SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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Commission file number 1-9553
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VIACOM INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2949533
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification)
200 Elm Street, Dedham, MA 02026
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (617) 461-1600
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Indicate by check mark whether the 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 _____.
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Number of shares of Common Stock Outstanding at July 31, 1994:
Class A Common Stock, par value $.01 per share - 53,451,425
Class B Common Stock, par value $.01 per share - 140,962,024
-1-
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited; all amounts, except per share amounts, are in millions)
Three months ended
June 30,
---------------------------------
1994 1993
---- ----
Revenues $1,728.4 $495.8
Expenses:
Operating 958.6 211.3
Selling, general and administrative 478.4 143.6
Depreciation and amortization 107.4 34.3
-------- ------
Total expenses 1,544.4 389.2
-------- ------
Earnings from operations 184.0 106.6
Other income (expense):
Interest expense, net (102.7) (39.7)
Other items, net (See Note 8) 268.1 14.0
------- ------
Earnings before income taxes 349.4 80.9
Provision for income taxes (91.0) (38.8)
Equity in earnings (loss) of affiliated
companies, net of tax 0.2 (0.5)
Minority interest 6.0 --
------- ------
Net earnings before extraordinary loss 264.6 41.6
Extraordinary loss, net of tax 20.4 --
------- ------
Net earnings 244.2 41.6
Cumulative convertible preferred stock
dividend requirement 22.5 --
------- ------
Net earnings attributable to common stock $ 221.7 $ 41.6
======= ======
Weighted average number of common shares:
Primary 143.5 120.5
Fully diluted 169.7 120.5
Net earnings (loss) per common share:
Primary:
Net earnings before extraordinary loss $1.69 $ 0.35
Extraordinary loss, net of tax (0.14) --
------- -----
Net earnings $1.55 $ 0.35
===== ======
Fully diluted:
Net earnings before extraordinary loss $1.56 $ 0.35
Extraordinary loss, net of tax (0.12) --
------ -----
Net earnings $1.44 $ 0.35
===== ======
See notes to consolidated financial statements.
-2-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited; all amounts, except per share amounts, are in millions)
Six months ended
June 30,
---------------------------------
1994 1993
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Revenues $2,606.8 $966.4
Expenses:
Operating 1,778.9 430.4
Selling, general and administrative 777.0 267.2
Depreciation and amortization 167.1 72.1
-------- ------
Total expenses 2,723.0 769.7
-------- ------
Earnings (loss) from operations (116.2) 196.7
Other income (expense):
Interest expense, net (150.0) (80.7)
Other items, net (See Note 8) 263.3 67.0
-------- ------
Earnings (loss) before income taxes (2.9) 183.0
Provision for income taxes (186.1) (70.6)
Equity in earnings (loss) of affiliated companies,
net of tax 3.7 (0.2)
Minority interest 18.3 --
------- ------
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle (167.0) 112.2
Extraordinary loss, net of tax 20.4 --
Cumulative effect of change in accounting principle -- 10.4
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Net earnings(loss) (187.4) 122.6
Cumulative convertible preferred stock dividend
requirement (45.0) --
-------- ------
Net earnings (loss) attributable to common stock $(232.4) $122.6
======== ======
Weighted average number of common shares:
Primary 135.0 120.5
Fully diluted 135.0 120.5
Net earnings (loss) per common share:
Primary:
Net earnings (loss) before extraordinary loss and
cumulative effect of change in accounting principle $(1.57) $ 0.93
Extraordinary loss, net to tax (.15) --
Cumulative effect of change in accounting principle -- 0.09
----- -----
Net earnings (loss) $(1.72) $ 1.02
======= ======
Fully diluted:
Net earning loss before extraordinary loss and
cumulative effect of change in accounting principle $(1.57) $0.93
Extraordinary loss, net of tax (0.15) --
Cumulative effect of change in accounting principle -- 0.09
------ -----
Net earnings (loss) $(1.72) $1.02
======= =====
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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(All amounts are in millions)
June 30, December 31,
1994 1993
(Unaudited)
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Assets
Current Assets:
Cash and cash equivalents $413.9 $1,882.4
Receivables, less allowances of
$57.1 (1994) and $33.9 (1993) 1,348.2 351.8
Inventory (See Note 4) 325.7 --
Theatrical and television inventory
(See Note 4) 1,268.2 356.5
Other current assets 792.8 95.7
-------- -------
Total current assets 4,148.8 2,686.4
-------- -------
Property and equipment, at cost 2,492.3 901.4
Less accumulated depreciation 420.1 347.2
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Net property and equipment 2,072.2 554.2
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Theatrical and television inventory
(See Note 4) 1,049.6 789.5
Intangibles, at amortized cost 7,832.3 2,180.6
Other assets 1,242.4 206.2
-------- --------
$16,345.3 $6,416.9
========= ========
See notes to consolidated financial statements.
-4-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(All amounts, except share and per share amounts, are in millions)
June 30, December 31,
1994 1993
(Unaudited)
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $233.0 $ 96.6
Accrued interest 83.6 20.7
Deferred income, current 261.2 50.9
Other accrued expenses 1,520.9 261.3
Income taxes 599.4 140.5
Participants share, residuals and royalties
payable 617.1 139.1
Program rights, current 192.0 198.0
Current portion of long-term debt 17.5 58.5
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Total current liabilities 3,524.7 965.6
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Long-term debt 7,228.2 2,440.0
Program rights, non-current 116.0 86.9
Other liabilities 720.3 206.3
Minority interest in consolidated subsidiaries 1,025.3 --
Commitments and contingencies (See Note 6)
Shareholders' Equity of Viacom Inc.:
Preferred Stock, par value $.01 per share;
100,000,000 shares authorized; 48,000,000
shares issued and outstanding 1,800.0 1,800.0
Class A Common Stock, par value $.01 per share;
100,000,000 shares authorized; 53,450,625
(1994) and 53,449,325(1993) shares issued
and outstanding 0.5 0.5
Class B Common Stock, par value $.01 per share;
150,000,000 shares authorized; 90,088,042
(1994) and 67,347,131 (1993) shares issued
and outstanding 0.9 0.7
Additional paid-in capital 2,163.3 920.9
Accumulated deficit (236.4) (4.0)
Cumulative translation adjustment 2.5 --
------- --------
3,730.8 2,718.1
------- --------
$16,345.3 $6,416.9
========= ========
See notes to consolidated financial statements.
-5-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited; all amounts are in millions)
Six months ended June 30,
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1994 1993
---- ----
Net cash flow from operating activities:
Net earnings (loss) (187.4) $122.6
Adjustment to reconcile net earnings to net
cash flow from operating activities:
Merger-related charges 332.1 --
Depreciation and amortization 167.1 72.1
Gain on the sale of Lifetime, net of tax (164.4) --
Gain on the sale of the cable system, net of tax -- (45.8)
Gain on sale of investment held at cost -- (17.4)
Minority interest (18.3) --
Extraordinary loss, net of tax 20.4 --
Cumulative effect of change in accounting principle -- (10.4)
Increase in receivables (75.0) (39.2)
Decrease in accounts payable and accrued expenses (124.5) (35.7)
Increase in programming assets and related liabilities, net (152.1) (89.4)
Increase (decrease) in income taxes payable
and deferred income taxes, net (39.3) 35.4
Decrease in pre-publication costs, net 23.8 --
Increase in prepaid expenses (59.8) --
Decrease in deferred income (13.5) (12.2)
Decrease in unbilled receivable 15.1 11.8
Other, net (17.4) 6.9
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Net cash flow from operating activities (293.2) (1.3)
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Investing Activities:
Capital expenditures (123.0) (59.5)
Investments in and advances to affiliated companies (32.2) (15.8)
Advances from affiliated companies 25.1 1.2
Proceeds from sale of the Wisconsin cable system -- 73.7
Proceed from the sale of Lifetime 317.6 --
Decrease in short-term and other investments 49.6 18.1
Proceeds from sale of transponders -- 51.0
Transponder deposits -- (46.7)
Acquisitions, net of cash acquired (6,291.0) (68.8)
Other, net (27.8) (0.5)
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Net cash flow from investing activities (6,081.7) (47.3)
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Financing Activities:
Short-term borrowings (repayments) from banks, net 3,721.1 22.9
Borrowings (repayment) of Debt (13.9) 42.2
Proceeds from issuance of Class B Common Stock 1,250.0 --
Payment of Preferred Stock dividends (35.3) --
Other, net (15.5) 0.1
--------- -----
Net cash flow from financing activities 4,906.4 65.2
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Net (decrease) increase in cash and cash equivalents (1,468.5) 16.6
Cash and cash equivalents at beginning of the period 1,882.4 48.4
-------- ----
Cash and cash equivalents at end of period $ 413.9 $65.0
======== =====
See notes to consolidated financial statements
-6-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited information for the
interim periods presented includes all adjustments, which are of a
normal recurring nature, except for the merger-related charges
associated with the merger of Paramount Communications Inc.
