matter, however, cable networks assume responsibility for these
closed captioning requirements. FCC rules also directed that all television
receiver models with screens 13 inches or larger be equipped with "V-chip"
technology as of January 1, 2000. This technology, which works in tandem with
television ratings (age and content markers), permits parents to block out
certain programming from their children. Most cable networks, including those
of MTVN and SNI, voluntarily encode their programming with television ratings.
In addition, the FCC in August 2000 adopted rules that require the top five
basic cable networks to air 50 hours per quarter of programming containing
audio descriptions of video for the visually impaired.
Broadcasting
General. Television and radio broadcasting are subject to the jurisdiction
of the FCC under the Communications Act of 1934, most recently amended by the
Telecommunications Act of 1996. The Communications Act prohibits the operation
of broadcasting stations except under a license issued by the FCC and empowers
the FCC, among other actions, to:
. issue, renew, revoke and modify broadcasting licenses;
. assign frequency bands; determine stations' frequencies, locations and
operating power;
. regulate some of the equipment used by stations;
. adopt other regulations to carry out the provisions of the
Communications Act;
. impose penalties for violation of such regulations; and
. impose annual fees as well as fees for processing applications and other
administrative functions.
Under the Communications Act, the FCC also regulates certain aspects of the
operation of cable television systems and other electronic media that compete
with broadcast stations.
License Assignments. The Communications Act requires prior approval for the
assignment of a license or transfer of control of a licensee. When passing on
an assignment or transfer application, the FCC is prohibited from considering
whether the public interest might be served by an assignment or transfer to
any party other than the assignee or transferee specified in the application.
License Renewals. Under the Communications Act, the FCC is authorized to
renew broadcast licenses for terms of up to eight years. The Communications
Act requires renewal of a broadcast license if the FCC finds that:
. the station has served the public interest, convenience and necessity;
. there have been no serious violations of either the Communications Act
or the FCC's rules and regulations by the licensee; and
. there have been no other serious violations that taken together
constitute a pattern of abuse.
In making its determination, the FCC may consider petitions to deny but
cannot consider whether the public interest would be better served by a person
other than the renewal applicant and competing applications for the same
frequency may be accepted only after the FCC has denied an incumbent's
application for renewal of license.
I-26
Ownership Regulation. The Communications Act and FCC rules and regulations
also regulate broadcast ownership. The FCC has promulgated rules that, among
other matters, limit the ability of individuals and entities to own or have an
official position or ownership interest, known as an attributable interest,
above a specific level in broadcast stations as well as other specified mass
media entities. As discussed below, in August 1999, the FCC substantially
revised a number of its multiple ownership and attribution rules and clarified
some of those rules in January 2001. The FCC's various broadcast ownership
rules, inclusive of the recent revisions, are summarized below.
Local Radio Ownership. With respect to radio licenses, the maximum
allowable number of stations that can be commonly owned in a market varies
depending on the number of radio stations within that market, as determined
using a method prescribed by the FCC. In markets with more than 45
stations, one company may own, operate or control up to eight radio
stations, with no more than five in either AM or FM. The FCC initiated a
rule making proceeding in December 2000, which proposes to modify the
manner in which the number of stations in a radio market is counted. If
adopted, such modification could impair on a going-forward basis the
ability of large radio station groups such as Infinity to enjoy economies
of scale permitted under the FCC's current radio market definition and
could potentially restrict their ability to freely sell existing
combinations. However the FCC's rule making proposes that existing radio
ownership combinations, such as those held by Infinity, would be
grandfathered.
Local Television Ownership. The FCC's television duopoly rule permits
parties to own two television stations without regard to signal contour
overlap provided they are located in separate markets referred to as
designated market areas. In addition, the rules permit parties in larger
designated market areas to own up to two television stations in the same
designated market area so long as at least eight independently owned and
operating full-power television stations remain in the market at the time
of acquisition and at least one of the two stations is not among the top
four-ranked stations in the market based on audience share. In calculating
the number of independently owned stations in a market, the FCC clarified
that it will count only those stations in a market whose signal contour
overlaps with that of at least one of the stations in the proposed
combination. Further, without regard to numbers of remaining or
independently owned TV stations, the FCC will permit television duopolies
within the same designated market area so long as certain signal contours
of the stations involved do not overlap.
"Satellite" stations that simply rebroadcast the programming of a
"parent" station will continue to be exempt from the duopoly rule if
located in the same designated market area as the parent station. The
duopoly rule also applies to same-market local marketing agreements
involving more than l5% of the brokered station's program time, although
current local marketing agreements will be exempt from the TV duopoly rule
for a limited period of time of either two or five years, depending on the
date of the adoption of the local marketing agreement. Further, the FCC may
grant a waiver of the TV duopoly rule if one of the two television stations
is a "failed" or "failing" station, or the proposed transaction would
result in the construction of a new television station.
As a result of the merger with CBS, the Company has duopolies in the
following six television markets: Philadelphia, Boston, Dallas, Miami,
Detroit, and Pittsburgh. The Company has no in-market local marketing
agreements.
National Television Ownership Cap. On the national level, the FCC
imposes a 35 percent national audience reach cap for television ownership,
under which one party may not have an attributable interest in television
stations which reach more than 35 percent of all U.S. television
households. The Commission discounts the audience reach of a UHF station
for this purpose by 50 percent. Additionally, under FCC rules, for entities
that have attributable interests in two stations in the same market, the
FCC counts the audience reach of that market only once for national cap
purposes. Last May, as part of the Congressionally mandated biennial review
of broadcast ownership rules, the FCC determined to retain the 35% cap. At
the same time, the FCC voted to maintain the UHF discount.
After the May 4, 2000 merger with CBS, the television stations currently
held by the Company have an aggregate national audience reach for purposes
of the national ownership cap of approximately 41%. As
I-27
a condition of its approval of the merger, the FCC ordered the Company to
come into compliance with the national television ownership cap within 12
months of the merger closing date, which is May 4, 2001. The Company has
challenged the rule in federal court and is seeking a stay of the
requirement to come into compliance with the limit pending judicial review
of the national ownership cap.
Dual Network Rule. In the Telecommunications Act, Congress directed the
FCC to liberalize its rule, which then generally prohibited television
stations from affiliating with an entity that maintained more than one
national network. The FCC's implementing regulation states that a
television broadcast station may not affiliate with an entity that
maintains one of the existing four major networks (ABC, CBS, NBC, and Fox)
and one of other specific qualifying networks in existence as of February
8, 1996. The legislative history of the dual network rule suggests that the
rule was intended to prohibit one of the four major networks from acquiring
either of The WB or UPN. After the merger with CBS, the Company owns both
the CBS and UPN networks. As a condition of its approval of the merger, the
FCC ordered the Company to come into compliance with the dual network rule
within 12 months of the May 4, 2000 merger closing date, which is May 4,
2001. The FCC initiated a rule making in June 2000, in which it proposes to
eliminate the dual network rule with respect to UPN and The WB. If the
proposal is adopted, the Company would be free to maintain both CBS and
UPN. The FCC is expected to issue the new rule within the next couple of
months.
Radio-Television Cross-Ownership. The so-called "one-to-a-market" rule
has until recently prohibited common ownership or control of a radio
station, whether AM, FM or both, and a television station in the same
market, subject to waivers in some circumstances. The FCC's new radio-
television cross-ownership rule embodies a graduated test based on the
number of independently owned media voices in the local market.
In large markets, i.e., markets with at least 20 independently owned
media voices, a single entity can own up to one television station and
seven radio stations or, if permissible under the new TV duopoly rule, two
television stations and six radio stations.
Waivers of the new radio-television cross-ownership rule will be granted
only under the failed station test. Unlike under the TV duopoly rule, the
FCC will not waive the radio-television cross-ownership rules in situations
of failing or unbuilt stations.
After the merger with CBS, the Company owned radio-television
combinations that exceeded the FCC's cross-ownership rule in five markets:
Los Angeles, Chicago, Dallas/Ft. Worth, Sacramento and Baltimore. As a
result, in approving the merger, the FCC ordered the Company to come into
compliance with the radio-television cross-ownership rule within six months
of the May 4, 2000 merger closing, which was November 6, 2000. By that
date, the Company had entered into contracts and filed applications in each
of the five markets sufficient to comply with the conditions in the FCC
merger approval order.
Attribution of Ownership. Under the FCC's recently clarified attribution
rules, a direct or indirect purchaser of various types of securities of the
Company could violate FCC regulations or policies if that purchaser owned
or acquired an "attributable" interest in other media properties in the
same area as stations owned by the Company in a manner prohibited by the
FCC. Under the FCC's revised rules, an "attributable" interest for purposes
of the Commission's broadcast ownership rules generally includes:
. equity and debt interests, which combined exceed 33% of a licensee's
total assets, if the interest holder supplies more than 15% of total
weekly programming, or is a same-market media entity, whether TV,
radio, cable or newspaper;
. 5% or greater voting stock interest;
. 20% or greater voting stock interest, if the holder is a qualified
passive investor;
. any equity interest in a limited liability company or limited
partnership, unless properly "insulated" from management activities;
and
. all officers and directors of a licensee and its direct or indirect
parent.
I-28
In a clarification of the attribution rules, which was issued in January
2001, the FCC eliminated the single majority shareholder exemption, which
previously had rendered as non-attributable interests up to 49% if the
licensee is controlled by a single majority shareholder. Minority interests
acquired prior to December 14, 2000 are grandfathered.
Alien Ownership. The Communications Act limits the ability of foreign
entities or individuals to own or hold interests in broadcast licenses. As
applicable to the Company, non-U.S. citizens, collectively, may directly or
indirectly own or vote up to twenty percent of the capital stock of a
corporate licensee. In addition, a broadcast license may not be granted to or
held by any corporation that is controlled, directly or indirectly, by any
other corporation more than one-fourth of whose capital stock is owned or
voted by non-U.S. citizens or their representatives, by foreign governments or
their representatives, or by non-U.S. corporations, if the FCC finds that the
public interest will be served by the refusal or revocation of such license.
The FCC has interpreted this provision of the Communications Act to require an
affirmative public interest finding before a broadcast license may be granted
to or held by any such corporation, and the FCC has made such affirmative
findings only in limited circumstances. The Company does periodic surveys of
its public shareholders to ascertain compliance with this statute.
Digital Television Service. The FCC has taken a number of steps to
implement digital television broadcasting service in the United States. The
FCC has adopted a digital television table of allotments that provides all
authorized television stations with a second channel on which to broadcast a
digital television signal. The FCC has attempted to provide digital television
coverage areas that are comparable to stations' existing service areas. The
FCC has ruled that television broadcast licensees may use their digital
channels for a wide variety of services such as high definition television,
multiple channels of standard definition television programming, audio, data,
and other types of communications, subject to the requirement that each
broadcaster provide at least one free video channel equal in quality to the
current technical standard.
Digital television channels will generally be located in the range of
channels from channel 2 through channel 51. The FCC has required affiliates of
ABC, CBS, Fox and NBC in the top 10 television markets to begin digital
broadcasting by May 1, 1999. Affiliates of the four major networks in the top
30 markets were required to begin digital broadcasting by November 1, 1999,
and all other commercial broadcasters must do so by May 1, 2002. Many
stations, including several of the Company's stations, have already begun
digital broadcasting. The FCC's plan calls for the digital television
transition period to end in the year 2006, at which time the FCC expects that
television broadcasters will cease non-digital broadcasting and return one of
their two channels to the government, allowing that spectrum to be recovered
for other uses.
Under the Balanced Budget Act, however, the FCC is authorized to extend the
December 31, 2006 deadline for reclamation of a television station's non-
digital channel if, in any given market one or more television stations
affiliated with ABC, CBS, NBC or Fox is not broadcasting digitally, and the
FCC determines that such stations have "exercised due diligence" in attempting
to convert to digital broadcasting; or less than 85% of the television
households in the station's market subscribe to a multichannel video service
that carries at least one digital channel from each of the local stations in
that market, and less than 85% of the television households in the market can
receive digital signals off the air using either a set-top converter box for
an analog television set or a new digital television set.
The implementation of digital television will also impose substantial
additional costs on television stations because of the need to replace
equipment and because some stations will need to operate at higher utility
costs and there can be no assurance that our television stations will be able
to increase revenue to offset such costs. In addition, the Communications Act
allows the FCC to charge a spectrum fee to broadcasters who use the digital
spectrum to offer subscription-based services. The FCC has adopted rules that
require broadcasters to pay a fee of 5% of gross revenues received from
ancillary or supplementary uses of the digital spectrum for which they charge
subscription fees, excluding revenues from the sale of commercial time. The
Company cannot predict what future actions the FCC might take with respect to
digital television, nor can it predict the effect of the FCC's
I-29
present digital television implementation plan or such future actions on the
Company's business. The Company will incur considerable expense in the
conversion to digital television and is unable to predict the extent or timing
of consumer demand for any such digital television services.
Pursuant to Congressional mandate, the FCC will be auctioning that part of
the spectrum now used by broadcasters operating on channels 60-69. The
auction, now set for September 12, 2001, will draw bidders who will provide
"third generation" wireless service upon broadcasters' surrender of their
analog licenses. The Company has two television stations that operate on the
channel 60-69 spectrum. These stations will not be adversely affected unless
they are required to move to other channels before the digital television
transition date. At this time, the FCC has stated that any such move by
broadcasters will be on a voluntary basis only.
In January 2001, the FCC issued rules relating to the cable carriage of
digital broadcast television signals, in which it determined that a commercial
station operating in both analog and digital during the transition period may
elect must carry or retransmission consent for its analog signal and
retransmission consent for its digital signal. The FCC also tentatively
concluded that it would reject mandatory "dual carriage," which would permit a
local TV station to assert a right to carriage for both its analog and digital
signals. However, the Commission issued a rule making to evaluate, among other
things, the state of the digital television marketplace in order to determine
whether a dual carriage requirement would violate the cable operators' First
Amendment rights. The Company has concluded or is negotiating agreements with
cable operators for the carriage of its stations' digital signals.
Satellite Carriage of Broadcast Television Stations. In 1999, Congress
enacted the Satellite Home Viewer Improvement Act (SHVIA), which permits
satellite carriers to retransmit a local television station's signal into its
local market, subject to the consent of the local broadcaster. In March 2000,
as directed under SHVIA, the FCC adopted rules that govern "good faith"
negotiations between broadcasters and satellite carriers for retransmission
consent. Superstations, defined to include certain stations affiliated with
the UPN and WB networks, including WSBK-TV, Boston, which is owned by the
Company, may be carried by satellite carriers nationally without consent.
However, satellite carriers must apply network nonduplication, syndicated
exclusivity and sports blackout protections to the retransmission of
superstation signals. Further, until the end of 2004, the satellite carrier
may retransmit distant network signals to households unserved by local network
affiliates. Finally, beginning on January 1, 2002, satellite carriers will be
required to carry the signals of all local broadcast stations, if they so
request, in local markets in which the satellite carrier carries at least one
signal under a local-to-local license. Almost all of the Company's CBS-
affiliated television station signals and one UPN television station signal,
pursuant to retransmission consent agreements, are being retransmitted into
their local markets by the two major satellite carriers.
Programming. Under FCC rules, television stations must eventually close
caption most of their programming on a phased-in basis, which began in January
1998. FCC rules also directed that all television receiver models with screens
13 inches or larger be equipped with "V-chip" technology as of January 1,
2000. This technology, which works in tandem with television ratings (age and
content markers), permits parents to block out certain programming from their
children. Most broadcasters, including CBS and UPN, voluntarily encode their
programming with television ratings. In addition, the FCC in August 2000
adopted rules that require affiliates of the four major broadcast networks
(including CBS) in the top 25 markets to air 50 hours per quarter of
programming containing audio descriptions of video for the visually impaired.
Digital Audio Radio Service and Low-Power FM. The FCC has authorized or is
considering authorizing various digital audio radio services. In January 1995,
the FCC adopted rules to allocate spectrum for satellite digital audio radio
services. The FCC has issued two authorizations to launch and operate
satellite digital audio radio services (DARS), and the two companies holding
those authorizations are expected to begin offering DARS some time in 2001.
The FCC also has undertaken an inquiry into terrestrial digital audio radio.
On November 1, 1999, the FCC issued a Notice of Proposed Rulemaking on that
subject which solicited comments and proposals to implement terrestrial
digital audio radio, including conversion to in-band on-channel transmissions
by existing
I-30
radio broadcasters. Comments and reply comments were subsequently filed in
that proceeding. The Company cannot predict the impact of either DARS or
terrestrial digital audio radio services on its business. The Company has an
ownership interest in iBiquity Digital Corporation, an entity which was
created by the merger of USA Digital Radio, Inc. and Lucent Digital Radio and
which is developing digital broadcasting technology, including technology for
in-band on-channel terrestrial transmissions.
The FCC established a new low power FM service (LPFM) on January 20, 2000.
The new LPFM stations are intended to operate in the existing FM band to
provide small area, localized service. On December 21, 2000, the FCC announced
that 255 noncommercial educational applicants in twenty states are eligible
for LPFM licenses. Pursuant to Congressional legislation passed in mid-
December, 2000, these applicants, and all future LPFM applicants, are eligible
for LPFM licenses only if their proposed stations fully protect full service
FM stations (and FM translator stations). At this time, the Company cannot
predict the impact, if any, that LPFM authorizations might have on the
Company's broadcast operations.
Outdoor Advertising
The outdoor advertising industry is subject to extensive governmental
regulation in the United States at the federal, state and local levels. These
regulations include restrictions on the construction, repair, upgrading,
height, size and location of and, in some instances, content of advertising
copy being displayed on outdoor advertising structures.
Federal law, principally the Highway Beautification Act of 1965 (Highway
Beautification Act), encourages states, by the threat of withholding 10% of
the federal appropriations for the construction and improvement of highways
within such states, to implement state legislation to prohibit billboards
located within 660 feet of, or visible from, interstate and primary highways,
except in commercial or industrial areas where off-site signage is permitted
provided it meets spacing and size restrictions. All of the states have
implemented regulations at least as restrictive as the Highway Beautification
Act. The Highway Beautification Act, and the various state statutes
implementing it, require payment of just compensation whenever governmental
authorities require legally erected and maintained billboards to be removed
from areas adjacent to federally-aided highways.
State and local jurisdictions have, in some cases, passed additional and
more restrictive regulations applicable to the construction, repair,
upgrading, height, size and location of outdoor advertising structures
adjacent to federally-aided highways and other thoroughfares. In some cases,
the construction of new billboards or the relocation or modification of
existing billboards is prohibited. From time to time, governmental authorities
order the removal of billboards by the exercise of eminent domain. Thus far,
the Company believes it has been able to obtain satisfactory compensation for
its structures removed at the direction of governmental authorities, although
there is no assurance that it will be able to continue to do so in the future.
Outdoor advertising in Canada is subject to regulation at the federal,
provincial and municipal levels. These regulations may prohibit advertising of
certain products on outdoor signs in certain locations. In Mexico, the
placement of outdoor billboards is primarily regulated at the local level. For
example, Mexico City regulates the placement of billboards near historical
monuments. In France, outdoor advertising is regulated at the national,
regional and local levels, including the regulation of content and the
duration of certain contracts.
To date, regulations in the Company's outdoor advertising markets have not
materially adversely affected its operations. However, the outdoor advertising
industry is heavily regulated and at various times and in various markets can
be expected to be subject to varying degrees of regulation affecting the
operation of advertising displays. Accordingly, although the Company's
experience to date is that the regulatory environment is not unduly
restrictive, no assurance can be given that existing or future laws or
regulations will not adversely affect the Company.
I-31
Video
BLOCKBUSTER is subject to various federal, state and local laws that govern
the access and use of its video stores by disabled people and the disclosure
and retention of video rental records. BLOCKBUSTER also must comply with
various regulations affecting its business, including state and local
advertising, consumer protection, credit protection, licensing, zoning, land
use, construction, environmental, and minimum wage and other labor and
employment regulations.
BLOCKBUSTER is also subject to the Trade Regulation Rule of the Federal
Trade Commission ("FTC") entitled "Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures" and state laws and
regulations that govern (i) the offer and sale of franchises and (ii)
franchise relationships. These regulations require BLOCKBUSTER to furnish each
prospective franchisee with a current franchise offering circular prior to the
offer or sale of a franchise. In addition, a number of states require that
BLOCKBUSTER, as franchisor, comply with that state's registration or filing
requirements prior to offering or selling a franchise in the state and provide
a prospective franchisee with a current franchise offering circular complying
with the state's laws, prior to the offer or sale of the franchise.
BLOCKBUSTER intends to maintain a franchise offering circular that complies
with all applicable federal and state franchise sales and other applicable
laws.
BLOCKBUSTER is also subject to a number of state laws and regulations that
regulate some substantive aspects of the franchisor-franchisee relationship,
including (i) those governing the termination or non-renewal of a franchise
agreement; (ii) requirements that the franchisor deal with its franchisees in
good faith; (iii) prohibitions against interference with the right of free
association among franchisees; and (iv) those regulating discrimination among
franchisees in charges, royalties or fees.
Compliance with federal and state franchise laws is costly and time-
consuming, and no assurance can be given that BLOCKBUSTER will not encounter
difficulties or delays in this area or that it will not require significant
capital for franchising activities.
Online
Web Sites Directed to Children. The Children's Online Privacy Protection
Act of 1998 ("COPPA"), which was implemented by the FTC in October 1999,
applies to Web sites, or those portions of Web sites, directed to children
under age 13. Under COPPA, Web site operators generally cannot collect online
from a child under age 13 information that is individually identifiable such
as a first and last name, an e-mail address or telephone number without the
prior consent of that child's parent. The FTC rules became effective on April
21, 2000. Congress may also consider legislation this year or next regarding
online privacy for adults.
Anti-Cybersquatting Legislation. In 1999, Congress enacted legislation to
address the practice of domain name piracy. The legislation is designed to
limit the practice of registering an Internet address of an established
trademark with the hopes of selling the Internet address to the affected
company. The legislation also includes a prohibition on the registration of a
domain name that is the name of another living person, or a name that is
confusingly similar to that name. There is a broad exemption for personal
names linked to copyrighted works.
Intellectual Property
It is the Company's practice to protect its theatrical and television
product, software, publications and its other original and acquired works. The
following logos and trademarks and related trademark families are among those
strongly identified with the product lines they represent and are significant
assets of the Company: VIACOM(R), BLOCKBUSTER(R), CBS(R), CBS
ENTERTAINMENT(TM), CBS NEWS(TM), CBS SPORTS(TM), INFINITY BROADCASTING(R),
INFINITY OUTDOOR(TM), TDI(R), MTV: MUSIC TELEVISION(R), NICK AT NITE(R),
NICKELODEON(R), TV LAND(R), VH1 MUSIC FIRST(TM), PARAMOUNT(R), FAMOUS
MUSIC(R), BIG TICKET TELEVISION(R), PARAMOUNT PARKS(R), ENTERTAINMENT
TONIGHT(R), STAR TREK(R), SHOWTIME(R), THE MOVIE CHANNEL(R), FLIX(R), SIMON &
SCHUSTER(R) and POCKET BOOKS(TM).
I-32
Employees and Labor Matters
At December 31, 2000, the Company employed approximately 133,830 people, of
which approximately 57,840 were full-time salaried employees. Labor agreements
covering the services of writers and actors which the Company utilizes in its
motion picture and television businesses are currently scheduled to expire
during 2001. Work stoppages and/or higher costs in connection with these
agreements could adversely impact the ability of the Company to produce or
acquire new programming.
Financial Information About Segments and Foreign and Domestic Operations
Financial and other information by segment and relating to foreign and
domestic operations for each of the last three years ending December 31, is
set forth in Note 16 to the Consolidated Financial Statements.
Cautionary Statement Concerning Forward-Looking Statements
This document and the documents incorporated by reference into this Form
10-K, contain both historical and forward-looking statements. All statements
other than statements of historical fact are, or may be deemed to be, forward-
looking statements within the meaning of section 27A of the Securities Act of
1933 and section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements are not based on historical facts, but rather
reflect the Company's current expectations concerning future results and
events. These forward-looking statements generally can be identified by the
use of statements that include phrases such as "believe," "expect,"
"anticipate," "intend," "plan," "foresee," "likely," "will" or other similar
words or phrases. Similarly, statements that describe the Company's
objectives, plans or goals are or may be forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be different from any future results, performance and
achievements expressed or implied by these statements. More information about
these risks, uncertainties and other factors is set forth on pages II-26 and
II-27 of "Management's Discussion and Analysis of Results of Operations and
Financial Condition." The Company does not have any obligation to publicly
update any forward-looking statements to reflect subsequent events or
circumstances.
Item 2. Properties.
The Company maintains its world headquarters at 1515 Broadway, New York,
New York, where it rents approximately 1.2 million square feet for executive
offices and certain of its operating divisions. The lease for the majority of
the space runs to 2010, with four renewal options for five years each
thereafter. The Company also leases the following major facilities in New York
City for certain of its operating divisions: (a) approximately 548,000 square
feet of office space at 1633 Broadway, New York, New York, which lease runs to
2010, and (b) approximately 237,000 square feet of office space at 1230 Avenue
of the Americas, New York, New York, which lease runs to 2009. The Company
owns the building located at 51 West 52nd Street New York, New York containing
approximately 900,000 square feet which is utilized for executive and certain
operating division offices or is leased to third parties, and the CBS
Broadcast Center complex located on approximately 3.7 acres at 524 West 57th
Street and consists of approximately 860,000 square feet. The Company also
owns 3 studio facilities in California: (a) the Paramount Pictures studio at
5555 Melrose Avenue, Los Angeles, California, located on approximately 65
acres, (b) the CBS Studio Center at 4204 Radford Avenue, Studio City,
California, located on approximately 40 acres, and (c) CBS Television City at
7800 Beverly Boulevard, Los Angeles, California, located on approximately 11
acres. PARAMOUNT PARKS' operations in the U.S. include approximately 1,950
acres owned and 108 acres leased and in Canada include approximately 380 acres
owned. BLOCKBUSTER's headquarters at 1201 Elm Street, Dallas, Texas consists
of approximately 240,000 square feet of leased space and its distribution
center in McKinney, Texas consists of approximately 850,000 square feet of
leased space.
The Company also owns and leases office, studio, retail and warehouse
space, broadcast, antenna and satellite transmission facilities and outdoor
advertising throughout the U.S., Canada and several countries around the world
for its businesses. The Company considers its properties adequate for its
present needs.
I-33
Item 3. Legal Proceedings.
Antitrust. The Company, Blockbuster and Paramount Home Entertainment are
among the defendants in a lawsuit filed on July 21, 1999 in the United States
District Court for the Western District of Texas by one former and three
present independent video retailers against the major motion picture studios
and the Company. The plaintiffs, purporting to act as class representatives on
behalf of themselves and all others similarly situated, allege that the
Company and the studios conspired among themselves and with Blockbuster to
restrain competition in the nationwide market for distribution of
videocassettes for rental to the public in violation of federal and California
law. Plaintiffs seek injunctive relief under federal law as well as triple the
amount of the alleged actual damages to themselves and those similarly
situated under California statutes. In January 2001, plaintiffs moved to
withdraw their California state law claims from the federal lawsuit in Texas
and filed a substantially similar complaint with approximately 200 additional
named plaintiffs in Superior Court for the County of Los Angeles. This
complaint also sought certification of a nationwide class of similarly
situated plaintiffs. In March 2001, the Texas court denied the plaintiffs'
motion for class certification of both the federal and the California state
law claims in the federal action and denied the plaintiffs' motion to withdraw
their California state law claims from that action. The Company believes that
the plaintiffs' position in these litigations is without merit and intends to
defend itself vigorously in the litigations.
The Company, through Paramount Pictures, is subject to a consent decree,
entered in 1948, which contains restrictions on certain motion picture trade
practices in the U.S. The Company, through Paramount Pictures, along with
other major distributors, has received a Civil Investigative Demand from the
Justice Department which is investigating possible violations of the industry-
wide decrees. The Company believes that it has not committed any violation of
the consent decree and has not been advised that the Department of Justice
believes otherwise.
Other Matters. The Company is a defendant in numerous lawsuits claiming
various asbestos-related personal injuries, which allegedly occurred from use
or inclusion of asbestos in certain products supplied by previously divested
industrial business, generally in the pre-1970 time period. Typically, these
lawsuits are brought against multiple defendants in state and federal courts.
The Company was neither a manufacturer nor a producer of asbestos. As of
December 31, 2000, the Company had pending approximately 99,590 asbestos
cases, excluding cases in various stages of settlement. The Company has
brought suit against certain of its insurance carriers with respect to
asbestos claims. Under the terms of a settlement agreement resulting from this
suit, carriers that have agreed to the settlement are now reimbursing the
Company for a substantial portion of its current costs and settlement
associated with asbestos claims. The Company believes that it has meritorious
defenses to asbestos matters, that where appropriate it has adequately
provided for resolution of matters and that any ultimate liability resulting
from asbestos matters is not likely to have a material adverse effect on its
results of operations, financial position or cash flows.
The Company from time to time receives claims from federal and state
environmental regulatory agencies and other entities asserting that it is or
may be liable for environmental cleanup costs and related damages principally
relating to discontinued operations conducted by companies acquired by the
Company. While the outcome of these claims cannot be predicted with certainty,
on the basis of its experience and the information currently available to it,
the Company does not believe that the claims it has received will have a
material adverse effect on its results of operations, financial position or
cash flows.
In addition to the above matters, the Company and various of its
subsidiaries are parties to certain other legal proceedings. Litigation is
inherently uncertain and always difficult to predict. However, based on its
understanding and evaluation of the relevant facts and circumstances, the
Company believes that these matters are not likely to have a material adverse
effect on its results of operations, financial position or cash flows. (See
Item 7. "Management's Discussion and Analysis of Results of Operations and
Financial Condition.")
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
I-34
Executive Officers of the Company
Set forth below is certain information concerning the executive officers of
the Company.
Name Age Title
- ---- --- -----
Sumner M. Redstone.... 77 Chairman of the Board of Directors and Chief
Executive Officer
Mel Karmazin.......... 57 President and Chief Operating Officer and Director
Carl D. Folta......... 43 Senior Vice President, Corporate Relations
Martin D. Franks...... 50 Senior Vice President
Robert G. Freedline... 43 Vice President and Treasurer
Michael D. Fricklas... 41 Executive Vice President, General Counsel and
Secretary
Susan C. Gordon....... 47 Vice President, Controller and Chief Accounting
Officer
Carol A. Melton....... 46 Senior Vice President, Government Affairs
Fredric G. Reynolds... 50 Executive Vice President and Chief Financial Officer
William A. Roskin..... 58 Senior Vice President, Human Resources and
Administration
Martin M. Shea........ 57 Senior Vice President, Investor Relations
- --------
None of the executive officers of the Company is related to any other
executive officer or director by blood, marriage or adoption except that Brent
D. Redstone and Shari Redstone, Directors of the Company, are the son and
daughter, respectively, of Sumner M. Redstone.
