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 June 30, 1994
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Commission file number 1-5404
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Paramount Communications Inc.
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(Exact name of registrant as specified in its charter)
Delaware 74-1330475
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Broadway, New York, N.Y. 10036
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No___.
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Number of shares of Common Stock outstanding at July 31, 1994:
Common Stock, no par value - 100.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
INDEX
<TABLE><CAPTION>
Page
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<S> <C>
Part I. Financial Information
Consolidated Statement of Earnings
Three Months Ended June 30, 1994, June 30, 1993 and July 31, 1993 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Consolidated Balance Sheet
June 30, 1994 and March 31, 1994 8
Consolidated Statement of Cash Flows
Three Months Ended June 30, 1994 and July 31, 1993 9
Notes to Consolidated Financial Statements 10
Part II. Other Information 12
</TABLE>
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PARAMOUNT COMMUNICATIONS INC.
PART I. FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE><CAPTION>
Three Months Ended Three months Ended
June 30, July 31,
------------------ ------------------
1994 1993 1993
----- ---- ----
(In millions, except per share)
<S> <C> <C> <C>
Revenues $1,198.6 $1,109.9 $1,351.7
Cost of goods sold 791.1 729.8 842.4
Selling, general and administrative expenses 332.5 346.9 318.7
-------- -------- --------
1,123.6 1,076.7 1,161.1
-------- -------- --------
Operating Income 75.0 33.2 190.6
Other expense (7.2) (2.9) (0.8)
Interest and other investment income (expense):
Interest expense (26.4) (22.8) (21.0)
Interest and other investment income 10.7 18.6 16.4
------ ------ ------
(15.7) (4.2) (4.6)
-------- ------- -------
Earnings before Income Taxes 52.1 26.1 185.2
Provision for income taxes 18.3 8.9 64.8
------ ------ ----
Net Earnings $33.8 $17.2 $120.4
===== ===== ======
Average common and common equivalent
shares outstanding 122.8 119.6 119.8
Net earnings per share $0.28 $0.14 $1.01
Cash dividends declared per common share -- $0.20 $0.20
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As a result of the Tender Offer and Merger (see Note B of
Notes to Consolidated Financial Statements), in March 1994,
Paramount Communications Inc. (Company) became a majority owned
subsidiary of Viacom Inc. and, in July 1994, the Company became a
wholly owned subsidiary of Viacom Inc. The Company operates in
the entertainment and publishing businesses.
Entertainment
Entertainment segment revenues decreased 1% to $729.5 million from
$733.9 million while operating income decreased 28% for the three
months ended June 30, 1994 compared with the same prior-year period.
Features
Revenues from features decreased 14% to $235.8 million from $273.0
million for the three months ended June 30, 1994 compared with the
same prior-year period. Theatrical revenues decreased due principally
to the domestic success of Indecent Proposal during 1993. Home video
operations and syndication revenues decreased, while pay cable
revenues increased.
Features operating loss was $6.0 million for the three months
ended June 30, 1994 compared with operating income of $28.1 million
for the comparable prior-year period. Theatrical results declined due
to higher feature write-downs in the current year. In addition,
results for the current period were negatively impacted by higher
scenario reserves related to increased development activity. Home
video operations and syndication operating income decreased in the
current quarter due to a less profitable mix of titles. Pay cable
results increased in the current three-month period reflecting the
increased revenues.
Television
Television programming revenues decreased 9% to $154.1 million for
the three months ended June 30, 1994 from $169.3 million for the
same prior-year period. Revenues from network series product declined
in the current quarter due to the absence of license fees for the
final season of Cheers and decreased licenses fees due to decreased
series production. Revenues from first-run series product increased
for the current three months, as contributions from Star Trek: Deep
Space Nine, The Untouchables and Leeza, more than offset lower
revenues of The Arsenio Hall Show.
Television programming operating income increased 54% to $17.9
million in the current three months ended June 30, 1994 from $11.6
million for the same prior-year period. Results from network series
product increased in the current period because of lower programming
costs. First-run series product operating income increased reflecting
the increased revenues.
