SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-9553
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VIACOM INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2949533
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1515 Broadway, New York, New York 10036
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 258-6000
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Number of shares of Common Stock Outstanding at October 31, 1997:
Class A Common Stock, par value $.01 per share - 69,535,552
Class B Common Stock, par value $.01 per share - 283,667,301
<PAGE>
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)
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues ................................................... $ 3,647.4 $ 3,266.4
Expenses:
Operating ................................................. 2,286.1 1,968.4
Selling, general and administrative ....................... 693.5 604.2
Depreciation and amortization ............................. 225.7 200.1
----------- -----------
Total expenses ....................................... 3,205.3 2,772.7
----------- -----------
Operating income ........................................... 442.1 493.7
Other income (expense):
Interest expense, net ..................................... (191.2) (193.7)
Other items, net .......................................... (2.3) 0.8
----------- -----------
Earnings from continuing operations before income taxes .... 248.6 300.8
Provision for income taxes ................................ (216.2) (185.8)
Equity in loss of affiliated companies, net of tax ........ (18.4) (5.7)
Minority interest ......................................... 4.4 (0.7)
----------- -----------
Earnings from continuing operations ........................ 18.4 108.6
Discontinued operations (Note 3):
Loss, net of tax of $5.3 (1996) ........................... -- (6.5)
Gain on dispositions ...................................... 415.9 1,304.3
----------- -----------
Net earnings ............................................... 434.3 1,406.4
Cumulative convertible preferred stock dividend requirement (15.0) (15.0)
----------- -----------
Net earnings attributable to common stock .................. $ 419.3 $ 1,391.4
=========== ===========
Weighted average number of common shares and common
share equivalents:
Primary ................................................... 353.6 364.0
Fully diluted ............................................. 371.0 381.4
Earnings per common share:
Primary:
Earnings from continuing operations (Note 1) ............. $ 0.01 $ 0.26
Net earnings ............................................. $ 1.19 $ 3.82
Fully diluted:
Earnings from continuing operations (Note 1) ............. $ 0.05 $ 0.28
Net earnings ............................................. $ 1.17 $ 3.69
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
Nine months ended
September 30,
---------------------
1997 1996
--------- ---------
Revenues ............................................. $ 9,596.0 $ 8,674.8
Expenses:
Operating ........................................... 6,503.1 5,352.7
Selling, general and administrative ................. 1,906.4 1,707.8
Depreciation and amortization ....................... 707.4 590.0
--------- ---------
Total expenses ..................................... 9,116.9 7,650.5
--------- ---------
Operating income ..................................... 479.1 1,024.3
Other income (expense):
Interest expense, net ............................... (593.0) (602.2)
Other items, net .................................... 62.7 1.8
--------- ---------
Earnings (loss) from continuing
operations before income taxes ...................... (51.2) 423.9
Provision for income taxes .......................... (102.4) (262.3)
Equity in loss of affiliated companies, net of tax .. (73.0) (9.3)
Minority interest ................................... 4.5 1.2
--------- ---------
Earnings (loss) from continuing operations ........... (222.1) 153.5
Discontinued operations (Note 3):
Earnings, net of tax of $10.6 (1997) and $13.0 (1996) 13.9 17.5
Gain on dispositions ................................ 428.8 1,304.3
--------- ---------
Net earnings ......................................... 220.6 1,475.3
Cumulative convertible preferred stock dividend
requirement ........................................ (45.0) (45.0)
--------- ---------
Net earnings attributable to common stock ............ $ 175.6 $ 1,430.3
========= =========
Weighted average number of common shares and common
share equivalents:
Primary ............................................. 354.0 371.6
Fully diluted ....................................... 354.1 388.9
Earnings (loss) per common share:
Primary:
Earnings (loss) from continuing operations (Note 1) $ (0.75) $ 0.29
Net earnings ....................................... $ 0.50 $ 3.85
Fully diluted:
Earnings (loss) from continuing operations (Note 1) $ (0.75) $ 0.39
Net earnings ....................................... $ 0.50 $ 3.79
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; all amounts, except per share amounts, are in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............................ $ 218.5 $ 209.0
Receivables, less allowances of $112.3 (1997)
and $101.3 (1996) ................................... 2,497.2 2,153.1
Inventory (Note 5) ................................... 2,441.3 2,342.4
Other current assets ................................. 751.8 723.8
Net assets of discontinued operations (Note 3) ....... 25.3 289.4
--------- ---------
Total current assets ................................ 5,934.1 5,717.7
--------- ---------
Property and equipment, at cost ....................... 4,228.5 3,889.7
Less accumulated depreciation ........................ 1,050.5 733.9
--------- ---------
Net property and equipment .......................... 3,178.0 3,155.8
--------- ---------
Inventory (Note 5) .................................... 2,623.5 2,619.4
Intangibles, at amortized cost ........................ 14,626.1 14,894.2
Other assets .......................................... 2,692.1 2,446.9
--------- ---------
$29,053.8 $28,834.0
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ..................................... $ 576.1 $ 808.8
Accrued compensation ................................. 387.1 425.7
Participants' share, residuals and royalties payable . 901.3 856.6
Current portion of long-term debt .................... 67.8 62.6
Other current liabilities ............................ 2,123.3 2,115.0
--------- ---------
Total current liabilities ........................... 4,055.6 4,268.7
--------- ---------
Long-term debt ........................................ 9,924.8 9,855.7
Other liabilities ..................................... 2,288.5 2,115.2
Commitments and contingencies (Note 7)
Shareholders' Equity:
Cumulative convertible preferred stock, par value $.01
per share; 200.0 shares authorized; 24.0 shares
issued and outstanding 1,200.0 1,200.0
Class A Common Stock, par value $.01 per share;
200.0 shares authorized; 69.5 (1997) and 69.4 (1996)
shares issued and outstanding ....................... 0.7 0.7
Class B Common Stock, par value $.01 per share;
1,000.0 shares authorized; 283.7 (1997) and
282.6 (1996) shares issued and outstanding .......... 2.9 2.9
Additional paid-in capital ........................... 10,280.6 10,242.1
Retained earnings .................................... 1,536.6 1,361.0
Net unrealized gain on investments available for sale 31.8 --
Cumulative translation adjustment .................... (38.2) 11.3
--------- ---------
13,014.4 12,818.0
Less treasury stock, at cost; 6.5 (1997) and 6.3
(1996) shares ....................................... 229.5 223.6
--------- ---------
Total shareholders' equity .......................... 12,784.9 12,594.4
--------- ---------
$29,053.8 $28,834.0
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
Nine months ended
-----------------
September 30,
-------------
1997 1996
-------- --------
Operating Activities:
Net earnings ............................................ $ 220.6 $1,475.3
Adjustments to reconcile net earnings to net cash
flow from operating activities:
Depreciation and amortization .......................... 707.4 607.9
Distribution from affiliated companies ................. 47.8 47.2
Gain on dispositions, net of tax ....................... (428.8) (1,304.3)
Gain on television stations swap ....................... (102.1) --
Equity in loss of affiliated companies ................. 73.0 9.3
Interest accretion on debt ............................. 13.3 13.4
Amortization of deferred financing costs ............... 11.7 9.9
Change in operating assets and liabilities:
Increase in receivables ............................... (349.9) (422.7)
Increase in inventory and related programming
liabilities, net ..................................... (26.9) (363.6)
Increase in pre-publication costs, net ................ (9.6) (26.4)
Increase in prepaid expenses and other current
assets ............................................... (72.0) (92.2)
Increase in unbilled receivables ...................... (82.4) (125.9)
Decrease in accounts payable and accrued
expenses ............................................. (324.5) (425.6)
Increase (decrease) in income taxes payable and
deferred income taxes, net ........................... (165.7) 45.9
Decrease in deferred income ........................... (90.8) (20.8)
Other, net ............................................ 104.3 (52.3)
-------- --------
Net cash flow from operating activities ................. (474.6) (624.9)
-------- --------
Investing Activities:
Capital expenditures ................................... (401.1) (363.3)
Investment in United Paramount Network ................. (211.0) --
Acquisitions, net of cash acquired ..................... (70.8) (166.9)
Proceeds from dispositions ............................. 1,111.9 1,742.3
Investments in and advances to affiliated companies .... (46.5) (77.1)
Proceeds from sales of short-term investments .......... 135.0 116.2
Purchases of short-term investments .................... (75.5) (119.6)
Other, net ............................................. 21.2 (.3)
-------- --------
Net cash flow from investing activities ................. 463.2 1,131.3
-------- --------
Financing Activities:
Short-term borrowings from (repayments to) banks, net .. 130.2 (549.5)
Payment of capital lease obligations ................... (80.9) (34.2)
Payment of cumulative convertible preferred stock
dividends ............................................ (45.0) (45.0)
Proceeds from exercise of stock options and warrants ... 36.3 90.9
Purchase of treasury stock and warrants ................ (9.8) (69.1)
Repayments of other notes .............................. -- (50.9)
Other, net ............................................. (9.9) (4.5)
-------- --------
Net cash flow from financing activities ................. 20.9 (662.3)
-------- --------
Net increase (decrease) in cash and cash equivalents ... 9.5 (155.9)
Cash and cash equivalents at beginning of the period ... 209.0 464.1
-------- --------
Cash and cash equivalents at end of period .............. $ 218.5 $ 308.2
-------- --------
Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized . $ 669.0 $ 657.4
Cash payments for income taxes ......................... 65.4 109.9
Non cash investing and financing activities:
Property and equipment acquired under capitalized leases $ 22.7 $ 104.7
Reduction of common shares outstanding from
split-off of discontinued operations .................. -- 625.8
See notes to consolidated financial statements.