Mr. Redstone has been a Director of the Company since 1986 and Chairman of
the Board since 1987, acquiring the additional title of Chief Executive
Officer in January 1996. Mr. Redstone has served as Chief Executive Officer of
NAI since 1967, and continues to serve in such capacity; he has also served as
Chairman of the Board of NAI since 1986. Mr. Redstone was President of NAI
from 1967 through 1999. Mr. Redstone became a Director of Blockbuster in 1999.
He is a member of the Advisory Council for the Academy of Television Arts and
Sciences Foundation and on the Board of Trustees for The Museum of Television
and Radio. Mr. Redstone served as the first Chairman of the Board of the
National Association of Theatre Owners, and is currently a member of the
Executive Committee of that organization. Since 1982, Mr. Redstone has been a
member of the faculty of Boston University Law School, where he has lectured
on entertainment law, and since 1994, he has been a Visiting Professor at
Brandeis University. In 1944, Mr. Redstone graduated from Harvard University
and, in 1947, received an LL.B. from Harvard University School of Law. Upon
graduation, he served as Law Secretary with the U.S. Court of Appeals, and
then as a Special Assistant to the U.S. Attorney General.
Mr. Karmazin has been President and Chief Operating Officer of the Company
and a member of the Board of Directors since May 2000. He became a Director of
Blockbuster in May 2000. Mr. Karmazin served as President and Chief Executive
Officer of CBS Corporation from January 1999 until May 2000, and President and
Chief Operating Officer from April 1998 to January 1999. Mr. Karmazin also
served as Chairman, President and Chief Executive Officer of Infinity
Broadcasting Corporation from December 1998, the time of Infinity's most
recent initial public offering, until February 2001, when its public shares
were acquired by the Company. He continues to serve as Chairman of Infinity.
Mr. Karmazin joined CBS in December 1996 as Chairman and Chief Executive
Officer of CBS Radio and served as Chairman and Chief Executive Officer of the
CBS Station Group (Radio and Television) from May 1997 to April 1998. Prior to
joining CBS, Mr. Karmazin served as President and Chief Executive Officer of
Infinity Broadcasting Corporation from 1981 to December 1996. Mr. Karmazin is
on the Board of Trustees for The Museum of Television and Radio and serves on
the Board of Directors of the New York Stock Exchange, Inc. and Westwood One,
Inc.
Mr. Folta was elected Senior Vice President, Corporate Relations of the
Company in November 1994. Prior to that, he served as Vice President,
Corporate Relations of the Company from April 1994 to November 1994. From 1984
until joining the Company in April 1994, Mr. Folta held various Corporate
Communications positions at Paramount Communications Inc., serving most
recently as Senior Director, Corporate Communications.
Mr. Franks has been Senior Vice President of the Company and Executive Vice
President, CBS Television since May 2000. From June 1997 to May 2000, he
served as Senior Vice President, CBS Corporation and President, CBS
Foundation. Mr. Franks joined CBS in July 1988 as Vice President, Washington,
CBS Inc. and in January 1994 was named Senior Vice President, Washington, CBS
Inc.
I-35
Mr. Freedline has been Vice President and Treasurer of the Company since
May 2000. From May 1998 to May 2000, he served as Vice President and
Controller of CBS Corporation. Mr. Freedline also served as Director of
Business Planning and Development of CBS from June 1996 to May 1998, and as
director of Corporate Audit from March 1995 to June 1996.
Mr. Fricklas was elected Executive Vice President, General Counsel and
Secretary in May 2000. From October 1998 to May 2000, he served as Senior Vice
President, General Counsel and Secretary of the Company and from July 1993 to
October 1998, he served as Deputy General Counsel of 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.
Ms. Gordon was elected Vice President, Controller and Chief Accounting
Officer in April 1995. Prior to that, she served as Vice President, Internal
Audit of the Company since October 1986. From June 1985 to October 1986, Ms.
Gordon served as Controller of Viacom Broadcasting. She joined the Company in
1981 and held various positions in the corporate finance area.
Ms. Melton was elected Senior Vice President, Government Affairs of the
Company in May 1997. Before joining the Company, Ms. Melton served most
recently as Vice President, Law and Public Policy at Time Warner Inc., having
joined Warner Communications Inc. in 1987. Prior to that, Ms. Melton served as
Legal Advisor to the Chairman of the Federal Communications Commission and as
Assistant General Counsel for the National Cable Television Association.
Mr. Reynolds has been Executive Vice President and Chief Financial Officer
of the Company since May 2000. He became a Director of Blockbuster in December
2000. Mr. Reynolds served as Executive Vice President and Chief Financial
Officer of CBS Corporation from March 1994 to May 2000, and assumed the
additional post of Chief Financial Officer of CBS Inc. in April 1996. From
1982 to 1994, Mr. Reynolds held various executive financial positions at
PepsiCo Inc., including Senior Vice President and Chief Financial Officer for
PepsiCo Foods International. In March 2001, the Company announced that Mr.
Reynolds would become President of the CBS Television Stations Division.
On March 26, 2001, the Company announced that Richard J. Bressler will join
the Company as Senior Executive Vice President and Chief Financial Officer,
assuming the duties of Chief Financial Officer effective May 1, 2001. Prior to
the announcement, Mr. Bressler was Executive Vice President of AOL Time Warner
Inc. and Chief Executive Officer of AOL Time Warner Investments. Mr. Bressler
was Executive Vice President and Chief Financial Officer of Time Warner Inc.
from March 1995 to June 1999 and served in various financial capacities with
Time Warner prior to that time.
Mr. Roskin has been an executive officer of the Company since April 1988
when he became Vice President, Human Resources and Administration. In July
1992, Mr. Roskin was elected Senior Vice President, Human Resources and
Administration of the Company. From May 1986 to April 1988, he was Senior Vice
President, Human Resources at Coleco Industries, Inc. From 1976 to 1986, he
held various executive positions at Warner Communications Inc., serving most
recently as Vice President, Industrial and Labor Relations.
Mr. Shea was elected Senior Vice President, Investor Relations of the
Company in January 1998. From July 1994 to May 1995 and from November 1995 to
December 1997, he was Senior Vice President, Corporate Communications for
Triarc Companies, Inc. From June 1995 through October 1995, he served as
Managing Director of Edelman Worldwide. From 1977 until July 1994, Mr. Shea
held various Investor Relations positions at Paramount Communications Inc.,
serving most recently as Vice President, Investor Relations.
I-36
PART II
Item 5. Market for Viacom Inc.'s Common Equity and Related Security Holder
Matters.
Viacom Inc. voting Class A Common Stock and Viacom Inc. non-voting Class B
Common Stock are listed and traded on the New York Stock Exchange ("NYSE")
under the symbols "VIA" and "VIA.B", respectively.
The following table sets forth, for the calendar periods indicated, the per
share range of high and low sales prices for Viacom Inc.'s Class A Common
Stock and Class B Common Stock, as reported on the NYSE.
Viacom Inc. Viacom Inc.
Class A Class B
Common Stock Common Stock
------------- -------------
High Low High Low
------ ------ ------ ------
1999
1st quarter $45.50 $35.31 $45.94 $35.38
2nd quarter 48.75 36.69 49.19 36.63
3rd quarter 49.63 38.44 48.75 38.56
4th quarter 60.44 40.31 60.44 39.81
2000
1st quarter $63.31 $49.56 $63.25 $49.56
2nd quarter 71.25 46.06 70.88 45.69
3rd quarter 76.06 55.00 75.88 54.13
4th quarter 59.81 44.56 59.88 44.31
Viacom Inc. has not declared cash dividends on its common stock for the
periods presented above and has no present intention of so doing.
As of March 19, 2001, there were approximately 7,721 record holders of
Viacom Inc. Class A Common Stock and 82,067 record holders of Viacom Inc.
Class B Common Stock.
II-1
Item 6. Selected Financial Data.
VIACOM INC. AND SUBSIDIARIES
(Millions of dollars, except per share amounts)
Year Ended December 31,
----------------------------------------------------
2000(a)(b) 1999 1998 1997 1996
---------- --------- --------- --------- ---------
Revenues $20,043.7 $12,858.8 $12,096.1 $10,684.9 $ 9,683.9
Operating income $ 1,320.9 $ 1,247.3 $ 751.6 $ 685.4 $ 1,197.2
Earnings (loss) from
continuing operations $ (363.8) $ 371.7 $ (43.5) $ 373.5 $ 152.2
Net earnings (loss) $ (816.1) $ 334.0 $ (122.4) $ 793.6 $ 1,247.9
Net earnings (loss)
attributable to common
stock $ (816.1) $ 321.6 $ (149.6) $ 733.6 $ 1,187.9
Basic earnings per
common share:
Earnings (loss) from
continuing operations $ (.30) $ .52 $ (.10) $ .44 $ .13
Net earnings (loss) $ (.67) $ .46 $ (.21) $ 1.04 $ 1.63
Diluted earnings per
common share:
Earnings (loss) from
continuing operations $ (.30) $ .51 $ (.10) $ .44 $ .13
Net earnings (loss) $ (.67) $ .45 $ (.21) $ 1.04 $ 1.62
At Year End:
Total assets $82,646.1 $24,486.4 $23,613.1 $28,288.7 $28,834.0
Long-term debt, net of
current portion $12,473.8 $ 5,697.7 $ 3,813.4 $ 7,423.0 $ 9,855.7
Stockholders' equity $47,966.9 $11,132.0 $12,049.6 $13,383.6 $12,586.5
Viacom Inc. has not declared cash dividends on its common stock for any of
the periods presented above.
(a) On May 4, 2000, CBS Corporation merged with Viacom Inc. and
effective from this date, its results of operations are included in the
consolidated financial results of the Company.
(b) As a result of the adoption of Statement of Position 00-2,
"Accounting by Producers or Distributors of Films," the Company recorded a
non-cash after-tax charge of $452.3 million as a cumulative effect of a
change in accounting.
See Notes to Consolidated Financial Statements for additional information
on transactions and accounting classifications which have affected the
comparability of the periods presented above.
II-2
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
(Tabular dollars in millions)
General
Management's discussion and analysis of the results of operations and
financial condition of Viacom Inc. and its subsidiaries ("Viacom" or the
"Company") should be read in conjunction with the Consolidated Financial
Statements and related Notes. Descriptions of all documents incorporated by
reference herein or included as exhibits hereto are qualified in their
entirety by reference to the full text of such documents so incorporated or
included.
Several significant transactions occurred during 2000 and in the first
quarter of 2001 that demonstrated the Company's strength in the media
business. These investments are expected to generate significant levels of
cash flow. The Company's significant transactions were as follows:
. The Company completed its merger with CBS Corporation ("CBS") in May of
2000.
. In November 2000, the Company announced an agreement to acquire BET
Holdings II, Inc. ("BET") for approximately $3 billion, consisting
principally of Viacom Class B Common Stock and the assumption of debt.
The transaction closed in January 2001 and was accounted for as a
purchase. Beginning in the first quarter of 2001, BET will be
consolidated with the Company's results of operations.
. In October 2000, the Company and Infinity Broadcasting Corporation
("Infinity Broadcasting") entered into a merger agreement under which
the Company would acquire all of the issued and outstanding shares of
Infinity common stock that it did not already own, approximately 36%.
The merger was completed in February 2001.
. In the third quarter of 2000, the Company issued $1.65 billion of debt
securities to repay existing short-term debt and to take advantage of
attractive rates in the fixed rate market.
. In the third quarter of 2000, Infinity Broadcasting completed the
acquisition of 18 radio stations from Clear Channel Communications,
Inc. ("Clear Channel") for $1.4 billion in an asset transaction.
. In the second quarter of 2000, Infinity Broadcasting completed the
acquisition of Giraudy, one of France's largest outdoor advertising
companies, for approximately $400 million.
Business Segment Information
The Company had the following seven reportable segments during 2000:
Cable Networks--Basic Cable and Premium Subscription Television Program
Services.
Television--Television Networks and Stations; and production and
distribution of television programming.
Infinity--Radio stations and outdoor advertising properties.
Entertainment--Production and distribution of Motion Pictures; as well as
the operation of Movie Theaters, Theme Parks and Music
Publishing.
Video--Home Video and Game Rental and Retail through traditional stores and
the Internet.
Publishing--Consumer Publishing.
Online--Interactive Online Services.
Effective January 1, 2001, the Company operates its online business under
the Cable Networks and Television segments and accordingly, the Company will
present its online business as part of these respective segments.
II-3
The following tables set forth revenues and operating income (loss) by
business segment, as reported for the years ended December 31, 2000, 1999 and
1998.
- ---------------------------------------------------------------------------------------
Percent
Year ended December 31, Better/(Worse)
2000 1999 1998 2000 vs. 1999 1999 vs. 1998
- ---------------------------------------------------------------------------------------
Revenues:
Cable Networks $ 3,895.0 $ 3,045.5 $ 2,607.9 28% 17%
Television 5,381.7 2,352.0 2,271.4 129 4
Infinity 2,764.7 -- -- NM --
Entertainment 2,758.3 2,665.9 2,914.3 3 (9)
Video 4,960.1 4,463.5 3,893.4 11 15
Publishing 596.0 610.7 564.6 (2) 8
Online 100.7 29.8 13.7 238 118
Intercompany
eliminations (412.8) (308.6) (169.2) (34) (82)
- ---------------------------------------------------------------------------------------
Total Revenues $20,043.7 $12,858.8 $12,096.1 56% 6%
- ---------------------------------------------------------------------------------------
Operating Income (Loss):
Cable Networks $ 1,250.0 $ 932.4 $ 744.3 34% 25%
Television 431.2 143.4 262.4 201 (45)
Infinity 589.4 -- -- NM --
Entertainment 209.7 231.1 235.5 (9) (2)
Video 75.7 127.9 (342.2) (41) NM
Publishing 49.6 54.3 53.2 (9) 2
Online (256.7) (64.5) (7.5) (298) NM
- ---------------------------------------------------------------------------------------
Segment Total 2,348.9 1,424.6 945.7 65 51
Corporate
expenses/eliminations (950.5) (177.3) (194.1) NM 9
Residual costs of
discontinued operations (77.5) -- -- NM --
- ---------------------------------------------------------------------------------------
Total Operating Income $ 1,320.9 $ 1,247.3 $ 751.6 6% 66%
- ---------------------------------------------------------------------------------------
NM--Not meaningful
Pro Forma Results
In order to enhance comparability, the following discussion of the
Company's results of operations is supplemented by pro forma financial
information that gives effect to the CBS merger and other acquisitions
(including significant acquisitions made by CBS prior to the completion of the
merger), excludes non-recurring items and reflects the adoption of Statement
of Position 00-2, "Accounting by Producers or Distributors of Films" as if
they had occurred at the beginning of each period presented. The pro forma
results are presented for informational purposes only and are not indicative
of the operating results that would have occurred had the transactions
actually occurred at the beginning of 1999, nor are they necessarily
indicative of future operating results.
- -----------------------------------------------------------------------
Year Ended Percent
December 31, Better/(Worse)
2000 1999 2000 vs. 1999
- -----------------------------------------------------------------------
Pro Forma Revenues:
Cable Networks $ 4,082.3 $ 3,610.0 13%
Television 7,255.4 7,073.7 3
Infinity 4,037.2 3,562.4 13
Entertainment 2,758.3 2,665.9 3
Video 4,960.1 4,463.5 11
Publishing 596.0 610.7 (2)
Online 113.2 43.2 162
Intercompany eliminations (443.4) (334.2) (33)
- -----------------------------------------------------------------------
Total Pro Forma Revenues $23,359.1 $21,695.2 8%
- -----------------------------------------------------------------------
II-4
-------------------------------------------------------------------------
Year Ended Percent
December 31, Better/(Worse)
2000 1999 2000 vs. 1999
-------------------------------------------------------------------------
Pro Forma Operating Income (Loss):
Cable Networks $1,268.6 $1,006.0 26%
Television 582.9 189.9 207
Infinity 727.8 479.8 52
Entertainment 209.7 170.7 23
Video 107.3 127.9 (16)
Publishing 49.6 54.3 (9)
Online (309.7) (100.0) (210)
-------------------------------------------------------------------------
Segment Total 2,636.2 1,928.6 37
Corporate expenses/eliminations (321.0) (266.1) (21)
Residual costs of discontinued
operations (120.8) (84.5) (43)
-------------------------------------------------------------------------
Total Pro Forma Operating Income $2,194.4 $1,578.0 39%
-------------------------------------------------------------------------
EBITDA
The following tables set forth EBITDA (defined as operating income (loss)
before depreciation and amortization principally of goodwill related to
business combinations) for the years ended December 31, 2000, 1999 and 1998.
The Company believes that EBITDA is an appropriate measure of evaluating the
operating performance of its segments. However, EBITDA should be considered in
addition to, not as a substitute for or superior to, operating income, net
earnings, cash flows, and other measures of financial performance prepared in
accordance with generally accepted accounting principles ("GAAP"). As EBITDA
is not a measure of performance calculated in accordance with GAAP, this
measure may not be comparable to similarly titled measures employed by other
companies.
- ----------------------------------------------------------------------------------
Percent
Year ended December 31, Better/(Worse)
2000 1999 1998 2000 vs. 1999 1999 vs. 1998
- ----------------------------------------------------------------------------------
EBITDA:
Cable Networks $1,495.0 $1,053.1 $ 851.3 42% 24%
Television 979.5 271.5 372.9 261 (27)
Infinity 1,282.6 -- -- NM --
Entertainment 368.8 378.3 368.7 (3) 3
Video 534.8 520.3 39.9 3 NM
Publishing 71.3 74.0 71.2 (4) 4
Online (182.1) (48.4) (3.5) (276) NM
- ----------------------------------------------------------------------------------
Segment Total 4,549.9 2,248.8 1,700.5 102 32
Corporate
expenses/eliminations (928.0) (156.8) (171.6) NM 9
Residual costs of
discontinued
operations (77.5) -- -- NM --
- ----------------------------------------------------------------------------------
Total EBITDA $3,544.4 $2,092.0 $1,528.9 69% 37%
- ----------------------------------------------------------------------------------
NM--Not meaningful
II-5
----------------------------------------------------------------------
Year ended Percent
December 31, Better/(Worse)
2000 1999 2000 vs. 1999
----------------------------------------------------------------------
Pro Forma EBITDA:
Cable Networks $1,566.3 $1,296.3 21%
Television 1,335.6 954.3 40
Infinity 1,794.1 1,505.5 19
Entertainment 368.8 317.9 16
Video 534.8 520.3 3
Publishing 71.3 74.0 (4)
Online (231.4) (82.1) (182)
----------------------------------------------------------------------
Segment Total 5,439.5 4,586.2 19
Corporate expenses/eliminations (296.9) (240.7) (23)
Residual costs of discontinued
operations (120.8) (84.5) (43)
----------------------------------------------------------------------
Total Pro Forma EBITDA $5,021.8 $4,261.0 18%
----------------------------------------------------------------------
RESULTS OF OPERATIONS 2000 VERSUS 1999
On a reported basis, revenues increased 56% to $20.0 billion for the year
ended December 31, 2000 from $12.9 billion for 1999. Reported operating
results for the year ended December 31, 2000 are not comparable with the prior
year due to the CBS merger, merger-related charges and other non-recurring
items.
On a pro forma basis, revenues increased 8% to $23.4 billion for 2000 from
$21.7 billion for 1999 with double digit increases at the Cable Networks,
Infinity and Video segments. Increased advertising revenues drove Cable
Networks and Infinity revenue growth. Increased same store revenues and the
increase in the number of Company-operated stores drove Video segment revenue
growth.
On a reported basis, total expenses increased 61% to $18.7 billion for 2000
from $11.6 billion for 1999 principally reflecting expenses of CBS following
the merger, an increase of $1.1 billion in amortization expense, merger
related charges of $698 million and increases associated with revenue growth.
On a pro forma basis, total expenses increased 5% to $21.2 billion for 2000
from $20.1 billion for 1999 principally reflecting increases associated with
revenue growth.
On a reported basis, EBITDA and operating income increased 69% to $3.5
billion and 6% to $1.3 billion, respectively, for 2000 from $2.1 billion and
$1.2 billion, respectively for 1999.
Segment Results of Operations 2000 versus 1999
Cable Networks (Basic Cable and Premium Subscription Television Program
Services)
-----------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------------
As Reported:
Revenues $3,895.0 $3,045.5 28%
Operating income $1,250.0 $ 932.4 34
EBITDA $1,495.0 $1,053.1 42
-----------------------------------------------------
Pro Forma:
Revenues $4,082.3 $3,610.0 13%
Operating income $1,268.6 $1,006.0 26
EBITDA $1,566.3 $1,296.3 21
-----------------------------------------------------
II-6
The Cable Networks segment is comprised of MTV Networks ("MTVN"),
including, MTV, VH1, Nickelodeon, Nick at Nite, TV Land, TNN: The National
Network and CMT, basic cable television program services; and Showtime
Networks Inc. ("SNI"), owner of several premium subscription television
program services.
For the year, MTVN revenues of $2.9 billion, EBITDA of $1.3 billion and
operating income of $1.1 billion increased 29%, 42% and 33%, respectively. The
increase in MTVN's revenues reflect 28% higher worldwide advertising revenues
principally driven by rate increases at MTV, VH1 and TV Land and higher
affiliate fees. MTVN's EBITDA and operating income gains were driven by the
increased revenues partially offset by increased programming and production
expenses, principally at MTV and VH1. On a pro forma basis, MTVN revenues of
$3.0 billion and EBITDA of $1.4 billion increased 14% and 21%, respectively,
over the prior year's pro forma revenues of $2.7 billion and EBITDA of $1.1
billion. Pro forma results are presented as if the acquisition of the CBS
Cable Networks, TNN and CMT, had occurred on January 1, 1999.
For the year, SNI's revenues, EBITDA and operating income increased 10%,
21% and 24%, respectively, as compared with the prior year. The revenue
increases were principally due to an increase of approximately 5.2 million
subscriptions, up 22% over the prior year to 28.4 million subscriptions at
December 31, 2000. Operating results reflect revenue increases attributable to
the continued growth of direct broadcast satellite subscriptions partially
offset by higher programming expenses and increased marketing for the
promotion of original series.
On January 23, 2001, the Company completed its acquisition of BET for
approximately $3 billion, which principally represents the issuance of
approximately 43.4 million shares of Viacom Class B Common Stock and the
assumption by the Company of approximately $590 million in debt. Beginning
first quarter of 2001, BET results will be reported as part of the Cable
Networks segment.
Television (CBS and UPN Television Networks and Stations; Television
Production and Syndication)
-----------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------------
As Reported:
Revenues $5,381.7 $2,352.0 129%
Operating income $ 431.2 $ 143.4 201
EBITDA $ 979.5 $ 271.5 261
-----------------------------------------------------
Pro Forma:
Revenues $7,255.4 $7,073.7 3%
Operating income $ 582.9 $ 189.9 207
EBITDA $1,335.6 $ 954.3 40
-----------------------------------------------------
The Television segment is comprised of the CBS and UPN Television Networks
and stations, television production and syndication.
For the year, Television segment pro forma revenues, EBITDA and operating
income growth was principally driven by the strong performance at the CBS
Network, television stations and at the United Paramount Network ("UPN"). CBS
Network's pro forma revenues and EBITDA growth for 2000 were primarily due to
increases in both upfront and scatter advertising pricing. Television stations
pro forma results benefited from strong advertising pricing in local owned and
operated TV markets. Approximately 80% of CBS Network's inventory for the
2000-2001 television season was sold in the upfront market and all day-parts
achieved double digit price increases. The success of the CBS Network was led
by its new reality-based television shows, including Survivor, the finale of
which was second only to the Super Bowl as the most watched television event
in 2000. Survivor also favorably impacted the ratings and revenue generated by
other day parts, including News and Late Night. CBS Network's Monday night
comedies, led by Everybody Loves Raymond, also posted significant year-to-year
growth. CBS Network's strong revenue growth was partially offset by higher
II-7
programming costs and election year expenses. CBS Network had the top two new
dramas in the fall season with CSI: Crime Scene Investigation and The
District. CBS Enterprises, which includes King World productions, reported
higher pro forma revenues and EBITDA primarily due to increased domestic
license fees from The Oprah Winfrey Show and Hollywood Squares, partially
offset by lower revenues from The Roseanne Show.
Paramount Television revenues for the full year 2000 were higher for
continuing network and first run syndication shows including Entertainment
Tonight, Judge Judy, Charmed, 7th Heaven and Judge Joe Brown. Syndication
revenues included the first time syndication availability of Sabrina, The
Teenage Witch and Moesha, and distribution fees from the initial syndication
of Spin City; however, these contributions did not compare favorably with the
prior year which included the last seasons of Beverly Hills 90210, Melrose
Place, Sunset Beach, Star Trek: Deep Space Nine, and Sister, Sister and the
first time syndication availability of JAG, Star Trek: Voyager, Viper and The
Sentinel and higher library syndication revenues. Paramount Television's
EBITDA also improved led by Frasier and Judge Judy combined with significant
overhead savings resulting from the integration of Spelling Entertainment into
Paramount Television. Revenues for the year ended December 31, 1999 also
benefited from the recognition of a cable retransmission royalty settlement.
Pro forma results assume that the CBS merger and the acquisitions of King
World, two Texas television stations and the remaining 50% interest of UPN had
occurred at the beginning of each period presented, exclude the third quarter
1999 Spelling restructuring charge and other non-recurring charges and reflect
the adoption of the change in accounting as of January 1, 1999 as described
below.
In the second quarter of 2000, the Company elected early adoption of the
AICPA's Statement of Position "Accounting by Producers or Distributors of
Films" ("SOP 00-2") which is effective for financial statements for fiscal
years beginning after December 15, 2000. SOP 00-2 established new film
accounting standards, including changes in revenue recognition and accounting
for advertising, development and overhead costs. As a result of the early
adoption, Television recorded a pre-tax charge of $330 million, primarily
related to Spelling Entertainment. This charge was recorded as a cumulative
effect of a change in accounting and is not included in EBITDA and operating
income above. Partially as a result of the adoption of SOP 00-2, prior year
pro forma results are higher than the prior year as reported results due to
the timing of distribution costs as required by SOP 00-2. The Television
segment's operating results for 2000 were reduced by approximately $9 million
due to this accounting change.
License fees for completed television programming in syndication and on
basic cable are recorded as revenue in the period that the products are
available for such exhibition, which, among other reasons, may cause
substantial fluctuation in operating results. As of December 31, 2000, the
unrecognized revenues attributable to such licensing agreements were
approximately $622 million.
Infinity (Radio Stations, Outdoor Advertising Properties)
-----------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------------
As Reported:
Revenues $2,764.7 -- NM
Operating income $ 589.4 -- NM
EBITDA $1,282.6 -- NM
-----------------------------------------------------
Pro Forma:
Revenues $4,037.2 $3,562.4 13%
Operating income $ 727.8 $ 479.8 52
EBITDA $1,794.1 $1,505.5 19
-----------------------------------------------------
NM--not meaningful
II-8
The Infinity segment is comprised of owned and operated radio stations and
outdoor advertising properties.
For the year, Infinity Broadcasting, the Company's out-of-home media
subsidiary, recorded pro forma revenues, EBITDA and operating income increases
of 13%, 19% and 52%, respectively, principally driven by advertising revenue
growth at both Infinity's radio stations and outdoor advertising businesses.
Advertising revenue growth was primarily driven by higher advertising rates,
reflecting increased demand for advertising at the majority of the radio
stations and in the outdoor advertising business. Infinity Radio's pro forma
net revenues and EBITDA increased 14% and 18%, respectively, principally
reflecting strong growth in the top 15 radio markets, with New York, Los
Angeles, Chicago and San Francisco delivering double-digit revenue and EBITDA
growth for the year. Infinity's outdoor advertising businesses pro forma net
revenues and EBITDA increased 13% and 23%, respectively. Pro forma results
assume the acquisition of Infinity Broadcasting, as part of the CBS merger,
and the completion of all acquisitions and related divestitures of radio and
outdoor properties by Infinity Broadcasting, including the acquisition of
Infinity Outdoor, formerly known as Outdoor Systems, Inc. and 18 radio
stations from Clear Channel, occurred at the beginning of each period
presented.
On February 21, 2001, the Company announced the completion of its merger
with Infinity Broadcasting. Under the terms of the merger, which is tax free
for the stockholders of Infinity and Viacom, each share of Infinity Class A
Common Stock not owned by the Company, approximately 36%, has been converted
into the right to receive 0.592 of a share of Viacom Class B Common Stock.
Entertainment (Production and distribution of Motion Pictures; as well as
the operation of Movie Theaters, Theme Parks and Music Publishing)
-----------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------------
As Reported:
Revenues $2,758.3 $2,665.9 3%
Operating income $ 209.7 $ 231.1 (9)
EBITDA $ 368.8 $ 378.3 (3)
-----------------------------------------------------
Pro Forma:
Revenues $2,758.3 $2,665.9 3%
Operating income $ 209.7 $ 170.7 23
EBITDA $ 368.8 $ 317.9 16
-----------------------------------------------------
The Entertainment segment is comprised of Paramount Pictures, movie
theaters, Paramount Parks and music publishing.
For the year, Entertainment revenues increased 3% to $2.8 billion compared
with the prior year, principally reflecting higher Features and Theaters
revenues. Higher Features revenues were driven by increased worldwide
theatrical and home video revenues as compared with 1999. Domestic theatrical
revenues for 2000 included the strong performance of Mission: Impossible 2,
What Women Want, Shaft, Rugrats in Paris: The Movie, Rules of Engagement, Snow
Day and The Original Kings of Comedy. Foreign theatrical revenues for 2000
were higher primarily due to the success of Mission: Impossible 2, Shaft,
Double Jeopardy and Sleepy Hollow. Home video revenues were higher and
included contributions from Mission Impossible 2, Double Jeopardy, Runaway
Bride, Sleepy Hollow and Rules of Engagement. Theater revenues were higher
primarily as a result of additional new multiplex theaters opened since the
end of 1999 and increased per capita spending. Parks' revenues were comparable
with the prior year. Entertainment revenues for the prior year also included
the recognition of a pay television license for library products and the
renewal of a film processing agreement.