Station and Network
The Station and Network group operating income increased 57% to
$27.1 million for the three months ended June 30, 1994 from $17.2
million for the same prior-year period. The Paramount Stations Group
operating income increased due to contributions from the September
1993 acquisition of WKBD-TV in Detroit as well as higher advertising
sales. USA
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Networks, the Company's 50%-owned cable operations, contributed
increased operating income in the current-year period as compared with
the same prior-year period.
Theaters
Theatrical exhibition revenues decreased 8% to $31.6 million for
the three months ended June 30, 1994 from $34.4 million for the same
prior-year period principally due to unfavorable exchange rates.
Operating income increased 149% to $3.4 million for the three months
ended June 30, 1994 from $1.4 million for the same prior-year period
primarily led by better results at the Company's Canadian chain,
Famous Players, increased profitability of foreign joint ventures,
partially offset by lower results of Cinamerica, the Company's 50%-
owned domestic theater operation.
Madison Square Garden
Revenues for Madison Square Garden increased by 37% to $113.0
million for the current quarter from $82.2 million for the same
prior-year period. The sports teams revenues increased 62% in the
current quarter as a result of increased playoff activity over the
prior year. The current period also included higher revenue from an
increased number of live entertainment events in the Arena and The
Paramount, increased MSG Network subscriber levels and advertising
sales and greater concession revenues.
Operating loss of $1.2 million for the current quarter compared
with $1.7 million in the same prior-year period, reflecting increased
revenues partially offset by higher sports team and MSG Network
operating expenses.
Paramount Parks
Revenues for Paramount Parks increased 10% to $128.9 million in the
current quarter from $117.5 million in the same prior-year period,
reflecting the full quarter contribution from the acquisition of
Paramount Canada's Wonderland in 1993, partially offset by a decrease
in attendance at the Parks. Operating income decreased 32% to $11.1
million in the current quarter from $16.3 million in the same prior-
year quarter reflecting decreased attendance revenues.
Publishing
Publishing revenues increased 25% in the three months ended June
30, 1994 to $469.1 million from $376.0 million in the same prior-year
period. Publishing operating income was $35.8 million for the three
months ended June 30, 1994 compared with an operating loss of $16.5
million for the same prior-year period. The results for the three
months ended June 30, 1994 include contributions from the February
1994 acquisition of Macmillan Publishing Company and certain other
assets of Macmillan Inc. (the "Macmillan Acquisition").
Consumer
Revenues increased 47% to $117.7 million for the three months ended
June 30, 1994 from $79.9 million in the same prior-year period. These
increases were primarily due to contributions from frontlist hardcover
titles at the Simon & Schuster trade division and audio releases of
successful titles. Additionally, the current-year period benefited
from increased sales of children's books and the Free Press division,
both from the Macmillan Acquisition.
Consumer publishing operating income increased 77% to $12.9 million
for the three months ended June 30, 1994 from $7.3 million for the
same prior-year period reflecting the increased revenues, partially
offset by increased product support and development and operating
expenses in the current three month period.
Business, Technical and Professional
Revenues increased 25% to $110.8 million for the three months ended
June 30, 1994 from $88.7 million in the same prior-year quarter,
reflecting higher sales of newly released computer titles and
contributions from the Macmillan Acquisition.
Operating income was $7.2 million for the three months ended June
30, 1994 compared with an operating loss of $3.8 million for the same
prior-year quarter reflecting higher revenues, partially offset by
increased product development and support expenses.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Education
Revenues increased 10% to $191.3 million for the three months ended
June 30, 1994 from $173.9 million for the same prior-year period.
Elementary education revenues declined 12% for the quarter to $67.6
million from $76.6 million in the prior-year quarter reflecting
decreased adoption opportunities and reduced sales of previously
adopted products. Secondary education revenues decreased 2% to $33.7
million in the current quarter from $34.4 million in the prior-year
quarter reflecting decreased adoption opportunities, partially offset
by the success of the latest language arts and science products.
