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, 1996
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
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, 1996:
Class A Common Stock, par value $.01 per share - 69,583,290
Class B Common Stock, par value $.01 per share - 284,203,793
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,
----------------------
1996 1995
--------- ---------
Revenues ....................................................... $ 3,351.8 $ 2,953.6
Expenses:
Operating ................................................. 2,023.6 1,728.0
Selling, general and administrative ....................... 626.8 562.8
Depreciation and amortization ............................. 206.2 200.2
--------- ---------
Total expenses ....................................... 2,856.6 2,491.0
--------- ---------
Operating income ............................................... 495.2 462.6
Other income (expense):
Interest expense, net ..................................... (197.1) (209.1)
Other items, net .......................................... 0.5 (8.0)
--------- ---------
Earnings from continuing operations before income taxes ........ 298.6 245.5
Provision for income taxes ................................ (191.1) (155.1)
Equity in loss of affiliated companies, net of tax ........ (5.7) (14.7)
Minority interest ......................................... 0.3 1.8
--------- ---------
Net earnings from continuing operations ........................ 102.1 77.5
Earnings from discontinued operations, net of tax
of $11.1 (1995) (Note 2) ................................ -- 16.3
Gain on split-off of discontinued operations,
net of tax (Note 2) ..................................... 1,304.3 --
--------- ---------
Net earnings ................................................... 1,406.4 93.8
Cumulative convertible preferred stock dividend requirement (15.0) (15.0)
--------- ---------
Net earnings attributable to common stock ...................... $ 1,391.4 $ 78.8
========= =========
Weighted average number of common shares and common share
equivalents:
Primary ................................................... 364.0 376.1
Fully diluted ............................................. 381.4 376.4
Earnings per common share:
Primary:
Net earnings from continuing operations (Note 1) ..... $ .24 $ .17
Net earnings ......................................... $ 3.82 $ .21
Fully diluted:
Net earnings from continuing operations (Note 1) ..... $ .27 $ .17
Net earnings ......................................... $ 3.69 $ .21
See notes to consolidated financial statements.
-2-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
Nine months ended
September 30,
----------------------
1996 1995
--------- ---------
Revenues ....................................................... $ 8,885.1 $ 8,308.4
Expenses:
Operating ................................................. 5,492.8 5,086.5
Selling, general and administrative ....................... 1,774.8 1,535.5
Depreciation and amortization ............................. 607.9 547.4
--------- ---------
Total expenses ....................................... 7,875.5 7,169.4
--------- ---------
Operating income ............................................... 1,009.6 1,139.0
Other income (expense):
Interest expense, net ..................................... (611.4) (612.3)
Other items, net .......................................... 1.5 (8.6)
--------- ---------
Earnings from continuing operations before income taxes ........ 399.7 518.1
Provision for income taxes ................................ (253.8) (336.1)
Equity in loss of affiliated companies, net of tax ........ (9.3) (29.1)
Minority interest ......................................... 6.1 (1.6)
--------- ---------
Net earnings from continuing operations ........................ 142.7 151.3
Earnings from discontinued operations, net of tax of
$21.5 (1996) and $46.6 (1995) (Note 2) .................. 28.3 66.7
Gain on split-off of discontinued operations,
net of tax (Note 2) ..................................... 1,304.3 --
--------- ---------
Net earnings ................................................... 1,475.3 218.0
Cumulative convertible preferred stock dividend requirement (45.0) (45.0)
--------- ---------
Net earnings attributable to common stock ...................... $ 1,430.3 $ 173.0
========= =========
Weighted average number of common shares and common
share equivalents:
Primary ................................................... 371.6 374.8
Fully diluted ............................................. 388.9 375.1
Earnings per common share:
Primary:
Net earnings from continuing operations (Note 1) ..... $ .26 $ .28
Net earnings ......................................... $ 3.85 $ .46
Fully diluted:
Net earnings from continuing operations (Note 1) ..... $ .37 $ .28
Net earnings ......................................... $ 3.79 $ .46
See notes to consolidated financial statements.
-3-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; all amounts, except per share amounts, are in millions)
September 30, December 31,
1996 1995
------------ ------------
Assets
Current Assets:
Cash and cash equivalents ..................................... $ 308.2 $ 464.1
Receivables, less allowances of $124.3 (1996) and $126.0 (1995) 2,289.2 1,872.4
Inventory (Note 3) ............................................ 2,297.4 2,178.1
Other current assets .......................................... 777.8 684.4
------------ ------------
Total current assets ..................................... 5,672.6 5,199.0
------------ ------------
Property and equipment, at cost .................................... 3,688.2 3,974.7
Less accumulated depreciation ................................. 694.5 756.8
------------ ------------
Net property and equipment ............................... 2,993.7 3,217.9
------------ ------------
Inventory (Note 3) ................................................. 2,561.9 2,271.5
Intangibles, at amortized cost ..................................... 15,429.7 16,153.2
Other assets ....................................................... 2,344.4 2,184.4
------------ ------------
$ 29,002.3 $ 29,026.0
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable .............................................. $ 560.6 $ 788.8
Accrued compensation .......................................... 348.4 449.4
Participants' share, residuals and royalties payable .......... 870.9 798.2
Current portion of long-term debt (Note 4) .................... 55.8 45.1
Other current liabilities ..................................... 1,952.1 2,017.1
------------ ------------
Total current liabilities ................................ 3,787.8 4,098.6
------------ ------------
Long-term debt (Note 4) ............................................ 10,182.1 10,712.1
Other liabilities .................................................. 2,086.3 2,121.5
Commitments and contingencies (Note 5)
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; 69.7 (1996) and 75.1 (1995)
shares issued and outstanding ............................... .7 .8
Class B Common Stock, par value $.01 per share;
1,000.0 shares authorized; 286.3 (1996) and 294.6 (1995)
shares issued and outstanding ............................... 2.9 2.9
Additional paid-in capital .................................... 10,230.7 10,726.9
Retained earnings ............................................. 1,603.4 173.1
Cumulative translation adjustment ............................. (22.5) (9.9)
------------ ------------
13,015.2 12,093.8
Treasury Stock, at cost; 2.0 shares (1996) .................... (69.1) --
------------ ------------
Total shareholders' equity ............................... 12,946.1 12,093.8
============ ============
$ 29,002.3 $ 29,026.0
============ ============
See notes to consolidated financial statements.
