SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-9553
VIACOM INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2949533
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1515 Broadway, New York, New York 10036
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Number of shares of Common Stock Outstanding at July 31, 1996:
Class A Common Stock, par value $.01 per share - 69,903,737
Class B Common Stock, par value $.01 per share - 286,735,223
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
JUNE 30,
-----------------------------
1996 1995
----------- ------------
Revenues ........................................................... $ 2,846.8 $ 2,760.5
Expenses:
Operating........................................................ 1,782.7 1,693.9
Selling, general and administrative.............................. 595.9 516.5
Depreciation and amortization.................................... 203.5 186.5
---------- ----------
Total expenses.............................................. 2,582.1 2,396.9
---------- ----------
Operating income..................................................... 264.7 363.6
Other income (expense):
Interest expense, net............................................ (209.3) (206.3)
Other items, net................................................. 1.5 (1.2)
---------- ----------
Earnings from continuing operations before income taxes.............. 56.9 156.1
Provision for income taxes....................................... (33.4) (102.3)
Equity in loss of affiliated companies, net of tax............... (4.9) (15.3)
Minority interest................................................ 4.7 0.7
---------- ----------
Net earnings from continuing operations.............................. 23.3 39.2
Earnings from discontinued operations, net of tax
of $8.6 (1996) and $10.1 (1995) (Note 2)......................... 17.8 13.8
---------- ----------
Net earnings......................................................... 41.1 53.0
Cumulative convertible preferred stock dividend requirement...... (15.0) (15.0)
---------- ----------
Net earnings attributable to common stock............................ $ 26.1 $ 38.0
========== ==========
Weighted average number of common shares and common share equivalents:
Primary.......................................................... 376.0 386.1
Fully diluted.................................................... 376.0 386.8
Primary and fully diluted net earnings per common share:
Net earnings from continuing operations.......................... $ .02 $ .06
Net earnings..................................................... $ .07 $ .10
See notes to consolidated financial statements.
-2-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited; all amounts, except per share amounts, are in millions)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
---- ----
Revenues............................................................... $ 5,533.3 $ 5,354.8
Expenses:
Operating........................................................... 3,469.2 3,358.5
Selling, general and administrative................................. 1,148.0 972.7
Depreciation and amortization....................................... 401.7 347.2
---------- ----------
Total expenses................................................. 5,018.9 4,678.4
---------- ----------
Operating income........................................................ 514.4 676.4
Other income (expense):
Interest expense, net............................................... (414.3) (403.2)
Other items, net.................................................... 1.0 (0.6)
---------- -----------
Earnings from continuing operations before income taxes................. 101.1 272.6
Provision for income taxes.......................................... (62.7) (181.0)
Equity in loss of affiliated companies, net of tax.................. (3.6) (14.4)
Minority interest................................................... 5.8 (3.4)
---------- ----------
Net earnings from continuing operations................................. 40.6 73.8
Earnings from discontinued operations, net of tax of $21.5 (1996)
and $35.5 (1995) (Note 2)........................................... 28.3 50.4
---------- ----------
Net earnings............................................................ 68.9 124.2
Cumulative convertible preferred stock dividend requirement......... (30.0) (30.0)
----------- -----------
Net earnings attributable to common stock............................... $ 38.9 $ 94.2
========== ==========
Weighted average number of common shares and common share equivalents:
Primary............................................................. 375.4 385.6
Fully diluted....................................................... 375.5 386.2
Primary and fully diluted net earnings per common share:
Net earnings from continuing operations............................. $ .03 $ .11
Net earnings........................................................ $ .10 $ .24
See notes to consolidated financial statements.
-3-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited; all amounts, except per share amounts, are in millions)
JUNE 30, DECEMBER 31,
1996 1995
--------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents......................................... $ 274.7 $ 464.1
Receivables, less allowances of $134.5 (1996) and $126.0 (1995)... 1,966.2 1,872.4
Inventory (Note 3)................................................ 2,172.9 2,178.1
Other current assets.............................................. 810.6 684.4
Net assets of discontinued operations (Note 2).................... 986.5 --
----------- ------------
Total current assets........................................... 6,210.9 5,199.0
----------- ------------
Property and equipment, at cost......................................... 3,523.3 3,974.7
Less accumulated depreciation..................................... 605.7 756.8
----------- ------------
Net property and equipment..................................... 2,917.6 3,217.9
----------- ------------
Inventory (Note 3)...................................................... 2,464.4 2,271.5
Intangibles, at amortized cost.......................................... 15,468.6 16,153.2
Other assets............................................................ 2,254.6 2,184.4
----------- ------------
$ 29,316.1 $ 29,026.0
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 486.5 $ 788.8
Accrued compensation.............................................. 322.8 449.4
Participants' share, residuals and royalties payable.............. 761.3 798.2
Current portion of long-term debt (Note 4)........................ 1,554.2 45.1
Other current liabilities......................................... 1,891.7 2,017.1
----------- ------------
Total current liabilities...................................... 5,016.5 4,098.6
----------- ------------
Long-term debt......................................................... 10,079.4 10,712.1
Other liabilities...................................................... 2,030.6 2,121.5
Commitments and contingencies (Note 5)
Shareholders' Equity:
Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 24.0 shares issued and outstanding................. 1,200.0 1,200.0
Class A Common Stock, par value $.01 per share;
200.0 shares authorized; 75.3 (1996) and 75.1 (1995)
shares issued and outstanding.................................. 0.8 0.8
Class B Common Stock, par value $.01 per share;
1,000.0 shares authorized; 296.6 (1996) and 294.6 (1995)
shares issued and outstanding.................................. 3.0 2.9
Additional paid-in capital........................................ 10,803.7 10,726.9
Retained earnings................................................. 212.0 173.1
Cumulative translation adjustment................................. (29.9) (9.9)
----------- ------------
Total shareholders' equity..................................... 12,189.6 12,093.8
----------- ------------
$ 29,316.1 $ 29,026.0
=========== ============
See notes to consolidated financial statements.
-4-
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
(Unaudited; all amounts are in millions)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
------ ------
OPERATING ACTIVITIES:
Net earnings ........................................................ $ 68.9 $ 124.2
Adjustments to reconcile net earnings to net cash flow from operating
activities:
Depreciation and amortization ..................................... 401.7 387.6
Distribution from affiliated companies ............................ 34.5 42.4
Gain on the sale of marketable securities ......................... -- (26.9)
Change in operating assets and liabilities:
Increase in receivables ......................................... (99.7) (298.3)
Increase in inventory and related programming liabilities, net .. (265.3) (98.3)
Increase in pre-publication costs, net .......................... (35.5) (46.1)
Increase in prepaid expenses and other current assets ........... (122.8) (124.5)
Increase in unbilled receivables ................................ (56.8) (61.0)
Decrease in accounts payable and accrued expenses ............... (483.3) (444.4)
Decrease in deferred income ..................................... (24.3) (13.3)
Other, net ...................................................... (8.3) (80.2)
Change in net assets-discontinued operations ........................ 15.6 --
-------- --------
NET CASH FLOW FROM OPERATING ACTIVITIES ............................. (575.3) (638.8)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures .............................................. (253.4) (368.0)
Capital expenditures - discontinued operations .................... (52.4) --
Acquisitions, net of cash acquired ................................ (116.5) (291.4)
Proceeds from dispositions ........................................ 3.4 1,127.1
Investments in and advances to affiliated companies ............... (39.6) (48.5)
Proceeds from sales of short-term investments ..................... 70.3 212.7
Purchases of short-term investments ............................... (76.1) (227.4)
Other, net ........................................................ -- (6.1)
-------- --------
NET CASH FLOW FROM INVESTING ACTIVITIES ............................. (464.3) 398.4
-------- --------
FINANCING ACTIVITIES:
Short-term borrowings from (repayments to) banks, net ............. 886.0 (927.4)
Proceeds from issuance of 7.75% Senior Notes ...................... -- 990.4
Proceeds from exercise of stock options and warrants .............. 68.8 65.2
Repayments of other notes ......................................... (50.9) --
Deferred financing fees ........................................... -- (10.8)
Payments of Preferred Stock dividends ............................. (30.0) (30.0)
Other, net ........................................................ (23.7) (9.7)
-------- --------
NET CASH FLOW FROM FINANCING ACTIVITIES ............................. 850.2 77.7
-------- --------
Net decrease in cash and cash equivalents ......................... (189.4) (162.7)
Cash and cash equivalents at beginning of the period .............. 464.1 597.7
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 274.7 $ 435.0
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, net of amounts capitalized ............ $ 397.3 $ 528.5
Cash payments for income taxes .................................... 65.8 170.9
NON CASH INVESTING AND FINANCING:
Property and equipment acquired under capitalized leases .......... 55.7 222.3
See notes to consolidated financial statements.