For the year, Entertainment's EBITDA and operating income decreased 3% and
9%, respectively, primarily due to lower Theaters profits as a result of
higher operating costs and costs associated with opening additional
II-9
multiplexes in 2000. On a pro forma basis, Entertainment's EBITDA and
operating income increased 16% and 23%, respectively, over the prior year. Pro
forma results are presented as if the adoption of the change in accounting for
motion pictures (as described below) had occurred at the beginning of each
period presented. Parks' EBITDA and operating income for 2000 were higher than
the prior year due to lower operating costs.
As a result of the Company's adoption of SOP 00-2 in the second quarter of
2000, Paramount Pictures recorded a pre-tax charge of $423 million as a
cumulative effect of a change in accounting which is not included in EBITDA
and operating income above. For 2000, Entertainment's operating results were
reduced by approximately $20 million due to this accounting change. Prior
year's pro forma results are lower than the as reported results due to the
timing of when distribution expenses are recognized as required by SOP 00-2.
License fees for completed television exhibition of motion pictures are
recorded as revenue in the period that the products are available for such
exhibition, which, among other reasons, may cause substantial fluctuation in
operating results. As of December 31, 2000, the unrecognized revenues
attributable to such licensing agreements were approximately $1.0 billion.
Video (Home Video and Game rental and retail through traditional stores and
the Internet)
---------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
---------------------------------------------------
Revenues $4,960.1 $4,463.5 11%
Operating income $ 75.7 $ 127.9 (41)
EBITDA $ 534.8 $ 520.3 3
---------------------------------------------------
The Video segment is comprised of Blockbuster's operations in the home
video, DVD and video game rental and retailing business through traditional
stores and the Internet.
For the year, Video revenues increased 11% driven by an increase in same
store revenues and the increase in the number of Company-operated stores.
Worldwide same store revenues increased 5.6% for the year ended December 31,
2000 and worldwide rental revenues increased 5.9%. For the year, international
same store revenues increased 11.6% and domestic same store revenues increased
4.3% over 1999. Blockbuster ended the year with 7,677 company-owned and
franchise stores, a net increase of 524 stores over the prior year.
Operating results for 2000 were impacted by Blockbuster's investment in its
online operations, which began operations in the fourth quarter of 1999 and
resulted in reductions to EBITDA and operating income of $53.4 million and
$96.8 million, respectively. Excluding the amounts attributable to its online
operations, Video's EBITDA and operating income increased 12% and 28%,
respectively, as compared with the prior year. Additionally, during the fourth
quarter of 2000, Blockbuster determined that the carrying value of certain
hardware and capitalized software components primarily related to the e-
commerce portion of its Internet site was impaired, and as a result, recorded
a charge of approximately $31.6 million as part of depreciation expense. Pro
forma results exclude the impact of this impairment charge from depreciation
expense.
For the year, Video's gross margin decreased to 59.0% from 60.5%
principally due to an increase in the percentage of total revenues generated
through revenue-sharing arrangements, as revenue-sharing arrangements on
average have lower gross margins than do traditional buying arrangements.
Blockbuster is continually evaluating its product mix and product offerings,
as well as related strategic offerings, to try to optimize its stores'
revenues and gross profit. Blockbuster intends to continue to increase its
stores' depth of DVDs and other home entertainment products in response to
accelerated consumer acceptance of DVD and other home entertainment products.
These initiatives to optimize stores' revenues and gross profit may cause
Blockbuster to alter the product mix in its stores. This continued consumer
shift to DVD format may cause Blockbuster to rationalize its stores existing
product mix which could result in a non-cash charge.
II-10
Publishing (Consumer Publishing)
-----------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------
Revenues $596.0 $610.7 (2)%
Operating income $ 49.6 $ 54.3 (9)
EBITDA $ 71.3 $ 74.0 (4)
-----------------------------------------------
The Publishing segment is comprised of Simon & Schuster, which includes
imprints such as Pocket Books, Scribner and The Free Press.
For the year, Publishing experienced lower net sales at the Pocket Books
and Trade divisions primarily due to lower frontlist sales which drove the
EBITDA and operating income declines partially offset by increased license
fees and lower product costs. In 2000, Trade division's best-selling titles
included Before I Say Good-bye by Mary Higgins Clark, On Writing by Stephen
King and Seat of the Soul by Gary Zukav and the Children's division best
selling titles included Olivia by Ian Falconer.
Online (Interactive Online Services)
-----------------------------------------------------
Year Ended
December 31, Percent
2000 1999 Better/(Worse)
-----------------------------------------------------
As Reported:
Revenues $ 100.7 $ 29.8 238%
Operating income $(256.7) $ (64.5) (298)
EBITDA $(182.1) $ (48.4) (276)
-----------------------------------------------------
Pro Forma:
Revenues $ 113.2 $ 43.2 162%
Operating income $(309.7) $(100.0) (210)
EBITDA $(231.4) $ (82.1) (182)
-----------------------------------------------------
The Company operates Internet sites that provide online music and offer a
broad range of information, entertainment, news and promotional content.
For the year the increase in Online revenues, as reported and pro forma,
reflect increased license fees and higher advertising revenues. Operating
losses, as reported and pro forma, were driven by increased marketing expenses
for iWon.com (a consolidated subsidiary), which was launched in the fourth
quarter of 1999, and increased spending at MTVi. Pro forma results assume the
CBS merger had occurred at the beginning of each period presented. Effective
January 1, 2001, the Company will present its online businesses as part of the
Cable Networks and Television segments and the Company will account for iWon
as a deconsolidated investment.
Other Income and Expense Information 2000 versus 1999
Corporate Expenses/Eliminations
Corporate expenses/eliminations, excluding depreciation expense, of $928.0
million for 2000 are intersegment profit eliminations of $103.2 million and
$650 million of merger-related charges (of which $400 million was non-cash).
Pro forma corporate expenses, excluding intersegment profit eliminations and
depreciation expense, were $193.8 million for the year ended December 31, 2000
as compared with $227.7 million for the prior year.
II-11
Depreciation and Amortization
For the year ended December 31, 2000, depreciation and amortization
increased to $2.2 billion as compared with $844.7 million for 1999. This
increase was primarily due to the Company's merger with CBS, which resulted in
additional amortization expense of approximately $1.0 billion. The goodwill
associated with the CBS merger of approximately $50 billion is being amortized
on a straight-line basis over its useful life which does not exceed 40 years.
Interest Expense
Interest expense increased 83% to $822.3 million for 2000 from $448.9
million for 1999 due to higher average debt outstanding during 2000 as the
Company assumed $3.7 billion of debt with the CBS merger. The Company had
approximately $12.7 billion and $6.0 billion principal amount of debt
outstanding (including current maturities) at December 31, 2000 and December
31, 1999, respectively, at weighted average interest rates of 7.6% and 7.5%,
respectively.
Interest Income
Interest income increased 92% to $53.2 million for 2000 from $27.7 million
for 1999 due to higher marketable securities as a result of the CBS merger and
favorable returns on investments.
Other Items, Net
In 2000, "Other items, net" of $8.8 million principally reflects foreign
exchange gains of $31.7 million and net gains on the sale of assets of
approximately $44.3 million which were mostly offset by the write down of
several internet cost investments to their current market value for
approximately $66.9 million. In 1999, "Other items, net" of $17.8 million
principally reflects a $25.2 million foreign exchange gain partially offset by
a net loss of approximately $7.4 million from the sale of assets.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The annual effective tax rates of 73.4%
for 2000, excluding the 2000 merger-related charges of $698 million, and 48.8%
for 1999 were adversely affected by amortization of intangibles in excess of
the amounts deductible for tax purposes. Excluding the non-deductible
amortization of intangibles, the annual effective tax rates would have been
38.8% for 2000 and 35.4% for 1999.
Equity in Loss of Affiliated Companies, Net of Tax
"Equity in loss of affiliated companies, net of tax" was $124.2 million for
2000 as compared to $60.7 million for 1999, principally reflecting increased
losses of internet equity ventures and losses in equity theater ventures
partially offset by the improved performance of Comedy Central. In March 2000,
the Company acquired the remaining 50% interest in UPN and began consolidating
UPN's results of operations in the second quarter of 2000.
Minority Interest
Minority interest in 2000 primarily represents the minority ownership of
Infinity Broadcasting and Blockbuster common stock. The Company acquired the
remaining minority interest of Infinity Broadcasting that it did not own
through a merger with Infinity, completed in February 2001.
Extraordinary Loss
In 1999, the Company recognized after-tax extraordinary losses on the early
extinguishment of debt of $37.7 million, or a loss of $.06 per basic and
diluted share.
II-12
Cumulative Effect of Change in Accounting Principle
For the year ended December 31, 2000, the Company recorded an after-tax
non-cash charge of $452.3 million, or $.37 per basic and diluted share,
resulting from the early adoption of the new accounting standard for motion
pictures.
Net Earnings (Loss)
For the reasons described above, the Company reported a net loss of $816.1
million for 2000 as compared with net earnings of $334.0 million for 1999.
RESULTS OF OPERATIONS 1999 VERSUS 1998
Revenues increased 6% to $12.9 billion for 1999 from $12.1 billion for
1998. Revenue increases were paced by gains in the Cable Networks, Video and
Publishing segments. Cable Networks recorded higher advertising revenues and
affiliate fees for the year. Video's revenue gains were led by increases in
worldwide same store sales and the increased number of system-wide stores in
1999. Entertainment's revenues were down slightly for the year as its
worldwide theatrical and home video contributions did not match the
extraordinary box office and home video success in 1998 of Titanic, Deep
Impact and the theatrical performance of Saving Private Ryan.
Total expenses increased 3% to $11.6 billion for 1999 from $11.3 billion
for 1998 principally reflecting normal increases associated with revenue
growth and the Spelling charge of $81.1 million. In addition, results for 1998
include the second quarter Blockbuster charge of $424.3 million associated
with an adjustment to the carrying value of rental tapes due to a new method
of accounting.
EBITDA and operating income increased 37% to $2.1 billion and 66% to $1.2
billion, respectively, for 1999 from $1.5 billion and $751.6 million,
respectively, for 1998. Excluding the impact of the Spelling charge recorded
in the third quarter of 1999 and the second quarter 1998 Blockbuster charge
from the results presented above, EBITDA increased 11% and operating income
increased 13% for 1999.
Segment Results of Operations 1999 versus 1998
The following discussion of Viacom's segment results has been reclassified
to conform to the 2000 segment presentation. No pro forma discussion is
presented for the 1999 versus 1998 yearly results.
Cable Networks (Basic Cable and Premium Subscription Television Program
Services)
---------------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
---------------------------------------------------
Revenues $3,045.5 $2,607.9 17%
Operating income $ 932.4 $ 744.3 25
EBITDA $1,053.1 $ 851.3 24
---------------------------------------------------
For the year, MTVN revenues of $2.25 billion, EBITDA of $915.1 million and
operating income of $816.9 million increased 21%, 23% and 24%, respectively.
The increase in MTVN's revenues principally reflects higher worldwide
advertising revenues, up 22% for the year, and higher affiliate fees, up 13%,
along with the success of MTVN's consumer products licensing programs,
including Rugrats and Blue's Clues. Advertising revenue growth was driven by
rate increases at VH1 and MTV and higher unit volume at MTV. Nickelodeon's
advertising revenue growth was driven by the increased number of units sold
and lower average unit rates which was principally due to a 2% decline in
spending in the Kids' advertising segment during 1999 as well as increased
competition in that category. The increased revenues drove MTVN's EBITDA and
operating income gains.
II-13
SNI's revenues, EBITDA and operating income increased 7%, 14% and 19%,
respectively, over the prior year. The revenue increases were principally due
to an increase of approximately 3.5 million subscriptions, up 18% over the
prior year to 23.2 million subscriptions at December 31, 1999. Operating
results reflect revenue increases attributable to the continued growth of
direct broadcast satellite subscriptions, as well as higher programming,
marketing and advertising expenses to support subscription growth, and SNI's
original films and branding initiatives.
Television (Television Stations; Television Production and Syndication)
---------------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
---------------------------------------------------
Revenues $2,352.0 $2,271.4 4%
Operating income $ 143.4 $ 262.4 (45)
EBITDA $ 271.5 $ 372.9 (27)
---------------------------------------------------
For the year, Television revenues were higher primarily due to higher
syndication revenues from Judge Judy, the first time availability of JAG, Star
Trek: Voyager, The Sentinel and Viper, and from an additional season of
Sister, Sister. Television programming revenues for the year also benefited
from the recognition of a cable retransmission royalty settlement. For the
year, the increase in programming revenues was partially offset by lower
library syndication revenues.
Television's EBITDA and operating income decreased 27% and 45%,
respectively, as the 1999 results were impacted by the Spelling charge. The
Spelling charge of $81.1 million was incurred in the third quarter of 1999, of
which $70.3 million was recorded as a restructuring charge and $10.8 million
was recorded as part of depreciation expense. The restructuring charge was
primarily associated with the integration of Spelling's operations into
Paramount Television, resulting in the elimination of duplicative sales forces
and certain other back office functions. Excluding the impact of the Spelling
charge, Television's EBITDA and operating income decreased 8% and 14%,
respectively. For the year, Paramount television stations' revenues increased
2% to $437.1 million, EBITDA increased 2% to $151.5 million and operating
income increased 1% to $100.6 million.
License fees for completed television programming in syndication and on
basic cable are recorded as revenue in the period that the products are
available for such exhibition, which, among other reasons, may cause
substantial fluctuation in operating results. As of December 31, 1999, the
unrecognized revenues attributable to such licensing agreements were
approximately $462.1 million.
Entertainment (Production and distribution of Motion Pictures; as well as
the operation of Movie Theaters, Theme Parks and Music Publishing)
---------------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
---------------------------------------------------
Revenues $2,665.9 $2,914.3 (9)%
Operating income $ 231.1 $ 235.5 (2)
EBITDA $ 378.3 $ 368.7 3
---------------------------------------------------
For the year, Entertainment's revenues decreased as 1999 results did not
match the prior year's extraordinary box office and home video success of
Titanic and Deep Impact and the theatrical performance of Saving Private Ryan.
Entertainment's revenues included strong theatrical contributions from Varsity
Blues, Payback, The General's Daughter, Runaway Bride, Double Jeopardy, Sleepy
Hollow and The Talented Mr. Ripley, but did not match 1998's box office
success of Titanic, Saving Private Ryan, Deep Impact, The Truman Show and The
Rugrats Movie. Foreign home video revenues were higher primarily driven by
Saving Private Ryan, The Rugrats Movie and The Truman Show, but were offset by
lower domestic home video revenues which did not match
II-14
1998's release of Titanic. Theaters' revenues were higher primarily as a
result of the new multiplex theaters opened since the end of 1998.
Entertainment's EBITDA increased 3% principally due to the revenue items
discussed above and a change in product mix while operating income decreased
2% reflecting higher depreciation expense for new theaters opened since the
end of 1998. Theaters' EBITDA and operating income were lower for the year
primarily due to the one-time costs associated with opening new multiplexes.
Theme Parks' revenue, EBITDA and operating income declines for the year
reflect declines in overall attendance primarily due to increased competition
at two of the parks and generally less than favorable weather conditions.
License fees for the television exhibition of motion pictures and for
syndication and basic cable exhibition of television programming are recorded
as revenue in the period that the products are available for such exhibition,
which, among other reasons, may cause substantial fluctuation in operating
results. As of December 31, 1999, the unrecognized revenues attributable to
such licensing agreements were approximately $1.2 billion.
Video (Home Video and Game rental and retail through traditional stores and
the Internet)
----------------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
----------------------------------------------------
Revenues $4,463.5 $3,893.4 15%
Operating income $ 127.9 $ (342.2) NM
EBITDA $ 520.3 $ 39.9 NM
----------------------------------------------------
NM--not meaningful
For the year, Video's revenues were higher principally due to higher
worldwide same store sales and the increased number of system-wide video
stores. Worldwide same store sales, including rental and retail product,
increased 8.3%, and worldwide same store rental revenues increased 10.1%. The
increase in same store revenues was principally due to increases in the
average domestic rental fee and increased sales of previously-viewed tapes.
Blockbuster ended the year with 7,153 stores, a net increase of 772 stores
over the prior year.
Video's EBITDA increased to $520.3 million in 1999 from $39.9 million in
1998. The 1999 results reflect Blockbuster's investment in its Internet
business which resulted in a reduction to EBITDA and operating income of $6.6
million and $7.0 million, respectively, for the year ended December 31, 1999.
The 1998 results reflect a charge taken in the second quarter of $424.3
million associated with an adjustment to the carrying value of rental tapes
due to a new method of accounting.
Excluding the amounts attributable to the investment in its Internet
business and the effects of the 1998 charge, Video's EBITDA increased by $62.7
million, or 14%, reflecting the continuing success of revenue growth programs
implemented in the first quarter of 1999 which emphasize tape copy depth,
promote customer loyalty and reward customer frequency. For the year, Video's
gross margin percentage decreased slightly to 60.5% from 60.8%, excluding the
Internet business' results in 1999 and the $424.3 million charge taken in
1998.
Publishing (Consumer Publishing)
-----------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
-----------------------------------------------
Revenues $610.7 $564.6 8%
Operating income $ 54.3 $ 53.2 2
EBITDA $ 74.0 $ 71.2 4
-----------------------------------------------
II-15
For the year, the improved revenues and operating results are due
principally to higher sales in the Trade division, led by the best selling
titles Tis by Frank McCourt, Hearts in Atlantis by Stephen King and When Pride
Still Mattered by David Maraniss. The Children's division revenues also
increased for the year driven by higher sales including the best-selling title
The Dance by Richard Paul Evans and Eloise at Christmastime by Kay Thompson.
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing for $4.6 billion in cash. The Company realized a gain of $65.5
million, net of tax, from the sale and presented Non-Consumer Publishing as a
discontinued operation for 1998 and for all prior periods.
Online (Interactive Online Services)
------------------------------------------------
Year Ended
December 31, Percent
1999 1998 Better/(Worse)
------------------------------------------------
Revenues $ 29.8 $13.7 118%
Operating income $(64.5) $(7.5) NM
EBITDA $(48.4) $(3.5) NM
------------------------------------------------
NM--not meaningful
Revenue increases for the year principally reflect increased license fees
and higher advertising revenues. The operating losses reflect the continued
investments in the Company's online services.
On July 15, 1999, the Company together with Liberty Digital Inc. formed the
MTVi Group, L.P. ("MTVi"). The Company contributed all of its assets used
exclusively in its Internet music businesses, including the assets of Imagine
Radio, which the Company acquired in February 1999, in exchange for a 90%
equity interest in MTVi. Liberty Digital Inc. contributed all of its assets
used in its Internet music businesses, including SonicNet.com and assets of
The Box Worldwide, Inc. (certain of which were concurrently licensed to MTVN)
in exchange for a 10% equity interest in MTVi.
Other Income and Expense Information 1999 versus 1998
Corporate Expenses/Eliminations
Corporate expenses/eliminations, excluding depreciation expense, decreased
9% to $156.8 million for 1999 from $171.6 million for 1998. Corporate expenses
of $174.1 million in 1999 increased 7% from $162.0 million in 1998 while the
benefit from eliminations of $17.3 million increased over the prior year by
approximately $21 million principally due to the timing of the recognition of
intersegment sales.
Interest Expense
Interest expense decreased 28% to $448.9 million for 1999 from $622.4
million for 1998 due to lower average debt outstanding of $5.8 billion during
1999 versus $7.4 billion during 1998. The Company had approximately $6.0
billion and $4.2 billion principal amount of debt outstanding (including
current maturities) at December 31, 1999 and 1998, respectively, at weighted
average interest rates of 7.5% and 7.8%, respectively.
Interest Income
Interest income increased 18% to $27.7 million for 1999 from $23.4 million
for 1998.
Other Items, Net
"Other items, net" reflects $17.8 million of income for 1999 compared to a
loss of $15.3 million in 1998. The net increase of $33.1 million principally
reflects a $25.2 million foreign exchange gain in 1999 compared to a $7.4
million foreign exchange loss in 1998. "Other items, net" also includes a net
loss of approximately $7.4
II-16
million from the sale of assets in 1999 and the loss of approximately $91
million associated with the closing of the Viacom Entertainment Store
partially offset by a net gain of approximately $82.9 million from the sale of
assets in 1998.
Provision for Income Taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The annual effective tax rates of 48.8%
for 1999 and 101.0% for 1998 were both adversely affected by amortization of
intangibles in excess of amounts which are deductible for tax purposes.
Excluding the non-deductible amortization of intangibles, the annual effective
tax rates would have been 35.4% for 1999 and 31.8% for 1998.
Equity in Loss of Affiliated Companies, Net of Tax
"Equity in loss of affiliated companies, net of tax" was $60.7 million for
1999 as compared to $41.4 million for 1998 principally reflecting increased
net operating losses of UPN and international ventures partially offset by the
improved results of Comedy Central.
Minority Interest
Minority interest primarily represents the minority ownership of
Blockbuster common stock in 1999 and Spelling common stock in 1998.
Discontinued Operations
For 1998, discontinued operations reflect the results of operations, net of
tax, of Non-Consumer Publishing and the music retail stores which were sold on
November 27, 1998 and October 26, 1998, respectively. Discontinued operations
also reflect the gain from the sale of Non-Consumer Publishing of $65.5
million, net of tax, the loss from the sale of music retail stores of $138.5
million, net of tax, additional losses recognized for Virgin Interactive
operations prior to disposal of $20.3 million, net of minority interest, the
tax benefit associated with the disposal of Virgin Interactive of $134.0
million and the reversal of excess cable split-off reserves.
Extraordinary Loss
During 1999 and 1998, the Company recognized after-tax extraordinary losses
on the early extinguishment of debt of $37.7 million and $74.7 million,
respectively.
Net Earnings (Loss)
For the reasons described above, net earnings of $334.0 million for 1999
increased $456.4 million from a loss of $122.4 million for 1998.
Acquisitions and Merger-Related Charges
On May 4, 2000, CBS was merged with and into the Company (the "Merger").
The total purchase price of approximately $39.8 billion included approximately
$37.7 billion for the issuance of 825.5 million shares of Viacom Class B
Common Stock and 11,004 shares of Viacom Series C convertible preferred stock,
which were subsequently converted into 11.0 million shares of Viacom Class B
Common Stock and approximately $1.9 billion for the fair value of CBS stock
options assumed by the Company and transaction costs. In addition, Viacom
assumed approximately $3.7 billion of CBS debt.
The Company presently holds television stations which reach approximately
41% of United States television households (as calculated for this purpose
under rules and regulations of the Federal Communications Commission (the
"FCC"), which apply a 50% discount to the reach of UHF stations). These
stations reach approximately 6% in excess of the 35% limit permitted by FCC
regulations. In connection with FCC approval of the Merger, the Company was
given one year to come into compliance with the limit. The Company has
II-17
challenged the rule in federal court and is seeking a stay of the requirement
to come into compliance with the limit pending judicial review of the national
ownership cap. The Company was also provided with one year to come into
compliance with the FCC's "dual network" rule, which prohibits the Company
from owning and controlling both CBS and UPN. On June 20, 2000, the FCC
released a Notice of Proposed Rule Making, in which it proposes to modify the
dual network rule, the effect of which would be to permit the Company to own
both CBS and UPN.
In the second quarter of 2000, the Company recorded non-recurring merger-
related charges of $698 million ($505 million after-tax or $.41 per share),
associated with the integration of Viacom and CBS and the acquisition of UPN
(see Note 3). These amounts included non-cash charges of $415 million
principally attributable to compensation for stock options and $283 million of
cash payments and accrued liabilities for severance, transaction fees and
costs. As of December 31, 2000, the Company had paid and charged approximately
$92 million for severance liabilities, $27 million for transaction fees and $6
million related to integration costs.
In June 1999, the Company completed its tender offer for all outstanding
shares of Spelling common stock that it did not already own for $9.75 per
share in cash and then acquired the remaining outstanding shares of Spelling
not tendered through a merger of Spelling and a wholly owned subsidiary of the
Company. As a result of the merger, each share of Spelling common stock was
also converted into the right to receive $9.75 in cash. The consideration for
tendered shares was approximately $176 million.
In connection with the integration of the operations of Spelling into
Paramount Television, the Company recorded a charge of approximately $81.1
million, of which $70.3 million was recorded as a restructuring charge and
$10.8 million was recorded as part of depreciation expense in the third
quarter of 1999. Included in the charge were severance and employee related
costs of $48.1 million, lease termination and other occupancy costs of $17.7
million and other exit costs of $4.5 million. Severance and other employee
related costs represent the costs to terminate approximately 250 employees
engaged in legal, sales, marketing, finance, information systems, technical
support and human resources for Spelling. Lease termination and other
occupancy costs principally represent the expenses associated with vacating
existing lease obligations in New York and Los Angeles. The depreciation
expense of approximately $10.8 million was associated with the fixed asset
write-offs for software, leasehold improvements and equipment located at these
premises. As of December 31, 2000, the Company had paid and charged
approximately $43.6 million against the severance liability, $11.3 million
against lease termination and other occupancy costs, and $2.0 million against
the other exit costs.
Other Acquisitions
On February 21, 2001, the Company completed a merger with Infinity
Broadcasting, acquiring all of the issued and outstanding shares of Infinity
common stock that it did not already own, approximately 36%. Under the terms
of the merger, which is tax free for the stockholders of Infinity and Viacom,
each share of Infinity Class A common stock was converted into the right to
receive 0.592 of a share of Viacom Class B Common Stock. The total purchase
price of approximately $13.4 billion represents the issuance of approximately
232 million shares of Viacom Class B Common Stock and the fair value of
Infinity stock options assumed by the Company.
On January 23, 2001, the Company completed its acquisition of BET for
approximately $3 billion, which principally represents the issuance of
approximately 43.4 million shares of Viacom Class B Common Stock and the
assumption by the Company of approximately $590 million in debt.
On September 15, 2000, Infinity Broadcasting completed the acquisition of
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately
$76 million.
On August 24, 2000, Infinity Broadcasting completed the acquisition of 18
radio stations from Clear Channel for $1.4 billion in an asset transaction.
These stations are located in San Diego, Phoenix, Denver, Cleveland,
Cincinnati, Orlando and Greensboro--Winston-Salem.
II-18
On July 1, 2000, Infinity Broadcasting completed the acquisition of
Waterman Broadcasting Corporation of Texas ("Waterman Broadcasting") in
exchange for approximately 2.7 million shares of Infinity Broadcasting Class A
common stock valued at approximately $88 million. Waterman Broadcasting owns
radio stations KTSA-AM and KTFM-FM in San Antonio, Texas.
During the second quarter of 2000, Infinity Broadcasting completed the
acquisition of Giraudy, one of France's largest outdoor advertising companies,
for approximately $400 million. Infinity Broadcasting also acquired Societa
Manifesti & Affisioni S.p.A., one of the leading Italian outdoor media sales
companies, for approximately $90 million.
On March 31, 2000, the Company acquired the remaining 50% interest in UPN
that it did not already own. In the second quarter of 2000, the Company
consolidated UPN's results of operations. Prior to this acquisition, the
Company reported its proportionate share of net losses of UPN in "Equity in
loss of affiliated companies, net of tax" in the Consolidated Statements of
Operations.
Liquidity and Capital Resources
The Company expects to fund its anticipated cash requirements (including
the anticipated cash requirements of its capital expenditures, share
repurchase programs, joint ventures, commitments and payments of principal and
interest on its outstanding indebtedness) with internally generated funds, in
addition to various external sources of funds. The external sources of funds
may include the Company's access to commercial paper and the Company's credit
agreements, co-financing arrangements by the Company's various divisions
relating to the production of entertainment products, and/or additional
financings.
As of December 31, 2000, the Company had certain restrictions on Infinity
Broadcasting's cash balance of $143.0 million, reflected in the Company's
consolidated cash amount of $934.5 million. Infinity Broadcasting's cash
became available to Viacom upon the merger of Infinity into a subsidiary of
Viacom, effective February 21, 2001.
Subsequent to its August 1999 initial public offering, Blockbuster no
longer participates in the Company's centralized cash management system. Cash
generated by Blockbuster's operations is expected to be retained by
Blockbuster to fund its anticipated cash requirements.
The Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and warrants
of Viacom that may be issued for aggregate gross proceeds of $5.0 billion. The
registration statement was declared effective on January 8, 2001. The net
proceeds from the sale of the offered securities may be used by Viacom for
general corporate purposes, including repayment of borrowings, working capital
and capital expenditures; or for such other purposes as may be specified in
the applicable Prospectus Supplement. To date, the Company has not issued any
securities under the shelf registration statement.
On July 7, 1999, the Viacom Five-Year Warrants expired. The Company
received proceeds of approximately $317 million and issued approximately 9.0
million shares of its Class B Common Stock in connection with the exercise of
4.5 million warrants issued as part of the 1994 acquisition of Paramount
Communications.
At December 31, 2000, National Amusements, Inc. ("NAI") beneficially owned
approximately 68% of Viacom Inc. Class A Common Stock and approximately 13% of
Class A and Class B Common Stock on a combined basis.
Share Repurchase Programs
During 2000, the Company repurchased 10,000 shares of its Class A Common
Stock and 34.2 million shares of its Class B Common Stock for approximately
$1.95 billion in the aggregate. Fourth quarter 2000 repurchases
II-19
included in this total amounted to $356.8 million. In January 2001, the
Company repurchased 1.1 million shares of its Class B Common Stock for
approximately $56.3 million. On February 1, 2001, the Company initiated a new
repurchase program to acquire up to $2.0 billion of Viacom Class B Common
Stock, and through March 19, 2001, the Company had repurchased under this
program 2.8 million shares of its Class B Common Stock for $141.5 million.
During 1999, the Company had repurchased 25,000 shares of its Class A
Common Stock, 10.6 million shares of its Class B Common Stock and 1.1 million
Viacom Five-Year Warrants, for approximately $466.4 million in the aggregate.
During 1998, the Company had repurchased a total of 12,000 shares of its Class
A Common Stock, 26.2 million shares of its Class B Common Stock and 5.5
million Viacom Five-Year Warrants, for approximately $822.0 million in the
aggregate.
On December 2, 1998, the Company repurchased 12 million shares of its
convertible preferred stock from Bell Atlantic Corporation for $564 million in
cash. On January 5, 1999, the Company repurchased the remaining 12 million
shares of its convertible preferred stock from Bell Atlantic Corporation for
$612 million in cash.