-4-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
Nine months ended September 30,
-------------------------------
1996 1995
---------- ----------
Operating Activities:
Net earnings .......................................................................... $ 1,475.3 $ 218.0
Adjustments to reconcile net earnings to net cash flow from operating activities:
Depreciation and amortization .................................................... 607.9 608.5
Distribution from affiliated companies ........................................... 47.2 64.1
Gain on split-off of discontinued operations, net of tax.......................... (1,304.3) --
Gain on the sale of marketable securities ........................................ -- (26.9)
Change in operating assets and liabilities:
Increase in receivables ..................................................... (422.7) (403.6)
Increase in inventory and related programming liabilities, net .............. (363.6) (217.8)
Increase in pre-publication costs, net ...................................... (26.4) (45.7)
Increase in prepaid expenses and other current assets ....................... (92.2) (129.6)
Increase in unbilled receivables ............................................ (125.9) (69.8)
Decrease in accounts payable and accrued expenses ........................... (425.6) (620.7)
Increase in income taxes payable and deferred income taxes, net ............. 45.9 46.4
Decrease in deferred income ................................................. (2.9) (46.1)
Other, net .................................................................. (4.4) (17.3)
Change in net assets-discontinued operations ..................................... (33.2) --
---------- ----------
Net cash flow from operating activities ............................................... (624.9) (640.5)
Investing Activities:
Capital expenditures ............................................................. (363.3) (506.3)
Acquisitions, net of cash acquired ............................................... (166.9) (470.9)
Proceeds from dispositions ....................................................... 1,742.3 1,436.1
Investments in and advances to affiliated companies .............................. (77.1) (93.9)
Proceeds from sales of short-term investments .................................... 116.2 248.0
Purchases of short-term investments .............................................. (119.6) (258.3)
Other, net ....................................................................... (.3) 8.1
---------- ----------
Net cash flow from investing activities ............................................... 1,131.3 362.8
Financing Activities:
Borrowings (repayment) under bank facilities, net................................. (549.5) (754.9)
Proceeds from issuance of 7.75% senior notes ..................................... -- 990.4
Proceeds from exercise of stock options and warrants ............................. 90.9 149.9
Purchase of treasury stock ....................................................... (69.1) --
Settlement of CVRs ............................................................... -- (81.9)
Repayments of other notes ........................................................ (50.9) --
Payments of Preferred Stock dividends ............................................ (45.0) (45.0)
Other, net ....................................................................... (38.7) (29.7)
---------- ----------
Net cash flow from financing activities ............................................... (662.3) 228.8
---------- ----------
Net decrease in cash and cash equivalents ........................................ (155.9) (48.9)
Cash and cash equivalents at beginning of the period ............................. 464.1 597.7
---------- ----------
Cash and cash equivalents at end of period ............................................ $ 308.2 $ 548.8
========== ==========
Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized ........................... $ 657.4 $ 727.4
Cash payments for income taxes ................................................... 109.9 313.9
Non cash investing and financing:
Property and equipment acquired under capitalized leases ......................... 104.7 242.2
Settlement of VCRs with Class B Common Stock ..................................... -- 402.6
Reduction of Common Shares outstanding from split-off of discontinued operations . 625.8 --
See notes to consolidated financial statements.
-5-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar in millions, except per share amount)
1) BASIS OF PRESENTATION
Viacom Inc. (the "Company") is a diversified entertainment and publishing
company with operations in four segments: (i) Networks and Broadcasting, (ii)
Entertainment, (iii) Video and Music/Theme Parks, and (iv) Publishing. The Cable
segment, which was split-off from the Company on July 31, 1996, has been
accounted for as a discontinued operation and accordingly, its operating results
and the gain on the split-off have been separately disclosed in the consolidated
financial statements (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. Prior year Statements of Operations have been
restated to conform with the current discontinued operations presentation.
In the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and results of operations and cash
flows of the Company for the periods presented. Certain previously reported
amounts have been reclassified to conform with the current presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net earnings per common share -- Primary net earnings per common share is
calculated based on the weighted average number of common shares outstanding
during each period, the effects of common shares potentially issuable in
connection with stock options and warrants, and in 1995, variable common rights
and contingent value rights. For the third quarter and nine months ended
September 30, 1996, fully diluted earnings per share reflects the assumed
conversion of preferred stock which is dilutive to net earnings per common
share. Fully diluted net earnings per share from continuing operations exceeds
primary net earnings per share from continuing operations due to the assumed
conversion of the preferred stock.
-6-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
2) DISCONTINUED OPERATIONS
On July 31, 1996, the Company completed the split-off of its Cable segment
pursuant to an exchange offer and related transactions. As a result, the Company
reduced its debt by $1.7 billion and retired 5,413,917 shares of Class A Common
Stock and 9,943,043 shares of Class B Common Stock or approximately 4.1% of the
total outstanding common shares. The effects of the Cable split-off on the
Company's results of operations for the quarter ended September 30, 1996 include
a gain of $1.3 billion and reductions in interest expense and common shares
outstanding.
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 $1.0 billion, representing the sale
price of approximately $1.1 billion, less $66 million in working capital
adjustments. The Company acquired MSG during 1994 as part of Paramount
Communications Inc. 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.
Summarized results of operations data of discontinued operations and the gain
attributable to the Cable split-off, which includes Cable's results of
operations for the month of July, are as follows:
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995*
---------- ---------- ---------- ----------
Revenues .............................. $ -- $ 114.0 $ 236.9 $ 421.5
Earnings from continuing operations
before income taxes ............. -- 27.1 49.8 113.7
Provision for income taxes ............ -- 11.1 21.5 46.6
Net earnings .......................... -- 16.3 28.3 66.7
Gain on split-off of discontinued
operations, net of tax .......... 1,304.3 -- 1,304.3 --
Net earnings per common share:
Primary ............................ 3.58 .04 3.59 .18
Fully diluted ...................... 3.42 .04 3.42 .18
* Results of operations include MSG for the period January 1 through March 9,
1995.
-7-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
3) INVENTORIES
September 30, December 31,
1996 1995
------------ ------------
Prerecorded music and videocassettes ............ $ 526.4 $ 474.8
Videocassette rental inventory .................. 596.6 520.3
Publishing:
Finished goods ............................. 314.7 303.6
Work in process ............................ 28.2 44.9
Material and supplies ...................... 20.1 30.2
Other ........................................... 122.1 87.9
------------ ------------
1,608.1 1,461.7
Less current portion ....................... 941.6 903.1
------------ ------------
$ 666.5 $ 558.6
============ ============
Theatrical and television inventory:
Theatrical and television productions:
Released .............................. $ 1,664.7 $ 1,612.1
Completed, not released ............... 36.0 52.5
In process and other .................. 428.4 357.0
Program rights ............................. 1,122.1 966.3
------------ ------------
3,251.2 2,987.9
Less current portion ....................... 1,355.8 1,275.0
------------ ------------
$ 1,895.4 $ 1,712.9
------------ ------------
Total non-current inventory ..................... $ 2,561.9 $ 2,271.5
============ ============
4) LONG-TERM DEBT
As of September 30, 1996, the Company's scheduled maturities of indebtedness
through December 31, 2000, assuming full utilization of the credit agreements
were $37 million (1996), $752 million (1997), $1.0 billion (1998), $1.5 billion
(1999) and $1.3 billion (2000). The Company has classified certain short-term
indebtedness as long-term debt based upon its intent and ability to refinance
such indebtedness on a long-term basis.
As a result of the July 31, 1996 Cable split-off, the Company reduced its notes
payable to banks by $1.7 billion, of which $1.5 billion represents a permanent
reduction of its credit facility.
On May 10, 1996, a subsidiary of the Company entered into a $500 million 364-day
film financing credit agreement, guaranteed by Viacom International Inc. and the
Company.
-8-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
5) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1996, estimated to aggregate
approximately $1.9 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.
6) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated annual effective tax rate
of 63.5% for 1996 and the annual effective tax rate of 64.9%, restated to
reflect the current discontinued operations presentation for 1995, were both
adversely affected by amortization of intangibles in excess of the amounts
deductible for tax purposes.
7) TREASURY STOCK
On September 5, 1996, the Company, together with National Amusements, Inc.
("NAI"), initiated a joint purchase program for each to acquire up to $250
million, or $500 million in total, of the Company's Class A Common Stock, Class
B Common Stock, and, as to the Company, Viacom Warrants. As of September 30,
1996, the Company repurchased 351,750 shares of Class A Common Stock, 1,640,200
shares of Class B Common Stock and 425,500 Viacom Five-Year Warrants, expiring
July 7, 1999, for approximately $69.9 million in the aggregate. The cost of the
acquired treasury stock has been reflected separately as a reduction to
shareholders' equity. The cost of the warrants has been reflected as a reduction
to additional paid-in-capital. As of September 30, 1996, NAI separately acquired
351,750 shares of Class A Common Stock and 1,640,200 shares of Class B Common
Stock pursuant to the joint purchase program for approximately $69.1 million,
raising its ownership to approximately 66% of Class A Common Stock and
approximately 26% of Class A and Class B Common Stock on a combined basis.