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<PAGE>
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. In
accordance with Accounting Principles Board Opinion ("APB") 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", the Company has presented the following lines of business as
discontinued operations: Viacom Radio Stations, which the Company sold to
Evergreen Media Corporation for $1.075 billion in cash on July 2, 1997; its
interactive game businesses for which the Company has adopted a plan of
disposal, including Virgin Interactive Entertainment Limited ("Virgin"), a unit
of Spelling Entertainment Group Inc. ("Spelling"); and Viacom Cable, which was
split-off from the Company on July 31, 1996. (See Note 3).
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. The Statements of Operations for the third quarter
and nine months ended September 30, 1996 have been reclassified to conform with
the current year discontinued operations presentation.
In the opinion of management, the accompanying financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the financial position and results of operations and cash
flows of the Company for the periods presented. Certain previously reported
amounts have been reclassified to conform with the current presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Net earnings per common share -- Primary net earnings per common share is
calculated based on the weighted average number of common shares outstanding
during each period, and, if dilutive, the effects of common shares potentially
issuable in connection with stock options and warrants. For the third quarter
ended September 30, 1997 and the third quarter and nine months ended September
30, 1996, fully diluted earnings per share reflects the assumed conversion of
preferred stock which is dilutive to net earnings per common share. Fully
diluted earnings per share from continuing operations exceeds primary earnings
per share from continuing operations due to the assumed conversion of the
preferred stock.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, "Earnings per Share," which is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The Company does not expect this statement to have a material
impact on its earnings per share.
2) SUBSEQUENT EVENTS
On October 21, 1997, the Company completed the sale of its half-interest in USA
Networks, including the Sci-Fi Channel, to The Seagram Company, Ltd. for a total
of $1.7 billion in cash. The Company will record a pre-tax gain on the
transaction of approximately $1.1 billion in the fourth quarter of 1997. The net
proceeds from this transaction were used to repay debt.
On April 18, 1997, the Company announced its intention to acquire additional
shares of Spelling's outstanding common stock and increased the Company's
ownership to approximately 80%. During the period through November 11, 1997, the
Company acquired additional shares of Spelling's outstanding common stock
sufficient to meet this objective. The purchase of additional shares permits the
Company to consolidate Spelling's results for tax purposes. The Company has no
plans to increase its ownership beyond approximately 80%.
3) DISCONTINUED OPERATIONS
In accordance with APB 30, the Company has presented the following lines of
business as discontinued operations: Viacom Radio Stations, its interactive game
businesses including Virgin, and Viacom Cable.
On July 2, 1997, the Company completed the sale of Viacom Radio Stations to
Evergreen Media Corporation for $1.075 billion in cash. As a result of the sale,
the Company realized a gain on disposition of approximately $782.3 million, or
$415.9 million net of tax, in the third quarter of 1997.
The Company is continuing to pursue its plan to dispose of its interactive game
businesses and expects to complete a transaction in 1998. For the third quarter
and nine months ended September 30, 1997, revenues of the interactive game
businesses were $40.2 million and $128.4 million, respectively, and operating
losses were $24.4 million and $51.5 million, respectively. These losses were
provided for in the estimated loss on disposal of $159.3 million, which included
a provision for future operating losses of approximately $58.0 million, as of
December 31, 1996.
On July 31, 1996, the Company completed the split-off of its Cable segment
pursuant to an exchange offer and related transactions. As a result, the Company
realized a gain of $1.317 billion, reduced its debt and retired approximately
4.1% of the total outstanding common shares.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Results of discontinued operations:
Interactive Radio Cable Total
----------- ----- ----- -----
<S> <C> <C> <C> <C>
For the three months ended September 30, 1996
Revenues ...................................... $ 56.5 $ 29.1 $ -- $ 85.6
Earnings (loss) from operations before
income taxes ............................... (11.2) 9.0 -- (2.2)
Benefit (provision) for income taxes ......... (6.1) 0.8 -- (5.3)
Net earnings (loss) ........................... (16.2) 9.7 -- (6.5)
For the nine months ended September 30, 1997(1)
Revenues ...................................... $ -- $ 57.1 $ -- $ 57.1
Earnings from operations before
income taxes ............................... -- 24.5 -- 24.5
Provision for income taxes ................... -- (10.6) -- (10.6)
Net earnings .................................. -- 13.9 -- 13.9
For the nine months ended September 30, 1996
Revenues ...................................... $127.0 $ 83.9 $236.9 $447.8
Earnings (loss) from operations before
income taxes ............................... (47.5) 23.3 50.5 26.3
Benefit (provision) for income taxes .......... 16.7 (8.2) (21.5) (13.0)
Net earnings (loss) ........................... (25.8) 15.0 28.3 17.5
</TABLE>
(1) Results of operations of the interactive game businesses for the three and
nine months ended September 30, 1997 were provided for in the estimated
loss on disposal.
<TABLE>
<CAPTION>
Financial position: At September 30, 1997(2) At December 31, 1996(3)
------------------------ -----------------------
<S> <C> <C>
Current assets................................ $68.7 $217.8
Net property and equipment.................... 17.1 30.6
Other assets.................................. 185.1 526.3
Total liabilities............................. (245.6) (485.3)
------ ------
Net assets of discontinued operations......... $25.3 $289.4
====== ======
</TABLE>
(2) Financial position data reflects Interactive game businesses.
(3) Financial position data reflects Radio & Interactive game businesses.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
4) BLOCKBUSTER CHARGES
In the second quarter of 1997, Blockbuster recorded a pre-tax charge of $322.8
million (the "Blockbuster charge"). The Blockbuster charge consists of operating
expenses of approximately $247.5 million, associated with the reduction in the
carrying value of excess inventory and the reorganizing and closing of
underperforming Blockbuster stores in certain international markets as well as
depreciation expense attributable to the write-off of fixed assets of $45.9
million and write-offs attributable to international joint ventures accounted
for under the equity method of $29.4 million.
In 1996, Blockbuster adopted a plan to abandon certain Music retail stores,
relocate its headquarters and eliminate third party distributors domestically.
As a result of such plan, Blockbuster recognized during the fourth quarter of
1996 a restructuring charge of approximately $88.9 million principally
reflecting costs associated with the closing of approximately 10% or 50 of its
Music retail stores and costs associated with relocating Blockbuster's
headquarters from Fort Lauderdale to Dallas. As a result of the Music retail
store closings, Blockbuster recognized lease termination costs of $28.3 million
and accrued shut-down and other costs of $14.6 million as part of the
restructuring charge. Through September 30, 1997, the Company paid and charged
approximately $22.3 million against these liabilities. The Company expects to
substantially complete the activities related to the Music retail store closings
by the end of 1998.
In the fourth quarter of 1996, Blockbuster recognized $25 million of estimated
severance benefits payable to approximately 650 employees of its Fort Lauderdale
headquarters who had chosen not to relocate. Blockbuster, through the
restructuring charge, also recognized $21.0 million of other costs of exiting
Fort Lauderdale and eliminating third party distributors. The Company expects to
complete construction of the Blockbuster distribution center by the end of 1997.