-5-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1) BASIS OF PRESENTATION
Viacom Inc. (the "Company") is a diversified entertainment and publishing
company with operations in four segments: (i) Networks and Broadcasting, (ii)
Entertainment, (iii) Video and Music/Theme Parks, and (iv) Publishing. The
former Cable segment 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 accompanying unaudited consolidated financial statements of the Company have
been prepared pursuant to the rules of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the more detailed
financial statements and notes thereto included in the Company's most recent
annual report on Form 10-K. Prior year Statements of Operations have been
restated to conform with the current discontinued operations presentation.
In the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and results of operations and cash
flows of the Company for the periods presented. Certain previously reported
amounts have been reclassified to conform with the current presentation.
During the second quarter of 1996, the Company announced its decision not to
continue to pursue the sale of its interest in Spelling Entertainment Group Inc.
("Spelling"). The Company currently owns approximately 75% of Spelling's common
stock.
Net earnings per common share -- Primary net earnings per common share is
calculated based on the weighted average number of common shares outstanding
during each period, the effects of common shares potentially issuable in
connection with stock options and warrants, and variable common rights and
contingent value rights in 1995. For each of the periods presented, the effect
of the assumed conversion of the Preferred Stock is antidilutive and, therefore,
is not reflected in fully diluted net earnings per common share.
2) DISCONTINUED OPERATIONS
On July 31, 1996, the Company completed the split-off of its wholly owned
subsidiary, Viacom International Inc. ("VII"), which subsequently changed its
name to TCI Pacific Communications, Inc. ("TCI Pacific"), pursuant to an
exchange offer to the shareholders of the Company. VII was the beneficial owner
of the Company's Cable systems. Prior to the split-off, VII entered into a $1.7
billion credit agreement, the proceeds of which were transferred to a wholly
owned subsidiary of VII along with all of VII's non-cable assets and liabilities
(other than its liability
-6-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
with respect to the $1.7 billion credit agreement). After these transfers,
VII distributed the stock of its subsidiary to the Company. Upon the
consummation of the exchange offer, the Company's shareholders exchanged
15,356,960 shares (including 5,417,211 shares of Class A Common Stock and
9,939,749 shares of Class B Common Stock) for 6,257,961 Class A Common shares
of TCI Pacific.
Immediately following the consummation of the exchange offer, a subsidiary of
Tele-Communications, Inc. ("TCI") made a capital contribution of $350 million
in cash to TCI Pacific in exchange for all of the Class B Common shares of TCI
Pacific. As a result of TCI's capital contribution, the Class A Common shares
of TCI Pacific were converted into shares of cumulative redeemable exchangeable
preferred stock (the "Preferred Stock") having an annual dividend of 5% of its
$100 par value. The Preferred Stock will be exchangeable after the fifth
anniversary of issuance at the holder's option for TCI Class A Common Stock. As
a result of these transactions the subsidiary of VII that was distributed to the
Company changed its name to Viacom International Inc.
The split-off and related transactions enabled the Company to reduce its debt
by $1.7 billion. In addition, the total number of outstanding Common shares
of the Company was reduced by approximately 4.1%. The effects of the split-off
and related transactions on the Company's results of operations, which will be
recognized beginning in the third quarter, include a gain on the transaction and
reductions in both interest expense and common shares outstanding.
On March 10, 1995, the Company sold Madison Square Garden Corporation, which
included the Madison Square Garden Arena, The Paramount theater, the New York
Knickerbockers, the New York Rangers and the Madison Square Garden Network
(collectively "MSG") to a joint venture of ITT Corporation and Cablevision
Systems Corporation for closing proceeds of $1.0 billion, representing the sale
price of approximately $1.1 billion, less $66 million in working capital
adjustments. MSG was acquired during 1994 by the Company as part of Paramount
Communications Inc. with its book value recorded at fair value and therefore no
gain was recorded on its sale. Proceeds from the sale of MSG and other
dispositions were used to repay notes payable to banks.
-7-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Summarized results of operations and financial position data of discontinued
operations are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1996 1995 1996 1995*
---- ---- ---- -----
RESULTS OF OPERATIONS:
Revenues..................... $ 120.1 $ 110.0 $ 236.9 $ 307.5
Earnings from operations
before income taxes.... 26.4 24.5 49.8 86.6
Provision for income taxes... 8.6 10.1 21.5 35.5
Net earnings................. 17.8 13.8 28.3 50.4
Net earnings per
common share........... .05 .04 .07 .13
JUNE 30, 1996
-------------
FINANCIAL POSITION:
Current assets............................................ $ 17.5
Net property and equipment................................ 436.6
Other assets.............................................. 617.7
Total liabilities......................................... (85.3)
----------
Net assets of former Cable segment........................ $ 986.5
==========
*Results of operations include MSG for the period January 1 through March 9,
1995.
-8-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
3) INVENTORIES
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
Prerecorded music and videocassettes ................ $ 462.6 $ 474.8
Videocassette rental inventory....................... 560.0 520.3
Publishing:
Finished goods.................................. 339.2 303.6
Work in process................................. 32.8 44.9
Material and supplies........................... 19.0 30.2
Other................................................ 113.6 87.9
----------- ----------
1,527.2 1,461.7
Less current portion............................ 910.6 903.1
----------- ----------
$ 616.6 $ 558.6
=========== ==========
Theatrical and television inventory:
Theatrical and television productions:
Released.................................... $ 1,622.4 $ 1,612.1
Completed, not released..................... 14.2 52.5
In process and other........................ 414.9 357.0
Program rights.................................. 1,058.6 966.3
----------- ----------
3,110.1 2,987.9
Less current portion............................ 1,262.3 1,275.0
----------- ----------
$ 1,847.8 $ 1,712.9
----------- ----------
Total non-current inventory.......................... $ 2,464.4 $ 2,271.5
=========== ==========
4) LONG-TERM DEBT
As of June 30, 1996, the Company's scheduled maturities of notes payable to
banks and debentures through December 31, 2000, assuming full utilization of the
credit agreements were $1.5 billion (1996, repaid July 31, 1996), $749 million
(1997), $1.0 billion (1998), $1.5 billion (1999) and $1.3 billion (2000). The
Company has classified certain short-term indebtedness as long-term debt based
upon its intent and ability to refinance such indebtedness on a long-term basis.
