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
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)
1515 Broadway New York, New York 10036
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X . No _____.
Number of shares of Common Stock Outstanding at October 31, 1994:
Class A Common Stock, par value $.01 per share - 74,415,656
Class B Common Stock, par value $.01 per share - 282,916,242
-1-
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,
-------------
1994 1993
---- ----
Revenues $2,131.0 $508.1
Expenses:
Operating 1,191.3 212.6
Selling, general and administrative 400.0 145.4
Depreciation and amortization 116.9 39.9
-------- --------
Total expenses 1,708.2 397.9
-------- --------
Earnings from continuing operations 422.8 110.2
Other income (expense):
Interest expense, net (162.5) (36.6)
Other items, net (4.5) (3.7)
-------- --------
Earnings from continuing operations before
income taxes 255.8 69.9
Benefit (provision) for income taxes 70.9 (36.2)
Equity in earnings (loss) of affiliated
companies, net of tax 8.6 (2.8)
Minority interest (.2) --
--------- -------
Net earnings from continuing operations 335.1 30.9
Loss from discontinued operations,
net of tax (See Note 9) (7.8) --
--------- --------
Net earnings before extraordinary loss 327.3 30.9
Extraordinary loss, net of tax (See Note 5) -- (8.9)
--------- -------
Net earnings 327.3 22.0
Cumulative convertible preferred stock
dividend requirement (15.0) --
--------- -------
Net earnings attributable to common stock $ 312.3 $ 22.0
-------- -------
-------- -------
Weighted average number of common shares:
Primary 221.1 120.6
Fully diluted 247.2 120.6
Net earnings (loss) per common share:
Primary:
Net earnings from continuing operations
before extraordinary loss $ 1.45 $ .25
Loss from discontinued operations,
net of tax (.04) --
Extraordinary loss, net of tax -- (.07)
-------- ------
Net earnings $ 1.41 $ .18
-------- ------
-------- ------
Fully diluted:
Net earnings from continuing operations
before extraordinary loss $ 1.36 $ .25
Loss from discontinued operations,
net of tax (.04) --
Extraordinary loss, net of tax -- (.07)
-------- ------
Net earnings $ 1.32 $ .18
-------- ------
-------- ------
See notes to consolidated financial statements.
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VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
Nine months ended
September 30,
-----------------
1994 1993
---- ----
Revenues $4,585.8 $1,474.6
Expenses:
Operating 2,834.1 643.1
Selling, general and administrative 1,172.0 412.6
Depreciation and amortization 277.8 112.0
--------- --------
Total expenses 4,283.9 1,167.7
--------- --------
Earnings from continuing operations 301.9 306.9
Other income (expense):
Interest expense, net (312.5) (117.3)
Other items, net (See Note 8) 258.8 63.3
--------- --------
Earnings from continuing operations before
income taxes 248.2 252.9
Provision for income taxes (113.3) (106.9)
Equity in earnings (loss) of affiliated
companies, net of tax 12.3 (2.9)
Minority interest 18.0 --
--------- --------
Net earnings from continuing operations 165.2 143.1
Loss from discontinued operations, net of tax (5.0) --
(See Note 9) --------- --------
Net earnings before extraordinary loss and cumulative
effect of change in accounting principle 160.2 143.1
Extraordinary loss, net of tax (See Note 5) (20.4) (8.9)
Cumulative effect of change in accounting principle -- 10.4
--------- --------
Net earnings 139.8 144.6
Cumulative convertible preferred stock dividend
requirement (60.0) --
--------- --------
Net earnings attributable to common stock $ 79.8 $ 144.6
--------- --------
--------- --------
Weighted average number of common shares:
Primary 164.2 120.5
Fully diluted 164.5 120.5
Net earnings per common share:
Primary:
Net earnings from continuing operations before
extraordinary loss and cumulative effect of
change in accounting principle $ .64 $ 1.19
Loss from discontinued operations, net of tax (.03) --
Extraordinary loss, net of tax (.12) (.07)
Cumulative effect of change in
accounting principle -- .08
--------- --------
Net earnings $ .49 $ 1.20
--------- --------
--------- --------
Fully diluted:
Net earning from continuing operations before
extraordinary loss and cumulative effect
of change in accounting principle $ .64 $ 1.19
Loss from discontinued operations, net of tax (.03) --
Extraordinary loss, net of tax (.12) (.07)
Cumulative effect of change in
accounting principle -- .08
--------- --------
Net earnings $ .49 $ 1.20
--------- --------
--------- --------
See notes to consolidated financial statements.