Revenues at higher education increased 51%, to $69.9 million in the
current quarter from $46.3 million in the prior-year quarter reflecting
contributions from the Macmillan Acquisition and increased sales of
textbooks, primarily in math, science, business, economics and career
disciplines. Educational technology revenues rose 22% to $20.2
million in the current quarter from $16.5 million in the prior-year
quarter, primarily due to increased sales of computer learning
stations and sales of related software products.
Operating income decreased 3% in the current three months
reflecting increased product development and support expenses,
partially offset by increased revenues.
International
Revenues increased 41% to $55.0 million in the current quarter from
$39.1 million for the same prior-year quarter. Sales gains occured in
Asia, Australia and Mexico, largely attributable to improved sales of
educational products and computer books, along with the contributions
from the acquisition of a German computer book publisher and the
Macmillan Acquisition.
Operating income increased 110% to $8.5 million for the current
quarter from $4.0 million for the same prior-year quarter reflecting
increased sales, partially offset by increased product support and
operating expenses.
Corporate administrative expenses benefited in 1994 from the non-
recurrance of a $35 million charge that occured in 1993 related to the
write-down to net realizable value of certain publishing operations real
estate, expected to be sold, and a provision for relocation costs in
connection with the planned move of publishing operations and corporate
headquarters.
Interest and Other Investment Income (Expense), Net
Earnings for the current-year period reflect net interest and
other investment expense of $15.7 million, compared with net interest
and other investment expense of $4.2 million for the prior-year
three-month period. This increase stems primarily from lower
interest and other investment income because of lower average cash
equivalents and short-term investments and increased interest expense
from net increased borrowings. The lower average cash equivalents
and short-term investments and increased borrowings were primarily a
result of acquisitions and the funding of the working capital
requirements of the Company.
The Company has entered into interest rate exchange agreements with
off-balance sheet risk in order to reduce its exposure and/or take
advantage of changes in interest rates. The Company accrues as
interest expense/income the differential to be paid or received under
the agreements as interest rates change over the contract period. At
June 30, 1994, the Company had interest rate swap agreements
outstanding with major financial institutions in the amount of $1.7
billion (notional amount), of which only $1.1 billion represents
interest rate exposure. These agreements change certain of the
Company's fixed and variable rate interest costs to alternative
variable rates over the terms of the underlying agreements. The
Company is exposed to credit loss in the event of nonperformance by
the counterparties to the agreements. However, the Company does not
anticipate nonperformance by counterparties.
Other
The effective rate for income taxes was 35% in the three months
ended June 30, 1994 compared with a 34% rate for the comparable prior-
year period.
Corporate expenses were $13.8 million for the current-year period
compared with $23.9 million for the same prior-year period, reflecting
lower compensation costs due to the Merger (See Note B of Notes to
Consolidated Financial Statements) and the relocation expenses recorded
in the prior year.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Tender Offer and Merger (see Note B of Notes to
Consolidated Financial Statements), in March 1994, Paramount
Communication Inc. (Company) became a majority owned subsidiary of
Viacom Inc. and, in July 1994, the Company became a wholly owned
subsidiary of Viacom Inc.
Viacom Inc. expects to fund its anticipated operating, investing
and financing cash requirements, with internally generated funds and
with various external sources of funds, including additional
financings and the sale of non-strategic assets, as such opportunities
may arise, such as the exploration of the sale of the operations of
Madison Square Garden and certain non-core publishing assets.
On July 1, 1994, Viacom Inc. entered into an aggregate $6.489
billion credit agreement (Viacom Credit Agreement) and Viacom
International Inc. and certain of it subsidiaries entered into a $311
million credit agreement (Viacom International Credit Agreement) each
with certain banks, the proceeds of which were used to refinance bank
debt of Viacom Inc. , Viacom International and the Company. The
Viacom International Credit Agreement is guaranteed by the Company and
Viacom Inc. Viacom Inc. and the Company guarantee the Viacom Credit
Agreement.
Viacom Inc. filed a shelf registration statement with the Securities
and Exchange Commission (SEC) registering $3 billion of debt securities
and preferred stock. Any debt issued would be guaranteed by Viacom
International and the Company. Effectiveness of the shelf registration
is still pending with the SEC.