("Paramount") (see Notes 2 and 3), necessary for a fair statement of
the interim financial information. Interim results are not
necessarily indicative of the results to be expected for the full
year. The consolidated balance sheet at December 31, 1993 was derived
from Viacom Inc.'s Annual Report on Form 10-K/A.
1) BASIS OF PRESENTATION
Viacom Inc. is a holding company whose principal assets are the
common stock of Viacom International Inc.("Viacom International")
and, effective March 1, 1994, its majority ownership of Paramount.
On July 7,1994, Paramount became a wholly owned subsidiary of
Viacom Inc. (see Note 2). Paramount's results of operations are
included in Viacom Inc.'s consolidated results of operations since
March 1994. Viacom Inc. is a diversified entertainment company
with operations in four principal segments;(i) Networks, (ii)
Entertainment, (iii) Cable Television and Broadcasting and (iv)
Publishing.
Net earnings (loss) per common share - Primary net earnings per
common share is calculated based on the weighted average number of
Viacom Inc. common shares outstanding during each period. The
effect of the assumed exercise of stock options is antidilutive or
immaterial and, therefore, the effect is not reflected in primary
net earnings (loss) per common share. For the second quarter of
1994, the fully diluted per common share computation also reflects
the effect of the assumed exercise of stock options into .4 million
shares of common stock and the conversion of the Preferred Stock
into 25.7 million shares of common stock. For the six months ended
June 30, 1994, the effect on net loss per common share of the assumed
exercise of stock options and the assumed conversion of Preferred
Stock is antidilutive and therefore not reflected in net loss per
common share.
Certain amounts on the 1993 balance sheet and statement of cash flows
have been reclassified to conform with the current year presentation.
2) PARAMOUNT MERGER, BLOCKBUSTER MERGER AND RELATED TRANSACTIONS
On March 11, 1994, Viacom Inc. acquired a majority of the Paramount
common stock outstanding at a price of $107 per share in cash. On
July 7, 1994, Paramount became a wholly owned subsidiary of Viacom
Inc. (the "Paramount Merger") at the effective time of a merger
between Paramount and a subsidiary of Viacom Inc. Each share of
Paramount common stock outstanding at the time of the Paramount Merger
(other than shares held in the treasury of Paramount or owned by
Viacom Inc. and other than shares held by any stockholders who shall
have demanded and perfected appraisal rights) was converted into the
right to receive (i) 0.93065 of a share of Class B Common Stock, (ii)
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$17.50 principal amount of 8% exchangeable subordinated debentures
("8% Debentures") of Viacom Inc., (iii) 0.93065 of a contingent value
right ("CVR"), (iv) 0.5 of a warrant to purchase one share of Class B
Common Stock at any time prior to the third anniversary of the
Paramount Merger at a price of $60 per share, and (v) 0.3 of a warrant
to purchase one share of Class B Common Stock at any time prior to the
fifth anniversary of the Paramount Merger at a price of $70 per share.
The Paramount Merger has been accounted for under the purchase method
of accounting. The unaudited condensed pro forma results of
operations data presented below assumes the Paramount Merger and
related transactions and the sale of the one-third partnership
interest in Lifetime Television ("Lifetime") (see Note 8) occurred at
the beginning of each period presented. The unaudited condensed pro
forma results of operations data was prepared based upon the
historical consolidated statements of operations of Viacom Inc. for
the six months ended June 30, 1994 and 1993 and of Paramount for the
two months ended February 28, 1994 and six months ended July 31, 1993,
respectively, adjusted to exclude non-recurring merger-related charges
of $332.1 million. Financial information for Paramount subsequent to
the date of acquisition is included in the Viacom Inc. historical
information. Intangible assets are being amortized principally over
40 years on a straight-line basis. The unaudited pro forma
information is not necessarily indicative of the combined results of
operations of Viacom Inc. and Paramount that would have occurred if
the transaction had occurred on the dates previously indicated nor are
they necessarily indicative of future operating results of the
combined company.
Six months ended June 30,
-------------------------
1994 1993
---- ----
(Millions of dollars)
Revenues $3,324.0 $3,407.9
Earnings from operations $ 135.5 $ 297.4
Net earnings (loss) before extraordinary loss,
cumulative effect of change in accounting
principle and preferred stock dividends $ (284.4) $ 39.2
Net loss attributable to common stock
before extraordinary loss and cumulative
effect of change in accounting principle $ (329.4) $ (5.8)
Loss per common share before extraordinary
loss and cumulative effect of change in
accounting principle $ (1.57) $ (0.03)
On January 7, 1994, Viacom Inc. and Blockbuster Entertainment
Corporation ("Blockbuster") entered into an agreement and plan of
merger (the "Blockbuster Merger Agreement") pursuant to which
Blockbuster will be merged with and into Viacom Inc. (the "Blockbuster
Merger") subject to stockholder approval and certain conditions. At
the effective time of the Blockbuster Merger, each share of
Blockbuster common stock outstanding at the time of the Blockbuster
Merger (other than shares held in the treasury of Blockbuster or owned
by Viacom Inc. and other than shares held by any stockholders who
shall have demanded and perfected appraisal rights, if available) will
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be converted into the right to receive (i) 0.08 of a share of Class A
Common Stock, (ii) 0.60615 of a share of Class B Common Stock, and
(iii) one variable common right.
The Blockbuster Merger has been unanimously approved by the Boards of
Directors of each of the respective companies. The obligation of
Viacom Inc. and Blockbuster to consummate the merger is subject to
various conditions, including obtaining requisite stockholder
approval. National Amusements, Inc. ("NAI") has agreed to vote its
shares of Viacom Inc. in favor of the Blockbuster Merger; therefore
approval by Viacom Inc. of the Blockbuster Merger is assured.
In a letter to stockholders dated May 4, 1994, H. Wayne Huizenga,
the Chairman of the Board of Blockbuster, stated that, although the
Blockbuster Board continues to believe that the combination of
Blockbuster with Viacom Inc. and Paramount represents an excellent
strategic opportunity, given the stock prices as of the date of his
letter, there could be no assurance that the Blockbuster Board would
be able to recommend the Blockbuster Merger Agreement to the
Blockbuster shareholders at the time of any shareholder meeting
called to vote on the Blockbuster Merger. Mr. Huizenga also stated,
among other things, that Blockbuster was unable to say whether or
not the Blockbuster Merger would go forward or whether or not any
special meeting of Blockbuster shareholders would be called to vote
on the Blockbuster Merger.
The closing prices reported by the New York Stock Exchange of
Blockbuster's Common Stock and the American Stock Exchange of Class A
and Class B Common Stock as of the close of business on January 6,
1994, the date prior to the announcement of the Blockbuster Merger,
were $29 7/8 per share, $47 per share and $42 3/4 per share,
respectively. Such prices as of May 3, 1994, the day prior to the
stockholders letter, were $26 3/4 per share, $26 per share and $24 1/4
per share, respectively. Such prices were $28 1/8 per share, $41 per
share, and $36 13/64 per share, respectively, as of the close of
business on August 11, 1994.
3) PARAMOUNT MERGER-RELATED CHARGES
Included in earnings (loss) from operations for the six months ended
June 30, 1994 are certain merger-related charges to Viacom's pre-
merger businesses, reflecting the integration of these businesses
with similar Paramount units, and related management and strategic
changes principally related to the merger with Paramount as follows:
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Viacom Viacom Merger-
Pre-Merger Paramount Paramount Related Total
Results Combined Charges As Reported
---------- ------- -------- ------- -----------
(Millions of dollars)
Networks $143.9 $(2.6) $141.3 $ (73.4) $ 67.9
Entertainment 4.0 28.1 32.1 (224.0) (191.9)
Cable Television and
Broadcasting 67.8 22.0 89.8 (17.3) 72.5
Publishing -- 16.0 16.0 -- 16.0
----- ------ ------ ----- ------
Segment earnings (loss)
from operations 215.7 63.5 279.2 (314.7) (35.5)
Corporate (41.3) (22.0) (63.3) (17.4) (80.7)
------ ------- ------- -------- ------
Total $174.4 $41.5 $215.9 $(332.1) $(116.2)
====== ===== ====== ======== ========
Merger-related charges principally relate to adjustments of programming
assets based upon new management strategies and additional programming
sources resulting from the merger with Paramount. In addition, a merger-
related charge included in Corporate expenses reflects the combination of
the Viacom Inc. and Paramount staffs.
