<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------
Commission file number 1-9553
------
VIACOM INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2949533
- ---------------------------------------------------------------------------
(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 July 31, 1997:
Class A Common Stock, par value $.01 per share - 69,507,644
Class B Common Stock, par value $.01 per share - 283,390,393
<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
JUNE 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,030.9 $2,785.0
Expenses:
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,249.3 1,742.2
Selling, general and administrative . . . . . . . . . . . . . . . 654.9 570.5
Depreciation and amortization . . . . . . . . . . . . . . . . . . 263.5 197.4
-------- --------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 3,167.7 2,510.1
-------- --------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . (136.8) 274.9
Other income (expense):
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . (205.0) (206.4)
Other items, net. . . . . . . . . . . . . . . . . . . . . . . . . 64.7 1.5
-------- --------
Earnings (loss) from continuing operations before income taxes . . . (277.1) 70.0
Benefit (provision) for income taxes. . . . . . . . . . . . . . . 99.8 (41.9)
Equity in loss of affiliated companies, net of tax. . . . . . . . (39.4) (4.9)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . -- 2.3
-------- --------
Earnings (loss) from continuing operations. . . . . . . . . . . . . . (216.7) 25.5
Discontinued operations (Note 2):
Earnings, net of tax of $6.7 (1997) and $0.2 (1996) . . . . . . . 8.8 15.6
Gain on disposal. . . . . . . . . . . . . . . . . . . . . . . . . 12.9 --
-------- --------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (195.0) 41.1
Cumulative convertible preferred stock dividend requirement . . . (15.0) (15.0)
-------- --------
Net earnings (loss) attributable to common stock . . . . . . . . . . $ (210.0) $ 26.1
-------- --------
-------- --------
Weighted average number of common shares and common share
equivalents:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.7 376.0
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 352.7 376.0
Primary and fully diluted net earnings (loss) per common share:
Earnings (loss) from continuing operations. . . . . . . . . . . . $ (.66) $ .03
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . $ (.60) $ .07
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; all amounts, except per share amounts, are in millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,948.6 $5,408.4
Expenses:
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,217.0 3,384.3
Selling, general and administrative . . . . . . . . . . . . . . . 1,212.9 1,103.6
Depreciation and amortization . . . . . . . . . . . . . . . . . . 481.7 389.9
-------- --------
Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 5,911.6 4,877.8
-------- --------
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . 37.0 530.6
Other income (expense):
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . (401.8) (408.5)
Other items, net. . . . . . . . . . . . . . . . . . . . . . . . . 65.0 1.0
-------- --------
Earnings (loss) from continuing operations before income taxes. . . . (299.8) 123.1
Benefit (provision) for income taxes. . . . . . . . . . . . . . . 113.8 (76.5)
Equity in loss of affiliated companies, net of tax. . . . . . . . (54.6) (3.6)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . .1 1.9
-------- --------
Earnings (loss) from continuing operations. . . . . . . . . . . . . . (240.5) 44.9
Discontinued operations (Note 2):
Earnings, net of tax of $10.6 (1997) and $7.7 (1996). . . . . . . 13.9 24.0
Gain on disposal. . . . . . . . . . . . . . . . . . . . . . . . . 12.9 --
-------- --------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . (213.7) 68.9
Cumulative convertible preferred stock dividend requirement . . . (30.0) (30.0)
-------- --------
Net earnings (loss) attributable to common stock. . . . . . . . . . . $ (243.7) $38.9
-------- --------
-------- --------
Weighted average number of common shares and common
share equivalents:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.6 375.4
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 352.6 375.5
Primary and fully diluted net earnings (loss) per common share:
Earnings (loss) from continuing operations. . . . . . . . . . . . $ (.77) $ .04
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . $ (.69) $ .10
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; all amounts, except per share amounts, are in millions)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- --------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 201.6 $ 209.0
Receivables, less allowances of $113.8 (1997) and $101.3 (1996). 2,063.5 2,153.1
Inventory (Note 4) . . . . . . . . . . . . . . . . . . . . . . . 2,358.5 2,342.4
Other current assets . . . . . . . . . . . . . . . . . . . . . . 1,072.6 723.8
Net assets of discontinued operations (Note 2) . . . . . . . . . 299.7 289.4
--------- ---------
Total current assets. . . . . . . . . . . . . . . . . . . . . 5,995.9 5,717.7
--------- ---------
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . 4,151.0 3,889.7
Less accumulated depreciation. . . . . . . . . . . . . . . . . . 951.2 733.9
--------- ---------
Net property and equipment. . . . . . . . . . . . . . . . . . 3,199.8 3,155.8
--------- ---------
Inventory (Note 4). . . . . . . . . . . . . . . . . . . . . . . . . . 2,595.5 2,619.4
Intangibles, at amortized cost. . . . . . . . . . . . . . . . . . . . 14,734.7 14,894.2
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,671.3 2,446.9
--------- ---------
$29,197.2 $28,834.0
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 600.3 $ 808.8
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . 313.4 425.7
Participants' share, residuals and royalties payable . . . . . . 854.5 856.6
Current portion of long-term debt. . . . . . . . . . . . . . . . 62.9 62.6
Other current liabilities. . . . . . . . . . . . . . . . . . . . 2,057.8 2,115.0
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 3,888.9 4,268.7
--------- ---------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,820.1 9,855.7
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,136.9 2,115.2
Commitments and contingencies (Note 6)
Shareholders' Equity:
Preferred Stock, par value $.01 per share; 200.0 shares
authorized; 24.0 shares issued and outstanding. . . . . . . . 1,200.0 1,200.0
Class A Common Stock, par value $.01 per share;
200.0 shares authorized; 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; 283.4 (1997) and 282.6 (1996)
shares issued and outstanding . . . . . . . . . . . . . . . . 2.9 2.9
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 10,269.8 10,242.1
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 1,117.3 1,361.0
Net unrealized gain on investments available for sale. . . . . . 10.8 --
Cumulative translation adjustment. . . . . . . . . . . . . . . . (20.7) 11.3
--------- ---------
12,580.8 12,818.0
Less treasury stock, at cost; 6.5 shares (1997) and 6.3
shares (1996) . . . . . . . . . . . . . . . . . . . . . . . . 229.5 223.6
--------- ---------
Total shareholders' equity. . . . . . . . . . . . . . . . . . 12,351.3 12,594.4
--------- ---------
$29,197.2 $28,834.0
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; all amounts are in millions)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (213.7) $ 68.9
Adjustments to reconcile net earnings to net cash flow from operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 481.7 401.7
Distribution from affiliated companies . . . . . . . . . . . . . . . . . . . . . 31.3 34.5
Gain on television stations swap . . . . . . . . . . . . . . . . . . . . . . . . (102.1) --
Equity in loss (earnings) of affiliated companies . . . . . . . . . . . . . . . . 54.6 (5.4)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Decrease (increase) in receivables . . . . . . . . . . . . . . . . . . . . . 86.6 (99.7)
Increase in inventory and related programming liabilities, net . . . . . . . (101.4) (265.3)
Increase in pre-publication costs, net . . . . . . . . . . . . . . . . . . . . (30.2) (35.5)
Increase in prepaid expenses and other current assets . . . . . . . . . . . . (347.0) (122.8)
Decrease (increase) in unbilled receivables . . . . . . . . . . . . . . . . . 26.4 (56.8)
Decrease in accounts payable and accrued expenses . . . . . . . . . . . . . . (245.4) (483.3)
Decrease in deferred income . . . . . . . . . . . . . . . . . . . . . . . . . (94.7) (24.3)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.7 12.7
-------- -------
NET CASH FLOW FROM OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (382.2) (575.3)
-------- -------
INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (296.6) (305.8)
Investment in United Paramount Network . . . . . . . . . . . . . . . . . . . . . (186.9) --
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . (66.6) (116.5)
Investments in and advances to affiliated companies . . . . . . . . . . . . . . . (30.6) (39.6)
Proceeds from sales of short-term investments . . . . . . . . . . . . . . . . . . 50.3 70.3
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . (39.4) (76.1)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 3.4
-------- -------
NET CASH FLOW FROM INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . (555.0) (464.3)
-------- -------
FINANCING ACTIVITIES:
Short-term borrowings from banks, net . . . . . . . . . . . . . . . . . . . . . . 1,015.6 886.0
Payment of capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . (66.1) (22.6)
Proceeds from exercise of stock options and warrants. . . . . . . . . . . . . . . 27.8 68.8
Repayments of other notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (50.9)
Payments of Preferred Stock dividends . . . . . . . . . . . . . . . . . . . . . . (30.0) (30.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17.5) (1.1)
-------- -------
NET CASH FLOW FROM FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . 929.8 850.2
-------- -------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . (7.4) (189.4)
Cash and cash equivalents at beginning of the period . . . . . . . . . . . . . . 209.0 464.1
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 201.6 $ 274.7
-------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest, net of amounts capitalized . . . . . . . . . . . . . $ 424.0 $ 397.3
Cash payments for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 42.0 65.8
NON CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capitalized leases . . . . . . . . . . . . 8.6 55.7
</TABLE>
See notes to consolidated financial statements.