Commitments and Contingencies
The Company, Blockbuster and Paramount Home Entertainment are among the
defendants in a lawsuit filed on July 21, 1999 in the United States District
Court for the Western District of Texas by one former and three present
independent video retailers against the major motion picture studios and the
Company. The plaintiffs, purporting to act as class representatives on behalf
of themselves and all others similarly situated, allege that the Company and
the studios conspired among themselves and with Blockbuster to restrain
competition in the nationwide market for distribution of videocassettes for
rental to the public in violation of federal and California law. Plaintiffs
seek injunctive relief under federal law as well as triple the amount of the
alleged actual damages to themselves and those similarly situated under
California statutes. In January 2001, plaintiffs moved to withdraw their
California state law claims from the federal lawsuit in Texas and filed a
substantially similar complaint with approximately 200 additional named
plaintiffs in Superior Court for the County of Los Angeles. This complaint
also sought certification of a nationwide class of similarly situated
plaintiffs. In March 2001, the Texas court denied the plaintiffs' motion for
class certification of both the federal and the California state law claims in
the federal action and denied the plaintiffs' motion to withdraw their
California state law claims from that action. The Company believes that the
plaintiffs' position in these litigations is without merit and intends to
defend itself vigorously in the litigations.
The Company is a defendant in numerous lawsuits claiming various asbestos-
related personal injuries, which allegedly occurred from use or inclusion of
asbestos in certain products supplied by previously divested industrial
business, generally in the pre-1970 time period. Typically, these lawsuits are
brought against multiple defendants in state and Federal courts. The Company
was neither a manufacturer nor a producer of asbestos. As of December 31,
2000, the Company had pending approximately 99,590 asbestos cases, excluding
cases in various stages of settlement. The Company has brought suit against
certain of its insurance carriers with respect to asbestos claims. Under the
terms of a settlement agreement resulting from this suit, carriers that have
agreed to the settlement are now reimbursing the Company for a substantial
portion of its current costs and settlement associated with asbestos claims.
The Company believes that it has meritorious defenses to asbestos matters,
that where appropriate it has adequately provided for resolution of matters
and that any ultimate liability resulting from asbestos matters is not likely
to have a material adverse effect on its results of operations, financial
position or cash flows.
The Company from time to time receives claims from federal and state
environmental regulatory agencies and other entities asserting that it is or
may be liable for environmental cleanup costs and related damages, principally
relating to discontinued operations conducted by companies acquired by the
Company. The Company's liabilities reflect management's best estimate of its
environmental exposure. Such liability was not discounted or reduced by
potential insurance recoveries and reflects management's estimate of cost
sharing at
II-20
multiparty sites. The estimated liability was calculated based upon currently
available facts, existing technology and presently enacted laws and
regulations. On the basis of its experience and the information currently
available to it, the Company believes that the claims it has received will not
have a material adverse effect on its results of operations, financial
position or liquidity.
In addition to the above matters, the Company and various of its
subsidiaries are parties to certain other legal proceedings. Litigation is
inherently uncertain and always difficult to predict. However, based on its
understanding and evaluation of the relevant facts and circumstances, the
Company believes that these matters are not likely to have a material adverse
effect on its results of operations, financial position or cash flows.
The commitments of the Company for program license fees, estimated to
aggregate approximately $15.2 billion, are not reflected in the balance sheet
as of December 31, 2000. These commitments include approximately $10.8 billion
for the acquisition of sports programming rights. A majority of such fees are
payable over several years, as part of normal programming expenditures. See
Note 15 of Notes to Consolidated Financial Statements for a description of the
Company's future minimum lease commitments and franchise payments.
Financial Position
Current assets increased to $7.8 billion as of December 31, 2000 from $5.2
billion as of December 31, 1999, due to the addition of approximately $2.9
billion in current assets resulting from the CBS merger, partially offset by a
reduction in inventory reflecting the impact of the adoption of SOP 00-2. The
allowance for doubtful accounts as a percentage of receivables decreased to
5.8% for 2000 from 6.1% for 1999. The change in property and equipment
principally reflects the addition of approximately $3.1 billion in fixed
assets due to the Merger and capital expenditures of $659.0 million for new
and existing video stores and construction of new movie theaters, partially
offset by depreciation expense of $799.7 million. Intangibles of $62.0 billion
at December 31, 2000 increased by $50.5 billion compared to $11.5 billion as
of December 31, 1999, principally reflecting the CBS merger and other
acquisitions. Current liabilities increased $3.4 billion to $7.8 billion as of
December 31, 2000 due to the addition of approximately $3.2 billion resulting
from the Merger. Non-current liabilities of $19.9 billion reflect the
inclusion of $3.7 billion of debt and $5.6 billion of other liabilities from
the Merger. The minority interest balance of $7.0 billion as of December 31,
2000 included $5.7 billion of the minority ownership interest of Infinity.
The Company continually monitors its positions with, and credit quality of,
the financial institutions which are counterparties to its financial
instruments. The Company is exposed to credit loss in the event of
nonperformance by the counterparties to the agreements. However, the Company
does not anticipate nonperformance by the counterparties. The Company's
receivables do not represent significant concentrations of credit risk at
December 31, 2000, due to the wide variety of customers, markets and
geographic areas to which the Company's products and services are sold.
Cash Flows
Net cash flow provided by operating activities of $2.3 billion in 2000
primarily reflects the net loss of $816.1 million adjusted for non-cash
expenses of $2.2 billion for depreciation and amortization, $415 million of
merger-related charges and $753.9 million for the cumulative effect of change
in accounting principle partially offset by increases to receivables and
payment of accrued liabilities. Net cash flow from operations of $294.1
million in 1999 primarily reflected net earnings of $334.0 million plus
depreciation and amortization expenses of $844.7 million, partially offset by
the increased investment in inventory of $512.7 million and an increase in
unbilled receivables of $120.7 million. Net cash expenditures for investing
activities of $2.9 billion for 2000 principally reflect capital expenditures
of $659.0 million and acquisitions of $2.4 billion principally for radio
stations and outdoor businesses. Net cash expenditures for investing
activities of $1.1 billion for 1999 principally reflect capital expenditures
and the Spelling transaction as well as acquisitions of video stores and
television stations. Financing activities for 2000 principally reflect
approximately $3.1 billion of borrowings from banks and proceeds from the
issuance of senior notes and debentures partially offset by the purchase of
treasury stock. Financing activities for 1999 principally reflect borrowings
and repayment of debt as well as the repurchase of the Company's common stock,
warrants and convertible preferred stock.
II-21
Planned capital expenditures, including information systems costs, are
approximately $625 million to $675 million in 2001. Capital expenditures are
primarily related to capital additions for cable networks, television and
radio equipment, new and existing video stores and theme park attractions. The
Company's joint ventures are expected to require estimated net cash
contributions of approximately $15 million to $25 million in 2001.
For the year ended December 31, 2000, cash flow from operating activities
used to fund federal, state and local and foreign income taxes amounted to
$61.2 million. Certain non-recurring tax deductions significantly reduced cash
taxes paid in 2000. These tax deductions in the aggregate totaled $2.3 billion
and included severance costs relating to the Merger, the adoption of SOP 00-2,
the amortization of a prior year cumulative change in an income tax method of
accounting for inventory at Blockbuster, stock option exercises and limited
right stock option exercises arising from the Merger. With the absence of such
deductions, cash taxes to be paid in 2001 are expected to increase
significantly.
Capital Structure
The following table sets forth the Company's long-term debt:
-----------------------------------------------------------------------
At December 31, 2000 1999
-----------------------------------------------------------------------
Notes payable to banks, including commercial paper $ 5,735.5 $3,054.2
Senior debt 5,662.7 2,310.9
Senior subordinated debt 664.4 35.3
Subordinated debt 39.4 --
Other notes 43.5 --
Obligations under capital leases 552.2 591.6
-----------------------------------------------------------------------
12,697.7 5,992.0
Less current portion 223.9 294.3
-----------------------------------------------------------------------
$12,473.8 $5,697.7
-----------------------------------------------------------------------
Debt, including the current portion, as a percentage of total
capitalization of the Company decreased to 21% at December 31, 2000 from 35%
at December 31, 1999.
As a result of the Merger, Viacom assumed approximately $3.7 billion of CBS
debt.
On March 28, 2000, the Viacom Credit Agreements were amended to allow for
the merger of CBS with and into the Company. On April 17, 2000, the CBS credit
agreement, which consisted of a $1.5 billion revolving credit facility
maturing August 29, 2001 and the Infinity credit agreement, which consisted of
a $1.5 billion revolving credit facility maturing August 29, 2001, were
amended to allow for the merger of CBS with and into the Company. On May 3,
2000, Infinity Broadcasting entered into two new credit facilities, totaling
$1.95 billion, comprised of a $1.45 billion 5-year revolving credit facility
and a $500 million 364-day revolving credit facility. Borrowing rates under
the CBS and Infinity facilities were determined at the time of each borrowing
and were based generally on a floating rate index, the London Interbank Offer
Rate ("LIBOR"), plus a margin based on the respective senior unsecured debt
rating.
On March 7, 2001, the Company cancelled all of the above-mentioned credit
agreements other than the Infinity Broadcasting $1.45 billion facility, and
entered into two new credit facilities. These two new facilities total $3.5
billion and are comprised of a $1.5 billion 5-year revolving credit facility
and a $2.0 billion 364-day revolving credit facility. The Company also amended
and restated the Infinity Broadcasting $1.45 billion facility, substantially
to conform to the terms and conditions of the new $1.5 billion 5-year
revolving credit facility and to designate the Company as the borrower. The
primary purpose of the facilities is to support commercial paper borrowings.
The Company, at its option, may borrow in certain foreign currencies up to
specified limits under the new $1.5 billion 5-year revolving credit facility.
Borrowing rates under the facilities are determined
II-22
at the time of each borrowing and are based generally on LIBOR plus a margin
based on the Company's senior unsecured debt rating. At December 31, 2000,
LIBOR for borrowing periods of one month and two months were 6.56% and 6.49%,
respectively.
The new and amended facilities contain certain covenants which, among other
things, require that the Company maintain a minimum interest coverage ratio.
At December 31, 2000, the Company was in compliance with the financial
covenants. The Company expects to be in compliance and satisfy all such
covenants as may be applicable from time to time during 2001.
The Company pays a commitment fee based on the total amount of the loan
commitments. As of March 7, 2001, the facilities totaled $4.95 billion.
In March 2001, the Company increased its commercial paper program from $4.0
billion to $4.95 billion and Infinity Broadcasting cancelled its $3.25 billion
commercial paper program. Borrowings under the program have maturities of less
than a year and are supported by unused committed bank facilities. At December
31, 2000, the Company had borrowings under the program of approximately $1.7
billion and Infinity Broadcasting had borrowings under its commercial paper
program of approximately $2.1 billion.
On January 9, 2001, the Company issued, under Rule 144A, $400 million of
6.40% unsecured senior notes due January 30, 2006, $500 million of 7.70%
unsecured senior notes due July 30, 2010, and $750 million of 7.875% unsecured
senior debentures due July 30, 2030; interest on the senior notes and
debentures will be payable semi-annually. Proceeds from the debt issuance were
used to repay bank debt, including commercial paper. During March 2001, these
notes and debentures were exchanged for registered notes and debentures. The
unsecured senior debentures and the unsecured senior notes due July 30, 2010
are redeemable at any time at their principal amount plus the applicable
premium and accrued interest.
On August 1, 2000, the Company issued $1.15 billion of 7.70% unsecured
senior notes due July 30, 2010 and $500 million of 7.875% unsecured senior
debentures due July 30, 2030; interest on the senior notes and debentures will
be payable semi-annually. Proceeds from the debt issuance were used to repay
bank debt, including commercial paper. The senior notes and debentures are
redeemable at any time at their principal amount plus the applicable premium
and accrued interest.
On February 1, 2001, the Company redeemed all $60.3 million outstanding of
Infinity Broadcasting's 9% senior subordinated notes due 2006 at a redemption
price equal to 104.5% of the principal amount. On December 1, 2000, the
Company redeemed all $105.3 million outstanding of Infinity Broadcasting's
9.75% senior subordinated notes due 2005 at a redemption price equal to 104.9%
of the principal amount.
During 1999, the Company redeemed the remaining $211.8 million principal
amount of its 8% merger debentures outstanding and recognized an extraordinary
loss of $37.4 million, net of tax, on the early redemption.
The Company has classified short-term indebtedness as long-term debt based
upon its intent and ability to refinance such indebtedness on a long-term
basis. The Company's scheduled maturities of long-term debt outstanding at
December 31, 2000, excluding capital leases, are as follows:
----------------------------------------------------------
Year of Maturity
2001 2002 2003 2004 2005
----------------------------------------------------------
Long-term debt $1,557.8 $2,507.4 $911.7 $667.5 $2,924.8
----------------------------------------------------------
Blockbuster Credit Agreement
On June 21, 1999, Blockbuster entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement was comprised of a $700
II-23
million long-term revolver due July 1, 2004; a $600 million term loan due in
quarterly installments beginning April 1, 2002 and ending July 1, 2004; and a
$600 million short-term revolver, which was paid down during 2000. The
repayment of the short-term revolver permanently reduced the borrowing
capacity under the Blockbuster Credit Agreement from $1.9 billion to $1.3
billion. Interest rates under the Blockbuster Credit Agreement are based on
the prime rate or LIBOR at Blockbuster's option at the time of borrowing. A
variable commitment fee based on the total leverage ratio is charged on the
unused amount of the revolver (.25% at December 31, 2000).
The Blockbuster Credit Agreement contains certain restrictive covenants,
which, among other things, relate to the payment of dividends, repurchase of
Blockbuster's common stock or other distributions and also require compliance
with certain financial covenants with respect to a maximum leverage ratio and
a minimum fixed charge coverage ratio. At December 31, 2000, Blockbuster was
in compliance with all financial covenants under the Blockbuster Credit
Agreement.
On June 23, 1999, Blockbuster borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolver, $600 million borrowed under the
term loan, and $600 million under the short-term revolver. The proceeds of the
borrowings were used to pay amounts owed to Viacom. Blockbuster repaid $442.9
million of the short-term revolver through proceeds from its initial public
offering and repaid the remaining $157.1 million of the short-term revolver
during the year ended December 31, 2000. Blockbuster had $278.0 million of
available borrowing capacity under the long-term revolver at December 31,
2000. The weighted average interest rate at December 31, 2000 for these
borrowings was 8.0%.
Blockbuster's scheduled maturities of long-term debt outstanding at
December 31, 2000, excluding capital leases, are as follows:
-----------------------------------------------
Year of Maturity
2001 2002 2003 2004 2005
-----------------------------------------------
Long-term debt $8.0 $158.8 $279.3 $599.9 $1.0
-----------------------------------------------
Market Risk
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward
contracts, spots and options. The foreign exchange contracts have principally
been used to hedge the British Pound, the Australian Dollar, the Japanese Yen,
the Canadian Dollar, the Singapore Dollar and the European Union's common
currency (the "Euro"). These derivatives, which are over-the-counter
instruments, are non-leveraged. Realized gains and losses on contracts that
hedge anticipated future cash flows are recognized in "Other items, net" and
were not material in any of the periods presented. The Company is primarily
vulnerable to changes in LIBOR which is the rate currently used in existing
agreements; however, the Company does not believe this exposure to be
material.
The Company entered into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest on its
variable rate long-term debt and/or take advantage of changes in interest
rates. These interest rate exchange agreements include interest rate swaps and
interest rate caps. At December 31, 2000, the Company had no interest rate
exchange agreements outstanding with commercial banks.
Other Matters
On August 10, 1999, Blockbuster sold to the public 31 million shares of its
Class A common stock for $15 per share. The shares are traded on the New York
Stock Exchange. The Company, through its ownership of all of the 144 million
shares of Blockbuster Class B common stock outstanding, retained approximately
82% of
II-24
the total equity value in, and approximately 96% of the combined voting power
of, Blockbuster. Proceeds from the offering aggregated $442.9 million, net of
underwriting discounts and commissions and before payment of offering
expenses, and were used by Blockbuster to repay outstanding indebtedness under
a $1.9 billion term and revolving credit agreement. The Company recorded a
reduction to equity of approximately $662 million as a result of the issuance
of subsidiary stock.
In 1999, the Company announced that it intended to split-off Blockbuster by
offering to exchange all of its shares of Blockbuster common stock for shares
of the Company's common stock. The split-off was subject to approval by the
Company's Board of Directors and an assessment of market conditions. The
Company no longer has any plans for the split-off of Blockbuster.
Recent Pronouncements
In June 2000, the Company elected early adoption of Statement of Position
00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2"). SOP 00-
2 established new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Under the new accounting standard, all exploitation costs such as advertising
expenses, marketing costs and video duplication costs for theatrical and
television product will be expensed as incurred, whereas under the old
accounting standards, these costs were capitalized and amortized over the
products' lifetime. As a result of this early adoption in the second quarter
of 2000, the Company recorded a pre-tax non-cash charge of $754 million ($452
million after-tax or $.37 per share). This charge has been reflected as a
cumulative effect of a change in accounting principle, effective January 1,
2000, in the consolidated statement of operations for the year ended December
31, 2000. Under the SOP 00-2 for the year ended December 31, 2000, the Company
reported lower operating results of approximately $77 million.
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement 139 ("SFAS 139") which rescinds FASB Statement 53 on financial
reporting by motion picture film producers or distributors. SFAS 139 requires
public companies to follow the guidance provided by SOP 00-2.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective for fiscal years
beginning after June 15, 2000, as amended by Statements 137 and 138 in June
1999 and June 2000, respectively. These statements require companies to
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those instruments at fair value. The statements also established
new accounting rules for hedging instruments which, depending on the nature of
the hedge, require that changes in the fair value of the derivatives either be
offset against the change in fair value of assets, liabilities or firm
commitments through earnings, or be recognized in other comprehensive income
until the hedged item is recognized in earnings. The Company adopted SFAS 133,
as amended, on January 1, 2001, which resulted in an immaterial impact on the
Company's consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's staff's views
in applying generally accepted accounting principles to revenue recognition in
financial statements. During the fourth quarter of 2000, the Company adopted
SAB 101 and accordingly, reclassified previously reported gross revenues in
its Television and Entertainment segments to a net basis.
Euro Conversion
In January 1999, eleven member countries of the European Union established
permanent conversion rates between their existing currencies and the Euro. The
transition period for the introduction of the Euro will be between January 1,
1999 and June 30, 2002. The Company conducts business in member countries and
is addressing the issues involved with the introduction of the Euro. The more
important issues facing the Company include: converting information technology
systems, reassessing currency risk, negotiating and amending licensing
agreements and contracts, and processing tax, accounting, payroll and customer
records.
II-25
Based on the progress to date, the Company believes that the transition to
the Euro currency will not have a significant impact on the manner in which it
conducts its business affairs and processes its business and accounting
records. Accordingly, conversion to the Euro is not expected to have a
material effect on the Company's financial condition or results of operations.
Cautionary Statement Concerning Forward-Looking Statements
This document and the documents incorporated by reference into this Form
10-K, including "Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition", contain both historical and forward-
looking statements. All statements other than statements of historical fact
are, or may be deemed to be, forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are not
based on historical facts, but rather reflect the Company's current
expectations concerning future results and events. These forward-looking
statements generally can be identified by the use of statements that include
phrases such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee," "likely," "will" or other similar words or phrases. Similarly,
statements that describe the Company's objectives, plans or goals are or may
be forward-looking statements. These forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be different from any
future results, performance and achievements expressed or implied by these
statements.
The following important factors, among others, could affect future results,
causing these results to differ materially from those expressed in the
Company's forward-looking statements:
. The Company derives substantial revenues from the sale of advertising
time on its over-the-air networks, basic cable networks, television
stations, radio stations and outdoor businesses. The advertising market
has recently experienced softness. The sale of advertising time is
affected by viewer demographics, viewer ratings and market conditions
for advertising time. Adverse changes to any of these factors could have
a negative effect on revenues.
. Operating results derived from the Company's motion picture and
television production fluctuate depending primarily upon cost of such
productions and acceptance of such productions by the public, which are
difficult to predict. Motion picture and television production has
experienced cycles in which increased costs of talent and other factors
have resulted in higher production costs. In addition, the commercial
success of the Company's motion picture and television productions also
depends upon the quality and acceptance of other competing productions,
and the availability of alternative forms of entertainment and leisure
time activities.
. The Company's operating results also fluctuate due to the timing and
availability of theatrical and home video releases, as well as a result
of the recording of license fees for television exhibition of motion
pictures and for syndication and basic cable exhibition of television
programming in the period that the products are available for such
exhibition.
. The Company's basic cable networks and premium subscription television
networks are dependent on affiliation agreements with cable and direct
broadcast satellite distributors on acceptable terms. The loss of
carriage on such distributors, or continued carriage on less favorable
terms, could adversely affect, with respect to basic cable networks,
revenues from subscriber fees and the ability to sell advertising time,
and with respect to premium subscription television networks, subscriber
fee revenues.
. Some of the Company's businesses are seasonal. More specifically, the
home video business and consumer publishing business are subject to
increased periods of demand coinciding with summer and winter holidays,
while a substantial majority of the theme parks operating income is
generated from May through September. In addition, the home video and
theme parks businesses' revenues are influenced by weather.
II-26
. Changes in FCC laws and regulations could, directly or indirectly,
adversely affect the operations and ownership of the Company's
properties.
. The Company has contingent liabilities related to discontinued
operations, including environmental liabilities and pending litigation.
While there can be no assurance in this regard, the pending or potential
litigation, environmental and other liabilities should not have a
material adverse effect on the Company.
. The Company may be adversely affected by changes in technology and its
effect on competition in the Company's markets.
. Labor agreements covering the services of writers and actors which the
Company utilizes in its motion picture and television businesses are
currently scheduled to expire during 2001. Work stoppages and/or higher
costs in connection with these agreements could adversely impact the
ability of the Company to produce or acquire new programming.
. Other economic, business, competitive and/or regulatory factors
affecting the Company's businesses generally.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors also could
have material adverse effects on our future results. The forward-looking
statements included in this document are only made as of the date of this
document and the Company does not have any obligation to publicly update any
forward-looking statements to reflect subsequent events or circumstances. The
Company cannot assure you that projected results or events will be achieved.
You should review carefully all information, including the financial
statements and the notes to the financial statements, included or incorporated
by reference into this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Response to this item is included in "Item 7--Management's Discussion and
Analysis of Results of Operations and Financial Condition--Market Risk."
II-27
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Viacom Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
stockholders' equity and comprehensive income present fairly, in all material
respects, the financial position of Viacom Inc. and its subsidiaries (the
"Company") at December 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
February 12, 2001, except for the first paragraph of Note 2,
which is as of February 21, 2001
II-28
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 audit function which
evaluates and reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Viacom Inc.'s consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants, who have expressed their
opinion with respect to the presentation of these statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not employees of the Company, meets periodically with the
independent accountants, with our internal auditors, as well as with
management, to review accounting, auditing, internal accounting controls and
financial reporting matters. The Audit Committee is also responsible for
recommending to the Board of Directors the independent accounting firm to be
retained for the coming year, subject to 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.
/s/ Sumner M. Redstone
By: _________________________________
Sumner M. Redstone
Chairman of the Board of
Directors,
Chief Executive Officer
/s/ Fredric G. Reynolds
By: _________________________________
Fredric G. Reynolds
Executive Vice President,
Chief Financial Officer
/s/ Susan C. Gordon
By: _________________________________
Susan C. Gordon
Vice President, Controller,
Chief Accounting Officer
II-29
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
- -------------------------------------------------------------------------------
Year Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
Revenues $20,043.7 $12,858.8 $12,096.1
- -------------------------------------------------------------------------------
Expenses:
Operating 11,707.1 8,337.9 8,506.3
Selling, general and administrative 4,093.7 2,358.6 2,060.9
Merger-related and restructuring charges 698.5 70.3 --
Depreciation and amortization 2,223.5 844.7 777.3
- -------------------------------------------------------------------------------
Total expenses 18,722.8 11,611.5 11,344.5
- -------------------------------------------------------------------------------
Operating income 1,320.9 1,247.3 751.6
Interest expense (822.3) (448.9) (622.4)
Interest income 53.2 27.7 23.4
Other items, net 8.8 17.8 (15.3)
- -------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 560.6 843.9 137.3
Provision for income taxes (729.8) (411.4) (138.7)
Equity in loss of affiliated companies, net
of tax (124.2) (60.7) (41.4)
Minority interest, net of tax (70.4) (.1) (.7)
- -------------------------------------------------------------------------------
Net earnings (loss) from continuing
operations before extraordinary loss and
cumulative effect of change in accounting
principle (363.8) 371.7 (43.5)
Discontinued operations loss, net of tax -- -- (54.1)
Net gain on dispositions, net of tax -- -- 49.9
- -------------------------------------------------------------------------------
Net earnings (loss) before extraordinary loss
and cumulative effect of change in
accounting principle (363.8) 371.7 (47.7)
Extraordinary loss, net of tax -- (37.7) (74.7)
Cumulative effect of change in accounting
principle, net of tax (452.3) -- --
- -------------------------------------------------------------------------------
Net earnings (loss) (816.1) 334.0 (122.4)
Cumulative convertible preferred stock
dividend requirement -- (.4) (57.2)
(Premium) discount on repurchase of preferred
stock -- (12.0) 30.0
- -------------------------------------------------------------------------------
Net earnings (loss) attributable to common
stock $ (816.1) $ 321.6 $ (149.6)
- -------------------------------------------------------------------------------
Basic earnings per common share:
Earnings (loss) from continuing operations $ (.30) $ .52 $ (.10)
Net earnings (loss) $ (.67) $ .46 $ (.21)
- -------------------------------------------------------------------------------
Diluted earnings per common share:
Earnings (loss) from continuing operations $ (.30) $ .51 $ (.10)
Net earnings (loss) $ (.67) $ .45 $ (.21)
- -------------------------------------------------------------------------------
Weighted average number of common shares:
Basic 1,225.3 695.2 708.7
Diluted 1,225.3 709.5 708.7
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
II-30
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
- -------------------------------------------------------------------------------
At December 31,
2000 1999
- -------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 934.5 $ 680.8
Receivables, less allowances of $246.2 (2000) and
$109.5 (1999) 3,964.1 1,697.4
Inventory (Note 8) 1,402.0 1,959.5
Other current assets 1,531.8 860.7
- -------------------------------------------------------------------------------
Total current assets 7,832.4 5,198.4
- -------------------------------------------------------------------------------
Property and Equipment:
Land 713.8 450.3
Buildings 837.1 660.1
Capital leases 852.5 881.9
Advertising structures 2,076.5 --
Equipment and other 4,505.8 3,263.6
- -------------------------------------------------------------------------------
8,985.7 5,255.9
Less accumulated depreciation and amortization 2,383.9 1,830.6
- -------------------------------------------------------------------------------
Net property and equipment 6,601.8 3,425.3
- -------------------------------------------------------------------------------
Inventory (Note 8) 3,632.9 2,829.5
Intangibles, at amortized cost 62,004.1 11,478.9
Other assets 2,574.9 1,554.3
- -------------------------------------------------------------------------------
Total Assets $82,646.1 $24,486.4
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,261.1 $ 544.4
Accrued expenses 2,790.2 1,431.2
Deferred income 605.9 371.4
Accrued compensation 642.0 473.3
Participants' share, residuals and royalties payable 1,220.3 1,087.2
Program rights 709.8 196.9
Income taxes payable 305.0 1.0
Current portion of long-term debt 223.9 294.3
- -------------------------------------------------------------------------------
Total current liabilities 7,758.2 4,399.7
- -------------------------------------------------------------------------------
Long-term debt (Note 10) 12,473.8 5,697.7
Pension and postretirement benefit obligation (Note 14) 1,636.8 245.0
Other liabilities 5,770.2 1,765.5
Commitments and contingencies (Note 15)
Minority interest 7,040.2 1,246.5
Stockholders' Equity:
Class A Common Stock, par value $.01 per share; 500.0
shares authorized; 138.9 (2000) and 139.7 (1999)
shares issued 1.4 1.4
Class B Common Stock, par value $.01 per share; 3,000.0
shares authorized; 1,454.7 (2000) and 606.6 (1999)
shares issued 14.5 6.1
Additional paid-in capital 50,729.9 10,338.5
Retained earnings 1,431.8 2,247.9
Accumulated other comprehensive loss (Note 1) (152.5) (30.2)
- -------------------------------------------------------------------------------
52,025.1 12,563.7
Less treasury stock, at cost; 1.4 (2000 and 1999) Class
A shares and 96.3 (2000) and 47.1 (1999) Class B
shares 4,058.2 1,431.7
- -------------------------------------------------------------------------------
Total stockholders' equity 47,966.9 11,132.0
- -------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $82,646.1 $24,486.4
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
II-31
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
- -------------------------------------------------------------------------------
Year Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------
Operating Activities:
Net earnings (loss) $ (816.1) $ 334.0 $ (122.4)
Adjustments to reconcile net earnings (loss) to
net cash flow from operating activities:
Depreciation and amortization 2,223.5 844.7 777.3
Merger-related and restructuring charges 698.5 70.3 --
Cumulative effect of change in accounting
principle 753.9 -- --
Loss (gain) on dispositions 25.6 (33.7) (168.8)
Loss on redemption of debt, net of tax -- 37.7 126.6
Equity in loss of affiliated companies 124.2 60.7 41.4
Distribution from affiliated companies 48.3 26.4 17.9
Minority interest 70.4 .1 .7
Barter revenues (125.2) -- --
Amortization of deferred financing costs 17.9 15.4 16.1
Change in operating assets and liabilities:
Decrease (increase) in receivables (377.9) 61.7 135.6
Decrease (increase) in inventory and related
program liabilities, net (157.3) (603.4) 367.1
Increase in other current assets (172.2) (49.4) (119.7)
Decrease (increase) in unbilled receivables (55.7) (120.7) 105.0
Increase (decrease) in accounts payable and
accrued expenses (200.1) (19.7) 192.6
Increase (decrease) in income taxes payable and
net deferred taxes 166.9 (344.5) (563.9)
Increase in deferred income 76.5 57.0 7.4
Other, net 22.1 (42.5) 51.2
- -------------------------------------------------------------------------------
Net cash flow provided by operating activities 2,323.3 294.1 864.1
- -------------------------------------------------------------------------------
Investing activities:
Acquisitions, net of cash acquired (2,380.0) (312.4) (126.4)
Capital expenditures (659.0) (706.2) (603.5)
Investments in and advances to affiliated
companies (239.2) (161.6) (100.3)
Purchases of short-term investments (89.9) (416.2) (151.6)
Proceeds from sale of short-term investments 307.4 406.3 101.4
Proceeds from dispositions 190.6 114.3 4,950.1
Proceeds from sale of cost investments 9.2 4.0 167.3
Other, net -- (35.8) (18.6)
- -------------------------------------------------------------------------------
Net cash flow provided by (used for) investing
activities (2,860.9) (1,107.6) 4,218.4
- -------------------------------------------------------------------------------
Financing activities:
Borrowings from (repayments to) banks,
including commercial paper 1,413.4 2,184.8 (2,383.0)
Proceeds from issuance of senior notes and
debentures 1,682.9 -- --
Purchase of treasury stock and warrants (1,945.4) (478.8) (809.6)
Repayment of notes and debentures (331.9) (1,075.3) (869.3)
Repurchase of Preferred Stock -- (611.9) (564.0)
Payment on capital lease obligations (130.6) (106.5) (110.7)
Purchase of treasury stock by subsidiary (84.1) -- --
Net proceeds from issuance of subsidiary stock -- 430.7 --
Proceeds from exercise of stock options and
warrants 187.0 390.8 182.8
Payment of Preferred Stock dividends -- (7.8) (64.8)
Other, net -- 1.0 11.1
- -------------------------------------------------------------------------------
Net cash flow provided by (used for) financing
activities 791.3 727.0 (4,607.5)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 253.7 (86.5) 475.0
Cash and cash equivalents at beginning of year 680.8 767.3 292.3
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 934.5 $ 680.8 $ 767.3
- -------------------------------------------------------------------------------
See notes to consolidated financial statements.