As of the close of business on November 13, 1996, the Company repurchased
658,200 shares of Class A Common Stock, 5,475,500 shares of Class B Common Stock
and 2,287,000 Viacom Five-Year Warrants for approximately $224.7 million in the
aggregate. As of such time, NAI acquired 855,300 shares of Class A Common Stock
and 4,445,200 shares of Class B Common Stock for approximately $189.9 million in
the aggregate, after which its ownership was approximately 66% of Class A Common
Stock and approximately 27% of Class A and Class B Common Stock on a combined
basis.
-9-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
8) 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. The
following condensed consolidating financial statements present the results of
operations, financial position and cash flows of the Company, Viacom
International (in each case, carrying investments in Non-Guarantor Affiliates
under the equity method), the direct and indirect Non-Guarantor Affiliates of
the Company, and the eliminations necessary to arrive at the information for the
Company on a consolidated basis. Certain Non-Guarantor subsidiaries of the
Company previously included in the Viacom Inc. column are now properly reflected
in the Non-Guarantor Affiliates column. Prior periods reflect this presentation.
Three Months Ended September 30, 1996
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Revenues ................................... $ 2.8 $ 335.0 $ 3,025.5 $ (11.5) $ 3,351.8
Expenses:
Operating ............................. 0.4 97.0 1,937.7 (11.5) 2,023.6
Selling, general and administrative ... 0.3 137.9 488.6 -- 626.8
Depreciation and amortization ......... 0.4 17.2 188.6 -- 206.2
------------- ------------- ------------- ------------- -------------
Total expenses ................... 1.1 252.1 2,614.9 (11.5) 2,856.6
------------- ------------- ------------- ------------- -------------
Operating income ........................... 1.7 82.9 410.6 -- 495.2
Other income (expense):
Interest expense, net ................. (139.8) (38.2) (19.1) -- (197.1)
Other items, net ...................... -- 0.2 0.3 -- 0.5
------------- ------------- ------------- ------------- -------------
Earnings (loss) from continuing operations
before income taxes ................... (138.1) 44.9 391.8 -- 298.6
Benefit (provision) for income taxes .. 33.1 (29.6) (194.6) -- (191.1)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 1,511.4 182.4 9.1 (1,708.6) (5.7)
Minority interest ..................... -- (0.3) 0.6 -- 0.3
------------- ------------- ------------- ------------- -------------
Net earnings from continuing operations .... 1,406.4 197.4 206.9 (1,708.6) 102.1
Gain on split-off of discontinued
operations, net of tax ................ -- 1,304.3 -- -- 1,304.3
------------- ------------- ------------- ------------- -------------
Net earnings ............................... 1,406.4 1,501.7 206.9 (1,708.6) 1,406.4
Cumulative convertible preferred
stock dividend requirement .......... (15.0) -- -- -- (15.0)
------------- ------------- ------------- ------------- -------------
Net earnings attributable to common stock .. $ 1,391.4 $ 1,501.7 $ 206.9 $ (1,708.6) $ 1,391.4
============= ============= ============= ============= =============
-10-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Nine Months Ended September 30, 1996
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Revenues ................................... $ 7.9 $ 866.0 $ 8,033.4 $ (22.2) $ 8,885.1
Expenses:
Operating ............................. 1.2 276.0 5,237.8 (22.2) 5,492.8
Selling, general and administrative ... 0.5 374.5 1,399.8 -- 1,774.8
Depreciation and amortization ......... 1.1 46.9 559.9 -- 607.9
------------- ------------- ------------- ------------- -------------
Total expenses ................... 2.8 697.4 7,197.5 (22.2) 7,875.5
------------- ------------- ------------- ------------- -------------
Operating income ........................... 5.1 168.6 835.9 -- 1,009.6
Other income (expense):
Interest expense, net ................. (452.3) (101.4) (57.7) -- (611.4)
Other items, net ...................... -- (2.9) 4.4 -- 1.5
------------- ------------- ------------- ------------- -------------
Earnings (loss) from continuing operations
before income taxes ................... (447.2) 64.3 782.6 -- 399.7
Benefit (provision) for income taxes .. 107.3 (42.4) (318.7) -- (253.8)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 1,815.2 350.2 31.2 (2,205.9) (9.3)
Minority interest ..................... -- (1.0) 7.1 -- 6.1
------------- ------------- ------------- ------------- -------------
Net earnings from continuing operations .... 1,475.3 371.1 502.2 (2,205.9) 142.7
Earnings from discontinued operations,
net of tax .......................... -- -- 28.3 -- 28.3
Gain on split-off of discontinued
operations, net of tax ................ -- 1,304.3 -- -- 1,304.3
------------- ------------- ------------- ------------- -------------
Net earnings ............................... 1,475.3 1,675.4 530.5 (2,205.9) 1,475.3
Cumulative convertible preferred
stock dividend requirement .......... (45.0) -- -- -- (45.0)
------------- ------------- ------------- ------------- -------------
Net earnings attributable to common stock .. $ 1,430.3 $ 1,675.4 $ 530.5 $ (2,205.9) $ 1,430.3
============= ============= ============= ============= =============
-11-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Three Months Ended September 30, 1995
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Revenues ................................... $ 2.5 $ 264.0 $ 2,691.6 $ (4.5) $ 2,953.6
Expenses:
Operating ............................. 0.4 79.0 1,653.1 (4.5) 1,728.0
Selling, general and administrative ... 1.6 108.8 452.4 -- 562.8
Depreciation and amortization ......... 0.2 11.3 188.7 -- 200.2
------------- ------------- ------------- ------------- -------------
Total expenses ................... 2.2 199.1 2,294.2 (4.5) 2,491.0
------------- ------------- ------------- ------------- -------------
Operating income ........................... 0.3 64.9 397.4 -- 462.6
Other income (expense):
Interest expense, net ................. (169.0) (25.9) (14.2) -- (209.1)
Other items, net ...................... -- (1.6) (6.4) -- (8.0)
------------- ------------- ------------- ------------- -------------
Earnings (loss) from continuing operations
before income taxes ................... (168.7) 37.4 376.8 -- 245.5
Benefit (provision) for income taxes .. 49.0 (12.3) (191.8) -- (155.1)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 213.5 101.3 (24.8) (304.7) (14.7)
Minority interest ..................... -- -- 1.8 -- 1.8
------------- ------------- ------------- ------------- -------------
Net earnings from continuing operations .... 93.8 126.4 162.0 (304.7) 77.5
Earnings from discontinued
operations, net of tax .............. -- -- 16.3 -- 16.3
------------- ------------- ------------- ------------- -------------
Net earnings ............................... 93.8 126.4 178.3 (304.7) 93.8
Cumulative convertible preferred
stock dividend requirement .......... (15.0) -- -- -- (15.0)
------------- ------------- ------------- ------------- -------------
Net earnings attributable to common stock .. $ 78.8 $ 126.4 $ 178.3 $ (304.7) $ 78.8
============= ============= ============= ============= =============
-12-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Nine Months Ended September 30, 1995
