SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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Commission file number 1-9553
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 No.)
1515 Broadway, New York, New York 10036
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
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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 _____.
Number of shares of Common Stock Outstanding at October 31, 1995:
Class A Common Stock, par value $.01 per share - 74,957,976
Class B Common Stock, par value $.01 per share - 293,545,231
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---- ----
Revenues $ 3,062.4 $ 2,135.4
Expenses:
Operating......................................................... 1,766.4 1,195.7
Selling, general and administrative............................... 585.5 400.0
Depreciation and amortization..................................... 220.9 116.9
------------ ------------
Total expenses.................................................... 2,572.8 1,712.6
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Earnings from continuing operations.................................... 489.6 422.8
Other income (expense):
Interest expense, net............................................. (209.1) (162.5)
Other items, net.................................................. (8.0) (4.5)
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Earnings from continuing operations before income taxes................ 272.5 255.8
(Provision) benefit for income taxes.............................. (166.3) 70.9
Equity in earnings (losses) of affiliated companies, net of tax... (14.2) 8.6
Minority interest................................................. 1.8 (.2)
----------- ---------------
Net earnings from continuing operations................................ 93.8 335.1
Loss from discontinued operations, net of tax (See Note 4)........ -- (7.8)
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Net earnings 93.8 327.3
Cumulative convertible preferred stock dividend requirement....... (15.0) (15.0)
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Net earnings attributable to common stock..............................$ 78.8 $ 312.3
============ ============
Weighted average number of common shares:
Primary........................................................... 376.1 221.1
Fully diluted..................................................... 376.4 247.2
Primary earnings per common share:
Net earnings from continuing operations...........................$ .21 $ 1.45
Net earnings......................................................$ .21 $ 1.41
Fully diluted earnings per common share:
Net earnings from continuing operations...........................$ .21 $ 1.36
Net earnings......................................................$ .21 $ 1.32
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
---- ----
Revenues $ 8,623.2 $ 4,585.8
Expenses:
Operating............................................................... 5,199.4 2,834.1
Selling, general and administrative..................................... 1,602.4 1,172.0
Depreciation and amortization........................................... 608.5 277.8
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Total expenses.......................................................... 7,410.3 4,283.9
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Earnings from continuing operations.......................................... 1,212.9 301.9
Other income (expense):
Interest expense, net................................................... (612.2) (312.5)
Other items, net (See Note 5)........................................... 18.3 258.8
------------ ------------
Earnings from continuing operations before income taxes...................... 619.0 248.2
Provision for income taxes.............................................. (377.6) (113.3)
Equity in earnings (losses) of affiliated companies, net of tax......... (29.4) 12.3
Minority interest....................................................... (1.6) 18.0
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Net earnings from continuing operations...................................... 210.4 165.2
Earnings (loss) from discontinued operations, net of tax (See Note 4)... 7.6 (5.0)
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Net earnings before extraordinary loss....................................... 218.0 160.2
Extraordinary loss (See Note 7)......................................... -- (20.4)
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Net earnings 218.0 139.8
Cumulative convertible preferred stock dividend requirement............. (45.0) (60.0)
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Net earnings attributable to common stock.................................... $ 173.0 $ 79.8
============ ============
Weighted average number of common shares:
Primary................................................................. 374.8 164.2
Fully diluted........................................................... 375.1 164.5
Primary earnings per common share:
Net earnings from continuing operations................................. $ .44 $ .64
Net earnings............................................................ $ .46 $ .49
Fully diluted earnings per common share:
Net earnings from continuing operations................................. $ .44 $ .64
Net earnings............................................................ $ .46 $ .49
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; all amounts, except per share amounts, are in millions)
SEPTEMBER 30, DECEMBER 31,
1995 1994
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ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 548.8 $ 597.7
Receivables, less allowances of $103.5 (1995) and $75.8 (1994)...... 2,042.0 1,638.8
Inventory (See Note 8).............................................. 2,209.7 1,817.8
Other current assets................................................ 649.1 503.5
Net assets of discontinued operations (See Note 4).................. -- 697.4
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Total current assets........................................... 5,449.6 5,255.2
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Property and equipment, at cost........................................... 3,719.5 3,099.6
Less accumulated depreciation....................................... 715.5 516.5
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Net property and equipment..................................... 3,004.0 2,583.1
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Inventory (See Note 8).................................................... 2,157.1 1,944.5
Intangibles, at amortized cost............................................ 16,384.9 16,111.7
Other assets.............................................................. 2,315.7 2,379.2
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$ 29,311.3 $ 28,273.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 640.8 $ 770.9
Accrued interest.................................................... 120.3 234.9
Accrued compensation................................................ 397.3 340.6
Participants' share, residuals and royalties payable................ 796.7 630.0
Other current liabilities........................................... 2,363.1 2,154.8
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Total current liabilities...................................... 4,318.2 4,131.2
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Long-term debt........................................................... 10,892.2 10,402.4
Other liabilities........................................................ 2,067.2 1,948.5
Commitments and contingencies (See Note 10)
Shareholders' Equity:
Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 24.0 shares issued and outstanding................. 1,200.0 1,200.0
Class A Common Stock, par value $.01 per share;
200.0 shares authorized; 74.9 (1995) and 74.6 (1994)
shares issued and outstanding.................................. .8 .7
Class B Common Stock, par value $.01 per share;
1,000.0 shares authorized; 293.4 (1995) and 284.1 (1994)
shares issued and outstanding.................................. 2.9 2.8
Additional paid-in capital.......................................... 10,647.5 10,579.5
Retained earnings................................................... 183.6 10.6
Cumulative translation adjustment................................... (1.1) (2.0)
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12,033.7 11,791.6
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$ 29,311.3 $ 28,273.7
============= ============
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
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NET CASH FROM OPERATING ACTIVITIES:
Net earnings...................................................................... $ 218.0 $ 139.8
Adjustments to reconcile net earnings to net cash flow from operating activities:
Depreciation and amortization................................................... 608.5 277.8
Gain on the sale of an investment (See Note 5).................................. (26.9) --
Equity in (earnings) losses of affiliated companies............................. 29.4 (12.3)
Merger-related charges (See Note 2)............................................. -- 332.1
Gain on sale of Lifetime, net of tax (See Note 5)............................... -- (164.4)
Extraordinary loss, net of tax (See Note 7)..................................... -- 20.4
Increase in receivables......................................................... (403.6) (305.8)
Increase in inventory and related liabilities, net.............................. (217.8) (222.0)
(Decrease) increase in accounts payable and accrued expenses.................... (666.8) .7
Increase (decrease) in income taxes payable and
deferred income taxes, net................................................... 46.4 (182.9)
Increase in pre-publication costs, net.......................................... (45.7) (21.4)
(Increase) decrease in prepaid expenses and other current assets................ (129.6) 72.4
(Increase) decrease in unbilled receivables..................................... (69.8) 13.8
Other, net...................................................................... (46.7) 74.9
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NET CASH FLOW FROM OPERATING ACTIVITIES........................................... (704.6) 23.1
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INVESTING ACTIVITIES:
Proceeds from dispositions..................................................... 1,436.1 317.6
Acquisitions, net of cash acquired............................................. (470.9) (6,309.9)
Capital expenditures........................................................... (506.3) (191.9)
Investments in and advances to affiliated companies............................ (93.9) (38.4)
Distributions from affiliated companies........................................ 64.1 23.9
Proceeds from sale of short-term investments................................... 248.0 128.4
Payments for purchase of short-term investments................................ (258.3) (81.1)
Other, net..................................................................... 8.1 (12.5)
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NET CASH FLOW FROM INVESTING ACTIVITIES........................................... 426.9 (6,163.9)
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FINANCING ACTIVITIES:
Short-term borrowings from (repayments to) banks, net.......................... (754.9) 3,625.0
Proceeds from issuance of 7.75% Senior Notes................................... 990.4 --
Proceeds from issuance of Class B Common Stock................................. -- 1,250.0
Settlement of CVRs............................................................. (81.9) --
Payment of Preferred Stock dividends........................................... (45.0) (57.7)
Proceeds from exercise of stock options........................................ 149.9 2.6
Deferred financing fees........................................................ (10.9) (87.1)
Other, net..................................................................... (18.8) (20.7)
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NET CASH FLOW FROM FINANCING ACTIVITIES........................................... 228.8 4,712.1
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Net decrease in cash and cash equivalents...................................... (48.9) (1,428.7)
Cash and cash equivalents at beginning of the period........................... 597.7 1,882.4
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CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................ $ 548.8 $ 453.7
============ =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, net of amounts capitalized......................... $ 737.4 $ 226.9
Cash payments for income taxes................................................. 313.9 44.4
NON CASH INVESTING AND FINANCING:
Property and equipment acquired under capitalized leases....................... 242.2 26.5
Paramount Merger Consideration................................................. -- 2,930.3
Blockbuster Merger Consideration............................................... -- 7,622.8
Settlement of VCRs with Class B Common Stock................................... 402.6 --
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
Viacom Inc. (the "Company") is a diversified entertainment and publishing
company with operations in five segments: (i) Networks and Broadcasting, (ii)
Entertainment, (iii) Video and Music/Theme Parks, (iv) Publishing and (v) Cable
Television. Paramount Communications Inc. and subsidiaries ("Paramount") and
Blockbuster Entertainment Corporation and subsidiaries ("Blockbuster") results
of operations are included in the Company's consolidated results of operations
commencing March 1, 1994, and October 1, 1994, respectively. (See Note 2.)