4) INVENTORIES
Inventories are stated as follows:
June 30, December 31,
1994 1993
---- ----
Current: (Millions of dollars)
Publishing and other:
Lower of cost or net realizable value:
Finished goods $ 275.7
Work in process 17.8
Materials and supplies 32.2
--------
$ 325.7
========
Theatrical and television productions:
Released $ 808.6 $ 73.7
Completed, not released 94.1 --
In process and other 36.5 --
Program rights 329.0 282.8
-------- --------
$1,268.2 $ 356.5
======== ========
Non-current:
Theatrical and television productions:
Released $ 221.1 $ 93.0
In process and other 248.4 --
Program rights 580.1 696.5
-------- -------
$1,049.6 $ 789.5
======== ========
-10-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of the
following:
June 30, December 31,
1994 1993
------ ------
(Millions of dollars)
Viacom Inc.:
Notes payable to banks (a) $ 3,778.3 $ 68.1
Viacom International:
Notes payable to banks 1,687.4 1,915.1
9.125% Senior Subordinated Notes due 1999 150.0 150.0
8.75% Senior Subordinated Reset Notes due
2001 100.0 100.0
10.25% Senior Subordinated Notes due 2001 200.0 200.0
Obligations under capital leases 92.2 65.3
Paramount:
Notes payable to banks 230.0 --
5.875% Senior Notes due 2000 149.4 --
7.5% Senior Notes due 2002 246.8 --
8.25% Senior Debentures due 2022 246.9 --
7.5% Senior Debentures due 2023 149.5 --
7% Subordinated Debentures due 2003 181.4 --
Other notes due 1994 to 1996 14.5 --
Obligations under capital leases 19.3 --
------ -------
7,245.7
2,498.5
Less current portion 17.5 58.5
------- --------
$7,228.2 $2,440.0
======== ========
(a) On March 11, 1994, in order to pay for the Paramount Offer and
related expenses, Viacom Inc. borrowed $3.7 billion under a credit
agreement dated as of November 19, 1993, as amended on January 5,
1994 and February 15, 1994, (the "Merger Credit Agreement") among
Viacom Inc., the banks named therein, and The Bank of New York,
Citibank, N.A. and Morgan Guaranty Trust Company of New York, as
Managing Agents.
On July 1, 1994, Viacom Inc., entered into an aggregate $6.489
billion credit agreement (the "Viacom Credit Agreement") and Viacom
International and certain of it subsidiaries (the "Subsidiary
Obligors") entered into a $311 million credit agreement (the "Viacom
International Credit Agreement," collectively with the Viacom Credit
Agreement the "Credit Agreement") each with certain banks. The
following is a summary description of the Credit Agreement. The
description does not purport to be complete and should be read in
conjunction with the Credit Agreement.
The Viacom Credit Agreement is comprised of (i) a $2.5 billion
senior unsecured 2-1/2 year revolving short term loan (the "Short-
Term Loan") maturing December 31, 1996, (ii) a $1.8 billion senior
unsecured 8 year reducing revolving loan (the "Revolving Loan")
maturing July 1, 2002 and (iii) a $2.189 billion 8 year term loan
-11-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
maturing July 1, 2002 (the "Term Loan"), and is guaranteed by Viacom
International and Paramount. The Viacom International Credit
Agreement is comprised of a $311 million 8-year term loan to Viacom
International and certain of its subsidiaries maturing July 1, 2002,
and is guaranteed by Viacom Inc. and Paramount.
The interest rate on all loans made under the Credit Agreement is
based upon Citibank, N.A.'s base rate, the Federal Funds Rate or the
London Interbank Offered Rate and is affected by Viacom Inc.'s credit
rating. Viacom Inc. is permitted to issue commercial paper with a
maturity at the time of issuance not to exceed nine months, provided
that following each issuance of commercial paper the aggregate amount
of the Revolving Loans and Short-Term Loan outstanding, together with
the aggregate face amount of commercial paper outstanding shall not
exceed the aggregate amount of the Revolving Loan commitment and the
Short-Term Loan commitment at such time.
Viacom Inc. is required to repay the outstanding principal amount of
the Short-Term Loan in full on December 31, 1996. Viacom Inc. is
required to repay the principal outstanding under the Term Loan and
the Viacom International Credit Agreement in quarterly payments of 3%
for the period commencing July 1, 1997 through October 1, 1997, 4%
for the period January 1, 1998 through October 1, 1999, 5% for the
period January 1, 2000 through October 1, 2000, and 6% for the period
January 1, 2001 through July 1, 2002. The Revolving Loan commitment
will be reduced by $90 million on July 1, 1998, $360 million on July
1, 1999, $360 million on July 1, 2000, $450 million on July 1, 2001
and $540 million on July 1, 2002. After giving effect to such
Revolving Loan commitment reductions, the principal amount
outstanding of such Revolving Loans can not exceed the aggregate
Revolving Loan commitment.
Viacom Inc. may prepay the loans and reduce commitments under the
Viacom Credit Agreement in whole or in part at any time. Viacom Inc.
is required, subject to certain conditions, to make prepayments under
the Short-Term Loan resulting from receipt of the first $2.5 billion
in the aggregate of net cash proceeds from asset sales other than in
the ordinary course of business or from capital market transactions.
In the event that a Subsidiary Obligor ceases to be a wholly owned
subsidiary of Viacom Inc. or Viacom International, the loans of such
Subsidiary Obligor shall be due and payable on the date on which such
subsidiary ceases to be a wholly owned subsidiary. If such event
occurs prior to December 31, 1996 or the repayment in full of all
Short-Term Loans, Viacom Inc. may elect to convert any outstanding
portion of the Short-Term Loan into additional Term Loans in an
amount equal to the principal amount of such Subsidiary Obligor's
loan.
The Credit Agreement contains certain covenants which, among other
things, require that Viacom Inc. maintain certain financial ratios
and impose on Viacom Inc. and its subsidiaries certain limitations on
substantial asset sales and merger into any other company in which
Viacom Inc. is not the surviving entity. The Viacom International
Credit Agreement also contains covenants which impose limitations on
the incurrence of borrowed money.
-12-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Credit Agreement contains certain customary events of default and
provides that it is an event of default if National Amusements, Inc.
("NAI") fails to own at least 51% of the outstanding voting stock of
Viacom Inc.
Viacom Inc. is required to pay a commitment fee based on the
aggregate daily unborrowed portion of the loan commitments. The
Credit Agreement does not require compensating balances.
The proceeds from the Credit Agreement were used to refinance the
previously existing bank debt of Viacom Inc., Viacom International and
Paramount. Viacom Inc. recognized an extraordinary loss from the
extinguishment of debt of $32.3 million, less a tax benefit of $11.9
million.
6) COMMITMENTS AND CONTINGENCIES
Those commitments of Viacom Inc. for program license fees which are
not reflected in the balance sheet as of June 30, 1994, which are
estimated to aggregate approximately $2.3 billion, principally
reflect commitments under Showtime Networks Inc.'s ("SNI's")
exclusive arrangements with several motion picture companies and
Madison Square Garden Network's agreement to televise the New York
Yankees baseball games through the year 2000. This estimate is based
upon a number of factors. A majority of such fees pertain to SNI and
are payable within the next seven years, as part of normal
programming expenditures. These commitments of SNI are contingent
upon delivery of motion pictures, which are not yet available for
premium television exhibition and, in many cases, have not yet been
produced.
7) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign
income taxes on earnings before income taxes. (See "Extraordinary
Losses" for tax benefit related to extraordinary loss).
The annual effective tax rates of 48% for 1993 and negative 31% for
1994 continue to be affected by amortization of acquisition costs
which are not deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale
of Viacom International's one-third partnership interest in Lifetime
and the Wisconsin cable system, the full income tax effect of each
transaction is reflected in the second quarter 1994 and first quarter
1993 tax provision, respectively, and is excluded from the estimated
annual effective tax rate.
During the first quarter of 1993, Viacom International adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" on a prospective basis and recognized a cumulative
benefit from a change in accounting principle of $10.4 million.