-5-
<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 businesses 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 operations including Virgin Interactive Entertainment Limited
("Virgin"), a unit of Spelling Entertainment Group Inc. ("Spelling"), for which
the Company has adopted a plan of disposal; and Viacom Cable, which was
split-off from the Company on July 31, 1996. (See Note 2).
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 second quarter
and six months ended June 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 each of the periods
presented, the effect of the assumed conversion of the Preferred Stock is
antidilutive and, therefore, is not reflected in fully diluted net earnings per
common share.
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.
-6-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
2) DISPOSITIONS
On February 19, 1997, the Board of Directors of Spelling, a majority owned
subsidiary of the Company, approved a formal plan to sell Virgin through a
public offering. On the same date, the Company adopted a plan to dispose of its
interactive game businesses, including Viacom New Media which is operated by
Virgin under a services agreement entered into during September 1996. The
disposition is expected to be completed by the end of 1997. Accordingly, such
interactive game operations have been accounted for as discontinued operations
and for the year ended December 31, 1996, the Company recorded a loss on the
disposal of $159.3 million, which included estimated losses through the expected
date of disposition of $58.0 million. For the second quarter and six months
ended June 30, 1997, revenues of the interactive game businesses were $41.6
million and $88.2 million, respectively, and operating losses were $14.5 million
and $27.1 million, respectively. The losses were provided for in the estimated
loss on disposal as of December 31, 1996.
On February 16, 1997, the Company entered into an agreement to sell the Viacom
Radio Stations to Evergreen Media Corporation for $1.075 billion in cash. As a
result of the sale which was completed July 2, 1997, the Company will record a
gain on discontinued operations of approximately $780 million, or approximately
$400 million net of tax, in the third quarter of 1997.
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. National Amusements,
Inc. ("NAI"), which owns approximately 28% of Viacom Inc. Class A and Class B
Common Stock on a combined basis, did not participate in the exchange offer.
The gain on disposal of $12.9 million for the three and six months ended June
30, 1997 represents the reversal of Cable split-off reserves that were no longer
required.
RESULTS OF DISCONTINUED OPERATIONS:
<TABLE>
<CAPTION>
INTERACTIVE RADIO CABLE TOTAL
----------- ----- ----- -----
<S> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1997
Revenues. . . . . . . . . . . . . . . . $ -- $32.0 $ -- $ 32.0
Earnings from operations before
income taxes. . . . . . . . . . . . . . -- 15.5 -- 15.5
Benefit (provision) for income taxes. . -- (6.7) -- (6.7)
Net earnings. . . . . . . . . . . . . . -- 8.8 -- 8.8
FOR THE THREE MONTHS ENDED JUNE 30, 1996
Revenues. . . . . . . . . . . . . . . . $31.4 $30.6 $120.1 $182.1
Earnings (loss) from operations before
income taxes. . . . . . . . . . . . . (22.6) 9.6 26.6 13.6
Benefit (provision) for income taxes. . 14.6 (6.2) (8.6) (0.2)
Net earnings (loss) . . . . . . . . . . (5.6) 3.4 17.8 15.6
</TABLE>
-7-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERACTIVE RADIO CABLE TOTAL
----------- ----- ----- -----
<S> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
Revenues . . . . . . . . . . . . . . . . . . $ -- $ 57.1 $ -- $ 57.1
Earnings from operations before
income taxes . . . . . . . . . . . . . . . -- 24.5 -- 24.5
Benefit (provision) for income taxes . . . . -- (10.6) -- (10.6)
Net earnings . . . . . . . . . . . . . . . -- 13.9 -- 13.9
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Revenues . . . . . . . . . . . . . . . . . . $ 70.5 $ 54.8 $236.9 $362.2
Earnings (loss) from operations before
income taxes . . . . . . . . . . . . . . . (36.3) 14.3 50.5 28.5
Benefit (provision) for income taxes . . . . 22.8 (9.0) (21.5) (7.7)
Net earnings (loss) . . . . . . . . . . . . (9.6) 5.3 28.3 24.0
<CAPTION>
FINANCIAL POSITION (1): AT JUNE 30, 1997 AT DECEMBER 31, 1996
---------------- --------------------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . $ 108.7 $ 217.8
Net property and equipment . . . . . . . . . 29.1 30.6
Other assets . . . . . . . . . . . . . . . 440.8 526.3
Total liabilities . . . . . . . . . . . . . (278.9) (485.3)
Net assets of discontinued operations . . . $ 299.7 $ 289.4
</TABLE>
(1) Financial position data reflects Radio and Interactive at June 30, 1997 and
at December 31, 1996.
3) 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 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 June 30, 1997, the Company paid and
charged approximately $18.7 million against these liabilities. The Company
expects to substantially complete the activities related to the Music store
closings by the end of 1998.
-8-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
In the fourth quarter of 1996, Blockbuster recognized $25 million of estimated
severance benefits payable to approximately 650 of its Fort Lauderdale
headquarters employees who have 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 distribution center by the end of 1997.
Through June 30, 1997, the Company paid and charged against the severance
liability and other exit costs approximately $7.3 million. The Blockbuster
relocation to Dallas was completed during the second quarter of 1997.
4) INVENTORIES
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
Prerecorded music and videocassettes. . . $ 539.7 $ 564.2
Videocassette rental inventory. . . . . . 695.8 668.2
Publishing:
Finished goods . . . . . . . . . . . 347.7 298.4
Work in process. . . . . . . . . . . 32.7 33.9
Material and supplies. . . . . . . . 12.7 14.5
Other . . . . . . . . . . . . . . . . . . 20.8 12.3
-------- --------
1,649.4 1,591.5
-------- --------
Less current portion . . . . . . . . 953.6 923.3
-------- --------
$695.8 $668.2
-------- --------
-------- --------
Theatrical and television inventory:
Theatrical and television productions:
Released. . . . . . . . . . . . $1,765.0 $1,811.3
Completed, not released . . . . 10.8 32.6
In process and other. . . . . . 384.8 352.6
Program rights . . . . . . . . . . . 1,144.0 1,173.8
-------- --------
3,304.6 3,370.3
Less current portion . . . . . . . . 1,404.9 1,419.1
-------- --------
$1,899.7 $1,951.2
-------- --------
Total non-current inventory . . . . . . . $2,595.5 $2,619.4
-------- --------
-------- --------
5) 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").
-9-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
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.
As of June 30, 1997, the Company's scheduled maturities of indebtedness through
December 31, 2001, assuming full utilization of the Credit Agreements are $54.5
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.
6) COMMITMENTS AND CONTINGENCIES
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of June 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.
7) 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 70.9% for 1997 and 62.2% for 1996, were both adversely affected by
amortization of intangibles in excess of the amounts deductible for tax
purposes.
Due to the unusual and non-recurring nature of the Blockbuster charge, the full
income tax effect is reflected in the second quarter 1997 tax provision and is
excluded from the estimated annual effective tax rate.
-10-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
8) 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 June 30, 1997, the Company 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. As of June 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 June 30, 1997 and December 31, 1996, respectively, there were 30,585,256 and
30,576,562 outstanding Viacom Three-Year Warrants, which expired July 7, 1997,
and there were 11,520,333 and 12,889,316 outstanding Viacom Five-Year Warrants,
expiring July 7, 1999. The decrease in the outstanding Viacom Five-Year
Warrants is attributable to the stock repurchase program.
9) 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.