Through September 30, 1997, the Company paid and charged against the severance
liability and other exit costs approximately $13.8 million. The Blockbuster
relocation to Dallas was completed during the second quarter of 1997.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
5) INVENTORIES
September 30, 1997 December 31, 1996
------------------ -----------------
Prerecorded music and videocassettes .. $ 599.3 $ 564.2
Videocassette rental inventory ........ 689.7 668.2
Publishing:
Finished goods ....................... 313.3 298.4
Work in process ...................... 38.7 33.9
Material and supplies ................ 34.9 14.5
Other ................................. 19.7 12.3
-------- --------
1,695.6 1,591.5
Less current portion ................. 1,005.9 923.3
-------- --------
$ 689.7 $ 668.2
-------- --------
Theatrical and television inventory:
Theatrical and television productions:
Released ............................ $1,772.2 $1,811.3
Completed, not released ............. 26.2 32.6
In process and other ................ 348.0 352.6
Program rights ....................... 1,222.8 1,173.8
-------- --------
3,369.2 3,370.3
Less current portion ................. 1,435.4 1,419.1
-------- --------
$1,933.8 $1,951.2
-------- --------
Total Current Inventory ............... $2,441.3 $2,342.4
======== ========
Total Non-Current Inventory ........... $2,623.5 $2,619.4
======== ========
6) LONG-TERM DEBT
Effective March 26, 1997, the Company and Viacom International Inc. entered into
amended and restated Credit Agreements of $6.4 billion (the "Viacom Credit
Agreement") and $100 million (the "Viacom International Credit Agreement",
together with the Viacom Credit Agreement, collectively the "Credit
Agreements").
On May 9, 1997, a subsidiary of the Company amended the 364-day film financing
credit agreement, guaranteed by Viacom International Inc. and the Company, which
extended the expiration date for one year, reduced pricing and decreased the
available credit by $30 million to $470 million.
Effective June 30, 1997, certain financial covenants in the Credit Agreements
and the film financing credit agreement were amended to provide the Company with
increased financial flexibility.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
As of September 30, 1997, the Company's scheduled maturities of indebtedness
through December 31, 2001, assuming full utilization of the Credit Agreements
are $54.3 million (1997), $1.1 billion (1998), $1.2 billion (1999), $1.7 billion
(2000) and $2.1 billion (2001). 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.
7) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1997, estimated to aggregate
approximately $2.1 billion, principally reflect commitments of approximately
$1.9 billion 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.
8) 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 85.7% for 1997 and 61.9% for 1996, were both adversely affected by
amortization of intangibles in excess of the amounts deductible for tax
purposes. Excluding the non-deductible amortization of intangibles, the
estimated annual effective tax rate would have been 38.4% for 1997 and 36.7% for
1996.
Due to the unusual and non-recurring nature of the second quarter Blockbuster
charge, its full income tax effect is reflected in the second quarter 1997 tax
provision and is excluded from the estimated annual effective tax rate. In
addition, the full income tax effect of the fourth quarter gain on the sale of
USA Networks will be reflected in the fourth quarter 1997 tax provision and is
also excluded from the estimated annual effective tax rate.
9) TREASURY STOCK
On September 5, 1996, the Company, together with NAI, initiated a joint purchase
program for each to acquire up to $250 million, or $500 million in total, of the
Company's Class A Common Stock, Class B Common Stock, and, as to the Company,
Viacom Warrants. As of September 30, 1997, the joint purchase program is
complete, with the Company having repurchased 659,700 shares of Class A Common
Stock, 5,816,300 shares of Class B Common Stock and 6,824,590 Viacom Five-Year
Warrants, expiring on July 7, 1999, for approximately $250.0 million in the
aggregate. The cost of the acquired treasury stock has been reflected separately
as a reduction to shareholders' equity. The cost of the acquired warrants has
been reflected as a reduction to additional paid-in capital and such warrants
have been canceled.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
As of September 30, 1997, NAI has separately acquired 1,282,200 shares of Class
A Common Stock and 5,602,000 shares of Class B Common Stock pursuant to the
joint purchase program for approximately $249.6 million, raising its ownership
to approximately 67% of Class A Common Stock and approximately 28% of Class A
and Class B Common Stock on a combined basis.
At September 30, 1997 and December 31, 1996, respectively, there were 11,521,945
and 12,889,316 outstanding Viacom Five-Year Warrants, expiring July 7, 1999 and
at December 31, 1996 there were 30,576,562 outstanding Viacom Three-Year
Warrants, which expired July 7, 1997. The decrease in the outstanding Viacom
Five-Year Warrants is attributable to the stock repurchase program.
10) 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 (in each case carrying investments in Non-Guarantor Affiliates
under the equity method), the direct and indirect Non-Guarantor Affiliates of
the Company, and the eliminations necessary to arrive at the information for the
Company on a consolidated basis.
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<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 6.8 $ 380.6 $3,268.4 $ (8.4) $3,647.4
Expenses:
Operating ............................. 6.0 118.7 2,169.8 (8.4) 2,286.1
Selling, general and administrative ... 0.7 135.5 557.3 -- 693.5
Depreciation and amortization ......... 0.8 17.3 207.6 -- 225.7
-------- -------- -------- -------- --------
Total expenses ................... 7.5 271.5 2,934.7 (8.4) 3,205.3
-------- -------- -------- -------- --------
Operating income (loss) ................... (0.7) 109.1 333.7 -- 442.1
Other expense:
Interest expense, net ................. (160.2) (12.3) (18.7) -- (191.2)
Other items, net ...................... -- (0.2) (2.1) -- (2.3)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes ................... (160.9) 96.6 312.9 -- 248.6
Benefit (provision) for income taxes .. 67.6 (40.6) (243.2) -- (216.2)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 527.6 56.1 (1.9) (600.2) (18.4)
Minority interest ..................... -- (0.3) 4.7 -- 4.4
-------- -------- -------- -------- --------
Earnings from continuing operations ....... 434.3 111.8 72.5 (600.2) 18.4
Discontinued operations:
Earnings, net of tax .................. -- -- -- -- --
Gain on dispositions .................. -- 415.9 -- -- 415.9
-------- -------- -------- -------- --------
Net earnings .............................. 434.3 527.7 72.5 (600.2) 434.3
Cumulative convertible preferred
stock dividend requirement .......... (15.0) -- -- -- (15.0)
-------- -------- -------- -------- --------
Net earnings attributable to common
stock ................................. $ 419.3 $ 527.7 $ 72.5 $ (600.2) $ 419.3
======== ======== ======== ======== ========
</TABLE>
-13-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ 15.1 $ 983.1 $8,617.5 $ (19.7) $9,596.0
Expenses:
Operating ............................. 12.0 326.5 6,184.3 (19.7) 6,503.1
Selling, general and administrative ... 1.2 362.8 1,542.4 -- 1,906.4
Depreciation and amortization ......... 1.4 49.2 656.8 -- 707.4
-------- -------- -------- -------- --------
Total expenses ................... 14.6 738.5 8,383.5 (19.7) 9,116.9
-------- -------- -------- -------- --------
Operating income .......................... 0.5 244.6 234.0 -- 479.1
Other income (expense):
Interest expense, net ................. (492.4) (44.8) (55.8) -- (593.0)
Other items, net ...................... -- (1.8) 64.5 -- 62.7
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes ................... (491.9) 198.0 242.7 -- (51.2)
Benefit (provision) for income taxes .. 206.6 (83.2) (225.8) -- (102.4)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 505.6 (39.4) (28.8) (510.4) (73.0)
Minority interest ..................... -- (1.3) 5.8 -- 4.5
-------- -------- -------- -------- --------
Earnings (loss) from continuing
operations ............................ 220.3 74.1 (6.1) (510.4) (222.1)
Discontinued operations:
Earnings, net of tax .................. 0.3 2.7 10.9 -- 13.9
Gain on dispositions .................. -- 428.8 -- -- 428.8
-------- -------- -------- -------- --------
Net earnings .............................. 220.6 505.6 4.8 (510.4) 220.6