-13-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8) OTHER ITEMS, NET
On April 4, 1994, Viacom International sold its one-third partnership
interest in Lifetime for approximately $317.6 million, which resulted
in a pre-tax gain of approximately $267.4 million in the second
quarter of 1994. Proceeds from the sale were used to reduce
outstanding debt of Viacom International.
As part of the settlement of the Time Warner antitrust lawsuit, Viacom
International sold the stock of Viacom Cablevision of Wisconsin, Inc.
to Warner Communications Inc. ("Warner"). This transaction was
effective on January 1, 1993. As consideration for the stock, Warner
paid the sum of $46 million, $20 million of which was received during
1992, plus repayment of debt in the amount of $49 million, resulting
in a pre-tax gain of approximately $55 million reflected in "Other
items, net." Also reflected in this line item is a net gain on the
sale of a portion of an investment held at cost and adjustment to
previously established non-operating litigation reserves.
9) SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended
June 30,
-------------------
1994 1993
---- ----
(Millions of dollars)
Cash payments for interest, net of amounts
capitalized $153.2 $82.7
Cash payments for income taxes $ 76.4 $28.6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Management's discussion and analysis of the combined results of
operations and financial condition of Viacom Inc., Viacom
International and Paramount should be read in conjunction with the
Consolidated Financial Statements and related Notes.
On March 11, 1994, Viacom Inc. acquired a majority interest in
Paramount pursuant to the terms of its tender offer. Paramount
became a wholly owned subsidiary of Viacom Inc. on July 7, 1994,
upon the closing of the merger pursuant to the Paramount Merger
Agreement.
The following tables set forth revenues, depreciation and
amortization, earnings (loss) from operations, equity in pre-tax
earnings of affiliated companies and earnings from operations plus
equity in pre-tax earnings by business segment for the periods
indicated.
-14-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The Viacom Inc. consolidated financial segments reflect four
operating segments:
Networks - MTV Networks, Showtime Networks Inc. and Madison
Square Garden Network.
Entertainment - Paramount Pictures, Paramount Television,
Viacom Productions, Viacom Enterprises, Viacom New Media,
Paramount Technology Group, Motion Picture Theaters, Madison
Square Garden and Paramount Parks.
Cable Television and Broadcasting - Viacom Radio, Viacom
Television, Paramount Stations Group and Viacom Cable.
Publishing - Simon & Schuster.
Equity in
Earnings pre-tax Operations
from earnings of plus
Three months ended Depreciation operations affiliated equity
June 30, 1994 Revenues & amortization (as reported) companies earnings
------------- ------------------------------------------------------------------------------------------------
(Millions of dollars)
Networks $374.7 $ 13.9 $71.2 $ 4.2 $75.4
Entertainment 676.0 35.7 65.1 (4.1) 61.0
Cable &
Broadcasting 218.6 29.9 55.5 -- 55.5
Publishing 469.1 26.1 30.5 30.5
Corporate -- 1.8 (38.3) -- (38.3)
Intercompany (10.0) -- -- -- --
-------- ----- ------- ------ ------
Totals $1,728.4 $107.4 $184.0 $ 0.1 $184.1
======== ====== ====== ===== ======
Equity in
Earnings pre-tax Operations
from earnings of plus
Three months ended Depreciation operations affiliated equity
June 30, 1993 Revenues & amortization (as reported) companies earnings
------------- ------------------------------------------------------------------------------------------------
(Millions of dollars)
Networks $305.5 $9.8 $65.1 $0.3 $65.4
Entertainment 40.7 1.3 12.2 (1.0) 11.2
Cable &
Broadcasting 155.4 22.3 46.7 -- 46.7
Publishing -- -- -- -- --
Corporate -- 0.9 (17.4) -- (17.4)
Intercompany (5.8) -- -- -- --
------- ----- ------ ---- -------
Totals $495.8 $34.3 $106.6 $(0.7) $105.9
====== ===== ====== ====== ======
Equity in
Earnings pre-tax Operations
from earnings of plus
Six months ended Depreciation operations affiliated equity
June 30, 1994 Revenues & amortization (as reported) companies earnings
------------- ------------------------------------------------------------------------------------------------
(Millions of dollars)
Networks $699.8 $26.1 $67.9 $5.2 $73.1
Entertainment 943.3 48.3 (191.9) 1.4 (190.5)
Cable &
Broadcasting 383.0 56.5 72.5 -- 72.5
Publishing 599.1 33.5 16.0 -- 16.0
Corporate -- 2.7 (80.7) -- (80.7)
Intercompany (18.4) -- -- -- --
------- ------- ----- --- ------
Totals. $2,606.8 $167.1 $(116.2) $6.6 $(109.6)
======== ====== ======== ==== ========
-15-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Equity in
Earnings pre-tax Operations
from earnings of plus
Six months ended Depreciation operations affiliated equity
June 30, 1993 Revenues & amortization (as reported) companies earnings
------------- ------------------------------------------------------------------------------------------------
(Millions of dollars)
Networks $574.6 $20.4 $121.6 $0.8 $122.4
Entertainment 105.1 3.6 25.3 (1.0) 24.3
Cable &
Broadcasting 298.3 46.4 82.4 -- 82.4
Publishing -- -- -- -- --
Corporate -- 1.7 (32.6) -- (32.6)
Intercompany (11.6) -- -- -- --
------- ---- ----- ---- ------
Totals. $966.4 $72.1 $196.7 $(0.2) $196.5
====== ===== ====== ====== ======
Results of Operations
---------------------
Second quarter 1994 vs. Second quarter 1993
-------------------------------------------
Revenues increased $1.2 billion, to $1.7 billion for the second
quarter of 1994. Earnings from operations increased $77.4 million
to $184.0 million for the second quarter of 1994. The foregoing
results were principally affected by the consolidation of Paramount
operations.
The net earnings attributable to common stock of $221.7 million, or
primary earnings per share of $1.55, for the second quarter of
1994, reflect net interest expense of $102.7 million, a pre-tax
gain of $267.4 million on the sale of the Company's one-third
interest in Lifetime Television and a provision for income taxes of
$91.0 million. Net earnings of $41.6 million, or primary earnings
per share of $0.35, for the second quarter of 1993, reflect net
interest expense of $39.7 million and a provision for income taxes
of $38.8 million.
Included in Viacom Inc.'s results for the second quarter 1994 are
Paramount revenues of $1.2 billion and earnings from operations
of $92.3 million. Paramount Entertainment's earnings from
operations of $63.1 million reflects a lower cost base and
efficiencies associated with the merger. Paramount Parks are
performing as expected and Madison Square Garden performed above
anticipated performance. Publishing's earnings from operations
of $30.5 million reflects normal seasonal levels. Educational
publishing, which normally contributes the majority of annual
publishing revenues, records most of its sales and operating
-16-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
income in the second half of the year, corresponding to the typical
school-year buying cycle.
Exclusive of the Paramount results described above, segment results
of Viacom pre-merger operations for the quarter ended June 30, 1994
compared with the quarter ended June 30, 1993 were as follows:
Networks (Basic cable and premium television networks)
MTV Networks ("MTVN") revenues increased 21% to $198.3 million for
the quarter ended June 30, 1994 from $163.9 million for the quarter
ended June 30, 1993: 73% of this increase was attributable to
increased advertising sales at each of the services; 21% to
increased affiliate fees at each of the services; and 6% to other
revenue sources. The increase in advertising sales and affiliate
fees are principally due to rate increases. The increases in other
revenue sources are principally due to revenues from new business
ventures, including licensing and merchandising. MTVN's earnings
from operations increased 20% to $68.4 million for the quarter
ended June 30, 1994 from $57.1 million for the quarter ended June
30, 1993, reflecting the increased revenues, partially offset by
increased costs of operating the networks, including start-up
losses of MTV Latino, Nickelodeon Magazine and VH-1 U.K.
aggregating $3.1 million.
Revenues of Showtime Networks Inc. ("SNI") increased 1% to $143.4
million for the quarter ended June 30, 1994 from $141.5 million for
the quarter ended June 30, 1993 due to: 1) an increase of $4.5
million in revenues of Showtime Satellite Networks, Inc. ("SSN"),
primarily due to a 28% increase in SSN's subscriber base, which was
principally attributable to the use of upgraded scrambling
technology, partially offset by a 1% decrease in average rates and
2) a decrease of $2.3 million in revenues from sales of Showtime
and The Movie Channel from other than SSN, reflecting a 6% increase
in the combined subscriber base, while the average affiliate rates
decreased by 7%. SNI's premium movie services, Showtime, The Movie
Channel and FLIX, served approximately 12.4 million subscribers as
of June 30, 1994 and approximately 11.2 million subscribers as of
June 30, 1993. SNI's earnings from operations increased 14% to
$9.1 million for the quarter ended June 30, 1994 from $8.0 million
for the quarter ended June 30, 1993, reflecting the increased
revenues partially offset by increased costs.