-11-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
---- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . . . $ 8.3 $ 311.3 $2,717.6 $ (6.3) $3,030.9
Expenses:
Operating. . . . . . . . . . . . . . . 6.0 108.1 2,141.5 (6.3) 2,249.3
Selling, general and administrative. .3 119.4 535.2 -- 654.9
Depreciation and amortization. . . . . .6 16.4 246.5 -- 263.5
------- ------- -------- ------ --------
Total expenses. . . . . . . . . . 6.9 243.9 2,923.2 (6.3) 3,167.7
------- ------- -------- ------ --------
Operating income (loss) . . . . . . . . . 1.4 67.4 (205.6) -- (136.8)
Other income (expense):
Interest expense, net . . . . . . . . (171.9) (15.2) (17.9) -- (205.0)
Other items, net . . . . . . . . . . . -- (1.0) 65.7 -- 64.7
------- ------- -------- ------ --------
Earnings (loss) from continuing operations
before income taxes. . . . . . . . . . (170.5) 51.2 (157.8) -- (277.1)
Benefit (provision) for income taxes . 78.0 (21.6) 43.4 -- 99.8
Equity in earnings (loss) of affiliated
companies, net of tax. . . . . . . . (102.5) (146.1) (21.7) 230.9 (39.4)
Minority interest. . . . . . . . . . . -- (.7) .7 -- --
------- ------- -------- ------ --------
Earnings (loss) from continuing
operations . . . . . . . . . . . . . . (195.0) (117.2) (135.4) 230.9 (216.7)
Discontinued operations:
Earnings, net of tax . . . . . . . . . -- 1.6 7.2 -- 8.8
Gain on disposal . . . . . . . . . . . -- 12.9 -- -- 12.9
------- ------- -------- ------ --------
Net earnings (loss) . . . . . . . . . . . (195.0) (102.7) (128.2) 230.9 (195.0)
Cumulative convertible preferred
stock dividend requirement . . . . . (15.0) -- -- -- (15.0)
------- ------- -------- ------ --------
Net earnings (loss) attributable to
common stock . . . . . . . . . . . . . $(210.0) $(102.7) $ (128.2) $230.9 $ (210.0)
------- ------- -------- ------ --------
------- ------- -------- ------ --------
</TABLE>
-12-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 8.3 $ 602.5 $5,349.1 $(11.3) $5,948.6
Expenses:
Operating ................................ 6.0 207.8 4,014.5 (11.3) 4,217.0
Selling, general and administrative ...... .5 227.3 985.1 -- 1,212.9
Depreciation and amortization............. .6 31.9 449.2 -- 481.7
------- ------- ------- ------ -------
Total expenses ...................... 7.1 467.0 5,448.8 (11.3) 5,911.6
------- ------- -------- ------- --------
Operating income (loss) ................... 1.2 135.5 (99.7) -- 37.0
Other income (expense):
Interest expense, net ................... (332.2) (32.5) (37.1) -- (401.8)
Other items, net ........................ -- (1.6) 66.6 -- 65.0
------ ------- -------- ------- --------
Earnings (loss) from continuing operations
before income taxes...................... (331.0) 101.4 (70.2) -- (299.8)
Benefit (provision) for income taxes..... 139.0 (42.6) 17.4 -- 113.8
Equity in earnings (loss) of affiliated
companies, net of tax ................. (22.0) (95.5) (26.9) 89.8 (54.6)
Minority interest ....................... -- (1.0) 1.1 -- .1
------ ------- -------- ------- --------
Earnings (loss) from continuing
operations ............................. (214.0) (37.7) (78.6) 89.8 (240.5)
Discontinued operations:
Earnings, net of tax ................... .3 2.7 10.9 -- 13.9
Gains on disposal ...................... -- 12.9 -- -- 12.9
------- ------- -------- ------- -------
Net earnings (loss)........................ (213.7) (22.1) (67.7) 89.8 (213.7)
Cumulative convertible preferred
stock dividend requirement............. (30.0) -- -- -- (30.0)
------- ------- -------- ------- --------
Net earnings (loss) attributable to
common stock ........................... $ (243.7) $ (22.1) $ (67.7) $ 89.8 $ (243.7)
======== ========= ========= ========= ==========
</TABLE>
-13-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
-----------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ -- $ 267.5 $ 2,525.0 $ (7.5) $ 2,785.0
Expenses:
Operating....................................... -- 85.2 1,664.5 (7.5) 1,742.2
Selling, general and administrative............. (.5) 107.5 463.5 -- 570.5
Depreciation and amortization................... -- 14.3 183.1 -- 197.4
--------- ------ ----------- ------------ ------------
Total expenses................................ (.5) 207.0 2,311.1 (7.5) 2,510.1
--------- ------ ----------- ------------ ------------
Operating income.................................. .5 60.5 213.9 -- 274.9
Other income (expense):
Interest expense, net........................... (155.5) (32.7) (18.2) -- (206.4)
Other items, net................................ -- (3.0) 4.5 -- 1.5
--------- ------ ----------- ------------ ------------
Earning (loss) from continuing operations before
income taxes..................................... (155.0) 24.8 200.2 -- 70.0
Benefit (provision) for income taxes............ 63.6 (11.1) (94.4) -- (41.9)
Equity in earning (loss) of affiliated
companies, net of tax........................... 132.1 86.9 16.4 (240.3) (4.9)
Minority interest............................... -- (0.4) 2.7 -- 2.3
--------- ------ ----------- ------------ ------------
Earnings from continuing operations............... 40.7 100.2 124.9 (240.3) 25.5
Discontinued operations:
Earnings, net of tax............................ .4 (2.6) 17.8 -- 15.6
--------- ------ ----------- ------------ ------------
Net earnings...................................... 41.1 97.6 142.7 (240.3) 41.1
Cumulative convertible preferred stock dividend
requirement..................................... (15.0) -- -- -- (15.0)
--------- ------ ----------- ------------ ------------
Net earnings attributable to common stock......... $ 26.1 $ 97.6 142.7 $ (240.3) $ 26.1
--------- ------ ----------- ------------ ------------
--------- ------ ----------- ------------ ------------
</TABLE>
-14-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------------------------
NON- THE
VIACOM VIACOM GUARANTOR COMPANY
INC. INTERNATIONAL AFFILIATES ELIMINATIONS CONSOLIDATED
--------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ -- $ 513.3 $ 4,905.4 $ (10.3) $ 5,408.4
Expenses:
Operating................................ -- 170.5 3,224.1 (10.3) 3,384.3
Selling, general and administrative...... (1.3) 219.1 885.8 -- 1,103.6
Depreciation and amortization............ -- 27.1 362.8 -- 389.9
-------- -------- --------- -------- --------
Total expenses....................... (1.3) 416.7 4,472.7 (10.3) 4,877.8
-------- -------- --------- -------- --------
Operating income........................... 1.3 96.6 432.7 -- 530.6
Other income (expenses):
Interest expense, net.................... (312.5) (63.2) (32.8) -- (408.5)
Other items, net......................... -- (3.1) 4.1 -- 1.0
-------- -------- --------- -------- --------
Earnings (loss) from continuing operations
before income taxes...................... (311.2) 30.3 404.0 -- 123.1
Benefit (provision) for income taxes..... 127.6 (13.6) (190.5) -- (76.5)
Equity in earnings (loss) of affiliated
companies, net of tax.................. 251.7 109.8 22.1 (387.2) (3.6)
Minority interest........................ -- (0.7) 2.6 -- 1.9
-------- -------- --------- -------- --------
Earnings from continuing operations........ 68.1 125.8 238.2 (387.2) 44.9
Discontinued operations:
Earnings, net of tax....................... .8 (4.1) 27.3 -- 24.0
-------- -------- --------- -------- --------
Net earnings............................... 68.9 121.7 265.5 (387.2) 68.9
Cumulative convertible preferred
stock dividend requirement............. (30.0) -- -- -- (30.0)
-------- -------- --------- -------- --------
Net earnings attributable to
common stock............................. $ 38.9 $ 121.7 $ 265.5 $ (387.2) $ 38.9
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
</TABLE>
-15-
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 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. . . . . . $ -- $ 33.8 $ 167.8 $ -- $ 201.6
Receivables, net . . . . . . . . . . 7.8 231.3 1,869.7 (45.3) 2,063.5
Inventory. . . . . . . . . . . . . . 8.5 129.2 2,220.8 -- 2,358.5
Other current assets . . . . . . . . 1.5 116.7 704.9 249.5 1,072.6
Net assets of discontinued
operations . . . . . . . . . . . . . -- 193.8 105.9 -- 299.7
--------- --------- --------- ---------- ---------
Total current assets . . . . . . . . 17.8 704.8 5,069.1 204.2 5,995.9