The accompanying unaudited consolidated financial statements of the Company have
been prepared pursuant to the rules of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the more detailed
financial statements and notes thereto included in the Company's most recent
annual report on Form 10-K.
The financial statements reflect, in the opinion of management, all normal
recurring adjustments necessary to present fairly the financial position and
results of operations of the Company. Certain previously reported amounts have
been reclassified to conform with the current presentation.
Net earnings per common share -- Primary net earnings per common share is
calculated based on the weighted average number of common shares outstanding
during each period and, if dilutive, the effects of common shares potentially
issuable in connection with variable common rights ("VCRs"), stock options and
warrants and, in 1994, the contingent value rights ("CVRs"). For the third
quarter of 1994, fully diluted earnings per common share also reflects the
effect of the assumed conversion of the Preferred Stock. For each of the other
periods presented, the effect of the assumed conversion of the Preferred Stock
is antidilutive and, therefore, is not reflected in fully diluted net earnings
per common share.
2) PARAMOUNT MERGER, BLOCKBUSTER MERGER AND RELATED TRANSACTIONS
On March 11, 1994, the Company 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 the Company (the "Paramount Merger") at the
effective time of the merger between Paramount and a subsidiary of the Company.
On January 3, 1995, Paramount was merged into Viacom International Inc. ("Viacom
International"), a wholly owned subsidiary of the Company.
On July 7, 1995, the CVRs, which were issued in connection with the Paramount
Merger, matured. The Company paid approximately $82 million in cash, or
approximately $1.44 per CVR, to settle its obligation under the CVRs.
Results of operations for the nine months ended September 30, 1994, include
certain merger-related charges to the Company's pre-merger businesses reflecting
the integration with similar Paramount units, and related management and
strategic changes principally related to the merger with
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Paramount. The merger-related charges of $90.7 million for Networks and
Broadcasting, and $224.0 million for Entertainment principally relate to
adjustments of programming assets based upon new management strategies and
additional programming sources resulting from the merger with Paramount, and
also include a charge of $17.4 million to reflect the combination of Viacom
International and Paramount staffs.
On September 29, 1994, Blockbuster was merged with and into the Company (the
"Blockbuster Merger").
On September 29, 1995, the VCRs which were issued in connection with the
Blockbuster Merger, matured. The Company issued approximately 6.1 million shares
of Viacom Inc. Class B Common Stock, or .022665 of Viacom Inc. Class B Common
Stock per VCR, to settle its obligation under the VCRs.
The unaudited condensed pro forma results of operations data for the nine months
ended September 30, 1994 presented below assumes that the (i) Paramount Merger,
(ii) Blockbuster Merger, (iii) Paramount acquisition of the U.S. publishing
assets of Macmillan Inc. (i, ii, and iii being referred to as the "Mergers"),
(iv) sale of the one-third partnership interest in Lifetime and (v) sale of
Madison Square Garden Corporation (see Note 4) occurred on January 1, 1994. The
unaudited condensed pro forma results of operations data was prepared based upon
the historical consolidated results of operations of the Company for the nine
months ended September 30, 1994, Paramount and Macmillan for the two months
ended February 28, 1994, and Blockbuster for the nine months ended September 30,
1994, adjusted to exclude the non-recurring merger-related charges of $332.1
million. Financial information for Paramount and Blockbuster subsequent to the
dates of acquisition are included in the Company's historical information. The
following unaudited pro forma information is not necessarily indicative of the
combined results of operations of the Company, Paramount and Blockbuster that
would have occurred if the completion of the transactions had occurred on the
date previously indicated nor are they necessarily indicative of future
operating results of the combined company (millions of dollars, except per share
amounts):
Revenues $ 7,344.2
Earnings from continuing operations............................... 733.6
Net earnings from continuing operations before preferred
stock dividends................................................. 146.5
Net earnings attributable to common stock......................... 101.5
Primary and fully diluted earnings per common share............... $ .25
During each of the periods presented, the Company has also acquired or sold
certain other businesses. The contribution of these businesses in the
aggregate are not significant, nor are they expected to have a material effect
on the Company's results on a continuing basis.
3) POTENTIAL TRANSACTIONS
On August 10, 1995, the Company announced its intent to sell Spelling
Entertainment Group Inc. ("Spelling"). The Company also announced its intent to
acquire Spelling's interest in Virgin Interactive Entertainment Limited
("Virgin"). An independent committee of Spelling's Board of Directors has been
00000d to negotiate the terms of the Virgin transaction. The Company acquired
Spelling and Virgin as a part of the Blockbuster Merger.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During July 1995, the Company entered into an agreement to split-off its cable
systems to its shareholders through a dutch-auction exchange offer. The exchange
offer will allow shareholders to exchange shares of Viacom Inc. Class A or Class
B Common Stock for shares of cumulative, redeemable exchangeable preferred stock
of a subsidiary of Viacom that holds its cable systems. Prior to the
consummation of the exchange offer, such subsidiary will enter into a $1.7
billion credit agreement, the proceeds of which will be transferred to another
subsidiary of Viacom. The Company also entered into a definitive agreement with
Tele-Communications, Inc. ("TCI") under which a subsidiary of TCI, through a
capital contribution of $350 million in cash, will purchase all of the common
shares of such subsidiary immediately following the split-off. National
Amusements, Inc., which owns approximately 25% of Viacom Inc. Class A and Class
B Common Stock on a combined basis, will not participate in the exchange offer.
The exchange offer and related transactions are subject to several conditions,
including regulatory approvals, receipt of a tax ruling and consummation of the
exchange offer. The Company expects, if the conditions are met, the transactions
will close in the first quarter of 1996.
4) DISPOSITION
On March 10, 1995, the Company sold Madison Square Garden Corporation, which
included the Madison Square Garden Arena, The Paramount theater, the New York
Knickerbockers, the New York Rangers and the Madison Square Garden Network
(collectively "MSG") to a joint venture of ITT Corporation and Cablevision
Systems Corporation for closing proceeds of $1.009 billion, representing the
sale price of approximately $1.075 billion, less approximately $66 million in
working capital adjustments. MSG was acquired by the Company as part of
Paramount with its book value recorded at fair value and therefore no gain was
recorded on its sale. Proceeds from the sale of MSG and other dispositions were
used to repay notes payable to banks, of which approximately $600 million
represents a permanent reduction of the Company's bank commitments.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MSG has been accounted for as a discontinued operation and, accordingly, its
operating results and net assets have been separately disclosed in the
consolidated financial statements. Summarized results of operations and
financial position data for MSG, reflected in the Company's financial
statements, are as follows (millions of dollars, except per share amounts):
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
RESULTS OF OPERATIONS: 1995(1) 1994 1994
---- ---- ----
Revenues............................................... $91.5 $192.8 $36.3
Earnings (loss) from operations before
income taxes...................................... 12.7 (8.3) (13.0)
(Provision) benefit for income taxes................... (5.1) 3.3 5.2
Net earnings (loss).................................... 7.6 (5.0) (7.8)
Net earnings (loss) per common share................... $.02 $(.03) $(.04)
FINANCIAL POSITION: DECEMBER 31, 1994
-----------------
Current assets......................................... $107.8
Net property, plant and equipment...................... 312.9
Other assets........................................... 409.4
Total liabilities...................................... (132.7)
------
Net assets of discontinued operations.................. $697.4
=======
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(1) Reflects results of operations through disposition.
