SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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Commission file number 1-9554
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VIACOM INTERNATIONAL INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2980402
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Broadway, New York, N.Y. 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, 1994:
Common Stock, par value $.10 per share - 100
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited; all amounts, are in millions)
Three months ended
September 30,
------------------
1994 1993
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Revenues...................................... $558.1 $506.9
Expenses:
Operating.................................. 229.0 212.5
Selling, general and administrative........ 170.9 144.6
Depreciation and amortization.............. 42.2 39.5
----- -----
Total expenses.......................... 442.1 396.6
------ ------
Earnings from operations...................... 116.0 110.3
Other income (expense):
Interest expense, net...................... (27.6) (35.2)
Other items, net........................... (.3) (3.6)
------ ------
Earnings before income taxes.................. 88.1 71.5
Benefit (provision) for income taxes....... 16.8 (37.0)
Equity in loss of affiliated companies,
net of tax............................... (1.3) (2.8)
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Net earnings before extraordinary
item, net of tax........................... 103.6 31.7
Extraordinary loss, net of tax (See note 4) -- (8.9)
------ ------
Net earnings.................................. $103.6 $22.8
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------ ------
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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(Unaudited; all amounts, are in millions)
Nine months ended
September 30,
------------------
1994 1993
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Revenues...................................... $1,583.2 $1,473.2
Expenses:
Operating.................................. 985.5 642.8
Selling, general and administrative........ 535.1 408.5
Depreciation and amortization.............. 123.9 111.6
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Total expenses.......................... 1,644.5 1,162.9
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Earnings (loss) from operations............... (61.3) 310.3
Other income (expense):
Interest expense,.......................... (98.7) (114.3)
Other items, net (See Note 7).............. 263.9 63.3
------- -------
Earnings before income taxes.................. 103.9 259.3
Provision for income taxes................. (96.8) (110.0)
Equity in loss of affiliated companies,
net of tax............................... (2.4) (2.9)
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Net earnings before extraordinary
item and cumulative effect of change in
accounting ................................ 4.7 146.4
Extraordinary loss, net of tax (See Note 4) (11.9) (8.9)
Cumulative effect of change in accounting
principle (See Note 6).................... -- 10.4
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Net earnings (loss)........................... $ (7.2) $147.9
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------- -------
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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(Unaudited; all amounts are in millions)
September 30, December 31,
1994 1993
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Assets
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Current Assets:
Cash and cash equivalents............................ $ 49.4 $ 74.0
Receivables, less allowances of
$36.2 (1994) and $33.9 (1993).................... 372.6 351.7
Programming rights, deferred program costs and
distribution fees advanced and committed......... 369.7 356.5
Other current assets................................. 112.2 95.7
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Total current assets................................ 903.9 877.9
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Property and equipment, at cost......................... 1,026.3 900.9
Less accumulated depreciation........................ 406.5 347.2
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Net property and equipment......................... 619.8 553.7
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Programming rights, deferred program costs and
distribution fees advanced and committed.............. 579.2 789.5
Receivable from Viacom Inc.(Parent Company)............. -- 203.9
Intangibles, at amortized cost.......................... 2,070.8 2,128.9
Other assets............................................ 192.1 219.6
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$4,365.8 $4,773.5
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-------- ---------
See notes to consolidated financial statements.
CONTINUED
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
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(Unaudited; all amounts, except share and per share amounts, are in millions)
September 30, December 31,
1994 1993
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Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable......................... $ 69.3 $ 96.6
Accrued interest......................... 11.6 20.5
Deferred income, current................. 51.2 50.9
Other accrued expenses................... 241.6 229.5
Income taxes............................. 245.6 140.5
Participants share and residuals
payable................................. 123.8 139.1
Program rights, current.................. 192.7 198.0
Current portion of long-term debt........ 10.5 18.6
-------- --------
Total current liabilities 946.3 893.7
-------- --------
Long-term debt............................... 842.8 2,411.8
Program rights, non-current.................. 115.9 86.8
Other liabilities............................ 176.8 195.9
Payable to Viacom Inc. (Parent Company)...... 1,103.9 --
Commitments and contingencies (See Note 5)
Shareholders' Equity:
Common Stock, par value $.10 per share;
100 shares authorized, issued and
outstanding......................... -- --
Additional paid-in capital............. 912.3 912.3
Retained earnings...................... 265.8 273.0
Cumulative translation adjustment...... 2.0 --
-------- --------
1,180.1 1,185.3
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$4,365.8 $4,773.5
-------- --------
-------- --------
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited; all amounts are in millions)
Nine months ended
September 30,
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1994 1993
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Net cash flow from operating activities:
Net earnings (loss).............................. $ (7.2) $ 147.9
Adjustment to reconcile net earnings to net
cash flow from operating activities:
Merger-related charges.......................... 332.1 --
Depreciation and amortization................... 123.9 111.6
Gain on the sale of Lifetime, net of tax........ (164.4) --
Gain on the sale of the cable system, net of
tax............................................ -- (45.8)
Gain on the sale of an investment held at
cost, net of tax............................... -- (17.4)
Extraordinary loss, net of tax.................. 11.9 8.9
Cumulative effect of change in accounting
principle...................................... -- (10.4)
Increase in receivables......................... (21.0) (52.3)
Decrease in accounts payable and
accrued expenses............................... (51.7) (44.5)
Increase in programming assets and
related liabilities, net....................... (110.4) (138.5)
Increase in income taxes payable and deferred
income taxes, net.............................. 15.5 69.5
Decrease in deferred income..................... (9.0) (3.3)
Decrease in unbilled receivables................ 13.8 1.8
Other, net...................................... (14.6) (5.1)
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Net cash flow from operating activities...... 118.9 22.4
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Investing Activities:
Capital expenditures............................ (126.4) (84.6)
Investments in and advances to affiliated
companies...................................... (23.9) (16.6)
Proceeds from sale of partnership interest in
Lifetime....................................... 317.6 --
Proceeds from sale of the Wisconsin cable system -- 73.7
Proceeds from sale of investment held at cost... -- 18.1
Proceeds from sale of transponders.............. -- 51.0
Acquisitions.................................... -- (41.2)
Deposits on transponders........................ (1.1) (46.7)
Other, net...................................... .2 .9
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Net cash flow from investing activities...... 166.4 (45.4)
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Financing Activities:
Short-term borrowings (repayments) from banks,
net............................................ (1,604.1) 381.8
Increase in payable to (receivable from) Viacom
Inc............................................ 1,297.7 (34.1)
Redemption of notes............................. -- (298.0)
Premium on redemption of notes.................. -- (10.0)
Other, net...................................... (3.5) (2.3)
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Net cash flow from financing activities...... (309.9) 37.4
-------- ---------
Net increase (decrease)in cash and cash
equivalents.................................... (24.6) 14.4
Cash and cash equivalents at beginning of the
period......................................... 74.0 48.4
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Cash and cash equivalents at end of period......... $ 49.4 $ 62.8
-------- ---------
-------- ---------
See notes to consolidated financial statements.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
Viacom International Inc. ("Viacom International") is a wholly owned
subsidiary of Viacom Inc. Viacom International is a diversified
entertainment company with operations in three principal segments: (i)
Networks, (ii) Entertainment and (iii) Cable Television and Broadcasting.
The accompanying unaudited condensed consolidated financial statements of
Viacom International 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 Viacom International'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 Viacom International. In order to maintain
consistency and comparability between periods presented, certain
previously reported amounts have been reclassified to conform with the
current presentation.
2) PARAMOUNT MERGER AND BLOCKBUSTER MERGER
On March 11, 1994, Viacom Inc. acquired a majority of the Paramount
Communications Inc. ("Paramount") common stock outstanding, at a price of
$107 per share in cash. On July 7, 1994, Paramount became a wholly owned
subsidiary of Viacom Inc. (the "Paramount Merger") at the effective time of
a merger between Paramount and a subsidiary of Viacom Inc.
On September 29, 1994, Blockbuster Entertainment Corporation
("Blockbuster") was merged with and into Viacom Inc., (the "Blockbuster
Merger").
The results of operations and financial position of Paramount and
Blockbuster are not reflected in the financial statements herein. Such
information for Paramount and the balance sheet for Blockbuster are
reflected in the consolidated financial statements of Viacom Inc.
3) PARAMOUNT MERGER-RELATED CHARGES
Comparisons of operating results are affected by the merger and
consolidation of certain operations of Viacom International and Paramount
under one management structure. Earnings (loss) from operations for the
nine months ended September 30, 1994 include certain merger-related
charges reflecting the integration of Viacom International's pre-merger
businesses with similar Paramount units, and related management and
strategic changes principally related to the merger with Paramount. The
amounts of merger-related charges are $73.4 million for Networks, $224.0
million for Entertainment and $17.3 million for Cable Television and
Broadcasting.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Merger-related charges principally relate to adjustments of programming
assets based upon new management strategies and additional programming
sources resulting from the merger with Paramount. In addition, a merger-
related charge of $17.4 million included in Corporate expenses reflects
the combination of the Viacom International and Paramount staffs.
4) BANK FINANCING AND DEBT
Total debt, which includes short-term and long-term debt, consists of
the following:
September 30, December 31,
1994 1993
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(Millions of dollars)
Notes payable to banks................ $311.0 $1,915.1
9.125% Senior Subordinated Notes due
1999................................ 150.0 150.0
8.75% Senior Subordinated Reset Notes
due 2001............................ 100.0 100.0
10.25% Senior Subordinated Notes due
2001................................ 200.0 200.0
Obligations under capital leases...... 92.3 65.3
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853.3 2,430.4
Less current portion.................. 10.5 18.6
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$842.8 $2,411.8
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Viacom Inc., the parent company, will be the sole source of additional
financing of working and permanent capital needs of Viacom International.