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Revenues ................................... $ 7.0 $ 682.1 $ 7,629.1 $ (9.8) $ 8,308.4
Expenses:
Operating ............................. 1.0 213.5 4,881.8 (9.8) 5,086.5
Selling, general and administrative ... 5.8 303.8 1,225.9 -- 1,535.5
Depreciation and amortization ......... 1.0 31.1 515.3 -- 547.4
------------- ------------- ------------- ------------- -------------
Total expenses ................... 7.8 548.4 6,623.0 (9.8) 7,169.4
------------- ------------- ------------- ------------- -------------
Operating income ........................... (0.8) 133.7 1,006.1 -- 1,139.0
Other income (expense):
Interest expense, net ................. (500.1) (72.3) (39.9) -- (612.3)
Other items, net ...................... -- 25.7 (34.3) -- (8.6)
------------- ------------- ------------- ------------- -------------
Earnings (loss) from continuing operations
before income taxes ................... (500.9) 87.1 931.9 -- 518.1
Benefit (provision) for income taxes .. 145.3 (28.7) (452.7) -- (336.1)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 573.8 166.4 (20.5) (748.8) (29.1)
Minority interest ..................... (0.2) -- (1.4) -- (1.6)
------------- ------------- ------------- ------------- -------------
Net earnings from continuing operations .... 218.0 224.8 457.3 (748.8) 151.3
Earnings from discontinued
operations, net of tax .............. -- -- 66.7 -- 66.7
------------- ------------- ------------- ------------- -------------
Net earnings ............................... 218.0 224.8 524.0 (748.8) 218.0
Cumulative convertible preferred
stock dividend requirement .......... (45.0) -- -- -- (45.0)
------------- ------------- ------------- ------------- -------------
Net earnings attributable to common stock .. $ 173.0 $ 224.8 $ 524.0 $ (748.8) $ 173.0
============= ============= ============= ============= =============
-13-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
September 30, 1996
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current Assets:
Cash and cash equivalents ......... $ 21.3 $ 125.9 $ 161.0 $ -- $ 308.2
Receivables, net .................. -- 271.7 2,039.4 (21.9) 2,289.2
Inventory ......................... -- 147.7 2,149.7 -- 2,297.4
Other current assets .............. 0.5 145.0 632.3 -- 777.8
------------- ------------- ------------- ------------- -------------
Total current assets ......... 21.8 690.3 4,982.4 (21.9) 5,672.6
------------- ------------- ------------- ------------- -------------
Property and equipment, at cost ........ 0.6 367.7 3,319.9 -- 3,688.2
Less accumulated depreciation ..... 0.4 99.2 594.9 -- 694.5
------------- ------------- ------------- ------------- -------------
Net property and equipment ... 0.2 268.5 2,725.0 -- 2,993.7
------------- ------------- ------------- ------------- -------------
Inventory .............................. -- 210.0 2,351.9 -- 2,561.9
Intangibles, at amortized cost ......... 48.1 543.7 14,837.9 -- 15,429.7
Investments in consolidated subsidiaries 7,200.5 12,232.7 -- (19,433.2) --
Other assets ........................... 77.3 435.8 1,978.9 (147.6) 2,344.4
------------- ------------- ------------- ------------- -------------
$ 7,347.9 $ 14,381.0 $ 26,876.1 $ (19,602.7) $ 29,002.3
============= ============= ============= ============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable .................. $ -- $ 29.3 $ 536.9 $ (5.6) $ 560.6
Accrued compensation .............. 0.1 95.8 270.2 (17.7) 348.4
Participants' share, residuals and
royalties payable ............... -- -- 870.9 -- 870.9
Current portion of long-term debt . -- 1.9 53.9 -- 55.8
Other current liabilities ......... 201.1 1,197.2 1,110.6 (556.8) 1,952.1
------------- ------------- ------------- ------------- -------------
Total current liabilities .... 201.2 1,324.2 2,842.5 (580.1) 3,787.8
------------- ------------- ------------- ------------- -------------
Long-term debt ......................... 7,445.8 2,101.8 800.9 (166.4) 10,182.1
Other liabilities ...................... (16,047.3) (1,387.3) 20,095.1 (574.2) 2,086.3
Shareholders' equity:
Preferred Stock ................... 1,200.0 -- -- -- 1,200.0
Common Stock ...................... 3.6 128.5 699.4 (827.9) 3.6
Additional paid-in capital ........ 10,230.7 8,598.2 1,101.5 (9,699.7) 10,230.7
Retained earnings ................. 4,383.0 3,581.2 1,393.6 (7,754.4) 1,603.4
Cumulative translation adjustment . -- 34.4 (56.9) -- (22.5)
------------- ------------- ------------- ------------- -------------
15,817.3 12,342.3 3,137.6 (18,282.0) 13,015.2
Treasury Stock, at cost ........... (69.1) -- -- -- (69.1)
------------- ------------- ------------- ------------- -------------
Total shareholders' equity ... 15,748.2 12,342.3 3,137.6 (18,282.0) 12,946.1
------------- ------------- ------------- ------------- -------------
$ 7,347.9 $ 14,381.0 $ 26,876.1 $ (19,602.7) $ 29,002.3
============= ============= ============= ============= =============
-14-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
December 31, 1995
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets
Current Assets:
Cash and cash equivalents ......... $ 47.4 $ 223.3 $ 193.4 $ -- $ 464.1
Receivables, net .................. -- 267.7 1,626.2 (21.5) 1,872.4
Inventory ......................... -- 102.3 2,075.8 -- 2,178.1
Other current assets .............. -- 103.3 588.7 (7.6) 684.4
------------- ------------- ------------- ------------- -------------
Total current assets ......... 47.4 696.6 4,484.1 (29.1) 5,199.0
------------- ------------- ------------- ------------- -------------
Property and equipment, at cost ........ 0.6 280.2 3,693.9 -- 3,974.7
Less accumulated depreciation ..... 0.3 55.9 700.6 -- 756.8
------------- ------------- ------------- ------------- -------------
Net property and equipment ... 0.3 224.3 2,993.3 -- 3,217.9
------------- ------------- ------------- ------------- -------------
Inventory .............................. -- 182.2 2,089.3 -- 2,271.5
Intangibles, at amortized cost ......... 49.1 557.5 15,546.6 -- 16,153.2
Investments in consolidated subsidiaries 5,053.5 11,232.2 -- (16,285.7) --
Other assets ........................... 304.9 314.6 1,775.4 (210.5) 2,184.4
------------- ------------- ------------- ------------- -------------
$ 5,455.2 $ 13,207.4 $ 26,888.7 $ (16,525.3) $ 29,026.0
============= ============= ============= ============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable .................. $ -- $ 44.2 $ 751.1 $ (6.5) $ 788.8
Accrued compensation .............. -- 145.7 303.7 -- 449.4
Participants' share, residuals and
royalties payable ............... -- -- 798.2 -- 798.2
Current portion of long-term debt . -- 1.5 43.6 -- 45.1
Other current liabilities ......... 215.9 381.5 1,447.1 (27.4) 2,017.1
------------- ------------- ------------- ------------- -------------
Total current liabilities .... 215.9 572.9 3,343.7 (33.9) 4,098.6
------------- ------------- ------------- ------------- -------------
Long-term debt ......................... 8,436.9 1,595.3 861.3 (181.4) 10,712.1
Other liabilities ...................... (16,096.4) 1,216.7 20,045.1 (3,043.9) 2,121.5
Shareholders' equity:
Preferred Stock ................... 1,200.0 -- -- -- 1,200.0
Common Stock ...................... 3.7 212.0 722.4 (934.4) 3.7
Additional paid-in capital ........ 10,693.2 8,544.4 1,086.4 (9,597.1) 10,726.9