Entertainment (Television production and distribution
and New Media)
Viacom Entertainment revenues decreased 15% to $34.4 million for
the quarter ended June 30, 1994 from $40.7 million for the quarter
ended June 30, 1993. The revenue variance is principally due to
decreased syndication revenues. Lower sales to the broadcast,
cable and other markets reflect lower syndication revenues for The
Cosby Show. Earnings from operations decreased 83% to $2.0 million
for the quarter ended June 30, 1994 from $12.2 million for the
-17-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
quarter ended June 30, 1993, primarily reflecting the decreased
revenues and $2.5 million of start-up losses associated with Viacom
New Media.
Cable Television and Broadcasting (Cable television systems and
Television and Radio stations)
Cable Television revenues decreased 4% to $103.5 million for the
quarter ended June 30, 1994 from $107.5 million for the quarter
ended June 30, 1993 due to: 1) a decrease of $6.0 million in basic
revenue, primarily due to a 10% decrease in rates for basic
services, partially offset by a 3% increase in basic customers; 2)
a decrease of $2.2 million in premium revenue, primarily due to
decreased rates; 3) an increase of $2.7 million in equipment
charges; and 4) an increase of $1.7 million in other revenue
sources. Total revenue per basic customer per month decreased 6%
to $30.94 in 1994 from $33.09 in 1993. The revenue variances
reflect the effect of the 1992 Cable Act rate regulations, released
by the FCC, which became effective on September 1, 1993. The FCC
released additional rate regulations on March 30, 1994 which became
effective May 15, 1994, resulting in an anticipated decrease in
regulated revenues of 4% to 6%. Earnings from operations decreased
35% to $21.4 million for the quarter ended June 30, 1994 from $32.9
million for the quarter ended June 30, 1993, reflecting the
decreased revenues and increased operating, general and
administrative expenses, which include non-recurring costs
associated with the implementation of FCC rate regulations.
Viacom Cable served approximately 1,117,000 basic customers
subscribing to approximately 816,000 premium units as of June 30,
1994. Basic customers and premium units increased 3% and 15%,
respectively, since June 30, 1993. Viacom Cable added 6,500
incremental basic customers in second quarter 1994, approximately
266% over the amount added in the second quarter of 1993.
Television stations revenues increased 7% to $26.0 million for the
quarter ended June 30, 1994 from $24.4 million for the quarter ended
June 30, 1993, reflecting increased local and national advertising
revenues for the Viacom stations. Earnings from operations
increased 23% to $8.0 million for the quarter ended June 30, 1994
from $6.5 million for the quarter ended June 30, 1993, reflecting
increased revenues.
Radio revenues increased 13% to $26.6 million for the quarter ended
June 30, 1994 from $23.6 million for the quarter ended June 30,
1993, reflecting increased local advertising revenues. Earnings
from operations increased 23% to $10.1 million for the quarter
ended June 30, 1994 from $8.2 million for the quarter ended June
30, 1993, primarily reflecting the increased revenues.
-18-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Corporate
Corporate expenses increased 50% to $26.1 million for the quarter
June 30, 1994 from $17.4 million for the quarter ended June 30,
1993 reflecting overall increased expenses.
Other income and expense information
On April 4, 1994, Viacom International sold its one-third
partnership interest in Lifetime for approximately $317.6 million,
which resulted in a pre-tax gain of approximately $267.4 million in
the second quarter of 1994. Proceeds from the sale were used to
reduce outstanding debt of Viacom International.
Net interest expense increased $63.0 million to $102.7 million for
the quarter ended June 30, 1994 from $39.7 million for the quarter
ended June 30, 1993, reflecting increased bank borrowings and
interest on Paramount debt (See "Capital Structure.")
The provision for income taxes represents federal, state and
foreign income taxes on earnings before income taxes.
The annual effective tax rates of 48% for 1993 and negative 31% for
1994 continue to be affected by amortization of acquisition costs
which are not deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale
of the Company's one-third partnership interest in Lifetime, its
full income tax effect is reflected in the second quarter 1994 tax
provision and is excluded from the estimated annual effective tax
rate.
"Equity in earnings of affiliated companies, net of tax" was $0.2
million for the quarter ended June 30, 1994 compared with a loss of
$0.5 million for the quarter ended June 30, 1993, primarily
reflecting the inclusion of Paramount's earnings of affiliated
companies, improved operating results of Comedy Central, partially
offset by the absence of Lifetime's earnings due to the sale of the
company's one-third partnership interest.
Viacom Inc. recognized an extraordinary loss from the
extinguishment of debt of $32.3 million, less a tax benefit of
$11.9 million (see "Capital Structure").
Six months 1994 vs. Six months 1993
-----------------------------------
Revenues increased $1.6 billion, to $2.6 billion for the six months
ended June 30, 1994. Earnings (loss) from operations decreased
$312.9 million to a loss of $116.2 million for the six months ended
June 30, 1994. The foregoing results were principally affected by
the consolidation of four months of Paramount operations.
The net loss attributable to common stock of $232.4 million, or
-19-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
primary loss per share of $1.72, for the six months ended June 30,
1994, reflects net interest expense of $150.0 million, a pre-tax
gain of $267.4 million on the sale of the Company's one-third
interest in Lifetime and a provision for income taxes of $186.1
million. Net earnings of $122.6 million, or primary earnings per
share of $1.02, for the six months ended June 30, 1993, reflect net
interest expense of $80.7, a pre-tax gain of $55 million from the
sale of the Wisconsin cable television system, and a provision for
income taxes of $70.6 million.
Included in Viacom Inc.'s consolidated results for the six months
ended June 30, 1994 are Paramount revenues of $1.6 billion and
earnings from operations of $41.5 million. Paramount Entertainment's
earnings from operations of $28.1 million principally reflects a
lower cost base and efficiencies associated with the merger.
Paramount Parks are performing as expected and Madison Square Garden
performed above anticipated levels. Publishing's earnings from
operations of $16.0 million reflects normal seasonal performance.
Educational publishing, which normally contributes the majority of
annual publishing revenues, records most of its sales and operating
income in the second half of the year, corresponding to the typical
school-year buying cycle.
Included in earnings (loss) from operations are certain merger-
related charges to Viacom's pre-merger businesses reflecting the
integration of these business units with similar Paramount units
and related management and strategic changes principally related
to the merger with Paramount as follows:
Viacom Merger
Viacom Inc. Paramount Paramount Related Total As
Pre-Merger Results Combined Charges Reported
---------- ------- -------- ------- --------
(Millions of dollars)
Networks $143.9 $ (2.6) $141.3 $ (73.4) $ 67.9
Entertainment $ 4.0 $ 28.1 $ 32.1 $(224.0) $(191.9)
Cable Television and
Broadcasting $ 67.8 $ 22.0 $ 89.8 $ (17.3) $ 72.5
Publishing -- $ 16.0 $ 16.0 -- $ 16.0
These merger-related charges principally relate to adjustments of
-20-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
programming assets based upon new management strategies and additional
programming sources resulting from the merger with Paramount. In
addition, a merger-related charge of $17.4 million is included in
Corporate expenses reflecting the combination of the Viacom Inc. and
Paramount staffs.
Exclusive of these merger-related charges and of the Paramount
results described above, segment results of Viacom pre-merger
operations for the six months ended June 30, 1994 compared to the
six months ended June 30, 1993 were as follows:
Networks (Basic cable and premium television networks)
MTV Networks ("MTVN") revenues increased 25% to $371.9 million for
the six months ended June 30, 1994 from $297.5 million for the six
months ended June 30, 1993: 70% of this increase was attributable
to increased advertising sales at each of the services; 18% to
increased affiliate fees at each of the services; and 12% to other
revenue sources. The increase in advertising sales and affiliate
fees are principally due to rate increases. The increases in other
revenue sources are principally due to revenues from new business
ventures, including licensing and merchandising. MTVN's earnings
from operations increased 20% to $123.6 million for the six months
ended June 30, 1994 from $102.8 million for the six months ended
June 30, 1993, reflecting the increased revenues, partially offset
by increased costs of operating the networks, including start-up
losses of MTV Latino, Nickelodeon Magazine and VH-1 U.K.
aggregating $5.6 million.