As a result of the July 31, 1996 Cable split-off, the Company reduced its notes
payables to banks by $1.7 billion, of which $1.5 billion represents a permanent
reduction of its credit facility, maturing in 1996.
On May 10, 1996, a subsidiary of the Company entered into a $500 million 364-day
film financing credit agreement, guaranteed by Viacom International Inc. and the
Company.
-9-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
5) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of June 30, 1996 estimated to aggregate approximately
$2.2 billion, principally reflect commitments under Showtime Networks Inc.'s
("SNI's") exclusive arrangements with several motion picture companies. This
estimate is based upon a number of factors. A majority of such fees are payable
over several years, as part of normal programming expenditures of SNI. These
commitments are contingent upon delivery of motion pictures, which are not yet
available for premium television exhibition and, in many cases, have not yet
been produced.
6) PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated annual effective tax rate
of 62.0% for 1996 and the annual effective tax rate of 66.4%, restated to
reflect the current discontinued operations presentation for 1995, were both
adversely affected by amortization of intangibles in excess of the amounts
deductible for tax purposes.
7) CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Viacom International is a wholly owned subsidiary of the Company. The Company
has fully and unconditionally guaranteed Viacom International debt securities.
The Company has determined that separate financial statements and other
disclosures concerning Viacom International are not material to investors. The
following condensed consolidating financial statements present the results of
operations, financial position and cash flows of Viacom Inc., Viacom
International (carrying investments in non-guarantor affiliates under the equity
method), and non-guarantor affiliates of Viacom Inc., and the eliminations
necessary to arrive at the information for the Company on a consolidated basis.
-10-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
---- ------------- ---------- ------------ ------------
Revenues................................ $ 956.8 $ 276.2 $ 1,621.5 $ (7.7) $ 2,846.8
Expenses:
Operating............................ 724.2 90.0 976.2 (7.7) 1,782.7
Selling, general and administrative.. 96.0 117.4 382.5 -- 595.9
Depreciation and amortization........ 91.2 15.6 96.7 -- 203.5
---------- ---------- ---------- -------- ---------
Total expenses.................. 911.4 223.0 1,455.4 (7.7) 2,582.1
---------- ---------- ---------- -------- ---------
Operating income........................ 45.4 53.2 166.1 -- 264.7
Other income (expense):
Interest expense, net................ (167.3) (32.7) (9.3) -- (209.3)
Other items, net..................... 0.2 (3.0) 4.3 -- 1.5
---------- ---------- ---------- -------- ---------
Earnings (loss) from continuing
operations before income taxes....... (121.7) 17.5 161.1 -- 56.9
Benefit (provision) for income taxes. 90.4 (2.7) (121.1) -- (33.4)
Equity in earnings (loss) of
affiliated companies, net of tax..... 68.0 54.6 17.5 (145.0) (4.9)
Minority interest.................... 4.4 (0.4) 0.7 -- 4.7
---------- ---------- ---------- -------- ---------
Net earnings from continuing operations.. 41.1 69.0 58.2 (145.0) 23.3
Earnings from discontinued
operations, net of tax............... -- -- 17.8 -- 17.8
--------- ---------- ---------- -------- ---------
Net earnings............................ 41.1 69.0 76.0 (145.0) 41.1
Cumulative convertible preferred
stock dividend requirement......... (15.0) -- -- -- (15.0)
----------- ---------- ---------- -------- ---------
Net earnings attributable to
common stock......................... $ 26.1 $ 69.0 $ 76.0 $ (145.0) $ 26.1
========== ========== ========== ======== =========
-11-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
---------- ------------- ---------- ------------ ------------
Revenues................................ $ 1,964.1 $ 531.0 $ 3,048.9 $ (10.7) $ 5,533.3
Expenses:
Operating............................ 1,452.9 179.0 1,848.0 (10.7) 3,469.2
Selling, general and administrative 184.2 236.6 727.2 -- 1,148.0
Depreciation and amortization........ 179.4 29.7 192.6 -- 401.7
---------- ---------- ---------- --------- ----------
Total expenses.................. 1,816.5 445.3 2,767.8 (10.7) 5,018.9
---------- ---------- ---------- ---------- ----------
Operating income........................ 147.6 85.7 281.1 -- 514.4
Other income (expense):
Interest expense, net................ (334.7) (63.2) (16.4) -- (414.3)
Other items, net..................... 0.2 (3.1) 3.9 -- 1.0
---------- ----------- ---------- ---------- ----------
Earnings (loss) from continuing
operations before income taxes....... (186.9) 19.4 268.6 -- 101.1
Benefit (provision) for income taxes.. 132.7 (4.1) (191.3) -- (62.7)
Equity in earnings (loss) of
affiliated companies, net of tax..... 117.7 104.8 23.7 (249.8) (3.6)
Minority interest.................... 5.4 (0.7) 1.1 -- 5.8
---------- ----------- ---------- ---------- ----------
Net earnings from continuing operations.. 68.9 119.4 102.1 (249.8) 40.6
Earnings from discontinued
operations, net of tax............... -- -- 28.3 -- 28.3
---------- ---------- ---------- ---------- ----------
Net earnings............................ 68.9 119.4 130.4 (249.8) 68.9
Cumulative convertible preferred
stock dividend requirement......... (30.0) -- -- -- (30.0)
---------- --------- ---------- ---------- ----------
Net earnings attributable to
common stock......................... $ 38.9 $ 119.4 $ 130.4 $ (249.8) $ 38.9
========== ========== ========== ========= ==========
-12-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 1995
------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
------ ------------- ---------- ------------ ------------
Revenues................................$ 817.4 $ 221.8 $ 1,725.1 $ (3.8) $ 2,760.5
Expenses:
Operating............................ 532.6 70.6 1,094.5 (3.8) 1,693.9
Selling, general and administrative.. 86.9 99.7 329.9 -- 516.5
Depreciation and amortization........ 77.9 10.0 98.6 -- 186.5
--------- --------- ---------- ----------- ---------
Total expenses.................. 697.4 180.3 1,523.0 (3.8) 2,396.9
--------- --------- ---------- ------------ ---------
Operating income........................ 120.0 41.5 202.1 -- 363.6
Other income (expense):
Interest expense, net................ (176.9) (23.6) (5.8) -- (206.3)
Other items, net..................... (0.3) (0.2) (0.7) -- (1.2)
---------- ---------- ----------- ----------- ----------
Earnings (loss) from continuing
operations before income taxes....... (57.2) 17.7 195.6 -- 156.1
Benefit (provision) for income taxes. 7.4 (5.8) (103.9) -- (102.3)
Equity in earnings (loss) of
affiliated companies, net of tax..... 102.1 110.4 22.3 (250.1) (15.3)
Minority interest.................... 0.7 -- -- -- 0.7
--------- --------- --------- ----------- ---------
Net earnings from continuing operations. 53.0 122.3 114.0 (250.1) 39.2
Earnings from discontinued
operations, net of tax ............ -- -- 13.8 -- 13.8
-------- --------- ---------- ----------- ---------