Retained earnings ................. 1,001.9 1,042.7 863.1 (2,734.6) 173.1
Cumulative translation adjustment . -- 23.4 (33.3) -- (9.9)
------------- ------------- ------------- ------------- -------------
Total shareholders' equity ... 12,898.8 9,822.5 2,638.6 (13,266.1) 12,093.8
------------- ------------- ------------- ------------- -------------
$ 5,455.2 $ 13,207.4 $ 26,888.7 $ (16,525.3) $ 29,026.0
============= ============= ============= ============= =============
-15-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Nine Months Ended September 30, 1996
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net cash flow from operating activities ..... $ 1,656.3 $ (1,440.7) $ (840.5) $ -- $ (624.9)
------------- ------------- ------------- ------------- -------------
Investing Activities:
Capital expenditures ................... -- (71.1) (292.2) -- (363.3)
Acquisitions, net of cash acquired ..... -- -- (166.9) -- (166.9)
Proceeds from dispositions ............. -- 1,700.0 42.3 -- 1,742.3
Investments in and advances to
affiliated companies ................. -- (60.0) (17.1) -- (77.1)
Proceeds from sales of short-term
investments .......................... -- 116.2 -- -- 116.2
Purchases of short-term investments .... -- (119.6) -- -- (119.6)
Other, net ............................. -- -- (.3) -- (.3)
------------- ------------- ------------- ------------- -------------
Net cash flow from investing activities ..... -- 1,565.5 (434.2) -- 1,131.3
------------- ------------- ------------- ------------- -------------
Financing Activities:
Borrowings (repayment) under bank
facilities, net....................... (1,000.3) 407.0 43.8 -- (549.5)
Proceeds from exercise of stock options
and warrants ......................... 90.9 -- -- -- 90.9
Purchase of treasury stock ............. (69.1) -- -- -- (69.1)
Repayment of other notes ............... -- (12.0) (38.9) -- (50.9)
Increase (decrease) in intercompany
payables ............................. (657.0) (613.5) 1,270.5 -- --
Payment of Preferred Stock dividends ... (45.0) -- -- -- (45.0)
Other, net ............................. (1.9) (3.7) (33.1) -- (38.7)
------------- ------------- ------------- ------------- -------------
Net cash flow from financing activities ..... (1,682.4) (222.2) 1,242.3 -- (662.3)
------------- ------------- ------------- ------------- -------------
Net decrease in cash and
cash equivalents ..................... (26.1) (97.4) (32.4) -- (155.9)
Cash and cash equivalents at beginning
of period ............................ 47.4 223.3 193.4 -- 464.1
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of period .. $ 21.3 $ 125.9 $ 161.0 $ -- $ 308.2
============= ============= ============= ============= =============
-16-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
Nine Months Ended September 30, 1995
---------------------------------------------------------------------------------
Non-
Viacom Viacom Guarantor Viacom Inc.
Inc. International Affiliates Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Net cash flow from operating activities .... $ 132.6 $ 72.5 $ (845.6) $ -- $ (640.5)
------------- ------------- ------------- ------------- -------------
Investing Activities:
Capital expenditures .................. (.1) (123.7) (382.5) -- (506.3)
Acquisitions, net of cash acquired .... -- -- (470.9) -- (470.9)
Proceeds from dispositions ............ -- 1,036.1 400.0 -- 1,436.1
Investments in and advances to
affiliated companies ................ -- (51.8) (42.1) -- (93.9)
Proceeds from sales of short-term
investments ......................... -- 248.0 -- -- 248.0
Purchases of short-term investments ... -- (258.3) -- -- (258.3)
Other, net ............................ -- -- 8.1 -- 8.1
------------- ------------- ------------- ------------- -------------
Net cash flow from investing activities .... (.1) 850.3 (487.4) -- 362.8
------------- ------------- ------------- ------------- -------------
Financing Activities:
Borrowings (repayment) under bank
facilities, net...................... (758.9) -- 4.0 -- (754.9)
Proceeds from issuance of 7.75%
senior notes ........................ 990.4 -- -- -- 990.4
Proceeds from exercise of stock options
and warrants ........................ 149.9 -- -- -- 149.9
Settlement of CVRs .................... (81.9) -- -- -- (81.9)
Payment of Preferred Stock dividends .. (45.0) -- -- -- (45.0)
Increase (decrease) in intercompany
payables ............................ 393.7 (582.7) 189.0 -- --
Other, net ............................ (10.6) (0.6) (18.5) -- (29.7)
------------- ------------- ------------- ------------- -------------
Net cash flow from financing activities .... 637.6 (583.3) 174.5 -- 228.8
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents .................... 770.1 339.5 (1,158.5) -- (48.9)
Cash and cash equivalents at beginning
of period ........................... 31.6 63.4 502.7 -- 597.7
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of period . $ 801.7 $ 402.9 $ (655.8) $ -- $ 548.8
============= ============= ============= ============= =============
-17-
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Management's discussion and analysis of the Company's results of operations and
financial condition should be read in conjunction with the accompanying
Consolidated Financial Statements and related Notes.
The following tables set forth revenues and operating income by business
segment, for the three and the nine months ended September 30, 1996 and 1995.
Results for each period presented exclude contributions from the Cable segment,
which are reported separately as discontinued operations.
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
Revenues:
Networks and Broadcasting $ 649.6 $ 551.1 18% $1,784.4 $1,536.3 16%
Entertainment ........... 864.7 736.8 17 2,569.2 2,743.7 (6)
Video and Music/
Theme Parks ... 1,070.8 938.6 14 2,878.5 2,447.4 18
Publishing .............. 785.4 735.3 7 1,690.9 1,600.8 6
Intercompany ............ (18.7) (8.2) (128) (37.9) (19.8) (91)
-------- -------- -------- --------
Total ......... $3,351.8 $2,953.6 13 $8,885.1 $8,308.4 7
======== ======== ======== ========
Operating income: (a)
Networks and Broadcasting $ 177.4 $ 155.5 14% $ 447.2 $ 402.2 11%
Entertainment ........... 43.1 36.4 18 229.9 306.6 (25)
Video and Music/
Theme Parks ... 131.6 135.9 (3) 301.1 394.7 (24)
Publishing .............. 189.5 170.3 11 157.6 144.6 9
Corporate expenses ...... (46.4) (35.5) (31) (126.2) (109.1) (16)
-------- -------- -------- --------
Total ......... $ 495.2 $ 462.6 7 $1,009.6 $1,139.0 (11)
======== ======== ======== ========
(a) Operating income is defined as net earnings before discontinued operations,
minority interest, equity in earnings (loss) of affiliated companies (net of
tax), provision for income taxes, other items (net), and interest expense (net).
-18-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
EBITDA
- ------
The following table sets forth EBITDA (defined as operating income (loss) before
depreciation and amortization) for the three and nine months ended September 30,
1996 and 1995. EBITDA does not reflect the effect of significant amounts of
amortization of goodwill related to business combinations accounted for under
the purchase method. 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 operating
income, net earnings, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles.