5) OTHER ITEMS, NET
For the nine months ended September 30, 1995, "Other items, net" primarily
reflects a gain on the sale of an investment.
On April 4, 1994, the Company sold its one-third partnership interest in
Lifetime for $317.6 million, which resulted in a pre-tax gain of $267.4 million
for the second quarter of 1994. Proceeds from the sale were used to reduce
outstanding debt of Viacom International.
6) 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 61% for
1995 and negative 54% for 1994 continue to be affected by amortization of
acquisition costs in excess of amounts which are deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale of the
one-third partnership interest in Lifetime, the full income tax effect of the
transaction was reflected in the second quarter of 1994, and was excluded from
the annual effective tax rate.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7) EXTRAORDINARY LOSS
During 1994, the Company and its subsidiaries entered into credit facilities,
the proceeds from which were used to refinance the previously existing bank debt
of the Company and Viacom International. The Company recognized an extraordinary
loss from the extinguishment of debt of $20.4 million, net of a tax benefit of
$11.9 million, or $.12 per share for the nine months ended September 30, 1994.
8) INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, 1995 DECEMBER 31, 1994
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(Millions of dollars)
Prerecorded music and video cassettes .......................... $ 464.1 $ 509.2
Video cassette rental inventory................................. 437.6 297.6
Publishing:
Finished goods............................................ 298.3 218.9
Work in process........................................... 35.1 35.8
Material and supplies..................................... 49.8 27.1
Other........................................................... 87.1 73.8
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1,372.0 1,162.4
Less current portion...................................... 934.5 830.9
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$ 437.5 $ 331.5
============= ============
Theatrical and television inventory:
Theatrical and television productions:
Released............................................. $ 1,624.8 $ 1,488.0
Completed, not released.............................. 33.6 12.8
In process and other................................. 355.6 260.8
Program rights............................................ 980.8 838.3
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2,994.8 2,599.9
Less current portion...................................... 1,275.2 986.9
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$ 1,719.6 $ 1,613.0
============= ============
Total non-current inventory..................................... $ 2,157.1 $ 1,944.5
============= ============
9) LONG-TERM DEBT
During May 1995, the Company issued an aggregate principal amount of $1 billion
of 7.75% Senior Notes due June 1, 2005 at a price to the public of 99.04%.
Proceeds from the issuance were used to repay notes payable to banks, of which
approximately $400 million was a permanent reduction of the Company's bank
commitments.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1995, estimated to aggregate
approximately $2.2 billion, principally reflect commitments under Showtime
Networks Inc.'s ("SNI's") exclusive arrangements with several motion picture
companies. This estimate is based upon a number of factors. A majority of such
fees are payable over several years, as part of normal programming expenditures
of SNI. These commitments are contingent upon delivery of motion pictures, which
are not yet available for premium television exhibition and, in many cases, have
not yet been produced.
11) 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.
The Company has determined that separate financial statements and other
disclosures concerning Viacom International are not material to investors. On
January 3, 1995, Paramount Communications Inc. was merged into Viacom
International and, therefore, Viacom International holds the assets of Paramount
Communications Inc., subject to its liabilities including approximately $1.0
billion of issuances of long-term debt.
The following condensed consolidating financial statements as of and for the
three months and nine months ended September 30, 1995, present the results of
operations, financial position and cash flows of Viacom (carrying investments in
Viacom International under the equity method), Viacom International (carrying
investments in non-guarantor affiliates under the equity method), and
non-guarantor affiliates of Viacom, and the eliminations necessary to arrive at
the information for the Company on a consolidated basis. Viacom International's
statement of operations for the three months and nine months ended September 30,
1994 and statement of cash flows for the nine months ended September 30, 1994,
and the condensed consolidating balance sheet of the Company as of December 31,
1994, as previously filed on Form 10-Q and Form 10-K, respectively, are
incorporated by reference herein.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1995
NON- THE
VIACOM GUARANTOR COMPANY
VIACOM INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
------ ------------- ---------- ------------ ------------
(In millions)
Revenues..................................... $ 880.5 $ 264.0 $ 1,922.4 $ (4.5) $ 3,062.4
Expenses:
Operating................................ 630.0 79.0 1,061.9 (4.5) 1,766.4
Selling, general and administrative...... 61.6 108.8 415.1 -- 585.5
Depreciation and amortization............ 78.3 11.3 131.3 -- 220.9
----------- ---------- ----------- --------- ----------
Total expenses...................... 769.9 199.1 1,608.3 (4.5) 2,572.8
----------- ---------- ----------- ---------- ----------
Earnings from continuing operations.......... 110.6 64.9 314.1 -- 489.6
Other income (expense):
Interest expense, net.................... (177.1) (25.9) (6.1) -- (209.1)
Other items, net......................... -- (1.6) (6.4) -- (8.0)
----------- ----------- ------------ --------- -----------
Earnings (loss) from continuing operations
before income taxes...................... (66.5) 37.4 301.6 -- 272.5
Benefit (provision) for income taxes..... 12.9 (15.8) (163.4) -- (166.3)
Equity in earnings of affiliated
companies, net of tax.................. 145.6 133.1 (15.0) (277.9) (14.2)
Minority interest........................ 1.8 -- -- -- 1.8
----------- ---------- ----------- --------- ----------
Net earnings from continuing operations...... 93.8 154.7 123.2 (277.9) 93.8
Cumulative convertible preferred
stock dividend requirement............. (15.0) -- -- -- (15.0)
------------ ---------- ----------- --------- -----------
Net earnings attributable to common stock.... $ 78.8 $ 154.7 $ 123.2 $ (277.9) $ 78.8
=========== ========== =========== ========== ==========
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
NON- THE
VIACOM GUARANTOR COMPANY
VIACOM INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
------ ------------- ---------- ------------ ------------
(In millions)
Revenues......................................... $ 2,586.4 $ 682.1 $ 5,364.5 $ (9.8) $ 8,623.2
Expenses:
Operating.................................... 1,746.0 213.5 3,249.7 (9.8) 5,199.4
Selling, general and administrative.......... 209.4 303.8 1,089.2 -- 1,602.4
Depreciation and amortization................ 222.5 31.1 354.9 -- 608.5
----------- ---------- ----------- ----------- -----------
Total expenses.......................... 2,177.9 548.4 4,693.8 (9.8) 7,410.3
----------- ---------- ----------- ------------ -----------
Earnings from continuing operations.............. 408.5 133.7 670.7 -- 1,212.9
Other income (expense):
Interest expense, net........................ (521.9) (72.3) (18.0) -- (612.2)
Other items, net............................. -- 25.7 (7.4) -- 18.3
----------- ---------- ------------ ----------- -----------
Earnings (loss) from continuing operations
before income taxes.......................... (113.4) 87.1 645.3 -- 619.0
Benefit (provision) for income taxes......... 4.5 (43.6) (338.5) -- (377.6)
Equity in earnings of affiliated
companies, net of tax...................... 328.5 314.3 8.6 (680.8) (29.4)
Minority interest............................ (1.6) -- -- -- (1.6)
------------ ---------- ----------- ----------- ------------
Net earnings from continuing operations.......... 218.0 357.8 315.4 (680.8) 210.4
Earnings from discontinued
operations, net of tax .................... -- -- 7.6 -- 7.6
----------- ---------- ----------- ----------- -----------
Net earnings 218.0 357.8 323.0 (680.8) 218.0
Cumulative convertible preferred
stock dividend requirement................. (45.0) -- -- -- (45.0)
------------ ---------- ----------- ----------- ------------