Cumulative convertible preferred
stock dividend requirement .......... (45.0) -- -- -- (45.0)
-------- -------- -------- -------- --------
Net earnings attributable to
common stock .......................... $ 175.6 $ 505.6 $ 4.8 $ (510.4) $ 175.6
======== ======== ======== ======== ========
</TABLE>
-14-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ -- $ 326.8 $2,950.9 $ (11.3) $3,266.4
Expenses:
Operating ............................. -- 94.1 1,885.6 (11.3) 1,968.4
Selling, general and administrative ... (0.5) 129.2 475.5 -- 604.2
Depreciation and amortization ......... -- 15.8 184.3 -- 200.1
-------- -------- -------- -------- --------
Total expenses ................... (0.5) 239.1 2,545.4 (11.3) 2,772.7
-------- -------- -------- -------- --------
Operating income .......................... 0.5 87.7 405.5 -- 493.7
Other income (expense):
Interest expense, net ................. (139.8) (38.2) (15.7) -- (193.7)
Other items, net ...................... -- 0.2 0.6 -- 0.8
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes .................... (139.3) 49.7 390.4 -- 300.8
Benefit (provision) for income taxes .. 57.1 (22.4) (220.5) -- (185.8)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 1,487.3 152.3 9.1 (1,654.4) (5.7)
Minority interest ..................... -- (0.3) 4.1 (4.5) (0.7)
-------- -------- -------- -------- --------
Earnings from continuing operations ....... 1,405.1 179.3 183.1 (1,658.9) 108.6
Discontinued operations:
Earnings (loss), net of tax ........... 1.3 (6.1) (6.2) 4.5 (6.5)
Gain on dispositions .................. -- 1,304.3 -- -- 1,304.3
-------- -------- -------- -------- --------
Net earnings .............................. 1,406.4 1,477.5 176.9 (1,654.4) 1,406.4
Cumulative convertible preferred
stock dividend requirement .......... (15.0) -- -- -- (15.0)
-------- -------- -------- -------- --------
Net earnings attributable to common stock . $1,391.4 $1,477.5 $ 176.9 $(1,654.4) $1,391.4
======== ======== ======== ======== ========
</TABLE>
-15-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................. $ -- $ 840.1 $7,856.3 $ (21.6) $8,674.8
Expenses:
Operating ............................. -- 264.6 5,109.7 (21.6) 5,352.7
Selling, general and administrative ... (1.8) 348.3 1,361.3 -- 1,707.8
Depreciation and amortization ......... -- 42.9 547.1 -- 590.0
-------- -------- -------- -------- --------
Total expenses ................... (1.8) 655.8 7,018.1 (21.6) 7,650.5
-------- -------- -------- -------- --------
Operating income .......................... 1.8 184.3 838.2 -- 1,024.3
Other income (expense):
Interest expense, net ................. (452.3) (101.4) (48.5) -- (602.2)
Other items, net ...................... -- (2.9) 4.7 -- 1.8
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations
before income taxes ................... (450.5) 80.0 794.4 -- 423.9
Benefit (provision) for income taxes .. 184.7 (36.0) (411.0) -- (262.3)
Equity in earnings (loss) of affiliated
companies, net of tax ............... 1,739.0 262.1 31.2 (2,041.6) (9.3)
Minority interest ..................... -- (1.0) 6.7 (4.5) 1.2
-------- -------- -------- -------- --------
Earnings from continuing operations ....... 1,473.2 305.1 421.3 (2,046.1) 153.5
Discontinued operations:
Earnings (loss), net of tax ........... 2.1 (10.2) 21.1 4.5 17.5
Gain on dispositions .................. -- 1,304.3 -- -- 1,304.3
-------- -------- -------- -------- --------
Net earnings .............................. 1,475.3 1,599.2 442.4 (2,041.6) 1,475.3
Cumulative convertible preferred
stock dividend requirement .......... (45.0) -- -- -- (45.0)
-------- -------- -------- -------- --------
Net earnings attributable to
common stock .......................... $1,430.3 $1,599.2 $ 442.4 $(2,041.6) $1,430.3
======== ======== ======== ======== ========
</TABLE>
-16-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
September 30, 1997
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ............. $ 3.0 $ 57.4 $ 158.1 $ -- $ 218.5
Receivables, net ...................... 6.0 317.2 2,227.6 (53.6) 2,497.2
Inventory ............................. 13.0 150.2 2,278.1 -- 2,441.3
Other current assets .................. .5 98.0 653.3 -- 751.8
Net assets of discontinued
operations ......................... -- (11.9) 37.2 -- 25.3
--------- --------- --------- ---------- ---------
Total current assets ............... 22.5 610.9 5,354.3 (53.6) 5,934.1
--------- --------- --------- ---------- ---------
Property and equipment ..................... 9.9 460.1 3,758.5 -- 4,228.5
Less accumulated depreciation ......... 1.9 119.7 928.9 -- 1,050.5
--------- --------- --------- ---------- ---------
Net property and equipment ......... 8.0 340.4 2,829.6 -- 3,178.0
--------- --------- --------- ---------- ---------
Inventory .................................. 22.7 272.7 2,328.1 2,623.5
Intangibles, at amortized cost ............. 113.2 538.7 13,974.2 14,626.1
Investments in consolidated subsidiaries ... 8,053.9 10,836.7 -- (18,890.6) --
Other assets ............................... 83.2 251.3 2,337.5 20.1 2,692.1
--------- --------- --------- ---------- ---------
$ 8,303.5 $12,850.7 $26,823.7 $(18,924.1) $29,053.8
========= ========= ========= ========== =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ...................... $ -- $ 16.3 $ 593.8 $ (34.0) $ 576.1
Accrued compensation .................. -- 107.5 279.6 -- 387.1
Participants' share, residuals and
royalties payable ................. -- -- 901.3 -- 901.3
Current portion of long-term debt ..... -- 6.0 61.8 -- 67.8
Other current liabilities ............. 179.5 1,343.2 1,149.0 (548.4) 2,123.3
--------- --------- --------- ---------- ---------
Total current liabilities ........... 179.5 1,473.0 2,985.5 (582.4) 4,055.6
--------- --------- --------- ---------- ---------
Long-term debt ............................. 7,136.5 2,095.6 692.7 -- 9,924.8
Other liabilities .......................... (12,453.0) (4,438.9) 21,895.3 (2,714.9) 2,288.5
Shareholders' equity:
Cumulative convertible preferred stock. 1,200.0 -- -- -- 1,200.0
Common Stock .......................... 3.6 231.5 770.0 (1,001.5) 3.6
Additional paid-in capital ............ 10,280.6 8,987.5 1,048.1 (10,035.6) 10,280.6
Retained earnings ..................... 2,185.8 4,434.6 (494.1) (4,589.7) 1,536.6
Net unrealized gain on investments
available for sale .................. -- 30.8 1.0 -- 31.8
Cumulative translation adjustment ..... -- 36.6 (74.8) -- (38.2)
--------- --------- --------- ---------- ---------
13,670.0 13,721.0 1,250.2 (15,626.8) 13,014.4
Less treasury stock, at cost .......... 229.5 -- -- -- 229.5
--------- --------- --------- ---------- ---------
Total shareholders' equity .... 13,440.5 13,721.0 1,250.2 (15,626.8) 12,784.9
--------- --------- --------- ---------- ---------
$ 8,303.5 $12,850.7 $26,823.7 $(18,924.1) $29,053.8
========= ========= ========= ========== =========
</TABLE>
-17-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ......... $ 19.0 $ 61.2 $ 128.8 $ -- $ 209.0
Receivables, net .................. -- 308.6 1,878.1 (33.6) 2,153.1
Inventory ......................... -- 135.5 2,206.9 -- 2,342.4
Other current assets .............. -- 117.2 580.3 26.3 723.8
Net assets of discontinued
operations ..................... 47.3 41.3 200.8 -- 289.4
--------- --------- --------- --------- ---------
Total current assets ........... 66.3 663.8 4,994.9 (7.3) 5,717.7
--------- --------- --------- --------- ---------
Property and equipment ................. -- 458.1 3,431.6 -- 3,889.7
Less accumulated depreciation ..... -- 96.6 637.3 -- 733.9
--------- --------- --------- --------- ---------
Net property and equipment ..... -- 361.5 2,794.3 -- 3,155.8
--------- --------- --------- --------- ---------
Inventory .............................. -- 233.8 2,385.6 -- 2,619.4
Intangibles, at amortized cost ......... -- 550.0 14,344.2 -- 14,894.2
Investments in consolidated subsidiaries 7,536.8 10,773.2 -- (18,310.0) --
Other assets ........................... 74.2 313.3 2,107.6 (48.2) 2,446.9
--------- --------- --------- --------- ---------
$ 7,677.3 $12,895.6 $26,626.6 $(18,365.5) $28,834.0
========= ========= ========= ========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable .................. $ -- $ 40.3 $ 785.1 $ (16.6) $ 808.8
Accrued compensation .............. -- 118.8 308.4 (1.5) 425.7
Participants share, residuals and
royalties payable .............. -- -- 856.6 -- 856.6
Current portion of long-term debt . -- 7.3 55.3 -- 62.6
Other current liabilities ......... 282.2 1,227.3 1,174.3 (568.8) 2,115.0
--------- --------- --------- --------- ---------
Total current liabilities ....... 282.2 1,393.7 3,179.7 (586.9) 4,268.7