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
EBITDA:
Networks and Broadcasting $ 211.2 $ 184.9 14% $ 543.5 $ 484.4 12%
Entertainment ........... 78.8 71.5 10 336.2 409.4 (18)
Video and Music/
Theme Parks ... 231.1 228.7 1 588.1 638.6 (8)
Publishing .............. 223.1 211.3 6 266.7 258.1 3
Corporate ............... (42.8) (33.6) (27) (117.0) (104.1) (12)
-------- -------- -------- --------
Total ......... $ 701.4 $ 662.8 6 $1,617.5 $1,686.4 (4)
======== ======== ======== ========
RESULTS OF OPERATIONS
- ---------------------
Revenues increased 13% to $3.35 billion for the third quarter of 1996 from $2.95
billion for the third quarter of 1995, driven primarily by strong performances
at MTV Networks, Blockbuster Video and Paramount Pictures. MTV Networks posted
double-digit gains in affiliate and advertising revenues, Blockbuster Video
continued expanding Company-owned stores and reported a 4% increase in worldwide
same-store sales and Paramount Pictures recorded higher results due to the box
office success of Mission Impossible and The First Wives Club. EBITDA increased
6% to $701.4 million for the third quarter of 1996 from $662.8 million for the
third quarter of 1995. Operating income increased 7% to $495.2 million for the
third quarter of 1996 from $462.6 million for the third quarter of 1995.
Revenues increased 7% to $8.89 billion for the nine months ended September 30,
1996 from $8.31 billion for the nine months ended September 30, 1995, due
primarily to MTV Networks continued gains in affiliate and advertising revenues.
EBITDA decreased 4% to $1.62 billion for the nine months ended September 30,
1996 from $1.69 billion for the nine months ended September 30, 1995. Operating
income decreased 11% to $1.01 billion for the nine months ended September 30,
1996 from $1.14 billion for the nine months ended September 30, 1995. Operating
results decreased due principally to the stronger foreign theatrical and home
video performance of Paramount Pictures' Forrest Gump in the prior year and
continued difficult conditions in the music retailing industry, as reflected in
Blockbuster's results.
-19-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Segment Results of Operations
- -----------------------------
Networks and Broadcasting (Basic Cable and Premium Subscription Television
Program Services, Television and Radio Stations)
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
Revenues $ 649.6 $ 551.1 18% $1,784.4 $1,536.3 16%
Operating Income $ 177.4 $ 155.5 14 $ 447.2 $ 402.2 11
EBITDA $ 211.2 $ 184.9 14 $ 543.5 $ 484.4 12
The Networks and Broadcasting segment is comprised of MTV Networks ("MTVN"),
basic cable television program services; Showtime Networks Inc. ("SNI"), premium
subscription television program services; Television and Radio stations. For the
third quarter of 1996, MTVN revenues of $349.3 million and EBITDA of $148.6
million each increased 27%, and operating income of $132.0 million increased 28%
over the same year-earlier period. For the nine months ended September 30, 1996,
MTVN revenues of $901.7 million increased 26% and both EBITDA of $352.9 million
and operating income of $306.9 million increased 22% over the same nine-month
period last year. The increase in MTVN revenues principally reflects higher
affiliate and advertising revenues due principally to rate increases. MTVN's
EBITDA and operating income gains were driven by the increased revenues
partially offset by start-up costs of Nick at Nite's TV Land, increased expenses
associated with international expansion and increased programming investment.
For the third quarter ended September 30, 1996, SNI's revenues, EBITDA, and
operating income increased 18%, 9% and 4% respectively, and for the nine months
ended September 30, 1996, revenues increased 12% and EBITDA and operating income
each increased 24% over the same prior-year periods. Such increases are
principally due to an increase of approximately 1.1 million subscribers from
September 30, 1995, reflecting the continued growth of direct broadcasting
satellite subscribers, partially offset by higher programming expenses. SNI
served a total of 15.6 million subscribers at September 30, 1996.
For the third quarter of 1996, Television and Radio revenues, EBITDA and
operating income decreased 7%, 11% and 16%, respectively. For the nine months
ended September 30, 1996, Television and Radio revenues remained relatively
constant, while EBITDA and operating income decreased 5% and 9%, versus the
prior year, respectively. Television results reflect the impact of the Company's
strategy of swapping network-affiliated television stations for United Paramount
Network affiliates. On a same-station basis, Television and Radio revenues,
EBITDA and operating income increased 6%, 7% and 5%, respectively, for the third
quarter and 6%, 7% and 8% for the nine months ended September 30, 1996,
respectively, over the same prior-year periods.
-20-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Entertainment (Motion Pictures and Television Programming, Movie Theaters, and
New Media and Interactive Services)
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
Revenues $ 864.7 $ 736.8 17% $2,569.2 $2,743.7 (6)%
Operating Income $ 43.1 $ 36.4 18 $ 229.9 $ 306.6 (25)
EBITDA $ 78.8 $ 71.5 10 $ 336.2 $ 409.4 (18)
The Entertainment segment is principally comprised of Paramount Pictures,
Paramount Television, Spelling Entertainment Group Inc. ("Spelling") and the
former Viacom Entertainment. For the quarter ended September 30, 1996, the major
worldwide theatrical revenue contributors were Paramount Pictures' Mission
Impossible, The First Wives Club and Primal Fear versus Clueless, Indian in the
Cupboard, Forrest Gump and Congo in the same year-earlier period. Paramount
Pictures' third quarter results also reflect increased feature motion picture
sales to television networks and increased cable and syndication revenues of the
television programming library. For the nine months ended September 30, 1996,
Paramount Pictures' theatrical and home video revenues did not match the
stronger foreign theatrical and home video performance of Paramount Pictures'
Forrest Gump and the sale of certain television series syndication rights for
the same prior-year period. The results of operations for the nine months ended
September 30, 1996 include $100 million of EBITDA and operating income
attributable to Viacom's strategic alliance with Kirch Group, the German media
group. The nine-month comparisons also reflect, in 1995, $250 million of
revenues and $68 million of EBITDA and operating income resulting from the
conforming of accounting policies pertaining to the television programming
libraries of Viacom Entertainment, Spelling and Paramount. Spelling's operating
results for 1996 were affected adversely by softness in the direct-to-video
market and significantly higher production funding which resulted in lower
EBITDA for the third quarter and nine months ended September 30, 1996 as
compared to the same year-earlier periods.
Video and Music/Theme Parks (Home Video and Music Retailing/Theme Parks)
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
Revenues $1,070.8 $ 938.6 14% $2,878.5 $2,447.4 18%
Operating Income $ 131.6 $ 135.9 (3) $ 301.1 $ 394.7 (24)
EBITDA $ 231.1 $ 228.7 1 $ 588.1 $ 638.6 (8)
-21-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The Video and Music/Theme Parks segment is comprised principally of Blockbuster
Video and Music, and Paramount Parks. The revenue increases for the quarter and
nine months ended September 30, 1996 reflect the increased number of
Company-owned video stores in operation in 1996 as compared to 1995 and a 4%
increase in worldwide same-store sales. Blockbuster Video ended the quarter with
5,021 stores, a net increase of 722 stores from September 30, 1995. For the nine
months ended September 30, 1996, the decreases in EBITDA and operating income
reflect continuing difficult conditions in the music retailing industry and
increased rental tape amortization cost compared with lower than normal
amortization in 1995, partially offset by the revenue increase. Music stores
revenues of $140.3 million and $412.9 million for the third quarter and nine
months ended September 30, 1996 increased 12% and 8%, respectively, over the
comparable prior-year periods. Music stores posted a small EBITDA loss in the
third quarter and for the nine months ended September 30, 1996 as compared to
contributing positive EBITDA in the respective periods last year. Music stores
recorded operating losses of $10.3 million and $29.5 million for the three-and
nine-month periods as compared to an operating loss of $1.5 million and
operating income of $2.6 million for the prior periods in 1995. For the third
quarter of 1996, Theme Parks revenues, operating income and EBITDA increased 6%,
74% and 24%, respectively. For the nine months ended September 30, 1996, Theme
Parks revenues increased 4%, operating income increased 60% and EBITDA increased
18% driven principally by increased attendance.