The Company depended primarily on internal cash flow and external
borrowings to finance its operations during the three months ended
June 30, 1994. In connection with the Merger described in Note B to
the consolidated financial statements, subsequent to its January 1994
dividend, the Company has discontinued its regular quarterly dividend
payment.
The Company and BHC Communications, Inc., which is majority-owned
by Chris-Craft Industries, Inc., have formed the United Paramount
Network which will provide prime-time television programming primarily
to broadcast affiliates nationwide in competition with the three major
networks and the Fox Broadcasting Network. The network is expected to
begin operations in January 1995.
Total debt as a percentage of total capitalization was 23% at June
30, 1994 and 20% at March 31, 1994, reflecting increased borrowings
under revolving loan agreements.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEET
<TABLE><CAPTION>
June 30, March 31,
1994 1994
---- ----
(Unaudited) (Note)
(In millions)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 305.2 $ 239.3
Short-term investments 66.4 67.3
Trade receivables 1,000.9 914.3
Inventories - Note D 758.3 699.2
Prepaid income taxes 315.9 303.5
Prepaid expenses and other 500.2 491.9
---------- --------
Total Current Assets 2,946.9 2,715.5
Property, Plant and Equipment
Land 268.2 267.1
Buildings 669.7 665.6
Machinery, equipment and other 753.8 733.2
---------- --------
1,691.7 1,665.9
Less allowance for depreciation 437.0 409.2
---------- --------
1,254.7 1,256.7
Other Assets
Investment in affiliated companies 206.5 211.2
Noncurrent receivables and inventories - Note D 758.0 773.1
Intangible assets 2,085.4 2,093.5
Deferred costs and other 543.0 558.0
---------- --------
3,592.9 3,635.8
---------- --------
$ 7,794.5 $7,608.0
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 10.9 $ 35.6
Trade accounts payable 180.5 201.6
Income taxes payable -- 19.6
Accrued expenses and other 1,497.9 1,484.4
---------- --------
Total Current Liabilities 1,689.3 1,741.2
Deferred Liabilities 770.0 795.3
Long-Term Debt, net of current maturities 1,226.9 998.4
Stockholders' Equity
Common Stock, recorded at $1.00 par value; 600,000,000 shares
authorized; shares outstanding, 122,792,910
(excluding 25,069,138 shares held in treasury) 122.8 122.8
Paid-in surplus 958.0 957.7
Retained earnings 3,050.3 3,016.5
Cumulative translation adjustments (22.8) (23.9)
----------- --------
4,108.3 4,073.1
---------- --------
$ 7,794.5 $7,608.0
========== ========
</TABLE>
Note: Derived from audited financial statements.
See notes to consolidated financial statements.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
------------------
June 30, July 31,
1994 1993
---- ----
<S> <C> <C>
(In millions)
Cash Flows from Operating Activities
Net earnings $ 33.8 $ 120.4
Non-cash expenses
Depreciation 31.4 32.6
Deferred income taxes (36.6) 1.8
Amortization of intangible assets 11.0 17.4
Amortization of pre-publication costs 23.1 34.4
Theatrical and television inventories and broadcast rights
Gross additions (233.1) (264.4)
Amortization 204.0 254.6
Decrease in network features and syndication licenses 3.3 8.1
Increase in pre-publication costs (36.1) (16.8)
Increase in trade receivables (123.7) (276.7)
Decrease in inventories (other than theatrical and television) 3.7 18.6
(Increase) decrease in prepaid expenses (8.2) 44.7
Decrease in trade accounts payable (21.0) (36.2)
Increase in prepaid taxes and income taxes payable 52.1 31.2
Increase in accrued expense and other 13.4 55.7
Other, net (28.1) (34.9)
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Net cash flows used for operating activities (111.0) (9.5)
Cash Flows from Investment and Other Activities
Expenditures for property, plant and equipment (excluding capitalized leases) (29.7) (33.4)
Purchase price of acquired businesses (net of acquired cash) -- (52.3)
Decrease in short-term investments, net 0.9 (32.3)
Other, net 3.4 3.4
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Net cash flows provided from investment and other activities (25.4) (114.6)
Cash Flows from Financing Activities
Proceeds of long-term debt 220.0 298.8
Payments of long-term debt (17.7) (134.0)
Issuance of Common Stock (excluding grants to employees) -- 7.4
Dividends -- (23.7)
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Net cash flows provided from financing activities 202.3 148.5
-------- --------
Increase in Cash and Cash Equivalents 65.9 24.4
Cash and Cash Equivalents at Beginning of Period 239.3 372.6
-------- --------
Cash and Cash Equivalents at End of Period $ 305.2 $ 397.0
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying consolidated financial statements of Paramount
Communications Inc. and its consolidated subsidiaries (Company) have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The results of operations of any interim period are
not necessarily indicative of the results of operations for the fiscal
year. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's
transition report on Form 10-K for the eleven months ended March 31,
1994), as amended.