--------- --------- --------- --------- ---------
Long-term debt ......................... 6,844.0 2,159.0 952.7 (100.0) 9,855.7
Other liabilities ...................... (12,665.3) (3,711.5) 21,178.3 (2,686.3) 2,115.2
Shareholders' equity:
Cumulative convertible preferred
stock .......................... 1,200.0 -- -- -- 1,200.0
Common Stock ...................... 3.5 157.6 770.1 (927.6) 3.6
Additional paid-in capital ........ 10,226.9 8,944.0 1,056.7 (9,985.5) 10,242.1
Retained earnings ................. 2,009.6 3,917.5 (486.9) (4,079.2) 1,361.0
Cumulative translation adjustment . -- 35.3 (24.0) -- 11.3
--------- --------- --------- --------- ---------
13,440.0 13,054.4 1,315.9 (14,992.3) 12,818.0
Less treasury stock, at cost ...... 223.6 -- -- -- 223.6
--------- --------- --------- --------- ---------
Total shareholders' equity 13,216.4 13,054.4 1,315.9 (14,992.3) 12,594.4
--------- --------- --------- --------- ---------
$ 7,677.3 $12,895.6 $26,626.6 $(18,365.5) $28,834.0
========= ========= ========= ========= =========
</TABLE>
-18-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash flow from operating activities ....... $ 30.6 $ (213.1) $ (292.1) $ -- $ (474.6)
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures ....................... -- (14.1) (387.0) -- (401.1)
Investment in United Paramount Network ..... -- -- (211.0) -- (211.0)
Acquisitions, net of cash acquired ......... -- -- (70.8) -- (70.8)
Proceeds from dispositions ................. -- 1,111.9 -- -- 1,111.9
Investments in and advances to
affiliated companies .................... -- (31.6) (14.9) -- (46.5)
Proceeds from sale of short-term investments 135.0 -- -- 135.0
Purchases of short-term investments ........ (75.5) -- -- (75.5)
Other, net ................................. (9.0) (15.5) 45.7 -- 21.2
-------- -------- -------- -------- --------
Net cash flow from investing activities ....... (9.0) 1,110.2 (638.0) -- 463.2
-------- -------- -------- -------- --------
Financing Activities:
Short-term borrowings from (repayments to)
banks, net ............................... 256.2 (148.0) 22.0 -- 130.2
Payment of capital lease obligations ....... (18.8) (62.1) -- (80.9)
Payment of cumulative convertible preferred
stock dividends .......................... (45.0) -- -- -- (45.0)
Proceeds from exercise of stock options
and warrants ............................. 36.3 -- 36.3
Purchase of treasury stock & warrants ...... (9.8) -- -- -- (9.8)
Increase (decrease) in intercompany
payables ................................. (265.5) (734.0) 999.5 -- --
Other, net ................................. (9.8) (.1) -- -- (9.9)
-------- -------- -------- -------- --------
Net cash flow from financing activities ....... (37.6) (900.9) 959.4 -- 20.9
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents ..................... (16.0) (3.8) 29.3 -- 9.5
Cash and cash equivalents at beginning
of period ................................ 19.0 61.2 128.8 -- 209.0
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period .... $ 3.0 $ 57.4 $ 158.1 $ -- $ 218.5
======== ======== ======== ======== ========
</TABLE>
-19-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
-----------------------------------------------------------------
Non- The
Viacom Viacom Guarantor Company
Inc. International Affiliates Eliminations Consolidated
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash flow from operating activities ......... $1,656.3 $(1,440.7) $ (840.5) $ -- $ (624.9)
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures ........................ -- (71.1) (292.2) -- (363.3)
Acquisitions, net of cash acquired .......... -- -- (166.9) -- (166.9)
Proceeds from dispositions .................. -- 1,700.0 42.3 -- 1,742.3
Investments in and advances to
affiliated companies ...................... -- (60.0) (17.1) -- (77.1)
Proceeds from sale of short-term investments -- 116.2 -- -- 116.2
Purchases of short-term investments ......... -- (119.6) -- -- (119.6)
Other, net .................................. -- -- (.3) -- (.3)
-------- -------- -------- -------- --------
Net cash flow from investing activities ......... -- 1,565.5 (434.2) -- 1,131.3
-------- -------- -------- -------- --------
Financing Activities:
Short-term borrowings from (repayments
to) banks, net ............................ (1,000.3) 407.0 43.8 -- (549.5)
Payment of capital lease obligations ........ -- (1.1) (33.1) -- (34.2)
Payment of cumulative convertible preferred
stock dividends ........................... (45.0) -- -- -- (45.0)
Proceeds from exercise of stock options
and warrants .............................. 90.9 -- -- -- 90.9
Purchase of treasury stock .................. (69.1) -- -- -- (69.1)
Repayment of other notes .................... -- (12.0) (38.9) -- (50.9)
Increase (decrease) in intercompany
payables .................................. (657.0) (613.5) 1,270.5 -- --
Other, net .................................. (1.9) (2.6) -- -- (4.5)
-------- -------- -------- -------- --------
Net cash flow from financing activities ......... (1,682.4) (222.2) 1,242.3 -- (662.3)
-------- -------- -------- -------- --------
Net decrease in cash and
cash equivalents .......................... (26.1) (97.4) (32.4) -- (155.9)
Cash and cash equivalents at beginning
of period ................................. 47.4 223.3 193.4 -- 464.1
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period ...... $ 21.3 $ 125.9 $ 161.0 $ -- $ 308.2
======== ======== ======== ======== ========
</TABLE>
-20-
<PAGE>
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 nine months ended September 30, 1997 and
1996. Results for each period presented exclude contributions from Viacom Radio
Stations, which were sold to Evergreen Media Corporation on July 2, 1997; the
interactive game businesses for which the Company has adopted a plan of
disposal; and the Cable segment, which was split-off from the Company on July
31, 1996 (See Note 3 of Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1997 1996 Percent 1997 1996 Percent
---- ---- B/(W) ---- ---- B/(W)
(In millions) ----- (In millions) -----
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Networks and Broadcasting .. $ 681.2 $ 620.6 10% $1,883.5 $1,700.6 11%
Entertainment .............. 979.8 808.1 21 2,843.0 2,442.1 16
Video and Music/
Theme Parks ....... 1,161.2 1,070.8 8 3,173.8 2,878.5 10
Publishing ................. 859.8 785.4 9 1,794.0 1,690.9 6
Intercompany ............... (34.6) (18.5) (87) (98.3) (37.3) (164)
-------- -------- -------- --------
Total ............. $3,647.4 $3,266.4 12 $9,596.0 $8,674.8 11
======== ======== ======== ========
Operating income (loss): (a)
Networks and Broadcasting .. $ 201.3 $ 165.6 22% $ 493.5 $ 413.1 19%
Entertainment .............. 70.2 54.3 29 227.4 281.7 (19)
Video and Music/
Theme Parks ....... 32.7 131.6 (75) (247.2) 301.1 (182)
Publishing ................. 191.7 189.5 1 150.5 157.6 (5)
Corporate .................. (53.8) (47.3) (14) (145.1) (129.2) (12)
-------- -------- -------- --------
Total ............. $ 442.1 $ 493.7 (10) $ 479.1 $1,024.3 (53)
======== ======== ======== ========
</TABLE>
(a) Operating income is defined as net earnings before discontinued operations,
minority interest, equity in earnings (loss) of affiliated companies (net of
tax), provision for income taxes, other items (net), and interest expense, net.
-21-
<PAGE>
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 nine months ended
September 30, 1997 and 1996. 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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1997 1996 Percent 1997 1996 Percent
---- ---- B/(W) ---- ---- B/(W)
(In millions) ----- (In millions) -----
<S> <C> <C> <C> <C> <C> <C>
EBITDA:
Networks and Broadcasting $ 233.2 $ 197.0 18% $ 593.3 $ 502.3 18%
Entertainment ........... 103.1 86.0 20 325.2 376.5 (14)
Video and Music/
Theme Parks .... 145.4 231.1 (37) 126.4 588.1 (79)
Publishing .............. 231.3 223.1 4 268.2 266.7 1
Corporate ............... (45.2) (43.4) (4) (126.6) (119.3) (6)
-------- -------- -------- --------
Total .......... $ 667.8 $ 693.8 (4) $1,186.5 $1,614.3 (27)
======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Revenues increased 12% to $3.65 billion and 11% to $9.60 billion for the
three-and nine-month periods ended September 30, 1997, respectively, from $3.27
billion and $8.67 billion for the same prior-year periods. Revenue increases
were driven by the Entertainment segment which reported increased television
programming as well as domestic and foreign home video revenues, and the
Networks and Broadcasting segment which reported increased advertising and
affiliate revenues for each period.