Publishing (Education; Consumer; Business and Professional, Reference and
International Groups)
Three months ended Percent Nine months ended Percent
September 30, Change September 30, Change
--------------------- ------ ----------------------- ------
1996 1995 1996 1995
-------- -------- -------- --------
(In millions) (In millions)
Revenues $ 785.4 $ 735.3 7% $1,690.9 $1,600.8 6%
Operating Income $ 189.5 $ 170.3 11 $ 157.6 $ 144.6 9
EBITDA $ 223.1 $ 211.3 6 $ 266.7 $ 258.1 3
Publishing is comprised of Simon & Schuster which includes imprints such as
Simon & Schuster, Pocket Books, Prentice Hall and Macmillan Computer Publishing.
The revenue increases for the quarter and nine months ended September 30, 1996
primarily reflect strong sales from the Higher Education and International
Groups, which benefited from an enhanced focus in Latin America and Asia. For
the third quarter, revenue increases were partially offset by lower sales volume
for the Consumer Group as a result of a weak retail market. Revenue increases
for the nine months ended September 30, 1996 were partially offset by lower
sales in the Elementary Education Group resulting from the strong performance of
the Music and Language Arts Programs in 1995 versus the less successful 1996
Reading program. The increase in operating income and EBITDA for the comparable
periods is primarily attributable to the gross profit impact of Higher
Education's increased sales volume and on a year-to-date basis the improved
results of Macmillan Computer Publishing and the Consumer Group.
-22-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Other Income and Expense Information
- ------------------------------------
Discontinued operations
Discontinued operations for the nine months ended September 30, 1996 reflect the
results of operations, net of tax, of the Cable segment which was split-off from
the Company on July 31, 1996, and MSG, which was sold on March 10, 1995 (see
Note 2 of Notes to Consolidated Financial Statements). The gain on the Cable
split-off of $1.3 billion is included in the Company's results of operations for
the three months ended September 30, 1996. On July 31, 1996, Viacom reduced its
debt by $1.7 billion and reduced its total number of outstanding Common shares
by approximately 4.1%.
Corporate expenses
Corporate expenses, including depreciation expense, increased 31% to $46.4
million for the third quarter of 1996 from the same prior-year period primarily
related to litigation and professional fees and increased 16% to $126.2
million for the nine months ended September 30, 1996 over the comparable
nine-month period, principally reflecting the impact of executive severance
expense in 1996.
Interest expense, net
For the three-and nine-month period ended September 30, 1996, net interest
expense decreased 6% to $197.1 million and decreased slightly to $611.4 million,
respectively. The Company had approximately $10.2 billion and $10.9 billion
principal amount of debt outstanding (including current maturities) as of
September 30, 1996 and September 30, 1995, respectively, at weighted average
interest rates of 7.3% and 7.6%, respectively.
Provision for income taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated annual effective tax rate
of 63.5% for 1996 and the annual effective tax rate of 64.9%, restated to
reflect the current discontinued operations presentation for 1995, were both
adversely affected by amortization of intangibles in excess of the amounts
deductible for tax purposes.
Equity in loss of affiliates
"Equity in loss of affiliated companies, net of tax" of $5.7 million and $9.3
million for the third quarter of 1996 and the nine months then ended improved
from a loss of $14.7 million and $29.1 million, respectively, primarily
reflecting improved operating results for the third quarter and the first nine
months of 1996 of USA Networks and United Cinemas International Multiplex B.V.,
partially offset by net losses from Gulf DTH, an international start-up equity
venture. The equity loss for the third quarter and nine months ended September
30, 1995 primarily reflects the loss of $9 million and $29.7 million,
respectively, related to the Company's 49.9% interest in Discovery Zone,
partially offset by operating results of USA Networks.
Minority interest
Minority interest primarily represents the minority ownership of Spelling common
stock.
-23-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
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 and amendments thereto, co-financing arrangements by the Company's
various divisions, additional financings and the sale of non-strategic assets as
opportunities may arise.
The Company was in compliance with all debt covenants and had satisfied all
financial ratios and tests under the agreements as of September 30, 1996 and the
Company expects to be in compliance and satisfy all such covenant ratios as may
be applicable from time to time during 1996.
The Company's scheduled maturities of indebtedness through December 31, 2000,
assuming full utilization of the credit agreements are $37 million (1996), $752
million (1997), $1.0 billion (1998), $1.5 billion (1999) and $1.3 billion
(2000). As of September 30, 1996, the Company has classified short-term
indebtedness as long-term debt based upon its intent and ability to refinance
such indebtedness on a long-term basis.
As a result of the July 31, 1996 Cable split-off, the Company reduced its notes
payable to banks by $1.7 billion of which $1.5 billion represents a permanent
reduction in its credit facility.
The Company has provided a (i) term loan of $100 million and (ii) a revolving
credit facility of $140 million to fund Spelling's working capital and other
requirements, (collectively the "Spelling Facility"). All outstanding borrowings
under the Spelling Facility were due to mature on March 31, 1997. On September
30, 1996, the Company and Spelling executed a Credit Agreement (the "Spelling
Credit Agreement"), which replaced the Spelling Facility. The Spelling Credit
Agreement provides for (i) a term loan of $200 million and (ii) a revolving
credit facility of $155 million to fund Spelling's working capital and other
requirements. All outstanding borrowings under the Spelling Credit Agreement
mature on December 31, 1998. The Spelling borrowings and related receivables
have been eliminated in consolidation.
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1996, estimated to aggregate
approximately $1.9 billion, principally reflect commitments under SNI's
exclusive arrangements with several motion picture companies. This estimate is
based upon a number of factors. A majority of such fees are payable 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.
-24-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Current assets increased to $5.7 billion as of September 30, 1996 from $5.2
billion as of December 31, 1995 primarily attributable to increases in accounts
receivable at Publishing due to sales volume, inventory increases at Blockbuster
and Pictures due to purchases of retail inventory and investment in feature film
inventory, respectively. The allowance for doubtful accounts as a percentage of
receivables was 5% as of September 30, 1996 and 6% as of December 31, 1995.
Property and equipment decreased $224.2 million. This decrease reflects the
disposition of the Company's Cable systems, partially offset by capital
expenditures of $363.3 million and capitalized leases of $104.7 million
primarily related to capital additions for new and existing video stores,
additional construction and equipment upgrades for theme parks and additional
transponders. Current liabilities decreased to $3.8 billion as of September 30,
1996 from $4.1 billion as of December 31, 1995, reflecting the payments for a
seasonally high level of Blockbuster videocassette purchases made in the fourth
quarter of 1995 and payment of accrued compensation and other normal operating
activity. Long-term debt, including current maturities, decreased to $10.2
billion as of September 30, 1996 from $10.8 billion as of December 31, 1995,
reflecting permanent reductions in credit facilities, offset by continued
investment in the Company's businesses.
Net cash flow from operating activities was negative $624.9 million for the nine
months ended September 30, 1996 versus negative $640.5 million for the nine
months ended September 30, 1995. The negative cash flow was primarily
attributable to the seasonality of the Company's segments, including receivable
increases due to volume growth at Publishing and the timing of payments for
higher purchases of rental inventory at Blockbuster Video. Increases in
Paramount Pictures' investment in feature film inventory, as well as higher
foreign syndication receivables, reduced operating cash flows.