Net earnings............................ 53.0 122.3 127.8 (250.1) 53.0
Cumulative convertible preferred
stock dividend requirement......... (15.0) -- -- -- (15.0)
---------- ---------------------- ----------- ---------
Net earnings attributable to
common stock ........................$ 38.0 $ 122.3 $ 127.8 $ (250.1) $ 38.0
========= ========= ========== ============ =========
-13-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended June 30, 1995
------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Revenues................................$ 1,705.9 $ 418.1 $ 3,236.1 $ (5.3) $ 5,354.8
Expenses:
Operating............................ 1,116.0 134.5 2,113.3 (5.3) 3,358.5
Selling, general and administrative.. 147.8 195.0 629.9 -- 972.7
Depreciation and amortization........ 144.2 19.8 183.2 -- 347.2
---------- --------- --------- ----------- ---------
Total expenses.................. 1,408.0 349.3 2,926.4 (5.3) 4,678.4
---------- --------- --------- ----------- ---------
Operating income........................ 297.9 68.8 309.7 -- 676.4
Other income (expense):
Interest expense, net................ (344.8) (46.4) (12.0) -- (403.2)
Other items, net..................... -- 27.3 (27.9) -- (0.6)
---------- --------- --------- ----------- ---------
Earnings (loss) from continuing
operations before income taxes....... (46.9) 49.7 269.8 -- 272.6
Benefit (provision) for income taxes. 6.1 (16.4) (170.7) -- (181.0)
Equity in earnings (loss) of
affiliated companies, net of tax..... 168.4 155.3 24.4 (362.5) (14.4)
Minority interest.................... (3.4) -- -- -- (3.4)
---------- --------- --------- ----------- ---------
Net earnings from continuing operations. 124.2 188.6 123.5 (362.5) 73.8
Earnings from discontinued
operations, net of tax ............ -- -- 50.4 -- 50.4
---------- --------- --------- ----------- ---------
Net earnings............................ 124.2 188.6 173.9 (362.5) 124.2
Cumulative convertible preferred
stock dividend requirement......... (30.0) -- -- -- (30.0)
---------- --------- --------- ----------- ---------
Net earnings attributable to
common stock ....................... $ 94.2 $ 188.6 $ 173.9 $ (362.5) $ 94.2
========== ========= ========= =========== =========
-14-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
June 30, 1996
------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents ..... $ 84.4 $ 126.9 $ 63.4 $ -- $ 274.7
Receivables, net .............. 246.2 246.1 1,499.5 (25.6) 1,966.2
Inventory ..................... 663.8 117.3 1,391.8 -- 2,172.9
Other current assets .......... 63.3 124.0 623.3 -- 810.6
Net assets of discontinued
operations ................. -- -- 986.5 -- 986.5
----------- ----------- ----------- ----------- -----------
Total current assets ....... 1,057.7 614.3 4,564.5 (25.6) 6,210.9
----------- ----------- ----------- ----------- -----------
Property and equipment ............. 1,271.0 342.4 1,909.9 -- 3,523.3
Less accumulated depreciation . 222.4 80.9 302.4 -- 605.7
----------- ----------- ----------- ----------- -----------
Net property and equipment .. 1,048.6 261.5 1,607.5 -- 2,917.6
----------- ----------- ----------- ----------- -----------
Inventory .......................... 812.7 212.1 1,439.6 -- 2,464.4
Intangibles, at amortized cost ..... 7,059.2 547.9 7,861.5 -- 15,468.6
Investments in consolidated
subsidiaries .................... 2,561.5 11,474.0 -- (14,035.5) --
Other assets ....................... 236.1 363.0 1,996.0 (340.5) 2,254.6
----------- ----------- ----------- ----------- -----------
$ 12,775.8 $ 13,472.8 $ 17,469.1 $ (14,401.6) 29,316.1
=========== =========== =========== =========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ............... $ 149.2 $ 29.7 $ 311.2 $ (3.6) $ 486.5
Accrued compensation ........... 41.4 80.7 200.0 .7 322.8
Participants' share, residuals
and royalties payable ........ 108.1 -- 653.2 -- 761.3
Current portion of
long-term debt ............... 1,528.9 4.5 20.8 -- 1,554.2
Other current liabilities ...... 68.6 1,344.8 1,035.7 (557.4) 1,891.7
----------- ----------- ----------- ----------- -----------
Total current liabilities .... 1,896.2 1,459.7 2,220.9 (560.3) 5,016.5
----------- ----------- ----------- ----------- -----------
Long-term debt ..................... 7,573.4 2,101.2 571.2 (166.4) 10,079.4
Other liabilities .................. (11,417.1) (661.8) 12,263.9 1,845.6 2,030.6
Shareholders' equity:
Preferred Stock ................ 1,200.0 -- -- -- 1,200.0
Common Stock ................... 3.8 128.5 701.0 (829.5) 3.8
Additional paid-in capital ..... 10,803.7 8,585.0 1,102.7 (9,687.7) 10,803.7
Retained earnings .............. 2,752.1 1,825.8 637.4 (5,003.3) 212.0
Cumulative translation
adjustment ................... (36.3) 34.4 (28.0) -- (29.9)
----------- ----------- ----------- ----------- -----------
Total shareholders'
equity ................. 14,723.3 10,573.7 2,413.1 (15,520.5) 12,189.6
----------- ----------- ----------- ----------- -----------
$ 12,775.8 $ 13,472.8 $ 17,469.1 $ (14,401.6) 29,316.1
=========== =========== =========== =========== ===========
-15-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
December 31, 1995
------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Assets
Current Assets:
Cash and cash equivalents ...... $ 176.2 $ 223.3 $ 64.6 $ -- $ 464.1
Receivables, net ............... 259.4 267.7 1,366.8 (21.5) 1,872.4
Inventory ...................... 736.5 102.3 1,339.3 -- 2,178.1
Other current assets ........... 44.6 103.3 544.1 (7.6) 684.4
-------- --------- --------- --------- --------
Total current assets ........ 1,216.7 696.6 3,314.8 (29.1) 5,199.0
-------- --------- --------- --------- --------
Property and equipment .............. 1,132.9 280.2 2,561.6 -- 3,974.7
Less accumulated depreciation .. 141.5 55.9 559.4 -- 756.8
-------- --------- --------- --------- --------
Net property and equipment ... 991.4 224.3 2,002.2 -- 3,217.9
-------- --------- --------- --------- --------
Inventory ........................... 682.0 182.2 1,407.3 -- 2,271.5
Intangibles, at amortized cost ...... 7,118.3 557.5 8,477.4 -- 16,153.2
Investments in consolidated
subsidiaries ..................... 1,943.5 11,295.9 -- (13,239.4) --
Other assets ........................ 237.3 314.6 1,982.8 (350.3) 2,184.4
-------- --------- --------- --------- --------
$ 12,189.2 $ 13,271.1 $ 17,184.5 $(13,618.8) 29,026.0
======== ========== ========== =========== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ................ $ 339.4 $ 44.2 $ 411.7 $ (6.5) $ 788.8
Accrued compensation ............ 47.5 145.7 256.2 -- 449.4
Participants' share,
residuals and royalties payable 87.3 -- 710.9 -- 798.2
Current portion of long-term debt 25.2 1.5 18.4 -- 45.1
Other current liabilities ....... 563.7 381.6 1,100.3 (28.5) 2,017.1
-------- --------- --------- --------- --------
Total current liabilities ..... 1,063.1 573.0 2,497.5 (35.0) 4,098.6
-------- --------- --------- --------- --------
Long-term debt ...................... 8,705.1 1,595.2 592.2 (180.4) 10,712.1
Other liabilities ................... (10,468.5) 1,152.1 11,799.7 (361.8) 2,121.5
Shareholders' equity:
Preferred Stock ................. 1,200.0 -- -- -- 1,200.0
Common Stock .................... 3.7 212.0 722.4 (934.4) 3.7
Additional paid-in capital ...... 10,726.9 8,544.4 1,052.7 (9,597.1) 10,726.9