-3-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; all amounts are in millions)
September 30, December 31,
1994 1993
------------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 453.7 $1,882.4
Receivables, less allowances of
$57.9 (1994) and $33.9 (1993) 1,738.4 351.8
Inventory (See Note 4) 876.4 --
Theatrical and television inventory
(See Note 4) 787.6 356.5
Other current assets 752.6 95.7
Net assets of discontinued operations
(See Note 9) 754.4 --
--------- ---------
Total current assets 5,363.1 2,686.4
--------- ---------
Property and equipment, at cost 2,796.3 901.4
Less accumulated depreciation 466.1 347.2
--------- ---------
Net property and equipment 2,330.2 554.2
--------- ---------
Theatrical and television inventory
(See Note 4) 1,663.5 789.5
Intangibles, at amortized cost 16,121.8 2,180.6
Other assets 2,477.0 206.2
--------- ---------
$27,955.6 $6,416.9
--------- ---------
--------- ---------
See notes to consolidated financial statements.
continued
-4-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited; all amounts, except per share amounts, are in millions)
September 30, December 31,
1994 1993
------------- ------------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 501.4 $ 96.6
Accrued interest 118.3 20.7
Deferred income, current 241.7 50.9
Other accrued expenses 1,980.3 261.3
Income taxes 533.0 140.5
Participants share, residuals and
royalties payable 655.8 139.1
Program rights, current 220.8 198.0
Current portion of long-term debt 21.7 58.5
--------- --------
Total current liabilities 4,273.0 965.6
--------- --------
Long-term debt 10,199.9 2,440.0
Program rights, non-current 133.6 86.9
Other liabilities 1,204.9 206.3
Minority interest in consolidated subsidiaries 129.7 --
Commitments and contingencies (See Note 6)
Shareholders' Equity of Viacom Inc.:
Preferred Stock, par value $.01 per share;
100.0 shares authorized; 24.0 (1994)
and 48.0 (1993) shares issued and
outstanding 1,200.0 1,800.0
Class A Common Stock, par value $.01 per share;
100.0 shares authorized; 74.3 (1994)
and 53.4 (1993) shares issued and
outstanding 0.7 0.5
Class B Common Stock, par value $.01 per share;
1,000.0 shares authorized; 282.2 (1994)
and 67.3 (1993) shares issued and
outstanding 2.8 0.7
Additional paid-in capital 10,725.2 920.9
Retained earnings (accumulated deficit) 75.8 (4.0)
Cumulative translation adjustment 10.0 --
--------- ---------
12,014.5 2,718.1
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$27,955.6 $6,416.9
--------- ---------
--------- ---------
See notes to consolidated financial statements.
-5-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
Nine months ended
September 30,
-----------------
1994 1993
---- ----
Net cash flow from operating activities:
Net earnings $ 139.8 $ 144.6
Adjustments to reconcile net earnings to net
cash flow from operating activities:
Merger-related charges 332.1 --
Depreciation and amortization 277.8 112.0
Gain on the sale of Lifetime, net of tax (164.4) --
Gain on the sale of the cable system, net of tax -- (45.9)
Gain on sale of investment held at cost -- (17.4)
Minority interest (18.0) --
Extraordinary loss, net of tax 20.4 8.9
Increase in receivables (305.8) (33.0)
Increase (decrease) in accounts payable and
accrued expenses .7 (87.3)
Increase in inventory and related liabilities, net (222.0) (138.5)
Increase (decrease) in income taxes payable
and deferred income taxes, net (182.9) 69.5
Increase in pre-publication costs, net (21.4) --
Decrease in prepaid expenses 72.4 --
(Increase) decrease in unbilled receivables 13.8 (17.5)
Other, net 80.6 (16.6)
--------- --------
Net cash flow from operating activities 23.1 (21.2)
--------- --------
Investing Activities:
Capital expenditures (191.9) (84.6)
Investments in and advances to affiliated companies (38.4) (16.6)
Advances from affiliated companies 23.9 2.3
Proceeds from sale of the Wisconsin cable system -- 73.7
Proceeds from the sale of Lifetime 317.6 18.1
Proceeds from the sale of short-term investments 128.4 --
Payments for purchase of short-term investments (81.1) --
Proceeds from sale of transponders -- 51.0
Transponder deposits (1.1) (46.7)
Acquisitions, net of cash acquired (6,309.9) (82.0)
Other, net (11.4) (8.5)
--------- --------
Net cash flow from investing activities (6,163.9) (93.3)
--------- --------
Financing Activities:
Short-term borrowings (repayments) from banks, net 3,625.0 433.0
Borrowings (repayment) of Debt (13.9) --
Redemption of notes -- (298.0)
Premium on redemption of notes -- (10.0)
Proceeds from issuance of Class B Common Stock 1,250.0 --
Payment of Preferred Stock dividends (57.7) --
Deferred financing fees (87.1) --
Other, net (4.2) 5.0
--------- --------
Net cash flow from financing activities 4,712.1 130.0
--------- --------
Net (decrease) increase in cash and cash equivalents (1,428.7) 15.5
Cash and cash equivalents at beginning of the period 1,882.4 48.4
--------- --------
Cash and cash equivalents at end of period $ 453.7 $ 63.9
--------- --------
--------- --------
See notes to consolidated financial statements
-6-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
Viacom Inc. is a diversified entertainment company with operations in five
principal segments;(i) Networks, (ii) Entertainment, (iii) Cable Television
and Broadcasting, (iv) Publishing and (v) Home Video Rental and Music Sales.