Net earnings attributable to common stock........ $ 173.0 $ 357.8 $ 323.0 $ (680.8) $ 173.0
=========== ========== =========== =========== ===========
- 13 -
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
---------------------------------------------------------
NON-
VIACOM GUARANTOR
VIACOM INTERNATIONAL AFFILIATES
------ ------------- ----------
(In millions)
ASSETS
Current Assets:
Cash and cash equivalents............ $ 216.3 $ 299.8 $ 32.7
Receivables, less allowances......... 223.9 241.0 1,594.6
Inventory............................ 713.1 115.2 1,381.4
Other current assets................. 99.3 109.3 452.3
------------ ------------- ---------------
Total current assets.............. 1,252.6 765.3 3,461.0
------------ ------------- ---------------
Property and equipment..................... 997.8 220.5 2,501.2
Less accumulated depreciation........ 110.1 38.9 566.5
------------ ------------- ---------------
Net property and equipment......... 887.7 181.6 1,934.7
------------ ------------- ---------------
Inventory.................................. 538.4 157.2 1,461.5
Intangibles, at amortized cost............. 7,187.3 573.9 8,623.7
Investments in consolidated subsidiaries... 1,992.7 11,166.5 --
Other assets............................... 849.4 313.3 1,856.3
------------ ------------- ---------------
$ 12,708.1 $ 13,157.8 $ 17,337.2
============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................... $ 286.7 $ 14.1 $ 344.4
Accrued interest...................... 95.1 24.5 0.7
Accrued compensation.................. 35.0 120.3 242.0
Participants' share, residuals and
royalties payable................. 82.0 -- 714.7
Other current liabilities............. 729.8 1,211.6 1,412.9
------------ ------------- ---------------
Total current liabilities........... 1,228.6 1,370.5 2,714.7
------------ ------------- ---------------
Long-term debt............................. 8,934.4 1,557.3 580.9
Other liabilities.......................... (10,225.5) 200.7 11,755.4
Shareholders' equity:
Preferred Stock....................... 1,200.0 -- --
Common Stock.......................... 3.7 212.3 722.9
Additional paid-in capital............ 10,647.5 8,712.4 1,162.7
Retained earnings..................... 927.3 1,080.4 418.0
Cumulative translation adjustment..... (7.9) 24.2 (17.4)
------------- ------------- ----------------
Total shareholders' equity.... 12,770.6 10,029.3 2,286.2
------------ ------------- ---------------
$ 12,708.1 $ 13,157.8 $ 17,337.2
============ ============= =============
SEPTEMBER 30, 1995
----------------------------------
THE
COMPANY
ELIMINATIONS CONSOLIDATED
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents............ $ -- $ 548.8
Receivables, less allowances......... (17.5) 2,042.0
Inventory............................ -- 2,209.7
Other current assets................. (11.8) 649.1
------------- -------------
Total current assets.............. (29.3) 5,449.6
------------- -------------
Property and equipment..................... -- 3,719.5
Less accumulated depreciation........ -- 715.5
------------- -------------
Net property and equipment......... -- 3,004.0
------------- -------------
Inventory.................................. -- 2,157.1
Intangibles, at amortized cost............. -- 16,384.9
Investments in consolidated subsidiaries... (13,159.2) --
Other assets............................... (703.3) 2,315.7
-------------- -------------
$ (13,891.8) $ 29,311.3
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................... $ (4.4) $ 640.8
Accrued interest...................... -- 120.3
Accrued compensation.................. -- 397.3
Participants' share, residuals and
royalties payable................. -- 796.7
Other current liabilities............. (991.2) 2,363.1
-------------- -------------
Total current liabilities........... (995.6) 4,318.2
-------------- -------------
Long-term debt............................. (180.4) 10,892.2
Other liabilities.......................... 336.6 2,067.2
Shareholders' equity:
Preferred Stock....................... -- 1,200.0
Common Stock.......................... (935.2) 3.7
Additional paid-in capital............ (9,875.1) 10,647.5
Retained earnings..................... (2,242.1) 183.6
Cumulative translation adjustment..... -- (1.1)
-------------- --------------
Total shareholders' equity.... (13,052.4) 12,033.7
-------------- -------------
$ (13,891.8) $ 29,311.3
============== =============
- 14 -
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 1995
----------------------------------------------------------------------------
NON- THE
VIACOM GUARANTOR COMPANY
VIACOM INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
(In millions)
NET CASH FLOW FROM OPERATING ACTIVITIES.......... $ (191.2) $ (30.6) $ (482.8) $ $ (704.6)
--------- ---------- --------- ----------- -------------
INVESTING ACTIVITIES:
Proceeds from dispositions....................... -- 1,036.1 400.0 -- 1,436.1
Acquisitions, net of cash acquired............... (123.7) -- (347.2) -- (470.9)
Capital expenditures............................. (222.4) (123.7) (160.2) -- (506.3)
Investments in and advances to
affiliated companies......................... (25.1) (51.8) (17.0) -- (93.9)
Distributions from affiliated companies.......... -- -- 64.1 -- 64.1
Proceeds from sale of short-term investments..... -- 248.0 -- -- 248.0
Payments for purchase of short-term
investments.................................. -- (258.3) -- -- (258.3)
Other, net....................................... 10.3 -- (2.2) -- 8.1
--------- ---------- --------- ------------ ---------
NET CASH FLOW FROM INVESTING ACTIVITIES.......... (360.9) 850.3 (62.5) -- 426.9
---------- --------- --------- ------------ ---------
FINANCING ACTIVITIES:
Short-term borrowings from (repayments to)
banks, net................................... (758.9) -- 4.0 -- (754.9)
Proceeds from issuance of 7.75% Senior Notes..... 990.7 -- -- -- 990.7
Increase (decrease) in intercompany
payables .................................... 393.7 (582.7) 189.0 -- --
Settlement of CVRs............................... (81.9) -- -- -- (81.9)
Payment of Preferred Stock dividends............. (45.0) -- -- -- (45.0)
Proceeds from exercise of stock options.......... 149.9 -- -- -- 149.9
Deferred financing fees.......................... (10.9) -- -- -- (10.9)
Other, net....................................... (4.8) (0.6) (13.7) -- (19.1)
------------ ------------- ------------ ------------ ------------
NET CASH FLOW FROM FINANCING ACTIVITIES.......... 632.8 (583.3) 179.3 -- 228.8
----------- ------------- ----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents........................ 80.7 236.4 (366.0) -- (48.9)
Cash and cash equivalents at beginning
of period............................... 135.6 63.4 398.7 -- 597.7
----------- ------------ ----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 216.3 $ 299.8 $ 32.7 $ -- $ 548.8
========= ============ =========== ============ ============
- 15 -
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 should be read in conjunction with the Consolidated
Financial Statements and related Notes.
During 1994, the Company made two significant acquisitions. Where appropriate,
the Company has merged the operations of previously existing and acquired
businesses. Comparisons of results of operations have been significantly
affected by such acquisitions and merging of operations. On March 11, 1994, the
Company 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 the Company at the effective time of the merger between Paramount
and a subsidiary of the Company. On September 29, 1994, Blockbuster was merged
with and into the Company. On January 3, 1995, Paramount was merged into Viacom
International, a wholly owned subsidiary of the Company. Paramount's and
Blockbuster's results of operations are included in the consolidated results of
operations commencing March 1, 1994, and October 1, 1994, respectively.
The following tables set forth revenues; earnings (loss) from continuing
operations before interest, taxes, depreciation and amortization ("EBITDA"); and
earnings (loss) from continuing operations, by business segment, with the three
months and nine months ended September 30, 1994 presented on a pro forma basis
(as described in Note 2 of Notes to Consolidated Financial Statements) and on a
historical basis. The pro forma information is provided in addition to
historical information solely to assist in the comparison of results of
operations and is not necessarily indicative of the combined results of
operations of Viacom, Paramount and Blockbuster that would have occurred if the
completion of the Mergers and related transactions had occurred on January 1,
1994. The prior period historical segment presentation has been reclassified to
conform to the current presentation.