Total expenses increased 16% to $3.21 billion and 19% to $9.12 billion for the
quarter and nine-month period ended September 30, 1997, respectively, from $2.77
billion and $7.65 billion for the same prior-year periods. Expenses reflect
normal increases associated with revenue growth. Additionally, Blockbuster
experienced increased rental tape amortization costs and higher expenses
attributable to the interim effects of the change in strategic emphasis back to
video rental from broad based retail. Expense increases for the nine months were
driven by Blockbuster reducing the carrying value of excess retail inventory and
reorganizing and closing underperforming stores in certain international markets
as well as normal increases associated with revenue growth.
Operating income decreased 10% to $442.1 million and 53% to $479.1 million for
the three-and nine-month periods ended September 30, 1997, respectively, from
operating income of $493.7 million and $1.02 billion for the same prior-year
periods. Operating results reflect $100 million of EBITDA in the first quarter
of 1996 from programming licenses related to Paramount's agreement with Kirch
Group, which more than offset $45 million of EBITDA for the first nine months of
1997 from programming licenses with Television Par Satellite. Results were also
affected by decreased Blockbuster Video margins due to increased expenses as
described above.
-22-
<PAGE>
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 and Television Stations)
Three months ended Nine months ended
September 30, September 30,
------------- Percent ------------- Percent
1997 1996 B/(W) 1997 1996 B/(W)
---- ---- ----- ---- ---- -----
(In millions) (In millions)
Revenues $681.2 $620.6 10% $1,883.5 $1,700.6 11%
Operating Income $201.3 $165.6 22 $ 493.5 $ 413.1 19
EBITDA $233.2 $197.0 18 $ 593.3 $ 502.3 18
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 and the Paramount Television Stations
Group ("PSG").
For the third quarter of 1997, MTVN revenues of $401.5 million, EBITDA of $175.1
million and operating income of $159.1 million increased 15%, 18% and 21%,
respectively, over the same three-month period last year. For the nine months
ended September 30, 1997, MTVN revenues of $1.04 billion, EBITDA of $416.7
million and operating income of $369.8 million increased 15%, 18% and 21%,
respectively, over the same nine-month period last year. The increase in MTVN
revenues principally reflects higher advertising and affiliate revenues.
Advertising revenue gains were driven by rate increases at Nickelodeon and
higher unit volume at MTV. MTVN's EBITDA and operating income gains were driven
by the increased revenues partially offset primarily by increased programming
and production expenses.
SNI's revenues decreased 3%, while EBITDA and operating income each increased
11% for the third quarter and for the nine months ended September 30, 1997,
revenues, EBITDA and operating income increased 3%, 18% and 4%, respectively,
versus the same prior-year periods. Revenue increases for the nine months are
principally due to an increase of approximately 2.0 million subscriptions over
the prior year to 17.6 million subscriptions at September 30, 1997. Operating
results reflect revenue increases attributable to the continued growth of direct
broadcasting satellite subscriptions and cost reductions associated with the
exit from the backyard dish retail business.
PSG's revenues, EBITDA and operating income increased 14%, 34% and 52%,
respectively, for the third quarter, and 9%, 19% and 27% for the nine months
ended September 30, 1997, respectively, over the same prior-year periods,
primarily reflecting increased advertising revenues and improved earnings for
the newer stations in the group.
-23-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
Entertainment (Motion Pictures and Television Programming, Movie Theaters, and
Music Publishing)
Three months ended Nine months ended
September 30, September 30,
------------- Percent ------------- Percent
1997 1996 B/(W) 1997 1996 B/(W)
---- ---- ----- ---- ---- -----
(In millions) (In millions)
Revenues $979.8 $808.1 21% $2,843.0 $2,442.1 16%
Operating Income $ 70.2 $ 54.3 29 $ 227.4 $ 281.7 (19)
EBITDA $103.1 $ 86.0 20 $ 325.2 $ 376.5 (14)
The Entertainment segment is principally comprised of Paramount Pictures,
Paramount Television and Spelling Entertainment Group Inc. ("Spelling").
Entertainment revenues for the three months ended September 30, 1997 were higher
than the same period last year principally reflecting higher revenues at
Paramount attributable to the domestic syndication of Frasier and the domestic
box office success of Face/Off and In & Out, partially offset by lower foreign
theatrical revenues, which did not match the contribution from Mission:
Impossible in 1996. For the third quarter of 1997, the increase in EBITDA was
primarily due to the domestic syndication of Frasier partially offset by lower
foreign theatrical revenues. Paramount's feature film and television production
operations posted revenues of $813.3 million and EBITDA of $103.3 million, up
26% and 35%, respectively. Spelling posted a $6.4 million loss before interest,
taxes, depreciation and amortization for the third quarter ended September 30,
1997 due principally to losses associated with its direct-to-video rental
titles, partially offset by the continuing success of new and established
television series. The home video market continues to be very competitive and it
is expected that this trend will continue in the near term. As a result, in the
third quarter of 1997, Spelling has ceased to acquire made-for-video titles
other than those to which it had previously made contractual commitments.
Entertainment's revenues for the nine months ended September 30, 1997 were
higher than the prior-year-period again principally due to the recognition of
domestic syndication revenues for Frasier, as well as higher revenues from
domestic and foreign home video led by titles including First Wives Club,
Mission: Impossible and Star Trek: First Contact, and from first run television
shows such as Paramount's Real TV and Viper. The decrease in EBITDA for the nine
months ended September 30, 1997 reflects approximately $45 million of EBITDA and
operating income from Paramount's programming licenses with Television Par
Satellite as compared with $100 million of EBITDA and operating income
attributable to Paramount's Kirch Group licensing agreement recognized in 1996.
Spelling's revenues of $423.4 million increased 25% and EBITDA of $1.9 million
decreased 76% for the nine months ended September 30, 1997, principally
reflecting higher per episode network license fees for continuing series and
increased hours of programming delivered to the networks, offset by write-downs
on Spelling's feature films, in the second quarter of 1997.
-24-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
Video and Music/Theme Parks (Home Video and Music Retailing/Theme Parks)
Three months ended Nine months ended
September 30, September 30,
------------- Percent ------------- Percent
1997 1996 B/(W) 1997 1996 B/(W)
---- ---- ----- ---- ---- -----
(In millions) (In millions)
Revenues $1,161.2 $1,070.8 8% $3,173.8 $2,878.5 10%
Operating Income
(loss) $ 32.7 $ 131.6 (75) $ (247.2) $ 301.1 (182)
EBITDA $ 145.4 $ 231.1 (37) $ 126.4 $ 588.1 (79)
The Video and Music/Theme Parks segment is comprised principally of Blockbuster
Video and Music, and Paramount Parks. The revenue increases for the quarter and
nine months ended September 30, 1997 reflect the increased number of
Company-owned video stores in operation in 1997 as compared to 1996 which more
than offset a 1.5% and 1.7% decrease in worldwide same-store sales for the third
quarter and nine months ended September 30, 1997, respectively. Blockbuster
Video, which added 121 stores in the third quarter of 1997, ended the quarter
with 5,941 stores, a net increase of 920 stores from September 30, 1996. The
decreases in EBITDA and operating income for the three- and nine-month periods
principally reflect the Blockbuster charge taken in the second quarter of 1997,
decreased margins due to expanded retail product mix and increased rental tape
amortization as well as higher expenses attributable to the interim effects of
the change in strategic emphasis back to video rental from broad based retail.
Blockbuster's margins for the remainder of the year could continue to be
adversely affected if the negative same-store sales trend experienced continues.
Music retail stores recorded revenues of $136.2 million and $418.2 million for
the third quarter and nine months ended September 30, 1997. Music retail stores
recorded operating losses of $9.7 million and $27.2 million for the three- and
nine-month periods.