II-32
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(In millions)
Year ended December 31,
--------------------------------------------------------
2000 1999 1998
--------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------
Convertible Preferred
Stock:
Balance, beginning of
year -- $ -- 12.0 $ 600.0 24.0 $ 1,200.0
Repurchase of Preferred
Stock -- -- (12.0) (600.0) (12.0) (600.0)
- -----------------------------------------------------------------------------------
Balance, end of year -- -- -- -- 12.0 600.0
- -----------------------------------------------------------------------------------
Class A Common Stock:
Balance, beginning of
year 139.7 1.4 141.6 1.4 140.7 1.4
Exercise of stock
options and warrants -- -- -- -- .9 --
Conversion of A shares
into B shares (.8) -- (1.9) -- -- --
- -----------------------------------------------------------------------------------
Balance, end of year 138.9 1.4 139.7 1.4 141.6 1.4
- -----------------------------------------------------------------------------------
Class B Common Stock:
Balance, beginning of
year 606.6 6.1 591.9 5.9 581.1 5.8
Exercise of stock
options and warrants 10.8 .1 12.8 .2 10.8 .1
Issuance of stock for
CBS acquisition 836.5 8.3 -- -- -- --
Conversion of A shares
into B shares .8 -- 1.9 -- -- --
- -----------------------------------------------------------------------------------
Balance, end of year 1,454.7 14.5 606.6 6.1 591.9 5.9
- -----------------------------------------------------------------------------------
Additional Paid-In
Capital:
Balance, beginning of
year 10,338.5 10,574.7 10,329.5
Exercise of stock
options and warrants,
net of tax benefit 349.7 443.5 280.1
Loss on Blockbuster
Offering -- (662.1) --
Warrants repurchased -- (17.6) (34.9)
Issuance of stock for
CBS acquisition 39,641.7 -- --
Stock option
acceleration
attributable to CBS
acquisition 400.0 -- --
- -----------------------------------------------------------------------------------
Balance, end of year 50,729.9 10,338.5 10,574.7
- -----------------------------------------------------------------------------------
Retained Earnings:
Balance, beginning of
year 2,247.9 1,932.9 2,089.0
Net earnings (loss) (816.1) 334.0 (122.4)
Preferred Stock
dividend requirement -- (.4) (57.2)
Discount (premium) on
repurchase of
Preferred Stock -- (12.0) 30.0
Exercise of stock
options -- (6.6) (6.5)
- -----------------------------------------------------------------------------------
Balance, end of year 1,431.8 2,247.9 1,932.9
- -----------------------------------------------------------------------------------
Accumulated Other
Comprehensive Income
(Loss):
Balance, beginning of
year (30.2) (67.1) (12.6)
Other comprehensive
income (loss) (122.3) 36.9 (54.5)
- -----------------------------------------------------------------------------------
Balance, end of year (152.5) (30.2) (67.1)
- -----------------------------------------------------------------------------------
Treasury Stock, at cost:
Balance, beginning of
year 48.5 (1,431.7) 38.5 (998.2) 13.0 (229.5)
Common Stock
repurchased 34.2 (1,945.4) 10.6 (448.8) 26.2 (787.0)
Exercise of stock
options (Class B) -- -- (.6) 15.3 (.7) 18.3
Shares held in trust 15.0 (681.1) -- -- -- --
- -----------------------------------------------------------------------------------
Balance, end of year 97.7 (4,058.2) 48.5 (1,431.7) 38.5 (998.2)
- -----------------------------------------------------------------------------------
Total Stockholders'
Equity $47,966.9 $11,132.0 $12,049.6
- -----------------------------------------------------------------------------------
Comprehensive Income
(Loss):
Net earnings (loss) $ (816.1) $ 334.0 $ (122.4)
- -----------------------------------------------------------------------------------
Other Comprehensive
Income (Loss):
Unrealized (loss) gain
on securities (92.8) 15.8 85.2
Reclassification
adjustment for
realized (gains)
losses, net of tax 45.3 (2.3) (118.9)
Cumulative translation
adjustments (71.4) 21.2 (19.0)
Minimum pension
liability adjustment (3.4) 2.2 (1.8)
- -----------------------------------------------------------------------------------
Total Other
Comprehensive Income
(Loss) (122.3) 36.9 (54.5)
- -----------------------------------------------------------------------------------
Total Comprehensive
Income (Loss) $ (938.4) $ 370.9 $ (176.9)
- -----------------------------------------------------------------------------------
See notes to consolidated financial statements.
II-33
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--Viacom Inc. ("Viacom" or the "Company") is a
diversified company with operations in seven segments: (i) Cable Networks,
(ii) Television, (iii) Infinity, (iv) Entertainment, (v) Video, (vi)
Publishing and (vii) Online. On May 4, 2000, CBS Corporation ("CBS") merged
with and into the Company and effective from this date, CBS' results of
operations are included in the Company's consolidated results of operations
(See Note 3). See Note 16 regarding the relative contribution to revenues and
operating results from each of the reportable segments.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could subsequently differ from
those estimates.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and investments of more than 50% in subsidiaries
and other entities. Investments in affiliated companies over which the Company
has a significant influence or ownership of more than 20% but less than or
equal to 50% are accounted for under the equity method. Investments of 20% or
less are accounted for under the cost method. All significant intercompany
transactions have been eliminated.
Cash and Cash Equivalents--Cash and cash equivalents consist of cash on
hand and short-term (three months or less) highly liquid investments. At
December 31, 2000, certain restrictions existed on Infinity Broadcasting
Corporation's ("Infinity Broadcasting") cash balance of $143.0 million
included as part of cash and cash equivalents of $934.5 million in the
consolidated balance sheet. Infinity Broadcasting's cash became available to
the Company upon the merger with Infinity Broadcasting, effective February 21,
2001 (See Note 2).
Inventories--Inventories related to theatrical and television product
(which includes direct production costs, production overhead and acquisition
costs) are stated at the lower of amortized cost or net realizable value.
Inventories are amortized, and estimated liabilities for residuals and
participation are accrued, for an individual product based on the proportion
that current estimated revenues bear to the estimated remaining total lifetime
revenues. Estimates for initial domestic syndication and basic cable revenues
are not included in the estimated lifetime revenues of network series until
such sales are probable. These estimates are periodically reviewed. As a
result of the adoption of Statement of Position 00-2, "Accounting by Producers
or Distributors of Films," the costs of feature and television films are
classified as non-current assets.
The Company estimates that approximately 95% of unamortized costs of
completed and released films (excluding amounts allocated under purchase
accounting) at December 31, 2000 will be amortized within the next three
years. Approximately $491 million of released, and completed and not released,
film costs are expected to be amortized during the next twelve months. As of
December 31, 2000, unamortized acquired film libraries of approximately $546
million remain to be amortized on a straight-line basis over an average
remaining life of 13 years.
Inventories related to base stock videocassettes (generally less than five
copies per title for each store) are recorded at cost and a portion of these
costs are amortized on an accelerated basis over three months, with the
remaining base stock videocassette costs amortized on a straight-line basis
over 33 months to an estimated $4 salvage value. The cost of non-base stock
videocassettes is amortized on an accelerated basis over three months to an
estimated $4 salvage value. Video games and base-stock DVDs are amortized on
an accelerated basis over a 12 month period to an estimated $10 and $4 salvage
value, respectively (See Note 6).
II-34
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Program Rights--The Company acquires rights to programming and produces
programming to exhibit on its broadcast networks, cable networks and broadcast
stations. The costs incurred in acquiring and producing programs are
capitalized and amortized over the license period or projected useful life of
the programming. Program rights and the related liabilities are recorded at
the gross amount of the liabilities when the license period has begun, the
cost of the program is determinable, and the program is accepted and available
for airing.
Property and Equipment--Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over estimated useful
lives as follows:
Buildings (including capital leases) 20 to 40 years
Leasehold improvements 4 to 15 years
Advertising structures 5 to 20 years
Equipment and other (including capital
leases) 3 to 20 years
Depreciation expense, including capitalized lease amortization, was $799.7
million (2000), $496.8 million (1999) and $441.8 million (1998). Amortization
expense related to capital leases was $77.8 million (2000), $80.1 million
(1999) and $62.6 million (1998). Accumulated amortization of capital leases
was $296.6 million at December 31, 2000 and $295.5 million at December 31,
1999.
Impairment of Long-Lived Assets--The Company assesses long-lived assets and
certain identifiable intangibles for impairment whenever there is an
indication that the carrying amount of the asset may not be recoverable.
Recoverability of these assets is determined by comparing the forecasted
undiscounted cash flows generated by those assets to their net carrying value.
The amount of impairment loss, if any, will generally be measured by the
difference between the net book value of the assets and the estimated fair
value of the related assets.
Intangible Assets--Intangible assets, which primarily consist of the cost
of acquired businesses in excess of the fair value of tangible assets and
liabilities acquired ("goodwill") and FCC licenses, are generally amortized by
the straight-line method over estimated useful lives of up to 40 years. The
Company evaluates the amortization period of intangibles on an ongoing basis
in light of changes in any business conditions, events or circumstances that
may indicate the potential impairment of intangible assets. At December 31,
2000, approximately $10.9 billion of intangible assets are attributable to FCC
licenses. Accumulated amortization of intangible assets was $3.4 billion at
December 31, 2000 and $1.9 billion at December 31, 1999.
Revenue Recognition--Subscriber fees for Cable Networks are recognized in
the period the service is provided. Advertising revenues are recognized in the
period during which spots are aired. Video segment revenues are recognized at
the time of rental or sale. The Publishing segment recognizes revenue when
merchandise is shipped. Revenues from the sale of outdoor advertising space
are recognized ratably over the contract terms. Online advertising revenue is
recognized ratably during the period in which the advertising is displayed and
obligations are satisfied.
Revenues from films in the domestic and foreign theatrical markets are
recognized as films are exhibited; revenues from the sale of videocassettes,
discs and DVDs are recognized upon availability of sale to the public; and
revenues from all television sources are recognized upon availability of the
film for telecast. On average, the length of the initial revenue cycle for
feature films approximates four to seven years.
Television series initially produced for the networks and first-run
syndication are generally licensed to domestic and foreign markets
concurrently. The more successful series are later syndicated in domestic
markets and in certain foreign markets. The length of the revenue cycle for
television series will vary depending on the number of seasons a series
remains in active production. Revenues arising from television license
agreements
II-35
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
are recognized in the period that the films or television series are available
for telecast and therefore may cause fluctuation in operating results.
Interest--Costs associated with the refinancing or issuance of debt, as
well as with debt discount, are expensed as interest over the term of the
related debt. The Company may enter into interest rate exchange agreements;
the amount to be paid or received under such agreements would be accrued as
interest rates change and recognized over the life of the agreements as an
adjustment to interest expense. Amounts paid for purchased interest rate cap
agreements would be amortized as interest expense over the term of the
agreement.
Foreign Currency Translation and Transactions--The Company's foreign
subsidiaries' assets and liabilities are translated at exchange rates in
effect at the balance sheet date, while results of operations are translated
at average exchange rates for the respective periods. The resulting
translation gains or losses are included as a separate component of
stockholders' equity in accumulated other comprehensive income. Foreign
currency transaction gains and losses have been included in "Other items,
net".
Subsidiary Stock Transactions--Gains or losses arising from issuances by a
subsidiary of its own stock in a public offering are recorded within
stockholders' equity.
Provision for Doubtful Accounts--The provision for doubtful accounts
charged to expense was $124.1 million (2000), $33.5 million (1999) and $29.5
million (1998).
Net Earnings (Loss) per Common Share--Basic earnings per share is based
upon the net earnings applicable to common shares after preferred dividend
requirements and divided by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the effect
of the assumed conversions of convertible securities and the exercise of stock
options only in the periods in which such effect would have been dilutive.
The numerator used in the calculation of both basic and diluted EPS for
each respective year reflects earnings (loss) from continuing operations less
preferred stock dividends of $.4 million for 1999 and $57.2 million for 1998
plus the (premium) discount on preferred stock of ($12) million for 1999 and
$30 million for 1998, respectively. For the years ended December 31, 2000 and
December 31, 1998, incremental shares of 30.1 million and 9.5 million,
respectively, for the assumed exercise of stock options were excluded from the
computation of diluted EPS because their inclusion would have been anti-
dilutive.
The table below presents a reconciliation of weighted average shares used
in the calculation of basic and diluted EPS:
2000 1999 1998
------- ----- -----
Weighted average shares for basic EPS 1,225.3 695.2 708.7
Plus incremental shares for stock options -- 14.3 --
------- ----- -----
Weighted average shares for diluted EPS 1,225.3 709.5 708.7
======= ===== =====
In the first quarter of 2001, the Company completed the acquisitions of
Infinity Broadcasting and BET Holdings II, Inc. ("BET"). (See Note 2) These
acquisitions resulted in the issuance of approximately 275.0 million shares of
Viacom Class B Common Stock and approximately 10.9 million of Viacom options.
II-36
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Comprehensive Income (Loss)--The components of accumulated other
comprehensive income (loss) were as follows:
Minimum Accumulated
Unrealized Cumulative Pension Other
Gain (Loss) Translation Liability Comprehensive
on Securities Adjustments Adjustment Income (Loss)
------------- ----------- ---------- -------------
At December 31, 1997 $ 34.9 $ (39.1) $ (8.4) $ (12.6)
Current period change (33.7) (19.0) (1.8) (54.5)
------ ------- ------ -------
At December 31, 1998 1.2 (58.1) (10.2) (67.1)
Current period change 13.5 21.2 2.2 36.9
------ ------- ------ -------
At December 31, 1999 14.7 (36.9) (8.0) (30.2)
Current period change (47.5) (71.4) (3.4) (122.3)
------ ------- ------ -------
At December 31, 2000 $(32.8) $(108.3) $(11.4) $(152.5)
====== ======= ====== =======
Reclassifications--Certain amounts reported for prior years have been
reclassified to conform to the current year's presentation.
Change in Accounting--In June 2000, the Company elected early adoption of
Statement of Position 00-2, "Accounting by Producers or Distributors of Films"
("SOP 00-2"). SOP 00-2 established new film accounting standards, including
changes in revenue recognition and accounting for advertising, development and
overhead costs. Under the new accounting standard, all exploitation costs such
as advertising expenses, marketing costs and video duplication costs for
theatrical and television product will be expensed as incurred, whereas under
the old accounting standards, these costs were capitalized and amortized over
the products' lifetime. As a result of this early adoption in the second
quarter of 2000, the Company recorded a pre-tax non-cash charge of $754
million ($452 million after-tax or $.37 per share). This charge has been
reflected as a cumulative effect of a change in accounting principle,
effective January 1, 2000, in the consolidated statement of operations for the
year ended December 31, 2000. Under SOP 00-2 for the year ended December 31,
2000, the Company reported lower operating results of approximately $77
million.
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement 139 ("SFAS 139") which rescinds FASB Statement 53 on financial
reporting by motion picture film producers or distributors. SFAS 139 requires
public companies to follow the guidance provided by SOP 00-2.
Recent Pronouncements--In June 1998, the FASB issued SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), effective for
fiscal years beginning after June 15, 2000, as amended by Statements 137 and
138 in June 1999 and June 2000, respectively. These statements require
companies to recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The statements also
established new accounting rules for hedging instruments which, depending on
the nature of the hedge, require that changes in the fair value of the
derivatives either be offset against the change in fair value of assets,
liabilities or firm commitments through earnings, or be recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company adopted SFAS 133, as amended, on January 1, 2001, which resulted in an
immaterial impact on the Company's consolidated results of operations and
financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC's staff's views
in applying generally accepted accounting principles to revenue recognition in
financial statements. During the fourth quarter of 2000, the Company adopted
SAB 101 and accordingly, reclassified previously reported gross revenues in
its Television and Entertainment segments to a net basis.
II-37
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
2) SUBSEQUENT EVENTS
On February 21, 2001, the Company completed a merger with Infinity
Broadcasting, acquiring all of the issued and outstanding shares of Infinity
common stock that it did not already own, approximately 36%. Under the terms
of the merger, which is tax free for the stockholders of Infinity and Viacom,
each share of Infinity Class A common stock was converted into the right to
receive 0.592 of a share of Viacom Class B Common Stock. The Infinity merger
will be accounted for at historical cost, with the exception of minority
interest, which will be accounted for under the purchase method of accounting.
The total purchase price of approximately $13.4 billion represents the
issuance of approximately 232 million shares of Viacom Class B Common Stock
and the fair value of Infinity stock options assumed by the Company.
On February 1, 2001, the Company initiated a share repurchase program to
acquire up to $2.0 billion in the Company's Class B Common Stock and through
March 19, 2001, the Company had repurchased under this program 2.8 million
shares of its Class B Common Stock for approximately $141.5 million.
On January 23, 2001, the Company completed its acquisition of BET for
approximately $3 billion, which principally represents the issuance of
approximately 43.4 million shares of Viacom Class B Common Stock and the
assumption by the Company of approximately $590 million in debt. Beginning in
the first quarter of 2001, BET's results will be reported as part of the Cable
Networks segment.
3) ACQUISITIONS
On May 4, 2000, CBS was merged with and into the Company (the "Merger").
The total purchase price of approximately $39.8 billion included approximately
$37.7 billion for the issuance of 825.5 million shares of Viacom Class B
Common Stock and 11,004 shares of Viacom Series C convertible preferred stock,
which were subsequently converted into 11.0 million shares of Viacom Class B
Common Stock and approximately $1.9 billion for the fair value of CBS stock
options assumed by the Company and transaction costs. In addition, Viacom
assumed approximately $3.7 billion of CBS debt.
The Merger was accounted for under the purchase method of accounting. CBS'
results of operations are included in the Company's reported consolidated
results of operations from the effective date of acquisition. The total cost
to acquire CBS has been allocated based on the fair values of the assets
acquired and liabilities assumed at the time of the Merger. The excess
purchase price over the fair value of the tangible net assets acquired of
approximately $50 billion was allocated to intangibles and is being amortized
on a straight-line basis not to exceed 40 years. The final allocation of the
purchase price will be based on comprehensive final evaluations of the fair
value of CBS' tangible and identifiable intangible assets acquired and
liabilities assumed.
The Company presently holds television stations which reach approximately
41% of United States television households (as calculated for this purpose
under rules and regulations of the Federal Communications Commission (the
"FCC"), which apply a 50% discount to the reach of UHF stations). These
stations reach approximately 6% in excess of the 35% limit permitted by FCC
regulations. In connection with FCC approval of the Merger, the Company was
given one year to come into compliance with the limit. The Company has
challenged the rule in federal court and is seeking a stay of the requirement
to come into compliance with the limit, pending judicial review of the
national ownership cap. The Company was also provided with one year to come
into compliance with the FCC's "dual network" rule, which prohibits the
Company from owning and controlling both CBS and United Paramount Network
("UPN"). On June 20, 2000, the FCC released a Notice of Proposed Rule Making,
in which it proposes to modify the dual network rule, the effect of which
would be to permit the Company to own both CBS and UPN.
II-38
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
On September 15, 2000, Infinity Broadcasting completed the acquisition of
Memphis radio stations WMC-AM and WMC-FM from Raycom Media for approximately
$76 million.
On August 24, 2000, Infinity Broadcasting completed the acquisition of 18
radio stations from Clear Channel Communications, Inc. for $1.4 billion in an
asset transaction. These stations are located in San Diego, Phoenix, Denver,
Cleveland, Cincinnati, Orlando and Greensboro--Winston-Salem.
On July 1, 2000, Infinity Broadcasting completed the acquisition of
Waterman Broadcasting Corporation of Texas ("Waterman Broadcasting") in
exchange for approximately 2.7 million shares of Infinity Broadcasting Class A
common stock valued at approximately $88 million. Waterman Broadcasting owns
radio stations KTSA-AM and KTFM-FM in San Antonio, Texas.
During the second quarter of 2000, Infinity Broadcasting completed the
acquisition of Giraudy, one of France's largest outdoor advertising companies,
for approximately $400 million. Infinity Broadcasting also acquired Societa
Manifesti & Affisioni S.p.A., one of the leading Italian outdoor media sales
companies, for approximately $90 million.
On March 31, 2000, the Company acquired the remaining 50% interest in UPN
that it did not already own. In the second quarter of 2000, the Company
consolidated UPN's results of operations. Prior to this acquisition, the
Company reported its proportionate share of net losses of UPN in "Equity in
loss of affiliated companies, net of tax" in the Consolidated Statements of
Operations.
The unaudited condensed pro forma results of operations data presented
below assumes the Merger, pre-merger CBS acquisitions, and other acquisitions,
including UPN and the acquisition of Infinity Broadcasting's Class A common
stock, had occurred as of January 1, 1999. The unaudited condensed pro forma
results of operations were prepared based upon the historical consolidated
results of operations of the Company and CBS prior to the Merger, adjusted to
exclude the non-recurring merger-related charges and to reflect the adoption
of the change in accounting principle as of the beginning of each period
presented (see Note 1). Financial results of CBS subsequent to the date of
acquisition are included in the Company's financial statements. The pre-merger
CBS acquisitions assumed to have been acquired January 1, 1999 are Infinity
Outdoor, King World and two Texas television stations. The aggregate impact of
other acquisitions was not material to consolidated results of operations.
Pro Forma Results of Operations Data (unaudited)
- ------------------------------------------------------------------------------
Year Ended December 31, 2000 1999
- ------------------------------------------------------------------------------
Revenues $23,359.1 $21,695.2
Net loss before discontinued operations,
extraordinary loss and cumulative effect of change
in accounting principle $ (133.3) $ (427.3)
Net earnings (loss) attributable to common stock $ (583.3) $ 145.6
Basic and diluted earnings (loss) per common share:
Net loss before discontinued operations,
extraordinary loss and cumulative effect of change
in accounting principle $ (.08) $ (.25)
Net earnings (loss) $ (.34) $ .08
- ------------------------------------------------------------------------------
The pro forma financial information is presented for comparative purposes
only and is not necessarily indicative of the operating results that actually
would have occurred had the CBS, UPN, Infinity and other acquisitions been
consummated on January 1, 1999. In addition, these results are not intended to
be a projection of future results and do not reflect any synergies that might
be achieved from the combined operations.
II-39
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
4) MERGER-RELATED AND RESTRUCTURING CHARGES
In the second quarter of 2000, the Company recorded non-recurring merger-
related charges of $698 million ($505 million after-tax or $.41 per share)
associated with the integration of Viacom and CBS and the acquisition of UPN
(see Note 3). These amounts included non-cash charges of $415 million
principally attributable to compensation for stock options and $283 million of
cash payments and accrued liabilities for severance, transaction fees and
integration costs. As of December 31, 2000, the Company had paid and charged
approximately $92 million for severance liabilities, $27 million for
transaction fees and $6 million related to integration costs.
In connection with the integration of the operations of Spelling into
Paramount Television, the Company recorded a charge of approximately $81.1
million, of which $70.3 million was recorded as a restructuring charge and
$10.8 million was recorded as part of depreciation expense in the third
quarter of 1999. Included in the charge were severance and employee related
costs of $48.1 million, lease termination and other occupancy costs of $17.7
million and other exit costs of $4.5 million. Severance and other employee
related costs represent the costs to terminate approximately 250 employees
engaged in legal, sales, marketing, finance, information systems, technical
support and human resources for Spelling. Lease termination and other
occupancy costs principally represent the expenses associated with vacating
existing lease obligations in New York and Los Angeles. The depreciation
expense of approximately $10.8 million was associated with the fixed asset
write-offs for software, leasehold improvements and equipment located at these
premises. As of December 31, 2000, the Company had paid and charged
approximately $43.6 million against the severance liability, $11.3 million
against lease termination and other occupancy costs and $2.0 million against
the other exit costs.
5) DISCONTINUED OPERATIONS
The Company presented its educational, professional and reference
publishing businesses ("Non-Consumer Publishing") and its music retail stores
as discontinued operations for the year ended December 31, 1998.
On November 27, 1998, the Company completed the sale of Non-Consumer
Publishing for $4.6 billion in cash. Viacom retained its consumer publishing
operations, including the Simon & Schuster name. As a result of the sale, the
Company recorded a net gain on the transaction of $65.5 million.
On October 26, 1998, the Company completed the sale of its music retail
stores to Wherehouse Entertainment, Inc. for $115 million in cash and recorded
a net loss on the transaction of $138.5 million. The Company had previously
closed the remaining music stores that were not part of the transaction.
Summarized financial data of discontinued operations are as follows:
For the Year ended Non-Consumer
December 31, 1998(1)(2) Publishing Music Total
---------------------------------------------------------
Revenues $1,718.0 $293.5 $2,011.5
Loss from operations
before income taxes (15.2) (20.9) (36.1)
Benefit (provision) for
income taxes (26.0) 8.0 (18.0)
Net loss (41.2) (12.9) (54.1)
---------------------------------------------------------
(1) Results of operations reflect Non-Consumer Publishing for the period
January 1 through November 26, 1998.
(2) Results of operations reflect the music retail stores for the period
January 1 through August 10, 1998.
II-40
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The provision for income taxes of $18.0 million for 1998 represents an
effective tax rate of (49.9%). The differences between the effective tax rate
and the statutory federal tax rate of 35% principally relate to certain non-
deductible expenses, the allocation of non-deductible goodwill amortization,
state and local taxes.
-------------------------------------------------------------------
For the Year ended December 31, 1998
-------------------------------------------------------------------
Net gain on dispositions, net of tax:
Loss on sale of Music $(138.5)
Gain on sale of Non-Consumer Publishing 65.5
Additional reserves for Interactives' operating losses (20.3)
Tax benefit for the sale of Virgin Interactive 134.0
Other 9.2
-------------------------------------------------------------------
Net gain on dispositions, net of tax $ 49.9
-------------------------------------------------------------------
Basic and diluted earnings (loss) per share for discontinued operations was
$(.01) for 1998.
6) BLOCKBUSTER CHANGE IN ACCOUNTING METHOD
Effective April 1, 1998, Blockbuster adopted an accelerated method of
amortizing videocassette and game rental inventory. Blockbuster adopted this
new method of amortization because it implemented a new business model,
including revenue sharing agreements with Hollywood studios, which
dramatically increased the number of videocassettes in the stores and is
satisfying consumer demand over a shorter period of time. Revenue sharing
allows Blockbuster to acquire videocassettes at a lower product cost than the
traditional buying arrangements, with a percentage of the net rental revenues
shared with the studios over a contractually determined period of time. As the
new business model results in a greater proportion of rental revenue over a
shorter period of time, Blockbuster changed its method of amortizing rental
inventory in order to more closely match expenses in proportion with the
anticipated revenues to be generated therefrom.
Pursuant to the new accounting method, the Company records base stock
videocassettes (generally less than five copies per title for each store) at
cost and amortizes a portion of these costs on an accelerated basis over three
months, with the remaining base stock videocassette costs amortized on a
straight-line basis over 33 months to an estimated $4 salvage value. The cost
of non-base stock videocassettes is amortized on an accelerated basis over
three months to an estimated $4 salvage value. Video games and base-stock DVDs
are amortized on an accelerated basis over a 12-month period to an estimated
$10 and $4 salvage value, respectively. Revenue sharing payments are expensed
when revenues are earned pursuant to the applicable contractual arrangements.
The new method of accounting was applied to rental inventory held at April
1, 1998. The adoption of the new method of amortization was accounted for as a
change in accounting estimate effected by a change in accounting principle.
The Company recorded a pre-tax charge of $436.7 million to operating expenses
in the second quarter of 1998. Approximately $424.3 million of the charge
represented an adjustment to the carrying value of the rental tapes due to the
new method of accounting and approximately $12.4 million represented a write-
down of retail inventory.
7) ACCOUNTS RECEIVABLE
As of December 31, 2000, the Company had an aggregate of $550.0 million
outstanding under revolving receivable securitization programs. Proceeds from
the securitization programs were used to reduce outstanding borrowings.
II-41
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
8) INVENTORY
------------------------------------------------------------------
At December 31, 2000 1999
------------------------------------------------------------------
Theatrical and television inventory:
Theatrical:
Released (including acquired film libraries) $ 365.6 $ 798.7
Completed, not released 49.5 .8
In process and other 276.6 276.6
Television:
Released (including acquired film libraries) 881.9 1,039.4
In process and other 151.5 135.0
Program rights 2,163.4 1,434.4
------------------------------------------------------------------
3,888.5 3,684.9
Less current portion 985.9 1,515.0
------------------------------------------------------------------
2,902.6 2,169.9
------------------------------------------------------------------
Merchandise inventory, including sell-through
videocassettes 309.9 338.0
Videocassette rental inventory 631.6 569.5
Publishing, primarily finished goods 67.9 70.4
Other 137.0 126.2
------------------------------------------------------------------
1,146.4 1,104.1
Less current portion 416.1 444.5
------------------------------------------------------------------
730.3 659.6
------------------------------------------------------------------
Total Current Inventory $1,402.0 $1,959.5
------------------------------------------------------------------
Total Non-Current Inventory $3,632.9 $2,829.5
------------------------------------------------------------------
9) INVESTMENTS IN AFFILIATED COMPANIES
The Company accounts for its investments in affiliated companies over which
the Company has significant influence or ownership of more than 20% but less
than or equal to 50%, under the equity method. Such investments principally
include but are not limited to the Company's interest in Comedy Central (50%
owned), United Cinemas International (50% owned), Nickelodeon U.K. (50%
owned), NOGGIN (50% owned), Middle East Channel (33% owned), WF Cinemas (50%
owned), and several Internet-based companies with ownership interests ranging
from 22%-50%. The equity Internet investments are comprised of
MarketWatch.com, Inc.; Switchboard Incorporated; Hollywood Media Corp.;
Office.com, Inc. and Content Commerce, L.P. Investments in affiliates are
included as a component of other assets.