Paramount Communications Inc. ("Paramount") results of operations are
included in Viacom Inc.'s consolidated results of operations since March 1994
(See Note 2). The balance sheet of Blockbuster Entertainment Corporation
("Blockbuster") has been included in Viacom Inc.'s consolidated balance sheet
as of September 30, 1994 (see Note 2).
The accompanying unaudited consolidated financial statements of Viacom Inc.
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
Inc.'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 Inc. Certain previously reported amounts
have been reclassified to conform with the current presentation.
Net earnings (loss) 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 the contingent value rights ("CVR"), variable
common rights ("VCR"), stock options and warrants. In 1993, the effect of
contingently issuable common shares from stock options was immaterial and,
therefore, the effect is not reflected in primary net earnings per common
share. Fully diluted earnings per common share also reflects the effect of
the assumed conversion of Preferred Stock for the third quarter 1993. For
the nine months ended September 30, 1994, the effect of the assumed
conversion of Preferred Stock is antidilutive and, therefore, the effect is
not reflected in fully diluted net earnings per common share.
2) PARAMOUNT MERGER, BLOCKBUSTER MERGER AND RELATED TRANSACTIONS
On March 11, 1994, Viacom Inc. acquired a majority of the Paramount
common stock outstanding at a price of $107 per share in cash. On
July 7, 1994, Paramount became a wholly owned subsidiary of Viacom
Inc. (the "Paramount Merger") at the effective time of a merger
between Paramount and a subsidiary of Viacom Inc. Each share of
Paramount common stock outstanding at the time of the Paramount Merger
(other than shares held in the treasury of Paramount or owned by
Viacom Inc. and other than shares held by any stockholders who
demanded and perfected appraisal rights) was converted into the right
to receive (i) 0.93065 of a share of Class B Common Stock, (ii) $17.50
principal amount of 8% exchangeable subordinated debentures ("8%
Debentures") of Viacom Inc., (iii) 0.93065 of a CVR, (iv) 0.5 of a
warrant to purchase one share of Class B Common Stock at any time
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
prior to the third anniversary of the Paramount Merger at a price of
$60 per share, and (v) 0.3 of a warrant to purchase one share of Class
B Common Stock at any time prior to the fifth anniversary of the
Paramount Merger at a price of $70 per share.
On September 29, 1994, Blockbuster was merged with and into Viacom
Inc. (the "Blockbuster Merger"). Each share of Blockbuster Common
Stock outstanding at the time of the Blockbuster Merger (other than
shares held in the treasury of Blockbuster or owned by Viacom Inc. and
other than shares held by any stockholders who demanded and perfected
appraisal rights if available) was converted into the right to receive
(i) 0.08 of a share of Viacom Class A Common Stock, (ii) 0.60615 of a
share of Viacom Class B Common Stock, and (iii) one VCR.
The Paramount Merger and the Blockbuster Merger (collectively, the
"Mergers") have been accounted for under the purchase method of
accounting. Accordingly, the total cost to acquire Paramount and Blockbuster
has been allocated to the respective assets and liabilities acquired
based on their fair values at the time of the Mergers with the
aggregate excess cost over the fair value of new assets acquired
allocated to goodwill.
The unaudited condensed pro forma results of operations data presented
below assumes the Mergers and related transactions, and the sale of
the one-third partnership interest in Lifetime Television occurred at
the beginning of each period presented. The unaudited condensed pro
forma results of operations data was prepared based upon the
historical consolidated statements of operations of Viacom Inc. and
Blockbuster for the nine months ended September 30, 1994 and 1993 and
of Paramount for the two months ended February 28, 1994 and nine
months ended September 30, 1993, respectively adjusted to exclude non-
recurring merger-related charges of $332.1 million (See Note 3).
Financial information for Paramount subsequent to the date of
acquisition is included in the Viacom Inc. historical information.
Intangible assets are amortized principally over 40 years on a
straight-line basis. The unaudited pro forma information is not
necessarily indicative of the combined results of operations of Viacom
Inc., Paramount and Blockbuster that would have occurred if the
completion of the transactions had occurred on the dates previously
indicated nor are they necessarily indicative of future operating
results of the combined company.
Nine months ended
-----------------
September 30,
-------------
1994 1993
---- ----
(Millions of dollars)
Revenues $7,380.8 $6,731.5
Earnings from continuing operations $ 777.7 $ 619.9
Net earnings from continuing operations
before extraordinary loss, cumulative effect
of change in accounting principle and
preferred stock dividends $ 112.9 $ 64. 7
Net earnings attributable to common stock
before extraordinary loss and cumulative
effect of change in accounting principle $ 67.9 $ 19.7
Earnings per common share before extraordinary
loss and cumulative effect of change in
accounting principle $ .15 $ .05
-8-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3) PARAMOUNT MERGER-RELATED CHARGES
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.