Property and equipment. . . . . . . . . . 9.8 454.8 3,686.4 -- 4,151.0
Less accumulated depreciation. . . . 1.7 107.9 841.6 -- 951.2
--------- --------- --------- ---------- ---------
Net property and equipment . . . . . 8.1 346.9 2,844.8 -- 3,199.8
--------- --------- --------- ---------- ---------
Inventory . . . . . . . . . . . . . . . . 13.3 261.9 2,320.3 -- 2,595.5
Intangibles, at amortized cost. . . . . . 113.9 541.4 14,079.4 -- 14,734.7
Investments in consolidated subsidiaries. 7,027.1 10,670.2 -- (17,697.3) --
Other assets. . . . . . . . . . . . . . . 83.3 310.0 2,369.6 (91.6) 2,671.3
--------- --------- --------- ---------- ---------
$ 7,263.5 $12,835.2 $26,683.2 $(17,584.7) $29,197.2
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . $ -- $13.8 $613.3 $(26.8) $600.3
Accrued compensation . . . . . . . . -- 71.2 238.7 3.5 313.4
Participants' share, residuals and
royalties payable. . . . . . . . . . -- -- 854.5 -- 854.5
Current portion of long-term debt. . -- 5.7 57.2 -- 62.9
Accrued expenses and other . . . . . 175.6 1,094.5 1,097.7 (310.0) 2,057.8
--------- --------- --------- ---------- ---------
Total current liabilities. . . . . . 175.6 1,185.2 2,861.4 (333.3) 3,888.9
--------- --------- --------- ---------- ---------
Long-term debt. . . . . . . . . . . . . . 7,999.7 2,095.9 824.5 (100.0) 10,820.1
Other liabilities . . . . . . . . . . . . (17,352.2) (3,094.0) 21,807.1 776.0 2,136.9
Shareholders' equity:
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 . . . . . 10,269.8 8,958.7 1,046.8 (10,005.5) 10,269.8
Retained earnings. . . . . . . . . . 5,196.5 3,407.9 (566.7) (6,920.4) 1,117.3
Net unrealized gain on investments
available for sale . . . . . . . . . -- 10.8 -- -- 10.8
Cumulative translation adjustment. . -- 39.2 (59.9) -- (20.7)
--------- --------- --------- ---------- ---------
16,669.9 12,648.1 1,190.2 (17,927.4) 12,580.8
Less treasury stock, at cost . . . . 229.5 -- -- -- 229.5
--------- --------- --------- ---------- ---------
Total shareholders' equity . . . . . 16,440.4 12,648.1 1,190.2 (17,927.4) 12,351.3
--------- --------- --------- ---------- ---------
$ 7,263.5 $12,835.2 $26,683.2 $(17,584.7) $29,197.2
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
-16-
</TABLE>
<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
Accrued expenses and other . . . 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:
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
--------- --------- --------- ---------- ---------
--------- --------- --------- ---------- ---------
-17-
</TABLE>
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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. . . . . . $ (215.9) $ 115.2 $(270.1) $(11.4) $ (382.2)
--------- ------- ------- ------ --------
INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . -- (46.1) (250.5) -- (296.6)
Investment in United Paramount Network. . . . -- -- (186.9) -- (186.9)
Acquisitions, net of cash acquired. . . . . . -- -- (66.6) -- (66.6)
Investments in and advances to
affiliated companies. . . . . . . . . . . . . -- (21.2) (9.4) -- (30.6)
Proceeds from sale of short-term investments. -- 50.3 -- -- 50.3
Purchases of short-term investments . . . . . -- (39.4) -- -- (39.4)
Other, net. . . . . . . . . . . . . . . . . . -- -- 14.8 -- 14.8
--------- ------- ------- ------ --------
NET CASH FLOW FROM INVESTING ACTIVITIES. . . . . . -- (56.4) (498.6) -- (555.0)
--------- ------- ------- ------ --------
FINANCING ACTIVITIES:
Short-term borrowings from banks, net . . . . 1,141.4 (148.0) 22.2 -- 1,015.6
Payment of capital lease obligations. . . . . -- (17.5) (48.6) -- (66.1)
Proceeds from exercise of stock options
and warrants. . . . . . . . . . . . . . . . . 27.8 -- -- -- 27.8
Increase (decrease) in intercompany
payables. . . . . . . . . . . . . . . . . . . (927.0) 81.5 834.1 11.4 --
Payment of Preferred Stock dividends. . . . . (30.0) -- -- -- (30.0)
Other, net. . . . . . . . . . . . . . . . . . (15.3) (2.2) -- -- (17.5)
--------- ------- ------- ------ --------
NET CASH FLOW FROM FINANCING ACTIVITIES. . . . . . 196.9 (86.2) 807.7 11.4 929.8
--------- ------- ------- ------ --------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . . . . (19.0) (27.4) 39.0 -- (7.4)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . . 19.0 61.2 128.8 -- 209.0
--------- ------- ------- ------ --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . $ -- $ 33.8 $ 167.8 $ -- $ 201.6
--------- ------- ------- ------ --------
--------- ------- ------- ------ --------
-18-
</TABLE>
<PAGE>
VIACOM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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 . . $(122.6) $(54.6) $(398.1) $-- $(575.3)
------- ------ ------- --- -------
INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . (126.5) (49.8) (129.5) -- (305.8)
Acquisitions, net of cash acquired . . . (50.2) -- (66.3) -- (116.5)
Proceeds from dispositions . . . . . . . -- -- 3.4 -- 3.4
Investments in and advances to
affiliated companies . . . . . . . . . (7.6) (13.9) (18.1) -- (39.6)
Proceeds from sale of short-term
investments . . . . . . . . . . . . . . -- 70.3 -- -- 70.3
Purchases of short-term investments . . -- (76.1) -- -- (76.1)
------- ------ ------- --- -------
NET CASH FLOW FROM INVESTING ACTIVITIES . . . (184.3) (69.5) (210.5) -- (464.3)
------- ------ ------- --- -------
FINANCING ACTIVITIES:
Short-term borrowings from
to banks, net . . . . . . . . . . . . . 360.4 500.0 25.6 -- 886.0
Payment of capital lease obligations . . -- -- (22.6) -- (22.6)
Proceeds from exercise of stock options
and warrants . . . . . . . . . . . . . 68.8 -- -- -- 68.8
Repayment of other notes . . . . . . . . -- (12.0) (38.9) -- (50.9)
Increase (decrease) in intercompany
payables . . . . . . . . . . . . . . . . (170.6) (459.6) 630.2 -- --
Payment of Preferred Stock dividends . . (30.0) -- -- -- (30.0)
Other, net . . . . . . . . . . . . . . . (13.5) (.7) 13.1 -- (1.1)
------- ------ ------- --- -------
NET CASH FLOW FROM FINANCING ACTIVITIES . . . 215.1 27.7 607.4 -- 850.2
------- ------ ------- --- -------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . (91.8) (96.4) (1.2) -- (189.4)
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . 176.2 223.3 64.6 -- 464.1
------- ------ ------- --- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . $84.4 $126.9 $63.4 $-- $274.7
------- ------ ------- --- -------
------- ------ ------- --- -------
</TABLE>
-19-
<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 six months ended June 30, 1997 and 1996.
Results for each period presented exclude contributions from Viacom Radio
Stations, which was sold to Evergreen Media Corporation on July 2, 1997; the
interactive game operations to be disposed of by the end of 1997; and the Cable
segment, which was split-off from the Company on July 31, 1996 (See Note 2 of
Notes to Consolidated Financial Statements).
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
----------------------- ----- ----------------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C>
REVENUES:
Networks and Broadcasting. . . $ 625.5 $ 562.0 11% $1,202.3 $1,080.0 11%
Entertainment. . . . . . . . . 862.3 753.2 14 1,863.2 1,634.0 14
Video and Music/
Theme Parks . . . . . . . 1,039.4 960.9 8 2,012.6 1,807.7 11
Publishing . . . . . . . . . . 535.5 516.5 4 934.2 905.5 3
Intercompany . . . . . . . . . (31.8) (7.6) N/M (63.7) (18.8) (239)
-------- -------- ---- -------- --------
Total . . . . . . . . . . $3,030.9 $2,785.0 9 $5,948.6 $5,408.4 10
-------- -------- ---- -------- --------
-------- -------- ---- -------- --------
OPERATING INCOME (LOSS): (A)
Networks and Broadcasting. . . $ 169.9 $ 138.5 23% $ 292.2 $ 247.5 18%
Entertainment. . . . . . . . . 62.3 83.3 (25) 157.2 227.4 (31)
Video and Music/
Theme Parks . . . . . . . (334.9) 72.7 N/M (279.9) 169.5 (265)
Publishing . . . . . . . . . . 16.6 14.7 13 (41.2) (31.9) (29)
Corporate. . . . . . . . . . . (50.7) (34.3) (48) (91.3) (81.9) (11)
-------- -------- ---- -------- --------
Total . . . . . . . . . . $ (136.8) $ 274.9 (150) $ 37.0 $ 530.6 (93)
-------- -------- ---- -------- --------
-------- -------- ---- -------- --------
</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.