II-42
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The following is a summary of combined financial information that is based
on information provided by the equity investees.
-----------------------------------------------------------------------
Year Ended December 31, 2000 1999 1998
-----------------------------------------------------------------------
Results of Operations Data:
Revenues $2,465.0 $1,995.4 $1,898.3
Operating loss (191.4) (109.4) (73.2)
Net loss (254.9) (154.9) (115.4)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
At December 31, 2000 1999
-----------------------------------------------------------------------
Financial Position:
Current assets $1,025.7 $ 851.9
Non-current assets 1,247.9 972.1
Current liabilities 786.1 811.3
Non-current liabilities 580.3 652.8
Equity 907.2 359.9
-----------------------------------------------------------------------
For Internet equity investments, a difference typically exists between the
initial investment and the proportionate share in the underlying net assets of
these companies. This difference is being amortized over a five-year period
and as of December 31, 2000 the unamortized difference is $127.5 million. The
amortization expense of the Company's initial basis is presented as "Equity in
loss of affiliated companies, net of tax" in the Consolidated Statements of
Operations.
At December 31, 2000, the Company's equity investments included three
publicly traded Internet-based companies: Hollywood Media Corp.,
MarketWatch.com, Inc. and Switchboard Incorporated. Based upon quoted market
prices at December 31, 2000, the aggregate market value of such investments
was approximately $69.6 million.
At the date of acquisition, for equity investments in Internet-based
companies, the Company typically records the investment at an amount equal to
the cash consideration paid plus the fair value of the advertising and
promotion time to be provided. The associated obligation to provide future
advertising and promotion time is non-cash and is recorded as deferred revenue
at an amount equal to the fair value of the advertising and promotion time to
be provided. Any related deferred revenue balance is presented as deferred
income and other liabilities in the Consolidated Balance Sheets. Deferred
revenue is relieved and barter revenue is recognized as the related
advertising and promotion time is delivered. Barter revenue of $125.2 million
has been recognized for the year ended December 31, 2000.
At December 31, 2000, the Company had $126.7 million in cost investments
that are included as a component of other assets. The 2000 mark-to-market
adjustments in fair value for the publicly traded cost investments were $33.7
million, net of tax, and were recorded as a decrease in other comprehensive
income. The Company determined that some of its cost investments in Internet-
based companies experienced an other than temporary decline in market value as
of December 31, 2000, and accordingly, the Company recorded a non-cash write-
down of such investments for approximately $66.9 million in "Other items, net"
in the Consolidated Statements of Operations.
The Company, through the normal course of business, is involved in
transactions with affiliated companies that have not been material in any of
the periods presented.
II-43
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
10) BANK FINANCING AND DEBT
Long-term debt consists of the following:
-----------------------------------------------------------------------
At December 31, 2000 1999
-----------------------------------------------------------------------
Notes payable to banks, including commercial paper $ 5,735.5 $3,054.2
5.875% Senior Notes* due 2000 -- 149.9
7.50% Senior Notes* due 2002 249.6 249.1
7.625% Senior Notes due 2002 143.0 --
8.375% Senior Notes due 2002 201.4 --
6.75% Senior Notes due 2003 349.9 349.9
6.875% Senior Notes due 2003 274.9 --
10.50% Senior Debentures due 2004 67.8 --
7.15% Senior Exchange Notes due 2005 499.0 --
7.75% Senior Notes due 2005 966.9 966.0
7.70% Senior Notes due 2010 1,148.7 --
8.625% Senior Debentures due 2012 271.1 --
8.875% Senior Notes due 2014 101.9 --
7.625% Senior Debentures due 2016 198.9 198.9
8.25% Senior Debentures* due 2022 237.2 247.5
7.125% Senior Notes due 2023 52.2 --
7.50% Senior Debentures* due 2023 149.6 149.6
7.875% Senior Debentures due 2023 250.7 --
7.875% Senior Debentures due 2030 499.9 --
10.25% Senior Subordinated Notes* due 2001 35.3 35.3
9.00% Senior Subordinated Notes due 2006 63.1 --
9.375% Senior Subordinated Notes due 2006 189.6 --
8.875% Senior Subordinated Exchange Notes due 2007 376.4 --
11.375% Subordinated Exchange Debentures due 2009 39.4 --
Other notes 43.5 --
Obligations under capital leases 552.2 591.6
-----------------------------------------------------------------------
12,697.7 5,992.0
Less current portion 223.9 294.3
-----------------------------------------------------------------------
$12,473.8 $5,697.7
-----------------------------------------------------------------------
* Issues of Viacom International Inc. guaranteed by the Company.
The notes and debentures are presented net of an aggregate unamortized
discount of $21.4 million as of December 31, 2000 and $10.1 million as of
December 31, 1999.
As a result of the Merger, Viacom assumed approximately $3.7 billion of CBS
debt.
On March 28, 2000, the Viacom Credit Agreements were amended to allow for
the merger of CBS with and into the Company. On April 17, 2000, the CBS credit
agreement, which consisted of a $1.5 billion revolving credit facility
maturing August 29, 2001 and the Infinity credit agreement, which consisted of
a $1.5 billion revolving credit facility maturing August 29, 2001, were
amended to allow for the merger of CBS with and into the Company. On May 3,
2000, Infinity Broadcasting entered into two new credit facilities, totaling
$1.95 billion, comprised of a $1.45 billion 5-year revolving credit facility
and a $500 million 364-day revolving credit facility.
II-44
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Borrowing rates under the CBS and Infinity facilities are determined at the
time of each borrowing and are based generally on a floating rate index, the
London Interbank Offer Rate ("LIBOR"), plus a margin based on the respective
senior unsecured debt rating.
On March 7, 2001, the Company cancelled all of the above-mentioned credit
agreements other than the Infinity Broadcasting $1.45 billion facility, and
entered into two new credit facilities. These two new facilities total $3.5
billion and are comprised of a $1.5 billion 5-year revolving credit facility
and a $2.0 billion 364-day revolving credit facility. The Company also amended
and restated the Infinity Broadcasting $1.45 billion facility; the terms and
conditions were substantially conformed to the new $1.5 billion 5-year
revolving credit facility and the Company was designated as the borrower. The
primary purpose of the facilities is to support commercial paper borrowings.
The Company, at its option, may borrow in certain foreign currencies up to
specified limits under the new $1.5 billion 5-year revolving credit facility.
Borrowing rates under the facilities are determined at the time of each
borrowing and are based generally on LIBOR plus a margin based on the
Company's senior unsecured debt rating. At December 31, 2000, LIBOR for
borrowing periods of one month and two months were 6.56% and 6.49%,
respectively.
The new and amended facilities contain certain covenants which, among other
things, require that the Company maintain a minimum interest coverage ratio.
At December 31, 2000 the Company was in compliance with the financial
covenants.
The Company pays a commitment fee based on the total amount of the loan
commitments. As of March 7, 2001, the facilities totaled $4.95 billion.
In March 2001, the Company increased its commercial paper program from $4.0
billion to $4.95 billion and Infinity Broadcasting cancelled its $3.25 billion
commercial paper program. Borrowings under the program have maturities of less
than a year and are supported by unused committed bank facilities. At December
31, 2000, the Company had borrowings under the program of approximately $1.7
billion and Infinity Broadcasting had borrowings under its commercial paper
program of approximately $2.1 billion.
On January 9, 2001, the Company issued, under Rule 144A, $400 million of
6.40% unsecured senior notes due January 30, 2006, $500 million of 7.70%
unsecured senior notes due July 30, 2010, and $750 million of 7.875% unsecured
senior debentures due July 30, 2030; interest on the senior notes and
debentures will be payable semi-annually. Proceeds from the debt issuance were
used to repay bank debt, including commercial paper. During March 2001, these
notes and debentures were exchanged for registered notes and debentures. The
unsecured senior debentures and the unsecured senior notes due July 30, 2010
are redeemable at any time at their principal amount plus the applicable
premium and accrued interest.
On August 1, 2000, the Company issued $1.15 billion of 7.70% unsecured
senior notes due July 30, 2010 and $500 million of 7.875% unsecured senior
debentures due July 30, 2030; interest on the senior notes and debentures will
be payable semi-annually. Proceeds from the debt issuance were used to repay
bank debt, including commercial paper. The senior notes and debentures are
redeemable at any time at their principal amount plus the applicable premium
and accrued interest.
On February 1, 2001, the Company redeemed all $60.3 million outstanding of
Infinity Broadcasting's 9% senior subordinated notes due 2006 at a redemption
price equal to 104.5% of the principal amount. On December 1, 2000, the
Company redeemed all $105.3 million outstanding of Infinity Broadcasting's
9.75% senior subordinated notes due 2005 at a redemption price equal to 104.9%
of the principal amount.
II-45
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
During 1999, the Company redeemed the remaining $211.8 million principal
amount of its 8% merger debentures outstanding and recognized an extraordinary
loss of $37.4 million, net of tax, on the early redemption.
The Company has classified short-term indebtedness as long-term debt based
upon its intent and ability to refinance such indebtedness on a long-term
basis. The Company's scheduled maturities of long-term debt outstanding at
December 31, 2000, excluding capital leases, are as follows:
---------------------------------------------------------
Year of Maturity
2001 2002 2003 2004 2005
---------------------------------------------------------
Long-term debt $1,557.8 $2,507.4 $911.7 $667.5 $2,924.8
---------------------------------------------------------
Blockbuster Credit Agreement
On June 21, 1999, Blockbuster entered into a $1.9 billion unsecured credit
agreement (the "Blockbuster Credit Agreement") with a syndicate of banks. The
Blockbuster Credit Agreement was comprised of a $700 million long-term
revolver due July 1, 2004; a $600 million term loan due in quarterly
installments beginning April 1, 2002 and ending July 1, 2004; and a $600
million short-term revolver, which was paid down during 2000. The repayment of
the short-term revolver permanently reduced the borrowing capacity under the
Blockbuster Credit Agreement from $1.9 billion to $1.3 billion. Interest rates
under the Blockbuster Credit Agreement are based on the prime rate or LIBOR at
Blockbuster's option at the time of the borrowing. A variable commitment fee
based on the total leverage ratio is charged on the unused amount of the
revolver (.25% at December 31, 2000).
The Blockbuster Credit Agreement contains certain restrictive covenants,
which, among other things, relate to the payment of dividends, repurchase of
Blockbuster's common stock or other distributions and also require compliance
with certain financial covenants with respect to a maximum leverage ratio and
a minimum fixed charge coverage ratio. At December 31, 2000, Blockbuster was
in compliance with all financial covenants under the Blockbuster Credit
Agreement.
On June 23, 1999, Blockbuster borrowed $1.6 billion, comprised of $400
million borrowed under the long-term revolver, $600 million borrowed under the
term loan, and $600 million under the short-term revolver. The proceeds of the
borrowings were used to pay amounts owed to Viacom. Blockbuster repaid $442.9
million of the short-term revolver through proceeds from its initial public
offering and repaid the remaining $157.1 million of the short-term revolver
during the year ended December 31, 2000. Blockbuster had $278.0 million of
available borrowing capacity under the long-term revolver at December 31,
2000. The weighted average interest rate at December 31, 2000 for these
borrowings was 8.0%.
Blockbuster's scheduled maturities of long-term debt outstanding at
December 31, 2000, excluding capital leases, are as follows:
-----------------------------------------------
Year of Maturity
2001 2002 2003 2004 2005
-----------------------------------------------
Long-term debt $8.0 $158.8 $279.3 $599.9 $1.0
-----------------------------------------------
11) FINANCIAL INSTRUMENTS
The Company's carrying value of financial instruments approximates fair
value, except for differences with respect to the notes and debentures and
certain differences related to other financial instruments that are not
significant. The carrying value of the senior debt and senior subordinated
debt is $6.4 billion and the fair value, which is estimated based on quoted
market prices, is $6.6 billion.
II-46
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The Company enters into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest on its
variable rate long-term debt and/or take advantage of changes in interest
rates. These interest rate exchange agreements include interest rate swaps and
interest rate caps. At December 31, 2000, the Company had no interest rate
exchange agreements outstanding with commercial banks.
The Company enters into foreign currency exchange contracts in order to
reduce its exposure to changes in foreign currency exchange rates that affect
the value of its firm commitments and certain anticipated foreign currency
cash flows. These contracts generally mature within the calendar year. The
Company does not enter into foreign currency contracts for speculative
purposes. To date, the contracts utilized have been purchased options, spots
and forward contracts. A spot or forward contract is an agreement between two
parties to exchange a specified amount of foreign currency, at a specified
exchange rate on a specified date. An option contract provides the right, but
not the obligation, to buy or sell currency at a fixed exchange rate on a
future date. In 2000 the foreign exchange contracts have principally been used
to hedge the British Pound, the Australian Dollar, the Japanese Yen, the
Canadian Dollar, the Singapore Dollar and the European Union's common currency
(the "Euro"). At December 31, 2000, the Company had outstanding contracts with
a notional value of approximately $199 million that expire in 2001. Realized
gains and losses on contracts that hedge anticipated future cash flows are
recognized in "Other items, net" and were not material. Option premiums are
expensed at the inception of the contract. Deferred gains and losses on
foreign currency exchange contracts as of December 31, 2000 were not material.
The Company continually monitors its positions with, and credit quality of,
the financial institutions which are counterparties to its financial
instruments. Outstanding letters of credit totaled $239 million at December
31, 2000. The Company is exposed to credit loss in the event of nonperformance
by the counterparties to the agreements. However, the Company does not
anticipate nonperformance by the counterparties. The Company's receivables do
not represent significant concentrations of credit risk at December 31, 2000,
due to the wide variety of customers, markets and geographic areas to which
the Company's products and services are sold.
12) STOCKHOLDERS' EQUITY
During 2000, the Company repurchased 10,000 shares of its Class A Common
Stock and 34.2 million shares of its Class B Common Stock for approximately
$1.95 billion in the aggregate. During 1999, the Company had repurchased a
total of 25,000 shares of its Class A Common Stock, 10.6 million shares of its
Class B Common Stock and 1.1 million Viacom Five-Year Warrants, for
approximately $466.4 million in the aggregate.
On July 7, 1999, the Viacom Five-Year Warrants expired. The Company
received proceeds of approximately $317 million and issued approximately 9.0
million shares of its Class B Common Stock in connection with the exercise of
4.5 million warrants issued as part of the 1994 acquisition of Paramount
Communications.
On December 2, 1998, the Company repurchased 12 million shares of its
convertible preferred stock from Bell Atlantic Corporation for $564 million in
cash. On January 5, 1999, the Company repurchased the remaining 12 million
shares of its convertible preferred stock from Bell Atlantic Corporation for
$612 million in cash.
Long-Term Incentive Plans--The Company has four Long-Term Incentive Plans
(the "Plans"): the Viacom Long-Term Management Incentive Plan (the "Viacom
Plan"), the Blockbuster Long-Term Management Incentive Plan (the "Blockbuster
Plan"), the Infinity Stock-Based Compensation Plans (the "Infinity Plan") and
MTVi Long-Term Incentive Plan (the "MTVi Plan"). The Plans provide for the
issuance of fixed grants of equity-based interests, which include stock
options, stock appreciation rights, restricted shares, phantom shares and
other equity-based interests.
II-47
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with the
provisions of SFAS 123, the Company applies APB 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the Plans
and accordingly, does not recognize compensation expense for any of the Plans
because the Company typically does not issue options at exercise prices below
the market value at date of grant. Had compensation expense for the Plans been
determined based upon the fair value at the grant date for awards consistent
with the methodology prescribed by SFAS 123, the Company's consolidated net
earnings (loss) would have been $(922.0) million or $(0.75) per basic and
diluted common share, $263.2 million or $0.38 per basic and $0.37 per diluted
common share, and $(162.9) million or $(0.23) per basic and diluted common
share in 2000, 1999, and 1998 respectively. These pro forma effects may not be
representative of future amounts since the estimated fair value of stock
options on the date of grant is amortized to expense over the vesting period
and additional options may be granted in future years.
Viacom Plan--The purpose of the Viacom Plan is to benefit and advance the
interests of the Company by rewarding certain key employees for their
contributions to the financial success of the Company and thereby motivating
them to continue to make such contributions in the future. The Viacom Plan
provides for fixed grants of equity-based interests pursuant to awards of
phantom shares, stock options, stock appreciation rights, restricted shares or
other equity-based interests ("Awards"), and for subsequent payments of cash
with respect to phantom shares or stock appreciation rights based, subject to
certain limits, on their appreciation in value over stated periods of time.
The stock options generally vest over a four to six year period from the date
of grant and expire 10 years after the date of grant. The Company has reserved
a total of 14,038 shares of Viacom Inc. Class A Common Stock and 117,165,267
shares of Viacom Inc. Class B Common Stock for exercise of stock options.
During 2000, the total aggregate number of shares of Viacom Inc. Class B
Common Stock that may be issued under the 1997 plan was increased by 5,000,000
shares. In the second quarter of 2000, the Viacom Inc. 2000 Long-Term
Management Incentive Plan and 2000 Stock Option Plan for outside directors was
adopted. An aggregate of 100,000,000 and 1,000,000 shares of Viacom Inc. Class
B Common Stock may be issued under these plans, respectively. The stock
options available for future grant under the Viacom Plans are as follows:
December 31, 1998 14,849,484
December 31, 1999 11,726,413
December 31, 2000 107,266,077
The weighted-average fair value of each option as of the grant date was
$27.39, $19.89 and $12.97 in 2000, 1999 and 1998, respectively. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
2000 1999 1998
----- ----- -----
Expected dividend yield(a) -- -- --
Expected stock price volatility 32.10% 29.64% 32.76%
Risk-free interest rate 6.56% 6.11% 5.43%
Expected life of options (years) 6.8 7.5 6.0
- --------
(a) The Company has not declared any cash dividends on its common stock for
any of the periods presented and has no present intention of so doing.
II-48
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The following table summarizes the Company's stock option activity under
the Viacom Plans:
Options Weighted-Average
Outstanding Exercise Price
----------- ----------------
Balance at December 31, 1997 45,216,574 $15.78
-----------
Granted 13,576,420 30.53
Exercised (12,077,298) 16.16
Cancelled (1,802,390) 16.97
-----------
Balance at December 31, 1998 44,913,306 20.09
-----------
Granted 14,283,483 42.02
Exercised (4,403,681) 17.19
Cancelled (814,588) 18.59
-----------
Balance at December 31, 1999 53,978,520 26.16
-----------
Granted 11,147,875 57.12
CBS stock options assumed 64,258,809 24.76
Exercised (10,765,816) 17.42
Cancelled (1,440,083) 39.63
-----------
Balance at December 31, 2000 117,179,305 28.98
===========
The following table summarizes information concerning outstanding and
exercisable stock options under the Viacom Plans at December 31, 2000:
Outstanding Exercisable
--------------------------------- ---------------------------
Remaining Weighted-
Contractual Average
Range of Life Exercise Weighted-Average
Exercise Price Options (Years) Price Options Exercise Price
-------------- ----------- ----------- --------- ---------- ----------------
$ 0 to 9.99 7,033,493 2.8 $ 4.70 7,033,493 $ 4.70
10 to 19.99 39,904,525 5.2 16.38 33,508,530 16.57
20 to 29.99 16,632,440 5.6 24.25 16,289,056 24.26
30 to 39.99 20,933,600 6.9 31.69 13,252,262 31.48
40 to 49.99 14,562,606 8.5 42.46 1,689,999 46.77
50 to 59.99 17,010,641 9.3 55.70 504,770 56.42
60 to 69.99 1,092,000 9.5 68.91 -- --
70 to 71.00 10,000 9.6 71.00 -- --
----------- ----------
117,179,305 72,278,110
=========== ==========
Shares issuable under exercisable stock options:
December 31, 1998 8,892,882
December 31, 1999 12,647,656
December 31, 2000 72,278,110
Blockbuster Plan
On July 15, 1999, Blockbuster's Board of Directors adopted the Blockbuster
Plan for the benefit of its employees and directors. An aggregate of
25,000,000 shares of Blockbuster class A common stock is reserved
II-49
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
for issuance under the Blockbuster Plan, which provides for the issuance of
stock-based incentive awards, including stock options to purchase shares of
Blockbuster class A common stock, stock appreciation rights, restricted shares
of Blockbuster class A common stock, restricted share units and phantom
shares. Blockbuster stock options granted in 1999 generally vest over a five-
year period from the date of grant and generally expire 10 years after the
date of the grant and the Blockbuster Stock options granted in 2000 generally
vest over a four-year period from the date of grant and generally expire 10
years after the date of the grant.
The weighted average fair value of each Blockbuster option as of the grant
date was $5.63 for 2000 and $7.98 for 1999. The fair value of each Blockbuster
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
2000 1999
---- ----
Expected dividend yield(a) 1.0% 0.6%
Expected stock price volatility 45.0% 45.0%
Risk-free interest rate 6.1% 6.2%
Expected life of options (years) 7.0 7.0
- --------
(a) Blockbuster's current intention is to pay dividends of $.02 per share each
quarter on both its class A common stock and class B common stock.
The following table summarizes Blockbuster's stock option activity pursuant
to the Blockbuster Plan:
Options Weighted-Average
Outstanding Exercise Price
----------- ----------------
Balance at December 31, 1998 -- $ --
Granted 11,573,108 14.99
Exercised -- --
Cancelled (337,629) 15.00
----------
Balance at December 31, 1999 11,235,479 14.99
Granted 4,695,235 11.04
Exercised -- --
Cancelled (2,235,173) 14.47
----------
Balance at December 31, 2000 13,695,541 13.72
==========
The following table summarizes information concerning outstanding and
exercisable Blockbuster stock options issued to Blockbuster employees and
directors at December 31, 2000:
Outstanding Exercisable
--------------------------------------- --------------------------
Remaining
Range of Contractual
Exercise Life Weighted-Average Weighted-Average
Price Options (Years) Exercise Price Options Exercise Price
-------- ---------- ----------- ---------------- --------- ----------------
$11.00 4,349,665 9.6 $11.00 -- $ --
13.50
to 15.00 9,345,876 8.7 14.99 1,923,326 14.99
---------- ---------
13,695,541 1,923,326
========== =========
Infinity Stock-Based Compensation Plans
Infinity had several stock-based compensation plans that provided for the
granting of stock-based awards to officers or employees of Infinity, its
parent and subsidiaries. Generally, Infinity stock option awards vest three
II-50
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
years from the date of grant and expire ten years from the date of grant. At
the time of the Merger, there were 16.6 million outstanding Infinity options
with a weighted-average exercise price of $23.49 per share. Infinity did not
grant any additional options in 2000 subsequent to the Merger.
The following table summarizes information concerning outstanding and
exercisable Infinity stock options at December 31, 2000:
Outstanding Exercisable
--------------------------------------- --------------------------
Remaining
Range of Contractual
Exercise Life Weighted-Average Weighted Average
Price Options (Years) Exercise Price Options Exercise Price
-------- ---------- ----------- ---------------- --------- ----------------
$ 0 to
9.99 753,816 5.3 $2.09 753,816 $2.09
10 to
19.99 924,279 7.3 13.47 924,279 13.47
20 to
29.99 5,183,786 8.2 26.15 1,727,929 26.15
30 to
36.19 6,295,751 9.2 34.22 -- --
---------- ---------
13,157,632 3,406,024
========== =========
In connection with the Company's merger with Infinity on February 2, 2001
(see Note 2), the Company converted approximately 12.9 million then-
outstanding Infinity options into approximately 7.6 million options to acquire
shares of the Company's Class B Common Stock with a weighted-average exercise
price of $52.01 per share.
MTVi Plan
MTVi, a subsidiary of the Company, operates the Company's Internet music
business. In 1999, the Company established the MTVi Plan to benefit and
advance the interests of the business by rewarding employees for their
contributions to the financial success of MTVi and thereby motivating them to
continue to make such contributions in the future. An aggregate of
approximately 12 million shares of MTVi Class A common stock is reserved for
issuance under the MTVi Plan. The MTVi stock options generally vest over a
three to four year period from the date of grant and expire 10 years after the
date of grant.
The weighted average fair value of each option as of the grant date was
$11.45 for 2000. The fair value of each MTVi option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the weighted-
average assumptions of an expected stock price volatility of 97.6%, risk-free
interest rate of 6.04% and expected life of 5 years.
At December 31, 2000, there were 4,214,700 outstanding stock options issued
with an exercise price of $15 under the MTVi Plan. All outstanding shares have
a weighted remaining contractual life of 8.79 years and none of them are
exercisable as of December 31, 2000.
13) INCOME TAXES
Earnings from continuing operations before income taxes are attributable to
the following jurisdictions:
------------------------------------
Year Ended
December 31, 2000 1999 1998
------------------------------------
United States $165.3 $656.3 $ 74.1
Foreign 395.3 187.6 63.2
------------------------------------
Total $560.6 $843.9 $137.3
------------------------------------
II-51
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Components of the provision for income taxes on earnings from continuing
operations before income taxes are as follows:
-----------------------------------------
Year Ended
December 31, 2000 1999 1998
-----------------------------------------
Current:
Federal $553.1 $167.4 $151.0
State and local 209.8 21.3 34.9
Foreign 47.1 35.3 50.9
-----------------------------------------
810.0 224.0 236.8
Deferred (80.2) 187.4 (98.1)
-----------------------------------------
$729.8 $411.4 $138.7
-----------------------------------------
The equity losses of affiliated companies are shown net of tax on the
Company's Statements of Operations. The tax benefit relating to losses from
equity investments in 2000, 1999 and 1998 are $20.5 million, $17.7 million and
$24.0 million, respectively, which represents an effective tax rate of 14.2%,
22.6% and 36.7%, respectively.
The cumulative effect of change in accounting principle is presented net of
a tax benefit of $301.6 million.
The difference between the effective tax rates and the statutory U.S.
federal tax rate of 35% is principally due to the effect of non-deductible
goodwill amortization, state and local taxes and foreign income taxed below
statutory U.S. rates. In 2000 and 1999, respectively, $218.8 million and $58.8
million of income tax benefit was recorded as a component of stockholders'
equity as a result of exercised stock options.
A reconciliation of the statutory U.S. federal tax rate to the Company's
effective tax rate on earnings from continuing operations before income taxes
is summarized as follows:
-----------------------------------------------------------------------
Year Ended December 31, 2000 1999 1998
-----------------------------------------------------------------------
Statutory U.S. federal tax rate 35.0% 35.0% 35.0%
Amortization of intangibles 81.1 15.7 86.3
State and local taxes, net of federal tax benefit 7.3 3.7 5.7
Effect of foreign operations (17.7) (9.3) (35.5)
Merger-related costs and non-deductible expenses 19.5 -- --
Other, net 5.0 3.7 9.5
-----------------------------------------------------------------------
Effective tax rate on earnings from continuing
operations before income taxes 130.2% 48.8% 101.0%
-----------------------------------------------------------------------
II-52
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The following is a summary of the components of the deferred tax accounts:
----------------------------------------------------------------
At December 31, 2000 1999
----------------------------------------------------------------
Deferred tax assets:
Provision for expense and losses $ 1,854.5 $436.6
Postretirement and other employee benefits 586.5 41.7
Tax credit and loss carryforwards 485.6 83.4
----------------------------------------------------------------
Total deferred tax assets 2,926.6 561.7
Valuation allowance (172.1) (96.0)
----------------------------------------------------------------
Net deferred tax assets 2,754.5 465.7
----------------------------------------------------------------
Deferred tax liabilities:
Property, equipment and intangible assets (2,522.0) (55.9)
Lease portfolio (422.2) --
Other (612.1) --
----------------------------------------------------------------
Total deferred tax liabilities (3,556.3) (55.9)
----------------------------------------------------------------
Deferred income taxes, net liability $ (801.8) $409.8
----------------------------------------------------------------
At December 31, 2000 and 1999, the Company had a net current deferred tax
asset of $336.3 million and $188.0 million, and net non-current deferred tax
liability of $1.1 billion and $221.8 million, respectively.
At December 31, 2000, the Company had net operating loss carryforwards for
federal, state and local and foreign jurisdiction of approximately $437.8
million, which expire in various years from 2001 through 2019. In addition,
the Company had alternative minimum tax credit carryforwards of $203.2 million
that have no expiration dates and foreign tax credit carryforwards of $64.3
million that expire through 2004.
The 2000 and 1999 deferred tax assets are reduced by a valuation allowance
of $172.1 million and $96.0 million, respectively, principally relating to tax
benefits of net operating losses which are not expected to be recognized as a
result of certain limitations applied where there is a change of ownership.
The Company's share of the undistributed earnings of foreign subsidiaries
not included in its consolidated federal income tax return that could be
subject to additional income taxes if remitted, was approximately $1.6 billion
and $1.4 billion at December 31, 2000 and December 31, 1999, respectively. No
provision has been recorded for the U.S. or foreign taxes that could result
from the remittance of such undistributed earnings since the Company intends
to reinvest these earnings outside the United States indefinitely and it is
not practicable to estimate the amount of such taxes.
14) PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries have non-contributory pension
plans covering specific groups of employees. The benefits for these plans are
based primarily on an employee's years of service and pay near retirement.
Participant employees are vested in the plans after five years of service. The
Company's policy for all pension plans is to fund amounts in accordance with
the Employee Retirement Income Security Act of 1974. Plan assets consist
principally of common stocks, marketable bonds and U.S. government securities.
The Company's Class B Common Stock represents approximately 8.0% and 20.8% of
the plan assets' fair value at December 31, 2000 and 1999, respectively.
II-53
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
In addition, the Company sponsors a health and welfare plan that provides
certain postretirement health care and life insurance benefits to retired
employees and their covered dependents who are eligible for these benefits if
they meet certain age and service requirements. The plan is contributory and
contains cost-sharing features such as deductibles and coinsurance which are
adjusted annually. The plan is not funded and the Company funds these benefits
as claims are paid.
The significant changes in the components of the benefit obligation plan
assets and the net periodic cost in 2000 were due primarily to the merger with
CBS in May 2000.