SNI revenues increased 3% to $284.7 million for the six months ended
June 30, 1994 from $277.0 million for the six months ended
June 30, 1993 due to: 1) an increase of $10.0 million in revenues
of Showtime Satellite Networks, Inc. ("SSN"), primarily due to a
33% increase in SSN's subscriber base, which was principally
attributable to the use of upgraded scrambling technology,
partially offset by a 2% decrease in average rates and 2) a
decrease of $5.6 million in revenues from sales of Showtime
and The Movie Channel from other than SSN, reflecting a 5%
increase in the combined subscriber base, while the average
affiliate rates decreased by 7%. SNI's earnings from operations
increased 8% to $20.3 million for the six months ended June 30,
1994 from $18.8 million for the six months ended June 30, 1993,
reflecting the increased revenues and a change in estimate of the
cost of movie rights for previously exhibited programming of $14.6
million, partially offset by increased costs.
-21-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Entertainment (Television production and distribution
and New Media)
Viacom Entertainment revenues decreased 20% to $84.6 million for
the six months ended June 30, 1994 from $105.1 million for the six
months ended June 30, 1993. The revenue variance is principally
due to decreased syndication revenues. Lower sales to the
broadcast, cable and other markets reflect lower syndication
revenues for The Cosby Show. Earnings from operations decreased
84% to $4.0 million for the six months ended June 30, 1994 from
$25.3 million for the six months ended June 30, 1993, primarily
reflecting the decreased revenues and $4.8 million of start-up
losses associated with Viacom New Media.
Cable Television and Broadcasting (Cable television systems and
Television and Radio stations)
Cable Television revenues decreased 4% to $204.2 million for the
six months ended June 30, 1994 from $212.0 million for the six
months ended June 30, 1993 due to: 1) a decrease of $11.9 million
in basic revenue, primarily due to a 10% decrease in rates for
basic services, partially offset by a 3% increase in basic
customers; 2) a decrease of $3.8 million in premium revenue,
primarily due to decreased rates; 3) an increase of $4.4 million in
equipment charges; and 4) an increase of $3.5 million from other
revenue sources. Total revenue per basic customer per month
decreased 6% to $30.71 in 1994 from $32.77 in 1993. Earnings from
operations decreased 33% to $42.6 million for the six months ended
June 30, 1994 from $63.6 million for the six months ended June 30,
1993, reflecting the decreased revenues and increased operating,
general and administrative expenses, which include non-recurring
costs associated with the implementation of FCC rate regulations.
Television stations revenues increased 8% to $47.7 million for the
six months ended June 30, 1994 from $44.1 million for the six
months ended June 30, 1993, reflecting increased local and national
advertising revenues for the Viacom stations. Earnings from
operations increased 34% to $12.2 million for the six months ended
June 30, 1994 from $9.1 million for the six months ended June 30,
1993, reflecting increased revenues.
Radio revenues increased 12% to $47.4 million for the six months
ended June 30, 1994 from $42.2 million for the six months ended
June 30, 1993, reflecting increased local advertising revenues.
Earnings from operations increased 33% to $15.6 million for the six
months ended June 30, 1994 from $11.7 million for the six months
ended June 30, 1993, primarily reflecting the increased revenues.
-22-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Corporate
Corporate expenses increased 80% to $58.7 million for the six months
ended June 30, 1994 from $32.7 for the six months ended June 30,
1993.
Other income and expense information
Net interest expense increased 86% to $150.0 million for the six
months ended June 30, 1994 from $80.7 million for the six months
ended June 30, 1993, reflecting increased bank borrowings and
interest on Paramount debt (See "Capital Structure.")
For the six months ended June 30, 1993, "Other items, net,"
reflects the pre-tax gain of approximately $55 million on the sale
of the stock of the Wisconsin cable system, an adjustment to
previously established non-operating litigation reserves and the
net gain on the sale of a portion of an investment held at cost.
Due to the unusual and non-recurring nature of the gain on the sale
of the Wisconsin cable system, its full income tax effect is
reflected in the first quarter 1993 tax provision and is excluded
from the estimated annual effective tax rate.
During the first quarter of 1993, Viacom International adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," on a prospective basis and recognized a
cumulative benefit from a change in accounting principle of $10.4
million.
"Equity in earnings of affiliated companies, net of tax" was $3.7
million for the six months ended June 30, 1994 compared with a loss
of $0.2 million for the six months ended June 30, 1993, primarily
reflecting the inclusion of Paramount's earnings of affiliated
companies for the four months ended June 30, 1994, and improved
operating results at Lifetime and Comedy Central. During April
1994, Viacom International sold its equity investment in Lifetime
(See "Second Quarter 1994 vs. Second Quarter 1993 - Other Income
and Expense Information").
Effective January 1, 1994, Viacom International adopted Financial
Accounting Standards No. 112, "Employers Accounting for
Postemployment Benefits," which did not have a material effect on
the Company's financial position or results of operations.
Liquidity and Capital Resources
-------------------------------
On March 11, 1994, Viacom Inc. acquired, pursuant to a tender offer
(the "Paramount Offer"), 61,657,432 shares of Paramount Common
Stock, constituting a majority of the shares outstanding, at a price
of $107 per share in cash. On July 7, 1994, Paramount became a
wholly owned subsidiary of Viacom Inc. (See Note 2 of Notes to
Consolidated Financial Statements.)
-23-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Based on indebtedness as of June 30, 1994, Viacom Inc. anticipates
that, following the Paramount Merger, Viacom Inc. and Paramount on
a pro forma combined basis will have outstanding total indebtedness
of approximately $7.9 billion and 5% preferred stock with a
liquidation preference of $1.8 billion.
On July 1, 1994, Viacom Inc. and Viacom International Inc. entered
into an aggregate of $6.8 billion of credit facilities ("See
Capital Structure") thereby terminating and refinancing the Merger
Credit Agreement (as defined in "Capital Structure") and existing
bank debt of Viacom International and Paramount. Viacom Credit
Agreement is guaranteed by Paramount and Viacom International.
Viacom Inc.'s scheduled maturities of long-term debt through
December 31, 1998 under its credit facilities are $2.5 billion
(1996) and $150.0 million (1997) and $490 million (1998).
Viacom Inc. filed a shelf registration statement with the
Securities and Exchange Commission ("SEC") registering $3 billion
of debt securities and Preferred Stock. Any debt issued would be
guaranteed by Viacom International and Paramount. Effectiveness of
the shelf registration is still pending with the SEC.
Viacom Inc. expects to fund its anticipated operating, investing
and financing cash requirements, with internally generated funds
and with various external sources of funds, including additional
financings and the sale of non-strategic assets as such
opportunities may arise, such as the exploration of the sale of the
operations of Madison Square Garden and certain non-core publishing
assets.
Viacom Inc. and Viacom International were each in compliance with
all covenants and had satisfied all financial ratios and tests as
of June 30, 1994 under their credit facilities. Viacom Inc. and
Viacom International expect to remain in compliance with such
covenants ratios as may be applicable from time to time during
1994.
Debt, including the current portion, as a percentage of total
capitalization of Viacom Inc. was 66% at June 30, 1994 and 48% at
December 31, 1993. The increase in debt as a percentage of total
capitalization, results principally from bank financing related to
the acquisition of the majority of Paramount Common Stock,
partially offset by the issuance of Viacom Inc. Class B Common
Stock to Blockbuster.
The indebtedness under Viacom Inc.'s and Viacom International's
credit facilities bear interest at floating rates, causing Viacom
International and Viacom Inc. to be sensitive to changes in
prevailing interest rates. As of June 30, 1994, Viacom
International and Paramount had obtained interest rate protection
agreements with respect to approximately $2.4 billion and $1.7
billion, respectively, of indebtedness. The majority of the
interest rate protection agreements will mature over the next four
years.
-24-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Those commitments of Viacom Inc. for program license fees which are
not reflected in the balance sheet as of June 30, 1994, which are
estimated to aggregate approximately $2.3 billion, principally
reflect commitments under SNI's exclusive arrangements with several
motion picture companies and Madison Square Garden Network's agreement
to televise the New York Yankees baseball games through the year 2000.
This estimate is based upon a number of factors. A majority of such
fees pertain to SNI and are payable within the next seven years, as
part of normal programming expenditures. These commitments of SNI
are contingent upon delivery of motion pictures, which are not yet
available for premium television exhibition and, in many cases, have
not yet been produced.