-20-
<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 six months ended June
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 PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
------------------ ----- ---------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
EBITDA:
Networks and Broadcasting. $ 200.1 $168.0 19% $360.1 $305.3 18%
Entertainment. . . . . . . 94.9 114.9 (17) 222.1 290.5 (24)
Video and Music/
Theme Parks . . . . . (179.3) 167.7 (207) (19.0) 357.0 (105)
Publishing . . . . . . . . 55.9 52.7 6 36.9 43.6 (15)
Corporate. . . . . . . . . (44.9) (31.0) (45) (81.4) (75.9) (7)
------- ------ ------ ------
Total . . . . . . . . $ 126.7 $472.3 (73) $518.7 $920.5 (44)
------- ------ ------ ------
------- ------ ------ ------
</TABLE>
RESULTS OF OPERATIONS
Revenues increased 9% to $3.03 billion and 10% to $5.95 billion for the three
and six-month periods ended June 30, 1997, respectively, from $2.79 billion
and $5.41 billion for the same prior-year periods. Revenue increases were
driven by the Entertainment segment which reported increased international
theatrical and television programming revenues, and the Networks and
Broadcasting segment which reported increased advertising and affiliate
revenues for each period.
Total expenses increased 26% to $3.17 billion and 21% to $5.91 billion for the
quarter and and six-month period ended June 30, 1997, respectively, from $2.51
billion and $4.88 billion for the same prior-year periods. Expense increases
were driven by Blockbuster reducing the carrying value of excess retail
inventory and reorganizing and closing underperforming stores in certain
international markets. Expenses also reflect increased rental tape amortization
costs resulting from overbuying of video tapes as well as higher expenses
attributable to the interim effects of Blockbuster's changeover to self
distribution and the relocation of its headquarters.
Operating income decreased 150% to a loss of $136.8 million and 93% to $37.0
million for the three and six-month periods ended June 30, 1997, respectively,
from operating income of $274.9 million and $530.6 million 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 $29 million of EBITDA in the first
quarter 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 and expanded retail product mix.
Excluding the impact of the Blockbuster charge, the Company recorded EBITDA and
operating income of $374.2 million and $156.6 million, respectively, for the
second quarter, and $766.2 million and $330.4 million, respectively, for the six
months ended June 30, 1997.
-21-
<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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
------------------ ----- ---------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . $625.5 $562.0 11% $1,202.3 $1,080.0 11%
Operating Income . . . . $169.9 $138.5 23 $ 292.2 $ 247.5 18
EBITDA . . . . . . . . $200.1 $168.0 19 $ 360.1 $ 305.3 18
</TABLE>
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 television stations.
For the second quarter of 1997, MTVN revenues of $333.7 million, EBITDA of
$127.1 million and operating income of $112.2 million increased 16%, 15% and
17%, respectively, over the same three-month period last year. For the six
months ended June 30, 1997, MTVN revenues of $638.4 million, EBITDA of $241.6
million and operating income of $210.7 million increased 16%, 18% and 20%,
respectively, over the same six-month period last year. The increase in MTVN
revenues principally reflects higher advertising and affiliate revenues both due
principally to rate increases. MTVN's EBITDA and operating income gains were
driven by the increased revenues partially offset by start-up costs of Nick at
Nite's TV Land, Nick Latin America and M2 and higher internal programming
expenses.
SNI's revenues and EBITDA increased 5% and 63% for the second quarter,
respectively, and 6% and 23% for the six months ended June 30, 1997,
respectively, over the same prior year periods. Operating income increased 80%
for the second quarter and remained unchanged for the six months ended June 30,
1997 versus the same prior-year periods. Revenue increases are principally due
to an increase of approximately 1.9 million subscribers, reflecting the
continued growth of direct broadcasting satellite subscribers. Operating
results reflect a reduction in expenses for the second quarter offset by
expenses associated with exiting Showtime Satellite Networks' retail operation
in the first quarter of 1997. SNI served a total of 17.1 million subscribers at
June 30, 1997.
Television stations revenues, EBITDA and operating income increased 7%, 16% and
20%, respectively, for the second quarter, and 7%, 14% and 19% for the six
months ended June 30, 1997, respectively, over the same prior-year periods,
primarily reflecting increased advertising revenues and the change in mix to
television stations in larger markets during the prior year.
-22-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
ENTERTAINMENT (MOTION PICTURES AND TELEVISION PROGRAMMING, MOVIE THEATERS, AND
MUSIC PUBLISHING)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
------------------ ----- ---------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues. . . . . . . . . $862.3 $753.2 14% $1,863.2 $1,634.0 14%
Operating Income. . . . . $ 62.3 $ 83.3 (25) $ 157.2 $ 227.4 (31)
EBITDA. . . . . . . . . . $ 94.9 $114.9 (17) $ 222.1 $ 290.5 (24)
</TABLE>
The Entertainment segment is principally comprised of Paramount Pictures,
Paramount Television and Spelling Entertainment Group Inc. ("Spelling").
Entertainment's revenues for the six months ended June 30, 1997 were higher
than the same period last year due to the strong international theatrical
performances of Paramount's THE FIRST WIVES CLUB and STAR TREK: FIRST
CONTACT, higher television revenues from Paramount's FRASIER, higher revenues
from first run shows such as Paramount's VIPER and REAL TV, higher license
fees and more episodes of continuing network programming, including
Spelling's SUNSET BEACH, higher Pay TV license fees at Paramount and higher
home video revenues at both Paramount and Spelling. The higher television
programming revenues and higher home video sales led by STAR TREK: FIRST
CONTACT, MISSION: IMPOSSIBLE and THE GHOST AND THE DARKNESS, were partially
offset by lower theatrical rentals for the current quarter. The decrease in
EBITDA resulted principally from lower profits as a result of a change in
Paramount's television product mix, coupled with lower profits for feature
films released during the second quarter of 1997 at both Paramount and
Spelling. Entertainment's 1996 operating results reflect approximately $100
million of EBITDA and operating income attributable to Paramount's Kirch
Group licensing agreement which more than offset $29 million of EBITDA and
operating income in the first quarter of 1997 from Paramount's programming
licenses with Television Par Satellite. Spelling's revenues of $314.9
million increased 38% and EBITDA of $8.3 million increased 25% for the six
months ended June 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.
VIDEO AND MUSIC/THEME PARKS (HOME VIDEO AND MUSIC RETAILING/THEME PARKS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
------------------ ----- ---------------- -----
1997 1996 1997 1996
---- ---- ---- ----
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues. . . . . $1,039.4 $960.9 8% $2,012.6 $1,807.7 11%
Operating Income. $ (334.9) $ 72.7 N/M $ (279.9) $ 169.5 (265)
EBITDA. . . . . . $ (179.3) $167.7 (207) $ (19.0) $ 357.0 (105)
</TABLE>
-23-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The Video and Music/Theme Parks segment is comprised principally of Blockbuster
Video and Music, and Paramount Parks. The revenue increases for the quarter and
six months ended June 30, 1997 reflect the increased number of Company-owned
video stores in operation in 1997 as compared to 1996 which more than offset a
2% decrease in worldwide same-store sales for the second quarter. Blockbuster
Video ended the quarter with 5,820 stores, a net increase of 1,025 stores from
June 30, 1996. The decreases in EBITDA and operating income for the three- and
six-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 resulting from overbuying of video tapes as
well as higher expenses attributable to the interim effects of the changeover to
self-distribution and the relocation of Blockbuster's headquarters. Blockbusters
margins for the remainder of the year could continue to be adversely affected
if the negative same-store sales trend experienced in the second quarter
continues.
Music retail stores recorded revenues of $138.8 million and $282.0 million for
the second quarter and six months ended June 30, 1997. Music retail stores
recorded operating losses of $11.9 million and $17.5 million for the three- and
six-month periods. Theme Parks revenues, operating income and EBITDA decreased
$1.2 million, $3.5 million and $2.9 million, respectively, for the second
quarter, and $1.5 million, $5.4 million and $4.3 million for the six months
ended June 30, 1997, respectively, from the same prior year periods reflecting
decreased attendance.
PUBLISHING (EDUCATION; CONSUMER; BUSINESS AND PROFESSIONAL; REFERENCE; AND
INTERNATIONAL GROUPS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERCENT SIX MONTHS ENDED PERCENT
JUNE 30, B/(W) JUNE 30, B/(W)
------------------ ----- ---------------- -----
1997 1996 1997 1996
(In millions) (In millions)
<S> <C> <C> <C> <C> <C> <C>
Revenues. . . . . . $535.5 $516.5 4% $934.2 $905.5 3%
Operating Income. . $ 16.6 $ 14.7 13 $(41.2) $(31.9) (29)
EBITDA. . . . . . . $ 55.9 $ 52.7 6 $ 36.9 $ 43.6 (15)
</TABLE>
Publishing is comprised of Simon & Schuster which includes imprints such as
Simon & Schuster, Pocket Books, Prentice Hall and Macmillan Computer Publishing.