The consolidated financial statements are stated on an historical
basis and do not reflect adjustments made in connection with the
Merger (as defined in Note B).
Change in Fiscal Year End
In March 1994, the Board of Directors approved a change in the
Company's fiscal year end to March 31 from April 30.
Note B - Tender Offer and Merger
In March 1994, Viacom Inc. acquired a majority of the Company's
common stock outstanding at a price of $107 per share in cash. On
July 7, 1994, the Company became a wholly owned subsidiary of Viacom
Inc. (the "Merger") at the effective time of the merger between the
Company and a subsidiary of Viacom Inc. Each share of the Company's
common stock outstanding at the time of the Merger (other than shares
held in the treasury of Paramount or owned by Viacom Inc. and other
than shares held by any stockholders who shall have 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 contingent value right ("CVR"), (iv)
0.5 of a warrant to purchase one share of Class B Common Stock at any
time prior to the third anniversary of the 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 Merger
at a price of $70 per share.
Note C - Acquisition and Disposition of Businesses
The Company and BHC Communications, Inc., which is majority-owned
by Chris-Craft Industries, Inc., have formed the United Paramount
Network which will provide prime-time television programming primarily
to broadcast affiliates nationwide in competition with the three major
networks and the Fox Broadcasting Network. The network is expected to
begin operations in January 1995.
In February 1994, the Company acquired Macmillan Publishing Company
and certain other assets of Macmillan Inc. (Macmillan), a leading book
publisher, for approximately $553 million.
In September 1993, the Company purchased television station WKBD-TV
(WKBD) in Detroit from Cox Enterprises Inc. for approximately $105
million.
In May 1993, the Company purchased the remaining 80% it did not own
of Canada's Wonderland, Inc., later renamed Paramount Canada's
Wonderland, Inc., a Canadian theme park, for approximately $52
million.
During the periods ended June 30, 1994 and 1993, the Company also
acquired or sold certain other businesses. The contributions of these
businesses in the aggregate were not significant to the Company's
results of operations for the periods presented, nor are they expected
to have a material effect on the Company's results on a continuing
basis.
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PARAMOUNT COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D Inventories
Inventories are stated at lower of cost or net realizable value as
follows (in millions):
June 30, March 31,
1994 1994
---- ----
Current
Finished goods $ 275.7 $278.5
Work in process 17.8 19.2
Materials and supplies 32.2 31.7
------ ------
325.7 329.4
Theatrical and television productions
Released 232.2 226.0
Completed, not released 108.3 29.2
In process and other 36.4 46.3
------ ------
376.9 301.5
Broadcast rights. 55.7 68.3
------ ------
Total current 758.3 699.2
------ ------
Noncurrent
Theatrical and television productions
Released 136.8 130.4
In process and other 293.5 305.9
------ ------
430.3 436.3
Broadcast rights 109.1 136.8
------ ------
Total noncurrent 539.4 573.1
------ ------
Total $1,297.7 $1,272.3
======= ========
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - There were no reports on Form 8-K for
the three months ended June 30, 1994.
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<PAGE>
PARAMOUNT COMMUNICATIONS INC.
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.
PARAMOUNT COMMUNICATIONS INC.
Date: August 19, 1994 By: /s/ George S. Smith, Jr.
--------------------------------
George S. Smith, Jr.
Senior Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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