On July 1, 1994, Viacom Inc., entered into a $6.489 billion credit
agreement (the "Viacom Credit Agreement") and Viacom International and
certain of its subsidiaries (the "Subsidiary Obligors") entered into a
$311 million credit agreement (the "Viacom International Credit
Agreement", together with the Viacom Credit Agreement, collectively the
"Credit Agreements") each with certain banks, the proceeds of which were
used to refinance the previously existing bank debt of Viacom Inc.,
Viacom International and Paramount. On September 29, 1994, Viacom Inc.,
entered into an aggregate $1.8 billion credit agreement (the "$1.8
billion Credit Agreement") with certain banks, the proceeds of which
were used to refinance the previously existing bank debt of Blockbuster.
Each of the Viacom Inc. Credit Agreement and the $1.8 billion Credit
Agreement is guaranteed by Viacom International and Paramount. In
addition, the Viacom International Credit Facility is guaranteed by Viacom
Inc. and Paramount. Viacom International's public debt securities, that
is, its 8.75% Senior Subordinated Notes, 9.125% Senior Subordinated Notes
and 10.25% Senior Subordinated Notes, are each guaranteed by Viacom Inc.
The following is a summary description of the credit facilities. The
description does not purport to be complete and should be read in
conjunction with each of the credit facilities agreements.
The Viacom Credit Agreement is comprised of (i) a $2.5 billion senior
unsecured 2-1/2 year revolving short-term loan (the "Short-Term Loan")
maturing December 31, 1996, (ii) a $1.8 billion senior unsecured 8-year
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reducing revolving loan (the "Revolving Loan") maturing July 1, 2002 and
(iii) a $2.189 billion 8 year term loan maturing July 1, 2002 (the "Term
Loan). The Viacom International Credit Agreement is comprised of a $311
million 8-year term loan to Viacom International and certain of its
subsidiaries maturing July 1, 2002. The $1.8 billion Credit Agreement is
comprised of a $1.8 billion reducing revolving loan to Viacom Inc.
maturing July 1, 2002.
The interest rate on all loans made under each of the credit facilities
is based upon Citibank, N.A.'s base rate, the Federal Funds Rate or the
London Interbank Offered Rate and is affected by Viacom Inc.'s credit
rating.
Viacom International is required to repay the principal outstanding under
the Viacom International Credit Agreement in quarterly payments of 3% for
the period commencing July 1, 1997 through October 1, 1997, 4% for the
period January 1, 1998 through October 1, 1999, 5% for the period January
1, 2000 through October 1, 2000, and 6% for the period January 1, 2001
through July 1, 2002.
In the event that a Subsidiary Obligor ceases to be a wholly owned
subsidiary of Viacom Inc. or Viacom International, the loans of such
Subsidiary Obligor shall be due and payable on the date on which such
subsidiary ceases to be a wholly owned subsidiary. If such event occurs
prior to December 31, 1996 or the repayment in full of all Short-Term
Loans, Viacom Inc. may elect to convert any outstanding portion of the
Short-Term Loan into additional Term Loans in an amount equal to the
principal amount of such Subsidiary Obligor's loan.
The credit facilities contain certain covenants which, among other things,
require that Viacom Inc. maintain certain financial ratios and impose on
Viacom Inc. and its subsidiaries certain limitations on substantial asset
sales and mergers in which Viacom Inc. is not the surviving entity, except
for the merger of Viacom Inc. into Viacom International with Viacom
International as the surviving company. The Viacom International Credit
Agreement also contains covenants which impose limitations on the
incurrence of borrowed money.
The credit facilities contain certain customary events of default and
provides that it is an event of default if National Amusements, Inc.
("NAI") fails to own at least 51% of the outstanding voting stock of
Viacom Inc.
The credit facilities do not require compensating balances.
_____________________
Extraordinary Losses
The proceeds from the Credit Agreement were used to refinance the
previously existing bank debt of Viacom Inc., Viacom International and
Paramount. Viacom International recognized an extraordinary loss from
the extinguishment of debt of $11.9 million, net of a tax benefit of
$7.0 million in the second quarter of 1994.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 15, 1993, Viacom International redeemed all of the $298 million
principal amount outstanding of the 11.80% Senior Subordinated Notes at a
redemption price equal to 103.37% of the principal amount plus accrued
interest to July 15,1993. Viacom International recognized an after-tax
extraordinary loss from the early extinguishment of such debt of $8.9
million, net of a tax benefit of $6.1 million on the transaction. Viacom
International borrowed the funds necessary for the redemption under its
bank credit facilities existing during the period.
5) COMMITMENTS AND CONTINGENCIES
Those commitments of Viacom International for program license fees which
are not reflected in the balance sheet as of September 30, 1994, which
are 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
within the next seven years, as part of normal programming expenditures
of SNI. These commitments are contingent upon delivery of motion
pictures, which are not yet available for premium television exhibition
and, in many cases, have not yet been produced.