Retained earnings ............... 976.8 1,171.1 535.3 (2,510.1) 173.1
Cumulative translation adjustment (17.9) 23.3 (15.3) -- (9.9)
-------- --------- --------- --------- --------
Total shareholders' equity 12,889.5 9,950.8 2,295.1 (13,041.6) 12,093.8
-------- --------- --------- --------- --------
$ 12,189.2 $ 13,271.1 $17,184.5 $ (13,618.8) 29,026.0
======== ========= ========= ============ ========
-16-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended June 30, 1996
------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Net cash flow from operating
activities ....................... $ (122.6) $ (54.6) $ (398.1) $ -- $ (575.3)
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures .............. (126.5) (49.8) (77.1) -- (253.4)
Capital expenditures-discontinued
operations ..................... -- -- (52.4) -- (52.4)
Acquisitions, net of
cash acquired ................... (50.2) -- (66.3) -- (116.5)
Proceeds from dispositions ........ -- -- 3.4 -- 3.4
Investments in and advances to
affiliated companies ........... (7.6) (13.9) (18.1) -- (39.6)
Proceeds from sale of
short-term investments ......... -- 70.3 -- -- 70.3
Purchases of short-term
investments .................... -- (76.1) -- -- (76.1)
-------- -------- -------- -------- --------
Net cash flow from investing
activities ..................... (184.3) (69.5) (210.5) -- (464.3)
-------- -------- -------- -------- --------
Financing Activities:
Short-term borrowings from
banks, net ...................... 360.4 500.0 25.6 -- 886.0
Proceeds from exercise of
stock options and warrants ...... 68.8 -- -- -- 68.8
Repayment of other notes .......... -- (12.0) (38.9) -- (50.9)
Increase (decrease) in intercompany
payables ........................ (170.6) (459.6) 630.2 -- --
Payment of Preferred Stock
dividends ....................... (30.0) -- -- -- (30.0)
Other, net ........................ (13.5) (.7) (9.5) -- (23.7)
-------- -------- -------- -------- --------
Net cash flow from financing
activities ........................ 215.1 27.7 607.4 -- 850.2
-------- -------- -------- -------- --------
Net decrease in cash and cash
equivalents ..................... (91.8) (96.4) (1.2) -- (189.4)
Cash and cash equivalents at
beginning of period ............. 176.2 223.3 64.6 -- 464.1
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period ................... $ 84.4 $ 126.9 $ 63.4 $ -- $ 274.7
======== ======== ======== ======== ========
-17-
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended June 30, 1995
------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
------ ------------- ---------- ------------ ------------
Net cash flow from operating activities .. $ (633.5) 83.4 $ (127.3) 38.6 $ (638.8)
-------- ------- -------- ------- ----------
Investing Activities:
Capital expenditures .................. (178.8) (49.3) (139.9) -- (368.0)
Acquisitions, net of cash acquired .... (123.7) -- (167.7) -- (291.4)
Proceeds from dispositions ............ -- 1,036.1 91.0 -- 1,127.1
Investments in and advances to
affiliated companies ................ -- (33.4) (15.1) -- (48.5)
Proceeds from sale of short-term
investments ......................... -- 212.7 -- -- 212.7
Purchases of short-term investments ... -- (227.4) -- -- (227.4)
Other, net ............................ 9.5 -- (15.6) -- (6.1)
-------- ------- -------- ------- ----------
Net cash flow from investing activities .. (293.0) 938.7 (247.3) -- 398.4
-------- ------- -------- ------- ----------
Financing Activities:
Short-term borrowings from (repayments)
to banks, net ....................... (931.4) -- 4.0 -- (927.4)
Proceeds from issuance of 7.75%
senior notes ........................ 990.4 -- -- -- 990.4
Proceeds from exercise of stock options
and warrants ........................ 65.2 -- -- -- 65.2
Deferred financing fees ............... (10.8) -- -- -- (10.8)
Payment of Preferred Stock dividends .. (30.0) -- -- -- (30.0)
Increase (decrease) in intercompany
payables ............................ 840.0 (849.2) 47.8 (38.6) --
Other, net ............................ -- (4.9) (4.8) -- (9.7)
-------- ------- -------- ------- ----------
Net cash flow from financing activities .. 923.4 (854.1) 47.0 (38.6) 77.7
-------- ------- -------- ------- ----------
Net increase (decrease) in cash and
cash equivalents .................... (3.1) 168.0 (327.6) -- (162.7)
Cash and cash equivalents at beginning
of period ........................... 135.6 63.4 398.7 -- 597.7
-------- ------- -------- ------- ----------
Cash and cash equivalents at end
of period .............................. $ 132.5 $ 231.4 $ 71.1 $ -- $ 435.0
======== ======== ======== ======== ==========
-18-
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.
The following tables set forth revenues and operating income by business
segment, for the three months and the six months ended June 30, 1996 and
1995. Results for each period presented exclude contributions from the
former Cable segment, which are reported separately as discontinued operations.
Three months ended Percent Six months ended Percent
June 30, Change June 30, Change
------------------- ------- ----------------- ------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
Revenues:
Networks and Broadcasting ........ $ 592.6 $ 528.0 12% $ 1,134.8 $ 985.2 15%
Entertainment .................... 784.5 935.3 (16) 1,704.5 2,006.9 (15)
Video and Music/
Theme Parks .............. 960.9 813.9 18 1,807.7 1,508.8 20
Publishing ....................... 516.5 490.5 5 905.5 865.5 5
Intercompany ..................... (7.7) (7.2) (7) (19.2) (11.6) (66)
---------- ---------- ---------- ----------
Total .................... $ 2,846.8 $ 2,760.5 3 $ 5,533.3 $ 5,354.8 3
========== ========== ========== ==========
Operating income (loss): (a)
Networks and Broadcasting ........ $ 152.2 $ 146.2 4% $ 269.8 $ 246.7 9%
Entertainment .................... 58.4 115.1 (49) 186.8 270.2 (31)
Video and Music/
Theme Parks .............. 72.7 117.0 (38) 169.5 258.8 (35)
Publishing ....................... 14.7 20.7 (29) (31.9) (25.7) (24)
Corporate ........................ (33.3) (35.4) 6 (79.8) (73.6) (8)
---------- ---------- ---------- ----------
Total .................... $ 264.7 $ 363.6 (27) $ 514.4 $ 676.4 (24)
========== ========== ========== ==========
(a) Operating income is defined as net earnings before discontinued operations,
minority interest, equity in earnings (loss) of affiliated companies (net of
tax), provision for income taxes, other items (net), and interest expense.
-19-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
EBITDA
The following table sets forth EBITDA (defined as operating income (loss) before
depreciation and amortization) for the three months and six months ended June
30, 1996 and 1995. EBITDA does not reflect the effect of significant amounts of
amortization of goodwill related to business combinations accounted for under
the purchase method. While many in the financial community consider EBITDA to be
an important measure of comparative operating performance, it should be
considered in addition to, but not as a substitute for or superior to operating
income, net earnings, cash flow and other measures of financial performance
prepared in accordance with generally accepted accounting principles.