Also included is a comparison of actual EBITDA to pro forma EBITDA, which does
not reflect the effect of significant amounts of amortization of goodwill
related to the Mergers, and other business combinations accounted for under the
purchase method of accounting. While many in the financial community consider
EBITDA to be an important measure of comparative operating performance, it
should be considered in addition to, but not as a substitute for or superior to,
earnings from continuing operations, net income, cash flow and other measures of
financial performance.
- 16 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED PERCENT THREE MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30, 1994
---------------------- ------ ------------------
1995 1994
---- ----
PRO FORMA HISTORICAL
(In millions)
REVENUES:
Networks and Broadcasting........................ $ 551.1 $ 478.7 15% $ 478.7
Entertainment.................................... 736.8 814.1 (9) 677.3
Video and Music/Theme Parks...................... 938.6 816.5 15 187.3
Publishing....................................... 735.3 700.8 5 700.8
Cable Television................................. 114.0 100.4 14 100.4
Intercompany..................................... (13.4) (9.3) (44) (9.1)
-------- -------- ----------
Total................................... $3,062.4 $2,901.2 6 $ 2,135.4
======== ======== ==========
EBITDA:
Networks and Broadcasting........................ $ 184.9 $ 150.8 23% $ 150.7
Entertainment.................................... 71.5 144.7 (51) 132.8
Video and Music/Theme Parks...................... 228.7 191.2 20 48.5
Publishing....................................... 211.3 204.6 3 204.6
Cable Television................................. 47.7 36.5 31 36.5
Corporate........................................ (33.6) (33.3) (1) (33.4)
--------- --------- ----------
Total................................... $ 710.5 $ 694.5 2 $ 539.7
======== ======== ==========
EARNINGS (LOSS) FROM CONTINUING OPERATIONS:
Networks and Broadcasting........................ $ 155.5 $ 125.9 24% $ 125.9
Entertainment.................................... 36.4 115.5 (68) 108.9
Video and Music/Theme Parks...................... 135.9 101.7 34 30.3
Publishing....................................... 170.3 175.3 (3) 175.3
Cable Television................................. 27.0 17.2 57 17.2
Corporate........................................ (35.5) (34.6) (3) (34.8)
-------- -------- ----------
Total................................... $ 489.6 $ 501.0 (2) $ 422.8
======== ======== ==========
- 17 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NINE MONTHS ENDED PERCENT NINE MONTHS ENDED
SEPTEMBER 30, CHANGE SEPTEMBER 30,
1995 1994 1994
---- ---- ----
PRO FORMA HISTORICAL
(In millions)
REVENUES:
Networks and Broadcasting........................ $ 1,536.3 $ 1,345.0 14% $ 1,314.1
Entertainment.................................... 2,743.7 2,024.4 36 1,370.9
Video and Music/Theme Parks...................... 2,447.4 2,161.1 13 323.7
Publishing....................................... 1,600.8 1,541.1 4 1,300.0
Cable Television................................. 330.0 304.6 8 304.6
Intercompany..................................... (35.0) (32.0) (9) (27.5)
---------- --------- ----------
Total................................... $ 8,623.2 $ 7,344.2 17 $ 4,585.8
========== ========= ==========
EBITDA:
Networks and Broadcasting........................ $ 484.4 $ 390.0 24% $ 294.3
Entertainment.................................... 409.4 200.5 104 (59.0)
Video and Music/Theme Parks...................... 638.6 471.3 35 72.7
Publishing....................................... 258.1 212.1 22 254.1
Cable Television................................. 135.0 117.5 15 117.5
Corporate........................................ (104.1) (92.3) (13) (99.9)
---------- --------- ----------
Total................................... $ 1,821.4 $ 1,299.1 40 $ 579.7
========== ========= ==========
EARNINGS (LOSS) FROM CONTINUING OPERATIONS:
Networks and Broadcasting........................ $ 402.2 $ 316.3 27% $ 226.4
Entertainment.................................... 306.6 107.7 185 (110.6)
Video and Music/Theme Parks...................... 394.7 228.0 73 39.2
Publishing....................................... 144.6 118.7 22 191.3
Cable Television................................. 73.9 59.8 24 59.8
Corporate........................................ (109.1) (96.9) (13) (104.2)
---------- --------- ----------
Total................................... $ 1,212.9 $ 733.6 65 $ 301.9
========== ========= ==========
RESULTS OF OPERATIONS - THIRD QUARTER 1995 VERSUS THIRD QUARTER 1994
- --------------------------------------------------------------------
Revenues increased to $3.1 billion for the third quarter of 1995 from $2.1
billion for the third quarter of 1994. EBITDA increased to $710.5 million for
the third quarter of 1995 from $539.7 million for the third quarter of 1994.
Earnings from continuing operations increased to $489.6 million for the third
quarter of 1995 from $422.8 million for the third quarter of 1994.
The comparability of results of operations for 1995 and 1994 has been affected
by the Mergers and the non-recurring merger-related charges (see Note 2 of Notes
to Consolidated Financial Statements). The following discussion of segment
results of operations includes the 1994 results of operations presented on a pro
forma basis, as if the Mergers occurred on January 1, 1994, and are adjusted to
exclude non-recurring merger-related charges.
Revenues increased 6% to $3.1 billion for the third quarter of 1995 from pro
forma revenues of $2.9 billion for the third quarter of 1994. EBITDA increased
2% to $710.5 million for the third quarter of 1995 from pro forma EBITDA of
$694.5 million for the third quarter of 1994. Earnings from continuing
operations decreased 2% to $489.6 million for the third quarter of 1995 from pro
forma earnings from operations of $501.0 million for the third quarter of 1994.
- 18 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SEGMENT RESULTS OF OPERATIONS - HISTORICAL 1995 VERSUS PRO FORMA 1994
NETWORKS AND BROADCASTING (Basic Cable and Premium Television Networks,
Television and Radio Stations)
The Networks and Broadcasting segment is comprised of MTV Networks ("MTVN"),
SNI, television stations and radio stations. Revenues increased 15% to $551.1
million for the third quarter of 1995 from $478.7 million for the third quarter
of 1994. EBITDA increased 23% to $184.9 million for the third quarter of 1995
from $150.8 million for the third quarter of 1994. Earnings from operations
increased 24% to $155.5 million for the third quarter of 1995 from $125.9
million for the third quarter of 1994. MTVN revenues of $274.0 million, EBITDA
of $117.3 million and earnings from operations of $103.4 million increased 26%,
20% and 19%, respectively. The increase in MTVN's revenues was principally
attributable to higher advertising revenues due to rate increases. MTVN's EBITDA
and earnings from operations gains were driven by the increased advertising
revenues partially offset by higher operating costs, as well as aggregate losses
of $1.0 million and $4.8 million for 1995 and 1994, respectively, associated
with the development of MTV Latino, VH-1 UK, Nickelodeon Magazine and The Goods.
SNI's revenues remained constant, EBITDA increased 68% and earnings from
operations increased 80% reflecting an increase of 1.7 million subscribers from
September 30, 1994, lower programming and operating expenses, and the absence in
1995 of royalty revenues resulting from the settlement of an audit during 1994.
The television and radio stations revenues increased 15%, EBITDA increased 9%
and earnings from operations increased 11% primarily reflecting increased
advertising revenues and the Company's acquisition of television stations in
large markets, offset by the disposition of television stations in smaller
markets.
ENTERTAINMENT (Motion Pictures and Television Programming, Movie Theaters, and
New Media and Interactive Services)
The Entertainment segment is comprised of Paramount Pictures, Paramount
Television, Spelling Entertainment Group Inc. ("Spelling"), and the former
Viacom Entertainment. Revenues decreased 9% to $736.8 million for the third
quarter of 1995 from $814.1 million for the third quarter of 1994. EBITDA
decreased 51% to $71.5 million for the third quarter of 1995 from $144.7 million
for the third quarter of 1994. Earnings from operations decreased 68% to $36.4
million for the third quarter of 1995 from $115.5 million for the third quarter
of 1994. The decrease in results of operations is attributable to a number of
factors, most notably the strong domestic box office performance of Paramount
Pictures' Forrest Gump and Clear and Present Danger in 1994, partially offset by
a stronger mix of home video releases in 1995 as compared to 1994.