The revenue increases for the quarter and six months ended June 30, 1997
primarily reflect growth in the International markets, driven by strong sales
from the Macmillan Computer Publishing Group in European and Asian markets, and
growth of local publishing in those markets, as well as Latin-American markets,
partially offset by lower revenues for the Consumer Group due to the softness in
the industry and timing of releases. Education revenues also increased
principally due to early summer season sales and growth at 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.
-24-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME AND EXPENSE INFORMATION
DISCONTINUED OPERATIONS
For the three and six months ended June 30, 1997, discontinued operations
reflect the results of operations, net of tax, of the Viacom Radio Stations and
for the second quarter, the gain on discontinued operations reflects the
reversal of unutilized reserves for the Cable split-off. For the three months
ended June 30, 1996, discontinued operations reflect the results of operations
net of tax, of the Cable segment, the interactive game operations, including
Virgin, and the Viacom Radio Stations. The sale of the Viacom Radio Stations was
completed on July 2, 1997, and the gain of approximately $400 million will be
recognized in the third quarter. For the year ended December 31, 1996, the
Company provided for an estimated loss on disposal of its interactive game
operations for $159.3 million, which included estimated losses through the
expected date of disposition of $58.0 million. The net operating losses of the
interactive game businesses for the second quarter and six months ended June 30,
1997 were provided for in the estimated loss on disposal as of December 31,
1996. (see Note 2 of Notes to Consolidated Financial Statements).
CORPORATE EXPENSES
Corporate expenses, including depreciation expense, increased 48% to $50.7
million for the second quarter of 1997 from the same prior year period and
increased 11% to $91.3 million for the six months ended June 30, 1997 over the
comparable six month period principally reflecting increased general and
administrative, litigation and benefit expenses.
INTEREST EXPENSE, NET
For the three and six month period ended June 30, 1997, net interest expense
decreased 1% to $205.0 million and 2% to $401.8 million, respectively. The
Company had approximately $10.9 billion and $11.5 billion principal amount of
debt outstanding (including current maturities) as of June 30, 1997, and June
30, 1996, respectively, at weighted average interest rates of 7.3% and 7.2%,
respectively.
OTHER ITEMS, NET
Other items, net of $64.7 million for the three months ended June 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 70.9% for 1997 and 62.2% for 1996 were both adversely affected by
amortization of intangibles in excess of amounts which are deductible for tax
purposes.
Due to the unusual and non-recurring nature of the second quarter Blockbuster
charge, the full income tax effect is reflected in the second quarter 1997 tax
provision and is excluded from the estimated annual effective tax rate.
-25-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
EQUITY IN LOSS OF AFFILIATES "Equity in loss of affiliated companies, net of
tax" of $39.4 million and $54.6 million for the second quarter of 1997 and
the six months then ended declined from a loss of $4.9 million and $3.6
million, respectively, from the prior-year periods, primarily reflecting the
net operating losses for the first six 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
related to an investment in a marketable equity security.
MINORITY INTEREST
Minority interest primarily represents the minority ownership of Spelling common
stock.
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 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 June 30, 1997, the Company paid and
charged approximately $18.7 million against these liabilities. The Company
expects to substantially complete the activities related to the Music 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 of its Fort Lauderdale
headquarters employees who have 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 distribution center by the end of 1997.
Through June 30, 1997, the Company paid and charged against the severance
liability and other exit costs approximately $7.3 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 financings and the sale of non-strategic assets as
opportunities may arise.
-26-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
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 June 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.
As of June 30, 1997, the Company's scheduled maturities of indebtedness through
December 31, 2001, assuming full utilization of the credit agreements are $54.5
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. The net proceeds from the Radio sale
will be used to repay debt in July 1997.
The commitments of the Company for program license fees which are not reflected
in the balance sheet as of June 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 5% to $6.0 billion as of June 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 5% as of June 30, 1997 and December 31, 1996. The change in property and
equipment principally reflects capital expenditures of $296.6 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 $264.4
million. Current liabilities decreased approximately 9% to $3.9 billion as of
June 30, 1997 from $4.3 billion as of December 31, 1996, reflecting the payment
for a seasonally high level of Blockbuster videocassette purchases made in the
fourth quarter of 1996, and payment of accrued expenses and other normal
reductions in accounts payable. Long-term debt, including current maturities,
increased 10% to $10.9 billion as of June 30, 1997 from $9.9 billion as of
December 31, 1996, primarily reflecting the continued investment in and
seasonality of the Company's businesses.
The Company expects to record the majority of its operating cash flows during
the second half of the year due to the seasonality of the educational publishing
business, the typical timing of major motion picture releases, the summer
operation of its theme parks, the positive effect of the holiday season on
advertising revenues and video store revenues, and the impact of the beginning
of the broadcast television season on television production. Net cash flow from
operating activities was negative $382.2 million for the six months ended June
30, 1997 versus negative $575.3 million for the six months ended June 30, 1996.
Net cash expenditures for investing activities of $555.0 million for the six
months ended June 30, 1997, principally reflect capital expenditures and the
Company's purchase of a 50% interest in UPN. Net cash expenditures for
investing activities of $464.3 million for the six months ended June 30, 1996,
principally reflect capital expenditures, investments in international equity
ventures and other acquisitions. Financing activities principally reflect
-27-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
borrowings and repayments of debt under the credit agreements during each period
presented.
On April 18, 1997, the Company announced its intention to acquire additional
shares of Spelling's outstanding common stock and increase its ownership to
approximately 80% by the end of 1997. The purchase of additional shares is
intended to permit the consolidation of Spelling's results for tax purposes and
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 June 30, 1997 and December 31, 1996:
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(In millions)
Notes payable to banks $6,268.3 $5,253.0
Senior debt 2,485.3 2,484.4
Senior subordinated debt 643.1 641.0
Subordinated debt 965.8 960.0
Obligations under capital leases 511.5 571.2
Other notes 9.0 8.7
--------- --------
10,883.0 9,918.3
Less current portion 62.9 62.6
--------- --------
$10,820.1 $9,855.7
--------- --------
--------- --------
The notes and debentures are presented net of an aggregate unamortized discount
of $157.8 million as of June 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 47% at June 30, 1997 and 44% at December 31, 1996.
-28-
<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. The
Company does not hold or issue financial instruments for speculative trading
purposes. The derivative instruments used are foreign exchange forward
contracts and options, and interest rate swap agreements. The foreign exchange
contracts have principally been used to hedge the British Pound, the Australian
Dollar, the Japanese Yen, the Canadian Dollar, the French Franc, the Singapore
Dollar, the German Deutschemark, the Spanish Peseta, the Italian Lire, 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 Viacom and guarantees of such debt securities by
Viacom International which may be issued for aggregate gross proceeds of $3.0
billion. The registration statement was declared effective on May 10, 1995.
The net proceeds from the sale of the offered securities may be used by
Viacom to repay, redeem, repurchase or satisfy its obligations in respect of
its outstanding indebtedness or other securities; to make loans to its
subsidiaries; for general corporate purposes; or for such other purposes as
may be specified in the applicable Prospectus Supplement. The Company filed
a post-effective amendment to this registration statement on November 19,
1996. To date, the Company issued $1.6 billion of notes and debentures and
has $1.4 billion remaining availability under the shelf registration
statement.
-29-
<PAGE>
PART II - - OTHER INFORMATION
Item 4. Submission of Matters for a Vote of Security Holders
The Annual Meeting of Stockholders of Viacom Inc. (the "Company") was held
on May 29, 1997. The following matters were voted upon at the meeting: (i) the
election of 10 directors; (ii) the approval of the Viacom Inc. 1997 Long-Term
Management Incentive Plan; (iii) the appointment of Price Waterhouse LLP to
serve as the Company's independent accountants until the 1998 Annual Meeting of
Stockholders; and (iv) a stockholder proposal regarding publication of political
contributions by the Company.
The entire board of directors was reelected and the number of shares cast
for or to withhold authority for the election of each director were as follows:
No. of Shares No. of Shares Voted
Name Voted For to Withhold Authority
------------------------ ------------- ---------------------
George S. Abrams 64,933,997 553,957
Philippe P. Dauman 65,107,341 380,613
Thomas E. Dooley 65,111,596 376,358
Ken Miller 64,936,091 551,863
Brent D. Redstone 65,089,424 398,530
Shari Redstone 65,086,780 401,174
Sumner M. Redstone 65,078,933 409,021
Frederic V. Salerno 65,109,610 378,344
William Schwartz 65,111,430 376,524
Ivan Seidenberg 65,110,561 377,393
The votes cast for, against or abstaining from the approval of the Viacom
Inc. 1997 Long-Term Management Incentive Plan were as follows:
Votes For: Votes Against: Abstentions:
55,206,649 3,598,525 244,437
The votes cast for, against or abstaining from the approval of the
appointment of Price Waterhouse LLP to serve as the Company's independent
accountants until the 1998 Annual Meeting of Stockholders were as follows:
Votes For: Votes Against: Abstentions:
65,227,102 65,441 195,411
-30-
<PAGE>
The votes cast for, against or abstaining from approval of the stockholder
proposal were as follows:
Votes For: Votes Against: Abstentions:
717,530 57,837,066 495,015
Item 6. Exhibits and Reports on Form 8-K for Viacom Inc.