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 49% for 1993 and 4% for 1994 continue to
be affected by amortization of acquisition costs which are not deductible
for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale of the
one-third partnership interest in Lifetime Television ("Lifetime") and the
Wisconsin cable system, their full income tax effect is reflected in the
second quarter 1994 and first quarter 1993 tax provision, respectively, and
is excluded from the estimated annual effective tax rate.
During the first quarter of 1993, Viacom International adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"), on a prospective basis and recognized a cumulative benefit
from a change in accounting principle of $10.4 million.
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VIACOM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7) OTHER ITEMS, NET
On April 4, 1994, Viacom International sold its one-third partnership
interest in Lifetime for approximately $317.6 million, which resulted
in a pre-tax gain of approximately $267.4 million in the second quarter
of 1994. Proceeds from the sale were used to reduce outstanding debt
of Viacom International.
As part of the settlement of the Time Warner antitrust lawsuit, Viacom
International sold the stock of Viacom Cablevision of Wisconsin, Inc.
to Warner Communications Inc. ("Warner"). This transaction was
effective on January 1, 1993. As consideration for the stock, Warner
paid the sum of $46 million, $20 million of which was received during
1992, plus repayment of debt in the amount of $49 million, resulting in
a pre-tax gain of approximately $55 million reflected in "Other items,
net" in the first quarter of 1993. Also reflected in this line item
for the nine months ended September 30, 1993, is a pre-tax gain of
$17.4 million in the aggregate from sales of a portion of an investment
held at cost and an increase of $9.1 million to previously established
non-operating litigation reserves.
8) SUPPLEMENTAL CASH FLOW INFORMATION
Nine months ended
September 30,
------------------
1994 1993
---- ----
(Millions of dollars)
Cash payments for interest, net of amounts
capitalized.................................. $110.1 $136.8
Cash payments for income taxes.................. 44.4 30.5
Non-cash financing and investing activity:
Equipment acquired under capital leases......... $26.5 $44.4
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Management's discussion and analysis of the results of operations and
financial condition of Viacom International should be read in conjunction
with the Consolidated Financial Statements and related Notes.
Comparisons of results of operations are affected by the merger and
consolidation of certain operating units of Viacom International and
Paramount under one management structure, therefore this discussion
should also be read in conjunction with Viacom Inc.'s Management's
Discussion and Analysis of Results of Operations and Financial Condition.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
The following tables set forth revenues, depreciation and
amortization, earnings (loss) from operations, equity in pre-tax
losses of affiliated companies, and earnings from operations plus
equity in pre-tax losses by business segment for the three months and
nine months ended September 30, 1994 and September 30, 1993:
Equity in
pre-tax
Depreciation Earnings from losses of Operations
& operations affiliated plus equity
Revenues amortization (as reported) companies losses
-------- ------------ -------------- ---------- -----------
(Millions of dollars)
Third quarter 1994
- - ------------------
Networks.......... $373.1 $13.6 $97.7 $(1.9) $95.8
Entertainment..... 42.9 2.5 10.9 (0.2) 10.7
Cable Television
& Broadcasting... 148.4 24.7 31.0 -- 31.0
Corporate......... -- 1.3 (23.6) -- (23.6)
Intercompany...... (6.3) -- -- -- --
------ ----- ------ ------- ------
Totals............ $558.1 $42.1 $116.0 $(2.1) $113.9
------ ----- ------ ------- ------
------ ----- ------ ------- ------
Third quarter 1993
- - ------------------
Networks.......... $318.3 $11.8 $82.7 $(4.3) $78.4
Entertainment..... 47.0 2.9 3.4 -- 3.4
Cable Television
& Broadcasting... 147.5 23.9 36.4 -- 36.4
Corporate......... -- 0.9 (12.2) -- (12.2)
Intercompany...... (5.9) -- -- -- --
------ ----- ------ ------- ------
Totals............ $506.9 $39.5 $110.3 $(4.3) $106.0
------ ----- ------ ------- ------
------ ----- ------ ------- ------
Nine months ended
September 30, 1994
- - ------------------
Networks.......... $1,029.7 $38.7 $168.2 $(3.2) $165.0
Entertainment..... 127.5 7.6 (220.6) (0.6) (221.2)
Cable Television
& Broadcasting... 443.7 74.1 80.5 -- 80.5
Corporate......... -- 3.5 (89.4) -- (89.4)
Intercompany...... (17.7) -- -- -- --
------- ----- ------ ------- ------
Totals............ $1,583.2 $123.9 $(61.3) $(3.8) $(65.1)
------- ----- ------ ------- ------
------- ----- ------ ------- ------
Nine months ended
September 30, 1993
- - ------------------
Networks.......... $829.8 $32.2 $204.3 $(3.4) $200.9
Entertainment..... 152.2 6.4 28.8 (1.0) 27.8
Cable Television
& Broadcasting... 445.6 70.2 118.8 -- 118.8
Corporate......... -- 2.8 (41.6) -- (41.6)
Intercompany...... (17.4) -- -- -- --
------- ----- ------ ------- ------
Totals............ $1,473.2 $111.6 $310.3 $(4.4) $305.9
------- ----- ------ ------- ------
------- ----- ------ ------- ------
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Results of Operations
Revenues increased 10%, or $51.2 million, to $558.1 million, and 7%,
or $110.0 million to $1,583.2 million for the third quarter and nine
months ended September 30, 1994, respectively, compared with the same
prior-year periods. Earnings from operations increased 5%, or $5.6
million, to $115.9 million, and decreased $371.6 million, to a loss
from operations of $61.3 million for the quarter and nine months ended
September 30, 1994, respectively, compared with the same prior-year
periods.