- 19 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
VIDEO AND MUSIC/THEME PARKS
The Video and Music/Theme Parks segment is comprised of Blockbuster Video and
Music, and Paramount Parks. Revenues increased 15% to $938.6 million for the
third quarter of 1995 from $816.5 million for the third quarter of 1994. EBITDA
increased 20% to $228.7 million for the third quarter of 1995 from $191.2
million for the third quarter of 1994. Earnings from operations increased 34% to
$135.9 million for the third quarter of 1995 from $101.7 million for the third
quarter of 1994. The gains in results of operations primarily reflect the
increased number of domestic Company-owned video stores in operation in 1995 as
compared to 1994, partially offset by a slight decrease in same-store sales and
increased overall operating and overhead expenses. Music stores revenues
increased $7.3 million, EBITDA and earnings from operations decreased $2.6
million and $3.6 million, respectively, reflecting the highly competitive music
retail environment. The Theme Parks are primarily open during the second and
third quarters and therefore typically record the majority of revenues, EBITDA
and earnings from operations during those periods. Theme Parks revenues
increased $5.8 million, EBITDA increased $4.9 million and earnings from
operations increased $1.5 million primarily reflecting increased attendance
partially offset by increased operating and depreciation expenses.
PUBLISHING (Education; Consumer; and International, Business and Professional)
Revenues increased 5% to $735.3 million for the third quarter of 1995 from
$700.8 million for the third quarter of 1994. EBITDA increased 3% to $211.3
million for the third quarter of 1995 from $204.6 million for the third quarter
of 1994. Earnings from operations decreased 3% to $170.3 million for the third
quarter of 1995 from $175.3 million for the third quarter of 1994. Results of
operations primarily reflect increased Education Group sales with the strongest
improvements in the Secondary and Higher Education groups due to increased
adoption opportunities. These results were partially offset by lower operating
results for the Consumer group, which reflect increased operating costs and
depreciation and amortization expenses, partially offset by a generally stronger
mix of titles in 1995 as compared to 1994.
CABLE TELEVISION (Cable Television Systems)
Cable Television revenues increased 14% to $114.0 million for the third quarter
of 1995 from $100.4 million for the third quarter of 1994, primarily
attributable to increased primary, premium and pay-per-view revenues. EBITDA
increased 31% to $47.7 million for the third quarter of 1995 from $36.5 million
for the third quarter of 1994. Earnings from operations increased 57% to $27.0
million for the third quarter of 1995 from $17.2 million for the third quarter
of 1994. The increased results of operations reflect a 10% and 4% increase in
average premium and primary customers, respectively, a 9% increase in primary
rates, partially offset by a 4% decrease for the average premium rate. Total
revenues per primary customer per month increased 9% to $32.72 for the third
quarter of 1995 from $29.90 for the third quarter of 1994.
On July 24, 1995, Viacom announced a multi-step transaction which, if completed,
would result in the split-off of its cable operations and the subsequent
acquisition of such subsidiary by Tele-Communications, Inc. (see Note 3 of Notes
to Consolidated Financial Statements.)
- 20 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME AND EXPENSE INFORMATION
- ------------------------------------
Interest Expense, net
Net interest expense of $209.1 million for the third quarter of 1995 increased
from $162.5 million for the third quarter of 1994 reflecting the issuance of the
7.75% senior notes and debt acquired as part of the Blockbuster Merger. The
Company had approximately $10.9 billion and $10.2 billion principal amount of
debt outstanding (including current maturities) as of September 30, 1995, and
September 30, 1994, respectively, at weighted average interest rates of 7.6% and
7.4%, respectively.
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 61% for
1995 and negative 54% for 1994 continue to be affected by amortization of
acquisition costs in excess of amounts which are deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale of the
one-third partnership interest in Lifetime, the full income tax effect of the
transaction was reflected for the second quarter of 1994, and was excluded from
the annual effective tax rate.
Equity in Earnings of Affiliates
"Equity in losses of affiliated companies, net of tax" was $14.2 million for the
third quarter of 1995 as compared to "equity in earnings of affiliated
companies, net of tax" of $8.6 million for the third quarter of 1994, primarily
reflecting an equity loss related to the Company's 49.9% interest in Discovery
Zone and net losses of equity investments made in 1995.
Minority Interest
Minority interest primarily represents the minority ownership of Spelling common
stock for 1995 and the minority ownership of Paramount's outstanding common
stock for 1994.
Discontinued Operations
Discontinued operations reflects the results of operations of MSG, which was
sold March 10, 1995. The Company had acquired MSG during March 1994 as part of
Paramount. (See Note 4 of Notes to Consolidated Financial Statements.)
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995, VERSUS NINE
- --------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1994
- -------------------------------
Revenues increased to $8.6 billion for the nine months ended September 30, 1995,
from $4.6 billion for the nine months ended September 30, 1994. EBITDA increased
to $1.8 billion for the nine months ended September 30, 1995, from $579.7
million for the nine months ended September 30, 1994. Earnings from continuing
operations increased to $1.2 billion for the nine months ended September 30,
1995, from $301.9 million for the nine months ended September 30, 1994.
Revenues increased 17% to $8.6 billion for the nine months ended September 30,
1995, from pro forma revenues of $7.3 billion for the nine months ended
September 30, 1994. EBITDA increased 40% to $1.8 billion for the nine months
ended September 30, 1995, from pro forma EBITDA of $1.3
- 21 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
billion for the nine months ended September 30, 1994. Earnings from continuing
operations increased 65% to $1.2 billion for the nine months ended September 30,
1995, from pro forma earnings from operations of $733.6 million for the nine
months ended September 30, 1994.
SEGMENT RESULTS OF OPERATIONS - HISTORICAL 1995 VERSUS PRO FORMA 1994
- ---------------------------------------------------------------------
NETWORKS AND BROADCASTING (Basic Cable and Premium Television Networks,
Television and Radio Stations)
Revenues increased 14% to $1.5 billion for the nine months ended September 30,
1995, from $1.3 billion for the nine months ended September 30, 1994. EBITDA
increased 24% to $484.4 million for the nine months ended September 30, 1995,
from $390.0 million for the nine months ended September 30, 1994. Earnings from
operations increased 27% to $402.2 million for the nine months ended September
30, 1995, from $316.3 million for the nine months ended September 30, 1994. MTVN
revenues of $717.2 million, EBITDA of $289.5 million and earnings from
operations of $252.2 million increased 22%, 21% and 20%, respectively. The
increase in MTVN's revenues was principally attributable to higher advertising
revenues due to rate increases. MTVN's EBITDA and earnings from operations gains
were driven by the increased advertising revenues partially offset by higher
operating costs, as well as aggregate losses of $11.3 million and $10.8 million
for 1995 and 1994, respectively, associated with the development of MTV Latino,
VH-1 UK, Nickelodeon Magazine and The Goods. SNI's revenues increased 4%, EBITDA
increased 25% and earnings from operations increased 25% reflecting the
increased subscribers, partially offset by increased programming expenses and
the absence in 1995 of royalty revenue resulting from an audit adjustment during
1994. The television and radio stations revenue increased 15%, EBITDA increased
27% and earnings from operations increased 41% primarily reflecting increased
advertising revenues, lower operating expenses and the Company's acquisitions of
television stations in large markets, offset by the disposition of television
stations in smaller markets.