The following table sets forth the change in benefit obligation for the
Company's benefit plans:
---------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
At December 31, 2000 1999 2000 1999
---------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation, beginning of
year $ 795.2 $ 844.2 $ 51.1 $53.6
Service cost 38.5 33.7 2.1 .7
Interest cost 278.9 61.5 59.3 3.7
Benefits paid (356.5) (45.2) (79.6) (5.7)
Actuarial (gain) (14.8) (147.9) (1.2) (1.6)
Business combinations 4,238.7 52.0 1,092.0 --
Participants' contributions .5 -- 2.9 .4
Amendments 1.5 .2 (6.4) --
Cumulative translation adjustments (3.0) 1.1 -- --
Special termination benefits 5.3 2.7 -- --
Curtailments -- (7.1) -- --
---------------------------------------------------------------------------
Benefit obligation, end of year $4,984.3 $ 795.2 $1,120.2 $51.1
---------------------------------------------------------------------------
The following table sets forth the change in plan assets for the Company's
benefit plans:
---------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
At December 31, 2000 1999 2000 1999
---------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets, beginning
of year $ 973.8 $ 786.6 $ -- $ --
Actual return on plan assets 160.6 167.2 1.3 --
Employer contributions 34.8 6.0 75.7 5.3
Benefits paid (356.5) (45.2) (79.6) (5.7)
Business combinations 4,082.4 56.5 46.1 --
Participants' contributions .5 -- 2.9 .4
Cumulative translation adjustments (4.4) 2.7 -- --
---------------------------------------------------------------------------
Fair value of plan assets, end of
year $4,891.2 $ 973.8 $ 46.4 $ --
---------------------------------------------------------------------------
For those pension plans with accumulated benefit obligations in excess of
plan assets, the projected benefit obligations and accumulated benefit
obligations were $511.9 million and $474.5 million, respectively, for 2000
II-54
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
and $103.4 million and $92.6 million, respectively, for 1999. The fair value of
such plan assets was $4.7 million for 2000 and $0 for 1999.
The accrued pension and postretirement costs recognized in the Company's
consolidated balance sheet are computed as follows:
----------------------------------------------------------------------------
Pension Postretirement
Benefits Benefits
At December 31, 2000 1999 2000 1999
----------------------------------------------------------------------------
Funded status: $ (93.1) $ 178.6 $(1,073.8) $(51.1)
Unrecognized actuarial (gain) (192.4) (336.8) (16.2) (17.1)
Unrecognized prior service cost
(benefit) 10.4 10.9 (10.5) (4.8)
Unrecognized asset at transition (1.1) (2.3) -- --
----------------------------------------------------------------------------
Accrued pension liability, net $(276.2) $(149.6) $(1,100.5) $(73.0)
----------------------------------------------------------------------------
Amounts recognized in the
Consolidated Balance Sheets:
Accrued pension liability $(536.3) $(172.0) $(1,100.5) $(73.0)
Prepaid benefits cost 239.1 8.4 -- --
Intangibles 1.9 .5 -- --
Accumulated other comprehensive pre-
tax loss 19.1 13.5 -- --
----------------------------------------------------------------------------
Net liability recognized $(276.2) $(149.6) $(1,100.5) $(73.0)
----------------------------------------------------------------------------
Net periodic cost for the Company's pension and postretirement benefit plans
consists of the following:
--------------------------------------------------------------------------------------
Postretirement
Pension Benefits Benefits
At December 31, 2000 1999 1998 2000 1999 1998
--------------------------------------------------------------------------------------
Components of net periodic cost:
Service cost $ 38.5 $ 33.7 $ 36.8 $ 2.1 $ .7 $ 1.0
Interest cost 278.9 61.5 57.8 59.3 3.7 6.5
Expected return on plan assets (301.8) (79.4) (64.4) (2.2) -- --
Amortization of prior service cost 1.9 1.6 2.6 (.6) (.7) (3.0)
Amortization of transition obligation (1.1) (.2) (2.2) -- -- --
Recognized actuarial (gain) loss (17.0) 1.1 3.7 (1.2) (.7) (2.9)
Curtailment (gain) -- (7.1) (31.4) -- -- (77.5)
Special termination benefits 1.7 3.6 -- -- -- --
--------------------------------------------------------------------------------------
Net periodic cost $ 1.1 $ 14.8 $ 2.9 $57.4 $3.0 $(75.9)
--------------------------------------------------------------------------------------
II-55
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
The following weighted average assumptions were used in accounting for the
pension plans:
----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
Discount rate 7.71% 8.0% 6.75%
Expected return on plan assets 8.3% 9.5% 9.5%
Rate of increase in future compensation 5.0% 5.0% 5.0%
----------------------------------------------------------
The following weighted average assumptions were used in accounting for
postretirement benefits:
--------------------------------------------------------
2000 1999 1998
--------------------------------------------------------
Discount rate 7.75% 8.0% 6.75%
Projected health care cost trend rate 8.0% 5.5% 6.0%
Ultimate trend rate 5.8% 5.5% 5.5%
Year ultimate trend rate is achieved 2008 1999 1999
--------------------------------------------------------
Assumed health care cost trend rates could have a significant effect on the
amounts reported for the postretirement health care plan. A one-percentage
point change in assumed health care cost trend rates would have the following
effects:
------------------------------------------------------------------------
One Percentage One Percentage
Point Increase Point Decrease
------------------------------------------------------------------------
Effect on total of service and interest
cost components $ 3.1 $ (2.9)
Effect on the accumulated postretirement
benefit obligation $39.1 $(36.0)
------------------------------------------------------------------------
In 1998, as a result of the sale of Non-Consumer Publishing, the Company
realized curtailment gains of $31.4 million related to pension benefits and
$77.5 million related to postretirement benefits, which have been included in
the net gain on disposition for that year.
The Company contributes to multi-employer plans that provide pension and
health and welfare benefits to certain employees under collective bargaining
agreements. The contributions to these plans were $32.3 million (2000) and
$26.1 million (1999).
In addition, the Company has defined contribution plans for the benefit of
substantially all employees meeting certain eligibility requirements. Employer
contributions to such plans were $35.8 million, $16.5 million and $21.1
million for the years ended December 31, 2000, 1999 and 1998.
15) COMMITMENTS AND CONTINGENCIES
The Company has long-term noncancelable operating lease commitments for
retail and office space and equipment, transponders, studio facilities and
vehicles. The Company has also entered into capital leases for satellite
transponders and buildings.
Infinity's outdoor advertising business has franchise rights entitling it
to display advertising on such media as buses, taxis, trains, bus shelters,
terminals, billboards, and phone kiosks. Under most of these franchise
agreements, the franchiser is entitled to receive the greater of a percentage
of the relevant advertising revenues, net of advertising agency fees, or a
specified guaranteed minimum annual payment.
II-56
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
At December 31, 2000, minimum rental payments under noncancelable leases
and minimum franchise payments are as follows:
-------------------------------------------------------------
Leases
----------------- Guaranteed Minimum
Capital Operating Franchise Payments
-------------------------------------------------------------
2001 $173.7 $ 831.6 $ 310.5
2002 175.3 691.5 280.1
2003 104.3 623.8 235.6
2004 67.5 500.4 219.8
2005 55.5 389.8 177.2
2006 and thereafter 109.7 1,978.9 311.1
------ -------- --------
Total minimum lease
payments 686.0 $5,016.0 $1,534.3
======== ========
Less amounts
representing interest 133.8
------
Present value of net
minimum payments $552.2
-------------------------------------------------------------
Future minimum capital lease payments have not been reduced by future
minimum sublease rentals of $17.9 million. Rent expense amounted to $838.2
million (2000), $601.7 million (1999) and $533.8 million (1998).
The commitments of the Company for program license fees, estimated to
aggregate approximately $15.2 billion, are not reflected in the balance sheet
as of December 31, 2000. These commitments include approximately $10.8 billion
for the acquisition of sports programming rights. A majority of such fees are
payable over several years, as part of normal programming expenditures.
The Company, Blockbuster and Paramount Home Entertainment are among the
defendants in a lawsuit filed on July 21, 1999 in the United States District
Court for the Western District of Texas by one former and three present
independent video retailers against the major motion picture studios and the
Company. The plaintiffs, purporting to act as class representatives on behalf
of themselves and all others similarly situated, allege that the Company and
the studios conspired among themselves and with Blockbuster to restrain
competition in the nationwide market for distribution of videocassettes for
rental to the public in violation of federal and California law. Plaintiffs
seek injunctive relief under federal law as well as triple the amount of the
alleged actual damages to themselves and those similarly situated under
California statutes. In January 2001, plaintiffs moved to withdraw their
California state law claims from the federal lawsuit in Texas and filed a
substantially similar complaint with approximately 200 additional named
plaintiffs in Superior Court for the County of Los Angeles. This complaint
also sought certification of a nationwide class of similarly situated
plaintiffs. In March 2001, the Texas court denied the plaintiffs' motion for
class certification of both the federal and the California state law claims in
the federal action and denied the plaintiffs' motion to withdraw their
California state law claims from that action. The Company believes that the
plaintiffs' position in these litigations is without merit and intends to
defend itself vigorously in the litigations.
The Company is a defendant in numerous lawsuits claiming various asbestos-
related personal injuries, which allegedly occurred from use or inclusion of
asbestos in certain products supplied by previously divested industrial
business, generally in the pre-1970 time period. Typically, these lawsuits are
brought against multiple defendants in state and Federal courts. The Company
was neither a manufacturer nor a producer of asbestos. As of December 31,
2000, the Company had pending approximately 99,590 asbestos cases, excluding
cases in various stages of settlement. The Company has brought suit against
certain of its insurance carriers with respect
II-57
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
to asbestos claims. Under the terms of a settlement agreement resulting from
this suit, carriers that have agreed to the settlement are now reimbursing the
Company for a substantial portion of its current costs and settlement
associated with asbestos claims. The Company believes that it has meritorious
defenses to asbestos matters, that where appropriate it has adequately
provided for resolution of matters and that any ultimate liability resulting
from asbestos matters is not likely to have a material adverse effect on its
results of operations, financial position or cash flows.
The Company from time to time receives claims from federal and state
environmental regulatory agencies and other entities asserting that it is or
may be liable for environmental cleanup costs and related damages, principally
relating to discontinued operations conducted by companies acquired by the
Company. The Company's liabilities reflect management's best estimate of its
environmental exposure. Such liability was not discounted or reduced by
potential insurance recoveries and reflects management's estimate of cost
sharing at multiparty sites. The estimated liability was calculated based upon
currently available facts, existing technology and presently enacted laws and
regulations. On the basis of its experience and the information currently
available to it, the Company believes that the claims it has received will not
have a material adverse effect on its results of operations, financial
position or liquidity.
In addition to the above matters, the Company and various of its
subsidiaries are parties to certain other legal proceedings. Litigation is
inherently uncertain and always difficult to predict. However, based on its
understanding and evaluation of the relevant facts and circumstances, the
Company believes that these matters are not likely to have a material adverse
effect on its results of operations, financial position or cash flows.
16) REPORTABLE SEGMENTS
The following tables set forth the Company's financial performance by
reportable operating segment. As a result of the merger with CBS, the segment
information reflects a new organizational structure. Prior period information
for Viacom has been reclassified to conform to the new structure. Intersegment
revenues are recorded at fair market value as if the sales were to third
parties and are eliminated in consolidation. Intersegment revenues of the
Entertainment segment for 2000, 1999 and 1998 were $374.0 million, $248.4
million and $146.1 million, respectively. Residual costs of discontinued
businesses primarily include pension and postretirement benefit costs for
benefit plans retained by CBS for previously divested industrial businesses.
The Company evaluates performance based on many factors; one of the primary
measures is EBITDA, defined as operating income before depreciation and
amortization. The Company believes that EBITDA is an appropriate measure of
evaluating the operating performance of its segments. However, EBITDA should
be considered in addition to, not as a substitute for or superior to,
operating income, net earnings, cash flows, and other measures of financial
performance prepared in accordance with generally accepted accounting
principles ("GAAP"). As EBITDA is not a measure of performance calculated in
accordance with GAAP, this measure may not be comparable to similarly titled
measures employed by other companies.
II-58
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
--------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
Revenues:
Cable Networks $ 3,895.0 $ 3,045.5 $ 2,607.9
Television 5,381.7 2,352.0 2,271.4
Infinity 2,764.7 -- --
Entertainment 2,758.3 2,665.9 2,914.3
Video 4,960.1 4,463.5 3,893.4
Publishing 596.0 610.7 564.6
Online 100.7 29.8 13.7
Intercompany eliminations (412.8) (308.6) (169.2)
--------------------------------------------------------------------------
Total Revenues $20,043.7 $12,858.8 $12,096.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
EBITDA:
Cable Networks $ 1,495.0 $ 1,053.1 $ 851.3
Television 979.5 271.5 372.9
Infinity 1,282.6 -- --
Entertainment 368.8 378.3 368.7
Video 534.8 520.3 39.9
Publishing 71.3 74.0 71.2
Online (182.1) (48.4) (3.5)
--------------------------------------------------------------------------
Segment total 4,549.9 2,248.8 1,700.5
Reconciliation to Operating Income:
Corporate expenses/eliminations (928.0) (156.8) (171.6)
Residual costs of discontinued
operations (77.5) -- --
Depreciation and amortization (2,223.5) (844.7) (777.3)
--------------------------------------------------------------------------
Total Operating Income $ 1,320.9 $ 1,247.3 $ 751.6
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
Depreciation and Amortization:
Cable Networks $ 245.0 $ 120.7 $ 107.0
Television 548.3 128.1 110.5
Infinity 693.2 -- --
Entertainment 159.1 147.2 133.2
Video 459.1 392.4 382.1
Publishing 21.7 19.7 18.0
Online 74.6 16.1 4.0
--------------------------------------------------------------------------
Segment total 2,201.0 824.2 754.8
Corporate 22.5 20.5 22.5
--------------------------------------------------------------------------
Total Depreciation and Amortization $ 2,223.5 $ 844.7 $ 777.3
--------------------------------------------------------------------------
II-59
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
----------------------------------------------------------------
At December 31, 2000 1999 1998
----------------------------------------------------------------
Total Assets:
Cable Networks $ 7,893.2 $ 3,138.1 $ 2,770.2
Television 25,177.2 4,744.2 4,577.4
Infinity 33,689.7 -- --
Entertainment 4,853.9 5,899.5 5,699.0
Video 8,385.1 8,475.6 8,142.6
Publishing 954.1 948.1 962.4
Online 425.2 162.1 5.8
----------------------------------------------------------------
Segment total 81,378.4 23,367.6 22,157.4
Corporate expenses/eliminations 1,267.7 1,118.8 1,455.7
----------------------------------------------------------------
Total Assets $82,646.1 $24,486.4 $23,613.1
----------------------------------------------------------------
----------------------------------------------------------------
Year Ended December 31, 2000 1999 1998
----------------------------------------------------------------
Capital Expenditures:
Cable Networks $ 120.5 $ 83.4 $ 89.8
Television 100.1 51.3 60.6
Infinity 72.0 -- --
Entertainment 87.9 134.3 174.7
Video 212.1 384.9 196.0
Publishing 6.0 8.7 37.5
Online 53.6 22.8 --
----------------------------------------------------------------
Segment total 652.2 685.4 558.6
Corporate 6.8 20.8 44.9
----------------------------------------------------------------
Total Capital Expenditures $ 659.0 $ 706.2 $ 603.5
----------------------------------------------------------------
Information regarding the Company's operations by geographic area is as
follows:
-----------------------------------------------------------
Year Ended December 31, 2000 1999 1998
-----------------------------------------------------------
Revenues(a):
United States $16,428.3 $10,207.0 $ 9,268.3
International 3,615.4 2,651.8 2,827.8
-----------------------------------------------------------
Total Revenues $20,043.7 $12,858.8 $12,096.1
-----------------------------------------------------------
Long-lived Assets:
United States $71,979.5 $17,675.6 $16,857.0
International 2,834.2 1,401.3 1,326.9
-----------------------------------------------------------
Total Long-lived Assets $74,813.7 $19,076.9 $18,183.9
-----------------------------------------------------------
Intercompany transfers between geographic areas are not significant.
(a) Revenue classifications are based on customers' locations.
II-60
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
17) OTHER ITEMS, NET
In 2000, "Other items, net" of $8.8 million principally reflects foreign
exchange gains of $31.7 million and gains on the sale of assets of
approximately $78.7 million which were mostly offset by the write down of
several internet cost investments to their fair market value for approximately
$66.9 million and losses associated with securitizing trade receivables. In
1999, "Other items, net" of $17.8 million principally reflects a $25.2 million
foreign exchange gain and net gain of $17.1 million from the sale of land,
property and equipment, partially offset by losses associated with
securitizing trade receivables. In 1998, "Other items, net" of ($15.3) million
reflects a loss of approximately $91 million associated with the closing of
the Viacom Entertainment Store, losses associated with foreign exchange and
securitizing trade receivables, partially offset by a gain of approximately
$118.9 million from the sale of a cost investment.
18) EXTRAORDINARY LOSS
For the year ended December 31, 1999, the Company recognized an
extraordinary loss of $37.7 million, net of tax of $26.2 million, or a loss of
$.06 per basic and diluted common share, on the early extinguishment of the
8.0% merger debentures and the 10.25% senior subordinated notes.
For the year ended December 31, 1998, the Company recognized an
extraordinary loss of $74.7 million, net of tax of $51.9 million, or a loss of
$.10 per basic and diluted common share, on the early extinguishment of the
10.25% senior subordinated notes for $163.7 million, 7.0% senior subordinated
debentures for $231.5 million and the 8.0% merger debentures for $555.6
million.
19) SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------------------------------------
Year Ended December 31, 2000 1999 1998
--------------------------------------------------------------------------
Cash payments for interest, net of amounts
capitalized $ 651.4 $ 445.6 $ 668.2
Cash payments for income taxes $ 61.2 $ 615.8 $ 656.6
Supplemental schedule of non-cash
financing and investing activities:
Equipment acquired under capitalized
leases $ 72.9 $ 223.4 $ 116.8
Fair value of assets acquired $ 61,910.3 $ 463.2 $ 138.2
Fair value of liabilities assumed (14,849.3) (.8) (11.8)
Minority interest in net assets acquired (5,712.1) (150.0) --
Cash paid, net of cash acquired (2,380.0) (312.4) (126.4)
--------------------------------------------------------------------------
Impact on stockholders' equity $ 38,968.9 $ -- $ --
--------------------------------------------------------------------------
II-61
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
20) QUARTERLY FINANCIAL DATA (unaudited):
- ------------------------------------------------------------------------------
First Second Third Fourth Total
2000 Quarter Quarter(1) Quarter(1) Quarter(1) Year(1)
- ------------------------------------------------------------------------------
Revenues(2) $3,025.8 $4,850.9 $5,810.8 $6,356.2 $20,043.7
Operating income
(loss)(3)(4) $ 240.4 $ (278.2) $ 759.9 $ 598.8 $ 1,320.9
Earnings (loss) from
continuing
operations(4) $ 68.0 $ (495.6) $ 33.4 $ 30.4 $ (363.8)
Net earnings (loss)(4) $ (384.3) $ (495.6) $ 33.4 $ 30.4 $ (816.1)
Net earnings (loss)
attributable to common
stock(4) $ (384.3) $ (495.6) $ 33.4 $ 30.4 $ (816.1)
Basic earnings per
common share:
Earnings (loss) from
continuing operations $ .10 $ (.41) $ .02 $ .02 $ (.30)
Net earnings (loss) $ (.55) $ (.41) $ .02 $ .02 $ (.67)
Diluted earnings per
common share:
Earnings (loss) from
continuing operations $ .10 $ (.41) $ .02 $ .02 $ (.30)
Net earnings (loss) $ (.54) $ (.41) $ .02 $ .02 $ (.67)
Weighted average number
of common shares:
Basic 694.8 1,207.6 1,503.7 1,498.2 1,225.3
Diluted 711.5 1,207.6 1,544.5 1,531.1 1,225.3
- ------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------
Revenues $2,951.1 $3,003.3 $3,332.0 $3,572.4 $12,858.8
Operating income(5) $ 277.5 $ 282.3 $ 321.2 $ 366.3 $ 1,247.3
Earnings from
continuing operations $ 68.4 $ 59.3 $ 110.9 $ 133.1 $ 371.7
Net earnings(6) $ 44.9 $ 59.3 $ 96.7 $ 133.1 $ 334.0
Net earnings
attributable to common
stock $ 32.5 $ 59.3 $ 96.7 $ 133.1 $ 321.6
Basic earnings per
common share:
Earnings from
continuing operations $ .08 $ .09 $ .16 $ .19 $ .52
Net earnings $ .05 $ .09 $ .14 $ .19 $ .46
Diluted earnings per
common share:
Earnings from
continuing operations $ .08 $ .08 $ .16 $ .19 $ .51
Net earnings $ .05 $ .08 $ .14 $ .19 $ .45
Weighted average number
of common shares:
Basic 696.1 690.6 696.7 697.4 695.2
Diluted 711.1 705.0 709.5 712.1 709.5
- ------------------------------------------------------------------------------
(1) Includes financial information for CBS from the date of its merger with
and into Viacom on May 4, 2000. Accordingly, operating results are not
necessarily comparable on a year-to-year basis.
(2) Revenues have been restated based on the guidelines set forth in SAB 101,
"Revenue Recognition in Financial Statements".
(3) The second quarter of 2000 included merger-related charges of $698
million ($505 million after-tax) related to the merger with CBS and the
acquisition of the remaining 50% interest in UPN that the Company did not
already own.
(4) The first quarter of 2000 included an after-tax charge of $452.3 million
related to the Company's early adoption of SOP 00-2. This charge was
reflected as a cumulative effect of a change in accounting principle,
effective January 1, 2000. Under SOP 00-2, for the three months ended
March 31, 2000, the Company recognized additional operating expenses of
$14.6 million ($8.0 million after-tax).
(5) The third quarter of 1999 included a $81.1 million charge for integrating
the operations of Spelling into Paramount Television.
(6) The first and third quarter of 1999 included an extraordinary loss of
$23.5 million and $14.2 million, net of tax, respectively, on the early
extinguishment of debt (See Note 18).
II-62
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
21) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International is a wholly owned subsidiary of the Company. The
Company has fully and unconditionally guaranteed Viacom International debt
securities (See Note 10). The Company has determined that separate financial
statements and other disclosures concerning Viacom International are not
material to investors. The following condensed consolidating financial
statements present the results of operations, financial position and cash
flows of the Company, Viacom International, the direct and indirect Non-
Guarantor Affiliates of the Company, and the eliminations necessary to arrive
at the information for the Company on a consolidated basis.