Net cash flow from operating activities was negative $293.2 million
for the six months ended June 30, 1994 versus negative $1.3 million
for the six months ended June 30, 1993 due to decreased earnings
from operations of Viacom International prior to merger-related
charges and Paramount's results of operations for the four months ended
June 30, 1994. Net cash expenditures for investing activities of
$6.1 billion for the six months ended June 30, 1994, principally reflects
the acquisition of the majority of the shares outstanding of
Paramount and capital expenditures. Net cash flows for investing
activities of $47.3 million for the six months ended June 30, 1993,
principally reflects the acquisition of ICOM Simulations, Inc. and
KXEZ-FM, capital expenditures, the additional investment in Star
Sight Telecast, Inc. and advances to Comedy Central partially offset
by proceeds from the sale of the Wisconsin cable system and an
investment held at cost. Financing activities principally reflect
borrowings and repayments of debt under the credit facilities during
each period presented, and in 1994, the borrowings under the Merger
Credit Agreement (as defined in "Capital Structure") and the sale of
Class B Common Stock to Blockbuster.
-25-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Capital Structure
The following table sets forth the capitalization of Viacom Inc. and
subsidiaries as of June 30, 1994 and December 31, 1993:
June 30, December 31,
1994 1993
------- --------
(Millions of dollars)
Current portion of long-term debt $ 17.5 $ 58.5
======= ========
Long-term debt:
Viacom Inc.:
Notes payable to banks (a) $3,778.3 $ 28.2
Viacom International:
Notes payable to banks 1,687.4 1,900.0
9.125% Senior Subordinated Notes due 1999 150.0 150.0
8.75% Senior Subordinated Reset Notes
due 2001 100.0 100.0
10.25% Senior Subordinated Notes due 2001 200.0 200.0
Obligations under capital leases 85.5 61.8
Paramount:
Notes payable to banks 230.0 --
5.875% Senior Notes due 2000 149.4 --
7.5% Senior Notes due 2002 246.8 --
8.25% Senior Notes due 2022 246.9 --
7.5% Senior Notes due 2023 149.5 --
7% Subordinated Debentures due 2002 181.4 --
Other notes due 1994 to 1996 13.7 --
Obligations under capital leases 9.3 --
------- -------
Total long-term debt $7,228.2 $2,440.0
======== ========
Shareholders' equity of Viacom Inc.:
Preferred Stock $1,800.0 $1,800.0
Common stock and additional paid-in
capital (b) 2,164.7 922.1
Accumulated deficit (236.4) (4.0)
Cumulative translation adjustment 2.5 --
--------- ---------
Total shareholders' equity $3,730.8 $ 2,718.1
======== =========
______________
a) On March 11, 1994, Viacom Inc. borrowed $3.7 billion under
a credit agreement dated as of November 19, 1993, as amended on
January 5, 1994 and February 15, 1994 (the "Merger Credit
Agreement"), among Viacom Inc., the banks named therein, and The
Bank of New York, Citibank, N.A. and Morgan Guaranty Trust Company
of New York, as Managing Agents.
On July 1, 1994, Viacom Inc., entered into an aggregate $6.489
billion credit agreement (the "Viacom Credit Agreement") and Viacom
-26-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
International and certain of it subsidiaries (the "Subsidiary
Obligors") entered into a $311 million credit agreement (the
"Viacom International Credit Agreement," collectively with the
Viacom Credit Agreement the "Credit Agreement") each with certain
banks. The following is a summary description of the Credit
Agreement. The description does not purport to be complete and
should be read in conjunction with the Credit Agreement.
The Viacom Credit Agreement is comprised of (i) a $2.5 billion
senior unsecured 2-1/2 year revolving short term loan (the "Short-
Term Loan") maturing December 31, 1996, (ii) a $1.8 billion senior
unsecured 8 year reducing revolving loan (the "Revolving Loan")
maturing July 1, 2002 and (iii) a $2.189 billion 8 year term loan
maturing July 1, 2002 (the "Term Loan"), and is guaranteed by
Viacom International and Paramount. The Viacom International
Credit Agreement is comprised of a $311 million 8-year term loan
to Viacom International and certain of its subsidiaries maturing
July 1, 2002, and is guaranteed by Viacom Inc. and Paramount.
The interest rate on all loans made under the Credit Agreement is
based upon Citibank, N.A.'s base rate, the Federal Funds Rate or
the London Interbank Offered Rate and is affected by Viacom Inc.'s
credit rating. Viacom Inc. is permitted to issue commercial paper
with a maturity at the time of issuance not to exceed nine months,
provided that following each issuance of commercial paper the
aggregate amount of the Revolving Loans and Short-Term Loan
outstanding, together with the aggregate face amount of commercial
paper outstanding shall not exceed the aggregate amount of the
Revolving Loan commitment and the Short-Term Loan commitment at
such time.
Viacom Inc. is required to repay the outstanding principal amount
of the Short-Term Loan in full on December 31, 1996. Viacom Inc.
is required to repay the principal outstanding under the Term Loan
and the Viacom International Credit Agreement in quarterly payments
of 3% for the period commencing July 1, 1997 through October 1,
1997, 4% for the period January 1, 1998 through October 1, 1999, 5%
for the period January 1, 2000 through October 1, 2000, and 6% for
the period January 1, 2001 through July 1, 2002. The Revolving
Loan commitment will be reduced by $90 million on July 1, 1998,
$360 million on July 1, 1999, $360 million on July 1, 2000, $450
million on July 1, 2001 and $540 million on July 1, 2002. After
giving effect to such Revolving Loan commitment reductions, the
principal amount outstanding of such Revolving Loans can not exceed
the aggregate Revolving Loan commitment.
Viacom Inc. may prepay the loans and reduce commitments under the
Viacom Credit Agreement in whole or in part at any time. Viacom
Inc. is required, subject to certain conditions, to make
prepayments under the Short-Term Loan resulting from receipt of the
first $2.5 billion in the aggregate of net cash proceeds from asset
sales other than in the ordinary course of business or from capital
market transactions. In the event that a Subsidiary Obligor ceases
to be a wholly owned subsidiary of Viacom Inc. or Viacom
International, the loans of such Subsidiary Obligor shall be due
-27-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
and payable on the date on which such subsidiary ceases to be a
wholly owned subsidiary. If such event occurs prior to December
31, 1996 or the repayment in full of all Short-Term Loans, Viacom
Inc. may elect to convert any outstanding portion of the Short-Term
Loan into additional Term Loans in an amount equal to the principal
amount of such Subsidiary Obligor's loan.
The Credit Agreement contains certain covenants which, among other
things, require that Viacom Inc. maintain certain financial ratios
and impose on Viacom Inc. and its subsidiaries certain limitations
on substantial asset sales and merger into any other company in
which Viacom Inc. is not the surviving entity. The Viacom
International Credit Agreement also contains covenants which impose
limitations on the incurrence of borrowed money.
The Credit Agreement contains certain customary events of default
and provides that it is an event of default if National
Amusements, Inc. ("NAI") fails to own at least 51% of the
outstanding voting stock of Viacom Inc.
Viacom Inc. is required to pay a commitment fee based on the
aggregate daily unborrowed portion of the loan commitments. The
Credit Agreement does not require compensating balances.
b) On June 30, 1994, there were 53,450,625 outstanding shares
of Class A Common Stock (100,000,000 shares authorized) and
90,088,042 outstanding shares of Class B Common Stock (150,000,000
shares authorized); there were approximately 221,735 unissued
shares of Class A Common Stock and 29,396,844 unissued shares of
Class B Common Stock reserved principally for stock options granted
under the Long-Term Incentive Plan.
NAI held approximately 64.2% of outstanding Viacom Inc. Common
Stock as of June 30, 1994, which consisted of 85.2% of then
outstanding Class A Common Stock and 51.7% of then outstanding
Class B Common Stock.
After giving effect to the closing of the Paramount Merger and
assuming that all shares of Paramount Common Stock were exchanged
in the Paramount Merger, NAI owns approximately 85% of the
outstanding shares of Viacom Class A Common Stock and 32% of the
outstanding shares of Viacom Class B Common Stock (46% on a
combined basis).
-28-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
VIACOM INC.
---------------------------
(Registrant)
Date August 15, 1994 /s/Frank J. Biondi, Jr.
-------------------- -------------------------------
Frank J. Biondi, Jr.
President,
Chief Executive Officer
Date August 15, 1994 /s/George S. Smith, Jr.
-------------------- -------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-29-
PART II -- OTHER INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders.