ENTERTAINMENT (Motion Pictures and Television Programming, Movie Theaters, and
New Media and Interactive Services)
Revenues increased 36% to $2.7 billion for the nine months ended September 30,
1995, from $2.0 billion for the nine months ended September 30, 1994. EBITDA
increased 104% to $409.4 million for the nine months ended September 30, 1995,
from $200.5 million for the nine months ended September 30, 1994. Earnings from
operations increased 185% to $306.6 million for the nine months ended
September 30, 1995, from $107.7 million for the nine months ended September 30,
1994. The higher results of operations are attributable to a number of factors,
notably during 1995 the strong home video and foreign box office performance of
Paramount Pictures' Forrest Gump and the sale of certain syndication rights of
Carsey Werner produced television shows to Carsey Werner, as compared to the
1994 domestic theatrical success of Forrest Gump and Clear and Present Danger.
The Company also recognized approximately $250.0 million of revenues and $68.0
million of EBITDA and earnings from operations for the nine months ended
September 30, 1995 resulting from the conforming of accounting policies
pertaining to the television programming libraries of Viacom Entertainment,
Spelling and Paramount.
- 22 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
VIDEO AND MUSIC/THEME PARKS
Revenues increased 13% to $2.4 billion for the nine months ended September 30,
1995, from $2.2 billion for the nine months ended September 30, 1994. EBITDA
increased 35% to $638.6 million for the nine months ended September 30, 1995,
from $471.3 million for the nine months ended September 30, 1994. Earnings from
operations increased 73% to $394.7 million for the nine months ended September
30, 1995, from $228.0 million for the nine months ended September 30, 1994. The
gains in results of operations primarily reflect the increased number of
domestic Company-owned video stores in operation in 1995 as compared to 1994, as
well as modest increases in same-store sales. Music stores revenues increased
$14.5 million, EBITDA and earnings from operations decreased $16.6 million and
$20.9 million, respectively, reflecting the highly competitive music retail
environment. Theme Parks revenues increased $9.1 million, EBITDA increased $4.9
million and earnings from operations increased $.5 million reflecting increased
attendance partially offset by increased operating and depreciation expenses.
PUBLISHING (Education; Consumer; and International, Business and Professional)
Revenues increased 4% to $1.6 billion for the nine months ended September 30,
1995, from $1.5 billion for the nine months ended September 30, 1994. EBITDA
improved 22% to $258.1 million for the nine months ended September 30, 1995,
from $212.1 million for the nine months ended September 30, 1994. Earnings from
operations improved 22% to $144.6 million for the nine months ended September
30, 1995, from $118.7 million for the nine months ended September 30, 1994.
Publishing typically has seasonally stronger operating results in the last three
quarters of the year. Results of operations primarily reflect increased
Education Group sales with strongest improvements in the Elementary Group due to
increased adoption opportunities and contributions from Consumer Group front
list titles at Pocket Books. EBITDA and earnings from operations for the nine
months ended September 30, 1994, reflect an aggregate charge of $32.8 million
attributable to certain non-recurring transition costs and the pro forma results
of operations of Macmillan for the two months prior to acquisition.
CABLE TELEVISION (Cable Television Systems)
Cable Television revenues increased 8% to $330.0 million for the nine months
ended September 30, 1995, from $304.6 million for the nine months ended
September 30, 1994, primarily attributable to increased primary, premium and
pay-per-view revenues. EBITDA increased 15% to $135.0 million for the nine
months ended September 30, 1995, from $117.5 million for the nine months ended
September 30, 1994. Earnings from operations increased 24% to $73.9 million for
the nine months ended September 30, 1995, from $59.8 million for 1994. The
increased results of operations reflect a 17% and 4% increase in average premium
and primary customers, respectively, a 3% increase in primary rates, partially
offset by an 8% decrease in the average premium rate. Total revenues per
primary customer per month increased 4% to $31.70 for the nine months ended
September 30, 1995, from $30.44 for the nine months ended September 30, 1994.
- 23 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME AND EXPENSE INFORMATION
- ------------------------------------
Other Items, net
For 1995, "Other Items, net" primarily reflects a gain on the sale of an
investment.
On April 4, 1994, the Company 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 for the second quarter of 1994. Proceeds from the
sale were used to reduce outstanding debt of Viacom International.
Interest Expense, net
Net interest expense of $612.2 million for the nine months ended September 30,
1995, compared to $312.5 million for the nine months ended September 30, 1994,
reflects increased average bank borrowings, the issuance of the 8% exchangeable
subordinated debentures and 7.75% senior notes, and debt acquired as part of the
Mergers.
Equity in Earnings of Affiliates
"Equity in losses of affiliated companies, net of tax" was $29.4 million for the
nine months ended September 30, 1995, as compared to "equity in earnings of
affiliated companies, net of tax" of $12.3 million for the nine months ended
September 30, 1994, primarily reflecting an equity loss of $29.7 million related
to the Company's 49.9% interest in Discovery Zone, net losses of equity
investments made in 1995 and the absence of Lifetime's earnings due to
the sale of the Company's one-third interest during April 1994, partially offset
by improved operating results of USA Networks.
Extraordinary Loss
During 1994, the Company and its subsidiaries entered into credit facilities,
the proceeds from the which were used to refinance the previously existing bank
debt of the Company and Viacom International. The Company recognized an
extraordinary loss from the extinguishment of debt of $20.4 million, net of a
tax benefit of $11.9 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures, joint ventures,
commitments and payments of principal, interest and dividends on its outstanding
indebtedness and preferred stock) with internally generated funds and from
various external sources, which may include the Company's existing credit
agreements, co-financing arrangements by the Company's various divisions,
additional financings and the sale of non-strategic assets as opportunities may
arise.
The Company's scheduled maturities of notes payable to banks and debentures
through December 31, 1999, assuming full utilization of the credit agreements
are $1.5 billion (1996), $151 million (1997), $1.0 billion (1998) and $1.5
billion (1999).
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1995, estimated to aggregate
approximately $2.2 billion, principally reflect commitments under SNI's
exclusive arrangements with several motion picture companies. This
- 24 -
estimate is based upon a number of factors. A majority of such fees are
payable over several years, as part of normal programming expenditures
of SNI. These commitments 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 $704.6 million for the
nine months ended September 30, 1995, versus $23.1 million for the nine months
ended September 30, 1994. Such amounts are not comparable due to the Paramount
Merger and Blockbuster Merger. The operating cash flow for the nine months
ended September 30, 1995, includes payments of $1.05 billion for interest and
taxes as well as payments for a significant level of Blockbuster video product
purchases made, as is typical, in the first quarter of the year. Net cash flows
from investing activities of $426.9 million for the nine months ended
September 30, 1995, principally reflects proceeds from the sale of MSG and
other dispositions, partially offset by capital expenditures and other
acquisitions. Net cash expenditures for investing activities of $6.2 billion
for the nine months ended September 30, 1994, principally reflects the
acquisition of the majority of the shares outstanding of Paramount and capital
expenditures, partially offset by proceeds from the sale of the Company's
one-third partnership interest in Lifetime. Financing activities principally
reflect borrowings and repayments of debt under the credit agreements during
each period presented, in 1995 the issuance of the 7.75% Senior Notes and in
1994, the sale of Class B Common Stock to Blockbuster.
On July 7, 1995, the CVRs, which were issued in connection with the Paramount
Merger, matured. The Company paid approximately $82 million in cash, or
approximately $1.44 per CVR, to settle its obligation under the CVRs during the
third quarter of 1995.
On September 29, 1995, the VCRs which were issued in connection with the
Blockbuster Merger, matured. The Company issued approximately 6.1 million shares
of Viacom Inc. Class B Common Stock, or .022665 of Viacom Inc. Class B Common
Stock per VCR, to settle its obligation under the VCRs.
- 25 -
CAPITAL STRUCTURE
The following table sets forth the Company's long-term debt, net of current
portion as of September 30, 1995 and December 31, 1994:
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
(In Millions)
Notes payable to banks.................. $ 7,012.2 $ 7,709.4
Senior debt............................. 1,934.1 943.0
Senior subordinated debt................ 635.9 633.1
Subordinated debt....................... 946.6 938.6
Obligations under capital leases........ 351.4 127.5
Other debt.............................. 58.9 71.8
------------ -------------
10,939.1 10,423.4
Less current portion.................... 46.9 21.0
------------ -------------
$ 10,892.2 $ 10,402.4
============ =============
During May 1995, the Company issued, under the shelf registration described
below, an aggregate principal amount of $1 billion of 7.75% Senior Notes due
June 1, 2005 at a price to the public of 99.04%. Proceeds from the issuance were
used to repay notes payable to banks, of which approximately $400 million was a
permanent reduction of the Company's bank commitments. The 7.75% Senior Notes
were issued pursuant to the shelf registration described below.