Year Ended December 31, 2000
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- -------------------------------------------------------------------------------------
Revenues $ 271.7 $2,520.2 $17,264.4 $(12.6) $20,043.7
Expenses:
Operating 107.4 813.5 10,766.2 20.0 11,707.1
Selling, general and
administrative 122.5 892.6 3,078.6 -- 4,093.7
Merger-related charges -- 650.0 48.5 -- 698.5
Depreciation and
amortization 14.6 149.6 2,059.3 -- 2,223.5
- -------------------------------------------------------------------------------------
Total expenses 244.5 2,505.7 15,952.6 20.0 18,722.8
- -------------------------------------------------------------------------------------
Operating income 27.2 14.5 1,311.8 (32.6) 1,320.9
Other income (expense):
Interest income
(expense), net (598.9) 67.4 (237.6) -- (769.1)
Other items, net (19.4) 26.7 1.5 -- 8.8
- -------------------------------------------------------------------------------------
Earnings (loss) before
income taxes (591.1) 108.6 1,075.7 (32.6) 560.6
Benefit (provision) for
income taxes 236.5 (154.6) (811.7) -- (729.8)
Equity in loss of
affiliated companies,
net of tax (461.5) (463.0) (158.2) 958.5 (124.2)
Minority interest, net
of tax -- 20.1 (90.5) -- (70.4)
- -------------------------------------------------------------------------------------
Net loss before
cumulative effect of
change in accounting
principle (816.1) (488.9) 15.3 925.9 (363.8)
Cumulative effect of
change in accounting
principle, net of tax -- -- (452.3) -- (452.3)
- -------------------------------------------------------------------------------------
Net loss $(816.1) $ (488.9) $ (437.0) $925.9 $ (816.1)
- -------------------------------------------------------------------------------------
II-63
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, 1999
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- -------------------------------------------------------------------------------------
Revenues $ 35.4 $2,164.6 $10,709.5 $ (50.7) $12,858.8
Expenses:
Operating 30.5 706.3 7,680.8 (79.7) 8,337.9
Selling, general and
administrative 3.0 783.2 1,572.4 -- 2,358.6
Restructuring charge -- -- 70.3 -- 70.3
Depreciation and
amortization 4.6 105.4 734.7 -- 844.7
- -------------------------------------------------------------------------------------
Total expenses 38.1 1,594.9 10,058.2 (79.7) 11,611.5
- -------------------------------------------------------------------------------------
Operating income (loss) (2.7) 569.7 651.3 29.0 1,247.3
Other income (expense):
Interest income
(expense), net (361.3) 77.4 (137.3) -- (421.2)
Other items, net (24.8) 28.0 14.6 -- 17.8
- -------------------------------------------------------------------------------------
Earnings (loss) before
income taxes (388.8) 675.1 528.6 29.0 843.9
Benefit (provision) for
income taxes 159.5 (276.8) (294.1) -- (411.4)
Equity in earnings
(loss) of affiliated
companies, net of tax 600.7 199.9 (82.1) (779.2) (60.7)
Minority interest, net
of tax -- 2.8 (2.9) -- (.1)
- -------------------------------------------------------------------------------------
Earnings before
extraordinary loss 371.4 601.0 149.5 (750.2) 371.7
Extraordinary loss, net
of tax (37.4) (.3) -- -- (37.7)
- -------------------------------------------------------------------------------------
Net earnings 334.0 600.7 149.5 (750.2) 334.0
Cumulative convertible
preferred stock
dividend requirement (.4) -- -- -- (.4)
Premium on repurchase
of preferred stock (12.0) -- -- -- (12.0)
- -------------------------------------------------------------------------------------
Net earnings
attributable to common
stock $ 321.6 $ 600.7 $ 149.5 $(750.2) $ 321.6
- -------------------------------------------------------------------------------------
II-64
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, 1998
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- --------------------------------------------------------------------------------------
Revenues $ 39.4 $1,775.3 $10,301.9 $(20.5) $12,096.1
Expenses:
Operating 33.3 563.7 7,929.8 (20.5) 8,506.3
Selling, general and
administrative 2.6 650.6 1,407.7 -- 2,060.9
Depreciation and
amortization 2.1 87.0 688.2 -- 777.3
- --------------------------------------------------------------------------------------
Total expenses 38.0 1,301.3 10,025.7 (20.5) 11,344.5
- --------------------------------------------------------------------------------------
Operating income 1.4 474.0 276.2 -- 751.6
Other income (expense):
Interest expense, net (516.0) (34.0) (49.0) -- (599.0)
Other items, net (21.2) 89.0 (83.1) -- (15.3)
- --------------------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes (535.8) 529.0 144.1 -- 137.3
Benefit (provision) for
income taxes 219.7 (216.9) (141.5) -- (138.7)
Equity in earnings
(loss) of affiliated
companies, net of tax 236.9 (236.3) (54.0) 12.0 (41.4)
Minority interest, net
of tax -- 1.3 (2.0) -- (.7)
- --------------------------------------------------------------------------------------
Earnings (loss) from
continuing operations (79.2) 77.1 (53.4) 12.0 (43.5)
Discontinued operations:
Loss, net of tax -- -- (54.1) -- (54.1)
Net gain (loss) on
dispositions, net of
tax -- 191.2 (141.3) -- 49.9
- --------------------------------------------------------------------------------------
Net earnings (loss)
before extraordinary
loss (79.2) 268.3 (248.8) 12.0 (47.7)
Extraordinary loss, net
of tax (43.2) (31.5) -- -- (74.7)
- --------------------------------------------------------------------------------------
Net earnings (loss) (122.4) 236.8 (248.8) 12.0 (122.4)
Cumulative convertible
preferred stock
dividend requirement (57.2) -- -- -- (57.2)
Discount on repurchase
of preferred stock 30.0 -- -- -- 30.0
- --------------------------------------------------------------------------------------
Net earnings (loss)
attributable to common
stock $(149.6) $ 236.8 $ (248.8) $ 12.0 $ (149.6)
- --------------------------------------------------------------------------------------
II-65
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
At December 31, 2000
--------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- ----------------------------------------------------------------------------------------
Assets
Cash and cash
equivalents $ 192.8 $ 326.5 $ 415.2 $ -- $ 934.5
Receivables, net 89.3 456.0 3,661.3 (242.5) 3,964.1
Inventory 11.3 259.9 1,130.8 -- 1,402.0
Other current assets 355.1 425.5 789.3 (38.1) 1,531.8
- ----------------------------------------------------------------------------------------
Total current assets 648.5 1,467.9 5,996.6 (280.6) 7,832.4
- ----------------------------------------------------------------------------------------
Property and equipment 170.0 744.8 8,070.9 -- 8,985.7
Less accumulated
depreciation and
amortization 14.2 319.9 2,049.8 -- 2,383.9
- ----------------------------------------------------------------------------------------
Net property and
equipment 155.8 424.9 6,021.1 -- 6,601.8
- ----------------------------------------------------------------------------------------
Inventory -- 518.6 3,132.1 (17.8) 3,632.9
Intangibles, at
amortized cost 264.9 636.4 61,102.8 -- 62,004.1
Investments in
consolidated
subsidiaries 49,331.0 14,898.9 -- (64,229.9) --
Other assets 198.2 695.1 1,813.0 (131.4) 2,574.9
- ----------------------------------------------------------------------------------------
Total Assets $50,598.4 $18,641.8 $78,065.6 $(64,659.7) $82,646.1
- ----------------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity
Accounts payable $ -- $ 35.2 $ 1,332.3 $ (106.4) $ 1,261.1
Accrued expenses and
other 312.3 1,515.5 3,379.3 (154.2) 5,052.9
Accrued participations -- -- 1,234.5 (14.2) 1,220.3
Current portion of long-
term debt -- 10.8 213.1 -- 223.9
- ----------------------------------------------------------------------------------------
Total current
liabilities 312.3 1,561.5 6,159.2 (274.8) 7,758.2
- ----------------------------------------------------------------------------------------
Long-term debt 7,194.1 858.2 4,613.2 (191.7) 12,473.8
Other liabilities (9,118.5) 3,588.9 5,908.2 7,028.4 7,407.0
Minority interest -- 158.9 6,881.3 -- 7,040.2
Stockholders' equity:
Preferred Stock -- 106.1 20.4 (126.5) --
Common Stock 15.9 185.7 508.8 (694.5) 15.9
Additional paid-in
capital 50,729.9 7,253.4 54,621.6 (61,875.0) 50,729.9
Retained earnings 5,523.0 4,931.1 (496.5) (8,525.8) 1,431.8
Accumulated other
comprehensive income
(loss) (.1) (2.0) (150.6) .2 (152.5)
- ----------------------------------------------------------------------------------------
56,268.7 12,474.3 54,503.7 (71,221.6) 52,025.1
Less treasury stock, at
cost 4,058.2 -- -- -- 4,058.2
- ----------------------------------------------------------------------------------------
Total stockholders'
equity 52,210.5 12,474.3 54,503.7 (71,221.6) 47,966.9
- ----------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $50,598.4 $18,641.8 $78,065.6 $(64,659.7) $82,646.1
- ----------------------------------------------------------------------------------------
II-66
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
At December 31, 1999
-----------------------------------------------------------------
Viacom Viacom Non-Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- -------------------------------------------------------------------------------------------
Assets
Cash and cash
equivalents $ 81.6 $ 486.0 $ 113.2 $ -- $ 680.8
Receivables, net 10.9 340.4 1,441.7 (95.6) 1,697.4
Inventory 10.9 250.4 1,698.2 -- 1,959.5
Other current assets 2.8 172.6 685.3 -- 860.7
- -------------------------------------------------------------------------------------------
Total current assets 106.2 1,249.4 3,938.4 (95.6) 5,198.4
- -------------------------------------------------------------------------------------------
Property and equipment 13.4 684.5 4,558.0 -- 5,255.9
Less accumulated
depreciation and
amortization 3.8 242.6 1,584.2 -- 1,830.6
- -------------------------------------------------------------------------------------------
Net property and
equipment 9.6 441.9 2,973.8 -- 3,425.3
- -------------------------------------------------------------------------------------------
Inventory -- 365.2 2,464.3 -- 2,829.5
Intangibles, at
amortized cost 106.4 647.1 10,725.4 -- 11,478.9
Investments in
consolidated
subsidiaries 6,829.2 14,891.0 -- (21,720.2) --
Other assets 58.0 204.7 1,411.0 (119.4) 1,554.3
- -------------------------------------------------------------------------------------------
Total Assets $ 7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
- -------------------------------------------------------------------------------------------
Liabilities and
Stockholders' Equity
Accounts payable $ .1 $ 9.0 $ 578.6 $ (43.3) $ 544.4
Accrued expenses and
other 15.3 1,637.3 1,441.6 (620.4) 2,473.8
Accrued participations -- -- 1,109.1 (21.9) 1,087.2
Current portion of long-
term debt -- 17.7 276.6 -- 294.3
- -------------------------------------------------------------------------------------------
Total current
liabilities 15.4 1,664.0 3,405.9 (685.6) 4,399.7
- -------------------------------------------------------------------------------------------
Long-term debt 3,262.1 1,013.4 1,422.2 -- 5,697.7
Other liabilities (11,421.6) 1,889.6 7,339.9 4,202.6 2,010.5
Minority interest -- 144.4 1,102.1 -- 1,246.5
Stockholders' equity:
Preferred Stock -- 104.1 20.4 (124.5) --
Common Stock 7.5 185.7 495.4 (681.1) 7.5
Additional paid-in
capital 10,338.5 7,342.3 7,739.4 (15,081.7) 10,338.5
Retained earnings 6,339.2 5,422.7 50.9 (9,564.9) 2,247.9
Accumulated other
comprehensive income
(loss) -- 33.1 (63.3) -- (30.2)
- -------------------------------------------------------------------------------------------
16,685.2 13,087.9 8,242.8 (25,452.2) 12,563.7
Less treasury stock, at
cost 1,431.7 -- -- -- 1,431.7
- -------------------------------------------------------------------------------------------
Total stockholders'
equity 15,253.5 13,087.9 8,242.8 (25,452.2) 11,132.0
- -------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 7,109.4 $17,799.3 $21,512.9 $(21,935.2) $24,486.4
- -------------------------------------------------------------------------------------------
II-67
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, 2000
--------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- ----------------------------------------------------------------------------------------
Net cash flow provided
by (used for) operating
activities $ (654.1) $ 830.5 $ 2,146.9 $-- $ 2,323.3
- ----------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of
cash acquired -- -- (2,380.0) -- (2,380.0)
Capital expenditures (1.5) (126.3) (531.2) -- (659.0)
Investments in and
advances to affiliated
companies (7.3) (57.9) (174.0) -- (239.2)
Purchases of short-term
investments -- (89.9) -- -- (89.9)
Proceeds from sale of
short-term investments -- 72.9 234.5 -- 307.4
Proceeds from
dispositions -- -- 190.6 -- 190.6
Proceeds from sale of
cost investments -- 9.2 -- -- 9.2
- ----------------------------------------------------------------------------------------
Net cash flow used for
investing activities (8.8) (192.0) (2,660.1) -- (2,860.9)
- ----------------------------------------------------------------------------------------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net 469.7 (96.2) 1,039.9 -- 1,413.4
Increase (decrease) in
intercompany payables 456.3 (530.3) 74.0 -- --
Proceeds from senior
notes and debentures 1,606.5 -- 76.4 -- 1,682.9
Purchase of treasury
stock and warrants (1,945.4) -- -- -- (1,945.4)
Repayment of notes and
debentures -- (160.6) (171.3) -- (331.9)
Payment on capital
lease obligations -- (10.9) (119.7) -- (130.6)
Purchase of treasury
stock by subsidiary -- -- (84.1) -- (84.1)
Proceeds from exercise
of stock options and
warrants 187.0 -- -- -- 187.0
- ----------------------------------------------------------------------------------------
Net cash flow provided
by (used for) financing
activities 774.1 (798.0) 815.2 -- 791.3
- ----------------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 111.2 (159.5) 302.0 -- 253.7
Cash and cash
equivalents at
beginning of year 81.6 486.0 113.2 -- 680.8
- ----------------------------------------------------------------------------------------
Cash and cash
equivalents at end of
year $ 192.8 $ 326.5 $ 415.2 $-- $ 934.5
- ----------------------------------------------------------------------------------------
II-68
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, 1999
------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- --------------------------------------------------------------------------------------
Net cash flow provided
by (used for) operating
activities $ 423.0 $(221.5) $ 92.6 $-- $ 294.1
- --------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of
cash acquired (180.6) -- (131.8) -- (312.4)
Capital expenditures -- (113.9) (592.3) -- (706.2)
Investments in and
advances to
affiliated companies -- (40.3) (121.3) -- (161.6)
Purchases of short-term
investments -- (416.2) -- -- (416.2)
Proceeds from sale of
short-term investments -- 406.3 -- -- 406.3
Proceeds from
dispositions -- -- 114.3 -- 114.3
Proceeds from sale of
cost investments -- 4.0 -- -- 4.0
Other, net (18.4) (6.6) (10.8) -- (35.8)
- --------------------------------------------------------------------------------------
Net cash flow used for
investing activities (199.0) (166.7) (741.9) -- (1,107.6)
- --------------------------------------------------------------------------------------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net 999.3 -- 1,185.5 -- 2,184.8
Increase (decrease) in
intercompany payables 232.4 722.1 (954.5) -- --
Purchase of treasury
stock and warrants (478.8) -- -- -- (478.8)
Repayment of notes and
debentures (1,073.8) (1.5) -- -- (1,075.3)
Repurchase of Preferred
Stock (611.9) -- -- -- (611.9)
Payment on capital
lease obligations -- (35.9) (70.6) -- (106.5)
Net proceeds from
issuance of subsidiary
stock -- -- 430.7 -- 430.7
Proceeds from exercise
of stock options and
warrants 390.8 -- -- -- 390.8
Payment of Preferred
Stock dividends (7.8) -- -- -- (7.8)
Other, net 1.0 -- -- -- 1.0
- --------------------------------------------------------------------------------------
Net cash flow provided
by (used for) financing
activities (548.8) 684.7 591.1 -- 727.0
- --------------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents (324.8) 296.5 (58.2) -- (86.5)
Cash and cash
equivalents at
beginning of year 406.4 189.5 171.4 -- 767.3
- --------------------------------------------------------------------------------------
Cash and cash
equivalents at end of
year $ 81.6 $ 486.0 $ 113.2 $-- $ 680.8
- --------------------------------------------------------------------------------------
II-69
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Tabular dollars in millions, except per share amounts)
Year Ended December 31, 1998
-------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
- ---------------------------------------------------------------------------------------
Net cash flow provided
by (used for) operating
activities $ 527.3 $ (303.7) $ 640.5 $-- $ 864.1
- ---------------------------------------------------------------------------------------
Investing Activities:
Acquisitions, net of
cash acquired (14.9) -- (111.5) -- (126.4)
Capital expenditures -- (88.6) (514.9) -- (603.5)
Investments in and
advances to affiliated
companies -- (3.6) (96.7) -- (100.3)
Purchases of short-term
investments -- (151.6) -- -- (151.6)
Proceeds from sale of
short-term investments -- 101.4 -- -- 101.4
Proceeds from
dispositions -- 4,677.3 272.8 -- 4,950.1
Proceeds from sale of
cost investments -- 131.7 35.6 -- 167.3
Other, net -- (6.9) (11.7) -- (18.6)
- ---------------------------------------------------------------------------------------
Net cash flow provided
by (used for) investing
activities (14.9) 4,659.7 (426.4) -- 4,218.4
- ---------------------------------------------------------------------------------------
Financing Activities:
Borrowings (repayments)
of credit agreements,
net (1,788.6) (470.0) (124.4) -- (2,383.0)
Increase (decrease) in
intercompany payables 3,140.7 (3,100.7) (40.0) -- --
Purchase of treasury
stock and warrants (809.6) -- -- -- (809.6)
Repayment of notes and
debentures (202.6) (666.7) -- -- (869.3)
Repurchase of Preferred
Stock (564.0) -- -- -- (564.0)
Payment on capital
lease obligations -- (20.6) (90.1) -- (110.7)
Proceeds from exercise
of stock options and
warrants 182.8 -- -- -- 182.8
Payment of Preferred
Stock dividends (64.8) -- -- -- (64.8)
Other, net -- -- 11.1 -- 11.1
- ---------------------------------------------------------------------------------------
Net cash flow used for
financing activities (106.1) (4,258.0) (243.4) -- (4,607.5)
- ---------------------------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents 406.3 98.0 (29.3) -- 475.0
Cash and cash
equivalents at
beginning of year .1 91.5 200.7 -- 292.3
- ---------------------------------------------------------------------------------------
Cash and cash
equivalents at end of
year $ 406.4 $ 189.5 $ 171.4 $-- $ 767.3
- ---------------------------------------------------------------------------------------
II-70
PART III
Item 10. Directors and Executive Officers.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Information Concerning Directors and Nominees" and
"Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated
herein by reference. Information with respect to the Executive Officers of the
Company is included in Part I hereof.
Item 11. Executive Compensation.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Directors' Compensation" and "Executive Compensation" is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management" is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information contained in the Viacom Inc. Definitive Proxy Statement
under the captions "Compensation Committee Interlocks and Insider
Participation" and "Related Transaction" is incorporated herein by reference.
III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) and (d) Financial Statements and Schedules (see Index on Page F-1)
(b) Reports on Form 8-K
Current Report on Form 8-K of Viacom Inc. with a Report Date of October
30, 2000, relating to an Agreement and Plan of Merger pursuant to which
Infinity Broadcasting Corporation would merge with and into a subsidiary of
the Company.
Current Report on Form 8-K of Viacom Inc. with a Report Date of November
2, 2000, announcing an agreement for the purchase of BET Holdings II, Inc.
by the Company.
Current Report on Form 8-K of Viacom Inc. with a Report Date of December
4, 2000, with respect to Investor Presentation Materials for use at the UBS
Warburg Media Conference 2000.
(c) Exhibits (see Index on Page E-1)
IV-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Viacom Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
Viacom Inc.
/s/ Sumner M. Redstone
By: _________________________________
Sumner M. Redstone,
Chairman of the Board of
Directors,
Chief Executive Officer
/s/ Fredric G. Reynolds
By: _________________________________
Fredric G. Reynolds,
Executive Vice President,
Chief Financial Officer
/s/ Susan C. Gordon
By: _________________________________
Susan C. Gordon,
Vice President, Controller,
Chief Accounting Officer
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Viacom Inc. and
in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
* Director March 28, 2001
______________________________________
George S. Abrams
* Director March 28, 2001
______________________________________
David R. Andelman
* Director March 28, 2001
______________________________________
George H. Conrades
* Director March 28, 2001
______________________________________
Philippe P. Dauman
* Director March 28, 2001
______________________________________
William H. Gray III
/s/ Mel Karmazin Director March 28, 2001
______________________________________
Mel Karmazin
Signature Title Date
--------- ----- ----
* Director March 28, 2001
______________________________________
Jan Leschly
* Director March 28, 2001
______________________________________
David T. McLaughlin
* Director March 28, 2001
______________________________________
Ken Miller
* Director March 28, 2001
______________________________________
Leslie Moonves
* Director March 28, 2001
______________________________________
Brent D. Redstone
* Director March 28, 2001
______________________________________
Shari Redstone
/s/ Sumner M. Redstone Director March 28, 2001
______________________________________
Sumner M. Redstone
* Director March 28, 2001
______________________________________
Frederic V. Salerno
* Director March 28, 2001
______________________________________
William Schwartz
* Director March 28, 2001
______________________________________
Ivan Seidenberg
* Director March 28, 2001
______________________________________
Patty Stonesifer
* Director March 28, 2001
______________________________________
Robert D. Walter
/s/ Michael D. Fricklas March 28, 2001
*By: _________________________________
Michael D. Fricklas
Attorney-in-Fact
for the Directors
VIACOM INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
ITEM 14(c)
Exhibit No. Description of Document Page No.
----------- ----------------------- --------
(2) Plan of Acquisition
(a) Amended and Restated Agreement and Plan of Merger,
dated as of September 6, 1999, as amended and restated
as of October 8, 1999 and as of November 23, 1999,
among Viacom Inc., CBS Corporation and Viacom/CBS LLC
(incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-4 filed by Viacom
Inc.) (File No. 333-88613).
(b) Agreement and Plan of Merger, dated as of October 30,
2000, among Viacom Inc., IBC Merger Corp. and Infinity
Broadcasting Corporation (incorporated by reference to
Exhibit 99.1 to the Current Report on Form 8-K of
Viacom Inc. with a Report Date of October 30, 2000)
(File No. 1-9553).
(3) Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation of Viacom Inc.
effective May 4, 2000 (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-4
filed by Viacom Inc.) (File No. 333-88613).
(b) Amended and Restated By-laws of Viacom Inc. effective
May 4, 2000 (incorporated by reference to Exhibit 3.2
to the Registration Statement on Form S-4 filed by
Viacom Inc.) (File No. 333-88613).
(4) Instruments defining the rights of security holders,
including indentures
(a) Specimen certificate representing the Viacom Inc.
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
Common Stock (incorporated by reference to Exhibit 4(a)
to the Quarterly Report on Form 10-Q of Viacom Inc. for
the quarter ended June 30, 1990) (File No. 1-9553).
(c) The instruments defining the rights of holders of the
long-term debt securities of Viacom Inc. and its
subsidiaries are omitted pursuant to section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. Viacom
Inc. hereby agrees to furnish copies of these
instruments to the Securities and Exchange Commission
upon request.
(10) Material Contracts
(a) Viacom Inc. 1989 Long-Term Management Incentive Plan
(as amended and restated through April 23, 1990, as
further amended and restated through April 27, 1995 and
as further amended and restated through November 1,
1996) (incorporated by reference to Exhibit 10(a) to
the Annual Report on Form 10-K of Viacom Inc. for the
fiscal year ended December 31, 1996) (File No. 1-
9553).*
(b) Viacom Inc. 1994 Long-Term Management Incentive Plan
(as amended and restated through April 27, 1995 and as
further amended and restated through November 1, 1996)
(incorporated by reference to Exhibit 10(b) to the
Annual Report on Form 10-K of Viacom Inc. for the
fiscal year ended December 31, 1996) (File No. 1-
9553).*
(c) Viacom Inc. 1997 Long-Term Management Incentive Plan
(as amended and restated through July 29, 1999, as
further amended and restated through September 6, 1999
and as further amended and restated through May 25,
2000) (incorporated by reference to Exhibit B to Viacom
Inc.'s Definitive Proxy Statement dated June 5, 2000)
(File No. 1-9553).*
- --------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-1
Exhibit No. Description of Document Page No.
----------- ----------------------- --------
(d) Viacom Inc. 2000 Long-Term Management Incentive Plan
(incorporated by reference to Exhibit A to Viacom
Inc.'s Definitive Proxy Statement dated June 5, 2000)
(File No. 1-9553).*
(e) Viacom Inc. Senior Executive Short-Term Incentive Plan
(as amended and restated through March 27, 1996, as
further amended and restated through March 18, 1999 and
as further amended and restated through May 25, 2000)
(incorporated by reference to Exhibit C to Viacom
Inc.'s Definitive Proxy Statement dated June 5, 2000)
(File No. 1-9553).*
(f) Viacom International Inc. Deferred Compensation Plan
for Non-Employee Directors (as amended and restated
through December 17, 1992) (incorporated by reference
to Exhibit 10(e) to the Annual Report on Form 10-K of
Viacom Inc. for the fiscal year ended December 31,
1992, as amended by Form 10-K/A Amendment No. 1 dated
November 29, 1993 and as further amended by Form 10-K/A
Amendment No. 2 dated December 9, 1993) (File No. 1-
9553).*
(g) Viacom Inc. and Viacom International Inc. Retirement
Income Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10(f) to the Annual Report on Form
10-K of Viacom Inc. for the fiscal year ended December
31, 1989) (File No. 1-9553).*
(h) Viacom Inc. Stock Option Plan for Outside Directors
(incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of Viacom Inc. for the
quarter ended June 30, 1993) (File No. 1-9553).*
(i) Viacom Inc. 1994 Stock Option Plan for Outside
Directors (incorporated by reference to Exhibit B to
Viacom Inc.'s Definitive Proxy Statement dated April
28, 1995) (File No. 1-9553).*
(j) Viacom Inc. 2000 Stock Option Plan for Outside
Directors (incorporated by reference to Exhibit D to
Viacom Inc.'s Definitive Proxy Statement dated June 5,
2000) (File No. 1-9553).*
(k) Viacom Inc. Excess Investment Plan (Effective April 1,
1984 and Amended as of January 1, 1996) (incorporated
by reference to Exhibit 4.1 to the Viacom Inc.
Registration Statement on Form S-8) (File No. 333-
42987).*
(l) Excess Pension Plan for Certain Employees of Viacom
International Inc. restated as of January 1, 1996
(incorporated by reference to Exhibit 10(j) to the
Annual Report on Form 10-K of Viacom Inc. for the
fiscal year ended December 31, 1999)
(File No. 1-9553).*
(m) Viacom Inc. Executive Severance Plan for Senior Vice
Presidents (incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-Q of Viacom Inc. for
the quarter ended September 30, 1999) (File No. 1-
9553).*
(n) Employment Letter Agreement, dated September 6, 1999,
between Viacom Inc. and Sumner M. Redstone
(incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 filed by Viacom
Inc.) (File No. 333-88613).*
(o) Employment Letter Agreement, dated September 6, 1999,
between Viacom Inc. and Mel Karmazin (incorporated by
reference to Exhibit 10.4 to the Registration Statement
on Form S-4 filed by Viacom Inc.) (File No. 333-88613),
as amended by the First Amendment to Employment
Agreement dated December 31, 1999 (incorporated by
reference to Exhibit 10(ss) to the Annual Report on
Form 10-K of CBS Corporation for the fiscal year ended
December 31, 1999) (File No. 1-977), and as further
amended by an Agreement dated June 13, 2000
(incorporated by reference to Exhibit 10.5 to the
Quarterly Report on Form 10-Q of Viacom Inc. for the
quarter ended June 30, 2000) (File No. 1-9553).*
- --------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-2
Exhibit No. Description of Document Page No.
----------- ----------------------- --------
(p) Agreement, dated as of January 1, 1996, between Viacom
Inc. and Philippe P. Dauman (incorporated by reference
to Exhibit 10(l) to the Annual Report on Form 10-K of
Viacom Inc. for the fiscal year ended December 31,
1995) (File No. 1-9553), as amended by an Agreement
dated August 20, 1998 (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q of
Viacom Inc. for the quarter ended September 30, 1998)
(File No. 1-9553).*
(q) Agreement, dated September 6, 1999, between Viacom Inc.
and Philippe P. Dauman (incorporated by reference to
Exhibit 10.5 to the Current Report on Form 8-K of
Viacom Inc. with a Report Date of September 6, 1999)
(File No. 1-9553), as amended by an Agreement dated
April 28, 2000 (incorporated by reference to Exhibit
10.3 to the Quarterly Report on Form 10-Q of Viacom
Inc. for the quarter ended March 31, 2000) (File No.
1-9553).*
(r) Agreement, dated as of January 1, 1996, between Viacom
Inc. and Thomas E. Dooley (incorporated by reference to
Exhibit 10(m) to the Annual Report on Form 10-K of
Viacom Inc. for the fiscal year ended December 31,
1995) (File No. 1-9553), as amended by an Agreement
dated August 20, 1998 (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Viacom Inc. for the quarter ended September 30, 1998)
(File No. 1-9553).*
(s) Agreement, dated September 6, 1999, between Viacom Inc.
and Thomas E. Dooley (incorporated by reference to
Exhibit 10.6 to the Current Report on Form 8-K of
Viacom Inc. with a Report Date of September 6, 1999)
(File No. 1-9553), as amended by an Agreement dated
April 28, 2000 (incorporated by reference to Exhibit
10.3 to the Quarterly Report on Form 10-Q of Viacom
Inc. for the quarter ended March 31, 2000) (File No.
1-9553).*
(t) Agreement, dated as of May 1, 2000, between Viacom Inc.
and Michael D. Fricklas (incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q of
Viacom Inc. for the quarter ended September 30, 2000)
(File No. 1-9553).*
(u) Agreement, dated March 2, 1999, between CBS Corporation
and Fredric G. Reynolds (incorporated by reference by
Exhibit 10(q) to the Quarterly Report on Form 10-Q of
CBS Corporation for the quarter ended March 31, 1999)
(File No. 1-977).*
(v) Agreement, dated as of May 1, 2000, between Viacom Inc.
and William A. Roskin (filed herewith).*
(w) Service Agreement, dated as of March 1, 1994, between
George S. Abrams and Viacom Inc. (incorporated by
reference to Exhibit 10(q) to the Annual Report on Form
10-K of Viacom Inc. for the fiscal year ended December
31, 1994) (File No. 1-9553).*
(x) Agreement, dated as of May 17, 1995, between CBS
Broadcasting Inc. and Leslie Moonves, as amended by an
Agreement dated January 20, 1998 (incorporated by
reference to Exhibit 10(v) to the Annual Report on Form
10-K of CBS Corporation for the fiscal year ended
December 31, 1997) (File No. 1-977), as further amended
by an Agreement dated as of July 5, 1999 (incorporated
by reference to Exhibit 10(q) to the Quarterly Report
on Form 10-Q of CBS Corporation for the quarterly
period ended September 30, 1999 (File No. 1-977), and
as further amended by an Agreement dated as of May 25,
2000 (filed herewith).*
(y) CBS Corporation ("CBS") plans* assumed by Viacom Inc.
after the merger with CBS, consisting of the following:
(i) CBS 1991 Long-Term Incentive Plan (as amended
as of July 28, 1999) (incorporated by reference
to Exhibit 10.15 to the Quarterly Report on
Form 10-Q of Infinity Broadcasting Corporation
for the quarter ended September 30, 1999) (File
No. 1-4599).
- --------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-3
Exhibit No. Description of Document Page No.
----------- ----------------------- --------
(ii) CBS 1993 Long-Term Incentive Plan (as amended
as of July 28, 1999) (incorporated by
reference to Exhibit 10.16 to the Quarterly
Report on Form 10-Q of Infinity Broadcasting
Corporation for the quarter ended September
30, 1999) (File No. 1-4599).
(iii) Infinity Broadcasting Corporation Warrant
Certificate No. 3 to Mel Karmazin (incorporated
by reference to Exhibit 4.6 to the Post-
Effective Amendment No. 1 on Form S-8 to the
Registration Statement on Form S-4 filed by CBS
Corporation (f/k/a Westinghouse Electric
Corporation) (File No. 333-13219).*
(iv) Westinghouse Executive Pension Plan (As amended
and restated as of July 28, 1999) (incorporated
by reference to Exhibit 10.20 to the Quarterly
Report on Form 10-Q of Infinity Broadcasting
Corporation for the quarter ended September 30,
1999) (File No. 1-4599).
(v) CBS Supplemental Executive Retirement Plan (As
amended as of April 1, 1999) (incorporated by
reference to Exhibit 10(h) to the Quarterly
Report on Form 10-Q of CBS for the quarter
ended September 30, 1999) (File No. 1-977).
(vi) CBS Bonus Supplemental Executive Retirement
Plan (As amended as of April 1, 1999)
(incorporated by reference to Exhibit 10(i)
to the Quarterly Report on Form 10-Q of CBS
for the quarter ended September 30, 1999)
(File No. 1-977).
(vii) CBS Supplemental Employee Investment Fund (As
amended as of January 1, 1998) (incorporated
by reference to Exhibit 10(j) to the
Quarterly Report on Form 10-Q of CBS for the
quarter ended September 30, 1999) (File No.
1-977).
(viii) Director's Charitable Giving Program, As
Amended Effective April 30, 1996
(incorporated by reference to Exhibit 10(g)
to the Quarterly Report on Form 10-Q of CBS
(f/k/a Westinghouse Electric Corporation) for
the quarter ended June 30, 1996) (File No. 1-
977).
(ix) CBS Deferred Compensation and Stock Plan for
Directors (as amended as of February 24, 2000)
(filed herewith).
(x) Advisory Director's Plan Termination Fee
Deferral Terms and Conditions, Effective April
30, 1996. (As Revised Effective February 24,
2000) (filed herewith).
(z) Infinity Broadcasting Corporation ("Infinity") stock
option plans* assumed by Viacom Inc. after the merger
with Infinity, consisting of the following:
(i) Infinity 1998 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.16 to
the Annual Report on Form 10-K of Infinity for
the fiscal year ended December 31, 1999) (File
No. 1-4599).
(ii) Amended and Restated Infinity Stock Option
Plan (incorporated by reference to Exhibit 4.4
to the Post-Effective Amendment No. 1 on Form
S-8 to the Registration Statement on Form S-4
filed by CBS (f/k/a Westinghouse Electric
Corporation)) (File No. 333-13219).
(aa) Credit Agreement, dated as of June 21, 1999, between
Blockbuster Inc. and the banks named therein
(incorporated by reference to Exhibit 10.22 to the
Registration Statement on Form S-1 filed by Blockbuster
Inc.) (File No. 333-77899).
(bb) Amended and Restated Five-Year Credit Agreement, dated
as of May 3, 2000, as amended and restated as of March
7, 2001, among Viacom Inc.; Viacom International Inc.;
the Subsidiary Borrowers Parties thereto; the Lenders
named therein; The Chase Manhattan Bank, as
Administrative Agent; Fleet National Bank and Bank of
America, N.A., as Co-Syndication Agents; and Bank of
New York, as Documentation Agent (filed herewith).
- --------
* Management contract or compensatory plan required to be filed as an exhibit
to this form pursuant to Item 14(c).
E-4
Exhibit No. Description of Document Page No.
----------- ----------------------- --------
(cc) Five-Year Credit Agreement, dated as of March 7, 2001,
among Viacom Inc.; Viacom International Inc.; the
Subsidiary Borrowers Parties thereto; the Lenders named
therein; The Chase Manhattan Bank, as Administrative
Agent; Salomon Smith Barney Inc., as Syndication Agent;
and Bank of America, N.A. and Fleet National Bank, as
Co-Documentation Agents (filed herewith).
(dd) 364-Day Credit Agreement, dated as of March 7, 2001,
among Viacom Inc.; Viacom International Inc.; the
Subsidiary Borrowers Parties thereto; the Lenders named
therein; The Chase Manhattan Bank, as Administrative
Agent; Salomon Smith Barney Inc., as Syndication Agent;
and Fleet National Bank and Bank of America, N.A., as
Co-Documentation Agents (filed herewith).
(21) Subsidiaries of Viacom Inc.
(23) Consents of Experts and Counsel
(a) Consent of PricewaterhouseCoopers LLP
(24) Powers of Attorney
E-5
VIACOM INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Item 14a
The following consolidated financial statements and schedule of the
registrant and its subsidiaries are submitted herewith as part of this report:
Reference
(Page/s)
-----------
1. Report of Independent Accountants............................. II-28
2. Management's Statement of Responsibility for Financial
Reporting.................................................... II-29
3. Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998............................. II-30
4. Consolidated Balance Sheets as of December 31, 2000 and 1999.. II-31
5. Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................. II-32
6. Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31, 2000,
1999 and 1998................................................ II-33
7. Notes to Consolidated Financial Statements.................... II-34-II-70
Financial Statement Schedule:
II. Valuation and qualifying accounts........................... F-2
All other Schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule.
F-1
VIACOM INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
Col. A Col. B Col. C Col. D Col. E
- ---------------------- ---------- ------------------------------------ ---------- ----------
Balance at Balance Charged to Charged Balance at
Beginning Acquired through Costs and to Other End of
Description of Period Acquisitions(1) Expenses Accounts Deductions Period
- ----------- ---------- ---------------- ---------- -------- ---------- ----------
Allowance for doubtful
accounts:
Year ended December
31, 2000 $109.5 $ 94.7 $124.1 $28.4 $110.5 $246.2
Year ended December
31, 1999 $ 98.7 $ -- $ 33.5 $ 8.1 $ 30.8 $109.5
Year ended December
31, 1998 $ 99.8 $ -- $ 29.5 $18.3 $ 48.9(2) $ 98.7
Valuation allowance on
deferred tax assets:
Year ended December
31, 2000 $ 96.0 $ 53.0 $ 39.0 $ -- $ 15.9 $172.1
Year ended December
31, 1999 $ 88.3 $ -- $ -- $ 3.8 $ (3.9) $ 96.0
Year ended December
31, 1998 $106.8 $ -- $ -- $ -- $ 18.5 $ 88.3
Reserves for inventory
obsolescence:
Year ended December
31, 2000 $ 33.2 $196.7 $ 59.0 $(1.7) $ 96.4 $190.8
Year ended December
31, 1999 $ 56.7 $ -- $ 18.5 $16.8 $ 58.8 $ 33.2
Year ended December
31, 1998 $150.6 $ -- $ 25.7 $(8.1) $111.5 $ 56.7
- --------
Notes:
(1) Primarily consists of acquisition of CBS.
(2) Primarily related to the sale of Non-Consumer Publishing and amounts
written off, net of recoveries.
F-2