Theme Parks revenues, operating income and EBITDA increased $3.4 million, $1.3
million and $1.9 million, respectively, for the third quarter, and revenues
increased $1.9 million while operating income and EBITDA decreased $4.1 million
and $2.4 million, respectively, for the nine months ended September 30, 1997,
respectively, from the same prior year periods. The revenue increases reflect
higher per capita spending, partially offset by decreased attendance.
-25-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
Publishing (Education; Consumer; Business and Professional; Reference; and
International Groups)
Three months ended Nine months ended
September 30, September 30,
------------- Percent ------------- Percent
1997 1996 B/(W) 1997 1996 B/(W)
---- ---- ----- ---- ---- -----
(In millions) (In millions)
Revenues $859.8 $785.4 9% $1,794.0 $1,690.9 6%
Operating Income $191.7 $189.5 1 $ 150.5 $ 157.6 (5)
EBITDA $231.3 $223.1 4 $ 268.2 $ 266.7 1
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 ended September 30, 1997 reflect higher
sales in the Consumer Group including such bestsellers as Clive Cussler's Flood
Tide, Frank McCourt's Pulitzer Prize-winning memoir Angela's Ashes and Judith
McNaught's Remember When. Revenues for both the third quarter and nine months
ended September 30, 1997 reflect growth in the International markets, driven by
strong sales from the Macmillan Computer Publishing Group in Europe and the
growth of local publishing in overseas markets. Education revenues also
increased principally due to strong sales of Higher Education summer releases
and the sale of distribution rights in the United Kingdom for products of
Computer Curriculum Corporation, the leading provider of educational
software and services to the school market. Publishing's operating income and
EBITDA increases from the prior-year quarter is primarily volume related growth
in Consumer, Higher Education, International and Macmillan Computer Publishing,
partially offset by declines in Elementary Education, attributable to lower than
historical market share.
Other Income and Expense Information
Discontinued operations
For the three months ended September 30, 1997, discontinued operations reflect a
gain from the sale of Viacom Radio Stations of approximately $416 million, net
of tax. For the nine months ended September 30, 1997, discontinued operations
principally reflect the results of operations, net of tax, of the Viacom Radio
Stations prior to disposal on July 2, 1997 and the realized gain of
approximately $416 million. The prior periods presented reflect the results of
operations, net of tax, of the Cable segment, the interactive game operations,
including Virgin, and the Viacom Radio Stations and the realized gain on the
Cable split-off.
The Company is continuing to pursue its plan to dispose of its interactive game
businesses and expects to complete a transaction in 1998. The net operating
losses of the interactive game businesses for the third quarter and nine months
ended September 30, 1997 were provided for in the estimated loss on disposal of
$159.3 million, which included a provision for future operating losses of
approximately $58.0 million, as of December 31, 1996. (see Note 3 of Notes to
Consolidated Financial Statements).
-26-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
Corporate expenses
Corporate expenses, including depreciation expense, increased 14% to $53.8
million for the third quarter of 1997 from the same prior year period and
increased 12% to $145.1 million for the nine months ended September 30, 1997
over the comparable nine month period principally reflecting increased general
and administrative and benefit expenses.
Interest expense, net
For the three-and nine-month period ended September 30, 1997, net interest
expense decreased 1% to $191.2 million and 2% to $593.0 million, respectively.
The Company had approximately $10.0 billion and $10.2 billion principal amount
of debt outstanding (including current maturities) as of September 30, 1997, and
September 30, 1996, respectively, at weighted average interest rates of 7.4% and
7.3%, respectively.
Other items, net
Other items, net of $62.7 million for the nine months ended September 30, 1997,
principally reflects a gain associated with the exchange of certain television
stations offset by the write-off of certain investments held at cost.
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 85.7% for 1997 and 61.9% for 1996 were both adversely affected by
amortization of intangibles in excess of amounts which are deductible for tax
purposes. Excluding the non-deductible amortization of intangibles, the
estimated annual effective tax rate would have been 38.4% for 1997 and 36.7% for
1996.
Due to the unusual and non-recurring nature of the second quarter Blockbuster
charge, its full income tax effect is reflected in the second quarter 1997 tax
provision and is excluded from the estimated annual effective tax rate. In
addition, the full income tax effect of the fourth quarter gain on the sale of
USA Networks will be reflected in the fourth quarter 1997 tax provision and is
also excluded from the estimated annual effective tax rate.
Equity in loss of affiliates
"Equity in loss of affiliated companies, net of tax" of $18.4 million and $73.0
million for the third quarter of 1997 and the nine months then ended increased
from a loss of $5.7 million and $9.3 million, respectively, for the prior-year
periods, primarily reflecting the net operating losses for the first nine months
of 1997 of United Paramount Network ("UPN"), acquired in January 1997, and
losses of international network ventures, partially offset by the realization of
a non-cash gain in the second quarter of 1997 related to an investment in a
marketable equity security.
Minority interest
Minority interest primarily represents the minority ownership of Spelling common
stock.
-27-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
Blockbuster Charges
In the second quarter of 1997, Blockbuster recorded a pre-tax charge of $322.8
million (the "Blockbuster charge"). The Blockbuster charge consists of operating
expenses of approximately $247.5 million, associated with the reduction in the
carrying value of excess inventory and the reorganizing and closing of
underperforming Blockbuster stores in certain international markets as well as
depreciation expense attributable to the write-off of fixed assets of $45.9
million and write-offs attributable to international joint ventures accounted
for under the equity method of $29.4 million.
In 1996, Blockbuster adopted a plan to abandon certain Music retail stores,
relocate its headquarters and eliminate third party distributors domestically.
As a result of such plan, Blockbuster recognized during the fourth quarter of
1996 a restructuring charge of approximately $88.9 million principally
reflecting costs associated with the closing of approximately 10% or 50 of its
Music retail stores and costs associated with relocating Blockbuster's
headquarters from Fort Lauderdale to Dallas. As a result of the Music retail
store closings, Blockbuster recognized lease termination costs of $28.3 million
and accrued shut-down and other costs of $14.6 million as part of the
restructuring charge. Through September 30, 1997, the Company paid and charged
approximately $22.3 million against these liabilities. The Company expects to
substantially complete the activities related to the Music retail store closings
by the end of 1998.
In the fourth quarter of 1996, Blockbuster recognized $25 million of estimated
severance benefits payable to approximately 650 employees of its Fort Lauderdale
headquarters who had chosen not to relocate. Blockbuster, through the
restructuring charge, also recognized $21.0 million of other costs of exiting
Fort Lauderdale and eliminating third party distributors. The Company expects to
complete construction of the Blockbuster distribution center by the end of 1997.
Through September 30, 1997, the Company paid and charged against the severance
liability and other exit costs approximately $13.8 million. The Blockbuster
relocation to Dallas was completed during the second quarter of 1997.
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 financing and the sale of non-strategic assets as
opportunities may arise.
Effective June 30, 1997, certain financial covenants in the Credit Agreements
and the film financing credit agreement were amended to provide the Company with
increased financial flexibility.
The Company was in compliance with all debt covenants and had satisfied all
financial ratios and tests under the agreements as of September 30, 1997 and the
Company expects to be in compliance and satisfy all such covenant ratios as may
be applicable from time to time during 1997.
-28-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
As of September 30, 1997, the Company's scheduled maturities of indebtedness
through December 31, 2001, assuming full utilization of the credit agreements
are $54.3 million (1997), $1.1 billion (1998), $1.2 billion (1999), $1.7 billion
(2000) and $2.1 billion (2001). 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.
On October 21, 1997, the Company completed the sale of its half-interest in USA
Networks, including the Sci-Fi Channel, to The Seagram Company, Ltd. for a total
of $1.7 billion in cash. The Company will record a pre-tax gain on the
transaction of approximately $1.1 billion in the fourth quarter of 1997. The net
proceeds from this transaction will be used to repay debt.
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of September 30, 1997, estimated to aggregate
approximately $2.1 billion, principally reflect commitments of approximately
$1.9 billion 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.
Current assets increased approximately 4% to $5.9 billion as of September 30,
1997 from $5.7 billion as of December 31, 1996, primarily reflecting normal
operating activity. The allowance for doubtful accounts as a percentage of
receivables was 4% and 5% as of September 30, 1997 and December 31, 1996,
respectively. The change in property and equipment principally reflects capital
expenditures of $401.1 million related to capital additions for new and existing
video stores and additional construction and equipment upgrades for theme parks
offset by depreciation expense of $389.0 million. Current liabilities decreased
approximately 5% to $4.1 billion as of September 30, 1997 from $4.3 billion as
of December 31, 1996, reflecting the payment of accrued compensation and other
normal reductions in accounts payable. Long-term debt, including current
maturities, increased less than 1% to $10.0 billion as of September 30, 1997
from $9.9 billion as of December 31, 1996, primarily reflecting the continued
investment in and seasonality of the Company's businesses.