A Special Meeting of Stockholders of Viacom Inc.("Viacom") was
held on July 7, 1994. The following matters were voted upon at the
meeting: (i) the approval of an amendment to the Restated
Certificate of Incorporation of Viacom increasing the number of
shares of Viacom Class A Common Stock authorized to be issued from
100 million to 200 million, (ii) the approval of an amendment to
the Restated Certificate of Incorporation of Viacom increasing the
number of shares of Viacom Class B Common Stock authorized to be
issued from 150 million to one billion; (iii) the approval of an
amendment to the Restated Certificate of Incorporation of Viacom
increasing the number of shares of preferred stock of Viacom
authorized to be issued from 100 million to 200 million; (iv) the
approval of an amendment to the Restated Certificate of
Incorporation of Viacom increasing the maximum number of directors
constituting the Board of Directors of Viacom from 12 to 20; and
(v) the approval and adoption of the Amended and Restated Agreement
and Plan of Merger dated as of February 4, 1994, as further amended
as of May 26, 1994, among Viacom, Viacom Sub Inc., a wholly owned
subsidiary of Viacom, and Paramount Communications Inc., including
the approval of the issuance of the Viacom securities in connection
therewith.
The votes cast for, against or abstaining from the approval of an
amendment to the Restated Certificate of Incorporation of Viacom
increasing the number of shares of Viacom Class A Common Stock
authorized to be issued from 100 million to 200 million were as
follows:
Votes For: Votes Against: Abstentions:
48,635,691 193,121 26,488
The votes cast for, against or abstaining from the approval of an
amendment to the Restated Certificate of Incorporation of Viacom
increasing the number of shares of Viacom Class B Common Stock
authorized to be issued from 150 million to one billion were as
follows:
Votes For: Votes Against: Abstentions:
48,638,000 189,466 27,834
The votes cast for, against or abstaining from the approval of an
amendment to the Restated Certificate of Incorporation of Viacom
increasing the number of shares of preferred stock of Viacom
authorized to be issued from 100 million to 200 million were as
follows:
Votes For: Votes Against: Abstentions:
48,338,217 487,209 29,874
The votes cast for, against or abstaining from the approval of an
amendment to the Restated Certificates of Incorporation of
Viacom increasing the maximum number of directors constituting the
Board of Directors of Viacom from 12 to 20 were as follows:
Votes For: Votes Against: Abstentions:
48,686,407 141,272 27,621
The votes cast for, against or abstaining from the approval and
adoption of the Amended and Restated Agreement and Plan of Merger
dated as of February 4, 1994, as further amended as of May 26,
1994, among Viacom, Viacom Sub Inc., a wholly owned subsidiary of
Viacom, and Paramount Communications Inc., including the approval
of the Viacom securities in connection therewith, were as follows:
Votes For: Votes Against: Abstentions:
48,718,446 115,398 21,456
The Annual Meeting of Stockholders of Viacom Inc. was also held
on July 7, 1994. The following matters were voted upon at the
meeting: (i) the election of directors; (ii) the approval of the
Viacom Senior Executive Short-Term Incentive Plan; (iii) the
approval of the Viacom 1994 Long-Term Management Incentive Plan;
(iv) the approval of the Viacom Stock Option Plan for Outside
Directors; and (v) the approval of the appointment of Price
Waterhouse as independent auditors of Viacom for 1994.
The entire board of directors was reelected and the number of
shares cast for or to withhold authority for the election of each
director were as follows:
No. of Shares
No. of Shares Voted to Withhold
Name Voted for: Authority:
George S. Abrams 48,421,598 29,458
Frank J. Biondi, 48,422,342 28,714
Jr.
Philippe P. Dauman 48,422,313 28,743
William Ferguson 48,422,380 28,676
H. Wayne Huizenga 48,421,519 29,537
Ken Miller 48,422,066 28,990
Brent D. Redstone 48,421,438 29,618
Sumner M. Redstone 48,421,518 29,538
Frederic V. Salerno 48,421,960 29,096
William Schwartz 48,422,063 28,993
The votes cast for, against or abstaining from the approval of
the Viacom Senior Executive Short-Term Incentive Plan were as
follows:
Votes For: Votes Against: Abstentions:
48,303,409 108,720 38,927
The votes cast for, against or abstaining from the approval of
the Viacom 1994 Long-Term Management Incentive Plan were as
follows:
Votes For: Votes Against: Abstentions:
47,833,722 307,245 143,893
The votes cast for, against or abstaining from the approval of
the Viacom Stock Option Plan for Outside Directors were as follows:
Votes For: Votes Against: Abstentions:
48,168,378 84,639 31,843
The votes cast for, against or abstaining from the appointment of
Price Waterhouse to act as independent auditors were as follows:
Votes For: Votes Against: Abstentions:
48,411,724 25,963 13,369
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
12.1 Computation of Ratio of Earnings to Fixed Charges of Viacom
International.
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock Dividends
of Viacom Inc.
(b) Reports on Form 8-K for Viacom Inc. and Viacom International
Inc.
None.
Exhibit 12.1
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
Six Months Ended
June 30,1994 Year Ended December 31,
---------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
Earnings (loss) before income taxes $ 27.3 $187.7 $303.7 $164.6 $66.3 ($16.0) $266.1
Add:
Distributed income of Affiliated Companies 6.1 1.2 13.5 9.5 5.6 2.8 4.5
Interest expense, net of capitalized
interest 72.9 79.6 150.7 195.2 252.9 243.3 258.0
Capitalized interest amortized 0.9 1.1 2.1 2.4 2.3 2.2 2.3
1/3 of rental expense 14.6 12.2 24.7 22.6 21.5 18.8 15.5
----------------- ------------------------------------------------------
Earnings $121.8 $281.8 $494.7 $394.3 $348.6 $251.1 $546.4
================= ======================================================
Fixed charges:
Interest costs on all indebtedness $73.3 $79.8 $151.1 $195.8 $253.5 $244.1 $313.8
1/3 of rental expense 14.6 12.2 24.7 22.6 21.5 18.8 15.5
---------------- ------------------------------------------------------
Total fixed charges $87.9 $92.0 $175.8 $218.4 $275.0 $262.9 $329.3
================ ======================================================
Ratio of earnings to fixed charges 1.4x 3.1x 2.8x 1.8x 1.3x Note a 1.7x
================ ======================================================
(a) Earnings were inadequate to cover fixed charges; the additional amount of earnings required to cover the fixed charges of the
Company for the year ended December 31, 1990 would have been $11.8 million.
VIACOM INC. AND SUBSIDIARIES Exhibit 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(In millions, except ratios)
Six months ended
June 30, Year Ended December 31,
---------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
Earnings (loss) before income taxes ($2.9) $183.0 $301.8 $155.6 $8.2 ($70.4) $144.9
Add:
Distributed income of Affiliated Companies 25.1 1.2 13.4 9.5 5.6 2.8 4.5
Interest expense, net of capitalized
interest 174.5 81.2 154.1 195.2 298.1 295.3 313.1
Capitalized interest amortized 2.2 1.1 2.1 2.4 2.3 2.3 2.3
1/3 of rental expense 26.0 12.2 24.8 22.6 21.5 18.8 15.5
---------------- ------------------------------------------------------
Earnings $224.9 $278.7 $496.2 $385.3 $335.7 $248.8 $480.3
================ ======================================================
Fixed charges:
Interest costs on all indebtedness $178.6 $81.4 $154.5 $195.7 $298.6 $296.1 $313.8
1/3 of rental expense 26.0 12.2 24.8 22.6 21.5 18.8 15.5
---------------- ------------------------------------------------------
Total fixed charges $204.6 $93.6 $179.3 $218.3 $320.1 $314.9 $329.3
Preferred Stock dividend requirements 34.0 0.0 22.4 -- -- -- 29.1
---------------- ------------------------------------------------------
Total fixed charges and Preferred
Stock dividend requirements $238.6 $93.6 $201.7 $218.3 $320.1 $314.9 $358.4
================ ======================================================
Ratio of earnings to fixed charges 1.1x 3.0x 2.8x 1.8x 1.0x Note a 1.5x
================ ======================================================
Ratio of earnings to fixed charges and
Preferred Stock dividend requirements Note b -- 2.5x -- -- -- 1.3x
================ ======================================================
(a) Earnings were inadequate to cover fixed charges; the additional amount of earnings required to cover fixed charges for
the year ended December 31, 1990 would have been $66.1 million.
(b) Earnings were inadequate to cover combined fixed charges and preferred stock dividends; the additional amoount of earnings
required to cover combined fixed charges and preferred stock dividends for the six months ended June 30, 1994 would
have been $13.7 million.