On March 11, 1994, Viacom Inc. acquired a majority of the Paramount
common stock outstanding, at a price of $107 per share in cash. On
July 7, 1994, Paramount became a wholly owned subsidiary of Viacom Inc.
(the "Paramount Merger") at the effective time of a merger between
Paramount and a subsidiary of Viacom Inc.
Earnings (loss) from operations for the nine months ended September
30, 1994 include certain merger-related charges, reflecting the
integration of Viacom International's pre-merger businesses with
similar Paramount units, and related management and strategic changes
principally related to the merger with Paramount. The amounts of
merger-related charges are $73.4 million for Networks, $224.0 million
for Entertainment and $17.3 million for Cable Television and
Broadcasting. These merger-related charges principally relate to
adjustments of programming assets based upon new management strategies
and additional programming sources resulting from the merger with
Paramount. In addition, a merger-related charge of $17.4 million has
been taken in Corporate expenses reflecting the combination of the
Viacom International and Paramount staffs.
The following is a comparative discussion of revenues and earnings
from operations, exclusive of these merger-related charges, for each
operating segment.
Networks (Basic cable and premium television networks)
MTV Networks
MTV Networks ("MTVN") revenues increased 17%, to $217.5 million from
$185.4 million, and 22%, to $589.4 million from $482.9 million for the
quarter and nine months ended September 30, 1994, respectively,
compared with the same prior-year periods. The increased revenues are
principally due to (1) an aggregate increase of $26.5 million and
$78.4 million for the quarter and nine month periods, respectively, in
advertising sales at each of the services and (2) an aggregate
increase of $10.8 million and $24.5 million for the quarter and nine
month periods, respectively, in affiliate fees at each of the
services. The increase in advertising sales and affiliate fees are
principally due to rate increases.
MTVN's earnings from operations increased 15%, to $87.0 million from
$75.9 million, and 18%, to $210.6 million from $178.7 million for the
quarter and nine months ended September 30, 1994, respectively,
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
compared with the same prior-year periods. The current periods reflect
the increased revenues, partially offset by increased costs of
operating the networks, including losses from MTV Latino, Nickelodeon
Magazine, VH-1 U.K. and MTV Asia aggregating $5.0 million for the nine
month period.
Showtime Networks Inc.
Revenues of Showtime Networks Inc. ("SNI") increased 17%, to $155.6
million from $132.9 million, and 7%, to $440.3 million from $409.9
million for the quarter and nine months ended September 30, 1994,
respectively, compared with the same prior-year periods. The net
revenue increases are due to 1) additional royalty income of $14.8
million resulting from the settlement of an audit; 2) for the quarter,
subscription revenues from cable sales of Showtime and The Movie
Channel, increased $4.2 million principally due to a 4% increase in
the subscriber base, but for the nine months decreased $1.4 million
due to a 5% decrease in average rates partially offset by a 5%
increase in the subscriber base; and 3) subscription revenues of the
back-yard dish business increased $3.7 million and $13.7 million, for
the quarter and nine month periods, respectively, primarily due to
increases of 18% and 28% in the back-yard dish subscriber base, which
was principally attributable to the use of upgraded scrambling
technology, and a 2% and 1% increase in average rates, for the quarter
and nine month periods, respectively. SNI's premium movie services,
Showtime, The Movie Channel and FLIX, served approximately 12.8
million subscribers as of September 30, 1994 and approximately 11.6
million subscribers as of September 30, 1993.
SNI's earnings from operations increased 56%, to $10.7 million from
$6.8 million, and 21%, to $31.0 million from $25.7 million for the
quarter and nine months ended September 30, 1994, as compared with
the same prior-year periods, reflecting the increased revenues
partially offset by increased costs.
Entertainment (Television production and distribution
and Interactive Media)
Viacom Entertainment revenues decreased 9%, to $42.9 million from
$47.0 million, and 16%, to $127.5 million from $152.2 million for the
quarter and nine months ended September 30, 1994, respectively,
compared with the same prior-year periods. The revenue variance is
principally due to decreased syndication revenues on network produced
products, revenues from Viacom Interactive Media, and for the nine
month period, decreased syndication revenues associated with The Cosby
Show.