Net cash flow from operating activities was negative $474.6 million for the nine
months ended September 30, 1997 versus negative $624.9 million for the nine
months ended September 30, 1996. The negative cash flow was primarily
attributable to the seasonality of the Company's segments, including receivable
increases due to volume growth at Publishing and higher domestic syndication
receivables for Paramount Pictures. Net cash flow from investing activities of
$463.2 million for the nine months ended September 30, 1997, principally reflect
the proceeds of $1.1 billion from the sale of Viacom Radio Stations partially
offset by capital expenditures and the Company's purchase of a 50% interest in
UPN. Net cash flow from investing activities of $1.1 billion for the nine months
ended September 30, 1996, principally reflect the proceeds of $1.7 billion from
the split-off of the Company's Cable systems, 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.
-29-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
On April 18, 1997, the Company announced its intention to acquire additional
shares of Spelling's outstanding common stock and increase the Company's
ownership to approximately 80%. During the period through November 11, 1997,
the Company acquired additional shares of Spelling's outstanding common stock
sufficient to meet this objective. The purchase of additional shares permits the
Company to consolidate Spelling's results for tax purposes. The Company has no
plans to increase its ownership beyond approximately 80%.
Capital Structure
The following table sets forth the Company's long-term debt, net of current
portion as of September 30, 1997 and December 31, 1996:
September 30, 1997 December 31, 1996
------------------ -----------------
(In millions)
Notes payable to banks ......... $5,382.9 $5,253.0
Senior debt .................... 2,485.8 2,484.4
Senior subordinated debt ....... 644.3 641.0
Subordinated debt .............. 968.6 960.0
Other notes .................... 9.0 8.7
-------- --------
9,490.6 9,347.1
Obligations under capital leases 502.0 571.2
-------- --------
Total debt outstanding ......... 9,992.6 9,918.3
Less current portion ........... 67.8 62.6
-------- --------
Total non-current debt ......... $9,924.8 $9,855.7
======== ========
The notes and debentures are presented net of an aggregate unamortized discount
of $153.3 million as of September 30, 1997 and $166.3 million as of December 31,
1996.
Effective March 26, 1997, the Company amended and restated the Credit
Agreements.
On May 9, 1997, a subsidiary of the Company amended the 364-day film financing
credit agreement, guaranteed by Viacom International Inc. and the Company, which
extended the expiration date for one year, reduced pricing and decreased the
available credit by $30 million to $470 million.
Effective June 30, 1997, certain financial covenants in the Credit Agreements
and the film financing agreement were amended to provide the Company with
increased financial flexibility.
Debt, including the current portion, as a percentage of total capitalization of
the Company was 44% at September 30, 1997 and at December 31, 1996.
-30-
<PAGE>
Management's Discussion and Analysis of Results
Of Operations and Financial Condition
The Company uses derivative financial instruments to reduce its exposure to
market risks from changes in foreign exchange rates and interest rates. These
contracts are not held or issued 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, the Spanish Peseta, the Italian Lire, the Danish Krona, the
New Zealand Dollar, the Taiwan Dollar, the Mexican Peso, the Netherlands Guilder
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 the Company 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 the Company to
repay, redeem, repurchase or satisfy its obligations in respect of its
outstanding indebtedness or other securities; to make loans to its subsidiaries;
for general corporate purposes; or for such other purposes as may be specified
in the applicable Prospectus Supplement. The Company filed a post-effective
amendment to this registration statement on November 19, 1996. To date, the
Company has issued $1.6 billion of notes and debentures and has $1.4 billion
remaining availability under the shelf registration statement.
-31-
<PAGE>
PART II - - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement re: Computation of Net Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K for Viacom Inc.
Current Report on Form 8-K of Viacom Inc. filed on September 22, 1997
relating to an agreement with The Seagram Company, Ltd. to resolve all
litigation regarding jointly-owned USA Networks.
-32-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIACOM INC.
-----------------------------------
(Registrant)
Date November 14, 1997 /s/ Sumner M. Redstone
--------------------------------- -----------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Date November 14, 1997 /s/ George S. Smith, Jr.
--------------------------------- -----------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-33-
<PAGE>
Exhibit Index
11 Statement re: Computation of Net Earnings Per Share.
27 Financial Data Schedule.
-34-
Exhibit 11
Viacom Inc. and Subsidiaries
Computation of Net Earnings Per Share
<TABLE>
<CAPTION>
Qtr. ended September 30, Nine months ended Sept. 30,
------------------------ ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
Earnings:
Earnings (loss) from continuing operations .... $ 18.4 $ 108.6 $ (222.1) $ 153.5
Cumulative convertible perferred stock
dividend requirement ........................ 15.0 15.0 45.0 45.0
--------- --------- --------- ---------
Earnings (loss) from continuing operations
attributable to common stock ................ 3.4 93.6 (267.1) 108.5
Earnings (loss) from discontinued operations,
net of tax .................................... -- (6.5) 13.9 17.5
Gain on dispositions .......................... 415.9 1,304.3 428.8 1,304.3
--------- --------- --------- ---------
Net earnings .................................. $ 419.3 $ 1,391.4 $ 175.6 $ 1,430.3
========= ========= ========= =========
Primary Computation:
Shares:
Weighted average number of
common shares outstanding ................ 353.0 361.6 352.7 367.8
Common shares potentially issuable in
connection with:
Stock options and warrants(a) ............ 0.6 2.4 1.3 3.8
--------- --------- --------- ---------
Weighted average common shares and common
share equivalents ........................ 353.6 364.0 354.0 371.6
========= ========= ========= =========
Net earnings per common share:
Earnings (loss) from continuing operations $ 0.01 $ .26 $ (0.75) $ 0.29
Earnings (loss) from discontinued
operations, net of tax.................... -- (.02) 0.04 0.05
Gain on dispositions ..................... 1.18 3.58 1.21 3.51
--------- --------- --------- ---------
Net earnings ............................. $ 1.19 $ 3.82 $ 0.50 $ 3.85
========= ========= ========= =========
Fully Diluted Computation:
Shares:
Weighted average number of common shares
outstanding .............................. 353.0 361.6 352.7 367.8
Common shares potentially issuable in
connection with:
Stock options and warrants(a) ............ 0.8 2.6 1.4 3.9
Preferred Stock (b) ...................... 17.2 17.2 -- 17.2
--------- --------- --------- ---------
Weighted average common shares and common
share equivalents ........................ 371.0 381.4 354.1 388.9
========= ========= ========= =========
Net earnings per common share:
Earnings (loss) from continuing operations .. $ 0.05 $ .28 $ (0.75) $ 0.39
Earnings (loss) from discontinued
operations, net of tax....................... -- (.01) 0.04 0.04
Gain on dispositions ........................ 1.12 3.42 1.21 3.36
--------- --------- --------- ---------
Net earnings ................................ $ 1.17 $ 3.69 $ 0.50 $ 3.79
========= ========= ========= =========
</TABLE>
(a) Common share equivalents had a dilutive effect on earnings from continuing
operations per share for the quarters ended September 30, 1997 and 1996
and the nine months ended September 30, 1996 and therefore were included
in the primary and fully diluted earnings per share computation. For the
nine months ended September 30, 1997 they had an anti-dilutive effect,
however, they were included in the primary and fully diluted earnings per
share computation as they had a dilutive effect on net earnings.
(b) For the nine months ended September 30, 1997, the assumed conversion of
preferred stock had an anti-dilutive effect on earnings per share,
resulting from the assumed reduction in Preferred Stock dividends, and
therefore was excluded from the fully diluted earnings per share
calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 219
<SECURITIES> 0
<RECEIVABLES> 2,609
<ALLOWANCES> 112
<INVENTORY> 2,441
<CURRENT-ASSETS> 5,934
<PP&E> 4,229
<DEPRECIATION> 1,051
<TOTAL-ASSETS> 29,054
<CURRENT-LIABILITIES> 4,056
<BONDS> 9,925
0
1,200
<COMMON> 4
<OTHER-SE> 11,581
<TOTAL-LIABILITY-AND-EQUITY> 29,054
<SALES> 9,596
<TOTAL-REVENUES> 9,596
<CGS> 6,503
<TOTAL-COSTS> 9,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593
<INCOME-PRETAX> (51)
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