The Company and Viacom International were each in compliance with all covenants
and had satisfied all financial ratios and tests as of September 30, 1995 under
their respective credit agreements. The Company and Viacom International expect
to remain in compliance with such covenant ratios as may be applicable from time
to time during 1995.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 48% and 47% at September 30, 1995 and December 31, 1994,
respectively.
The Company enters into interest rate exchange agreements with off-balance sheet
risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt and/or take advantage of changes in interest rates.
As of September 30, 1995, the Company and its subsidiaries had obtained interest
rate protection agreements with respect to approximately $1.9 billion of
indebtedness, of which $1.6 billion effectively change the Company's interest
rate on variable rate borrowings to fixed interest rates and $250 million
effectively change the Company's interest rate on fixed rate borrowings to
variable interest rates. The interest rate protection agreements will mature
over the next two years.
The Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and contingent
value rights of Viacom and guarantees of such debt securities by Viacom
International which may be issued for aggregate gross proceeds of $3.0 billion.
The registration statement was declared effective on May 10, 1995. The net
proceeds from the sale of the offered securities may be used by Viacom to repay,
redeem, repurchase or satisfy its obligations in respect of its outstanding
indebtedness or other securities; to make loans to its subsidiaries; for general
corporate purposes; or for such other purposes as may be specified in the
applicable Prospectus Supplement.
- 26 -
PART II - - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement re Computation of Net Earnings Per Share.
27 Financial Data Schedule.
99.1 Statement of Operations of Viacom International Inc. for the
three months and nine months ended September 30, 1994 (incorporated by
reference to Item 1 of the Quarterly Report on Form 10-Q of Viacom
International Inc. for the quarter ended September 30, 1994) (File No.
1-9554).
99.2 Statement of Cash Flows of Viacom International Inc. for the
nine months ended September 30, 1994 (incorporated by reference to Item 1 of
the Quarterly Report on Form 10-Q of Viacom International Inc. for the quarter
ended September 30, 1994) (File No. 1-9554).
99.3 Condensed Consolidating Balance Sheet of Viacom Inc. as of
December 31, 1994 (incorporated by reference to Item 8 of the Annual Report
on Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1994)
(File No. 1-9553).
(b) Reports on Form 8-K for Viacom Inc.
Current Report on Form 8-K of Viacom Inc. with a report date of July 25,
1995 relating to Viacom Inc.'s agreement to split-off its cable systems to
shareholders in an Exchange Offer and a related agreement with a Subsidiary of
Viacom Inc. and Tele-Communications, Inc., providing for the sale of the
Subsidiary to Tele-Communications, Inc.
Current Report on Form 8-K of Viacom Inc. with a report date of September
28, 1995 relating to the established valuation of the final payout on and
maturation of the Variable Common Rights issued in connection with the merger of
Blockbuster Entertainment Corporation with and into Viacom Inc.
- 27 -
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 November 14, 1995 /s/ Frank J. Biondi, Jr.
----------------- -------------------------
Frank J. Biondi, Jr.
President,
Chief Executive Officer
Date November 14, 1995 /s/ George S. Smith, Jr.
----------------- -------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
- 28 -
Exhibit Index
-------------
11 Statement re Computation of Net Earnings Per Share.
27 Financial Data Schedule.
99.1 Statement of Operations of Viacom International Inc. for the three
months and nine months ended September 30, 1994 (incorporated by reference to
Item 1 of the Quarterly Report on Form 10-Q of Viacom International Inc. for the
quarter ended September 30, 1994) (File No. 1-9554).
99.2 Statement of Cash Flows of Viacom International Inc. for the
nine months ended September 30, 1994 (incorporated by reference to Item 1 of
the Quarterly Report on Form 10-Q of Viacom International Inc. for the quarter
ended September 30, 1994) (File No. 1-9554).
99.3 Condensed Consolidating Balance Sheet of Viacom Inc. as of December
31, 1994 (incorporated by reference to Item 8 of the Annual Report on
Form 10-K of Viacom Inc. for the fiscal year ended December 31, 1994) (File No.
1-9553).
EXHIBIT 11
VIACOM INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE
(In millions, except per share amounts)
Quarter ended September 30, Nine months ended September 30,
--------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ----
EARNINGS:
Net earnings from continuing operations........................... $ 93.8 $ 335.1 $ 210.4 $ 165.2
Cumulative convertible preferred stock dividend requirement....... 15.0 15.0 45.0 60.0
-------- --------- -------- ---------
Earnings from continuing operations attributable to
common stock................................................ 78.8 320.1 165.4 105.2
Earnings (loss) from discontinued operations, net of tax.......... -- (7.8) 7.6 (5.0)
Extraordinary losses, net of tax.................................. -- -- -- (20.4)
-------- ---------- -------- ----------
Net earnings attributable to common stock......................... $ 78.8 $ 312.3 $ 173.0 $ 79.8
======== ========== ======== ==========
PRIMARY COMPUTATION:
SHARES:
Weighted average number of common shares..................... 361.3 200.0 360.2 156.9
Common shares potentially issuable in connection with:
Stock options and warrants............................... 8.8 2.3 8.5 1.0
Contingent value rights (a).............................. -- 18.0 -- 6.0
Variable common rights................................... 6.0 .8 6.1 .3
-------- --------- -------- ---------
Weighted average common shares and common share
equivalents.............................................. 376.1 221.1 374.8 164.2
========- ========= ======== =========
NET EARNINGS (LOSS) PER COMMON SHARE:
Net earnings from continuing operations..................... $ .21 $ 1.45 $ .44 $ .64
Earnings (loss) from discontinued operations, net of tax.... -- (.04) .02 (.03)
Extraordinary losses, net of tax............................ -- -- -- (.12)
-------- --------- -------- -------------
Net earnings (loss)......................................... $ .21 $ 1.41 $ .46 $ .49
======== ======== ======== =============
FULLY DILUTED COMPUTATION:
SHARES:
Weighted average number of common shares outstanding......... 361.3 200.0 360.2 156.9
Common shares potentially issuable in connection with:
Stock options and warrants............................... 9.1 2.9 8.8 1.3
Preferred stock (b)...................................... -- 25.5 -- --
Contingent value rights (a).............................. -- 18.0 -- 6.0
Variable common rights................................... 6.0 .8 6.1 .3
-------- --------- -------- ---------
Weighted average common shares and
common share equivalents............................ 376.4 247.2 375.1 164.5
======== ========= ======== =========
NET EARNINGS (LOSS) PER COMMON SHARE:
Net earnings from continuing operations...................... $ .21 $ 1.35 $ .44 $ .64
Earnings (loss) from discontinued operations, net of tax..... -- (.03) .02 (.03)
Extraordinary losses, net of tax............................. -- -- -- (.12)
-------- ---------- -------- ----------
Net earnings (loss).......................................... $ .21 $ 1.32 $ .46 $ .49
======== ========== ======== ==========
(a) The contingent value rights (the "CVRs") matured on July 7, 1995.
The Company paid approximately $83 million in cash of approximately
$1.44 per CVR to settle its obligation.
(b) The Preferred Stock and related dividend requirement had an anti-dilutive
effect on earnings per share for the third quarter and nine months ended
September 30, 1995 and the nine months ended September 30, 1994, and
therefore, were excluded from the fully diluted earnings per share
computation.
5
1,000,000
9-MOS
DEC-31-1995
SEP-30-1995
549
0
2,146
104
2,210
5,450
3,720
716
29,311
4,318
10,892
4
0
1,200
10,830
29,311
8,623
8,623
5,199
7,410
0
0
612
619
378
210
8
0
0
218
.46
.46