Three months ended Percent Six months ended Percent
June 30, Change June 30, Change
------------------- -------- ----------------- -------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
EBITDA:
Networks and Broadcasting...... $ 184.0 $ 173.9 6% $ 332.3 $ 299.5 11%
Entertainment.................. 94.0 148.1 (37) 257.4 337.9 (24)
Video and Music/
Theme Parks............ 167.7 204.7 (18) 357.0 409.9 (13)
Publishing..................... 52.7 57.1 (8) 43.6 46.8 (7)
Corporate...................... (30.2) (33.7) 10 (74.2) (70.5) (5)
-------- --------- --------- ----------
Total.................. $ 468.2 $ 550.1 (15) $ 916.1 $ 1,023.6 (11)
======== ========= ========= ==========
RESULTS OF OPERATIONS
- ---------------------
Revenues increased 3% to $2.85 billion for the second quarter of 1996 from $2.76
billion for the second quarter of 1995. EBITDA decreased 15% to $468.2 million
for the second quarter of 1996 from $550.1 million for the second quarter of
1995. Operating income decreased 27% to $264.7 million for the second quarter of
1996 from $363.6 million for the second quarter of 1995.
Revenues increased 3% to $5.53 billion for the six months ended June 30, 1996
from $5.35 billion for the six months ended June 30, 1995. EBITDA decreased 11%
to $916.1 million for the six months ended June 30, 1996 from $1.02 billion for
the six months ended June 30, 1995. Operating income decreased 24% to $514.4
million for the six months ended June 30, 1996 from $676.4 million for the six
months ended June 30, 1995.
-20-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Segment Results of Operations
- -----------------------------
Networks and Broadcasting (Basic Cable and Premium Subscription Television
Program Services, Television and Radio Stations)
Three months ended Percent Six months ended Percent
June 30, Change June 30, Change
------------------- -------- -------------------- ------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
Revenues ......................... $ 592.6 $ 528.0 12% $ 1,134.8 $ 985.2 15%
Operating Income ................. $ 152.2 $ 146.2 4 $ 269.8 $ 246.7 9
EBITDA ........................... $ 184.0 $ 173.9 6 $ 332.3 $ 299.5 11
The Networks and Broadcasting segment is comprised of MTV Networks ("MTVN"),
basic cable television program services; Showtime Networks Inc. ("SNI"), premium
subscription television program services; television stations and radio
stations. For the second quarter of 1996, MTVN revenues of $288.5 million,
EBITDA of $110.8 million and operating income of $95.5 million increased 22%,
18% and 17%, respectively, over the same three month period last year. For the
six months ended June 30, 1996, MTVN revenues of $552.5 million, EBITDA of
$204.3 million and operating income of $174.9 million increased 25%, 19% and
18%, respectively, over the same six month period last year. The increase in
MTVN revenues principally reflects higher advertising and affiliate revenues due
principally to rate increases. MTVN EBITDA and operating income gains were
driven by the increased advertising and affiliate revenues partially offset by
start-up costs of Nick at Nite's TV Land, increased expenses associated with
international expansion and higher production expenses. SNI revenues, EBITDA,
and operating income increased 8%, 33% and 42% for the second quarter,
respectively, and 9%, 37% and 43% for the six months ended June 30, 1996,
respectively, over the same prior year periods. Such increases are principally
due to an increase of approximately 1.0 million subscribers, reflecting the
continued growth of direct broadcasting satellite subscribers, partially offset
by higher programming expenses. SNI served a total of 15.2 million subscribers
at June 30, 1996. For the second quarter of 1996, Television and Radio revenues,
EBITDA and operating income decreased 2%, 11% and 14%, respectively, while for
the six months then ended revenues increased 3% and EBITDA and operating income
decreased 3% and 6%, versus the prior year, respectively, reflecting the impact
of acquisitions and dispositions. On a same station basis, Television and Radio
revenues, EBITDA, and operating income increased 7%, 11% and 13%, respectively,
for the second quarter, and 7%, 8% and 10%, for the six months ended June 30,
1996, respectively, over the same prior year periods.
-21-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Entertainment (Motion Pictures and Television Programming, Movie Theaters, and
New Media and Interactive Services)
Three months ended Percent Six months ended Percent
June 30 Change June 30, Change
------------------- -------- ----------------- -------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
Revenues $ 784.5 $ 935.3 (16)% $1,704.5 $2,006.9 (15)%
Operating Income $ 58.4 $ 115.1 (49) $ 186.8 $ 270.2 (31)
EBITDA $ 94.0 $ 148.1 (37) $ 257.4 $ 337.9 (24)
The Entertainment segment is principally comprised of Paramount Pictures,
Paramount Television, Spelling Entertainment Group Inc. ("Spelling") and the
former Viacom Entertainment. The 1996 revenue contributions from Paramount
Pictures' Mission Impossible and Primal Fear did not match the stronger foreign
theatrical and home video performance of Paramount Pictures' Forrest Gump for
the three and six month period ended June 30, 1995 and the sale of certain
television series syndication rights in 1995. The results of operations for the
six months ended June 30, 1996 include $100 million of EBITDA and operating
income attributable to Viacom's strategic alliance with Kirch Group, the German
media group. The six month comparisons also reflect, in 1995, $250 million of
revenues and $68.0 million of EBITDA and operating income resulting from the
conforming of accounting policies pertaining to the television programming
libraries of Viacom Entertainment, Spelling and Paramount. Entertainment
operating results for the second quarter of 1996 were affected adversely by the
disappointing box office of Paramount Pictures' The Phantom; as well as softness
in the direct-to-video and interactive game markets; and a significant amount of
production funding which resulted in Spelling incurring a loss and lower
revenues for the second quarter of 1996 as compared to a positive EBITDA
contribution in 1995.
During the second quarter of 1996, the Company announced its decision not
to continue to pursue the sale of its interest in Spelling Entertainment Group
Inc. ("Spelling"). The Company currently owns approximately 75% of Spelling's
common stock.
Video and Music/Theme Parks (Home Video and Music Retailing/Theme Parks)
Three months ended Percent Six months ended Percent
June 30 Change June 30, Change
------------------- -------- ----------------- -------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
Revenues $ 960.9 $ 813.9 18% $1,807.7 $1,508.8 20%
Operating Income $ 72.7 $ 117.0 (38) $ 169.5 $ 258.8 (35)
EBITDA $ 167.7 $ 204.7 (18) $ 357.0 $ 409.9 (13)
-22-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The Video and Music/Theme Parks segment is comprised principally of Blockbuster
Video and Music, and Paramount Parks. The revenue increases for the quarter and
six months ended June 30, 1996 reflect the increased number of Company-owned
video stores in operation in 1996 as compared to 1995 and a 7% increase in
worldwide same-store sales. Blockbuster Video ended the quarter with 4,795
stores, a net increase of 632 stores from June 30, 1995. The decreases in EBITDA
and operating income reflect difficult conditions in the music retailing
industry and increased rental tape amortization cost compared with lower than
normal amortization in 1995, partially offset by the revenue increase. Music
stores revenues of $139.7 million and $272.6 million for the second quarter and
six months ended June 30, 1996 increased 10% and 6%, respectively, over the
comparable prior year periods. Music stores posted a small EBITDA loss in the
second quarter and for the six months ended June 30, 1996 as compared to
contributing positive EBITDA in the respective periods last year. Music stores
recorded operating losses of $11.4 million and $19.2 million for the three and
six month periods as compared to operating income of $.7 million and $4.0
million for the prior periods in 1995. For the second quarter of 1996, Theme
Parks revenues and operating income increased $2.1 million and $4.5 million,
respectively, while EBITDA decreased $.3 million. For the six months ended June
30, 1996, Theme Parks revenues increased $3.3 million, EBITDA increased $1.0
million and operating income decreased $2.0 million, reflecting increased
attendance partially offset by increased operating expenses.