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) INVENTORIES
Inventories are stated as follows:
September 30, December 31,
1994 1993
(Millions of dollars)
Publishing and other:
Lower of cost or net realizable value
Finished goods $ 236.2
Work in process 26.1
Materials and supplies 29.1
Theatrical and television productions:
Released 1,075.4 $ 166.7
Completed, not released 1.3 --
In process and other 303.7 --
Program rights 1,085.9 979.3
Merchandise 390.0 --
Videocassette rental inventory 179.8 --
--------- ---------
Total inventory 3,327.5 1,146.0
Less current portion 1,664.0 356.5
--------- ---------
Non-current inventory $1,663.5 $ 789.5
--------- ---------
--------- ---------
5) BANK FINANCING AND DEBT
Short-term and long-term debt is set forth on a table in Management's
Discussion and Analysis of Results of Operations and Financial Condition.
On July 1, 1994, Viacom Inc., entered into an aggregate $6.489 billion credit
agreement (the "Viacom Credit Agreement") and Viacom International Inc.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("Viacom International") and certain of it 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 Agreement is guaranteed by Viacom Inc. and
Paramount. Viacom International's 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 agreements. The
description does not purport to be complete and should be read in conjunction
with each of the credit 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
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 senior unsecured reducing revolving loan to
Viacom Inc. maturing July 1, 2002.
The interest rate on all loans made under each of the credit agreements
is based upon Citibank, N.A.'s base rate, the Federal Funds Rate or the
London Interbank Offered Rate and is affected by Viacom Inc.'s credit rating.
Viacom Inc. is permitted to issue commercial paper with a maturity at the
time of issuance not to exceed nine months, provided that following each
issuance of commercial paper, the aggregate amount of the Revolving Loans and
Short-Term Loan outstanding under the Viacom Credit Agreement, together with
the aggregate face amount of commercial paper outstanding shall not exceed
the aggregate amount of the Revolving Loan commitment and the Short-Term Loan
commitment at such time.
Viacom Inc. is required to repay the outstanding principal amount of the
Short-Term Loan in full on December 31, 1996. Viacom Inc. is required to
repay the principal outstanding under the Term Loan and the Viacom
International Credit Agreement in quarterly payments of 3% for the period
commencing July 1, 1997 through October 1, 1997, 4% for the period January 1,
1998 through October 1, 1999, 5% for the period January 1, 2000 through
October 1, 2000, and 6% for the period January 1, 2001 through July 1, 2002.
The Revolving Loan commitment will be reduced by $90 million on July 1, 1998,
$360 million on July 1, 1999, $360 million on July 1, 2000, $450 million on
July 1, 2001 and $540 million on July 1, 2002. After giving effect to such
Revolving Loan commitment reductions, the principal amount outstanding of
such Revolving Loans can not exceed the aggregate Revolving Loan commitment.
The $1.8 billion Credit Agreement commitment will be reduced by $375 million
on July 1, 1998, $575 million on July 1, 1999 and $283 million on each of
July 1, 2000, July 1, 2001 and July 1, 2002.
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VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Viacom Inc. may prepay the loans and reduce commitments under the Viacom
Credit Agreement and the $1.8 billion Credit Agreement in whole or in part at
any time. Viacom Inc. is required, subject to certain conditions, to make
prepayments under the Short-Term Loan resulting from receipt of the first
$2.5 billion in the aggregate of net cash proceeds from asset sales other
than in the ordinary course of business or from capital market transactions.
In the event that a Subsidiary Obligor ceases to be a wholly owned subsidiary
of Viacom Inc. or Viacom International, the loans of such Subsidiary Obligor
shall be due and payable on the date on which such subsidiary ceases to be a
wholly owned subsidiary. If such event occurs prior to December 31, 1996 or
the repayment in full of all Short-Term Loans, Viacom Inc. may elect to
convert any outstanding portion of the Short-Term Loan into additional Term
Loans in an amount equal to the principal amount of such Subsidiary Obligor's
loan.
The credit agreements 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 with any other company in which Viacom Inc. is not the
surviving entity, except for the merger of Viacom Inc. into Viacom
International Inc. with Viacom International Inc. as the surviving company.
The credit agreements contain certain customary events of default and provide
that it is an event of default if National Amusements, Inc. ("NAI") fails to
own at least 51% of the outstanding voting stock of Viacom Inc.
Viacom Inc. is required to pay a commitment fee based on the aggregate daily
unborrowed portion of the loan commitments. The credit agreements do not
require compensating balances.
_____________________
Extraordinary Losses
The proceeds from the Viacom Credit Agreement were used to refinance the
previously existing bank debt of Viacom Inc., Viacom International and
Paramount. Viacom Inc. recognized an extraordinary loss from the
extinguishment of debt of $20.4 million, net of a tax benefit of $11.9
million.
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
-11-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
International borrowed the funds necessary for the redemption under its bank
credit agreements existing during the period.
6) COMMITMENTS AND CONTINGENCIES
Those commitments of Viacom Inc. for program license fees which are not
reflected in the balance sheet as of September 30, 1994, which are estimated
to aggregate approximately $2.0 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 pertain to SNI and are payable within the next seven
years, as part of normal programming expenditures. These commitments of SNI
are contingent upon delivery of motion pictures, which are not yet available
for premium television exhibition and, in many cases, have not yet been
produced.
7) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. (See "Extraordinary Losses" for tax
benefit related to extraordinary loss).
The annual effective tax rates of 49% for 1993 and negative 54% for 1994
continue to be affected by amortization of acquisition costs which is not
deductible for tax purposes.
Due to the unusual and non-recurring nature of the gain on the sale of Viacom
International's one-third partnership interest in Lifetime Television
("Lifetime") and the Wisconsin cable system, the full income tax effect of
each transaction is reflected in the second quarter 1994 and first quarter
1993 tax provision, respectively, and is excluded from the estimated annual
effective tax rate.
During the first quarter of 1993, Viacom Inc. 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.
8) OTHER ITEMS, NET
On April 4, 1994, Viacom International sold its one-third partnership
interest in Lifetime for approximately $317.6 million, which resulted in a
pre-tax gain of approximately $267.4 million in the second quarter of 1994.
Proceeds from the sale were used to reduce outstanding debt of Viacom
International.
As part of the settlement of the Time Warner antitrust lawsuit, Viacom
International sold the stock of Viacom Cablevision of Wisconsin, Inc. to
Warner Communications Inc. ("Warner"). This transaction was effective on
January 1, 1993. As consideration for the stock, Warner paid the sum of $46
million, $20 million of which was received during 1992, plus repayment of
debt in the amount of $49 million, resulting in a pre-tax gain of
approximately $55 million reflected in "Other items, net." Also reflected in
this line item is a net gain on the sale of a portion of an investment held
-12-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at cost and adjustment to previously established non-operating litigation
reserves.
9) DISCONTINUED OPERATIONS
During the third quarter of 1994, Viacom Inc. entered into a definitive
agreement pursuant to which Viacom Inc. agreed to sell the Madison Square
Garden Corporation (which includes 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 between
ITT Corporation and Cablevision Systems Corporation for approximately $1.075
billion. The closing of the transaction is subject to certain conditions,
including expiration of the Hart-Scott-Rodino waiting period. Viacom Inc.
acquired MSG during March 1994 as part of the Paramount Merger.
MSG has been accounted for as a discontinued operation, and accordingly, its
operating results and net assets have been separately disclosed in the
consolidated financial statements. The sale of MSG will result in no after-
tax book gain. Summarized results of operations and financial position data
of MSG are as follows (in millions):
Three Months
Ended Nine Months Ended
September 30, September 30,
------------- -------------
1994 1994
---- ----
Results of operations:
Revenues $36.3 $192.8
Loss from operations (13.0) (8.3)
Benefit for income taxes 5.2 3.3
Net Loss (7.8) (5.0)
September 30, 1994
------------------
Financial position:
Current assets $ 103.1
Net property, plant and equipment 313.9
Other assets 464.1
Total liabilities (126.7)
---------------
Net assets of MSG $ 754.4
---------------
---------------
10) SUPPLEMENTAL CASH FLOW INFORMATION
Nine months ended
September 30,
-------------
1994 1993
---- ----
(Millions of dollars)
Cash payments for interest, net of amounts capitalized $226.9 $139.1
Cash payments for income taxes 44.4 30.5
Non cash financing and investing activities:
Paramount Merger Consideration 2,930.3 --
Blockbuster Merger Consideration 7,622.8 --
Equipment under capitalized leases 26.5 44.4
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Management's discussion and analysis of the combined results of operations
and financial condition should be read in conjunction with the Consolidated
Financial Statements and related Notes.
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. (See Note 2 of Notes to Consolidated Financial Statements.)
On September 29, 1994, Blockbuster was merged with and into Viacom Inc.
Blockbuster's balance sheet has been included in Viacom Inc.'s consolidated
balance sheet as of September 30, 1994.
The following tables set forth revenues, depreciation and amortization,
earnings (loss) from operations, equity in pre-tax earnings of affiliated
companies and earnings from operations plus equity in pre-tax earnings by
business segment for the periods indicated.
The Viacom Inc. consolidated statement of operations reflect four operating
segments during the periods presented:
Networks - Basic cable and premium television
networks.
Entertainment - Theatrical Feature Films, Television
Programming, Interactive Media and Technology, Theater
Operations and Amusement Parks.
Cable Television and Broadcasting - Cable Systems ,
Television and Radio Stations.