Viacom Entertainment reported earnings from operations of $10.9
million compared to $3.4 million, and $3.4 million compared to $28.8
million for the quarter and nine months ended September 30, 1994,
respectively, compared with the same prior-year periods, reflecting
reduced overhead costs, partially offset by losses from Viacom
Interactive Media, and for the nine month period, the effect of the
decreased syndication revenue associated with The Cosby Show.
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Cable Television and Broadcasting (Cable television systems and
Television and Radio stations)
Cable Television
Cable Television revenues decreased 3%, to $100.4 million from $103.7
million, and 4% to $304.6 million from $315.7 million for the quarter
and nine months ended September 30, 1994, respectively, compared with
the same prior-year periods. The decrease in revenues is primarily
attributable to decreases in the basic revenue of $5.8 million and
$17.7 million in the quarter and nine month periods. The quarter
results reflect an 11% decrease in average rates for basic services,
partially offset by a 4% increase in basic customers, and the nine
month results reflect a 10% decrease in average rates for basic
services, partially offset by a 3% increase in basic customers. Total
revenue per basic customer per month decreased 7% to $29.90 in 1994
from $31.96, and 6% to $30.44 from $32.50 for the quarter and nine
months ended September 30, 1994, respectively, compared with the same
prior-year periods. The revenue variances reflect the full effect of
the 1992 Cable Act rate regulations, released by the FCC, which became
effective on September 1, 1993, and additional rate regulations,
released in March 1994 which became effective May 15, 1994.
Earnings from operations decreased 33%, to $17.2 million from $25.9
million, and 33%, to $59.8 million from $89.4 million for the quarter
and nine months ended September 30, 1994, respectively, compared with
the same prior-year periods, reflecting the decreased revenues and
increased operating, general and administrative expenses.
Viacom Cable served approximately 1,127,000 basic customers subscribing
to approximately 900,000 premium units as of September 30, 1994. Basic
customers and premium units increased 4% and 20%, respectively, since
September 30, 1993. Viacom Cable added 9,400 incremental basic
customers in third quarter of 1994, approximately 216% over the amount
added in the third quarter of 1993.
Television Stations
Television stations revenues increased 15%, to $24.0 million from
$20.8 million, and 10%, to $71.6 million from $64.9 million for the
quarter and nine months ended September 30, 1994, respectively,
compared with the same prior-year periods, reflecting increased local
and national advertising revenues for the Viacom stations.
Earnings from operations increased 33% to $5.4 million from $4.1
million, and increased 33% to $17.6 million from $13.2 million for the
quarter and nine months ended September 30, 1994, respectively,
compared with the same prior-year periods.
Radio Stations
Radio revenues increased 4%, to $24.0 million from $22.9 million, and
4%, to $67.4 million from $65.0 million for the quarter and nine months
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
ended September 30, 1994, respectively, compared with the same prior-
year periods, primarily reflecting increased local advertising
revenues.
Earnings from operations increased 33%, to $9.7 million from $7.3
million, and 23%, to $23.3 million from $19.0 million, reflecting the
increased revenues, partially offset by increased selling and general
and administrative expenses.
Other income and expense information
Net interest expense decreased 21% to $27.7 million from $35.2
million, and 14% to $98.7 million from $114.3 million for the quarter
and nine months ended September 30, 1994, respectively, compared with
the same prior-year periods, reflecting the effect the refinancing of
previously existing bank debt by Viacom Inc., the redemption of 11.80%
Senior Subordinated Debt, partially offset by increased expense
related to interest rate swap agreements.
For the nine months ended September 30, 1994, "Other items, net"
reflects the sale of Viacom International's one-third partnership
interest in Lifetime Television ("Lifetime") for approximately $317.6
million, which resulted in a pre-tax gain of approximately $267.4
million in the second quarter of 1994. Proceeds from the sale were
used to reduce outstanding debt of Viacom International.
For the nine months ended September 30, 1993, "Other items, net,"
reflects the pre-tax gain of approximately $55 million on the sale of
the stock of the Wisconsin cable system, an adjustment to previously
established non-operating litigation reserves and the net gain on the
sale of a portion of an investment held at cost.
The provision for income taxes represents federal, state and foreign
income taxes on earnings before income taxes.
The annual effective tax rates of 49% for 1993 and 4% for 1994 continue
to be affected by amortization of acquisition costs which are not
deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale of
the one-third partnership interest in Lifetime and the Wisconsin cable
system, their full income tax effect is reflected in the second
quarter 1994 and first quarter 1993 tax provision, respectively, and
is excluded from the estimated annual effective tax rate.
During the first quarter of 1993, Viacom International adopted
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" on a prospective basis and recognized a cumulative
benefit from a change in accounting principle of $10.4 million.