(a) Exhibits:
10.1 Amendment No. 1, dated as of June 30, 1997, to the Amended and
Restated Credit Agreement, dated as of March 26, 1997, among Viacom
Inc.; the Bank parties thereto; The Bank of New York, Citibank N.A.,
Morgan Guaranty Trust Company of New York, Bank of America NT&SA and
The Chase Manhattan Bank, as Managing Agents; the Bank of New York,
as Documentation Agent; Citibank N.A., as Administrative Agent; JP
Morgan Securities Inc.and Bank of America NT&SA, as Syndication
Agents; and the Agents and Co-Agents named therein.
10.2 Amendment No. 2, dated as of June 30, 1997, to the Film Finance
Credit Agreement, dated as of May 10, 1996, among Viacom Film
Funding Company Inc. as Borrower; Viacom Inc. and Viacom
International Inc. as Guarantors; the Bank parties thereto; The Bank
of New York, Citibank, N.A., Morgan Guaranty Trust Company of New
York and Bank of America NT&SA, as Managing Agents; The Bank of New
York, as the Documentation Agent; Citibank, N.A., as the
Administrative Agent; JP Morgan Securities Inc., as the Syndication
Agent; and the Agents and Co-Agents named therein.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.
(b) Reports on Form 8-K for Viacom Inc.:
None
-31-
<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 August 14, 1997 /s/ Sumner M. Redstone
----------------------- ----------------------------------------
Sumner M. Redstone
Chairman of the Board of Directors,
Chief Executive Officer
Date August 14, 1997 /s/ George S. Smith, Jr.
----------------------- ----------------------------------------
George S. Smith, Jr.
Senior Vice President,
Chief Financial Officer
-32-
<PAGE>
EXHIBIT INDEX
10.1 Amendment No. 1, dated as of June 30, 1997, to the Amended and
Restated Credit Agreement, dated as of March 26, 1997, among Viacom
Inc.; the Bank parties thereto; The Bank of New York, Citibank N.A.,
Morgan Guaranty Trust Company of New York, Bank of America NT&SA and
The Chase Manhattan Bank, as Managing Agents; the Bank of New York,
as Documentation Agent; Citibank, as Administrative Agent; JP Morgan
Securities Inc. and Bank of America NT&SA, as Syndication Agents;
and the Agents and Co-Agents named therein.
10.2 Amendment No. 2, dated as of June 30, 1997, to the Film Finance
Credit Agreement, dated as of May 10, 1996, among Viacom Film
Funding Company Inc. as Borrower; Viacom Inc. and Viacom
International Inc. as Guarantors; the Bank parties thereto; The Bank
of New York, Citibank, N.A., Morgan Guaranty Trust Company of New
York and Bank of America NT&SA, as Managing Agents; The Bank of New
York, as the Documentation Agent; Citibank, N.A., as the
Administrative Agent; JP Morgan Securities Inc., as the Syndication
Agent; and the Agents and Co-Agents named therein.
11. Statement re Computation of Net Earnings Per Share.
27. Financial Data Schedule.
-33-
<PAGE>
AMENDMENT NO. 1, dated as of June 30, 1997 (the "Amendment") to the
AMENDED AND RESTATED CREDIT AGREEMENT (the "Credit Agreement"), dated as of
March 26, 1997, among VIACOM INC. a Delaware corporation (the "Borrower"), the
Bank parties thereto from time to time, THE BANK OF NEW YORK, as a Managing
Agent and as the Documentation Agent, CITIBANK, N.A., as a Managing Agent and as
the Administrative Agent, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a
Managing Agent, THE BANK OF AMERICA NT&SA, as a Managing Agent and a Syndication
Agent, THE CHASE MANHATTAN BANK, as a Managing Agent, JP MORGAN SECURITIES INC.,
as a Syndication Agent, the Banks identified as Agents on the signature pages
hereof, as Agents, and the Banks identified as Co-Agents on the signature pages
thereof, as Co-Agents.
WITNESSETH:
WHEREAS, the parties who have heretofore entered into the Credit
Agreement now desire to amend certain provisions thereof to provide for changes
in the financial covenants in the Credit Agreement, and for certain other
related matters.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) The definition of "EBIDT" in Section 1.1 of the Credit Agreement
is hereby amended by deleting "and" before clause (a)(v) and adding a new
section following clause (a)(v) to read "and (vi) interest charges related to
securitization and financing transactions, the accounting treatment of which is
governed by any Financial Accounting Standards Board statement".
(b) The definition of "Total Cash Interest and Preferred Dividends"
in Section 1.1 of the Credit Agreement is hereby amended by adding at the end
thereof "; and (iii) those interest charges related to securitization and
financing transactions that were added back pursuant to clause (a)(vi) of the
EBIDT definition".
(c) Section 7.1 of the Credit Agreement is hereby amended by replacing
the table therein with the following table:
<PAGE>
Date Ratio
---- -----
Through September 30, 1997 5.75x
December 31, 1997 5.50x
March 31, 1998 5.25x
June 30, 1998 5.00x
September 30, 1998 4.75x
December 31, 1998 4.50x
March 31, 1999 and thereafter 4.00x
(d) Section 7.2 of the Credit Agreement is hereby amended by replacing
", than 2.25x" at the end thereof with the following: "occurring during any
period set forth below, than the amount specified with respect to such period:
Date Ratio
---- -----
Through March 31, 1998 2.15x
June 30, 1998 and September 30, 1998 2.20x
December 31, 1998 and thereafter 2.25x"
SECTION 2. Effectiveness This Amendment will be effective as of
June 30, 1997 and satisfaction of the following conditions precedent:
(a) The execution of counterparts hereof by each of the Borrower, the
Guarantors, and each of the Facility Agents and Managing Agents on their own
behalf and on behalf of the Banks consenting to the execution of this Amendment,
and the execution of written consents by the Majority Banks.
(b) The Borrower shall have paid all costs, accrued and unpaid fees
and expenses (including, without limitation, the legal fees and expenses), in
each case to the extent then due and payable under the Credit Agreement.
SECTION 3. Representations and Warranties. Each of the Borrower and
the Guarantors hereby represents and warrants that as of the date hereof, after
giving effect to this Amendment that (i) the representations and warranties
contained in Article VI of the Credit Agreement (other than those stated to be
made as of a particular date) are true and correct in all material respects on
and as of the date hereof as though made on the date hereof, and (ii) no Default
or Event of Default shall exist or be continuing under the Credit Agreement.
SECTION 4. Miscellaneous. (a) Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.
-2-
<PAGE>
(b) Except as amended hereby, all of the terms of the Credit
Agreement shall remain and continue in full force and effect and are hereby
confirmed in all respects.
(c) This Amendment shall be a Loan Document for the purposes of the
Credit Agreement.
(d) This Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
were upon the same instrument. Delivery of an executed counterpart of a
signature page of this Amendment by telecopier shall be effective as delivery of
a manually executed counterpart of this Amendment.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 5. Guarantor Confirmation. By signing below, each Guarantor
hereby agrees to the terms of the foregoing Amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
VIACOM INC., as Borrower
By:________________________________
Name:
Title:
Managing Agents
THE BANK OF NEW YORK, as Managing Agent, the
Documentation Agent and a Bank
By:________________________________
Name:
Title:
CITIBANK, N.A., as Managing Agent, the Administrative
Agent and a Bank
By:________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Managing
Agent and a Bank
By:________________________________
Name:
Title:
-4-
<PAGE>
THE BANK OF AMERICA NT&SA, as Managing Agent and a Bank
By:________________________________
Name:
Title:
CHASE MANHATTAN BANK, as Managing Agent and a Bank
By:________________________________
Name:
Title:
Syndication Agents
------------------
JP MORGAN SECURITIES INC., as Syndication Agent
By:________________________________
Name:
Title:
BANCAMERICA SECURITIES, INC. (formerly known as
THE BANK OF AMERICA NT&SA), as Syndication Agent
By:________________________________
Name:
Title:
-5-
<PAGE>
AMENDMENT NO. 2, dated as of June 30, 1997 (the "Amendment") to the
FILM FINANCE CREDIT AGREEMENT, dated as of May 10, 1996, as amended, (the
"Credit Agreement") among VIACOM FILM FUNDING COMPANY INC., a Delaware
corporation (the "Borrower"), VIACOM Inc., a Delaware corporation and VIACOM
INTERNATIONAL INC., a Delaware corporation (the "Guarantors"), each of the
several Banks, THE BANK OF NEW YORK, as a Managing Agent and as the
Documentation Agent, CITIBANK, N.A., as a Managing Agent and as the
Administrative Agent, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Managing
Agent, JP MORGAN SECURITIES INC., as the Syndication Agent, BANK OF AMERICA
NT&SA, as a Managing Agent, and the Banks identified as Agents on the signature
pages thereof, as Agents.