Publishing - Consumer Group, Educational Group and
Business, Technical and Professional Group
-14-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Equity in Earnings
pre-tax from
Depreciation Earnings from earnings of Operations
& operations affiliated plus equity
Revenues amortization (as reported) companies earnings
-------- ------------ -------------- ---------- -----------
(Millions of dollars)
Three months ended
September 30, 1994
- ------------------
Networks $373.1 $13.6 $97.7 $10.2 $107.9
Entertainment 864.6 42.1 139.2 3.5 142.7
Cable &
Broadcasting 206.0 30.4 45.5 -- 45.5
Publishing 700.8 29.3 175.3 -- 175.3
Corporate -- 1.5 (34.9) -- (34.9)
Intercompany (13.5) -- -- -- --
--------- ------ ------- ------ -------
Totals $2,131.0 $116.9 $422.8 $13.7 $436.5
--------- ------ ------- ------ -------
--------- ------ ------- ------ -------
Three months ended
September 30, 1993
- ------------------
Networks $318.3 $11.8 $82.7 $(4.3) $78.4
Entertainment 47.0 2.9 3.4 -- 3.4
Cable &
Broadcasting 148.7 24.3 36.5 36.5
Publishing -- -- -- -- --
Corporate -- .9 (12.4) -- (12.4)
Intercompany (5.9) -- -- -- --
--------- ------ ------- ------ -------
Totals $508.1 $39.9 $110.2 $(4.3) $105.9
--------- ------ ------- ------ -------
--------- ------ ------- ------ -------
Nine months ended
September 30, 1994
- ------------------
Networks $1,029.7 $38.7 $168.2 $15.4 $183.6
Entertainment 1,694.6 85.2 (71.5) 4.8 (66.7)
Cable &
Broadcasting 589.0 86.7 118.1 -- 118.1
Publishing 1,300.0 62.8 191.3 -- 191.3
Corporate -- 4.4 (104.2) -- (104.2)
Intercompany (27.5) -- -- -- --
--------- ------ ------- ------ -------
Totals $4,585.8 $277.8 $301.9 $ 20.2 $322.1
--------- ------ ------- ------ -------
--------- ------ ------- ------ -------
Nine months ended
September 30, 1993
- ------------------
Networks $892.8 $32.2 $204.3 $(3.4) $200.9
Entertainment 152.2 6.4 28.8 (1.0) 27.8
Cable &
Broadcasting 447.0 70.6 118.9 -- 118.9
Publishing -- -- -- -- --
Corporate -- 2.8 (45.1) -- (45.1)
Intercompany (17.4) -- -- -- --
--------- ------ ------- ------ -------
Totals $1,474.6 $112.0 $306.9 $ (4.4) $302.5
--------- ------ ------- ------ -------
--------- ------ ------- ------ -------
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues increased 319%, or $1,622.9 million, to $2,131.0 million, and 211%, or
$3,111.2 million to $4,585.8 million for the third quarter and nine months
ended September 30, 1994, respectively, compared with the same prior-year
periods. Earnings from operations increased 284%, or $312.6 million, to $422.8
million, and decreased 2% or $5.0 million, to $301.9 million for the quarter
and nine months ended September 30, 1994, respectively, compared with the same
prior-year periods. The foregoing changes in results of operations are
principally attributable to the acquisition of Paramount and the merger related
charges described below.
Earnings 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 included in Corporate
expenses reflects the combination of the Viacom International and Paramount
staffs.
The following discussion of revenues and earnings from operations, is exclusive
of these merger-related charges, for each operating segment and includes
results of operations of Paramount effective March 1, 1994.
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, 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.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
Theatrical Feature Films
Theatrical feature films revenues were $431.3 million and $786.7 million for the
three months and nine months ended September 30, 1994. The revenues reflect
strong performances in Theatrical and Home Video operations. Theatrical
revenues reflect the domestic success of Forrest Gump, Clear and Present Danger
and Naked Gun 33 1/3 during 1994. Home video operations reflect contributions
by Naked Gun 33 1/3, Intersection and Addams Family Values.
Features earnings from operations were $86.1 million and $78.8 million for the
three months and nine months ended September 30, 1994.
Television Programming
Television programming revenues were $181.5 million and $458.0 million for the
three months and nine months ended September 30, 1994 versus $44.6 million and
$144.7 million for the three months and nine months ended September 1993.
Syndication revenues of Paramount and Viacom were lower in 1994 principally due
to strong prior year performance of Wings, Dear John, Cheers and Matlock.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Television programming earnings from operations were $18.7 million and $45.8
million for the three months and nine months ended September 30, 1994 versus
$5.8 million and $32.0 million for the three months and nine months ended
September 30, 1993.
Amusement Parks
Revenues for Parks were $187.3 million and $323.6 million for the three months
and nine months ended September 30, 1994, reflecting for the current quarter,
fewer operating days and lower attendance at the Parks which was partially
offset by increased per capita income.
Earnings from operations were $30.3 million and $39.2 million for the three
months and nine months ended September 30, 1994, primarily reflecting the
revenue variances and generally increased operating expenses.
Cable Television and Broadcasting
Cable
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 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 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.
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Television Stations
Viacom 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.
Paramount television stations revenues were $55.3 million for the third quarter.
Earnings from operations were $13.7 million. Results of operations were
positively influenced by the acquisition of WKBD-TV in Detroit, which
occurred in September 1993.
Radio Stations
Radio revenues increased 9%, to $26.3 million from $24.2 million, and 11%, to
$73.8 million from $66.4 million for the quarter and nine months ended
September 30, 1994, respectively, compared with the same prior-year periods,
primarily reflecting increased local advertising revenues.