"Equity in losses of affiliated companies, net of tax" decreased 54%
to $1.3 million from $2.8 million and, 17%, to $2.4 from $2.9 million
for the quarter and nine months ended September 30, 1994,
respectively, compared with the same prior-year periods primarily
reflecting improved operating results of Comedy Central and
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Nickelodeon U.K., partially offset by the absence of Lifetime's
earnings, effective April 1, 1994, due to the sale of the one-third
partnership interest.
During the nine months ended September 30, 1994, Viacom International
recognized an extraordinary loss from the extinguishment of debt of
$11.9 million, net of a tax benefit of $7.0 million (see "Capital
Structure").
On July 15, 1993, Viacom International redeemed all of the $298
million principal amount outstanding of the 11.80% Senior Subordinated
Notes (the "11.80% Notes") at a redemption price equal to 103.37% of
the principal amount plus accrued interest to July 15,1993. Viacom
International recognized an after-tax extraordinary loss from the
early extinguishment of such debt of $8.9 million, net of a tax
benefit of $6.1 million on the transaction. Viacom International
borrowed the funds necessary for the redemption under its bank credit
facilities existing during the period.
Effective January 1, 1994, Viacom International adopted Financial
Accounting Standards No. 112, "Employers Accounting for Postemployment
Benefits," which did not have a material effect on Viacom
International's financial position or results of operations.
Liquidity and Capital Resources
Viacom International finances and expects to continue to finance its
operations including cash requirements of its joint ventures through
internally generated cash flow, and capital contributions from its
parent company, Viacom Inc.
Viacom Inc. expects to fund its anticipated operating, investing and
financing cash requirements, with internally generated funds and with
various external sources of funds, including additional financings and
the sale of non-strategic assets as such opportunities may arise, such
as the expected sale of the operations of Madison Square Garden.
On July 1, 1994, Viacom Inc., entered into an aggregate $6.489 billion
credit agreement (the "Viacom Credit Agreement") and Viacom International
and certain of its subsidiaries (the "Subsidiary Obligors") entered into
a $311 million credit agreement (the "Viacom International Credit
Agreement," collectively with the Viacom Credit Agreement the "Credit
Agreement") each with certain banks. The proceeds of which were used to
refinance bank debt of Viacom Inc., Viacom International and Paramount.
On September 29, 1994, Viacom Inc., entered into an aggregate $1.8
billion credit agreement (the "$1.8 billion Credit Agreement") with
certain banks, the proceeds of which were used to refinance the
previously existing bank debt of Blockbuster. ("See Capital Structure.")
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
Each of the Viacom Inc. Credit Agreement and the $1.8 billion Credit
Agreement is guaranteed by Viacom International and Paramount. In
addition, the Viacom International Credit Facility is guaranteed by
Viacom Inc. and Paramount. Viacom International's public debt
securities, that is, its 8.75% Senior Subordinated Notes, 9.125%
Senior Subordinated Notes and 10.25% Senior Subordinated Notes, are
each guaranteed by Viacom Inc.
Viacom International's current scheduled maturities of long-term debt
through December 31, 1998 are $19 million (1997) and $50 million
(1998).
On May 15, 1995 and May 15, 1998, unless a notice of redemption of the
8.75% Senior Subordinated Reset Notes ("8.75% Reset Notes")on such
date has been given by Viacom International, the interest rate on the
8.75% Reset Notes will, if necessary, be adjusted from the rate then
in effect to a rate to be determined on the basis of market rates in
effect on May 5, 1995 and on May 5, 1998, respectively, as the rate
the 8.75% Reset Notes should bear in order to have a market value of
101% of principal amount immediately after the resetting of the rate.
Viacom International was in compliance with all covenants and had
satisfied all financial ratios and tests as of September 30, 1994
under its credit facility and Viacom International expects to remain
in compliance with such ratios as may be applicable from time to time
during 1994.
Debt, including the current portion, as a percentage of total
capitalization of Viacom International was 42% at September 30, 1994
and 67% December 31, 1993.
The indebtedness under Viacom International's and Viacom Inc.'s credit
facilities bears interest at floating rates, causing Viacom
International and Viacom Inc. to be sensitive to changes in prevailing
interest rates. As of September 30, 1994, Viacom International had
obtained interest rate protection agreements with respect to $2.6
billion of indebtedness of Viacom International and Viacom Inc. The
interest rate protection agreements will mature during 1994 through
1997.
Net cash flow from operating activities was $118.9 million for the
nine months ended September 30, 1994 versus $22.4 million for the nine
months ended September 30, 1993 due to increased earnings from
operations prior to merger-related charges. Net cash flows from
investing activities of $166.4 million for the nine months ended
September 30, 1994, principally reflect proceeds from the sales of the
one-third partnership interest in Lifetime, partially offset by
capital expenditures and additional investments in affiliated
companies. Net cash expenditures for investing activities of $45.4
million for the nine months ended September 30, 1993 principally
reflect capital expenditures, the acquisition of ICOM Simulations,
Inc., the additional investment in StarSight Telecast, Inc. and
advances to Comedy Central, partially offset by proceeds from the sale
of the Wisconsin cable system and an investment held at cost.