WITNESSETH:
WHEREAS, the parties who have heretofore entered into the Credit
Agreement now desire to amend certain provisions thereof to provide for changes
in the financial covenants in the Credit Agreement, and for certain other
related matters.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments.
(a) The definition of "EBIDT" in Section 1.1 of the Credit Agreement
is hereby amended by deleting "and" before clause (a)(v) and adding a new
section following clause (a)(v) to read "and (vi) interest charges related to
securitization and financing transactions, the accounting treatment of which is
governed by any Financial Accounting Standards Board statement".
(b) The definition of "Total Cash Interest and Preferred Dividends"
in Section 1.1 of the Credit Agreement is hereby amended by adding at the end
thereof "; and (iii) those interest charges related to securitization and
financing transactions that were added back pursuant to clause (a)(vi) of the
EBIDT definition".
(c) Section 7.1 of the Credit Agreement is hereby amended by replacing
the table therein with the following table:
<PAGE>
Date Ratio
---- -----
Through September 30, 1997 5.75x
December 31, 1997 5.50x
March 31, 1998 5.25x
June 30, 1998 5.00x
September 30, 1998 4.75x
December 31, 1998 4.50x
March 31, 1999 and thereafter 4.00x
(d) Section 7.2 of the Credit Agreement is hereby amended by
replacing the table therein with the following table:
Date Ratio
---- -----
Through March 31, 1998 2.15x
June 30, 1998 and September 30, 1998 2.20x
December 31, 1998 and thereafter 2.25x
SECTION 2. Effectiveness This Amendment will be effective as of
June 30, 1997 and satisfaction of the following conditions precedent:
(a) The execution of counterparts hereof by each of the Borrower, the
Guarantors, and each of the Facility Agents and Managing Agents on their own
behalf and on behalf of the Banks consenting to the execution of this Amendment,
and the execution of written consents by the Majority Banks.
(b) The Borrower shall have paid all costs, accrued and unpaid fees
and expenses (including, without limitation, the legal fees and expenses), in
each case to the extent then due and payable under the Credit Agreement.
SECTION 3. Representations and Warranties. Each of the Borrower and
the Guarantors hereby represents and warrants that as of the date hereof, after
giving effect to this Amendment that (i) the representations and warranties
contained in Article VI of the Credit Agreement (other than those stated to be
made as of a particular date) are true and correct in all material respects on
and as of the date hereof as though made on the date hereof, and (ii) no Default
or Event of Default shall exist or be continuing under the Credit Agreement.
SECTION 4. Miscellaneous. (a) Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement.
-2-
<PAGE>
(b) Except as amended hereby, all of the terms of the Credit
Agreement shall remain and continue in full force and effect and are hereby
confirmed in all respects.
(c) This Amendment shall be a Loan Document for the purposes of the
Credit Agreement.
(d) This Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
were upon the same instrument. Delivery of an executed counterpart of a
signature page of this Amendment by telecopier shall be effective as delivery of
a manually executed counterpart of this Amendment.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 5. Guarantor Confirmation. By signing below, each Guarantor
hereby agrees to the terms of the foregoing Amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first above written.
VIACOM FILM FUNDING COMPANY INC.,
as Borrower
By:________________________________
Name:
Title:
VIACOM INC.,
as a Guarantor
By:________________________________
Name:
Title:
VIACOM INTERNATIONAL INC., as a Guarantor
By:________________________________
Name:
Title:
Managing Agents
THE BANK OF NEW YORK, as Managing Agent, the
Documentation Agent and a Bank
By:________________________________
Name:
Title:
-4-
<PAGE>
CITIBANK, N.A., as Managing Agent, the Administrative
Agent and a Bank
By:________________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Managing
Agent and a Bank
By:________________________________
Name:
Title:
BANK OF AMERICA NT&SA, as Managing Agent and a Bank
By:________________________________
Name:
Title:
Syndication Agent
-----------------
JP MORGAN SECURITIES INC., as the Syndication Agent
By:________________________________
Name:
Title:
-5-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
VIACOM INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE
Quarter ended June 30, Six months ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
EARNINGS:
Earnings (loss) from continuing operations . . . . . . . $ (216.7) $ 25.5 $ (240.5) $ 44.9
Cumulative convertible perferred stock dividend
requirement . . . . . . . . . . . . . . . . . . . . . 15.0 15.0 30.0 30.0
Earnings (loss) from continuing operations
attributable to common stock . . . . . . . . . . . . . (231.7) 10.5 (270.5) 14.9
Earnings from discontinued operations, net of tax . . . 8.8 15.6 13.9 24.0
Gain on sale of discontinued operation . . . . . . . . . 12.9 -- 12.9 --
--------- -------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . . . . $ (210.0) $ 26.1 $ (243.7) $ 38.9
--------- -------- --------- ---------
--------- -------- --------- ---------
PRIMARY COMPUTATION:
SHARES:
Weighted average number of
common shares outstanding . . . . . . . . . . . . . 352.7 371.6 352.6 370.8
Common shares potentially issuable in connection
with:
Stock options and warrants(a) . . . . . . . . . . . -- 4.4 -- 4.6
--------- -------- --------- ---------
Weighted average common shares and common
share equivalents . . . . . . . . . . . . . . . . . 352.7 376.0 352.6 375.4
--------- -------- --------- ---------
--------- -------- --------- ---------
NET EARNINGS PER COMMON SHARE:
Earnings (loss) from continuing operations . . . . $ (0.66) $ 0.03 $ (0.77) $ 0.04
Earnings from discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . . . 0.02 0.04 0.04 0.06
Gain on sale of discontinued operation . . . . . . 0.04 -- 0.04 --
--------- -------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . $ (0.60) $ 0.07 $ (0.69) $ 0.10
--------- -------- --------- ---------
--------- -------- --------- ---------
FULLY DILUTED COMPUTATION:
SHARES:
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 352.7 371.6 352.6 370.8
Common shares potentially issuable in connection
with:
Stock options and warrants(a) . . . . . . . . . . . -- 4.4 -- 4.7
Preferred Stock (b) . . . . . . . . . . . . . . . . -- -- -- --
--------- -------- --------- ---------
Weighted average common shares and common
share equivalents . . . . . . . . . . . . . . . . . 352.7 376.0 352.6 375.5
--------- -------- --------- ---------
--------- -------- --------- ---------
NET EARNINGS PER COMMON SHARE:
Earnings (loss) from continuing operations . . . . . $ (0.66) $ 0.03 $ (0.77) $ 0.04
Earnings from discontinued operations, net of tax . 0.02 0.04 0.04 0.06
Gain on sale of discontinued operations . . . . . . 0.04 -- 0.04 --
--------- -------- --------- ---------
Net earnings (loss) . . . . . . . . . . . . . . . . $ (0.60) $ 0.07 $ (0.69) $ 0.10
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
(a) Common share equivalents had a dilutive effect on net earnings from
continuing operations per share for the second quarter and six months ended
June 30, 1996, and therefore were included in the primary and fully diluted
earnings per share computation. Common share equivalents had an
anti-dilutive effect on net earnings from continuing operations per share
for the second quarter and six months ended June 30, 1997, and therefore
were not included in the primary and fully diluted earnings per share
computation.
(b) The Preferred Stock and related dividend requirement had an anti-dilutive
effect on earnings per share for the second quarters and six months ended
June 30, 1997 and 1996, and, therefore, were excluded from the fully
diluted earnings per share computation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 202
<SECURITIES> 0
<RECEIVABLES> 2,178
<ALLOWANCES> 114
<INVENTORY> 2,359
<CURRENT-ASSETS> 5,996
<PP&E> 4,151
<DEPRECIATION> 951
<TOTAL-ASSETS> 29,197
<CURRENT-LIABILITIES> 3,889
<BONDS> 10,820
0
1,200
<COMMON> 4
<OTHER-SE> 11,148
<TOTAL-LIABILITY-AND-EQUITY> 29,197
<SALES> 5,949
<TOTAL-REVENUES> 5,949
<CGS> 4,217
<TOTAL-COSTS> 5,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 402
<INCOME-PRETAX> (300)
<INCOME-TAX> (114)
<INCOME-CONTINUING> (241)
<DISCONTINUED> 27
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