Net cash flow from investing activities of $1.1 billion for the nine months
ended September 30, 1996 principally reflects the proceeds of $1.7 billion from
the split-off of the Company's Cable systems, partially offset by capital
expenditures and other acquisitions. Net cash flow from investing activities of
$362.8 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. Financing activities principally
reflect borrowings and repayments of debt under the credit agreements. In 1996,
net cash flow from financing activities primarily reflects the permanent
reduction in the Company's credit facility, and in 1995, the issuance of the
7.75% Senior Notes, partially offset by repayments of debt under bank
facilities.
-25-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Capital Structure
The following table sets forth the Company's long-term debt, net of current
portion as of September 30, 1996 and December 31, 1995:
September 30, 1996 December 31, 1995
------------------ -----------------
(In millions)
Notes payable to banks ............... $ 5,655.3 $ 6,206.9
Senior debt .......................... 2,484.0 2,482.8
Senior subordinated debt ............. 639.9 636.8
Subordinated debt .................... 955.7 946.7
Obligations under capital leases ..... 489.6 421.9
Other notes .......................... 13.4 62.1
--------- ---------
10,237.9 10,757.2
Less current portion ................. 55.8 45.1
--------- ---------
$10,182.1 $10,712.1
========= =========
The notes and debentures are presented net of an aggregate unamortized discount
of $170.5 million as of September 30, 1996 and $181.9 million as of December 31,
1995.
On May 10, 1996, a subsidiary of the Company entered into a $500 million 364-day
film financing credit agreement, guaranteed by Viacom International Inc. and the
Company.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 44% at September 30, 1996 and 47% at December 31, 1995
principally reflecting the effect of the Cable split-off.
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. As of September 30, 1996, the Company and its
subsidiaries had obtained interest rate protection agreements with respect to
approximately $600 million of indebtedness, which effectively change the
Company's interest rate on variable rate borrowings to fixed interest rates. The
interest rate protection agreements mature during March 1997.
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward contracts
and options, and interest rate swap agreements. The foreign exchange contracts
have principally been used to hedge the British Pound, the Australian Dollar,
the Japanese Yen, the Canadian Dollar, the French Franc, the Singapore Dollar,
the German Deutschemark and the European Currency Unit/British Pound
relationship. These derivatives, which are over-the-counter instruments, are
non-leveraged.
-26-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and contingent
value rights of Viacom and guarantees of such debt securities by Viacom
International which may be issued for aggregate gross proceeds of $3.0 billion.
The registration statement was declared effective on May 10, 1995. The net
proceeds from the sale of the offered securities may be used by Viacom to repay,
redeem, repurchase or satisfy its obligations in respect of its outstanding
indebtedness or other securities; to make loans to its subsidiaries; for general
corporate purposes; or for such other purposes as may be specified in the
applicable Prospectus Supplement. The Company filed a post-effective amendment
to this registration statement on October 21, 1996. To date, the Company issued
$1.6 billion of notes and debentures and has $1.4 billion remaining availability
under the shelf registration statement.
-27-
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.
(b) Reports on Form 8-K for Viacom Inc.
Current Report on Form 8-K of Viacom Inc. with a report date of July 18,
1996, relating to the establishment of the Exchange Ratio pursuant to the
"Dutch Auction" conducted among participating Viacom Inc. shareholders in
connection with the split-off of Viacom Inc.'s cable television business.
Current Report on Form 8-K of Viacom Inc. with a report date of July 30,
1996, relating to Viacom Inc.'s completion of the Exchange Offer and
related transactions resulting in the split-off of Viacom Inc.'s cable
television business.
-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 November 14, 1996 \s\ Sumner M. Redstone
----------------------------- ------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Date November 14, 1996 \s\ George S. Smith, Jr.
----------------------------- ------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-29-
Exhibit Index
11 Statement re: Computation of Net Earnings Per Share.
27 Financial Data Schedule.
Viacom Inc. and Subsidiaries
Computation of Net Earnings Per Share
Quarter ended September 30, Nine months ended September 30,
--------------------------- -------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In millions, except per share amounts)
Earnings:
Net earnings from continuing operations ........... $ 102.1 $ 77.5 $ 142.7 $ 151.3
Cumulative convertible preferred stock dividend
requirement .................................... 15.0 15.0 45.0 45.0
---------- ---------- ---------- ----------
Earnings from continuing operations attributable to
common stock ................................... 87.1 62.5 97.7 106.3
Earnings from discontinued operations, net of tax . -- 16.3 28.3 66.7
Gain on split-off of discontinued operations, net
of tax ......................................... 1,304.3 -- 1,304.3 --
---------- ---------- ---------- ----------
Net earnings attributable to common stock ......... $ 1,391.4 $ 78.8 $ 1,430.3 $ 173.0
========== ========== ========== ==========
Primary Computation:
- --------------------
Shares:
Weighted average number of common shares
outstanding .................................... 361.6 361.3 367.8 360.2
Common shares potentially issuable in connection
with:
Stock options and warrants ................... 2.4 8.8 3.8 8.5
Variable common rights (b) ................... -- 6.0 -- 6.1
---------- ---------- ---------- ----------
Weighted average common shares and common
share equivalents ............................ 364.0 376.1 371.6 374.8
========== ========== ========== ==========
Net earnings per common share:
Net earnings from continuing operations ........... $ 0.24 $ 0.17 $ 0.26 $ 0.28
Earnings from discontinued operations, net of tax . -- 0.04 0.08 0.18
Gain on split-off of discontinued operations, net
of tax ......................................... 3.58 -- 3.51 --
---------- ---------- ---------- ----------
Net earnings ...................................... $ 3.82 $ 0.21 $ 3.85 $ 0.46
========== ========== ========== ==========
Fully Diluted Computation:
- --------------------------
Shares:
Weighted average number of common shares
outstanding .................................. 361.6 361.3 367.8 360.2
Common shares potentially issuable in connection
with:
Stock options and warrants ................... 2.6 9.1 3.9 8.8
Preferred Stock (a) .......................... 17.2 -- 17.2 --
Variable common rights (b) ................... -- 6.0 -- 6.1
---------- ---------- ---------- ----------
Weighted average common shares and common
share equivalents ............................ 381.4 376.4 388.9 375.1
========== ========== ========== ==========
Net earnings per common share:
Net earnings from continuing operations ........... $ 0.27 $ 0.17 $ 0.37 $ 0.28
Earnings from discontinued operations, net of tax . -- 0.04 0.07 0.18
Gain on split-off of discontinued operations, net
of tax ......................................... 3.42 -- 3.35 --
---------- ---------- ---------- ----------
Net earnings ...................................... $ 3.69 $ 0.21 $ 3.79 $ 0.46
========== ========== ========== ==========
(a) For the third quarter and nine months ended September 30, 1996, the assumed
conversion of preferred stock had a dilutive effect on net earnings per
share, resulting from the gain on the Cable split-off, and therefore the
assumed conversion was included in the fully diluted earnings per share
calculation.
For the third quarter and nine months ended September 30, 1995, the assumed
conversion of preferred stock had an anti-dilutive effect on earnings per
share, resulting from the assumed reduction in Preferred Stock dividends,
and therefore was excluded from the fully diluted earnings per share
calculation.
(b) The variable common rights (the "VCRs") matured on September 29, 1995. The
Company issued approximately 6.1 million shares of Viacom Inc. Class B
Common Stock, or .022665 of a share of Viacom Inc. Class B Common Stock per
VCR, to settle its obligation under the VCRs.
5
1,000,000
9-MOS
DEC-31-1996
SEP-30-1996
308
0
2,413
124
4,859
5,673
3,688
694
29,002
3,788
10,182
0
1,200
4
11,743
29,002
8,885
8,885
5,493
7,876
0
0
611
400
254
143
1,333
0
0
1,475
3.85
3.79