Earnings from operations increased 43%, to $10.6 million from $7.4 million, and
32%, to $25.2 million from $19.1 million, reflecting the increased revenues,
partially offset by increased selling and general and administrative expenses.
Publishing
Publishing revenues were $700.8 million and $1,300.0 million for the three
months and nine months ended September 30, 1994, respectively. The revenues
for the periods reflect the acquisition of Macmillan, which occurred in
February 1994.
Earnings from operations were $175.3 million and $191.3 million for the three
months and nine months ended September 30, 1994, respectively.
OTHER INCOME AND EXPENSE INFORMATION
Interest Expense, Net
Net interest expense of $162.5 million compared to $36.6 million, and
$312.5 million compared to $117.3 million for the quarter and nine months
ended September 30, 1994, respectively, compared with the same prior-year
periods reflect increased bank borrowings, the issuance of the 8%
Exchangeable Subordinated Debentures and interest on Paramount debt (see
"Capital Structure").
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
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.
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 negative 54% 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,
the full income tax effect of each these transactions 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 Earnings of Affiliates
"Equity in earnings of affiliated companies, net of tax" was $8.6 million for
the quarter ended September 30, 1994 compared to a loss of $2.8, and $12.3
million for the nine months ended September 30, 1994 compared to a loss of $2.9
million for the same prior-year periods, primarily reflecting the inclusion of
Paramount's earnings of affiliated companies for the seven months ended
September 30, 1994, and improved operating results at Comedy Central.
Extraordinary Items
Viacom Inc. recognized an extraordinary loss from the extinguishment of debt of
$20.4 million, net of a tax benefit of $11.9 million (see "Capital Structure").
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 agreements existing
during the period.
Effective January 1, 1994, Viacom Inc. adopted Statement of Financial
Accounting Standards No. 112, "Employers Accounting for Postemployment
Benefits," which did not have a material effect on its financial position or
results of operations.
Liquidity and Capital Resources
Acquisitions
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. (See Note 2 of Notes to Consolidated Financial Statements.)
On September 29, 1994, Blockbuster was merged with and into Viacom Inc. (the
"Blockbuster Merger"). The Viacom Inc. consolidated balance sheet includes the
Blockbuster's balance sheet as of September 30, 1994. Blockbuster's results of
operations will be consolidated as of October 1, 1994 (see Note 2 of Notes to
Consolidated Financial Statements). Blockbuster revenues were $766.0 million
and $2,138.8 million for the three months and nine months ended September 30,
1994, respectively. Earnings from operations were $121.7 million and $360.2
million for the three months and nine months ended September 30, 1994,
respectively.
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.
Viacom Inc.'s scheduled maturities of long-term debt under the Credit Agreement
and $1.8 billion Credit Agreement through December 31, 1998 assuming full
utilization are $2.5 billion (1996) and $150 million (1997) and $865 million
(1998).
-21-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Viacom Inc. and Viacom International were each in compliance with all covenants
and had satisfied all financial ratios and tests as of September 30, 1994 under
their credit agreements. Viacom Inc. and Viacom International expect to remain
in compliance with such covenant ratios as may be applicable from time to time
during 1994.
Debt, including the current portion, as a percentage of total capitalization of
Viacom Inc. was 46% at September 30, 1994 and 48% at December 31, 1993.
The indebtedness under Viacom Inc.'s and Viacom International's
Credit agreements 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 Inc. and its subsidaries
had obtained interest rate protection agreements with respect to
approximately $4.3 billion of indebtedness. The majority of the
interest rate protection agreements will mature over the next
four years.
Commitments of Viacom Inc. for program license fees which are not
reflected in the balance sheet as of September 30, 1994, are estimated
to aggregate approximately $2.0 billion (See Note 6).
Net cash flow from operating activities was $23.1 million for the nine
months ended September 30, 1994 versus negative $21.2 million for the
nine months ended September 30, 1993 due to increased earnings from
operations of Viacom International prior to merger-related charges and
Paramount's results of operations for the seven months ended September
30, 1994. Net cash expenditures for investing activities of $6.2
billion for the nine months ended September 30, 1994, principally
reflects the acquisition of the majority of the shares outstanding of
Paramount and capital expenditures, partially offset by proceeds from
the sale of the one-third partnership interest in Lifetime. Net cash
expenditures for investing activities of $93.3 million for the nine
months ended September 30, 1993, principally reflects the acquisition
of ICOM Simulations, Inc. and KXEZ-FM, capital expenditures, the
additional investment in Star Sight Telecast, Inc. and advances to
Comedy Central partially offset by proceeds from the sale of the
Wisconsin cable system and an investment held at cost. Financing
activities principally reflect borrowings and repayments of debt under
the credit agreements during each period presented, and in 1994, the
borrowings under the Merger Credit Agreement (as defined in "Capital
Structure") and the sale of Class B Common Stock to Blockbuster.