Publishing (Education; Consumer; Business and Professional, Reference and
International Groups)
Three months ended Percent Six months ended Percent
June 30 Change June 30, Change
------------------- -------- ----------------- -------
1996 1995 1996 1995
---- ---- ---- ----
(In millions) (In millions)
Revenues $ 516.5 $ 490.5 5% $ 905.5 $ 865.5 5%
Operating Income $ 14.7 $ 20.7 (29) $ (31.9) $ (25.7) (24)
EBITDA $ 52.7 $ 57.1 (8) $ 43.6 $ 46.8 (7)
Publishing is comprised of Simon & Schuster which includes imprints such as
Simon & Schuster, Pocket Books, Prentice Hall and Macmillan Computer Publishing.
The revenue increases for the quarter and six months ended June 30, 1996
primarily reflect strong sales from the Macmillan Computer Publishing Group and
the Consumer Group, partially offset by lower revenues for the Education Group.
Macmillan Computer Publishing USA revenues were fueled by interest in Java and
Windows 95 as well as strong sales for Internet, Web programming and design
titles. Consumer Group revenue increases were driven by strong performance of
the Simon & Schuster Trade division led by MOONLIGHT BECOMES YOU (Mary Higgins
Clark), THE CHOICE (Bob Woodward), and BLOOD SPORT (James Stewart). The
decrease in operating income and EBITDA for the comparable periods is primarily
due to lower sales in the Elementary Education Group and to increased operating
and development costs.
-23-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Other Income and Expense Information
- ------------------------------------
Discontinued operations
Discontinued operations reflect the results of operations net of tax of the
former Cable segment which was split-off from the Company and MSG, which was
sold on March 10, 1995 (see Note 2 of Notes to Consolidated Financial
Statements). The effects on results of operations of the Cable split-off and
related transactions, which will be recognized beginning in the third quarter,
include a gain on the transactions and reductions in interest expense and common
shares outstanding. On July 31, 1996, Viacom reduced its debt by $1.7 billion
and reduced its total number of outstanding Common shares by approximately 4.1%.
Corporate expenses
Corporate expenses, including depreciation expense, decreased 6% to $33.3
million for the second quarter of 1996 from the same prior year period and
increased 8% to $79.8 million for the six months ended June 30, 1996 over the
comparable six month period principally reflecting the impact of executive
severance expense in 1996.
Interest expense, net
For the three and six month period ended June 30, 1996, net interest expense
increased 1% to $209.3 million and 3% to $414.3 million, respectively. The
Company had approximately $11.6 billion and $10.7 billion principal amount of
debt outstanding (including current maturities) as of June 30, 1996, and June
30, 1995, respectively, at weighted average interest rates of 7.2% and 7.7%,
respectively.
Provision for income taxes
The provision for income taxes represents federal, state and foreign income
taxes on earnings before income taxes. The estimated annual effective tax rate
of 62.0% for 1996 and the annual effective tax rate of 66.4%, restated to
reflect the current discontinued operations presentation for 1995, were both
adversely affected by amortization of intangibles in excess of amounts which are
deductible for tax purposes.
Equity in loss of affiliates
"Equity in loss of affiliated companies, net of tax" of $4.9 million and $3.6
million for the second quarter of 1996 and the six months then ended improved
from a loss of $15.3 million and $14.4 million, respectively, primarily
reflecting improved operating results for the first six months of 1996 of USA
Networks and United Cinemas International Multiplex B.V., partially offset by
net losses from international start-up equity ventures. The equity loss for the
six months ended June 30, 1995 primarily reflects the loss of $20.7 million
related to the Company's 49.9% interest in Discovery Zone.
Minority interest
Minority interest primarily represents the minority ownership of Spelling common
stock.
-24-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures, joint ventures,
commitments and payments of principal, interest and dividends on its outstanding
indebtedness and preferred stock) with internally generated funds and from
various external sources, which may include the Company's existing credit
agreements and amendments thereto, co-financing arrangements by the Company's
various divisions, additional financings and the sale of non-strategic assets as
opportunities may arise.
The Company was in compliance with all debt covenants and had satisfied all
financial ratios and tests under the agreements as of June 30, 1996 and the
Company expects to be in compliance and satisfy all such covenant ratios as may
be applicable from time to time during 1996.
The Company's scheduled maturities of notes payable to banks and debentures
through December 31, 2000, assuming full utilization of the credit agreements
are $1.5 billion (1996, repaid July 31, 1996), $749 million (1997), $1.0 billion
(1998), $1.5 billion (1999) and $1.3 billion (2000). As of June 30, 1996, the
Company has classified certain short-term indebtedness as long-term debt based
upon its intent and ability to refinance such indebtedness on a long-term basis.
As a result of the July 31, 1996 Cable split-off, the Company reduced its notes
payable to banks by $1.7 billion, of which $1.5 billion represents a permanent
reduction in its credit facility, maturing in 1996.
The Company has provided a (i) term loan of $100 million and (ii) a revolving
credit facility of $140 million to fund Spelling's working capital and other
requirements, collectively the "Spelling Facility". The Company has agreed to
provide a further increase of up to $95 million in the amount available under
the Spelling Facility and to extend the maturity date of the Spelling Facility
from March 31, 1997 to December 31, 1998, and it is anticipated that an
amendment reflecting such changes will be executed. Pursuant to this agreement,
Spelling executed a $25 million promissory note and a $40 million promissory
note to the Company in April 1996 and August 1996, respectively. The Spelling
Facility borrowings and related receivables have been eliminated in
consolidation.
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of June 30, 1996, estimated to aggregate approximately
$2.2 billion, principally reflect commitments under SNI's exclusive arrangements
with several motion picture companies. This estimate is based upon a number of
factors. A majority of such fees are payable over several years, as part of
normal programming expenditures of SNI. These commitments are contingent upon
delivery of motion pictures, which are not yet available for premium television
exhibition and, in many cases, have not yet been produced.
-25-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Current assets increased to $6.2 billion as of June 30, 1996 from $5.2 billion
as of December 31, 1995, primarily reflecting the classification of Cable's net
assets within net assets of discontinued operations. The allowance for
doubtful accounts as a percentage of receivables was 6% as of June 30, 1996
and December 31, 1995. Property and equipment decreased $300.3 million primarily
reflecting the classification of Cable's property and equipment within net
assets of discontinued operations. This decrease was partially offset by capital
expenditures of $253.4 million and capitalized leases of $55.7 million
primarily related to capital additions for new and existing video stores and
additional construction and equipment upgrades for theme parks. Current
liabilities increased to $5.0 billion as of June 30, 1996 from $4.1 billion as
of December 31, 1995, reflecting the classification of notes payable to banks
of $1.5 billion as current liabilities at June 30, 1996, partially offset by
payments for a seasonally high level of Blockbuster videocassette purchases
made in the fourth quarter of 1995 and payment of accrued compensation and
other normal operating activity. Long-term debt, including current maturities,
increased to $11.6 billion as of June 30, 1996 from $10.8 billion as of
December 31, 1995, reflecting the continued investment in and seasonality of
the Company's businesses.