Financing activities principally reflect borrowings and repayments of
debt under the credit facilities during each period presented, in
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
1994, amounts received from Viacom Inc. to refinance the previously
existing credit facilities, and in 1993, the redemption of the 11.80%
Notes.
Those commitments of Viacom International for program license fees
which are not reflected in the balance sheet as of September 30,
1994, which are estimated to aggregate approximately $1.9 billion,
principally reflect commitments under SNI's exclusive arrangements
with several motion picture companies. This estimate is based upon
a number of factors. A majority of such fees are payable within the
next seven years, as part of normal programming expenditures of SNI.
These commitments are contingent upon delivery of motion pictures,
which are not yet available for premium television exhibition and,
in many cases, have not yet been produced.
Viacom Inc. filed a shelf registration statement with the
Securities and Exchange Commission ("SEC") registering $3 billion
of debt securities and Preferred Stock. Any debt issued would be
guaranteed by Viacom International and Paramount. Effectiveness
of the shelf registration is still pending with the SEC.
Capital Structure
The following table sets forth the capitalization of Viacom
International and subsidiaries as of September 30, 1994 and
December 31, 1993:
September 30, December 31,
1994 1993
------------ -----------
(Millions of dollars)
Current portion of long-term debt..... $ 10.5 $ 18.6
------------ ------------
Long-term debt:
Notes payable to banks (a).......... $ 311.0 $1,900.0
9.125% Senior Subordinated Notes
due 1999.......................... 150.0 150.0
8.75% Senior Subordinated Reset
Notes due 2001.................... 100.0 100.0
10.25% Senior Subordinated Notes
due 2001.......................... 200.0 200.0
Obligations under capital leases.... 81.8 61.8
------------ ------------
Total long-term debt........... $ 842.8 $2,411.8
------------ ------------
------------ ------------
Shareholders' equity of Viacom International:
Common stock and additional paid-in
capital (b)........................ $ 912.3 $ 912.3
Retained earnings (accumulated
deficit)........................... 265.8 273.0
Cumulative translation adjustment.. 2.0 --
------------ ------------
Total shareholders' equity..... $1,180.1 $1,185.3
------------ ------------
------------ ------------
______________
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
a) On July 1, 1994, Viacom Inc., entered into a $6.489
billion credit agreement (the "Viacom Credit Agreement") and Viacom
International and certain of its subsidiaries (the "Subsidiary
Obligors") entered into a $311 million credit agreement (the "Viacom
International Credit Agreement", together with the Viacom Credit
Agreement, collectively the "Credit Agreements") each with certain
banks, the proceeds of which were used to refinance the previously
existing bank debt of Viacom Inc., Viacom International and Paramount.
On September 29, 1994, Viacom Inc., entered into an aggregate $1.8
billion credit agreement (the $1.8 billion Credit Agreement") with
certain banks, the proceeds of which were used to refinance the
previously existing bank debt of Blockbuster. See Note 4 to Notes to
Consolidated Financial Statements for a summary description of the
credit facilities.
b) On September 30, 1994, there were 100 outstanding shares of
Common Stock (100 shares authorized), all of which were owned by
Viacom Inc.
As of September 30, 1994, NAI owns approximately 61% of the
outstanding shares of Viacom Inc. Class A Common Stock and 26% of
Class A and Class B Common Stock on a combined basis.
-20-
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Employment Agreement, dated as of August 1, 1994,
between Viacom Inc. and Frank J. Biondi, Jr. (filed herewith), and
Agreement under the Viacom Inc. 1994 Long-Term Management
Incentive Plan, dated as of August 18, 1994, between Viacom Inc.
and Frank J. Biondi, Jr. (filed herewith).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K for Viacom International Inc.
Current Report on Form 8-K, dated July 22, 1994, relating
to the aggregate $6.489 billion credit agreement, entered into
by Viacom Inc. on July 1, 1994 and the respective guarantees of
Paramount Communications Inc. ("Paramount") and Viacom
International Inc. ("Viacom International") thereto; and to the
$311 million credit agreement entered into by Viacom
International and certain of its subsidiaries on July 1, 1994
and the respective guarantees of Paramount and Viacom Inc.
thereto.
-21-
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 INTERNATIONAL INC.
----------------------------
(Registrant)
Date November 14, 1994 /s/Frank J. Biondi, Jr.
----------------- ----------------------------
Frank J. Biondi, Jr.
President,
Chief Executive Officer
Date November 14, 1994 /s/George S. Smith, Jr.
----------------- ----------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-22-
EXHIBIT INDEX
-------------
Exhibit Description
- - ------- -----------
10.1 Employment Agreement, dated as of August 1, 1994,
between Viacom Inc. and Frank J. Biondi, Jr.,
and Agreement under the Viacom Inc. 1994
Long-Term Management Incentive Plan, dated as of August
18, 1994, between Viacom Inc. and Frank J. Biondi, Jr.
27.1 Financial Data Schedule.