-22-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Structure
The following table sets forth the capitalization of Viacom Inc. and
subsidiaries as of September 30, 1994 and December 31, 1993:
September 30, December 31,
1994 1993
------------- ------------
(Millions of dollars)
Current portion of long-term debt $ 21.7 $ 58.5
Long-term debt:
Viacom Inc.:
Notes payable to banks (a) $7,462.3 $ 28.2
8.0% Exchangeable Subordinated Debentures
due 2006 (b) 689.7 --
6.625% Senior Notes due 1998 150.0 --
Other 59.6 --
Viacom International:
Notes payable to banks 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
Paramount (c):
5.875% Senior Notes due 2000 149.4 --
7.5% Senior Notes due 2002 246.9 --
8.25% Senior Notes due 2022 246.9 --
7.5% Senior Notes due 2023 149.5 --
7% Subordinated Debentures due 2002 182.3 --
Other notes due 1994 to 1996 13.7 --
Obligations under capital leases 6.8 --
---------- ----------
Total long-term debt $10,199.9 $2,440.0
---------- ----------
---------- ----------
Shareholders' equity of Viacom Inc.:
Preferred Stock (d) $1,200.0 $1,800.0
Common stock and additional paid-in
capital 10,728.7 922.1
Retained earnings (accumulated deficit) 75.8 (4.0)
Cumulative translation adjustment 10.0 --
---------- ----------
Total shareholders' equity $12,014.5 $ 2,718.1
---------- ----------
---------- ----------
______________
a) 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", together with
the Viacom Credit Agreement, collectively the "Credit Agreements") each
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 agreements.
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 Agreement is guaranteed by Viacom Inc. and Paramount.
Viacom International's 8.75% Senior Subordinated Notes, 9.125% Senior
Subordinated Notes and 10.25% Senior Subordinated Notes, are each guaranteed
by Viacom Inc.
b) The 8% Debentures are presented not of an
unamortized discount of $372.6 million.
c) The Paramount notes and debentures are presented net of an
aggregate unamortized discount of $56.5 million
d) The Preferred Stock purchased by Blockbuster was
canceled upon the consummation of the Blockbuster Merger.
As of September 30, 1994, NAI owned approximately 61% of the
outstanding shares of Viacom Class A Common Stock and 26% of the
outstanding Class A and Class B Common Stock on a combined basis.
-24-
PART II -- OTHER INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders.
A Special Meeting of Stockholders of Viacom Inc. ("Viacom") was held
on September 29, 1994. The approval of the Agreement and Plan of Merger (the
"Merger Agreement") dated as of January 7, 1994, as amended as of June 15,
1994, between Viacom and Blockbuster Entertainment Corporation, was voted upon
at the meeting.
The votes cast for, against or abstaining from the approval of the
Merger Agreement were as follows:
Votes For: Votes Against: Abstentions:
50,726,022 401,209 21,711
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) 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 Inc.
Current Report on Form 8-K, dated July 7, 1994, relating to the
merger of Viacom Sub Inc., a wholly owned subsidiary of Viacom Inc. ("Viacom
Sub"), with and into Paramount Communications Inc. ("Paramount"), pursuant to
the Amended and Restated Agreement and Plan of Merger dated as of February 4,
1994, as further amended as of May 26, 1994, among Viacom Inc., Viacom Sub and
Paramount.
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.
Current Report on Form 8-K, dated September 1, 1994, relating to the
Agreement and Plan of Merger entered into among Viacom Inc., Paramount
Communications Realty Corporation, ITT, Rainbow Garden Corporation and MSG
Holdings, L.P.; and to the agreement to sell the assets of television station
WTXF in Philadelphia, Pennsylvania to Fox Television Stations, Inc.
Current Report on Form 8-K, dated September 21, 1994, relating to the
settlement, subject to court approval, of all pending Blockbuster Entertainment
Corporation ("Blockbuster") shareholder litigation relating to the merger of
Blockbuster with and into Viacom Inc. ("Viacom"); and to the employment
agreements, dated September 20, 1994, among Viacom and approximately 40 members
of the management team of Blockbuster.
-25-
Current Report on Form 8-K, dated September 29, 1994, relating to the
merger of Blockbuster Entertainment Corporation ("Blockbuster") with and into
Viacom Inc. ("Viacom"), pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of January 7, 1994, as amended as of June 15,
1994, between Viacom and Blockbuster; and to a $1.8 billion credit agreement
entered into by Viacom with the banks signatory thereto, The Bank of New York,
as a Managing Agent and as the Documentation Agent, Citibank, N.A., as a
Managing Agent and as the Administrative Agent, Morgan Guaranty Trust Company
of New York, as a Managing Agent, JP Morgan Securities Inc., as the Syndication
Agent, The Bank of America NT&SA, as a Managing Agent, and the banks named as
Agents therein.
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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 21, 1994 /s/Frank J. Biondi, Jr. .
---------------------------
Frank J. Biondi, Jr.
President,
Chief Executive Officer
Date November 21, 1994 /s/George S. Smith, Jr.
---------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit Description
- ------- -----------
10.1 Employment Agreement, dated as of August 1, 1994,
between Viacom Inc. and Frank J. Biondi, Jr.
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.
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