The Company expects to record the majority of its operating cash flows during
the second half of the year due to the seasonality of the educational publishing
business, the typical timing of major motion picture releases, the summer
operation of its theme parks, the positive effect of the holiday season on
advertising revenues and video store revenues, and the impact of the beginning
of the broadcast television season on television production. Net cash flow from
operating activities was negative $575.3 million for the six months ended June
30, 1996 versus negative $638.8 million for the six months ended June 30, 1995.
Net cash expenditures for investing activities of $464.3 million for the six
months ended June 30, 1996, principally reflect capital expenditures,
investments in international equity ventures and other acquisitions. Net cash
flows from investing activities of $398.4 million for the six months ended June
30, 1995, principally reflect proceeds from the sale of MSG, partially offset by
capital expenditures and other acquisitions. Financing activities principally
reflect borrowings and repayments of debt under the credit agreements during
each period presented and in 1995, the issuance of the 7.75% Senior Notes.
-26-
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Capital Structure
The following table sets forth the Company's long-term debt, net of current
portion as of June 30, 1996 and December 31, 1995:
June 30, 1996 December 31, 1995
------------- -----------------
(In millions)
Notes payable to banks..................... $ 7,090.9 $ 6,206.9
Senior debt................................ 2,483.6 2,482.8
Senior subordinated debt................... 638.8 636.8
Subordinated debt.......................... 953.0 946.7
Obligations under capital leases........... 454.0 421.9
Other notes................................ 13.3 62.1
----------- -----------
11,633.6 10,757.2
Less current portion....................... 1,554.2 45.1
----------- -----------
$ 10,079.4 $ 10,712.1
=========== ===========
The notes and debentures are presented net of an aggregate unamortized discount
of $174.0 million as of June 30, 1996 and $181.9 million as of December 31,
1995.
On May 10, 1996, a subsidiary of the Company entered into a $500 million 364-day
film financing credit agreement, guaranteed by Viacom International Inc. and the
Company.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 49% at June 30, 1996 and 47% at December 31, 1995.
The Company enters into interest rate exchange agreements with off-balance sheet
risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt. As of June 30, 1996, the Company and its
subsidiaries had obtained interest rate protection agreements with respect to
approximately $600 million of indebtedness, which effectively change the
Company's interest rate on variable rate borrowings to fixed interest rates. The
interest rate protection agreements mature during March 1997.
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward contracts
and options, and interest rate swap agreements. The foreign exchange contracts
have principally been used to hedge the British Pound, the Australian Dollar,
the Japanese Yen, the Canadian Dollar, the French Franc, the Singapore Dollar,
the German Deutschemark and the European Currency Unit/British Pound
relationship. These derivatives, which are over-the-counter instruments, are
non-leveraged.
The Company filed a shelf registration statement with the Securities and
Exchange Commission registering debt securities, preferred stock and contingent
value rights of Viacom and guarantees of such debt securities by Viacom
International which may be issued for aggregate gross proceeds of $3.0 billion.
The registration statement was declared effective on May 10, 1995. The net
proceeds from the sale of the offered securities may be used by Viacom to repay,
redeem, repurchase or satisfy its obligations in respect of its outstanding
indebtedness or other securities; to make loans to its subsidiaries; for general
corporate purposes; or for such other purposes as may be specified in the
applicable Prospectus Supplement. To date, the Company issued $1.6 billion of
notes and debentures and has $1.4 billion remaining availability under the shelf
registration statement.
-27-
PART II -- OTHER INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders
The Annual Meeting of Stockholders of Viacom Inc. (the "Company") was
held on Thursday, May 23, 1996. The following matters were voted upon at the
meeting: (i) the election of 11 directors; (ii) the approval of an amendment to
the Viacom Inc. Senior Executive Short-Term Incentive Plan; (iii) the
appointment of Price Waterhouse LLP to serve as independent accountants until
the 1997 Annual Meeting of Stockholders; and (iv) a stockholder proposal
regarding publication of political contributions by the Company.
The entire board of directors was reelected and the number of shares
cast for or to withhold authority for the election of each director were as
follows:
No. of Shares
No. of Shares Voted to Withhold
Name Voted For Authority
- ---------------------- ------------- -------------------
George S. Abrams 71,826,679 325,511
Philippe P. Dauman 72,006,790 145,400
Thomas E. Dooley 72,008,130 144,060
George D. Johnson, Jr. 72,007,685 144,505
Ken Miller 71,824,673 327,517
Brent D. Redstone 71,986,131 166,059
Shari Redstone 72,026,061 126,129
Sumner M. Redstone 71,990,654 161,536
Frederic V. Salerno 72,003,705 148,485
William Schwartz 72,004,142 148,048
Ivan Seidenberg 72,002,611 149,579
The votes cast for, against or abstaining from the approval of the
amendment to the Viacom Inc. Senior Executive Short-Term Incentive Plan were as
follows:
Votes For: Votes Against: Abstentions:
68,961,369 1,777,533 277,261
The votes cast for, against or abstaining from the approval of the
appointment of Price Waterhouse LLP to serve as independent accountants for the
Company until the 1997 Annual Meeting of Stockholders were as follows:
Votes For: Votes Against: Abstentions:
71,966,155 128,079 57,956
-28-
The votes cast for, against or abstaining from approval of the
stockholder proposal were as follows:
Votes For: Votes Against: Abstentions:
4,023,314 55,195,272 10,479,591
Item 6. Exhibits and Reports on Form 8-K for Viacom Inc.
(a) Exhibits:
10.1 Agreement, dated as of June 1, 1996, amending the Employment
Agreement dated as of July 1, 1994, between Viacom Inc. and
Edward D. Horowitz.
10.2 Film Finance Credit Agreement, dated as of May 10, 1996, among
Viacom Film Funding Company Inc. as Borrower; Viacom Inc. and
Viacom International Inc. as Guarantors; the Bank parties
thereto; The Bank of New York, Citibank, N.A., Morgan Guaranty
Trust Company of New York and Bank of America NT&SA, as Managing
Agent; The Bank of New York, as the Documentation Agent;
Citibank, N.A., as the Administrative Agent; JP Morgan Securities
Inc., as the Syndication Agent; and the Agents and Co-Agents
named therein.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K for Viacom Inc.:
None
-29-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INC.
-----------------------------------
(Registrant)
Date August 14, 1996 /s/ Sumner M. Redstone
--------------- -----------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Date August 14, 1996 /s/ George S. Smith, Jr.
--------------- -----------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
Exhibit Index
-------------
10.1 Agreement, dated as of June 1, 1996, amending the Employment
Agreement dated as of July 1, 1994, between Viacom Inc. and
Edward D. Horowitz.
10.2 Film Finance Credit Agreement, dated as of May 10, 1996, among
Viacom Film Funding Company Inc. as Borrower; Viacom Inc. and
Viacom International Inc. as Guarantors; the Bank parties
thereto; The Bank of New York, Citibank, N.A., Morgan Guaranty
Trust Company of New York and Bank of America NT&SA, as Managing
Agent; The Bank of New York, as the Documentation Agent;
Citibank, N.A., as the Administrative Agent; JP Morgan Securities
Inc., as the Syndication Agent; and the Agents and Co-Agents
named therein.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.